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Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 191498

January 15, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,


vs.
MINDANAO II GEOTHERMAL PARTNERSHIP, Respondent.
DECISION
SERENO, CJ:
This Rule 45 Petition requires this Court to address the question of timeliness with respect to petitioner's
administrative and judicial claims for refund and credit of accumulated unutilized input Value Added Tax (VAT) under
Section 112(A) and Section 112(D) of the 1997 Tax Code. Petitioner Mindanao II Geothermal Partnership (Mindanao
II) assails the Decision and Resolution of the Court of Tax Appeals En Banc (CTA En Banc) in CTA En Banc Case
No. 448, affirming the Decision in CTA Case No. 7507 of the CTA Second Division. The latter ordered the refund or
issuance of a tax credit certificate in the amount of P6,791,845.24 representing unutilized input VAT incurred for the
second, third, and fourth quarters of taxable year 2004 in favor of herein respondent, Mindanao II.
1

FACTS
Mindanao II is a partnership registered with the Securities and Exchange Commission. It is engaged in the business
of power generation and sale of electricity to the National Power Corporation (NAPOCOR) and is accredited by the
Department of Energy.
5

Mindanao II filed its Quarterly VAT Returns for the second, third and fourth quarters of taxable year 2004 on the
following dates:
8

Date filed

Quarter

Taxable Year

12 July 2005

2nd

2004

22 October 2004

12 July 2005

3rd

2004

25 January 2005

12 July 2005

4th

2004

Original

Amended

26 July 2004

On 6 October 2005, Mindanao II filed with the Bureau of Internal Revenue (BIR) an application for the refund or
credit of accumulated unutilized creditable input taxes. In support of the administrative claim for refund or credit,
Mindanao II alleged, among others, that it is registered with the BIR as a value-added taxpayer and all its sales are
zero-rated under the EPIRA law. It further stated that for the second, third, and fourth quarters of taxable year 2004,
it paid input VAT in the aggregate amount of P7,167,005.84, which were directly attributable to the zero-rated sales.
The input taxes had not been applied against output tax.
9

10

11

Pursuant to Section 112(D) of the 1997 Tax Code, the Commissioner of Internal Revenue (CIR) had a period of 120
days, or until 3 February 2006, to act on the claim. The administrative claim, however, remained unresolved on 3
February 2006.

Under the same provision, Mindanao II could treat the inaction of the CIR as a denial of its claim, in which case, the
former would have 30 days to file an appeal to the CTA, that is, on 5 March 2006. Mindanao II, however, did not file
an appeal within the 30-day period.
Apparently, Mindanao II believed that a judicial claim must be filed within the two-year prescriptive period provided
under Section 112(A) and that such time frame was to be reckoned from the filing of its Quarterly VAT Returns for
the second, third, and fourth quarters of taxable year 2004, that is, from 26 July 2004, 22 October 2004, and 25
January 2005, respectively. Thus, on 21 July 2006, Mindanao II, claiming inaction on the part of the CIR and that the
two-year prescriptive period was about to expire, filed a Petition for Review with the CTA docketed as CTA Case No.
6133.
12

On 8 June 2007, while the application for refund or credit of unutilized input VAT of Mindanao II was pending before
the CTA Second Division, this Court promulgated Atlas Consolidated Mining and Development Corporation v.
CIR (Atlas). Atlas held that the two-year prescriptive period for the filing of a claim for an input VAT refund or credit
is to be reckoned from the date of filing of the corresponding quarterly VAT return and payment of the tax.
13

On 12 August 2008, the CTA Second Division rendered a Decision ordering the CIR to grant a refund or a tax credit
certificate, but only in the reduced amount of P6,791,845.24, representing unutilized input VAT incurred for the
second, third and fourth quarters of taxable year 2004.
14

15

In support of its ruling, the CTA Second Division held that Mindanao II complied with the twin requisites for VAT zerorating under the EPIRA law: first, it is a generation company, and second, it derived sales from power generation. It
also ruled that Mindanao II satisfied the requirements for the grant of a refund/credit under Section 112 of the Tax
Code: (1) there must be zero-rated or effectively zero-rated sales; (2) input taxes must have been incurred or paid;
(3) the creditable input tax due or paid must be attributable to zero-rated sales or effectively zero-rated sales; (4) the
input VAT payments must not have been applied against any output liability; and (5) the claim must be filed within
the two-year prescriptive period.
16

As to the second requisite, however, the input tax claim to the extent of P375,160.60 corresponding to purchases of
services from Mitsubishi Corporation was disallowed, since it was not substantiated by official receipts.
17

As regards to the fifth requirement in section 112 of the Tax Code, the tax court, citing Atlas, counted from 26 July
2004, 22 October 2004, and 25 January 2005 the dates when Mindanao II filed its Quarterly VAT Returns for the
second, third, and fourth quarters of taxable year 2004, respectively and determined that both the administrative
claim filed on 6 October 2005 and the judicial claim filed on 21 July 2006 fell within the two-year prescriptive period.

18

On 1 September 2008, the CIR filed a Motion for Partial Reconsideration, pointing out that prescription had already
set in, since the appeal to the CTA was filed only on 21 July 2006, which was way beyond the last day to appeal 5
March 2006. As legal basis for this argument, the CIR relied on Section 112(D) of the 1997 Tax Code.
19

20

21

Meanwhile, on 12 September 2008, this Court promulgated CIR v. Mirant Pagbilao Corporation (Mirant). Mirant
fixed the reckoning date of the two-year prescriptive period for the application for refund or credit of unutilized input
VAT at the close of the taxable quarter when the relevant sales were made , as stated in Section 112(A).
22

23

On 3 December 2008, the CTA Second Division denied the CIRs Motion for Partial Reconsideration. The tax court
stood by its reliance on Atlas and on its finding that both the administrative and judicial claims of Mindanao II were
timely filed.
24

25

26

On 7 January 2009, the CIR elevated the matter to the CTA En Banc via a Petition for Review. Apart from the
contention that the judicial claim of Mindanao II was filed beyond the 30-day period fixed by Section 112(D) of the
1997 Tax Code, the CIR argued that Mindanao II erroneously fixed 26 July 2004, the date when the return for the
second quarter was filed, as the date from which to reckon the two-year prescriptive period for filing an application
for refund or credit of unutilized input VAT under Section 112(A). As the two-year prescriptive period ended on 30
June 2006, the Petition for Review of Mindanao II was filed out of time on 21 July 2006. The CIR invoked the
recently promulgated Mirant to support this theory.
27

28

29

On 11 November 2009, the CTA En Banc rendered its Decision denying the CIRs Petition for Review. On the
question whether the application for refund was timely filed, it held that the CTA Second Division correctly applied
the Atlas ruling. It reasoned that Atlas remained to be the controlling doctrine. Mirant was a new doctrine and, as
such, the latter should not apply retroactively to Mindanao II who had relied on the old doctrine of Atlas and had
acted on the faith thereof.
30

31

32

As to the issue of compliance with the 30-day period for appeal to the CTA, the CTA En Banc held that this was a
requirement only when the CIR actually denies the taxpayers claim. But in cases of CIR inaction, the 30-day period
is not a mandatory requirement; the judicial claim is seasonably filed as long as it is filed after the lapse of the 120day waiting period but within two years from the date of filing of the return.
33

The CIR filed a Motion for Partial Reconsideration of the Decision, but it was denied for lack of merit.
34

35

Dissatisfied, the CIR filed this Rule 45 Petition, raising the following arguments in support of its appeal:
I.
THE CTA 2ND DIVISION LACKED JURISDICTION TO TAKE COGNIZANCE OF THE CASE.
II.
THE COURT A QUOS RELIANCE ON THE RULING IN ATLAS IS MISPLACED.

36

ISSUES
The resolution of this case hinges on the question of compliance with the following time requirements for the grant
of a claim for refund or credit of unutilized input VAT: (1) the two-year prescriptive period for filing an application for
refund or credit of unutilized input VAT; and (2) the 120+30 day period for filing an appeal with the CTA.
THE COURTS RULING
We deny Mindanao IIs claim for refund or credit of unutilized input VAT on the ground that its judicial claims were
filed out of time, even as we hold that its application for refund was filed on time.
I.
MINDANAO IIS APPLICATION FOR
REFUND WAS FILED ON TIME
We find no error in the conclusion of the tax courts that the application for refund or credit of unutilized input VAT
was timely filed. The problem lies with their bases for the conclusion as to: (1) what should be filed within the
prescriptive period; and (2) the date from which to reckon the prescriptive period.
We thus take a different route to reach the same conclusion, initially focusing our discussion on what should be filed
within the two-year prescriptive period.
A. The Judicial Claim Need Not Be Filed Within the Two-Year Prescriptive Period
Section 112(A) provides:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been applied against output tax:

Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section
108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where
the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or
properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to
any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales.
Both the CTA Second Division and CTA En Banc decisions held that the phrase "apply for the issuance of a tax
credit certificate or refund" in Section 112(A) is construed to refer to both the administrative claim filed with the CIR
and the judicial claim filed with the CTA. This view, however, has no legal basis.
In Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi), we dispelled the misconception
that both the administrative and judicial claims must be filed within the two-year prescriptive period:
37

There is nothing in Section 112 of the NIRC to support respondents view. Subsection (A) of the said provision states
that "any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two years after the
close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales." The phrase "within two (2) years x x x apply for the
issuance of a tax credit certificate or refund" refers to applications for refund/credit filed with the CIR and not to
appeals made to the CTA. This is apparent in the first paragraph of subsection (D) of the same provision, which
states that the CIR has "120 days from the submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B)" within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory Section 112 (D) of the NIRC, which
already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR. The
second paragraph of Section 112 (D) of the NIRC envisions two scenarios: (1) when a decision is issued by the CIR
before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In both
instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day
period is crucial in filing an appeal with the CTA. (Emphasis supplied)
The message of Aichi is clear: it is only the administrative claim that must be filed within the two-year prescriptive
period; the judicial claim need not fall within the two-year prescriptive period.
Having disposed of this question, we proceed to the date for reckoning the prescriptive period under Section 112(A).
B. Reckoning Date is the Close of the Taxable Quarter When the Relevant Sales Were Made.
The other flaw in the reasoning of the tax courts is their reliance on the Atlas ruling, which fixed the reckoning point
to the date of filing the return and payment of the tax.
The CIRs Stand
The CIRs stand is that Atlas is not applicable to the case at hand as it involves Section 230 of the 1977 Tax Code,
which contemplates recovery of tax payments erroneously or illegally collected. On the other hand, this case deals
with claims for tax refund or credit of unutilized input VAT for the second, third, and fourth quarters of 2004, which
are covered by Section 112 of the 1977 Tax Code.
38

The CIR further contends that Mindanao II cannot claim good faith reliance on the Atlas doctrine since the case was
decided only on 8 June 2007, two years after Mindanao II filed its claim for refund or credit with the CIR and one
year after it filed a Petition for Review with the CTA on 21 July 2006.
39

In lieu of Atlas, the CIR proposes that it is the Court's ruling in Mirant that should apply to this case despite the fact
that the latter was promulgated on 12 September 2008, after Mindanao II had filed its administrative claim in
2005. It argues that Mirant can be applied retroactively to this case, since the decision merely interprets Section
112, a provision that was already effective when Mindanao II filed its claims for tax refund or credit.
40

The Taxpayers Defense

On the other hand, Mindanao II counters that Atlas, decided by the Third Division of this Court, could not have been
superseded by Mirant, a Second Division Decision of this Court. A doctrine laid down by the Supreme Court in a
Division may be modified or reversed only through a decision of the Court sitting en banc.
41

Mindanao II further contends that when it filed its Petition for Review, the prevailing rule in the CTA reckons the twoyear prescriptive period from the date of the filing of the VAT return. Finally, after building its case on Atlas,
Mindanao II assails the CIRs reliance on the Mirant doctrine stating that it cannot be applied retroactively to this
case, lest it violate the rock-solid rule that a judicial ruling cannot be given retroactive effect if it will impair vested
rights.
42

43

Section 112(A) is the Applicable Rule


The issue posed is not novel. In the recent case of Commissioner of Internal Revenue v. San Roque Power
Corporation (San Roque), this Court resolved the threshold question of when to reckon the two-year prescriptive
period for filing an administrative claim for refund or credit of unutilized input VAT under the 1997 Tax Code in view
of our pronouncements in Atlas and Mirant. In that case, we delineated the scope and effectivity of the Atlas and
Mirant doctrines as follows:
44

The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-year
prescriptive period under Section 229, should be effective only from its promulgation on 8 June 2007 until its
abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the reckoning of the two-year
prescriptive period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year prescriptive
period for claiming refund or credit of input VAT should be governed by Section 112(A) following the verba legis rule.
The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in
computing the two-year prescriptive period in claiming refund or credit of input VAT. (Emphases supplied)
Furthermore, San Roque distinguished between Section 112 and Section 229 of the 1997 Tax Code:
The input VAT is not "excessively" collected as understood under Section 229 because at the time the input VAT is
collected the amount paid is correct and proper. The input VAT is a tax liability of, and legally paid by, a VATregistered seller of goods, properties or services used as input by another VAT-registered person in the sale of his
own goods, properties, or services. This tax liability is true even if the seller passes on the input VAT to the buyer as
part of the purchase price. The second VAT-registered person, who is not legally liable for the input VAT, is the one
who applies the input VAT as credit for his own output VAT. If the input VAT is in fact "excessively" collected as
understood under Section 229, then it is the first VAT-registered person the taxpayer who is legally liable and who
is deemed to have legally paid for the input VAT who can ask for a tax refund or credit under Section 229 as an
ordinary refund or credit outside of the VAT System. In such event, the second VAT-registered taxpayer will have no
input VAT to offset against his own output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A), the input VAT is not
"excessively" collected as understood under Section 229. At the time of payment of the input VAT the amount paid is
the correct and proper amount. Under the VAT System, there is no claim or issue that the input VAT is "excessively"
collected, that is, that the input VAT paid is more than what is legally due. The person legally liable for the input VAT
cannot claim that he overpaid the input VAT by the mere existence of an "excess" input VAT. The term "excess" input
VAT simply means that the input VAT available as credit exceeds the output VAT, not that the input VAT is
excessively collected because it is more than what is legally due. Thus, the taxpayer who legally paid the input VAT
cannot claim for refund or credit of the input VAT as "excessively" collected under Section 229.
Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the date of payment
of the tax "erroneously, . . . illegally, . . . excessively or in any manner wrongfully collected." The prescriptive period
is reckoned from the date the person liable for the tax pays the tax. Thus, if the input VAT is in fact "excessively"
collected, that is, the person liable for the tax actually pays more than what is legally due, the taxpayer must file a
judicial claim for refund within two years from his date of payment. Only the person legally liable to pay the tax can
file the judicial claim for refund. The person to whom the tax is passed on as part of the purchase price has no
personality to file the judicial claim under Section 229.
Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for "excess" input VAT is
two years from the close of the taxable quarter when the sale was made by the person legally liable to pay the

output VAT. This prescriptive period has no relation to the date of payment of the "excess" input VAT. The "excess"
input VAT may have been paid for more than two years but this does not bar the filing of a judicial claim for "excess"
VAT under Section 112(A), which has a different reckoning period from Section 229. Moreover, the person claiming
the refund or credit of the input VAT is not the person who legally paid the input VAT. Such person seeking the VAT
refund or credit does not claim that the input VAT was "excessively" collected from him, or that he paid an input VAT
that is more than what is legally due. He is not the taxpayer who legally paid the input VAT.
As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the chain of
transactions. For simplicity and efficiency in tax collection, the VAT is imposed not just on the value added by the
taxpayer, but on the entire selling price of his goods, properties or services. However, the taxpayer is allowed a
refund or credit on the VAT previously paid by those who sold him the inputs for his goods, properties, or services.
The net effect is that the taxpayer pays the VAT only on the value that he adds to the goods, properties, or services
that he actually sells.
Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only exception is when
the taxpayer is expressly "zero-rated or effectively zero-rated" under the law, like companies generating power
through renewable sources of energy. Thus, a non zero-rated VAT-registered taxpayer who has no output VAT
because he has no sales cannot claim a tax refund or credit of his unused input VAT under the VAT System. Even if
the taxpayer has sales but his input VAT exceeds his output VAT, he cannot seek a tax refund or credit of his
"excess" input VAT under the VAT System. He can only carry-over and apply his "excess" input VAT against his
future output VAT. If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be able to seek a
refund or credit for such "excess" input VAT whether or not he has output VAT. The VAT System does not allow such
refund or credit. Such "excess" input VAT is not an "excessively" collected tax under Section 229. The "excess" input
VAT is a correctly and properly collected tax. However, such "excess" input VAT can be applied against the output
VAT because the VAT is a tax imposed only on the value added by the taxpayer. If the input VAT is in fact
"excessively" collected under Section 229, then it is the person legally liable to pay the input VAT, not the person to
whom the tax was passed on as part of the purchase price and claiming credit for the input VAT under the VAT
System, who can file the judicial claim under Section 229.
Any suggestion that the "excess" input VAT under the VAT System is an "excessively" collected tax under Section
229 may lead taxpayers to file a claim for refund or credit for such "excess" input VAT under Section 229 as an
ordinary tax refund or credit outside of the VAT System. Under Section 229, mere payment of a tax beyond what is
legally due can be claimed as a refund or credit. There is no requirement under Section 229 for an output VAT or
subsequent sale of goods, properties, or services using materials subject to input VAT.
From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is "erroneously . . .
illegally, . . . excessively or in any manner wrongfully collected." In short, there must be a wrongful payment because
what is paid, or part of it, is not legally due. As the Court held in Mirant, Section 229 should "apply only to instances
of erroneous payment or illegal collection of internal revenue taxes." Erroneous or wrongful payment includes
excessive payment because they all refer to payment of taxes not legally due. Under the VAT System, there is no
claim or issue that the "excess" input VAT is "excessively or in any manner wrongfully collected." In fact, if the
"excess" input VAT is an "excessively" collected tax under Section 229, then the taxpayer claiming to apply such
"excessively" collected input VAT to offset his output VAT may have no legal basis to make such offsetting. The
person legally liable to pay the input VAT can claim a refund or credit for such "excessively" collected tax, and thus
there will no longer be any "excess" input VAT. This will upend the present VAT System as we know it.
45

Two things are clear from the above quoted San Roque disquisitions. First, when it comes to recovery of unutilized
input VAT, Section 112, and not Section 229 of the 1997 Tax Code, is the governing law. Second, prior to 8 June
2007, the applicable rule is neither Atlas nor Mirant, but Section 112(A).
We present the rules laid down by San Roque in determining the proper reckoning date of the two-year prescriptive
period through the following timeline:

Thus, the task at hand is to determine the applicable period for this case.
In this case, Mindanao II filed its administrative claims for refund or credit for the second, third and fourth quarters of
2004 on 6 October 2005. The case thus falls within the first period as indicated in the above timeline. In other words,
it is covered by the rule prior to the advent of either Atlas or Mirant.
Accordingly, the proper reckoning date in this case, as provided by Section 112(A) of the 1997 Tax Code, is the
close of the taxable quarter when the relevant sales were made.
C. The Administrative Claims Were Timely Filed
We sum up our conclusions so far: (1) it is only the administrative claim that must be filed within the two-year
prescriptive period; and (2) the two-year prescriptive period begins to run from the close of the taxable quarter when
the relevant sales were made.
Bearing these in mind, we now proceed to determine whether Mindanao II's administrative claims for the second,
third, and fourth quarters of 2004 were timely filed.
Second Quarter
Since the zero-rated sales were made in the second quarter of 2004, the date of reckoning the two-year prescriptive
period is the close of the second quarter, which is on 30 June 2004. Applying Section 112(A), Mindanao II had two
years from 30 June 2004, or until 30 June 2006 to file an administrative claim with the CIR. Mindanao II filed its
administrative claim on 6 October 2005, which is within the two-year prescriptive period. The administrative claim for
the second quarter of 2004 was thus timely filed. For clarity, we present the rules laid down by San Roque in
determining the proper reckoning date of the two-year prescriptive period through the following timeline:

Third Quarter
As regards the claim for the third quarter of 2004, the two-year prescriptive period started to run on 30 September
2004, the close of the taxable quarter. It ended on 30 September 2006, pursuant to Section 112(A) of the 1997 Tax
Code. Mindanao II filed its administrative claim on 6 October 2005. Thus, since the administrative claim was filed
well within the two-year prescriptive period, the administrative claim for the third quarter of 2004 was timely filed.
(See timeline below)

Fourth Quarter
Here, the two-year prescriptive period is counted starting from the close of the fourth quarter which is on 31
December 2004. The last day of the prescriptive period for filing an application for tax refund/credit with the CIR was
on 31 December 2006. Mindanao II filed its administrative claim with the CIR on 6 October 2005. Hence, the claims
were filed on time, pursuant to Section 112(A) of the 1997 Tax Code. (See timeline below)

II.
MINDANAO IIS JUDICIAL CLAIMS WERE FILED OUT OF TIME
Notwithstanding the timely filing of the administrative claims, we find that the CTA En Banc erred in holding that
Mindanao IIs judicial claims were timely filed.
A. 30-Day Period Also Applies to Appeals from Inaction
Section 112(D) of the 1997 Tax Code states the time requirements for filing a judicial claim for refund or tax credit of
input VAT:
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days
from the date of submission of complete documents in support of the application filed in accordance with Subsection
(A) and (B) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of
the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty
day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphases supplied)
Section 112(D) speaks of two periods: the period of 120 days, which serves as a waiting period to give time for the
CIR to act on the administrative claim for refund or credit, and the period of 30 days, which refers to the period for
interposing an appeal with the CTA. It is with the 30-day period that there is an issue in this case.
The CTA En Bancs holding is that, since the word "or" a disjunctive term that signifies dissociation and
independence of one thing from another is used in Section 112(D), the taxpayer is given two options: 1) file an
appeal within 30 days from the CIRs denial of the administrative claim; or 2) file an appeal with the CTA after
expiration of the 120-day period, in which case the 30-day appeal period does not apply. The judicial claim is
seasonably filed so long as it is filed after the lapse of the 120-day waiting period but before the lapse of the twoyear prescriptive period under Section 112(A).
46

We do not agree.

The 30-day period applies not only to instances of actual denial by the CIR of the claim for refund or tax credit, but
to cases of inaction by the CIR as well. This is the correct interpretation of the law, as held in San Roque:
47

Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of
the Commissioner, thus:
48

x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals.
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be applied
exactly as worded since it is clear, plain, and unequivocal. As this law states, the taxpayer may, if he wishes, appeal
the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner's decision, or if the
Commissioner does not act on the taxpayer's claim within the 120-day period, the taxpayer may appeal to the CTA
within 30 days from the expiration of the 120-day period. (Emphasis supplied)
The San Roque pronouncement is clear. The taxpayer can file the appeal in one of two ways: (1) file the judicial
claim within thirty days after the Commissioner denies the claim within the 120-day period, or (2) file the judicial
claim within thirty days from the expiration of the 120-day period if the Commissioner does not act within the 120day period.
B. The Judicial Claim Was Belatedly Filed
In this case, the facts are not up for debate. Mindanao II filed its administrative claim for refund or credit for the
second, third, and fourth quarters of 2004 on 6 October 2005. The CIR, therefore, had a period of 120 days, or until
3 February 2006, to act on the claim. The CIR, however, failed to do so. Mindanao II then could treat the inaction as
a denial and appeal it to the CTA within 30 days from 3 February 2006, or until 5 March 2006.
Mindanao II, however, filed a Petition for Review only on 21 July 2006, 138 days after the lapse of the 30-day period
on 5 March 2006. The judicial claim was therefore filed late. (See timeline below.)

C. The 30-Day Period to Appeal is Mandatory and Jurisdictional


However, what is up for debate is the nature of the 30-day time requirement. The CIR posits that it is mandatory.
Mindanao II contends that the requirement of judicial recourse within 30 days is only directory and permissive, as
indicated by the use of the word "may" in Section 112(D).
49

The answer is found in San Roque. There, we declared that the 30-day period to appeal is both mandatory and
jurisdictional:
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of
the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals. (Emphasis supplied)
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be applied
exactly as worded since it is clear, plain, and unequivocal. As this law states, the taxpayer may, if he wishes, appeal

the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner's decision, or if the
Commissioner does not act on the taxpayer's claim within the 120-day period, the taxpayer may appeal to the CTA
within 30 days from the expiration of the 120-day period.
xxxx
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer
can file his administrative claim for refund or credit at anytime within the two-year prescriptive period. If he files his
claim on the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner will have
120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or does not
decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only the plain
meaning but also the only logical interpretation of Section 112(A) and (C).
xxxx
When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from receipt of the decision
denying the claim or after the expiration of the one hundred twenty-day period, appeal the decision or the unacted
claim with the Court of Tax Appeals," the law does not make the 120+30 day periods optional just because the law
uses the word " may." The word "may" simply means that the taxpayer may or may not appeal the decision of the
Commissioner within 30 days from receipt of the decision, or within 30 days from the expiration of the 120-day
period. x x x.
50

D. Exception to the mandatory and jurisdictional nature of the 120+30 day period not applicable
Nevertheless, San Roque provides an exception to the mandatory and jurisdictional nature of the 120+30 day period
BIR Ruling No. DA-489-03 dated 10 December 2003. The BIR ruling declares that the "taxpayer-claimant need
not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for
Review."
Although Mindanao II has not invoked the BIR ruling, we deem it prudent as well as necessary to dwell on this issue
to determine whether this case falls under the exception.
For this question, we come back to San Roque, which provides that BIR Ruling No. DA-489-03 is a general
interpretative rule; thus, taxpayers can rely on it from the time of its issuance on 10 December 2003 until its reversal
by this Court in Aichi on 6 October 2010, when the 120+30 day periods were held to be mandatory and
jurisdictional. The Court reasoned as follows:
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult
question of law. The abandonment of the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the
prescriptive periods for input VAT tax refund or credit is a difficult question of law. The abandonment of the Atlas
doctrine did not result in Atlas, or other taxpayers similarly situated, being made to return the tax refund or credit
they received or could have received under Atlas prior to its abandonment. This Court is applying Mirant and Aichi
prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this Court of a general interpretative rule
issued by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply
prospectively. x x x.
xxxx
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all taxpayers
or a specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a
particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One
Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance . This government agency is
also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency
mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the

agency was in fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources
Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No.
DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October
2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional.
51

Thus, in San Roque, the Court applied this exception to Taganito Mining Corporation (Taganito), one of the
taxpayers in San Roque. Taganito filed its judicial claim on 14 February 2007, after the BIR ruling took effect on 10
December 2003 and before the promulgation of Mirant. The Court stated:
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of BIR Ruling No.
DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial claim prematurely without
waiting for the 120-day period to expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the
benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial claim from the vice of prematurity.
52

San Roque was also careful to point out that the BIR ruling does not retroactively apply to premature judicial claims
filed before the issuance of the BIR ruling:
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is admittedly an
erroneous interpretation of the law; second, prior to its issuance, the BIR held that the 120-day period was
mandatory and jurisdictional, which is the correct interpretation of the law; third, prior to its issuance, no taxpayer
can claim that it was misled by the BIR into filing a judicial claim prematurely; and fourth, a claim for tax refund or
credit, like a claim for tax exemption, is strictly construed against the taxpayer.
53

Thus, San Roque held that taxpayer San Roque Power Corporation, could not seek refuge in the BIR ruling as it
jumped the gun when it filed its judicial claim on 10 April 2003, prior to the issuance of the BIR ruling on 10
December 2003. The Court stated:
1wphi1

San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial claim prematurely
on 10 April 2003, before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. To repeat, San Roque
cannot claim that it was misled by the BIR into filing its judicial claim prematurely because BIR Ruling No. DA-48903 was issued only after San Roque filed its judicial claim. At the time San Roque filed its judicial claim, the law as
applied and administered by the BIR was that the Commissioner had 120 days to act on administrative claims. This
was in fact the position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San Roque never
claimed the benefit of BIR Ruling No. DA-489-03 or RMC 49-03, whether in this Court, the CTA, or before the
Commissioner.
54

San Roque likewise ruled out the application of the BIR ruling to cases of late filing. The Court held that the BIR
ruling, as an exception to the mandatory and jurisdictional nature of the 120+30 day periods, is limited to premature
filing and does not extend to late filing of a judicial claim. Thus, the Court found that since Philex Mining Corporation,
the other party in the consolidated case San Roque, filed its claim 426 days after the lapse of the 30-day period, it
could not avail itself of the benefit of the BIR ruling:
Philexs situation is not a case of premature filing of its judicial claim but of late filing, indeed
Very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means non-exhaustion
of the 120-day period for the Commissioner to act on an administrative claim. Philex cannot claim the benefit of BIR
Ruling No. DA-489-03 because Philex did not file its judicial claim prematurely but filed it long after the lapse of the
30-day period following the expiration of the 120-day period. In fact, Philex filed its judicial claim 426 days after the
lapse of the 30-day period.
55

We sum up the rules established by San Roque on the mandatory and jurisdictional nature of the 30-day period to
appeal through the following timeline:

Bearing in mind the foregoing rules for the timely filing of a judicial claim for refund or credit of unutilized input VAT,
we rule on the present case of Mindanao II as follows:
We find that Mindanao IIs situation is similar to that of Philex in San Roque.
As mentioned above, Mindanao II filed its judicial claim with the CTA on 21 July 2006. This was after the issuance of
BIR Ruling No. DA-489-03 on 10 December 2003, but before its reversal on 5 October 2010. However, while the
BIR ruling was in effect when Mindanao II filed its judicial claim, the rule cannot be properly invoked. The BIR ruling,
as discussed earlier, contemplates premature filing. The situation of Mindanao II is one of late filing. To repeat, its
judicial claim was filed on 21 July 2006 long after 5 March 2006, the last day of the 30-day period for appeal. In
fact, it filed its judicial claim 138 days after the lapse of the 30-day period. (See timeline below)

E. Undersigned dissented in San Roque to the retroactive application of the mandatory and jurisdictional nature of
the 120+30 day period.
It is worthy to note that in San Roque, this ponente registered her dissent to the retroactive application of the
mandatory and jurisdictional nature of the 120+30 day period provided under Section 112(D) of the Tax Code which,
in her view, is unfair to taxpayers. It has been the view of this ponente that the mandatory nature of 120+30 day
period must be completely applied prospectively or, at the earliest, only upon the finality of Aichi in order to create
stability and consistency in our tax laws. Nevertheless, this ponente is mindful of the fact that judicial precedents
cannot be ignored. Hence, the majority view expressed in San Roque must be applied.
SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING REFUND OR CREDIT OF INPUT VAT
The lessons of this case may be summed up as follows:
A. Two-Year Prescriptive Period
1. It is only the administrative claim that must be filed within the two-year prescriptive period. (Aichi) 2. The
proper reckoning date for the two-year prescriptive period is the close of the taxable quarter when the
relevant sales were made. (San Roque)
3. The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12 September 2008. Atlas
states that the two-year prescriptive period for filing a claim for tax refund or credit of unutilized input VAT
payments should be counted from the date of filing of the VAT return and payment of the tax. (San Roque)
B. 120+30 Day Period

1. The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within thirty days after the
Commissioner denies the claim within the 120-day period, or (2) file the judicial claim within thirty days from
the expiration of the 120-day period if the Commissioner does not act within the 120-day period.
2. The 30-day period always applies, whether there is a denial or inaction on the part of the CIR.
3. As a general rule, the 3 0-day period to appeal is both mandatory and jurisdictional. (Aichi and San
Roque)
4. As an exception to the general rule, premature filing is allowed only if filed between 10 December 2003
and 5 October 2010, when BIR Ruling No. DA-489-03 was still in force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-489-03 was in force.
(San Roque)
SUMMARY AND CONCLUSION
In sum, our finding is that the three administrative claims for the refund or credit of unutilized input VAT were all
timely filed, while the corresponding judicial claims were belatedly filed.
The foregoing considered, the CT A lost jurisdiction over Mindanao Ils claims for refund or credit. The CTA EB
erred in granting these claims.
1wphi1

WHEREFORE, we GRANT the Petition. The assailed Court of Tax Appeals En Banc Decision dated 11 November
2009 and Resolution dated 3 March 2010 of the in CTA EB Case No. 448 (CTA Case No. 7507) are hereby
REVERSED and SET ASIDE. A new ruling is entered DENYING respondent s claim for a tax refund or credit
ofP6,791,845.24.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. 206666

January 21, 2015

ATTY. ALICIA RISOS-VIDAL, Petitioner,


ALFREDO S. LIM Petitioner-Intervenor,
vs.
COMMISSION ON ELECTIONS and JOSEPH EJERCITO ESTRADA, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court are (1) a Petition for Certiorari filed under Rule 64, in relation to Rule 65, both of the Revised Rules
of Court, by Atty. Alicia Risos-Vidal (Risos-Vidal), which essentially prays for the issuance of the writ of certiorari
annulling and setting aside the April 1, 2013 and April 23, 2013 Resolutions of the Commission on Elections
(COMELEC), Second Division and En bane, respectively, in SPA No. 13-211 (DC), entitled "Atty. Alicia Risos-Vidal v.
Joseph Ejercito Estrada" for having been rendered with grave abuse of discretion amounting to lack or excess of
jurisdiction; and (2) a Petition-in-Intervention filed by Alfredo S. Lim (Lim), wherein he prays to be declared the 2013
1

winning candidate for Mayor of the City of Manila in view of private respondent former President Joseph Ejercito
Estradas (former President Estrada) disqualification to run for and hold public office.
The Facts
The salient facts of the case are as follows:
On September 12, 2007, the Sandiganbayan convicted former President Estrada, a former President of the
Republic of the Philippines, for the crime of plunder in Criminal Case No. 26558, entitled "People of the Philippines
v. Joseph Ejercito Estrada, et al." The dispositive part of the graft courts decision reads:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in Criminal Case No. 26558 finding the
accused, Former President Joseph Ejercito Estrada, GUILTY beyond reasonable doubt of the crime of PLUNDER,
defined in and penalized by Republic Act No. 7080, as amended. On the other hand, for failure of the prosecution to
prove and establish their guilt beyond reasonable doubt, the Court finds the accused Jose "Jinggoy" Estrada and
Atty. Edward S. Serapio NOT GUILTY of the crime of plunder, and accordingly, the Court hereby orders their
ACQUITTAL.
The penalty imposable for the crime of plunder under Republic Act No. 7080, as amended by Republic Act No.
7659, is Reclusion Perpetua to Death. There being no aggravating or mitigating circumstances, however, the lesser
penalty shall be applied in accordance with Article 63 of the Revised Penal Code. Accordingly, the accused Former
President Joseph Ejercito Estrada is hereby sentenced to suffer the penalty of Reclusion Perpetua and the
accessory penalties of civil interdiction during the period of sentence and perpetual absolute disqualification.
The period within which accused Former President Joseph Ejercito Estrada has been under detention shall be
credited to him in full as long as he agrees voluntarily in writing to abide by the same disciplinary rules imposed
upon convicted prisoners.
Moreover, in accordance with Section 2 of Republic Act No. 7080, as amended by Republic Act No. 7659, the Court
hereby declares the forfeiture in favor of the government of the following:
(1) The total amount of Five Hundred Forty[-]Two Million Seven Hundred Ninety[-]One Thousand Pesos
(P545,291,000.00), with interest and income earned, inclusive of the amount of Two Hundred Million Pesos
(P200,000,000.00), deposited in the name and account of the Erap Muslim Youth Foundation.
(2) The amount of One Hundred Eighty[-]Nine Million Pesos (P189,000,000.00), inclusive of interests and
income earned, deposited in the Jose Velarde account.
(3) The real property consisting of a house and lot dubbed as "Boracay Mansion" located at #100 11th
Street, New Manila, Quezon City.
The cash bonds posted by accused Jose "Jinggoy" Estrada and Atty. Edward S. Serapio are hereby ordered
cancelled and released to the said accused or their duly authorized representatives upon presentation of the original
receipt evidencing payment thereof and subject to the usual accounting and auditing procedures. Likewise, the holddeparture orders issued against the said accused are hereby recalled and declared functus oficio.
4

On October 25, 2007, however, former President Gloria Macapagal Arroyo (former President Arroyo) extended
executive clemency, by way of pardon, to former President Estrada. The full text of said pardon states:
MALACAAN PALACE
MANILA

By the President of the Philippines


PARDON
WHEREAS, this Administration has a policy of releasing inmates who have reached the age of seventy (70),
WHEREAS, Joseph Ejercito Estrada has been under detention for six and a half years,
WHEREAS, Joseph Ejercito Estrada has publicly committed to no longer seek any elective position or office,
IN VIEW HEREOF and pursuant to the authority conferred upon me by the Constitution, I hereby grant executive
clemency to JOSEPH EJERCITO ESTRADA, convicted by the Sandiganbayan of Plunder and imposed a penalty of
Reclusion Perpetua. He is hereby restored to his civil and political rights.
The forfeitures imposed by the Sandiganbayan remain in force and in full, including all writs and processes issued
by the Sandiganbayan in pursuance hereof, except for the bank account(s) he owned before his tenure as
President.
Upon acceptance of this pardon by JOSEPH EJERCITO ESTRADA, this pardon shall take effect.
Given under my hand at the City of Manila, this 25th Day of October, in the year of Our Lord, two thousand and
seven.
Gloria M. Arroyo (sgd.)
By the President:
IGNACIO R. BUNYE (sgd.)
Acting Executive Secretary

On October 26, 2007, at 3:35 p.m., former President Estrada "received and accepted" the pardon by affixing his
signature beside his handwritten notation thereon.
6

On November 30, 2009, former President Estrada filed a Certificate of Candidacy for the position of President.
During that time, his candidacy earned three oppositions in the COMELEC: (1) SPA No. 09-024 (DC), a "Petition to
Deny Due Course and Cancel Certificate of Candidacy" filed by Rev. Elly Velez B. Lao Pamatong, ESQ; (2) SPA No.
09-028 (DC), a petition for "Disqualification as Presidential Candidate" filed by Evilio C. Pormento (Pormento); and
(3) SPA No. 09-104 (DC), a "Petition to Disqualify Estrada Ejercito, Joseph M.from Running as President due to
Constitutional Disqualification and Creating Confusion to the Prejudice of Estrada, Mary Lou B" filed by Mary Lou
Estrada. In separate Resolutions dated January 20, 2010 by the COMELEC, Second Division, however, all three
petitions were effectively dismissed on the uniform grounds that (i) the Constitutional proscription on reelection
applies to a sitting president; and (ii) the pardon granted to former President Estrada by former President Arroyo
restored the formers right to vote and be voted for a public office. The subsequent motions for reconsideration
thereto were denied by the COMELEC En banc.
7

After the conduct of the May 10, 2010 synchronized elections, however, former President Estrada only managed to
garner the second highest number of votes.
Of the three petitioners above-mentioned, only Pormento sought recourse to this Court and filed a petition for
certiorari, which was docketed as G.R. No. 191988, entitled "Atty. Evilio C. Pormento v. Joseph ERAP Ejercito
Estrada and Commission on Elections." But in a Resolution dated August 31, 2010, the Court dismissed the
9

aforementioned petition on the ground of mootness considering that former President Estrada lost his presidential
bid.
On October 2, 2012, former President Estrada once more ventured into the political arena, and filed a Certificate of
Candidacy, this time vying for a local elective post, that ofthe Mayor of the City of Manila.
10

On January 24, 2013, Risos-Vidal, the petitioner in this case, filed a Petition for Disqualification against former
President Estrada before the COMELEC. The petition was docketed as SPA No. 13-211 (DC). Risos Vidal anchored
her petition on the theory that "[Former President Estrada] is Disqualified to Run for Public Office because of his
Conviction for Plunder by the Sandiganbayan in Criminal Case No. 26558 entitled People of the Philippines vs.
Joseph Ejercito Estrada Sentencing Him to Suffer the Penalty of Reclusion Perpetuawith Perpetual Absolute
Disqualification." She relied on Section 40 of the Local Government Code (LGC), in relation to Section 12 of the
Omnibus Election Code (OEC), which state respectively, that:
11

Sec. 40, Local Government Code:


SECTION 40. Disqualifications.- The following persons are disqualified from running for any elective local position:
(a) Those sentenced by final judgment for an offense involving moral turpitude or for an offense punishable
by one (1) year or more of imprisonment, within two (2) years after serving sentence; (b) Those removed
from office as a result of an administrative case;
(c) Those convicted by final judgment for violating the oath of allegiance to the Republic;
(d) Those with dual citizenship;
(e) Fugitives from justice in criminal or nonpolitical cases here or abroad;
(f) Permanent residents in a foreign country or those who have acquired the right to reside abroad and
continue to avail of the same right after the effectivity of this Code; and
(g) The insane or feeble minded. (Emphasis supplied.)
Sec. 12, Omnibus Election Code:
Section 12. Disqualifications. - Any person who has been declared by competent authority insane or incompetent, or
has been sentenced by final judgmentfor subversion, insurrection, rebellion, or for any offense for which he has
been sentenced to a penalty of more than eighteen months or for a crime involving moral turpitude, shall be
disqualified to be a candidate and to hold any public office, unless he has been given plenary pardon or granted
amnesty. (Emphases supplied.)
In a Resolution dated April 1, 2013,the COMELEC, Second Division, dismissed the petition for disqualification, the
fallo of which reads:
WHEREFORE, premises considered, the instant petition is hereby DISMISSED for utter lack of merit.

