Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

BARANGAY SINDALAN, SAN G.R. No. 150640

FERNANDO, PAMPANGA,

rep. by BARANGAY CAPTAIN

ISMAEL GUTIERREZ, Present:

Petitioner,

QUISUMBING, J., Chairperson,

CARPIO,

- versus - CARPIO MORALES,

TINGA, and

VELASCO, JR., JJ.

COURT OF APPEALS, JOSE

MAGTOTO III, and PATRICIA Promulgated:

SINDAYAN,

Respondents. March 22, 2007

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

DECISION

VELASCO, JR., J.:

Expropriation, if misused or abused, would trench on the property rights of

individuals without due process of law.

The Case

For review before the Court in a petition for certiorari under Rule 45 are the
May 30, 2001 Decision1[1] and October 26, 2001 Resolution2[2] of the Court of
Appeals (CA), reversing and setting aside the August 2, 1990 Order3[3] of the San
Fernando, Pampanga Regional Trial Court (RTC), Branch 43. The CA Resolution
denied petitioners Motion for Reconsideration of the May 30, 2001 Decision and in
effect, the appellate court dismissed petitioners Complaint for eminent domain.

1[1] Rollo, pp. 27-36. The Decision was penned by Associate Justice Ramon A.
Barcelona and concurred in by Associate Justices Rodrigo V. Cosico and Alicia L. Santos.

2[2] Id. at 44-45.

3[3] Id. at 52-67.

 The Facts

On April 8, 1983, pursuant to a resolution passed by the barangay council,

petitioner Barangay Sindalan, San Fernando, Pampanga, represented by Barangay
Captain Ismael Gutierrez, filed a Complaint for eminent domain against
respondents spouses Jose Magtoto III and Patricia Sindayan, the registered owners
of a parcel of land covered by Transfer Certificate of Title No. 117674-R. The
Complaint was docketed as Civil Case No. 6756 and raffled to the San Fernando,
Pampanga RTC, Branch 43. Petitioner sought to convert a portion of respondents
land into Barangay Sindalans feeder road. The alleged public purposes sought to
be served by the expropriation were stated in Barangay Resolution No. 6, as
follows:

WHEREAS, said parcels of land shall be used, when acquired, as a

barangay feeder road for the agricultural and other products of the residents,
and just as inlet for their basic needs;

WHEREAS, presently, residents have to take a long circuitous dirt road

before they can reach the concrete provincial road, entailing so much time,
effort and money, not to mention possible damage and/or spilage [sic] on
the products consigned to or coming from, the market outside the barangay;
and

WHEREAS, said lots, used as outlet or inlet road, shall contribute greatly to
the general welfare of the people residing therein social, cultural and health
among other things, beside economic.4[4]

4[4] Id. at 58.

 Petitioner claimed that respondents property was the most practical and
nearest way to the municipal road. Pending the resolution of the case at the trial
court, petitioner deposited an amount equivalent to the fair market value of the
property.5[5]

On the other hand, respondents stated that they owned the 27,000- square
meter property, a portion of which is the subject of this case. In their
Memorandum,6[6] they alleged that their lot is adjacent to Davsan II Subdivision
privately owned by Dr. Felix David and his wife. Prior to the filing of the
expropriation case, said subdivision was linked to MacArthur Highway through a
pathway across the land of a certain Torres family. Long before the passage of the
barangay resolution, the wives of the subdivision owner and the barangay captain,
who were known to be agents of the subdivision, had proposed buying a right-of-
way for the subdivision across a portion of respondents property. These
prospective buyers, however, never returned after learning of the price which the
respondents ascribed to their property.

Respondents alleged that the expropriation of their property was for private
use, that is, for the benefit of the homeowners of Davsan II Subdivision. They
contended that petitioner deliberately omitted the name of Davsan II Subdivision
and, instead, stated that the expropriation was for the benefit of the residents of

5[5] Id. at 52.

6[6] Id. at 302-310.

Sitio Paraiso in order to conceal the fact that the access road being proposed to be
built across the respondents land was to serve a privately owned subdivision and
those who would purchase the lots of said subdivision. They also pointed out that
under Presidential Decree No. (PD) 957, it is the subdivision owner who is obliged
to provide a feeder road to the subdivision residents.7[7]

After trial, the court a quo ruled, thus:

WHEREFORE, in view of all the foregoing premises duly considered,

the herein plaintiff is hereby declared as having a lawful right to take the
property hereinabove described and sought to be condemned for the public
purpose or use as aforestated, upon payment of just compensation to be
determined as of the date of the filing of the Complaint in this [sic]
expropriation proceedings.

Upon the entry of this Order of Condemnation, let three (3) competent
and disinterested persons be appointed as Commissioners to ascertain and
report to the Court the just compensation for the property condemned.8[8]

The Ruling of the Court of Appeals

Upon respondents appeal, the CA held:

We are convinced that it is the duty of the subdivision owner to provide

the right of way needed by residents of Davsan II Subdivision as provided
for in Section 29 of P.D. 957. Records show that Purok Paraiso, which is

7[7] Regulating the Sale of Subdivision Lots and Condominiums, Providing Penalties for
Violations Thereof (1976), Sec. 29.

8[8] Supra note 3, at 67.

 supposed to benefit from this [sic] expropriation proceedings is in reality
Davsan II Subdivision as per the testimony of Ruben Palo, plaintiffs own
witness (TSN, p. 12, December 115, 1986) [sic]. Appellants correctly stated
that:

The act of Bo. Sindalan, San Fernando, Pampanga, in effect

relieved the owners of Davsan II Subdivision of spending their
own private funds for acquiring a right of way and constructing the
required access road to the subdivision. It spent public funds for
such private purpose and deprived herein defendants-appellants of
their property for an ostensible public purpose x x x.

xxxx

WHEREFORE, premises considered, the appealed Decision is hereby

REVERSED and SET ASIDE and the Complaint for Eminent Domain is
DISMISSED for lack of merit.

SO ORDERED.9[9]

The Issues

Petitioner imputes errors to the CA for (1) allegedly violating its power of
eminent domain, (2) finding that the expropriation of the property is not for public
use but for a privately owned subdivision, (3) finding that there was no payment of
just compensation, and (4) failing to accord respect to the findings of the trial
court. Stated briefly, the main issue in this case is whether the proposed exercise of
the power of eminent domain would be for a public purpose.

The Courts Ruling

9[9] Rollo, pp. 33-36.

 The petition lacks merit.

In general, eminent domain is defined as the power of the nation or a

sovereign state to take, or to authorize the taking of, private property for a public
use without the owners consent, conditioned upon payment of just
compensation.10[10] It is acknowledged as an inherent political right, founded on
a common necessity and interest of appropriating the property of individual
members of the community to the great necessities of the whole community.11[11]

The exercise of the power of eminent domain is constrained by two

constitutional provisions: (1) that private property shall not be taken for public use
without just compensation under Article III (Bill of Rights), Section 9 and (2) that
no person shall be deprived of his/her life, liberty, or property without due process
of law under Art. III, Sec. 1.

However, there is no precise meaning of public use and the term is

susceptible of myriad meanings depending on diverse situations. The limited
meaning attached to public use is use by the public or public employment, that a
duty must devolve on the person or corporation holding property appropriated by

10[10] 26 Am Jur 2d 638; citing Re Ohio Turnpike Can. 164 Ohio St 377, 58 Ohio Ops
179, 131 NE2d 397.

11[11] Id.; citing Bloodgood v. Mohawk & H.R. Co., 18 Wend. (NY).
right of eminent domain to furnish the public with the use intended, and that there
must be a right on the part of the public, or some portion of it, or some public or
quasi-public agency on behalf of the public, to use the property after it is
condemned.12[12] The more generally accepted view sees public use as public
advantage, convenience, or benefit, and that anything which tends to enlarge the
resources, increase the industrial energies, and promote the productive power of
any considerable number of the inhabitants of a section of the state, or which leads
to the growth of towns and the creation of new resources for the employment of
capital and labor, [which] contributes to the general welfare and the prosperity of
the whole community.13[13] In this jurisdiction, public use is defined as whatever
is beneficially employed for the community.14[14]

It is settled that the public nature of the prospective exercise of expropriation

cannot depend on the numerical count of those to be served or the smallness or
largeness of the community to be benefited.15[15] The number of people is not
determinative of whether or not it constitutes public use, provided the use is
exercisable in common and is not limited to particular individuals.16[16] Thus, the
first essential requirement for a valid exercise of eminent domain is for the
expropriator to prove that the expropriation is for a public use. In Municipality of

12[12] Id.; citing Cloth v. Chicago, R.I., & P.R. Co., 97 Ark 86, 132 SW 1005.

13[13] Id. at 673; citing Strikley v. Highland Bay Gold Min. Co., 200 US 527.

14[14] Sea v. Manila Railroad Co., 42 Phil. 102, 105 (1921).

15[15] Supra note 10, at 679; citing Charlotte v. Heath, 226 NC 750, 40 SE 2d 600, 169
ACR 569.

16[16] Id. at 680; citing Cox v. Revelle, 123 MD 579, 94 A 203.

Bian v. Garcia, this Court explicated that expropriation ends with an order of
condemnation declaring that the plaintiff has a lawful right to take the property
sought to be condemned, for the public use or purpose described in the
complaint, upon the payment of just compensation.17[17]

Another vital requisite for a valid condemnation is the payment of just

compensation to the property owner. In the recent case of APO Fruits Corporation
v. The Honorable Court of Appeals,18[18] just compensation has been defined as
the full and fair equivalent of the property taken from its owner by the
expropriator, and that the gauge for computation is not the takers gain but the
owners loss. In order for the payment to be just, it must be real, substantial, full,
and ample. Not only must the payment be fair and correctly determined, but also,
the Court in Estate of Salud Jimenez v. Philippine Export Processing Zone stressed
that the payment should be made within a reasonable time from the taking of the
property.19[19] It succinctly explained that without prompt payment,
compensation cannot be considered just inasmuch as the property owner is being
made to suffer the consequences of being immediately deprived of the land while
being made to wait for a decade or more before actually receiving the amount
necessary to cope with the loss. Thus, once just compensation is finally
determined, the expropriator must immediately pay the amount to the lot owner. In
Reyes v. National Housing Authority, it was ruled that 12% interest per annum

17[17] G.R. No. 69260, December 22, 1989, 180 SCRA 576, 583-584.

18[18] G.R. No. 164195, February 6, 2007.

19[19] G.R. No. 137285, January 16, 2001, 349 SCRA 240, 264.
shall be imposed on the final compensation until paid.20[20] Thus, any further
delay in the payment will result in the imposition of 12% interest per annum.
However, in the recent case of Republic v. Lim, the Court enunciated the rule that
where the government failed to pay just compensation within five (5) years from
the finality of the judgment in the expropriation proceedings, the owners concerned
shall have the right to recover possession of their property.21[21]

Since the individual stands to lose the property by compulsion of the law,
the expropriation authority should not further prejudice the owners rights by
delaying payment of just compensation. To obviate any possibility of delay in the
payment, the expropriator should already make available, at the time of the filing
of the expropriation complaint, the amount equal to the BIR zonal valuation or the
fair market value of the property per tax declaration whichever is higher.

The delayed payment of just compensation in numerous cases results from

lack of funds or the time spent in the determination of the legality of the
expropriation and/or the fair valuation of the property, and could result in dismay,
disappointment, bitterness, and even rancor on the part of the lot owners. It is not
uncommon for the expropriator to take possession of the condemned property upon
deposit of a small amount equal to the assessed value of the land per tax
declaration and then challenge the valuation fixed by the trial court resulting in an

20[20] G.R. No. 147511, January 20, 2003, 395 SCRA 494, 506.

21[21] G.R. No. 161656, June 29, 2005, 462 SCRA 265, 288.
expropriate now, pay later situation. In the event the expropriating agency
questions the reasonability of the compensation fixed by the trial court before the
appellate court, then the latter may, upon motion, use its sound discretion to order
the payment to the lot owner of the amount equal to the valuation of the property,
as proposed by the condemnor during the proceedings before the commissioners
under Sec. 6, Rule 67 of the Rules of Court, subject to the final valuation of the
land. This way, the damage and prejudice to the property owner would be
considerably pared down.

On due process, it is likewise basic under the Constitution that the property
owner must be afforded a reasonable opportunity to be heard on the issues of
public use and just compensation and to present objections to and claims on
them.22[22] It is settled that taking of property for a private use or without just
compensation is a deprivation of property without due process of law.23[23]
Moreover, it has to be emphasized that taking of private property without filing
any complaint before a court of law under Rule 67 of the Rules of Court or existing
laws is patently felonious, confiscatory, and unconstitutional. Judicial notice can be
taken of some instances wherein some government agencies or corporations
peremptorily took possession of private properties and usurped the owners real
rights for their immediate use without first instituting the required court action.
Running roughshod over the property rights of individuals is a clear and gross
breach of the constitutional guarantee of due process, which should not be
countenanced in a society where the rule of law holds sway.

22[22] Supra note 10, at 648; citing Slattery Co. v. U.S., CA 5 La 231 F2d 37.

23[23] Id. at 647; citing Panhandle E. Pipe Line Co. v. State Highway Com., 294 U.S.
613.
 In the case at bar, petitioner harps on eminent domain as an inherent power
of sovereignty similar to police power and taxation. As a basic political unit, its
Sangguniang Barangay is clothed with the authority to provide barangay roads
and other facilities for public use and welfare. Petitioner relied on the following
cases which held a liberal view of the term public use in recognition of the
evolving concept of the power of eminent domain: Sea v. Manila Railroad Co.;
Philippine Columbian Association v. Panis; Sumulong v. Guerrero; Province of
Camarines Sur v. Court of Appeals; and Manosca v. Court of Appeals.24[24]

Petitioners delegated power to expropriate is not at issue. The legal question

in this petition, however, is whether the taking of the land was for a public purpose
or use. In the exercise of the power of eminent domain, it is basic that the taking of
private property must be for a public purpose. A corollary issue is whether private
property can be taken by law from one person and given to another in the guise of
public purpose.

In this regard, the petition must fail.

24[24] Supra note 14; G.R. No. L-106528, December 21, 1993, 228 SCRA 668; G.R. No.
L-56948, September 30, 1987, 154 SCRA 461; G.R. No. 103125, May 11, 1993, 222 SCRA 173;
G.R. No. 106440, January 29, 1996, 252 SCRA 412; respectively.
 Petitioner alleges that there are at least 80 houses in the place and about 400
persons will be benefited with the use of a barangay road. The trial court believed
that the expropriation will not benefit only the residents of the subdivision, but also
the residents of Sitio or Purok Paraiso and the residents of the entire Barangay of
Sindalan x x x.25[25] The trial court held that the subdivision is covered by Sitio
or Purok Paraiso which is a part or parcel of Barangay Sindalan. However, this
finding was not supported by evidence. On the contrary, it is Sitio Paraiso which is
within Davsan II Subdivision based on the testimony of petitioners own witness,
Ruben Palo, as follows:

Atty. Mangiliman: Mr. Palo, you said that you have been residing at Sitio
Paraiso since 1973, is this Sitio Paraiso within the Davson [sic]
Subdivision?

Witness: Yes, sir.

xxxx

Atty. Mangiliman: And before you purchased that or at the time you
purchased it in 1972, I am referring to the lot where you are now
residing, the Davson [sic] Subdivision did not provide for a road
linking from the subdivision to the barrio road, am I correct?

Witness: None, sir.

Atty. Mangiliman: And despite [sic] of that you purchased a lot inside
Davson [sic] Subdivision?

Witness: Yes, sir.

Atty. Mangiliman: Did you not demand from the developer of Davson [sic]
Subdivision that he should provide a road linking from the
subdivision to the barrio road of Sindalan?

Witness: No, sir, because I know they will provide for the road.

25[25] Supra note 3, at 66.

 Atty. Mangiliman: And when you said that they will provide for that road,
you mean to tell us that it is the developer of Davson [sic]
Subdivision who will provide a road linking from the subdivision to
the barrio road of Sindalan?

Witness: Yes, sir.

Atty. Mangiliman: Now, Mr. Witness, you will agree with me that the
proposed road which will connect from Davson [sic] Subdivision to
the barrio road of Sindalan would benefit mainly the lot buyers and
home owners of Davson [sic] Subdivision?

Witness: Yes, sir.

Atty. Mangiliman: And you also agree with me that there is no portion of
Davson [sic] Subdivision which is devoted to the production of
agricultural products?

Witness: None, sir.

Atty. Mangiliman: When the road which is the subject of this case and
sought to be expropriated has not yet been opened and before a Writ
of Possession was issued by the Court to place the plaintiff in this
case in possession, the residents of Davson [sic] Subdivision have
other way in going to the barrio road?

Witness: None, sir.

Atty. Mangiliman: In that case Mr. Witness, how do you negotiate or go out
of the subdivision in going to the barrio?

Witness: We passed to the lot own [sic] by Mr. Torres which is near the
subdivision in going to the barrio road, sir.

Atty. Mangiliman: Did you not complain to the owner/developer of the

subdivision that he should provide for a road linking to [sic] his
subdivision to the barrio road because there is no available exit from
the said subdivision to the barrio road?

Witness: We have been telling that and he was promising that there will be
a road, sir.26[26]

26[26] TSN, December 15, 1986, pp. 4-10.

 Firstly, based on the foregoing transcript, the intended feeder road sought to
serve the residents of the subdivision only. It has not been shown that the other
residents of Barangay Sindalan, San Fernando, Pampanga will be benefited by the
contemplated road to be constructed on the lot of respondents spouses Jose
Magtoto III and Patricia Sindayan. While the number of people who use or can use
the property is not determinative of whether or not it constitutes public use or
purpose, the factual milieu of the case reveals that the intended use of respondents
lot is confined solely to the Davsan II Subdivision residents and is not exercisable
in common.27[27] Worse, the expropriation will actually benefit the subdivisions
owner who will be able to circumvent his commitment to provide road access to
the subdivision in conjunction with his development permit and license to sell from
the Housing and Land Use Regulatory Board, and also be relieved of spending his
own funds for a right-of-way. In this factual setting, the Davsan II Subdivision
homeowners are able to go to the barrio road by passing through the lot of a certain
Torres family. Thus, the inescapable conclusion is that the expropriation of
respondents lot is for the actual benefit of the Davsan II Subdivision owner, with
incidental benefit to the subdivision homeowners.

The intended expropriation of private property for the benefit of a private

individual is clearly proscribed by the Constitution, declaring that it should be for
public use or purpose. In Charles River Bridge v. Warren, the limitation on
expropriation was underscored, hence:

27[27] Supra note 16.

 Although the sovereign power in free government may appropriate all
property, public as well as private, for public purposes, making
compensation therefore; yet it has never been understood, at least never
in our republic, that the sovereign power can take the private property
of A and give it to B by the right of eminent domain; or that it can take it
at all, except for public purposes; or that it can take it for public purposes,
without the duty and responsibility of ordering compensation for the
sacrifice of the private property of one, for the good of the whole (11 Pet. at
642) (emphasis supplied).28[28]

US case law also points out that a member of the public cannot acquire a
certain private easement by means of expropriation for being unconstitutional,
because even if every member of the public should acquire the easement, it would
remain a bundle of private easements.29[29]

Secondly, a compelling reason for the rejection of the expropriation is

expressed in Section 29, PD 957, which provides:

Sec. 29. Right of Way to Public Road.The owner or developer of a

subdivision without access to any existing public road or street must secure
a right of way to a public road or street and such right of way must be
developed and maintained according to the requirement of the government
authorities concerned.

28[28] Cited in J. Bernas, S.J., THE 1987 CONSTITUTION OF THE REPUBLIC OF

THE PHILIPPINES, A COMMENTARY 390 (2003).

29[29] Supra note 10, at 680; citing Hartman v. Tresise, 36 Colo 146, 84 P 685.
 Considering that the residents who need a feeder road are all subdivision lot
owners, it is the obligation of the Davsan II Subdivision owner to acquire a right-
of-way for them. However, the failure of the subdivision owner to provide an
access road does not shift the burden to petitioner. To deprive respondents of their
property instead of compelling the subdivision owner to comply with his obligation
under the law is an abuse of the power of eminent domain and is patently illegal.
Without doubt, expropriation cannot be justified on the basis of an unlawful
purpose.

Thirdly, public funds can be used only for a public purpose. In this proposed
condemnation, government funds would be employed for the benefit of a private
individual without any legal mooring. In criminal law, this would constitute
malversation.

Lastly, the facts tend to show that the petitioners proper remedy is to require
the Davsan II Subdivision owner to file a complaint for establishment of the
easement of right-of-way under Articles 649 to 656 of the Civil Code. Respondents
must be granted the opportunity to show that their lot is not a servient estate.
Plainly, petitioners resort to expropriation is an improper cause of action.

One last word: the power of eminent domain can only be exercised for
public use and with just compensation. Taking an individuals private property is a
deprivation which can only be justified by a higher goodwhich is public useand can
only be counterbalanced by just compensation. Without these safeguards, the
taking of property would not only be unlawful, immoral, and null and void, but
would also constitute a gross and condemnable transgression of an individuals
basic right to property as well.

For this reason, courts should be more vigilant in protecting the rights of the
property owner and must perform a more thorough and diligent scrutiny of the
alleged public purpose behind the expropriation. Extreme caution is called for in
resolving complaints for condemnation, such that when a serious doubt arises
regarding the supposed public use of property, the doubt should be resolved in
favor of the property owner and against the State.

WHEREFORE, we AFFIRM the May 30, 2001 Decision and the October
26, 2001 Resolution of the CA, with costs against petitioner.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 175356 December 3, 2013

MANILA MEMORIAL PARK, INC. AND LA FUNERARIA PAZ-SUCAT, INC.,

Petitioners,
vs.
SECRETARY OF THE DEPARTMENT OF SOCIAL WELFARE AND
DEVELOPMENT and THE SECRETARY OF THE DEPARTMENT OF FINANCE,
Respondents.

DECISION
DEL CASTILLO, J.:

When a party challeges the constitutionality of a law, the burden of proof rests upon him.

Before us is a Petition for Prohibition2 under Rule 65 of the Rules of Court filed by petitioners
Manila Memorial Park, Inc. and La Funeraria Paz-Sucat, Inc., domestic corporations engaged in
the business of providing funeral and burial services, against public respondents Secretaries of
the Department of Social Welfare and Development (DSWD) and the Department of Finance
(DOF).

Petitioners assail the constitutionality of Section 4 of Republic Act (RA) No. 7432,3 as amended
by RA 9257,4 and the implementing rules and regulations issued by the DSWD and DOF insofar
as these allow business establishments to claim the 20% discount given to senior citizens as a tax
deduction.

Factual Antecedents

On April 23, 1992, RA 7432 was passed into law, granting senior citizens the following
privileges:

SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the
following:

a) the grant of twenty percent (20%) discount from all establishments relative to
utilization of transportation services, hotels and similar lodging establishment[s],
restaurants and recreation centers and purchase of medicine anywhere in the country:
Provided, That private establishments may claim the cost as tax credit;

b) a minimum of twenty percent (20%) discount on admission fees charged by theaters,

cinema houses and concert halls, circuses, carnivals and other similar places of culture,
leisure, and amusement;

c) exemption from the payment of individual income taxes: Provided, That their annual
taxable income does not exceed the property level as determined by the National
Economic and Development Authority (NEDA) for that year;

d) exemption from training fees for socioeconomic programs undertaken by the OSCA as
part of its work;

e) free medical and dental services in government establishment[s] anywhere in the

country, subject to guidelines to be issued by the Department of Health, the Government
Service Insurance System and the Social Security System;

f) to the extent practicable and feasible, the continuance of the same benefits and
privileges given by the Government Service Insurance System (GSIS), Social Security
 System (SSS) and PAG-IBIG, as the case may be, as are enjoyed by those in actual
service.

On August 23, 1993, Revenue Regulations (RR) No. 02-94 was issued to implement RA 7432.
Sections 2(i) and 4 of RR No. 02-94 provide:

Sec. 2. DEFINITIONS. – For purposes of these regulations: i. Tax Credit – refers to the amount
representing the 20% discount granted to a qualified senior citizen by all establishments relative
to their utilization of transportation services, hotels and similar lodging establishments,
restaurants, drugstores, recreation centers, theaters, cinema houses, concert halls, circuses,
carnivals and other similar places of culture, leisure and amusement, which discount shall be
deducted by the said establishments from their gross income for income tax purposes and from
their gross sales for value-added tax or other percentage tax purposes. x x x x Sec. 4.
RECORDING/BOOKKEEPING REQUIREMENTS FOR PRIVATE ESTABLISHMENTS. –
Private establishments, i.e., transport services, hotels and similar lodging establishments,
restaurants, recreation centers, drugstores, theaters, cinema houses, concert halls, circuses,
carnivals and other similar places of culture[,] leisure and amusement, giving 20% discounts to
qualified senior citizens are required to keep separate and accurate record[s] of sales made to
senior citizens, which shall include the name, identification number, gross sales/receipts,
discounts, dates of transactions and invoice number for every transaction. The amount of 20%
discount shall be deducted from the gross income for income tax purposes and from gross sales
of the business enterprise concerned for purposes of the VAT and other percentage taxes.

In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,5 the Court declared
Sections 2(i) and 4 of RR No. 02-94 as erroneous because these contravene RA 7432,6 thus:

RA 7432 specifically allows private establishments to claim as tax credit the amount of discounts
they grant. In turn, the Implementing Rules and Regulations, issued pursuant thereto, provide the
procedures for its availment. To deny such credit, despite the plain mandate of the law and the
regulations carrying out that mandate, is indefensible. First, the definition given by petitioner is
erroneous. It refers to tax credit as the amount representing the 20 percent discount that "shall be
deducted by the said establishments from their gross income for income tax purposes and from
their gross sales for value-added tax or other percentage tax purposes." In ordinary business
language, the tax credit represents the amount of such discount. However, the manner by which
the discount shall be credited against taxes has not been clarified by the revenue regulations. By
ordinary acceptation, a discount is an "abatement or reduction made from the gross amount or
value of anything." To be more precise, it is in business parlance "a deduction or lowering of an
amount of money;" or "a reduction from the full amount or value of something, especially a
price." In business there are many kinds of discount, the most common of which is that affecting
the income statement or financial report upon which the income tax is based.

xxxx

Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent
discount deductible from gross income for income tax purposes, or from gross sales for VAT or
other percentage tax purposes. In effect, the tax credit benefit under RA 7432 is related to a sales
discount. This contrived definition is improper, considering that the latter has to be deducted
from gross sales in order to compute the gross income in the income statement and cannot be
deducted again, even for purposes of computing the income tax. When the law says that the cost
of the discount may be claimed as a tax credit, it means that the amount — when claimed —
shall be treated as a reduction from any tax liability, plain and simple. The option to avail of the
tax credit benefit depends upon the existence of a tax liability, but to limit the benefit to a sales
discount — which is not even identical to the discount privilege that is granted by law — does
not define it at all and serves no useful purpose. The definition must, therefore, be stricken down.

Laws Not Amended by Regulations

Second, the law cannot be amended by a mere regulation. In fact, a regulation that "operates to
create a rule out of harmony with the statute is a mere nullity;" it cannot prevail. It is a cardinal
rule that courts "will and should respect the contemporaneous construction placed upon a statute
by the executive officers whose duty it is to enforce it x x x." In the scheme of judicial tax
administration, the need for certainty and predictability in the implementation of tax laws is
crucial. Our tax authorities fill in the details that "Congress may not have the opportunity or
competence to provide." The regulations these authorities issue are relied upon by taxpayers,
who are certain that these will be followed by the courts. Courts, however, will not uphold these
authorities’ interpretations when clearly absurd, erroneous or improper. In the present case, the
tax authorities have given the term tax credit in Sections 2.i and 4 of RR 2-94 a meaning utterly
in contrast to what RA 7432 provides. Their interpretation has muddled x x x the intent of
Congress in granting a mere discount privilege, not a sales discount. The administrative agency
issuing these regulations may not enlarge, alter or restrict the provisions of the law it administers;
it cannot engraft additional requirements not contemplated by the legislature.

In case of conflict, the law must prevail. A "regulation adopted pursuant to law is law."
Conversely, a regulation or any portion thereof not adopted pursuant to law is no law and has
neither the force nor the effect of law.7

On February 26, 2004, RA 92578 amended certain provisions of RA 7432, to wit:

SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the
following:

(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization
of services in hotels and similar lodging establishments, restaurants and recreation centers, and
purchase of medicines in all establishments for the exclusive use or enjoyment of senior citizens,
including funeral and burial services for the death of senior citizens;

xxxx

The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction
based on the net cost of the goods sold or services rendered: Provided, That the cost of the
discount shall be allowed as deduction from gross income for the same taxable year that the
discount is granted. Provided, further, That the total amount of the claimed tax deduction net of
value added tax if applicable, shall be included in their gross sales receipts for tax purposes and
shall be subject to proper documentation and to the provisions of the National Internal Revenue
Code, as amended.

To implement the tax provisions of RA 9257, the Secretary of Finance issued RR No. 4-2006,
the pertinent provision of which provides:

SEC. 8. AVAILMENT BY ESTABLISHMENTS OF SALES DISCOUNTS AS DEDUCTION

FROM GROSS INCOME. – Establishments enumerated in subparagraph (6) hereunder granting
sales discounts to senior citizens on the sale of goods and/or services specified thereunder are
entitled to deduct the said discount from gross income subject to the following conditions:

(1) Only that portion of the gross sales EXCLUSIVELY USED, CONSUMED OR
ENJOYED BY THE SENIOR CITIZEN shall be eligible for the deductible sales
discount.

(2) The gross selling price and the sales discount MUST BE SEPARATELY
INDICATED IN THE OFFICIAL RECEIPT OR SALES INVOICE issued by the
establishment for the sale of goods or services to the senior citizen.

(3) Only the actual amount of the discount granted or a sales discount not exceeding 20%
of the gross selling price can be deducted from the gross income, net of value added tax,
if applicable, for income tax purposes, and from gross sales or gross receipts of the
business enterprise concerned, for VAT or other percentage tax purposes.

(4) The discount can only be allowed as deduction from gross income for the same
taxable year that the discount is granted.

(5) The business establishment giving sales discounts to qualified senior citizens is
required to keep separate and accurate record[s] of sales, which shall include the name of
the senior citizen, TIN, OSCA ID, gross sales/receipts, sales discount granted, [date] of
[transaction] and invoice number for every sale transaction to senior citizen.

(6) Only the following business establishments which granted sales discount to senior
citizens on their sale of goods and/or services may claim the said discount granted as
deduction from gross income, namely:

xxxx

(i) Funeral parlors and similar establishments – The beneficiary or any person who shall shoulder
the funeral and burial expenses of the deceased senior citizen shall claim the discount, such as
casket, embalmment, cremation cost and other related services for the senior citizen upon
payment and presentation of [his] death certificate.

The DSWD likewise issued its own Rules and Regulations Implementing RA 9257, to wit:
RULE VI DISCOUNTS AS TAX DEDUCTION OF ESTABLISHMENTS

Article 8. Tax Deduction of Establishments. – The establishment may claim the discounts
granted under Rule V, Section 4 – Discounts for Establishments, Section 9, Medical and Dental
Services in Private Facilities and Sections 10 and 11 – Air, Sea and Land Transportation as tax
deduction based on the net cost of the goods sold or services rendered.

Provided, That the cost of the discount shall be allowed as deduction from gross income for the
same taxable year that the discount is granted; Provided, further, That the total amount of the
claimed tax deduction net of value added tax if applicable, shall be included in their gross sales
receipts for tax purposes and shall be subject to proper documentation and to the provisions of
the National Internal Revenue Code, as amended; Provided, finally, that the implementation of
the tax deduction shall be subject to the Revenue Regulations to be issued by the Bureau of
Internal Revenue (BIR) and approved by the Department of Finance (DOF).

Feeling aggrieved by the tax deduction scheme, petitioners filed the present recourse, praying
that Section 4 of RA 7432, as amended by RA 9257, and the implementing rules and regulations
issued by the DSWD and the DOF be declared unconstitutional insofar as these allow business
establishments to claim the 20% discount given to senior citizens as a tax deduction; that the
DSWD and the DOF be prohibited from enforcing the same; and that the tax credit treatment of
the 20% discount under the former Section 4 (a) of RA 7432 be reinstated.

Issues

Petitioners raise the following issues:

A.

WHETHER THE PETITION PRESENTS AN ACTUAL CASE OR CONTROVERSY.

B.

WHETHER SECTION 4 OF REPUBLIC ACT NO. 9257 AND X X X ITS IMPLEMENTING

RULES AND REGULATIONS, INSOFAR AS THEY PROVIDE THAT THE TWENTY
PERCENT (20%) DISCOUNT TO SENIOR CITIZENS MAY BE CLAIMED AS A TAX
DEDUCTION BY THE PRIVATE ESTABLISHMENTS, ARE INVALID AND
UNCONSTITUTIONAL.9

Petitioners’ Arguments

Petitioners emphasize that they are not questioning the 20% discount granted to senior citizens
but are only assailing the constitutionality of the tax deduction scheme prescribed under RA
9257 and the implementing rules and regulations issued by the DSWD and the DOF.10
Petitioners posit that the tax deduction scheme contravenes Article III, Section 9 of the
Constitution, which provides that: "[p]rivate property shall not be taken for public use without
just compensation."11

In support of their position, petitioners cite Central Luzon Drug Corporation,12 where it was
ruled that the 20% discount privilege constitutes taking of private property for public use which
requires the payment of just compensation,13 and Carlos Superdrug Corporation v. Department
of Social Welfare and Development,14 where it was acknowledged that the tax deduction
scheme does not meet the definition of just compensation.15

Petitioners likewise seek a reversal of the ruling in Carlos Superdrug Corporation16 that the tax
deduction scheme adopted by the government is justified by police power.17

They assert that "[a]lthough both police power and the power of eminent domain have the
general welfare for their object, there are still traditional distinctions between the two"18 and that
"eminent domain cannot be made less supreme than police power."19

Petitioners further claim that the legislature, in amending RA 7432, relied on an erroneous
contemporaneous construction that prior payment of taxes is required for tax credit.20

Petitioners also contend that the tax deduction scheme violates Article XV, Section 421 and
Article XIII, Section 1122 of the Constitution because it shifts the State’s constitutional mandate
or duty of improving the welfare of the elderly to the private sector.23

Under the tax deduction scheme, the private sector shoulders 65% of the discount because only
35%24 of it is actually returned by the government.25

Consequently, the implementation of the tax deduction scheme prescribed under Section 4 of RA
9257 affects the businesses of petitioners.26

Thus, there exists an actual case or controversy of transcendental importance which deserves
judicious disposition on the merits by the highest court of the land.27

Respondents’ Arguments

Respondents, on the other hand, question the filing of the instant Petition directly with the
Supreme Court as this disregards the hierarchy of courts.28

They likewise assert that there is no justiciable controversy as petitioners failed to prove that the
tax deduction treatment is not a "fair and full equivalent of the loss sustained" by them.29

As to the constitutionality of RA 9257 and its implementing rules and regulations, respondents
contend that petitioners failed to overturn its presumption of constitutionality.30

More important, respondents maintain that the tax deduction scheme is a legitimate exercise of
the State’s police power.31
 Our Ruling

The Petition lacks merit.

There exists an actual case or controversy.

We shall first resolve the procedural issue. When the constitutionality of a law is put in issue,
judicial review may be availed of only if the following requisites concur: "(1) the existence of an
actual and appropriate case; (2) the existence of personal and substantial interest on the part of
the party raising the [question of constitutionality]; (3) recourse to judicial review is made at the
earliest opportunity; and (4) the [question of constitutionality] is the lis mota of the case."32

In this case, petitioners are challenging the constitutionality of the tax deduction scheme
provided in RA 9257 and the implementing rules and regulations issued by the DSWD and the
DOF. Respondents, however, oppose the Petition on the ground that there is no actual case or
controversy. We do not agree with respondents. An actual case or controversy exists when there
is "a conflict of legal rights" or "an assertion of opposite legal claims susceptible of judicial
resolution."33

The Petition must therefore show that "the governmental act being challenged has a direct
adverse effect on the individual challenging it."34

In this case, the tax deduction scheme challenged by petitioners has a direct adverse effect on
them. Thus, it cannot be denied that there exists an actual case or controversy.

The validity of the 20% senior citizen discount and tax deduction scheme under RA 9257, as
an exercise of police power of the State, has already been settled in Carlos Superdrug
Corporation.

Petitioners posit that the resolution of this case lies in the determination of whether the legally
mandated 20% senior citizen discount is an exercise of police power or eminent domain. If it is
police power, no just compensation is warranted. But if it is eminent domain, the tax deduction
scheme is unconstitutional because it is not a peso for peso reimbursement of the 20% discount
given to senior citizens. Thus, it constitutes taking of private property without payment of just
compensation. At the outset, we note that this question has been settled in Carlos Superdrug
Corporation.35

In that case, we ruled:

Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes
deprivation of private property. Compelling drugstore owners and establishments to grant the
discount will result in a loss of profit and capital because 1) drugstores impose a mark-up of only
5% to 10% on branded medicines; and 2) the law failed to provide a scheme whereby drugstores
will be justly compensated for the discount. Examining petitioners’ arguments, it is apparent that
what petitioners are ultimately questioning is the validity of the tax deduction scheme as a
reimbursement mechanism for the twenty percent (20%) discount that they extend to senior
citizens. Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully
reimburse petitioners for the discount privilege accorded to senior citizens. This is because the
discount is treated as a deduction, a tax-deductible expense that is subtracted from the gross
income and results in a lower taxable income. Stated otherwise, it is an amount that is allowed by
law to reduce the income prior to the application of the tax rate to compute the amount of tax
which is due. Being a tax deduction, the discount does not reduce taxes owed on a peso for peso
basis but merely offers a fractional reduction in taxes owed. Theoretically, the treatment of the
discount as a deduction reduces the net income of the private establishments concerned. The
discounts given would have entered the coffers and formed part of the gross sales of the private
establishments, were it not for R.A. No. 9257. The permanent reduction in their total revenues is
a forced subsidy corresponding to the taking of private property for public use or benefit. This
constitutes compensable taking for which petitioners would ordinarily become entitled to a just
compensation. Just compensation is defined as the full and fair equivalent of the property taken
from its owner by the expropriator. The measure is not the taker’s gain but the owner’s loss. The
word just is used to intensify the meaning of the word compensation, and to convey the idea that
the equivalent to be rendered for the property to be taken shall be real, substantial, full and
ample. A tax deduction does not offer full reimbursement of the senior citizen discount. As such,
it would not meet the definition of just compensation. Having said that, this raises the question of
whether the State, in promoting the health and welfare of a special group of citizens, can impose
upon private establishments the burden of partly subsidizing a government program. The Court
believes so. The Senior Citizens Act was enacted primarily to maximize the contribution of
senior citizens to nation-building, and to grant benefits and privileges to them for their
improvement and well-being as the State considers them an integral part of our society. The
priority given to senior citizens finds its basis in the Constitution as set forth in the law
itself.1âwphi1 Thus, the Act provides: SEC. 2. Republic Act No. 7432 is hereby amended to read
as follows:

SECTION 1. Declaration of Policies and Objectives. — Pursuant to Article XV, Section 4 of the
Constitution, it is the duty of the family to take care of its elderly members while the State may
design programs of social security for them. In addition to this, Section 10 in the Declaration of
Principles and State Policies provides: "The State shall provide social justice in all phases of
national development." Further, Article XIII, Section 11, provides: "The State shall adopt an
integrated and comprehensive approach to health development which shall endeavor to make
essential goods, health and other social services available to all the people at affordable cost.
There shall be priority for the needs of the underprivileged sick, elderly, disabled, women and
children." Consonant with these constitutional principles the following are the declared policies
of this Act:

xxx xxx xxx

(f) To recognize the important role of the private sector in the improvement of the welfare of
senior citizens and to actively seek their partnership.

To implement the above policy, the law grants a twenty percent discount to senior citizens for
medical and dental services, and diagnostic and laboratory fees; admission fees charged by
theaters, concert halls, circuses, carnivals, and other similar places of culture, leisure and
amusement; fares for domestic land, air and sea travel; utilization of services in hotels and
similar lodging establishments, restaurants and recreation centers; and purchases of medicines
for the exclusive use or enjoyment of senior citizens. As a form of reimbursement, the law
provides that business establishments extending the twenty percent discount to senior citizens
may claim the discount as a tax deduction. The law is a legitimate exercise of police power
which, similar to the power of eminent domain, has general welfare for its object. Police power
is not capable of an exact definition, but has been purposely veiled in general terms to
underscore its comprehensiveness to meet all exigencies and provide enough room for an
efficient and flexible response to conditions and circumstances, thus assuring the greatest
benefits. Accordingly, it has been described as "the most essential, insistent and the least
limitable of powers, extending as it does to all the great public needs." It is "[t]he power vested
in the legislature by the constitution to make, ordain, and establish all manner of wholesome and
reasonable laws, statutes, and ordinances, either with penalties or without, not repugnant to the
constitution, as they shall judge to be for the good and welfare of the commonwealth, and of the
subjects of the same." For this reason, when the conditions so demand as determined by the
legislature, property rights must bow to the primacy of police power because property rights,
though sheltered by due process, must yield to general welfare. Police power as an attribute to
promote the common good would be diluted considerably if on the mere plea of petitioners that
they will suffer loss of earnings and capital, the questioned provision is invalidated. Moreover, in
the absence of evidence demonstrating the alleged confiscatory effect of the provision in
question, there is no basis for its nullification in view of the presumption of validity which every
law has in its favor. Given these, it is incorrect for petitioners to insist that the grant of the senior
citizen discount is unduly oppressive to their business, because petitioners have not taken time to
calculate correctly and come up with a financial report, so that they have not been able to show
properly whether or not the tax deduction scheme really works greatly to their disadvantage. In
treating the discount as a tax deduction, petitioners insist that they will incur losses because,
referring to the DOF Opinion, for every ₱1.00 senior citizen discount that petitioners would give,
P0.68 will be shouldered by them as only P0.32 will be refunded by the government by way of a
tax deduction. To illustrate this point, petitioner Carlos Super Drug cited the anti-hypertensive
maintenance drug Norvasc as an example. According to the latter, it acquires Norvasc from the
distributors at ₱37.57 per tablet, and retails it at ₱39.60 (or at a margin of 5%). If it grants a 20%
discount to senior citizens or an amount equivalent to ₱7.92, then it would have to sell Norvasc
at ₱31.68 which translates to a loss from capital of ₱5.89 per tablet. Even if the government will
allow a tax deduction, only ₱2.53 per tablet will be refunded and not the full amount of the
discount which is ₱7.92. In short, only 32% of the 20% discount will be reimbursed to the
drugstores. Petitioners’ computation is flawed. For purposes of reimbursement, the law states
that the cost of the discount shall be deducted from gross income, the amount of income derived
from all sources before deducting allowable expenses, which will result in net income. Here,
petitioners tried to show a loss on a per transaction basis, which should not be the case. An
income statement, showing an accounting of petitioners' sales, expenses, and net profit (or loss)
for a given period could have accurately reflected the effect of the discount on their income.
Absent any financial statement, petitioners cannot substantiate their claim that they will be
operating at a loss should they give the discount. In addition, the computation was erroneously
based on the assumption that their customers consisted wholly of senior citizens. Lastly, the 32%
tax rate is to be imposed on income, not on the amount of the discount.
Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the prices of
their medicines given the cutthroat nature of the players in the industry. It is a business decision
on the part of petitioners to peg the mark-up at 5%. Selling the medicines below acquisition cost,
as alleged by petitioners, is merely a result of this decision. Inasmuch as pricing is a property
right, petitioners cannot reproach the law for being oppressive, simply because they cannot
afford to raise their prices for fear of losing their customers to competition. The Court is not
oblivious of the retail side of the pharmaceutical industry and the competitive pricing component
of the business. While the Constitution protects property rights, petitioners must accept the
realities of business and the State, in the exercise of police power, can intervene in the operations
of a business which may result in an impairment of property rights in the process.

Moreover, the right to property has a social dimension. While Article XIII of the Constitution
provides the precept for the protection of property, various laws and jurisprudence, particularly
on agrarian reform and the regulation of contracts and public utilities, continuously serve as x x x
reminder[s] that the right to property can be relinquished upon the command of the State for the
promotion of public good. Undeniably, the success of the senior citizens program rests largely on
the support imparted by petitioners and the other private establishments concerned. This being
the case, the means employed in invoking the active participation of the private sector, in order
to achieve the purpose or objective of the law, is reasonably and directly related. Without
sufficient proof that Section 4 (a) of R.A. No. 9257 is arbitrary, and that the continued
implementation of the same would be unconscionably detrimental to petitioners, the Court will
refrain from quashing a legislative act.36 (Bold in the original; underline supplied)

We, thus, found that the 20% discount as well as the tax deduction scheme is a valid exercise of
the police power of the State.

No compelling reason has been proffered to overturn, modify or abandon the ruling in Carlos
Superdrug Corporation.

Petitioners argue that we have previously ruled in Central Luzon Drug Corporation37 that the
20% discount is an exercise of the power of eminent domain, thus, requiring the payment of just
compensation. They urge us to re-examine our ruling in Carlos Superdrug Corporation38 which
allegedly reversed the ruling in Central Luzon Drug Corporation.39

They also point out that Carlos Superdrug Corporation40 recognized that the tax deduction
scheme under the assailed law does not provide for sufficient just compensation. We agree with
petitioners’ observation that there are statements in Central Luzon Drug Corporation41
describing the 20% discount as an exercise of the power of eminent domain, viz.:

[T]he privilege enjoyed by senior citizens does not come directly from the State, but rather from
the private establishments concerned. Accordingly, the tax credit benefit granted to these
establishments can be deemed as their just compensation for private property taken by the State
for public use. The concept of public use is no longer confined to the traditional notion of use by
the public, but held synonymous with public interest, public benefit, public welfare, and public
convenience. The discount privilege to which our senior citizens are entitled is actually a benefit
enjoyed by the general public to which these citizens belong. The discounts given would have
entered the coffers and formed part of the gross sales of the private establishments concerned,
were it not for RA 7432. The permanent reduction in their total revenues is a forced subsidy
corresponding to the taking of private property for public use or benefit. As a result of the 20
percent discount imposed by RA 7432, respondent becomes entitled to a just compensation. This
term refers not only to the issuance of a tax credit certificate indicating the correct amount of the
discounts given, but also to the promptness in its release. Equivalent to the payment of property
taken by the State, such issuance — when not done within a reasonable time from the grant of
the discounts — cannot be considered as just compensation. In effect, respondent is made to
suffer the consequences of being immediately deprived of its revenues while awaiting actual
receipt, through the certificate, of the equivalent amount it needs to cope with the reduction in its
revenues. Besides, the taxation power can also be used as an implement for the exercise of the
power of eminent domain. Tax measures are but "enforced contributions exacted on pain of
penal sanctions" and "clearly imposed for a public purpose." In recent years, the power to tax has
indeed become a most effective tool to realize social justice, public welfare, and the equitable
distribution of wealth. While it is a declared commitment under Section 1 of RA 7432, social
justice "cannot be invoked to trample on the rights of property owners who under our
Constitution and laws are also entitled to protection. The social justice consecrated in our
[C]onstitution [is] not intended to take away rights from a person and give them to another who
is not entitled thereto." For this reason, a just compensation for income that is taken away from
respondent becomes necessary. It is in the tax credit that our legislators find support to realize
social justice, and no administrative body can alter that fact. To put it differently, a private
establishment that merely breaks even — without the discounts yet — will surely start to incur
losses because of such discounts. The same effect is expected if its mark-up is less than 20
percent, and if all its sales come from retail purchases by senior citizens. Aside from the
observation we have already raised earlier, it will also be grossly unfair to an establishment if the
discounts will be treated merely as deductions from either its gross income or its gross
sales.1âwphi1 Operating at a loss through no fault of its own, it will realize that the tax credit
limitation under RR 2-94 is inutile, if not improper. Worse, profit-generating businesses will be
put in a better position if they avail themselves of tax credits denied those that are losing,
because no taxes are due from the latter.42 (Italics in the original; emphasis supplied)

The above was partly incorporated in our ruling in Carlos Superdrug Corporation43 when we
stated preliminarily that—

Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes
deprivation of private property. Compelling drugstore owners and establishments to grant the
discount will result in a loss of profit and capital because 1) drugstores impose a mark-up of only
5% to 10% on branded medicines; and 2) the law failed to provide a scheme whereby drugstores
will be justly compensated for the discount. Examining petitioners’ arguments, it is apparent that
what petitioners are ultimately questioning is the validity of the tax deduction scheme as a
reimbursement mechanism for the twenty percent (20%) discount that they extend to senior
citizens. Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully
reimburse petitioners for the discount privilege accorded to senior citizens. This is because the
discount is treated as a deduction, a tax-deductible expense that is subtracted from the gross
income and results in a lower taxable income. Stated otherwise, it is an amount that is allowed by
law to reduce the income prior to the application of the tax rate to compute the amount of tax
which is due. Being a tax deduction, the discount does not reduce taxes owed on a peso for peso
basis but merely offers a fractional reduction in taxes owed. Theoretically, the treatment of the
discount as a deduction reduces the net income of the private establishments concerned. The
discounts given would have entered the coffers and formed part of the gross sales of the private
establishments, were it not for R.A. No. 9257. The permanent reduction in their total revenues is
a forced subsidy corresponding to the taking of private property for public use or benefit. This
constitutes compensable taking for which petitioners would ordinarily become entitled to a just
compensation. Just compensation is defined as the full and fair equivalent of the property taken
from its owner by the expropriator. The measure is not the taker’s gain but the owner’s loss. The
word just is used to intensify the meaning of the word compensation, and to convey the idea that
the equivalent to be rendered for the property to be taken shall be real, substantial, full and
ample. A tax deduction does not offer full reimbursement of the senior citizen discount. As such,
it would not meet the definition of just compensation. Having said that, this raises the question of
whether the State, in promoting the health and welfare of a special group of citizens, can impose
upon private establishments the burden of partly subsidizing a government program. The Court
believes so.44

This, notwithstanding, we went on to rule in Carlos Superdrug Corporation45 that the 20%
discount and tax deduction scheme is a valid exercise of the police power of the State. The
present case, thus, affords an opportunity for us to clarify the above-quoted statements in Central
Luzon Drug Corporation46 and Carlos Superdrug Corporation.47

First, we note that the above-quoted disquisition on eminent domain in Central Luzon Drug
Corporation48 is obiter dicta and, thus, not binding precedent. As stated earlier, in Central Luzon
Drug Corporation,49 we ruled that the BIR acted ultra vires when it effectively treated the 20%
discount as a tax deduction, under Sections 2.i and 4 of RR No. 2-94, despite the clear wording
of the previous law that the same should be treated as a tax credit. We were, therefore, not
confronted in that case with the issue as to whether the 20% discount is an exercise of police
power or eminent domain. Second, although we adverted to Central Luzon Drug Corporation50
in our ruling in Carlos Superdrug Corporation,51 this referred only to preliminary matters. A fair
reading of Carlos Superdrug Corporation52 would show that we categorically ruled therein that
the 20% discount is a valid exercise of police power. Thus, even if the current law, through its
tax deduction scheme (which abandoned the tax credit scheme under the previous law), does not
provide for a peso for peso reimbursement of the 20% discount given by private establishments,
no constitutional infirmity obtains because, being a valid exercise of police power, payment of
just compensation is not warranted. We have carefully reviewed the basis of our ruling in Carlos
Superdrug Corporation53 and we find no cogent reason to overturn, modify or abandon it. We
also note that petitioners’ arguments are a mere reiteration of those raised and resolved in Carlos
Superdrug Corporation.54 Thus, we sustain Carlos Superdrug Corporation.55

Nonetheless, we deem it proper, in what follows, to amplify our explanation in Carlos Superdrug
Corporation56 as to why the 20% discount is a valid exercise of police power and why it may
not, under the specific circumstances of this case, be considered as an exercise of the power of
eminent domain contrary to the obiter in Central Luzon Drug Corporation.57

Police power versus eminent domain.

Police power is the inherent power of the State to regulate or to restrain the use of liberty and
property for public welfare.58

The only limitation is that the restriction imposed should be reasonable, not oppressive.59

In other words, to be a valid exercise of police power, it must have a lawful subject or objective
and a lawful method of accomplishing the goal.60

Under the police power of the State, "property rights of individuals may be subjected to restraints
and burdens in order to fulfill the objectives of the government."61

The State "may interfere with personal liberty, property, lawful businesses and occupations to
promote the general welfare [as long as] the interference [is] reasonable and not arbitrary."62

Eminent domain, on the other hand, is the inherent power of the State to take or appropriate
private property for public use.63

The Constitution, however, requires that private property shall not be taken without due process
of law and the payment of just compensation.64

Traditional distinctions exist between police power and eminent domain. In the exercise of police
power, a property right is impaired by regulation,65 or the use of property is merely prohibited,
regulated or restricted66 to promote public welfare. In such cases, there is no compensable
taking, hence, payment of just compensation is not required. Examples of these regulations are
property condemned for being noxious or intended for noxious purposes (e.g., a building on the
verge of collapse to be demolished for public safety, or obscene materials to be destroyed in the
interest of public morals)67 as well as zoning ordinances prohibiting the use of property for
purposes injurious to the health, morals or safety of the community (e.g., dividing a city’s
territory into residential and industrial areas).68

It has, thus, been observed that, in the exercise of police power (as distinguished from eminent
domain), although the regulation affects the right of ownership, none of the bundle of rights
which constitute ownership is appropriated for use by or for the benefit of the public.69

On the other hand, in the exercise of the power of eminent domain, property interests are
appropriated and applied to some public purpose which necessitates the payment of just
compensation therefor. Normally, the title to and possession of the property are transferred to the
expropriating authority. Examples include the acquisition of lands for the construction of public
highways as well as agricultural lands acquired by the government under the agrarian reform law
for redistribution to qualified farmer beneficiaries. However, it is a settled rule that the
acquisition of title or total destruction of the property is not essential for "taking" under the
power of eminent domain to be present.70

Examples of these include establishment of easements such as where the land owner is
perpetually deprived of his proprietary rights because of the hazards posed by electric
transmission lines constructed above his property71 or the compelled interconnection of the
telephone system between the government and a private company.72

In these cases, although the private property owner is not divested of ownership or possession,
payment of just compensation is warranted because of the burden placed on the property for the
use or benefit of the public.

The 20% senior citizen discount is an exercise of police power.

It may not always be easy to determine whether a challenged governmental act is an exercise of
police power or eminent domain. The very nature of police power as elastic and responsive to
various social conditions73 as well as the evolving meaning and scope of public use74 and just
compensation75 in eminent domain evinces that these are not static concepts. Because of the
exigencies of rapidly changing times, Congress may be compelled to adopt or experiment with
different measures to promote the general welfare which may not fall squarely within the
traditionally recognized categories of police power and eminent domain. The judicious approach,
therefore, is to look at the nature and effects of the challenged governmental act and decide, on
the basis thereof, whether the act is the exercise of police power or eminent domain. Thus, we
now look at the nature and effects of the 20% discount to determine if it constitutes an exercise
of police power or eminent domain. The 20% discount is intended to improve the welfare of
senior citizens who, at their age, are less likely to be gainfully employed, more prone to illnesses
and other disabilities, and, thus, in need of subsidy in purchasing basic commodities. It may not
be amiss to mention also that the discount serves to honor senior citizens who presumably spent
the productive years of their lives on contributing to the development and progress of the nation.
This distinct cultural Filipino practice of honoring the elderly is an integral part of this law. As to
its nature and effects, the 20% discount is a regulation affecting the ability of private
establishments to price their products and services relative to a special class of individuals,
senior citizens, for which the Constitution affords preferential concern.76

In turn, this affects the amount of profits or income/gross sales that a private establishment can
derive from senior citizens. In other words, the subject regulation affects the pricing, and, hence,
the profitability of a private establishment. However, it does not purport to appropriate or burden
specific properties, used in the operation or conduct of the business of private establishments, for
the use or benefit of the public, or senior citizens for that matter, but merely regulates the pricing
of goods and services relative to, and the amount of profits or income/gross sales that such
private establishments may derive from, senior citizens. The subject regulation may be said to be
similar to, but with substantial distinctions from, price control or rate of return on investment
control laws which are traditionally regarded as police power measures.77

These laws generally regulate public utilities or industries/enterprises imbued with public interest
in order to protect consumers from exorbitant or unreasonable pricing as well as temper
corporate greed by controlling the rate of return on investment of these corporations considering
that they have a monopoly over the goods or services that they provide to the general public. The
subject regulation differs therefrom in that (1) the discount does not prevent the establishments
from adjusting the level of prices of their goods and services, and (2) the discount does not apply
to all customers of a given establishment but only to the class of senior citizens. Nonetheless, to
the degree material to the resolution of this case, the 20% discount may be properly viewed as
belonging to the category of price regulatory measures which affect the profitability of
establishments subjected thereto. On its face, therefore, the subject regulation is a police power
measure. The obiter in Central Luzon Drug Corporation,78 however, describes the 20% discount
as an exercise of the power of eminent domain and the tax credit, under the previous law,
equivalent to the amount of discount given as the just compensation therefor. The reason is that
(1) the discount would have formed part of the gross sales of the establishment were it not for the
law prescribing the 20% discount, and (2) the permanent reduction in total revenues is a forced
subsidy corresponding to the taking of private property for public use or benefit. The flaw in this
reasoning is in its premise. It presupposes that the subject regulation, which impacts the pricing
and, hence, the profitability of a private establishment, automatically amounts to a deprivation of
property without due process of law. If this were so, then all price and rate of return on
investment control laws would have to be invalidated because they impact, at some level, the
regulated establishment’s profits or income/gross sales, yet there is no provision for payment of
just compensation. It would also mean that overnment cannot set price or rate of return on
investment limits, which reduce the profits or income/gross sales of private establishments, if no
just compensation is paid even if the measure is not confiscatory. The obiter is, thus, at odds with
the settled octrine that the State can employ police power measures to regulate the pricing of
goods and services, and, hence, the profitability of business establishments in order to pursue
legitimate State objectives for the common good, provided that the regulation does not go too far
as to amount to "taking."79

In City of Manila v. Laguio, Jr.,80 we recognized that— x x x a taking also could be found if
government regulation of the use of property went "too far." When regulation reaches a certain
magnitude, in most if not in all cases there must be an exercise of eminent domain and
compensation to support the act. While property may be regulated to a certain extent, if
regulation goes too far it will be recognized as a taking. No formula or rule can be devised to
answer the questions of what is too far and when regulation becomes a taking. In Mahon, Justice
Holmes recognized that it was "a question of degree and therefore cannot be disposed of by
general propositions." On many other occasions as well, the U.S. Supreme Court has said that the
issue of when regulation constitutes a taking is a matter of considering the facts in each case. The
Court asks whether justice and fairness require that the economic loss caused by public action
must be compensated by the government and thus borne by the public as a whole, or whether the
loss should remain concentrated on those few persons subject to the public action.81

The impact or effect of a regulation, such as the one under consideration, must, thus, be
determined on a case-to-case basis. Whether that line between permissible regulation under
police power and "taking" under eminent domain has been crossed must, under the specific
circumstances of this case, be subject to proof and the one assailing the constitutionality of the
regulation carries the heavy burden of proving that the measure is unreasonable, oppressive or
confiscatory. The time-honored rule is that the burden of proving the unconstitutionality of a law
rests upon the one assailing it and "the burden becomes heavier when police power is at
issue."82

The 20% senior citizen discount has not been shown to be unreasonable, oppressive or
confiscatory.
In Alalayan v. National Power Corporation,83 petitioners, who were franchise holders of electric
plants, challenged the validity of a law limiting their allowable net profits to no more than 12%
per annum of their investments plus two-month operating expenses. In rejecting their plea, we
ruled that, in an earlier case, it was found that 12% is a reasonable rate of return and that
petitioners failed to prove that the aforesaid rate is confiscatory in view of the presumption of
constitutionality.84

We adopted a similar line of reasoning in Carlos Superdrug Corporation85 when we ruled that
petitioners therein failed to prove that the 20% discount is arbitrary, oppressive or confiscatory.
We noted that no evidence, such as a financial report, to establish the impact of the 20% discount
on the overall profitability of petitioners was presented in order to show that they would be
operating at a loss due to the subject regulation or that the continued implementation of the law
would be unconscionably detrimental to the business operations of petitioners. In the case at bar,
petitioners proceeded with a hypothetical computation of the alleged loss that they will suffer
similar to what the petitioners in Carlos Superdrug Corporation86 did. Petitioners went directly
to this Court without first establishing the factual bases of their claims. Hence, the present
recourse must, likewise, fail. Because all laws enjoy the presumption of constitutionality, courts
will uphold a law’s validity if any set of facts may be conceived to sustain it.87

On its face, we find that there are at least two conceivable bases to sustain the subject
regulation’s validity absent clear and convincing proof that it is unreasonable, oppressive or
confiscatory. Congress may have legitimately concluded that business establishments have the
capacity to absorb a decrease in profits or income/gross sales due to the 20% discount without
substantially affecting the reasonable rate of return on their investments considering (1) not all
customers of a business establishment are senior citizens and (2) the level of its profit margins on
goods and services offered to the general public. Concurrently, Congress may have, likewise,
legitimately concluded that the establishments, which will be required to extend the 20%
discount, have the capacity to revise their pricing strategy so that whatever reduction in profits or
income/gross sales that they may sustain because of sales to senior citizens, can be recouped
through higher mark-ups or from other products not subject of discounts. As a result, the
discounts resulting from sales to senior citizens will not be confiscatory or unduly oppressive. In
sum, we sustain our ruling in Carlos Superdrug Corporation88 that the 20% senior citizen
discount and tax deduction scheme are valid exercises of police power of the State absent a clear
showing that it is arbitrary, oppressive or confiscatory.

Conclusion

In closing, we note that petitioners hypothesize, consistent with our previous ratiocinations, that
the discount will force establishments to raise their prices in order to compensate for its impact
on overall profits or income/gross sales. The general public, or those not belonging to the senior
citizen class, are, thus, made to effectively shoulder the subsidy for senior citizens. This, in
petitioners’ view, is unfair.

As already mentioned, Congress may be reasonably assumed to have foreseen this eventuality.
But, more importantly, this goes into the wisdom, efficacy and expediency of the subject law
which is not proper for judicial review. In a way, this law pursues its social equity objective in a
non-traditional manner unlike past and existing direct subsidy programs of the government for
the poor and marginalized sectors of our society. Verily, Congress must be given sufficient
leeway in formulating welfare legislations given the enormous challenges that the government
faces relative to, among others, resource adequacy and administrative capability in implementing
social reform measures which aim to protect and uphold the interests of those most vulnerable in
our society. In the process, the individual, who enjoys the rights, benefits and privileges of living
in a democratic polity, must bear his share in supporting measures intended for the common
good. This is only fair. In fine, without the requisite showing of a clear and unequivocal breach
of the Constitution, the validity of the assailed law must be sustained.

Refutation of the Dissent

The main points of Justice Carpio’s Dissent may be summarized as follows: (1) the discussion on
eminent domain in Central Luzon Drug Corporation89 is not obiter dicta ; (2) allowable taking,
in police power, is limited to property that is destroyed or placed outside the commerce of man
for public welfare; (3) the amount of mandatory discount is private property within the ambit of
Article III, Section 990 of the Constitution; and (4) the permanent reduction in a private
establishment’s total revenue, arising from the mandatory discount, is a taking of private
property for public use or benefit, hence, an exercise of the power of eminent domain requiring
the payment of just compensation. I We maintain that the discussion on eminent domain in
Central Luzon Drug Corporation91 is obiter dicta. As previously discussed, in Central Luzon
Drug Corporation,92 the BIR, pursuant to Sections 2.i and 4 of RR No. 2-94, treated the senior
citizen discount in the previous law, RA 7432, as a tax deduction instead of a tax credit despite
the clear provision in that law which stated –

SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the
following:

a) The grant of twenty percent (20%) discount from all establishments relative to
utilization of transportation services, hotels and similar lodging establishment, restaurants
and recreation centers and purchase of medicines anywhere in the country: Provided,
That private establishments may claim the cost as tax credit; (Emphasis supplied)

Thus, the Court ruled that the subject revenue regulation violated the law, viz:

The 20 percent discount required by the law to be given to senior citizens is a tax credit, not
merely a tax deduction from the gross income or gross sale of the establishment concerned. A tax
credit is used by a private establishment only after the tax has been computed; a tax deduction,
before the tax is computed. RA 7432 unconditionally grants a tax credit to all covered entities.
Thus, the provisions of the revenue regulation that withdraw or modify such grant are void.
Basic is the rule that administrative regulations cannot amend or revoke the law.93

As can be readily seen, the discussion on eminent domain was not necessary in order to arrive at
this conclusion. All that was needed was to point out that the revenue regulation contravened the
law which it sought to implement. And, precisely, this was done in Central Luzon Drug
Corporation94 by comparing the wording of the previous law vis-à-vis the revenue regulation;
employing the rules of statutory construction; and applying the settled principle that a regulation
cannot amend the law it seeks to implement. A close reading of Central Luzon Drug
Corporation95 would show that the Court went on to state that the tax credit "can be deemed" as
just compensation only to explain why the previous law provides for a tax credit instead of a tax
deduction. The Court surmised that the tax credit was a form of just compensation given to the
establishments covered by the 20% discount. However, the reason why the previous law
provided for a tax credit and not a tax deduction was not necessary to resolve the issue as to
whether the revenue regulation contravenes the law. Hence, the discussion on eminent domain is
obiter dicta.

A court, in resolving cases before it, may look into the possible purposes or reasons that impelled
the enactment of a particular statute or legal provision. However, statements made relative
thereto are not always necessary in resolving the actual controversies presented before it. This
was the case in Central Luzon Drug Corporation96 resulting in that unfortunate statement that
the tax credit "can be deemed" as just compensation. This, in turn, led to the erroneous
conclusion, by deductive reasoning, that the 20% discount is an exercise of the power of eminent
domain. The Dissent essentially adopts this theory and reasoning which, as will be shown below,
is contrary to settled principles in police power and eminent domain analysis. II The Dissent
discusses at length the doctrine on "taking" in police power which occurs when private property
is destroyed or placed outside the commerce of man. Indeed, there is a whole class of police
power measures which justify the destruction of private property in order to preserve public
health, morals, safety or welfare. As earlier mentioned, these would include a building on the
verge of collapse or confiscated obscene materials as well as those mentioned by the Dissent
with regard to property used in violating a criminal statute or one which constitutes a nuisance.
In such cases, no compensation is required. However, it is equally true that there is another class
of police power measures which do not involve the destruction of private property but merely
regulate its use. The minimum wage law, zoning ordinances, price control laws, laws regulating
the operation of motels and hotels, laws limiting the working hours to eight, and the like would
fall under this category. The examples cited by the Dissent, likewise, fall under this category:
Article 157 of the Labor Code, Sections 19 and 18 of the Social Security Law, and Section 7 of
the Pag-IBIG Fund Law. These laws merely regulate or, to use the term of the Dissent, burden
the conduct of the affairs of business establishments. In such cases, payment of just
compensation is not required because they fall within the sphere of permissible police power
measures. The senior citizen discount law falls under this latter category. III The Dissent
proceeds from the theory that the permanent reduction of profits or income/gross sales, due to the
20% discount, is a "taking" of private property for public purpose without payment of just
compensation. At the outset, it must be emphasized that petitioners never presented any evidence
to establish that they were forced to suffer enormous losses or operate at a loss due to the effects
of the assailed law. They came directly to this Court and provided a hypothetical computation of
the loss they would allegedly suffer due to the operation of the assailed law. The central premise
of the Dissent’s argument that the 20% discount results in a permanent reduction in profits or
income/gross sales, or forces a business establishment to operate at a loss is, thus, wholly
unsupported by competent evidence. To be sure, the Court can invalidate a law which, on its
face, is arbitrary, oppressive or confiscatory.97

But this is not the case here.

In the case at bar, evidence is indispensable before a determination of a constitutional violation
can be made because of the following reasons. First, the assailed law, by imposing the senior
citizen discount, does not take any of the properties used by a business establishment like, say,
the land on which a manufacturing plant is constructed or the equipment being used to produce
goods or services. Second, rather than taking specific properties of a business establishment, the
senior citizen discount law merely regulates the prices of the goods or services being sold to
senior citizens by mandating a 20% discount. Thus, if a product is sold at ₱10.00 to the general
public, then it shall be sold at ₱8.00 ( i.e., ₱10.00 less 20%) to senior citizens. Note that the law
does not impose at what specific price the product shall be sold, only that a 20% discount shall
be given to senior citizens based on the price set by the business establishment. A business
establishment is, thus, free to adjust the prices of the goods or services it provides to the general
public. Accordingly, it can increase the price of the above product to ₱20.00 but is required to
sell it at ₱16.00 (i.e. , ₱20.00 less 20%) to senior citizens. Third, because the law impacts the
prices of the goods or services of a particular establishment relative to its sales to senior citizens,
its profits or income/gross sales are affected. The extent of the impact would, however, depend
on the profit margin of the business establishment on a particular good or service. If a product
costs ₱5.00 to produce and is sold at ₱10.00, then the profit98 is ₱5.0099 or a profit margin100
of 50%.101

Under the assailed law, the aforesaid product would have to be sold at ₱8.00 to senior citizens
yet the business would still earn ₱3.00102 or a 30%103 profit margin. On the other hand, if the
product costs ₱9.00 to produce and is required to be sold at ₱8.00 to senior citizens, then the
business would experience a loss of ₱1.00.104

But note that since not all customers of a business establishment are senior citizens, the business
establishment may continue to earn ₱1.00 from non-senior citizens which, in turn, can offset any
loss arising from sales to senior citizens.

Fourth, when the law imposes the 20% discount in favor of senior citizens, it does not prevent
the business establishment from revising its pricing strategy.

By revising its pricing strategy, a business establishment can recoup any reduction of profits or
income/gross sales which would otherwise arise from the giving of the 20% discount. To
illustrate, suppose A has two customers: X, a senior citizen, and Y, a non-senior citizen. Prior to
the law, A sells his products at ₱10.00 a piece to X and Y resulting in income/gross sales of
₱20.00 (₱10.00 + ₱10.00). With the passage of the law, A must now sell his product to X at
₱8.00 (i.e., ₱10.00 less 20%) so that his income/gross sales would be ₱18.00 (₱8.00 + ₱10.00) or
lower by ₱2.00. To prevent this from happening, A decides to increase the price of his products
to ₱11.11 per piece. Thus, he sells his product to X at ₱8.89 (i.e. , ₱11.11 less 20%) and to Y at
₱11.11. As a result, his income/gross sales would still be ₱20.00105 (₱8.89 + ₱11.11). The
capacity, then, of business establishments to revise their pricing strategy makes it possible for
them not to suffer any reduction in profits or income/gross sales, or, in the alternative, mitigate
the reduction of their profits or income/gross sales even after the passage of the law. In other
words, business establishments have the capacity to adjust their prices so that they may remain
profitable even under the operation of the assailed law.
The Dissent, however, states that – The explanation by the majority that private establishments
can always increase their prices to recover the mandatory discount will only encourage private
establishments to adjust their prices upwards to the prejudice of customers who do not enjoy the
20% discount. It was likewise suggested that if a company increases its prices, despite the
application of the 20% discount, the establishment becomes more profitable than it was before
the implementation of R.A. 7432. Such an economic justification is self-defeating, for more
consumers will suffer from the price increase than will benefit from the 20% discount. Even
then, such ability to increase prices cannot legally validate a violation of the eminent domain
clause.106

But, if it is possible that the business establishment, by adjusting its prices, will suffer no
reduction in its profits or income/gross sales (or suffer some reduction but continue to operate
profitably) despite giving the discount, what would be the basis to strike down the law? If it is
possible that the business establishment, by adjusting its prices, will not be unduly burdened,
how can there be a finding that the assailed law is an unconstitutional exercise of police power or
eminent domain? That there may be a burden placed on business establishments or the
consuming public as a result of the operation of the assailed law is not, by itself, a ground to
declare it unconstitutional for this goes into the wisdom and expediency of the law.

The cost of most, if not all, regulatory measures of the government on business establishments is
ultimately passed on to the consumers but that, by itself, does not justify the wholesale
nullification of these measures. It is a basic postulate of our democratic system of government
that the Constitution is a social contract whereby the people have surrendered their sovereign
powers to the State for the common good.107

All persons may be burdened by regulatory measures intended for the common good or to serve
some important governmental interest, such as protecting or improving the welfare of a special
class of people for which the Constitution affords preferential concern. Indubitably, the one
assailing the law has the heavy burden of proving that the regulation is unreasonable, oppressive
or confiscatory, or has gone "too far" as to amount to a "taking." Yet, here, the Dissent would
have this Court nullify the law without any proof of such nature.

Further, this Court is not the proper forum to debate the economic theories or realities that
impelled Congress to shift from the tax credit to the tax deduction scheme. It is not within our
power or competence to judge which scheme is more or less burdensome to business
establishments or the consuming public and, thereafter, to choose which scheme the State should
use or pursue. The shift from the tax credit to tax deduction scheme is a policy determination by
Congress and the Court will respect it for as long as there is no showing, as here, that the subject
regulation has transgressed constitutional limitations. Unavoidably, the lack of evidence
constrains the Dissent to rely on speculative and hypothetical argumentation when it states that
the 20% discount is a significant amount and not a minimal loss (which erroneously assumes that
the discount automatically results in a loss when it is possible that the profit margin is greater
than 20% and/or the pricing strategy can be revised to prevent or mitigate any reduction in
profits or income/gross sales as illustrated above),108 and not all private establishments make a
20% profit margin (which conversely implies that there are those who make more and, thus,
would not be greatly affected by this regulation).109
In fine, because of the possible scenarios discussed above, we cannot assume that the 20%
discount results in a permanent reduction in profits or income/gross sales, much less that
business establishments are forced to operate at a loss under the assailed law. And, even if we
gratuitously assume that the 20% discount results in some degree of reduction in profits or
income/gross sales, we cannot assume that such reduction is arbitrary, oppressive or
confiscatory. To repeat, there is no actual proof to back up this claim, and it could be that the loss
suffered by a business establishment was occasioned through its fault or negligence in not
adapting to the effects of the assailed law. The law uniformly applies to all business
establishments covered thereunder. There is, therefore, no unjust discrimination as the aforesaid
business establishments are faced with the same constraints. The necessity of proof is all the
more pertinent in this case because, as similarly observed by Justice Velasco in his Concurring
Opinion, the law has been in operation for over nine years now. However, the grim picture
painted by petitioners on the unconscionable losses to be indiscriminately suffered by business
establishments, which should have led to the closure of numerous business establishments, has
not come to pass. Verily, we cannot invalidate the assailed law based on assumptions and
conjectures. Without adequate proof, the presumption of constitutionality must prevail. IV At
this juncture, we note that the Dissent modified its original arguments by including a new
paragraph, to wit:

Section 9, Article III of the 1987 Constitution speaks of private property without any distinction.
It does not state that there should be profit before the taking of property is subject to just
compensation. The private property referred to for purposes of taking could be inherited,
donated, purchased, mortgaged, or as in this case, part of the gross sales of private
establishments. They are all private property and any taking should be attended by corresponding
payment of just compensation. The 20% discount granted to senior citizens belong to private
establishments, whether these establishments make a profit or suffer a loss. In fact, the 20%
discount applies to non-profit establishments like country, social, or golf clubs which are open to
the public and not only for exclusive membership. The issue of profit or loss to the
establishments is immaterial.110

Two things may be said of this argument. First, it contradicts the rest of the arguments of the
Dissent. After it states that the issue of profit or loss is immaterial, the Dissent proceeds to argue
that the 20% discount is not a minimal loss111 and that the 20% discount forces business
establishments to operate at a loss.112

Even the obiter in Central Luzon Drug Corporation,113 which the Dissent essentially adopts and
relies on, is premised on the permanent reduction of total revenues and the loss that business
establishments will be forced to suffer in arguing that the 20% discount constitutes a "taking"
under the power of eminent domain. Thus, when the Dissent now argues that the issue of profit
or loss is immaterial, it contradicts itself because it later argues, in order to justify that there is a
"taking" under the power of eminent domain in this case, that the 20% discount forces business
establishments to suffer a significant loss or to operate at a loss. Second, this argument suffers
from the same flaw as the Dissent's original arguments. It is an erroneous characterization of the
20% discount. According to the Dissent, the 20% discount is part of the gross sales and, hence,
private property belonging to business establishments. However, as previously discussed, the
20% discount is not private property actually owned and/or used by the business establishment.
It should be distinguished from properties like lands or buildings actually used in the operation
of a business establishment which, if appropriated for public use, would amount to a "taking"
under the power of eminent domain. Instead, the 20% discount is a regulatory measure which
impacts the pricing and, hence, the profitability of business establishments. At the time the
discount is imposed, no particular property of the business establishment can be said to be
"taken." That is, the State does not acquire or take anything from the business establishment in
the way that it takes a piece of private land to build a public road. While the 20% discount may
form part of the potential profits or income/gross sales114 of the business establishment, as
similarly characterized by Justice Bersamin in his Concurring Opinion, potential profits or
income/gross sales are not private property, specifically cash or money, already belonging to the
business establishment. They are a mere expectancy because they are potential fruits of the
successful conduct of the business. Prior to the sale of goods or services, a business
establishment may be subject to State regulations, such as the 20% senior citizen discount, which
may impact the level or amount of profits or income/gross sales that can be generated by such
establishment. For this reason, the validity of the discount is to be determined based on its
overall effects on the operations of the business establishment.

Again, as previously discussed, the 20% discount does not automatically result in a 20%
reduction in profits, or, to align it with the term used by the Dissent, the 20% discount does not
mean that a 20% reduction in gross sales necessarily results. Because (1) the profit margin of a
product is not necessarily less than 20%, (2) not all customers of a business establishment are
senior citizens, and (3) the establishment may revise its pricing strategy, such reduction in profits
or income/gross sales may be prevented or, in the alternative, mitigated so that the business
establishment continues to operate profitably. Thus, even if we gratuitously assume that some
degree of reduction in profits or income/gross sales occurs because of the 20% discount, it does
not follow that the regulation is unreasonable, oppressive or confiscatory because the business
establishment may make the necessary adjustments to continue to operate profitably. No
evidence was presented by petitioners to show otherwise. In fact, no evidence was presented by
petitioners at all. Justice Leonen, in his Concurring and Dissenting Opinion, characterizes
"profits" (or income/gross sales) as an inchoate right. Another way to view it, as stated by Justice
Velasco in his Concurring Opinion, is that the business establishment merely has a right to
profits. The Constitution adverts to it as the right of an enterprise to a reasonable return on
investment.115

Undeniably, this right, like any other right, may be regulated under the police power of the State
to achieve important governmental objectives like protecting the interests and improving the
welfare of senior citizens. It should be noted though that potential profits or income/gross sales
are relevant in police power and eminent domain analyses because they may, in appropriate
cases, serve as an indicia when a regulation has gone "too far" as to amount to a "taking" under
the power of eminent domain. When the deprivation or reduction of profits or income/gross sales
is shown to be unreasonable, oppressive or confiscatory, then the challenged governmental
regulation may be nullified for being a "taking" under the power of eminent domain. In such a
case, it is not profits or income/gross sales which are actually taken and appropriated for public
use. Rather, when the regulation causes an establishment to incur losses in an unreasonable,
oppressive or confiscatory manner, what is actually taken is capital and the right of the business
establishment to a reasonable return on investment. If the business losses are not halted because
of the continued operation of the regulation, this eventually leads to the destruction of the
business and the total loss of the capital invested therein. But, again, petitioners in this case
failed to prove that the subject regulation is unreasonable, oppressive or confiscatory.

V.

The Dissent further argues that we erroneously used price and rate of return on investment
control laws to justify the senior citizen discount law. According to the Dissent, only profits from
industries imbued with public interest may be regulated because this is a condition of their
franchises. Profits of establishments without franchises cannot be regulated permanently because
there is no law regulating their profits. The Dissent concludes that the permanent reduction of
total revenues or gross sales of business establishments without franchises is a taking of private
property under the power of eminent domain. In making this argument, it is unfortunate that the
Dissent quotes only a portion of the ponencia – The subject regulation may be said to be similar
to, but with substantial distinctions from, price control or rate of return on investment control
laws which are traditionally regarded as police power measures. These laws generally regulate
public utilities or industries/enterprises imbued with public interest in order to protect consumers
from exorbitant or unreasonable pricing as well as temper corporate greed by controlling the rate
of return on investment of these corporations considering that they have a monopoly over the
goods or services that they provide to the general public. The subject regulation differs therefrom
in that (1) the discount does not prevent the establishments from adjusting the level of prices of
their goods and services, and (2) the discount does not apply to all customers of a given
establishment but only to the class of senior citizens. x x x116

The above paragraph, in full, states –

The subject regulation may be said to be similar to, but with substantial distinctions from, price
control or rate of return on investment control laws which are traditionally regarded as police
power measures. These laws generally regulate public utilities or industries/enterprises imbued
with public interest in order to protect consumers from exorbitant or unreasonable pricing as well
as temper corporate greed by controlling the rate of return on investment of these corporations
considering that they have a monopoly over the goods or services that they provide to the general
public. The subject regulation differs therefrom in that (1) the discount does not prevent the
establishments from adjusting the level of prices of their goods and services, and (2) the discount
does not apply to all customers of a given establishment but only to the class of senior citizens.

Nonetheless, to the degree material to the resolution of this case, the 20% discount may be
properly viewed as belonging to the category of price regulatory measures which affects the
profitability of establishments subjected thereto. (Emphasis supplied)

The point of this paragraph is to simply show that the State has, in the past, regulated prices and
profits of business establishments. In other words, this type of regulatory measures is
traditionally recognized as police power measures so that the senior citizen discount may be
considered as a police power measure as well. What is more, the substantial distinctions between
price and rate of return on investment control laws vis-à-vis the senior citizen discount law
provide greater reason to uphold the validity of the senior citizen discount law. As previously
discussed, the ability to adjust prices allows the establishment subject to the senior citizen
discount to prevent or mitigate any reduction of profits or income/gross sales arising from the
giving of the discount. In contrast, establishments subject to price and rate of return on
investment control laws cannot adjust prices accordingly. Certainly, there is no intention to say
that price and rate of return on investment control laws are the justification for the senior citizen
discount law. Not at all. The justification for the senior citizen discount law is the plenary powers
of Congress. The legislative power to regulate business establishments is broad and covers a
wide array of areas and subjects. It is well within Congress’ legislative powers to regulate the
profits or income/gross sales of industries and enterprises, even those without franchises. For
what are franchises but mere legislative enactments? There is nothing in the Constitution that
prohibits Congress from regulating the profits or income/gross sales of industries and enterprises
without franchises. On the contrary, the social justice provisions of the Constitution enjoin the
State to regulate the "acquisition, ownership, use, and disposition" of property and its
increments.117

This may cover the regulation of profits or income/gross sales of all businesses, without
qualification, to attain the objective of diffusing wealth in order to protect and enhance the right
of all the people to human dignity.118

Thus, under the social justice policy of the Constitution, business establishments may be
compelled to contribute to uplifting the plight of vulnerable or marginalized groups in our
society provided that the regulation is not arbitrary, oppressive or confiscatory, or is not in
breach of some specific constitutional limitation. When the Dissent, therefore, states that the
"profits of private establishments which are non-franchisees cannot be regulated permanently,
and there is no such law regulating their profits permanently,"119 it is assuming what it ought to
prove. First, there are laws which, in effect, permanently regulate profits or income/gross sales of
establishments without franchises, and RA 9257 is one such law. And, second, Congress can
regulate such profits or income/gross sales because, as previously noted, there is nothing in the
Constitution to prevent it from doing so. Here, again, it must be emphasized that petitioners
failed to present any proof to show that the effects of the assailed law on their operations has
been unreasonable, oppressive or confiscatory. The permanent regulation of profits or
income/gross sales of business establishments, even those without franchises, is not as
uncommon as the Dissent depicts it to be. For instance, the minimum wage law allows the State
to set the minimum wage of employees in a given region or geographical area. Because of the
added labor costs arising from the minimum wage, a permanent reduction of profits or
income/gross sales would result, assuming that the employer does not increase the prices of his
goods or services. To illustrate, suppose it costs a company ₱5.00 to produce a product and it
sells the same at ₱10.00 with a 50% profit margin. Later, the State increases the minimum wage.
As a result, the company incurs greater labor costs so that it now costs ₱7.00 to produce the same
product. The profit per product of the company would be reduced to ₱3.00 with a profit margin
of 30%. The net effect would be the same as in the earlier example of granting a 20% senior
citizen discount. As can be seen, the minimum wage law could, likewise, lead to a permanent
reduction of profits. Does this mean that the minimum wage law should, likewise, be declared
unconstitutional on the mere plea that it results in a permanent reduction of profits? Taking it a
step further, suppose the company decides to increase the price of its product in order to offset
the effects of the increase in labor cost; does this mean that the minimum wage law, following
the reasoning of the Dissent, is unconstitutional because the consuming public is effectively
made to subsidize the wage of a group of laborers, i.e., minimum wage earners? The same
reasoning can be adopted relative to the examples cited by the Dissent which, according to it, are
valid police power regulations. Article 157 of the Labor Code, Sections 19 and 18 of the Social
Security Law, and Section 7 of the Pag-IBIG Fund Law would effectively increase the labor cost
of a business establishment.1âwphi1 This would, in turn, be integrated as part of the cost of its
goods or services. Again, if the establishment does not increase its prices, the net effect would be
a permanent reduction in its profits or income/gross sales. Following the reasoning of the Dissent
that "any form of permanent taking of private property (including profits or income/gross
sales)120 is an exercise of eminent domain that requires the State to pay just compensation,"121
then these statutory provisions would, likewise, have to be declared unconstitutional. It does not
matter that these benefits are deemed part of the employees’ legislated wages because the net
effect is the same, that is, it leads to higher labor costs and a permanent reduction in the profits or
income/gross sales of the business establishments.122

The point then is this – most, if not all, regulatory measures imposed by the State on business
establishments impact, at some level, the latter’s prices and/or profits or income/gross sales.123

If the Court were to sustain the Dissent’s theory, then a wholesale nullification of such measures
would inevitably result. The police power of the State and the social justice provisions of the
Constitution would, thus, be rendered nugatory. There is nothing sacrosanct about profits or
income/gross sales. This, we made clear in Carlos Superdrug Corporation:124

Police power as an attribute to promote the common good would be diluted considerably if on
the mere plea of petitioners that they will suffer loss of earnings and capital, the questioned
provision is invalidated. Moreover, in the absence of evidence demonstrating the alleged
confiscatory effect of the provision in question, there is no basis for its nullification in view of
the presumption of validity which every law has in its favor.

xxxx

The Court is not oblivious of the retail side of the pharmaceutical industry and the competitive
pricing component of the business. While the Constitution protects property rights petitioners
must the realities of business and the State, in the exercise of police power, can intervene in the
operations of a business which may result in an impairment of property rights in the process.

Moreover, the right to property has a social dimension. While Article XIII of the Constitution
provides the percept for the protection of property, various laws and jurisprudence, particularly
on agrarian reform and the regulation of contracts and public utilities, continously serve as a
reminder for the promotion of public good.

Undeniably, the success of the senior citizens program rests largely on the support imparted by
petitioners and the other private establishments concerned. This being the case, the means
employed in invoking the active participation of the private sector, in order to achieve the
purpose or objective of the law, is reasonably and directly related. Without sufficient proof that
Section 4(a) of R.A. No. 9257 is arbitrary, and that the continued implementation of the same
would be unconscionably detrimental to petitioners, the Court will refrain form quashing a
legislative act.125

In conclusion, we maintain that the correct rule in determining whether the subject regulatory
measure has amounted to a "taking" under the power of eminent domain is the one laid down in
Alalayan v. National Power Corporation126 and followed in Carlos Superdurg Corporation127
consistent with long standing principles in police power and eminent domain analysis. Thus, the
deprivation or reduction of profits or income. Gross sales must be clearly shown to be
unreasonable, oppressive or confiscatory. Under the specific circumstances of this case, such
determination can only be made upon the presentation of competent proof which petitioners
failed to do. A law, which has been in operation for many years and promotes the welfare of a
group accorded special concern by the Constitution, cannot and should not be summarily
invalidated on a mere allegation that it reduces the profits or income/gross sales of business
establishments.

WHEREFORE, the Petition is hereby DISMISSED for lack of merit.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 160143 July 2, 2014

LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
BENECIO EUSEBIO, JR., Respondent.

DECISION

BRION, J.:

We resolve in this petition for review on certiorari1 the challenge to the August 26, 2002
decision2 and the September 24, 2003 resolution3 of the Court of Appeals (CA) in CA-G.R. CV
No. 66022.

The challenged decision affirmed in toto the June 29, 1999 judgment4 of the Regional Trial
Court of Masbate, Masbate, Branch 48, sitting as a Special Agrarian Court (RTC-SAC) in
Special Civil Case No. 4325 for Determination and Payment of Just Compensation under
Republic Act (R.A.) No. 6657 or the Comprehensive Agrarian Reform Law of 1988.

The Factual Antecedents

Respondent Benecio Eusebio, Jr. was the owner of a 790.4-hectare parcel of land situated in
Corba, Cataingan, Masbate, covered by Transfer Certificate of Title (TCT) No. T-4562
registered in the name of Ricardo Tañada. Eusebio purchased this parcel of land from Tañada in
1980.

On February 5, 1988, Eusebio voluntarily offered to sell the entire 790.4-hectare parcel of land to
the government, through the Department of Agrarian Reform (DAR), pursuant to R.A. No. 6657
for ₱19,500,000.00.5

From the entire area of 790.4 hectares, the DAR chose to acquire only 783.37 hectares6 and
initially offered to purchase it at ₱2,369,559.64. The DAR subsequently increased its offer to
₱3,149,718.20, per the Notice of Land Valuation dated April 14, 1992.Eusebio rejected both
offered amounts.

On October 1, 1993, petitioner Land Bank of the Philippines (LBP) revalued the acquirable
portion at ₱3,927,188.28, pursuant to DAR Administrative Order No. 6, series of 1992 (DAR
AO 6-92). Eusebio likewise rejected this valuation through a letter dated October 26, 1993.
Meanwhile, the LBP opened a trust account in the amount of ₱3,149,718.20 in favor of Eusebio
and Tañada for the covered portion. The DAR then took physical possession of the property, had
TCT No. T-4562 cancelled in favor of the Republic of the Philippines, and distributed the
property at cost to the recognized farmer-beneficiaries.

The parties subsequently referred the matter to the DAR Adjudication Board (DARAB) for
summary determination of just compensation. In a decision dated January 8, 1994, the DARAB
fixed the value of the property at ₱4,874,659.89.

Eusebio likewise found the DARAB’s valuation unacceptable. Hence, on July 18, 1994, Eusebio
and Tañada filed before the RTC-SAC an action for determination and payment ofjust
compensation against the DAR and the LBP. In the complaint, Eusebio and Tañada prayed for
just compensation in the amount of ₱20,000,000.00, plus damages and attorney’s fees equivalent
to 20% ofthe total compensation. They later amended the complaint increasing the prayed just
compensation to ₱25,000,000.00.

During trial, the RTC-SAC appointed a Board of Commissioners (Board) consisting of the Clerk
of Court V – Atty. Norberto F. Mesa – as the Chairman, with the following as members: the
Branch Clerk of Court, Eusebio and Tañada’s nominee – Engr. Hernando Caluag– and the DAR
and the LBP’s nominee – Herbert Heath. The Board conducted the ocular inspection on
September 10, 1997 and arrived at the following unanimous observation:7

Breakdown of developed areas per land use:

Coco productive 26.15 Hectares

Coco Unproductive 3.04 Hectares
Corn (95%) 700.6345 Hectares
Rice (low land) 4.8810 Hectares
Rice (uplan[d]) 31.9945 Hectares
 Total 766.70 Hectares

Notwithstanding the series of conferences, the Board failed to reach a common and consolidated
valuation for the acquired portion.8 Hence, the Board submitted the separate valuation report of
the parties’ respective nominees:

Valuation of Engr. Caluag:9

Land Use Area Value/Has. TLV

Coconut ₱29.0000 ₱113,000.00 ₱3,277,000.00
Corn ₱700.0000 ₱113,000.00 ₱79,000,000.00
Rice ₱38.0000 ₱119,000.00 ₱4,522,000.00

TOTAL ₱767.0000 ₱86,899,000.00

Valuation of Heath:10

Land Use Area Value/Has. TLV

Coco Productive 26.1500 ₱22,228.80 ₱581,283.12
Coco Unproductive 3.0400 ₱11,190.49 ₱34,019.09
Corn 75.0000 ₱13,742.65 ₱1,030,698.75
Rice Unirrigated 4.8810 ₱15,715.38 ₱76,706.77
Cogon w/ history of 674.2990 3,498.00 ₱2,358,697.90
corn production
TOTAL 783.3700 ₱4,081.405.63

Engr. Caluag affirmed the contents of his report in open court. He revealed that, in determining
the property’s fair market value, he used as basis the "records of sale and listings of similar
properties offered for sale" and compared the properties using "such factors as location, type of
development, crops planted,terrain, size and element."11 Finally, he factored in the necessary
adjustments resulting from the current real estate selling trends and the property’s location,size
and development to arrive at the total land valuation of ₱86,899,000.00.

Heath, on the other hand, testified that, in arriving at the total land valuation of ₱4,081,405.63,he
used the guidelines enumerated under R.A. No. 6657 and other applicable agrarian statutes and
issuances instead of the current land valuation that Engr. Caluag employed in his valuation. He
pointed out that per the records, the recognized farmer-beneficiaries took possession of their
respective portions ofthe property in 1992. Thus, the improvements that the Board found on the
property at the time it conducted the ocular inspection in 1997 wereclearly introduced by the
farmerbeneficiaries.12

The RTC-SAC’s decision

In its judgment13 of June 29, 1999, the RTC-SAC fixed the just compensation at ₱25,000,000.00
for the entire 790.4-hectare parcel of land, and ordered the DAR and the LBP to solidarily pay
attorney’s fees equivalent to 10% of the total justcompensation. The RTC-SAC brushed aside
both valuations fixed by the parties’ respective nominees, particularly those fixed by the DAR
and the LBP which it regarded as unconstitutional and confiscatory. Consequently, the RTC-
SAC found as considerable just compensation the sum of ₱25,000,000.00that Eusebio and
Tañada prayed for in their complaint; it, however, found as exorbitant and unreasonable, and
thus reduced to 10% from 20%, the claimed attorney’s fees.

In a resolution dated October 21,1999, the RTC-SAC denied the parties’ respective motions for
reconsideration. The parties separately appealed the RTC-SAC’s ruling before the CA.14

The CA’s ruling

In its August 26, 2002 decision,15 the CA affirmed in toto the RTCSAC’s judgment. Firstly,
brushing aside Eusebio and Tañada’s position, the CA pointed out that the just compensation
should be fixed as of the time the government took possession of the property and not as of the
filing of the complaint. Thus, the CA declared unfair the ₱86,899,000.00 valuation that Eusebio
and Tañada’s nominee fixed based on the data determined at the time of the filing of the
complaint insteadof at the time of the taking. The CA, however, took note of the offer Eusebio
made in 1988 to sell the entire 790.4 hectares at ₱19,500,000.00 that it pointed out should at least
set the ceiling price for the property’s compensation.

And secondly, likewise dismissing the DAR’s and the LBP’s contentions, the CA noted that as
early as 1992, a considerable portion of the property had already been cultivated and developed.
The CA also pointed out that the DAR and the LBP’s nomineemerely confined his determination
to the factors enumerated under R.A. No. 6657 and the guidelines enumerated under the
pertinent DAR administrative orders, disregarding, in effect, the other factors relevant tothe
determination of what the CA considered as the full and fair equivalent of Eusebio’s property.
Thus, the CA considered as too low and unreasonable the ₱4,081,405.63 valuation that the DAR
and the LBP fixed as just compensation.

Accordingly, the CA considered asfair and equitable the amount the RTC-SAC fixed as just
compensation,given the four-year time lapse between 1988, when Eusebio offered to sell the
property for ₱19,500,000.00 and 1992, when the government actually deprived Eusebio of his
property.

The LBP filed the present petition after the CA denied its motion for Reconsideration16 in the
CA’s September 24, 2003 resolution.17
The Court initially denied the LBP’s petition for review on certiorari in a Resolution dated
November 10, 2003.18 On the LBP’s motion for reconsideration,19 the Court reinstated the
petition in a Resolution dated January 26, 2004.20

The Petition

In this petition,21 the LBP concedes that the RTC-SAC has original and exclusive jurisdiction to
determine just compensation. Nevertheless, it argues that the RTC-SAC’s determination must be
guided by the valuation factors enumerated under R.A. No. 6657 and the implementing
guidelines that the DAR issued for the purpose. The LBP points out that the DAR, in the exercise
of its rule-making powergranted under R.A. No. 6657, issued DAR AO 6-92, as amended by
DAR AO 11-94 that prescribes the formulae in the computation of just compensation for lands
acquired pursuant to R.A. No. 6657. Unless otherwise declared null and void, the LBP stresses
that these DAR administrative orders have the force and effect of law and are entitled to great
respect, even by this Court. In carrying out its functions under Executive Order No. 405,22 the
LBP points out that it, in turn, simply observed and used the DAR prescribed formulae in
arriving at the ₱4,081,405.63 valuation, which, it emphasizes, the CA even noted in its decision.

Addressing directly the CA’s valuation, the LBP directs the Court’s attention to the testimony of
Eusebio’s witness23 and points out that when the government took possession of the property in
1990, Eusebio and his family had already discontinued investing and had stopped developing it
from thereon; in addition, over 674 hectares of the acquired property’s area was then cogonal.
Thus, the marked difference in the property’s condition from the time the government acquired it
in 1990 up to the time the Board conducted its ocular inspection in 1997 should and must be
properly accounted for as developments introduced by the farmer-beneficiaries. Accordingly, the
LBP argues, the valuation that the RTC-SAC and the CA made clearly contravened the Court’s
mandate that just compensation should be determined as of the property’s time of taking, which
in this case was, at the most, in 1992 when TCT No. T-4562 was cancelled and Certificates of
Land Transfer were issued to the recognized farmer-beneficiaries.

Additionally, the LBP argues that R.A. No. 6657 directs the determination of just compensation
based on the covered property’s "actual use and income" and not on its "potentialor future use"
as applied by the RTC-SAC when it relied on the marketvalue approach. The LBP also points
out that the RTC-SAC did not offer any formula in arriving at the ₱25,000,000.00 valuation.
Finally, the LBP contends that the award of attorney’s fees was erroneous for clear lack of basis
and bad faith on its part.

In its reply,24 the LBP additionally emphasizes that the just compensation for property taken,
pursuant to the government’s agrarian reform program, should not and cannot be based on the
property’s market value, more so on the amount by which Eusebio offered it for sale. The LBP
points out that the "just compensation" in the realm of agrarian reform is vastly different from
"just compensation" in an ordinary eminent domain proceeding. The taking of private property
for purposes of agrarian reform is revolutionary, involving as it does both the exercise of the
power of eminent domain and police power. As such, the just compensation for property taken,
pursuant to the government’s agrarian reform program, cannot exceed its market value.
The Case for the Respondent

Equally conceding to the RTC-SAC’s original and exclusive jurisdiction to determine just
compensation, Eusebio contends in his comment25 that the CA correctly affirmed the RTC-
SAC’s valuation for lack of reversible error. Eusebio stresses that while the DAR, indeed, has the
power to prescribe the formula and determine just compensation, the RTCSAC is, nevertheless,
not bound by such determination as valuation of property in eminent domain cases is essentially
a judicial function. In this case, neither the DAR’s valuation nor the Board’s report could have
bound the RTC-SAC in the exercise of this function; more sofor, in this case, the Board failed to
reach a common valuation.Finally, Eusebio argues that the award of attorney’s fees is lawful
ashe was compelled to litigate or incur expenses to protect his interest by reason of the LBP’s
unjustified act.

In his memorandum,26 Eusebio adds that the various testimonial and documentary pieces of
evidence presented before the RTC-SAC, and which it fully considered, support the
₱25,000,000.00 valuation for the property. Moreover, the factual findings of the RTC-SAC that
the CA affirmed deserve great weight and finality.

The Issue

The core issue for the Court’s resolution is whether the RTC-SAC’s determination of just
compensation for the property at ₱25,000,000.00, with 10% attorney’s fees, is proper.

The Court’s Ruling

We find the LBP’s petition MERITORIOUS.

The State’s agrarian reform program and the constitutional guarantee of just compensation

As one of its arguments, the LBP theorizes that the government’s taking of private property in
pursuit of its agrarian reform program is not a "traditional" exercise of the eminent domain
power but one that equally involves the exercise of the State’s police power. As such, the LBP
insists, the just compensation for the property cannot exceed its market value as the loss resulting
from the State’s exercise of police power is not compensable.

We disagree with the LBP on this point.

We debunked this verysame argument in Land Bank of the Philippines v. Honeycomb Farms
Corporation,27 whose factual circumstances closely mirror and are, in fact, related to those of
the present case. In Honeycomb, we essentially pointed out that the "just compensation"
guaranteed to a landowner under, Section 4, Article XIII ofthe Constitution is precisely the same
as the "just compensation" embodied in Section 9, Article III of the Constitution. That is,
whether for land taken pursuant to the State’s agrarian reform program orfor property taken for
purposes other than agrarian reform, the just compensation due to an owner should be the "fair
and full price of the taken property."28
Citing the Court’s ruling in Ass’n of Small Landowners in the Phils., Inc. v. Hon. Secretary of
Agrarian Reform,29 we further stressed in Honeycomb that just compensation paid for lands
taken pursuant to the State’s agrarian reform program refers to the "full and fair equivalent of the
property taken from its owner by the expropriator x x x [the measure of which] is not the taker’s
gain but the owner’s loss. The word "just" is used to intensify the meaning of the word
‘compensation’ to convey the idea that the equivalent to be rendered for the property to be taken
shall be real, substantial, full and ample."

Similarly in Apo Fruits Corporation v. Land Bank of the Philippines,30 we debunked the very
same attempt of the LBP to distinguish just compensation paid in what it calls as "traditional"
exercise of eminent domain from the just compensation paid in the context of an agrarian reform
eminent domain exercise. There, we categorically declared that "nothing is inherently
contradictory in the publicpurpose of land reform and the right of landowners to receive just
compensation for the expropriation by the State of their properties."

In other words, therefore, the clear intent of the Constitutional guarantee of just compensation,
whether understood within the terms of Article III, Section 9 or of Article XIII, Section 4, is to
secure to any owner the "full and fair equivalent" of the property taken. Regardless of whether
the taking was pursued in the "traditional" exercise of eminent domain or in its "revolutionary"
exercise in the context of the State’s agrarian reform program, just compensation has but
onemeaning and the State is obligated to pay the "fair and full price of the property" even if the
property is taken for social justice purposes.

The determination of just compensation is essentially a judicialfunction that the Courts exercise
within the parameters of the law; the RTC-SAC’s valuation in this case is erroneous for having
been rendered outside the contemplation of the law

Jurisprudence settles that the determination of just compensation is fundamentally a function of

the courts.31 Section 57 of R.A. No. 665732 explicitly vests in the RTC-SAC the original and
exclusive jurisdiction to determine just compensation for lands taken pursuant to the State’s
agrarian reform program.

To guide the RTC-SAC in the exercise of its function, Section 17 of R.A. No. 6657 enumerates
the factors that the RTC-SAC must take into account in its determination, i.e., cost of acquisition
of the land, the current value of like properties, its nature, actual use and income, the sworn
valuation by the owner, the tax declarations and the assessment made by the government
assessors, among others.

On the other hand, to ensure the agrarian reform law’s proper implementation, Section 49 of
R.A. No. 665733 empowers the DAR to issue such rules and regulations necessary for the
purpose. Thus, corollary to the agrarian reform law’s guidelines, the DAR issued DAR AO 6-92,
as amended by DAR AO 11-94 and, recently, by DAR AO 5-98, that incorporated, into a basic
formula,Section 17’s enumerated factors providing the details by which "just compensation" is to
be properly approximated.
Equally settled, however, in jurisprudence is the RTC-SAC’s duty to consider the factors
enumerated under Section 17 of R.A. No. 6657 and the DAR formula that embodies these factors
in determining just compensation. Our rulings in Land Bank of the Philippines v. Sps. Banal,34
Landbank of the Philippines v. Celada,35 Land Bank of the Philippines v. Colarina,36 and Land
Bank of the Philipines v. Lim,37 to name a few, were clear that the RTC-SAC must consider the
factors mentioned by Section 17, including the formula prescribed by the DAR’s administrative
orders in determining just compensation.

Recently, the Court, in Land Bank of the Philippines v. Yatco Agricultural Enterprises,38 had the
occasion to reiterate and stress the need to apply and consider the factors and formula prescribed
under Section 17 of R.A. No. 6657 and the pertinent DAR issuances. Citing Land Bank of the
Philippines v. Honeycomb Farms Corporation,39 we pointedly declared as grave error, on the
RTC-SAC’s part, its complete disregard of the DAR formula. We emphasized that the DAR’s
issuances partake of the nature of statutes that have in their favor a presumption of legality.40
And, unless the administrative orders are declared invalid or the cases before them involve
situations these administrative issuances do not cover, the RTC-SAC must apply them with the
equal force of the law.

In other words, our ruling in Yatco underscored the settled rule that, in the exercise of the
essentially judicial function of determining just compensation, the RTC-SAC is not granted
unlimited discretion. It must consider and apply the R.A. No. 6657-enumerated factors and the
DAR formula (that reflects these factors) asthey provide the uniform framework or structure by
which just compensation for property subject to agrarian reform should be determined. This
uniform system, we pointed out, is important for it will ensure that the RTC-SACs "do not
arbitrarily fix an amount that is absurd, baseless and even contradictory to the objectives of our
agrarian reform laws as just compensation"in addition to ensuring that "the just compensation
fixed represents, at the very least, a close approximation of the full and real value ofthe property
taken that is fair and equitable for both the farmer-beneficiaries and the landowner."41 That the
"just compensation" fixed should be fair and equitable equally for both the farmer-beneficiaries
and the landowner, to our mind, is a consideration that should evenly be factored in the
computation for ultimately the farmerbeneficiaries will shoulder the costof the distributed
property.

More importantly, however, we clarified in Yatco that, when acting within the parameters set by
the law itself – in the proper observance of the R.A. No. 6657 factors and the DAR formula – the
RTC-SAC is not strictly bound to conform to and apply them, particularly the DAR formula, to
their minute detail as to effectively deprive it of its discretion. "When faced with situations that
do not warrant the formula’s strict application, the [RTCSAC] may, in the exercise of [its]
discretion, relax the formula’s application to fit the factual situations before [it]."42 It must,
however, explain and justify in clear terms the reason for any deviation from the prescribed
factors and formula.43

In the present case, we reaffirm and emphasize our ruling in Yatco - the situation where a
deviation is made in the exercise of judicial discretion must at all times be distinguished from the
situation where the RTC-SAC (and the CA in cases where it affirms the RTC-SAC’s valuation)
utterly and blatantly disregards the factors spelled out by the law and the implementing rules. A
deviation made in utter and blatant disregard of the prescribed factors and formula amounts to
grave abuse of discretion for having been taken outside the contemplation of the law.44

A determination of just compensation based merely on "conscience" – a consideration entirely

outside the contemplation of the law – is the precise situation that we find in this case. We,
therefore, set aside,as grave abuse of discretion, the RTC-SAC’s valuation.

To be clear, other than in "conscience," the RTC-SAC did not point to any particular
consideration that impelled it to set the just compensation at ₱25,000,000.00. It did not refer to
any factor or data that it used as basis in arriving at this valuation. Worse, it did not cite any
particular formula that it used in its computation. In fact, a reading of the RTC-SAC’s decision
reveals a marked absence of any grounds by which it anchored its determination, more so of any
explanation why it fixed the amount of ₱25,000,000.00. This marked absence ofbasis, taken
together with these other considerations, convinced us that the RTC-SAC completely, even
arbitrarily, relied on the amount that Eusebio and Tañada prayed for in their complaint in fixing
the property’s just compensation.1âwphi1

Arguably, the fixing of just compensation that is based on the landowner’s prayer falls within the
exercise of the RTC-SAC’s discretion and, therefore, should be upheld as a validexercise of its
jurisdiction. Even within the context of this judicial prerogative principle, however, the
RTCSAC’s reliance, in this case, on Eusebio and Tañada’s prayer was erroneous for, as we
pointed out above, the RTC-SAC did not at all consider any factor or use any formula, whether
those prescribed by the law and the DAR issuances or otherwise, in arriving at its valuation. This
blind reliance on Eusebio and Tañada’s prayer and the utter disregard of the prescribed factors
and formula clearly amount to grave abuse of discretion for having been taken outside the
contemplation of the law. In acting as it did in this case, the RTC-SAC committed exactly what
the law and the regulations aimed at preventing in prescribing the factors and the formula in the
determination of just compensation – an arbitrary fixing ofan amount that is absurd, baseless and
even contradictory to the objectives of our agrarian reform laws as just compensation.

Thus, we set aside, as grave abuse of discretion, the just compensation of ₱25,000,000.00 that
the RTC-SAC fixed for Eusebio’s property. We point out, however, that we set aside this
valuation not for the reasons urged by the LBP, i.e., the RTC-SAC’s use of the market value
approach and the fixing of the just compensation as of the time of the filing of the complaint, but
for the valuation’s clear lack of basis and for having been made in utter disregard of the law’s
parameters. Accordingly, we likewise set aside, for grave error, the CA’s decision that affirmed
in toto this RTC-SAC’s valuation.

Payment through trust account

A final point. We did not fail to notice that the LBP, in this case, opened a trust account to
provisionally pay Eusebio for the property taken. In Land Bank of the Philippines v. Honeycomb
Farms Corporation,45 we struck down as void the DAR administrative circular46 that provided
for the opening of the trust accounts in lieu ofthe deposit in cash or in bonds contemplated in
Section 16(e) of R.A. No. 6657.47 We pointedly declared that the explicit words of Section
16(e)did not include "trust accounts," but only cash or bonds, as valid modes ofsatisfying the
government’s payment of just compensation.

Accordingly, we consider the LBP in delay and impose on it as penalty an interest on the amount
deposited in the trust account at the rate of 12% per annumfrom the time the LBP opened the
trust account until June 30, 2013 and beginning July1, 2013, until the account is converted into a
cash or bond deposit account, at the rate of 6% per annum per Banko Sentral ng Pilipinas
Circular No. 799.48

Remand of the Case

Considering the manifest lack of sufficient data to guide this Court in the proper determination of
just compensation following the guidelines that we have at length discussed above, we deem it
premature to determine with finality the matter in controversy. We are not a trier of facts and we
cannot receive any new evidence from the parties to aid the prompt resolution of this case. Thus,
we are compelled to remand the case to the RTC-SAC for the reception of evidence and the
determination of just compensation with the cautionary reminder for the proper observance of
the factors enumerated under Section 17 of R.A. No. 6657 and of the formula prescribed under
the pertinent DAR administrative orders.

WHEREFORE, in light of these considerations, we hereby GRANT the petition. Accordingly,

we REVERSEand SET ASIDE the decision dated August 26, 2002 and the resolution dated
September 24, 2003 of the Court of Appeals in CA-G.R. CV No. 66022. We REMANDSpecial
Civil Case No. 4325 to the Regional Trial Court of Masbate, Masbate, Branch 48, sitting as a
Special Agrarian Court which is directed to determine with dispatch the just compensation due
torespondent Benecio Eusebio, Jr. in accordance with Republic Act No. 6657 and the pertinent
issuances of the Department of Agrarian Reform,subject to a 12% interest per annum from the
time the Land Bank of the Philippines opened the trust account in favor of Benecio Eusebio, Jr.
and Ricardo Tañada up to June 30, 2013, and to a 6% interest per annum beginning July 1, 2013
until the time the account is actually converted into cash and/orLand Bank of the Philippines
bond deposit accounts.

Republic of the Philippines

Supreme Court
Manila

SECOND DIVISION
LAND BANK OF THE PHILIPPINES,
G.R. No. 169903
Petitioner,

Present:

CARPIO, J.,

Chairperson,
- versus -
BRION,

PEREZ,

SERENO, and

REYES, JJ.

HONEYCOMB FARMS
Promulgated:
CORPORATION,

Respondent.
February 29, 2012

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

DECISION

BRION, J.:
 The petition for review before us assails the decision30[1] dated March 31,
2005 of the Court of Appeals (CA) in CA-G.R. CV No. 66023, which affirmed
with modification the judgment dated July 6, 1999 rendered by the Regional Trial
Court (RTC) of Masbate, Masbate, Branch 48, acting as a Special Agrarian Court
(SAC) in Special Civil Case No. 4323 for Determination and Payment of Just
Compensation. The petition also prays for the reversal of the resolution of the
CA,31[2] dated October 4, 2005, denying reconsideration.

FACTUAL ANTECEDENTS

Honeycomb Farms Corporation (Honeycomb Farms) was the registered

owner of two parcels of agricultural land in Cataingan, Masbate. The first parcel of
land was covered by Transfer Certificate of Title (TCT) No. T-2872 and has an
area of 240.8874 hectares. The second parcel of land was covered by TCT No. T-
2549 and has an area of 254.25 hectares.32[3] On February 5, 1988, Honeycomb
Farms voluntarily offered these parcels of land, with a total area of 495.1374
hectares, to the Department of Agrarian Reform (DAR) for coverage under
Republic Act No. (RA) 6657, the Comprehensive Agrarian Reform Law (CARL),
for P10,480,000.00,33[4] or P21,165.00 per hectare.34[5] From the entire area
offered, the government chose to acquire only 486.0907 hectares.

The Land Bank of the Philippines (LBP), as the agency vested with the
responsibility of determining the land valuation and compensation for parcels of
land acquired pursuant to the CARL,35[6] and using the guidelines set forth in
DAR Administrative Order (AO) No. 17, series of 1989, as amended by DAR AO
No. 3, series of 1991, fixed the value of these parcels of land, as follows:

Acquired property Area in hectares Value

TCT No. T-2872 231.8406 P 910,262.6236[7]

 TCT No. T-2549 254.25 P1,023,520.5637[8]

When Honeycomb Farms rejected this valuation for being too low, the
Voluntary Offer to Sell was referred to the DAR Adjudication Board, Region V,
Legaspi City, for a summary determination of the market value of the
properties.38[9] After these administrative proceedings, the Regional Adjudicator
fixed the value of the landholdings at P5,324,549.00, broken down as follows:

I. TCT No. T-2872

Land use Value per hectare Area Total (Pesos)

Cornland P12,000.00 69.158 829,896.00
Upland (cassava) 12,000.00 1.3888 16,665.60
Cocoland 15,000.00 13.65 204,750.00
Grass land 10,000.00 147.6438 1,476,438.00
TOTAL 231.8408 2,527,749.60

II. TCT No. T-2549

Land use Value per hectare Area Total (Pesos)

Coconut land P15,000.00 4.6 69,000.00
Cornland 12,000.00 101 212,000.00
Riceland (upland) 14,000.00 5 70,000.00
Cassava 12,000.00 4.65 55,800.00
Cogon 10,000.00 139 1,390,000.00
TOTAL 254.25 2,796,800.0039[10]

Still, Honeycomb Farms rejected this valuation.

On July 4, 1994, Honeycomb Farms filed a case with the RTC, acting as a
SAC, against the DAR Secretary and the LBP, praying that it be compensated for
its landholdings in the amount of P12,440,000.00, with damages and attorneys
fees.

The RTC constituted a Board of Commissioners to aid the court in

determining the just compensation for the subject properties. The Board of
Commissioners, however, failed to agree on a common valuation for the
properties.

Honeycomb Farms, thereafter, filed an amended complaint, where it

increased the valuation of the properties to P20,000,000.00.40[11] The LBP, on the
other hand, filed an amended answer where it admitted the preliminary valuation it
made on the properties, but alleged that it had revalued the land registered under
TCT No. T-2872 at P1,373,244.78, while the land registered under TCT No. T-
2549 was revalued at P1,513,097.57.41[12]

THE RTC DECISION

On July 6, 1999, the RTC issued a judgment whose dispositive portion

reads:

WHEREFORE, judgment is hereby rendered by:

1.) Fixing the just compensation of the two parcels of land owned by
the Honeycomb Farm[s] Corp. under TCT No. T-2872 and TCT No. T-2549 with
a total area of 486.0907 hectares which is considered a[s] Carpable in the sum of
P25,232,000 subject to the lien for the docket fee the amount in excess of
P20,000,000 as pleaded for in the amended complaint.

2.) Ordering the defendants to jointly and severally pay Attorneys

fee[s] equivalent to 10% of the total just compensation; without pronouncement
as to cost.
 SO ORDERED.42[13]

Since the Board of Commissioners could not reach a common valuation for
the properties, the RTC made its own valuation. First, the RTC took judicial notice
of the fact that a portion of the land, measuring approximately 10 hectares, is
commercial land, since it is located a few kilometers away from Sitio Curvada,
Pitago, Cataingan, Masbate, which is a commercial district. The lower court thus
priced the 10 hectares at P100,000.00 per hectare and the remaining 476 hectares at
P32,000.00 per hectare.

Both parties appealed to the CA.

Honeycomb Farms alleged that the government failed to pay just

compensation for its land when the LBP opened a trust account in its behalf, in
violation of the Courts ruling in Landbank of the Phils. v. CA.43[14] Since it was
never paid just compensation, the taking of its land is illegal. Consequently, the
just compensation should thus be determined based on factors existing at the time
of the fixing of just compensation, and not at the time the properties were actually
taken.
 The LBP, on the other hand, argued that the RTC committed a serious error
when it disregarded the formula for fixing just compensation embodied in DAR
AO No. 6, series of 1992, as amended by DAR AO No. 11, series of 1994. The
LBP also argued that the RTC erred in taking judicial notice that 10 hectares of the
land in question is commercial land. Lastly, the LBP assailed the award of
attorneys fees for having no legal or factual basis.44[15]
 THE CA DECISION

The CA, in its March 31, 2005 decision, affirmed with modification the
assailed RTC judgment. The dispositive portion of the decision reads:

WHEREFORE, the foregoing considered, the assailed decision is

MODIFIED only with respect to the computation of the amount fixed by the trial
court which is hereby corrected and fixed in the total amount of P16,232,000.00,
and the award of attorneys fees is deleted. The rest of the decision is
AFFIRMED.45[16]

The CA held that the lower courts are not bound by the factors enumerated
in Section 17 of RA 6657 which are mere statutory guideposts in determining just
compensation. Moreover, while the LBP valued the land based on the formula
provided for in DAR AO No. 11, series of 1994, this valuation was too low and,
therefore, confiscatory.

The CA thus affirmed the RTCs valuation of the 10 hectares of commercial

land at P100,000.00 per hectare, and the remaining 476 hectares at P32,000.00 per
hectare.
 THE PETITION

The LBP argues that the CA committed a serious error of law when it failed
to apply the mandatory formula for determining just compensation fixed in DAR
AO No. 11, series of 1994. In fixing the just compensation for the subject
landholdings at P16,232,000.00, the CA adopted the values fixed by the SAC,
despite the fact that the valuation was not based on law. According to the LBP,
land taken pursuant to the States agrarian reform program involves both the
exercise of the States power of eminent domain and the police power of the State.
Consequently, the just compensation for land taken for agrarian reform should be
less than the just compensation given in the ordinary exercise of eminent domain.

In contrast, Honeycomb Farms maintains that the DAR AOs were issued
merely to serve as guidelines for the DAR and the LBP in administratively fixing
the valuation to be offered by the DAR to the landowner for acceptance or
rejection. However, it is not mandatory for courts to use the DAR AOs to fix just
compensation as this would amount to an administrative imposition on an
otherwise purely judicial function and prerogative of determination of just
compensation for expropriated lands specifically reserved by the Constitution to
the courts.

THE COURTS RULING

 We GRANT the LBPs petition.

Agrarian reform and the guarantee of just

compensation

We begin by debunking the premise on which the LBPs main argument rests
since the taking done by the government for purposes of agrarian reform is not a
traditional exercise of the power of eminent domain but one which is done in
pursuance of social justice and which involves the States police power, the just
compensation to be paid to the landowners for these parcels of agricultural land
should be less than the market value of the property.

When the State exercises its inherent power of eminent domain, the
Constitution imposes the corresponding obligation to compensate the landowner
for the expropriated property. This principle is embodied in Section 9, Article III of
the Constitution, which provides: "Private property shall not be taken for public
use without just compensation."

When the State exercises the power of eminent domain in the

implementation of its agrarian reform program, the constitutional provision which
governs is Section 4, Article XIII of the Constitution, which provides:

Section 4. The State shall, by law, undertake an agrarian reform program

founded on the right of farmers and regular farmworkers who are landless, to own
 directly or collectively the lands they till or, in the case of other farmworkers, to
receive a just share of the fruits thereof. To this end, the State shall encourage and
undertake the just distribution of all agricultural lands, subject to such priorities
and reasonable retention limits as the Congress may prescribe, taking into account
ecological, developmental, or equity considerations, and subject to the payment
of just compensation. [emphasis ours]

Notably, this provision also imposes upon the State the obligation of paying
the landowner compensation for the land taken, even if it is for the governments
agrarian reform purposes. Specifically, the provision makes use of the phrase just
compensation, the same phrase used in Section 9, Article III of the Constitution.
That the compensation mentioned here pertains to the fair and full price of the
taken property is evident from the following exchange between the members of the
Constitutional Commission during the discussion on the governments agrarian
reform program:

FR. BERNAS. We discussed earlier the idea of a progressive system of

compensation and I must admit, that it was before I discussed it with
Commissioner Monsod. I think what is confusing the matter is the fact that when
we speak of progressive taxation, the bigger the tax base, the higher the rate of
tax. Here, what we are saying is that the bigger the land is, the lower the value per
square meter. So, it is really regressive, not progressive.

MR. MONSOD. Yes, Madam President, it is true. It is progressive with respect to

the beneficiary and regressive with respect to the landowner.

FR. BERNAS. But is it the intention of the Committee that the owner should
receive less than the market value?

MR. MONSOD. It is not the intention of the Committee that the owner
should receive less than the just compensation. 46[17] (emphases ours)
 Even more to the point is the following statement made by Commissioner
Jose F.S. Bengzon Jr., taken from the same discussion quoted above:

MR. BENGZON. Madam President, as we stated earlier, the term just

compensation is as it is defined by the Supreme Court in so many cases and which
we have accepted. So, there is no difference between just compensation as stated
here in Section 5 and just compensation as stated elsewhere. There are no two
different interpretations.47[18]

Consistent with these discussions, the Court, in the definitive case of Assn of
Small Landowners in the Phils., Inc. v. Hon. Secretary of Agrarian Reform,48[19]
defined just compensation for parcels of land taken pursuant to the agrarian reform
program as:

Just compensation is defined as the full and fair equivalent of the property
taken from its owner by the expropriator. It has been repeatedly stressed by this
Court that the measure is not the takers gain but the owners loss. The word just is
used to intensify the meaning of the word compensation to convey the idea that
the equivalent to be rendered for the property to be taken shall be real, substantial,
full, ample.
 It bears repeating that the measures challenged in these petitions
contemplate more than a mere regulation of the use of private lands under the
police power. We deal here with an actual taking of private agricultural lands that
has dispossessed the owners of their property and deprived them of all its
beneficial use and enjoyment, to entitle them to the just compensation mandated
by the Constitution.

More recently, we brushed aside the LBPs attempt to differentiate just

compensation paid in what it terms as traditional exercise of eminent domain and
eminent domain in the context of agrarian reform in Apo Fruits Corporation and
Hijo Plantation, Inc. v. Land Bank of the Philippines,49[20] thus:

To our mind, nothing is inherently contradictory in the public purpose of

land reform and the right of landowners to receive just compensation for the
expropriation by the State of their properties. That the petitioners are corporations
that used to own large tracts of land should not be taken against them. As Mr.
Justice Isagani Cruz eloquently put it:

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

Mandatory application of the DAR formula

 The CA, in affirming the RTCs valuation and disregarding that of the LBP,
explained its position, as follows:

A careful perusal of the assailed decision shows that after the trial court
dismissed the valuation made by [Honeycomb Farms] as exorbitant and that fixed
by [the LBP and the DAR] as confiscatory and therefore unconstitutional, it fixed
the value of the properties at P100,000.00 per hectare for the portion near the
Curvada market and P32,000.00 per hectare for the rest, taking judicial notice of
the fact that the so-called Sitio Curvada, Pitago, Cataingan, just a few kilometers
away from Poblacion, Cataingan, Masbate, is a commercial district. In this
respect, while it is true that the trial court should have announced its intention to
take judicial notice of the commercial nature of the area near the Curvada Market
with an area of ten (10) hectares, under Section 3 of Rule 129 of the Rules of
Court, We find, however, that the parties were afforded ample opportunity to
present evidence on the nature of the subject property and were actually heard
thereon. Thus, We see no error on the part of the trial court in fixing the value of
the land near the Curvada Market with an area of 10 hectares at P1,000,000.00
after evaluating the evidence adduced by the parties. The board of commissioners
constituted by the trial court to aid it in determining the just compensation for the
subject properties conducted an ocular inspection of the property and thereafter
made its observation that 95% of the property covered by TCT No. T-2549 and
65% of the land covered by TCT No. T-28872 are developed. [Honeycomb
Farms] witness, Engr. Calauag, taking into consideration the location of the
subject property, made a comparative valuation of similar properties located in
other geographical areas of the country, based on listings obtained from
newspapers, advertisements, and real estate brokers. In countering the said
valuation, [the LBP] and the DAR merely insisted on their own computation of
the value of the lands under the guidelines set by the DAR in its administrative
orders, disregarding factors such as the location of the subject property in relation
to adjacent properties, as well as its nature and the actual use for which this
property is devoted. The determination of just compensation logically should take
into consideration as essential factor the nature of the land based on its location.

While we agree with [the LBP and the DAR] that they merely followed
the guidelines set forth in the administrative orders issued by the DAR in arriving
at the amount of P2,890,787.89, as the basis for compensation, the courts of
justice are not bound by such valuation as the final determination of just
 compensation is a function addressed to the latter guided by factors set forth in
RA 6657.50[21]

The LBP disputes this ruling, maintaining that while the determination of
just compensation is a judicial function, courts should take into serious
consideration the facts and data gathered by the DAR, through the LBP, as the
administrative agency mandated by law to make an initial determination of the
valuation of the parcels of agricultural land acquired for land reform.

We agree.

That it is the RTC, sitting as a SAC, which has the power to determine just
compensation for parcels of land acquired by the State, pursuant to the agrarian
reform program, is made clear in Section 57 of RA 6657, which reads:

Section 57. Special Jurisdiction. - The Special Agrarian Courts shall have
original and exclusive jurisdiction over all petitions for the determination of just
compensation to landowners, and the prosecution of all criminal offenses under
this Act. The Rules of Court shall apply to all proceedings before the Special
Agrarian Courts unless modified by this Act.

The Special Agrarian Courts shall decide all appropriate cases under their
special jurisdiction within thirty (30) days from submission of the case for
decision.
 To guide the RTC in this function, Section 17 of RA 6657 enumerates the
factors that have to be taken into consideration to accurately determine just
compensation. This provision states:

Section 17. Determination of Just Compensation. In determining just

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

In Land Bank of the Philippines v. Sps. Banal,51[22] we recognized that the

DAR, as the administrative agency tasked with the implementation of the agrarian
reform program, already came up with a formula to determine just compensation
which incorporated the factors enumerated in Section 17 of RA 6657. We said:

These factors [enumerated in Section 17] have been translated into a

basic formula in DAR Administrative Order No. 6, Series of 1992, as
amended by DAR Administrative Order No. 11, Series of 1994, issued pursuant
to the DAR's rule-making power to carry out the object and purposes of R.A.
6657, as amended. [emphases ours]
 In Landbank of the Philippines v. Celada,52[23] we emphasized the duty of
the RTC to apply the formula provided in the applicable DAR AO to determine
just compensation, stating that:

While [the RTC] is required to consider the acquisition cost of the land,
the current value of like properties, its nature, actual use and income, the sworn
valuation by the owner, the tax declaration and the assessments made by the
government assessors to determine just compensation, it is equally true that these
factors have been translated into a basic formula by the DAR pursuant to its rule-
making power under Section 49 of R.A. No. 6657. As the government agency
principally tasked to implement the agrarian reform program, it is the DAR's duty
to issue rules and regulations to carry out the object of the law. [The] DAR
[Administrative Order] precisely "filled in the details" of Section 17, R.A. No.
6657 by providing a basic formula by which the factors mentioned therein may be
taken into account. The [RTC] was at no liberty to disregard the formula
which was devised to implement the said provision.
It is elementary that rules and regulations issued by administrative bodies
to interpret the law which they are entrusted to enforce, have the force of law, and
are entitled to great respect. Administrative issuances partake of the nature of a
statute and have in their favor a presumption of legality. As such, courts cannot
ignore administrative issuances especially when, as in this case, its validity
was not put in issue. Unless an administrative order is declared invalid,
courts have no option but to apply the same. [emphases ours]

We reiterated the mandatory application of the formula in the applicable

DAR administrative regulations in Land Bank of the Philippines v. Lim,53[24]
Land Bank of the Philippines v. Heirs of Eleuterio Cruz,54[25] and Land Bank of
the Philippines v. Barrido.55[26] In Barrido, we were explicit in stating that:

While the determination of just compensation is essentially a judicial

function vested in the RTC acting as a Special Agrarian Court, the judge cannot
abuse his discretion by not taking into full consideration the factors specifically
identified by law and implementing rules. Special Agrarian Courts are not at
liberty to disregard the formula laid down in DAR A.O. No. 5, series of 1998,
because unless an administrative order is declared invalid, courts have no
option but to apply it. The courts cannot ignore, without violating the agrarian
law, the formula provided by the DAR for the determination of just
compensation.56[27] (emphases ours)

These rulings plainly impose on the RTC the duty to apply the formula laid
down in the pertinent DAR administrative regulations to determine just
compensation. Clearly, the CA and the RTC acted with grievous error when they
disregarded the formula laid down by the DAR, and chose instead to come up with
their own basis for the valuation of the subject land.

Hearing necessary before RTC takes

judicial notice of nature of land
 Apart from disregarding the formula found in the applicable DAR AO, the
RTC, and, correspondingly, the CA, when it affirmed the trial court, committed
further error in concluding that the 10 hectares of the subject property is
commercial land after taking judicial notice of the fact that this portion of land is
near Sitio Curvada, Pitago, Cataingan, a commercial district.

While the lower court is not precluded from taking judicial notice of certain
facts, it must exercise this right within the clear boundary provided by Section 3,
Rule 129 of the Rules of Court, which provides:

Section 3. Judicial notice, when hearing necessary. During the trial, the
court, on its own initiative, or on request of a party, may announce its intention to
take judicial notice of any matter and allow the parties to be heard thereon.
After the trial, and before judgment or on appeal, the proper court, on its
own initiative, or on request of a party, may take judicial notice of any matter and
allow the parties to be heard thereon if such matter is decisive of a material issue
in the case. [emphasis ours]

The classification of the land is obviously essential to the valuation of the

subject property, which is the very issue in the present case. The parties should
thus have been given the opportunity to present evidence on the nature of the
property before the lower court took judicial notice of the commercial nature of a
portion of the subject landholdings. As we said in Land Bank of the Phils. v.
Wycoco:57[28]
 The power to take judicial notice is to be exercised by courts with caution
especially where the case involves a vast tract of land. Care must be taken that the
requisite notoriety exists; and every reasonable doubt on the subject should be
promptly resolved in the negative. To say that a court will take judicial notice of
a fact is merely another way of saying that the usual form of evidence will be
dispensed with if knowledge of the fact can be otherwise acquired. This is
because the court assumes that the matter is so notorious that it will not be
disputed. But judicial notice is not judicial knowledge. The mere personal
knowledge of the judge is not the judicial knowledge of the court, and he is not
authorized to make his individual knowledge of a fact, not generally or
professionally known, the basis of his action.

In these lights, we find that a remand of this case to the court of origin is
necessary for the determination of just compensation, in accordance with the
formula stated in DAR AO No. 6, series of 1992, as amended by DAR AO No. 11,
series of 1994, which are the applicable issuances on fixing just compensation.
Payment through trust account

As a final point, we have not failed to notice that the LBP in this case made
use of trust accounts to pay Honeycomb Farms. In Land Bank of the Phil. v.
CA,58[29] this Court struck down as void DAR Administrative Circular No. 9,
Series of 1990, providing for the opening of trust accounts in lieu of the deposit in
cash or in bonds contemplated in Section 16(e) of RA 6657. We said:

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

xxxx

In the present suit, the DAR clearly overstepped the limits of its power to
enact rules and regulations when it issued Administrative Circular No. 9. There is
no basis in allowing the opening of a trust account in behalf of the landowner as
compensation for his property because, as heretofore discussed, Section 16(e) of
RA 6657 is very specific that the deposit must be made only in cash or in LBP
bonds. In the same vein, petitioners cannot invoke LRA Circular Nos. 29, 29-A
and 54 because these implementing regulations cannot outweigh the clear
provision of the law. Respondent court therefore did not commit any error in
striking down Administrative Circular No. 9 for being null and void.59[30]
 As a result, the DAR issued AO No. 2, Series of 1996, converting trust
accounts into deposit accounts. The pertinent portion of the AO provides:
 VI. TRANSITORY PROVISIONS

xxxx

All previously established Trust Deposits which served as the basis for the
transfer of the landowners title to the Republic of the Philippines shall likewise be
converted to deposits in cash and in bonds. The Bureau of Land Acquisition and
Distribution shall coordinate with the LBP for this purpose.

Recognizing that the belated conversion of the trust account into a deposit
account failed to address the injustice caused to the landowner by the delay in its
receipt of the just compensation due, we held in Wycoco that:

In light of the foregoing, the trust account opened by LBP in the name of
Wycoco as the mode of payment of just compensation should be converted to a
deposit account. Such conversion should be retroactive in application in order
to rectify the error committed by the DAR in opening a trust account and to
grant the landowners the benefits concomitant to payment in cash or LBP
bonds prior to the ruling of the Court in Land Bank of the Philippines v.
Court of Appeals. Otherwise, petitioners right to payment of just and valid
compensation for the expropriation of his property would be violated. The interest
earnings accruing on the deposit account of landowners would suffice to
compensate them pending payment of just compensation.

In some expropriation cases, the Court imposed an interest of 12% per

annum on the just compensation due the landowner. It must be stressed, however,
that in these cases, the imposition of interest was in the nature of damages for
delay in payment which in effect makes the obligation on the part of the
government one of forbearance. It follows that the interest in the form of damages
cannot be applied where there was prompt and valid payment of just
compensation. Conversely, where there was delay in tendering a valid payment of
just compensation, imposition of interest is in order. This is because the
replacement of the trust account with cash or LBP bonds did not ipso facto cure
the lack of compensation; for essentially, the determination of this compensation
was marred by lack of due process.

Accordingly, the just compensation due Wycoco should bear 12%

interest per annum from the time LBP opened a trust account in his name up
 to the time said account was actually converted into cash and LBP bonds
deposit accounts. The basis of the 12% interest would be the just
compensation that would be determined by the Special Agrarian Court upon
remand of the instant case. In the same vein, the amount determined by the
Special Agrarian Court would also be the basis of the interest income on the cash
and bond deposits due Wycoco from the time of the taking of the property up to
the time of actual payment of just compensation.60[31] (emphases ours)

In line with this ruling, the LBP is instructed to immediately convert the
trust account opened in the name of Honeycomb Farms to a deposit account.
Furthermore, the just compensation due Honeycomb Farms, as determined by the
RTC, should bear 12% interest per annum from the time LBP opened the trust
account in its name until the account is converted into cash and LBP bonds deposit
accounts.

WHEREFORE, premises considered, the petition is GRANTED. Special

Civil Case No. 4323 is REMANDED to the Regional Trial Court of Masbate,
Masbate, Branch 48, for the determination of just compensation, based on the
applicable administrative orders of the Department of Agrarian Reform, subject to
a 12% interest per annum from the time the Land Bank of the Philippines opened
the trust account for respondent Honeycomb Farms Corporation up to the time this
account is actually converted into cash and LBP bonds deposit accounts.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 78742 July 14, 1989

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

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

G.R. No. 79310 July 14, 1989

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

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

G.R. No. 79744 July 14, 1989

INOCENTES PABICO, petitioner,

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

G.R. No. 79777 July 14, 1989

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

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

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

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

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

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

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

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

SEC. 4. The State shall, by law, undertake an agrarian reform program

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

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

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

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

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

G.R. No. 79777

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

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

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

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

In connection with the determination of just compensation, the petitioners argue that the
same may be made only by a court of justice and not by the President of the
Philippines. They invoke the recent cases of EPZA v. Dulay 5 and Manotok v. National
Food Authority. 6 Moreover, the just compensation contemplated by the Bill of Rights is
payable in money or in cash and not in the form of bonds or other things of value.

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

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

In his Comment, the Solicitor General stresses that P.D. No. 27 has already been
upheld in the earlier cases of Chavez v. Zobel, 7 Gonzales v. Estrella, 8 and
Association of Rice and Corn Producers of the Philippines, Inc. v. The National Land
Reform Council. 9 The determination of just compensation by the executive authorities
conformably to the formula prescribed under the questioned order is at best initial or
preliminary only. It does not foreclose judicial intervention whenever sought or
warranted. At any rate, the challenge to the order is premature because no valuation of
their property has as yet been made by the Department of Agrarian Reform. The
petitioners are also not proper parties because the lands owned by them do not exceed
the maximum retention limit of 7 hectares.

Replying, the petitioners insist they are proper parties because P.D. No. 27 does not
provide for retention limits on tenanted lands and that in any event their petition is a
class suit brought in behalf of landowners with landholdings below 24 hectares. They
maintain that the determination of just compensation by the administrative authorities is
a final ascertainment. As for the cases invoked by the public respondent, the
constitutionality of P.D. No. 27 was merely assumed in Chavez, while what was decided
in Gonzales was the validity of the imposition of martial law.
In the amended petition dated November 22, 1588, it is contended that P.D. No. 27,
E.O. Nos. 228 and 229 (except Sections 20 and 21) have been impliedly repealed by
R.A. No. 6657. Nevertheless, this statute should itself also be declared unconstitutional
because it suffers from substantially the same infirmities as the earlier measures.

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

G.R. No. 79310

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

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

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

Agrarian Reform Fund.-There is hereby created a special fund, to be known as the

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

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

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

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

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

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

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

In his consolidated Comment, the Solicitor General first invokes the presumption of
constitutionality in favor of Proc. No. 131 and E.O. No. 229. He also justifies the
necessity for the expropriation as explained in the "whereas" clauses of the
Proclamation and submits that, contrary to the petitioner's contention, a pilot project to
determine the feasibility of CARP and a general survey on the people's opinion thereon
are not indispensable prerequisites to its promulgation.
On the alleged violation of the equal protection clause, the sugar planters have failed to
show that they belong to a different class and should be differently treated. The
Comment also suggests the possibility of Congress first distributing public agricultural
lands and scheduling the expropriation of private agricultural lands later. From this
viewpoint, the petition for prohibition would be premature.

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

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

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

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

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

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

G.R. No. 79744

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

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

The petitioner now argues that:

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

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

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

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

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

Lease rentals paid to the landowner by the farmer-beneficiary after

October 21, 1972 shall be considered as advance payment for the land.

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

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

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

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

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

G.R. No. 78742

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

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

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

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

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

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

The public respondent also stresses that the petitioners have prematurely initiated this
case notwithstanding the pendency of their appeal to the President of the Philippines.
Moreover, the issuance of the implementing rules, assuming this has not yet been done,
involves the exercise of discretion which cannot be controlled through the writ of
mandamus. This is especially true if this function is entrusted, as in this case, to a
separate department of the government.
In their Reply, the petitioners insist that the above-cited measures are not applicable to
them because they do not own more than seven hectares of agricultural land. Moreover,
assuming arguendo that the rules were intended to cover them also, the said measures
are nevertheless not in force because they have not been published as required by law
and the ruling of this Court in Tanada v. Tuvera.10 As for LOI 474, the same is
ineffective for the additional reason that a mere letter of instruction could not have
repealed the presidential decree.

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

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

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

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

The other above-mentioned requisites have also been met in the present petitions.

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

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

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

... when the judiciary mediates to allocate constitutional boundaries, it

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

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

II

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

The promulgation of P.D. No. 27 by President Marcos in the exercise of his powers
under martial law has already been sustained in Gonzales v. Estrella and we find no
reason to modify or reverse it on that issue. As for the power of President Aquino to
promulgate Proc. No. 131 and E.O. Nos. 228 and 229, the same was authorized under
Section 6 of the Transitory Provisions of the 1987 Constitution, quoted above.
The said measures were issued by President Aquino before July 27, 1987, when the
Congress of the Philippines was formally convened and took over legislative power from
her. They are not "midnight" enactments intended to pre-empt the legislature because
E.O. No. 228 was issued on July 17, 1987, and the other measures, i.e., Proc. No. 131
and E.O. No. 229, were both issued on July 22, 1987. Neither is it correct to say that
these measures ceased to be valid when she lost her legislative power for, like any
statute, they continue to be in force unless modified or repealed by subsequent law or
declared invalid by the courts. A statute does not ipso facto become inoperative simply
because of the dissolution of the legislature that enacted it. By the same token,
President Aquino's loss of legislative power did not have the effect of invalidating all the
measures enacted by her when and as long as she possessed it.