12

The COMELEC, Second Division, opined that "[h]aving taken judicial cognizance of the consolidated resolution for
SPA No. 09-028 (DC) and SPA No. 09-104 (DC) and the 10 May 2010 En Banc resolution affirming it, this
Commission will not be labor the controversy further. Moreso, [Risos-Vidal] failed to present cogent proof sufficient
to reverse the standing pronouncement of this Commission declaring categorically that [former President Estradas]
right to seek public office has been effectively restored by the pardon vested upon him by former President Gloria M.

Arroyo. Since this Commission has already spoken, it will no longer engage in disquisitions of a settled matter lest
indulged in wastage of government resources."
13

The subsequent motion for reconsideration filed by Risos-Vidal was denied in a Resolution dated April 23, 2013.
On April 30, 2013, Risos-Vidal invoked the Courts jurisdiction by filing the present petition. She presented five
issues for the Courts resolution, to wit:
I. RESPONDENT COMELEC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN HOLDING THAT RESPONDENT ESTRADAS PARDON WAS NOT
CONDITIONAL;
II. RESPONDENT COMELEC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN NOT FINDING THAT RESPONDENT ESTRADA IS DISQUALIFIED TO
RUN AS MAYOR OF MANILA UNDER SEC. 40 OF THE LOCAL GOVERNMENTCODE OF 1991 FOR
HAVING BEEN CONVICTED OF PLUNDER, AN OFFENSE INVOLVING MORAL TURPITUDE;
III. RESPONDENT COMELEC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN DISMISSING THE PETITION FOR DISQUALIFICATION ON THE
GROUND THAT THE CASE INVOLVES THE SAME OR SIMILAR ISSUES IT ALREADY RESOLVED IN
THE CASES OF "PORMENTO VS. ESTRADA", SPA NO. 09-028 (DC) AND IN "RE: PETITION TO
DISQUALIFY ESTRADA EJERCITO, JOSEPH M. FROM RUNNING AS PRESIDENT, ETC.," SPA NO. 09104 (DC);
IV. RESPONDENT COMELEC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN NOT RULING THAT RESPONDENT ESTRADAS PARDON NEITHER
RESTORED HIS RIGHT OF SUFFRAGE NOR REMITTED HIS PERPETUAL ABSOLUTE
DISQUALIFICATION FROM SEEKING PUBLIC OFFICE; and
V. RESPONDENT COMELEC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN NOT HAVING EXERCISED ITS POWER TO MOTU PROPRIO
DISQUALIFY RESPONDENT ESTRADA IN THE FACE OF HIS PATENT DISQUALIFICATION TO RUN
FOR PUBLIC OFFICE BECAUSE OF HIS PERPETUAL AND ABSOLUTE DISQUALIFICATION TO SEEK
PUBLIC OFFICE AND TO VOTE RESULTING FROM HIS CRIMINAL CONVICTION FOR PLUNDER.
14

While this case was pending beforethe Court, or on May 13, 2013, the elections were conducted as scheduled and
former President Estrada was voted into office with 349,770 votes cast in his favor. The next day, the local board of
canvassers proclaimed him as the duly elected Mayor of the City of Manila.
On June 7, 2013, Lim, one of former President Estradas opponents for the position of Mayor, moved for leave to
intervene in this case. His motion was granted by the Court in a Resolution dated June 25, 2013. Lim subscribed to
Risos-Vidals theory that former President Estrada is disqualified to run for and hold public office as the pardon
granted to the latter failed to expressly remit his perpetual disqualification. Further, given that former President
Estrada is disqualified to run for and hold public office, all the votes obtained by the latter should be declared stray,
and, being the second placer with 313,764 votes to his name, he (Lim) should be declared the rightful winning
candidate for the position of Mayor of the City of Manila.
15

The Issue
Though raising five seemingly separate issues for resolution, the petition filed by Risos-Vidal actually presents only
one essential question for resolution by the Court, that is, whether or not the COMELEC committed grave abuse of

discretion amounting to lack or excess of jurisdiction in ruling that former President Estrada is qualified to vote and
be voted for in public office as a result of the pardon granted to him by former President Arroyo.
In her petition, Risos-Vidal starts her discussion by pointing out that the pardon granted to former President Estrada
was conditional as evidenced by the latters express acceptance thereof. The "acceptance," she claims, is an
indication of the conditional natureof the pardon, with the condition being embodied in the third Whereas Clause of
the pardon, i.e., "WHEREAS, Joseph Ejercito Estrada has publicly committed to no longer seek any elective position
or office." She explains that the aforementioned commitment was what impelled former President Arroyo to pardon
former President Estrada, without it, the clemency would not have been extended. And any breach thereof, that is,
whenformer President Estrada filed his Certificate of Candidacy for President and Mayor of the City of Manila, he
breached the condition of the pardon; hence, "he ought to be recommitted to prison to serve the unexpired portion of
his sentence x x x and disqualifies him as a candidate for the mayoralty [position] of Manila."
16

Nonetheless, Risos-Vidal clarifies that the fundamental basis upon which former President Estrada mustbe
disqualified from running for and holding public elective office is actually the proscription found in Section 40 of the
LGC, in relation to Section 12 ofthe OEC. She argues that the crime of plunder is both an offense punishable by
imprisonment of one year or more and involving moral turpitude; such that former President Estrada must be
disqualified to run for and hold public elective office.
Even with the pardon granted to former President Estrada, however, Risos-Vidal insists that the same did not
operate to make available to former President Estrada the exception provided under Section 12 of the OEC, the
pardon being merely conditional and not absolute or plenary. Moreover, Risos-Vidal puts a premium on the
ostensible requirements provided under Articles 36 and 41 of the Revised Penal Code, to wit:
ART. 36. Pardon; its effects. A pardon shall not work the restoration of the right to hold publicoffice, or the right of
suffrage, unless such rights be expressly restored by the terms of the pardon.
A pardon shall in no case exempt the culprit from the payment of the civil indemnity imposed upon him by the
sentence.
xxxx
ART. 41. Reclusion perpetua and reclusion temporal Their accessory penalties. The penalties of reclusion
perpetua and reclusion temporal shall carry with them that of civil interdiction for life or during the period of the
sentence as the case may be, and that of perpetual absolute disqualification which the offender shall suffer even
though pardoned as to the principal penalty, unless the same shall have been expressly remitted in the pardon.
(Emphases supplied.)
She avers that in view of the foregoing provisions of law, it is not enough that a pardon makes a general statement
that such pardon carries with it the restoration of civil and political rights. By virtue of Articles 36 and 41, a pardon
restoring civil and political rights without categorically making mention what specific civil and political rights are
restored "shall not work to restore the right to hold public office, or the right of suffrage; nor shall it remit the
accessory penalties of civil interdiction and perpetual absolute disqualification for the principal penalties of reclusion
perpetua and reclusion temporal." In other words, she considers the above constraints as mandatory requirements
that shun a general or implied restoration of civil and political rights in pardons.
17

Risos-Vidal cites the concurring opinions of Associate Justices Teodoro R. Padilla and Florentino P. Feliciano in
Monsanto v. Factoran, Jr. to endorse her position that "[t]he restoration of the right to hold public office to one who
has lost such right by reason of conviction in a criminal case, but subsequently pardoned, cannot be left to
inference, no matter how intensely arguable, but must be statedin express, explicit, positive and specific language."
18

Applying Monsantoto former President Estradas case, Risos-Vidal reckons that "such express restoration is further
demanded by the existence of the condition in the [third] [W]hereas [C]lause of the pardon x x x indubitably
indicating that the privilege to hold public office was not restored to him."
19

On the other hand, the Office ofthe Solicitor General (OSG) for public respondent COMELEC, maintains that "the
issue of whether or not the pardon extended to [former President Estrada] restored his right to run for public office
had already been passed upon by public respondent COMELEC way back in 2010 via its rulings in SPA Nos. 09024, 09-028 and 09-104, there is no cogent reason for it to reverse its standing pronouncement and declare [former
President Estrada] disqualified to run and be voted as mayor of the City of Manila in the absence of any new
argument that would warrant its reversal. To be sure, public respondent COMELEC correctly exercised its discretion
in taking judicial cognizance of the aforesaid rulings which are known toit and which can be verified from its own
records, in accordance with Section 2, Rule 129 of the Rules of Court on the courts discretionary power to take
judicial notice of matters which are of public knowledge, orare capable of unquestionable demonstration, or ought to
be known to them because of their judicial functions."
20

Further, the OSG contends that "[w]hile at first glance, it is apparent that [former President Estradas] conviction for
plunder disqualifies him from running as mayor of Manila under Section 40 of the [LGC], the subsequent grant of
pardon to him, however, effectively restored his right to run for any public office." The restoration of his right to run
for any public office is the exception to the prohibition under Section 40 of the LGC, as provided under Section 12 of
the OEC. As to the seeming requirement of Articles 36 and 41 of the Revised Penal Code, i.e., the express
restoration/remission of a particular right to be stated in the pardon, the OSG asserts that "an airtight and rigid
interpretation of Article 36 and Article 41 of the [RPC] x x x would be stretching too much the clear and plain
meaning of the aforesaid provisions." Lastly, taking into consideration the third Whereas Clause of the pardon
granted to former President Estrada, the OSG supports the position that it "is not an integral part of the decree of
the pardon and cannot therefore serve to restrict its effectivity."
21

22

23

Thus, the OSG concludes that the "COMELEC did not commit grave abuse of discretion amounting to lack or
excess of jurisdiction in issuing the assailed Resolutions."
24

For his part, former President Estrada presents the following significant arguments to defend his stay in office: that
"the factual findings of public respondent COMELEC, the Constitutional body mandated to administer and enforce
all laws relative to the conduct of the elections, [relative to the absoluteness of the pardon, the effects thereof, and
the eligibility of former President Estrada to seek public elective office] are binding [and conclusive] on this
Honorable Supreme Court;" that he "was granted an absolute pardon and thereby restored to his full civil and
political rights, including the right to seek public elective office such as the mayoral (sic) position in the City of
Manila;" that "the majority decision in the case of Salvacion A. Monsanto v. Fulgencio S. Factoran, Jr.,which was
erroneously cited by both Vidal and Lim as authority for their respective claims, x x x reveal that there was no
discussion whatsoever in the ratio decidendi of the Monsanto case as to the alleged necessity for an expressed
restoration of the right to hold public office in the pardon as a legal prerequisite to remove the subject perpetual
special disqualification;" that moreover, the "principal question raised in this Monsanto case is whether or not a
public officer, who has been granted an absolute pardon by the Chief Executive, is entitled to reinstatement toher
former position without need of a new appointment;" that his "expressed acceptance [of the pardon] is not proof that
the pardon extended to [him] is conditional and not absolute;" that this case is a mere rehash of the casesfiled
against him during his candidacy for President back in 2009-2010; that Articles 36 and 41 of the Revised Penal
Code "cannot abridge or diminish the pardoning power of the President expressly granted by the Constitution;" that
the text of the pardon granted to him substantially, if not fully, complied with the requirement posed by Article 36 of
the Revised Penal Code as it was categorically stated in the said document that he was "restored to his civil and
political rights;" that since pardon is an act of grace, it must be construed favorably in favor of the grantee; and that
his disqualification will result in massive disenfranchisement of the hundreds of thousands of Manileos who voted
for him.
25

26

The Court's Ruling


The petition for certiorari lacks merit.
Former President Estrada was granted an absolute pardon that fully restored allhis civil and political rights, which
naturally includes the right to seek public elective office, the focal point of this controversy. The wording of the
pardon extended to former President Estrada is complete, unambiguous, and unqualified. It is likewise unfettered by
Articles 36 and 41 of the Revised Penal Code. The only reasonable, objective, and constitutional interpretation of
the language of the pardon is that the same in fact conforms to Articles 36 and 41 of the Revised Penal Code.
Recall that the petition for disqualification filed by Risos-Vidal against former President Estrada, docketed as SPA
No. 13-211 (DC), was anchored on Section 40 of the LGC, in relation to Section 12 of the OEC, that is, having been
convicted of a crime punishable by imprisonment of one year or more, and involving moral turpitude, former
President Estrada must be disqualified to run for and hold public elective office notwithstanding the fact that he is a
grantee of a pardon that includes a statement expressing "[h]e is hereby restored to his civil and political rights."
Risos-Vidal theorizes that former President Estrada is disqualified from running for Mayor of Manila inthe May 13,
2013 Elections, and remains disqualified to hold any local elective post despite the presidential pardon extended to
him in 2007 by former President Arroyo for the reason that it (pardon) did not expressly provide for the remission of
the penalty of perpetual absolute disqualification, particularly the restoration of his (former President Estrada) right
to vote and bevoted upon for public office. She invokes Articles 36 and 41 of the Revised Penal Code as the
foundations of her theory.
It is insisted that, since a textual examination of the pardon given to and accepted by former President Estrada does
not actually specify which political right is restored, it could be inferred that former President Arroyo did not
deliberately intend to restore former President Estradas rights of suffrage and to hold public office, orto otherwise
remit the penalty of perpetual absolute disqualification. Even if her intention was the contrary, the same cannot be
upheld based on the pardons text.
The pardoning power of the President cannot be limited by legislative action.
The 1987 Constitution, specifically Section 19 of Article VII and Section 5 of Article IX-C, provides that the President
of the Philippines possesses the power to grant pardons, along with other acts of executive clemency, to wit:
Section 19. Except in cases of impeachment, or as otherwise provided in this Constitution, the President may grant
reprieves, commutations, and pardons, and remit fines and forfeitures, after conviction by final judgment.
He shall also have the power to grant amnesty with the concurrence of a majority of all the Members of the
Congress.
xxxx
Section 5. No pardon, amnesty, parole, or suspension of sentence for violation of election laws, rules, and
regulations shall be granted by the President without the favorable recommendation of the Commission.
It is apparent from the foregoing constitutional provisions that the only instances in which the President may not
extend pardon remain to be in: (1) impeachment cases; (2) cases that have not yet resulted in a final conviction; and
(3) cases involving violations of election laws, rules and regulations in which there was no favorable
recommendation coming from the COMELEC. Therefore, it can be argued that any act of Congress by way of
statute cannot operate to delimit the pardoning power of the President.
In Cristobal v. Labrador and Pelobello v. Palatino, which were decided under the 1935 Constitution,wherein the
provision granting pardoning power to the President shared similar phraseology with what is found in the present
27

28

1987 Constitution, the Court then unequivocally declared that "subject to the limitations imposed by the Constitution,
the pardoning power cannot be restricted or controlled by legislative action." The Court reiterated this
pronouncement in Monsanto v. Factoran, Jr. thereby establishing that, under the present Constitution, "a pardon,
being a presidential prerogative, should not be circumscribed by legislative action." Thus, it is unmistakably the longstanding position of this Court that the exercise of the pardoning power is discretionary in the President and may not
be interfered with by Congress or the Court, except only when it exceeds the limits provided for by the Constitution.
29

This doctrine of non-diminution or non-impairment of the Presidents power of pardon by acts of Congress,
specifically through legislation, was strongly adhered to by an overwhelming majority of the framers of the 1987
Constitution when they flatly rejected a proposal to carve out an exception from the pardoning power of the
President in the form of "offenses involving graft and corruption" that would be enumerated and defined by
Congress through the enactment of a law. The following is the pertinent portion lifted from the Record of the
Commission (Vol. II):
MR. ROMULO. I ask that Commissioner Tan be recognized to introduce an amendment on the same section.
THE PRESIDENT. Commissioner Tan is recognized.
SR. TAN. Madam President, lines 7 to 9 state:
However, the power to grant executive clemency for violations of corrupt practices laws may be limited by
legislation.
I suggest that this be deletedon the grounds that, first, violations of corrupt practices may include a very little offense
like stealing P10; second, which I think is more important, I get the impression, rightly or wrongly, that
subconsciously we are drafting a constitution on the premise that all our future Presidents will bebad and dishonest
and, consequently, their acts will be lacking in wisdom. Therefore, this Article seems to contribute towards the
creation of an anti-President Constitution or a President with vast responsibilities but no corresponding power
except to declare martial law. Therefore, I request that these lines be deleted.
MR. REGALADO. Madam President,may the Committee react to that?
THE PRESIDENT. Yes, please.
MR. REGALADO. This was inserted here on the resolution of Commissioner Davide because of the fact that similar
to the provisions on the Commission on Elections, the recommendation of that Commission is required before
executive clemency isgranted because violations of the election laws go into the very political life of the country.
With respect to violations of our Corrupt Practices Law, we felt that it is also necessary to have that subjected to the
same condition because violation of our Corrupt Practices Law may be of such magnitude as to affect the very
economic systemof the country. Nevertheless, as a compromise, we provided here that it will be the Congress that
will provide for the classification as to which convictions will still require prior recommendation; after all, the
Congress could take into account whether or not the violation of the Corrupt Practices Law is of such magnitude as
to affect the economic life of the country, if it is in the millions or billions of dollars. But I assume the Congress in its
collective wisdom will exclude those petty crimes of corruption as not to require any further stricture on the exercise
of executive clemency because, of course, there is a whale of a difference if we consider a lowly clerk committing
malversation of government property or funds involving one hundred pesos. But then, we also anticipate the
possibility that the corrupt practice of a public officer is of such magnitude as to have virtually drained a substantial
portion of the treasury, and then he goes through all the judicial processes and later on, a President who may have
close connections with him or out of improvident compassion may grant clemency under such conditions. That is
why we left it to Congress to provide and make a classification based on substantial distinctions between a minor

act of corruption or an act of substantial proportions. SR. TAN. So, why do we not just insert the word GROSS or
GRAVE before the word "violations"?
MR. REGALADO. We feel that Congress can make a better distinction because "GRAVE" or "GROSS" can be
misconstrued by putting it purely as a policy.
MR. RODRIGO. Madam President.
THE PRESIDENT. Commissioner Rodrigo is recognized.
MR. RODRIGO. May I speak in favor of the proposed amendment?
THE PRESIDENT. Please proceed.
MR. RODRIGO. The power to grant executive clemency is essentially an executive power, and that is precisely why
it is called executive clemency. In this sentence, which the amendment seeks to delete, an exception is being made.
Congress, which is the legislative arm, is allowed to intrude into this prerogative of the executive. Then it limits the
power of Congress to subtract from this prerogative of the President to grant executive clemency by limiting the
power of Congress to only corrupt practices laws. There are many other crimes more serious than these. Under this
amendment, Congress cannot limit the power of executive clemency in cases of drug addiction and drug pushing
which are very, very serious crimes that can endanger the State; also, rape with murder, kidnapping and treason.
Aside from the fact that it is a derogation of the power of the President to grant executive clemency, it is also
defective in that it singles out just one kind of crime. There are far more serious crimes which are not included.
MR. REGALADO. I will just make one observation on that. We admit that the pardoning power is anexecutive power.
But even in the provisions on the COMELEC, one will notice that constitutionally, it is required that there be a
favorable recommendation by the Commission on Elections for any violation of election laws.
At any rate, Commissioner Davide, as the principal proponent of that and as a member of the Committee, has
explained in the committee meetings we had why he sought the inclusion of this particular provision. May we call on
Commissioner Davide to state his position.
MR. DAVIDE. Madam President.
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. I am constrained to rise to object to the proposal. We have just approved the Article on Accountability
of Public Officers. Under it, it is mandated that a public office is a public trust, and all government officers are under
obligation to observe the utmost of responsibility, integrity, loyalty and efficiency, to lead modest lives and to act with
patriotism and justice.
In all cases, therefore, which would go into the verycore of the concept that a public office is a public trust, the
violation is itself a violation not only of the economy but the moral fabric of public officials. And that is the reason we
now want that if there is any conviction for the violation of the Anti-Graft and Corrupt Practices Act, which, in effect,
is a violation of the public trust character of the public office, no pardon shall be extended to the offender, unless
some limitations are imposed.
Originally, my limitation was, it should be with the concurrence of the convicting court, but the Committee left it
entirely to the legislature to formulate the mechanics at trying, probably, to distinguish between grave and less grave
or serious cases of violation of the Anti-Graft and Corrupt Practices Act. Perhaps this is now the best time, since we
have strengthened the Article on Accountability of Public Officers, to accompany it with a mandate that the

Presidents right to grant executive clemency for offenders or violators of laws relating to the concept of a public
office may be limited by Congress itself.
MR. SARMIENTO. Madam President.
THE PRESIDENT. Commissioner Sarmiento is recognized.
MR. SARMIENTO. May I briefly speak in favor of the amendment by deletion.
Madam President, over and over again, we have been saying and arguing before this Constitutional Commission
that we are emasculating the powers of the presidency, and this provision to me is another clear example of that.
So, I speak against this provision. Even the 1935 and the 1973 Constitutions do not provide for this kind of
provision.
I am supporting the amendment by deletion of Commissioner Tan.
MR. ROMULO. Commissioner Tingson would like to be recognized.
THE PRESIDENT. Commissioner Tingson is recognized.
MR. TINGSON. Madam President, I am also in favor of the amendment by deletion because I am in sympathy with
the stand of Commissioner Francisco "Soc" Rodrigo. I do believe and we should remember that above all the
elected or appointed officers of our Republic, the leader is the President. I believe that the country will be as the
President is, and if we systematically emasculate the power of this presidency, the time may come whenhe will be
also handcuffed that he will no longer be able to act like he should be acting.
So, Madam President, I am in favor of the deletion of this particular line.
MR. ROMULO. Commissioner Colayco would like to be recognized.
THE PRESIDENT. Commissioner Colayco is recognized.
MR. COLAYCO. Thank you very much, Madam President.
I seldom rise here to object to or to commend or to recommend the approval of proposals, but now I find that the
proposal of Commissioner Tan is worthy of approval of this body.
Why are we singling out this particular offense? There are other crimes which cast a bigger blot on the moral
character of the public officials.
Finally, this body should not be the first one to limit the almost absolute power of our Chief Executive in deciding
whether to pardon, to reprieve or to commute the sentence rendered by the court.
I thank you.
THE PRESIDENT. Are we ready to vote now?
MR. ROMULO. Commissioner Padilla would like to be recognized, and after him will be Commissioner Natividad.
THE PRESIDENT. Commissioner Padilla is recognized.

MR. PADILLA. Only one sentence, Madam President. The Sandiganbayan has been called the Anti-Graft Court, so
if this is allowed to stay, it would mean that the Presidents power togrant pardon or reprieve will be limited to the
cases decided by the Anti-Graft Court, when as already stated, there are many provisions inthe Revised Penal Code
that penalize more serious offenses.
Moreover, when there is a judgment of conviction and the case merits the consideration of the exercise of executive
clemency, usually under Article V of the Revised Penal Code the judge will recommend such exercise of clemency.
And so, I am in favor of the amendment proposed by Commissioner Tan for the deletion of this last sentence in
Section 17.
THE PRESIDENT. Are we ready to vote now, Mr. Floor Leader?
MR. NATIVIDAD. Just one more.
THE PRESIDENT. Commissioner Natividad is recognized.
MR. NATIVIDAD. I am also against this provision which will again chip more powers from the President. In case of
other criminals convicted in our society, we extend probation to them while in this case, they have already been
convicted and we offer mercy. The only way we can offer mercy to them is through this executive clemency
extended to them by the President. If we still close this avenue to them, they would be prejudiced even worse than
the murderers and the more vicious killers in our society. I do not think they deserve this opprobrium and
punishment under the new Constitution.
I am in favor of the proposed amendment of Commissioner Tan.
MR. ROMULO. We are ready tovote, Madam President.
THE PRESIDENT. Is this accepted by the Committee?
MR. REGALADO. The Committee, Madam President, prefers to submit this to the floor and also because of the
objection of the main proponent, Commissioner Davide. So we feel that the Commissioners should vote on this
question.
VOTING
THE PRESIDENT. As many as are in favor of the proposed amendment of Commissioner Tan to delete the last
sentence of Section 17 appearing on lines 7, 8 and 9, please raise their hand. (Several Members raised their hand.)
As many as are against, please raise their hand. (Few Members raised their hand.)
The results show 34 votes in favor and 4 votes against; the amendment is approved. (Emphases supplied.)
30

The proper interpretation of Articles


36 and 41 of the Revised Penal Code.
The foregoing pronouncements solidify the thesis that Articles 36 and 41 of the Revised Penal Code cannot, in any
way, serve to abridge or diminish the exclusive power and prerogative of the President to pardon persons convicted
of violating penal statutes.

The Court cannot subscribe to Risos-Vidals interpretation that the said Articles contain specific textual commands
which must be strictly followed in order to free the beneficiary of presidential grace from the disqualifications
specifically prescribed by them.
Again, Articles 36 and 41 of the Revised Penal Code provides:
ART. 36. Pardon; its effects. A pardon shall not work the restoration of the right to hold publicoffice, or the right of
suffrage, unless such rights be expressly restored by the terms of the pardon.
A pardon shall in no case exempt the culprit from the payment of the civil indemnity imposed upon him by the
sentence.
xxxx
ART. 41. Reclusion perpetua and reclusion temporal Their accessory penalties. The penalties of reclusion
perpetua and reclusion temporal shall carry with them that of civil interdiction for life or during the period of the
sentence as the case may be, and that of perpetual absolute disqualification which the offender shall suffer even
though pardoned as to the principal penalty, unless the same shall have been expressly remitted in the pardon.
(Emphases supplied.)
A rigid and inflexible reading of the above provisions of law, as proposed by Risos-Vidal, is unwarranted, especially
so if it will defeat or unduly restrict the power of the President to grant executive clemency.
It is well-entrenched in this jurisdiction that where the words of a statute are clear, plain, and free from ambiguity, it
must be given its literal meaning and applied without attempted interpretation. Verba legis non est recedendum.
From the words of a statute there should be no departure. It is this Courts firm view that the phrase in the
presidential pardon at issue which declares that former President Estrada "is hereby restored to his civil and political
rights" substantially complies with the requirement of express restoration.
31

The Dissent of Justice Marvic M.V.F. Leonen agreed with Risos Vidal that there was no express remission and/or
restoration of the rights of suffrage and/or to hold public office in the pardon granted to former President Estrada, as
required by Articles 36 and 41 of the Revised Penal Code.
Justice Leonen posits in his Dissent that the aforementioned codal provisions must be followed by the President, as
they do not abridge or diminish the Presidents power to extend clemency. He opines that they do not reduce the
coverage of the Presidents pardoning power. Particularly, he states:
Articles 36 and 41 refer only to requirements of convention or form. They only provide a procedural prescription.
They are not concerned with areas where or the instances when the President may grant pardon; they are only
concerned with how he or she is to exercise such power so that no other governmental instrumentality needs to
intervene to give it full effect.
All that Articles 36 and 41 do is prescribe that, if the President wishes to include in the pardon the restoration of the
rights of suffrage and to hold public office, or the remission of the accessory penalty of perpetual absolute
disqualification,he or she should do so expressly. Articles 36 and 41 only ask that the President state his or her
intentions clearly, directly, firmly, precisely, and unmistakably. To belabor the point, the President retains the power to
make such restoration or remission, subject to a prescription on the manner by which he or she is to state it.
32

With due respect, I disagree with the overbroad statement that Congress may dictate as to how the President may
exercise his/her power of executive clemency. The form or manner by which the President, or Congress for that
matter, should exercise their respective Constitutional powers or prerogatives cannot be interfered with unless it is

so provided in the Constitution. This is the essence of the principle of separation of powers deeply ingrained in our
system of government which "ordains that each of the three great branches of government has exclusive
cognizance of and is supreme in matters falling within its own constitutionally allocated sphere." Moreso, this
fundamental principle must be observed if noncompliance with the form imposed by one branch on a co-equal and
coordinate branch will result into the diminution of an exclusive Constitutional prerogative.
33

For this reason, Articles 36 and 41 of the Revised Penal Code should be construed in a way that will give full effect
to the executive clemency granted by the President, instead of indulging in an overly strict interpretation that may
serve to impair or diminish the import of the pardon which emanated from the Office of the President and duly
signed by the Chief Executive himself/herself. The said codal provisions must be construed to harmonize the power
of Congress to define crimes and prescribe the penalties for such crimes and the power of the President to grant
executive clemency. All that the said provisions impart is that the pardon of the principal penalty does notcarry with it
the remission of the accessory penalties unless the President expressly includes said accessory penalties in the
pardon. It still recognizes the Presidential prerogative to grant executive clemency and, specifically, to decide to
pardon the principal penalty while excluding its accessory penalties or to pardon both. Thus, Articles 36 and 41 only
clarify the effect of the pardon so decided upon by the President on the penalties imposedin accordance with law.
A close scrutiny of the text of the pardon extended to former President Estrada shows that both the principal penalty
of reclusion perpetua and its accessory penalties are included in the pardon. The first sentence refers to the
executive clemency extended to former President Estrada who was convicted by the Sandiganbayan of plunder and
imposed a penalty of reclusion perpetua. The latter is the principal penalty pardoned which relieved him of
imprisonment. The sentence that followed, which states that "(h)e is hereby restored to his civil and political rights,"
expressly remitted the accessory penalties that attached to the principal penalty of reclusion perpetua. Hence, even
if we apply Articles 36 and 41 of the Revised Penal Code, it is indubitable from the textof the pardon that the
accessory penalties of civil interdiction and perpetual absolute disqualification were expressly remitted together with
the principal penalty of reclusion perpetua.
In this jurisdiction, the right toseek public elective office is recognized by law as falling under the whole gamut of civil
and political rights.
Section 5 of Republic Act No. 9225, otherwise known as the "Citizenship Retention and Reacquisition Act of 2003,"
reads as follows:
34

Section 5. Civil and Political Rights and Liabilities. Those who retain or reacquire Philippine citizenship under this
Act shall enjoy full civil and political rights and be subject to all attendant liabilities and responsibilities under existing
laws of the Philippines and the following conditions: (1) Those intending to exercise their right of suffrage must meet
the requirements under Section 1, Article V of the Constitution, Republic Act No. 9189, otherwise known as "The
Overseas Absentee Voting Act of 2003" and other existing laws;
(2) Those seeking elective public office in the Philippines shall meet the qualifications for holding such public
office as required by the Constitution and existing laws and, at the time of the filing of the certificate of
candidacy, make a personal and sworn renunciation of any and all foreign citizenship before any public
officer authorized to administer an oath;
(3) Those appointed to any public office shall subscribe and swear an oath of allegiance to the Republic of
the Philippines and its duly constituted authorities prior to their assumption of office: Provided, That they
renounce their oath of allegiance to the country where they took that oath; (4) Those intending to practice
their profession in the Philippines shall apply with the proper authority for a license or permit to engage in
such practice; and

(5) That right to vote or be elected or appointed to any public office in the Philippines cannot be exercised
by, or extended to, those who:
(a) are candidates for or are occupying any public office in the country of which theyare naturalized
citizens; and/or
(b) are in active service as commissioned or non commissioned officers in the armed forces of the
country which they are naturalized citizens. (Emphases supplied.)
No less than the International Covenant on Civil and Political Rights, to which the Philippines is a signatory,
acknowledges the existence of said right. Article 25(b) of the Convention states: Article 25
Every citizen shall have the right and the opportunity, without any of the distinctions mentioned in Article 2 and
without unreasonable restrictions:
xxxx
(b) To vote and to be electedat genuine periodic elections which shall be by universal and equal suffrage and shall
be held by secret ballot, guaranteeing the free expression of the will of the electors[.] (Emphasis supplied.)
Recently, in Sobejana-Condon v. Commission on Elections, the Court unequivocally referred to the right to seek
public elective office as a political right, to wit:
35