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

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

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

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

Retention Limits. — Except as otherwise provided in this Act, no person

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

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

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

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

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

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

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

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

III

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

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

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

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

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

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

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

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

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

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

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

The cases before us present no knotty complication insofar as the question of

compensable taking is concerned. To the extent that the measures under challenge
merely prescribe retention limits for landowners, there is an exercise of the police power
for the regulation of private property in accordance with the Constitution. But where, to
carry out such regulation, it becomes necessary to deprive such owners of whatever
lands they may own in excess of the maximum area allowed, there is definitely a taking
under the power of eminent domain for which payment of just compensation is
imperative. The taking contemplated is not a mere limitation of the use of the land. What
is required is the surrender of the title to and the physical possession of the said excess
and all beneficial rights accruing to the owner in favor of the farmer-beneficiary. This is
definitely an exercise not of the police power but of the power of eminent domain.

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

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

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

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

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

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

One of the basic principles of the democratic system is that where the rights of the
individual are concerned, the end does not justify the means. It is not enough that there
be a valid objective; it is also necessary that the means employed to pursue it be in
keeping with the Constitution. Mere expediency will not excuse constitutional shortcuts.
There is no question that not even the strongest moral conviction or the most urgent
public need, subject only to a few notable exceptions, will excuse the bypassing of an
individual's rights. It is no exaggeration to say that a, person invoking a right guaranteed
under Article III of the Constitution is a majority of one even as against the rest of the
nation who would deny him that right.
That right covers the person's life, his liberty and his property under Section 1 of Article
III of the Constitution. With regard to his property, the owner enjoys the added
protection of Section 9, which reaffirms the familiar rule that private property shall not be
taken for public use without just compensation.

This brings us now to the power of eminent domain.

IV

Eminent domain is an inherent power of the State that enables it to forcibly

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

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

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

A becoming courtesy admonishes us to respect the decisions of the political

departments when they decide what is known as the political question. As explained by
Chief Justice Concepcion in the case of Tañada v. Cuenco: 36

The term "political question" connotes what it means in ordinary parlance,

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

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

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

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

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

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

The second requirement, i.e., the payment of just compensation, needs a longer and
more thoughtful examination.

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

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

As held in Republic of the Philippines v. Castellvi, 42 there is compensable taking when

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

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

Upon receipt by the landowner of the corresponding payment or, in case

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

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

... the DAR shall conduct summary administrative proceedings to

determine the compensation for the land by requiring the landowner, the
LBP and other interested parties to submit evidence as to the just
compensation for the land, within fifteen (15) days from the receipt of the
notice. After the expiration of the above period, the matter is deemed
submitted for decision. The DAR shall decide the case within thirty (30)
days after it is submitted for decision.
To be sure, the determination of just compensation is a function addressed to the courts
of justice and may not be usurped by any other branch or official of the government.
EPZA v. Dulay 44 resolved a challenge to several decrees promulgated by President
Marcos providing that the just compensation for property under expropriation should be
either the assessment of the property by the government or the sworn valuation thereof
by the owner, whichever was lower. In declaring these decrees unconstitutional, the
Court held through Mr. Justice Hugo E. Gutierrez, Jr.:

The method of ascertaining just compensation under the aforecited

decrees constitutes impermissible encroachment on judicial prerogatives.
It tends to render this Court inutile in a matter which under this
Constitution is reserved to it for final determination.

Thus, although in an expropriation proceeding the court technically would

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

xxx

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

This time, we answer in the affirmative.

xxx

It is violative of due process to deny the owner the opportunity to prove

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

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

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

The determination made by the DAR is only preliminary unless accepted by all parties
concerned. Otherwise, the courts of justice will still have the right to review with finality
the said determination in the exercise of what is admittedly a judicial function.

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

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

SEC. 18. Valuation and Mode of Compensation. — The LBP shall

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

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

option of the landowner:

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

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

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

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

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

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

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

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

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

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

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

(a) Market interest rates aligned with 91-day

treasury bill rates. Ten percent (10%) of the
face value of the bonds shall mature every
year from the date of issuance until the tenth
(10th) year: Provided, That should the
landowner choose to forego the cash portion,
whether in full or in part, he shall be paid
correspondingly in LBP bonds;

(b) Transferability and negotiability. Such LBP

bonds may be used by the landowner, his
successors-in- interest or his assigns, up to the
amount of their face value, for any of the
following:

(i) Acquisition of land or other real properties of

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

(ii) Acquisition of shares of stock of

government-owned or controlled corporations
or shares of stock owned by the government in
private corporations;
 (iii) Substitution for surety or bail bonds for the
provisional release of accused persons, or for
performance bonds;

(iv) Security for loans with any government

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

(v) Payment for various taxes and fees to

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

(vi) Payment for tuition fees of the immediate

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

(vii) Payment for fees of the immediate family

of the original bondholder in government
hospitals; and

(viii) Such other uses as the PARC may from

time to time allow.

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

The fundamental rule in expropriation matters is that the owner of the

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The complaint against the effects of non-registration of the land under E.O. No. 229
does not seem to be viable any more as it appears that Section 4 of the said Order has
been superseded by Section 14 of the CARP Law. This repeats the requisites of
registration as embodied in the earlier measure but does not provide, as the latter did,
that in case of failure or refusal to register the land, the valuation thereof shall be that
given by the provincial or city assessor for tax purposes. On the contrary, the CARP
Law says that the just compensation shall be ascertained on the basis of the factors
mentioned in its Section 17 and in the manner provided for in Section 16.
The last major challenge to CARP is that the landowner is divested of his property even
before actual payment to him in full of just compensation, in contravention of a well-
accepted principle of eminent domain.

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

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

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

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

Our own Supreme Court has held in Visayan Refining Co. v. Camus and Paredes, 56
that:

If the laws which we have exhibited or cited in the preceding discussion

are attentively examined it will be apparent that the method of
expropriation adopted in this jurisdiction is such as to afford absolute
reassurance that no piece of land can be finally and irrevocably taken from
an unwilling owner until compensation is paid ... . (Emphasis supplied.)

It is true that P.D. No. 27 expressly ordered the emancipation of tenant-farmer as

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

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

All qualified farmer-beneficiaries are now deemed full owners as of

October 21, 1972 of the land they acquired by virtue of Presidential
Decree No. 27. (Emphasis supplied.)

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

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

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

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

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

Obviously, the Court cannot resolve these issues. In any event, assuming that the
petitioners have not yet exercised their retention rights, if any, under P.D. No. 27, the
Court holds that they are entitled to the new retention rights provided for by R.A. No.
6657, which in fact are on the whole more liberal than those granted by the decree.
V

The CARP Law and the other enactments also involved in these cases have been the
subject of bitter attack from those who point to the shortcomings of these measures and
ask that they be scrapped entirely. To be sure, these enactments are less than perfect;
indeed, they should be continuously re-examined and rehoned, that they may be
sharper instruments for the better protection of the farmer's rights. But we have to start
somewhere. In the pursuit of agrarian reform, we do not tread on familiar ground but
grope on terrain fraught with pitfalls and expected difficulties. This is inevitable. The
CARP Law is not a tried and tested project. On the contrary, to use Justice Holmes's
words, "it is an experiment, as all life is an experiment," and so we learn as we venture
forward, and, if necessary, by our own mistakes. We cannot expect perfection although
we should strive for it by all means. Meantime, we struggle as best we can in freeing the
farmer from the iron shackles that have unconscionably, and for so long, fettered his
soul to the soil.

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

WHEREFORE, the Court holds as follows:

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

2. Title to all expropriated properties shall be transferred to the State only

upon full payment of compensation to their respective owners.

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

4. Landowners who were unable to exercise their rights of retention under

P.D. No. 27 shall enjoy the retention rights granted by R.A. No. 6657
under the conditions therein prescribed.

5. Subject to the above-mentioned rulings all the petitions are

DISMISSED, without pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 129079 December 2, 1998

REPUBLIC OF THE PHILIPPINES represented by the Department of Trade and

Industry, petitioner,
vs.
HON. LUCENITO N. TAGLE, Presiding Judge of RTC, Imus, Cavite, Branch 20; and
HELENA Z. BENITEZ, respondents.

PANGANIBAN, J.:

Executive Order No. 1035 1 (EO 1035) was enacted to facilitate government acquisition
of private property to be used for infrastructure or other development projects. Under
Section 7 thereof, it is the ministerial duty of courts to issue a writ of possession within
five days from the time the government deposits 10 percent of just compensation
payable. Moreover, such writ cannot be nullified by an adverse decision in an ejectment
proceeding involving the same property and the same parties.

Statement of the Case

This principium is used by this Court in resolving this petition for certiorari under Rule 65
assailing the Orders dated July 26, 19962 and February 20, 1997, 3 promulgated by the
Regional Trial Court 4 of Imus, Cavite Civil Case No. 1277-96. The first ruling
quashed the May 21, 1996 writ of possession issued earlier, pursuant to EO 1035,
and the second denied petitioner's plea for reconsideration.

The Antecedent Facts

The facts, as narrated in the solicitor general's Memorandum, are as follows:

Private respondent Helena Z. Benitez is the registered owner of two

(2) parcels of land located in Barangay Salawag, Dasmariñas, Cavite
covered [by] TCT No. 14701 containing an area of Four Hundred
Eighty Three Thousand Three Hundred Thirty One (483,331) square
meters more or less.
Sometime in September 1982, the Philippine Government, through
the Philippine Human Resources Development Center (PHRDC for
short), an agency under the then Ministry of Human Settlements,
negotiated with the Japanese International Cooperation Agency
(JICA) Survey Team on the technicalities of the establishment of the
ASEAN Human Resources Development Project in the Philippines.
Among the five (5) main programs of the proposed project was
Program III (Construction Manpower Development) which involved
the establishment of a Construction Manpower Development Center
(CMDC for short), an agency now under the Department of Trade and
Industry.

On March 30, 1983, PHRDC and private respondent Helena Z. Benitez

(BENITEZ for short), signed a Memorandum of Agreement (Annex 'C',
Petition) which provides, among others, [that] BENITEZ "undertakes
to lease within the period of twenty (20) years and/or sell a portion of
that property (which is no less than ten-hectares)" in favor of PHRDC
"which likewise agrees to lease" within period of twenty (20) years
and/or buy said property site".

On September 22, 1983, the Philippine Women's University (PWU for

short) and BENITEZ granted a permit to PHRDC "to occupy and use"
the land in question and "to undertake land development, electrical
and road network installations and other related works necessary to
attain its objectives . . .". Pursuant thereto, the CMDF took
possession of the property and erected buildings and other related
facilities necessary for its operations.

Accordingly, in December 1983, PWU entered into a purported

contract of lease with PHRDC on a ten (10)-hectare piece of land
which stipulated, among other things, a rental of P200,000.00 per
annum for an initial term of four (4) years from January 1, 1984 to
January 1, 1988, with an option granted to PHRDC to renew the
lease, upon agreement of both parties, "for a further period up to, but
not exceeding twenty (20) years from the expiration of the initial term
hereof . . .".

PWU entered into the aforesaid lease contract, dated December 3,

1983, purporting to be the donee of the property involved in a deed
of donation executed by BENITEZ in its favor; which deed of
donation, however, was executed only in December 1984, much later
than the execution of the lease contract.

After the expiration of the lease contract on January 1, 1988,

negotiations began on the purchase of the property in question on a
plain offer of BENITEZ to sell the same. In her letter of 21 August
1989, BENITEZ advised the PHRDC, through its General Manager Mr.
Juvenal Catajoy, to "pursue the successful completion of the sale of
the subject 7-hectare property within 30 days from August 31, 1989
at the agreed price of P70.00 per square meter".

Again, in BENITEZ' letter of February 4, 1991, she stated the position

of the University regarding the negotiated sale of the 7-hectare
property in Dasmariñas, Cavite' and "confirme(d) that the agreed
purchase price in 1989 [was] P70.00 per sq. m. . . .".

In view of the agreement on the sale of the land in question, PHRDC

prepared a Deed of Absolute Sale with BENITEZ, as vendor, and
PHRDC and CMDF, as vendees, duly represented by then
Undersecretary Gloria M. Arroyo, for the signature of BENITEZ.

Subsequently, BENITEZ and PHRDC, represented by PHRDC General

Manager Juvenal Catajoy, Jr., agreed that the payment of "rentals for
the Dasmariñas lot [would] cease effective July 1, 1989 in view of on-
going negotiations for the eventual sale of the lot".

However, for reasons known only to her, BENITEZ did not sign the
Deed of Absolute Sale thus reneging on her commitment to sell the
lot in question.

Thereafter, in a letter dated August 15, 1995, BENITEZ and PWU

demanded from PHRDC the payment of rentals and to vacate the
premises within 30 days from notice. It later filed an unlawful
detainer suit against petitioner.

Falling to acquire the properly involved through negotiated sale,

petitioner through the Department of Trade and Industry, to which
CMDF is attached, instituted a complaint for Eminent Domain,
pursuant to be provisions of Executive Order No. 1035, dated June
25, 1985.

In compliance with Section 2, Rule 67 of the Rules of Court, as

amended by Presidential Decree No. 42, petitioner deposited with the
Philippine National Bank (PNB), Makati Avenue Branch, in favor of
defendant, Seven Hundred Eight Thousand Four Hundred Ninety
Pesos (P708,490.00) an amount equivalent to the provisional value of
the land sought to be expropriated.

On May 16, 1996, petitioner filed a Motion for Issuance of a Writ of

Possession.
 On May 24, 1996 respondent Judge issued an Order (Annex 'D',
Petition) granting petitioner's Motion for issuance of a Writ of
Possession.

In compliance with the Order of May 24, 1996, the Clerk of Court
issued a Writ of Possession (Annex 'E', Petition) which the Sheriff
duly implemented.

Private respondent filed a Motion for Reconsideration of the Order of

May 24, 1996 . . . which petitioner opposed.

On July 26, 1996, respondent Judge issued the assailed Order

(Annex 'A', Petition) the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, defendant's

Motion for Reconsideration is granted. Accordingly, the
Order dated May 24, 1996 is hereby set aside and
reconsidered. The Writ of Possession issued in
consonance therewith is hereby quashed.

On August 21, 1996, petitioner filed a Motion for Reconsideration

(Annex 'F', Petition) of the above Order. Private respondent filed an
Opposition (Annex 'G', Petition) thereto.

On February 20, 1997, respondent Judge denied petitioner's motion

for reconsideration (Annex 'B', Petition).5

The foregoing narration of the facts was not contradicted by private respondent.
6 Not satisfied by the court a quo's rulings, petitioner thus elevated the matter to
this Court.7

The Issue

In its Memorandum, petitioner submits that "[t]he only legal issue raised in the
petition is whether or not respondent judge committed grave abuse of discretion
when he quashed the writ of possession which he had previously issued. 8 Put
differently, the issue is whether the respondent judge may quash a writ of
possession on the ground that the expropriating government agency is already
occupying the property sought to be expropriated.

The Court's Ruling

The petition is impressed with merit.

Issuance of Writ of Possession:

 A Duty Mandated by Law

It is undisputed that the expropriation proceeding in the case at bar involves a

development project covered by EO 1035. The site, which is being used by the
Philippine Human Resources Development Center (PHRDC), is sought to be
expropriated for the establishment and operation of the Association of Southeast
Asian Nations (ASEAN) Human Resources Development Project of the
Philippines, a component of which is the Construction Manpower Development
Center (CMDC), an agency now under the Department of Trade and Industry (DTI).
Plainly, the respondent judge is required to issue a writ of possession in favor of
petitioner, pursuant to Section 7 of EO 1035, which reads:

Sec 7. Expropriation. If the parties fail to agree in negotiation of the

sale of the land as provided in the preceding section, the
government implementing agency/instrumentality concerned shall
have authority to immediately institute expropriation proceedings
through the Office of the Solicitor General, as the case may be. The
just compensation to be paid for the property acquired through
expropriation shall be in accordance with the provisions of P.D. No.
1533. Courts shall give priority to the adjudication of cases on
expropriation and shall immediately issue the necessary writ of
possession upon deposit by the government implementing
agency/instrumentality concerned of an amount equivalent to ten
percent (10%) of the amount of just compensation provided under
P.D. No. 1533; Provided, That the period within which said writ of
possession shall be issued shall in no case extend beyond five (5)
days from the date such deposit was made.

Under this statutory provision, when the government or its authorized agent
makes the required deposit, the trial court has a ministerial duty to issue a writ of
possession. We note that the respondent judge indeed issued such writ in favor
of petitioner, aptly stating:

There being a deposit made by the plaintiff with the Philippine

National Bank (PNB) in the amount of P708,490.00 which is
equivalent to the assessed value of the property subject matter
hereof based on defendant's 1990 tax declaration, coupled with the
fact that notice to defendant as landowner has been effected, the
Motion for Issuance of Writ of Possession is hereby GRANTED.
Forthwith, let a Writ of Possession be issued ordering the Sheriff to
place plaintiff in possession of the property involved in this case. 9

Writ of Possession Necessary

As previously mentioned, the trial court reversed itself by later issuing an Order
quashing the writ of possession, reasoning as follows:
 While this Court fully agrees with the plaintiff that it is entitled to be
placed in possession of the property subject of the Complaint at
once, the position of the parties in the case at bar is different. For,
plaintiff admitted that it is already in possession of subject premises.
Such being the case, it is obvious that plaintiff's purpose in securing
a writ of possession is only to utilize it as leverage in the ejectment
suit filed against it by defendant Benitez wherein the issue is
possession. 10

In denying the motion for reconsideration of said Order, the respondent judge
reiterated his position, adding that "the present case is different from the ordinary
action for eminent domain because prior to the filing of this case, there was
already an ejectment suit instituted against plaintiff-corporation." 11 Agreeing
with the trial court, private respondent contends that "the writ of possession is
warranted only in cases where the party seeking [it] is nor yet in possession [of]
the property sought to be expropriated." 12

Private respondent underscores Section 2, Rule 67 of the 1997 Rules on Civil

Procedure, which in part states that "the plaintiff shall have the right to take or
enter upon the possession of the real property involved if he deposits with the
authorized government depositary an amount equivalent to the assessed value of
the property for purposes of taxation . . . . 13 She also points out that since
Presidential Decree (PD) 42 provides that the "plaintiff shall have the right to take
or enter upon the possession of the real property involved," the writ of
possession it requires to be issued "is not to maintain possession but intended
for the purpose of taking or entering possession." 14

The Court is not persuaded. The expropriation of real property does not include
mere physical entry or occupation of land. Although eminent domain usually
involves a taking of title, there may also be compensable taking of only some, not
all, of the property interests in the bundle of rights that constitute ownership. 15

In the instant case, it is manifest that the petitioner, in pursuit of an objective

beneficial to public interest, seeks to realize the same through its power of
eminent domain. In exercising this power, petitioner intended to acquire not only
physical possession but also the legal right to possess and ultimately to own the
subject property. Hence, its mere physical entry and occupation of the property
fall short of the taking of title, which includes all the rights that may be exercised
by an owner over the subject property. Its actual occupation, which renders
academic the need for it to enter, does not by itself include its acquisition of all
the rights of ownership. Its right to possess did not attend its initial physical
possession of the property because the lease, which had authorized said
possession, lapsed. In short, petitioner wanted not merely possession de facto
but possession de jure as well.
What will happen if the required writ of possession is not issued? This question
becomes very important because the Municipal Trial Court (MTC), where private
respondent sued petitioner for unlawful detainer, has rendered a decision
ordering petitioner to vacate the property. 16 It would be circuitous, if not legally
absurd, for this Court to require petitioner to first vacate the property in view of
the adverse judgement in the unlawful detainer case, and soon afterwards, order
the trial court to issue in petitioner's favor a writ of possession pursuant to the
expropriation proceedings. Such a scenario is a bureaucratic waste of precious
time and resources. This precisely is the sort of pernicious and unreasonable
delay of government infrastructure or development projects, which EO 1035
intended to address by requiring the immediate issuance of a writ of possession.
Ineludibly, said writ is both necessary and practical, because mere physical
possession that is gained by entering the property is not equivalent to
expropriating it with the aim of acquiring ownership over, or even the right to
possess, the expropriated property.

Citing J. M. Tuason & Co., Inc. v. Court of Appeals 17 and Cuatico v. Court of
Appeals, 18 private respondent further submits that "the eminent domain case,
much less the writ of possession, cannot be entertained to defeat the ejectment
case." 19

Such argument is untenable. It is well-settled that eminent domain is an inherent

power of the State that need not be granted even by the fundamental law." 20
Section 9, Article III of the Constitution, in mandating that "[p]rivate property shall
not be taken for public use without just compensation," merely imposes a limit on
the government's exercise of this power and provides a measure of protection to
the individual's right to property. 21 Thus, in J. M. Tuason & Co. and Cuatico, the
Court merely enforced the constitutional limitation regarding the payment of just
compensation. Clearly, an ejectment suit ordinarily should not prevail over the
State's power of eminent domain.

We note that in the present case, petitioner has deposited not just the 10 percent
required under EO 1035, but the whole amount of the just compensation that
private respondent is entitled to. Thus, we are unable to find any legal
impediment for the issuance of a writ of possession in favor of petitioner.
Precisely, the purpose of instituting expropriation proceedings is to prevent
petitioner from being ejected from the subject property; otherwise, the above-
mentioned absurd and circuitous rulings would arise.

Assailed Orders Tainted by

Grave Abuse of Discretion

It is clear that, in quashing the writ of possession, respondent judge violated EO

1035 on the quaint and whimsical ground that petitioner was already in actual
possession of the property. 22 His assailed Orders dated July 26, 1996 and
February 20, 1997 are therefore void for having been issued with grave abuse of
discretion. 23

WHEREFORE, the petition is GRANTED, and the assailed Orders dated July 26,
1996 and February 20, 1997 are hereby ANNULLED and SET ASIDE. No costs.

SO ORDERED.

Republic of the Philippines

Supreme Court
Manila

FIRST DIVISION

NATIONAL POWER G.R. No. 165828

CORPORATION,

Petitioner,
Present:

CORONA, C.J., Chairperson,

- versus -
LEONARDO-DE CASTRO,

BERSAMIN,

DEL CASTILLO, and

HEIRS OF MACABANGKIT
SANGKAY, namely: CEBU, VILLARAMA, JR., JJ.
BATOWA-AN, SAYANA,
NASSER, MANTA, EDGAR,
PUTRI , MONGKOY*, and AMIR,
all surnamed MACABANGKIT, Promulgated:

Respondents.

August 24, 2011

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

DECISION

BERSAMIN, J.:

Private property shall not be taken for public use without just
compensation.
Section 9, Article III, 1987 Constitution

The application of this provision of the Constitution is the focus of this

appeal.
 Petitioner National Power Corporation (NPC) seeks the review on certiorari
of the decision promulgated on October 5, 2004,61[1] whereby the Court of
Appeals (CA) affirmed the decision dated August 13, 1999 and the supplemental
decision dated August 18, 1999, ordering NPC to pay just compensation to the
respondents, both rendered by the Regional Trial Court, Branch 1, in Iligan City
(RTC).

Antecedents

Pursuant to its legal mandate under Republic Act No. 6395 (An Act Revising
the Charter of the National Power Corporation), NPC undertook the Agus River
Hydroelectric Power Plant Project in the 1970s to generate electricity for
Mindanao. The project included the construction of several underground tunnels to
be used in diverting the water flow from the Agus River to the hydroelectric
plants.62[2]

On November 21, 1997, the respondents, namely: Cebu, Bangowa-an,

Sayana, Nasser, Manta, Edgar, Putri, Mongkoy and Amir, all surnamed
Macabangkit (Heirs of Macabangkit), as the owners of land with an area of
221,573 square meters situated in Ditucalan, Iligan City, sued NPC in the RTC for
the recovery of damages and of the property, with the alternative prayer for the
payment of just compensation.63[3] They alleged that they had belatedly
discovered that one of the underground tunnels of NPC that diverted the water flow
of the Agus River for the operation of the Hydroelectric Project in Agus V, Agus
VI and Agus VII traversed their land; that their discovery had occurred in 1995
after Atty. Saidali C. Gandamra, President of the Federation of Arabic Madaris
School, had rejected their offer to sell the land because of the danger the
underground tunnel might pose to the proposed Arabic Language Training Center
and Muslims Skills Development Center; that such rejection had been followed by
the withdrawal by Global Asia Management and Resource Corporation from
developing the land into a housing project for the same reason; that Al-Amanah
Islamic Investment Bank of the Philippines had also refused to accept their land as
collateral because of the presence of the underground tunnel; that the underground
tunnel had been constructed without their knowledge and consent; that the
presence of the tunnel deprived them of the agricultural, commercial, industrial and
residential value of their land; and that their land had also become an unsafe place
for habitation because of the loud sound of the water rushing through the tunnel
and the constant shaking of the ground, forcing them and their workers to relocate
to safer grounds.
 In its answer with counterclaim,64[4] NPC countered that the Heirs of
Macabangkit had no right to compensation under section 3(f) of Republic Act No.
6395, under which a mere legal easement on their land was established; that their
cause of action, should they be entitled to compensation, already prescribed due to
the tunnel having been constructed in 1979; and that by reason of the tunnel being
an apparent and continuous easement, any action arising from such easement
prescribed in five years.

Ruling of the RTC

On July 23, 1998, an ocular inspection of the land that was conducted by
RTC Judge Mamindiara P. Mangotara and the representatives of the parties
resulted in the following observations and findings:

a. That a concrete post which is about two feet in length from the ground which
according to the claimants is the middle point of the tunnel.

b. That at least three fruit bearing durian trees were uprooted and as a result of
the construction by the defendant of the tunnel and about one hundred
coconuts planted died.

c. That underground tunnel was constructed therein.65[5]

 After trial, the RTC ruled in favor of the plaintiffs (Heirs of
Macabangkit),66[6] decreeing:

WHEREFORE, premises considered:

1. The prayer for the removal or dismantling of defendants tunnel is

denied. However, defendant is hereby directed and ordered:

a)To pay plaintiffs land with a total area of 227,065 square meters, at the
rate of FIVE HUNDRED (P500.00) PESOS per square meter, or a total of
ONE HUNDRED THIRTEEN MILLION FIVE HUNDRED THIRTY
TWO THOUSAND AND FIVE HUNDRED (P113,532,500.00), PESOS,
plus interest, as actual damages or just compensation;

b) To pay plaintiff a monthly rental of their land in the amount of

THIRTY THOUSAND (P30,000.00) PESOS from 1979 up to July 1999
with 12% interest per annum;

c)To pay plaintiffs the sum of TWO HUNDRED THOUSAND

(P200,000.00) PESOS, as moral damages;

d) To pay plaintiffs, the sum of TWO HUNDRED THOUSAND

(P200,000.00) PESOS, as exemplary damages;
 e)To pay plaintiffs, the sum equivalent to 15% of the total amount
awarded, as attorneys fees, and to pay the cost.

SO ORDERED.

The RTC found that NPC had concealed the construction of the tunnel in
1979 from the Heirs of Macabangkit, and had since continuously denied its
existence; that NPC had acted in bad faith by taking possession of the subterranean
portion of their land to construct the tunnel without their knowledge and prior
consent; that the existence of the tunnel had affected the entire expanse of the land,
and had restricted their right to excavate or to construct a motorized deep well; and
that they, as owners, had lost the agricultural, commercial, industrial and
residential value of the land.

The RTC fixed the just compensation at P500.00/square meter based on the
testimony of Dionisio Banawan, OIC-City Assessor of Iligan City, to the effect
that the appraised value of the adjoining properties ranged from P700.00 to
P750.00, while the appraised value of their affected land ranged from P400.00 to
P500.00. The RTC also required NPC to pay rentals from 1979 due to its bad faith
in concealing the construction of the tunnel from the Heirs of Macabangkit.

On August 18, 1999, the RTC issued a supplemental decision,67[7] viz:

 Upon a careful review of the original decision dated August 13, 1999, a
sentence should be added to paragraph 1(a) of the dispositive portion thereof, to
bolster, harmonize, and conform to the findings of the Court, which is quoted
hereunder, to wit:

Consequently, plaintiffs land or properties are hereby condemned in

favor of defendant National Power Corporation, upon payment of the
aforesaid sum.

Therefore, paragraph 1(a) of the dispositive portion of the original decision

should read, as follows:

a) To pay plaintiffs land with a total area of 227,065 square meters, at the
rate of FIVE HUNDRED (P500.00) PESOS per square meter, or a total
of ONE HUNDRED THIRTEEN MILLION FIVE HUNDRED
THIRTY TWO THOUSAND AND FIVE HUNDRED
(P113,532,500.00) PESOS, plus interest, as actual damages or just
compensation; Consequently, plaintiffs land or properties are hereby
condemned in favor of defendant National Power Corporation, upon
payment of the aforesaid sum;

This supplemental decision shall be considered as part of paragraph 1(a) of

the dispositive portion of the original decision.

Furnish copy of this supplemental decision to all parties immediately.

SO ORDERED.

On its part, NPC appealed to the CA on August 25, 1999.68[8]

Earlier, on August 18, 1999, the Heirs of Macabangkit filed an urgent

motion for execution of judgment pending appeal.69[9] The RTC granted the
motion and issued a writ of execution,70[10] prompting NPC to assail the writ by
petition for certiorari in the CA. On September 15, 1999, the CA issued a
temporary restraining order (TRO) to enjoin the RTC from implementing its
decision. The Heirs of Macabangkit elevated the ruling of the CA (G.R. No.
141447), but the Court upheld the CA on May 4, 2006.71[11]

Ruling of the CA

NPC raised only two errors in the CA, namely:

I
THE COURT A QUO SERIOUSLY ERRED IN RULING THAT NAPOCORS
UNDERGROUND TUNNEL IN ITS AGUS RIVER HYDRO-ELECTRIC
PLANT PROJECT TRAVERSED AND/OR AFFECTED APPELLEES
PROPERTY AS THERE IS NO CLEAR EVIDENCE INDUBITABLY
ESTABLISHING THE SAME

II
THE COURT A QUO SERIOUSLY ERRED IN GRANTING APPELLEES
CLAIMS IN THEIR ENTIRETY FOR GRANTING ARGUENDO THAT
NAPOCORS UNDERGROUND TUNNEL INDEED TRAVERSED
 APPELLEES PROPERTY, THEIR CAUSE OF ACTION HAD ALREADY
BEEN BARRED BY PRESCRIPTION, ESTOPPEL AND LACHES

On October 5, 2004, the CA affirmed the decision of the RTC, holding that
the testimonies of NPCs witness Gregorio Enterone and of the respondents witness
Engr. Pete Sacedon, the topographic survey map, the sketch map, and the ocular
inspection report sufficiently established the existence of the underground tunnel
traversing the land of the Heirs of Macabangkit; that NPC did not substantiate its
defense that prescription already barred the claim of the Heirs of Macabangkit; and
that Section 3(i) of R.A. No. 6395, being silent about tunnels, did not apply, viz:

As regard Section 3(i) of R.A. No. 6395 (An Act Revising the Charter of the
National Power Corporation), it is submitted that the same provision is not
applicable. There is nothing in Section 3(i) of said law governing claims
involving tunnels. The same provision is applicable to those projects or facilities
on the surface of the land, that can easily be discovered, without any mention
about the claims involving tunnels, particularly those surreptitiously constructed
beneath the surface of the land, as in the instant case.

Now, while it is true that Republic Act No. 6395 authorizes NAPOCOR to
take water from any public stream, river, creek, lake, spring or waterfall in the
Philippines for the realization of the purposes specified therein for its creation; to
intercept and divert the flow of waters from lands of riparian owners (in this case,
the Heirs), and from persons owning or interested in water which are or may be
necessary to said purposes, the same Act expressly mandates the payment of just
compensation.

WHEREFORE, premises considered, the instant appeal is hereby DENIED

for lack of merit. Accordingly, the appealed Decision dated August 13, 1999, and
the supplemental Decision dated August 18, 1999, are hereby AFFIRMED in toto.

SO ORDERED.72[12]
 Issue

NPC has come to the Court, assigning the lone error that:

THE APPELLATE COURT ERRED ON A QUESTION OF LAW WHEN IT

AFFIRMED THE DECISION AND SUPPLEMENTAL DECISION OF THE
COURT A QUO DIRECTING AND ORDERING PETITIONER TO PAY JUST
COMPENSATION TO RESPONDENTS.

NPC reiterates that witnesses Enterone and Sacedon lacked personal

knowledge about the construction and existence of the tunnel and were for that
reason not entitled to credence; and that the topographic and relocation maps
prepared by Sacedon should not be a basis to prove the existence and location of
the tunnel due to being self-serving.

NPC contends that the CA should have applied Section 3(i) of Republic Act
No. 6395, which provided a period of only five years from the date of the
construction within which the affected landowner could bring a claim against it;
and that even if Republic Act No. 6395 should be inapplicable, the action of the
Heirs of Macabangkit had already prescribed due to the underground tunnel being
susceptible to acquisitive prescription after the lapse of 10 years pursuant to Article
620 of the Civil Code due to its being a continuous and apparent legal easement
under Article 634 of the Civil Code.

The issues for resolution are, therefore, as follows:

(1) Whether the CA and the RTC erred in holding that there was
an underground tunnel traversing the Heirs of Macabangkits land
constructed by NPC; and

(2) Whether the Heirs of Macabangkits right to claim just

compensation had prescribed under section 3(i) of Republic Act No.
6395, or, alternatively, under Article 620 and Article 646 of the Civil
Code.

Ruling

We uphold the liability of NPC for payment of just compensation.

1.

Factual findings of the RTC,

when affirmed by the CA, are binding

 The existence of the tunnel underneath the land of the Heirs of Macabangkit,
being a factual matter, cannot now be properly reviewed by the Court, for
questions of fact are beyond the pale of a petition for review on certiorari.
Moreover, the factual findings and determinations by the RTC as the trial court are
generally binding on the Court, particularly after the CA affirmed them. 73[13]
Bearing these doctrines in mind, the Court should rightly dismiss NPCs appeal.

NPC argues, however, that this appeal should not be dismissed because the
Heirs of Macabangkit essentially failed to prove the existence of the underground
tunnel. It insists that the topographic survey map and the right-of-way map
presented by the Heirs of Macabangkit did not at all establish the presence of any
underground tunnel.

NPC still fails to convince.

Even assuming, for now, that the Court may review the factual findings of
the CA and the RTC, for NPC to insist that the evidence on the existence of the
tunnel was not adequate and incompetent remains futile. On the contrary, the
evidence on the tunnel was substantial, for the significance of the topographic
survey map and the sketch map (as indicative of the extent and presence of the
tunnel construction) to the question on the existence of the tunnel was strong, as
the CA correctly projected in its assailed decision, viz:

Among the pieces of documentary evidence presented showing the existence

of the said tunnel beneath the subject property is the topographic survey map. The
topographic survey map is one conducted to know about the location and
elevation of the land and all existing structures above and underneath it. Another
is the Sketch Map which shows the location and extent of the land traversed or
affected by the said tunnel. These two (2) pieces of documentary evidence
readily point the extent and presence of the tunnel construction coming from
the power cavern near the small man-made lake which is the inlet and
approach tunnel, or at a distance of about two (2) kilometers away from the
land of the plaintiffs-appellees, and then traversing the entire and the whole
length of the plaintiffs-appellees property, and the outlet channel of the
tunnel is another small man-made lake. This is a sub-terrain construction, and
considering that both inlet and outlet are bodies of water, the tunnel can hardly be
noticed. All constructions done were beneath the surface of the plaintiffs-
appellees property. This explains why they could never obtain any knowledge of
the existence of such tunnel during the period that the same was constructed and
installed beneath their property.74[14]

The power cavern and the inlet and outlet channels established the presence
of the underground tunnel, based on the declaration in the RTC by Sacedon, a
former employee of the NPC.75[15] It is worthy to note that NPC did not deny the
existence of the power cavern, and of the inlet and outlet channels adverted to and
as depicted in the topographic survey map and the sketch map. The CA cannot be
faulted for crediting the testimony of Sacedon despite the effort of NPC to discount
his credit due to his not being an expert witness, simply because Sacedon had
personal knowledge based on his being NPCs principal engineer and supervisor
tasked at one time to lay out the tunnels and transmission lines specifically for the
hydroelectric projects,76[16] and to supervise the construction of the Agus 1
Hydroelectric Plant itself77[17] from 1978 until his retirement from NPC.78[18]
Besides, he declared that he personally experienced the vibrations caused by the
rushing currents in the tunnel, particularly near the outlet channel .79[19] Under any
circumstances, Sacedon was a credible and competent witness.

The ocular inspection actually confirmed the existence of the tunnel

underneath the land of the Heirs of Macabangkit. Thus, the CA observed:

More so, the Ocular inspection conducted on July 23, 1998 further bolstered
such claim of the existence and extent of such tunnel. This was conducted by a
team composed of the Honorable Presiding Judge of the Regional Trial Court,
Branch 01, Lanao del Norte, herself and the respective lawyers of both of the
parties and found that, among others, said underground tunnel was
constructed beneath the subject property.80[20]
 It bears noting that NPC did not raise any issue against or tender any
contrary comment on the ocular inspection report.

2.

Five-year prescriptive period under Section 3(i) of Republic Act

No. 6395 does not apply to claims for just compensation

The CA held that Section 3(i) of Republic Act No. 6395 had no application
to this action because it covered facilities that could be easily discovered, not
tunnels that were inconspicuously constructed beneath the surface of the
land.81[21]

NPC disagrees, and argues that because Article 63582[22] of the Civil Code
directs the application of special laws when an easement, such as the underground
tunnel, was intended for public use, the law applicable was Section 3(i) of
Republic Act No. 6395, as amended, which limits the action for recovery of
compensation to five years from the date of construction. It posits that the five-year
prescriptive period already set in due to the construction of the underground tunnel
having been completed in 1979 yet.

Without necessarily adopting the reasoning of the CA, we uphold its

conclusion that prescription did not bar the present action to recover just
compensation.

Section 3 (i) of Republic Act No. 6395, the cited law, relevantly provides:

Section 3. Powers and General Functions of the Corporation. The powers,

functions, rights and activities of the Corporation shall be the following:

xxx
(i) To construct works across, or otherwise, any stream, watercourse, canal,
ditch, flume, street, avenue, highway or railway of private and public
ownership, as the location of said works may require:Provided, That
said works be constructed in such a manner as not to endanger life or
property; And provided, further, That the stream, watercourse, canal
ditch, flume, street, avenue, highway or railway so crossed or intersected
be restored as near as possible to their former state, or in a manner not to
impair unnecessarily their usefulness. Every person or entity whose right
of way or property is lawfully crossed or intersected by said works shall
not obstruct any such crossings or intersection and shall grant the Board
or its representative, the proper authority for the execution of such work.
The Corporation is hereby given the right of way to locate, construct and
maintain such works over and throughout the lands owned by the
Republic of the Philippines or any of its branches and political
subdivisions. The Corporation or its representative may also enter upon
private property in the lawful performance or prosecution of its business
and purposes, including the construction of the transmission lines
thereon; Provided, that the owner of such property shall be indemnified
 for any actual damage caused thereby;Provided, further, That said
action for damages is filed within five years after the rights of way,
transmission lines, substations, plants or other facilities shall have
been established; Provided, finally, That after said period, no suit shall
be brought to question the said rights of way, transmission lines,
substations, plants or other facilities;

A cursory reading shows that Section 3(i) covers the construction of works
across, or otherwise, any stream, watercourse, canal, ditch, flume, street, avenue,
highway or railway of private and public ownership, as the location of said works
may require. It is notable that Section 3(i) includes no limitation except those
enumerated after the term works. Accordingly, we consider the term works as
embracing all kinds of constructions, facilities, and other developments that can
enable or help NPC to meet its objectives of developing hydraulic power expressly
provided under paragraph (g) of Section 3.83[23] The CAs restrictive construal of
Section 3(i) as exclusive of tunnels was obviously unwarranted, for the provision
applies not only to development works easily discoverable or on the surface of the
earth but also to subterranean works like tunnels. Such interpretation accords with
the fundamental guideline in statutory construction that when the law does not
distinguish, so must we not.84[24] Moreover, when the language of the statute is
plain and free from ambiguity, and expresses a single, definite, and sensible
meaning, that meaning is conclusively presumed to be the meaning that the
Congress intended to convey.85[25]

Even so, we still cannot side with NPC.

We rule that the prescriptive period provided under Section 3(i) of Republic
Act No. 6395 is applicable only to an action for damages, and does not extend to
an action to recover just compensation like this case. Consequently, NPC cannot
thereby bar the right of the Heirs of Macabangkit to recover just compensation for
their land.

The action to recover just compensation from the State or its expropriating
agency differs from the action for damages. The former, also known as inverse
condemnation, has the objective to recover the value of property taken in fact by
the governmental defendant, even though no formal exercise of the power of
eminent domain has been attempted by the taking agency.86[26] Just compensation
is the full and fair equivalent of the property taken from its owner by the
expropriator. The measure is not the takers gain, but the owners loss. The word just
is used to intensify the meaning of the word compensation in order to convey the
idea that the equivalent to be rendered for the property to be taken shall be real,
substantial, full, and ample.87[27] On the other hand, the latter action seeks to
vindicate a legal wrong through damages, which may be actual, moral, nominal,
temperate, liquidated, or exemplary. When a right is exercised in a manner not
conformable with the norms enshrined in Article 1988[28] and like provisions on
human relations in the Civil Code, and the exercise results to the damage of
another, a legal wrong is committed and the wrongdoer is held responsible.89[29]

The two actions are radically different in nature and purpose. The action to
recover just compensation is based on the Constitution90[30] while the action for
damages is predicated on statutory enactments. Indeed, the former arises from the
exercise by the State of its power of eminent domain against private property for
public use, but the latter emanates from the transgression of a right. The fact that
the owner rather than the expropriator brings the former does not change the
essential nature of the suit as an inverse condemnation,91[31] for the suit is not
based on tort, but on the constitutional prohibition against the taking of property
without just compensation.92[32] It would very well be contrary to the clear
language of the Constitution to bar the recovery of just compensation for private
property taken for a public use solely on the basis of statutory prescription.

Due to the need to construct the underground tunnel, NPC should have first
moved to acquire the land from the Heirs of Macabangkit either by voluntary
tender to purchase or through formal expropriation proceedings. In either case,
NPC would have been liable to pay to the owners the fair market value of the land,
for Section 3(h) of Republic Act No. 6395 expressly requires NPC to pay the fair
market value of such property at the time of the taking, thusly:

(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage,

encumber and otherwise dispose of property incident to, or necessary,
convenient or proper to carry out the purposes for which the Corporation
was created: Provided, That in case a right of way is necessary for its
transmission lines, easement of right of way shall only be sought: Provided,
however, That in case the property itself shall be acquired by purchase, the
cost thereof shall be the fair market value at the time of the taking of such
property.
 This was what NPC was ordered to do in National Power Corporation v.
Ibrahim,93[33] where NPC had denied the right of the owners to be paid just
compensation despite their land being traversed by the underground tunnels for
siphoning water from Lake Lanao needed in the operation of Agus II, Agus III,
Agus IV, Agus VI and Agus VII Hydroelectric Projects in Saguiran, Lanao del
Sur, in Nangca and Balo-I in Lanao del Norte and in Ditucalan and Fuentes in
Iligan City. There, NPC similarly argued that the underground tunnels constituted a
mere easement that did not involve any loss of title or possession on the part of the
property owners, but the Court resolved against NPC, to wit:

Petitioner contends that the underground tunnels in this case constitute an

easement upon the property of the respondents which does not involve any loss of
title or possession. The manner in which the easement was created by petitioner,
however, violates the due process rights of respondents as it was without notice
and indemnity to them and did not go through proper expropriation proceedings.
Petitioner could have, at any time, validly exercised the power of eminent domain
to acquire the easement over respondents property as this power encompasses not
only the taking or appropriation of title to and possession of the expropriated
property but likewise covers even the imposition of a mere burden upon the
owner of the condemned property. Significantly, though, landowners cannot be
deprived of their right over their land until expropriation proceedings are
instituted in court. The court must then see to it that the taking is for public use,
that there is payment of just compensation and that there is due process of
law.94[34]

3.
 NPCs construction of the tunnel
constituted taking of the land, and
entitled owners to just compensation

The Court held in National Power Corporation v. Ibrahim that NPC was
liable to pay not merely an easement fee but rather the full compensation for land
traversed by the underground tunnels, viz:

In disregarding this procedure and failing to recognize respondents

ownership of the sub-terrain portion, petitioner took a risk and exposed itself to
greater liability with the passage of time. It must be emphasized that the
acquisition of the easement is not without expense. The underground tunnels
impose limitations on respondents use of the property for an indefinite period and
deprive them of its ordinary use. Based upon the foregoing, respondents are
clearly entitled to the payment of just compensation. Notwithstanding the fact
that petitioner only occupies the sub-terrain portion, it is liable to pay not
merely an easement fee but rather the full compensation for land. This is so
because in this case, the nature of the easement practically deprives the
owners of its normal beneficial use. Respondents, as the owner of the
property thus expropriated, are entitled to a just compensation which should
be neither more nor less, whenever it is possible to make the assessment, than
the money equivalent of said property.95[35]

Here, like in National Power Corporation v. Ibrahim, NPC constructed a

tunnel underneath the land of the Heirs of Macabangkit without going through
formal expropriation proceedings and without procuring their consent or at least
informing them beforehand of the construction. NPCs construction adversely
affected the owners rights and interests because the subterranean intervention by
NPC prevented them from introducing any developments on the surface, and from
disposing of the land or any portion of it, either by sale or mortgage.

Did such consequence constitute taking of the land as to entitle the owners to
just compensation?

We agree with both the RTC and the CA that there was a full taking on the
part of NPC, notwithstanding that the owners were not completely and actually
dispossessed. It is settled that the taking of private property for public use, to be
compensable, need not be an actual physical taking or appropriation.96[36] Indeed,
the expropriators action may be short of acquisition of title, physical possession, or
occupancy but may still amount to a taking.97[37] Compensable taking includes
destruction, restriction, diminution, or interruption of the rights of ownership or of
the common and necessary use and enjoyment of the property in a lawful manner,
lessening or destroying its value.98[38] It is neither necessary that the owner be
wholly deprived of the use of his property, 99[39] nor material whether the property
is removed from the possession of the owner, or in any respect changes
hands.100[40]

As a result, NPC should pay just compensation for the entire land. In that
regard, the RTC pegged just compensation at P500.00/square meter based on its
finding on what the prevailing market value of the property was at the time of the
filing of the complaint, and the CA upheld the RTC.

We affirm the CA, considering that NPC did not assail the valuation in the
CA and in this Court. NPCs silence was probably due to the correctness of the
RTCs valuation after careful consideration and weighing of the parties evidence, as
follows:

The matter of what is just compensation for these parcels of land is a matter
of evidence. These parcels of land is (sic) located in the City of Iligan, the
Industrial City of the South. Witness Dionisio Banawan, OIC- City Assessors
Office, testified, Within that area, that area is classified as industrial and
residential. That plaintiffs land is adjacent to many subdivisions and that is within
the industrial classification. He testified and identified Exhibit AA and AA-1, a
Certification, dated April 4, 1997, showing that the appraised value of plaintiffs
land ranges from P400.00 to P500.00 per square meter (see, TSN, testimony of
Dionisio Banawan, pp. 51, 57, and 71, February 9, 1999). Also, witness Banawan,
testified and identified Two (2) Deeds of Sale, marked as Exhibit AA-2 and AA-
 3,[] showing that the appraised value of the land adjoining or adjacent to plaintiff
land ranges from P700.00 to P750.00 per square meter. As between the much
lower price of the land as testified by defendants witness Gregorio Enterone, and
that of the City Assessor of Iligan City, the latter is more credible. Considering
however, that the appraised value of the land in the area as determined by the City
Assessors Office is not uniform, this Court, is of the opinion that the reasonable
amount of just compensation of plaintiffs land should be fixed at FIVE
HUNDRED (500.00) PESOS, per square meter. xxx.101[41]

The RTC based its fixing of just compensation ostensibly on the prevailing
market value at the time of the filing of the complaint, instead of reckoning from
the time of the taking pursuant to Section 3(h) of Republic Act No. 6395. The CA
did not dwell on the reckoning time, possibly because NPC did not assign that as
an error on the part of the RTC.

We rule that the reckoning value is the value at the time of the filing of the
complaint, as the RTC provided in its decision. Compensation that is reckoned on
the market value prevailing at the time either when NPC entered or when it
completed the tunnel, as NPC submits, would not be just, for it would compound
the gross unfairness already caused to the owners by NPCs entering without the
intention of formally expropriating the land, and without the prior knowledge and
consent of the Heirs of Macabangkit. NPCs entry denied elementary due process of
law to the owners since then until the owners commenced the inverse
condemnation proceedings. The Court is more concerned with the necessity to
prevent NPC from unjustly profiting from its deliberate acts of denying due
process of law to the owners. As a measure of simple justice and ordinary fairness
to them, therefore, reckoning just compensation on the value at the time the owners
commenced these inverse condemnation proceedings is entirely warranted.

In National Power Corporation v. Court of Appeals,102[42] a case that

involved the similar construction of an underground tunnel by NPC without the
prior consent and knowledge of the owners, and in which we held that the basis in
fixing just compensation when the initiation of the action preceded the entry into
the property was the time of the filing of the complaint, not the time of
taking,103[43] we pointed out that there was no taking when the entry by NPC was
made without intent to expropriate or was not made under warrant or color of legal
authority.

4.

Awards for rentals, moral damages, exemplary

damages, and attorneys fees are deleted

for insufficiency of factual and legal bases

 The CA upheld the RTCs granting to the Heirs of Macabangkit of rentals of
P 30,000.00/month from 1979 up to July 1999 with 12% interest per annum by
finding NPC guilty of bad faith in taking possession of the land to construct the
tunnel without their knowledge and consent.

Granting rentals is legally and factually bereft of justification, in light of the

taking of the land being already justly compensated. Conformably with the ruling
in Manila International Airport Authority v. Rodriguez,104[44] in which the award
of interest was held to render the grant of back rentals unwarranted, we delete the
award of back rentals and in its place prescribe interest of 12% interest per annum
from November 21, 1997, the date of the filing of the complaint, until the full
liability is paid by NPC. The imposition of interest of 12% interest per annum
follows a long line of pertinent jurisprudence,105[45] whereby the Court has fixed the
rate of interest on just compensation at 12% per annum whenever the expropriator
has not immediately paid just compensation.

The RTC did not state any factual and legal justifications for awarding to the
Heirs of Macabangkit moral and exemplary damages each in the amount of
P200,000.00. The awards just appeared in the fallo of its decision. Neither did the
CA proffer any justifications for sustaining the RTC on the awards. We consider
the omissions of the lower courts as pure legal error that we feel bound to correct
even if NPC did not submit that for our consideration. There was, to begin with, no
factual and legal bases mentioned for the awards. It is never trite to remind that
moral and exemplary damages, not by any means liquidated or assessed as a matter
of routine, always require evidence that establish the circumstances under which
the claimant is entitled to them. Moreover, the failure of both the RTC and the CA
to render the factual and legal justifications for the moral and exemplary damages
in the body of their decisions immediately demands the striking out of the awards
for being in violation of the fundamental rule that the decision must clearly state
the facts and the law on which it is based. Without the factual and legal
justifications, the awards are exposed as the product of conjecture and speculation,
which have no place in fair judicial adjudication.

We also reverse and set aside the decree of the RTC for NPC to pay to the
Heirs of Macabangkit the sum equivalent to 15% of the total amount awarded, as
attorneys fees, and to pay the cost. The body of the decision did not state the
factual and legal reasons why NPC was liable for attorneys fees. The terse
statement found at the end of the body of the RTCs decision, stating: xxx The
contingent attorneys fee is hereby reduced from 20% to only 15% of the total
amount of the claim that may be awarded to plaintiffs, without more, did not
indicate or explain why and how the substantial liability of NPC for attorneys fees
could have arisen and been determined.
 In assessing attorneys fees against NPC and in favor of the respondents, the
RTC casually disregarded the fundamental distinction between the two concepts of
attorneys fees the ordinary and the extraordinary. These concepts were aptly
distinguished in Traders Royal Bank Employees Union-Independent v.
NLRC,106[46] thuswise:

There are two commonly accepted concepts of attorneys fees, the so-called
ordinary and extraordinary. In its ordinary concept, an attorneys fee is the
reasonable compensation paid to a lawyer by his client for the legal services he
has rendered to the latter. The basis of this compensation is the fact of his
employment by and his agreement with the client.

In its extraordinary concept, an attorneys fee is an indemnity for damages

ordered by the court to be paid by the losing party in a litigation. The basis of this
is any of the cases provided by law where such award can be made, such as those
authorized in Article 2208, Civil Code, and is payable not to the lawyer but to the
client, unless they have agreed that the award shall pertain to the lawyer as
additional compensation or as part thereof.

By referring to the award as contingency fees, and reducing the award from
20% to 15%, the RTC was really referring to a supposed agreement on attorneys
fees between the Heirs of Macabangkit and their counsel. As such, the concept of
attorneys fees involved was the ordinary. Yet, the inclusion of the attorneys fees in
the judgment among the liabilities of NPC converted the fees to extraordinary. We
have to disagree with the RTC thereon, and we express our discomfort that the CA
did not do anything to excise the clearly erroneous and unfounded grant.
 An award of attorneys fees has always been the exception rather than the
rule. To start with, attorneys fees are not awarded every time a party prevails in a
suit.107[47] Nor should an adverse decision ipso facto justify an award of attorneys
fees to the winning party.108[48] The policy of the Court is that no premium should
be placed on the right to litigate.109[49] Too, such fees, as part of damages, are
assessed only in the instances specified in Art. 2208, Civil Code.110[50] Indeed,
attorneys fees are in the nature of actual damages .111[51] But even when a claimant
is compelled to litigate with third persons or to incur expenses to protect his rights,
attorneys fees may still be withheld where no sufficient showing of bad faith could
be reflected in a partys persistence in a suit other than an erroneous conviction of
the righteousness of his cause.112[52] And, lastly, the trial court must make express
findings of fact and law that bring the suit within the exception. What this demands
is that the factual, legal or equitable justifications for the award must be set forth
not only in the fallo but also in the text of the decision, or else, the award should be
thrown out for being speculative and conjectural.113[53]

Sound policy dictates that even if the NPC failed to raise the issue of
attorneys fees, we are not precluded from correcting the lower courts patently
erroneous application of the law.114[54] Indeed, the Court, in supervising the lower
courts, possesses the ample authority to review legal matters like this one even if
not specifically raised or assigned as error by the parties.

5.

Attorneys fees under quantum meruit principle

are fixed at 10% of the judgment award

Based on the pending motions of Atty. Macarupung Dibaratun and Atty.

Manuel D. Ballelos to assert their respective rights to attorneys fees, both
contending that they represented the Heirs of Macabangkit in this case, a conflict
would ensue from the finality of the judgment against NPC.

A look at the history of the legal representation of the Heirs of Macabangkit

herein provides a helpful predicate for resolving the conflict.

Atty. Dibaratun was the original counsel of the Heirs of Macabangkit. When
the appeal was submitted for decision in the CA,115[55] Atty. Ballelos filed his
entry of appearance,116[56] and a motion for early decision.117[57] Atty. Ballelos
subsequently filed also a manifestation,118[58] supplemental manifestation,119[59]
reply,120[60] and ex parte motion reiterating the motion for early decision.121[61]
It appears that a copy of the CAs decision was furnished solely to Atty. Ballelos.
However, shortly before the rendition of the decision, Atty. Dibaratun filed in the
CA a motion to register attorneys lien,122[62] alleging that he had not withdrawn
his appearance and had not been aware of the entry of appearance by Atty.
Ballelos. A similar motion was also received by the Court from Atty. Dibaratun a
few days after the petition for review was filed.123[63] Thus, on February 14,
2005,124[64] the Court directed Atty. Dibaratun to enter his appearance herein. He
complied upon filing the comment.125[65]

Amir Macabangkit confirmed Atty. Dibaratuns representation through an ex

parte manifestation that he filed in his own behalf and on behalf of his siblings
Mongkoy and Putri.126[66] Amir reiterated his manifestation on March 6,
2006,127[67] and further imputed malpractice to Atty. Ballelos for having filed an
entry of appearance bearing Amirs forged signature and for plagiarism, i.e.,
copying verbatim the arguments contained in the pleadings previously filed by
Atty. Dibaratun.128[68]

On September 11, 2008, Atty. Ballelos submitted two motions, to wit: (a) a
manifestation and motion authorizing a certain Abdulmajeed Djamla to receive his
attorneys fees equivalent of 15% of the judgment award,129[69] and (b) a motion to
register his attorneys lien that he claimed was contingent.130[70]

Both Atty. Dibaratun and Atty. Ballelos posited that their entitlement to
attorneys fees was contingent. Yet, a contract for a contingent fees is an agreement
in writing by which the fees, usually a fixed percentage of what may be recovered
in the action, are made to depend upon the success in the effort to enforce or
defend a supposed right. Contingent fees depend upon an express contract, without
which the attorney can only recover on the basis of quantum meruit.131[71] With
neither Atty. Dibaratun nor Atty. Ballelos presenting a written agreement bearing
upon their supposed contingent fees, the only way to determine their right to
appropriate attorneys fees is to apply the principle of quantum meruit.

Quantum meruit literally meaning as much as he deserves is used as basis

for determining an attorneys professional fees in the absence of an express
agreement.132[72] The recovery of attorneys fees on the basis of quantum meruit is
a device that prevents an unscrupulous client from running away with the fruits of
the legal services of counsel without paying for it and also avoids unjust
enrichment on the part of the attorney himself.133[73] An attorney must show that
he is entitled to reasonable compensation for the effort in pursuing the clients
cause, taking into account certain factors in fixing the amount of legal fees.134[74]
 Rule 20.01 of the Code of Professional Responsibility lists the guidelines for
determining the proper amount of attorney fees, to wit:

Rule 20.1 A lawyer shall be guided by the following factors in determining

his fees:

a) The time spent and the extent of the services rendered or required;

b) The novelty and difficult of the questions involved;

c) The important of the subject matter;

d) The skill demanded;

e) The probability of losing other employment as a result of acceptance of

the proffered case;

f) The customary charges for similar services and the schedule of fees of
the IBP chapter to which he belongs;

g) The amount involved in the controversy and the benefits resulting to the
client from the service;

h) The contingency or certainty of compensation;

 i) The character of the employment, whether occasional or established;
and

j) The professional standing of the lawyer.

In the event of a dispute as to the amount of fees between the attorney and
his client, and the intervention of the courts is sought, the determination requires
that there be evidence to prove the amount of fees and the extent and value of the
services rendered, taking into account the facts determinative thereof.135[75]
Ordinarily, therefore, the determination of the attorneys fees on quantum meruit is
remanded to the lower court for the purpose. However, it will be just and equitable
to now assess and fix the attorneys fees of both attorneys in order that the
resolution of a comparatively simple controversy, as Justice Regalado put it in
Traders Royal Bank Employees Union-Independent v. NLRC,136[76] would not be
needlessly prolonged, by taking into due consideration the accepted guidelines and
so much of the pertinent data as are extant in the records.

Atty. Dibaratun and Atty. Ballelos each claimed attorneys fees equivalent to
15% of the principal award of P113,532,500.00, which was the amount granted by
the RTC in its decision. Considering that the attorneys fees will be defrayed by the
Heirs of Macabangkit out of their actual recovery from NPC, giving to each of the
two attorneys 15% of the principal award as attorneys fees would be excessive and
unconscionable from the point of view of the clients. Thus, the Court, which holds
and exercises the power to fix attorneys fees on a quantum meruit basis in the
absence of an express written agreement between the attorney and the client, now
fixes attorneys fees at 10% of the principal award of P113,532,500.00.

Whether it is Atty. Dibaratun or Atty. Ballelos, or both, who should receive

attorneys fees from the Heirs of Macabangkit is a question that the Court must next
determine and settle by considering the amount and quality of the work each
performed and the results each obtained.

Atty. Dibaratun, the attorney from the outset, unquestionably carried the
bulk of the legal demands of the case. He diligently prepared and timely filed in
behalf of the Heirs of Macabangkit every pleading and paper necessary in the full
resolution of the dispute, starting from the complaint until the very last motion
filed in this Court. He consistently appeared during the trial, and examined and
cross-examined all the witnesses presented at that stage of the proceedings. The
nature, character, and substance of each pleading and the motions he prepared for
the Heirs of Macabangkit indicated that he devoted substantial time and energy in
researching and preparing the case for the trial. He even advanced P250,000.00 out
of his own pocket to defray expenses from the time of the filing of the motion to
execute pending appeal until the case reached the Court.137[77] His representation
of all the Heirs of Macabangkit was not denied by any of them.
 We note that Atty. Dibaratun possessed some standing in the legal
profession and in his local community. He formerly served as a member of the
Board of Director of the Integrated Bar of the Philippines (IBP), Lanao del Norte-
Iligan City Chapter, and was an IBP national awardee as Best Legal Aid
Committee Chairman. He taught at Mindanao State University College of Law
Extension. He was a Municipal Mayor of Matungao, Lanao del Norte, and was
enthroned Sultan a Gaus.

In contrast, not much about the character and standing of Atty. Ballelos, as
well as the nature and quality of the legal services he rendered for the Heirs of
Macabangkit are in the records. The motions he filed in the

Court and in the CA lacked enlightening research and were insignificant to the
success of the clients cause. His legal service, if it can be called that, manifested no
depth or assiduousness, judging from the quality of the pleadings from him. His
written submissions in the case appeared either to have been lifted verbatim from
the pleadings previously filed by Atty. Dibaratun, or to have been merely quoted
from the decisions and resolutions of the RTC and the CA. Of the Heirs of
Macabangkit, only Cebu, Batowa-an, Sayana, Nasser, Manta, Mongkoy138[78] and
Edgar gave their consent to Atty. Ballelos to appear in their behalf in the CA,
which he did despite Atty. Dibaratun not having yet filed any withdrawal of his
appearance. The Court did not receive any notice of appearance for the Heirs of
Macabangkit from Atty. Ballelos, but that capacity has meanwhile become
doubtful in the face of Amirs strong denial of having retained him.

In fairness and justice, the Court accords full recognition to Atty. Dibaratun
as the counsel de parte of the Heirs of Macabangkit who discharged his
responsibility in the prosecution of the clients cause to its successful end. It is he,
not Atty. Ballelos, who was entitled to the full amount of attorneys fees that the
clients ought to pay to their attorney. Given the amount and quality of his legal
work, his diligence and the time he expended in ensuring the success of his
prosecution of the clients cause, he deserves the recognition, notwithstanding that
some of the clients might appear to have retained Atty. Ballelos after the rendition
of a favorable judgment.139[79]

Atty. Ballelos may claim only from Cebu, Batowa-an, Sayana, Nasser,
Manta and Edgar, the only parties who engaged him. The Court considers his work
in the case as very minimal. His compensation under the quantum meruit principle
is fixed at P5,000.00, and only the Heirs of Macabangkit earlier named are liable to
him.
 WHEREFORE, the Court AFFIRMS the decision promulgated on October
5, 2004 by the Court of Appeals, subject to the following MODIFICATIONS, to
wit:

(a) Interest at the rate of 12% per annum is IMPOSED on the

principal amount of P113,532,500.00 as just compensation,
reckoned from the filing of the complaint on November 21, 1997
until the full liability is paid;

(b) The awards of P30,000.00 as rental fee, P200,000.00 as moral

damages, and P200,000.00 as exemplary damages are DELETED;
and

(c) The award of 15% attorneys fees decreed to be paid by National

Power Corporation to the Heirs of Macabangkit is DELETED.

The Court PARTLY GRANTS the motion to register attorneys lien filed by
Atty. Macarupung Dibaratun, and FIXES Atty. Dibaratuns attorneys fees on the
basis of quantum meruit at 10% of the principal award of P113,532,500.00.
 The motion to register attorneys lien of Atty. Manuel D. Ballelos is
PARTLY GRANTED, and Atty. Ballelos is DECLARED ENTITLED TO
RECOVER from Cebu, Batowa-an, Sayana, Nasser, Manta and Edgar, all
surnamed Macabangkit, the amount of P5,000.00 as attorneys fees on the basis of
quantum meruit.

Costs of suit to be paid by the petitioner.

SO ORDERED.

FIRST DIVISION

DIDIPIO EARTH-SAVERS MULTI-PURPOSE G.R. No. 157882

ASSOCIATION, INCORPORATED
(DESAMA), MANUEL BUTIC, CESAR
MARIANO, LAURO ABANCE, BEN
TAYABAN, ANTONIO DINGCOG, TEDDY
B. KIMAYONG, ALONZO ANANAYO,
ANTONIO MALAN-UYA, JOSE BAHAG,
ANDRES INLAB, RUFINO LICYAYO, Present:
ALFREDO CULHI, CATALILNA
INABYUHAN, GUAY DUMMANG, GINA
PULIDO, EDWIN ANSIBEY, CORAZON PANGANIBAN, C.J.
SICUAN, LOPEZ DUMULAG, FREDDIE
Chairperson,
AYDINON, VILMA JOSE, FLORENTINA
MADDAWAT, LINDA DINGCOG, ELMER YNARES-SANTIAGO,
SICUAN, GARY ANSIBEY, JIMMY
AUSTRIA-MARTINEZ,
MADDAWAT, JIMMY GUAY, ALFREDO
CUT-ING, ANGELINA UDAN, OSCAR CALLEJO, SR., and
INLAB, JUANITA CUT-ING, ALBERT
PINKIHAN, CECILIA TAYABAN, CRISTA CHICO-NAZARIO, JJ.
BINWAK, PEDRO DUGAY, SR., EDUARDO
ANANAYO, ROBIN INLAB, JR., LORENZO
PULIDO, TOMAS BINWAG, EVELYN
BUYA, JAIME DINGCOG, DINAOAN CUT-
ING, PEDRO DONATO, MYRNA GUAY,
FLORA ANSIBEY, GRACE DINAMLING,
EDUARDO MENCIAS, ROSENDA JACOB,
SIONITA DINGCOG, GLORIA JACOB,
MAXIMA GUAY, RODRIGO PAGGADUT,
MARINA ANSIBEY, TOLENTINO INLAB,
RUBEN DULNUAN, GERONIMO LICYAYO,
LEONCIO CUMTI, MARY DULNUAN,
FELISA BALANBAN, MYRNA DUYAN,
MARY MALAN-UYA, PRUDENCIO
ANSIBEY, GUILLERMO GUAY,
MARGARITA CULHI, ALADIN ANSIBEY,
PABLO DUYAN, PEDRO PUGUON, JULIAN
INLAB, JOSEPH NACULON, ROGER
BAJITA, DINAON GUAY, JAIME
ANANAYO, MARY ANSIBEY, LINA
ANANAYO, MAURA DUYAPAT,
ARTEMEO ANANAYO, MARY BABLING,
NORA ANSIBEY, DAVID DULNUAN,
AVELINO PUGUON, LUCAS GUMAWI,
LUISA ABBAC, CATHRIN GUWAY,
CLARITA TAYABAN, FLORA JAVERA,
RANDY SICOAN, FELIZA PUTAKI,
CORAZON P. DULNUAN, NENA D.
BULLONG, ERMELYN GUWAY, GILBERT
BUTALE, JOSEPH B. BULLONG,
FRANCISCO PATNAAN, JR., SHERWIN
DUGAY, TIRSO GULLINGAY, BENEDICT T.
NABALLIN, RAMON PUN-ADWAN,
ALFONSO DULNUAN, CARMEN D.
BUTALE, LOLITA ANSIBEY, ABRAHAM
DULNUAN, ARLYNDA BUTALE,
MODESTO A. ANSIBEY, EDUARDO
LUGAY, ANTONIO HUMIWAT, ALFREDO
PUMIHIC, MIKE TINO, TONY
CABARROGUIS, BASILIO TAMLIWOK, JR.,
NESTOR TANGID, ALEJO TUGUINAY,
BENITO LORENZO, RUDY BAHIWAG,
ANALIZA BUTALE, NALLEM LUBYOC,
JOSEPH DUHAYON, RAFAEL CAMPOL,
MANUEL PUMALO, DELFIN AGALOOS,
PABLO CAYANGA, PERFECTO SISON,
ELIAS NATAMA, LITO PUMALO,
SEVERINA DUGAY, GABRIEL PAKAYAO,
JEOFFREY SINDAP, FELIX TICUAN,
MARIANO S. MADDELA, MENZI TICAWA,
DOMINGA DUGAY, JOE BOLINEY, JASON
ASANG, TOMMY ATENYAYO, ALEJO
AGMALIW, DIZON AGMALIW, EDDIE
ATOS, FELIMON BLANCO, DARRIL
DIGOY, LUCAS BUAY, ARTEMIO BRAZIL,
NICANOR MODI, LUIS REDULFIN,
NESTOR JUSTINO, JAIME CUMILA,
BENEDICT GUINID, EDITHA ANIN, INOH-
YABAN BANDAO, LUIS BAYWONG,
FELIPE DUHALNGON, PETER BENNEL,
JOSEPH T. BUNGGALAN, JIMMY B.
KIMAYONG, HENRY PUGUON, PEDRO
BUHONG, BUGAN NADIAHAN, SR.,
MARIA EDEN ORLINO, SPC, PERLA
VISSORO, and BISHOP RAMON VILLENA,

Petitioners,

- versus -

ELISEA GOZUN, in her capacity as

SECRETARY of the DEPARTMENT OF
ENVIRONMENT and NATURAL
RESOURCES (DENR), HORACIO RAMOS,
in his capacity as Director of the Mines
and Geosciences Bureau (MGB-DENR),
ALBERTO ROMULO, in his capacity as the
Executive Secretary of the Office of the
President, RICHARD N. FERRER, in his
capacity as Acting Undersecretary of the
Office of the President, IAN HEATH
SANDERCOCK, in his capacity as
President of CLIMAX-ARIMCO MINING
CORPORATION.

Respondents.
 Promulgated:

March 30, 2006

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

DECISION

CHICO-NAZARIO, J.:

This petition for prohibition and mandamus under Rule 65 of the Rules of
Court assails the constitutionality of Republic Act No. 7942 otherwise known as
the Philippine Mining Act of 1995, together with the Implementing Rules and
Regulations issued pursuant thereto, Department of Environment and Natural
Resources (DENR) Administrative Order No. 96-40, s. 1996 (DAO 96-40) and of the
Financial and Technical Assistance Agreement (FTAA) entered into on 20 June
1994 by the Republic of the Philippines and Arimco Mining Corporation (AMC), a
corporation established under the laws of Australia and owned by its nationals.

On 25 July 1987, then President Corazon C. Aquino promulgated Executive

Order No. 279 which authorized the DENR Secretary to accept, consider and
evaluate proposals from foreign-owned corporations or foreign investors for
contracts of agreements involving either technical or financial assistance for large-
scale exploration, development, and utilization of minerals, which, upon
appropriate recommendation of the Secretary, the President may execute with
the foreign proponent.

On 3 March 1995, then President Fidel V. Ramos signed into law Rep. Act
No. 7942 entitled, An Act Instituting A New System of Mineral Resources
Exploration, Development, Utilization and Conservation, otherwise known as the
Philippine Mining Act of 1995.

On 15 August 1995, then DENR Secretary Victor O. Ramos issued DENR

Administrative Order (DAO) No. 23, Series of 1995, containing the implementing
guidelines of Rep. Act No. 7942. This was soon superseded by DAO No. 96-40, s.
1996, which took effect on 23 January 1997 after due publication.

Previously, however, or specifically on 20 June 1994, President Ramos

executed an FTAA with AMC over a total land area of 37,000 hectares covering
the provinces of Nueva Vizcaya and Quirino. Included in this area is Barangay
Dipidio, Kasibu, Nueva Vizcaya.

Subsequently, AMC consolidated with Climax Mining Limited to form a

single company that now goes under the new name of Climax-Arimco Mining
Corporation (CAMC), the controlling 99% of stockholders of which are Australian
nationals.

On 7 September 2001, counsels for petitioners filed a demand letter

addressed to then DENR Secretary Heherson Alvarez, for the cancellation of the
CAMC FTAA for the primary reason that Rep. Act No. 7942 and its Implementing
Rules and Regulations DAO 96-40 are unconstitutional. The Office of the Executive
Secretary was also furnished a copy of the said letter. There being no response to
both letters, another letter of the same content dated 17 June 2002 was sent to
President Gloria Macapagal Arroyo. This letter was indorsed to the DENR
Secretary and eventually referred to the Panel of Arbitrators of the Mines and
Geosciences Bureau (MGB), Regional Office No. 02, Tuguegarao, Cagayan, for
further action.

On 12 November 2002, counsels for petitioners received a letter from the

Panel of Arbitrators of the MGB requiring the petitioners to comply with the Rules
of the Panel of Arbitrators before the letter may be acted upon.
 Yet again, counsels for petitioners sent President Arroyo another demand
letter dated 8 November 2002. Said letter was again forwarded to the DENR
Secretary who referred the same to the MGB, Quezon City.

In a letter dated 19 February 2003, the MGB rejected the demand of

counsels for petitioners for the cancellation of the CAMC FTAA.

Petitioners thus filed the present petition for prohibition and mandamus,
with a prayer for a temporary restraining order. They pray that the Court issue an
order:

1. enjoining public respondents from acting on any application for FTAA;

2. declaring unconstitutional the Philippine Mining Act of 1995 and its

Implementing Rules and Regulations;

3. canceling the FTAA issued to CAMC.

In their memorandum petitioners pose the following issues:

 I

WHETHER OR NOT REPUBLIC ACT NO. 7942 AND THE CAMC FTAA ARE VOID BECAUSE
THEY ALLOW THE UNJUST AND UNLAWFUL TAKING OF PROPERTY WITHOUT PAYMENT
OF JUST COMPENSATION , IN VIOLATION OF SECTION 9, ARTICLE III OF THE
CONSTITUTION.

II

WHETHER OR NOT THE MINING ACT AND ITS IMPLEMENTING RULES AND REGULATIONS
ARE VOID AND UNCONSTITUTIONAL FOR SANCTIONING AN UNCONSTITUTIONAL
ADMINISTRATIVE PROCESS OF DETERMINING JUST COMPENSATION.

III

WHETHER OR NOT THE STATE, THROUGH REPUBLIC ACT NO. 7942 AND THE CAMC
FTAA, ABDICATED ITS PRIMARY RESPONSIBILITY TO THE FULL CONTROL AND
SUPERVISION OVER NATURAL RESOURCES.

IV

WHETHER OR NOT THE RESPONDENTS INTERPRETATION OF THE ROLE OF WHOLLY

FOREIGN AND FOREIGN-OWNED CORPORATIONS IN THEIR INVOLVEMENT IN MINING
ENTERPRISES, VIOLATES PARAGRAPH 4, SECTION 2, ARTICLE XII OF THE CONSTITUTION.
 V

WHETHER OR NOT THE 1987 CONSTITUTION PROHIBITS SERVICE CONTRACTS.140[1]

Before going to the substantive issues, the procedural question raised by

public respondents shall first be dealt with. Public respondents are of the view
that petitioners eminent domain claim is not ripe for adjudication as they fail to
allege that CAMC has actually taken their properties nor do they allege that their
property rights have been endangered or are in danger on account of CAMCs
FTAA. In effect, public respondents insist that the issue of eminent domain is not
a justiciable controversy which this Court can take cognizance of.

A justiciable controversy is defined as a definite and concrete dispute

touching on the legal relations of parties having adverse legal interests which may
be resolved by a court of law through the application of a law.141[2] Thus, courts
have no judicial power to review cases involving political questions and as a rule,
will desist from taking cognizance of speculative or hypothetical cases, advisory
opinions and cases that have become moot.142[3] The Constitution is quite
explicit on this matter.143[4] It provides that judicial power includes the duty of
the courts of justice to settle actual controversies involving rights which are
legally demandable and enforceable. Pursuant to this constitutional mandate,
courts, through the power of judicial review, are to entertain only real disputes
between conflicting parties through the application of law. For the courts to
exercise the power of judicial review, the following must be extant (1) there must
be an actual case calling for the exercise of judicial power; (2) the question must
be ripe for adjudication; and (3) the person challenging must have the
standing.144[5]

An actual case or controversy involves a conflict of legal rights, an assertion

of opposite legal claims, susceptible of judicial resolution as distinguished from a
hypothetical or abstract difference or dispute.145[6] There must be a contrariety
of legal rights that can be interpreted and enforced on the basis of existing law
and jurisprudence.
 Closely related to the second requisite is that the question must be ripe for
adjudication. A question is considered ripe for adjudication when the act being
challenged has had a direct adverse effect on the individual challenging it.146[7]

The third requisite is legal standing or locus standi. It is defined as a

personal or substantial interest in the case such that the party has sustained or
will sustain direct injury as a result of the governmental act that is being
challenged, alleging more than a generalized grievance.147[8] The gist of the
question of standing is whether a party alleges such personal stake in the
outcome of the controversy as to assure that concrete adverseness which
sharpens the presentation of issues upon which the court depends for
illumination of difficult constitutional questions.148[9] Unless a person is
injuriously affected in any of his constitutional rights by the operation of statute
or ordinance, he has no standing.149[10]
 In the instant case, there exists a live controversy involving a clash of legal
rights as Rep. Act No. 7942 has been enacted, DAO 96-40 has been approved and
an FTAAs have been entered into. The FTAA holders have already been operating
in various provinces of the country. Among them is CAMC which operates in the
provinces of Nueva Vizcaya and Quirino where numerous individuals including the
petitioners are imperiled of being ousted from their landholdings in view of the
CAMC FTAA. In light of this, the court cannot await the adverse consequences of
the law in order to consider the controversy actual and ripe for judicial
intervention.150[11] Actual eviction of the land owners and occupants need not
happen for this Court to intervene. As held in Pimentel, Jr. v. Hon. Aguirre151[12]:

By the mere enactment of the questioned law or the approval of the challenged act, the
dispute is said to have ripened into a judicial controversy even without any other overt
act. Indeed, even a singular violation of the Constitution and/or the law is enough to
awaken judicial duty.152[13]
 Petitioners embrace various segments of the society. These include Didipio
Earth-Savers Multi-Purpose Association, Inc., an organization of farmers and
indigenous peoples organized under Philippine laws, representing a community
actually affected by the mining activities of CAMC, as well as other residents of
areas affected by the mining activities of CAMC. These petitioners have the
standing to raise the constitutionality of the questioned FTAA as they allege a
personal and substantial injury.153[14] They assert that they are affected by the
mining activities of CAMC. Likewise, they are under imminent threat of being
displaced from their landholdings as a result of the implementation of the
questioned FTAA. They thus meet the appropriate case requirement as they
assert an interest adverse to that of respondents who, on the other hand, claim
the validity of the assailed statute and the FTAA of CAMC.

Besides, the transcendental importance of the issues raised and the

magnitude of the public interest involved will have a bearing on the countrys
economy which is to a greater extent dependent upon the mining industry. Also
affected by the resolution of this case are the proprietary rights of numerous
residents in the mining contract areas as well as the social existence of indigenous
peoples which are threatened. Based on these considerations, this Court deems it
proper to take cognizance of the instant petition.
 Having resolved the procedural question, the constitutionality of the law
under attack must be addressed squarely.

First Substantive Issue: Validity of Section 76 of Rep. Act No. 7942 and DAO 96-
40

In seeking to nullify Rep. Act No. 7942 and its implementing rules DAO 96-
40 as unconstitutional, petitioners set their sight on Section 76 of Rep. Act No.
7942 and Section 107 of DAO 96-40 which they claim allow the unlawful and
unjust taking of private property for private purpose in contradiction with Section
9, Article III of the 1987 Constitution mandating that private property shall not be
taken except for public use and the corresponding payment of just compensation.
They assert that public respondent DENR, through the Mining Act and its
Implementing Rules and Regulations, cannot, on its own, permit entry into a
private property and allow taking of land without payment of just compensation.

Interpreting Section 76 of Rep. Act No. 7942 and Section 107 of DAO 96-
40, juxtaposed with the concept of taking of property for purposes of eminent
domain in the case of Republic v. Vda. de Castellvi,154[15] petitioners assert that
there is indeed a taking upon entry into private lands and concession areas.
 Republic v. Vda. de Castellvi defines taking under the concept of eminent
domain as entering upon private property for more than a momentary period, and,
under the warrant or color of legal authority, devoting it to a public use, or
otherwise informally appropriating or injuriously affecting it in such a way as to
substantially oust the owner and deprive him of all beneficial enjoyment thereof.

From the criteria set forth in the cited case, petitioners claim that the entry
into a private property by CAMC, pursuant to its FTAA, is for more than a
momentary period, i.e., for 25 years, and renewable for another 25 years; that the
entry into the property is under the warrant or color of legal authority pursuant
to the FTAA executed between the government and CAMC; and that the entry
substantially ousts the owner or possessor and deprives him of all beneficial
enjoyment of the property. These facts, according to the petitioners, amount to
taking. As such, petitioners question the exercise of the power of eminent domain
as unwarranted because respondents failed to prove that the entry into private
property is devoted for public use.

Petitioners also stress that even without the doctrine in the Castellvi case,
the nature of the mining activity, the extent of the land area covered by the
CAMC FTAA and the various rights granted to the proponent or the FTAA holder,
such as (a) the right of possession of the Exploration Contract Area, with full right
of ingress and egress and the right to occupy the same; (b) the right not to be
prevented from entry into private lands by surface owners and/or occupants
thereof when prospecting, exploring and exploiting for minerals therein; (c) the
right to enjoy easement rights, the use of timber, water and other natural
resources in the Exploration Contract Area; (d) the right of possession of the
Mining Area, with full right of ingress and egress and the right to occupy the
same; and (e) the right to enjoy easement rights, water and other natural
resources in the Mining Area, result in a taking of private property.

Petitioners quickly add that even assuming arguendo that there is no

absolute, physical taking, at the very least, Section 76 establishes a legal
easement upon the surface owners, occupants and concessionaires of a mining
contract area sufficient to deprive them of enjoyment and use of the property
and that such burden imposed by the legal easement falls within the purview of
eminent domain.

To further bolster their claim that the legal easement established is

equivalent to taking, petitioners cite the case of National Power Corporation v.
Gutierrez155[16] holding that the easement of right-of-way imposed against the
use of the land for an indefinite period is a taking under the power of eminent
domain.

Traversing petitioners assertion, public respondents argue that Section 76 is

not a taking provision but a valid exercise of the police power and by virtue of
which, the state may prescribe regulations to promote the health, morals, peace,
education, good order, safety and general welfare of the people. This government
regulation involves the adjustment of rights for the public good and that this
adjustment curtails some potential for the use or economic exploitation of private
property. Public respondents concluded that to require compensation in all such
circumstances would compel the government to regulate by purchase.

Public respondents are inclined to believe that by entering private lands

and concession areas, FTAA holders do not oust the owners thereof nor deprive
them of all beneficial enjoyment of their properties as the said entry merely
establishes a legal easement upon surface owners, occupants and concessionaires
of a mining contract area.

Taking in Eminent Domain Distinguished from Regulation in Police Power

 The power of eminent domain is the inherent right of the state (and of
those entities to which the power has been lawfully delegated) to condemn
private property to public use upon payment of just compensation.156[17] On the
other hand, police power is the power of the state to promote public welfare by
restraining and regulating the use of liberty and property.157[18] Although both
police power and the power of eminent domain have the general welfare for their
object, and recent trends show a mingling158[19] of the two with the latter being
used as an implement of the former, there are still traditional distinctions
between the two.

Property condemned under police power is usually noxious or intended for

a noxious purpose; hence, no compensation shall be paid.159[20] Likewise, in the
exercise of police power, property rights of private individuals are subjected to
restraints and burdens in order to secure the general comfort, health, and
prosperity of the state. Thus, an ordinance prohibiting theaters from selling
tickets in excess of their seating capacity (which would result in the diminution of
profits of the theater-owners) was upheld valid as this would promote the
comfort, convenience and safety of the customers.160[21] In U.S. v.
Toribio,161[22] the court upheld the provisions of Act No. 1147, a statute
regulating the slaughter of carabao for the purpose of conserving an adequate
supply of draft animals, as a valid exercise of police power, notwithstanding the
property rights impairment that the ordinance imposed on cattle owners. A
zoning ordinance prohibiting the operation of a lumber yard within certain areas
was assailed as unconstitutional in that it was an invasion of the property rights of
the lumber yard owners in People v. de Guzman.162[23] The Court nonetheless
ruled that the regulation was a valid exercise of police power. A similar ruling was
arrived at in Seng Kee S Co. v. Earnshaw and Piatt163[24] where an ordinance
divided the City of Manila into industrial and residential areas.

A thorough scrutiny of the extant jurisprudence leads to a cogent deduction

that where a property interest is merely restricted because the continued use
thereof would be injurious to public welfare, or where property is destroyed
because its continued existence would be injurious to public interest, there is no
compensable taking.164[25] However, when a property interest is appropriated
and applied to some public purpose, there is compensable taking.165[26]

According to noted constitutionalist, Fr. Joaquin Bernas, SJ, in the exercise

of its police power regulation, the state restricts the use of private property, but
none of the property interests in the bundle of rights which constitute ownership
is appropriated for use by or for the benefit of the public.166[27] Use of the
property by the owner was limited, but no aspect of the property is used by or for
the public.167[28] The deprivation of use can in fact be total and it will not
constitute compensable taking if nobody else acquires use of the property or any
interest therein.168[29]
 If, however, in the regulation of the use of the property, somebody else
acquires the use or interest thereof, such restriction constitutes compensable
taking. Thus, in City Government of Quezon City v. Ericta,169[30] it was argued by
the local government that an ordinance requiring private cemeteries to reserve
6% of their total areas for the burial of paupers was a valid exercise of the police
power under the general welfare clause. This court did not agree in the
contention, ruling that property taken under the police power is sought to be
destroyed and not, as in this case, to be devoted to a public use. It further
declared that the ordinance in question was actually a taking of private property
without just compensation of a certain area from a private cemetery to benefit
paupers who are charges of the local government. Being an exercise of eminent
domain without provision for the payment of just compensation, the same was
rendered invalid as it violated the principles governing eminent domain.

In People v. Fajardo,170[31] the municipal mayor refused Fajardo

permission to build a house on his own land on the ground that the proposed
structure would destroy the view or beauty of the public plaza. The ordinance
relied upon by the mayor prohibited the construction of any building that would
destroy the view of the plaza from the highway. The court ruled that the
municipal ordinance under the guise of police power permanently divest owners
of the beneficial use of their property for the benefit of the public; hence,
considered as a taking under the power of eminent domain that could not be
countenanced without payment of just compensation to the affected owners. In
this case, what the municipality wanted was to impose an easement on the
property in order to preserve the view or beauty of the public plaza, which was a
form of utilization of Fajardos property for public benefit.171[32]

While the power of eminent domain often results in the appropriation of

title to or possession of property, it need not always be the case. Taking may
include trespass without actual eviction of the owner, material impairment of the
value of the property or prevention of the ordinary uses for which the property
was intended such as the establishment of an easement.172[33] In Ayala de
Roxas v. City of Manila,173[34] it was held that the imposition of burden over a
private property through easement was considered taking; hence, payment of
just compensation is required. The Court declared:
 And, considering that the easement intended to be established, whatever may
be the object thereof, is not merely a real right that will encumber the property, but is
one tending to prevent the exclusive use of one portion of the same, by expropriating it
for public use which, be it what it may, can not be accomplished unless the owner of the
property condemned or seized be previously and duly indemnified, it is proper to
protect the appellant by means of the remedy employed in such cases, as it is only
adequate remedy when no other legal action can be resorted to, against an intent which
is nothing short of an arbitrary restriction imposed by the city by virtue of the coercive
power with which the same is invested.

And in the case of National Power Corporation v. Gutierrez,174[35] despite

the NPCs protestation that the owners were not totally deprived of the use of the
land and could still plant the same crops as long as they did not come into contact
with the wires, the Court nevertheless held that the easement of right-of-way was
a taking under the power of eminent domain. The Court said:

In the case at bar, the easement of right-of-way is definitely a taking under the
power of eminent domain. Considering the nature and effect of the installation of 230
KV Mexico-Limay transmission lines, the limitation imposed by NPC against the use of
the land for an indefinite period deprives private respondents of its ordinary use.

A case exemplifying an instance of compensable taking which does not

entail transfer of title is Republic v. Philippine Long Distance Telephone Co.175[36]
Here, the Bureau of Telecommunications, a government instrumentality, had
contracted with the PLDT for the interconnection between the Government
Telephone System and that of the PLDT, so that the former could make use of the
lines and facilities of the PLDT. In its desire to expand services to government
offices, the Bureau of Telecommunications demanded to expand its use of the
PLDT lines. Disagreement ensued on the terms of the contract for the use of the
PLDT facilities. The Court ruminated:

Normally, of course, the power of eminent domain results in the taking or

appropriation of title to, and possession of, the expropriated property; but no cogent
reason appears why said power may not be availed of to impose only a burden upon the
owner of the condemned property, without loss of title and possession. It is
unquestionable that real property may, through expropriation, be subjected to an
easement right of way.176[37]

In Republic v. Castellvi,177[38] this Court had the occasion to spell out the
requisites of taking in eminent domain, to wit:

(1) the expropriator must enter a private property;

 (2) the entry must be for more than a momentary period.

(3) the entry must be under warrant or color of legal authority;

(4) the property must be devoted to public use or otherwise informally

appropriated or injuriously affected;

(5) the utilization of the property for public use must be in such a way as to oust
the owner and deprive him of beneficial enjoyment of the property.

As shown by the foregoing jurisprudence, a regulation which substantially

deprives the owner of his proprietary rights and restricts the beneficial use and
enjoyment for public use amounts to compensable taking. In the case under
consideration, the entry referred to in Section 76 and the easement rights under
Section 75 of Rep. Act No. 7942 as well as the various rights to CAMC under its
FTAA are no different from the deprivation of proprietary rights in the cases
discussed which this Court considered as taking. Section 75 of the law in question
reads:

Easement Rights. - When mining areas are so situated that for purposes of more
convenient mining operations it is necessary to build, construct or install on the mining
areas or lands owned, occupied or leased by other persons, such infrastructure as roads,
railroads, mills, waste dump sites, tailing ponds, warehouses, staging or storage areas
 and port facilities, tramways, runways, airports, electric transmission, telephone or
telegraph lines, dams and their normal flood and catchment areas, sites for water wells,
ditches, canals, new river beds, pipelines, flumes, cuts, shafts, tunnels, or mills, the
contractor, upon payment of just compensation, shall be entitled to enter and occupy
said mining areas or lands.

Section 76 provides:

Entry into private lands and concession areas Subject to prior notification,
holders of mining rights shall not be prevented from entry into private lands and
concession areas by surface owners, occupants, or concessionaires when conducting
mining operations therein.

The CAMC FTAA grants in favor of CAMC the right of possession of the
Exploration Contract Area, the full right of ingress and egress and the right to
occupy the same. It also bestows CAMC the right not to be prevented from entry
into private lands by surface owners or occupants thereof when prospecting,
exploring and exploiting minerals therein.

The entry referred to in Section 76 is not just a simple right-of-way which is

ordinarily allowed under the provisions of the Civil Code. Here, the holders of
mining rights enter private lands for purposes of conducting mining activities such
as exploration, extraction and processing of minerals. Mining right holders build
mine infrastructure, dig mine shafts and connecting tunnels, prepare tailing
ponds, storage areas and vehicle depots, install their machinery, equipment and
sewer systems. On top of this, under Section 75, easement rights are accorded to
them where they may build warehouses, port facilities, electric transmission,
railroads and other infrastructures necessary for mining operations. All these will
definitely oust the owners or occupants of the affected areas the beneficial
ownership of their lands. Without a doubt, taking occurs once mining operations
commence.

Section 76 of Rep. Act No. 7942 is a Taking Provision

Moreover, it would not be amiss to revisit the history of mining laws of this
country which would help us understand Section 76 of Rep. Act No. 7942.

This provision is first found in Section 27 of Commonwealth Act No. 137

which took effect on 7 November 1936, viz:

Before entering private lands the prospector shall first apply in writing for
written permission of the private owner, claimant, or holder thereof, and in case of
refusal by such private owner, claimant, or holder to grant such permission, or in case of
disagreement as to the amount of compensation to be paid for such privilege of
prospecting therein, the amount of such compensation shall be fixed by agreement
among the prospector, the Director of the Bureau of Mines and the surface owner, and
 in case of their failure to unanimously agree as to the amount of compensation, all
questions at issue shall be determined by the Court of First Instance.

Similarly, the pertinent provision of Presidential Decree No. 463, otherwise

known as The Mineral Resources Development Decree of 1974, provides:

SECTION 12. Entry to Public and Private Lands. A person who desires to
conduct prospecting or other mining operations within public lands covered by
concessions or rights other than mining shall first obtain the written permission of the
government official concerned before entering such lands. In the case of private lands,
the written permission of the owner or possessor of the land must be obtained before
entering such lands. In either case, if said permission is denied, the Director, at the
request of the interested person may intercede with the owner or possessor of the land.
If the intercession fails, the interested person may bring suit in the Court of First
Instance of the province where the land is situated. If the court finds the request
justified, it shall issue an order granting the permission after fixing the amount of
compensation and/or rental due the owner or possessor: Provided, That pending final
adjudication of such amount, the court shall upon recommendation of the Director
permit the interested person to enter, prospect and/or undertake other mining
operations on the disputed land upon posting by such interested person of a bond with
the court which the latter shall consider adequate to answer for any damage to the
owner or possessor of the land resulting from such entry, prospecting or any other
mining operations.

Hampered by the difficulties and delays in securing surface rights for the
entry into private lands for purposes of mining operations, Presidential Decree
No. 512 dated 19 July 1974 was passed into law in order to achieve full and
accelerated mineral resources development. Thus, Presidential Decree No. 512
provides for a new system of surface rights acquisition by mining prospectors and
claimants. Whereas in Commonwealth Act No. 137 and Presidential Decree No.
463 eminent domain may only be exercised in order that the mining claimants
can build, construct or install roads, railroads, mills, warehouses and other
facilities, this time, the power of eminent domain may now be invoked by mining
operators for the entry, acquisition and use of private lands, viz:

SECTION 1. Mineral prospecting, location, exploration, development and

exploitation is hereby declared of public use and benefit, and for which the power of
eminent domain may be invoked and exercised for the entry, acquisition and use of
private lands. x x x.

The evolution of mining laws gives positive indication that mining operators
who are qualified to own lands were granted the authority to exercise eminent
domain for the entry, acquisition, and use of private lands in areas open for
mining operations. This grant of authority extant in Section 1 of Presidential
Decree No. 512 is not expressly repealed by Section 76 of Rep. Act No. 7942; and
neither are the former statutes impliedly repealed by the former. These two
provisions can stand together even if Section 76 of Rep. Act No. 7942 does not
spell out the grant of the privilege to exercise eminent domain which was present
in the old law.

It is an established rule in statutory construction that in order that one law

may operate to repeal another law, the two laws must be inconsistent.178[39]
The former must be so repugnant as to be irreconciliable with the latter act.
Simply because a latter enactment may relate to the same subject matter as that
of an earlier statute is not of itself sufficient to cause an implied repeal of the
latter, since the new law may be cumulative or a continuation of the old one. As
has been the ruled, repeals by implication are not favored, and will not be
decreed unless it is manifest that the legislature so intended.179[40] As laws are
presumed to be passed with deliberation and with full knowledge of all existing
ones on the subject, it is but reasonable to conclude that in passing a statute it
was not intended to interfere with or abrogate any former law relating to the
same matter, unless the repugnancy between the two is not only irreconcilable,
but also clear and convincing, and flowing necessarily from the language used,
unless the later act fully embraces the subject matter of the earlier, or unless the
reason for the earlier act is beyond peradventure removed.180[41] Hence, every
effort must be used to make all acts stand and if, by any reasonable construction,
they can be reconciled, the latter act will not operate as a repeal of the earlier.

Considering that Section 1 of Presidential Decree No. 512 granted the

qualified mining operators the authority to exercise eminent domain and since
this grant of authority is deemed incorporated in Section 76 of Rep. Act No. 7942,
the inescapable conclusion is that the latter provision is a taking provision.

While this Court declares that the assailed provision is a taking provision,
this does not mean that it is unconstitutional on the ground that it allows taking
of private property without the determination of public use and the payment of
just compensation.

The taking to be valid must be for public use.181[42] Public use as a

requirement for the valid exercise of the power of eminent domain is now
synonymous with public interest, public benefit, public welfare and public
convenience.182[43] It includes the broader notion of indirect public benefit or
advantage. Public use as traditionally understood as actual use by the public has
already been abandoned.183[44]
 Mining industry plays a pivotal role in the economic development of the
country and is a vital tool in the governments thrust of accelerated
recovery.184[45] The importance of the mining industry for national development
is expressed in Presidential Decree No. 463:

WHEREAS, mineral production is a major support of the national economy, and

therefore the intensified discovery, exploration, development and wise utilization of the
countrys mineral resources are urgently needed for national development.

Irrefragably, mining is an industry which is of public benefit.

That public use is negated by the fact that the state would be taking private
properties for the benefit of private mining firms or mining contractors is not at
all true. In Heirs of Juancho Ardona v. Reyes,185[46] petitioners therein
contended that the promotion of tourism is not for public use because private
concessionaires would be allowed to maintain various facilities such as
restaurants, hotels, stores, etc., inside the tourist area. The Court thus
contemplated:
 The rule in Berman v. Parker [348 U.S. 25; 99 L. ed. 27] of deference to
legislative policy even if such policy might mean taking from one private person and
conferring on another private person applies as well in the Philippines.

. . . Once the object is within the authority of Congress, the

means by which it will be attained is also for Congress to determine.
Here one of the means chosen is the use of private enterprise for
redevelopment of the area. Appellants argue that this makes the project
a taking from one businessman for the benefit of another businessman.
But the means of executing the project are for Congress and Congress
alone to determine, once the public purpose has been established. x x
x186[47]

Petitioners further maintain that the states discretion to decide when to

take private property is reduced contractually by Section 13.5 of the CAMC FTAA,
which reads:

If the CONTRACTOR so requests at its option, the GOVERNMENT shall use its
offices and legal powers to assist in the acquisition at reasonable cost of any surface
areas or rights required by the CONTRACTOR at the CONTRACTORs cost to carry out the
Mineral Exploration and the Mining Operations herein.
 All obligations, payments and expenses arising from, or incident to, such
agreements or acquisition of right shall be for the account of the CONTRACTOR and shall
be recoverable as Operating Expense.

According to petitioners, the government is reduced to a sub-contractor

upon the request of the private respondent, and on account of the foregoing
provision, the contractor can compel the government to exercise its power of
eminent domain thereby derogating the latters power to expropriate property.

The provision of the FTAA in question lays down the ways and means by
which the foreign-owned contractor, disqualified to own land, identifies to the
government the specific surface areas within the FTAA contract area to be
acquired for the mine infrastructure.187[48] The government then acquires
ownership of the surface land areas on behalf of the contractor, through a
voluntary transaction in order to enable the latter to proceed to fully implement
the FTAA. Eminent domain is not yet called for at this stage since there are still
various avenues by which surface rights can be acquired other than expropriation.
The FTAA provision under attack merely facilitates the implementation of the
FTAA given to CAMC and shields it from violating the Anti-Dummy Law. Hence,
when confronted with the same question in La Bugal-BLaan Tribal Association,
Inc. v. Ramos,188[49] the Court answered:

Clearly, petitioners have needlessly jumped to unwarranted conclusions,

without being aware of the rationale for the said provision. That provision does
not call for the exercise of the power of eminent domain -- and determination of
just compensation is not an issue -- as much as it calls for a qualified party to
acquire the surface rights on behalf of a foreign-owned contractor.
Rather than having the foreign contractor act through a dummy
corporation, having the State do the purchasing is a better alternative. This will at
least cause the government to be aware of such transaction/s and foster
transparency in the contractors dealings with the local property owners. The
government, then, will not act as a subcontractor of the contractor; rather, it will
facilitate the transaction and enable the parties to avoid a technical violation of
the Anti-Dummy Law.

There is also no basis for the claim that the Mining Law and its
implementing rules and regulations do not provide for just compensation in
expropriating private properties. Section 76 of Rep. Act No. 7942 and Section 107
of DAO 96-40 provide for the payment of just compensation:

Section 76. xxx Provided, that any damage to the property of the surface owner,
occupant, or concessionaire as a consequence of such operations shall be properly
compensated as may be provided for in the implementing rules and regulations.
 Section 107. Compensation of the Surface Owner and Occupant- Any damage
done to the property of the surface owners, occupant, or concessionaire thereof as a
consequence of the mining operations or as a result of the construction or installation of
the infrastructure mentioned in 104 above shall be properly and justly compensated.

Such compensation shall be based on the agreement entered into between the
holder of mining rights and the surface owner, occupant or concessionaire thereof,
where appropriate, in accordance with P.D. No. 512. (Emphasis supplied.)

Second Substantive Issue: Power of Courts to Determine Just Compensation

Closely-knit to the issue of taking is the determination of just

compensation. It is contended that Rep. Act No. 7942 and Section 107 of DAO 96-
40 encroach on the power of the trial courts to determine just compensation in
eminent domain cases inasmuch as the same determination of proper
compensation are cognizable only by the Panel of Arbitrators.

The question on the judicial determination of just compensation has been

settled in the case of Export Processing Zone Authority v. Dulay189[50] wherein
the court declared that the determination of just compensation in eminent
domain cases is a judicial function. Even as the executive department or the
legislature may make the initial determinations, the same cannot prevail over the
courts findings.

Implementing Section 76 of Rep. Act No. 7942, Section 105 of DAO 96-40
states that holder(s) of mining right(s) shall not be prevented from entry into
its/their contract/mining areas for the purpose of exploration, development,
and/or utilization. That in cases where surface owners of the lands, occupants or
concessionaires refuse to allow the permit holder or contractor entry, the latter
shall bring the matter before the Panel of Arbitrators for proper disposition.
Section 106 states that voluntary agreements between the two parties permitting
the mining right holders to enter and use the surface owners lands shall be
registered with the Regional Office of the MGB. In connection with Section 106,
Section 107 provides that the compensation for the damage done to the surface
owner, occupant or concessionaire as a consequence of mining operations or as a
result of the construction or installation of the infrastructure shall be properly and
justly compensated and that such compensation shall be based on the agreement
between the holder of mining rights and surface owner, occupant or
concessionaire, or where appropriate, in accordance with Presidential Decree No.
512. In cases where there is disagreement to the compensation or where there is
no agreement, the matter shall be brought before the Panel of Arbitrators.
Section 206 of the implementing rules and regulations provides an aggrieved
party the remedy to appeal the decision of the Panel of Arbitrators to the Mines
Adjudication Board, and the latters decision may be reviewed by the Supreme
Court by filing a petition for review on certiorari.190[51]

An examination of the foregoing provisions gives no indication that the

courts are excluded from taking cognizance of expropriation cases under the
mining law. The disagreement referred to in Section 107 does not involve the
exercise of eminent domain, rather it contemplates of a situation wherein the
permit holders are allowed by the surface owners entry into the latters lands and
disagreement ensues as regarding the proper compensation for the allowed entry
and use of the private lands. Noticeably, the provision points to a voluntary sale
or transaction, but not to an involuntary sale.

The legislature, in enacting the mining act, is presumed to have deliberated

with full knowledge of all existing laws and jurisprudence on the subject. Thus, it
is but reasonable to conclude that in passing such statute it was in accord with
the existing laws and jurisprudence on the jurisdiction of courts in the
determination of just compensation and that it was not intended to interfere with
or abrogate any former law relating to the same matter. Indeed, there is nothing
in the provisions of the assailed law and its implementing rules and regulations
that exclude the courts from their jurisdiction to determine just compensation in
expropriation proceedings involving mining operations. Although Section 105
confers upon the Panel of Arbitrators the authority to decide cases where surface
owners, occupants, concessionaires refuse permit holders entry, thus,
necessitating involuntary taking, this does not mean that the determination of the
just compensation by the Panel of Arbitrators or the Mines Adjudication Board is
final and conclusive. The determination is only preliminary unless accepted by all
parties concerned. There is nothing wrong with the grant of primary jurisdiction
by the Panel of Arbitrators or the Mines Adjudication Board to determine in a
preliminary matter the reasonable compensation due the affected landowners or
occupants.191[52] The original and exclusive jurisdiction of the courts to decide
determination of just compensation remains intact despite the preliminary
determination made by the administrative agency. As held in Philippine Veterans
Bank v. Court of Appeals192[53]:

The jurisdiction of the Regional Trial Courts is not any less original and exclusive
because the question is first passed upon by the DAR, as the judicial proceedings are not
a continuation of the administrative determination.

Third Substantive Issue: Sufficient Control by the State Over Mining Operations
 Anent the third issue, petitioners charge that Rep. Act No. 7942, as well as
its Implementing Rules and Regulations, makes it possible for FTAA contracts to
cede over to a fully foreign-owned corporation full control and management of
mining enterprises, with the result that the State is allegedly reduced to a passive
regulator dependent on submitted plans and reports, with weak review and audit
powers. The State is not acting as the supposed owner of the natural resources
for and on behalf of the Filipino people; it practically has little effective say in the
decisions made by the enterprise. In effect, petitioners asserted that the law, the
implementing regulations, and the CAMC FTAA cede beneficial ownership of the
mineral resources to the foreign contractor.

It must be noted that this argument was already raised in La Bugal-BLaan

Tribal Association, Inc. v. Ramos,193[54] where the Court answered in the
following manner:

RA 7942 provides for the states control and supervision over mining
operations. The following provisions thereof establish the mechanism of
inspection and visitorial rights over mining operations and institute reportorial
requirements in this manner:
1. Sec. 8 which provides for the DENRs power of over-all
supervision and periodic review for the conservation,
management, development and proper use of the States mineral
resources;
2. Sec. 9 which authorizes the Mines and Geosciences Bureau
(MGB) under the DENR to exercise direct charge in the
administration and disposition of mineral resources, and
empowers the MGB to monitor the compliance by the
contractor of the terms and conditions of the mineral
agreements, confiscate surety and performance bonds, and
deputize whenever necessary any member or unit of the Phil.
National Police, barangay, duly registered non-governmental
organization (NGO) or any qualified person to police mining
activities;
3. Sec. 66 which vests in the Regional Director exclusive
jurisdiction over safety inspections of all installations, whether
surface or underground, utilized in mining operations.
4. Sec. 35, which incorporates into all FTAAs the following terms,
conditions and warranties:
(g) Mining operations shall be conducted in accordance
with the provisions of the Act and its IRR.
(h) Work programs and minimum expenditures
commitments.
xxxx
(k) Requiring proponent to effectively use appropriate
anti-pollution technology and facilities to protect
the environment and restore or rehabilitate mined-
out areas.
(l) The contractors shall furnish the Government
records of geologic, accounting and other relevant
data for its mining operation, and that books of
accounts and records shall be open for inspection by
the government. x x x.
(m) Requiring the proponent to dispose of the minerals
at the highest price and more advantageous terms
and conditions.
xxxx
(o) Such other terms and conditions consistent with the
Constitution and with this Act as the Secretary may
deem to be for the best interest of the State and the
welfare of the Filipino people.
 The foregoing provisions of Section 35 of RA 7942 are also reflected and
implemented in Section 56 (g), (h), (l), (m) and (n) of the Implementing Rules,
DAO 96-40.
Moreover, RA 7942 and DAO 96-40 also provide various stipulations
confirming the governments control over mining enterprises:
The contractor is to relinquish to the government those portions of the contract
area not needed for mining operations and not covered by any declaration of
mining feasibility (Section 35-e, RA 7942; Section 60, DAO 96-40).
The contractor must comply with the provisions pertaining to mine safety,
health and environmental protection (Chapter XI, RA 7942; Chapters XV and
XVI, DAO 96-40).
For violation of any of its terms and conditions, government may cancel an
FTAA. (Chapter XVII, RA 7942; Chapter XXIV, DAO 96-40).
An FTAA contractor is obliged to open its books of accounts and records for
0inspection by the government (Section 56-m, DAO 96-40).
An FTAA contractor has to dispose of the minerals and by-products at the
highest market price and register with the MGB a copy of the sales agreement
(Section 56-n, DAO 96-40).
MGB is mandated to monitor the contractors compliance with the terms and
conditions of the FTAA; and to deputize, when necessary, any member or
unit of the Philippine National Police, the barangay or a DENR-accredited
nongovernmental organization to police mining activities (Section 7-d and -f,
DAO 96-40).
An FTAA cannot be transferred or assigned without prior approval by the
President (Section 40, RA 7942; Section 66, DAO 96-40).
A mining project under an FTAA cannot proceed to the
construction/development/utilization stage, unless its Declaration of Mining
Project Feasibility has been approved by government (Section 24, RA 7942).
The Declaration of Mining Project Feasibility filed by the contractor cannot be
approved without submission of the following documents:
1. Approved mining project feasibility study (Section 53-d, DAO
96-40)
2. Approved three-year work program (Section 53-a-4, DAO 96-40)
3. Environmental compliance certificate (Section 70, RA 7942)
4. Approved environmental protection and enhancement program
(Section 69, RA 7942)
5. Approval by the Sangguniang Panlalawigan/Bayan/Barangay
(Section 70, RA 7942; Section 27, RA 7160)
6. Free and prior informed consent by the indigenous peoples
concerned, including payment of royalties through a
 Memorandum of Agreement (Section 16, RA 7942; Section 59,
RA 8371)
The FTAA contractor is obliged to assist in the development of its mining
community, promotion of the general welfare of its inhabitants, and
development of science and mining technology (Section 57, RA 7942).
The FTAA contractor is obliged to submit reports (on quarterly, semi-annual
or annual basis as the case may be; per Section 270, DAO 96-40), pertaining
to the following:
1. Exploration
2. Drilling
3. Mineral resources and reserves
4. Energy consumption
5. Production
6. Sales and marketing
7. Employment
8. Payment of taxes, royalties, fees and other Government Shares
9. Mine safety, health and environment
10. Land use
11. Social development
12. Explosives consumption
An FTAA pertaining to areas within government reservations cannot be
granted without a written clearance from the government agencies
concerned (Section 19, RA 7942; Section 54, DAO 96-40).
An FTAA contractor is required to post a financial guarantee bond in favor of
the government in an amount equivalent to its expenditures obligations for
any particular year. This requirement is apart from the representations and
warranties of the contractor that it has access to all the financing, managerial
and technical expertise and technology necessary to carry out the objectives
of the FTAA (Section 35-b, -e, and -f, RA 7942).
Other reports to be submitted by the contractor, as required under DAO 96-
40, are as follows: an environmental report on the rehabilitation of the
mined-out area and/or mine waste/tailing covered area, and anti-pollution
measures undertaken (Section 35-a-2); annual reports of the mining
operations and records of geologic accounting (Section 56-m); annual
progress reports and final report of exploration activities (Section 56-2).
Other programs required to be submitted by the contractor, pursuant to DAO
96-40, are the following: a safety and health program (Section 144); an
environmental work program (Section 168); an annual environmental
protection and enhancement program (Section 171).
The foregoing gamut of requirements, regulations, restrictions and
limitations imposed upon the FTAA contractor by the statute and regulations
easily overturns petitioners contention. The setup under RA 7942 and DAO 96-
 40 hardly relegates the State to the role of a passive regulator dependent on
submitted plans and reports. On the contrary, the government agencies concerned
are empowered to approve or disapprove -- hence, to influence, direct and change
-- the various work programs and the corresponding minimum expenditure
commitments for each of the exploration, development and utilization phases of
the mining enterprise.
Once these plans and reports are approved, the contractor is bound to
comply with its commitments therein. Figures for mineral production and sales
are regularly monitored and subjected to government review, in order to ensure
that the products and by-products are disposed of at the best prices possible; even
copies of sales agreements have to be submitted to and registered with
MGB. And the contractor is mandated to open its books of accounts and records
for scrutiny, so as to enable the State to determine if the government share has
been fully paid.
The State may likewise compel the contractors compliance with
mandatory requirements on mine safety, health and environmental protection, and
the use of anti-pollution technology and facilities. Moreover, the contractor is
also obligated to assist in the development of the mining community and to pay
royalties to the indigenous peoples concerned.
Cancellation of the FTAA may be the penalty for violation of any of its
terms and conditions and/or noncompliance with statutes or regulations. This
general, all-around, multipurpose sanction is no trifling matter, especially to a
contractor who may have yet to recover the tens or hundreds of millions of dollars
sunk into a mining project.
Overall, considering the provisions of the statute and the regulations just
discussed, we believe that the State definitely possesses the means by which it can
have the ultimate word in the operation of the enterprise, set directions and
objectives, and detect deviations and noncompliance by the contractor; likewise, it
has the capability to enforce compliance and to impose sanctions, should the
occasion therefor arise.
In other words, the FTAA contractor is not free to do whatever it pleases
and get away with it; on the contrary, it will have to follow the government line if
it wants to stay in the enterprise. Ineluctably then, RA 7942 and DAO 96-40 vest
in the government more than a sufficient degree of control and supervision over
the conduct of mining operations.

Fourth Substantive Issue: The Proper Interpretation of the Constitutional Phrase

Agreements Involving Either Technical or Financial Assistance
 In interpreting the first and fourth paragraphs of Section 2, Article XII of the
Constitution, petitioners set forth the argument that foreign corporations are
barred from making decisions on the conduct of operations and the management
of the mining project. The first paragraph of Section 2, Article XII reads:

x x x The exploration, development, and utilization of natural resources shall be

under the full control and supervision of the State. The State may directly undertake
such activities, or it may enter into co-production, joint venture, or production sharing
agreements with Filipino citizens, or corporations or associations at least sixty
percentum of whose capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty five years, renewable for not more than twenty five years,
and under such terms and conditions as may be provided by law x x x.

The fourth paragraph of Section 2, Article XII provides:

The President may enter into agreements with foreign-owned corporations

involving either technical or financial assistance for large scale exploration,
development, and utilization of minerals, petroleum, and other mineral oils according to
the general terms and conditions provided by law, based on real contributions to the
economic growth and general welfare of the country x x x.

Petitioners maintain that the first paragraph bars aliens and foreign-owned
corporations from entering into any direct arrangement with the government
including those which involve co-production, joint venture or production sharing
agreements. They likewise insist that the fourth paragraph allows foreign-owned
corporations to participate in the large-scale exploration, development and
utilization of natural resources, but such participation, however, is merely limited
to an agreement for either financial or technical assistance only.

Again, this issue has already been succinctly passed upon by this Court in La
Bugal-BLaan Tribal Association, Inc. v. Ramos.194[55] In discrediting such
argument, the Court ratiocinated:

Petitioners claim that the phrase agreements x x x involving either

technical or financial assistance simply means technical assistance or financial
assistance agreements, nothing more and nothing else. They insist that there is no
ambiguity in the phrase, and that a plain reading of paragraph 4 quoted above
leads to the inescapable conclusion that what a foreign-owned corporation may
enter into with the government is merely an agreement for either financial or
technical assistance only, for the large-scale exploration, development and
utilization of minerals, petroleum and other mineral oils; such a limitation, they
argue, excludes foreign management and operation of a mining enterprise.
This restrictive interpretation, petitioners believe, is in line with the
general policy enunciated by the Constitution reserving to Filipino citizens and
corporations the use and enjoyment of the countrys natural resources. They
maintain that this Courts Decision of January 27, 2004 correctly declared the
WMCP FTAA, along with pertinent provisions of RA 7942, void for allowing a
foreign contractor to have direct and exclusive management of a mining
enterprise. Allowing such a privilege not only runs counter to the full control and
supervision that the State is constitutionally mandated to exercise over the
exploration, development and utilization of the countrys natural resources; doing
so also vests in the foreign company beneficial ownership of our mineral
resources. It will be recalled that the Decision of January 27, 2004 zeroed in on
management or other forms of assistance or other activities associated with the
service contracts of the martial law regime, since the management or operation of
mining activities by foreign contractors, which is the primary feature of service
contracts, was precisely the evil that the drafters of the 1987 Constitution sought
to eradicate.
xxxx
We do not see how applying a strictly literal or verba legis interpretation
of paragraph 4 could inexorably lead to the conclusions arrived at in the
ponencia. First, the drafters choice of words -- their use of the phrase agreements
x x x involving either technical or financial assistance -- does not indicate the
intent to exclude other modes of assistance. The drafters opted to use involving
when they could have simply said agreements for financial or technical
assistance, if that was their intention to begin with. In this case, the limitation
would be very clear and no further debate would ensue.
In contrast, the use of the word involving signifies the possibility of the
inclusion of other forms of assistance or activities having to do with, otherwise
related to or compatible with financial or technical assistance. The word
involving as used in this context has three connotations that can be differentiated
thus: one, the sense of concerning, having to do with, or affecting; two, entailing,
requiring, implying or necessitating; and three, including, containing or
comprising.
Plainly, none of the three connotations convey a sense of
exclusivity. Moreover, the word involving, when understood in the sense of
including, as in including technical or financial assistance, necessarily implies
that there are activities other than those that are being included. In other words, if
an agreement includes technical or financial assistance, there is apart from such
assistance -- something else already in, and covered or may be covered by, the
said agreement.
In short, it allows for the possibility that matters, other than those
explicitly mentioned, could be made part of the agreement. Thus, we are now led
to the conclusion that the use of the word involving implies that these agreements
with foreign corporations are not limited to mere financial or technical assistance.
The difference in sense becomes very apparent when we juxtapose agreements for
technical or financial assistance against agreements including technical or
financial assistance. This much is unalterably clear in a verba legis approach.
Second, if the real intention of the drafters was to confine foreign
corporations to financial or technical assistance and nothing more, their language
would have certainly been so unmistakably restrictive and stringent as to leave no
doubt in anyones mind about their true intent. For example, they would have used
the sentence foreign corporations are absolutely prohibited from involvement in
the management or operation of mining or similar ventures or words of similar
import. A search for such stringent wording yields negative results. Thus, we
come to the inevitable conclusion that there was a conscious and deliberate
decision to avoid the use of restrictive wording that bespeaks an intent not to
 use the expression agreements x x x involving either technical or financial
assistance in an exclusionary and limiting manner.

Fifth Substantive Issue: Service Contracts Not Deconstitutionalized

Lastly, petitioners stress that the service contract regime under the 1973
Constitution is expressly prohibited under the 1987 Constitution as the term
service contracts found in the former was deleted in the latter to avoid the
circumvention of constitutional prohibitions that were prevalent in the 1987
Constitution. According to them, the framers of the 1987 Constitution only
intended for foreign-owned corporations to provide either technical assistance or
financial assistance. Upon perusal of the CAMC FTAA, petitioners are of the
opinion that the same is a replica of the service contract agreements that the
present constitution allegedly prohibit.

Again, this contention is not well-taken. The mere fact that the term service
contracts found in the 1973 Constitution was not carried over to the present
constitution, sans any categorical statement banning service contracts in mining
activities, does not mean that service contracts as understood in the 1973
Constitution was eradicated in the 1987 Constitution.195[56] The 1987
Constitution allows the continued use of service contracts with foreign
corporations as contractors who would invest in and operate and manage extractive
enterprises, subject to the full control and supervision of the State; this time,
however, safety measures were put in place to prevent abuses of the past
regime.196[57] We ruled, thus:

To our mind, however, such intent cannot be definitively and conclusively

established from the mere failure to carry the same expression or term over to the
new Constitution, absent a more specific, explicit and unequivocal statement to
that effect. What petitioners seek (a complete ban on foreign participation in the
management of mining operations, as previously allowed by the earlier
Constitutions) is nothing short of bringing about a momentous sea change in the
economic and developmental policies; and the fundamentally capitalist, free-
enterprise philosophy of our government. We cannot imagine such a radical shift
being undertaken by our government, to the great prejudice of the mining sector
in particular and our economy in general, merely on the basis of the omission of
the terms service contract from or the failure to carry them over to the new
Constitution. There has to be a much more definite and even unarguable basis for
such a drastic reversal of policies.
xxxx
The foregoing are mere fragments of the framers lengthy discussions of
the provision dealing with agreements x x x involving either technical or financial
assistance, which ultimately became paragraph 4 of Section 2 of Article XII of
the Constitution. Beyond any doubt, the members of the ConCom were actually
debating about the martial-law-era service contracts for which they were crafting
appropriate safeguards.
In the voting that led to the approval of Article XII by the ConCom, the
explanations given by Commissioners Gascon, Garcia and Tadeo indicated that
they had voted to reject this provision on account of their objections to the
constitutionalization of the service contract concept.
Mr. Gascon said, I felt that if we would constitutionalize any provision on
service contracts, this should always be with the concurrence of Congress and not
guided only by a general law to be promulgated by Congress. Mr. Garcia
explained, Service contracts are given constitutional legitimization in Sec. 3, even
when they have been proven to be inimical to the interests of the nation,
providing, as they do, the legal loophole for the exploitation of our natural
 resources for the benefit of foreign interests. Likewise, Mr. Tadeo cited inter alia
the fact that service contracts continued to subsist, enabling foreign interests to
benefit from our natural resources. It was hardly likely that these gentlemen
would have objected so strenuously, had the provision called for mere
technical or financial assistance and nothing more.
The deliberations of the ConCom and some commissioners explanation of
their votes leave no room for doubt that the service contract concept precisely
underpinned the commissioners understanding of the agreements involving either
technical or financial assistance.
xxxx

From the foregoing, we are impelled to conclude that the phrase

agreements involving either technical or financial assistance, referred to in
paragraph 4, are in fact service contracts. But unlike those of the 1973 variety,
the new ones are between foreign corporations acting as contractors on the one
hand; and on the other, the government as principal or owner of the works. In the
new service contracts, the foreign contractors provide capital, technology and
technical know-how, and managerial expertise in the creation and operation of
large-scale mining/extractive enterprises; and the government, through its
agencies (DENR, MGB), actively exercises control and supervision over the
entire operation.
xxxx

It is therefore reasonable and unavoidable to make the following

conclusion, based on the above arguments. As written by the framers and ratified
and adopted by the people, the Constitution allows the continued use of service
contracts with foreign corporations -- as contractors who would invest in and
operate and manage extractive enterprises, subject to the full control and
supervision of the State -- sans the abuses of the past regime. The purpose is
clear: to develop and utilize our mineral, petroleum and other resources on a large
scale for the immediate and tangible benefit of the Filipino people.197[58]

WHEREFORE, the instant petition for prohibition and mandamus is hereby

DISMISSED. Section 76 of Republic Act No. 7942 and Section 107 of DAO 96-40;
Republic Act No. 7942 and its Implementing Rules and Regulations contained in
DAO 96-40 insofar as they relate to financial and technical assistance agreements
referred to in paragraph 4 of Section 2 of Article XII of the Constitution are NOT
UNCONSTITUTIONAL.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-26400 February 29, 1972

VICTORIA AMIGABLE, plaintiff-appellant,

vs.
NICOLAS CUENCA, as Commissioner of Public Highways and REPUBLIC OF THE PHILIPPINES, defendants-appellees.

MAKALINTAL, J.:p

This is an appeal from the decision of the Court of First Instance of Cebu in its Civil Case No. R-5977, dismissing the plaintiff's complaint.

Victoria Amigable, the appellant herein, is the registered owner of Lot No. 639 of the Banilad Estate in Cebu City as shown by Transfer
Certificate of Title No. T-18060, which superseded Transfer Certificate of Title No. RT-3272 (T-3435) issued to her by the Register of Deeds
of Cebu on February 1, 1924. No annotation in favor of the government of any right or interest in the property appears at the back of the
certificate. Without prior expropriation or negotiated sale, the government used a portion of said lot, with an area of 6,167 square meters, for
the construction of the Mango and Gorordo Avenues.

It appears that said avenues were already existing in 1921 although "they were in bad condition and very narrow, unlike the wide and
beautiful avenues that they are now," and "that the tracing of said roads was begun in 1924, and the formal construction in
1925." *

On March 27, 1958 Amigable's counsel wrote the President of the Philippines, requesting payment of the portion of her lot which had been
appropriated by the government. The claim was indorsed to the Auditor General, who disallowed it in his 9th Indorsement dated December 9,
1958. A copy of said indorsement was transmitted to Amigable's counsel by the Office of the President on January 7, 1959.
On February 6, 1959 Amigable filed in the court a quo a complaint, which was later amended on April 17, 1959 upon motion of the
defendants, against the Republic of the Philippines and Nicolas Cuenca, in his capacity as Commissioner of Public Highways for the
recovery of ownership and possession of the 6,167 square meters of land traversed by the Mango and Gorordo Avenues. She also sought
the payment of compensatory damages in the sum of P50,000.00 for the illegal occupation of her land, moral damages in the sum of
P25,000.00, attorney's fees in the sum of P5,000.00 and the costs of the suit.

Within the reglementary period the defendants filed a joint answer denying the material allegations of the complaint and interposing the
following affirmative defenses, to wit: (1) that the action was premature, the claim not having been filed first with the Office of the Auditor
General; (2) that the right of action for the recovery of any amount which might be due the plaintiff, if any, had already prescribed; (3) that the
action being a suit against the Government, the claim for moral damages, attorney's fees and costs had no valid basis since as to these
items the Government had not given its consent to be sued; and (4) that inasmuch as it was the province of Cebu that appropriated and used
the area involved in the construction of Mango Avenue, plaintiff had no cause of action against the defendants.

During the scheduled hearings nobody appeared for the defendants notwithstanding due notice, so the trial court proceeded to receive the
plaintiff's evidence ex parte. On July 29, 1959 said court rendered its decision holding that it had no jurisdiction over the plaintiff's cause of
action for the recovery of possession and ownership of the portion of her lot in question on the ground that the government cannot be sued
without its consent; that it had neither original nor appellate jurisdiction to hear, try and decide plaintiff's claim for compensatory damages in
the sum of P50,000.00, the same being a money claim against the government; and that the claim for moral damages had long prescribed,
nor did it have jurisdiction over said claim because the government had not given its consent to be sued. Accordingly, the complaint was
dismissed. Unable to secure a reconsideration, the plaintiff appealed to the Court of Appeals, which subsequently certified the case to Us,
there being no question of fact involved.

The issue here is whether or not the appellant may properly sue the government under the facts of the case.

In the case of Ministerio vs. Court of First Instance of Cebu,1 involving a claim for payment of the value of a portion of land used for the
widening of the Gorordo Avenue in Cebu City, this Court, through Mr. Justice Enrique M. Fernando, held that where the government takes
away property from a private landowner for public use without going through the legal process of expropriation or negotiated sale, the
aggrieved party may properly maintain a suit against the government without thereby violating the doctrine of governmental immunity from
suit without its consent. We there said: .

... . If the constitutional mandate that the owner be compensated for property taken for public use were to be respected,
as it should, then a suit of this character should not be summarily dismissed. The doctrine of governmental immunity
from suit cannot serve as an instrument for perpetrating an injustice on a citizen. Had the government followed the
procedure indicated by the governing law at the time, a complaint would have been filed by it, and only upon payment
of the compensation fixed by the judgment, or after tender to the party entitled to such payment of the amount fixed,
may it "have the right to enter in and upon the land so condemned, to appropriate the same to the public use defined in
the judgment." If there were an observance of procedural regularity, petitioners would not be in the sad plaint they are
now. It is unthinkable then that precisely because there was a failure to abide by what the law requires, the government
would stand to benefit. It is just as important, if not more so, that there be fidelity to legal norms on the part of
officialdom if the rule of law were to be maintained. It is not too much to say that when the government takes any
property for public use, which is conditioned upon the payment of just compensation, to be judicially ascertained, it
makes manifest that it submits to the jurisdiction of a court. There is no thought then that the doctrine of immunity from
suit could still be appropriately invoked.

Considering that no annotation in favor of the government appears at the back of her certificate of title and that she has not executed any
deed of conveyance of any portion of her lot to the government, the appellant remains the owner of the whole lot. As registered owner, she
could bring an action to recover possession of the portion of land in question at anytime because possession is one of the attributes of
ownership. However, since restoration of possession of said portion by the government is neither convenient nor feasible at this time
because it is now and has been used for road purposes, the only relief available is for the government to make due compensation which it
could and should have done years ago. To determine the due compensation for the land, the basis should be the price or value thereof at the
time of the taking.2

As regards the claim for damages, the plaintiff is entitled thereto in the form of legal interest on the price of the land from the time it was
taken up to the time that payment is made by the government.3 In addition, the government should pay for attorney's fees, the amount of
which should be fixed by the trial court after hearing.

WHEREFORE, the decision appealed from is hereby set aside and the case remanded to the court a quo for the determination of
compensation, including attorney's fees, to which the appellant is entitled as above indicated. No pronouncement as to costs.

Republic of the Philippines

Supreme Court
Manila
 SECOND DIVISION

REPUBLIC OF THE PHILIPPINES, G. R. No. 185124

represented by the NATIONAL
IRRIGATION ADMINISTRATION
(NIA),

Petitioner,
Present:

CARPIO, J., Chairperson,

- versus - PEREZ,
SERENO,
REYES, and
RURAL BANK OF KABACAN, INC., PERLAS-BERNABE, JJ.
LITTIE SARAH A. AGDEPPA,
LEOSA NANETTE AGDEPPA and Promulgated:
MARCELINO VIERNES,
MARGARITA TABOADA, PORTIA January 25, 2012
CHARISMA RUTH ORTIZ,
represented by LINA ERLINDA A.
ORTIZ and MARIO ORTIZ, JUAN
MAMAC and GLORIA MATAS,

Respondents.

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DECISION

SERENO, J.:
 Before the Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court, seeking the reversal of the 12 August 2008 Court of Appeals (CA)
Decision and 22 October 2008 Resolution in CA-G.R. CV No. 65196.

The assailed issuances affirmed with modification the 31 August 1999

Judgment promulgated by the Regional Trial Court (RTC), Branch 22, Judicial
Region, Kabacan, Cotabato. The RTC had fixed the just compensation for the
value of the land and improvements thereon that were expropriated by petitioner,
but excluded the value of the excavated soil. Petitioner Republic of the Philippines
is represented in this case by the National Irrigation Authority (NIA).

The Facts

NIA is a government-owned-and-controlled corporation created under

Republic Act No. (R.A.) 3601 on 22 June 1963. It is primarily responsible for
irrigation development and management in the country. Its charter was amended
by Presidential Decree (P.D.) 552 on 11 September 1974 and P.D. 1702 on 17 July
1980. To carry out its purpose, NIA was specifically authorized under P.D. 552 to
exercise the power of eminent domain.198[1]

NIA needed some parcels of land for the purpose of constructing the
Malitubog-Marigadao Irrigation Project. On 08 September 1994, it filed with the
RTC of Kabacan, Cotabato a Complaint for the expropriation of a portion of three
(3) parcels of land covering a total of 14,497.91 square meters.199[2] The case was
docketed as Special Civil Case No. 61 and was assigned to RTC-Branch 22. The
affected parcels of land were the following:

1) Lot No. 3080 covered by Transfer Certificate of Title (TCT) No.

T-61963 and registered under the Rural Bank of Kabacan

2) Lot No. 455 covered by TCT No. T-74516 and registered under
the names of RG May, Ronald and Rolando, all surnamed Lao

3) Lot No. 3039 registered under the name of Littie Sarah

Agdeppa200[3]

On 11 July 1995, NIA filed an Amended Complaint to include Leosa

Nanette A. Agdeppa and Marcelino Viernes as registered owners of Lot No.
3039.201[4]

On 25 September 1995, NIA filed a Second Amended Complaint to allege

properly the area sought to be expropriated, the exact address of the expropriated
properties and the owners thereof. NIA further prayed that it be authorized to take
immediate possession of the properties after depositing with the Philippine
National Bank the amount of ₱19,246.58 representing the provisional value
thereof.202[5]

On 31 October 1995, respondents filed their Answer with Affirmative and

Special Defenses and Counterclaim.203[6] They alleged, inter alia, that NIA had
no authority to expropriate portions of their land, because it was not a sovereign
political entity; that it was not necessary to expropriate their properties, because
there was an abandoned government property adjacent to theirs, where the project
could pass through; that Lot No. 3080 was no longer owned by the Rural Bank of
Kabacan; that NIAs valuation of their expropriated properties was inaccurate
because of the improvements on the land that should have placed its value at ₱5
million; and that NIA never negotiated with the landowners before taking their
properties for the project, causing permanent and irreparable damages to their
properties valued at ₱250,000.204[7]

On 11 September 1996, the RTC issued an Order forming a committee

tasked to determine the fair market value of the expropriated
properties to establish the just compensation to be paid to the owners. The
committee was composed of the Clerk of Court of RTC Branch 22 as chairperson
and two (2) members of the parties to the case.205[8]

On 20 September 1996, in response to the expropriation Complaint,

respondents-intervenors Margarita Tabaoda, Portia Charisma Ruth Ortiz, Lina
Erlinda Ortiz, Mario Ortiz, Juan Mamac and Gloria Matas filed their Answer-in-
Intervention with Affirmative and Special Defenses and Counter-Claim. They
essentially adopted the allegations in the Answer of the other respondents and
pointed out that Margarita Tabaoda and Portia Charisma Ruth Ortiz were the new
owners of Lot No. 3080, which the two acquired from the Rural Bank of Kabacan.
They further alleged that the four other respondents-intervenors were joint tenants-
cultivators of Lot Nos. 3080 and 3039.206[9]

On 10 October 1996, the lower court issued an Order stating it would issue a
writ of possession in favor of NIA upon the determination of the fair market value
of the properties, subject of the expropriation proceedings.207[10] The lower court
later amended its ruling and, on 21 October 1996, issued a Writ of Possession in
favor of NIA.208[11]
 On 15 October 1996, the committee submitted a Commissioners
Report209[12] to the RTC stating the following observations:

In the process of ocular inspection, the following were jointly observed:

1) The area that was already occupied is 6x200 meters which is equivalent to
1,200 square meters;

2) The area which is to be occupied is 18,930 square meters, more or less;

3) That the area to be occupied is fully planted by gmelina trees with a spacing
of 1x1 meters;

4) That the gmelina tress found in the area already occupied and used for [the]
road is planted with gmelina with spacing of 2x2 and more or less one (1) year
old;

5) That the gmelina trees found in the area to be occupied are already four (4)
years old;

6) That the number of banana clumps (is) two hundred twenty (220);

7) That the number of coco trees found (is) fifteen (15).210[13]

The report, however, stated that the committee members could not agree on
the market value of the subject properties and recommended the appointment of
new independent commissioners to replace the ones coming from the parties
only.211[14] On 22 October 1996, the RTC issued an Order212[15] revoking the
appointments of Atty. Agdeppa and Engr. Mabang as members of the committee
and, in their stead, appointed Renato Sambrano, Assistant Provincial Assessor of
the Province of Cotabato; and Jack Tumacmol, Division Chief of the Land Bank
of the PhilippinesKidapawan Branch.213[16]

On 25 November 1996, the new committee submitted its Commissioners

Report to the lower court. The committee had agreed that the fair market value of
the land to be expropriated should be ₱65 per square meter based on the zonal
valuation of the Bureau of Internal Revenue (BIR). As regards the improvement
on the properties, the report recommended the following compensation:

a. ₱200 for each gmelina tree that are more than four (4) years old
b. ₱150 for each gmelina tree that are more than one (1) year old
c. ₱164 for each coco tree
d. ₱270 for each banana clump214[17]

On 03 December 1997, the committee submitted to the RTC another report,

which had adopted the first Committee Report, as well as the formers 25
November 1996 report. However, the committee added to its computation the
value of the earthfill excavated from portions of Lot Nos. 3039 and 3080.215[18]
Petitioner objected to the inclusion of the value of the excavated soil in the
computation of the value of the land.216[19]

The Ruling of the Trial Court

On 31 August 1999, the RTC promulgated its Judgment,217[20] the

dispositive portion of which reads:

WHEREFORE, IN VIEW of all the foregoing considerations, the court

finds and so holds that the commissioners have arrived at and were able to
determine the fair market value of the properties. The court adopts their findings,
and orders:

1. That 18,930 square meters of the lands owned by the defendants is

hereby expropriated in favor of the Republic of the Philippines through
the National Irrigation Administration;

2. That the NIA shall pay to the defendants the amount of ₱1,230,450 for
the 18,930 square meters expropriated in proportion to the areas so
expropriated;

3. That the NIA shall pay to the defendant-intervenors, owners of Lot

No. 3080, the sum of ₱5,128,375.50, representing removed earthfill;

4. That the NIA shall pay to the defendants, owners of Lot No. 3039, the
sum of P1,929,611.30 representing earthfill;

5. To pay to the defendants the sum of ₱60,000 for the destroyed G-

melina trees (1 year old);

6. To pay to the defendants the sum of ₱3,786,000.00 for the 4-year old
G-melina trees;

7. That NIA shall pay to the defendants the sum of ₱2,460.00 for the
coconut trees;
 8. That all payments intended for the defendant Rural Bank of Kabacan
shall be given to the defendants and intervenors who have already
acquired ownership over the land titled in the name of the
Bank.218[21]

NIA, through the Office of the Solicitor General (OSG), appealed the
Decision of the RTC to the CA, which docketed the case as CA-G.R. CV No.
65196. NIA assailed the trial courts adoption of the Commissioners Report, which
had determined the just compensation to be awarded to the owners of the lands
expropriated. NIA also impugned as error the RTCs inclusion for compensation of
the excavated soil from the expropriated properties. Finally, it disputed the trial
courts Order to deliver the payment intended for the Rural Bank of Kabacan to
defendants-intervenors, who allegedly acquired ownership of the land still titled in
the name of the said rural bank.219[22]

The Ruling of the Court of Appeals

On 12 August 2008, the CA through its Twenty-First (21st) Division,

promulgated a Decision220[23] affirming with modification the RTC Decision. It
ruled that the committee tasked to determine the fair market value of the properties
and improvements for the purpose of arriving at the just compensation, properly
performed its function. The appellate court noted that the committee members had
conducted ocular inspections of the area surrounding the expropriated properties
and made their recommendations based on official documents from the BIR with
regard to the zonal valuations of the affected properties.221[24] The CA observed
that, as far as the valuation of the improvements on the properties was concerned,
the committee members took into consideration the provincial assessors appraisal
of the age of the trees, their productivity and the inputs made.222[25] The appellate
court further noted that despite the Manifestation of NIA that it be allowed to
present evidence to rebut the recommendation of the committee on the valuations
of the expropriated properties, NIA failed to do so.223[26]

The assailed CA Decision, however, deleted the inclusion of the value of the
soil excavated from the properties in the just compensation. It ruled that the
property owner was entitled to compensation only for the value of the property at
the time of the taking.224[27] In the construction of irrigation projects, excavations
are necessary to build the canals, and the excavated soil cannot be valued
separately from the land expropriated. Thus, it concluded that NIA, as the new
owner of the affected properties, had the right to enjoy and make use of the
property, including the excavated soil, pursuant to the latters objectives.225[28]

Finally, the CA affirmed the trial courts ruling that recognized defendants-
intervenors Margarita Tabaoda and Portia Charisma Ruth Ortiz as the new owners
of Lot No. 3080 and held that they were thus entitled to just compensation. The
appellate court based its conclusion on the non-participation by the Rural Bank of
Kabacan in the expropriation proceedings and the latters Manifestation that it no
longer owned Lot No. 3080.226[29]

On 11 September 2008, the NIA through the OSG filed a Motion for
Reconsideration of the 12 August 2008 Decision, but that motion was
denied.227[30]

Aggrieved by the appellate courts Decision, NIA now comes to this Court
via a Petition for Review on Certiorari under Rule 45.

The Issues

The following are the issues proffered by petitioner:

THE COURT OF APPEALS SERIOUSLY ERRED IN AFFIRMING THE

TRIAL COURTS FINDING OF JUST COMPENSATION OF THE LAND AND
THE IMPROVEMENTS THEREON BASED ON THE REPORT OF THE
COMMISSIONERS.
 THE COURT OF APPEALS ERRED IN RULING THAT THE PAYMENT OF
JUST COMPENSATION FOR LOT NO. 3080 SHOULD BE MADE TO
RESPONDENTS MARGARITA TABOADA AND PORTIA CHARISMA
RUTH ORTIZ.228[31]

The Courts Ruling

On the first issue, the Petition is not meritorious.

In expropriation proceedings, just compensation is defined as the full and

fair equivalent of the property taken from its owner by the expropriator. The
measure is not the taker's gain, but the owner's loss. The word just is used to
intensify the meaning of the word compensation and to convey thereby the idea
that the equivalent to be rendered for the property to be taken shall be real,
substantial, full and ample.229[32] The constitutional limitation of just
compensation is considered to be a sum equivalent to the market value of the
property, broadly defined as the price fixed by the seller in open market in the
usual and ordinary course of legal action and competition; or the fair value of the
property; as between one who receives and one who desires to sell it, fixed at the
time of the actual taking by the government.230[33]
 In the instant case, we affirm the appellate courts ruling that the
commissioners properly determined the just compensation to be awarded to the
landowners whose properties were expropriated by petitioner.

The records show that the trial court dutifully followed the procedure under
Rule 67 of the 1997 Rules of Civil Procedure when it formed a committee that was
tasked to determine the just compensation for the expropriated properties. The first
set of committee members made an ocular inspection of the properties, subject of
the expropriation. They also determined the exact areas affected, as well as the
kinds and the number of improvements on the properties.231[34] When the
members were unable to agree on the valuation of the land and the improvements
thereon, the trial court selected another batch of disinterested members to carry out
the task of determining the value of the land and the improvements.