Stated differently, it is an additional qualification for elective office specific only to Filipino citizens who re-acquire
their citizenship under Section 3 of R.A. No. 9225. It is the operative act that restores their right to run for public
office. The petitioners failure to comply there with in accordance with the exact tenor of the law, rendered ineffectual
the Declaration of Renunciation of Australian Citizenship she executed on September 18, 2006. As such, she is yet
to regain her political right to seek elective office. Unless she executes a sworn renunciation of her Australian
citizenship, she is ineligible to run for and hold any elective office in the Philippines. (Emphasis supplied.)
Thus, from both law and jurisprudence, the right to seek public elective office is unequivocally considered as a
political right. Hence, the Court reiterates its earlier statement that the pardon granted to former President Estrada
admits no other interpretation other than to mean that, upon acceptance of the pardon granted tohim, he regained
his FULL civil and political rights including the right to seek elective office.
On the other hand, the theory of Risos-Vidal goes beyond the plain meaning of said penal provisions; and
prescribes a formal requirement that is not only unnecessary but, if insisted upon, could be in derogation of the
constitutional prohibition relative to the principle that the exercise of presidential pardon cannot be affected by
legislative action.
Risos-Vidal relied heavily on the separate concurring opinions in Monsanto v. Factoran, Jr. to justify her argument
that an absolute pardon must expressly state that the right to hold public office has been restored, and that the
penalty of perpetual absolute disqualification has been remitted.
36

This is incorrect.
Her reliance on said opinions is utterly misplaced. Although the learned views of Justices Teodoro R. Padilla and
Florentino P. Feliciano are to be respected, they do not form partof the controlling doctrine nor to be considered part
of the law of the land. On the contrary, a careful reading of the majority opinion in Monsanto, penned by no less than
Chief Justice Marcelo B. Fernan, reveals no statement that denotes adherence to a stringent and overly nuanced
application of Articles 36 and 41 of the Revised Penal Code that will in effect require the President to use a

statutorily prescribed language in extending executive clemency, even if the intent of the President can otherwise be
deduced from the text or words used in the pardon. Furthermore, as explained above, the pardon here is consistent
with, and not contrary to, the provisions of Articles 36 and 41.
The disqualification of former President Estrada under Section 40 of the LGC in relation to Section 12 of the OEC
was removed by his acceptance of the absolute pardon granted to him.
Section 40 of the LGC identifies who are disqualified from running for any elective local position. Risos-Vidal argues
that former President Estrada is disqualified under item (a), to wit:
(a) Those sentenced by final judgment for an offense involving moral turpitude or for an offense punishable by one
(1) year or more of imprisonment, within two (2) years after serving sentence[.] (Emphasis supplied.)
Likewise, Section 12 of the OEC provides for similar prohibitions, but it provides for an exception, to wit:
Section 12. Disqualifications. x x x unless he has been given plenary pardon or granted amnesty. (Emphasis
supplied.)
As earlier stated, Risos-Vidal maintains that former President Estradas conviction for plunder disqualifies him from
running for the elective local position of Mayor of the City of Manila under Section 40(a) of the LGC. However, the
subsequent absolute pardon granted to former President Estrada effectively restored his right to seek public elective
office. This is made possible by reading Section 40(a) of the LGC in relation to Section 12 of the OEC.
While it may be apparent that the proscription in Section 40(a) of the LGC is worded in absolute terms, Section 12 of
the OEC provides a legal escape from the prohibition a plenary pardon or amnesty. In other words, the latter
provision allows any person who has been granted plenary pardon or amnesty after conviction by final judgment of
an offense involving moral turpitude, inter alia, to run for and hold any public office, whether local or national
position.
Take notice that the applicability of Section 12 of the OEC to candidates running for local elective positions is not
unprecedented. In Jalosjos, Jr. v. Commission on Elections, the Court acknowledged the aforementioned provision
as one of the legal remedies that may be availed of to disqualify a candidate in a local election filed any day after
the last day for filing of certificates of candidacy, but not later than the date of proclamation. The pertinent ruling in
the Jalosjos case is quoted as follows:
37

38

What is indisputably clear is that false material representation of Jalosjos is a ground for a petition under Section 78.
However, since the false material representation arises from a crime penalized by prision mayor, a petition under
Section 12 ofthe Omnibus Election Code or Section 40 of the Local Government Code can also be properly filed.
The petitioner has a choice whether to anchor his petition on Section 12 or Section 78 of the Omnibus Election
Code, or on Section 40 of the Local Government Code. The law expressly provides multiple remedies and the
choice of which remedy to adopt belongs to petitioner. (Emphasis supplied.)
39

The third preambular clause of the pardon did not operate to make the pardon conditional.
Contrary to Risos-Vidals declaration, the third preambular clause of the pardon, i.e., "[w]hereas, Joseph Ejercito
Estrada has publicly committed to no longer seek any elective position or office," neither makes the pardon
conditional, nor militate against the conclusion that former President Estradas rights to suffrage and to seek public
elective office have been restored.
This is especially true as the pardon itself does not explicitly impose a condition or limitation, considering the
unqualified use of the term "civil and political rights"as being restored. Jurisprudence educates that a preamble is

not an essential part of an act as it is an introductory or preparatory clause that explains the reasons for the
enactment, usually introduced by the word "whereas." Whereas clauses do not form part of a statute because,
strictly speaking, they are not part of the operative language of the statute. In this case, the whereas clause at
issue is not an integral part of the decree of the pardon, and therefore, does not by itself alone operate to make the
pardon conditional or to make its effectivity contingent upon the fulfilment of the aforementioned commitment nor to
limit the scope of the pardon.
40

41

On this matter, the Court quotes with approval a relevant excerpt of COMELEC Commissioner Maria Gracia
Padacas separate concurring opinion in the assailed April 1, 2013 Resolution of the COMELEC in SPA No. 13-211
(DC), which captured the essence of the legal effect of preambular paragraphs/whereas clauses, viz:
The present dispute does not raise anything which the 20 January 2010 Resolution did not conclude upon. Here,
Petitioner Risos-Vidal raised the same argument with respect to the 3rd "whereas clause" or preambular paragraph
of the decree of pardon. It states that "Joseph Ejercito Estrada has publicly committed to no longer seek any
elective position or office." On this contention, the undersigned reiterates the ruling of the Commission that the 3rd
preambular paragraph does not have any legal or binding effect on the absolute nature of the pardon extended by
former President Arroyo to herein Respondent. This ruling is consistent with the traditional and customary usage of
preambular paragraphs. In the case of Echegaray v. Secretary of Justice, the Supreme Court ruled on the legal
effect of preambular paragraphs or whereas clauses on statutes. The Court stated, viz.:
Besides, a preamble is really not an integral part of a law. It is merely an introduction to show its intent or purposes.
It cannot be the origin of rights and obligations. Where the meaning of a statute is clear and unambiguous, the
preamble can neither expand nor restrict its operation much less prevail over its text.
If former President Arroyo intended for the pardon to be conditional on Respondents promise never to seek a public
office again, the former ought to have explicitly stated the same in the text of the pardon itself. Since former
President Arroyo did not make this an integral part of the decree of pardon, the Commission is constrained to rule
that the 3rd preambular clause cannot be interpreted as a condition to the pardon extended to former President
Estrada. (Emphasis supplied.)
42

Absent any contrary evidence, former President Arroyos silence on former President Estradas decision torun for
President in the May 2010 elections against, among others, the candidate of the political party of former President
Arroyo, after the latters receipt and acceptance of the pardon speaks volume of her intention to restore him to his
rights to suffrage and to hold public office.
Where the scope and import of the executive clemency extended by the President is in issue, the Court must turn to
the only evidence available to it, and that is the pardon itself. From a detailed review ofthe four corners of said
document, nothing therein gives an iota of intimation that the third Whereas Clause is actually a limitation, proviso,
stipulation or condition on the grant of the pardon, such that the breach of the mentioned commitment not to seek
public office will result ina revocation or cancellation of said pardon. To the Court, what it is simply is a statement of
fact or the prevailing situation at the time the executive clemency was granted. It was not used as a condition to the
efficacy orto delimit the scope of the pardon.
Even if the Court were to subscribe to the view that the third Whereas Clausewas one of the reasons to grant the
pardon, the pardon itself does not provide for the attendant consequence of the breach thereof. This Court will be
hard put to discern the resultant effect of an eventual infringement. Just like it will be hard put to determine which
civil or political rights were restored if the Court were to take the road suggested by Risos-Vidal that the statement
"[h]e is hereby restored to his civil and political rights" excludes the restoration of former President Estradas rights
to suffrage and to hold public office. The aforequoted text ofthe executive clemency granted does not provide the
Court with any guide asto how and where to draw the line between the included and excluded political rights.

Justice Leonen emphasizes the point that the ultimate issue for resolution is not whether the pardon is contingent on
the condition that former President Estrada will not seek janother elective public office, but it actually concerns the
coverage of the pardon whether the pardon granted to former President Estrada was so expansive as to have
restored all his political rights, inclusive of the rights of suffrage and to hold public office. Justice Leonen is of the
view that the pardon in question is not absolute nor plenary in scope despite the statement that former President
Estrada is "hereby restored to his civil and political rights," that is, the foregoing statement restored to former
President Estrada all his civil and political rights except the rights denied to him by the unremitted penalty of
perpetual absolute disqualification made up of, among others, the rights of suffrage and to hold public office. He
adds that had the President chosen to be so expansive as to include the rights of suffrage and to hold public office,
she should have been more clear on her intentions.
However, the statement "[h]e is hereby restored to his civil and political rights," to the mind of the Court, iscrystal
clear the pardon granted to former President Estrada was absolute, meaning, it was not only unconditional, it was
unrestricted in scope, complete and plenary in character, as the term "political rights"adverted to has a settled
meaning in law and jurisprudence.
With due respect, I disagree too with Justice Leonen that the omission of the qualifying word "full" can be construed
as excluding the restoration of the rights of suffrage and to hold public office. There appears to be no distinction as
to the coverage of the term "full political rights" and the term "political rights" used alone without any qualification.
How to ascribe to the latter term the meaning that it is "partial" and not "full" defies ones understanding. More so, it
will be extremely difficult to identify which of the political rights are restored by the pardon, when the text of the latter
is silent on this matter. Exceptions to the grant of pardon cannot be presumed from the absence of the qualifying
word "full" when the pardon restored the "political rights" of former President Estrada without any exclusion or
reservation.
Therefore, there can be no other conclusion but to say that the pardon granted to former President Estrada was
absolute in the absence of a clear, unequivocal and concrete factual basis upon which to anchor or support the
Presidential intent to grant a limited pardon.
To reiterate, insofar as its coverageis concerned, the text of the pardon can withstand close scrutiny even under the
provisions of Articles 36 and 41 of the Revised Penal Code.
The COMELEC did not commit grave abuse of discretion amounting to lack or excess of jurisdiction in issuing the
assailed Resolutions.
In light of the foregoing, contrary to the assertions of Risos-Vidal, the COMELEC did not commit grave abuse of
discretion amounting to lack or excess of jurisdiction in issuing the assailed Resolutions.
The Court has consistently held that a petition for certiorariagainst actions of the COMELEC is confined only to
instances of grave abuse of discretion amounting to patentand substantial denial of due process, because the
COMELEC is presumed to be most competent in matters falling within its domain.
43

As settled in jurisprudence, grave abuse of discretion is the arbitrary exercise of power due to passion, prejudice or
personal hostility; or the whimsical, arbitrary, or capricious exercise of power that amounts to an evasion or refusal
to perform a positive duty enjoined by law or to act at all in contemplation of law. For an act to be condemned as
having been done with grave abuse of discretion, such an abuse must be patent and gross.
44

The arguments forwarded by Risos-Vidal fail to adequately demonstrate any factual or legal bases to prove that the
assailed COMELEC Resolutions were issued in a "whimsical, arbitrary or capricious exercise of power that amounts
to an evasion orrefusal to perform a positive duty enjoined by law" or were so "patent and gross" as to constitute
grave abuse of discretion.

On the foregoing premises and conclusions, this Court finds it unnecessary to separately discuss Lim's petition-inintervention, which substantially presented the same arguments as Risos-Vidal's petition.
WHEREFORE, the petition for certiorari and petition-inintervention are DISMISSED. The Resolution dated April 1,
2013 of the Commission on Elections, Second Division, and the Resolution dated April 23, 2013 of the Commission
on Elections, En bane, both in SPA No. 13-211 (DC), are AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 185969

November 19, 2014

AT&T COMMUNICATIONS SERVICES PHILIPPINES, INC., Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
PEREZ, J.:
Before the Court is a Petition for Review on Certiorari seeking to reverse and set aside the 24 September 2008
Decision and the 13 January 2009 Resolution of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 381
which affirmed the Decision and Resolution dated 12 December 2007 and 12 March 2008, respectively, of the First
Division of the CTA (CTA in Division) in C.T.A. Case No. 7221, dismissing the petition for lack of merit; and
accordingly, denied petitioner's claim for the refund or issuance of a tax credit certificate (TCC) in the amount
ofP3,003,265.14 allegedly representing excess or unutilized input Value-Added Tax (VAT) attributable to its zerorated sales ofservices for the period covering 1 January 2003 to 31 December 2003.
1

The Facts
The factual antecedents of this case reveal that petitioner AT&T Communications Services Philippines, Inc.
(petitioner), being a domestic corporation principally engaged in the business of rendering information, promotional,
supportive and liaison service, entered into a Service Agreement with AT&T Communications Services International,
Inc. (AT&T-CSI), a non-resident foreign corporation, on 1 January 1999, whereby compensation for such services is
paid in US Dollars.
4

Petitioner has an Assignment Agreement with AT&T Solutions, Inc. (AT&T-SI) where the latter assigned to petitioner
the performance of services AT&T-SI was supposed to provide Mastercard International, Inc. (a non-resident foreign
corporation) under a Virtual Private Network Service Agreement. Likewise, the compensation for such services is
paid in US Dollars to be inwardly remitted to the Philippines by AT&T-SI, which acts as the collecting agent of
petitioner.
5

Thereafter, a second Assignment Agreement was executed and entered into by petitioner with AT&T-SI for the
purpose of performing the latters obligation to Lexmark International, Inc. (also a non-resident foreign corporation)
by providing services to its affiliates in the Philippines, namely: Lexmark Research and Development Corporation
and Lexmark International (Philippines), Inc. (both Philippine Economic Zone Authority [PEZA]-registered
enterprises). Payment of petitioners aforesaid services is as well paid in US Dollars through telegraphic transfer.
6

Consequently, petitioner filed its Quarterly VAT Returns with the Bureau of Internal Revenue (BIR) for the taxable
year period covering 1 January 2003 to 31 December 2003,detailed hereunder as follows:

Date of Filing

Period Covered

22 April 2003

1st Quarter

23 July 2003

2nd Quarter

22 October 2003

3rd Quarter

26 January 2004

4th Quarter

On 5 February 2004, petitioner filed its first Amended Quarterly VAT Return for the Fourth Quarter of taxable year
2003; while on 26 April 2004, petitioner filed its Amended Quarterly VAT Returns for the First to Fourth Quarters of
the taxable year 2003.
8

Petitioner filed on 13 April 2005 with the BIR an application for refund and/or tax credit of its unutilized VAT input
taxes for the aforesaid taxable period amounting to P3,003,265.14. However, there being no action on said
administrative claim, petitioner filed a Petition for Review before the CTA in Division on 20 April 2005 (or exactly
seven [7] days from the time it filed its administrative claim) in order to suspend the running of the prescriptive
period provided under Section 229 of the National Internal Revenue Code (NIRC) of 1997, as amended.
9

The Ruling of the CTA in Division


In C.T.A. Case No. 7221, the CTA in Division rendered a Decision dated 12 December 2007 dismissing petitioners
claim for the refund or issuance of a TCC. It ruled that in order to be entitled to its refund claim, petitioner must show
proof of compliance with the substantiation requirements as mandated bylaw and regulations. Therefore,
considering that the subject revenues pertain to gross receipts from services rendered by petitioner, valid official
receipts and not mere sales invoices should have been presented and submitted in evidence in support thereof.
Without proper VAT official receipts, the foreign currency payment received by petitioner from services rendered for
the four (4) quarters of taxable year 2003 cannot qualify for zero-rating for VAT purposes. Since it is clear from the
provisions of Section 112(A) ofthe NIRC of 1997, as amended, that there must be zero-rated sales or effectively
zero-rated sales in order for a refund claim of input VAT could prosper, the claimed input VAT payments allegedly
attributable thereto in the amount of P3,003,265.14 cannot be granted.
10

11

On 12 March 2008, the CTA in Division denied petitioners Motion for Reconsideration for lack of merit considering
that no new matter was raised which were not taken into consideration in arriving at the subject Decision that would
warrant its reversal or modification.
12

Unsatisfied, petitioner filed a Petition for Review before the CTA En Bancpursuant to Section 18 of RepublicAct
(R.A.) No. 1125, as amended by Section 11 of R.A. No. 9282, docketed as C.T.A. EB No. 381.
13

The Ruling of the CTA En Banc


Finding no merit in petitioners contentions, the CTA En Banc rendered the assailed 24 September 2008 Decision
which affirmed both the Decision and Resolution rendered by the CTA in Division in C.T.A. Case No. 7221. It
categorically pronounced that official receipt cannot be interchanged with sales invoice. It further emphasized that
proof of inward remittances like bank credit advices cannot be used in lieu of VAT official receipts to demonstrate
petitioners zero-rated transactions. Under Section 113 of the NIRC of 1997, as amended, irrespective of the nature
of transaction, be it taxable, exempt orzero-rated sale, the law mandates that the taxpayer "for every sale, issue an
invoice or receipt." Thus, the enumerated zero-rated transactions under Sections 106and 108 are those which are
duly covered by VAT invoices (in the case of sales of goods), and VAT official receipts (in the case of sales of
services). In other words, the law itself clearly specified that an official receipt shall cover sales of services, and did
not provide for any other document which can be used as an alternative to or in lieu thereof.
14

15

Upon denial of petitioners Motion for Reconsideration thereof, it filed the instant Petition for Review on Certiorari
before this Court seeking the reversal of the aforementioned Decision and the 13 January 2009
Resolution rendered in C.T.A. EB No. 381.
16

In support thereof, petitioner raises the following grounds: (1) the NIRC of 1997, as amended, does not limit the
proof of input or output VAT to a single document. There is no distinction of the evidentiary value of the supporting
documents. Hence, it is clear that invoices or receipts may be used interchangeably to substantiate VAT; (2) the use
of the VAT official receipt as proof of payment of the sale of service loses its significance due to the requirement that
petitioner must prove the validity of its inward remittances; (3) petitioner presented substantial evidence that
unequivocally proved its zero-rated transactions for the taxable year 2003; and (4) in civil cases, such as claims for
refund or issuance of a TCC, a mere preponderance of evidence will suffice to justify the grant of the claim.
17

The Issue
The sole issue for this Courts consideration is whether or not petitioner is entitled to a refund or issuance of a TCC
in its favor amounting to P3,003,265.14 allegedly representing unutilized input VAT attributable to petitioners zerorated sales for the period of 1 January 2003 to 31 December 2003, in accordance with the provisions of the NIRC of
1997, as amended, other pertinent laws, and applicable jurisprudential proclamations.
Our Ruling
At this juncture, it bears emphasis that jurisdiction over the subject matter or nature of an action is fundamental for a
court to act on a given controversy, and is conferred only by law and not by the consent or waiver upon a court
which, otherwise, would have no jurisdiction over the subject matter or nature of an action. Lack of jurisdiction of the
court over an action or the subject matter of an action cannot be cured by the silence, acquiescence, or even by
express consent of the parties. If the court has no jurisdiction over the nature of an action,its only jurisdiction is to
dismiss the case. The court could not decide the case on the merits. Needless to state, to obviate the possibility
that its decision may be rendered void, the Court can, by its own initiative, raise the question of jurisdiction, although
not raised by the parties. As a corollary thereto, to inquire into the existence of jurisdiction over the subject matter is
the primary concern of a court, for thereon would depend the validityof its entire proceedings. Therefore, even if
there was no jurisdictional issue raised by any party, the Court may look into it at anytime of the proceedings, even
during this appeal.
18

19

20

21

22

It has long been established thatthe CTA is a court of special jurisdiction. As such, it can only take cognizance of
such matters as are clearly within its jurisdiction. Hence, when it appears from the pleadings or the evidence on
record that the court has no jurisdiction over the subject matter, the court shall dismiss the claim.
23

24

Relevant thereto, the Court sitting En Banchas finally settled the issue on proper observance of the prescriptive
periods in claiming for refund of creditable input tax due or paid attributable to any zero-rated or effectively zerorates sales. Thus, in view of the jurisprudential pronouncements rendered in Commissioner of Internal Revenue v.
San Roque Power Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue, and Philex
Mining Corporation v. Commissioner of Internal Revenue (San Roquecase), this Court finds it imperative to first
look into the factual findings of the CTA for the purpose of achieving a complete determination of the issue
presented, particularly as to the timeliness of its administrative and judicial claims.
25

In C.T.A. Case No. 7221, the CTA in Division solely ruled on petitioners non-compliance with the substantiation
requirements, expressing that the evidence submitted by petitioner to prove its zero-rated sales were insufficient so
as to entitle it to the claim for refund or issuance of a TCC. Similar declaration was made by the CTA En Bancin the
assailed 24 September 2008 Decision and 13 January 2009 Resolution in C.T.A. EB No. 381.
Nonetheless, although it is true thatthe substantiation requirements in establishing a refund claim is a valid issue for
this Court to rule upon, the prior determination of whether or notthe CTA properly acquired jurisdiction over
petitioners claim covering the four (4) quarters of taxable year 2003, taking into consideration the timeliness of the
filing of the administrative and judicial claims pursuant to Section 112 of the NIRC of 1997, as amended, and
consistent with the pronouncements made in the San Roque case, is still our primary concern. Clearly, petitioners
claim can only proceed upon compliance with the aforesaid jurisdictional requirement.
Section 112 of the NIRC of 1997, as amended, reads:
SEC. 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-rated or Effectively Zero-rated Sales. Any VAT registered person, whose sales are zero-rated or effectively
zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has not been applied against output tax: x x x
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days
from the date of submission of complete documents in support of the application filed in accordance with Subsection
(A) hereof.
26

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner
to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from
the receipt of the decision denying the claim or after the expiration of the one hundred twentyday period, appeal the
decision orthe unacted claim with the Court of Tax Appeals.
x x x x (Emphases and underscoring supplied)
As mentioned earlier, the proper interpretation of the afore-quoted provision was finally settled in the San
Roquecase by this Court sitting En Banc. The relevant portions of the discussion pertinent to the focal issue
presented in this case are quoted hereunder, to wit:
27

First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
the creditable input tax due or paid to such sales." In short, the law statesthat the taxpayer may apply with the
Commissioner for a refund or credit "within two (2) years," which means at anytime within two years. Thus, the
application for refund or credit may be filed by the taxpayer with the Commissioner on the last day of the two-year
prescriptive period and it will still strictly comply with the law. The two-year prescriptive period is a grace period in
favor of the taxpayer and he can avail ofthe full period before his right to apply for a tax refund or credit is barred by
prescription.
Second, Section 112(C) provides that the Commissioner shall decide the application for refund orcredit "within one
hundred twenty (120) days from the date of submission of complete documents in support of the application filed in
accordance with Subsection (A)." The reference in Section 112(C) of the submission of documents "in support of the
application filed in accordance with Subsection A" means that the application in Section 112(A) is the administrative
claim that the Commissioner must decide within the 120-day period. In short, the two year prescriptive period in
Section 112(A) refers to the period within which the taxpayer can file an administrative claim for tax refund or credit.
Stated otherwise, the two-year prescriptive period does not refer to the filing of the judicial claim with the CTA but to
the filing of the administrative claim with the Commissioner. As held in Aichi, the "phrase within two years x x x
apply for the issuance of a tax credit or refund refers to applications for refund/credit with the CIR and not to
appeals made to the CTA."
xxxx
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer
can file his administrative claim for refund or credit at anytime within the twoyear prescriptive period. If he files his
claim on the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner will have
120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or does not
decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only the plain
meaning but also the only logical interpretation of Section 112(A) and (C). (Emphases supplied)
28

It was moreover pronounced:


The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-year
prescriptive period under Section 229, should be effective only from its promulgation on 8 June 2007 until its
abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the reckoning of the two-year

prescriptive period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year prescriptive
period for claiming refund or credit of input VAT should be governed by Section 112(A) following the verba legis
rule.The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section
112(A) in computing the two-year prescriptive period in claiming refund or credit of input VAT. (Emphasis and
underlining supplied)
29

Applying the foregoing pronouncements, and considering that petitioners administrative claim was filed before the
promulgation of the Atlas case, it is clear that petitioner only had a period of two (2) years from the close of the
taxable quarter when the zero-rated or effectively zero-rated sales were made, to file an administrative claim for
refund or issuance of a TCC in its favor. As aptly found by the CTA in Division and the CTA En Banc, the
administrative claim covering all four (4) quarters of taxable year 2003, was filed by petitioner on 13 April 2005.
However, although petitioners administrative claim was filed within the prescribed 2-year period under Section
112(A) of the NIRC of 1997, as amended, insofar as to the Second, Third, and Fourth Quartersof taxable year 2003
are concerned, it appears that its claim covering the First Quarter of taxable year 2003 was belatedly filed, detailed
hereunder as follows:
30

Taxable year 2003 (close of taxable


quarters)

Last day of filing


administrative claims
(within the 2-year period
from the close of the
taxable quarters)

1st Quarter (31 March 2003)

30 March 2005

2nd Quarter (30 June 2003)

29 June 2005

3rd Quarter (30 September 2003)

29 September 2005

4th Quarter (31 December 2003)

30 December 2005

31

Filing date of the administ


rative claim

13 April
2005

Clearly, the CTA had no jurisdiction to rule on petitioners refund claim covering the First Quarter of taxable year
2003 since its administrative claim was filed beyond the 2-year prescriptive periodas mandated by law, or exactly
fourteen (14) days after the last day to file the same.
On the other hand, as to petitioners claims covering the remaining quarters of taxable year 2003, the Court finds
that petitioner has indeed properly filed its judicial claim beforethe CTA, even without waiting for the expiration of the
one hundred twenty (120)-day period, since at the time petitioner filed its petition, BIR Ruling No. DA-489-03 issued
on 10 December 2003 was already in effect. This ruling is not without any legal basis. Thus:
Like San Roque, Taganito also filed its petition for review with the CTA without waiting for the 120-day period to
lapse. Also, like San Roque, Taganito filed its judicial claim before the promulgation of the Atlas doctrine. Taganito
filed a Petition for Review on 14 February 2007 with the CTA. This is almost fourmonths before the adoption of the
Atlas doctrine on 8 June 2007. Taganito is similarly situated as San Roque - both cannot claim being misled,
misguided, or confused by the Atlas doctrine.
1wphi1

However, Taganito can invoke BIR Ruling No. DA-489-03 dated 10 December 2003, which expressly ruled that the
"taxpayer claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA
by way of Petition for Review."Taganito filed its judicial claim after the issuance of BIR Ruling No. DA-489-03 but
before the adoption of the Aichidoctrine. Thus, xxx Taganito is deemed to have filed its judicial claim with the CTA on
time. (Emphasis supplied)
32

xxxx
To repeat, a claim for tax refund or credit, like a claim for tax refund exemption, is construed strictly against the
taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is compliance with the
120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day periods is necessary
for such a claim to prosper, whether before, during, or after the effectivity of the Atlas doctrine, except for the period
from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichi doctrine
was adopted, which again reinstated the 120+30 day periods as mandatory and jurisdictional. (Emphasis supplied)
33

Without doubt, it is evident from the foregoing jurisprudential pronouncements that as a general rule, a taxpayerclaimant needs to wait for the expiration of the one hundred twenty(120)-day period before it may be considered as
"inaction" on the partof the Commissioner of Internal Revenue (CIR). Thereafter, the taxpayer-claimant is given only
a limited period of thirty (30) days from said expiration tofile its corresponding judicial claim with the CTA. However,
with the exception of claims made during the effectivity of BIR Ruling No. DA-489-03 (from 10 December 2003 to 5
October 2010), petitioner has indeed properly and timely filed its judicial claim covering the Second, Third, and
Fourth Quarters of taxable year 2003, within the bounds of the law and existing jurisprudence.
34

Now, the significance of the difference between a sales invoice and an official receipt as evidence for zero-rated
transactions.
This is not novel.
For emphasis, even prior to the enactment of R.A. No. 9337, which clearly delineates the invoice and official
receipt, our Tax Code has already made the distinction.
35

Section 113 of the NIRC of 1997, as amended is the focal provision, to wit:
SEC. 113. Invoicing and Accounting Requirements for VATregistered Persons.(A) Invoicing Requirements.- A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to
the information required under Section 237, the following information shall be indicated in the invoice or receipt:
(Emphasis supplied)
xxxx
Although it appears under the above-quoted provision that there is no clear distinction on the evidentiary value of an
invoice or official receipt, it is worthy to note that the said provision is a general provision which covers all sales of a
VAT registered person, whether sale of goods or services. It does not necessarily follow that the legislature intended
to use the same interchangeably. The Court therefore cannot conclude that the general provision of Section 113 of
the NIRC of 1997, as amended, intended that the invoice and official receipt can beused for either sale of goods or
services, because there are specific provisions of the Tax Code which clearly delineates the difference between the
two transactions.
In this instance, Section 108 of the NIRC of 1997, as amended, provides:
SEC. 108. Value-added Tax on Sale of Servicesand Use or Lease of Properties.xxxx
(C) Determination of the Tax -The tax shall be computed by multiplying the total amount indicated in the official
receiptby oneeleventh (1/11). (Emphasis supplied)
Comparatively, Section 106 of the same Code covers sale of goods, thus:
SEC. 106. Value-added Tax on Sale of Goods or Properties,xxxx
(D) Determination of the Tax. The tax shall be computed by multiplying the total amount indicated in the invoiceby
one-eleventh (1/11). (Emphasis supplied)
Apparently, the construction of the statute shows that the legislature intended to distinguish the use of an invoice
from an official receipt. It is more logical therefore to conclude that subsections of a statute under the same heading
should be construed as having relevance to its heading. The legislature separately categorized VAT on sale of
goods from VAT on sale of services, not only by its treatment with regard to tax but also with respect to

substantiation requirements. Having been grouped under Section 108, its subparagraphs, (A) to (C),and Section
106, its subparagraphs (A) to (D), have significant relations with each other.
Legislative intent must be ascertained from a consideration of the statute as a whole and not of an isolatedpart or a
particular provision alone. This is a cardinal rule in statutory construction. For taken in the abstract, a word or phrase
might easily convey a meaning quite different from the one actually intended and evident when the word or phrase is
considered with those with which it is associated. Thus, an apparently general provision may have a limited
application if viewed together with the other provisions.
36

Settled is the rule that every part of the statute must be considered with the other parts. Accordingly, the whole of
Section 108 should be read in conjunction with Sections 113 and 237 so as to give life to all the provisions intended
for the sale of services. There is no conflict between the provisions of the law that cover sale of services that are
subject to zero rated sales; thus, it should be read altogether to reveal the true legislative intent.
37

To finally settle this matter, this Court declared in KEPCO Philippines Corporation v. Commissioner of Internal
Revenue, that the VAT invoice is the seller's best proof of the sale of the goods or services to the buyer while the
VAT receipt is the buyer's best evidence of the payment of goods or services received from the seller. Thus, the
High Court concluded that VAT invoice and VAT receipt should not be confused as referring to one and the same
thing. Certainly, neither does the law intend the two to be used interchangeably. Accordingly, we agree with the
ruling of the CTA in Division, as well as that of the CTA En Banc, insofar as to its discussion on the relevancy of the
aforesaid substantiation requirements.
38

WHEREFORE, the petition is DENIED. No costs.


SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 190928

January 13, 2014

TEAM ENERGY CORPORATION (formerly MIRANT PAGBILAO CORP.), Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court which seeks to reverse and set
aside the Decision dated August 14, 2009 and Resolution dated January 5 2010 of the Court of Tax Appeals CTA)
En Banc in CTA EB No. 422 which modified the Decision dated May 16 2008 and Resolution dated September 8,
2008 of the CT A First Division insofar as it reduced the amount of refund granted from P69 618 971.19 to P51 134
951.40.
1

The facts follow.


On the following dates, petitioner filed with the Bureau of Internal Revenue (BIR) its first to fourth quarterly valueadded tax (VAT) returns for the calendar year 2002:
Quarter

Date Filed

First

April 25, 2002

Second

July 23, 2002

Third

October 25, 2002

Fourth

January 27, 2003

Subsequently, on December 22, 2003, petitioner filed an administrative claim for refund of unutilized input VAT with
Revenue District Office No. 60, Lucena City, in the total amount of P79,918,002.95 for calendar year 2002.
However, due to respondents inaction, petitioner elevated its claim before the CTA First Division on April 22, 2004.
In his Answer, respondent interposed the following special and affirmative defenses:
5. Petitioners alleged claim for refund is subject to administrative investigation/examination by the
respondent;
6. To support its claim, it is imperative for petitioner to prove the following, viz.:
a. The registration requirements of a value-added taxpayer in compliance with Section 6 (a) and (b)
of Revenue Regulations No. 6-97 in relation to Section 4.107-1 (a) of Revenue Regulations No. 795, and Section 236 of the Tax Code, as amended;
b. The invoicing and accounting requirements for VAT-registered persons, as well as the filing and
payment of VAT in compliance with the provisions of Sections 113 and 114 of the Tax Code, as
amended;
c. Proof of compliance with the prescribed checklist of requirements to be submitted involving claim
for VAT refund in pursuance to Revenue Memorandum Order No. 53-98, otherwise there would be
no sufficient compliance with the filing of administrative claim for refund which is a condition sine qua
non prior to the filing of judicial claim in accordance with the provision of Section 229 of the Tax
Code, as amended. It is worthy of emphasis that Section 112 (D) of the Tax Code, as amended,
requires the submission of complete documents in support of the application filed with the Bureau of
Internal Revenue before the 120-day audit period shall apply, and before the taxpayer could avail of
judicial remedies as provided for in the law. Hence, petitioners failure to submit proof of compliance
with the above-stated requirements warrants immediate dismissal of the petition for review.
d. That the input taxes of P79,918,002.95 allegedly paid by the petitioner on its purchases of goods
and services for the four (4) quarters of the year 2002 were attributable to its zero-rated sales and
such have not been applied against any output tax and were not carried over in the succeeding
taxable quarter or quarters;
e. That petitioners administrative and judicial claims for tax credit or refund of unutilized input tax
(VAT) was filed within two (2) years after the close of the taxable quarter when the sales were made
in accordance with Sections 112 (A) and (D) and 229 of the TAX Code, as amended;
f. That petitioners domestic purchases of goods and services were made in the course of its trade
and business, properly supported by VAT invoices and/or official receipts and other documents, such
as subsidiary purchase Journal, showing that it actually paid VAT in accordance with Sections 110
(A) (2) and 113 of the Tax Code as amended, and in pursuance to Section 4.104-5 (a) & (b) of
Revenue Regulations No. 7-95 (Re: Substantiation of Claims for Input Tax Credit);
g. The requirements as enumerated under Section 4.104-2 of Revenue Regulations 7-95. (Re:
Persons who can avail of the Input Tax Credits);
7. Furthermore, in an action for refund the burden of proof is on the taxpayer to establish its right to refund
and failure to sustain the burden is fatal to the claim for refund/credit. This is so because exemptions from
taxation are highly disfavored in law and he who claims exemption must be able to justify his claim by the

clearest grant of organic or statutory law. An exemption from common burden cannot be permitted to exist
upon vague implications;
8. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption
from taxation and, as such, they are looked upon with disfavor.
5

After trial on the merits, the CTA First Division rendered judgment as follows:
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the instant Petition for Review is hereby PARTIALLY
GRANTED. Thus, Respondent is hereby ORDERED TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE to
petitioner in the reduced amount of SIXTY NINE MILLION SIX HUNDRED EIGHTEEN THOUSAND NINE
HUNDRED SEVENTY-ONE AND 19/100 PESOS (P69,618,971.19), representing unutilized input value-added taxes
paid by petitioner on its domestic purchases of goods and services and importation of goods attributable to its
effectively zero-rated sales of power generation services to the National Power Corporation for the taxable year
2002.
SO ORDERED.

Not satisfied, respondent filed his Motion for Partial Reconsideration against said decision, which the CTA First
Division denied in a Resolution dated September 8, 2008.
On October 10, 2007, respondent filed a Petition for Review with the CTA En Banc.
In a Decision dated August 14, 2009, the CTA En Banc affirmed the CTA First Divisions decision with the
modification that the refundable amount be reduced to P51,134,951.40. The fallo reads:
WHEREFORE, premises considered, the petition is hereby PARTLY GRANTED. The assailed Decision dated May
16, 2008 and Resolution dated September 8, 2008 are hereby AFFIRMED, with modification that
onlyP51,134,951.40 is the refundable amount to respondent for taxable year 2002. Accordingly, the Commissioner
of Internal Revenue is hereby ORDERED to REFUND or ISSUE a TAX CREDIT CERTIFICATE in favor of Team
Energy Corporation the reduced amount of FIFTY-ONE MILLION ONE HUNDRED THIRTY- FOUR THOUSAND
NINE HUNDRED FIFTY-ONE AND 40/100 (P51,134,951.40), representing the latters excess and unutilized input
VAT for the period covering calendar year 2002.
SO ORDERED.

Unfazed, petitioner filed a motion for reconsideration against said Decision, but the same was denied in a
Resolution dated January 5, 2010.
Hence, the present petition wherein petitioner raises the following issues for our resolution:
THE CTA EN BANC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT DISALLOWED PETITIONERS INPUT VAT FOR THE FIRST QUARTER AMOUNTING
TO P18,484,019.79 BASED ON PRESCRIPTION BECAUSE:
A. PETITIONER FILED ITS JUDICIAL CLAIM FOR REFUND WELL WITHIN THE TWO-YEAR
PRESCRIPTIVE PERIOD RECKONED FROM THE DATE OF FILING OF THE QUARTERLY VAT
RETURN PURSUANT TO LONG STANDING JURISPRUDENCE, WHICH THE HONORABLE
COURT EXPRESSLY RECOGNIZED IN ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION V. COMMISSIONER OF INTERNAL REVENUE, G.R. NOS. 141104 & [148763],
JUNE 8, 2007 ("ATLAS CASE").
B. THE CTA EN BANC SHOULD NOT HAVE HASTILY RELIED ON THE CONTRARY RULING OF
THE HONORABLE COURT IN COMMISSIONER OF INTERNAL REVENUE V. MIRANT PAGBILAO
CORPORATION, G.R. NO. 172129, SEPTEMBER 12, 2008 ("MIRANT PAGBILAO CASE") AS THE
HONORABLE COURT COULD NOT HAVE INTENDED TO REVERSE THE DOCTRINE IN THE
ATLAS CASE IN THE LIGHT OF ARTICLE VIII, SECTION 4 (3) OF THE CONSTITUTION.

C. ASSUMING, BUT WITHOUT CONCEDING, THAT THE MIRANT PAGBILAO CASE REVERSED
THE DOCTRINE IN THE ATLAS CASE, THE SAME SHOULD BE APPLIED PROSPECTIVELY AND
NOT RETROACTIVELY TO THE PREJUDICE OF PETITIONER WHO RELIED IN GOOD FAITH ON
PREVAILING JURISPRUDENCE AT THE TIME OF FILING OF ITS JUDICIAL CLAIM FOR
REFUND.
8

Simply, the sole issue for our resolution is whether or not petitioner timely filed its judicial claim for refund of input
VAT for the first quarter of 2002.
To appropriately address this issue, it is relevant to quote Sections 112 (A) and (C) of the Tax Code, viz.:
SEC. 112. Refund or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been applied against output tax;
Provided, however, That in the case of zero-rated sales under Section 106 (A)(2)(a)(1), (2) and (B) and Section 108
(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where
the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of good of
properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to
any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales.
xxxx
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the Commissioner
shall grant a refund or issue a tax credit certificate for creditable input taxes within one hundred twenty (120) days
from the date of submission of complete documents in support of the application filed in accordance with Subsection
(A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner
to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from
the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax Appeals.
In its assailed decision, the CTA En Banc reduced petitioners claim for refund of its excess or unutilized input VAT
to P51,134,951.40 on the ground that petitioners judicial claim for the first quarter of 2002 was filed beyond the twoyear period prescribed under Section 112 (A) of the Tax Code, to wit:
As regards the fifth requisite, Section 112 (A) of the NIRC of 1997, as amended, provides that a VAT-registered
taxpayer whose sale is zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for refund or issuance of a TCC of its creditable input tax or paid
attributable to such sales.
In the recent case of Commissioner of Internal Revenue v. Mirant Pagbilao (Formerly Southern Energy Quezon,
Inc.), 565 SCRA 154 (hereafter referred to as the "Mirant Case"), the Supreme Court definitely settled the issue on
the reckoning of the prescriptive period on claims for refund of input VAT attributable to zero-rated or effectively
zero-rated sales, as follows:
xxxx
Pursuant to the above ruling of the Supreme Court, it is clear that the two-year prescriptive period provided in
Section 112 (A) of the NIRC of 1997, as amended, should be counted not from the payment of the tax, but from the
close of the taxable quarter when the sales were made. Pursuant to the above ruling of the Supreme Court, the
following are the pertinent dates relevant to petitioners claim for refund:

Period (2002)

Close of Taxable
Quarter

Last Day for Filing of


The Claim

1st Quarter

March 31, 2002

March 31, 2004

2nd Quarter

June 30, 2002

June 30, 2004

3rd Quarter

September 30, 2002

September 30, 2004

4th Quarter

December 31, 2002

December 31, 2004

Record shows that respondent filed its administrative claim for refund or issuance of a TCC on December 22, 2003,
while the judicial claim for refund was filed on April 22, 2004. Since respondent filed its judicial claim for refund for
the four quarters of 2002, only on April 22, 2004, twenty-two (22) days from March 31, 2004, the last day prescribed
by the Mirant Case, respondent is barred from claiming refund of its unutilized input taxes for the first quarter of
2002. Therefore, the claim for refund granted by the First Division of this Court in the amount ofP69,618,971.19
should be reduced by deducting the portion of the claim corresponding to the first quarter that had already
prescribed, x x x.
xxxx
In sum, the Court En Banc finds that the total substantiated input tax filed within the two-year prescriptive period of
respondent TeaM Energy amounts to P51,134,951.40 only.
9

Recently, however, in the consolidated cases of Commissioner of Internal Revenue v. San Roque Power
Corporation (San Roque ponencia), this Court emphasized that Section 112 (A) and (C) of the Tax Code must be
interpreted according to its clear, plain and unequivocal language.
10

In said case, we held that the taxpayer can file his administrative claim for refund or issuance of tax credit certificate
anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive
period, his claim is still filed on time. The Commissioner will then have 120 days from such filing to decide the claim.
If the Commissioner decides the claim on the 120th day or does not decide it on that day, the taxpayer still has 30
days to file his judicial claim with the CTA. Thus, the Court expounded:
Section 112 (C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of
the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from receipt of the decision denying the claim or after the
expiration of the one hundred twenty-day period, appeal the decision or the unacted claim with the Court of Tax
Appeals. (Emphasis supplied)
This law is clear, plain and unequivocal. Following the well-settled verba legis doctrine, this law should be applied
exactly as worded since it is clear, plain and unequivocal. As this law states, the taxpayer may, if he wishes, appeal
the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioners decision, or if the
Commissioner does not act on the taxpayers claim within the 120-day period, the taxpayer may appeal to the CTA
within 30 days from the expiration of the 120-day period.
xxxx
There are three compelling reasons why the 30-day period need not necessarily fall within the two-year prescriptive
period, as long as the administrative claim is filed within the two-year prescriptive period.
First, Section 112 (A) clearly, plainly and unequivocally provides that the taxpayer "may, within two (2) years after
the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund
of the creditable input tax due or paid to such sales." In short, the law states that the taxpayer may apply with the
Commissioner for a refund or credit "within two (2) years," which means at anytime within two years. Thus, the
application for refund or credit may be filed by the taxpayer with the Commissioner on the last day of the two-year
prescriptive period and it will still strictly comply with the law. The two-year prescriptive period is a grace period in

favor of the taxpayer and he can avail of the full period before his right to apply for a tax refund or credit is barred by
prescription.
Second, Section 112 (C) provides that the Commissioner shall decide the application for refund or credit "within one
hundred twenty (120) days from the date of submission of complete documents in support of the application filed in
accordance with Subsection (A)." The reference in Section 112 (C) of the submission of documents "in support of
the application filed in accordance with Subsection (A)" means that the application in Section 112 (A) is the
administrative claim that the Commissioner must decide within the 120-day period. In short, the two-year
prescriptive period in Section 112 (A) refers to the period within which the taxpayer can file an administrative claim
for tax refund or credit. Stated otherwise, the two-year prescriptive period does not refer to the filing of the judicial
claim with the CTA but to the filing of the administrative claim with the Commissioner. As held in Aichi, the "phrase
within two years x x x apply for the issuance of a tax credit or refund" refers to applications for refund/credit with the
CIR and not to appeals made to the CTA."
Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period (equivalent to
730 days), then the taxpayer must file his administrative claim for refund or credit within the first 610 days of the twoyear prescriptive period. Otherwise, the filing of the administrative claim beyond the first 610 days will result in the
appeal to the CTA being filed beyond the two-year prescriptive period. Thus, if the taxpayer files his administrative
claim on the 611th day, the Commissioner, with his 120-day period, will have until the 731st day to decide the claim.
If the Commissioner decides only on the 731st day, or does not decide at all, the taxpayer can no longer file his
judicial claim with the CTA because the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30day period granted by law to the taxpayer to file an appeal before the CTA becomes utterly useless, even if the
taxpayer complied with the law by filing his administrative claim within the two-year prescriptive period.
The theory that the 30-day period must fall within the two-year prescriptive period adds a condition that is not found
in the law. It results in truncating 120 days from the 730 days that the law grants the taxpayer for filing his
administrative claim with the Commissioner. This Court cannot interpret a law to defeat, wholly or even partly, a
remedy that the law expressly grants in clear, plain and unequivocal language.
Section 112 (A) and (C) must be interpreted according to its clear, plain and unequivocal language. The taxpayer
can file his administrative claim for refund or credit at any time within the two-year prescriptive period. If he files his
claim on the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner will have
120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or does not
decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only the plain
meaning but also the only logical interpretation of Section 112 (A) and (C). (Emphasis supplied)
1wphi1

11

Based on the aforequoted discussions, we therefore disagree with the CTA En Bancs finding that petitioners
judicial claim for the first quarter of 2002 was not timely filed.
The San Roque ponencia firmly enunciates that the taxpayer can file his administrative claim for refund or credit at
any time within the two-year prescriptive period. What is only required of him is to file his judicial claim within thirty
(30) days after denial of his claim by respondent or after the expiration of the 120-day period within which
respondent can decide on its claim.
Here, there is no question that petitioner timely filed its administrative claim with the Bureau of Internal Revenue
within the required period. However, since its administrative claim was filed within the two-year prescriptive period
and its judicial claim was filed on the first day after the expiration of the 120-day period granted to respondent, to
decide on its claim, we rule that petitioners claim for refund for the first quarter of 2002 should be granted.
All told, we revert to the CTA First Division s finding that petitioner s total refundable amount should
beP69,618,971.19, representing petitioner s unutilized input VAT paid on its domestic purchases of goods and
services and importation of goods attributable to its effectively zero-rated sales of power generation services to the
National Power Corporation for the taxable year 2002. WHEREFORE, in view of the foregoing, the Decision dated
August 14, 2009 and Resolution dated January 5, 2010 of the Court of Tax Appeals En Banc, in CTA EB No. 422 are
hereby AFFIRMED with MODIFICATION that petitioner s total refundable amount shall beP69,618,971.19.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 197525

June 4, 2014

VISAYAS GEOTHERMAL POWER COMPANY, Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the February 7,
2011 Decision and the June 27, 2011 Resolution of the Court of Tax Appeals En Banc (CTA En Banc) in CTA EB
Case Nos. 561 and 562, which reversed and set aside the April 17, 2009 Decision of the CT A Second Division in
CTA Case No. 7559.
1

The Facts:
Petitioner Visayas Geothermal Power Company (VGPC) is a special limited partnership duly organized and existing
under Philippine Laws with its principal office at Milagro, Ormoc City, Province of Leyte. It is principally engaged in
the business of power generation through geothermal energy and the sale of generated power to the Philippine
National Oil Company (PNOC),pursuant to the Energy Conversion Agreement.
VGPC filed with the Bureau of Internal Revenue (BIR)its Original Quarterly VAT Returns for the first to fourth
quarters of taxable year 2005 on April 25, 2005, July 25, 2005, October 25, 2006, and January 20, 2006,
respectively.
On December 6, 2006, it filed an administrative claim for refund for the amount of 14,160,807.95 with the BIR
District Office No. 89 of Ormoc City on the ground that it was entitled to recover excess and unutilized input VAT
payments for the four quarters of taxable year 2005, pursuant to Republic Act (R.A.) No. 9136, which treated sales
of generated power subject to VAT to a zero percent (0%) rate starting June 26, 2001.
3

Nearly one month later, on January3, 2007, while its administrative claim was pending, VGPC filed its judicial claim
via a petition for review with the CTA praying for a refund or the issuance of a tax credit certificate in the amount of
14,160,807.95, covering the four quarters of taxable year 2005.
In its April 17, 2009 Decision, the CTA Second Division partially granted the petition as follows:
WHEREFORE, in view of the foregoing considerations, the Petition for Review is hereby PARTIALLY GRANTED.
Accordingly, respondent is ORDERED TO REFUND or, in the alternative, TO ISSUE A TAX CREDIT CERTIFICATE
in favor of petitioner the reduced amount of SEVEN MILLION SIX HUNDRED NINENTY NINE THOUSAND THREE
HUNDRED SIXTY SIX PESOS AND 37/100 (P7,699,366.37) representing unutilized input VAT paid on domestic
purchases of non-capital goods and services, services rendered by non-residents, and importations of non-capital
goods for the first to fourth quarters of taxable year 2005.
SO ORDERED.

The CTA Second Division found that only the amount of 7,699,366.37 was duly substantiated by the required
evidence. As to the timeliness of the filing of the judicial claim, the Court ruled that following the case of
Commissioner of Internal Revenue (CIR) v. Mirant Pagbilao Corporation (Mirant), both the administrative and
judicial claims were filed within the two-year prescriptive period provided in Section 112(A) of the National Internal
Revenue Code of 1997 (NIRC),the reckoning point of the period being the close of the taxable quarter when the
sales were made.
5

In its October 29, 2009 Resolution, the CTA Second Division denied the separate motions for partial reconsideration
filed by VGPC and the CIR. Thus, both VGPC and the CIR appealed to the CTA En Banc.
6

In the assailed February 7, 2011 Decision, the CTA En Banc reversed and set aside the decision and resolution of
the CTA Second Division, and dismissed the original petition for review for having been filed prematurely, to wit:
7

WHEREFORE, premises considered:


i. As regards CTA EB Case No. 562, the Petition for Review is hereby DISMISSED; and
ii. As regards CTA EB Case No. 561, the Petition for Review is hereby GRANTED.
Accordingly, the Decision, dated April 17, 2009, and the Resolution, dated October 29, 2009, of the CTA Former
Second Division are hereby REVERSED and SET ASIDE, and another one is hereby entered DISMISSING the
Petition for Review filed in CTA Case No. 7559 for having been filed prematurely.
SO ORDERED.

The CTA En Banc explained that although VGPC seasonably filed its administrative claim within the two-year
prescriptive period, its judicial claim filed with the CTA Second Division was prematurely filed under Section 112(D)
of the National Internal Revenue Code (NIRC).Citing the case of CIR v. Aichi Forging Company of Asia, Inc.
(Aichi), the CTA En Banc held that the judicial claim filed 28 days after the petitioner filed its administrative claim,
without waiting for the expiration of the 120-day period, was premature and, thus, the CTA acquired no jurisdiction
over the case.
9

The VGPC filed a motion for reconsideration, but the CTA En Banc denied it in the assailed June 27, 2011
Resolution for lack of merit. It stated that the case of Atlas Consolidated Mining v. CIR (Atlas) relied upon by the
petitioner had long been abandoned.
10

Hence, this petition.


ASSIGNMENT OF ERRORS
I
The CTA En Banc erred in finding that the 120-day and 30-day periods prescribed under Section 112(D) of the 1997
Tax Code are jurisdictional and mandatory in the filing of the judicial claim for refund. The CTA-Division should take
cognizance of the judicial appeal as long as it is filed with the two-year prescriptive period under Section 229 of the
1997 Tax Code.
II
The CTA En Banc erred in finding that Aichi prevails over and/or overturned the doctrine in Atlas, which upheld the
primacy of the two-year period under Section 229 of the Tax Code. The law and jurisprudence have long established

the doctrine that the taxpayer is duty-bound to observe the two-year period under Section 229 of the Tax Code when
filing its claim for refund of excess and unutilized VAT.
III
The CTA En Banc erred in finding that Respondent CIR is not estopped from questioning the jurisdiction of the CTA.
Respondent CIR, by her actions and pronouncements, should have been precluded from questioning the jurisdiction
of the CTA-Division.
IV
The CTA En Banc erred in applying Aichi to Petitioner VGPCs claim for refund. The novel interpretation of the law in
Aichi should not be made to apply to the present case for being contrary to existing jurisprudence at the time
Petitioner VGPC filed its administrative and judicial claims for refund.
11

Petitioner VGPC argues that (1) the law and jurisprudence have long established the rule regarding compliance with
the two-year prescriptive period under Section 112(D) in relation to Section 229 of the 1997 Tax Code; (2) Aichi did
not overturn the doctrine in Atlas, which upheld the primacy of the two-year period under Section 229; (3)
respondent CIR is estopped from questioning the jurisdiction of the CTA and Aichi cannot be indiscriminately applied
to all VAT refund cases; (4) applying Aichi invariably to all VAT refund cases would effectively grant respondent CIR
unbridled discretion to deprive a taxpayer of the right to effectively seek judicial recourse, which clearly violates the
standards of fairness and equity; and (5) the novel interpretation of the law in Aichi should not be made to apply to
the present case for being contrary to existing jurisprudence at the time VGPC filed its administrative and judicial
claims for refund. Aichi should be applied prospectively.
Ruling of the Court
Judicial claim not premature
The assignment of errors is rooted in the core issue of whether the petitioners judicial claim for refund was
prematurely filed.
Two sections of the NIRC are pertinent to the issue at hand, namely Section 112 (A) and (D) and Section 229, to wit:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales.- Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied
against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1),
(2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had
been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and
also in taxable or exempt sale of goods of properties or services, and the amount of creditable input tax due
or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.
xxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made.- In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete documents in support of the application
filed in accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner
to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from
the receipt of the decision denying the claim or after the expiration of the one hundred twenty day period, appeal the
decision or the unacted claim with the Court of Tax Appeals.
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in any
court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to
have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been
excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been
paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment
of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return
upon which payment was made, such payment appears clearly to have been erroneously paid.
[Emphases supplied]
It has been definitively settled in the recent En Banc case of CIR v. San Roque Power Corporation (San
Roque), that it is Section 112 of the NIRC which applies to claims for tax credit certificates and tax refunds arising
from sales of VAT-registered persons that are zero-rated or effectively zero-rated, which are, simply put, claims for
unutilized creditable input VAT.
12

Thus, under Section 112(A), the taxpayer may, within 2 years after the close of the taxable quarter when the sales
were made, via an administrative claim with the CIR, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales. Under Section 112(D), the CIR must then act on the claim
within 120 days from the submission of the taxpayers complete documents. In case of (a) a full or partial denial by
the CIR of the claim, or (b) the CIRs failure to act on the claim within 120 days, the taxpayer may file a judicial claim
via an appeal with the CTA of the CIR decision or unacted claim, within 30 days (a) from receipt of the decision; or
(b) after the expiration of the 120-day period.
The 2-year period under Section 229 does not apply to appeals before the CTA in relation to claims for a refund or
tax credit for unutilized creditable input VAT.Section 229 pertains to the recovery of taxes erroneously, illegally, or
excessively collected. San Roque stressed that "input VAT is not excessively collected as understood under
Section 229 because, at the time the input VAT is collected, the amount paid is correct and proper." It is, therefore,
Section 112 which applies specifically with regard to claiming a refund or tax credit for unutilized creditable input
VAT.
13

14

15

Upholding the ruling in Aichi, San Roque held that the 120+30 day period prescribed under Section 112(D)
mandatory and jurisdictional. The jurisdiction of the CTA over decisions or inaction of the CIR is only appellate in
nature and, thus, necessarily requires the prior filing of an administrative case before the CIR under Section
112. The CTA can only acquire jurisdiction over a case after the CIR has rendered its decision, or after the lapse of
the period for the CIR to act, in which case such inaction is considered a denial. A petition filed prior to the lapse of
16

17

18

19

the 120-day period prescribed under said Section would be premature for violating the doctrine on the exhaustion of
administrative remedies.
20

There is, however, an exception to the mandatory and jurisdictional nature of the 120+30 day period. The Court in
San Roque noted that BIR Ruling No. DA-489-03, dated December 10, 2003, expressly stated that the "taxpayerclaimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of
Petition for Review." This BIR Ruling was recognized as a general interpretative rule issued by the CIR under
Section 4 of the NIRC and, thus, applicable to all taxpayers. Since the CIR has exclusive and original jurisdiction to
interpret tax laws, it was held that taxpayers acting in good faith should not be made to suffer for adhering to such
interpretations. Section 246 of the Tax Code, in consonance with equitable estoppel, expressly provides that a
reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer who in good faith relied on the BIR
regulation or ruling prior to its reversal. Hence, taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its
issuance on December 10, 2003 up to its reversal by this Court in Aichion October 6, 2010, where it was held that
the 120+30 day period was mandatory and jurisdictional.
21

22

23

Accordingly, the general rule is that the 120+30 day period is mandatory and jurisdictional from the effectivity of the
1997 NIRC on January 1, 1998, up to the present. As an exception, judicial claims filed from December 10, 2003 to
October 6, 2010 need not wait for the exhaustion of the 120-day period.
24

A review of the facts of the present case reveals that petitioner VGPC timely filed its administrative claim with the
CIR on December 6, 2006, and later, its judicial claim with the CTA on January 3, 2007. The judicial claim was
clearly filed within the period of exception and was, therefore, not premature and should not have been dismissed
by the CTA En Banc.
In the present petition, VGPC prays that the Court grant its claim for refund or the issuance of a tax credit certificate
for its unutilized input VAT in the amount of P14,160,807.95. The CTA Second Division, however, only awarded the
amount of P7,699,366.37. The petitioner has failed to present any argument to support its entitlement to the former
amount.
In any case, the Court would have been precluded from considering the same as such would require a review of the
evidence, which would constitute a question of fact outside the Courts purview under Rule 45 of the Rules of Court.
The Court, thus, finds that the petitioner is entitled to the refund awarded to it by the CTA Second Division in the
amount of P7,699,366.37.
Atlas doctrine has no relevance
to the 120+30 day period for
filing judicial claim
Although the core issue of prematurity of filing has already been resolved, the Court deems it proper to discuss the
petitioners argument that the doctrine in Atlas, which allegedly upheld the primacy of the 2-year prescriptive period
under Section 229,should prevail over the ruling in Aichi regarding the mandatory and jurisdictional nature of the
120+30 day period in Section 112.
In this regard, it was thoroughly explained in San Roque that the Atlas doctrine only pertains to the reckoning point
of the 2-year prescriptive period from the date of payment of the output VAT under Section 229, and has no
relevance to the 120+30 day period under Section 112, to wit:
The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-year
prescriptive period under Section 229, should be effective only from its promulgation on 8 June 2007 until its
abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the reckoning of the two-year
prescriptive period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year prescriptive

period for claiming refund or credit of input VAT should be governed by Section 112(A) following the verba legis rule.
The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in
computing the two year prescriptive period in claiming refund or credit of input VAT.
The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the application of the
120+30 day periods was not in issue in Atlas. The application of the 120+30 day periods was first raised in Aichi,
which adopted the verba legis rule in holding that the 120+30 day periods are mandatory and jurisdictional. The
language of Section 112(C) is plain, clear, and unambiguous. When Section 112(C) states that "the Commissioner
shall grant a refund or issue the tax credit within one hundred twenty (120) days from the date of submission of
complete documents," the law clearly gives the Commissioner 120 days within which to decide the taxpayers claim.
Resort to the courts prior to the expiration of the 120-day period is a patent violation of the doctrine of exhaustion of
administrative remedies, a ground for dismissing the judicial suit due to prematurity. Philippine jurisprudence is
awash with cases affirming and reiterating the doctrine of exhaustion of administrative remedies. Such doctrine is
basic and elementary.
25

[Underscoring supplied]
Thus, Atlas is only relevant in determining when to file an administrative claim with the CIR for refund or credit of
unutilized creditable input VAT, and not for determining when to file a judicial claim with the CTA. From June 8, 2007
to September 12, 2008, the 2-year prescriptive period to file administrative claims should be counted from the date
of payment of the output VAT tax. Before and after said period, the 2-year prescriptive period is counted from the
close of the taxable quarter when the sales were made, in accordance with Section 112(A). In either case, the
mandatory and jurisdictional 120+30 day period must be complied with for the filing of the judicial claim with the
CTA, except for the period provided under BIR Ruling No. DA-489-03, as previously discussed.
The Court further noted that Atlas was decided in relation to the 1977 Tax Code which had not yet provided for the
30-day period for the taxpayer to appeal to the CTA from the decision or inaction of the CIR over claims for
unutilized input VAT. Clearly then, the Atlas doctrine cannot be invoked to disregard compliance with the 120+30 day
mandatory and jurisdictional period. In San Roque, it was written:
26

The old rule that the taxpayer may file the judicial claim, without waiting for the Commissioners decision if the twoyear prescriptive period is about to expire, cannot apply because that rule was adopted before the enactment of the
30-day period. The 30-day period was adopted precisely to do away with the old rule, so that under the VAT System
the taxpayer will always have 30 days to file the judicial claim even if the Commissioner acts only on the 120th day,
or does not act at all during the 120-day period. With the 30-day period always available to the taxpayer, the
taxpayer can no longer file a judicial claim for refund or credit of input VAT without waiting for the Commissioner to
decide until the expiration of the 120-day period.
27

At any rate, even assuming that the Atlas doctrine was relevant to the present case, it could not be applied since it
was held to be effective only from its promulgation on June 8, 2007 until its abandonment on September 12, 2008
when Mirant was promulgated. The petitioner in this case filed both its administrative and judicial claims outside the
said period of effectivity.
Aichi not applied prospectively
Petitioner VGPC also argues that Aichi should be applied prospectively and, therefore, should not be applied to the
present case. This position cannot be given consideration.
Article 8 of the Civil Code provides that judicial decisions applying or interpreting the law shall form part of the legal
system of the Philippines and shall have the force of law. The interpretation placed upon a law by a competent court
establishes the contemporaneous legislative intent of the law. Thus, such interpretation constitutes a part of the law

as of the date the statute is enacted. It is only when a prior ruling of the Court is overruled, and a different view
adopted, that the new doctrine may have to be applied prospectively in favor of parties who have relied on the old
doctrine and have acted in good faith.
28

Considering that the nature of the 120+30 day period was first settled in Aichi, the interpretation by the Court of its
being mandatory and jurisdictional in nature retro acts to the date the NIRC was enacted. It cannot be applied
prospectively as no old doctrine was overturned.
The petitioner cannot rely either on the alleged jurisprudence prevailing at the time it filed its judicial claim. The
Court notes that the jurisprudence relied upon by the petitioner consists of CTA cases. It is elementary that CTA
decisions do not constitute precedent and do not bind this Court or the public. Only decisions of this Court constitute
binding precedents, forming part of the Philippine legal system.
29

As regards the cases which were later decided allegedly in contravention of Aichi, it is of note that all of them were
decided by Divisions of this Court, and not by the Court En Banc. Any doctrine or principle of law laid down by the
Court, either rendered En Bancor in Division, may be overturned or reversed only by the Court sitting En
Banc. Thus, the cases cited by the petitioner could not have overturned the doctrine laid down in Aichi.
30

1wphi1

31

CIR not estopped


The petitioners argument that the CIR should have been estopped from questioning the jurisdiction of the CTA after
actively participating in the proceedings before the CTA Second Division deserves scant consideration.
It is a well-settled rule that the government cannot be estopped by the mistakes, errors or omissions of its agents. It
has been specifically held that estoppel does not apply to the government, especially on matters of taxation. Taxes
are the nations lifeblood through which government agencies continue to operate and with which the State
discharges its functions for the welfare of its constituents. Thus, the government cannot be estopped from
collecting taxes by the mistake, negligence, or omission of its agents. Upon taxation depends the ability of the
government to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or
omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or
detriment to the people.
32

33

34

Rules on claims for refund or tax credit of unutilized input VAT


For clarity and guidance, the Court deems it proper to outline the rules laid down in San Roque with regard to claims
for refund or tax credit of unutilized creditable input VAT. They are as follows:
1. When to file an administrative claim with the CIR:
a. General rule Section 112(A) and Mirant Within 2 years from the close of the taxable quarter when the
sales were made.
b. Exception Atlas
Within 2 years from the date of payment of the output VAT, if the administrative claim was filed from June 8, 2007
(promulgation of Atlas) to September 12, 2008 (promulgation of Mirant).
2. When to file a judicial claim with the CTA:
a. General rule Section 112(D); not Section 229

i. Within 30 days from the full or partial denial of the administrative claim by the CIR; or
ii. Within 30 days from the expiration of the 120-day period provided to the CIR to decide on the
claim. This is mandatory and jurisdictional beginning January L 1998 ( effectivity of 1997 NI RC).
b. Exception - BIR Ruling No. DA-489-03
The judicial claim need not await the expiration of the 120-day period, if such was filed from December 10, 2003
(issuance of BIR Ruling No. DA-489-03) to October 6, 2010 (promulgation of Aichi).
WHEREFORE, the petition is PARTIALLY GRANTED. The February 7, 2011 Decision and the June 27, 2011
Resolution of the Court of Tax Appeals En Banc, in CT A EB Case Nos. 561 and 562 are REVERSED and SET
ASIDE. The April 17, 2009 Decision and the October 29, 2009 Resolution of the CTA Former Second Division in
CTA Case No. 7559 are REINSTATED.
Public respondent is hereby ORDERED TO REFUND or, in the alternative, TO ISSUE A TAX CREDIT
CERTIFICATE, in favor or the petitioner the amount of SEVEN MILLION SIX HUNDRED NINETY NINE
THOUSAND THREE HUNDRED SIXTY SIX PESOS AND 37/100 (P7,699,366.37) representing unutilized input VAT
paid on domestic purchases of non-capital goods and services, services rendered by nonresidents, and
importations of non-capital goods for the first to fourth quarters of taxable year 2005.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 171101

July 5, 2011

HACIENDA LUISITA, INCORPORATED, Petitioner,


LUISITA INDUSTRIAL PARK CORPORATION and RIZAL COMMERCIAL BANKING CORPORATION,Petitionersin-Intervention,
vs.
PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY NASSER PANGANDAMAN OF THE
DEPARTMENT OF AGRARIAN REFORM; ALYANSA NG MGA MANGGAGAWANG BUKID NG HACIENDA
LUISITA, RENE GALANG, NOEL MALLARI, and JULIO SUNIGA1 and his SUPERVISORY GROUP OF THE
HACIENDA LUISITA, INC. and WINDSOR ANDAYA, Respondents.
DECISION
VELASCO, JR., J.:
"Land for the landless," a shibboleth the landed gentry doubtless has received with much misgiving, if not
resistance, even if only the number of agrarian suits filed serves to be the norm. Through the years, this battle cry
and root of discord continues to reflect the seemingly ceaseless discourse on, and great disparity in, the distribution
of land among the people, "dramatizing the increasingly urgent demand of the dispossessed x x x for a plot of earth
as their place in the sun."2 As administrations and political alignments change, policies advanced, and agrarian
reform laws enacted, the latest being what is considered a comprehensive piece, the face of land reform varies and
is masked in myriads of ways. The stated goal, however, remains the same: clear the way for the true freedom of
the farmer.3

Land reform, or the broader term "agrarian reform," has been a government policy even before the Commonwealth
era. In fact, at the onset of the American regime, initial steps toward land reform were already taken to address
social unrest.4 Then, under the 1935 Constitution, specific provisions on social justice and expropriation of landed
estates for distribution to tenants as a solution to land ownership and tenancy issues were incorporated.
In 1955, the Land Reform Act (Republic Act No. [RA] 1400) was passed, setting in motion the expropriation of all
tenanted estates.5
On August 8, 1963, the Agricultural Land Reform Code (RA 3844) was enacted, 6 abolishing share tenancy and
converting all instances of share tenancy into leasehold tenancy.7 RA 3844 created the Land Bank of the Philippines
(LBP) to provide support in all phases of agrarian reform.
As its major thrust, RA 3844 aimed to create a system of owner-cultivatorship in rice and corn, supposedly to be
accomplished by expropriating lands in excess of 75 hectares for their eventual resale to tenants. The law, however,
had this restricting feature: its operations were confined mainly to areas in Central Luzon, and its implementation at
any level of intensity limited to the pilot project in Nueva Ecija. 8
Subsequently, Congress passed the Code of Agrarian Reform (RA 6389) declaring the entire country a land reform
area, and providing for the automatic conversion of tenancy to leasehold tenancy in all areas. From 75 hectares, the
retention limit was cut down to seven hectares.9
Barely a month after declaring martial law in September 1972, then President Ferdinand Marcos issued Presidential
Decree No. 27 (PD 27) for the "emancipation of the tiller from the bondage of the soil." 10 Based on this issuance,
tenant-farmers, depending on the size of the landholding worked on, can either purchase the land they tilled or shift
from share to fixed-rent leasehold tenancy.11 While touted as "revolutionary," the scope of the agrarian reform
program PD 27 enunciated covered only tenanted, privately-owned rice and corn lands. 12
Then came the revolutionary government of then President Corazon C. Aquino and the drafting and eventual
ratification of the 1987 Constitution. Its provisions foreshadowed the establishment of a legal framework for the
formulation of an expansive approach to land reform, affecting all agricultural lands and covering both tenantfarmers and regular farmworkers.13
So it was that Proclamation No. 131, Series of 1987, was issued instituting a comprehensive agrarian reform
program (CARP) to cover all agricultural lands, regardless of tenurial arrangement and commodity produced, as
provided in the Constitution.
On July 22, 1987, Executive Order No. 229 (EO 229) was issued providing, as its title 14 indicates, the mechanisms
for CARP implementation. It created the Presidential Agrarian Reform Council (PARC) as the highest policy-making
body that formulates all policies, rules, and regulations necessary for the implementation of CARP.
On June 15, 1988, RA 6657 or the Comprehensive Agrarian Reform Law of 1988, also known as CARL or the
CARP Law, took effect, ushering in a new process of land classification, acquisition, and distribution. As to be
expected, RA 6657 met stiff opposition, its validity or some of its provisions challenged at every possible
turn.Association of Small Landowners in the Philippines, Inc. v. Secretary of Agrarian Reform 15 stated the
observation that the assault was inevitable, the CARP being an untried and untested project, "an experiment [even],
as all life is an experiment," the Court said, borrowing from Justice Holmes.
The Case
In this Petition for Certiorari and Prohibition under Rule 65 with prayer for preliminary injunctive relief, petitioner
Hacienda Luisita, Inc. (HLI) assails and seeks to set aside PARC Resolution No. 2005-32-01 16 and Resolution No.
2006-34-0117 issued on December 22, 2005 and May 3, 2006, respectively, as well as the implementing Notice of
Coverage dated January 2, 2006 (Notice of Coverage). 18
The Facts

At the core of the case is Hacienda Luisita de Tarlac (Hacienda Luisita), once a 6,443-hectare mixed agriculturalindustrial-residential expanse straddling several municipalities of Tarlac and owned by Compaia General de
Tabacos de Filipinas (Tabacalera). In 1957, the Spanish owners of Tabacalera offered to sell Hacienda Luisita as
well as their controlling interest in the sugar mill within the hacienda, the Central Azucarera de Tarlac (CAT), as an
indivisible transaction. The Tarlac Development Corporation (Tadeco), then owned and/or controlled by the Jose
Cojuangco, Sr. Group, was willing to buy. As agreed upon, Tadeco undertook to pay the purchase price for Hacienda
Luisita in pesos, while that for the controlling interest in CAT, in US dollars. 19
To facilitate the adverted sale-and-purchase package, the Philippine government, through the then Central Bank of
the Philippines, assisted the buyer to obtain a dollar loan from a US bank. 20 Also, the Government Service Insurance
System (GSIS) Board of Trustees extended on November 27, 1957 a PhP 5.911 million loan in favor of Tadeco to
pay the peso price component of the sale. One of the conditions contained in the approving GSIS Resolution No.
3203, as later amended by Resolution No. 356, Series of 1958, reads as follows:
That the lots comprising the Hacienda Luisita shall be subdivided by the applicant-corporation and sold at cost to
the tenants, should there be any, and whenever conditions should exist warranting such action under the provisions
of the Land Tenure Act;21
As of March 31, 1958, Tadeco had fully paid the purchase price for the acquisition of Hacienda Luisita and
Tabacaleras interest in CAT.22
The details of the events that happened next involving the hacienda and the political color some of the parties
embossed are of minimal significance to this narration and need no belaboring. Suffice it to state that on May 7,
1980, the martial law administration filed a suit before the Manila Regional Trial Court (RTC) against Tadeco, et al.,
for them to surrender Hacienda Luisita to the then Ministry of Agrarian Reform (MAR, now the Department of
Agrarian Reform [DAR]) so that the land can be distributed to farmers at cost. Responding, Tadeco or its owners
alleged that Hacienda Luisita does not have tenants, besides which sugar landsof which the hacienda
consistedare not covered by existing agrarian reform legislations. As perceived then, the government commenced
the case against Tadeco as a political message to the family of the late Benigno Aquino, Jr.23
Eventually, the Manila RTC rendered judgment ordering Tadeco to surrender Hacienda Luisita to the MAR.
Therefrom, Tadeco appealed to the Court of Appeals (CA).
On March 17, 1988, the Office of the Solicitor General (OSG) moved to withdraw the governments case against
Tadeco, et al. By Resolution of May 18, 1988, the CA dismissed the case the Marcos government initially instituted
and won against Tadeco, et al. The dismissal action was, however, made subject to the obtention by Tadeco of the
PARCs approval of a stock distribution plan (SDP) that must initially be implemented after such approval shall have
been secured.24 The appellate court wrote:
The defendants-appellants x x x filed a motion on April 13, 1988 joining the x x x governmental agencies concerned
in moving for the dismissal of the case subject, however, to the following conditions embodied in the letter dated
April 8, 1988 (Annex 2) of the Secretary of the [DAR] quoted, as follows:
1. Should TADECO fail to obtain approval of the stock distribution plan for failure to comply with all the
requirements for corporate landowners set forth in the guidelines issued by the [PARC]: or
2. If such stock distribution plan is approved by PARC, but TADECO fails to initially implement it.
xxxx
WHEREFORE, the present case on appeal is hereby dismissed without prejudice, and should be revived if any of
the conditions as above set forth is not duly complied with by the TADECO. 25
Markedly, Section 10 of EO 22926 allows corporate landowners, as an alternative to the actual land transfer scheme
of CARP, to give qualified beneficiaries the right to purchase shares of stocks of the corporation under a stock
ownership arrangement and/or land-to-share ratio.