The new committee members even made a second ocular inspection of the
expropriated areas. They also obtained data from the BIR to determine the zonal
valuation of the expropriated properties, interviewed the adjacent property owners,
and considered other factors such as distance from the highway and the nearby
town center.232[35] Further, the committee members also considered Provincial
Ordinance No. 173, which was promulgated by the Province of Cotabato on 15
June 1999, and which provide for the value of the properties and the improvements
for taxation purposes.233[36]
 We can readily deduce from these established facts that the committee
members endeavored a rigorous process to determine the just compensation to be
awarded to the owners of the expropriated properties. We cannot, as petitioner
would want us to, oversimplify the process undertaken by the committee in
arriving at its recommendations, because these were not based on mere conjectures
and unreliable data.

In National Power Corporation v. Diato-Bernal,234[37] this Court

emphasized that the just-ness of the compensation could only be attained by using
reliable and actual data as bases for fixing the value of the condemned property.
The reliable and actual data we referred to in that case were the sworn declarations
of realtors in the area, as well as tax declarations and zonal valuation from the BIR.
In disregarding the Committee Report assailed by the National Power Corporation
in the said case, we ruled thus:

It is evident that the above conclusions are highly speculative and devoid of any
actual and reliable basis. First, the market values of the subject propertys neighboring
lots were mere estimates and unsupported by any corroborative documents, such as
sworn declarations of realtors in the area concerned, tax declarations or zonal
valuation from the Bureau of Internal Revenue for the contiguous residential
dwellings and commercial establishments. The report also failed to elaborate on how
and by how much the community centers and convenience facilities enhanced the
value of respondents property. Finally, the market sales data and price listings alluded
to in the report were not even appended thereto.

As correctly invoked by NAPOCOR, a commissioners report of land prices

which is not based on any documentary evidence is manifestly hearsay and should be
disregarded by the court.
 The trial court adopted the flawed findings of the commissioners hook, line, and
sinker. It did not even bother to require the submission of the alleged market sales
data and price listings. Further, the RTC overlooked the fact that the recommended
just compensation was gauged as of September 10, 1999 or more than two years after
the complaint was filed on January 8, 1997. It is settled that just compensation is to
be ascertained as of the time of the taking, which usually coincides with the
commencement of the expropriation proceedings. Where the institution of the action
precedes entry into the property, the just compensation is to be ascertained as of the
time of the filing of the complaint. Clearly, the recommended just compensation in
the commissioners report is unacceptable.235[38]

In the instant case, the committee members based their recommendations on

reliable data and, as aptly noted by the appellate court, considered various factors
that affected the value of the land and the improvements.236[39]

Petitioner, however, strongly objects to the CAs affirmation of the trial courts
adoption of Provincial Ordinance No. 173. The OSG, on behalf of petitioner,
strongly argues that the recommendations of the committee formed by the trial
court were inaccurate. The OSG contends that the ordinance reflects the 1999
market values of real properties in the Province of Cotabato, while the actual
taking was made in 1996.237[40]

We are not persuaded.

 We note that petitioner had ample opportunity to rebut the testimonial, as well
as documentary evidence presented by respondents when the case was still on trial.
It failed to do so, however. The issue raised by petitioner was adequately addresses
by the CAs assailed Decision in this wise:

A thorough scrutiny of the records reveals that the second set of

Commissioners, with Atty. Marasigan still being the Chairperson and Mr.
Zambrano and Mr. Tomacmol as members, was not arbitrary and capricious in
performing the task assigned to them. We note that these Commissioners were
competent and disinterested persons who were handpicked by the court a quo due
to their expertise in appraising the value of the land and the improvements thereon
in the province of Cotabato. They made a careful study of the area affected by the
expropriation, mindful of the fact that the value of the land and its may be
affected by many factors. The duly appointed Commissioners made a second
ocular inspection of the subject area on 4 September 1997; went to the BIR office
in order to get the BIR zonal valuation of the properties located in Carmen,
Cotabato; interviewed adjacent property owners; and took into consideration
various factors such as the location of the land which is just less than a kilometer
away from the Poblacion and half a kilometer away from the highway and the fact
that it is near a military reservation. With regard to the improvements, the
Commissioners took into consideration the valuation of the Provincial Assessor,
the age of the trees, and the inputs and their productivity.

Thus, it could not be said that the schedule of market values in Ordinance No.
173 was the sole basis of the Commissioners in arriving at their valuation. Said
ordinance merely gave credence to their valuation which is comparable to the
current price at that time. Besides, Mr. Zambrano testified that the date used as
bases for Ordinance No. 173 were taken from 1995 to 1996.238[41]

Moreover, factual findings of the CA are generally binding on this Court. The
rule admits of exceptions, though, such as when the factual findings of the
appellate court and the trial court are contradictory, or when the findings are not
supported by the evidence on record.239[42] These exceptions, however, are not
present in the instant case.

Thus, in the absence of contrary evidence, we affirm the findings of the CA,
which sustained the trial courts Decision adopting the committees
recommendations on the just compensation to be awarded to herein respondents.

We also uphold the CA ruling, which deleted the inclusion of the value of
the excavated soil in the payment for just compensation. There is no legal basis to
separate the value of the excavated soil from that of the expropriated properties,
contrary to what the trial court did. In the context of expropriation proceedings, the
soil has no value separate from that of the expropriated land. Just compensation
ordinarily refers to the value of the land to compensate for what the owner actually
loses. Such value could only be that which prevailed at the time of the taking.

In National Power Corporation v. Ibrahim, et al.,240[43] we held that rights

over lands are indivisible, viz:

[C]onsequently, the CAs findings which upheld those of the trial court that
respondents owned and possessed the property and that its substrata was
possessed by petitioner since 1978 for the underground tunnels, cannot be
disturbed. Moreover, the Court sustains the finding of the lower courts that the
sub-terrain portion of the property similarly belongs to respondents. This
conclusion is drawn from Article 437 of the Civil Code which provides:

ART. 437. The owner of a parcel of land is the owner of its surface
and of everything under it, and he can construct thereon any works or
make any plantations and excavations which he may deem proper, without
 detriment to servitudes and subject to special laws and ordinances. He
cannot complain of the reasonable requirements of aerial navigation.

Thus, the ownership of land extends to the surface as well as to the subsoil
under it.

xxx xxx xxx

Registered landowners may even be ousted of ownership and possession of their

properties in the event the latter are reclassified as mineral lands because real
properties are characteristically indivisible. For the loss sustained by such owners,
they are entitled to just compensation under the Mining Laws or in appropriate
expropriation proceedings.

Moreover, petitioners argument that the landowners right extends to the sub-soil
insofar as necessary for their practical interests serves only to further weaken its
case. The theory would limit the right to the sub-soil upon the economic utility
which such area offers to the surface owners. Presumably, the landowners right
extends to such height or depth where it is possible for them to obtain some
benefit or enjoyment, and it is extinguished beyond such limit as there would be
no more interest protected by law.
 Hence, the CA correctly modified the trial courts Decision when it ruled
thus:

We agree with the OSG that NIA, in the construction of irrigation projects,
must necessarily make excavations in order to build the canals. Indeed it is
preposterous that NIA will be made to pay not only for the value of the land but
also for the soil excavated from such land when such excavation is a necessary
phase in the building of irrigation projects. That NIA will make use of the
excavated soil is of no moment and is of no concern to the landowner who has
been paid the fair market value of his land. As pointed out by the OSG, the law
does not limit the use of the expropriated land to the surface area only. Further,
NIA, now being the owner of the expropriated property, has the right to enjoy and
make use of the property in accordance with its mandate and objectives as
provided by law. To sanction the payment of the excavated soil is to allow the
landowners to recover more than the value of the land at the time when it was
taken, which is the true measure of the damages, or just compensation, and would
discourage the construction of important public improvements.241[44]

On the second issue, the Petition is meritorious.

The CA affirmed the ruling of the trial court, which had awarded the
payment of just compensation intended for Lot No. 3080 registered in the name of
the Rural Bank of Kabacan to the defendants-intervenors on the basis of the non-
participation of the rural bank in the proceedings and the latters subsequent
Manifestation that it was no longer the owner of that lot. The appellate court erred
on this matter.

It should be noted that eminent domain cases involve the expenditure of

public funds.242[45] In this kind of proceeding, we require trial courts to be more
circumspect in their evaluation of the just compensation to be awarded to the
owner of the expropriated property.243[46] Thus, it was imprudent for the
appellate court to rely on the Rural Bank of Kabacans mere declaration of non-
ownership and non-participation in the expropriation proceeding to validate
defendants-intervenors claim of entitlement to that payment.

The law imposes certain legal requirements in order for a conveyance of real
property to be valid. It should be noted that Lot No. 3080 is a registered parcel of
land covered by TCT No. T-61963. In order for the reconveyance of real property
to be valid, the conveyance must be embodied in a public document244[47] and
registered in the office of the Register of Deeds where the property is
situated.245[48]

We have scrupulously examined the records of the case and found no proof
of conveyance or evidence of transfer of ownership of Lot No. 3080 from its
registered owner, the Rural Bank of Kabacan, to defendants-intervenors. As it is,
the TCT is still registered in the name of the said rural bank. It is not disputed that
the bank did not participate in the expropriation proceedings, and that it manifested
that it no longer owned Lot No. 3080. The trial court should have nevertheless
required the rural bank and the defendants-intervenors to show proof or evidence
pertaining to the conveyance of the subject lot. The court cannot rely on mere
inference, considering that the payment of just compensation is intended to be
awarded solely owner based on the latters proof of ownership.

The trial court should have been guided by Rule 67, Section 9 of the 1997
Rules of Court, which provides thus:

SEC. 9. Uncertain ownership; conflicting claims. If the ownership of the

property taken is uncertain, or there are conflicting claims to any part thereof, the
court may order any sum or sums awarded as compensation for the property to be
paid to the court for the benefit of the person adjudged in the same proceeding to
be entitled thereto. But the judgment shall require the payment of the sum or sums
awarded to either the defendant or the court before the plaintiff can enter upon the
property, or retain it for the public use or purpose if entry has already been made.

Hence, the appellate court erred in affirming the trial courts Order to award
payment of just compensation to the defendants-intervenors. There is doubt as to
the real owner of Lot No. 3080. Despite the fact that the lot was covered by TCT
No. T-61963 and was registered under its name, the Rural Bank of Kabacan
manifested that the owner of the lot was no longer the bank, but the defendants-
intervenors; however, it presented no proof as to the conveyance thereof. In this
regard, we deem it proper to remand this case to the trial court for the reception of
evidence to establish the present owner of Lot No. 3080 who will be entitled to
receive the payment of just compensation.

WHEREFORE, the Petition is PARTLY GRANTED. The 12 August

2008 CA Decision in CA-G.R. CV No. 65196, awarding just compensation to the
defendants as owners of the expropriated properties and deleting the inclusion of
the value of the excavated soil, is hereby AFFIRMED with MODIFICATION.
The case is hereby REMANDED to the trial court for the reception of evidence to
establish the present owner of Lot No. 3080. No pronouncements as to cost.
 SO ORDERED.
Republic of the Philippines

Supreme Court
Manila

FIRST DIVISION

LAND BANK OF THE G.R. No. 176692

PHILIPPINES,

Petitioner,
Present:

LEONARDO-DE CASTRO,

Acting Chairperson,

BERSAMIN,
- versus -
DEL CASTILLO,

VILLARAMA, JR., and

PERLAS-BERNABE, JJ.

Promulgated:

VERONICA ATEGA NABLE,

June 27, 2012
Respondent.

x----------------------------------------------------------------------------------------x
 DECISION

BERSAMIN, J.:

Land Bank of the Philippines (LBP) hereby assails the amount of

P26,523,180.00 as just compensation for the taking of landowner Veronica Atega
Nables landholding pursuant to the Comprehensive Agrarian Reform Program
(CARP) determined by the Regional Trial Court (RTC) as Special Agrarian Court
(SAC) and affirmed by the Court of Appeals (CA).

Antecedents

Veronica Atega Nable (Nable) was the sole owner of a landholding

consisting of three contiguous agricultural lots situated in Barangay Taligaman,
Butuan City and covered by Original Certificate of Title (OCT) No. P-5 whose
total area aggregated to 129.4615 hectares.246[1] She had inherited the landholding
from her late parents, Spouses Pedro C. Atega and Adela M. Atega. In 1993, the
Department of Agrarian Reform (DAR) compulsorily acquired a portion of the
landholding with an area of 127.3365 hectares pursuant to Republic Act No. 6657
(Comprehensive Agrarian Reform Law of 1988, or CARL).247[2] LBP valued the
affected landholding at only ₱5,125,036.05,248[3] but Nable rejected the
valuation.249[4]

On January 17, 2001, the Department of Agrarian Reform Adjudication

Board (DARAB) affirmed the valuation of LBP.250[5] After DARAB denied her
motion for reconsideration,251[6] Nable instituted against DAR and LBP a petition
for the judicial determination of just compensation in the RTC in Butuan City,
praying that the affected landholding and its improvements be valued at
₱350,000.00/hectare, for an aggregate valuation of ₱44,567,775.00.252[7]
 During pre-trial, the parties agreed to refer the determination of just
compensation to a board of commissioners,253[8] who ultimately submitted a
written report to the RTC on June 27, 2003 recommending ₱57,660,058.00 as the
just compensation for Nable.254[9]

On November 26, 2004, the RTC rendered its judgment, as follows:

WHEREFORE, in the light of the foregoing consideration, this Court hereby

renders judgment ordering the public defendants to pay the following:

a) The total amount of P26,523,180.00 for the land and improvements;

b) The 6% interest based on the total amount as Just Compensation to be

reckoned at the time of taking that is January 1993;

c) Commissioners fee in the amount of P25,000.00;

d) Attorneys Fee which is 10% percent of the total amount awarded as Just
Compensation; and

e) Litigation expenses.

SO ORDERED.255[10]
 The RTC later denied LBPs motion for reconsideration.256[11]

On appeal, LBP urged in its petition for review that the RTC gravely erred
as follows:

I
IN TOTALLY DISREGARDING DAR ADMINISTRATIVE ORDER (AO) NO.
11, S. OF 1994 AS AMENDED BY AO NO. 5, S. 1998 IN CONJUNCTION
WITH SEC. 17, RA 6657 AND THE DECISION OF THE DARAB CENTRAL,
QUEZON CITY [JC-RX-BUT-0055-CO-97] AND THE DECISION OF THE
SUPREME COURT IN THE CASE OF VICENTE AND LEONIDAS BANAL
VS. LANDBANK, G.R. NO. 143276 PROMULGATED ON 20 JULY 2004;

II
IN TAKING JUDICIAL NOTICE OF THE RESPONDENTS CARETAKER
AFFIDAVIT; FARMING EXPERIENCE AND RULE OF THUMB METHOD
OF CONVERSION IN DEROGATION OF THE PRODUCTION DATA FROM
THE DEPARTMENT OF AGRICULTURE, AND PHILIPPINE COCONUT
AUTHORITY (PCA) USED BY LBP/DAR IN THE DETERMINATION OF
JUST COMPENSATION; AND

III
IN (1) AWARDING SIX (6%) PERCENT INTEREST ON THE TOTAL
AMOUNT OF JUST COMPENSATION; (2) COMMISSIONERS FEES IN THE
AMOUNT OF P25,000.00; AND (3) TEN (10%) ATTORNEYS FEES OF THE
TOTAL AMOUNT AWARDED.

On August 17, 2006, the CA affirmed the RTC judgment with

modifications,257[12] to wit:
 IN THE LIGHT OF THE FOREGOING, the petition for review is DENIED
for lack of merit. The assailed decision is AFFIRMED with MODIFICATION
that the just compensation of the subject property is P36,159,855.00 less the
amount of P5,125,036.05 paid by petitioner to private respondent.

Petitioner Bank is hereby ORDERED to immediately pay:

A] Respondent the remaining balance of P31,034,819.00 plus twelve (12%)

percent per annum as interest (computed from the above remaining
balance and from 1993 until full payment thereof); and

B] Mr. Hospicio T. Suralta, Jr., Mr. Rogelio C. Virtudazo, and Mr. Simeon
E. Avila, Jr. the sum of P25,000.00 as Commissioners fee.

The Writ of Preliminary Injunction issued is hereby DISSOLVED.

SO ORDERED.

Upon denial of its motion for reconsideration on January 30, 2007, 258[13]
LBP has appealed by petition for review on certiorari.

Issues

LBP asserts that:

 A
THE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING THE SACs
DECISION WHICH TOTALLY DISREGARDED SEC. 17, RA 6657 IN
CONJUNCTION WITH DAR ADMINISTRATIVE ORDER (AO) NO. 11, S.
OF 1994 AS AMENDED BY AO NO. 5, S. 1998; THE DECISION OF THE
DARAB CENTRAL, QUEZON CITY [JC-RX-BUT-0055-CO-97] AND THE
DECISION OF THE SUPREME COURT IN THE CASE OF VICENTE AND
LEONIDAS BANAL VS. LANDBANK, G.R. NO. 143276 PROMULGATED
ON 20 JULY 2004 AND LBP VS CELADA, G.R. NO. 164876
PROMULGATED ON 23 JANUARY 2006.

B
THE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING THE SACs
DECISION WHICH TAKE JUDICIAL NOTICE OF THE RESPONDENTS
OWN FACTORS OF VALUATION SUCH AS CARETAKER AFFIDAVIT;
FARMING EXPERIENCE AND RULE OF THUMB METHOD OF
CONVERSION WHICH ARE NOT RELATED TO OR NECESSARILY
IMPLIED FROM THE FACTORS ENUMERATED UNDER SEC. 17, RA 6657
AND DAR AOs.

C
THE COURT OF APPEALS GRAVELY ERRED IN GIVING PROBATIVE
VALUE AND JUDICIAL NOTICE TO THE BOARD OF COMMISSIONERS
REPORT WHICH IS NOT ONLY HEARSAY AND IRRELEVANT AS NO
HEARING WAS CONDUCTED THEREON IN VIOLATION OF SEC. 3,
RULE 129 OF THE RULES OF COURT AS THE PARTIES WERE
REQUESTED TO SUBMIT THEIR RESPECTIVE MEMORANDA.

D
THE COURT OF APPEALS GRAVELY ERRED IN AWARDING (1)
TWELVE (12%) PER CENT INTEREST PER ANNUM COMPUTED FROM
THE REMAINING BALANCE OF P31,034,819.00 FROM 1993 UNTIL FULL
PAYMENT THEREOF; (2) COMMISSIONERS FEES IN THE AMOUNT OF
P25,000.00; AND (3) TEN (10%) PER CENT ATTORNEYS FEES OF THE
TOTAL AMOUNT AWARDED.259[14]
 Ruling

The appeal lacks merit.

I.

The CA and the RTC did not disregard Section 17,

Republic Act No. 6657, and DAR AO No. 5, Series of 1998

Section 4, Article XIII, of the Constitution has mandated the implementation

of an agrarian reform program for the distribution of agricultural lands to landless
farmers subject to the payment of just compensation to the landowners, viz:

Section 4. The Sate shall, by law, undertake an agrarian reform program

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

The Congress has later enacted Republic Act No. 6657 to implement the
constitutional mandate. Section 17 of Republic Act No. 6657 has defined the
parameters for the determination of the just compensation, viz:
 Section 17. Determination of Just Compensation. In determining just
compensation, the cost of acquisition of the land, the current value of like
properties, its nature, actual use and income, the sworn valuation by the owner,
the tax declarations, and the assessment made by government assessors shall be
considered. The social and economic benefits contributed by the farmers and the
farmworkers and by the Government to the property as well as the nonpayment of
taxes or loans secured from any government financing institution on the said land
shall be considered as additional factors to determine its valuation.

The Congress has thereby required that any determination of just

compensation should consider the following factors, namely: (a) the cost of the
acquisition of the land; (b) the current value of like properties; (c) the nature,
actual use and income of the land; (d) the sworn valuation by the owner; (e) the tax
declarations; (f) the assessment made by government assessors; (g) the social and
economic benefits contributed to the property by the farmers and farmworkers and
by the Government; and (h) the fact of the non-payment of any taxes or loans
secured from any government financing institution on the land.

Pursuant to its rule-making power under Section 49 of Republic Act No.

6657,260[15] the Department of Agrarian Reform (DAR) promulgated DAR
Administrative Order (AO) No. 6, Series of 1992, DAR AO No. 11, Series of 1994
(to amend AO No. 6), and DAR AO No. 5, Series of 1998 (to amend AO No. 11)
ostensibly to translate the factors provided under Section 17 in a basic formula.
The formulae embodied in these AOs have been used in computing the just
compensation upon taking into account all the factors stated in Section 17, supra. It
is relevant to note that the Court has consistently regarded reliance on the formulae
under these AOs to be mandatory.261[16]

Of relevance here is DAR AO No. 5, whose formula of just compensation

follows:

A. II. The following rules and regulations are hereby promulgated to govern the
valuation of lands subject of acquisition whether under voluntary offer to sell
(VOS) or compulsory acquisition (CA).

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

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

Where: LV = Land Value

CNI = Capitalized Net Income
CS = Comparable Sales
MV = Market Value per Tax Declaration

The above formula shall be used if all three factors are present, relevant, and
applicable.
A1. When the CS factor is not present and CNI and MV are applicable, the
formula shall be:
LV = (CNI x 0.9) + (MV x 0.1)
A2. When the CNI factor is not present, and CS and MV are applicable, the
formula shall be:

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

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

LV = MV x 2.
 The RTC found that the entire landholding was prime coconut land located
along the national highway planted to 95 fruit-bearing coconut trees per hectare,
more or less, or a total of 12,153 fruit-bearing coconut trees. It ascertained Nables
just compensation by considering the affected landholdings nature, location, value
and the volume of the produce, and by applying the formula under DAR AO No. 5,
Series of 1998, viz:

xxx
Nonetheless, the said report (commissioners report) impliedly belied the
classification made by the defendants (DAR and LBP) by stating among others,
that the land is fully cultivated contrary to the allegation that portion of which is
an idle land. While this Court may affirm, modify or disregard the Commissioners
Report, the Court may consider the number of listed coconut trees and
bananas actually counted by the Board during their field inspection.
xxx
The Court is of the opinion that the actual production data not the
government statistics is the most accurate data that should be used if only to
reflect the true and fair equivalent value of the property taken by the defendant
through expropriation. Considering the number of coconut trees to a high of
12,153 all bearing fruits, it would be contrary to farming experience involving
coconuts to have an average production per month of 2,057.14 kilos without
necessarily stating that the said land is classified as prime coconut land.
Apportioning the number of coconut trees to the total land area would yield, more
or less 95 trees per hectare well within the classification of a prime coconut
land.

Even the settled rule of thumb method of conversion, 1000 kilos of nuts
make 250 kilos copra resecada long before adopted by coconut farmers spells
substantial difference. The Court deems it more reasonable the production data
submitted by the plaintiff supported by the affidavit of Mrs. Wilma Rubi, to wit:

xxx Hence, the computation of the just compensation of the subject

land, to wit:

FORMULA: LV = (CNI X 0.6) + (CS X 0.3) + (MV X 0.1)

 WHERE: LV = Land Values

CNI = Capitalized Net Income

CS = Comparable Sales

MV = Market Value per Tax Declaration

Since the Comparable Sales factor is missing, the formula shall be as

follows:

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

To compute the CNI, the following formula shall be used, to wit:

CNI = (AGP X SP) CO

0.12

The cost of operation could not be obtained or verified and since the
landholdings subject in the instant case are planted to coconut which are
productive at the time of Field Investigation (FI), it will continue to use the
assumed NIR of 70%.

Thus, the computation, to wit:

CNI = (AGP X SP (70%)

.12
= (5,671.3 kls. X 5.93) 70%
.12

= 23,541.56
.12

CNI = 196,179.7

LV = (196,179.7 X 0.9) + (14,158 X 0.1)

= 176,561.73 + 1,415.8

LV = ₱22,662,466

Improvements:

Computation:

xxx
 Total - ₱3,860,714.00

Summary Computation of Total Just Compensation:

1) Land Value - ₱22,662,466.00

2) Improvements -₱ 3,860,714.00
Total - ₱26,523,180.00

Just compensation means the equivalent for the value of the property at the
time of its taking. It means a fair and full equivalent value for the loss sustained.
All the facts as to the condition of the property and its surroundings, its
improvements and capabilities should be considered (Export Processing Zone
Authority vs. Dulay 149 SCRA 305 [1987]). Consistent with the said ruling, the
Court considered the findings of the commissioners as to the plants/fruit tree
introduced into the land constituting as valuable improvements thereto. Thus,
the above computation.
xxx
Considering therefore the actual production in addition with the desirable
land attributes as a contiguous titled property fertile, with valuable intercrops,
constituting as improvements, fully cultivated, proximate location along the
national highway, the Court deems it just and equitable the valuation in total per
Courts computation.262[17]

The CA affirmed the RTCs valuation upon finding that the evidence on
record substantiated the valuation, but saw the need to correct the amount from
₱26,523,180.00 to ₱31,034,819.00 because of the RTCs honest error in calculation.
The CAs following explanation for its affirmance is worth noting:

To recapitulate, the Annual and Monthly Gross Production of copra on the

subject property are as follows:

Average Yearly Average Monthly

 Production Production

Directly Processed Copra 15,580 kilos 1,298.3 kilos

Whole Nuts Resecada - 209,908 kilos 4,373 kilos

(converted tibook)

5,671.3 kilos

We likewise observe that in the computation of the CNI OR Capitalized Net

Income, both DARAB and the court a quo used the following formula:

CNI = (AGP x SP) - CO

.12

Unfortunately, DARAB and the court a quo committed an error in the

calculation thereon (emphasis supplied). After multiplying the AGP (Average
Gross Production) from SP (Selling Price/kilo), they multiplied the result with the
CO (Cost of Operation), instead of subtracting the same as reflected in the above
formula.

Thus, pursuant to Administrative Order No. 11, as amended, the

correct computation should be:

CNI = (AGP x SP) - CO

.12

Wherein: AGP 5,671.3 kilos (Average Gross Production)

SP - ₱5.93/kilo (Selling Price from PCA data)

CO 70% (assumed Cost of Operations, AO No. 11)

= (5,671.53 kilos x 5.93) 70%

.12
= 33.632.17 -.7
.12
= 33.631.472
.12

CNI = 280,262.26

To compute the Land Value (LV) per hectare, we use the formula as
prescribed by Administrative Order No. 11, as amended:
 LV = (CNI x 0.9) + (CS x 0.3) + (MV x 0.1)

WHERE: LV = Land Values

CNI = Capitalized Net Income

CS = Comparable Sales

MV = Market Value per Tax Declaration

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

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

Wherein: CNI 280,262.26

MV - ₱14,158.40 (Market Value per Tax Declaration of the subject

property)

LV = (280,262.26 x 0.9) + (₱14,158.40 x 0.1)

= 252,236.03 + ₱1,415.84

LV = ₱253,651.87/hectare

Total Land Value = ₱253,651.87 hectare x 127.3365 hectares

= ₱32,299,141.00

Summary of Valuation:

1) Total Land Value - ₱32,299,141.00

2) Improvements - ₱3,860,714.00 (as found by the court a quo)
TOTAL - ₱36,159,855.00

Hence, the correct just compensation that must be paid to herein respondent
is Thirty Six Million One Hundred Fifty Nine Thousand Eight Hundred Fifty
Five Pesos (₱36,159,855.00).263[18]
xxx
 In the case at bench, petitioner Bank initially paid respondent the sum of
₱5,125,036.05 on August 26, 1993. The total just compensation payable to the
latter, as computed above, is ₱36,159,855.00. Hence, the difference of
₱31,034,819.00 (emphasis supplied) must earn the interest of 12% per annum, or
₱3,724,178.20, from 1993 until fully paid thereon in order to place the owner in a
position as good (but not better than) the position she was in before the taking
occurred as mandated by the Reyes doctrine.264[19] (Emphasis supplied)

We cannot fail to note that the computation by the CA closely conformed to

the factors listed in Section 17 of Republic Act No. 6657, especially the factors of
the actual use and income of the affected landholding. The Court has consistently
ruled that the ascertainment of just compensation by the RTC as SAC on the basis
of the landholdings nature, location, market value, assessors value, and the volume
and value of the produce is valid and accords with Section 17, supra.265[20] The
Court has likewise ruled that in appraising just compensation the courts must
consider, in addition, all the facts regarding the condition of the landholding and its
surroundings, as well as the improvements and the capabilities of the
landholding.266[21] Thus, we sustain the computation.

We also stress that the factual findings and conclusions of the RTC, when
affirmed by the CA, are conclusive on the Court. We step in to review the factual
findings of the CA only when we have a compelling reason to do so, such as any of
the following:

1. When the factual findings of the CA and the RTC are

contradictory;

2. When the findings are grounded entirely on speculation, surmises,

or conjectures;

3. When the inference made by the CA is manifestly mistaken,

absurd, or impossible;

4. When there is grave abuse of discretion in the appreciation of

facts;

5. When the CA, in making its findings, went beyond the issues of
the case, and such findings are contrary to the admissions of both
appellant and appellee;

6. When the judgment of the CA is premised on a misapprehension

of facts;

7. When the CA fails to notice certain relevant facts that, if properly

considered, will justify a different conclusion;

8. When the findings of fact are themselves conflicting;

9. When the findings of fact are conclusions without citation of the

specific evidence on which they are based; and,

10. When the findings of fact of the CA are premised on the

absence of evidence, but such findings are contradicted by the
evidence on record.267[22]
 Considering that LBP has not shown and established the attendance of any
of the foregoing compelling reasons to justify a review of the findings of fact of the
CA, we do not disturb the findings of fact of the CA and the RTC.

Nonetheless, LBP urges that the CA should have relied on the rulings in
Land Bank of the Philippines v. Banal268[23] and Land Bank of the Philippines v.
Celada269[24] in resolving the issue of just compensation.

In Banal, the Court invalidated the land valuation by the RTC because the
RTC did not observe the basic rules of procedure and the fundamental
requirements in determining just compensation cases. In Celada, the Court set
aside the land valuation because the RTC had used only one factor in valuing the
land and had disregarded the formula under DAR AO No. 5, Series of 1998. The
Court stated that the RTC was at no liberty to disregard the formula which was
devised to implement the said provision.270[25] Thus, LBP submits that the RTCs
land valuation, as modified by the CA, should be disregarded because of the failure
to consider the factors listed in Section 17 of RA 6657 and the formula prescribed
under DAR AO No. 5, Series of 1998, amending DAR AO No. 11, Series of 1994.

LBPs submission is grossly misleading. As the Court has already noted, the
CA and the RTC did not disregard but applied the formula adopted in DAR AO
No. 5. Moreover, the reasons for setting aside the RTCs determinations of just
compensation in Banal and Celada did not obtain here. In Banal, the RTC as SAC
did not conduct a hearing to determine the landowners compensation with notice to
and upon participation of all the parties, but merely took judicial notice of the
average production figures adduced in another pending land case and used the
figures without the consent of the parties.271[26] The RTC did not also appoint any
commissioners to aid it in determining just compensation. In contrast, the RTC as
SAC herein conducted actual hearings to receive the evidence of the parties;
appointed a board of commissioners to inspect and to estimate the affected
landholdings value; and gave due regard to the various factors before arriving at its
valuation. In Celada, the Court accepted the valuation by LBP and set aside the
valuation determined by the RTC because the latter valuation had been based
solely on the observation that there was a patent disparity between the price given
to the respondent and the other landowners.272[27] Apparently, the RTC had used
only a single factor in determining just compensation. Here, on the other hand, the
RTC took into consideration not only the board of commissioners report on the
affected landholdings value, but also the several factors enumerated in Section 17
of Republic Act No. 6657 and the applicable DAR AOs as well as the value of the
improvements.

II.
Farming Experience and Rule of Thumb Method of Conversion are
relevant to the statutory factors
for determining just compensation

The RTC elucidated:

The Court is of the opinion that the actual production data not the
government statistics is the most accurate data that should be used if only to
reflect the true and fair equivalent value of the property taken by the defendant
through expropriation. Considering the number of coconut trees to a high of
12,153 all bearing fruits, it would be contrary to farming experience involving
coconuts to have an average production per month of 2,057.14 kilos without
necessarily stating that the said land is classified as prime coconut land.
Apportioning the number of coconut trees to the total land area would yield, more
or less 95 trees per hectare well within the classification of a prime coconut land.

Even the settled rule of thumb method of conversion, 1000 kilos of nuts
make 250 kilos copra resecada long before adopted by coconut farmers spells
substantial difference. The Court deems it more reasonable the production data
submitted by the plaintiff supported by the affidavit of Mrs. Wilma Rubi, to wit:

COPRA RESECADA:

Months No. of Kilos Sales

a.) November 1992 No copra -0-

 b.) October 1992 1,416 ₱ 9,345.60

c.) September 1992 2,225 ₱14,540.65

d.) August 1992 No copra -0-

e.) July 1992 323.5 ₱ 2,523.30

f.) June 1992 1,867 ₱15,946.10

g.) May 1992 713 ₱ 5,940.60

h.) April 1992 746 ₱ 6,490.20

i.) March 1992 1,962.5 ₱16,485.00

j.) February 1992 2,652.5 ₱22,281.00

k.) January 1992 495.5 ₱ 4,558.00

l.) December 1991 3,178.5 ₱27,419.05

------------------- --------------------

15,580 ₱125,080.10

xxx
The defendant (LBP) did not bother to disprove the aforestated documentary
evidence submitted by the plaintiff (Nable). However, the selling price/kilo
(SP/Kg.) used by the defendants (DAR and LBP) in their computation is more
reasonable/fair price per kilo of copra during the time of taking. The time of
taking must have relevance on the determination of the selling price (SP)
prevailing when expropriation was effected. xxx273[28]

LBP protests the use by the RTC of the farming experience and the thumb
method of conversion as gauges of the justness of LBP and DARABs valuation of
the affected landholding.
 The Court finds nothing objectionable or irregular in the use by the RTC of
the assailed the farming experience and the thumb method of conversion tests. Such
tests are not inconsistent or incompatible with the factors listed in Section 17 of
Republic Act No. 6657, as the aforequoted elucidation of the RTC shows.

Although Section 17 of Republic Act No. 6657 has not explicitly mentioned
the farming experience and the thumb method of conversion as methods in the
determination of just compensation, LBP cannot deny that such methods were
directly relevant to the factors listed in Section 17, particularly those on the nature,
actual use and income of the landholding.

III.
LBP was allowed the opportunity to refute
the Commissioners Report and Rubis affidavit

LBP insists that the CA and the RTC both erred in relying on the
Commissioners Report and on caretaker Wilma Rubis affidavit because the RTC
did not conduct a hearing on the motion to approve the Commissioners Report; and
because it (LBP) was deprived of the opportunity to contest the Commissioners
Report and Wilma Rubis affidavit.

LBPs insistence is factually and legally unwarranted.

 It appears that upon its receipt of the Commissioners Report, LBP submitted
to the RTC on July 30, 2003 an opposition to the Commissioners Report and to
Nables motion to approve the Commissioners Report;274[29] and that the RTC later
sent to LBP a notice for the hearing on September 19, 2003 of the motion to
approve the Commissioners Report.275[30] LBPs counsel received the notice of
hearing on August 28, 2003.276[31] Yet, neither LBPs counsel nor its
representative appeared at the hearing held on September 19, 2003; instead, only
Nables counsel attended.277[32] Even so, the RTC still directed the parties to
submit their respective memoranda on the Commissioners Report.278[33] On its
part, LBP filed its memorandum (with supporting documents attached).279[34]
 Under the circumstances, LBP had no justification to complain that it had
not been allowed the opportunity to oppose or comment on the Commissioners
Report.

Anent Wilma Rubis affidavit, LBP did not object to its presentation during
the trial. LBP objected to the affidavit for the first time only on appeal in the CA.
Expectedly, the CA rejected its tardy objection, and further deemed LBPs failure to
timely object to respondents introduction of (the) affidavit as an implied admission
of the affidavit itself.280[35]

The Court agrees with the CAs rejection of LBPs objection to the affidavit.

Any objection to evidence must be timely raised in the course of the

proceedings in which the evidence is first offered.281[36] This enables the adverse
party to meet the objection to his evidence, as well as grants to the trial court the
opportunity to pass upon and rule on the objection. The objection to evidence
cannot be made for the first time on appeal, both because the party who has failed
to timely object becomes estopped from raising the objection afterwards; and
because to assail the judgment of the lower court upon a cause as to which the
lower court had no opportunity to pass upon and rule is contrary to basic fairness
and procedural orderliness.282[37]

IV.
Awarding of interest and commissioners fee,
and deletion of attorneys fee are proper

The CA correctly prescribed 12% interest per annum on the unpaid balance
of ₱31,034,819.00 reckoned from the taking of the land in 1993 until full payment
of the balance. This accords with our consistent rulings on the matter of interest in
the expropriation of private property for a public purpose.283[38] The following
justification for that rate of interest rendered in Republic v. Reyes284[39] is now
worthy of reiteration, viz:

The constitutional limitation of just compensation is considered to be the

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

The Bulacan trial court, in its 1979 decision, was correct in imposing
interests on the zonal value of the property to be computed from the time
petitioner instituted condemnation proceedings and took the property in
September 1969. This allowance of interest on the amount found to be the
value of the property as of the time of the taking computed, being an effective
forbearance, at 12% per annum should help eliminate the issue of the
constant fluctuation and inflation of the value of the currency over time.
Article 1250 of the Civil Code, providing that, in case of extraordinary inflation
or deflation, the value of the currency at the time of the establishment of the
obligation shall be the basis for the payment when no agreement to the contrary is
stipulated, has strict application only to contractual obligations. In other words, a
contractual agreement is needed for the effects of extraordinary inflation to be
taken into account to alter the value of the currency. (Emphasis supplied)

The charging of ₱25,000.00 as commissioners fees against LBP is likewise

upheld. Section 16, Rule 141 of the Rules of Court, expressly recognizes such fees,
to wit:

Section 16. Fees of commissioners in eminent domain proceedings. The

commissioners appointed to appraise land sought to be condemned for public uses
in accordance with the rules shall each receive a compensation to be fixed by the
court of not less than (₱300.00) Pesos per day for the time actually and
necessarily employed in the performance of their duties and in making their report
to the court which fees shall be taxed as a part of costs of the proceedings.
 Applying the rule, the Court finds the amount of ₱25,000.00 as fair and
commensurate to the work performed by the commissioners, which the CA
summed up as follows:

We observe that in the Commissioners Report, the three (3) appointed

Commissioners actually inspected 127 hectares of the subject property. It took
them five (5) days to complete the ocular inspection and individually counted
12,153 coconut trees, 28,024 bananas, 4,928 Tundan, 821 Falcata, 1,126 Temani,
298 Bamboos, Jackfruit, 90 Santol, 51 Rombuon, 260 Ipil-Ipil, 5,222 Abaca plant,
68 Star Apple, 1,670 Antipolo, 67 Narra trees, 23 Durian trees, 139 Mango trees,
83 Avocado trees, 23 Lanzones trees, 84 Cacao, 18 Marang, and 13 trees of
Lawaan.

Hence, for the actual time spent and thoroughness of its Report, it is proper
for the said commissioners to be compensated in the amount of ₱25,000.00,
which is only ₱1,666.66 per day.285[40]

We sustain the CAs deletion of the RTCs award of 10% attorneys fees.
Under Article 2208, Civil Code, an award of attorneys fees requires factual, legal,
and equitable justifications. Clearly, the reason for the award must be explained
and set forth by the trial court in the body of its decision. The award that is
mentioned only in the dispositive portion of the decision should be
disallowed.286[41]
 Considering that the reason for the award of attorneys fees was not clearly
explained and set forth in the body of the RTCs decision, the Court has nothing to
review and pass upon now. The Court cannot make its own findings on the matter
because an award of attorneys fees demands the making of findings of fact.

WHEREFORE, the Court AFFIRMS the decision promulgated on August

17, 2006 by the Court of Appeals; and ORDERS petitioner to pay the costs of suit.

SO ORDERED.

Republic of the Philippines

Supreme Court
Manila

SECOND DIVISION

CITY OF ILOILO represented by G.R. No. 168967

HON. JERRY P. TREAS,
City Mayor, Present:
Petitioner,
CARPIO, J., Chairperson,
- versus - BRION,
 DEL CASTILLO,
HON. LOLITA CONTRERAS- ABAD, and
BESANA, Presiding Judge, Regional PEREZ, JJ.
Trial Court, Branch 32, and
ELPIDIO JAVELLANA, Promulgated:
Respondents. February 12, 2010

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

DECISION

DEL CASTILLO, J.:

It is arbitrary and capricious for the government to initiate expropriation

proceedings, seize a persons property, allow the order of expropriation to become final,
but then fail to justly compensate the owner for over 25 years. This is government at its
most high-handed and irresponsible, and should be condemned in the strongest possible
terms. For its failure to properly compensate the landowner, the City of Iloilo is liable for
damages.

This Petition for Certiorari under Rule 65 of the Rules of Court with a prayer for
the issuance of a temporary restraining order seeks to overturn the three Orders issued by
Regional Trial Court (RTC) of Iloilo City, Branch 32 on the following dates: December
12, 2003 (the First Assailed Order),287[1] June 15, 2004 (the Second Assailed
Order),288[2] and March 9, 2005 (the Third Assailed Order) (the three aforementioned
Orders are collectively referred to as the Assailed Orders).289[3]

Factual Antecedents

The essential facts are not in dispute.

On September 18, 1981, petitioner filed a Complaint290[4] for eminent domain

against private respondent Elpidio T. Javellana (Javellana) and Southern Negros
Development Bank, the latter as mortgagee. The complaint sought to expropriate two
parcels of land known as Lot Nos. 3497-CC and 3497-DD registered in Javellanas name
under Transfer Certificate of Title (TCT) No. T-44894 (the Subject Property) to be used
as a school site for Lapaz High School.291[5] Petitioner alleged that the Subject Property
was declared for tax purposes in Tax Declaration No. 40080 to have a value of P60.00
per square meter, or a total value of P43,560.00. The case was docketed as Civil Case No.
14052 and raffled to then Court of First Instance of Iloilo, Branch 7.

On December 9, 1981, Javellana filed his Answer292[6] where he admitted

ownership of the Subject Property but denied the petitioners avowed public purpose of
the sought-for expropriation, since the City of Iloilo already had an existing school site
for Lapaz High School. Javellana also claimed that the true fair market value of his
property was no less than P220.00 per square meter. 293[7]

On May 11, 1982, petitioner filed a Motion for Issuance of Writ of Possession,
alleging that it had deposited the amount of P40,000.00 with the Philippine National
Bank-Iloilo Branch. Petitioner claimed that it was entitled to the immediate possession of
the Subject Property, citing Section 1 of Presidential Decree No. 1533,294[8] after it had
deposited an amount equivalent to 10% of the amount of compensation. Petitioner
attached to its motion a Certification issued by Estefanio C. Libutan, then Officer-in-
Charge of the Iloilo City Treasurers Office, stating that said deposit was made.295[9]

Javellana filed an Opposition to the Motion for the Issuance of Writ of

Possession296[10] citing the same grounds he raised in his Answer that the city already
had a vast tract of land where its existing school site was located, and the deposit of a
mere 10% of the Subject Propertys tax valuation was grossly inadequate.

On May 17, 1983, the trial court issued an Order297[11] which granted petitioners
Motion for Issuance of Writ of Possession and authorized the petitioner to take immediate
possession of the Subject Property. The court ruled:

PREMISES CONSIDERED, the Motion for the Issuance of a Writ of Possession

dated May 10, 1982, filed by plaintiff is hereby granted. Plaintiff is hereby allowed to
take immediate possession, control and disposition of the properties known as Lot Nos.
3497-CC and 3497-DD x x x.298[12]
 Thereafter, a Writ of Possession299[13] was issued in petitioners favor, and
petitioner was able to take physical possession of the properties sometime in the middle
of 1985. At no time has Javellana ever denied that the Subject Property was actually used
as the site of Lapaz National High School. Aside from the filing by the private respondent
of his Amended Answer on April 21, 1984,300[14] the expropriation proceedings
remained dormant.

Sixteen years later, on April 17, 2000, Javellana filed an Ex Parte

Motion/Manifestation, where he alleged that when he finally sought to withdraw the
P40,000.00 allegedly deposited by the petitioner, he discovered that no such deposit was
ever made. In support of this contention, private respondent presented a Certification
from the Philippine National Bank stating that no deposit was ever made for the
expropriation of the Subject Property.301[15] Private respondent thus demanded his just
compensation as well as interest. Attempts at an amicable resolution and a negotiated sale
were unsuccessful. It bears emphasis that petitioner could not present any evidence
whether documentary or testimonial to prove that any payment was actually made to
private respondent.

Thereafter, on April 2, 2003, private respondent filed a Complaint302[16] against

petitioner for Recovery of Possession, Fixing and Recovery of Rental and Damages. The
case was docketed as Civil Case No. 03-27571, and raffled to Branch 28 of the Iloilo City
Regional Trial Court. Private respondent alleged that since he had not been compensated
for the Subject Property, petitioners possession was illegal, and he was entitled to
recovery of possession of his lots. He prayed that petitioner be ordered to vacate the
Subject Property and pay rentals amounting to P15,000.00 per month together with
moral, exemplary, and actual damages, as well as attorneys fees.

On May 15, 2003, petitioner filed its Answer,303[17] arguing that Javellana could
no longer bring an action for recovery since the Subject Property was already taken for
public use. Rather, private respondent could only demand for the payment of just
compensation. Petitioner also maintained that the legality or illegality of petitioners
possession of the property should be determined in the eminent domain case and not in a
separate action for recovery of possession.
 Both parties jointly moved to consolidate the expropriation case (Civil Case No.
14052) and the case for recovery of possession (Civil Case No. 03-27571),304[18] which
motion was granted by the trial court in an Order dated August 26, 2003.305[19] On
November 14, 2003, a commission was created to determine the just compensation due
to Javellana.306[20]

On November 20, 2003, private respondent filed a Motion/Manifestation dated

November 19, 2003 claiming that before a commission is created, the trial court should
first order the condemnation of the property, in accordance with the Rules of Court.
Javellana likewise insisted that the fair market value of the Subject Property should be
reckoned from the date when the court orders the condemnation of the property, and not
the date of actual taking, since petitioners possession of the property was
questionable.307[21] Before petitioner could file its Comment, the RTC issued an Order
dated November 21, 2003 denying the Motion.308[22]
 Undeterred, Javellana filed on November 25, 2003, an Omnibus Motion to
Declare Null and Void the Order of May 17, 1983 and to Require Plaintiff to Deposit
10% or P254,000.00. Javellana claimed that the amount is equivalent to the 10% of the
fair market value of the Subject Property, as determined by the Iloilo City Appraisal
Committee in 2001, at the time when the parties were trying to negotiate a
settlement.309[23]

First Assailed Order

On December 12, 2003, the RTC issued the First Assailed Order, which nullified
the Order dated May 17, 1983 (concerning the issuance of a writ of possession over the
Subject Property). The trial court ruled:

x x x the Order dated May 17, 1983 is hereby declared null and void and the plaintiff
[is] hereby ordered to immediately deposit with the PNB the 10% of the just
compensation after the Commission shall have rendered its report and have
determined the value of the property not at the time it was condemned but at the
time the complaint was filed in court.310[24] (Emphasis ours)
Second Assailed Order

Neither party sought reconsideration of this Order.311[25] Nonetheless, about six

months later, the RTC issued the Second Assailed Order, which it denominated as an
Amended Order. The Second Assailed Order was identical to the first, except that the
reckoning point for just compensation was now the time this order was issued, which is
June 15, 2004.

x x x the Order dated May 17, 1983 is hereby declared null and void and the plaintiff
[is] hereby ordered to immediately deposit with the PNB the 10% of the just
compensation after the Commission shall have rendered its report and have determined
the value of the property not at the time it was condemned but at the time this order
was issued. (Underscoring in original text)

This time, petitioner filed a Motion for Reconsideration claiming that there was no
legal basis for the issuance of the Second Assailed Order.312[26] Javellana opposed,
arguing that since the May 17, 1983 Order and the Second Assailed Order were
interlocutory in character, they were always subject to modification and revision by the
court anytime.313[27]
Third Assailed Order

After the parties were able to fully ventilate their respective positions,314[28] the
public respondent issued the Third Assailed Order, denying the Motion for
Reconsideration, and ruling as follows:

The Order dated June 15, 2004 among other things stated that parties and
counsels must be bound by the Commissioners Report regarding the value of the
property not at the time it was condemned but at the time this order was issued.

This is true inasmuch as there was no deposit at the PNB and their taking was
illegal.

The plaintiff thru [sic] Atty. Laurea alleged that this Court had a change of heart
and issued an Amended Order with the same wordings as the order of December 12,
2003 but this time stated not at the time it was condemned but at the time the order was
issued. Naturally, this Court in the interest of justice, can amend its order because
there was no deposit by plaintiff.

The jurisprudence cited by plaintiff that the just compensation must be

determined as of the date of the filing of the complaint is true if there was a deposit.
Because there was none the filing was not in accordance with law, hence, must be at the
time the order was issued.

The allegation of defendant thru [sic] counsel that the orders attacked by
plaintiff thru [sic] counsel saying it has become final and executory are interlocutory
orders subject to the control of the Judge until final judgment is correct. Furthermore, it
is in the interes[t] of justice to correct errors.315[29]
 In the meantime, on April 15, 2004, the Commission submitted its Report,
providing the following estimates of value, but without making a proper
recommendation:316[30]

Reckoning Point Value per square Fair Market Value Basis

meter
1981 - at the time the P110.00/sqm P79,860.00 based on three or more
complaint was filed recorded sales of similar types
of land in the vicinity in the
same year
1981 at the time the P686.81/sqm P498,625.22 Appraisal by Southern Negros
complaint was filed Development Bank based on
market value, zonal value,
appraised value of other banks,
recent selling price of
neighboring lots
2002 P3,500.00/sqm P2,541,000.00 Appraisal by the City
Appraisal Committee, Office
of the City Assessor
2004 P4,200.00/sqm PhP3,049,200.00 Private Appraisal Report (Atty.
Roberto Cal Catolico dated
April 6, 2004)

Hence, the present petition.

Petitioners Arguments

Petitioner is before us claiming that (1) the trial court gravely abused its discretion
amounting to lack or excess of jurisdiction in overturning the Order dated May 17, 1983,
which was already a final order; and (2) just compensation for the expropriation should
be based on the Subject Propertys fair market value either at the time of taking or filing of
the complaint.

Private Respondents Arguments

Private respondent filed his Comment on October 3, 2005,317[31] arguing that (1)
there was no error of jurisdiction correctible by certiorari; and (2) that the Assailed
Orders were interlocutory orders that were subject to amendment and nullification at the
discretion of the court.

Issues
 There are only two questions we need answer, and they are not at all novel. First,
does an order of expropriation become final? Second, what is the correct reckoning point
for the determination of just compensation?

Our Ruling

Expropriation proceedings have two stages. The first phase ends with an order of
dismissal, or a determination that the property is to be acquired for a public
purpose.318[32] Either order will be a final order that may be appealed by the aggrieved
party.319[33] The second phase consists of the determination of just compensation.
320[34] It ends with an order fixing the amount to be paid to the landowner. Both orders,
being final, are appealable.321[35]
 An order of condemnation or dismissal is final, resolving the question of whether
or not the plaintiff has properly and legally exercised its power of eminent
domain.322[36] Once the first order becomes final and no appeal thereto is taken, the
authority to expropriate and its public use can no longer be questioned.323[37]

Javellana did not bother to file an appeal from the May 17, 1983 Order which
granted petitioners Motion for Issuance of Writ of Possession and which authorized
petitioner to take immediate possession of the Subject Property. Thus, it has become
final, and the petitioners right to expropriate the property for a public use is no longer
subject to review. On the first question, therefore, we rule that the trial court gravely erred
in nullifying the May 17, 1983 Order.

We now turn to the reckoning date for the determination of just compensation.
Petitioner claims that the computation should be made as of September 18, 1981, the date
when the expropriation complaint was filed. We agree.

In a long line of cases, we have constantly affirmed that:

x x x just compensation is to be ascertained as of the time of the taking, which usually

coincides with the commencement of the expropriation proceedings. Where the
 institution of the action precedes entry into the property, the just compensation is to be
ascertained as of the time of the filing of the complaint.324[38]

When the taking of the property sought to be expropriated coincides with the
commencement of the expropriation proceedings, or takes place subsequent to the filing
of the complaint for eminent domain, the just compensation should be determined as of
the date of the filing of the complaint.325[39] Even under Sec. 4, Rule 67 of the 1964
Rules of Procedure, under which the complaint for expropriation was filed, just
compensation is to be determined as of the date of the filing of the complaint. Here, there
is no reason to depart from the general rule that the point of reference for assessing the
value of the Subject Property is the time of the filing of the complaint for
expropriation.326[40]

Private respondent claims that the reckoning date should be in 2004 because of the
clear injustice to the private respondent who all these years has been deprived of the
beneficial use of his properties.
 We commiserate with the private respondent. The school was constructed and has
been in operation since 1985. Petitioner and the residents of Iloilo City have long reaped
the benefits of the property. However, non-payment of just compensation does not entitle
the private landowners to recover possession of their expropriated lot.327[41]

Concededly, Javellana also slept on his rights for over 18 years and did not bother
to check with the PNB if a deposit was actually made by the petitioner. Evidently, from
his inaction in failing to withdraw or even verify the amounts purportedly deposited,
private respondent not only accepted the valuation made by the petitioner, but also was
not interested enough to pursue the expropriation case until the end. As such, private
respondent may not recover possession of the Subject Property, but is entitled to just
compensation.328[42] It is high time that private respondent be paid what was due him
after almost 30 years.

We stress, however, that the City of Iloilo should be held liable for damages for
taking private respondents property without payment of just compensation. In Manila
International Airport Authority v. Rodriguez,329[43] the Court held that a government
agencys prolonged occupation of private property without the benefit of expropriation
proceedings undoubtedly entitled the landowner to damages:

Such pecuniary loss entitles him to adequate compensation in the form of

actual or compensatory damages, which in this case should be the legal interest
(6%) on the value of the land at the time of taking, from said point up to full
payment by the MIAA. This is based on the principle that interest runs as a matter of
law and follows from the right of the landowner to be placed in as good position as
money can accomplish, as of the date of the taking x x x.

xxxx

For more than twenty (20) years, the MIAA occupied the subject lot without the
benefit of expropriation proceedings and without the MIAA exerting efforts to ascertain
ownership of the lot and negotiating with any of the owners of the property. To our
mind, these are wanton and irresponsible acts which should be suppressed and
corrected. Hence, the award of exemplary damages and attorneys fees is in order. x
x x.330[44] (Emphasis supplied)

WHEREFORE, the petition is GRANTED. The Orders of the Regional Trial

Court of Iloilo City, Branch 32 in Civil Case No. 14052 and Civil Case No. 03-27571
dated December 12, 2003, June 15, 2004, and March 9, 2005 are hereby ANNULLED
and SET ASIDE.

The Regional Trial Court of Iloilo City, Branch 32 is DIRECTED to immediately

determine the just compensation due to private respondent Elpidio T. Javellana based on
the fair market value of the Subject Property at the time Civil Case No. 14052 was filed,
or on September 18, 1981 with interest at the legal rate of six percent (6%) per annum
from the time of filing until full payment is made.

The City of Iloilo is ORDERED to pay private respondent the amount of

P200,000.00 as exemplary damages.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 202690 June 5, 2013

HENRY L. SY, Petitioner,

vs.
LOCAL GOVERNMENT OF QUEZON CITY, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the January 20, 2012 Decision2 and July 16,
2012 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 91964 which affirmed with
modification the August 22, 2008 Order4 of the Regional Trial Court of Quezon City, Branch 80
(RTC) in Civil Case No. Q-96-29352, ordering respondent Local Government of Quezon City
(the City) to pay petitioner Henry L. Sy (Sy) just compensation set as ₱5,500.00 per square meter
(sq. m.), including ₱200,000.00 as exemplary damages and attorney’s fees equivalent to one
percent (1%) of the total amount due.

The Facts

On November 7, 1996, the City, through then Mayor Ismael Mathay, Jr., filed a complaint for
expropriation with the RTC in order to acquire a 1,000 sq. m. parcel of land, owned and
registered under the name of Sy (subject property),5 which was intended to be used as a site for a
multi-purpose barangay hall, day-care center, playground and community activity center for the
benefit of the residents of Barangay Balingasa, Balintawak, Quezon City.6 The requisite
ordinance to undertake the aforesaid expropriation namely, Ordinance No. Sp-181, s-94, was
enacted on April 12, 1994.7

On March 18, 1997, pursuant to Section 198 of Republic Act No. 7160 (RA 7160), otherwise
known as the "Local Government Code of 1991," the City deposited the amount of ₱241,090.00
with the Office of the Clerk of Court, representing 15% of the fair market value of the subject
property based on its tax declaration.9

During the preliminary conference on November 8, 2006, Sy did not question the City’s right to
expropriate the subject property. Thus, only the amount of just compensation remained at issue.10

On July 6, 2006, the RTC appointed Edgardo Ostaco (Commissioner Ostaco), Engr. Victor
Salinas (Commissioner Salinas) and Atty. Carlo Alcantara (Commissioner Alcantara) as
commissioners to determine the proper amount of just compensation to be paid by the City for
the subject property. Subsequently, Commissioners Ostaco and Alcantara, in a Report dated
February 11, 2008, recommended the payment of ₱5,500.00 per sq. m., to be computed from the
date of the filing of the expropriation complaint, or on November 7, 1996. On the other hand,
Commissioner Salinas filed a separate Report dated March 7, 2008, recommending the higher
amount of ₱13,500.00 per sq. m. as just compensation.11

The RTC Ruling

In the Order dated August 22, 2008,12 the RTC, citing the principle that just compensation must
be fair not only to the owner but to the expropriator as well, adopted the findings of
Commissioners Ostaco and Alcantara and thus, held that the just compensation for the subject
property should be set at ₱5,500.00 per sq. m.13 Further, it found no basis for the award of
damages and back rentals in favor of Sy.14 Finally, while legal interest was not claimed, for
equity considerations, it awarded six percent (6%) legal interest, computed from November 7,
1996 until full payment of just compensation.15

Dissatisfied, Sy filed an appeal with the CA.16

The CA Ruling

In the Decision dated January 20, 2012,17 the CA affirmed the RTC’s ruling but modified the
same, ordering the City to pay Sy the amount of ₱200,000.00 as exemplary damages and
attorney’s fees equivalent to one percent (1%) of the total amount due.

It found the appraisal of Commissioners Ostaco and Alcantara for the subject property to be
more believable than the ₱13,000.00 per sq. m. valuation made by independent appraisers
Cuervo and Asian Appraisers in 1995 and 1996, respectively, considering that it was arrived at
after taking into account: (a) the fair market value of the subject property in the amount of
₱4,000.00 per sq. m. based on the September 4, 1996 recommendation of the City Appraisal
Committee;18 (b) the market value of the subject lot in the amount of ₱2,000.00 per sq. m. based
on several sworn statements made by Sy himself;19 and (c) Sy’s own tax declaration for 1996,20
stating that the subject property has a total market value of ₱2,272,050.00. Accordingly, it held
that the fair market value of ₱5,500.00 per sq. m., or ₱5,500,000.00 in total, for the 1,000 sq. m.
subject property arrived at by Commissioners Ostaco and Alcantara was more than fair and
reasonable.21

The CA also denied Sy’s assertion that he should be entitled to damages on account of the
purported shelving of his housing project, finding no sufficient evidence to support the same.
Likewise, it observed that the expropriation would not leave the rest of Sy’s properties useless as
they would still be accessible through a certain Lot 8 based on the Property Identification Map.22

Nonetheless, citing the case of Manila International Airport Authority v. Rodriguez (MIAA),23 it
awarded exemplary damages in the amount of ₱200,000.00 and attorney’s fees equivalent to one
percent (1%) of the amount due because of the City’s taking of the subject property without even
initiating expropriation proceedings.24 It, however, denied Sy’s claim of back rentals considering
that the RTC had already granted legal interest in his favor.25

Aggrieved, Sy moved for reconsideration which was denied in the Resolution dated July 16,
201226 for being filed out of time.27 The City also filed a motion for reconsideration which was
equally denied for lack of merit.28

Hence, this petition.

Issues Before The Court

The present controversy revolves around the issue of whether the CA correctly: (a) dismissed
Sy’s motion for reconsideration for being filed out of time; (b) upheld the amount of just
compensation as determined by the RTC as well as its grant of six percent (6%) legal interest;
and (c) awarded exemplary damages and attorney’s fees.

The Court’s Ruling

The petition is partly meritorious.

A. Failure to seasonably move for

reconsideration; excusable
negligence; relaxation of procedural
rules

At the outset, the Court observes that Sy’s motion for reconsideration was filed out of time and
thus, was properly dismissed by the CA. Records show that, as per the Postmaster’s
Certification, the CA’s January 20, 2012 Decision was received by Sy on January 26, 2012 and
as such, any motion for reconsideration therefrom should have been filed not later than fifteen
(15) days from receipt,29 or on February 10, 2012.30 However, Sy filed his motion for
reconsideration (subject motion) a day late, or on February 13, 2012,31 which thus, renders the
CA decision final and executory.32

In this regard, it is apt to mention that Sy’s counsel, Atty. Tranquilino F. Meris (Atty. Meris),
claims that his secretary’s inadvertent placing of the date January 27, 2012, instead of January
26, 2012, on the Notice of Decision33 constitutes excusable negligence which should therefore,
justify a relaxation of the rules.

The assertion is untenable.

A claim of excusable negligence does not loosely warrant a relaxation of the rules. Verily, the
party invoking such should be able to show that the procedural oversight or lapse is attended by a
genuine miscalculation or unforeseen fortuitousness which ordinary prudence could not have
guarded against so as to justify the relief sought.34 The standard of carerequired is that which an
ordinarily prudent man bestows upon his important business.35 In this accord, the duty rests on
every counsel to see to adopt and strictly maintain a system that will efficiently take into account
all court notices sent to him.36

Applying these principles, the Court cannot excuse Atty. Meris’ misstep based on his proffered
reasons. Evidently, the erroneous stamping of the Notice of Decision could have been averted if
only he had instituted a credible filing system in his office to account for oversights such as that
committed by his secretary. Indeed, ordinary prudence could have prevented such mistake.

Be that as it may, procedural rules may, nonetheless, be relaxed for the most persuasive of
reasons in order to relieve a litigant of an injustice not commensurate with the degree of his
thoughtlessness in not complying with the procedure prescribed.37 Corollarily, the rule, which
states that the mistakes of counsel bind the client, may not be strictly followed where observance
of it would result in the outright deprivation of the client’s liberty or property, or where the
interest of justice so requires.38

As applied in this case, the Court finds that the procedural consequence of the above-discussed
one-day delay in the filing of the subject motion – which, as a matter of course, should render the
CA’s January 20, 2012 Decision already final and executory and hence, bar the instant petition –
is incommensurate to the injustice which Sy may suffer. This is in line with the Court’s
observation that the amount of just compensation, the rate of legal interest, as well as the time of
its accrual, were incorrectly adjudged by both the RTC and the CA, contrary to existing
jurisprudence. In this respect, the Court deems it proper to relax the rules of procedure and thus,
proceed to resolve these substantive issues.

B. Rate of legal interest and time of accrual

Based on a judicious review of the records and application of jurisprudential rulings, the Court
holds that the correct rate of legal interest to be applied is twelve percent (12%) and not six
percent (6%) per annum, owing to the nature of the City’s obligation as an effective forbearance.
In the case of Republic v. CA,39 the Court ruled that the debt incurred by the government on
account of the taking of the property subject of an expropriation constitutes an effective
forbearance which therefore, warrants the application of the 12% legal interest rate, viz:

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

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

In similar regard, the Court, in Land Bank of the Philippines v. Rivera,40 pronounced that:

In many cases decided by this Court,41 it has been repeated time and again that the award of 12%
interest is imposed in the nature of damages for delay in payment which in effect makes the
obligation on the part of the government one of forbearance. This is to ensure prompt payment of
the value of the land and limit the opportunity loss of the owner that can drag from days to
decades. (Emphasis and underscoring supplied)

As to the reckoning point on which the legal interest should accrue, the same should be
computed from the time of the taking of the subject property in 1986 and not from the filing of
the complaint for expropriation on November 7, 1996.

Records show that the City itself admitted in its Appellee’s Brief filed before the CA that as
early as 1986, "a burden was already imposed upon the owner of the subject property x x x,
considering that the expropriated property was already being used as Barangay day care and
office."42 Thus, the property was actually taken during that time and from thereon, legal interest
should have already accrued. In this light, the Court has held that:43

x x x [T]he final compensation must include interests on its just value to be computed from the
time the property is taken to the time when compensation is actually paid or deposited with the
court. x x x (Emphasis supplied)
This is based on the principle that interest "runs as a matter of law and follows from the right of
the landowner to be placed in as good position as money can accomplish, as of the date of the
taking."44

Notably, the lack of proper authorization, i.e., resolution to effect expropriation,45 did not affect
the character of the City’s taking of the subject property in 1986 as the CA, in its January 20,
2012 Decision, suggests. Case law dictates that there is "taking" when the owner is actually
deprived or dispossessed of his property; when there is a practical destruction or a material
impairment of the value of his property or when he is deprived of the ordinary use thereof.46
Therefore, notwithstanding the lack of proper authorization, the legal character of the City’s
action as one of "taking" did not change. In this relation, the CA noted that the City enacted
Ordinance No. Sp-181, s-94, only on April 12, 1994 and filed its expropriation complaint on
November 7, 1996. However, as it previously admitted, it already commenced with the taking of
the subject property as early as 1986. Accordingly, interest must run from such time.

This irregularity does not, however, proceed without any consequence.1âwphi1 As correctly
observed by the CA, citing as basis the MIAA case, exemplary damages and attorney’s fees
should be awarded to the landowner if the government takes possession of the property for a
prolonged period of time without properly initiating expropriation proceedings. The MIAA
ruling was applied in the more recent case of City of Iloilo v. Judge Lolita Contreras-Besana ,47
wherein the Court said:

We stress, however, that the City of Iloilo should be held liable for damages for taking private
respondent’s property without payment of just compensation. In Manila International Airport
Authority v. Rodriguez, the Court held that a government agency’s prolonged occupation of
private property without the benefit of expropriation proceedings undoubtedly entitled the
landowner to damages:

Such pecuniary loss entitles him to adequate compensation in the form of actual or compensatory
damages, which in this case should be the legal interest (6%) on the value of the land at the time
of taking, from said point up to full payment by the MIAA. This is based on the principle that
interest "runs as a matter of law and follows from the right of the landowner to be placed in as
good position as money can accomplish, as of the date of the taking x x x.

xxxx

For more than twenty (20) years, the MIAA occupied the subject lot without the benefit of
expropriation proceedings and without the MIAA exerting efforts to ascertain ownership of the
lot and negotiating with any of the owners of the property. To our mind, these are wanton and
irresponsible acts which should be suppressed and corrected. Hence, the award of exemplary
damages and attorneys fees is in order. x x x. (Emphasis and underscoring supplied; citations
omitted)

All told, the Court finds the grant of exemplary damages in the amount of ₱200,000.00 as well as
attorney’s fees equivalent to 1% of the total amount due amply justified, square as it is with
existing jurisprudence.
C. Amount of just compensation

Finally, the Court cannot sustain the amount of ₱5,500.00/sq. m. as just compensation which was
set by the RTC and upheld by the CA. The said valuation was actually arrived at after
considering: (a) the September 4, 1996 recommendation of the City Appraisal Committee; (b)
several sworn statements made by Sy himself; and (c) Sy’s own tax declaration for 1996.48

It is well-settled that the amount of just compensation is to be ascertained as of the time of the
taking.49 However, the above-stated documents do not reflect the value of the subject property at
the time of its taking in 1986 but rather, its valuation in 1996. Consequently, the case must be
remanded to the RTC in order to properly determine the amount of just compensation during
such time the subject property was actually taken.

WHEREFORE, the petition is PARTLY GRANTED. The January 20, 2012 Decision and July
16, 2012 Resolution of the Court of Appeals in CA-G.R. CV No. 91964 are hereby SET ASIDE.
Accordingly, the case is REMANDED to the trial court for the proper determination of the
amount of just compensation in accordance with this Decision. To forestall any further delay in
the resolution of this case, the trial court is hereby ordered to fix the just compensation for
petitioner Henry L. Sy's property with dispatch and report to the Court its compliance. Finally,
respondent Local Government of Quezon City is ordered to PAY exemplary damages in the
amount of ₱200,000.00 and attorney's fees equivalent to one percent (1%) of the amount due,
after final determination of the amount of just compensation.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 165354 January 12, 2015

REPUBLIC OF THE PHILIPPINES, represented by the NATIONAL POWER

CORPORATION, Petitioner,
vs.
HEIRS OF SATURNINO Q. BORBON, AND COURT OF APPEALS, Respondents.