Like EO 229, RA 6657, under the latters Sec. 31, also provides two (2) alternative modalities, i.e., land or stock
transfer, pursuant to either of which the corporate landowner can comply with CARP, but subject to well-defined
conditions and timeline requirements. Sec. 31 of RA 6657 provides:
SEC. 31. Corporate Landowners.Corporate landowners may voluntarily transfer ownership over their agricultural
landholdings to the Republic of the Philippines pursuant to Section 20 hereof or to qualified beneficiaries x x x.
Upon certification by the DAR, corporations owning agricultural lands may give their qualified beneficiaries the
right to purchase such proportion of the capital stock of the corporation that the agricultural land, actually
devoted to agricultural activities, bears in relation to the companys total assets, under such terms and
conditions as may be agreed upon by them. In no case shall the compensation received by the workers at the time
the shares of stocks are distributed be reduced. x x x
Corporations or associations which voluntarily divest a proportion of their capital stock, equity or participation in
favor of their workers or other qualified beneficiaries under this section shall be deemed to have complied with the
provisions of this Act: Provided, That the following conditions are complied with:
(a) In order to safeguard the right of beneficiaries who own shares of stocks to dividends and other financial
benefits, the books of the corporation or association shall be subject to periodic audit by certified public
accountants chosen by the beneficiaries;
(b) Irrespective of the value of their equity in the corporation or association, the beneficiaries shall be
assured of at least one (1) representative in the board of directors, or in a management or executive
committee, if one exists, of the corporation or association;
(c) Any shares acquired by such workers and beneficiaries shall have the same rights and features as all
other shares; and
(d) Any transfer of shares of stocks by the original beneficiaries shall be void ab initio unless said transaction
is in favor of a qualified and registered beneficiary within the same corporation.
If within two (2) years from the approval of this Act, the [voluntary] land or stock transfer envisioned above is not
made or realized or the plan for such stock distribution approved by the PARC within the same period, the
agricultural land of the corporate owners or corporation shall be subject to the compulsory coverage of this Act.
(Emphasis added.)
Vis--vis the stock distribution aspect of the aforequoted Sec. 31, DAR issued Administrative Order No. 10, Series of
1988 (DAO 10),27 entitled Guidelines and Procedures for Corporate Landowners Desiring to Avail Themselves of the
Stock Distribution Plan under Section 31 of RA 6657.
From the start, the stock distribution scheme appeared to be Tadecos preferred option, for, on August 23, 1988, 28 it
organized a spin-off corporation, HLI, as vehicle to facilitate stock acquisition by the farmworkers. For this purpose,
Tadeco assigned and conveyed to HLI the agricultural land portion (4,915.75 hectares) and other farm-related
properties of Hacienda Luisita in exchange for HLI shares of stock.29
Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Jose Cojuangco, Jr., and Paz C. Teopaco were the
incorporators of HLI.30
To accommodate the assets transfer from Tadeco to HLI, the latter, with the Securities and Exchange Commissions
(SECs) approval, increased its capital stock on May 10, 1989 from PhP 1,500,000 divided into 1,500,000 shares
with a par value of PhP 1/share to PhP 400,000,000 divided into 400,000,000 shares also with par value of PhP
1/share, 150,000,000 of which were to be issued only to qualified and registered beneficiaries of the CARP, and the
remaining 250,000,000 to any stockholder of the corporation.31
As appearing in its proposed SDP, the properties and assets of Tadeco contributed to the capital stock of HLI, as
appraised and approved by the SEC, have an aggregate value of PhP 590,554,220, or after deducting the total

liabilities of the farm amounting to PhP 235,422,758, a net value of PhP 355,531,462. This translated to
355,531,462 shares with a par value of PhP 1/share. 32
On May 9, 1989, some 93% of the then farmworker-beneficiaries (FWBs) complement of Hacienda Luisita signified
in a referendum their acceptance of the proposed HLIs Stock Distribution Option Plan. On May 11, 1989, the Stock
Distribution Option Agreement (SDOA), styled as a Memorandum of Agreement (MOA), 33 was entered into by
Tadeco, HLI, and the 5,848 qualified FWBs34 and attested to by then DAR Secretary Philip Juico. The SDOA
embodied the basis and mechanics of the SDP, which would eventually be submitted to the PARC for approval. In
the SDOA, the parties agreed to the following:
1. The percentage of the value of the agricultural land of Hacienda Luisita (P196,630,000.00) in relation to
the total assets (P590,554,220.00) transferred and conveyed to the SECOND PARTY [HLI] is 33.296% that,
under the law, is the proportion of the outstanding capital stock of the SECOND PARTY, which is
P355,531,462.00 or 355,531,462 shares with a par value of P1.00 per share, that has to be distributed to the
THIRD PARTY [FWBs] under the stock distribution plan, the said 33.296% thereof being P118,391,976.85
or 118,391,976.85 shares.
2. The qualified beneficiaries of the stock distribution plan shall be the farmworkers who appear in the
annual payroll, inclusive of the permanent and seasonal employees, who are regularly or periodically
employed by the SECOND PARTY.
3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY shall arrange with the
FIRST PARTY [Tadeco] the acquisition and distribution to the THIRD PARTY on the basis of number of
days worked and at no cost to them of one-thirtieth (1/30) of 118,391,976.85 shares of the capital stock of
the SECOND PARTY that are presently owned and held by the FIRST PARTY, until such time as the entire
block of 118,391,976.85 shares shall have been completely acquired and distributed to the THIRD PARTY.
4.The SECOND PARTY shall guarantee to the qualified beneficiaries of the [SDP] that every year they will
receive on top of their regular compensation, an amount that approximates the equivalent of three (3%) of
the total gross sales from the production of the agricultural land, whether it be in the form of cash dividends
or incentive bonuses or both.
5. Even if only a part or fraction of the shares earmarked for distribution will have been acquired from the
FIRST PARTY and distributed to the THIRD PARTY, FIRST PARTY shall execute at the beginning of each
fiscal year an irrevocable proxy, valid and effective for one (1) year, in favor of the farmworkers appearing as
shareholders of the SECOND PARTY at the start of said year which will empower the THIRD PARTY or their
representative to vote in stockholders and board of directors meetings of the SECOND PARTY convened
during the year the entire 33.296% of the outstanding capital stock of the SECOND PARTY earmarked for
distribution and thus be able to gain such number of seats in the board of directors of the SECOND PARTY
that the whole 33.296% of the shares subject to distribution will be entitled to.
6. In addition, the SECOND PARTY shall within a reasonable time subdivide and allocate for free and
without charge among the qualified family-beneficiaries residing in the place where the agricultural land is
situated, residential or homelots of not more than 240 sq.m. each, with each family-beneficiary being
assured of receiving and owning a homelot in the barangay where it actually resides on the date of the
execution of this Agreement.
7. This Agreement is entered into by the parties in the spirit of the (C.A.R.P.) of the government and with the
supervision of the [DAR], with the end in view of improving the lot of the qualified beneficiaries of the [SDP]
and obtaining for them greater benefits. (Emphasis added.)
As may be gleaned from the SDOA, included as part of the distribution plan are: (a) production-sharing equivalent to
three percent (3%) of gross sales from the production of the agricultural land payable to the FWBs in cash dividends
or incentive bonus; and (b) distribution of free homelots of not more than 240 square meters each to familybeneficiaries. The production-sharing, as the SDP indicated, is payable "irrespective of whether [HLI] makes money
or not," implying that the benefits do not partake the nature of dividends, as the term is ordinarily understood under
corporation law.

While a little bit hard to follow, given that, during the period material, the assigned value of the agricultural land in
the hacienda was PhP 196.63 million, while the total assets of HLI was PhP 590.55 million with net assets of PhP
355.53 million, Tadeco/HLI would admit that the ratio of the land-to-shares of stock corresponds to 33.3% of the
outstanding capital stock of the HLI equivalent to 118,391,976.85 shares of stock with a par value of PhP 1/share.
Subsequently, HLI submitted to DAR its SDP, designated as "Proposal for Stock Distribution under C.A.R.P.," 35which
was substantially based on the SDOA.
Notably, in a follow-up referendum the DAR conducted on October 14, 1989, 5,117 FWBs, out of 5,315 who
participated, opted to receive shares in HLI.36 One hundred thirty-two (132) chose actual land distribution. 37
After a review of the SDP, then DAR Secretary Miriam Defensor-Santiago (Sec. Defensor-Santiago) addressed a
letter dated November 6, 198938 to Pedro S. Cojuangco (Cojuangco), then Tadeco president, proposing that the SDP
be revised, along the following lines:
1. That over the implementation period of the [SDP], [Tadeco]/HLI shall ensure that there will be no dilution
in the shares of stocks of individual [FWBs];
2. That a safeguard shall be provided by [Tadeco]/HLI against the dilution of the percentage shareholdings
of the [FWBs], i.e., that the 33% shareholdings of the [FWBs] will be maintained at any given time;
3. That the mechanics for distributing the stocks be explicitly stated in the [MOA] signed between the
[Tadeco], HLI and its [FWBs] prior to the implementation of the stock plan;
4. That the stock distribution plan provide for clear and definite terms for determining the actual number of
seats to be allocated for the [FWBs] in the HLI Board;
5. That HLI provide guidelines and a timetable for the distribution of homelots to qualified [FWBs]; and
6. That the 3% cash dividends mentioned in the [SDP] be expressly provided for [in] the MOA.
In a letter-reply of November 14, 1989 to Sec. Defensor-Santiago, Tadeco/HLI explained that the proposed revisions
of the SDP are already embodied in both the SDP and MOA.39 Following that exchange, the PARC, under then Sec.
Defensor-Santiago, by Resolution No. 89-12-240 dated November 21, 1989, approved the SDP of Tadeco/HLI.41
At the time of the SDP approval, HLI had a pool of farmworkers, numbering 6,296, more or less, composed of
permanent, seasonal and casual master list/payroll and non-master list members.
From 1989 to 2005, HLI claimed to have extended the following benefits to the FWBs:
(a) 3 billion pesos (P3,000,000,000) worth of salaries, wages and fringe benefits
(b) 59 million shares of stock distributed for free to the FWBs;
(c) 150 million pesos (P150,000,000) representing 3% of the gross produce;
(d) 37.5 million pesos (P37,500,000) representing 3% from the sale of 500 hectares of converted agricultural
land of Hacienda Luisita;
(e) 240-square meter homelots distributed for free;
(f) 2.4 million pesos (P2,400,000) representing 3% from the sale of 80 hectares at 80 million pesos
(P80,000,000) for the SCTEX;
(g) Social service benefits, such as but not limited to free hospitalization/medical/maternity services, old
age/death benefits and no interest bearing salary/educational loans and rice sugar accounts. 42

Two separate groups subsequently contested this claim of HLI.


On August 15, 1995, HLI applied for the conversion of 500 hectares of land of the hacienda from agricultural to
industrial use,43 pursuant to Sec. 65 of RA 6657, providing:
SEC. 65. Conversion of Lands.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, the DAR, upon application of the
beneficiary or the landowner, with due notice to the affected parties, and subject to existing laws, may authorize the
reclassification, or conversion of the land and its disposition: Provided, That the beneficiary shall have fully paid its
obligation.
The application, according to HLI, had the backing of 5,000 or so FWBs, including respondent Rene Galang, and
Jose Julio Suniga, as evidenced by the Manifesto of Support they signed and which was submitted to the
DAR.44After the usual processing, the DAR, thru then Sec. Ernesto Garilao, approved the application on August 14,
1996, per DAR Conversion Order No. 030601074-764-(95), Series of 1996, 45 subject to payment of three percent
(3%) of the gross selling price to the FWBs and to HLIs continued compliance with its undertakings under the SDP,
among other conditions.
On December 13, 1996, HLI, in exchange for subscription of 12,000,000 shares of stocks of Centennary Holdings,
Inc. (Centennary), ceded 300 hectares of the converted area to the latter.46 Consequently, HLIs Transfer Certificate
of Title (TCT) No. 28791047 was canceled and TCT No. 29209148 was issued in the name of Centennary. HLI
transferred the remaining 200 hectares covered by TCT No. 287909 to Luisita Realty Corporation (LRC) 49 in two
separate transactions in 1997 and 1998, both uniformly involving 100 hectares for PhP 250 million each. 50
Centennary, a corporation with an authorized capital stock of PhP 12,100,000 divided into 12,100,000 shares and
wholly-owned by HLI, had the following incorporators: Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa,
Ernesto G. Teopaco, and Bernardo R. Lahoz.
Subsequently, Centennary sold51 the entire 300 hectares to Luisita Industrial Park Corporation (LIPCO) for PhP 750
million. The latter acquired it for the purpose of developing an industrial complex. 52 As a result, Centennarys TCT
No. 292091 was canceled to be replaced by TCT No. 31098653 in the name of LIPCO.
From the area covered by TCT No. 310986 was carved out two (2) parcels, for which two (2) separate titles were
issued in the name of LIPCO, specifically: (a) TCT No. 36580054 and (b) TCT No. 365801,55 covering 180 and four
hectares, respectively. TCT No. 310986 was, accordingly, partially canceled.
Later on, in a Deed of Absolute Assignment dated November 25, 2004, LIPCO transferred the parcels covered by its
TCT Nos. 365800 and 365801 to the Rizal Commercial Banking Corporation (RCBC) by way of dacion en pagoin
payment of LIPCOs PhP 431,695,732.10 loan obligations. LIPCOs titles were canceled and new ones, TCT Nos.
391051 and 391052, were issued to RCBC.
Apart from the 500 hectares alluded to, another 80.51 hectares were later detached from the area coverage of
Hacienda Luisita which had been acquired by the government as part of the Subic-Clark-Tarlac Expressway
(SCTEX) complex. In absolute terms, 4,335.75 hectares remained of the original 4,915 hectares Tadeco ceded to
HLI.56
Such, in short, was the state of things when two separate petitions, both undated, reached the DAR in the latter part
of 2003. In the first, denominated as Petition/Protest,57 respondents Jose Julio Suniga and Windsor Andaya,
identifying themselves as head of the Supervisory Group of HLI (Supervisory Group), and 60 other supervisors
sought to revoke the SDOA, alleging that HLI had failed to give them their dividends and the one percent (1%) share
in gross sales, as well as the thirty-three percent (33%) share in the proceeds of the sale of the converted 500
hectares of land. They further claimed that their lives have not improved contrary to the promise and rationale for the
adoption of the SDOA. They also cited violations by HLI of the SDOAs terms. 58 They prayed for a renegotiation of
the SDOA, or, in the alternative, its revocation.

Revocation and nullification of the SDOA and the distribution of the lands in the hacienda were the call in the second
petition, styled as Petisyon (Petition).59 The Petisyon was ostensibly filed on December 4, 2003 by Alyansa ng mga
Manggagawang Bukid ng Hacienda Luisita (AMBALA), where the handwritten name of respondents Rene Galang
as "Pangulo AMBALA" and Noel Mallari as "Sec-Gen. AMBALA" 60 appeared. As alleged, the petition was filed on
behalf of AMBALAs members purportedly composing about 80% of the 5,339 FWBs of Hacienda Luisita.
HLI would eventually answer61 the petition/protest of the Supervisory Group. On the other hand, HLIs answer 62to the
AMBALA petition was contained in its letter dated January 21, 2005 also filed with DAR.
Meanwhile, the DAR constituted a Special Task Force to attend to issues relating to the SDP of HLI. Among other
duties, the Special Task Force was mandated to review the terms and conditions of the SDOA and PARC Resolution
No. 89-12-2 relative to HLIs SDP; evaluate HLIs compliance reports; evaluate the merits of the petitions for the
revocation of the SDP; conduct ocular inspections or field investigations; and recommend appropriate remedial
measures for approval of the Secretary.63
After investigation and evaluation, the Special Task Force submitted its "Terminal Report: Hacienda Luisita,
Incorporated (HLI) Stock Distribution Plan (SDP) Conflict" 64 dated September 22, 2005 (Terminal Report), finding
that HLI has not complied with its obligations under RA 6657 despite the implementation of the SDP.65 The Terminal
Report and the Special Task Forces recommendations were adopted by then DAR Sec. Nasser Pangandaman
(Sec. Pangandaman).66
Subsequently, Sec. Pangandaman recommended to the PARC Executive Committee (Excom) (a) the
recall/revocation of PARC Resolution No. 89-12-2 dated November 21, 1989 approving HLIs SDP; and (b) the
acquisition of Hacienda Luisita through the compulsory acquisition scheme. Following review, the PARC Validation
Committee favorably endorsed the DAR Secretarys recommendation afore-stated. 67
On December 22, 2005, the PARC issued the assailed Resolution No. 2005-32-01, disposing as follows:
NOW, THEREFORE, on motion duly seconded, RESOLVED, as it is HEREBY RESOLVED, to approve and confirm
the recommendation of the PARC Executive Committee adopting in toto the report of the PARC ExCom Validation
Committee affirming the recommendation of the DAR to recall/revoke the SDO plan of Tarlac Development
Corporation/Hacienda Luisita Incorporated.
RESOLVED, further, that the lands subject of the recalled/revoked TDC/HLI SDO plan be forthwith placed under the
compulsory coverage or mandated land acquisition scheme of the [CARP].
APPROVED.68
A copy of Resolution No. 2005-32-01 was served on HLI the following day, December 23, without any copy of the
documents adverted to in the resolution attached. A letter-request dated December 28, 2005 69 for certified copies of
said documents was sent to, but was not acted upon by, the PARC secretariat.
Therefrom, HLI, on January 2, 2006, sought reconsideration.70 On the same day, the DAR Tarlac provincial office
issued the Notice of Coverage71 which HLI received on January 4, 2006.
Its motion notwithstanding, HLI has filed the instant recourse in light of what it considers as the DARs hasty placing
of Hacienda Luisita under CARP even before PARC could rule or even read the motion for reconsideration. 72 As HLI
later rued, it "can not know from the above-quoted resolution the facts and the law upon which it is based." 73
PARC would eventually deny HLIs motion for reconsideration via Resolution No. 2006-34-01 dated May 3, 2006.
By Resolution of June 14, 2006,74 the Court, acting on HLIs motion, issued a temporary restraining order,75enjoining
the implementation of Resolution No. 2005-32-01 and the notice of coverage.
On July 13, 2006, the OSG, for public respondents PARC and the DAR, filed its Comment 76 on the petition.

On December 2, 2006, Noel Mallari, impleaded by HLI as respondent in his capacity as "Sec-Gen. AMBALA," filed
his Manifestation and Motion with Comment Attached dated December 4, 2006 (Manifestation and Motion). 77 In it,
Mallari stated that he has broken away from AMBALA with other AMBALA ex-members and formed Farmworkers
Agrarian Reform Movement, Inc. (FARM).78 Should this shift in alliance deny him standing, Mallari also prayed that
FARM be allowed to intervene.
As events would later develop, Mallari had a parting of ways with other FARM members, particularly would-be
intervenors Renato Lalic, et al. As things stand, Mallari returned to the AMBALA fold, creating the AMBALA-Noel
Mallari faction and leaving Renato Lalic, et al. as the remaining members of FARM who sought to intervene.
On January 10, 2007, the Supervisory Group79 and the AMBALA-Rene Galang faction submitted their
Comment/Opposition dated December 17, 2006.80
On October 30, 2007, RCBC filed a Motion for Leave to Intervene and to File and Admit Attached Petition-InIntervention dated October 18, 2007.81 LIPCO later followed with a similar motion.82 In both motions, RCBC and
LIPCO contended that the assailed resolution effectively nullified the TCTs under their respective names as the
properties covered in the TCTs were veritably included in the January 2, 2006 notice of coverage. In the main, they
claimed that the revocation of the SDP cannot legally affect their rights as innocent purchasers for value. Both
motions for leave to intervene were granted and the corresponding petitions-in-intervention admitted.
On August 18, 2010, the Court heard the main and intervening petitioners on oral arguments. On the other hand, the
Court, on August 24, 2010, heard public respondents as well as the respective counsels of the AMBALA-MallariSupervisory Group, the AMBALA-Galang faction, and the FARM and its 27 members 83 argue their case.
Prior to the oral arguments, however, HLI; AMBALA, represented by Mallari; the Supervisory Group, represented by
Suniga and Andaya; and the United Luisita Workers Union, represented by Eldifonso Pingol, filed with the Court a
joint submission and motion for approval of a Compromise Agreement (English and Tagalog versions)dated August
6, 2010.
On August 31, 2010, the Court, in a bid to resolve the dispute through an amicable settlement, issued a
Resolution84 creating a Mediation Panel composed of then Associate Justice Ma. Alicia Austria-Martinez, as
chairperson, and former CA Justices Hector Hofilea and Teresita Dy-Liacco Flores, as members. Meetings on five
(5) separate dates, i.e., September 8, 9, 14, 20, and 27, 2010, were conducted. Despite persevering and
painstaking efforts on the part of the panel, mediation had to be discontinued when no acceptable agreement could
be reached.
The Issues
HLI raises the following issues for our consideration:
I.
WHETHER OR NOT PUBLIC RESPONDENTS PARC AND SECRETARY PANGANDAMAN HAVE
JURISDICTION, POWER AND/OR AUTHORITY TO NULLIFY, RECALL, REVOKE OR RESCIND THE
SDOA.
II.
[IF SO], x x x CAN THEY STILL EXERCISE SUCH JURISDICTION, POWER AND/OR AUTHORITY AT
THIS TIME, I.E., AFTER SIXTEEN (16) YEARS FROM THE EXECUTION OF THE SDOA AND ITS
IMPLEMENTATION WITHOUT VIOLATING SECTIONS 1 AND 10 OF ARTICLE III (BILL OF RIGHTS) OF
THE CONSTITUTION AGAINST DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW AND
THE IMPAIRMENT OF CONTRACTUAL RIGHTS AND OBLIGATIONS? MOREOVER, ARE THERE LEGAL
GROUNDS UNDER THE CIVIL CODE, viz, ARTICLE 1191 x x x, ARTICLES 1380, 1381 AND 1382 x x x
ARTICLE 1390 x x x AND ARTICLE 1409 x x x THAT CAN BE INVOKED TO NULLIFY, RECALL, REVOKE,
OR RESCIND THE SDOA?

III.
WHETHER THE PETITIONS TO NULLIFY, RECALL, REVOKE OR RESCIND THE SDOA HAVE ANY
LEGAL BASIS OR GROUNDS AND WHETHER THE PETITIONERS THEREIN ARE THE REAL PARTIESIN-INTEREST TO FILE SAID PETITIONS.
IV.
WHETHER THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE PARTIES TO THE SDOA ARE NOW
GOVERNED BY THE CORPORATION CODE (BATAS PAMBANSA BLG. 68) AND NOT BY THE x x x
[CARL] x x x.
On the other hand, RCBC submits the following issues:
I.
RESPONDENT PARC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION WHEN IT DID NOT EXCLUDE THE SUBJECT PROPERTY FROM THE
COVERAGE OF THE CARP DESPITE THE FACT THAT PETITIONER-INTERVENOR RCBC HAS
ACQUIRED VESTED RIGHTS AND INDEFEASIBLE TITLE OVER THE SUBJECT PROPERTY AS AN
INNOCENT PURCHASER FOR VALUE.
A. THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF COVERAGE DATED 02
JANUARY 2006 HAVE THE EFFECT OF NULLIFYING TCT NOS. 391051 AND 391052 IN THE
NAME OF PETITIONER-INTERVENOR RCBC.
B. AS AN INNOCENT PURCHASER FOR VALUE, PETITIONER-INTERVENOR RCBC CANNOT
BE PREJUDICED BY A SUBSEQUENT REVOCATION OR RESCISSION OF THE SDOA.
II.
THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF COVERAGE DATED 02 JANUARY
2006 WERE ISSUED WITHOUT AFFORDING PETITIONER-INTERVENOR RCBC ITS RIGHT TO DUE
PROCESS AS AN INNOCENT PURCHASER FOR VALUE.
LIPCO, like RCBC, asserts having acquired vested and indefeasible rights over certain portions of the converted
property, and, hence, would ascribe on PARC the commission of grave abuse of discretion when it included those
portions in the notice of coverage. And apart from raising issues identical with those of HLI, such as but not limited
to the absence of valid grounds to warrant the rescission and/or revocation of the SDP, LIPCO would allege that the
assailed resolution and the notice of coverage were issued without affording it the right to due process as an
innocent purchaser for value. The government, LIPCO also argues, is estopped from recovering properties which
have since passed to innocent parties.
Simply formulated, the principal determinative issues tendered in the main petition and to which all other related
questions must yield boil down to the following: (1) matters of standing; (2) the constitutionality of Sec. 31 of RA
6657; (3) the jurisdiction of PARC to recall or revoke HLIs SDP; (4) the validity or propriety of such recall or
revocatory action; and (5) corollary to (4), the validity of the terms and conditions of the SDP, as embodied in the
SDOA.
Our Ruling
I.
We first proceed to the examination of the preliminary issues before delving on the more serious challenges bearing
on the validity of PARCs assailed issuance and the grounds for it.

Supervisory Group, AMBALA and their


respective leaders are real parties-in-interest
HLI would deny real party-in-interest status to the purported leaders of the Supervisory Group and AMBALA, i.e.,
Julio Suniga, Windsor Andaya, and Rene Galang, who filed the revocatory petitions before the DAR. As HLI would
have it, Galang, the self-styled head of AMBALA, gained HLI employment in June 1990 and, thus, could not have
been a party to the SDOA executed a year earlier.85 As regards the Supervisory Group, HLI alleges that supervisors
are not regular farmworkers, but the company nonetheless considered them FWBs under the SDOA as a mere
concession to enable them to enjoy the same benefits given qualified regular farmworkers. However, if the SDOA
would be canceled and land distribution effected, so HLI claims, citing Fortich v. Corona, 86 the supervisors would be
excluded from receiving lands as farmworkers other than the regular farmworkers who are merely entitled to the
"fruits of the land."87
The SDOA no less identifies "the SDP qualified beneficiaries" as "the farmworkers who appear in the annual payroll,
inclusive of the permanent and seasonal employees, who are regularly or periodically employed by [HLI]." 88 Galang,
per HLIs own admission, is employed by HLI, and is, thus, a qualified beneficiary of the SDP; he comes within the
definition of a real party-in-interest under Sec. 2, Rule 3 of the Rules of Court, meaning, one who stands to be
benefited or injured by the judgment in the suit or is the party entitled to the avails of the suit.
The same holds true with respect to the Supervisory Group whose members were admittedly employed by HLI and
whose names and signatures even appeared in the annex of the SDOA. Being qualified beneficiaries of the SDP,
Suniga and the other 61 supervisors are certainly parties who would benefit or be prejudiced by the judgment
recalling the SDP or replacing it with some other modality to comply with RA 6657.
Even assuming that members of the Supervisory Group are not regular farmworkers, but are in the category of
"other farmworkers" mentioned in Sec. 4, Article XIII of the Constitution, 89 thus only entitled to a share of the fruits of
the land, as indeed Fortich teaches, this does not detract from the fact that they are still identified as being among
the "SDP qualified beneficiaries." As such, they are, thus, entitled to bring an action upon the SDP.90 At any rate, the
following admission made by Atty. Gener Asuncion, counsel of HLI, during the oral arguments should put to rest any
lingering doubt as to the status of protesters Galang, Suniga, and Andaya:
Justice Bersamin: x x x I heard you a while ago that you were conceding the qualified farmer beneficiaries of
Hacienda Luisita were real parties in interest?
Atty. Asuncion: Yes, Your Honor please, real party in interest which that question refers to the complaints of protest
initiated before the DAR and the real party in interest there be considered as possessed by the farmer beneficiaries
who initiated the protest.91
Further, under Sec. 50, paragraph 4 of RA 6657, farmer-leaders are expressly allowed to represent themselves,
their fellow farmers or their organizations in any proceedings before the DAR. Specifically:
SEC. 50. Quasi-Judicial Powers of the DAR.x x x
xxxx
Responsible farmer leaders shall be allowed to represent themselves, their fellow farmers or their
organizations in any proceedings before the DAR: Provided, however, that when there are two or more
representatives for any individual or group, the representatives should choose only one among themselves to
represent such party or group before any DAR proceedings. (Emphasis supplied.)
Clearly, the respective leaders of the Supervisory Group and AMBALA are contextually real parties-in-interest
allowed by law to file a petition before the DAR or PARC.
This is not necessarily to say, however, that Galang represents AMBALA, for as records show and as HLI aptly
noted,92 his "petisyon" filed with DAR did not carry the usual authorization of the individuals in whose behalf it was
supposed to have been instituted. To date, such authorization document, which would logically include a list of the
names of the authorizing FWBs, has yet to be submitted to be part of the records.

PARCs Authority to Revoke a Stock Distribution Plan


On the postulate that the subject jurisdiction is conferred by law, HLI maintains that PARC is without authority to
revoke an SDP, for neither RA 6657 nor EO 229 expressly vests PARC with such authority. While, as HLI argued,
EO 229 empowers PARC to approve the plan for stock distribution in appropriate cases, the empowerment only
includes the power to disapprove, but not to recall its previous approval of the SDP after it has been implemented by
the parties.93 To HLI, it is the court which has jurisdiction and authority to order the revocation or rescission of the
PARC-approved SDP.
We disagree.
Under Sec. 31 of RA 6657, as implemented by DAO 10, the authority to approve the plan for stock distribution of the
corporate landowner belongs to PARC. However, contrary to petitioner HLIs posture, PARC also has the power to
revoke the SDP which it previously approved. It may be, as urged, that RA 6657 or other executive issuances on
agrarian reform do not explicitly vest the PARC with the power to revoke/recall an approved SDP. Such power or
authority, however, is deemed possessed by PARC under the principle of necessary implication, a basic postulate
that what is implied in a statute is as much a part of it as that which is expressed. 94
We have explained that "every statute is understood, by implication, to contain all such provisions as may be
necessary to effectuate its object and purpose, or to make effective rights, powers, privileges or jurisdiction which it
grants, including all such collateral and subsidiary consequences as may be fairly and logically inferred from its
terms."95 Further, "every statutory grant of power, right or privilege is deemed to include all incidental power, right or
privilege.96
Gordon v. Veridiano II is instructive:
The power to approve a license includes by implication, even if not expressly granted, the power to revoke it. By
extension, the power to revoke is limited by the authority to grant the license, from which it is derived in the first
place. Thus, if the FDA grants a license upon its finding that the applicant drug store has complied with the
requirements of the general laws and the implementing administrative rules and regulations, it is only for their
violation that the FDA may revoke the said license. By the same token, having granted the permit upon his
ascertainment that the conditions thereof as applied x x x have been complied with, it is only for the violation of such
conditions that the mayor may revoke the said permit.97 (Emphasis supplied.)
Following the doctrine of necessary implication, it may be stated that the conferment of express power to approve a
plan for stock distribution of the agricultural land of corporate owners necessarily includes the power to revoke or
recall the approval of the plan.
As public respondents aptly observe, to deny PARC such revocatory power would reduce it into a toothless agency
of CARP, because the very same agency tasked to ensure compliance by the corporate landowner with the
approved SDP would be without authority to impose sanctions for non-compliance with it. 98 With the view We take of
the case, only PARC can effect such revocation. The DAR Secretary, by his own authority as such, cannot plausibly
do so, as the acceptance and/or approval of the SDP sought to be taken back or undone is the act of PARC whose
official composition includes, no less, the President as chair, the DAR Secretary as vice-chair, and at least eleven
(11) other department heads.99
On another but related issue, the HLI foists on the Court the argument that subjecting its landholdings to compulsory
distribution after its approved SDP has been implemented would impair the contractual obligations created under
the SDOA.
The broad sweep of HLIs argument ignores certain established legal precepts and must, therefore, be rejected.
A law authorizing interference, when appropriate, in the contractual relations between or among parties is deemed
read into the contract and its implementation cannot successfully be resisted by force of the non-impairment
guarantee. There is, in that instance, no impingement of the impairment clause, the non-impairment protection being
applicable only to laws that derogate prior acts or contracts by enlarging, abridging or in any manner changing the
intention of the parties. Impairment, in fine, obtains if a subsequent law changes the terms of a contract between the

parties, imposes new conditions, dispenses with those agreed upon or withdraws existing remedies for the
enforcement of the rights of the parties.100 Necessarily, the constitutional proscription would not apply to laws already
in effect at the time of contract execution, as in the case of RA 6657, in relation to DAO 10, vis--vis HLIs SDOA. As
held in Serrano v. Gallant Maritime Services, Inc.:
The prohibition [against impairment of the obligation of contracts] is aligned with the general principle that laws
newly enacted have only a prospective operation, and cannot affect acts or contracts already perfected; however, as
to laws already in existence, their provisions are read into contracts and deemed a part thereof. Thus, the nonimpairment clause under Section 10, Article II [of the Constitution] is limited in application to laws about to be
enacted that would in any way derogate from existing acts or contracts by enlarging, abridging or in any manner
changing the intention of the parties thereto.101 (Emphasis supplied.)
Needless to stress, the assailed Resolution No. 2005-32-01 is not the kind of issuance within the ambit of Sec. 10,
Art. III of the Constitution providing that "[n]o law impairing the obligation of contracts shall be passed."
Parenthetically, HLI tags the SDOA as an ordinary civil law contract and, as such, a breach of its terms and
conditions is not a PARC administrative matter, but one that gives rise to a cause of action cognizable by regular
courts.102 This contention has little to commend itself. The SDOA is a special contract imbued with public interest,
entered into and crafted pursuant to the provisions of RA 6657. It embodies the SDP, which requires for its validity,
or at least its enforceability, PARCs approval. And the fact that the certificate of compliance 103to be issued by
agrarian authorities upon completion of the distribution of stocksis revocable by the same issuing authority
supports the idea that everything about the implementation of the SDP is, at the first instance, subject to
administrative adjudication.
HLI also parlays the notion that the parties to the SDOA should now look to the Corporation Code, instead of to RA
6657, in determining their rights, obligations and remedies. The Code, it adds, should be the applicable law on the
disposition of the agricultural land of HLI.
Contrary to the view of HLI, the rights, obligations and remedies of the parties to the SDOA embodying the SDP are
primarily governed by RA 6657. It should abundantly be made clear that HLI was precisely created in order to
comply with RA 6657, which the OSG aptly described as the "mother law" of the SDOA and the SDP.104 It is, thus,
paradoxical for HLI to shield itself from the coverage of CARP by invoking exclusive applicability of the Corporation
Code under the guise of being a corporate entity.
Without in any way minimizing the relevance of the Corporation Code since the FWBs of HLI are also stockholders,
its applicability is limited as the rights of the parties arising from the SDP should not be made to supplant or
circumvent the agrarian reform program.
Without doubt, the Corporation Code is the general law providing for the formation, organization and regulation of
private corporations. On the other hand, RA 6657 is the special law on agrarian reform. As between a general and
special law, the latter shall prevailgeneralia specialibus non derogant. 105 Besides, the present impasse between
HLI and the private respondents is not an intra-corporate dispute which necessitates the application of the
Corporation Code. What private respondents questioned before the DAR is the proper implementation of the SDP
and HLIs compliance with RA 6657. Evidently, RA 6657 should be the applicable law to the instant case.
HLI further contends that the inclusion of the agricultural land of Hacienda Luisita under the coverage of CARP and
the eventual distribution of the land to the FWBs would amount to a disposition of all or practically all of the
corporate assets of HLI. HLI would add that this contingency, if ever it comes to pass, requires the applicability of
the Corporation Code provisions on corporate dissolution.
We are not persuaded.
Indeed, the provisions of the Corporation Code on corporate dissolution would apply insofar as the winding up of
HLIs affairs or liquidation of the assets is concerned. However, the mere inclusion of the agricultural land of
Hacienda Luisita under the coverage of CARP and the lands eventual distribution to the FWBs will not, without
more, automatically trigger the dissolution of HLI. As stated in the SDOA itself, the percentage of the value of the
agricultural land of Hacienda Luisita in relation to the total assets transferred and conveyed by Tadeco to HLI

comprises only 33.296%, following this equation: value of the agricultural lands divided by total corporate assets. By
no stretch of imagination would said percentage amount to a disposition of all or practically all of HLIs corporate
assets should compulsory land acquisition and distribution ensue.
This brings us to the validity of the revocation of the approval of the SDP sixteen (16) years after its execution
pursuant to Sec. 31 of RA 6657 for the reasons set forth in the Terminal Report of the Special Task Force, as
endorsed by PARC Excom. But first, the matter of the constitutionality of said section.
Constitutional Issue
FARM asks for the invalidation of Sec. 31 of RA 6657, insofar as it affords the corporation, as a mode of CARP
compliance, to resort to stock distribution, an arrangement which, to FARM, impairs the fundamental right of farmers
and farmworkers under Sec. 4, Art. XIII of the Constitution. 106
To a more specific, but direct point, FARM argues that Sec. 31 of RA 6657 permits stock transfer in lieu of outright
agricultural land transfer; in fine, there is stock certificate ownership of the farmers or farmworkers instead of them
owning the land, as envisaged in the Constitution. For FARM, this modality of distribution is an anomaly to be
annulled for being inconsistent with the basic concept of agrarian reform ingrained in Sec. 4, Art. XIII of the
Constitution.107
Reacting, HLI insists that agrarian reform is not only about transfer of land ownership to farmers and other qualified
beneficiaries. It draws attention in this regard to Sec. 3(a) of RA 6657 on the concept and scope of the term
"agrarian reform." The constitutionality of a law, HLI added, cannot, as here, be attacked collaterally.
The instant challenge on the constitutionality of Sec. 31 of RA 6657 and necessarily its counterpart provision in EO
229 must fail as explained below.
When the Court is called upon to exercise its power of judicial review over, and pass upon the constitutionality of,
acts of the executive or legislative departments, it does so only when the following essential requirements are first
met, to wit:
(1) there is an actual case or controversy;
(2) that the constitutional question is raised at the earliest possible opportunity by a proper party or one with
locus standi; and
(3) the issue of constitutionality must be the very lis mota of the case. 108
Not all the foregoing requirements are satisfied in the case at bar.
While there is indeed an actual case or controversy, intervenor FARM, composed of a small minority of 27 farmers,
has yet to explain its failure to challenge the constitutionality of Sec. 3l of RA 6657, since as early as November 21,
l989 when PARC approved the SDP of Hacienda Luisita or at least within a reasonable time thereafter and why its
members received benefits from the SDP without so much of a protest. It was only on December 4, 2003 or 14
years after approval of the SDP via PARC Resolution No. 89-12-2 dated November 21, 1989 that said plan and
approving resolution were sought to be revoked, but not, to stress, by FARM or any of its members, but by petitioner
AMBALA. Furthermore, the AMBALA petition did NOT question the constitutionality of Sec. 31 of RA 6657, but
concentrated on the purported flaws and gaps in the subsequent implementation of the SDP. Even the public
respondents, as represented by the Solicitor General, did not question the constitutionality of the provision. On the
other hand, FARM, whose 27 members formerly belonged to AMBALA, raised the constitutionality of Sec. 31 only on
May 3, 2007 when it filed its Supplemental Comment with the Court. Thus, it took FARM some eighteen (18) years
from November 21, 1989 before it challenged the constitutionality of Sec. 31 of RA 6657 which is quite too late in
the day. The FARM members slept on their rights and even accepted benefits from the SDP with nary a complaint
on the alleged unconstitutionality of Sec. 31 upon which the benefits were derived. The Court cannot now be
goaded into resolving a constitutional issue that FARM failed to assail after the lapse of a long period of time and the
occurrence of numerous events and activities which resulted from the application of an alleged unconstitutional legal
provision.

It has been emphasized in a number of cases that the question of constitutionality will not be passed upon by the
Court unless it is properly raised and presented in an appropriate case at the first opportunity.109 FARM is, therefore,
remiss in belatedly questioning the constitutionality of Sec. 31 of RA 6657. The second requirement that the
constitutional question should be raised at the earliest possible opportunity is clearly wanting.
The last but the most important requisite that the constitutional issue must be the very lis mota of the case does not
likewise obtain. The lis mota aspect is not present, the constitutional issue tendered not being critical to the
resolution of the case. The unyielding rule has been to avoid, whenever plausible, an issue assailing the
constitutionality of a statute or governmental act.110 If some other grounds exist by which judgment can be made
without touching the constitutionality of a law, such recourse is favored. 111 Garcia v. Executive Secretary explains
why:
Lis Mota the fourth requirement to satisfy before this Court will undertake judicial review means that the Court
will not pass upon a question of unconstitutionality, although properly presented, if the case can be disposed of on
some other ground, such as the application of the statute or the general law. The petitioner must be able to show
that the case cannot be legally resolved unless the constitutional question raised is determined. This requirement is
based on the rule that every law has in its favor the presumption of constitutionality; to justify its nullification, there
must be a clear and unequivocal breach of the Constitution, and not one that is doubtful, speculative, or
argumentative.112 (Italics in the original.)
The lis mota in this case, proceeding from the basic positions originally taken by AMBALA (to which the FARM
members previously belonged) and the Supervisory Group, is the alleged non-compliance by HLI with the conditions
of the SDP to support a plea for its revocation. And before the Court, the lis mota is whether or not PARC acted in
grave abuse of discretion when it ordered the recall of the SDP for such non-compliance and the fact that the SDP,
as couched and implemented, offends certain constitutional and statutory provisions. To be sure, any of these key
issues may be resolved without plunging into the constitutionality of Sec. 31 of RA 6657. Moreover, looking deeply
into the underlying petitions of AMBALA, et al., it is not the said section per se that is invalid, but rather it is the
alleged application of the said provision in the SDP that is flawed.
It may be well to note at this juncture that Sec. 5 of RA 9700,113 amending Sec. 7 of RA 6657, has all but superseded
Sec. 31 of RA 6657 vis--vis the stock distribution component of said Sec. 31. In its pertinent part, Sec. 5 of RA
9700 provides: "[T]hat after June 30, 2009, the modes of acquisition shall be limited to voluntary offer to sell and
compulsory acquisition." Thus, for all intents and purposes, the stock distribution scheme under Sec. 31 of RA 6657
is no longer an available option under existing law. The question of whether or not it is unconstitutional should be a
moot issue.
It is true that the Court, in some cases, has proceeded to resolve constitutional issues otherwise already moot and
academic114 provided the following requisites are present:
x x x first, there is a grave violation of the Constitution; second, the exceptional character of the situation and the
paramount public interest is involved; third, when the constitutional issue raised requires formulation of controlling
principles to guide the bench, the bar, and the public; fourth, the case is capable of repetition yet evading review.
These requisites do not obtain in the case at bar.
For one, there appears to be no breach of the fundamental law. Sec. 4, Article XIII of the Constitution reads:
The State shall, by law, undertake an agrarian reform program founded on the right of the farmers and regular
farmworkers, who are landless, to OWN directly or COLLECTIVELY THE LANDS THEY TILL or, in the case of other
farmworkers, to receive a just share of the fruits thereof. To this end, the State shall encourage and undertake the
just distribution of all agricultural lands, subject to such priorities and reasonable retention limits as the Congress
may prescribe, taking into account ecological, developmental, or equity considerations, and subject to the payment
of just compensation. In determining retention limits, the State shall respect the right of small landowners. The State
shall further provide incentives for voluntary land-sharing. (Emphasis supplied.)
The wording of the provision is unequivocalthe farmers and regular farmworkers have a right TO OWN
DIRECTLY OR COLLECTIVELY THE LANDS THEY TILL. The basic law allows two (2) modes of land distribution

direct and indirect ownership. Direct transfer to individual farmers is the most commonly used method by DAR and
widely accepted. Indirect transfer through collective ownership of the agricultural land is the alternative to direct
ownership of agricultural land by individual farmers. The aforequoted Sec. 4 EXPRESSLY authorizes collective
ownership by farmers. No language can be found in the 1987 Constitution that disqualifies or prohibits corporations
or cooperatives of farmers from being the legal entity through which collective ownership can be exercised. The
word "collective" is defined as "indicating a number of persons or things considered as constituting one group or
aggregate,"115 while "collectively" is defined as "in a collective sense or manner; in a mass or body." 116 By using the
word "collectively," the Constitution allows for indirect ownership of land and not just outright agricultural land
transfer. This is in recognition of the fact that land reform may become successful even if it is done through the
medium of juridical entities composed of farmers.
Collective ownership is permitted in two (2) provisions of RA 6657. Its Sec. 29 allows workers cooperatives or
associations to collectively own the land, while the second paragraph of Sec. 31 allows corporations or associations
to own agricultural land with the farmers becoming stockholders or members. Said provisions read:
SEC. 29. Farms owned or operated by corporations or other business associations.In the case of farms owned or
operated by corporations or other business associations, the following rules shall be observed by the PARC.
In general, lands shall be distributed directly to the individual worker-beneficiaries.
In case it is not economically feasible and sound to divide the land, then it shall be owned collectively by the worker
beneficiaries who shall form a workers cooperative or association which will deal with the corporation or business
association. x x x (Emphasis supplied.)
SEC. 31. Corporate Landowners. x x x
xxxx
Upon certification by the DAR, corporations owning agricultural lands may give their qualified beneficiaries the right
to purchase such proportion of the capital stock of the corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the companys total assets, under such terms and conditions as may be
agreed upon by them. In no case shall the compensation received by the workers at the time the shares of stocks
are distributed be reduced. The same principle shall be applied to associations, with respect to their equity or
participation. x x x (Emphasis supplied.)
Clearly, workers cooperatives or associations under Sec. 29 of RA 6657 and corporations or associations under the
succeeding Sec. 31, as differentiated from individual farmers, are authorized vehicles for the collective ownership of
agricultural land. Cooperatives can be registered with the Cooperative Development Authority and acquire legal
personality of their own, while corporations are juridical persons under the Corporation Code. Thus, Sec. 31 is
constitutional as it simply implements Sec. 4 of Art. XIII of the Constitution that land can be owned COLLECTIVELY
by farmers. Even the framers of the l987 Constitution are in unison with respect to the two (2) modes of ownership
of agricultural lands tilled by farmersDIRECT and COLLECTIVE, thus:
MR. NOLLEDO. And when we talk of the phrase "to own directly," we mean the principle of direct ownership by the
tiller?
MR. MONSOD. Yes.
MR. NOLLEDO. And when we talk of "collectively," we mean communal ownership, stewardship or State
ownership?
MS. NIEVA. In this section, we conceive of cooperatives; that is farmers cooperatives owning the land, not the
State.
MR. NOLLEDO. And when we talk of "collectively," referring to farmers cooperatives, do the farmers own specific
areas of land where they only unite in their efforts?

MS. NIEVA. That is one way.


MR. NOLLEDO. Because I understand that there are two basic systems involved: the "moshave" type of agriculture
and the "kibbutz." So are both contemplated in the report?
MR. TADEO. Ang dalawa kasing pamamaraan ng pagpapatupad ng tunay na reporma sa lupa ay ang pagmamayari ng lupa na hahatiin sa individual na pagmamay-ari directly at ang tinatawag na sama-samang gagawin ng
mga magbubukid. Tulad sa Negros, ang gusto ng mga magbubukid ay gawin nila itong "cooperative or collective
farm." Ang ibig sabihin ay sama-sama nilang sasakahin.
xxxx
MR. TINGSON. x x x When we speak here of "to own directly or collectively the lands they till," is this land for the
tillers rather than land for the landless? Before, we used to hear "land for the landless," but now the slogan is "land
for the tillers." Is that right?
MR. TADEO. Ang prinsipyong umiiral dito ay iyong land for the tillers. Ang ibig sabihin ng "directly" ay tulad sa
implementasyon sa rice and corn lands kung saan inaari na ng mga magsasaka ang lupang binubungkal nila. Ang
ibig sabihin naman ng "collectively" ay sama-samang paggawa sa isang lupain o isang bukid, katulad ng sitwasyon
sa Negros.117 (Emphasis supplied.)
As Commissioner Tadeo explained, the farmers will work on the agricultural land "sama-sama" or collectively. Thus,
the main requisite for collective ownership of land is collective or group work by farmers of the agricultural land.
Irrespective of whether the landowner is a cooperative, association or corporation composed of farmers, as long as
concerted group work by the farmers on the land is present, then it falls within the ambit of collective ownership
scheme.
Likewise, Sec. 4, Art. XIII of the Constitution makes mention of a commitment on the part of the State to pursue,by
law, an agrarian reform program founded on the policy of land for the landless, but subject to such priorities as
Congress may prescribe, taking into account such abstract variable as "equity considerations." The textual
reference to a law and Congress necessarily implies that the above constitutional provision is not selfexecutoryand that legislation is needed to implement the urgently needed program of agrarian reform. And RA
6657 has been enacted precisely pursuant to and as a mechanism to carry out the constitutional directives. This
piece of legislation, in fact, restates118 the agrarian reform policy established in the aforementioned provision of the
Constitution of promoting the welfare of landless farmers and farmworkers. RA 6657 thus defines "agrarian reform"
as "the redistribution of lands to farmers and regular farmworkers who are landless to lift the economic status
of the beneficiaries and all other arrangements alternative to the physical redistribution of lands, such as
production or profit sharing, labor administration and the distribution of shares of stock which will allow
beneficiaries to receive a just share of the fruits of the lands they work."
With the view We take of this case, the stock distribution option devised under Sec. 31 of RA 6657 hews with the
agrarian reform policy, as instrument of social justice under Sec. 4 of Article XIII of the Constitution. Albeit land
ownership for the landless appears to be the dominant theme of that policy, We emphasize that Sec. 4, Article XIII of
the Constitution, as couched, does not constrict Congress to passing an agrarian reform law planted on direct land
transfer to and ownership by farmers and no other, or else the enactment suffers from the vice of unconstitutionality.
If the intention were otherwise, the framers of the Constitution would have worded said section in a manner
mandatory in character.
For this Court, Sec. 31 of RA 6657, with its direct and indirect transfer features, is not inconsistent with the States
commitment to farmers and farmworkers to advance their interests under the policy of social justice. The legislature,
thru Sec. 31 of RA 6657, has chosen a modality for collective ownership by which the imperatives of social justice
may, in its estimation, be approximated, if not achieved. The Court should be bound by such policy choice.
FARM contends that the farmers in the stock distribution scheme under Sec. 31 do not own the agricultural land but
are merely given stock certificates. Thus, the farmers lose control over the land to the board of directors and
executive officials of the corporation who actually manage the land. They conclude that such arrangement runs

counter to the mandate of the Constitution that any agrarian reform must preserve the control over the land in the
hands of the tiller.
This contention has no merit.
While it is true that the farmer is issued stock certificates and does not directly own the land, still, the Corporation
Code is clear that the FWB becomes a stockholder who acquires an equitable interest in the assets of the
corporation, which include the agricultural lands. It was explained that the "equitable interest of the shareholder in
the property of the corporation is represented by the term stock, and the extent of his interest is described by the
term shares. The expression shares of stock when qualified by words indicating number and ownership expresses
the extent of the owners interest in the corporate property." 119 A share of stock typifies an aliquot part of the
corporations property, or the right to share in its proceeds to that extent when distributed according to law and
equity and that its holder is not the owner of any part of the capital of the corporation. 120 However, the FWBs will
ultimately own the agricultural lands owned by the corporation when the corporation is eventually dissolved and
liquidated.
Anent the alleged loss of control of the farmers over the agricultural land operated and managed by the corporation,
a reading of the second paragraph of Sec. 31 shows otherwise. Said provision provides that qualified beneficiaries
have "the right to purchase such proportion of the capital stock of the corporation that the agricultural land, actually
devoted to agricultural activities, bears in relation to the companys total assets." The wording of the formula in the
computation of the number of shares that can be bought by the farmers does not mean loss of control on the part of
the farmers. It must be remembered that the determination of the percentage of the capital stock that can be bought
by the farmers depends on the value of the agricultural land and the value of the total assets of the corporation.
There is, thus, nothing unconstitutional in the formula prescribed by RA 6657. The policy on agrarian reform is that
control over the agricultural land must always be in the hands of the farmers. Then it falls on the shoulders of DAR
and PARC to see to it the farmers should always own majority of the common shares entitled to elect the members
of the board of directors to ensure that the farmers will have a clear majority in the board. Before the SDP is
approved, strict scrutiny of the proposed SDP must always be undertaken by the DAR and PARC, such that the
value of the agricultural land contributed to the corporation must always be more than 50% of the total assets of the
corporation to ensure that the majority of the members of the board of directors are composed of the farmers. The
PARC composed of the President of the Philippines and cabinet secretaries must see to it that control over the
board of directors rests with the farmers by rejecting the inclusion of non-agricultural assets which will yield the
majority in the board of directors to non-farmers. Any deviation, however, by PARC or DAR from the correct
application of the formula prescribed by the second paragraph of Sec. 31 of RA 6675 does not make said provision
constitutionally infirm. Rather, it is the application of said provision that can be challenged. Ergo, Sec. 31 of RA 6657
does not trench on the constitutional policy of ensuring control by the farmers.
A view has been advanced that there can be no agrarian reform unless there is land distribution and that actual land
distribution is the essential characteristic of a constitutional agrarian reform program. On the contrary, there have
been so many instances where, despite actual land distribution, the implementation of agrarian reform was still
unsuccessful. As a matter of fact, this Court may take judicial notice of cases where FWBs sold the awarded land
even to non-qualified persons and in violation of the prohibition period provided under the law. This only proves to
show that the mere fact that there is land distribution does not guarantee a successful implementation of agrarian
reform.
As it were, the principle of "land to the tiller" and the old pastoral model of land ownership where non-human juridical
persons, such as corporations, were prohibited from owning agricultural lands are no longer realistic under existing
conditions. Practically, an individual farmer will often face greater disadvantages and difficulties than those who
exercise ownership in a collective manner through a cooperative or corporation. The former is too often left to his
own devices when faced with failing crops and bad weather, or compelled to obtain usurious loans in order to
purchase costly fertilizers or farming equipment. The experiences learned from failed land reform activities in
various parts of the country are lack of financing, lack of farm equipment, lack of fertilizers, lack of guaranteed
buyers of produce, lack of farm-to-market roads, among others. Thus, at the end of the day, there is still no
successful implementation of agrarian reform to speak of in such a case.
Although success is not guaranteed, a cooperative or a corporation stands in a better position to secure funding and
competently maintain the agri-business than the individual farmer. While direct singular ownership over farmland

does offer advantages, such as the ability to make quick decisions unhampered by interference from others, yet at
best, these advantages only but offset the disadvantages that are often associated with such ownership
arrangement. Thus, government must be flexible and creative in its mode of implementation to better its chances of
success. One such option is collective ownership through juridical persons composed of farmers.
Aside from the fact that there appears to be no violation of the Constitution, the requirement that the instant case be
capable of repetition yet evading review is also wanting. It would be speculative for this Court to assume that the
legislature will enact another law providing for a similar stock option.
As a matter of sound practice, the Court will not interfere inordinately with the exercise by Congress of its official
functions, the heavy presumption being that a law is the product of earnest studies by Congress to ensure that no
constitutional prescription or concept is infringed.121 Corollarily, courts will not pass upon questions of wisdom,
expediency and justice of legislation or its provisions. Towards this end, all reasonable doubts should be resolved in
favor of the constitutionality of a law and the validity of the acts and processes taken pursuant thereof. 122
Consequently, before a statute or its provisions duly challenged are voided, an unequivocal breach of, or a clear
conflict with the Constitution, not merely a doubtful or argumentative one, must be demonstrated in such a manner
as to leave no doubt in the mind of the Court. In other words, the grounds for nullity must be beyond reasonable
doubt.123 FARM has not presented compelling arguments to overcome the presumption of constitutionality of Sec. 31
of RA 6657.
The wisdom of Congress in allowing an SDP through a corporation as an alternative mode of implementing agrarian
reform is not for judicial determination. Established jurisprudence tells us that it is not within the province of the
Court to inquire into the wisdom of the law, for, indeed, We are bound by words of the statute. 124
II.
The stage is now set for the determination of the propriety under the premises of the revocation or recall of HLIs
SDP. Or to be more precise, the inquiry should be: whether or not PARC gravely abused its discretion in revoking or
recalling the subject SDP and placing the hacienda under CARPs compulsory acquisition and distribution scheme.
The findings, analysis and recommendation of the DARs Special Task Force contained and summarized in its
Terminal Report provided the bases for the assailed PARC revocatory/recalling Resolution. The findings may be
grouped into two: (1) the SDP is contrary to either the policy on agrarian reform, Sec. 31 of RA 6657, or DAO 10;
and (2) the alleged violation by HLI of the conditions/terms of the SDP. In more particular terms, the following are
essentially the reasons underpinning PARCs revocatory or recall action:
(1) Despite the lapse of 16 years from the approval of HLIs SDP, the lives of the FWBs have hardly
improved and the promised increased income has not materialized;
(2) HLI has failed to keep Hacienda Luisita intact and unfragmented;
(3) The issuance of HLI shares of stock on the basis of number of hours workedor the so-called "man
days"is grossly onerous to the FWBs, as HLI, in the guise of rotation, can unilaterally deny work to
anyone. In elaboration of this ground, PARCs Resolution No. 2006-34-01, denying HLIs motion for
reconsideration of Resolution No. 2005-32-01, stated that the man days criterion worked to dilute the
entitlement of the original share beneficiaries;125
(4) The distribution/transfer of shares was not in accordance with the timelines fixed by law;
(5) HLI has failed to comply with its obligations to grant 3% of the gross sales every year as productionsharing benefit on top of the workers salary; and
(6) Several homelot awardees have yet to receive their individual titles.
Petitioner HLI claims having complied with, at least substantially, all its obligations under the SDP, as approved by
PARC itself, and tags the reasons given for the revocation of the SDP as unfounded.

Public respondents, on the other hand, aver that the assailed resolution rests on solid grounds set forth in the
Terminal Report, a position shared by AMBALA, which, in some pleadings, is represented by the same counsel as
that appearing for the Supervisory Group.
FARM, for its part, posits the view that legal bases obtain for the revocation of the SDP, because it does not conform
to Sec. 31 of RA 6657 and DAO 10. And training its sight on the resulting dilution of the equity of the FWBs
appearing in HLIs masterlist, FARM would state that the SDP, as couched and implemented, spawned disparity
when there should be none; parity when there should have been differentiation. 126
The petition is not impressed with merit.
In the Terminal Report adopted by PARC, it is stated that the SDP violates the agrarian reform policy under Sec. 2 of
RA 6657, as the said plan failed to enhance the dignity and improve the quality of lives of the FWBs through greater
productivity of agricultural lands. We disagree.
Sec. 2 of RA 6657 states:
SECTION 2. Declaration of Principles and Policies.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. (Emphasis supplied.)
Paragraph 2 of the above-quoted provision specifically mentions that "a more equitable distribution and ownership
of land x x x shall be undertaken to provide farmers and farm workers with the opportunity to enhance their dignity
and improve the quality of their lives through greater productivity of agricultural lands." Of note is the term
"opportunity" which is defined as a favorable chance or opening offered by circumstances. 127 Considering this, by no
stretch of imagination can said provision be construed as a guarantee in improving the lives of the FWBs. At best, it
merely provides for a possibility or favorable chance of uplifting the economic status of the FWBs, which may or may
not be attained.
Pertinently, improving the economic status of the FWBs is neither among the legal obligations of HLI under the SDP
nor an imperative imposition by RA 6657 and DAO 10, a violation of which would justify discarding the stock
distribution option. Nothing in that option agreement, law or department order indicates otherwise.
Significantly, HLI draws particular attention to its having paid its FWBs, during the regime of the SDP (1989-2005),
some PhP 3 billion by way of salaries/wages and higher benefits exclusive of free hospital and medical benefits to
their immediate family. And attached as Annex "G" to 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 NonDirect Cash Out (Hospital/Medical Benefits) = PhP 303,040. The cash out figures, as stated in the report, include the
cost of homelots; the PhP 150 million or so representing 3% of the gross produce of the hacienda; and the PhP 37.5
million representing 3% from the proceeds of the sale of the 500-hectare converted lands. While not included in the

report, HLI manifests having given the FWBs 3% of the PhP 80 million paid for the 80 hectares of land traversed by
the SCTEX.128 On top of these, it is worth remembering that the shares of stocks were given by HLI to the FWBs for
free. Verily, the FWBs have benefited from the SDP.
To address urgings that the FWBs be allowed to disengage from the SDP as HLI has not anyway earned profits
through the years, it cannot be over-emphasized that, as a matter of common business sense, no corporation could
guarantee a profitable run all the time. As has been suggested, one of the key features of an SDP of a corporate
landowner is the likelihood of the corporate vehicle not earning, or, worse still, losing money.129
The Court is fully aware that one of the criteria under DAO 10 for the PARC to consider the advisability of approving
a stock distribution plan is the likelihood that the plan "would result in increased income and greater benefits to
[qualified beneficiaries] than if the lands were divided and distributed to them individually." 130 But as aptly noted
during the oral arguments, DAO 10 ought to have not, as it cannot, actually exact assurance of success on
something that is subject to the will of man, the forces of nature or the inherent risky nature of business. 131 Just like
in actual land distribution, an SDP cannot guarantee, as indeed the SDOA does not guarantee, a comfortable life for
the FWBs. The Court can take judicial notice of the fact that there were many instances wherein after a farmworker
beneficiary has been awarded with an agricultural land, he just subsequently sells it and is eventually left with
nothing in the end.
In all then, the onerous condition of the FWBs economic status, their life of hardship, if that really be the case, can
hardly be attributed to HLI and its SDP and provide a valid ground for the plans revocation.
Neither does HLIs SDP, whence the DAR-attested SDOA/MOA is based, infringe Sec. 31 of RA 6657, albeit public
respondents erroneously submit otherwise.
The provisions of the first paragraph of the adverted Sec. 31 are without relevance to the issue on the propriety of
the assailed order revoking HLIs SDP, for the paragraph deals with the transfer of agricultural lands to the
government, as a mode of CARP compliance, thus:
SEC. 31. Corporate Landowners.Corporate landowners may voluntarily transfer ownership over their agricultural
landholdings to the Republic of the Philippines pursuant to Section 20 hereof or to qualified beneficiaries under such
terms and conditions, consistent with this Act, as they may agree, subject to confirmation by the DAR.
The second and third paragraphs, with their sub-paragraphs, of Sec. 31 provide as follows:
Upon certification by the DAR, corporations owning agricultural lands may give their qualified beneficiaries the
right to purchase such proportion of the capital stock of the corporation that the agricultural land, actually
devoted to agricultural activities, bears in relation to the companys total assets, under such terms and
conditions as may be agreed upon by them. In no case shall the compensation received by the workers at the time
the shares of stocks are distributed be reduced. x x x
Corporations or associations which voluntarily divest a proportion of their capital stock, equity or participation in
favor of their workers or other qualified beneficiaries under this section shall be deemed to have complied with the
provisions of this Act: Provided, That the following conditions are complied with:
(a) In order to safeguard the right of beneficiaries who own shares of stocks to dividends and other financial
benefits, the books of the corporation or association shall be subject to periodic audit by certified public
accountants chosen by the beneficiaries;
(b) Irrespective of the value of their equity in the corporation or association, the beneficiaries shall be
assured of at least one (1) representative in the board of directors, or in a management or executive
committee, if one exists, of the corporation or association;
(c) Any shares acquired by such workers and beneficiaries shall have the same rights and features as all
other shares; and

(d) Any transfer of shares of stocks by the original beneficiaries shall be void ab initio unless said transaction
is in favor of a qualified and registered beneficiary within the same corporation.
The mandatory minimum ratio of land-to-shares of stock supposed to be distributed or allocated to qualified
beneficiaries, adverting to what Sec. 31 of RA 6657 refers to as that "proportion of the capital stock of the
corporation that the agricultural land, actually devoted to agricultural activities, bears in relation to the companys
total assets" had been observed.
Paragraph one (1) of the SDOA, which was based on the SDP, conforms to Sec. 31 of RA 6657. The stipulation
reads:
1. The percentage of the value of the agricultural land of Hacienda Luisita (P196,630,000.00) in relation to the total
assets (P590,554,220.00) transferred and conveyed to the SECOND PARTY is 33.296% that, under the law, is the
proportion of the outstanding capital stock of the SECOND PARTY, which is P355,531,462.00 or 355,531,462
shares with a par value of P1.00 per share, that has to be distributed to the THIRD PARTY under the stock
distribution plan, the said 33.296% thereof being P118,391,976.85 or 118,391,976.85 shares.
The appraised value of the agricultural land is PhP 196,630,000 and of HLIs other assets is PhP 393,924,220. The
total value of HLIs assets is, therefore, PhP 590,554,220. 132 The percentage of the value of the agricultural lands
(PhP 196,630,000) in relation to the total assets (PhP 590,554,220) is 33.296%, which represents the stockholdings
of the 6,296 original qualified farmworker-beneficiaries (FWBs) in HLI. The total number of shares to be distributed
to said qualified FWBs is 118,391,976.85 HLI shares. This was arrived at by getting 33.296% of the 355,531,462
shares which is the outstanding capital stock of HLI with a value of PhP 355,531,462. Thus, if we divide the
118,391,976.85 HLI shares by 6,296 FWBs, then each FWB is entitled to 18,804.32 HLI shares. These shares
under the SDP are to be given to FWBs for free.
The Court finds that the determination of the shares to be distributed to the 6,296 FWBs strictly adheres to the
formula prescribed by Sec. 31(b) of RA 6657.
Anent the requirement under Sec. 31(b) of the third paragraph, that the FWBs shall be assured of at least one (1)
representative in the board of directors or in a management or executive committee irrespective of the value of the
equity of the FWBs in HLI, the Court finds that the SDOA contained provisions making certain the FWBs
representation in HLIs governing board, thus:
5. Even if only a part or fraction of the shares earmarked for distribution will have been acquired from the FIRST
PARTY and distributed to the THIRD PARTY, FIRST PARTY shall execute at the beginning of each fiscal year an
irrevocable proxy, valid and effective for one (1) year, in favor of the farmworkers appearing as shareholders of the
SECOND PARTY at the start of said year which will empower the THIRD PARTY or their representative to vote in
stockholders and board of directors meetings of the SECOND PARTY convened during the year the entire 33.296%
of the outstanding capital stock of the SECOND PARTY earmarked for distribution and thus be able to gain such
number of seats in the board of directors of the SECOND PARTY that the whole 33.296% of the shares subject to
distribution will be entitled to.
Also, no allegations have been made against HLI restricting the inspection of its books by accountants chosen by
the FWBs; hence, the assumption may be made that there has been no violation of the statutory prescription under
sub-paragraph (a) on the auditing of HLIs accounts.
Public respondents, however, submit that the distribution of the mandatory minimum ratio of land-to-shares of stock,
referring to the 118,391,976.85 shares with par value of PhP 1 each, should have been made in full within two (2)
years from the approval of RA 6657, in line with the last paragraph of Sec. 31 of said law.133
Public respondents submission is palpably erroneous. We have closely examined the last paragraph alluded to,
with particular focus on the two-year period mentioned, and nothing in it remotely supports the public respondents
posture. In its pertinent part, said Sec. 31 provides:
SEC. 31. Corporate Landowners x x x

If within two (2) years from the approval of this Act, the [voluntary] land or stock transfer envisioned above is not
made or realized or the plan for such stock distribution approved by the PARC within the same period, the
agricultural land of the corporate owners or corporation shall be subject to the compulsory coverage of this Act.
(Word in bracket and emphasis added.)
Properly viewed, the words "two (2) years" clearly refer to the period within which the corporate landowner, to avoid
land transfer as a mode of CARP coverage under RA 6657, is to avail of the stock distribution option or to have the
SDP approved. The HLI secured approval of its SDP in November 1989, well within the two-year period reckoned
from June 1988 when RA 6657 took effect.
Having hurdled the alleged breach of the agrarian reform policy under Sec. 2 of RA 6657 as well as the statutory
issues, We shall now delve into what PARC and respondents deem to be other instances of violation of DAO 10 and
the SDP.
On the Conversion of Lands
Contrary to the almost parallel stance of the respondents, keeping Hacienda Luisita unfragmented is also not
among the imperative impositions by the SDP, RA 6657, and DAO 10.
The Terminal Report states that the proposed distribution plan submitted in 1989 to the PARC effectively assured
the intended stock beneficiaries that the physical integrity of the farm shall remain inviolate. Accordingly, the
Terminal Report and the PARC-assailed resolution would take HLI to task for securing approval of the conversion to
non-agricultural uses of 500 hectares of the hacienda. In not too many words, the Report and the resolution view the
conversion as an infringement of Sec. 5(a) of DAO 10 which reads: "a. that the continued operation of the
corporation with its agricultural land intact and unfragmented is viable with potential for growth and increased
profitability."
The PARC is wrong.
In the first place, Sec. 5(a)just like the succeeding Sec. 5(b) of DAO 10 on increased income and greater benefits
to qualified 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." 134
It is, of course, anti-climactic to mention that DAR viewed the conversion as not violative of any issuance, let alone
undermining the viability of Hacienda 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
On the 3% Production Share
On the matter of the alleged failure of HLI to comply with sharing the 3% of the gross production sales of the
hacienda and pay dividends from profit, the entries in its financial books tend to indicate compliance by HLI of the
profit-sharing equivalent to 3% of the gross sales from the production of the agricultural land on top of (a) the
salaries and wages due FWBs as employees of the company and (b) the 3% of the gross selling price of the
converted land and that portion used for the SCTEX. A plausible evidence of compliance or non-compliance, as the
case may be, could be the books of account of HLI. Evidently, the cry of some groups of not having received their
share from the gross production sales has not adequately been validated on the ground by the Special Task Force.

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

The Task Force position: Though, allegedly, the Supervisory Group receives the 3% gross production share
and that others alleged that they received 30 million pesos still others maintain that they have not received
anything yet. Item No. 4 of the MOA is clear and must be followed. There is a distinction between the total
gross sales from the production of the land and the proceeds from the sale of the land. The former refers to
the fruits/yield of the agricultural land while the latter is the land itself. The phrase "the beneficiaries are
entitled every year to an amount approximately equivalent to 3% would only be feasible if the subject is the
produce since there is at least one harvest per year, while such is not the case in the sale of the agricultural
land. This negates then the claim of HLI that, all that the FWBs can be entitled to, if any, is only 3% of the
purchase price of the converted land.