DECISION

BERSAMIN, J.:

The expropriator who has taken possession of the property subject of expropriation is obliged to
pay reasonable compensation to the landowner for the period of such possession although the
proceedings had been discontinued on the ground that the public purpose for the expropriation
had meanwhile ceased.
Antecedents

The National Power Corporation (NAPOCOR) is a government-owned and -controlled

corporation vested with authority under Republic Act No. 6395, as amended, to undertake the
development of hydro-electric generation of power, production of electricity from any and all
sources, construction, operation and maintenance of power plants, auxiliary plants, dams,
reservoirs, pipes, main transmission lines, power stations and substations, and other works for
the purpose of developing hydraulic power from any river, lake, creek, spring and waterfalls in
the Philippines and to supply such power to the inhabitants thereof.1

In February 1993, NAPOCOR entered a property located in Barangay San Isidro, Batangas City
in order to construct and maintain transmission lines for the 230 KV Mahabang Parang-
Pinamucan Power Transmission Project.2 Respondents heirs of Saturnino Q. Borbon owned the
property, with a total area of 14,257 square meters, which was registered under Transfer
Certificate of Title No. T-9696 of the Registry of Deeds of Batangas.3

On May 26, 1995, NAPOCOR filed a complaint for expropriation in the Regional Trial Court in
Batangas City (RTC),4 seeking the acquisition of an easement of right of way over a portion of
the property involving an area of only 6,326 square meters, more or less,5 alleging that it had
negotiated with the respondents for the acquisition of the easement but they had failed to reach
any agreement; and that, nonetheless, it was willing to deposit the amount of ₱9,790.00
representing the assessed value of the portion sought to be expropriated.6 It prayed for the
issuance of a writ of possession upon deposit to enable it to enter and take possession and control
of the affected portion of the property; to demolish all improvements existing thereon; and to
commence construction of the transmission line project. It likewise prayed for the appointment
of three commissioners to determine the just compensation to be paid.7

In their answer with motion to dismiss,8 the respondents staunchly maintained that NAPOCOR
had not negotiated with them before entering the property and that the entry was done without
their consent in the process, destroying some fruit trees without payment, and installing five
transmission line posts and five woodpoles for its project;9 that the area being expropriated only
covered the portion directly affected by the transmission lines; that the remaining portion of the
property was also affected because the transmission line passed through the center of the land,
thereby dividing the land into three lots; that the presence of the high tension transmission line
had rendered the entire property inutile for any future use and capabilities;10 that, nonetheless,
they tendered no objection to NAPOCOR’s entry provided it would pay just compensation not
only for the portion sought to be expropriated but for the entire property whose potential was
greatly diminished, if not totally lost, due to the project;11 and that their property was classified
as industrial land. Thus, they sought the dismissal of the complaint, the payment of just
compensation of ₱1,000.00/square meter, and attorney’s fees;12 and to be allowed to nominate
their representative to the panel of commissioners to be appointed by the trial court.13

In the pre-trial conference conducted on December 20, 1995, the parties stipulated on: (1) the
location of the property; (2) the number of the heirs of the late Saturnino Q. Borbon; (3) the
names of the persons upon whom title to the property was issued; and (4) the ownership and
possession of the property.14 In its order of that date, the RTC directed the parties to submit the
names of their nominees to sit in the panel of commissioners within 10 days from the date of the
pre-trial.15

The RTC constituted the panel of three commissioners. Two commissioners submitted a joint
report on April 8, 1999,16 in which they found that the property was classified as industrial land
located within the Industrial 2 Zone;17 that although the property used to be classified as
agricultural (i.e., horticultural and pasture land), it was reclassified to industrial land for appraisal
or taxation purposes on June 30, 1994; and that the reclassification was made on the basis of a
certification issued by the Zoning Administrator pursuant to Section 3.10 (d) of the Amended
Zoning Ordinance (1989) of the City of Batangas.18 The two commissioners appraised the value
at ₱550.00/square meter.19 However, the third commissioner filed a separate report dated March
16, 1999,20 whereby he recommended the payment of "an easement fee of at least ten percent
(10%) of the assessed value indicated in the tax declaration21 plus cost of damages in the course
of the construction, improvements affected and tower occupancy fee."22

The parties then submitted their respective objections to the reports. On their part, the
respondents maintained that NAPOCOR should compensate them for the entire property at the
rate of ₱550.00/square meter because the property was already classified as industrial land at the
time NAPOCOR entered it.23 In contrast, NAPOCOR objected to the joint report, insisting that
the property was classified as agricultural land at the time of its taking in March 1993; and
clarifying that it was only seeking an easement of right of way over a portion of the property, not
the entire area thereof, so that it should pay only 10% of the assessed value of the portion thus
occupied.24

In the judgment dated November 27, 2000,25 the RTC adopted the recommendation contained in
the joint report, and ruled thusly:

The price to be paid for an expropriated land is its value at the time of taking, which is the date
when the plaintiff actually entered the property or the date of the filing of the complaint for
expropriation. In this case, there is no evidence as to when the plaintiff actually entered the
property in question, so the reference point should be the date of filing of the complaint, which is
May 5, 1995.

On this date, the property in question was already classified as industrial. So, the Joint Report
(Exhibit "1") is credible on this point. The two Commissioners who submitted the Joint Report
are government officials who were not shown to be biased. So, that their report should be given
more weight than the minority report submitted by a private lawyer representing the plaintiff. In
view of these, the Court adopts the Joint Report and rejects the minority report. The former fixed
the just compensation at ₱550.00 per square meter for the whole lot of 14,257 square meters.26

Accordingly, the RTC ordered NAPOCOR to pay the respondents: (1) just compensation for the
whole area of 14,257 square meters at the rate of ₱550.00/square meter; (2) legal rate of interest
from May 5, 1995 until full payment; and (3) the costs of suit.27

NAPOCOR appealed (CA-G.R. No. 72069).

On April 29, 2004,28 the CA promulgated its decision, viz:

WHEREFORE, premises considered, the Decision dated November 27, 2000 of Branch I of the
Regional Trial Court of Batangas City, is hereby AFFIRMED with the MODIFICATION that
plaintiff-appellant shall pay only for the occupied 6,326 square meters of the subject real
property at the rate of ₱550.00 per square meter and to pay legal interest therefrom until fully
paid.

SO ORDERED.29

Hence, this appeal by NAPOCOR.

Issue

On December 3, 2012, during the pendency of the appeal, NAPOCOR filed a Motion to Defer
Proceedings stating that negotiations between the parties were going on with a view to the
amicable settlement of the case.30

On January 3, 2014, NAPOCOR filed a Manifestation and Motion to Discontinue Expropriation

Proceedings,31 informing that the parties failed to reach an amicable agreement; that the
property sought to be expropriated was no longer necessary for public purpose because of the
intervening retirement of the transmission lines installed on the respondents’ property;32 that
because the public purpose for which such property would be used thereby ceased to exist, the
proceedings for expropriation should no longer continue, and the State was now duty-bound to
return the property to its owners; and that the dismissal or discontinuance of the expropriation
proceedings was in accordance with Section 4, Rule 67 of the Rules of Court. Hence,
NAPOCOR prayed that the proceedings be discontinued "under such terms as the court deems
just and equitable,"33 and that the compensation to be awarded the respondents be reduced by
the equivalent of the benefit they received from the land during the time of its occupation, for
which purpose the case could be remanded to the trial court for the determination of reasonable
compensation to be paid to them.34

In light of its Manifestation and Motion to Discontinue Expropriation Proceedings, NAPOCOR

contends that the expropriation has become without basis for lack of public purpose as a result of
the retirement of the transmission lines; that if expropriation still proceeds, the Government will
be unduly burdened by payment of just compensation for property it no longer requires; and that
there is legal basis in dismissing the proceedings, citing Metropolitan Water District v. De los
Angeles35 where the Court granted petitioner’s prayer for the quashal of expropriation
proceedings and the eventual dismissal of the proceedings on the ground that the land sought to
be expropriated was no longer "indispensably necessary" in the maintenance and operation of
petitioner's waterworks system.

The issue to be considered and resolved is whether or not the expropriation proceedings should
be discontinued or dismissed pending appeal.

Ruling of the Court

The dismissal of the proceedings for expropriation at the instance of NAPOCOR is proper, but,
conformably with Section 4,36 Rule 67 of the Rules of Court, the dismissal or discontinuance of
the proceedings must be upon such terms as the court deems just and equitable.

Before anything more, we remind the parties about the nature of the power of eminent domain.
The right of eminent domain is "the ultimate right of the sovereign power to appropriate, not
only the public but the private property of all citizens within the territorial sovereignty, to public
purpose."37 But the exercise of such right is not unlimited, for two mandatory requirements
should underlie the Government’s exercise of the power of eminent domain, namely: (1) that it is
for a particular public purpose; and (2) that just compensation be paid to the property owner.38
These requirements partake the nature of implied conditions that should be complied with to
enable the condemnor to keep the property expropriated.39

Public use, in common acceptation, means "use by the public." However, the concept has
expanded to include utility, advantage or productivity for the benefit of the public.40 In Asia's
Emerging Dragon Corporation v. Department of Transportation and Communications,41 Justice
Corona, in his dissenting opinion said that:

To be valid, the taking must be for public use. The meaning of the term "public use" has evolved
over time in response to changing public needs and exigencies. Public use which was
traditionally understood as strictly limited to actual "use by the public" has already been
abandoned. "Public use" has now been held to be synonymous with "public interest," "public
benefit," and "public convenience."

It is essential that the element of public use of the property be maintained throughout the
proceedings for expropriation. The effects of abandoning the public purpose were explained in
Mactan-Cebu International Airport Authority v. Lozada, Sr.,42 to wit:

More particularly, with respect to the element of public use, the expropriator should commit to
use the property pursuant to the purpose stated in the petition for expropriation filed, failing
which, it should file another petition for the new purpose. If not, it is then incumbent upon the
expropriator to return the said property to its private owner, if the latter desires to reacquire the
same. Otherwise, the judgment of expropriation suffers an intrinsic flaw, as it would lack one
indispensable element for the proper exercise of the power of eminent domain, namely, the
particular public purpose for which the property will be devoted. Accordingly, the private
property owner would be denied due process of law, and the judgment would violate the property
owner's right to justice, fairness and equity.43

A review reveals that Metropolitan Water District v. De los Angeles44 is an appropriate

precedent herein. There, the Metropolitan Water District passed a board resolution requesting the
Attorney-General to file a petition in the Court of First Instance of the Province of Rizal praying
that it be permitted to discontinue the condemnation proceedings it had initiated for the
expropriation of a parcel of land in Montalban, Rizal to be used in the construction of the Angat
Waterworks System. It claimed that the land was no longer indispensably necessary in the
maintenance and operation of its waterworks system, and that the expropriation complaint should
then be dismissed. The Court, expounding on the power of the State to exercise the right of
eminent domain, then pronounced:

There is no question raised concerning the right of the plaintiff here to acquire the land under the
power of eminent domain.1âwphi1 That power was expressly granted it by its charter. The power
of eminent domain is a right reserved to the people or Government to take property for public
use. It is the right of the state, through its regular organization, to reassert either temporarily or
permanently its dominion over any portion of the soil of the state on account of public necessity
and for the public good. The right of eminent domain is the right which the Government or the
people retains over the estates of individuals to resume them for public use. It is the right of the
people, or the sovereign, to dispose, in case of public necessity and for the public safety, of all
the wealth contained in the state.45

Indeed, public use is the fundamental basis for the action for expropriation; hence, NAPOCOR’s
motion to discontinue the proceedings is warranted and should be granted. The Court has
observed in Metropolitan Water District v. De los Angeles:

It is not denied that the purpose of the plaintiff was to acquire the land in question for public use.
The fundamental basis then of all actions brought for the expropriation of lands, under the power
of eminent domain, is public use. That being true, the very moment that it appears at any stage of
the proceedings that the expropriation is not for a public use, the action must necessarily fail and
should be dismissed, for the reason that the action cannot be maintained at all except when the
expropriation is for some public use. That must be true even during the pendency of the appeal or
at any other stage of the proceedings. If, for example, during the trial in the lower court, it should
be made to appear to the satisfaction of the court that the expropriation is not for some public
use, it would be the duty and the obligation of the trial court to dismiss the action. And even
during the pendency of the appeal, if it should be made to appear to the satisfaction of the
appellate court that the expropriation is not for public use, then it would become the duty and the
obligation of the appellate court to dismiss it.

In the present case the petitioner admits that the expropriation of the land in question is no longer
necessary for public use. Had that admission been made in the trial court the case should have
been dismissed there. It now appearing positively, by resolution of the plaintiff, that the
expropriation is not necessary for public use, the action should be dismissed even without a
motion on the part of the plaintiff. The moment it appears in whatever stage of the proceedings
that the expropriation is not for a public use the complaint should be dismissed and all the parties
thereto should be relieved from further annoyance or litigation.46 (underscoring and emphasis
supplied)

It is notable that the dismissal of the expropriation proceedings in Metropolitan Water District v.
De los Angeles was made subject to several conditions in order to address the dispossession of
the defendants of their land, and the inconvenience, annoyance and damages suffered by the
defendants on account of the proceedings. Accordingly, the Court remanded the case to the trial
court for the issuance of a writ of possession ordering Metropolitan Water District to
immediately return possession of the land to the defendants, and for the determination of
damages in favor of the defendants, the claims for which must be presented within 30 days from
the return of the record to the court of origin and notice thereof.47

Here, NAPOCOR seeks to discontinue the expropriation proceedings on the ground that the
transmission lines constructed on the respondents’ property had already been retired.
Considering that the Court has consistently upheld the primordial importance of public use in
expropriation proceedings, NAPOCOR’s reliance on Metropolitan Water District v. De los
Angeles was apt and correct. Verily, the retirement of the transmission lines necessarily stripped
the expropriation proceedings of the element of public use. To continue with the expropriation
proceedings despite the definite cessation of the public purpose of the project would result in the
rendition of an invalid judgment in favor of the expropriator due to the absence of the essential
element of public use.

Unlike in Metropolitan Water District v. De los Angeles where the request to discontinue the
expropriation proceedings was made upon the authority appearing in the board resolution issued
on July 14, 1930,48 counsel for NAPOCOR has not presented herein any document to show that
NAPOCOR had decided, as a corporate body, to discontinue the expropriation proceedings.
Nonetheless, the Court points to the Memorandum dated December 13, 201249 and the
Certificate of Inspection/Accomplishment dated February 5, 200550 attached to NAPOCOR’s
motion attesting to the retirement of the transmission lines. Also, Metropolitan Water District v.
De los Angeles emphasized that it became the duty and the obligation of the court, regardless of
the stage of the proceedings, to dismiss the action "if it should be made to appear to the
satisfaction of the court that the expropriation is not for some public use."51 Despite the lack of
the board resolution, therefore, the Court now considers the documents attached to NAPOCOR’s
Manifestation and Motion to Discontinue Expropriation Proceedings to be sufficient to establish
that the expropriation sought is no longer for some public purpose.

Accordingly, the Court grants the motion to discontinue the proceedings subject to the conditions
to be shortly mentioned hereunder, and requires the return of the property to the respondents.
Having said that, we must point out that NAPOCOR entered the property without the owners’
consent and without paying just compensation to the respondents. Neither did it deposit any
amount as required by law prior to its entry. The Constitution is explicit in obliging the
Government and its entities to pay just compensation before depriving any person of his or her
property for public use.52 Considering that in the process of installing transmission lines,
NAPOCOR destroyed some fruit trees and plants without payment, and the installation of the
transmission lines went through the middle of the land as to divide the property into three lots,
thereby effectively rendering the entire property inutile for any future use, it would be unfair for
NAPOCOR not to be made liable to the respondents for the disturbance of their property rights
from the time of entry until the time of restoration of the possession of the property. There
should be no question about the taking. In several rulings, notably National Power Corporation v.
Zabala,53 Republic v. Libunao,54 National Power Corporation v. Tuazon,55 and National Power
Corporation v. Saludares,56 this Court has already declared that "since the high-tension electric
current passing through the transmission lines will perpetually deprive the property owners of the
normal use of their land, it is only just and proper to require Napocor to recompense them for the
full market value of their property."
There is a sufficient showing that NAPOCOR entered into and took possession of the
respondents’ property as early as in March 1993 without the benefit of first filing a petition for
eminent domain. For all intents and purposes, therefore, March 1993 is the reckoning point of
NAPOCOR’s taking of the property, instead of May 5, 1995, the time NAPOCOR filed the
petition for expropriation. The reckoning conforms to the pronouncement in Ansaldo v.
Tantuico, Jr.,57 to wit:

Normally, of course, where the institution of an expropriation action precedes the taking of the
property subject thereof, the just compensation is fixed as of the time of the filing of the
complaint. This is so provided by the Rules of Court, the assumption of possession by the
expropriator ordinarily being conditioned on its deposits with the National or Provincial
Treasurer of the value of the property as provisionally ascertained by the court having
jurisdiction of the proceedings.

There are instances, however, where the expropriating agency takes over the property prior to the
expropriation suit, as in this case although, to repeat, the case at bar is quite extraordinary in that
possession was taken by the expropriator more than 40 years prior to suit. In these instances, this
Court has ruled that the just compensation shall be determined as of the time of taking, not as of
the time of filing of the action of eminent domain.

In the context of the State's inherent power of eminent domain, there is a "taking" when the
owner is actually deprived or dispossessed of his property; when there is a practical destruction
or a material impairment of the value of his property or when he is deprived of the ordinary use
thereof. There is a "taking" in this sense when the expropriator enters private property not only
for a momentary period but for a more permanent duration, for the purpose of devoting the
property to a public use in such a manner as to oust the owner and deprive him of all beneficial
enjoyment thereof. For ownership, after all, "is nothing without the inherent rights of possession,
control and enjoyment. Where the owner is deprived of the ordinary and beneficial use of his
property or of its value by its being diverted to public use, there is taking within the
Constitutional sense." x x x.58

In view of the discontinuance of the proceedings and the eventual return of the property to the
respondents, there is no need to pay "just compensation" to them because their property would
not be taken by NAPOCOR. Instead of full market value of the property, therefore, NAPOCOR
should compensate the respondents for the disturbance of their property rights from the time of
entry in March 1993 until the time of restoration of the possession by paying to them actual or
other compensatory damages. This conforms with the following pronouncement in Mactan-Cebu
International Airport Authority v. Lozada, Sr.:59

In light of these premises, we now expressly hold that the taking of private property, consequent
to the Government’s exercise of its power of eminent domain, is always subject to the condition
that the property be devoted to the specific public purpose for which it was taken. Corollarily, if
this particular purpose or intent is not initiated or not at all pursued, and is peremptorily
abandoned, then the former owners, if they so desire, may seek the reversion of the property,
subject to the return of the amount of just compensation received. In such a case, the exercise of
the power of eminent domain has become improper for lack of the required factual
justification.60

This should mean that the compensation must be based on what they actually lost as a result and
by reason of their dispossession of the property and of its use, including the value of the fruit
trees, plants and crops destroyed by NAPOCOR’s construction of the transmission lines.
Considering that the dismissal of the expropriation proceedings is a development occurring
during the appeal, the Court now treats the dismissal of the expropriation proceedings as
producing the effect of converting the case into an action for damages. For that purpose, the
Court remands the case to the court of origin for further proceedings, with instruction to the court
of origin to enable the parties to fully litigate the action for damages by giving them the
opportunity to re-define the factual and legal issues by the submission of the proper pleadings on
the extent of the taking, the value of the compensation to be paid to the respondents by
NAPOCOR, and other relevant matters as they deem fit. Trial shall be limited to matters the
evidence upon which had not been heretofore heard or adduced. The assessment and payment of
the correct amount of filing fees due from the respondents shall be made in the judgment, and
such amount shall constitute a first lien on the recovery. Subject to these conditions, the court of
origin shall treat the case as if originally filed as an action for damages.

WHEREFORE, the Court DISMISSES the expropriation proceedings due to the intervening
cessation of the need for public use; REMANDS the records to the Regional Trial Court, Branch
1, in Batangas City as the court of origin for further proceedings to be conducted in accordance
with the foregoing instructions; and ORDERS said trial court to try and decide the issues with
dispatch.

SO ORDERED.

Republic of the Philippines

Supreme Court
Manila

THIRD DIVISION

REPUBLIC OF THE PHILIPPINES G.R. No. 191448

represented by the Department of
Public Works and Highways (DPWH),
 Petitioners, Present:

- versus - VELASCO, JR., J., Chairperson,

PERALTA,
SPS. TAN SONG BOK and JOSEFINA S. ABAD,
TAN, SPS. JUNIOR SY and JOSEFINA TAN,
EDGARDO TAN, NENITA TAN, RICARDO PEREZ, and
TAN, JR., and ALBERT TAN, R.S. AGRI-
DEVELOPMENT CORPORATION, MENDOZA, JJ.
ERIBERTO H. GOMEZ married to
Wilhelmina Rodriguez, EDGARDO

H. GOMEZ, ELOISA H. GOMEZ, ERLINDA

GOMEZ married to Camilo Manaloto,
CLEOFE CONSUNJI-HIZON, MA.
ASUNCION H. DIZON married to
Benjamin Dizon, RAMON

L. HIZON, married to Caridad

Garchitorena, MA. LOURDES C. HIZON,
married to John Sackett,

JOSE MARIA C. HIZON married

to Ma. Sarah Sarmiento,

MA. FREIDESVINDA C. HIZON

married to Manuel Yoingko, ROBERTO C.

HIZON, ARTHUR

C. HIZON, MA. SALOME HIZON,

FREDERICK C. HIZON, MA. ENGRACIA H.
DAVID, ANTONIO

H. DAVID married to Consuelo

Goseco, ELOISA P. HIZON married

to Domingo C. Gomez, MA.

MILAGROS C. HIZON, and PRESENTACION

C. HIZON,

Respondents.

Promulgated:

November 16, 2011

 DECISION

MENDOZA, J.:

Questioned in this petition for review is the February 19, 2010

Decision331[1] of the Court of Appeals (CA) which affirmed with modification the
April 14, 2004 Decision332[2] of the Regional Trial Court, Branch 57, Angeles City
(RTC) in Civil Case No. 9956, expropriating eight (8) lots located in the province of
Pampanga owned by the respondents.

The Facts
 The factual milieu and procedural antecedents were succinctly recited in the CA decision as
follows:

On November 10, 2000, the Republic of the Philippines, represented by

the Toll Regulatory Board (TRB), through the Office of the Solicitor General
(OSG), filed a complaint before the Regional Trial Court, Angeles, for
Expropriation of the following parcels of land to become an integral part of the
Luzon Expressway (NLE) Project, to wit:

OWNER TCT NO. AFFECTED

AREA
(in sq. m)
Sps. Tan Song Bok & 101012 3440
Josefina So-Tan, Josefina
Tan married to Junior Sy,
Edgardo Tan, Nenita Tan,
Ricardo tan, Jr. and Albert
Tan

Sps. Tan Song Bok & 82425 16827

Josefina So-Tan

Sps. Tan Song Bok & 395874-R 862

Josefina So-Tan

Sps. Tan Song Bok & 398835-R 15

Josefina So-Tan

R.S. Agri-Development 80483 35824

Corporation
Eriberto H. Gomez, married 92065 10052
to Wilhelmina Rodriguez,
Edgardo H. Gomez, Eloisa H.
Gomez, Erlinda H. Gomez,
married to Camilo Manaloto

Cleofe Consunji-Hizon, Ma. 91441 439

Asuncion H. Dizon married
to Benjamin Dizon, Ramon
L. Hizon married to Caridad
Garchitorena, Ma. Lourdes C.
Hizon, married to John
Sackett, Jose Maria C. Hizon,
married to Ma. Sarah
Sarmiento, Ma. Fredesvinda
C. Hizon, married to Manuel
Yoingko, Roberto C. Hizon,
Arthur Hizon, Ma. Salome
Hizon, Ma. Milagros C.
Hizon, Presentacion C.
Hizon, and Frederick C.
Hizon, Ma. Engracia H.
David, Antonio H. David,
married to Consuelo Goseco,
Eloisa P. Hizon, married to
Domingo C. Gomez, Eriberto
H. Gomez, married to
Wilhelmina Rodriguez,
Edgardo H. Gomez, Eloisa H.
Gomez, and Erlinda H.
Gomez, married to Camilo
Manaloto

Ramon L. Hizon, married to 92058 4796

Caridad Garchitorena, Ma.
Asuncion H. Dizon, married
to Benjamin Dizon, Ma.
Lourdes C. Hizon, married to
John Sackkett, Jose Maria C.
Hizon, married to Sarah
Sarmiento, Ma. Fredesvinda
C. Hizon, married to Manuel
Yoingko, Roberto C. Hizon,
Arthur C. Hizon, Ma. Salome
C. Hizon, Ma. Milagros C.
Hizon, Presentacion C. Hizon
and Frederick C. Hizon.

On April 18, 2002, a Writ of Possession was issued placing the plaintiff-
appellant in possession of the above-mentioned properties. Consequently, a
Committee was created and subsequently a consolidated report was submitted on
September 27, 2002. The Committee recommended the following:

In view of the foregoing consideration, and after a final deliberation, the

members of the committee jointly recommends as follows:

1. The amount of ₱3,750.00 per sq. meter for Lot 99-V-2-C-4,

owned by Tan Song Bok, et al;
2. The amount of ₱3,750.00 per sq. meter for Lot 122-E-4-B
owned by Tan Song Bok, et al;
3. The amount of ₱3,650.00 per sq. meter for Lot 73-A-3-C
owned by Tan Song Bok, et al;
4. The amount of ₱3,650.00 per sq. meter for Lot 73-A-3-D
owned by Tan Song Bok, et al;
5. The amount of ₱4,400.00 per sq. meter for Lot 2 owned by
R.S. Agri. Ent.;
6. The amount of ₱3,900.00 per sq. meter for Lot 122-E-1-D-24-
B-3 owned by E. Gomez, et al.;
7. The amount of ₱3,900.00 per sq. meter for Lot 122-E-1-D-24-
A, owned C. Hizon, et al.;
8. The amount of ₱3,900.00 per sq. meter for Lot 122-E-1-D-24-
B-2 owned by R. Hizon, et al;

all located in the Province of Pampanga,

to be the just compensation to be paid by the plaintiff to the corresponding

defendants in this case, which is reasonable and fair enough to the advantage of
both parties considering the devaluation of pesos and the development of the
 vicinity of the properties of the defendants, which are the subject matter of the
instant case.

Since the amount of provisional value deposited by the plaintiff is only the
amount equivalent to ₱200.00 per square meter, it is recommended by the
committee that the plaintiff deposit the equivalent of the remaining percentage
per square meter, recommended by the committee, for the respective parcels of
lands owned by the respective defendants in this case.

On November 18, 2002, plaintiff-appellant filed its Comment/Objection

to the Consolidated Committee Report arguing that the amounts recommended
by the committee did not constitute fair and just equivalent of the properties
sought to be expropriated because there was no sufficient basis for the
recommended prices as no document or any deed of sale involving similar
property was presented to show the current selling price and that the
commissioners did not consider other factors such as tax declarations, zonal
valuation and actual use of the lands. It likewise argued that the committee
report was based mainly on the personal opinion of two of its commissioners
when they allegedly conducted an ocular inspection of the properties.

On February 3, 2003, defendants Sps. Tan Song Bok, Josefina S. Tan, Sps.
Junior Sy and Josefina Tan, Edgardo Tan, Nenita Tan, Ricardo Tan, Jr., Albert
Tan, and R.S. Agri-Development Corporation, through counsel, filed their Reply
arguing therein that the Consolidated Committee Report clearly stated the basis
used to determine and arrive at the recommended just compensation, such as; (i)
the zonal value as evidenced by the certification from the BIR submitted by
plaintiff; (ii) the certification issued by BIR containing the price of the latest
recorded sale of property in the area; (iii) Verification with the proper offices of
Magalang, Mabalacat and Angeles City; (iv) ocular inspection. Further, they
argued that the propriety of the actions of the committee are supported by
Section 5, Republic Act No. 8974, and that both Mr. Alberto Y. Murillo, as the
long incumbent City Assessor of Angeles City, and Mr. Rommel Jose DG Suarez,
are both experts in the said price determination as their findings were surely
based on their knowledge, expertise and experience in the field of real property
assessment and real estate brokering. In the same way, defendants-appellees
Hizons and Gomezes, in their Reply/Opposition filed on February 27, 2003, had
propounded the same arguments.

The Decision of the RTC

 On April 14, 2004, after due hearing, the RTC rendered a decision declaring that the petitioner
has the right to condemn for public use the affected properties of the respondents upon payment of just
compensation. In this regard, the trial court adopted the findings and recommendations of the

Committee on Appraisals333[3] (the Committee) in its Consolidated Committee Report (the

Report)334[4] dated September 20, 2003, as being reflective of the true, fair and just compensation for

the expropriation of the affected properties of the respondents. The RTC ruled, among others, that the
payment shall be in the following manner:

1. The amount of ₱3,750.00 per sq. meter for Lot 99-V-2-C-4, owned by Tan
Song Bok, et al; (T.C.T. No. 101012)

xxx

Total Area Affected 3, 440 sq. m

Compensation: ₱12,900,000.00
Less: Partial Payment per Order dated Dec. 16, 2003 (₱688,000.00)
Compensation Due: ₱12,212,000.00

2. The amount of ₱3,750.00 per sq. meter for Lot 122-E-4-B owned by Tan Song
Bok, et al; (T.C.T. No. 82425)

Xxx

Total Area Affected 16, 827 sq. m

Compensation: ₱63,101,250.00
Less: Partial Payment per Order dated Dec. 16, 2003 (₱3,365,400.00)
Compensation Due: ₱59,735,850.00

3. The amount of ₱3,650.00 per sq. meter for Lot 73-A-3-C owned by Tan Song
Bok, et al; (T.C.T. No. 395874-R)

xxx

Total Area Affected 862 sq. m

Compensation: ₱3,146,300.00
Less: Partial Payment per Order dated Dec. 16, 2003 (₱172,400.00)
Compensation Due: ₱2,973,900.00

4. The amount of ₱3,650.00 per sq. meter for Lot 73-A-3-D owned by Tan Song
Bok, et al; (T.C.T. No. 398835-R)

xxx

Total Area Affected 15 sq. m

Compensation: ₱54,750.00
Less: Partial Payment per Order dated Dec. 16, 2003 (₱3,000.00)
Compensation Due: ₱51,750.00

5. The amount of ₱4,400.00 per sq. meter for Lot 2 owned by R.S. Agri. Ent.;
(previously Lot 2 T.C.T. No. 80483 now Lots 5 and 7 T.C.T. Nos. 122746 and
122748, respectively)

xxx

Total Area Affected 35, 824 sq. m

Compensation: ₱157,625,600.00
Less: Partial Payment per Order dated Dec. 16, 2003 (₱7,164,800.00)
Compensation Due: ₱150,460,800.00

6. The amount of ₱3,900.00 per sq. meter for Lot 122-E-1-D-24-B-3 owned by
E. Gomez, et al.; (T.C.T. No. 92065)

xxx
 Total Area Affected 10,052 sq. m
Compensation: ₱39,202,800.00
Less: Partial Payment per Order dated Dec. 16, 2003 (₱2,010,400.00)
Compensation Due: ₱37,192,400.00

7. The amount of ₱3,900.00 per sq. meter for Lot 122-E-1-D-24-A, owned C.
Hizon, et al.; (T.C.T. No. 91441)

xxx

Total Area Affected 439 sq. m

Compensation: ₱1,712,100.00
Less: Partial Payment per Order dated Dec. 16, 2003 (₱87,800.00)
Compensation Due: ₱1,624,300.00

8. The amount of ₱3,900.00 per sq. meter for Lot 122-E-1-D-24-B-2 owned by
R. Hizon, et al; (T.C.T. No. 92058)

xxx

Total Area Affected 4,797 sq. m

Compensation: ₱18,708,300.00
Less: Partial Payment per Order dated Dec. 16, 2003 (₱959,200.00)
Compensation Due: ₱17,749,100.00

Not in conformity with the RTC decision, the petitioner elevated the matter to the CA anchored
mainly on the argument that the just compensation recommended by the committee was based on
insufficient evidence. According to the petitioner, the appraised values recommended by the committee
did not approximate the actual value of the properties at the time of taking, but were purely speculative
based on hearsays and gratuitous personal opinions. Hence, the RTC should not have completely
adopted its recommendation in determining the just compensation for the subject properties.

The Decision of the CA

On February 19, 2010, the CA rendered a decision affirming the RTC decision with modification,
as follows:

WHEREFORE, premises considered, the assailed decision is hereby

MODIFIED as follows:

1. Plaintiff-appellant should pay defendants R. Hizon, et al. just

compensation for the affected area of 4, 796 sq. m. instead of
4,797 sq. m. in the amount of ₱18,704,400.00;

2. The payment of the just compensation is immediately

executory upon receipt of this decision;

3. Plaintiff shall pay 6% interest per annum reckoned from the

date the trial court rendered the decision on April 14, 2004.

SO ORDERED.

The CA stated , among others, that the RTC did not rely solely on the appraisal report submitted
by the Committee but it also conducted hearings for the purpose of receiving the parties evidence. It
added that in order to determine the just compensation of the subject properties, the members of the
Committee did not just confine themselves to the documents submitted by the parties but made
verifications from the proper offices of Magalang, Mabalacat and Angeles City and conducted ocular
inspections of the subject lots. The tax declarations, BIR zonal valuation and the deeds of sale presented
by the petitioner were considered as only among the many factors for the determination of just
compensation. Although such were some of the indices of the fair market value of real estate, they
could not be the only bases of just compensation in expropriation cases.
 Finding the CA decision unacceptable, the petitioner filed this petition for review raising the
following

ISSUE

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

A REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE
COURT A QUO WITH RESPECT TO THE JUST COMPENSATION OF THE
EXPROPRIATED LANDS.

In advocacy of its position, the petitioner argues that it was deprived of its right to due process
when it was not given an opportunity to present its evidence by the Committee. The petitioner claims
that the committee did not conduct any hearing to enable the parties to present their respective
evidence. Instead, they based the Report on documents submitted by the parties, verifications from
offices, ocular inspections and local market conditions, and unsubstantiated statements as to the
highest and best use of the properties, and the devaluation of the peso.

The petitioner claims that the RTC merely conducted a clarificatory hearing wherein the
commissioners were asked questions on the Report, when it should have conducted further proceedings
to allow the reception and presentation of evidence needed in the determination of just compensation.
Furthermore, the Report failed to state what particular documents were used as references for the
determination of just compensation. No documentary evidence was presented by any of the parties
before the preparation of the Report since the Committee did not set any hearing for the reception and
presentation of evidence. The report neither stated the specific deed of sale used by the Committee as
reference for the determination of the fair market value of the subject properties. The concept of
devaluation was likewise missaplied in the Report.
 Finally, the petitioner contends that since just compensation is based on the price or value of
the property at the time it is taken, the value of the subject properties at the time of the filing of the
complaint on November 10, 2000 should be the basis for the determination of their value. The market
value of the subject properties could not possibly command a price over and above their zonal value per
square meter especially because their classification, use and location as undeveloped agricultural and
residential lots were taken into account. The petitioner is of the view that the just compensation in favor
of the respondents should be approximate with their tax declarations of P200.00 per square meter.

Respondents position

The respondents counter that the petitioner was not deprived of its right to due process. After
the examination of the commissioners, the petitioner was allowed to present its evidence in support of
the expropriation case. Thus, it presented the testimonies of Cleofe Umlas, Administrative Officer of the
Bureau of Internal Revenue; Liberato L. Navarro, Revenue District Officer, Revenue District No. 21,
Pampanga; James Suarez, Bureau of Internal Revenue District Officer; and Ronnie Vergara of the
Register of Deeds of Angeles City. After considering the pieces of evidence presented by the opposing
parties, the RTC rendered its decision adopting the valuation recommended by the Committee as
reflective of the true, fair and just compensation for the respondents properties and as the reasonable
replacement value thereof.

The respondents stressed that the RTC did not merely rely on the Report but it also conducted
hearings for the purpose of receiving the parties evidence. Moreover, the Committee members did not
just confine themselves to the documents submitted by the parties but made verifications from the
proper offices of Magalang, Mabalacat and Angeles City, and conducted ocular inspections of the
properties to see for themselves the actual condition of the subject premises. In short, the respondents
claim that both parties were given all the opportunities to justify their respective positions.
 Hence, the petitioners claim that the determination of just compensation did not have factual
and legal basis is unwarranted. The Report was based on all the evidence submitted by the parties, the
verifications made from the proper offices and the ocular inspections. The findings as to the valuation of
the subject properties need no longer be disturbed because there was no showing that the Committee
members assigned by the trial court acted with abuse of discretion in the evaluation of the evidence
submitted to them or misappreciated the evidence.

On the other hand, the price of ₱200.00 per square meter offered by the petitioner is unjust and
unreasonable considering the prevailing value of the properties in the affected areas and the
development of the vicinity of the properties at the time of taking. The petitioners price estimate is
prejudicial to them because the value of the affected properties has obviously increased.

The Courts Ruling

The Court shall resolve two (2) principal issues in this case: 1) whether or
not petitioner was deprived of its right to due process; and 2) whether or not the
RTC and the CA had sufficient basis in arriving at the questioned amount of just
compensation of the subject properties.

After a careful review of the records, the Court resolves the first issue in the
negative and the second issue in the affirmative.

On the first issue, the Court finds without basis petitioners argument that it
was not given the opportunity to present evidence by the Committee.
 Records show that when the RTC issued its June 10, 2002 Order of
expropriation, it created a committee on appraisal which was composed of three
(3) commissioners who would determine and report the just compensation for
the properties subject of expropriation. Upon submission of the Report by the
Committee on September 20, 2002, petitioner filed its comment/objection to the
Report arguing that it did not have sufficient basis for the recommended prices
and, thus, the amounts recommended were not justified. Likewise, the petitioner
prayed that the commissioners be reconvened for reception of evidence and
further proceedings. After the respondents filed their reply to the petitioners
comment/objection, the RTC set the hearing for clarificatory questions.

During the clarificatory hearing, the three (3) appointed commissioners,

Alberto Murillo, Angeles City Assessor; Rommel DG. Suarez, private realtor; and
Mrs. Anita G. Nuag, Acting Branch Clerk of Court of the RTC, testified and were
subjected to cross-examination.

Thereafter, the petitioner presented its evidence in support of its positions

consisting of the testimonies of Cleofe Umlas, Administrative Office of the Bureau
of Internal Revenue; Liberato L. Navarro, Revenue District Officer, Revenue
District No. 21, Pampanga; James Suarez, Bureau of Internal Revenue District
Officer; and Ronnie Vergara, Register of Deeds of Angeles City.
 Clearly, the petitioner was afforded due process. The pleadings it submitted
and the testimonial evidence presented during the several hearings conducted all
prove that the petitioner was given its day in court. The Court notes that the RTC
acceded to the petitioners request, over the respondents objection, for the
reconvening of the Committee for reception of evidence and further proceedings.
It also heard and allowed both sides to present evidence during the clarificatory
hearings and rendered a decision based on the evidence presented.

On the second issue, the Court reiterates the rule, even in expropriation
cases, that questions of facts are beyond the pale of Rule 45 of the Rules of Court
as a petition for review may only raise questions of law. Moreover, factual
findings of the trial court, particularly when affirmed by the Court of Appeals, are
generally binding on this Court.335[5]

In another expropriation case, it was stressed that only questions of law

may be raised in petitions to review decisions of the CA filed before this Court.
The factual findings of the CA affirming those of the trial court are final and
conclusive. They cannot be reviewed by this Court, save only in the following
circumstances: (1) when the factual conclusion is a finding grounded entirely on
speculations, surmises and conjectures; (2) when the inference is manifestly
mistaken, absurd or impossible; (3) when there is a grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; (5) when
the findings of fact are conflicting; (6) when the CA went beyond the issues of the
case in making its findings, which are further contrary to the admissions of both
the appellant and the appellee; (7) when the CA's findings are contrary to those of
the trial court; (8) when the conclusions do not cite the specific evidence on
which they are based; (9) when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the respondents; and (10)
when the CA's findings of fact, supposedly premised on the absence of evidence,
are contradicted by the evidence on record.336[6]

In this case, the petitioner has failed to show that the present case falls
under any of the aforecited exceptions. An evaluation of the facts and evidence
presented does not persuade the Court to deviate from the findings of fact of the
two courts below. The lower courts properly appreciated the evidence submitted
by both parties as regards the true value of the expropriated lots at the time of
taking.
 Eminent domain is the power of the State to take private property
for public use. It is an inherent power of State as it is a power necessary for
the States existence; it is a power the State cannot do without. As an
inherent power, it does not need at all to be embodied in the Constitution;
if it is mentioned at all, it is solely for purposes of limiting what is
otherwise an unlimited power. The limitation is found in the Bill of Rights
that part of the Constitution whose provisions all aim at the protection of
individuals against the excessive exercise of governmental powers.
Section 9, Article III of the 1987 Constitution (which reads "No
private property shall be taken for public use without just compensation.")
provides two essential limitations to the power of eminent domain,
namely, that (1) the purpose of taking must be for public use and (2) just
compensation must be given to the owner of the private property.
It is not accidental that Section 9 specifies that compensation
should be "just" as the safeguard is there to ensure a balance property is
not to be taken for public use at the expense of private interests; the
public, through the State, must balance the injury that the taking of
property causes through compensation for what is taken, value for value.
Nor is it accidental that the Bill of Rights is interpreted liberally in
favor of the individual and strictly against the government. The protection
of the individual is the reason for the Bill of Rights being; to keep the
exercise of the powers of government within reasonable bounds is what it
seeks.
The concept of "just compensation" is not new to Philippine
constitutional law, but is not original to the Philippines; it is a transplant
from the American Constitution. It found fertile application in this country
particularly in the area of agrarian reform where the taking of private
property for distribution to landless farmers has been equated to the
"public use" that the Constitution requires. In Land Bank of the
Philippines v. Orilla, a valuation case under our agrarian reform law, this
Court had occasion to state:
Constitutionally, "just compensation" is the sum equivalent to the
market value of the property, broadly described as the price fixed by the
seller in open market in the usual and ordinary course of legal action and
competition, or the fair value of the property as between the one who
receives and the one who desires to sell, it being fixed at the time of the
actual taking by the government. Just compensation is defined as the full
and fair equivalent of the property taken from its owner by the
expropriator. It has been repeatedly stressed by this Court that the true
measure is not the taker's gain but the owner's loss. The word "just" is
used to modify the meaning of the word "compensation" to convey the idea
that the equivalent to be given for the property to be taken shall be real,
substantial, full and ample.337[7]
 Republic Act (R.A.) No. 8974 (An Act to Facilitate the Acquisition of Right-
Of-Way, Site or Location for National Government Infrastracture Projects and for
Other Purposes) provides, as follows:

Section 5. Standards for the Assessment of the Value of the Land

Subject of Expropriation Proceedings or Negotiated Sale. - In order to
facilitate the determination of just compensation, the court may consider,
among other well-established factors, the following relevant standards:
(a) The classification and use for which the property is suited;
(b) The developmental costs for improving the land;
(c) The value declared by the owners;
(d) The current selling price of similar lands in the vicinity;
(e) The reasonable disturbance compensation for the removal
and/or demolition of certain improvement on the land
and for the value of improvements thereon;
(f) Th[e] size, shape or location, tax declaration and zonal
valuation of the land;
(g) The price of the land as manifested in the ocular findings,
oral as well as documentary evidence presented; and
(h) Such facts and events as to enable the affected property
owners to have sufficient funds to acquire similarly-
situated lands of approximate areas as those required
from them by the government, and thereby rehabilitate
themselves as early as possible.

Regarding the findings of a committee, it has been written that:

The duty of the court in considering the commissioners report is to satisfy

itself that just compensation will be made to the defendant by its final judgment
in the matter, and to fulfill its duty in this respect, the court will be obliged to
exercise its discretion in dealing with the report as the particular circumstances
of the case may require. Rule 67, Section 8 of the 1997 Rules of Civil Procedure
clearly shows that the trial court has the discretion to act upon the commissioners
report in any of the following ways: (1) it may accept the same and render judgment
therewith; or (2) for cause shown, it may [a] recommit the report to the
commissioners for further report of facts; or [b] set aside the report and appoint
new commissioners; or [c] accept the report in part and reject it in part; and it
may make such order or render such judgment as shall secure to the plaintiff the
property essential to the exercise of his right of expropriation, and to the
defendant just compensation for the property so taken.338[8] [Emphasis
supplied]

In the case at bench, the Report reads as follows:

In order to arrive at a fair and reasonable appraisal of the just

compensation of the properties in question to be paid by the plaintiff to the
defendants, the committee did not confine itself with the documents submitted to
the court by both parties, but made verifications from the proper offices of
Magalang, Mabalacat and Angeles City and on two (2) instances conducted ocular
inspection of the premises in question to satisfy itself of the actual
condition/situation of the subject premises.

From the ocular inspection, the committee found out that:

The subject matter of the instant case are parcels of land affected by the
impending relocation of the North Expressway, Angeles City Entry/Exit and the
widening/expansion along the said expressway, subject matter of this case,
located in the City of Angeles, Municipality of Mabalacat, Pampanga, more
particularly situated within the vicinity of the North Expressway and Provincial
Road leading to Magalang, Pampanga as well as Don Bonifacio Blvd.

Having inspected the properties and investigated the local market

conditions, and having given consideration to the extent, description of
properties, character, location, identification, neighborhood data, facilities and
 utilities, progression/regression, increasing and diminishing returns, highest and
best use of its properties, and varying development in the immediate vicinity of
each propert[y], the two (2) commissioners in the persons of the City Assessor of
Angeles City, Mr. Alberto Y. Murillo, and the licensed real estate broker, Mr.
Rommel Suarez, submitted to the chairperson, their respective appraisal, xxx.

The Court affirms the ruling of the RTC and the CA that the Report is
founded on evidence. The uniform findings of fact upon the question of just
compensation reached by the CA and the RTC are entitled to the greatest respect.
They are binding on the Court in the absence of a strong showing by the
petitioner that the courts below erred in appreciating the established facts and in
drawing inferences from such facts.339[9]

This Court would like to stress that the petitioner is silent on the
undisputed fact that no less than its witness, Cleofe Umlas, Administrative Officer
of the Bureau of Internal Revenue, testified and certified that the prevailing fair
market value of land located at Pulung Maragul, Angeles City is at
₱4,800.00/s.qm. as per CAR 00158912 dated August 1, 2001. She apparently
based her testimony and certification on the latest documents and deeds
submitted to the Bureau of Internal Revenue (BIR) Regional Office at that time.
Obviously, her statement corroborated the findings of the Committee. Hence,
there was proper basis for the determination of the just compensation for the
expropriated properties.

The petitioners tax declarations, the BIR zonal valuation and the deeds of
sale it presented are not the only proof of the fair value of properties. Zonal
valuation is just one of the indices of the fair market value of real estate. By itself,
this index cannot be the sole basis of just compensation in expropriation
cases.340[10]

Various factors come into play in the valuation of specific properties singled
out for expropriation. The values assigned by provincial assessors are usually
uniform for very wide areas covering several barrios or even an entire town with
the exception of the poblacion. Individual differences are never taken into
account. The value of land is based on such generalities as its possible cultivation
for rice, corn, coconuts or other crops. Very often land described as cogonal has
been cultivated for generations. Buildings are described in terms of only two or
three classes of building materials and estimates of areas are more often
inaccurate than correct. Tax values can serve as guides but cannot be absolute
substitutes for just compensation.341[11]

In view of the foregoing, the Court upholds the CA decision except on the

point that it is immediately executory. Any disposition in this case becomes

executory only after its finality.

WHEREFORE, the petition is DENIED. Accordingly, the February 19, 2010 Decision of the Court
of Appeals is hereby AFFIRMED except on the immediate execution of the decision.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 197329 September 8, 2014

NATIONAL POWER CORPORATION, Petitioner,

vs.
LUIS SAMAR and MAGDALENA SAMAR, Respondents.

DECISION
DEL CASTILLO, J.:

This Petition for Review on Certiorari1 seeks to set aside the June 17, 2011 Decision2 of the
Court of Appeals (CA) in CA-G.R. CV No. 82231 which denied the herein petitioner's appeal
and affirmed the February 21, 2003 Decision3 of the Regional Trial Court (RTC) of Iriga City,
Fifth Judicial Region, Branch 34 in Civil Case No. IR-2678.

Factual Antecedents

Civil Case No. IR-2243

Sometime in 1990, petitioner National Power Corporation (NPC) filed Civil Case No. IR-2243
with the RTC, seeking to expropriate respondent spouses Luis and Magdalena Samar’s 1,020-
square meter lot – covered by Tax Declaration No. 30573 and situated in San Jose
(Baras),Nabua, Camarines Sur – which NPC needed for the construction of a transmission line.
In an August 29, 1990 Order,4 the RTC directed the issuance of a Writ of Condemnation in favor
of NPC. Accordingly, NPC entered the subject lot and constructed its transmission
line,denominated as Tower No. 83.

However, on July 12, 1994, the trial court issued another Order5 dismissing Civil Case No. IR-
2243 without prejudice for failure to prosecute, as follows:

In the Order dated 14 August 1991, Atty. Raymundo Nagrampa was designated as the
representative of his clients in the Committee of Appraisers to appraise the reasonable value of
the land together with the Court’s and plaintiffs’ representatives, namely, the Branch Clerk of
Court and Mr. Lorenzo Orense, respectively for the purpose of fixing the amount with which the
plaintiff may be compensated for the land in question.

After almost three (3) years since the said order was issued, the Committee has not met nor
deliberated on said matter and the parties in this case have not exerted efforts in pursuing their
claims despite so long a time.

Hence, this case is hereby dismissed without prejudice for failure to prosecute within a
reasonable period of time.

SO ORDERED.6

It appears that the above July 12, 1994 Order was notassailed by appeal or otherwise; nor did
NPC commence any other expropriation proceeding.

Civil Case No. IR-2678

On December 5, 1994, respondents filed with the same trial court a Complaint,7 docketed as
Civil Case No. IR-2678, for compensation and damages against NPC relative to the subject lot
which NPC took over but for which it failed to pay just compensation on account of the
dismissal of Civil Case No. IR-2243. The Complaint contained the following prayer:
WHEREFORE, considering the above premises, it is most respectfully prayed for the Honorable
Court to:

1. Order the defendant to compensate the plaintiff of [sic] the lot they are now occupying
in accordance with the current market value existing in the place;

2. Order the defendant to pay the plaintiff moral and actual damages and unrealized
profits in the amount of not less than ₱150,000.00;

3. Order the defendant to pay the exemplary damages of [sic] the amount of ₱10,000.00
and to pay the cost of suit;

Plaintiffs pray for other reliefs which are just and equitable under the premises.8

As agreed by the parties during pre-trial, a panel ofcommissioners – composed of one

representative each from the parties, and a third from the court – was constituted for the purpose
of determining the value of the subject lot.

After conducting their appraisal, the commissioners submitted their individual reports. Atty.
Wenifredo Pornillos, commissioner for the respondents, recommended a valuation within the
range of ₱1,000.00 to ₱1,500.00 per square meter. Lorenzo C. Orense, commissioner for NPC,
did notset an amount, although he stated that the lot should be valued at the prevailing market
prices of agricultural, and not residential, lands within the area. The court representative, Esteban
D. Colarina, proposed a ₱1,100.00 per square meter valuation.9

Ruling of the Regional Trial Court

On February 21, 2003, the RTC rendered a Decision10 pegging the value of the subject lot at
₱1,000.00 per square meter, thus:

WHEREFORE, premises considered, judgment is hereby rendered ordering defendant National

Power Corporation to pay plaintiffs the total sum of ₱1,020,000.00, representing the value of
plaintiffs’ land expropriated by the defendant. All other claims in the complaint and in the
answer with counterclaim are hereby dismissed.

SO ORDERED.11

Ruling of the Court of Appeals

NPC filed an appeal with the CA claiming that pursuant to Section 4, Rule 67 of the 1964 Rules
of Court,12 just compensation for the lot should have been computed based on its value at the
time of the taking or the filing of the expropriation case (Civil Case No. IR-2243) in 1990, and
prayed thatthe case be remanded to the lower court for further reception ofevidence based on
said Section 4, Rule 67 of the 1964 Rules of Court.
On June 17, 2011, the CArendered the assailed Decision containing the following decretal
portion:

WHEREFORE, premises considered, the instant appeal is DENIED. The assailed Decision
[dated] 21 February 2003 renderedby the Regional Trial Court of Iriga City, Fifth Judicial
Region, Branch 34 in Civil Case No. IR-2678 is hereby AFFIRMED.

SO ORDERED.13

The CA held that in the resolution of Civil Case No. IR-2678, the principles and rules of
procedure in eminent domain cases – under Rule 67 of the 1964 Rules of Court – cannot apply;
thus, the rule that just compensation shall be computed from the time of the taking or filing of
the expropriation case is inapplicable, since the case is not one for expropriation. Instead, Civil
Case No. IR-2678 should be treated as a simple case for the recovery of damages. Finally, the
CA held that the trial court properly exercised its judicial function of ascertaining the fair market
value of the property asjust compensation.

NPC thus instituted the instant Petition.

Issues

The Petition raises the following issues:

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN AFFIRMING THE

COURT A QUO’S DECISION DATED FEBRUARY 21, 2003 IN CIVIL CASE NO. IR-2678
WHICH FIXED THE AMOUNT OF JUST COMPENSATION FOR THE EXPROPRIATED
PROPERTY OF RESPONDENTS AT ₱1,000.00PER SQUARE METER IN
CONTRAVENTION OF SECTION 4, RULE 67 OF THE REVISED RULES OF COURT
WHICH PROVIDES THAT THE JUST COMPENSATION FOR THE EXPROPRIATED
PROPERTY MUST BE DETERMINED EITHER AS OF THE DATE OF THE TAKING
OFTHE PROPERTY OR THE FILING OF THE COMPLAINT, WHICHEVER COMES
FIRST.

II

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT REMANDING

THE CASE TO THE COURT A QUOFOR THE PURPOSE OF DETERMINING THE
AMOUNT OF JUST COMPENSATION FOR THE EXPROPRIATED PROPERTY
INACCORDANCE WITH SECTION 4, RULE 67 OF THE REVISED RULES OF COURT.14

Petitioner’s Arguments

In its Petition and Reply,15 NPC insists that Section 4, Rule 67 of the 1964 Rules of Court
should apply to Civil Case No. IR-2678; therefore, just compensation should be based not on
1995 market values, but on those prevailing on the date of taking or the filing of the
expropriation casein 1990; that the dismissal without prejudice of the expropriation case did not
necessarily nullify the proceedings in said case – specifically, the August 29, 1990 Order of
expropriation/writ of condemnation, which became final and executory for failure of any of the
parties to appeal the same – which proceedingsfor expropriation may continue through the
present Civil CaseNo. IR-2678 for compensation and damages filed by respondents; and that the
cited National Power Corporation v. Court of Appeals16 case does not apply since the factual
milieu is different, and it does not appear that the lot was damaged by NPC’s entry therein.

NPC thus prays that the assailed CA disposition be set aside and that the case be remanded to the
trial court for further proceedings todetermine the proper amount of just compensation in
accordance with Section 4, Rule 67 of the 1964 Rules of Court.

Respondents’ Arguments

Praying that the Petition be denied for lack of merit, the respondents in their Comment17 plainly
echo the assailed CA Decision, adding that the trial court’s basis for arriving at the proper
amount of just compensation was correct as the market value of adjacent properties were taken
into account. Respondents add that by agreeing to have the valuation determined by a panel of
commissioners, NPC is bound by whatever findings such panel makes, and it may not raise the
issue that valuation should be computed from the time of taking or filing of the expropriation
case in 1990.

Our Ruling

The Court grants the Petition.

NPC insists that Section 4, Rule 67 ofthe 1964 Rules of Court should have been observed in
fixing the amount of just compensation for the subject lot; that the value of the lot at the time of
NPC’s taking thereof or filing of Civil Case No. IR-2243 in 1990 should have been the basis for
computing just compensation and not the prevailing market value at the time of the filing or
pendency of Civil Case No. IR-2678 in 1995. NPC thus prays that Civil CaseNo. IR-2678 be
remanded to the trial court for determination of just compensation applying Section 4, Rule 67 of
the 1964 Rules of Court.

We agree with NPC’s contention.

In Republic v. Court of Appeals,18 we held that:

Just compensation is based on the price or value of the property at the time it was taken from the
owner and appropriated by the government. However, if the government takes possession before
the institution of expropriation proceedings, the value should befixed as of the time of the taking
of said possession, not of the filing of the complaint. The value at the time of the filing of the
complaint should be the basis for the determination of the value when the taking of the property
involved coincides with or is subsequent to the commencement of the proceedings.
The procedure for determining just compensation is set forth in Rule 67 of the 1997 Rules of
Civil Procedure. Section 5 of Rule 67 partly states that ‘upon the rendition of the order of
expropriation, the court shall appoint not more than three (3) competent and disinterested persons
as commissioners to ascertain and report to the court the just compensation for the property
sought to be taken.’ However, we held in Republic v. Court of Appealsthat Rule 67 presupposes
a prior filing of complaint for eminent domain with the appropriate court by the expropriator. If
no such complaint is filed, the expropriator is considered to have violated procedural
requirements, and hence, waived the usual procedure prescribed in Rule 67, including the
appointment of commissioners to ascertain just compensation. In National Power Corporation v.
Court of Appeals, we clarified that when there is no action for expropriation and the case
involves only a complaint for damages or just compensation, the provisions of the Rules of Court
on ascertainment of just compensation (i.e., provisions of Rule 67) are no longer applicable, and
a trial before commissioners is dispensable x x x.

Records show that sometime in 1990, NPC filed an expropriation case docketed as Civil Case
No. IR-2243. However, in an Order dated July 12, 1994, the expropriation case was dismissed by
the RTC for failure of NPC to prosecute. Subsequently, or on December 5, 1994, respondents
filed Civil Case No. IR-2678 which is a complaint for compensation and recovery of damages.
Considering the dismissal of the expropriation case for failure of the NPC to prosecute, it is as if
no expropriation suit was filed. Hence, pursuant to the above-quoted ruling, NPC is deemed "to
have violated procedural requirements, and hence, waived the usual procedure prescribed in Rule
67, including the appointment of commissioners to ascertain just compensation." Nevertheless,
just compensation for the property must be based on its value at the timeof the taking of said
property, not at the time of the filing ofthe complaint. Consequently, the RTC should have fixed
the value ofthe property at the time NPC took possession of the same in 1990, and not at the time
of the filing of the complaint for compensation and damages in 1994 or its fair market value in
1995.

In this case, the RTC formed a panel of commissioners in determining the just compensation of
the property. Although this is not required considering our pronouncement in Republic v. Court
of Appeals,19 nonetheless, its constitution is not improper.20 "The appointment was done
mainly to aid the trial court in determining just compensation, and it was not opposed by the
parties. Besides, the trial court is not bound by the commissioner’s recommended valuation of
the subject property. The court has the discretion on whether to adopt the commissioners’
valuation or to substitute itsown estimate of the value as gathered from the records."21

In this case, records show that respondents’ representative recommended a valuation of

₱1,000.00 to ₱1,500.00 per square meter; while the court’s representative recommended a value
of ₱1,100.00 per square meter.Notably, NPC’s representative did not give any value; he merely
opined that the subject property should be classified as agricultural and not residential land and
valued at the prevailing market values. Significantly, the values recommended by the
commissioners were those values prevailing in 1994 and 1995, or during the time the complaint
for compensation and damages was filed. Considering that these are not the relevant values at the
timeNPC took possession of the property in 1990, it was incumbent upon the RTC to have
disregarded the same. Unfortunately, it adopted these values. Onthis score alone, we find a need
to remand this case to the RTC for further proceedings.
Moreover, we note that the RTC simply adopted the above values without citing its basis
therefor.1avvphi1 The pertinent portions of the trial court’s Decision read:

Pursuant to the said Order of May 3, 1995, the Court formed a Commission chaired by Mr.
Esteban D. Colarina, an employee in Branch 34 of this Court; Atty. Wenifredo Pornillos
representing the plaintiffs; and Mr. Lorenzo C. Orense representing the defendant NAPOCOR.
These gentlemen took the required oath and functioned as a committee, submitting however their
respective individual Commissioner’s Report. x x x

On July 11, 1995, Atty. Pornillos recommended that the land be valued at ₱1,000.00 to
₱1,500.00 per square meter (page 58). On July 13, 1995, Mr. Esteban D. Colarina submitted his
report recommending ₱1,100.00 as the fair market value of the property per square meter.
Attached to said report was the affidavit of Mr. Nicasio V. Diño, then the Assistant CityAssessor
of Iriga City pegging the value of the said land at ₱1,500.00 to ₱1,800.00 per square meter. On
August 3, 1995, Mr. Lorenzo Orense of the NAPOCOR submitted his Commissioner’s Report
wherein he recommended that the valuation of the land be based on its agricultural value,
without however naming a price.

On the basis of past proceedings, the parties were allowed to file their respective
memoranda.1âwphi1 Only the defendant NAPOCOR filed a memorandum wherein it undertook
to pay plaintiffs the value of their land, although praying that the Court consider the land as
agricultural. NAPOCOR admits that plaintiffs[’] property, per Tax Declaration No. 30573 has
been classified as residential, but assails said classification with arguments which are mere
speculations.

In the light of all the postures taken by both parties which, in effect, results in a failure to agree
on how the land should be valued, this Court shall fall back on the Order of May 3, 1995 wherein
the report of the Court’s representative shall be taken as a factor in determining x x x the value of
the land, including other matters germane thereto and others that may be of judicial notice.

In view of the above consideration, this Court hereby fixes the fair market value of the land in
question at ₱1,000.00 per square meter.

WHEREFORE, premises considered, judgment is hereby rendered ordering defendant National

Power Corporation to pay the plaintiffs the total sum of ₱1,020,000.00, representing the value of
plaintiffs’ land expropriated by the defendant. All other claims in the complaint and in the
answer with counterclaim are hereby dismissed.

SO ORDERED.22

Indeed, the trial court merely recited the values fixed by each commissioner. Although it stated
in general terms that it considered other factors germane thereto and of judicial notice, it failed to
specify what these factors were. It did not even clarify whether it considered the values
recommended by the two commissioners. In Republic v. Court of Appeals,23 we remanded the
case to the trial court and directed it to reconvene the panel of commissioners after it was shown
that its valuation of just compensation has no basis, viz:
However, we agree with the appellate court that the trial court's decision is not clear as to its
basis for ascertaining just compensation. The trial court mentioned in its decision the valuations
in the reports of the City Appraisal Committee and of the commissioners appointed pursuant to
Rule 67. But whether the trial court considered these valuations in arriving at the just
compensation, or x x x made its own independent valuation based on the records, [is] obscure in
the decision. The trial court simply gave the total amount of just compensation due to the
property owner without laying down its basis. Thus, there is no way to determine whether the
adjudged just compensation is based on competent evidence. For this reason alone, a remand of
the case to the trial court for proper determination of just compensation is in order. In National
Power Corporation v. Bongbong, we held that although the determination of just compensation
lies within the trial court's discretion, it should not be done arbitrarily or capriciously. The
decision of the trial court must be based on established rules, correct legal principles, and
competent evidence. The court is proscribed from basing its judgment on speculations and
surmises.24

Finally, we hold that based on prevailing jurisprudence, respondents are entitled to "legal interest
on the price of the land from the time of the taking up to the time of full payment"25 by the
NPC.

WHEREFORE, the Petition is GRANTED. The June 17, 2011 Decision of the Court of Appeals
in CA-G.R. CV No. 82231 is REVERSED and SET ASIDE. This case is REMANDED to the
Regional Trial Court of Iriga City, Fifth Judicial Region, Branch 34 which is directed to re-
convene the commissioners or appoint new commissioners to determine, in accordance with this
Decision, the just compensation of the subject property.

SO ORDERED.

FIRST DIVISION

G.R. No. 140160 January 13, 2004

LAND BANK OF THE PHILIPPINES, petitioner,

vs.
FELICIANO F. WYCOCO, respondent.

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

G.R. No. 146733 January 13, 2004

FELICIANO F. WYCOCO, petitioner,
vs.
THE HONORABLE RODRIGO S. CASPILLO, Pairing Judge of the Regional Trial
Court, Third Judicial Region, Branch 23, Cabanatuan City and the Department of
Agrarian Reform, respondents.

DECISION

YNARES-SANTIAGO, J.:

Before the Court are consolidated petitions, the first seeking the review of the February 9, 1999
Decision1 and the September 22, 1999 Resolution2 of the Court of Appeals in CA-G.R. No. SP
No. 39913, which modified the Decision3 of Regional Trial Court of Cabanatuan City, Branch
23, acting as a Special Agrarian Court in Agrarian Case No. 91 (AF); and the second for
mandamus to compel the said trial court to issue a writ of execution and to direct Judge Rodrigo
S. Caspillo to inhibit himself from Agrarian Case No. 91 (AF).

The undisputed antecedents show that Feliciano F. Wycoco is the registered owner of a 94.1690
hectare unirrigated and untenanted rice land, covered by Transfer Certificate of Title No. NT-
206422 and situated in the Sitios of Ablang, Saguingan and Pinamunghilan, Barrio of San Juan,
Licab, Nueva Ecija.4

In line with the Comprehensive Agrarian Reform Program (CARP) of the government, Wycoco
voluntarily offered to sell the land to the Department of Agrarian Reform (DAR) for P14.9
million.5 In November 1991, after the DAR’s evaluation of the application and the determination
of the just compensation by the Land Bank of the Philippines (LBP), a notice of intention to
acquire 84.5690 hectares of the property for P1,342,667.466 was sent to Wycoco. The amount
offered was later raised to P2,594,045.39 and, upon review, was modified to P2,280,159.82.7 The
area which the DAR offered to acquire excluded idle lands, river and road located therein.
Wycoco rejected the offer, prompting the DAR to indorse the case to the Department of Agrarian
Reform Adjudication Board (DARAB) for the purpose of fixing the just compensation in a
summary administrative proceeding.8 The case was docketed as DARAB VOS Case No. 232 NE
93. Thereafter, the DARAB requested LBP to open a trust account in the name of Wycoco and
deposited the compensation offered by DAR.9 In the meantime, the property was distributed to
farmer-beneficiaries.

On March 29, 1993, DARAB required the parties to submit their respective memoranda or
position papers in support of their claim.10 Wycoco, however, decided to forego with the filing of
the required pleadings, and instead filed on April 13, 1993, the instant case for determination of
just compensation with the Regional Trial Court of Cabanatuan City, Branch 23, docketed as
Agrarian Case No. 91 (AF).11 Impleaded as party-defendants therein were DAR and LBP.

On April 30, 1993, Wycoco filed a manifestation in VOS Case No. 232 NE 93, informing the
DARAB of the pendency of Agrarian Case No. 91 (AF) with the Cabanatuan court, acting as a
special agrarian court.12 On March 9, 1994, the DARAB issued an order dismissing the case to
give way to the determination of just compensation by the Cabanatuan court. Pertinent portion
thereof states:

Admittedly, this Forum is vested with the jurisdiction to conduct administrative

proceeding to determine compensation. [H]owever, a thorough perusal of petitioner’s
complaint showed that he did not only raise the issue of valuation but such other matters
which are beyond the competence of the Board. Besides, the petitioner has the option to
avail the administrative remedies or bring the matter on just compensation to the Special
Agrarian Court for final determination.

WHEREFORE, premises considered, this case is hereby dismissed.

SO ORDERED.13

Meanwhile, DAR and LBP filed their respective answers before the special agrarian court in
Agrarian Case No. 91 (AF), contending that the valuation of Wycoco’s property was in
accordance with law and that the latter failed to exhaust administrative remedies by not
participating in the summary administrative proceedings before the DARAB which has primary
jurisdiction over determination of land valuation.14

After conducting a pre-trial on October 3, 1994, the trial court issued a pre-trial order as follows:

The parties manifested that there is no possibility of amicable settlement, neither are they
willing to admit or stipulate on facts, except those contained in the pleadings.

The only issue left is for the determination of just compensation or correct valuation of
the land owned by the plaintiff subject of this case.

The parties then prayed to terminate the pre-trial conference.

AS PRAYED FOR, the pre-trial conference is considered terminated, and instead of trial,
the parties are allowed to submit their respective memoranda.

WHEREFORE, the parties are given twenty (20) days from today within which to file
their simultaneous memoranda, and another ten (10) days from receipt thereof to file their
Reply/Rejoinder, if any, and thereafter, this case shall be deemed submitted for decision.

SO ORDERED.15

The evidence presented by Wycoco in support of his claim were the following: (1) Transfer
Certificate of Title No. NT-206422; (2) Notice of Land Valuation dated June 18, 1992; and (3)
letter dated July 10, 1992 rejecting the counter-offer of LBP and DAR.16 On the other hand,
DAR and LBP presented the Land Valuation Worksheets.17

On November 14, 1995, the trial court rendered a decision in favor of Wycoco. It ruled that there
is no need to present evidence in support of the land valuation inasmuch as it is of public
knowledge that the prevailing market value of agricultural lands sold in Licab, Nueva Ecija is
from P135,000.00 to 150,000.00 per hectare. The court thus took judicial notice thereof and
fixed the compensation for the entire 94.1690 hectare land at P142,500.00 per hectare or a total
of P13,428,082.00. It also awarded Wycoco actual damages for unrealized profits plus legal
interest. The dispositive portion thereof states:

WHEREFORE, premises considered, judgment is hereby rendered:

1. Ordering the defendants to pay the amount of P13,419,082.00 to plaintiff as

just compensation for the property acquired;

2. Ordering the defendants to pay plaintiff the amount of P29,663,235.00

representing the unrealized profits from the time of acquisition of the subject
property and the sum of P8,475,210.00 for every calendar year, until the amount
of compensation is fully paid including legal interest which had accrued thereon.

No pronouncement as to costs.

SO ORDERED.18

The DAR and the LBP filed separate petitions before the Court of Appeals. The petition brought
by DAR on jurisdictional and procedural issues, docketed as CA-G.R. No. SP No. 39234, was
dismissed on May 29, 1997.19 The dismissal became final and executory on June 26, 1997.20
This prompted Wycoco to file a petition for mandamus before this Court, docketed as G.R. No.
146733, praying that the decision of the Regional Trial Court of Cabanatuan City, Branch 23, in
Agrarian Case No. 91 (AF) be executed, and that Judge Rodrigo S. Caspillo, the now presiding
Judge of said court, be compelled to inhibit himself from hearing the case.

The petition brought by LBP on both substantive and procedural grounds, docketed as CA-G.R.
No. SP No. 39913, was likewise dismissed by the Court of Appeals on February 9, 1999.21 On
September 22, 1999, however, the Court of Appeals modified its decision by deducting from the
compensation due Wycoco the amount corresponding to the 3.3672 hectare portion of the
94.1690 hectare land which was found to have been previously sold by Wycoco to the Republic,
thus –

WHEREFORE, and conformably with the above, Our decision of February 9, 1999 is
hereby MODIFIED in the sense that the value corresponding to the aforesaid 3.3672
hectares and all the awards appertaining thereto in the decision a quo are ordered
deducted from the totality of the awards granted to the private respondent. In all other
respects, the decision sought to be reconsidered is hereby RE-AFFIRMED and
REITERATED.

SO ORDERED.22

In its petition, LBP contended that the Court of Appeals erred in ruling:
 I

THAT THE TRIAL COURT ACTING AS A SPECIAL AGRARIAN COURT MAY ASSUME
JURISDICTION OVER AGRARIAN CASE NO. 91 (AF) AND RENDER JUDGMENT
THEREON WITHOUT AN INITIAL ADMINISTRATIVE DETERMINATION OF JUST
COMPENSATION BY THE DARAB PURSUANT TO SECTION 16 OF RA 6657, OVER
THE TIMELY OBJECTION OF THE PETITIONER, AND IN VIOLATION OF THE RULE
ON EXHAUSTION OF ADMINISTRATIVE REMEDIES AND ON FORUM SHOPPING;

II

THAT THE JUST COMPENSATION DETERMINED BY THE TRIAL COURT WAS

SUPPORTED BY SUBSTANTIAL EVIDENCE, WHEN IT WAS BASED ONLY ON
JUDICIAL NOTICE OF THE PREVAILING MARKET VALUE OF LAND BASED ON THE
ALLEGED PRICE OF TRANSFER OF TENURAL RIGHTS, TAKEN WITHOUT NOTICE
AND HEARING IN VIOLATION OF RULE 129 OF THE RULES OF COURT;

III

THAT THE TRIAL COURT CAN REQUIRE THE PETITIONER TO COMPENSATE THE
PORTIONS OF RESPONDENT’S PROPERTY WHICH WERE NOT DECLARED BY THE
DAR FOR ACQUISITION, NOR SUITABLE FOR AGRICULTURE NOR CAPABLE OF
DISTRIBUTION TO FARMER BENEFICIARIES UNDER THE CARP;

IV

THAT THE TRIAL COURT CAN AWARD AS PART OF JUST COMPENSATION LEGAL
INTEREST ON THE PRINCIPAL AND ALLEGED UNREALIZED PROFITS OF
P29,663,235.00 FROM THE TIME OF ACQUISITION OF THE SUBJECT PROPERTY AND
P8,475,210.00 FOR EVERY CALENDAR YEAR THEREAFTER, CONSIDERING THAT
THE SAME HAS NO LEGAL BASIS AND THAT THE RESPONDENT RETAINED THE
TITLE TO HIS PROPERTY DESPITE THE DAR’S NOTICE OF ACQUISITION;

THAT THE TRIAL COURT HAD VALIDLY GRANTED EXECUTION PENDING APPEAL
ON THE ALLEGEDLY GOOD REASON OF THE PETITIONER’S ADVANCED AGE AND
WEAK HEALTH, CONTRARY TO THE APPLICABLE JURISPRUDENCE AND
CONSIDERING THAT THE RESPONDENT IS NOT DESTITUTE.23

The issues for resolution are as follows: (1) Did the Regional Trial Court, acting as Special
Agrarian Court, validly acquire jurisdiction over the instant case for determination of just
compensation? (2) Assuming that it acquired jurisdiction, was the compensation arrived at
supported by evidence? (3) Can Wycoco compel the DAR to purchase the entire land subject of
the voluntary offer to sell? (4) Were the awards of interest and damages for unrealized profits
valid?
Anent the issue of jurisdiction, the laws in point are Sections 50 and 57 of Republic Act No.
6657 (Comprehensive Agrarian Reform Law of 1988) which, in pertinent part, provide:

Section 50. Quasi-judicial Powers of the DAR. – The DAR is hereby vested with primary
jurisdiction to determine and adjudicate agrarian reform matters and shall have exclusive
original jurisdiction over all matters involving the implementation of agrarian reform,
except those falling under the exclusive jurisdiction of the Department of Agriculture
(DA) and the Department of Environment and Natural Resources (DENR)….