Besides, the Conversion Order dated 14 August 1996 provides that "the benefits, wages and the like,
presently received by the FWBs shall not in any way be reduced or adversely affected. Three percent of the
gross selling price of the sale of the converted land shall be awarded to the beneficiaries of the SDO." The
3% gross production share then is different from the 3% proceeds of the sale of the converted land and, with
more reason, the 33% share being claimed by the FWBs as part owners of the Hacienda, should have been
given the FWBs, as stockholders, and to which they could have been entitled if only the land were acquired
and redistributed to them under the CARP.
xxxx

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

Judging from the above statements, the Special Task Force is at best silent on whether HLI has failed to comply with
the 3% production-sharing obligation or the 3% of the gross selling price of the converted land and the SCTEX lot.
In fact, it admits that the FWBs, though not all, have received their share of the gross production sales and in the
sale of the lot to SCTEX. At most, then, HLI had complied substantially with this SDP undertaking and the
conversion order. To be sure, this slight breach would not justify the setting to naught by PARC of the approval
action of the earlier PARC. Even in contract law, rescission, predicated on violation of reciprocity, will not be
permitted for a slight or casual breach of contract; rescission may be had only for such breaches that are substantial
and fundamental as to defeat the object of the parties in making the agreement. 137
Despite the foregoing findings, the revocation of the approval of the SDP is not without basis as shown below.
On Titles to Homelots
Under RA 6657, the distribution of homelots is required only for corporations or business associations owning or
operating farms which opted for land distribution. Sec. 30 of RA 6657 states:
SEC. 30. Homelots and Farmlots for Members of Cooperatives.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 workerbeneficiaries 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 familybeneficiaries x x x residential or homelots of not more than 240 sq. m. each, with each family beneficiary being
assured of receiving and owning a homelot in the barrio or barangay where it actually resides," "within a reasonable
time."
More than sixteen (16) years have elapsed from the time the SDP was approved by PARC, and yet, it is still the
contention of the FWBs that not all was given the 240-square meter homelots and, of those who were already given,
some still do not have the corresponding titles.
During the oral arguments, HLI was afforded the chance to refute the foregoing allegation by submitting proof that
the FWBs were already given the said homelots:
Justice Velasco: x x x There is also an allegation that the farmer beneficiaries, the qualified family beneficiaries were
not given the 240 square meters each. So, can you also [prove] that the qualified family beneficiaries were already
provided the 240 square meter homelots.
Atty. Asuncion: We will, your Honor please.138
Other than the financial report, however, no other substantial proof showing that all the qualified beneficiaries have
received homelots was submitted by HLI. Hence, this Court is constrained to rule that HLI has not yet fully complied
with its undertaking to distribute homelots to the FWBs under the SDP.
On "Man Days" and the Mechanics of Stock Distribution
In our review and analysis of par. 3 of the SDOA on the mechanics and timelines of stock distribution, We find that
it violates two (2) provisions of DAO 10. Par. 3 of the SDOA states:
3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY [HLI] shall arrange with the FIRST
PARTY [TDC] the acquisition and distribution to the THIRD PARTY [FWBs] on the basis of number of days worked
and at no cost to them of one-thirtieth (1/30) of 118,391,976.85 shares of the capital stock of the SECOND PARTY
that are presently owned and held by the FIRST PARTY, until such time as the entire block of 118,391,976.85
shares shall have been completely acquired and distributed to the THIRD PARTY.
Based on the above-quoted provision, the distribution of the shares of stock to the FWBs, albeit not entailing a cash
out from them, is contingent on the number of "man days," that is, the number of days that the FWBs have worked
during the year. This formula deviates from Sec. 1 of DAO 10, which decrees the distribution of equal number of
shares to the FWBs as the minimum ratio of shares of stock for purposes of compliance with Sec. 31 of RA 6657. As
stated in Sec. 4 of DAO 10:
Section 4. Stock Distribution Plan.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 landownerapplicant may adopt additional stock distribution schemes taking into account factors such as rank, seniority, salary,

position and other circumstances which may be deemed desirable as a matter of sound company policy. (Emphasis
supplied.)
The above proviso gives two (2) sets or categories of shares of stock which a qualified beneficiary can acquire from
the corporation under the SDP. The first pertains, as earlier explained, to the mandatory minimum ratio of shares of
stock to be distributed to the FWBs in compliance with Sec. 31 of RA 6657. This minimum ratio contemplates of that
"proportion of the capital stock of the corporation that the agricultural land, actually devoted to agricultural activities,
bears in relation to the companys total assets."139 It is this set of shares of stock which, in line with Sec. 4 of DAO
10, is supposed to be allocated "for the distribution of an equal number of shares of stock of the same class and
value, with the same rights and features as all other shares, to each of the qualified beneficiaries."
On the other hand, the second set or category of shares partakes of a gratuitous extra grant, meaning that this set
or category constitutes an augmentation share/s that the corporate landowner may give under an additional stock
distribution scheme, taking into account such variables as rank, seniority, salary, position and like factors which the
management, in the exercise of its sound discretion, may deem desirable. 140
Before anything else, it should be stressed that, at the time PARC approved HLIs SDP, HLI
recognized 6,296individuals as qualified FWBs. And under the 30-year stock distribution program envisaged under
the plan, FWBs who came in after 1989, new FWBs in fine, may be accommodated, as they appear to have in fact
been accommodated as evidenced by their receipt of HLI shares.
Now then, by providing that the number of shares of the original 1989 FWBs shall depend on the number of "man
days," HLI violated the afore-quoted rule on stock distribution and effectively deprived the FWBs of equal shares of
stock in the corporation, for, in net effect, these 6,296 qualified FWBs, who theoretically had given up their rights to
the land that could have been distributed to them, suffered a dilution of their due share entitlement. As has been
observed during the oral arguments, HLI has chosen to use the shares earmarked for farmworkers as reward
system chips to water down the shares of the original 6,296 FWBs.141 Particularly:
Justice Abad: If the SDOA did not take place, the other thing that would have happened is that there would be
CARP?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: 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?142
From the above discourse, it is clear as day that the original 6,296 FWBs, who were qualified beneficiaries at the
time of the approval of the SDP, suffered from watering down of shares. As determined earlier, each original FWB is
entitled to 18,804.32 HLI shares. The original FWBs got less than the guaranteed 18,804.32 HLI shares per
beneficiary, because the acquisition and distribution of the HLI shares were based on "man days" or "number of
days worked" by the FWB in a 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-toFWBs 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. (Emphasis supplied.)
It is evident from the foregoing provision that the implementation, that is, the distribution of the shares of stock to the
FWBs, must be made within three (3) months from receipt by HLI of the approval of the stock distribution plan by
PARC. While neither of the clashing parties has made a compelling case of the thrust of this provision, the Court is
of the view and so holds that the intent is to compel the corporate landowner to complete, not merely initiate, the
transfer process of shares within that three-month timeframe. Reinforcing this conclusion is the 60-day stock
transfer recording (with the SEC) requirement reckoned from the implementation of the SDP.
To the Court, there is a purpose, which is at once discernible as it is practical, for the three-month threshold.
Remove this timeline and the corporate landowner can veritably evade compliance with agrarian reform by simply
deferring to absurd limits the implementation of the stock distribution scheme.

The argument is urged that the thirty (30)-year distribution program is justified by the fact that, under Sec. 26 of RA
6657, payment by beneficiaries of land distribution under CARP shall be made in thirty (30) annual amortizations. To
HLI, said section provides a justifying dimension to its 30-year stock distribution program.
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.143 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.
III.
We now resolve the petitions-in-intervention which, at bottom, uniformly pray for the exclusion from the coverage of
the assailed PARC resolution those portions of the converted land within Hacienda Luisita which RCBC and LIPCO
acquired by purchase.
Both contend that they are innocent purchasers for value of portions of the converted farm land. Thus, their plea for
the exclusion of that portion from PARC Resolution 2005-32-01, as implemented by a DAR-issued Notice of
Coverage dated January 2, 2006, which called for mandatory CARP acquisition coverage of lands subject of the
SDP.
To restate the antecedents, after the conversion of the 500 hectares of land in Hacienda Luisita, HLI transferred the
300 hectares to Centennary, while ceding the remaining 200-hectare portion to LRC. Subsequently, LIPCO
purchased the entire three hundred (300) hectares of land from Centennary for the purpose of developing the land
into an industrial complex.144 Accordingly, the TCT in Centennarys name was canceled and a new one issued in
LIPCOs name. Thereafter, said land was subdivided into two (2) more parcels of land. Later on, LIPCO transferred
about 184 hectares to RCBC by way of dacion en pago, by virtue of which TCTs in the name of RCBC were
subsequently issued.
Under Sec. 44 of PD 1529 or the Property Registration Decree, "every registered owner receiving a certificate of title
in pursuance of a decree of registration and every subsequent purchaser of registered land taking a certificate of
title for value and in good faith shall hold the same free from all encumbrances except those noted on the certificate
and enumerated therein."145
It is settled doctrine that one who deals with property registered under the Torrens system need not go beyond the
four corners of, but can rely on what appears on, the title. He is charged with notice only of such burdens and claims
as are annotated on the title. This principle admits of certain exceptions, such as when the party has actual
knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry, or when
the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably
prudent man to inquire into the status of the title of the property in litigation. 146 A higher level of care and diligence is
of course expected from banks, their business being impressed with public interest. 147

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


x x x A purchaser in good faith is one who buys property of another, without notice that some other person has a
right to, or interest in, such property at the time of such purchase, or before he has notice of the claim or interest of
some other persons in the property. Good faith, or the lack of it, is in the final analysis a question of intention; but in
ascertaining the intention by which one is actuated on a given occasion, we are necessarily controlled by the
evidence as to the conduct and outward acts by which alone the inward motive may, with safety, be determined.
Truly, good faith is not a visible, tangible fact that can be seen or touched, but rather a state or condition of mind
which can only be judged by actual or fancied tokens or signs. Otherwise stated, good faith x x x refers to the state
of mind which is manifested by the acts of the individual concerned.148 (Emphasis supplied.)
In fine, there are two (2) requirements before one may be considered a purchaser in good faith, namely: (1) that the
purchaser buys the property of another without notice that some other person has a right to or interest in such
property; and (2) that the purchaser pays a full and fair price for the property at the time of such purchase or before
he or she has notice of the claim of another.
It can rightfully be said that both LIPCO and RCBC arebased on the above requirements and with respect to the
adverted transactions of the converted land in questionpurchasers in good faith for value entitled to the benefits
arising from such status.
First, at the time LIPCO purchased the entire three hundred (300) hectares of industrial land, there was no notice of
any supposed defect in the title of its transferor, Centennary, or that any other person has a right to or interest in
such property. In fact, at the time LIPCO acquired said parcels of land, only the following annotations appeared on
the TCT in the name of Centennary: the Secretarys Certificate in favor of Teresita Lopa, the Secretarys Certificate
in favor of Shintaro Murai, and the conversion of the property from agricultural to industrial and residential use. 149
The same is true with respect to RCBC. At the time it acquired portions of Hacienda Luisita, only the following
general annotations appeared on the TCTs of LIPCO: the Deed of Restrictions, limiting its use solely as an industrial
estate; the Secretarys Certificate in favor of Koji Komai and Kyosuke Hori; and the Real Estate Mortgage in favor of
RCBC to guarantee the payment of PhP 300 million.
It cannot be claimed that RCBC and LIPCO acted in bad faith in acquiring the lots that were previously covered by
the SDP. Good faith "consists in the 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." 150 It is the opposite of fraud.
To be sure, intervenor RCBC and LIPCO knew that the lots they bought were subjected to CARP coverage by
means of a stock distribution plan, as the DAR conversion order was annotated at the back of the titles of the lots
they acquired. However, they are of the honest belief that the subject lots were validly converted to commercial or
industrial purposes and for which said lots were taken out of the CARP coverage subject of PARC Resolution No.
89-12-2 and, hence, can be legally and validly acquired by them. After all, Sec. 65 of RA 6657 explicitly allows
conversion and disposition of agricultural lands previously covered by CARP land acquisition "after the lapse of five
(5) years from its award when the land ceases to be economically feasible and sound for agricultural purposes or
the locality has become urbanized and the land will have a greater economic value for residential, commercial or
industrial purposes." Moreover, DAR notified all the affected parties, more particularly the FWBs, and gave them the
opportunity to comment or oppose the proposed conversion. DAR, after going through the necessary processes,
granted the conversion of 500 hectares of Hacienda Luisita pursuant to its primary jurisdiction under Sec. 50 of RA
6657 to determine and adjudicate agrarian reform matters and its original exclusive jurisdiction over all matters
involving the implementation of agrarian reform. The DAR conversion order became final and executory after none
of the FWBs interposed an appeal to the CA. In this factual setting, RCBC and LIPCO purchased the lots in question
on their honest and well-founded belief that the previous registered owners could legally sell and convey the lots
though these were previously subject of CARP coverage. Ergo, RCBC and LIPCO acted in good faith in acquiring
the subject lots.
And second, both LIPCO and RCBC purchased portions of Hacienda Luisita for value. Undeniably, LIPCO acquired
300 hectares of land from Centennary for the amount of PhP 750 million pursuant to a Deed of Sale dated July 30,

1998.151 On the other hand, in a Deed of Absolute Assignment dated November 25, 2004, LIPCO conveyed portions
of Hacienda Luisita in favor of RCBC by way of dacion en pago to pay for a loan of PhP 431,695,732.10.
As bona fide purchasers for value, both LIPCO and RCBC have acquired rights which cannot just be disregarded by
DAR, PARC or even by this Court. As held in Spouses Chua v. Soriano:
With the property in question having already passed to the hands of purchasers in good faith, it is now of no
moment that some irregularity attended the issuance of the SPA, consistent with our pronouncement in Heirs of
Spouses Benito Gavino and Juana Euste v. Court of Appeals, to wit:
x x x the general rule that the direct result of a previous void contract cannot be valid, is inapplicable in this case as
it will directly contravene the Torrens system of registration. Where innocent third persons, relying on the
correctness of the certificate of title thus issued, acquire rights over the property, the court cannot
disregard such rights and order the cancellation of the certificate. The effect of such outright cancellation will
be to impair public confidence in the certificate of title. The sanctity of the Torrens system must be preserved;
otherwise, everyone dealing with the property registered under the system will have to inquire in every instance as
to whether the title had been regularly or irregularly issued, contrary to the evident purpose of the law.
Being purchasers in good faith, the Chuas already acquired valid title to the property. A purchaser in good
faith holds an indefeasible title to the property and he is entitled to the protection of the law.152 x x x
(Emphasis supplied.)
To be sure, the practicalities of the situation have to a point influenced Our disposition on the fate of RCBC and
LIPCO. After all, the Court, to borrow from Association of Small Landowners in the Philippines, Inc.,153 is not a
"cloistered institution removed" from the realities on the ground. To note, the approval and issuances of both the
national and local governments showing that certain portions of Hacienda Luisita have effectively ceased, legally
and physically, to be agricultural and, therefore, no longer CARPable are a matter of fact which cannot just be
ignored by the Court and the DAR. Among the approving/endorsing issuances: 154
(a) Resolution No. 392 dated 11 December 1996 of the Sangguniang Bayan of Tarlac favorably endorsing
the 300-hectare industrial estate project of LIPCO;
(b) BOI Certificate of Registration No. 96-020 dated 20 December 1996 issued in accordance with the
Omnibus Investments Code of 1987;
(c) PEZA Certificate of Board Resolution No. 97-202 dated 27 June 1997, approving LIPCOs application for
a mixed ecozone and proclaiming the three hundred (300) hectares of the industrial land as a Special
Economic Zone;
(d) Resolution No. 234 dated 08 August 1997 of the Sangguniang Bayan of Tarlac, approving the Final
Development Permit for the Luisita Industrial Park II Project;
(e) Development Permit dated 13 August 1997 for the proposed Luisita Industrial Park II Project issued by
the Office of the Sangguniang Bayan of Tarlac;155
(f) DENR Environmental Compliance Certificate dated 01 October 1997 issued for the proposed project of
building an industrial complex on three hundred (300) hectares of industrial land; 156
(g) Certificate of Registration No. 00794 dated 26 December 1997 issued by the HLURB on the project of
Luisita Industrial Park II with an area of three million (3,000,000) square meters; 157
(h) License to Sell No. 0076 dated 26 December 1997 issued by the HLURB authorizing the sale of lots in
the Luisita Industrial Park II;
(i) Proclamation No. 1207 dated 22 April 1998 entitled "Declaring Certain Parcels of Private Land in
Barangay San Miguel, Municipality of Tarlac, Province of Tarlac, as a Special Economic Zone pursuant to

Republic Act No. 7916," designating the Luisita Industrial Park II consisting of three hundred hectares (300
has.) of industrial land as a Special Economic Zone; and
(j) Certificate of Registration No. EZ-98-05 dated 07 May 1998 issued by the PEZA, stating that pursuant to
Presidential Proclamation No. 1207 dated 22 April 1998 and Republic Act No. 7916, LIPCO has been
registered as an Ecozone Developer/Operator of Luisita Industrial Park II located in San Miguel, Tarlac,
Tarlac.
While a mere reclassification of a covered agricultural land or its inclusion in an economic zone does not
automatically allow the corporate or individual landowner to change its use, 158 the reclassification process is a prima
facie indicium that the land has ceased to be economically feasible and sound for agricultural uses. And if only to
stress, DAR Conversion Order No. 030601074-764-(95) issued in 1996 by then DAR Secretary Garilao had
effectively converted 500 hectares of hacienda land from agricultural to industrial/commercial use and authorized
their disposition.
In relying upon the above-mentioned approvals, proclamation and conversion order, both RCBC and LIPCO cannot
be considered at fault for believing that certain portions of Hacienda Luisita are industrial/commercial lands and are,
thus, outside the ambit of CARP. The PARC, and consequently DAR, gravely abused its discretion when it placed
LIPCOs and RCBCs property which once formed part of Hacienda Luisita under the CARP compulsory acquisition
scheme via the assailed Notice of Coverage.
As regards the 80.51-hectare land transferred to the government for use as part of the SCTEX, this should also be
excluded from the compulsory agrarian reform coverage considering that the transfer was consistent with the
governments exercise of the power of eminent domain159 and none of the parties actually questioned the transfer.
While We affirm the revocation of the SDP on Hacienda Luisita subject of PARC Resolution Nos. 2005-32-01 and
2006-34-01, the Court cannot close its eyes to certain "operative facts" that had occurred in the interim. Pertinently,
the "operative fact" doctrine realizes that, in declaring a law or executive action null and void, or, by extension, no
longer without force and effect, undue harshness and resulting unfairness must be avoided. This is as it should
realistically be, since rights might have accrued in favor of natural or juridical persons and obligations justly incurred
in the meantime.160 The actual existence of a statute or executive act is, prior to such a determination, an operative
fact and may have consequences which cannot justly be ignored; the past cannot always be erased by a new
judicial declaration.161
The oft-cited De Agbayani v. Philippine National Bank162 discussed the effect to be given to a legislative or executive
act subsequently declared invalid:
x x x It does not admit of doubt that prior to the declaration of nullity such challenged legislative or executive act
must have been in force and had to be complied with. This is so as until after the judiciary, in an appropriate case,
declares its invalidity, it is entitled to obedience and respect. Parties may have acted under it and may have
changed their positions. What could be more fitting than that in a subsequent litigation regard be had to what has
been done while such legislative or executive act was in operation and presumed to be valid in all respects. It is now
accepted as a doctrine that prior to its being nullified, its existence as a fact must be reckoned with. This is merely to
reflect awareness that precisely because the judiciary is the government organ which has the final say on whether
or not a legislative or executive measure is valid, a period of time may have elapsed before it can exercise the
power of judicial review that may lead to a declaration of nullity. It would be to deprive the law of its quality of
fairness and justice then, if there be no recognition of what had transpired prior to such adjudication.
In the language of an American Supreme Court decision: "The actual existence of a statute, prior to such a
determination of [unconstitutionality], is an operative fact and may have consequences which cannot justly be
ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to
invalidity may have to be considered in various aspects,with respect to particular relations, individual and
corporate, and particular conduct, private and official." x x x
Given the above perspective and considering that more than two decades had passed since the PARCs approval of
the HLIs SDP, in conjunction with numerous activities performed in good faith by HLI, and the reliance by the FWBs
on the legality and validity of the PARC-approved SDP, perforce, certain rights of the parties, more particularly the
FWBs, have to be respected pursuant to the application in a general way of the operative fact doctrine.

A view, however, has been advanced that the operative fact doctrine is of minimal or altogether without relevance to
the instant case as it applies only in considering the effects of a declaration of unconstitutionality of a statute, and
not of a declaration of nullity of a contract. This is incorrect, for this view failed to consider is that it is NOT the SDOA
dated May 11, 1989 which was revoked in the instant case. Rather, it is PARCs approval of the HLIs Proposal for
Stock Distribution under CARP which embodied the SDP that was nullified.
A recall of the antecedent events would show that on May 11, 1989, Tadeco, HLI, and the qualified FWBs executed
the SDOA. This agreement provided the basis and mechanics of the SDP that was subsequently proposed and
submitted to DAR for approval. It was only after its review that the PARC, through then Sec. Defensor-Santiago,
issued the assailed Resolution No. 89-12-2 approving the SDP. Considerably, it is not the SDOA which gave legal
force and effect to the stock distribution scheme but instead, it is the approval of the SDP under the PARC
Resolution No. 89-12-2 that gave it its validity.
The above conclusion is bolstered by the fact that in Sec. Pangandamans recommendation to the PARC Excom,
what he proposed is the recall/revocation of PARC Resolution No. 89-12-2 approving HLIs SDP, and not the
revocation of the SDOA. Sec. Pangandamans recommendation was favorably endorsed by the PARC Validation
Committee to the PARC Excom, and these recommendations were referred to in the assailed Resolution No. 200532-01. Clearly, it is not the SDOA which was made the basis for the implementation of the stock distribution scheme.
That the operative fact doctrine squarely applies to executive 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,163We
held:
Petitioner postulates that the "operative fact" doctrine is inapplicable to the present case because it is an equitable
doctrine which could not be used to countenance an inequitable result that is contrary to its proper office.
On the other hand, the petitioner Solicitor General argues that the existence of the various agreements
implementing the SMDRP is an operative fact that can no longer be disturbed or simply ignored, citing Rieta v.
People of the Philippines.
The argument of the Solicitor General is meritorious.
The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is stated that a legislative or
executive act, prior to its being declared as unconstitutional by the courts, is valid and must be complied with, thus:
xxx

xxx

xxx

This doctrine was reiterated in the more recent case of City of Makati v. Civil Service Commission, wherein we ruled
that:
Moreover, we certainly cannot nullify the City Government's order of suspension, as we have no reason to do so,
much less retroactively apply such nullification to deprive private respondent of a compelling and valid reason for
not filing the leave application. For as we have held, a void act though in law a mere scrap of paper nonetheless
confers legitimacy upon past acts or omissions done in reliance thereof. Consequently, the existence of a statute or
executive order prior to its being adjudged void is an operative fact to which legal consequences are attached. It
would indeed be ghastly unfair to prevent private respondent from relying upon the order of suspension in lieu of a
formal leave application. (Citations omitted; Emphasis supplied.)
The applicability of the operative fact doctrine to executive acts was further explicated by this Court in Rieta v.
People,164 thus:
Petitioner contends that his arrest by virtue of Arrest Search and Seizure Order (ASSO) No. 4754 was invalid, as the
law upon which it was predicated General Order No. 60, issued by then President Ferdinand E. Marcos was
subsequently declared by the Court, in 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 supplied.)
To reiterate, although the assailed Resolution No. 2005-32-01 states that it revokes or recalls the SDP, what it
actually revoked or recalled was the PARCs approval of the SDP embodied in Resolution No. 89-12-2.
Consequently, what was actually declared null and void was an executive act, PARC Resolution No. 89-12-2, 165and
not a contract (SDOA). It is, therefore, wrong to say that it was the SDOA which was annulled in the instant case.
Evidently, the operative fact doctrine is applicable.
IV.
While the assailed PARC resolutions effectively nullifying the Hacienda Luisita SDP are upheld, the revocation must,
by application of the operative fact principle, give way to the right of the original 6,296 qualified FWBs to choose
whether they want to remain as HLI stockholders or not. The Court cannot turn a blind eye to the fact that in 1989,
93% of the FWBs agreed to the SDOA (or the MOA), which became the basis of the SDP approved by PARC per its
Resolution No. 89-12-2 dated November 21, 1989. From 1989 to 2005, the FWBs were said to have received from
HLI salaries and cash benefits, hospital and medical benefits, 240-square meter homelots, 3% of the gross produce
from agricultural lands, and 3% of the proceeds of the sale of the 500-hectare converted land and the 80.51-hectare
lot sold to SCTEX. HLI shares totaling 118,391,976.85 were distributed as of April 22, 2005. 166 On August 6, 20l0,
HLI and private respondents submitted a Compromise Agreement, in which HLI gave the FWBs the option of
acquiring a piece of agricultural land or remain as HLI stockholders, and as a matter of fact, most FWBs indicated
their choice of remaining as stockholders. These facts and circumstances tend to indicate that some, if not all, of the
FWBs may actually desire to continue as HLI shareholders. A matter best left to their own discretion.
With respect to the other FWBs who were not listed as qualified beneficiaries as of November 21, 1989 when the
SDP was approved, they are not accorded the right to acquire land but shall, however, continue as HLI
stockholders. All the benefits and homelots167 received by the 10,502 FWBs (6,296 original FWBs and 4,206 non-

qualified FWBs) listed as HLI stockholders as of August 2, 2010 shall be respected with no obligation to refund or
return them since the benefits (except the homelots) were received by the FWBs as farmhands in the agricultural
enterprise of HLI and other fringe benefits were granted to them pursuant to the existing collective bargaining
agreement with Tadeco. If the number of HLI shares in the names of the original FWBs who opt to remain as HLI
stockholders falls below the guaranteed allocation of 18,804.32 HLI shares per FWB, the HLI shall assign additional
shares to said FWBs to complete said minimum number of shares at no cost to said FWBs.
With regard to the homelots already awarded or earmarked, the FWBs are not obliged to return the same to HLI or
pay for its value since this is a benefit granted under the SDP. The homelots do not form part of the 4,915.75
hectares covered by the SDP but were taken from the 120.9234 hectare residential lot owned by Tadeco. Those
who did not receive the homelots as of the revocation of the SDP on December 22, 2005 when PARC Resolution
No. 2005-32-01 was issued, will no longer be entitled to homelots. Thus, in the determination of the ultimate
agricultural land that will be subjected to land distribution, the aggregate area of the homelots will no longer be
deducted.
There is a claim that, since the sale and transfer of the 500 hectares of land subject of the August 14, 1996
Conversion Order and the 80.51-hectare SCTEX lot came after compulsory coverage has taken place, the FWBs
should have their corresponding share of the 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 80.51hectare 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.
A view has been advanced that HLI must pay the FWBs yearly rent for use of the land from 1989. We disagree. It
should not be forgotten that the FWBs are also stockholders of HLI, and the benefits acquired by the corporation
from its possession and use of the land ultimately redounded to the FWBs benefit based on its business operations
in the form of salaries, and other fringe benefits under the CBA. To still require HLI to pay rent to the FWBs will
result in double compensation.
For sure, HLI will still exist as a corporation even after the revocation of the SDP although it will no longer be
operating under the SDP, but pursuant to the Corporation Code as a private stock corporation. The non-agricultural
assets amounting to PhP 393,924,220 shall remain with HLI, while the agricultural lands valued at PhP 196,630,000
with an original area of 4,915.75 hectares shall be turned over to DAR for distribution to the FWBs. To be deducted
from said area are the 500-hectare lot subject of the August 14, 1996 Conversion Order, the 80.51-hectare SCTEX
lot, and the total area of 6,886.5 square meters of individual lots that should have been distributed to FWBs by DAR
had they not opted to stay in HLI.
HLI shall be paid just compensation for the remaining agricultural land that will be transferred to DAR for land
distribution to the FWBs. We find that the date of the "taking" is November 21, 1989, when PARC approved HLIs
SDP per PARC Resolution No. 89-12-2. DAR shall coordinate with LBP for the determination of just compensation.
We cannot use May 11, 1989 when the SDOA was executed, since it was the SDP, not the SDOA, that was
approved by PARC.
The instant petition is treated pro hac vice in view of the peculiar facts and circumstances of the case.

WHEREFORE, the instant petition is DENIED. PARC Resolution No. 2005-32-01 dated December 22, 2005 and
Resolution No. 2006-34-01 dated May 3, 2006, placing the lands subject of HLIs SDP under compulsory coverage
on mandated land acquisition scheme of the CARP, are hereby AFFIRMED with the MODIFICATION that the
original 6,296 qualified FWBs shall have the option to remain as stockholders of HLI. DAR shall immediately
schedule meetings with the said 6,296 FWBs and explain to them the effects, consequences and legal or practical
implications of their choice, after which the FWBs will be asked to manifest, in secret voting, their choices in the
ballot, signing their signatures or placing their thumbmarks, as the case may be, over their printed names.
Of the 6,296 FWBs, he or she who wishes to continue as an HLI stockholder is entitled to 18,804.32 HLI shares,
and, in case the HLI shares already given to him or her is less than 18,804.32 shares, the HLI is ordered to issue or
distribute additional shares to complete said prescribed number of shares at no cost to the FWB within thirty (30)
days from finality of this Decision. Other FWBs who do not belong to the original 6,296 qualified beneficiaries are not
entitled to land distribution and shall remain as HLI shareholders. All salaries, benefits, 3% production share and 3%
share in the proceeds of the sale of the 500-hectare converted land and the 80.51-hectare SCTEX lot and homelots
already received by the 10,502 FWBs, composed of 6,296 original FWBs and 4,206 non-qualified FWBs, shall be
respected with no obligation to refund or return them.
Within thirty (30) days after determining who from among the original FWBs will stay as stockholders, DAR shall
segregate from the HLI agricultural land with an area of 4,915.75 hectares subject of PARCs SDP-approving
Resolution No. 89-12-2 the following: (a) the 500-hectare lot subject of the August 14, l996 Conversion Order; (b)
the 80.51-hectare lot sold to, or acquired by, the government as part of the SCTEX complex; and (c) the aggregate
area of 6,886.5 square meters of individual lots that each FWB is entitled to under the CARP had he or she not
opted to stay in HLI as a stockholder. After the segregation process, as indicated, is done, the remaining area shall
be turned over to DAR for immediate land distribution to the original qualified FWBs who opted not to remain as HLI
stockholders.
The aforementioned area composed of 6,886.5-square meter lots allotted to the FWBs who stayed with the
corporation shall form part of the HLI assets.
HLI is directed to pay the 6,296 FWBs the consideration of PhP 500,000,000 received by it from Luisita Realty, Inc.
for the sale to the latter of 200 hectares out of the 500 hectares covered by the August 14, 1996 Conversion Order,
the consideration of PhP 750,000,000 received by its owned subsidiary, Centennary Holdings, Inc. for the sale of the
remaining 300 hectares of the aforementioned 500-hectare lot to Luisita Industrial Park Corporation, and the price of
PhP 80,511,500 paid by the government through the Bases Conversion Development Authority for the sale of the
80.51-hectare lot used for the construction of the SCTEX road network. From the total amount of PhP 1,330,511,500
(PhP 500,000,000 + PhP 750,000,000 + PhP 80,511,500 = PhP 1,330,511,500) shall be deducted the 3% of the
total gross sales from the production of the agricultural land and the 3% of the proceeds of said transfers that were
paid to the FWBs, the taxes and expenses relating to the transfer of titles to the transferees, and the expenditures
incurred by HLI and Centennary Holdings, Inc. for legitimate corporate purposes. For this purpose, DAR is ordered
to engage the services of a reputable accounting firm approved by the parties to audit the books of HLI and
Centennary Holdings, Inc. to determine if the PhP 1,330,511,500 proceeds of the sale of the three (3)
aforementioned lots were used or spent for legitimate corporate purposes. Any unspent or unused balance as
determined by the audit shall be distributed to the 6,296 original FWBs.
HLI is entitled to just compensation for the agricultural land that will be transferred to DAR to be reckoned from
November 21, 1989 per PARC Resolution No. 89-12-2. DAR and LBP are ordered to determine the compensation
due to HLI.
DAR shall submit a compliance report after six (6) months from finality of this judgment. It shall also submit, after
submission of the compliance report, quarterly reports on the execution of this judgment to be submitted within the
first 15 days at the end of each quarter, until fully implemented.
The temporary restraining order is lifted.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
FIRST DIVISION
G.R. No. 166883 November 23, 2005
ANGELA TAGUINOD and RODOLFO G. TAGUINOD, Petitioners,
vs.
MAXIMINO DALUPANG and COURT OF APPEALS, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court assails the October 14, 2004 Decision 1 of
the Court of Appeals in CA-G.R. SP No. 84953 which affirmed the June 30, 2003 Decision 2 of the Office of the
President in O.P. Case No. 99-F-8759; and its January 27, 2005 Resolution3 denying petitioners motion for
reconsideration.
On October 16, 1987, former President Corazon C. Aquino issued Proclamation No. 172 4 which declared
thebarangays of Lower Bicutan, Upper Bicutan, Western Bicutan and Signal Village situated in the Municipality of
Taguig, open for disposition under the provisions of Republic Act (RA) No. 2745 and RA No. 730.6
By virtue of Proclamation No. 172, a parcel of land located in Block 131, Signal Village, Taguig, with an area of 570square meters and subdivided into Lots 6 and 11 became open for purchase. Consequently, Maximino Dalupang
filed a sales application7 covering Lot 11. Thereafter, petitioner Angela G. Taguinod also filed her own
application8 over the same Lot 11.
Upon learning of Dalupangs application, petitioner filed a protest9 with the Land Management Sector of the
Department of Environment and Natural Resources (DENR), claiming that she is the actual occupant, owner,
claimant and applicant over Lot 11 and that Dalupang is only the caretaker of Lot 11 whom she allowed to stay in a
portion of the property where the latter built a hut and put up a store.
Afterwards, petitioner Rodolfo G. Taguinod, the son of Angela Taguinod, filed a separate application over Lot 6.
Subsequently, Lot 11 was subjected to two ocular inspections which resulted into the submission of two conflicting
findings and recommendations. Land Investigator Danilo G. Lim concluded that Dalupang is disqualified to own the
lot based on the following findings:
1. On ocular inspection conducted, it was found out, that subject area, Lot 11, is but a portion of a whole compound
fenced by an old concrete wall;
2. That the compound has an area of 570 sq. meters and is more than 300 sq. meters the maximum area for
residential purposes under Pres. Proc. No. 172, hence the subdivision of the lot into Lot 6, and Lot 11, Blk-13, Psd15-002057;
3. That an old concrete house owned by the Taguinod stands in the middle of Lot 6 and Lot 11, Blk-13, and is
declared under Tax Declaration No. 1303 in the name of Eusebio Taguinod. (Xerox copy of Tax Declaration is hereto
attached);

4. Also existing in Lot 11 is a small house of light materials owned by Maximino Dalupang more or less 20 sq.
meters;
5. That in early part of 1975, Capt. Eusebio Taguinod (Ret.) husband of Angela Taguinod, built a semi-concrete
house in a parcel of land that later on be know (sic) as Lot 6, and Lot 11, Blk-13, Psd-15-002057;
6. That also later in the same year Mr. Maximino Dalupang a townmate of the Taguinods and a fire victim in
Paraaque asked for a permission from the Taguinods to temporarily stay in their newly built house;
7. The Taguinods being busy and are industriously tending their livelihood, did not only allowed the Dalupang (sic) to
stay temporarily, but even took them as caretaker;
8. That for privacy reasons, the Dalupangs were even allowed to construct their own dwelling unit;
9. But in early part of 1988 Mr. Dalupang tried to improve and widen his occupation but was restrained to pursue the
said construction by Mrs. Taguinod, as can be gleamed there in the pictures attached by Mr. Dalupang in this IGPS
Application and was marked as Exhibits "1" and "2";
10. Attached herewith is a sworn statement of Lt. Manuel B. Binag (Ret) former Barrio Captain of Signal Village to
further boost the claim of Angela Taguinod;
11. That Maximino Dalupang is a recipient of a government award under the National Housing Authority over Lot 6,
Blk-36, Area H, Psd-13-001949, Sapang Palay Resettlement Project, San Jose del Monte, Bulacan. 10
On the other hand, Land Investigator Jose Exequiel Vale, Jr. recommended that the application of respondent
Dalupang be given due course on account of the following reasons:
1. That per ocular inspection the family of Mr. Maximino Dalupang is the actual occupant of Lot 6, Blk-131, Signal
Village, Taguig, MM.
2. That on said lot exists a residential house made of mixed materials owned by Mr. Dalupang;
3. That per list of claimant, Ms. Angela Taguinod appears a claimant over said lot;
4. That immediately adjoining said lot exists a concrete house owned by a certain Ms. Angela Taguinod;
5. That on the date of ocular inspection said Ms. Taguinod was not around and only visits said area oftentimes;
6. That in actuality the house allegedly owned by Ms. Taguinod is being taken cared of by the family of Mr. Dalupang
aside from the residential house owned by Mr. Dalupang;
In view hereof it is hereby recommended that the application of Mr. Maximino Dalupang which is herein attached be
accepted and given the necessary due course.11
In his supplementary report,12 Vale, Jr. corrected the lot assignment in Dalupangs application on the basis of his
findings that he is actually occupying Lot 6 and not Lot 11 as stated in the sales application.
Based on the conflicting reports, the DENR Regional Executive Director rendered a Decision 13 disposing thus:

WHEREFORE, in the light of the foregoing facts and conclusions, the instant case should be dropped from the
records. The sales application of Maximino Dalupang covering Lot 6, Blk. 131, shall now be given further due
course, while that of Angela Taguinod, shall only include Lot 11, Blk 131.
SO ORDERED.14
Petitioner Angela Taquinod filed an appeal15 with the Office of the DENR Secretary on March 22, 1990. On even
date, petitioner Rodolfo Taguinod filed, also with the Office of the DENR Secretary, a Motion to Intervene and Appeal
in Intervention.16
While the appeals of the petitioners were still pending, the application of Angela Taguinod for Lot 11 was approved.
Consequently, Transfer Certificate of Title (TCT) No. 1443117 was issued by the Registry of Deeds for the Province
of Rizal in the name of petitioner Angela Taguinod.
On February 26, 1996, the DENR Secretary rendered a Decision 18 affirming the decision of the DENR Regional
Executive Director. The DENR Secretary held that respondent Dalupang had clearly established his actual
occupation and residence on Lot 6 while Angela Taguinod, on the other hand, only makes monthly visits on the
property.
Acting on petitioners motion for reconsideration, the DENR Secretary reversed the earlier decision and declared
Rodolfo Taguinod as the qualified applicant over Lot 6. The decision further disqualified Dalupang on account of a
previous award of a lot to him by the National Housing Authority (NHA).19
Dalupang moved to reconsider20 the above decision but the same was denied. Dalupang appealed21 to the Office of
the President where it was docketed as O.P. Case No. 99-F-8759. On June 30, 2003, the Office of the President
rendered a Decision22 upholding the appeal of Dalupang ratiocinating that:
There can be no quibbling that Dalupang and his family have been in actual occupation of the subject lot. Angela
admitted that, sometime in 1976, she allowed Dalupang and his family to stay on what is now Lot No. 6. Since then,
the Dalupang family has remained in actual occupation of the lot. Section 3 of RA No. 274 provides "that in the sale
of the lands, first priority shall be given to bonafide occupants of such lands". Similarly, RA No. 730 and MO 119, s.
1987, require that the applicant must be a bonafide resident of the parcel of public land being applied for.
On the other hand, Rodolfo failed to establish by independent evidence his occupation of the subject lot because he
merely adopted the substantive allegations of, including the pieces of evidence submitted by, his mother. But such
evidence only established Angelas entitlement to purchase Lot 11 and not Lot 6. In fact, the title to Lot 11 had
already been transferred in May 1991 to her name. She thus effectively lost her legal personality to participate in the
appellate proceedings before the DENR and this Office. Under this circumstance, Rodolfo cannot claim a right over
Lot 6 better than his mother, who, as stated earlier, was legally disqualified to purchase said lot having already been
awarded Lot 11. As the clich goes, the spring cannot rise higher than its source.
....
Compared to Rodolfo who has not adduced evidence to show his entitlement to the lot in question, Dalupang
presented substantial evidence to prove that he and his family were, during the period material, in physical
occupation of the subject lot and have constructed a house thereon as early as 1977. Among these are documents
cited by the DENR Secretary no less in his decision of February 26, 1996, viz.: (1) official receipt dated May 16,
1977 issued by the Municipality of Taguig for electrical wiring permit fee paid by Dalupang; (2) certificate of electrical
inspection dated May 17, 1977 issued by the Office of the Mayor of Taguig in connection with the electrical wiring
work of Dalupang; and (3) permit dated May 16, 1977 issued by the Office of the Mayor of Taguig for the installation
by Dalupang of electrical wiring apparatus.

....
WHEREFORE, premises considered, the appealed Decisions dated February 17, 1998 and March 19, 1999 of the
DENR Secretary are hereby SET ASIDE and a new one entered declaring appellant Maximino Dalupang as
rightfully entitled to purchase Lot 6, Blk. 131, Psd-13-002057 containing an area of 291 square meters, situated at
Signal Village, Taguig, Metro Manila. Accordingly, the DENR officials concerned are hereby directed to give further
due course to Dalupangs IGPSA over Lot 6.
Petitioners filed a petition for review before the Court of Appeals, which affirmed the decision of the Office of the
President. Hence, this petition raising the following issues:
WAS THERE A VALID SALES APPLICATION AS TO CONFER AUTHORITY TO PUBLIC RESPONDENT TO
GRANT LOT 6 IN FAVOR OF MAXIMINO DALUPANG?
CAN A DISQUALIFIED VENDEE OF A LOT SOLD BY THE NATIONAL HOUSING AUTHORITY REVIVE HIS
PRIVELEGE AND BE AN AWARDEE OF ANOTHER AS THAT OF LOT 6?23
Petitioners contend that Dalupangs sales application did not comply with the requirements of Proclamation No. 172.
They also assert that Dalupang cannot validly be an awardee of Lot 6 since he was a previous awardee of a home
lot in Sapang Palay Resettlement Project, San Jose Del Monte, Bulacan, given by the NHA.
The petition lacks merit.
We find the sales application filed by the respondent as valid. Memorandum Order No. 119 24 provided the guidelines
in evaluating the application to purchase the land which have been declared open for disposition, thus:
(1) He/She must be a bona fide resident of the proclaimed areas. To be considered a bona fide resident, the
applicant must have the following qualifications:
a) A Filipino citizen of legal age and/or a head of the family;
b) Must have constructed a house in the area proclaimed for disposition on or before January 6, 1986 and actually
residing therein;
c) Must not own any other residential or commercial lot in Metro Manila;
d) Must not have been a registered awardee of any lot under the administration of the NHA, MHS, or any other
government agency, nor the AFP Officers village;
e) Must not be a professional squatter. A professional squatter, for purposes of this Order, is one who engages in
selling lots in the areas proclaimed for disposition; and
f) Has filed the proper application to purchase.
Petitioners claim that respondents application was invalid because he never applied for Lot 6 but for Lot 11 which
was already awarded to petitioner Angela Taguinod. Petitioners allege that respondent submitted the same
application he used in applying for Lot 11 when he applied for Lot 6 since in the second application, the figures "11"
appeared to have been erased and the figure "6" was written over the space where figure "11" was written.
In his defense, respondent countered that he originally placed "11" in his application because Lot 11 which was
originally 570 square meters was subsequently subdivided into two lots, Lots 6 (291 sq. m.) and 11 (279 sq. m.).

Respondent added that he cannot be faulted for believing that the lot on which his house was erected was Lot 11
and not Lot 6 because he only relied on the lot designation given to him by the land investigator from the DENR who
conducted the ocular inspection of the premises.
We find the reasoning of the respondent to be more in accord with the records of this case. In the report submitted
by Land Investigator Vale, Jr., it was mentioned that respondent and his family were the actual occupants of Lot 6,
Blk-131, Signal Village, Taguig, Metro Manila. More importantly, it was expressly stated in the supplementary report
that:
With reference to the abovenoted subject, it is respectfully requested that the previous report of the undersigned be
amended to underscore the error on lot assignment for applicant Maximino Dalupang and thereafter to state as
follows:
"That instead of lot 11, Blk-131, Signal Village, Taguig, MM., spouses Maximino and Gloria Dalupang are actually in
occupation of lot 6, Blk 131, Signal Village, Taguig, MM."25
This factual finding of Land Investigator Vale, Jr. was duly considered by the DENR Regional Executive Director
when he upheld the sales application of the respondent over Lot 6. The Court of Appeals also recognized the
oversight made by the respondent in his sales application when it declared that:
It appears that Land Investigator Vale, Jr. corrected the lot assignment in Dalupangs application on the basis of his
finding that said applicant is actually occupying Lot 6 and not Lot 11 as stated therein, considering the same as
merely an oversight....26
All told, no ill will or bad faith attended the correction by the respondent of the lot number in the sales application.
Respondent could not be faulted if he relied on the representations of the land investigators concerning the lot
number of the land he was occupying and applying for. It was natural for respondent to defer to the findings of the
land investigators because by the nature of their position, it is presumed that they have the technical expertise to
determine the lot number of the property in question. Such correction was merely the product of an oversight which
would not invalidate respondents application nor make it improper.
Moreover, the fact that respondent was a previous awardee of an NHA lot will not disqualify him from filing a sales
application for Lot 6. As pointed out by the Court of Appeals in the assailed decision:
The more substantial challenge to Dalupangs qualification lies in his being a previous registered awardee of an
NHA lot. As correctly held by the OP, however, the previous NHA lot award is no longer decisive because of the NHA
Administrators certification that Dalupang, after transferring his rights to his nephew, was "permanently disqualified"
from acquiring any other lot administered by the NHA. This only means that Dalupang had ceased to be a registered
NHA lot awardee. To our mind, moreover, the exclusion of Dalupang from any NHA property did not result in a
permanent disqualification for him to acquire any government home lot. To construe the disqualification as attaching
to any claimant who became a registered NHA awardee at sometime in the past without actually acquiring the lot
and despite its subsequent transfer for the purpose of acquiring another government lot for which the applicant fully
complied with the requirements of the law will certainly lead to harsh and unjust consequences. Clearly, this was
never intended by the executive branch when it issued MO No. 119.
On the basis of the entire evidence on record, We find the interpretation of MO No. 119 by the OP more in keeping
with the policy and objective of Proclamation No. 172 in relation to RA No. 730. Between two statutory
interpretations, that which better serves the purpose of the law should prevail. It must also be underscored that it is
the provisions of MO No. 119 and not RA No. 730 which are the subject of dispute, the former was issued to
implement Proclamation No. 172 in accordance with RA No. 730. MO No. 119 should be interpreted and applied to
every case in a manner that is consistent with the objective of Proclamation No. 172 and RA No. 730.... 27

WHEREFORE, the petition is DENIED. The October 14, 2004 Decision of the Court of Appeals in CA-G.R. SP No.
84953 which affirmed the June 30, 2003 Decision of the Office of the President in O.P. Case No. 99-F-8759; and its
January 27, 2005 Resolution, are AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 171153

September 12, 2007

SAN MIGUEL CORPORATION EMPLOYEES UNIONPHILIPPINE TRANSPORT AND GENERAL WORKERS


ORGANIZATION (SMCEUPTGWO), petitioner,
vs.
SAN MIGUEL PACKAGING PRODUCTS EMPLOYEES UNIONPAMBANSANG DIWA NG MANGGAGAWANG
PILIPINO (SMPPEUPDMP), respondent1.
DECISION
CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, petitioner SAN MIGUEL
CORPORATION EMPLOYEES UNION-PHILIPPINE TRANSPORT AND GENERAL WORKERS ORGANIZATION
(SMCEU-PTGWO) prays that this Court reverse and set aside the (a) Decision 2 dated 9 March 2005 of the Court of
Appeals in CA-G.R. SP No. 66200, affirming the Decision3 dated 19 February 2001 of the Bureau of Labor Relations
(BLR) of the Department of Labor and Employment (DOLE) which upheld the Certificate of Registration of
respondent SAN MIGUEL PACKAGING PRODUCTS EMPLOYEES UNIONPAMBANSANG DIWA NG
MANGGAGAWANG PILIPINO (SMPPEUPDMP); and (b) the Resolution 4 dated 16 January 2006 of the Court of
Appeals in the same case, denying petitioner's Motion for Reconsideration of the aforementioned Decision.
The following are the antecedent facts:
Petitioner is the incumbent bargaining agent for the bargaining unit comprised of the regular monthly-paid rank and
file employees of the three divisions of San Miguel Corporation (SMC), namely, the San Miguel Corporate Staff Unit
(SMCSU), San Miguel Brewing Philippines (SMBP), and the San Miguel Packaging Products (SMPP), in all offices
and plants of SMC, including the Metal Closure and Lithography Plant in Laguna. It had been the certified
bargaining agent for 20 years from 1987 to 1997.
Respondent is registered as a chapter of Pambansang Diwa ng Manggagawang Pilipino (PDMP). PDMP issued
Charter Certificate No. 112 to respondent on 15 June 1999.5 In compliance with registration requirements,
respondent submitted the requisite documents to the BLR for the purpose of acquiring legal personality.6 Upon
submission of its charter certificate and other documents, respondent was issued Certificate of Creation of Local or
Chapter PDMP-01 by the BLR on 6 July 1999.7 Thereafter, respondent filed with the Med-Arbiter of the DOLE
Regional Officer in the National Capital Region (DOLE-NCR), three separate petitions for certification election to
represent SMPP, SMCSU, and SMBP.8 All three petitions were dismissed, on the ground that the separate petitions
fragmented a single bargaining unit.9

On 17 August 1999, petitioner filed with the DOLE-NCR a petition seeking the cancellation of respondent's
registration and its dropping from the rolls of legitimate labor organizations. In its petition, petitioner accused
respondent of committing fraud and falsification, and non-compliance with registration requirements in obtaining its
certificate of registration. It raised allegations that respondent violated Articles 239(a), (b) and (c) 10 and 234(c)11 of
the Labor Code. Moreover, petitioner claimed that PDMP is not a legitimate labor organization, but a trade union
center, hence, it cannot directly create a local or chapter. The petition was docketed as Case No. NCR-OD-9908007-IRD.12
On 14 July 2000, DOLE-NCR Regional Director Maximo B. Lim issued an Order dismissing the allegations of fraud
and misrepresentation, and irregularity in the submission of documents by respondent. Regional Director Lim further
ruled that respondent is allowed to directly create a local or chapter. However, he found that respondent did not
comply with the 20% membership requirement and, thus, ordered the cancellation of its certificate of registration
and removal from the rolls of legitimate labor organizations.13 Respondent appealed to the BLR. In a Decision dated
19 February 2001, it declared:
As a chartered local union, appellant is not required to submit the number of employees and names of all its
members comprising at least 20% of the employees in the bargaining unit where it seeks to operate. Thus,
the revocation of its registration based on non-compliance with the 20% membership requirement does not
have any basis in the rules.
Further, although PDMP is considered as a trade union center, it is a holder of Registration Certificate No.
FED-11558-LC issued by the BLR on 14 February 1991, which bestowed upon it the status of a legitimate
labor organization with all the rights and privileges to act as representative of its members for purposes of
collective bargaining agreement. On this basis, PDMP can charter or create a local, in accordance with the
provisions of Department Order No. 9.
WHEREFORE, the appeal is hereby GRANTED. Accordingly, the decision of the Regional Director dated
July 14, 2000, canceling the registration of appellant San Miguel Packaging Products Employees UnionPambansang Diwa ng Manggagawang Pilipino (SMPPEU-PDMP) is REVERSED and SET ASIDE. Appellant
shall hereby remain in the roster of legitimate labor organizations.14
While the BLR agreed with the findings of the DOLE Regional Director dismissing the allegations of fraud and
misrepresentation, and in upholding that PDMP can directly create a local or a chapter, it reversed the Regional
Director's ruling that the 20% membership is a requirement for respondent to attain legal personality as a labor
organization. Petitioner thereafter filed a Motion for Reconsideration with the BLR. In a Resolution rendered on 19
June 2001 in BLR-A-C-64-05-9-00 (NCR-OD-9908-007-IRD), the BLR denied the Motion for Reconsideration and
affirmed its Decision dated 19 February 2001.15
Invoking the power of the appellate court to review decisions of quasi-judicial agencies, petitioner filed with the
Court of Appeals a Petition for Certiorari under Rule 65 of the 1997 Rules of Civil Procedure docketed as CA-G.R.
SP No. 66200. The Court of Appeals, in a Decision dated 9 March 2005, dismissed the petition and affirmed the
Decision of the BLR, ruling as follows:
In Department Order No. 9, a registered federation or national union may directly create a local by
submitting to the BLR copies of the charter certificate, the local's constitution and by-laws, the principal office
address of the local, and the names of its officers and their addresses. Upon complying with the
documentary requirements, the local shall be issued a certificate and included in the roster of legitimate
labor organizations. The [herein respondent] is an affiliate of a registered federation PDMP, having been
issued a charter certificate. Under the rules we have reviewed, there is no need for SMPPEU to show a
membership of 20% of the employees of the bargaining unit in order to be recognized as a legitimate labor
union.

xxxx
In view of the foregoing, the assailed decision and resolution of the BLR are AFFIRMED, and the petition is
DISMISSED.16
Subsequently, in a Resolution dated 16 January 2006, the Court of Appeals denied petitioner's Motion for
Reconsideration of the aforementioned Decision.
Hence, this Petition for Certiorari under Rule 45 of the Revised Rules of Court where petitioner raises the sole issue
of:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
RULING THAT PRIVATE RESPONDENT IS NOT REQUIRED TO SUBMIT THE NUMBER OF EMPLOYEES
AND NAMES OF ALL ITS MEMBERS COMPRISING AT LEAST 20% OF THE EMPLOYEES IN THE
BARGAINING UNIT WHERE IT SEEKS TO OPERATE.
The present petition questions the legal personality of respondent as a legitimate labor organization.
Petitioner posits that respondent is required to submit a list of members comprising at least 20% of the employees in
the bargaining unit before it may acquire legitimacy, citing Article 234(c) of the Labor Code which stipulates that any
applicant labor organization, association or group of unions or workers shall acquire legal personality and shall be
entitled to the rights and privileges granted by law to legitimate labor organizations upon issuance of the certificate
of registration based on the following requirements:
a. Fifty pesos (P50.00) registration fee;
b. The names of its officers, their addresses, the principal address of the labor organization, the minutes of
the organizational meetings and the list of the workers who participated in such meetings;
c. The names of all its members comprising at least twenty percent (20%) of all the employees in the
bargaining unit where it seeks to operate;
d. If the applicant union has been in existence for one or more years, copies of its annual financial reports;
and
e. Four (4) copies of the constitution and by-laws of the applicant union, minutes of its adoption or ratification
and the list of the members who participated in it. 17
Petitioner also insists that the 20% requirement for registration of respondent must be based not on the number of
employees of a single division, but in all three divisions of the company in all the offices and plants of SMC since
they are all part of one bargaining unit. Petitioner refers to Section 1, Article 1 of the Collective Bargaining
Agreement (CBA),18 quoted hereunder:
ARTICLE 1
SCOPE
Section 1. Appropriate Bargaining Unit. The appropriate bargaining unit covered by this Agreement consists
of all regular rank and file employees paid on the basis of fixed salary per month and employed by the
COMPANY in its Corporate Staff Units (CSU), San Miguel Brewing Products (SMBP) and San Miguel
Packaging Products (SMPP) and in different operations existing in the City of Manila and suburbs, including

Metal Closure and Lithography Plant located at Canlubang, Laguna subject to the provisions of Article XV of
this Agreement provided however, that if during the term of this Agreement, a plant within the territory
covered by this Agreement is transferred outside but within a radius of fifty (50) kilometers from the Rizal
Monument, Rizal Park, Metro Manila, the employees in the transferred plant shall remain in the bargaining
unit covered by this Agreement. (Emphasis supplied.)
Petitioner thus maintains that respondent, in any case, failed to meet this 20% membership requirement since it
based its membership on the number of employees of a single division only, namely, the SMPP.
There is merit in petitioner's contentions.
A legitimate labor organization19 is defined as "any labor organization duly registered with the Department of Labor
and Employment, and includes any branch or local thereof."20 The mandate of the Labor Code is to ensure strict
compliance with the requirements on registration because a legitimate labor organization is entitled to specific rights
under the Labor Code,21 and are involved in activities directly affecting matters of public interest. Registration
requirements are intended to afford a measure of protection to unsuspecting employees who may be lured into
joining unscrupulous or fly-by-night unions whose sole purpose is to control union funds or use the labor
organization for illegitimate ends.22 Legitimate labor organizations have exclusive rights under the law which cannot
be exercised by non-legitimate unions, one of which is the right to be certified as the exclusive representative 23 of all
the employees in an appropriate collective bargaining unit for purposes of collective bargaining. 24 The acquisition of
rights by any union or labor organization, particularly the right to file a petition for certification election, first and
foremost, depends on whether or not the labor organization has attained the status of a legitimate labor
organization.25
A perusal of the records reveals that respondent is registered with the BLR as a "local" or "chapter" of PDMP and
was issued Charter Certificate No. 112 on 15 June 1999. Hence, respondent was directly chartered by PDMP.
The procedure for registration of a local or chapter of a labor organization is provided in Book V of the Implementing
Rules of the Labor Code, as amended by Department Order No. 9 which took effect on 21 June 1997, and again by
Department Order No. 40 dated 17 February 2003. The Implementing Rules as amended by D.O. No. 9 should
govern the resolution of the petition at bar since respondent's petition for certification election was filed with the BLR
in 1999; and that of petitioner on 17 August 1999.26
The applicable Implementing Rules enunciates a two-fold procedure for the creation of a chapter or a local. The first
involves the affiliation of an independent union with a federation or national union or industry union. The second,
finding application in the instant petition, involves the direct creation of a local or a chapter through the process of
chartering.27
A duly registered federation or national union may directly create a local or chapter by submitting to the DOLE
Regional Office or to the BLR two copies of the following:
(a) A charter certificate issued by the federation or national union indicating the creation or establishment of
the local/chapter;
(b) The names of the local/chapter's officers, their addresses, and the principal office of the local/chapter;
and
(c) The local/chapter's constitution and by-laws; Provided, That where the local/chapter's constitution and
by-laws is the same as that of the federation or national union, this fact shall be indicated accordingly.

All the foregoing supporting requirements shall be certified under oath by the Secretary or the Treasurer of
the local/chapter and attested to by its President.28
The Implementing Rules stipulate that a local or chapter may be directly created by a federation or national union. A
duly constituted local or chapter created in accordance with the foregoing shall acquire legal personality from the
date of filing of the complete documents with the BLR. 29 The issuance of the certificate of registration by the BLR or
the DOLE Regional Office is not the operative act that vests legal personality upon a local or a chapter under
Department Order No. 9. Such legal personality is acquired from the filing of the complete documentary
requirements enumerated in Section 1, Rule VI.30
Petitioner insists that Section 3 of the Implementing Rules, as amended by Department Order No. 9, violated Article
234 of the Labor Code when it provided for less stringent requirements for the creation of a chapter or local. This
Court disagrees.
Article 234 of the Labor Code provides that an independent labor organization acquires legitimacy only upon its
registration with the BLR:
Any applicant labor organization, association or group of unions or workers shall acquire legal personality
and shall be entitled to the rights and privileges granted by law to legitimate labor organizations upon
issuance of the certificate of registration based on the following requirements:
(a) Fifty pesos (P50.00) registration fee;
(b) The names of its officers, their addresses, the principal address of the labor organization, the minutes of
the organizational meetings and the list of the workers who participated in such meetings;
(c) The names of all its members comprising at least twenty percent (20%) of all the employees in the
bargaining unit where it seeks to operate;
(d) If the applicant union has been in existence for one or more years, copies of its annual financial reports;
and
(e) Four (4) copies of the constitution and by-laws of the applicant union, minutes of its adoption or
ratification, and the list of the members who participated in it. (Italics supplied.)
It is emphasized that the foregoing pertains to the registration of an independent labor organization, association or
group of unions or workers.
However, the creation of a branch, local or chapter is treated differently. This Court, in the landmark case
ofProgressive Development Corporation v. Secretary, Department of Labor and Employment,31 declared that when
an unregistered union becomes a branch, local or chapter, some of the aforementioned requirements for registration
are no longer necessary or compulsory. Whereas an applicant for registration of an independent union is mandated
to submit, among other things, the number of employees and names of all its members comprising at least 20% of
the employees in the bargaining unit where it seeks to operate, as provided under Article 234 of the Labor Code and
Section 2 of Rule III, Book V of the Implementing Rules, the same is no longer required of a branch, local or
chapter.32 The intent of the law in imposing less requirements in the case of a branch or local of a registered
federation or national union is to encourage the affiliation of a local union with a federation or national union in order
to increase the local union's bargaining powers respecting terms and conditions of labor.33

Subsequently, in Pagpalain Haulers, Inc. v. Trajano34 where the validity of Department Order No. 9 was directly put in
issue, this Court was unequivocal in finding that there is no inconsistency between the Labor Code and Department
Order No. 9.
As to petitioner's claims that respondent obtained its Certificate of Registration through fraud and misrepresentation,
this Court finds that the imputations are not impressed with merit. In the instant case, proof to declare that
respondent committed fraud and misrepresentation remains wanting. This Court had, indeed, on several occasions,
pronounced that registration based on false and fraudulent statements and documents confer no legitimacy upon a
labor organization irregularly recognized, which, at best, holds on to a mere scrap of paper. Under such
circumstances, the labor organization, not being a legitimate labor organization, acquires no rights. 35
This Court emphasizes, however, that a direct challenge to the legitimacy of a labor organization based on fraud
and misrepresentation in securing its certificate of registration is a serious allegation which deserves careful
scrutiny. Allegations thereof should be compounded with supporting circumstances and evidence. The records of the
case are devoid of such evidence. Furthermore, this Court is not a trier of facts, and this doctrine applies with
greater force in labor cases. Findings of fact of administrative agencies and quasi-judicial bodies, such as the BLR,
which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not
only great respect but even finality.36
Still, petitioner postulates that respondent was not validly and legitimately created, for PDMP cannot create a local
or chapter as it is not a legitimate labor organization, it being a trade union center.
Petitioner's argument creates a predicament as it hinges on the legitimacy of PDMP as a labor organization. Firstly,
this line of reasoning attempts to predicate that a trade union center is not a legitimate labor organization. In the
process, the legitimacy of PDMP is being impugned, albeit indirectly. Secondly, the same contention premises that a
trade union center cannot directly create a local or chapter through the process of chartering.
Anent the foregoing, as has been held in a long line of cases, the legal personality of a legitimate labor organization,
such as PDMP, cannot be subject to a collateral attack. The law is very clear on this matter. Article 212 (h) of the
Labor Code, as amended, defines a legitimate labor organization37 as "any labor organization duly registered with
the DOLE, and includes any branch or local thereof."38 On the other hand, a trade union center is any group of
registered national unions or federations organized for the mutual aid and protection of its members; for assisting
such members in collective bargaining; or for participating in the formulation of social and employment policies,
standards, and programs, and is duly registered with the DOLE in accordance with Rule III, Section 2 of the
Implementing Rules.39
The Implementing Rules stipulate that a labor organization shall be deemed registered and vested with legal
personality on the date of issuance of its certificate of registration. Once a certificate of registration is issued to a
union, its legal personality cannot be subject to collateral attack.40 It may be questioned only in an independent
petition for cancellation in accordance with Section 5 of Rule V, Book V of the Implementing Rules. The
aforementioned provision is enunciated in the following:
Sec. 5. Effect of registration. The labor organization or workers' association shall be deemed registered and
vested with legal personality on the date of issuance of its certificate of registration. Such legal personality
cannot thereafter be subject to collateral attack, but may be questioned only in an independent petition for
cancellation in accordance with these Rules.
PDMP was registered as a trade union center and issued Registration Certificate No. FED-11558-LC by the BLR on
14 February 1991. Until the certificate of registration of PDMP is cancelled, its legal personality as a legitimate labor
organization subsists. Once a union acquires legitimate status as a labor organization, it continues to be recognized
as such until its certificate of registration is cancelled or revoked in an independent action for cancellation. 41 It bears

to emphasize that what is being directly challenged is the personality of respondent as a legitimate labor
organization and not that of PDMP. This being a collateral attack, this Court is without jurisdiction to entertain
questions indirectly impugning the legitimacy of PDMP.
Corollarily, PDMP is granted all the rights and privileges appurtenant to a legitimate labor organization, 42 and
continues to be recognized as such until its certificate of registration is successfully impugned and thereafter
cancelled or revoked in an independent action for cancellation.
We now proceed to the contention that PDMP cannot directly create a local or a chapter, it being a trade union
center.
This Court reverses the finding of the appellate court and BLR on this ground, and rules that PDMP cannot directly
create a local or chapter.
After an exhaustive study of the governing labor law provisions, both statutory and regulatory,43 we find no legal
justification to support the conclusion that a trade union center is allowed to directly create a local or chapter through
chartering. Apropos, we take this occasion to reiterate the first and fundamental duty of this Court, which is to apply
the law. The solemn power and duty of the Court to interpret and apply the law does not include the power to correct
by reading into the law what is not written therein.44
Presidential Decree No. 442, better known as the Labor Code, was enacted in 1972. Being a legislation on social
justice,45 the provisions of the Labor Code and the Implementing Rules have been subject to several amendments,
and they continue to evolve, considering that labor plays a major role as a socio-economic force. The Labor Code
was first amended by Republic Act No. 6715, and recently, by Republic Act No. 9481. Incidentally, the term trade
union center was never mentioned under Presidential Decree No. 442, even as it was amended by Republic Act No.
6715. The term trade union center was first adopted in the Implementing Rules, under Department Order No. 9.
Culling from its definition as provided by Department Order No. 9, a trade union center is any group of registered
national unions or federations organized for the mutual aid and protection of its members; for assisting such
members in collective bargaining; or for participating in the formulation of social and employment policies,
standards, and programs, and is duly registered with the DOLE in accordance with Rule III, Section 2 of the
Implementing Rules.46 The same rule provides that the application for registration of an industry or trade union
center shall be supported by the following:
(a) The list of its member organizations and their respective presidents and, in the case of an industry union,
the industry where the union seeks to operate;
(b) The resolution of membership of each member organization, approved by the Board of Directors of such
union;
(c) The name and principal address of the applicant, the names of its officers and their addresses, the
minutes of its organizational meeting/s, and the list of member organizations and their representatives who
attended such meeting/s; and
(d) A copy of its constitution and by-laws and minutes of its ratification by a majority of the presidents of the
member organizations, provided that where the ratification was done simultaneously with the organizational
meeting, it shall be sufficient that the fact of ratification be included in the minutes of the organizational
meeting.47

Evidently, while a "national union" or "federation" is a labor organization with at least ten locals or chapters or
affiliates, each of which must be a duly certified or recognized collective bargaining agent; 48 a trade union center, on
the other hand, is composed of a group of registered national unions or federations. 49
The Implementing Rules, as amended by Department Order No. 9, provide that "a duly registered federation or
national union" may directly create a local or chapter. The provision reads:
Section 1. Chartering and creation of a local/chapter. A duly registered federation or national union may
directly create a local/chapter by submitting to the Regional Office or to the Bureau two (2) copies of the
following:
(a) A charter certificate issued by the federation or national union indicating the creation or establishment of
the local/chapter;
(b) The names of the local/chapter's officers, their addresses, and the principal office of the local/chapter;
and
(c) The local/chapter's constitution and by-laws; provided that where the local/chapter's constitution and bylaws is the same as that of the federation or national union, this fact shall be indicated accordingly.
All the foregoing supporting requirements shall be certified under oath by the Secretary or the Treasurer of
the local/chapter and attested to by its President.50
Department Order No. 9 mentions two labor organizations either of which is allowed to directly create a local or
chapter through chartering a duly registered federation or a national union. Department Order No. 9 defines a
"chartered local" as a labor organization in the private sector operating at the enterprise level that acquired legal
personality through a charter certificate, issued by a duly registered federation or national union and reported to the
Regional Office in accordance with Rule III, Section 2-E of these Rules. 51
Republic Act No. 9481 or "An Act Strengthening the Workers' Constitutional Right to Self-Organization, Amending
for the Purpose Presidential Decree No. 442, As Amended, Otherwise Known as the Labor Code of the Philippines"
lapsed52 into law on 25 May 2007 and became effective on 14 June 2007. 53 This law further amends the Labor Code
provisions on Labor Relations.
Pertinent amendments read as follows:
SECTION 1. Article 234 of Presidential Decree No. 442, as amended, otherwise known as the Labor Code
of the Philippines, is hereby further amended to read as follows:
ART. 234. Requirements of Registration. A federation, national union or industry or trade union
center or an independent union shall acquire legal personality and shall be entitled to the rights and
privileges granted by law to legitimate labor organizations upon issuance of the certificate of
registration based on the following requirements:
(a) Fifty pesos (P50.00) registration fee;
(b) The names of its officers, their addresses, the principal address of the labor organization, the
minutes of the organizational meetings and the list of the workers who participated in such meetings;
(c) In case the applicant is an independent union, the names of all its members comprising at least
twenty percent (20%) of all the employees in the bargaining unit where it seeks to operate;

(d) If the applicant union has been in existence for one or more years, copies of its annual financial
reports; and
(e) Four copies of the constitution and by-laws of the applicant union, minutes of its adoption or
ratification, and the list of the members who participated in it.
SECTION 2. A new provision is hereby inserted into the Labor Code as Article 234-A to read as follows:
ART. 234-A. Chartering and Creation of a Local Chapter. A duly registered federation or national
union may directly create a local chapter by issuing a charter certificate indicating the establishment
of the local chapter. The chapter shall acquire legal personality only for purposes of filing a petition
for certification election from the date it was issued a charter certificate.
The chapter shall be entitled to all other rights and privileges of a legitimate labor organization only
upon the submission of the following documents in addition to its charter certificate:
(a) The names of the chapter's officers, their addresses, and the principal office of the chapter; and
(b) The chapter's constitution and by-laws: Provided, That where the chapter's constitution and bylaws are the same as that of the federation or the national union, this fact shall be indicated
accordingly.
The additional supporting requirements shall be certified under oath by the secretary or treasurer of the
chapter and attested by its president. (Emphasis ours.)
Article 234 now includes the term trade union center, but interestingly, the provision indicating the procedure for
chartering or creating a local or chapter, namely Article 234-A, still makes no mention of a "trade union center."
Also worth emphasizing is that even in the most recent amendment of the implementing rules, 54 there was no
mention of a trade union center as being among the labor organizations allowed to charter.
This Court deems it proper to apply the Latin maxim expressio unius est exclusio alterius. Under this maxim of
statutory interpretation, the expression of one thing is the exclusion of another. When certain persons or things are
specified in a law, contract, or will, an intention to exclude all others from its operation may be inferred. If a statute
specifies one exception to a general rule or assumes to specify the effects of a certain provision, other exceptions or
effects are excluded.55 Where the terms are expressly limited to certain matters, it may not, by interpretation or
construction, be extended to other matters.56 Such is the case here. If its intent were otherwise, the law could have
so easily and conveniently included "trade union centers" in identifying the labor organizations allowed to charter a
chapter or local. Anything that is not included in the enumeration is excluded therefrom, and a meaning that does
not appear nor is intended or reflected in the very language of the statute cannot be placed therein. 57 The rule is
restrictive in the sense that it proceeds from the premise that the legislating body would not have made specific
enumerations in a statute if it had the intention not to restrict its meaning and confine its terms to those expressly
mentioned.58 Expressium facit cessare tacitum.59 What is expressed puts an end to what is implied. Casus omissus
pro omisso habendus est. A person, object or thing omitted must have been omitted intentionally.
Therefore, since under the pertinent status and applicable implementing rules, the power granted to labor
organizations to directly create a chapter or local through chartering is given to a federation or national union, then a
trade union center is without authority to charter directly.
The ruling of this Court in the instant case is not a departure from the policy of the law to foster the free and
voluntary organization of a strong and united labor movement, 60 and thus assure the rights of workers to self-

organization.61 The mandate of the Labor Code in ensuring strict compliance with the procedural requirements for
registration is not without reason. It has been observed that the formation of a local or chapter becomes a handy
tool for the circumvention of union registration requirements. Absent the institution of safeguards, it becomes a
convenient device for a small group of employees to foist a not-so-desirable federation or union on unsuspecting coworkers and pare the need for wholehearted voluntariness, which is basic to free unionism. 62 As a legitimate labor
organization is entitled to specific rights under the Labor Code and involved in activities directly affecting public
interest, it is necessary that the law afford utmost protection to the parties affected. 63 However, as this Court has
enunciated in Progressive Development Corporation v. Secretary of Department of Labor and Employment, it is not
this Court's function to augment the requirements prescribed by law. Our only recourse, as previously discussed, is
to exact strict compliance with what the law provides as requisites for local or chapter formation. 64
In sum, although PDMP as a trade union center is a legitimate labor organization, it has no power to directly create
a local or chapter. Thus, SMPPEU-PDMP cannot be created under the more lenient requirements for chartering, but
must have complied with the more stringent rules for creation and registration of an independent union, including the
20% membership requirement.
WHEREFORE, the instant Petition is GRANTED. The Decision dated 09 March 2005 of the Court of Appeals in CAGR SP No. 66200 is REVERSED and SET ASIDE. The Certificate of Registration of San Miguel Packaging
Products Employees UnionPambansang Diwa ng Manggagawang Pilipino is ORDERED CANCELLED, and
SMPPEU-PDMP DROPPED from the rolls of legitimate labor organizations.
Costs against petitioner.
SO ORDERED.