Section 57. Special Jurisdiction. – The Special Agrarian Court shall have original and
exclusive jurisdiction over all petitions for the determination of just compensation to
landowners, and the prosecution of all criminal offenses under this Act.

The Special Agrarian Courts shall decide all appropriate cases under their special jurisdiction
within thirty (30) days from submission of the case for decision.

In Republic v. Court of Appeals,24 it was held that Special Agrarian Courts are given original and
exclusive jurisdiction over two categories of cases, to wit: (1) all petitions for the determination
of just compensation; and (2) the prosecution of all criminal offenses under R.A. No. 6657.
Section 50 must be construed in harmony with Section 57 by considering cases involving the
determination of just compensation and criminal cases for violations of R.A. No. 6657 as
excepted from the plenitude of power conferred to the DAR. Indeed, there is a reason for this
distinction. The DAR, as an administrative agency, cannot be granted jurisdiction over cases of
eminent domain and over criminal cases. The valuation of property in eminent domain is
essentially a judicial function which is vested with the Special Agrarian Courts and cannot be
lodged with administrative agencies.25 In fact, Rule XIII, Section 11 of the New Rules of
Procedure of the DARAB acknowledges this power of the court, thus –

Section 11. Land Valuation and Preliminary Determination and Payment of Just
Compensation. The decision of the Adjudicator on land valuation and preliminary
determination and payment of just compensation shall not be appealable to the Board but
shall be brought directly to the Regional Trial Courts designated as Special Agrarian
Courts within fifteen (15) days from receipt of the notice thereof. Any party shall be
entitled to only one motion for reconsideration. (Emphasis supplied)

Under Section 1 of Executive Order No. 405, Series of 1990, the Land Bank of the Philippines is
charged with the initial responsibility of determining the value of lands placed under land reform
and the just compensation to be paid for their taking.26 Through a notice of voluntary offer to sell
(VOS) submitted by the landowner, accompanied by the required documents, the DAR evaluates
the application and determines the land’s suitability for agriculture. The LBP likewise reviews
the application and the supporting documents and determines the valuation of the land.
Thereafter, the DAR issues the Notice of Land Valuation to the landowner. In both voluntary and
compulsory acquisition, where the landowner rejects the offer, the DAR opens an account in the
name of the landowner and conducts a summary administrative proceeding. If the landowner
disagrees with the valuation, the matter may be brought to the Regional Trial Court acting as a
special agrarian court. This in essence is the procedure for the determination of just
compensation.27

In Land Bank of the Philippines v. Court of Appeals,28 the landowner filed an action for
determination of just compensation without waiting for the completion of DARAB’s re-
evaluation of the land. This, notwithstanding, the Court held that the trial court properly acquired
jurisdiction because of its exclusive and original jurisdiction over determination of just
compensation, thus –

…It is clear from Sec. 57 that the RTC, sitting as a Special Agrarian Court, has "original
and exclusive jurisdiction over all petitions for the determination of just compensation to
landowners." This "original and exclusive" jurisdiction of the RTC would be undermined
if the DAR would vest in administrative officials original jurisdiction in compensation
cases and make the RTC an appellate court for the review of administrative decisions.
Thus, although the new rules speak of directly appealing the decision of adjudicators to
the RTCs sitting as Special Agrarian Courts, it is clear from Sec. 57 that the original and
exclusive jurisdiction to determine such cases is in the RTCs. Any effort to transfer such
jurisdiction to the adjudicators and to convert the original jurisdiction of the RTCs into an
appellate jurisdiction would be contrary to Sec. 57 and therefore would be void. Thus,
direct resort to the SAC [Special Agrarian Court] by private respondent is valid.
(Emphasis supplied)29

In the case at bar, therefore, the trial court properly acquired jurisdiction over Wycoco’s
complaint for determination of just compensation. It must be stressed that although no summary
administrative proceeding was held before the DARAB, LBP was able to perform its legal
mandate of initially determining the value of Wycoco’s land pursuant to Executive Order No.
405, Series of 1990. What is more, DAR and LBP’s conformity to the pre-trial order which
limited the issue only to the determination of just compensation estopped them from questioning
the jurisdiction of the special agrarian court. The pre-trial order limited the issues to those not
disposed of by admission or agreements; and the entry thereof controlled the subsequent course
of action.30

Besides, the issue of whether Wycoco violated the rule on exhaustion of administrative remedies
was rendered moot and academic in view of the DARAB’s dismissal31 of the administrative case
to give way to and in recognition of the court’s power to determine just compensation.32

In arriving at the valuation of Wycoco’s land, the trial court took judicial notice of the alleged
prevailing market value of agricultural lands in Licab, Nueva Ecija without apprising the parties
of its intention to take judicial notice thereof. Section 3, Rule 129 of the Rules on Evidence
provides:

Sec. 3. Judicial Notice, When Hearing Necessary. – During the trial, the court, on its own
initiative, or on request of a party, may announce its intention to take judicial notice of
any matter and allow the parties to be heard thereon.
 After trial and before judgment or on appeal, the proper court, on its own initiative, or on
request of a party, may take judicial notice of any matter and allow the parties to be heard
thereon if such matter is decisive of a material issue in the case.

Inasmuch as the valuation of the property of Wycoco is the very issue in the case at bar, the trial
court should have allowed the parties to present evidence thereon instead of practically assuming
a valuation without basis. While market value may be one of the bases of determining just
compensation, the same cannot be arbitrarily arrived at without considering the factors to be
appreciated in arriving at the fair market value of the property e.g., the cost of acquisition, the
current value of like properties, its size, shape, location, as well as the tax declarations thereon.33
Since these factors were not considered, a remand of the case for determination of just
compensation is necessary. The power to take judicial notice is to be exercised by courts with
caution especially where the case involves a vast tract of land. Care must be taken that the
requisite notoriety exists; and every reasonable doubt on the subject should be promptly resolved
in the negative. To say that a court will take judicial notice of a fact is merely another way of
saying that the usual form of evidence will be dispensed with if knowledge of the fact can be
otherwise acquired. This is because the court assumes that the matter is so notorious that it will
not be disputed. But judicial notice is not judicial knowledge. The mere personal knowledge of
the judge is not the judicial knowledge of the court, and he is not authorized to make his
individual knowledge of a fact, not generally or professionally known, the basis of his action.34

Anent the third issue, the DAR cannot be compelled to purchase the entire property voluntarily
offered by Wycoco. The power to determine whether a parcel of land may come within the
coverage of the Comprehensive Agrarian Reform Program is essentially lodged with the DAR.
That Wycoco will suffer damages by the DAR’s non-acquisition of the approximately 10 hectare
portion of the entire land which was found to be not suitable for agriculture is no justification to
compel DAR to acquire the whole area.

We find Wycoco’s claim for payment of interest partly meritorious. In Land Bank of the
Philippines v. Court of Appeals,35 this Court struck down as void DAR Administrative Circular
No. 9, Series of 1990, which provides for the opening of trust accounts in lieu of the deposit in
cash or in bonds contemplated in Section 16 (e) of RA 6657.

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

xxx xxx xxx

"In the present suit, the DAR clearly overstepped the limits of its powers to enact rules
and regulations when it issued Administrative Circular No. 9. There is no basis in
allowing the opening of a trust account in behalf of the landowner as compensation for
 his property because, as heretofore discussed, Section 16(e) of RA 6657 is very specific
that the deposit must be made only in ‘cash’ or in ‘LBP bonds.’ In the same vein,
petitioners cannot invoke LRA Circular Nos. 29, 29-A and 54 because these
implementing regulations can not outweigh the clear provision of the law. Respondent
court therefore did not commit any error in striking down Administrative Circular No. 9
for being null and void."36

Pursuant to the forgoing decision, DAR issued Administrative Order No. 2, Series of 1996,
converting trust accounts in the name of landowners into deposit accounts. The transitory
provision thereof states –

VI. TRANSITORY PROVISIONS

All trust accounts issued pursuant to Administrative Order No. 1, S. 1993 covering landholdings
not yet transferred in the name of the Republic of the Philippines as of July 5, 1996 shall
immediately be converted to deposit accounts in the name of the landowners concerned.

All Provincial Agrarian Reform Officers and Regional Directors are directed to immediately
inventory the claim folders referred to in the preceding paragraph, wherever they may be found
and request the LBP to establish the requisite deposit under this Administrative Order and to
issue a new certification to that effect. The Original Certificate of Trust Deposit previously
issued should be attached to the request of the DAR in order that the same may be replaced with
a new one.

All previously established Trust Deposits which served as the basis for the transfer of the
landowner’s title to the Republic of the Philippines shall likewise be converted to deposits in
cash and in bonds. The Bureau of Land Acquisition and Distribution shall coordinate with the
LBP for this purpose.

In light of the foregoing, the trust account opened by LBP in the name of Wycoco as the mode of
payment of just compensation should be converted to a deposit account. Such conversion should
be retroactive in application in order to rectify the error committed by the DAR in opening a trust
account and to grant the landowners the benefits concomitant to payment in cash or LBP bonds
prior to the ruling of the Court in Land Bank of the Philippines v. Court of Appeals. Otherwise,
petitioner’s right to payment of just and valid compensation for the expropriation of his property
would be violated.37 The interest earnings accruing on the deposit account of landowners would
suffice to compensate them pending payment of just compensation.

In some expropriation cases, the Court imposed an interest of 12% per annum on the just
compensation due the landowner. It must be stressed, however, that in these cases, the imposition
of interest was in the nature of damages for delay in payment which in effect makes the
obligation on the part of the government one of forbearance.38 It follows that the interest in the
form of damages cannot be applied where there was prompt and valid payment of just
compensation. Conversely, where there was delay in tendering a valid payment of just
compensation, imposition of interest is in order. This is because the replacement of the trust
account with cash or LBP bonds did not ipso facto cure the lack of compensation; for essentially,
the determination of this compensation was marred by lack of due process.39

Accordingly, the just compensation due Wycoco should bear 12% interest per annum from the
time LBP opened a trust account in his name up to the time said account was actually converted
into cash and LBP bonds deposit accounts. The basis of the 12% interest would be the just
compensation that would be determined by the Special Agrarian Court upon remand of the
instant case. In the same vein, the amount determined by the Special Agrarian Court would also
be the basis of the interest income on the cash and bond deposits due Wycoco from the time of
the taking of the property up to the time of actual payment of just compensation.

The award of actual damages for unrealized profits should be deleted. The amount of loss must
not only be capable of proof, but must be proven with a reasonable degree of certainty. The
claim must be premised upon competent proof or upon the best evidence obtainable, such as
receipts or other documentary proof.40 None having been presented in the instant case, the claim
for unrealized profits cannot be granted.

From the foregoing discussion, it is clear that Wycoco’s petition for mandamus in G.R. No.
146733 should be dismissed. The decision of the Regional Trial Court of Cabanatuan City,
Branch 23, acting as Special Agrarian Court in Agrarian Case No. 91 (AF), cannot be enforced
because there is a need to remand the case to the trial court for determination of just
compensation. Likewise, the prayer for the inhibition of Judge Rodrigo S. Caspillo in Agrarian
Case No. 91 (AF) is denied for lack of basis.

WHEREFORE, in view of all the foregoing, the petition in G.R. No. 140160 is PARTIALLY
GRANTED. Agrarian Case No. 91 (AF) is REMANDED to the Regional Trial Court of
Cabanatuan City, Branch 23, for the determination of just compensation. The petition for
mandamus in G.R. No. 146733 is dismissed.

SO ORDERED.

FIRST DIVISION

G.R. No. 211351, February 04, 2015

LAND BANK OF THE PHILIPPINES, Petitioner, v. HEIRS OF JESUS ALSUA,

REPRESENTED BY BIBIANO C. SABINO, Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated October 31, 2013 and
the Resolution3 dated February 18, 2014 of the Court of Appeals (CA) in CA-G.R. SP No.
127483, fixing the just compensation for respondents’ 47.4535-hectare (ha.) land at
P2,465,423.02, less the initial valuation already paid in the amount of P1,369,708.02, with legal
interest at the rate of 12% per annum (p.a.) from November 13, 2001 to June 30, 2013, and 6%
p.a. from July 1, 2013 until full satisfaction, using the formula stated in Department of Agrarian
Reform (DAR) Administrative Order (AO) No. 5, series of 1998.4 chanroblesvirtuallawlibrary

The Facts

Jesus Alsua (Jesus) owned a 62.1108 has. parcel of unregistered agricultural land known as Lot
No. 8882, Cad-201, situated in Malidong, Pioduran, Albay, covered by Tax Declaration No. 99-
13-001-00675 in his name.6 chanroblesvirtuallawlibrary

On March 6, 1994, respondents Heirs of Jesus Alsua and their representative Bibiano C. Sabino
(respondents) voluntarily offered to sell7 the entire parcel of land to the government under
Republic Act No. (RA) 6657,8 as amended, otherwise known as the “Comprehensive Agrarian
Reform Law of 1988,” but only 47.4535 has. thereof, consisting of 43.7158 has. of cocoland
and 3.7377 has. of unirrigated riceland (subject lands), were acquired.9 chanroblesvirtuallawlibrary

Upon receipt from the DAR of the Claim Folder (CF) on April 20, 2001, albeit containing
incomplete documents, petitioner Land Bank of the Philippines (LBP) valued the subject
lands at P1,369,708.0210 (LBP’s valuation) using the formula11 stated in DAR AO No. 5, series
of 1998, as follows: chanRoblesv irtualLawlibrary

43.7158 ha. x
Cocoland P1,268,565.19
P29,018.46
Unirrigated 3.7377 ha. x
101,142.83
Riceland 27,060.18
P1,369,708.0212
The necessary documents were completed only in September 2001,13 hence, the CF was
considered to have been received only on the latter date,14 and the LBP’s valuation approved on
September 25, 2001.15 chanroblesvirtuallawlibrary

The DAR then offered to respondents the LBP’s valuation as just compensation for the lands, but
the latter rejected the valuation.16 Thus, the LBP was prompted to deposit the said amount in
cash and in Agrarian Reform Bonds in respondents’ name.17 chanroblesvirtuallawlibrary

After summary administrative proceedings for the determination of just compensation, docketed
as DARAB Case No. 05-01-0059-A’-2001, the Provincial Agrarian Reform Adjudicator
(PARAD), in a Decision18 dated January 29, 2004, fixed the value of the subject lands at
P5,479,744.15. The LBP moved for reconsideration but was denied in a Resolution19 dated
March 11, 2004.

Dissatisfied with the PARAD’s valuation, the LBP filed a petition20 for determination of just
compensation before the Regional Trial Court of Legazpi City, Branch 3 (RTC), docketed as
Agrarian Case No. 04-02, averring that the PARAD’s valuation was excessively high and is
contrary to the legally prescribed factors in determining just compensation.21 chanroblesvirtuallawlibrary

On the other hand, respondents maintained the correctness of the PARAD’s valuation, insisting
that it considered all the factors that may be used as basis in order to arrive at a just and equitable
valuation of the subject lands, including their potential use and corresponding increase in
value.22 chanroblesvirtuallawlibrary

In the interim, or on November 29, 2001, the Register of Deeds of Albay issued Original
Certificates of Title (OCT) Nos. C-2772123and 2772224in the names of the agrarian reform
beneficiaries.

During the pendency of the proceedings, the RTC appointed the Agrarian Operations Center of
the LBP to conduct a reinvestigation of the gross production and selling price data within the 12-
month period preceding June 30, 2009.25 On July 4, 2011, the Commissioner submitted his
Report26 dated July 1, 2011, finding that the subject cocoland has a density of 80 trees per
hectare with more than 35 years of age.27 Considering the lack of data from the landowners who
were absent during the ocular inspection, and after ascertaining that the coconut production for
the 12-month period prior to June 30, 2009 based on the industry data (PCA data) was
unattainable in the area since the coconut trees were still recovering from the impact of typhoons
Milenyo and Reming which hit the country in September and November 2006, respectively,28 he
merely attached the production and selling price data from the Philippine Coconut Authority
(PCA) for the concerned period.

The RTC Ruling

In a Decision29 dated August 17, 2012, the RTC rejected the valuation of both the LBP and the
PARAD and fixed the just compensation for the subject lands at P4,245,820.5330 as follows: chanRoblesvirtualLawlibrary

LV for =
Cocoland P3,654,285.91
LV for
= 350,072.98
Riceland
LV for Trees = 241, 461.64
P4,245,820.5331
The RTC used the formula under DAR AO No. 5, series of 1998, as amended, i.e., LV = (CNI x
0.9) + (MV x 0.1),32 utilizing production data or values within the 12-month period preceding
the presumptive date of taking on June 30, 2009 pursuant to DAR AO No. 1, series of
2010,33 which “currentizes” the bases for the production data and values and does away with the
payment of interest that will compensate for the loss of purchasing power due to inflation.34 It
explained that to reckon the taking from November 29, 2001,35 or the date the OCTs were issued
in favor of the beneficiaries, pursuant to the ruling in LBP v. Dumlao,36 will be unjust to the
landowners, considering the diminution in the purchasing power of the peso. On the other hand,
while interests may be imposed for the delay in the payment of the compensation, such
imposition will be unjust to the State which would be unduly penalized for the “steadfastness of
the implementors of the agrarian reform program in their administrative determination of
compensation that the landowners had repudiated.”37 chanroblesvirtuallawlibrary

The LBP moved for reconsideration38 which was, however, denied by the RTC in an Order39
dated October 25, 2012, prompting it to elevate its case to the CA.

The CA Ruling

In a Decision40 dated October 31, 2013, the CA fixed the just compensation of the subject lands
at P2,465,423.02, less the initial valuation already paid in the amount of P1,369,708.02, plus
legal interest at the rate of 12% p.a. from November 13, 2001 to June 30, 2013, and at 6% p.a.
from July 1, 2013 until full satisfaction.41 chanroblesvirtuallawlibrary

The CA affirmed the applicability of the provisions of DAR AO No. 5, series of 1998 in the
computation of the just compensation for the subject lands but declared that the RTC erred in
fixing the date of taking on June 30, 2009 (i.e., the presumptive date of taking pursuant to DAR
AO No. 1, series of 2010).42 It pointed out that the taking of lands under the agrarian reform
program partakes of the nature of an expropriation proceeding; thus, just compensation should
be pegged at the price or value of the property at the time it was taken from the owner and
not its value at the time of rendition of judgment or the filing of the complaint if the
government takes possession of the land before the institution of expropriation
proceedings.43 chanroblesvirtuallawlibrary

Separately, however, the CA used different values from that employed by the LBP in computing
the capitalized net income (CNI) for purposes of arriving at the land value (LV) of the 43.7158
has. cocoland as the same purportedly “did not reflect the true income generating capacity of the
property.”44 Instead, the CA based the selling price on the average farm gate prices of copra for
the four-year period from 2000 to 2003. On the other hand, while it found that the RTC correctly
used the one-factor formula in computing the LV of the unirrigated riceland, i.e., MV x 2,
considering the lack of available information on Comparable Sales, it used the market value
(MV) per tax declaration45 and grossed it up with the location adjustment factor and the
applicable Regional Consumer Price Index in accordance with Item II (A.9) of DAR AO No. 5,
series of 1998. Accordingly, it valued the subject lands as follows: chanRoblesv irtualLawlibrary

=
LV for Cocoland
P1,936,892.34
LV for
Unirrigated = 287,069.04
Riceland
LV for Trees = 241,461.64
P2,465,423.0246
Aggrieved, the LBP filed a motion for reconsideration47 which was, however, denied in a
Resolution48 dated February 18, 2014, hence, the instant petition.

The Issue Before the Court

The essential issue for the Court’s resolution is whether or not the CA committed any reversible
error in fixing the just compensation for the subject lands.

The Court’s Ruling

Settled is the rule that when the agrarian reform process is still incomplete, such as in this case
where the just compensation due the landowner has yet to be settled, just compensation should
be determined and the process be concluded under RA 6657.49 chanroblesvirtuallawlibrary

For purposes of determining just compensation, the fair market value of an expropriated property
is determined by its character and its price at the time of taking,50 or the “time when the
landowner was deprived of the use and benefit of his property,”51 such as when title is
transferred in the name of the beneficiaries, as in this case. In addition, the factors enumerated
under Section 17 of RA 6657, i.e., (a) the acquisition cost of the land, (b) the current value of
like properties, (c) the nature and actual use of the property and the income therefrom, (d) the
owner’s sworn valuation, (e) the tax declarations, (f) the assessment made by government
assessors, (g) the social and economic benefits contributed by the farmers and the farmworkers,
and by the government to the property, and (h) the non-payment of taxes or loans secured from
any government financing institution on the said land, if any, must be equally considered.52 chanroblesvirtuallawlibrary

In this case, both the RTC and the CA applied the provisions of DAR AO No. 5, series of 1998
in computing the just compensation for the subject lands. Under the said AO, there shall be one
basic formula for the valuation of lands, i.e., LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1),
where:chanRoblesvir tualLawlibrary

LV = Land Value

CNI = Capitalized Net Income

CS = Comparable Sales

MV = Market Value per Tax Declaration

The above-stated formula shall be used only if all the three factors i.e., CNI, CS, and MV, are
present, relevant, and applicable. In case one or two factors are not present, the said AO provides
for alternate formulas.53 chanroblesvirtualla wlibrary

Records show that the comparable sales (CS) were found to be unavailable54 so the alternative
formula, i.e., LV = (CNI x 0.9) + (MV x 0.1), was used by the LBP, the RTC, and the CA in
fixing the just compensation for the subject cocoland. On the other hand, they used the one-
factor formula under the said AO, i.e., LV = MV x 2, in valuing the subject riceland considering
the lack of comparable sales (CS) and production data to arrive at the capitalized net income
(CNI). It appears, however, that both the RTC and the CA made variations from the formula
under the said AO.

A. RTC and CA Valuation of the Subject Cocoland.

For its part, the RTC used production data or values within the 12-month period preceding the
presumptive date of taking of the subject cocoland on June 30, 2009,55 in accordance with DAR
AO No. 1, series of 2010.56 It is significant to point out, however, that the said AO only applies
to tenanted rice and corn lands acquired under Presidential Decree No. 2757and Executive Order
No. (EO) 228,58 which scenario does not obtain in this case. Besides, the long-standing rule is
that an expropriated property must be valued at the time of taking,59 in this case, upon the
issuance of the OCTs in the name of the beneficiaries on November 29, 2001.60 Hence, the said
AO cannot be made to obtain and the RTC’s valuation cannot be sustained.

On the other hand, while the CA correctly held that just compensation shall be the price or value
of the property at the time it was taken from the owner and appropriated by the government,61 or
on November 29, 2001, it, departed from the parameters prescribed under DAR AO No. 5, series
of 1998 in computing the capitalized net income (CNI) in order to arrive at the land value (LV)
for the subject lands. Particularly, under the foregoing AO, the selling price (SP) for purposes of
computing the capitalized net income (CNI) shall be “the average of the latest available 12-
months' selling prices prior to the date of receipt of the CF by LBP for processing, such prices to
be secured from the Department of Agriculture (DA) and other appropriate regulatory bodies or,
in their absence, from the Bureau of Agricultural Statistics. x x x.”

In rejecting the LBP’s proposed valuation which used the prices of copra from July 2000 to June
2001 per certification from the PCA, the CA opined that the data and values used therein did not
reflect the true income generating capacity of the property.62 Instead, it used the data for the four-
year period from 2000 to 2003, thus, including data or values beyond the time of taking.
Consequently, the Court similarly cannot adopt the CA’s computation.

B. RTC and CA Valuation of the Subject Riceland.

The RTC used the one-factor formula under DAR AO No. 5, series of 1998, utilizing unit market
value (UMV) taken from the Schedule of Base Unit Market Value63 as of 2002, pursuant to the
pertinent ordinance of the Sangguniang Panlalawigan of Albay.64 Having been based on data or
values beyond the time of taking on November 29, 2001, the Court cannot accept the RTC’s
valuation. To reiterate, just compensation is the fair market value of an expropriated property at
the time of taking,65 in this case, the value of the subject lands upon the issuance of the OCTs in
the name of the beneficiaries on November 29, 2001.

For its part, the CA used the same formula but utilized the unit market value (UMV) from the
Schedule of Unit Market Value for Albay effective 2000 in the amount of P34,690.00,66 and then
grossed it up with the location adjustment factor and the applicable Regional Consumer Price
Index in accordance with Item II (A.9)67 of DAR AO No. 5, series of 1998. Considering that the
taking took place on November 29, 2001, the UMV should be that corresponding for the year
2001. However, records are bereft of showing that the UMV for the year 2000 is the same UMV
obtaining for the year 2001. Thus, on this score, the CA’s computation must equally be rejected.

C. RTC and CA Valuation of the Trees Included in the Just Compensation.

It is relevant to point out that the RTC’s valuation of the standing trees in the amount of
P241,461.64,68 as affirmed by the CA,69 appears to have been pegged according to the prevailing
values within the 12-month period preceding June 30, 2009. As mentioned, such date was long
after the subject lands’ taking on November 29, 2001 and, hence, can neither be countenanced.

D. The Proper Valuation and Remand Guidelines.

In view of the foregoing disquisitions, the just compensation for the subject lands should be
computed based on the factors stated in Section 17 of RA 6657, as amended. However, the Court
has pored over the records and observed that the only factors considered by both courts in
determining the just compensation were (a) the nature and actual use of the property, and
the income therefrom, as well as (b) the market value of the subject lands,70without a
showing that the other factors under the said section were even taken into account or, otherwise,
found to be inapplicable, contrary to what the law requires.

Similarly, the Court has gone over the LBP’s findings and computation, as contained in the
Claims and Valuation and Processing Form,71 and is likewise unable to adopt the same since it
was partly based on the field investigation report72 which admittedly did not consider (a) the
economic and social benefits of the subject lands,73and (b) the current value of like
properties within the vicinity.74 To reiterate, the factors enumerated under Section 17 of RA
6657 must be considered in computing just compensation. Accordingly, the Court finds a need to
remand Agrarian Case No. 04-02 to the RTC for the determination of just compensation in
accordance with these factors. Relative thereto, the RTC is further directed to observe the
following guidelines in the remand of the case: chanRob lesvirtualLawlibrary

1. Just compensation must be valued at the time of taking, or the “time when the landowner
was deprived of the use and benefit of his property,75 in this case, upon the issuance of OCT Nos.
C-27721 and 27722 in the names of the agrarian reform beneficiaries on November 29, 2001.76
Hence, the evidence to be presented by the parties before the trial court for the valuation of the
subject lands must be based on the values prevalent on such time of taking for like agricultural
lands.77 chanroblesvirtuallawlibrary

2. The evidence must conform to Section 17 of RA 6657, as amended, prior to its amendment
by RA 9700.78 It bears pointing out that while Congress passed RA 9700 on July 1, 2009,
amending certain provisions of RA 6657, as amended, among them, Section 17, and declaring
“[t]hat all previously acquired lands wherein valuation is subject to challenge by landowners
shall be completed and finally resolved pursuant to Section 17 of [RA 6657], as amended,”79 the
law should not be retroactively applied to pending claims/cases. In fact, DAR AO No. 2, series
of 200980 implementing RA 9700 expressly excepted from the application of the amended
Section 17 all claim folders received by LBP prior to July 1, 2009, which shall be valued in
accordance with Section 17 of RA 6657, as amended, prior to its further amendment by RA No.
9700.81chanroblesvirtuallawlibrary

Records show that the CF from the DAR was actually received by the LBP on April 20, 2001,
but the latter considered the same as received only later in September 2001 with the completion
of the necessary documents.82 Hence, Section 17 of RA 6657, as amended, prior to its further
amendment by RA 9700, should be the basis for the valuation of the subject lands. In the event
that the respondents had already withdrawn the amount deposited by the LBP, the withdrawn
amount should be deducted from the final land valuation to be paid by LBP.83 chanroblesvirtuallawlibrary

3. The RTC may impose interest on the just compensation as may be warranted by the
circumstances of the case.84 In previous cases, the Court has allowed the grant of legal interest
in expropriation cases where there is delay in the payment since the just compensation due to the
landowners was deemed to be an effective forbearance on the part of the State.85 Legal interest
shall be pegged at the rate of 12% interest p.a. from the time of taking until June 30, 2013 only.
Thereafter, or beginning July 1, 2013, until fully paid, interest shall be at 6% p.a. in line with the
amendment introduced by BSP-MB Circular No. 799,86 series of 2013.87 chanroblesvirtuallawlibrary

4. Finally, the RTC is advised that while it should be mindful of the different formulae created
by the DAR in arriving at just compensation, it is not strictly bound to adhere thereto if the
situations before it do not warrant their application. As held in LBP v. Heirs of Maximo
Puyat:88
[T]he determination of just compensation is a judicial function; hence, courts cannot be unduly
restricted in their determination thereof. To do so would deprive the courts of their judicial
prerogatives and reduce them to the bureaucratic function of inputting data and arriving at the
valuation. While the courts should be mindful of the different formulae created by the DAR in
arriving at just compensation, they are not strictly bound to adhere thereto if the situations before
them do not warrant it. Apo Fruits Corporation v. Court of Appeals [(565 Phil. 418 (2007)]
thoroughly discusses this issue, to wit:chanRoblesvirtualLawlibrary

[T]he basic formula and its alternatives–administratively determined (as it is not found in
Republic Act No. 6657, but merely set forth in DAR AO No. 5, Series of 1998)–although
referred to and even applied by the courts in certain instances, does not and cannot strictly bind
the courts. To insist that the formula must be applied with utmost rigidity whereby the valuation
is drawn following a strict mathematical computation goes beyond the intent and spirit of the
law. The suggested interpretation is strained and would render the law inutile. Statutory
construction should not kill but give life to the law. As we have established in earlier
jurisprudence, the valuation of property in eminent domain is essentially a judicial function
which is vested in the regional trial court acting as a SAC, and not in administrative agencies.
The SAC, therefore, must still be able to reasonably exercise its judicial discretion in the
evaluation of the factors for just compensation, which cannot be arbitrarily restricted by a
formula dictated by the DAR, an administrative agency. Surely, DAR AO No. 5 did not intend to
straightjacket the hands of the court in the computation of the land valuation. While it provides a
formula, it could not have been its intention to shackle the courts into applying the formula in
every instance. The court shall apply the formula after an evaluation of the three factors, or it
may proceed to make its own computation based on the extended list in Section 17 of Republic
Act No. 6657, which includes other factors[.] x x x. cralawred

WHEREFORE, the petition is DENIED insofar as it seeks to sustain the valuation of the
subject lands made by petitioner Land Bank of the Philippines. The Decision dated October 31,
2013 and the Resolution dated February 18, 2014 rendered by the Court of Appeals in CA-G.R.
SP No. 127483, fixing the just compensation for respondents’ 47.4535 hectares of land at
P2,465,423.02, less the initial valuation already paid in the amount of P1,369,708.02, plus legal
interest as afore-discussed, which did not fully consider the factors enumerated under Section 17
of Republic Act No. 6657, as amended, are hereby SET ASIDE. Accordingly, Agrarian Case
No. 04-02 is REMANDED to the Regional Trial Court of Legazpi City, Branch 3 for the proper
determination of just compensation in accordance with the guidelines set in this Decision. The
trial court is directed to conduct the proceedings in said case with reasonable dispatch and to
submit to the Court a report on its findings and recommended conclusions within sixty (60) days
from notice of this Decision.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
 EN BANC

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

THE CITY OF MANILA, plaintiff-appellant,

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

City Fiscal Diaz for appellant.

Crossfield and O'Brien, Williams, Ferrier and Sycip, Delgado and Delgado, Filemon Sotto, and
Ramon Salinas for appellees.

JOHNSON, J.:

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

That question arose in the following manner:

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

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

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

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

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

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

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

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

The theory of the plaintiff is, that once it has established the fact, under the law, that it has
authority to expropriate land, it may expropriate any land it may desire; that the only function of
the court in such proceedings is to ascertain the value of the land in question; that neither the
court nor the owners of the land can inquire into the advisible purpose of purpose of the
expropriation or ask any questions concerning the necessities therefor; that the courts are mere
appraisers of the land involved in expropriation proceedings, and, when the value of the land is
fixed by the method adopted by the law, to render a judgment in favor of the defendant for its
value.
That the city of Manila has authority to expropriate private lands for public purposes, is not
denied. Section 2429 of Act No. 2711 (Charter of the city of Manila) provides that "the city
(Manila) . . . may condemn private property for public use."

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

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

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

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

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

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

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

The city of Manila is given authority to expropriate private lands for public purposes. Can it be
possible that said authority confers the right to determine for itself that the land is private and
that the purpose is public, and that the people of the city of Manila who pay the taxes for its
support, especially those who are directly affected, may not question one or the other, or both, of
these questions? Can it be successfully contended that the phrase used in Act No. 190, "and if the
court upon trial shall find that such right exists," means simply that the court shall examine the
statutes simply for the purpose of ascertaining whether a law exists authorizing the petitioner to
exercise the right of eminent domain? Or, when the case arrives in the Supreme Court, can it be
possible that the phrase, "if the Supreme Court shall determine that no right of expropriation
exists," that that simply means that the Supreme Court shall also examine the enactments of the
legislature for the purpose of determining whether or not a law exists permitting the plaintiff to
expropriate?

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

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

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

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

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

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

But when the statute does not designate the property to be taken nor how may be taken,
then the necessity of taking particular property is a question for the courts. Where the
application to condemn or appropriate is made directly to the court, the question (of
necessity) should be raised and decided in limene.
The legislative department of the government was rarely undertakes to designate the precise
property which should be taken for public use. It has generally, like in the present case, merely
conferred general authority to take land for public use when a necessity exists therefor. We
believe that it can be confidently asserted that, under such statute, the allegation of the necessity
for the appropriation is an issuable allegation which it is competent for the courts to decide.
(Lynch vs. Forbes, 161 Mass., 302 [42 Am. St. Rep., 402, 407].)

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

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

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

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

The volume of Cyclopedia, above referred to, cites many cases in support of the doctrine quoted.
While time has not permitted an examination of all of said citations, many of them have been
examined, and it can be confidently asserted that said cases which are cited in support of the
assertion that, "the necessity and expediency of exercising the right of eminent domain are
questions essentially political and not judicial," show clearly and invariably that in each case the
legislature itself usually, by a special law, designated the particular case in which the right of
eminent domain might be exercised by the particular municipal corporation or entity within the
state. (Eastern R. Co. vs. Boston, etc., R. Co., 11 Mass., 125 [15 Am. Rep., 13]; Brooklyn Park
Com'rs vs. Armstrong, 45 N.Y., 234 [6 Am. Rep., 70]; Hairston vs. Danville, etc. Ry. Co., 208 U.
S. 598; Cincinnati vs. Louisville, etc. Ry. Co., 223 U. S., 390; U.S. vs. Chandler-Dunbar Water
Power Co., 229 U. S., 53; U.S. vs. Gettysburg, etc. Co., 160 U. S., 668; Traction Co. vs. Mining
Co., 196 U.S., 239; Sears vs. City of Akron, 246 U.S., 351 [erroneously cited as 242 U.S.].)
In the case of Traction Co. vs. Mining Co. (196 U.S., 239), the Supreme Court of the United
States said: "It is erroneous to suppose that the legislature is beyond the control of the courts in
exercising the power of eminent domain, either as to the nature of the use or the necessity to the
use of any particular property. For if the use be not public or no necessity for the taking exists,
the legislature cannot authorize the taking of private property against the will of the owner,
notwithstanding compensation may be required."

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

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

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

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

In the case of New Central Coal Co. vs. George's etc. Co. (37 Md., 537, 564), the Supreme Court
of the State of Maryland, discussing the question before us, said: "To justify the exercise of this
extreme power (eminent domain) where the legislature has left it to depend upon the necessity
that may be found to exist, in order to accomplish the purpose of the incorporation, as in this
case, the party claiming the right to the exercise of the power should be required to show at least
a reasonable degree of necessity for its exercise. Any rule less strict than this, with the large and
almost indiscriminate delegation of the right to corporations, would likely lead to oppression and
the sacrifice of private right to corporate power."
In the case of Dewey vs. Chicago, etc. Co. (184 Ill., 426, 433), the court said: "Its right to
condemn property is not a general power of condemnation, but is limited to cases where a
necessity for resort to private property is shown to exist. Such necessity must appear upon the
face of the petition to condemn. If the necessary is denied the burden is upon the company
(municipality) to establish it." (Highland, etc. Co. vs. Strickley, 116 Fed., 852, 856; Kiney vs.
Citizens' Water & Light Co., 173 Ind., 252, 257 ; Bell vs. Mattoon Waterworks, etc. Co., 245 Ill.,
544 [137 Am. St. Rep. 338].)

It is true that naby decisions may be found asserting that what is a public use is a legislative
question, and many other decisions declaring with equal emphasis that it is a judicial question.
But, as long as there is a constitutional or statutory provision denying the right to take land for
any use other than a public use, it occurs to us that the question whether any particular use is a
public one or not is ultimately, at least, a judicial question. The legislative may, it is true, in
effect declare certain uses to be public, and, under the operation of the well-known rule that a
statute will not be declared to be unconstitutional except in a case free, or comparatively free,
from doubt, the courts will certainly sustain the action of the legislature unless it appears that the
particular use is clearly not of a public nature. The decisions must be understood with this
limitation; for, certainly, no court of last resort will be willing to declare that any and every
purpose which the legislative might happen to designate as a public use shall be conclusively
held to be so, irrespective of the purpose in question and of its manifestly private character
Blackstone in his Commentaries on the English Law remarks that, so great is the regard of the
law for private property that it will not authorize the least violation of it, even for the public
good, unless there exists a very great necessity therefor.

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

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

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

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

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

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

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

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

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

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

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

Aside from insisting that there exists no necessity for the alleged improvements, the defendants
further contend that the street in question should not be opened through the cemetery. One of the
defendants alleges that said cemetery is public property. If that allegations is true, then, of
course, the city of Manila cannot appropriate it for public use. The city of Manila can only
expropriate private property.
It is a well known fact that cemeteries may be public or private. The former is a cemetery used
by the general community, or neighborhood, or church, while the latter is used only by a family,
or a small portion of the community or neighborhood. (11 C. J., 50.)

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

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

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

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

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

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

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

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

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

Arellano, C.J., Torres, Araullo and Avanceña, JJ., concur.

Separate Opinions

MALCOLM, J., concurring:

The Government of the Philippine Islands is authorized by the Philippine Bill to acquire real
estate for public use by the exercise of the right of eminent domain. (Act of Congress of July 1,
1902, sec. 63.) A portion of this power has been delegated by the Philippine Legislature to the
city of Manila, which is permitted to "condemn private property for public use." (Administrative
Code of 1917, sec. 2429.) The Code of Civil Procedure, in prescribing how the right of eminent
domain may be exercised, also limits the condemnation to "private property for public use." (Sec.
241.) As under the facts actually presented, there can be no question that a public street
constitutes a public use, the only remaining question is whether or not the Chinese Cemetery and
the other property here sought to be taken by the exercise of the right of eminent domain is
"private property."

As narrowing our inquiry still further, let it be noted that cemeteries are of two classes, public
and private. A public cemetery is one used by the general community, or neighborhood, or
church; while a private cemetery is one used only by a family, or small portion of a community.
(Lay vs. State, 12 Ind. App., 362; Cemetery Association vs. Meninger [1875], 14 Kan., 312.) Our
specific question, then, is, whether the Chinese Cemetery in the city of Manila is a public, or a
private graveyard. If it be found to be the former, it is not subject to condemnation by the city of
Manila; if it be found to be the latter, it is subject to condemnation.

The Chinese Cemetery of Manila was established during the Spanish administration in the
Philippines by public spirited Chinese. The order of the Governor-General giving governmental
recognition to the cemetery reads as follows: "The cemetery and general hospital for indigent
Chinese having been founded and maintained by the spontaneous and fraternal contribution of
their protectors, merchants and industrials, benefactors of mankind, in consideration of their
services to the Government of the Islands, its internal administration, government and regime,
must necessarily be adjusted to the taste and traditional practices of those born and educated in
China in order that the sentiments which animated the founders may be perpetually effectuated."
Sometimes after the inauguration of the new regime in the Philippines, a corporation was
organized to control the cemetery, and a Torrens title for the lands in question was obtained.

From the time of its creation until the present the cemetery has been used by the Chinese
community for the burial of their dead. It is said that not less than four hundred graves, many of
them with handsome monuments, would be destroyed by the proposed street. This desecration is
attempted as to the las t resting places of the dead of a people who, because of their peculiar and
ingrained ancestral workship, retain more than the usual reverence for the departed. These facts
lead us straight to the conclusion that the Chinese Cemetery is not used by a family or a small
portion of a community but by a particular race long existing in the country and of considerable
numbers. The case, then, is one of where the city of Manila, under a general authority permitting
it to condemn private property for public use, is attempting to convert a property already
dedicated to a public use to an entirely different public use; and this, not directly pursuant to
legislative authority, but primarily through the sole advice of the consulting architect.

Two well considered decisions coming from the American state courts on almost identical facts
are worthy of our consideration. The first is the case of The Evergreen Cemetery Association vs.
The City of New Haven ([1875], 43 Conn., 234), of cited by other courts. Here the City of New
Haven, Connecticut, under the general power conferred upon it to lay out, construct, and
maintain all necessary highways within its limits, proceeded to widen and straighten one of its
streets and in so doing took a small piece of land belonging to the Evergreen Cemetery
Association. This association was incorporated under the general statute. The city had no special
power to take any part of the cemetery for such purposes. It was found that the land taken was
needed for the purposes of the cemetery and was not needed for the purpose of widening and
straightening the avenue. The court said that it is unquestionable that the Legislature has the
power to authorize the taking of land already applied to one public use and devote it to another.
When the power is granted to municipal or private corporations in express words, no question
can arise. But, it was added, "The same land cannot properly be used for burial lots and for a
public highway at the same time. . . . Land therefore applied to one use should not be taken for
the other except in cases on necessity. . . . There is no difficulty in effecting the desired
improvement by taking land on the other side of the street. . . . The idea of running a public
street, regardless of graves, monuments, and the feelings of the living, through one of our public
cemeteries, would be shocking to the moral sense of the community, and would not be tolerated
except upon the direst necessity." It was then held that land already devoted to a public use
cannot be taken by the public for another use which is inconsistent with the first, without special
authority from the Legislature, or authority granted by necessary and reasonable implication.

The second decision is that of Memphis State Line Railroad Company vs. Forest Hill Cemetery
Co. ([1906], 116 Tenn., 400.) Here the purpose of the proceedings was to condemn a right of
way for the railway company through the Forest Hill Cemetery. The railroad proposed to run
through the southeast corner of the cemetery where no bodies were interred. The cemetery had
been in use for about eight years, and during this period thirteen hundred bodies had been buried
therein. The cemetery was under the control of a corporation which, by its character, held itself
out as being willing to sell lots to any one who applies therefor and pays the price demanded,
except to members of the Negro race.1awph!l.net

It was found that there were two other routes along which the railroad might be located without
touching the cemetery, while the present line might be pursued without interfering with Forest
Hill Cemetery by making a curve around it. In the court below the railroad was granted the right
of condemnation through the cemetery and damages were assessed. On appeal, the certiorari
applied for was granted, and the supersedeas awarded. The court, in effect, found that the land of
the Cemetery Company was devoted to a public purpose, and that under the general language of
the Tennessee statute of eminent domain it could not be taken for another public purpose. The
court said that in process of time the sepulchres of the dead "are made the seats of cities, and are
traversed by streets, and daily trodden by the feet of man. This is inevitable in the course of ages.
But while these places are yet within the memory and under the active care of the living, while
they are still devoted to pious uses, they are sacred, and we cannot suppose that the legislature
intended that they should be violated, in the absence of special provisions upon the subject
authorizing such invasion, and indicating a method for the disinterment, removal, and
reinterment of the bodies buried, and directing how the expense thereof shall be borne." Two
members of the court, delivering a separate concurring opinion, concluded with this significant
and eloquent sentence: "The wheels of commerce must stop at the grave."

For the foregoing reasons, and for others which are stated in the principal decision, I am of the
opinion that the judgment of the lower court should be affirmed.

STREET, J., dissenting:

It may be admitted that, upon the evidence before us, the projected condemnation of the Chinese
Cemetery is unnecessary and perhaps ill-considered. Nevertheless I concur with Justice Moir in
the view that the authorities of the city of Manila are the proper judges of the propriety of the
condemnation and that this Court should have nothing to do with the question of the necessity of
the taking.

MOIR, J., dissenting:

I dissent from the majority opinion in this case, which has not yet been written, and because of
the importance of the question involved, present my dissent for the record.

This is an action by the city of Manila for the expropriation of land for an extension of Rizal
Avenue north. The petition for condemnation was opposed by the "Comunidad de Chinos de
Manila" and Ildefonso Tambunting and various other who obtained permission of the trial court
to intervene in the case.
All of the defendants allege in their opposition that the proposed extension of Rizal Avenue cuts
through a part of the Chinese Cemetery, North of Manila, and necessitates the destruction of
many monuments and the removal of many graves.

The Court of First Instance of Manila, Honorable S. del Rosario, judge after hearing the parties,
decided that there was no need for constructing the street as and where proposed by the city, and
dismissed the petition.

The plaintiff appealed and sets up the following errors:

1. The court erred in deciding that the determination of the necessity and convenience of
the expropriation of the lands of the defendants lies with the court and not with the
Municipal Board of the city of Manila.

2. The court erred in permitting the presentation of proofs over the objection and
exception of the plaintiff tending to demonstrate the lack of necessity of the projected
street and the need of the lands in question.

3. The court erred in declaring that the plaintiff had no right to expropriate the lands in
question.

4. The court erred in dismissing the complaint.

The right of the plaintiff to expropriate property for public use cannot be denied. The "right of
eminent domain is inherent in all sovereignties and therefore would exist without any
constitutional recognition . . . . The right of eminent domain antedates constitutions . . . . The
right can only be denied or restricted by fundamental law and is right inherent in society." (15
Cyc., pp. 557-8.) .

This general right was recognized in the Philippine Code of Civil Procedure effective October
1st, 1901, which prescribed the manner of exercising the right. (Sections 241 et seq.)

It was further recognized in the Organic Act of July 1st, 1902, which provides in section 74 "that
the Government of the Philippine Islands may grant franchises . . . including the authority to
exercise the right of eminent domain for the construction and operation of works of public utility
and service, and may authorize said works to be constructed and maintained over and across the
public property of the United States including . . . reservations." This provisions is repeated in
the Jones Law of August, 1916.

The legislature of the Islands conferred the right on the city of Manila. (Section 2429,
Administrative Code of 1917; section 2402, Administrative Code of 1916.)

Clearly having the right of expropriation, the city of Manila selected the line of its street and
asked the court by proper order to place the plaintiff in possession of the land described in the
complaint, and to appoint Commissioners to inspect the property, appraise the value, and assess
the damages. Instead of doing so, the court entered upon the question of the right of the city to
take the property and the necessity for the taking.

The court says:

The controversy relates to whether or not the Chinese Cemetery, where a great majority
of this race is buried and other persons belonging to other nationalities have been
formerly inhumed, is private or public; whether or not said cemetery, in case it is public,
would be susceptible to expropriation for the purpose of public improvements proposed
by the city of Manila; whether or not the latter is justified of the necessity and expediency
of similar expropriation before its right to the same would be upheld by the courts of
justice; and whether or not the appreciation of said necessity pertains to the legislative or
the judicial department before which the expropriation proceedings have been brought.

Relative to the first point, it is not necessary for the court to pass upon its consideration,
in view of the conclusion it has arrived at the appreciation of the other points connected
with each other.

From the testimony of two reputable engineers produced by some of the defendants, it
appears that the land chosen by the plaintiff for the extension of Rizal Avenue to the
municipality of Caloocan is not the best or the less expensive, although upon it there may
be constructed a straight road, without curves or winding; but that in order to construct
said road upon said land, the city of Manila would have to remove and transfer to other
places about four hundred graves and monuments, make some grubbings, undergo some
leveling and build some bridges — the works thereon, together with the construction of
the road and the value of the lands expropriated, would mean an expenditure which will
not be less than P180,000.

Beside that considerable amount, the road would have a declivity of 3 per cent which, in
order to cover a distance of one kilometer, would require an energy equivalent to that
which would be expanded in covering a distance of two and one-half kilometers upon a
level road.

On the other hand, if the road would be constructed with the deviation proposed by
Ildefonso Tambunting, one of the defendants, who even offered to donate gratuitously to
the city of Manila part of the land upon which said road will have to be constructed, the
plaintiff entity would be able to save more than hundreds of thousand of pesos, which can
be invested in other improvements of greater pressure and necessity for the benefit of the
taxpayers; and it will not have to employ more time and incur greater expenditures in the
removal and transfer of the remains buried in the land of the Chinese Community and of
Sr. Tambunting, although with the insignificant disadvantage that the road would be little
longer by a still more insignificant extension of 426 meters and 55 centimeters less than
one-half kilometer, according to the plan included in the records; but it would offer a
better panorama to those who would use it, and who would not have to traverse in their
necessary or pleasure-making trips or walks any cemetery which, on account of its
nature, always deserves the respect of the travellers. It should be observed that the
 proposed straight road over the cemetery, which the city of Manila is proposing to
expropriate, does not lead to any commercial, industrial, or agricultural center, and if
with said road it is endeavored to benefit some community or created interest, the same
object may be obtained by the proposed deviation of the road by the defendants. The road
traced by the plaintiffs has the disadvantage that the lands on both sides thereof would
not serve for residential purposes, for the reason that no one has the pleasure to construct
buildings upon cemeteries, unless it be in very overcrowded cities, so exhausted of land
that every inch thereof represents a dwelling house.

And it is against the ruling, that it lies with the court to determine the necessity of the proposed
street and not with the municipal board, that the appellant directs its first assignment of error.

It is a right of the city government to determine whether or not it will construct streets and
where, and the court's sole duty was to see that the value of the property was paid the owners
after proper legal proceedings ascertaining the value.

The law gives the city the right to take private property for public use. It is assumed it is
unnecessary to argue that a public road is a public use.

But it is argued that plaintiff must show that it is necessary to take this land for a public
improvement. The law does not so read, and it is believed that the great weight of authority,
including the United States Supreme Court, is against the contention.

The question of necessity is distinct from the question of public use, and former question
is exclusively for the legislature, except that if the constitution or statute authorizes the
taking of property only in cases of necessity, then the necessity becomes a judicial
question. (McQuillen Municipal Corporations, Vol. IV, pp. 3090-3091.)

In the absence of some constitutional or statutory provision to the contrary, the necessity
and expediency of exercising the right of eminent domain are questions essentially
political and not judicial in their character. The determination of those questions belongs
to the sovereign power; the legislative determination is final and conclusive, and the
courts have no power to review it. It rests with the legislature not only to determine when
the power of eminent domain may be exercised, but also the character, quality, method,
and extent of such exercise. And this power is unqualified, other than by the necessity of
providing that compensation shall be made. Nevertheless, under the express provisions of
the constitution of some states the question of necessity is made a judicial one, to be
determined by the courts and not by the legislature.

While the legislature may itself exercise the right of determining the necessity for the
exercise of the power of eminent domain, it may, unless prohibited by the constitution,
delegate this power to public officers or to private corporations established to carry on
enterprises in which the public are interested, and their determination that a necessity for
the exercise of the power exists is conclusive. There is no restraint upon the power except
that requiring compensation to be made. And when the power has been so delegated it is
a subject of legislative discretion to determine what prudential regulations shall be
 established to secure a discreet and judicious exercise of the authority. It has been held
that in the absence of any statutory provision submitting the matter to a court or jury the
decision of the question of necessity lies with the body of individuals to whom the state
has delegated the authority to take, and the legislature may be express provision confer
this power on a corporation to whom the power of eminent domain is delegated unless
prohibited by the constitution. It is of course competent for the legislature to declare that
the question shall be a judicial one, in which case the court and not the corporation
determines the question of necessity. (15 Cyc., pp. 629-632.)

To the same effect is Lewis on Eminen Domain (3d Edition, section 597).

I quote from the notes to Vol. 5, Encyclopedia of United States Supreme Court Reports, p. 762,
as follows:

Neither can it be said that there is any fundamental right secured by the constitution of
the United States to have the questions of compensation and necessity both passed upon
by one and the same jury. In many states the question of necessity is never submitted to
the jury which passes upon the question of compensation. It is either settled affirmatively
by the legislature, or left to the judgment of the corporation invested with the right to take
property by condemnation. The question of necessity is not one of a judicial character,
but rather one for determination by the lawmaking branch of the government. (Boom Co.
vs. Patterson, 98 U.S., 403, 406 [25 L. ed., 206]; United States vs. Jones, 109 U.S., 513
[27 L. ed., 1015]; Backus vs. Fort Street Union Depot Co., 169 U.S., 557, 568 [42 L. ed.,
853].)

Speaking generally, it is for the state primarily and exclusively, to declare for what local
public purposes private property, within its limits may be taken upon compensation to the
owner, as well as to prescribe a mode in which it may be condemned and taken.
(Madisonville Tract. Co. vs. St. Bernard Min. Co., 196 U.S., 239, 252 [49 L. ed., 462].)

Courts have no power to control the legislative authority in the exercise of their right to
determine when it is necessary or expedient to condemn a specific piece of property for
public purposes. (Adirondack R. Co. vs. New York States, 176 U.S., 335 [44 L. ed.,
492].)

10 R. C. L. (p. 183), states the law as follows:

158. Necessity for taking ordinarily not judicial question. — The legislature, in providing
for the exercise the power of eminent domain, may directly determine the necessity for
appropriating private property for a particular improvement or public use, and it may
select the exact location of the improvement. In such a case, it is well settled that the
utility of the proposed improvement, the extent of the public necessity for its
construction, the expediency of constructing it, the suitableness of the location selected
and the consequent necessity of taking the land selected for its site, are all questions
exclusively for the legislature to determine, and the courts have no power to interfere, or
to substitute their own views for these of the representatives of the people. Similarly,
 when the legislature has delegated the power of eminent domain to municipal or public
service corporation or other tribunals or bodies, and has given them discretion as to when
the power is to be called into exercise and to what extent, the court will not inquire into
the necessity or propriety of the taking.

The United States Supreme Court recently said:

The uses to which this land are to be put are undeniably public uses. When that is the
case the propriety or expediency of the appropriation cannot be called in question by any
other authority. (Cinnati vs. S. & N. R. R. Co., 223 U.S., 390, quoting U.S. vs. Jones, 109,
U.S., 519.)

And in Sears vs. City of Akron (246 U.S., 242), decided March 4th, 1918, it said:

Plaintiff contends that the ordinance is void because the general statute which authorized
the appropriation violates both Article 1, paragraph 10, of the Federal Constitution, and
the Fourteenth Amendment, in that it authorizes the municipality to determine the
necessity for the taking of private property without the owners having an opportunity to
be hear as to such necessity; that in fact no necessity existed for any taking which would
interfere with the company's project; since the city might have taken water from the Little
Cuyahoga or the Tuscarawas rivers; and furthermore, that it has taken ten times as much
water as it can legitimately use. It is well settled that while the question whether the
purpose of a taking is a public one is judicial (Hairston vs. Danville & W. R. Co., 208
U.S. 598 [52 L. ed., 637; 28 Sup. Ct. Rep., 331; 13 Ann. Cas., 1008]), the necessity and
the proper extent of a taking is a legislative question. (Shoemaker vs. United States, 147
U.S., 282, 298 [57 L. ed., 170, 184; 13 Supt. Ct. Rep., 361]; United States vs. Gettysburg
Electric R. Co., 160 U.S. 668, 685 [40 L. ed., 576, 582; 16 Sup. Ct. Rep., 427]; United
States vs. Chandler-Dunbar Water Power Co., 229 U.S., 53, 65 [57 L. ed., 1063, 1076; 33
Sup. Ct. Rep., 667].)

I think the case should be decided in accordance with foregoing citations, but one other point has
been argued so extensively that it ought to be considered.

It is contended for the defense that this Chinese Cemetery is a public cemetery and that it cannot
therefore be taken for public use. In its answer the "Comunidad de Chinos de Manila" says it is
"a corporation organized and existing under and by virtue of the laws of the Philippine Islands,"
and that it owns the land which plaintiff seeks to acquire. The facts that it is private corporation
owning land would seem of necessity to make the land it owns private land. The fact that it
belongs to the Chinese community deprives it of any public character.

But admitting that it is a public cemetery, although limited in its use to the Chinese Community
of the city of Manila, can it not be taken for public use? Must we let the reverence we feel for the
dead and the sanctity of their final resting-place obstruct the progress of the living? It will be
instructive to inquire what other jurisdictions have held on that point.
On the Application of Board of Street Openings of New York City to acquire St. Johns Cemetery
(133 N.Y., 329) the court of appeal said:

. . . The board instituted this proceeding under the act to acquire for park purposes the
title to land below One Hundred and Fifty-fifth street known as St. John's cemetery which
belonged to a religious corporation in the city of New York, commonly called Trinity
Church. It was established as a cemetery as early as 1801, and used for that purpose until
1839, during which time about ten thousand human bodies had been buried therein. In
1839 an ordinance was passed by the city of New York forbidding interments south of
Eighty-sixth street, and since that time no interments have been made in the cemetery, but
Trinity Church has preserved and kept it in order and prevented any disturbance thereof.

It is contended on behalf of Trinity Church that under the general authority given by
statute of 1887, this land which had been devoted to cemetery purposes could not be
taken for a park. The authority conferred upon the board by the act is broad and general.
It is authorized to take for park purposes any land south of One Hundred and Fifty-fifth
street. . . . .

The fact that lands have previously been devoted to cemetery purposes does not place
them beyond the reach of the power of eminent domain. That is an absolute transcendent
power belonging to the sovereign which can be exercised for the public welfare whenever
the sovereign authority shall determine that a necessity for its exercise exists. By its
existence the homes and the dwellings of the living, and the resting-places of the dead
may be alike condemned.

It seems always to have been recognized in the laws of this state, that under the general
laws streets and highways could be laid out through cemeteries, in the absence of special
limitation or prohibition. . . .

In Re Opening of Twenty-second Street (102 Penn. State Reports, 108) the Supreme Court of the
State said:

This was an action for the opening of a street through a cemetery in the City of
Philadelphia. It was contended for the United American Mechanics and United Daughters
of America Cemetery Association that by an act of the legislature of the State approved
March 20th, 1849, they were forever exempt from the taking of any their property for
streets, roads or alleys and this Act was formally accepted by the Cemetery Company on
April 9th, 1849, and there was, therefore, a contract between the Cemetery Company and
the State of Pennsylvania, which would be violated by the taking of any part of their
property for street purposes. It was further contended that there were 11,000 persons
buried in the cemetery.

The court held that property and contracts of all kinds must yield to the demand of the
sovereign and that under the power of eminent domain all properties could be taken, and
that if there was a contract between the State of Pennsylvania and the Cemetery
 Association, the contract itself could be taken for public use, and ordered the opening of
the street through the cemetery.

In Vol. 5, Encyclopedia of United States Supreme Court Reports (p. 759), it is said:

Although it has been held, that where a state has delegated the power of eminent domain
to a person or corporation and where by its exercise lands have been subject to a public
use, they cannot be applied to another public use without specific authority expressed or
implied to that effect, yet, the general rule seems to be that the fact that property is
already devoted to a public use, does not exempt it from being appropriated under the
right of eminent domain but it may be so taken for a use which is clearly superior or
paramount to the one to which it is already devoted. (Citing many United States Supreme
Court decisions.)

A few cases have been cited where the courts refused to allow the opening of streets through
cemeteries, but in my opinion they are not as well considered as the cases and authorities relied
upon herein.

The holding of this court in this case reverses well settled principles of law of long standing and
almost universal acceptance.

The other assignments of error need not be considered as they are involved in the foregoing.

The decision should be reversed and the record returned to the Court of First Instance with
instructions to proceed with the case in accordance with this decision.

SECOND DIVISION

G.R. No. 191945 March 11, 2015

NATIONAL CORPORATION, Petitioner,

vs.
SOCORRO T. POSADA, RENATO BUENO, ALICE BALIN, ADRIAN TABLIZO,
TEOFILO TABLIZO, and LYDIA T. OLIVO, substituted by her heirs, ALFREDO M.
OLIVO, ALICIA O. SALAZAR, ANITA O. ORDONO, ANGELITA O. LIM, AND
ADELFA O. ESPINAS, Respondents.

DECISION

LEONEN, J.:

When the taking of private property is no longer for a public purpose, the expropriation
complaint should be dismOOOissed by the trial court. The case will proceed only if the trial
court's order of expropriation became final and executory and the expropriation causes prejudice
to the property owner.
Before this court is a Motion1 filed by the National Power Corporation seeking to withdraw its
Petition for Review2 dated June 4, 2010. The Petition sought to reverse the Decision3 of the
Court of Appeals dated August 7, 2009, which affirmed the trial court’s Decision recalling the
Writ of Possession issued in the National Power Corporation’s favor.

The National Power Corporation instituted expropriation proceedings for the acquisition of a
right-of-way easement over parcels of land located in Barangay Marinawa, Bato,Catanduanes
owned by respondents Socorro T. Posada, Renato Bueno, Alice Balin, Adrian Tablizo, Teofilo
Tablizo, and Lydia Tablizo.4 The expropriation was for the construction and maintenance of its
Substation Island Grid Project.5 The case was docketed as Civil Case No. 0008.6 The National
Power Corporation offered the price of ₱500.00 per square meter. In their Answer, respondents
objected to the offer and alleged that the value of the properties was ₱2,000.00 per square
meter.7

In the Order dated December 16, 2002, Branch 438 of the Regional Trial Court of Virac,
Catanduanes confirmed the National Power Corporation’s right to expropriate the properties and
ordered the creation of a commission to determine the amount of just compensation to be paid to
respondents.9

On January 28, 2003, the National Power Corporation filed a Notice to Take Possession before
the court on the basis of Rule 67, Section 210 of the Rules of Court. It alleged that it was entitled
to a Writ of Possession in view of its deposit with the Land Bank of the Philippines in the
amount of ₱3,280.00, alleging that it represented the provisional value of the properties.11

On July 10, 2003, the court-appointed commissioners recommended a fair market value of
₱1,500.00 per square meter based on the following considerations:

a. The location of the subject parcels of land, which is along the highway, within a fast-
growing community, ideal both for residential and business purposes, about 3 1/2
kilometers from the capital town of Virac, a stones-throw from the seashore of Cabugao
Bay and not too distant from "Maribina Falls", a tourist attraction;

b. The prevailing market value of the properties along the national highway ranges from
₱1,500.00 to ₱2, 000.00 per square meter as per interview with the residents of the place;

c. Structures and improvements consisting of the residential houses of [respondents] and

others can be found on the property, hence if the expropriation proceeds, [respondents]
would be constrained to leave their homes to relocate.12

The National Power Corporation opposed the recommendation of the commissioners, arguing
that:

a. the opinion given by the persons who live in the area should not be given weight
because they are not experts in real estate appraisal;
 b. the value of the land at the time of taking and not its potential as a building site is the
criteria for determination of just compensation[;]

c. The Provincial Appraisal Committee valued the lot at ₱500.00 per square meter;

d. The approved zonal values of real properties in Catanduanes classified as Residential

Regular (RR) is ₱105.00;

e. The Schedule of Fair Market Values prescribed ₱160.00 for all lots along the national
road from Marinawa Bridge to FICELCO;

f. Only an easement of right-of-way shall be acquired over the properties of the other
defendants which remain classified as cocoland and as provided in [Republic Act No.]
6395 (NPC Charter), shall not exceed 10% of the market value declared by the owner or
administrator or anyone having legal interest in the property, or as determined by the
assessor, whichever is lower.13 On November 19, 2003, the National Power Corporation
amended its Complaint stating that it needed to acquire portions of the properties, instead
of just an easement of right of way, for the construction of the Substation Island Grid
Project. For this reason, it deposited with Land Bank of the Philippines the amount of
₱580,769.93, alleging that this represented the value of the 3,954 square meters sought to
be expropriated.14

The National Power Corporation filed an Urgent Ex Parte Motion for the Issuance of a Writ of
Possession.15 It also served respondents with a Notice to Take Possession stating that "it shall
enter and take possession of the property on September 26, 2005."16

In the Order dated July 14, 2005, the trial court granted the Urgent Ex Parte Motion for the
Issuance of a Writ of Possession and issued a Writ of Possession.17

Respondents filed a Motion to Lift and/or Suspend the Issuance of the Writ of Possession, which
the trial court denied.18

Undaunted, respondents filed an Urgent Motion to Grant Defendants Time to Remove their
Houses and Improvements as well as Additional Deposit for Use in Land Acquisition and
Expenses for Transfer of their Respective Residential Houses.19

The trial court granted respondents’ Motion in its Order dated June 5, 2006. It fixed the value of
the structures and improvements on the land in the amount of ₱827,000.00, based on the value
determined by the commissioners. It ordered the National Power Corporation to deposit an
additional amount of ₱262,639.17.20 The trial court stated that this amount was the difference
between value of structures and improvements determined by the trial court (₱827,000.00) and
the amount initially deposited by the National Power Corporation (₱564,360.83).21

The National Power Corporation failed to deposit the additional amount. The trial court issued an
Order during the November 22, 2006 hearing for the National Power Corporation to make the
necessary deposit. The issue on the amount of just compensation was also submitted for
decision.22

On November 27, 2006, the trial court resolved the issue of just compensation as follows:

WHEREFORE, all factors carefully evaluated and considered, this Court, hereby, fixes the just
compensation at TWO THOUSAND PESOS (₱2,000.00) per square meter for the taking of the
properties of [respondents] by [petitioner].

LIKEWISE, in view of NPC’s failure to comply with the Court’s order dated June 5, 2006 and
for misleading this Court when it filed its Motion for the Issuance of Writ of Possession, this
Court, hereby, RECALLS its order granting said Motion and CANCELS the Writ of Possession.
AND, AS A FINAL NOTE, the amount determined by the Court in said Order represents only
the value of the structures and improvements and does not include the value of the land. Even if
said amount is fully paid by NPC, still it would not be entitled to a Writ of Possession until it has
paid the value of the land. And what should be its value? Is it the zonal valuation of the Bureau
of Internal Revenue? Under Section 4 of Rep. [A]ct. No. 8974, payment of one hundred
[percent] (100%) of the value of the property based on the current relevant zonal valuation of the
Bureau of Internal Revenue is required upon the filing of the complaint, and after due notice to
the defendant. This Court believes that this basis is used because the just compensation is yet to
be determined during the second stage of the expropriation proceeding. In the instant case, the
complaint has long been filed, and the just compensation has already been determined above.
Therefore, it should now be the basis for the re-issuance of a Writ of Possession – nay, even the
transfer of ownership if fully paid.

SO ORDERED.23 (Emphasis supplied)

The National Power Corporation appealed the trial court’s Decision to the Court of Appeals.24
On August 7, 2009,25 the Court of Appeals rendered a Decision denying the appeal.26 It held
that the trial court committed no reversible error "in adopting the recommendation of the
appointed commissioners insofar as the value of the subject property is concerned."27

The Court of Appeals also held that "the writ of possession was correctly recalled by the lower
court."28 Citing Republic v. Judge Gingoyon,29 it held that the National Power Corporation
must first pay respondents the amount determined by the trial court.30 In the absence of proof
that respondents were paid, the National Power Corporation cannot take possession of the
property.31

The National Power Corporation filed a Motion for Reconsideration, but this was denied in the
Resolution32 dated April 14, 2010. Hence, it filed a Petition for Review on Certiorari before this
court.

Respondents filed their Comment33 on September 17, 2010. The National Power Corporation
filed its Reply34 to the Comment, substantially reiterating the arguments in its Petition.
During the pendency of the case before this court, the National Power Corporation filed an
Urgent Motion for the Issuance of a Temporary Restraining Order35 dated December 13, 2012,
which was received by this court on January 7, 2013. Respondents, in turn, filed their Comments
and Opposition to the Urgent Motion for Issuance of a Temporary Restraining Order.36

On March 11, 2013, this court issued a Resolution37 deferring action on the Motion for the
Issuance of a Temporary Restraining Order.

On May 17, 2013, the National Power Corporation filed a Very Urgent Motion to Resolve38
stating that "the delay in the possession of the subject properties – intended for the Marinawa 10
MVA Sub-Station Project – would adversely affect the implementation of the Codon-Virac
Transmission Lines[.]"39

In a turn of events, the National Power Corporation informed its counsel on July 24, 2014 that it
no longer needed the properties as it was set to acquire an alternative site.40 It also requested its
counsel to withdraw Civil Case No. 0008 before the trial court because "it [was] impractical to
pursue the acquisition of the original site[.]"41

Thus, the National Power Corporation, through counsel, filed the present Motion to Withdraw
Appeal,42 praying for the withdrawal of its appeal before this court and, ultimately, for its
Amended Complaint before the trial court to be dismissed.43

We are asked to decide whether the National Power Corporation may be allowed to withdraw its
Petition for Review and whether the withdrawal has the effect of dismissing its Amended
Complaint before the trial court.

We grant the Motion to Withdraw the Petition for Review.

Expropriation proceedings for national infrastructure projects are governed by Rule 67 of the
Rules of Court and Republic Act No. 8974.44

The power of eminent domain is an inherent competence of the state. It is essential to a

sovereign. Thus, the Constitution does not explicitly define this power but subjects it to a
limitation: that it be exercised only for public use and with payment of just compensation.45
Whether the use is public or whether the compensation is constitutionally just will be determined
finally by the courts.

However, the manner of its exercise such as which government instrumentality can be delegated
with the power to condemn, under what conditions, and how may be limited by law. Republic
Act No. 8974 does these, but it should not be read as superseding the power of this court to
promulgate rules of procedure. Thus, our existing rules should be read in conjunction with the
law that limits and conditions the power of eminent domain.
Expropriation, the procedure by which the government takes possession of private property, is
outlined primarily in Rule 67 of the Rules of Court. It undergoes two phases. The first phase
determines the propriety of the action. The second phase determines the compensation to be paid
to the landowner. Thus:

There are two (2) stages in every action for expropriation. The first is concerned with the
determination of the authority of the plaintiff to exercise the power of eminent domain and the
propriety of its exercise in the context of the facts involved in the suit. It ends with an order, if
not of dismissal of the action, "of condemnation declaring that the plaintiff has a lawful right to
take the property sought to be condemned, for the public use or purpose described in the
complaint, upon the payment of just compensation to be determined as of the date of the filing of
the complaint." An order of dismissal, if this be ordained, would be a final one, of course, since it
finally disposes of the action and leaves nothing more to be done by the Court on the merits. So,
too, would an order of condemnation be a final one, for thereafter, as the Rules expressly state, in
the proceedings before the Trial Court, "no objection to the exercise of the right of condemnation
(or the propriety thereof) shall be filed or heard.["]

The second phase of the eminent domain action is concerned with the determination by the Court
of "the just compensation for the property sought to be taken." This is done by the Court with the
assistance of not more than three (3) commissioners. The order fixing the just compensation on
the basis of the evidence before, and findings of, the commissioners would be final, too. It would
finally dispose of the second stage of the suit, and leave nothing more to be done by the Court
regarding the issue. Obviously, one or another of the parties may believe the order to be
erroneous in its appreciation of the evidence or findings of fact or otherwise. Obviously, too,
such a dissatisfied party may seek a reversal of the order by taking an appeal therefrom.46
(Emphasis supplied, citations omitted)

The first phase of expropriation commences with the filing of the complaint. It ends with the
order of the trial court to proceed with the expropriation and determination of just compensation.
During the pendency of the complaint before the trial court, the state may already enter and
possess the property subject to the guidelines in Rule 67 of the Rules of Court.

Rule 67 of the Rules of Court, however, is not the only set of rules that governs the first phase of
expropriation. On November 7, 2000, Congress enacted Republic Act No. 8974 to govern the
expropriation of private property for national government infrastructure projects. The law
qualifies the manner by which the government may enter and take possession of the property to
be expropriated.

Rule 67, Section 2 of the Rules of Court states:

Sec. 2. Entry of plaintiff upon depositing value with authorized government depositary. — Upon
the filing of the complaint or at any time thereafter and after due notice to the defendant, the
plaintiff shall have the right to take or enter upon the possession of the real property involved if
he deposits with the authorized government depositary an amount equivalent to the assessed
value of the property for purposes of taxation to be held by such bank subject to the orders of the
court. Such deposit shall be in money, unless in lieu thereof the court authorizes the deposit of a
certificate of deposit of a government bank of the Republic of the Philippines payable on demand
to the authorized government depositary. (Emphasis supplied)

Section 4 of Republic Act No. 8974,on the other hand, mandates: Section 4. Guidelines for
Expropriation Proceedings.- Whenever it is necessary to acquire real property for the right-of-
way or location for any national government infrastructure project through expropriation, the
appropriate implementing agency shall initiate the expropriation proceedings before the proper
court under the following guidelines:

(a) Upon the filing of the complaint, and after due notice to the defendant, the implementing
agency shall immediately pay the owner of the property the amount equivalent to the sum of (1)
one hundred percent (100%) of the value of the property based on the current relevant zonal
valuation of the Bureau of Internal Revenue (BIR); and (2) the value of the improvements and/or
structures as determined under Section 7 hereof;

....

Upon compliance with the guidelines abovementioned, the court shall immediately issue to the
implementing agency an order to take possession of the property and start the implementation of
the project. (Emphasis supplied)

As stated in Gingoyon, Republic Act No. 8974 "provides for a procedure eminently more
favorable to the property owner than Rule 67"47 since it requires the immediate payment of the
zonal value and the value of the improvements on the land to the property owner before the trial
court can allow the government to take possession. In contrast, Rule 67 only requires the
government to deposit the assessed value of the property for it to enter and take possession.

In its Petition, the National Power Corporation argues that the amount of just compensation at
₱2,000.00 per square meter is excessive since the zonal valuation of the Bureau of Internal
Revenue classifies the property as cocoland48 pegged at 4.15 per square meter, and the
commissioners merely "engaged in speculation and guess-work"49 when they arrived at the
amount.50

The National Power Corporation argues that the Writ of Possession should not have been
recalled because it already deposited ₱580,769.93, the provisional amount required by Republic
Act No. 8974. It argues that the amount ordered by the trial court to be paid to respondents was
the amount of just compensation, which should have been distinguished from the provisional
amount required for the issuance of a Writ of Possession. The deposit of the provisional amount
was sufficient to be granted a Writ of Possession and to take possession of the property.51

In their Comment, respondents argue that the Court of Appeals did not err in sustaining the
amount of just compensation determined by the trial court since the value was based on location,
costs of improvements, prevailing market values of the properties similarly located, and opinions
of the residents in the area.52
Respondents also argue that the Court of Appeals correctly upheld the trial court’s recall of the
Writ of Possession because there was no showing that any payment was made to respondents, as
required by Gingoyon.53

The purpose for the taking of private property was for the construction of the National Power
Corporation’s Substation Island Grid Project. According to the Implementing Rules and
Regulations of Republic Act No. 8974, projects related to "power generation, transmission and
distribution"54 are national infrastructure projects covered by the law. The National Power
Corporation must first comply with the guidelines stated in Republic Act No. 8974 before it can
take possession of respondents’ property.

The trial court allowed the National Power Corporation to take possession of the properties
because of its deposit with Land Bank of the Philippines of the alleged provisional value.
However, the trial court recalled the Writ of Possession because the National Power Corporation
failed to deposit the additional amount.

We find that the trial court erred, not in recalling the Writ of Possession, but in granting the Writ
of Possession in the first place.

Section 4 of Republic Act No. 8974, unlike Rule 67, Section 2 of the Rules of Civil Procedure,
requires immediate payment to the landowner of 100% of the value of the property based on the
current relevant zonal valuation of the Bureau of Internal Revenue. It is the Bureau of Internal
Revenue, not the court, which determines the zonal value.

The law also requires the immediate payment of the value of the improvements and/or structures
on the land before the trial court can issue the Writ of Possession.

Thus, the trial court committed two errors. First, it based the value of the improvements on the
property on the determination made by the commissioners, and not on the determination made by
the National Power Corporation, contrary to the requirements of Section 7 of Republic Act No.
8974:

Section 7. Valuation of Improvements and/or Structures.- The Department of Public Works and
Highways and other implementing agencies concerned, in coordination with the local
government units concerned in the acquisition of right-of-way, site or location for any national
government infrastructure project, are hereby mandated to adopt within sixty (60) days upon
approval of this Act, the necessary implementing rules and regulations for the equitable valuation
of the improvements and/or structures on the land to be expropriated.

The Implementing Rules and Regulations of Republic Act No. 8974 clarifies:

Section 10. Valuation of Improvements and/or Structures -Pursuant to Section 7 of the Act, the
Implementing Agency shall determine the valuation of the improvements and/or structures on the
land to be acquired using the replacement cost method. The replacement cost of the
improvements/structures is defined as the amount necessary to replace the
improvements/structures, based on the current market prices for materials, equipment, labor,
contractor’s profit and overhead, and all other attendant costs associated with the acquisition and
installation in place of the affected improvements/structures. In the valuation of the affected
improvements/structures, the Implementing Agency shall consider, among other things, the kinds
and quantities of materials/equipment used, the location, configuration and other physical
features of the properties, and prevailing construction prices. (Emphasis supplied)

According to the law, it is the implementing agency, not the commissioners, that determines the
proffered value of the improvements and structures. A Writ of Possession may be issued once
there is confirmation by the trial court of the proffered value.

The second error of the trial court occurred when it issued a Writ of Possession on the basis of
the National Power Corporation’s deposit of the alleged provisional value with Land Bank of the
Philippines, not on its actual payment to respondents. Even if the deposit of ₱580,769.93 was the
correct provisional value, it cannot be considered as compliance with Section 4 of Republic Act
No. 8974. In Gingoyon:

[T]he law plainly requires direct payment to the property owner, and not a mere deposit with the
authorized government depositary.

Without such direct payment, no writ of possession may be obtained.55 (Emphasis supplied)

There are, of course, instances when immediate payment cannot be made even if the
implementing agency is willing to do so. The owner of the property is not precluded from
contesting the power of the implementing agency to exercise eminent domain, the necessity of
the taking, the public character of its use, or the proffered value by the implementing agency. In
these instances, the implementing agency may deposit the proffered value with the trial court
having jurisdiction over the expropriation proceedings.

Considering that the National Power Corporation failed to comply with the guidelines in
Republic Act No. 8974, a Writ of Possession should not have been issued.

II

The recall of an improperly issued Writ of Possession is not the same as an injunction.

In its Urgent Motion for the Issuance of a Temporary Restraining Order, the National Power
Corporation argued that it was unable to commence the Substation Project as it was paralyzed by
the trial court’s Decision dated November 27, 2006 recalling the issuance of the Writ of
Possession in its favor.56

The National Power Corporation manifested that the project was "intended to resolve the six (6)
to eight (8) hours of daily brownouts being suffered by the residents of the province."57 It cited
Section 3 of Republic Act No. 897558 and argued that the project cannot be restrained by the
recall of a previously issued Writ of Possession because this amounted to an injunctive writ
expressly prohibited by Section 4 of Republic Act No. 8975.59
Respondents, on the other hand, filed their Comments and Opposition to the Urgent Motion for
Issuance of a Temporary Restraining Order. They argued that records of the First Catanduanes
Electric Cooperative, Inc. (FICELCO)60 showed that brownouts in the entire province only
averaged 2.97 hours per day and not 6 to 8 hours as claimed by the National Power Corporation.
Contrary to the National Power Corporation’s claims, respondents never filed any motion for the
issuance of a restraining order or injunctive writ against the National Power Corporation. They
argued that the trial court recalled the Writ of Possession upon a finding that the National Power
Corporation misled the trial court by making its own interpretation of Section 4 of Republic Act
No. 8974,in that a provisional deposit was sufficient compliance when the law requires
immediate payment to the owner of the property.61

The National Power Corporation’s argument that the recall of a Writ of Possession amounts to an
injunctive writ prohibited under Section 3 of Republic Act No. 8975 is without merit.

Section 3 of Republic Act No. 8975 states:

Sec. 3. Prohibition on the Issuance of Temporary Restraining Orders, Preliminary Injunctions

and Preliminary Mandatory Injunctions. - No court, except the Supreme Court, shall issue any
temporary restraining order, preliminary injunction or preliminary mandatory injunction against
the government, or any of its subdivisions, officials or any person or entity, whether public or
private, acting under the government’s direction, to restrain, prohibit or compel the following
acts: (a) Acquisition, clearance and development of the right-of-way and/or site or location of
any national government project(Emphasis supplied)

The recall of a Writ of Possession for failure to comply with the guidelines of Section 4 of
Republic Act No. 8974 is not the same as the issuance of an injunctive writ. The first is an action
by the trial court to correct an erroneous issuance while the second is an ancillary remedy to
preserve rights.

For an injunctive writ to be issued, parties must specifically pray for its issuance. Under Rule 58,
Section 4(a)62 of the Rules of Civil Procedure, a preliminary injunction or temporary restraining
order may be granted only when, among other requisites, the applicant is entitled to the relief
demanded. In Nerwin Industries Corporation v. PNOC-Energy Development Corporation:63

A preliminary injunction is an order granted at any stage of an action or proceeding prior to the
judgment or final order, requiring a party or a court, agency or person, to refrain from a
particular act or acts. It is an ancillary or preventive remedy resorted to by a litigant to protect or
preserve his rights or interests during the pendency of the case. As such, it is issued only when it
is established that:

(a) The applicant is entitled to the relief demanded, and the whole or part of such relief
consists in restraining the commission or continuance of the act or acts complained of, or
in requiring the performance of an act or acts, either for a limited period or perpetually;
or
 (b) The commission, continuance or nonperformance of the act or acts complained of
during the litigation would probably work injustice to the applicant; or

(c) A party, court, agency or a person is doing, threatening, or is attempting to do, or is

procuring or suffering to be done, some act or acts probably in violation of the rights of
the applicant respecting the subject of the action or proceeding, and tending to render the
judgment ineffectual.64

Section 3 of Republic Act No. 8975 contemplates only the issuance of an injunctive writ by
lower courts. In Republic v. Nolasco:65

What is expressly prohibited by the statute is the issuance of the provisional reliefs of temporary
restraining orders, preliminary injunctions, and preliminary mandatory injunctions. It does not
preclude the lower courts from assuming jurisdiction over complaints or petitions that seek as
ultimate relief the nullification or implementation of a national government infrastructure
project. A statute such as Republic Act No. 8975 cannot diminish the constitutionally mandated
judicial power to determine whether or not there has been a grave abuse of discretion amounting
to lack or excess of jurisdiction on the part of any branch or instrumentality of government.66
(Emphasis supplied)

Philippine Ports Authority v. Cipres Stevedoring & Arrastre, Inc.67 adds:

[I]t is settled that the sole object of a preliminary injunction, may it be prohibitory or mandatory,
is to preserve the status quo until the merits of the case can be heard and the final judgment
rendered. The status quo is the last actual peaceable uncontested status which preceded the
controversy.68

In expropriation cases involving national infrastructure projects, the trial court issues a Writ of
Possession upon compliance by the implementing agency of the guidelines stated in Section 4 of
Republic Act No. 8974. If it is later found that the guidelines were not complied with, the trial
court recalls the Writ of Possession for being improperly issued.

When a trial court recalls a Writ of Possession in an expropriation proceeding, the parties do not
revert to status quo, i.e. the status of the parties before the expropriation complaint was filed. The
trial court’s order of condemnation stands regardless of whether a Writ of Possession was
already issued.

The National Power Corporation was not able to take possession of the property because it failed
to comply with Republic Act No. 8974. Respondents did not file an application for the issuance
of a writ of preliminary injunction or temporary restraining order against it. The trial court did
not issue any injunctive writ. In other words, it was the National Power Corporation’s own acts
that prevented it from implementing its infrastructure project.

III
In accordance, however, with Rule 67,Section 4 of the Rules of Civil Procedure,69 the trial court
proceeded with the second phase of expropriation, that is, the determination of just
compensation.

Just compensation as required by the Constitution is different from the provisional value required
by Republic Act No. 8974. In Capitol Steel Corporation v. PHIVIDEC Industrial Authority:70

Upon compliance with the requirements, a petitioner in an expropriation case . . . is entitled to a

writ of possession as a matter of right and it becomes the ministerial duty of the trial court to
forthwith issue the writ of possession. No hearing is required and the court neither exercises its
discretion or judgment in determining the amount of the provisional value of the properties to be
expropriated as the legislature has fixed the amount under Section 4 of R.A. 8974.

To clarify, the payment of the provisional value as a prerequisite to the issuance of a writ of
possession differs from the payment of just compensation for the expropriated property. While
the provisional value is based on the current relevant zonal valuation, just compensation is based
on the prevailing fair market value of the property. As the appellate court explained:

The first refers to the preliminary or provisional determination of the value of the property. It
serves a double-purpose of pre-payment if the property is fully expropriated, and of an indemnity
for damages if the proceedings are dismissed. It is not a final determination of just compensation
and may not necessarily be equivalent to the prevailing fair market value of the property. Of
course, it may be a factor to be considered in the determination of just compensation.

Just compensation, on the other hand, is the final determination of the fair market value of the
property. It has been described as "the just and complete equivalent of the loss which the owner
of the thing expropriated has to suffer by reason of the expropriation." Market values, has [sic]
also been described in a variety of ways as the "price fixed by the buyer and seller in the open
market in the usual and ordinary course of legal trade and competition; the price and value of the
article established as shown by sale, public or private, in the ordinary way of business; the fair
value of the property between one who desires to purchase and one who desires to sell; the
current price; the general or ordinary price for which property may be sold in that locality.

There is no need for the determination with reasonable certainty of the final amount of just
compensation before the writ of possession may be issued.71 (Emphasis and underscoring in the
original, citation omitted)

The statutory requirement to pay a provisional amount equivalent to the full Bureau of Internal
Revenue zonal valuation does not substitute for the judicial determination of just compensation.
The payment to the property owner of a preliminary amount is one way to ensure that property
will not be condemned arbitrarily. It allows front loading the costs of the exercise so that it is the
government instrumentality that bears the burden and not the owner whose property is taken.

The payment of a provisional value may also serve as indemnity for damages in the event that
the expropriation does not succeed. In City of Manila v. Alegar Corporation:72
[T]he advance deposit required under Section 19 of the Local Government Code73 constitutes an
advance payment only in the event the expropriation prospers. Such deposit also has a dual
purpose: as pre-payment if the expropriation succeeds and as indemnity for damages if it is
dismissed. This advance payment, a prerequisite for the issuance of a writ of possession, should
not be confused with payment of just compensation for the taking of property even if it could be
a factor in eventually determining just compensation. If the proceedings fail, the money could be
used to indemnify the owner for damages.74 (Emphasis supplied)

The National Power Corporation was only required to pay the provisional value so that it could
take possession of respondents’ properties. Ordinarily, the government, in accordance with Rule
67 or Republic Act No. 8974, would have already taken possession of the property before the
proper amount of just compensation could be determined by the court.

However, the trial court had already determined the amount of just compensation even before the
National Power Corporation could take possession of the properties. Payment of the provisional
value is not anymore enough. In Export Processing Zone Authority v. Judge Dulay:75

The determination of "just compensation" in eminent domain cases is a judicial function. The
executive department or the legislature may make the initial determinations but when a party
claims a violation of the guarantee in the Bill of Rights that private property may not be taken for
public use without just compensation, no statute, decree, or executive order can mandate that its
own determination shall prevail over the court’s findings. Much less can the courts be precluded
from looking into the "just-ness" of the decreed compensation.76 (Emphasis supplied)

Once the amount of just compensation has been determined, it stands to reason that this is the
amount that must be paid to the landowner as compensation for his or her property. In the
exercise of the power of eminent domain, taking of private property necessarily includes its
possession. Government, then, must pay the proper amount of just compensation, instead of the
provisional value in order to enter and take the private property.

IV

Before the issue of just compensation can even be considered by this court, any question on the
validity of the exercise of the power of eminent domain must first pertain to its necessity. In Vda.
de Ouano, et al. v. Republic, et al.:77

In esse, expropriation is forced private property taking, the landowner being really without a
ghost of a chance to defeat the case of the expropriating agency. In other words, in expropriation,
the private owner is deprived of property against his will. Withal, the mandatory requirement of
due process ought to be strictly followed, such that the state must show, at the minimum, a
genuine need, an exacting public purpose to take private property, the purpose to be specifically
alleged or least reasonably deducible from the complaint.

Public use, as an eminent domain concept, has now acquired an expansive meaning to include
any use thatis of "usefulness, utility, or advantage, or what is productive of general benefit [of
the public]." If the genuine public necessity—the very reason or condition as it were— allowing,
at the first instance, the expropriation of a private land ceases or disappears, then there is no
more cogent point for the government’s retention of the expropriated land. The same legal
situation should hold if the government devotes the property to another public use very much
different from the original or deviates from the declared purpose to benefit another private
person. It has been said that the direct use by the state of its power to oblige landowners to
renounce their productive possession to another citizen, who will use it predominantly for that
citizen’s own private gain, is offensive to our laws.

A condemnor should commit to use the property pursuant to the purpose stated in the petition for
expropriation, failing which it should file another petition for the new purpose. If not, then it
behooves the condemnor to return the said property to its private owner, if the latter so desires.
The government cannot plausibly keep the property it expropriated in any manner it pleases and,
in the process, dishonor the judgment of expropriation. This is not in keeping with the idea of
fair play[.]78 (Emphasis supplied)

It is the state that bears the burden of proving that the taking of private property is for a public
purpose. If it fails in discharging this burden, it must return the property to the private owner,
subject to whatever damages were incurred in the course of the taking.

In Heirs of Moreno v. Mactan-Cebu International Airport Authority,79 private property was

expropriated for the proposed expansion of Lahug Airport in 1949.80 The property owners were
assured that they would be given a right to repurchase once Lahug Airport is closed or its
operations are transferred to Mactan Airport.81 In 1991, Lahug Airport ceased operations when
Mactan Airport became fully operational. The former owners filed a Complaint for
Reconveyance to compel the repurchase of the expropriated properties.82

This court considered the case "difficult" as it called for "a difficult but just solution."83 In
allowing the reconveyance, this court stated:

Mactan-Cebu International Airport Authority[v. Court of Appeals] is correct in stating that one
would not find an express statement in the Decision in Civil Case No. R-1881 to the effect that
"the [condemned] lot would return to [the landowner] or that [the landowner] had a right to
repurchase the same if the purpose for which it was expropriated is ended or abandoned or if the
property was to be used other than as the Lahug Airport." This omission notwithstanding, and
while the inclusion of this pronouncement in the judgment of condemnation would have been
ideal, such precision is not absolutely necessary nor is it fatal to the cause of petitioners herein.
No doubt, the return or repurchase of the condemned properties of petitioners could be readily
justified as the manifest legal effect or consequence of the trial court’s underlying presumption
that "Lahug Airport will continue to be in operation" when it granted the complaint for eminent
domain and the airport discontinued its activities.

The predicament of petitioners involves a constructive trust, one that is akin to the implied trust
referred to in Art. 1454 of the Civil Code, "If an absolute conveyance of property is made in
order to secure the performance of an obligation of the grantor toward the grantee, a trust by
virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it
becomes due, he may demand the reconveyance of the property to him." In the case at bar,
petitioners conveyed Lots Nos. 916 and 920 to the government with the latter obliging itself to
use the realties for the expansion of Lahug Airport; failing to keep its bargain, the government
can be compelled by petitioners to reconvey the parcels of land to them, otherwise, petitioners
would be denied the use of their properties upon a state of affairs that was not conceived nor
contemplated when the expropriation was authorized.

Although the symmetry between the instant case and the situation contemplated by Art. 1454 is
not perfect, the provision is undoubtedly applicable. For, as explained by an expert on the law of
trusts: "The only problem of great importance in the field of constructive trusts is to decide
whether in the numerous and varying fact situations presented to the courts there is a wrongful
holding of property and hence a threatened unjust enrichment of the defendant." Constructive
trusts are fictions of equity which are bound by no unyielding formula when they are used by
courts as devices to remedy any situation in which the holder of the legal title may not in good
conscience retain the beneficial interest.

....

The rights and obligations between the constructive trustee and the beneficiary, in this case,
respondent MCIAA and petitioners over Lots Nos. 916 and 920, are echoed in Art. 1190 of the
Civil Code, "When the conditions have for their purpose the extinguishment of an obligation to
give, the parties, upon the fulfillment of said conditions, shall return to each other what they have
received. . . . In case of the loss, deterioration or improvement of the thing, the provisions which,
with respect to the debtor, are laid down in the preceding article shall be applied to the party who
is bound to return. . . ."

Hence, respondent MCIAA as representative of the State is obliged to reconvey Lots Nos. 916
and 920 to petitioners who shall hold the same subject to existing liens thereon, i.e., leasehold
right of DPWH. In return, petitioners as if they were plaintiff-beneficiaries of a constructive trust
must restore to respondent MCIAA what they received as just compensation for the
expropriation of Lots Nos. 916 and 920 in Civil Case No. R-1881, i.e., ₱7,065.00 for Lot No.
916 and ₱9,291.00 for Lot No. 920 with consequential damages by way of legal interest from 16
November 1947. Petitioners must likewise pay respondent MCIAA the necessary expenses it
may have incurred in sustaining the properties and the monetary value of its services in
managing them to the extent that petitioners will be benefited thereby. The government however
may keep whatever income or fruits it may have obtained from the parcels of land, in the same
way that petitioners need not account for the interests that the amounts they received as just
compensation may have earned in the meantime. As a matter of justice and convenience, the law
considers the fruits and interests as the equivalent of each other.

Under Art. 1189 of the Civil Code, "If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor . . .," the creditor being the person who
stands to receive something as a result of the process of restitution. Consequently, petitioners as
creditors do not have to settle as part of the process of restitution the appreciation in value of
Lots Nos. 916 and 920 which is the natural consequence of nature and time.
Petitioners need not also pay for improvements introduced by third parties, i.e., DPWH, as the
disposition of these properties is governed by existing contracts and relevant provisions of law.
As for the improvements that respondent MCIAA may have made on Lots Nos. 916 and 920, if
any, petitioners must pay respondent their prevailing free market price in case petitioners opt to
buy them and respondent decides to sell. In other words, if petitioners do not want to appropriate
such improvements or respondent does not choose to sell them, the improvements would have to
be removed without any obligation on the part of petitioners to pay any compensation to
respondent MCIAA for what ever it may have tangibly introduced therein.84 (Emphasis
supplied)

Heirs of Moreno illustrates the difficulty of determining the respective rights of the parties once
it has been determined that the expropriated properties will no longer be devoted for a public
purpose. Matters involving the dismissal of an expropriation case or the return of expropriated
property must be determined on a case-to-case basis.

The National Power Corporation now requests this court for leave to withdraw this Petition on
the ground that it was in the process of acquiring a vacant lot owned by FICELCO. Considering
that eminent domain is the taking of private property for public use, no expropriation proceeding
can continue if the property to be expropriated will not be for public use.

Respondents filed a Motion for Leave to File Comment to Petitioner’s Motion to Withdraw
Appeal.85 They argue that the grant of a Motion to Withdraw would be unjust. From their point
of view, the National Power Corporation cannot resort to a withdrawal of an appeal in order to
invalidate a judgment duly rendered by the trial court and affirmed by the Court of Appeals.
They state that they have no objection to the withdrawal of the appeal, but they object to the
dismissal of the Amended Complaint before the trial court. They propose that the effect of
withdrawing the Petition for Review is to make the Court of Appeals’ Decision final and
executory.86

In National Housing Authority v. Heirs of Guivelondo:87

In the early case of City of Manila v. Ruymann, the Court was confronted with the question:
May the petitioner, in an action for expropriation, after he has been placed in possession of the
property and before the termination of the action, dismiss the petition? It resolved the issue in the
affirmative and held:

The right of the plaintiff to dismiss an action with the consent of the court is universally
recognized with certain well-defined exceptions. If the plaintiff discovers that the action which
he commenced was brought for the purpose of enforcing a right or a benefit, the advisability or
necessity of which he later discovers no longer exists, or that the result of the action would be
different from what he had intended, then he should be permitted to withdraw his action, subject
to the approval of the court. The plaintiff should not be required to continue the action, subject to
some well-defined exceptions, when it is not to his advantage to do so. Litigation should be
discouraged and not encouraged. Courts should not require parties to litigate when they no
longer desire to do so. Courts, in granting permission to dismiss an action, of course, should
always take into consideration the effect which said dismissal would have upon the rights of the
defendant.

Subsequently, in Metropolitan Water District v. De Los Angeles, the Court had occasion to apply
the above-quoted ruling when the petitioner, during the pendency of the expropriation case,
resolved that the land sought to be condemned was no longer necessary in the maintenance and
operation of its system of waterworks. It was held:

It is not denied that the purpose of the plaintiff was to acquire the land in question for a public
use. The fundamental basis then of all actions brought for the expropriation of lands, under the
power of eminent domain, is public use. That being true, the very moment that it appears at any
stage of the proceedings that the expropriation is not for a public use, the action must necessarily
fail and should be dismissed, for the reason that the action cannot be maintained at all except
when the expropriation is for some public use. That must be true even during the pendency of the
appeal of [sic] at any other stage of the proceedings. If, for example, during the trial in the lower
court, it should be made to appear to the satisfaction of the court that the expropriation is not for
some public use, it would be the duty and the obligation of the trial court to dismiss the action.
And even during the pendency of the appeal, if it should be made to appear to the satisfaction of
the appellate court that the expropriation is not for public use, then it would become the duty and
the obligation of the appellate court to dismiss it.88 (Emphasis supplied)

Considering that the National Power Corporation is no longer using respondents’ properties for
the purpose of building the Substation Project, it may be allowed to discontinue with the
expropriation proceedings, subject to the approval of the court.

However, the grant of the Motion to Withdraw carries with it the necessary consequence of
making the trial court’s order of condemnation final and executory. In National Housing
Authority: Notably, [City of Manila and Water District] refer to the dismissal of an action for
eminent domain at the instance of the plaintiff during the pendency of the case. The rule is
different where the case had been decided and the judgment had already become final and
executory.

....

In the case at bar, petitioner did not appeal the Order of the trial court dated December 10, 1999,
which declared that it has a lawful right to expropriate the properties of respondent Heirs of
Isidro Guivelondo. Hence, the Order became final and may no longer be subject to review or
reversal in any court. A final and executory decision or order can no longer be disturbed or
reopened no matter how erroneous it may be. Although judicial determinations are not infallible,
judicial error should be corrected through appeals, not through repeated suits on the same claim.

....

Respondent landowners had already been prejudiced by the expropriation case. Petitioner cannot
be permitted to institute condemnation proceedings against respondents only to abandon it later
when it finds the amount of just compensation unacceptable. Indeed, our reprobation in the case
of Cosculluela v. Court of Appeals is apropos:

It is arbitrary and capricious for a government agency to initiate expropriation proceedings, seize
a person’s property, allow the judgment of the court to become final and executory and then
refuse to pay on the ground that there are no appropriations for the property earlier taken and
profitably used. We condemn in the strongest possible terms the cavalier attitude of government
officials who adopt such a despotic and irresponsible stance.89 (Emphasis supplied)

The rule, therefore, is that expropriation proceedings must be dismissed when it is determined
that it is not for a public purpose, except when:

First, the trial court’s order already became final and executory;

Second, the government already took possession of the property; and

Lastly, the expropriation case already caused prejudice to the landowner.

The expropriation case is not automatically dismissed when the property ceases to be for public
use. The state must first file the appropriate Motion to Withdraw before the trial court having
jurisdiction over the proceedings. The grant or denial of any Motion to Withdraw in an
expropriation proceeding is always subject to judicial discretion.

Respondents have not yet been deprived of their property since the National Power Corporation
was never able to take possession. We cannot determine whether damages have been suffered as
a result of the expropriation.

This case needs to be remanded to the trial court to determine whether respondents have already
been prejudiced by the expropriation. The withdrawal of the Petition before this court will have
no practical effect other than to make the trial court's order of condemnation final and executory.
In order to prevent this absurdity, the National Power Corporation should file the proper Motion
to Withdraw before the trial court. It is now the burden of the National Power Corporation to
plead and prove to the trial court its reasons for discontinuing with the expropriation.
Respondents may also plead and prove damages incurred from the commencement of the
expropriation, if any.

WHEREFORE, the Motion to Withdraw Appeal dated August 28, 2014 is GRANTED insofar as
it withdraws the Petition for Review dated June 4, 2010. The Motion for Leave to File Comment
(to Petitioner's Motion to Withdraw Appeal) dated September 30, 2014 is NOTED. This case is
REMANDED to the Regional Trial Court of Virac, Catanduanes, Branch 43 for appropriate
action.

SO ORDERED.

FIRST DIVISION
[G.R. No. 127820. July 20, 1998]

MUNICIPALITY OF PARAAQUE, petitioner, vs. V.M. REALTY CORPORATION,

respondent.

DECISION

PANGANIBAN, J.:

A local government unit (LGU), like the Municipality of Paraaque, cannot authorize an
expropriation of private property through a mere resolution of its lawmaking body. The Local
Government Code expressly and clearly requires an ordinance or a local law for the purpose. A
resolution that merely expresses the sentiment or opinion of the Municipal Council will not
suffice. On the other hand, the principle of res judicata does not bar subsequent proceedings for
the expropriation of the same property when all the legal requirements for its valid exercise are
complied with.

Statement of the Case

These principles are applied by this Court in resolving this petition for review on certiorari of
the July 22, 1996 Decisioni[1] of the Court of Appealsii[2] in CA GR CV No. 48048, which
affirmed in totoiii[3] the Regional Trial Courts August 9, 1994 Resolution.iv[4] The trial court
dismissed the expropriation suit as follows:

The right of the plaintiff to exercise the power of eminent domain is not disputed. However, such
right may be exercised only pursuant to an Ordinance (Sec. 19, R.A. No. 7160). In the instant
case, there is no such ordinance passed by the Municipal Council of Paraaque enabling the
Municipality, thru its Chief Executive, to exercise the power of eminent domain. The complaint,
therefore, states no cause of action.

Assuming that plaintiff has a cause of action, the same is barred by a prior judgment. On
September 29, 1987, the plaintiff filed a complaint for expropriation involving the same parcels
of land which was docketed as Civil Case No. 17939 of this Court (page 26, record). Said case
was dismissed with prejudice on May 18, 1988 (page 39, record). The order of dismissal was not
appealed, hence, the same became final. The plaintiff can not be allowed to pursue the present
action without violating the principle of [r]es [j]udicata. While defendant in Civil Case No.
17939 was Limpan Investment Corporation, the doctrine of res judicata still applies because the
judgment in said case (C.C. No. 17939) is conclusive between the parties and their successors-in-
interest (Vda. de Buncio vs. Estate of the late Anita de Leon). The herein defendant is the
successor-in-interest of Limpan Investment Corporation as shown by the Deed of Assignment
Exchange executed on June 13, 1990.

WHEREFORE, defendants motion for reconsideration is hereby granted. The order dated
February 4, 1994 is vacated and set aside.

This case is hereby dismissed. No pronouncement as to costs.

SO ORDERED.v[5]

Factual Antecedents

Pursuant to Sangguniang Bayan Resolution No. 93-95, Series of 1993,vi[6] the Municipality of
Paraaque filed on September 20, 1993, a Complaint for expropriationvii[7] against Private
Respondent V.M. Realty Corporation over two parcels of land (Lots 2-A-2 and 2-B-1 of
Subdivision Plan Psd-17917), with a combined area of about 10,000 square meters, located at
Wakas, San Dionisio, Paraaque, Metro Manila, and covered by Torrens Certificate of Title No.
48700. Allegedly, the complaint was filed for the purpose of alleviating the living conditions of
the underprivileged by providing homes for the homeless through a socialized housing
project.viii[8] Parenthetically, it was also for this stated purpose that petitioner, pursuant to its
Sangguniang Bayan Resolution No. 577, Series of 1991,ix[9] previously made an offer to enter
into a negotiated sale of the property with private respondent, which the latter did not accept.x[10]

Finding the Complaint sufficient in form and substance, the Regional Trial Court of Makati,
Branch 134, issued an Order dated January 10, 1994,xi[11] giving it due course. Acting on
petitioners motion, said court issued an Order dated February 4, 1994,xii[12] authorizing petitioner
to take possession of the subject property upon deposit with its clerk of court of an amount
equivalent to 15 percent of its fair market value based on its current tax declaration.

On February 21, 1994, private respondent filed its Answer containing affirmative defenses and a
counterclaim,xiii[13] alleging in the main that (a) the complaint failed to state a cause of action
because it was filed pursuant to a resolution and not to an ordinance as required by RA 7160 (the
Local Government Code); and (b) the cause of action, if any, was barred by a prior judgment or
res judicata. On private respondents motion, its Answer was treated as a motion to dismiss.xiv[14]
On March 24, 1994,xv[15] petitioner filed its opposition, stressing that the trial courts Order dated
February 4, 1994 was in accord with Section 19 of RA 7160, and that the principle of res
judicata was not applicable.

Thereafter, the trial court issued its August 9, 1994 Resolutionxvi[16] nullifying its February 4,
1994 Order and dismissing the case. Petitioners motions for reconsideration and transfer of
venue were denied by the trial court in a Resolution dated December 2, 1994.xvii[17] Petitioner
then appealed to Respondent Court, raising the following issues:

1. Whether or not the Resolution of the Paraaque Municipal Council No. 93-95,
Series of 1993 is a substantial compliance of the statutory requirement of Section
19, R.A. 7180 [sic] in the exercise of the power of eminent domain by the
plaintiff-appellant.

2. Whether or not the complaint in this case states no cause of action.

3. Whether or not the strict adherence to the literal observance to the rule of
procedure resulted in technicality standing in the way of substantial justice.

4. Whether or not the principle of res judicata is applicable to the present case.xviii[18]
As previously mentioned, the Court of Appeals affirmed in toto the trial courts Decision.
Respondent Court, in its assailed Resolution promulgated on January 8, 1997,xix[19] denied
petitioners Motion for Reconsideration for lack of merit.

Hence, this appeal.xx[20]

The Issues

Before this Court, petitioner posits two issues, viz.:

1. A resolution duly approved by the municipal council has the same force and effect of an
ordinance and will not deprive an expropriation case of a valid cause of action.

2. The principle of res judicata as a ground for dismissal of case is not applicable when
public interest is primarily involved.xxi[21]

The Courts Ruling

The petition is not meritorious.

First Issue:

Resolution Different from an Ordinance

Petitioner contends that a resolution approved by the municipal council for the purpose of
initiating an expropriation case substantially complies with the requirements of the lawxxii[22]
because the terms ordinance and resolution are synonymous for the purpose of bestowing
authority [on] the local government unit through its chief executive to initiate the expropriation
proceedings in court in the exercise of the power of eminent domain.xxiii[23] Petitioner seeks to
bolster this contention by citing Article 36, Rule VI of the Rules and Regulations Implementing
the Local Government Code, which provides: If the LGU fails to acquire a private property for
public use, purpose, or welfare through purchase, the LGU may expropriate said property
through a resolution of the Sanggunian authorizing its chief executive to initiate expropriation
proceedings.xxiv[24] (Italics supplied.)

The Court disagrees. The power of eminent domain is lodged in the legislative branch of
government, which may delegate the exercise thereof to LGUs, other public entities and public
utilities.xxv[25] An LGU may therefore exercise the power to expropriate private property only
when authorized by Congress and subject to the latters control and restraints, imposed through
the law conferring the power or in other legislations.xxvi[26] In this case, Section 19 of RA 7160,
which delegates to LGUs the power of eminent domain, also lays down the parameters for its
exercise. It provides as follows:

Section 19. Eminent Domain. A local government unit may, through its chief executive and
acting pursuant to an ordinance, exercise the power of eminent domain for public use, or
purpose, or welfare for the benefit of the poor and the landless, upon payment of just
compensation, pursuant to the provisions of the Constitution and pertinent laws: Provided,
however, That the power of eminent domain may not be exercised unless a valid and definite
offer has been previously made to the owner, and such offer was not accepted: Provided, further,
That the local government unit may immediately take possession of the property upon the filing
of the expropriation proceedings and upon making a deposit with the proper court of at least
fifteen percent (15%) of the fair market value of the property based on the current tax declaration
of the property to be expropriated: Provided, finally, That, the amount to be paid for the
expropriated property shall be determined by the proper court, based on the fair market value at
the time of the taking of the property. (Emphasis supplied)

Thus, the following essential requisites must concur before an LGU can exercise the power of
eminent domain:

1. An ordinance is enacted by the local legislative council authorizing the local chief
executive, in behalf of the LGU, to exercise the power of eminent domain or pursue
expropriation proceedings over a particular private property.

2. The power of eminent domain is exercised for public use, purpose or welfare, or for the
benefit of the poor and the landless.

3. There is payment of just compensation, as required under Section 9, Article III of the
Constitution, and other pertinent laws.

4. A valid and definite offer has been previously made to the owner of the property sought
to be expropriated, but said offer was not accepted.xxvii[27]

In the case at bar, the local chief executive sought to exercise the power of eminent domain
pursuant to a resolution of the municipal council. Thus, there was no compliance with the first
requisite that the mayor be authorized through an ordinance. Petitioner cites Camarines Sur vs.
Court of Appealsxxviii[28] to show that a resolution may suffice to support the exercise of eminent
domain by an LGU.xxix[29] This case, however, is not in point because the applicable law at that
time was BP 337,xxx[30] the previous Local Government Code, which had provided that a mere
resolution would enable an LGU to exercise eminent domain. In contrast, RA 7160,xxxi[31] the
present Local Government Code which was already in force when the Complaint for
expropriation was filed, explicitly required an ordinance for this purpose.

We are not convinced by petitioners insistence that the terms resolution and ordinance are
synonymous. A municipal ordinance is different from a resolution. An ordinance is a law, but a
resolution is merely a declaration of the sentiment or opinion of a lawmaking body on a specific
matter.xxxii[32] An ordinance possesses a general and permanent character, but a resolution is
temporary in nature. Additionally, the two are enacted differently -- a third reading is necessary
for an ordinance, but not for a resolution, unless decided otherwise by a majority of all the
Sanggunian members.xxxiii[33]

If Congress intended to allow LGUs to exercise eminent domain through a mere resolution, it
would have simply adopted the language of the previous Local Government Code. But Congress
did not. In a clear divergence from the previous Local Government Code, Section 19 of RA 7160
categorically requires that the local chief executive act pursuant to an ordinance. Indeed,
[l]egislative intent is determined principally from the language of a statute. Where the language
of a statute is clear and unambiguous, the law is applied according to its express terms, and
interpretation would be resorted to only where a literal interpretation would be either impossible
or absurd or would lead to an injustice.xxxiv[34] In the instant case, there is no reason to depart
from this rule, since the law requiring an ordinance is not at all impossible, absurd, or unjust.

Moreover, the power of eminent domain necessarily involves a derogation of a fundamental or

private right of the people.xxxv[35] Accordingly, the manifest change in the legislative language --
from resolution under BP 337 to ordinance under RA 7160 -- demands a strict construction. No
species of property is held by individuals with greater tenacity, and is guarded by the
Constitution and laws more sedulously, than the right to the freehold of inhabitants. When the
legislature interferes with that right and, for greater public purposes, appropriates the land of an
individual without his consent, the plain meaning of the law should not be enlarged by doubtful
interpretation.xxxvi[36]

Petitioner relies on Article 36, Rule VI of the Implementing Rules, which requires only a
resolution to authorize an LGU to exercise eminent domain. This is clearly misplaced, because
Section 19 of RA 7160, the law itself, surely prevails over said rule which merely seeks to
implement it.xxxvii[37] It is axiomatic that the clear letter of the law is controlling and cannot be
amended by a mere administrative rule issued for its implementation. Besides, what the
discrepancy seems to indicate is a mere oversight in the wording of the implementing rules, since
Article 32, Rule VI thereof, also requires that, in exercising the power of eminent domain, the
chief executive of the LGU must act pursuant to an ordinance.

In this ruling, the Court does not diminish the policy embodied in Section 2, Article X of the
Constitution, which provides that territorial and political subdivisions shall enjoy local
autonomy. It merely upholds the law as worded in RA 7160. We stress that an LGU is created by
law and all its powers and rights are sourced therefrom. It has therefore no power to amend or act
beyond the authority given and the limitations imposed on it by law. Strictly speaking, the power
of eminent domain delegated to an LGU is in reality not eminent but inferior domain, since it
must conform to the limits imposed by the delegation, and thus partakes only of a share in
eminent domain.xxxviii[38] Indeed, the national legislature is still the principal of the local
government units, which cannot defy its will or modify or violate it.xxxix[39]

Complaint Does Not State a Cause of Action

In its Brief filed before Respondent Court, petitioner argues that its Sanguniang Bayan passed an
ordinance on October 11, 1994 which reiterated its Resolution No. 93-35, Series of 1993, and
ratified all the acts of its mayor regarding the subject expropriation.xl[40]

This argument is bereft of merit. In the first place, petitioner merely alleged the existence of such
an ordinance, but it did not present any certified true copy thereof. In the second place, petitioner
did not raise this point before this Court. In fact, it was mentioned by private respondent, and
only in passing.xli[41] In any event, this allegation does not cure the inherent defect of petitioners
Complaint for expropriation filed on September 23, 1993. It is hornbook doctrine that:

x x x in a motion to dismiss based on the ground that the complaint fails to state a cause of
action, the question submitted before the court for determination is the sufficiency of the
allegations in the complaint itself. Whether those allegations are true or not is beside the point,
for their truth is hypothetically admitted by the motion. The issue rather is: admitting them to be
true, may the court render a valid judgment in accordance with the prayer of the complaint?xlii[42]

The fact that there is no cause of action is evident from the face of the Complaint for
expropriation which was based on a mere resolution. The absence of an ordinance authorizing
the same is equivalent to lack of cause of action. Consequently, the Court of Appeals committed
no reversible error in affirming the trial courts Decision which dismissed the expropriation suit.

Second Issue:

Eminent Domain Not Barred by Res Judicata

As correctly found by the Court of Appealsxliii[43] and the trial court,xliv[44] all the requisites for the
application of res judicata are present in this case. There is a previous final judgment on the
merits in a prior expropriation case involving identical interests, subject matter and cause of
action, which has been rendered by a court having jurisdiction over it.

Be that as it may, the Court holds that the principle of res judicata, which finds application in
generally all cases and proceedings,xlv[45] cannot bar the right of the State or its agent to
expropriate private property. The very nature of eminent domain, as an inherent power of the
State, dictates that the right to exercise the power be absolute and unfettered even by a prior
judgment or res judicata. The scope of eminent domain is plenary and, like police power, can
reach every form of property which the State might need for public use.xlvi[46] All separate
interests of individuals in property are held of the government under this tacit agreement or
implied reservation. Notwithstanding the grant to individuals, the eminent domain, the highest
and most exact idea of property, remains in the government, or in the aggregate body of the
people in their sovereign capacity; and they have the right to resume the possession of the
property whenever the public interest requires it.xlvii[47] Thus, the State or its authorized agent
cannot be forever barred from exercising said right by reason alone of previous non-compliance
with any legal requirement.

While the principle of res judicata does not denigrate the right of the State to exercise eminent
domain, it does apply to specific issues decided in a previous case. For example, a final judgment
dismissing an expropriation suit on the ground that there was no prior offer precludes another
suit raising the same issue; it cannot, however, bar the State or its agent from thereafter
complying with this requirement, as prescribed by law, and subsequently exercising its power of
eminent domain over the same property.xlviii[48] By the same token, our ruling that petitioner
cannot exercise its delegated power of eminent domain through a mere resolution will not bar it
from reinstituting similar proceedings, once the said legal requirement and, for that matter, all
others are properly complied with. Parenthetically and by parity of reasoning, the same is also
true of the principle of law of the case. In Republic vs De Knecht,xlix[49] the Court ruled that the
power of the State or its agent to exercise eminent domain is not diminished by the mere fact that
a prior final judgment over the property to be expropriated has become the law of the case as to
the parties. The State or its authorized agent may still subsequently exercise its right to
expropriate the same property, once all legal requirements are complied with. To rule otherwise
will not only improperly diminish the power of eminent domain, but also clearly defeat social
justice.

WHEREFORE, the petition is hereby DENIED without prejudice to petitioners proper exercise
of its power of eminent domain over subject property. Costs against petitioner.

SO ORDERED.
Republic of the Philippines

Supreme Court

Manila

THIRD DIVISION
AIR TRANSPORTATION OFFICE, G.R. No. 159402

Petitioner,

Present:

BRION, Acting Chairperson,**

- versus - BERSAMIN,

ABAD,***

VILLARAMA, JR., and

SERENO, JJ.

SPOUSES DAVID* and

ELISEA RAMOS, Promulgated:

Respondents. February 23, 2011

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

RESOLUTION

BERSAMIN, J.:

The States immunity from suit does not extend to the petitioner because it is an
agency of the State engaged in an enterprise that is far from being the States exclusive
prerogative.
 Under challenge is the decision promulgated on May 14, 2003,xxxi[1] by which the
Court of Appeals (CA) affirmed with modification the decision rendered on February 21,
2001 by the Regional Trial Court, Branch 61 (RTC), in Baguio City in favor of the
respondents.xxxi[2]

Antecedents

Spouses David and Elisea Ramos (respondents) discovered that a portion of their
land registered under Transfer Certificate of Title No. T-58894 of the Baguio City land
records with an area of 985 square meters, more or less, was being used as part of the
runway and running shoulder of the Loakan Airport being operated by petitioner Air
Transportation Office (ATO). On August 11, 1995, the respondents agreed after
negotiations to convey the affected portion by deed of sale to the ATO in consideration of
the amount of P778,150.00. However, the ATO failed to pay despite repeated verbal and
written demands.

Thus, on April 29, 1998, the respondents filed an action for collection against the
ATO and some of its officials in the RTC (docketed as Civil Case No. 4017-R and entitled
Spouses David and Elisea Ramos v. Air Transportation Office, Capt. Panfilo Villaruel, Gen.
Carlos Tanega, and Mr. Cesar de Jesus).

In their answer, the ATO and its co-defendants invoked as an affirmative defense the
issuance of Proclamation No. 1358, whereby President Marcos had reserved certain
parcels of land that included the respondents affected portion for use of the Loakan Airport.
They asserted that the RTC had no jurisdiction to entertain the action without the States
consent considering that the deed of sale had been entered into in the performance of
governmental functions.

On November 10, 1998, the RTC denied the ATOs motion for a preliminary hearing
of the affirmative defense.

After the RTC likewise denied the ATOs motion for reconsideration on December 10,
1998, the ATO commenced a special civil action for certiorari in the CA to assail the RTCs
orders. The CA dismissed the petition for certiorari, however, upon its finding that the
assailed orders were not tainted with grave abuse of discretion.xxxi[3]

Subsequently, February 21, 2001, the RTC rendered its decision on the
merits,xxxi[4] disposing:

WHEREFORE, the judgment is rendered ORDERING the defendant Air

Transportation Office to pay the plaintiffs DAVID and ELISEA RAMOS the
following: (1) The amount of P778,150.00 being the value of the parcel of
land appropriated by the defendant ATO as embodied in the Deed of Sale,
plus an annual interest of 12% from August 11, 1995, the date of the Deed of
Sale until fully paid; (2) The amount of P150,000.00 by way of moral
damages and P150,000.00 as exemplary damages; (3) the amount of
P50,000.00 by way of attorneys fees plus P15,000.00 representing the 10,
more or less, court appearances of plaintiffs counsel; (4) The costs of this
suit.

SO ORDERED.

In due course, the ATO appealed to the CA, which affirmed the RTCs decision on
May 14, 2003,xxxi[5] viz:
 IN VIEW OF ALL THE FOREGOING, the appealed decision is hereby
AFFIRMED, with MODIFICATION that the awarded cost therein is deleted,
while that of moral and exemplary damages is reduced to P30,000.00 each,
and attorneys fees is lowered to P10,000.00.

No cost.

SO ORDERED.

Hence, this appeal by petition for review on certiorari.

Issue

The only issue presented for resolution is whether the ATO could be sued without
the States consent.

Ruling

The petition for review has no merit.

The immunity of the State from suit, known also as the doctrine of sovereign
immunity or non-suability of the State, is expressly provided in Article XVI of the 1987
Constitution, viz:
 Section 3. The State may not be sued without its consent.

The immunity from suit is based on the political truism that the State, as a sovereign,
can do no wrong. Moreover, as the eminent Justice Holmes said in Kawananakoa v.
Polyblank:xxxi[6]

The territory [of Hawaii], of course, could waive its exemption (Smith v.
Reeves, 178 US 436, 44 L ed 1140, 20 Sup. Ct. Rep. 919), and it took no
objection to the proceedings in the cases cited if it could have done so. xxx
But in the case at bar it did object, and the question raised is whether the
plaintiffs were bound to yield. Some doubts have been expressed as to the
source of the immunity of a sovereign power from suit without its own
permission, but the answer has been public property since before the days of
Hobbes. Leviathan, chap. 26, 2. A sovereign is exempt from suit, not
because of any formal conception or obsolete theory, but on the logical
and practical ground that there can be no legal right as against the
authority that makes the law on which the right depends. Car on peut
bien recevoir loy d'autruy, mais il est impossible par nature de se donner loy.
Bodin, Republique, 1, chap. 8, ed. 1629, p. 132; Sir John Eliot, De Jure
Maiestatis, chap. 3. Nemo suo statuto ligatur necessitative. Baldus, De Leg.
et Const. Digna Vox, 2. ed. 1496, fol. 51b, ed. 1539, fol. 61.xxxi[7]

Practical considerations dictate the establishment of an immunity from suit in favor of

the State. Otherwise, and the State is suable at the instance of every other individual,
government service may be severely obstructed and public safety endangered because of
the number of suits that the State has to defend against.xxxi[8] Several justifications have
been offered to support the adoption of the doctrine in the Philippines, but that offered in
Providence Washington Insurance Co. v. Republic of the Philippinesxxxi[9] is the most
acceptable explanation, according to Father Bernas, a recognized commentator on
Constitutional Law,xxxi[10] to wit:
 [A] continued adherence to the doctrine of non-suability is not to be
deplored for as against the inconvenience that may be caused private parties,
the loss of governmental efficiency and the obstacle to the performance of its
multifarious functions are far greater if such a fundamental principle were
abandoned and the availability of judicial remedy were not thus restricted.
With the well-known propensity on the part of our people to go to court, at the
least provocation, the loss of time and energy required to defend against law
suits, in the absence of such a basic principle that constitutes such an
effective obstacle, could very well be imagined.

An unincorporated government agency without any separate juridical personality of

its own enjoys immunity from suit because it is invested with an inherent power of
sovereignty. Accordingly, a claim for damages against the agency cannot prosper;
otherwise, the doctrine of sovereign immunity is violated.xxxi[11] However, the need to
distinguish between an unincorporated government agency performing governmental
function and one performing proprietary functions has arisen. The immunity has been
upheld in favor of the former because its function is governmental or incidental to such
function;xxxi[12] it has not been upheld in favor of the latter whose function was not in
pursuit of a necessary function of government but was essentially a business.xxxi[13]

Should the doctrine of sovereignty immunity or non-suability of the State be

extended to the ATO?

In its challenged decision,xxxi[14] the CA answered in the negative, holding:

On the first assignment of error, appellants seek to impress upon Us

that the subject contract of sale partook of a governmental character.
Apropos, the lower court erred in applying the High Courts ruling in National
Airports Corporation vs. Teodoro (91 Phil. 203 [1952]), arguing that in
Teodoro, the matter involved the collection of landing and parking fees which
is a proprietary function, while the case at bar involves the maintenance and
operation of aircraft and air navigational facilities and services which are
governmental functions.
 We are not persuaded.

Contrary to appellants conclusions, it was not merely the collection of

landing and parking fees which was declared as proprietary in nature by the
High Court in Teodoro, but management and maintenance of airport
operations as a whole, as well. Thus, in the much later case of Civil
Aeronautics Administration vs. Court of Appeals (167 SCRA 28 [1988]), the
Supreme Court, reiterating the pronouncements laid down in Teodoro,
declared that the CAA (predecessor of ATO) is an agency not immune from
suit, it being engaged in functions pertaining to a private entity. It went on to
explain in this wise:

xxx

The Civil Aeronautics Administration comes under the

category of a private entity. Although not a body corporate it was
created, like the National Airports Corporation, not to maintain a
necessary function of government, but to run what is essentially
a business, even if revenues be not its prime objective but rather
the promotion of travel and the convenience of the travelling
public. It is engaged in an enterprise which, far from being the
exclusive prerogative of state, may, more than the construction
of public roads, be undertaken by private concerns. [National
Airports Corp. v. Teodoro, supra, p. 207.]

xxx

True, the law prevailing in 1952 when the Teodoro case

was promulgated was Exec. Order 365 (Reorganizing the Civil
Aeronautics Administration and Abolishing the National Airports
Corporation). Republic Act No. 776 (Civil Aeronautics Act of the
Philippines), subsequently enacted on June 20, 1952, did not
alter the character of the CAAs objectives under Exec. Order
365. The pertinent provisions cited in the Teodoro case,
particularly Secs. 3 and 4 of Exec. Order 365, which led the
Court to consider the CAA in the category of a private entity
were retained substantially in Republic Act 776, Sec. 32(24) and
(25). Said Act provides:

Sec. 32. Powers and Duties of the Administrator. Subject to

the general control and supervision of the Department Head, the
Administrator shall have among others, the following powers and
duties:

xxx
 (24) To administer, operate, manage, control, maintain and
develop the Manila International Airport and all government-
owned aerodromes except those controlled or operated by the
Armed Forces of the Philippines including such powers and duties
as: (a) to plan, design, construct, equip, expand, improve, repair
or alter aerodromes or such structures, improvement or air
navigation facilities; (b) to enter into, make and execute contracts
of any kind with any person, firm, or public or private corporation
or entity;

(25) To determine, fix, impose, collect and receive landing

fees, parking space fees, royalties on sales or deliveries, direct or
indirect, to any aircraft for its use of aviation gasoline, oil and
lubricants, spare parts, accessories and supplies, tools, other
royalties, fees or rentals for the use of any of the property under
its management and control.

xxx

From the foregoing, it can be seen that the CAA is tasked

with private or non-governmental functions which operate to
remove it from the purview of the rule on State immunity from
suit. For the correct rule as set forth in the Teodoro case states:

xxx

Not all government entities, whether corporate or non-

corporate, are immune from suits. Immunity from suits is
determined by the character of the objects for which the entity
was organized. The rule is thus stated in Corpus Juris:

Suits against State agencies with relation to

matters in which they have assumed to act in private
or non-governmental capacity, and various suits
against certain corporations created by the state for
public purposes, but to engage in matters partaking
more of the nature of ordinary business rather than
functions of a governmental or political character,
are not regarded as suits against the state. The latter
is true, although the state may own stock or property
of such a corporation for by engaging in business
operations through a corporation, the state divests
itself so far of its sovereign character, and by
implication consents to suits against the corporation.
(59 C.J., 313) [National Airports Corporation v.
Teodoro, supra, pp. 206-207; Italics supplied.]
 This doctrine has been reaffirmed in the recent case of
Malong v. Philippine National Railways [G.R. No. L-49930,
August 7, 1985, 138 SCRA 63], where it was held that the
Philippine National Railways, although owned and operated by
the government, was not immune from suit as it does not
exercise sovereign but purely proprietary and business
functions. Accordingly, as the CAA was created to undertake the
management of airport operations which primarily involve
proprietary functions, it cannot avail of the immunity from suit
accorded to government agencies performing strictly
governmental functions.xxxi[15]

In our view, the CA thereby correctly appreciated the juridical character of the ATO
as an agency of the Government not performing a purely governmental or sovereign
function, but was instead involved in the management and maintenance of the Loakan
Airport, an activity that was not the exclusive prerogative of the State in its sovereign
capacity. Hence, the ATO had no claim to the States immunity from suit. We uphold the
CAs aforequoted holding.

We further observe the doctrine of sovereign immunity cannot be successfully

invoked to defeat a valid claim for compensation arising from the taking without just
compensation and without the proper expropriation proceedings being first resorted to of the
plaintiffs property.xxxi[16] Thus, in De los Santos v. Intermediate Appellate Court,xxxi[17]
the trial courts dismissal based on the doctrine of non-suability of the State of two cases
(one of which was for damages) filed by owners of property where a road 9 meters wide
and 128.70 meters long occupying a total area of 1,165 square meters and an artificial
creek 23.20 meters wide and 128.69 meters long occupying an area of 2,906 square meters
had been constructed by the provincial engineer of Rizal and a private contractor without
the owners knowledge and consent was reversed and the cases remanded for trial on the
merits. The Supreme Court ruled that the doctrine of sovereign immunity was not an
instrument for perpetrating any injustice on a citizen. In exercising the right of eminent
domain, the Court explained, the State exercised its jus imperii, as distinguished from its
proprietary rights, or jus gestionis; yet, even in that area, where private property had been
taken in expropriation without just compensation being paid, the defense of immunity from
suit could not be set up by the State against an action for payment by the owners.

Lastly, the issue of whether or not the ATO could be sued without the States consent
has been rendered moot by the passage of Republic Act No. 9497, otherwise known as the
Civil Aviation Authority Act of 2008.

R.A. No. 9497 abolished the ATO, to wit:

Section 4. Creation of the Authority. There is hereby created an

independent regulatory body with quasi-judicial and quasi-legislative powers
and possessing corporate attributes to be known as the Civil Aviation
Authority of the Philippines (CAAP), herein after referred to as the Authority
attached to the Department of Transportation and Communications (DOTC)
for the purpose of policy coordination. For this purpose, the existing Air
transportation Office created under the provisions of Republic Act No.
776, as amended is hereby abolished.

xxx

Under its Transitory Provisions, R.A. No. 9497 established in place of the ATO the Civil
Aviation Authority of the Philippines (CAAP), which thereby assumed all of the ATOs
powers, duties and rights, assets, real and personal properties, funds, and revenues, viz:

CHAPTER XII
TRANSITORTY PROVISIONS
Section 85. Abolition of the Air Transportation Office. The Air
Transportation Office (ATO) created under Republic Act No. 776, a sectoral
office of the Department of Transportation and Communications (DOTC), is
hereby abolished.
 All powers, duties and rights vested by law and exercised by the
ATO is hereby transferred to the Authority.

All assets, real and personal properties, funds and revenues owned
by or vested in the different offices of the ATO are transferred to the
Authority. All contracts, records and documents relating to the
operations of the abolished agency and its offices and branches are
likewise transferred to the Authority. Any real property owned by the
national government or government-owned corporation or authority
which is being used and utilized as office or facility by the ATO shall be
transferred and titled in favor of the Authority.

Section 23 of R.A. No. 9497 enumerates the corporate powers vested in the CAAP,
including the power to sue and be sued, to enter into contracts of every class, kind and
description, to construct, acquire, own, hold, operate, maintain, administer and lease
personal and real properties, and to settle, under such terms and conditions most
advantageous to it, any claim by or against it.xxxi[18]

With the CAAP having legally succeeded the ATO pursuant to R.A. No. 9497, the
obligations that the ATO had incurred by virtue of the deed of sale with the Ramos spouses
might now be enforced against the CAAP.

WHEREFORE, the Court denies the petition for review on certiorari, and affirms the
decision promulgated by the Court of Appeals.

No pronouncement on costs of suit.

SO ORDERED
THIRD DIVISION

[G.R. No. 139495. November 27, 2000]

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA), petitioner, vs. THE

HON. COURT OF APPEALS and VIRGINIA CHIONGBIAN, respondents.

DECISION

GONZAGA-REYES, J.:

This Petition for Review on Certiorari seeks the reversal of the Decision of the Court of
Appealsxxxv[1] in CA G.R. CV No. 56495 entitled Virginia Chiongbian vs. Mactan-Cebu
International Airport Authority which affirmed the Decision of the Regional Trial
Courtxxxv[2], 7th Judicial Region, Branch 24, Cebu City.

The Court of Appeals rendered its decision based on the following facts:

Subject of the action is Lot 941 consisting of 13,766 square meters located in Lahug, Cebu
City, adjoining the then Lahug Airport and covered by TCT No. 120366 of the Registry of
Deeds of Cebu City, in the name of MCIAA.

During the liberation, the Lahug Airport was occupied by the United States Army. Then, in
1947, it was turned over to the Philippine Government through the Surplus Property
Commission. Subsequently, it was transferred to the Bureau of Aeronautics which was
succeeded by the National Airports Corporation. When the latter was dissolved, it was
replaced by the Civil Aeronautics Administration (CAA).

On April 16, 1952, the Republic of the Philippines, represented by the CAA, filed an
expropriation proceeding, Civil Case No. R-1881 (Court of First Instance of Cebu, Third
Branch), on several parcels of land in Lahug, Cebu City, which included Lot 941, for the
expansion and improvement of Lahug Airport.
In June 1953, appellee Virginia Chiongbian purchased Lot 941 from its original owner,
Antonina Faborada, the original defendant in the expropriation case, for P8,000.00.
Subsequently, TCT No. 9919 was issued in her name (Exh. D).

Then, on December 29, 1961, judgment was rendered in the expropriation case in favor of
the Republic of the Philippines which was made to pay Virginia Chiongbian the amount of
P34,415.00 for Lot 941, with legal interest computed from November 16, 1947, the date
when the government begun using it. Virginia Chiongbian did not appeal therefrom.

Thereafter, absolute title to Lot 941 was transferred to the Republic of the Philippines under
TCT No. 27696 (Exhs. E and 2).

Then, in 1990, Republic Act No. 6958 was passed by Congress creating the Mactan-Cebu
International Airport Authority to which the assets of the Lahug Airport was transferred. Lot
941 was then transferred in the name of MCIAA under TCT No. 120366 on May 8, 1992.

On July 24, 1995, Virginia Chiongbian filed a complaint for reconveyance of Lot 941 with the
Regional Trial Court of Cebu, Branch 9, docketed as Civil Case No. CEB-17650 alleging,
that sometime in 1949, the National Airport Corporation (NAC) ventured to expand the Cebu
Lahug Airport. As a consequence, it sought to acquire by expropriation or negotiated sale
several parcels of lands adjoining the Lahug Airport, one of which was Lot 941 owned by
Virginia Chiongbian. Since she and other landowners could not agree with the NACs offer
for the compensation of their lands, a suit for eminent domain was instituted on April 16,
1952, before the then Court of First Instance of Cebu (Branch III), against forty-five (45)
landowners, including Virginia Chiongbian, docketed as Civil Case No. R-1881, entitled
Republic of the Philippine vs. Damian Ouano, et al. It was finally decided on December 29,
1961 in favor of the Republic of the Philippines.

Some of the defendants-landowners, namely, Milagros Urgello, Mamerto Escano, Inc. and
Ma. Atega Vda. de Deen, appealed the decision to the Court of Appeals under CA-G.R. No.
33045-R, which rendered a modified judgment allowing them to repurchase their
expropriated properties. Virginia Chiongbian, on the other hand, did not appeal and instead,
accepted the compensation for Lot 941 in the amount of P34,415, upon the assurance of
the NAC that she or her heirs would be given the right of reconveyance for the same price
once the land would no longer be used as (sic) airport.

Consequently, TCT No. 9919 of Virginia Chiongbian was cancelled and TCT No. 27696 was
issued in the name of the Republic of the Philippines. Then, with the creation of the MCIAA,
it was cancelled and TCT No. 120366 was issued in its name.

However, no expansion of the Lahug Airport was undertaken by MCIAA and its
predecessors-in-interest. In fact, when Mactan International Airport was opened for
commercial flights, the Lahug Airport was closed at the end of 1991 and all its airport
activities were undertaken at and transferred to the Mactan International Airport. Thus, the
purpose for which Lot 941 was taken ceased to exist.xxxv[3]
On June 3, 1997, the RTC rendered judgment in favor of the respondent Virginia
Chiongbian (CHIONGBIAN) the dispositive portion of the decision reads:

WHEREFORE, in the light of the foregoing, the Court hereby renders judgment in favor of
the plaintiff, Virginia Chiongbian and against the defendant, Mactan Cebu International
Authority (MCIAA), ordering the latter to restore to plaintiff the possession and ownership of
the property denominated as Lot No. 941 upon reimbursement of the expropriation price
paid to plaintiff.

The Register of Deeds is therefore ordered to effect the Transfer of the Certificate Title from
the defendant to the plaintiff on Lot No. 941, cancelling Transfer Certificate of Title No.
120366 in the name of defendant MCIAA and to issue a new title on the same lot in the
name of Virginia Chiongbian.

No pronouncement as to cost.

SO ORDERED.xxxv[4]

Aggrieved by the holding of the trial court, the petitioner Mactan Cebu International Airport
Authority (MCIAA) appealed the decision to the Court of Appeals, which affirmed the RTC
decision. Motion for Reconsideration was deniedxxxv[5] hence this petition where MCIAA
raises the following grounds in support of its petition:

I.

THE COURT OF APPEALS ERRED IN UPHOLDING THE TRIAL COURTS JUDGMENT

THAT THERE WAS A REPURCHASE AGREEMENT AND IGNORING PETITIONERS
PROTESTATIONS THAT ADMISSION OF RESPONDENTS ORAL EVIDENCE IS NOT
ALLOWED UNDER THE STATUE OF FRAUDS.

II.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE DECISION IN LIMBACO IS

MATERIAL AND APPLICABLE TO THE CASE AT BAR.

III.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE MODIFIED JUDGMENT IN

CA-GR NO. 33045 SHOULD INURE TO THE BENEFIT OF CHIONGBIAN EVEN IF SHE
WAS NOT A PARTY IN SAID APPEALED CASE.

IV.

THE COURT OF APPEALS ERRED IN RULING THAT THE RIGHT OF VIRGINIA

CHIONGBIAN TO REPURCHASE SHOULD BE UNDER THE SAME TERMS AND
CONDITIONS AS THE OTHER LANDOWNERS SUCH THAT HER REPURCHASE PRICE
IS ONLY P 34, 415.00.xxxv[6]
MCIAA contends that the Republic of the Philippines appropriated Lot No. 941 through
expropriation proceedings in Civil Case No. R-1881. The judgment rendered therein was
unconditional and did not contain a stipulation that ownership thereof would revert to
CHIONGBIAN nor did it give CHIONGBIAN the right to repurchase the same in the event
the lot was no longer used for the purpose it was expropriated. Moreover, CHIONGBIANs
claim that there was a repurchase agreement is not supported by documentary evidence.
The mere fact that twenty six (26) other landowners repurchased their property located at
the aforementioned Lahug airport is of no consequence considering that said landowners
were able to secure a rider in their contracts entitling them to repurchase their property.

MCIAA also argues that the Court of Appeals erroneously concluded that it did not object to
the evidence presented by CHIONGBIAN to prove the alleged repurchase agreement
considering that the transcript of stenographic notes shows that it manifested its objections
thereto for being in violation of the Statute of Frauds.

MCIAA also faults the Court of Appeals for applying the ruling in the case of Limbaco vs.
Court of Appealsxxxv[7]. It is the position of MCIAA that the ruling in the case of Limbaco is
not squarely in point with respect to the present case for the reason that the Limbaco case
involved a contract of sale of real property and not an expropriation.

Moreover, MCIAA alleges that the Court of Appeals erred in ruling that the case of Escao,
et. al. vs. Republicxxxv[8] proves the existence of the repurchase agreement. MCIAA claims
that although the parties in said case were CHIONGBIANs co-defendants in Civil Case No.
R-1881, CHIONGBIAN did not join in their appeal of the judgment of condemnation. The
modified judgment in CA G.R. No. 33045-R should not therefore redound to CHIONGBIANs
benefit who was no longer a party thereto or to the compromise agreement which Escao et.
al. entered into with the Republic of the Philippines.

Finally, assuming for the sake of argument that CHIONGBIAN has a right to repurchase Lot
No. 941, MCIAA claims that the Court of Appeals erred in ruling that the right of
CHIONGBIAN to purchase said lot should be under the same terms and conditions given to
the other landowners and not at the prevailing market price. Such ruling is grossly unfair
and would result in unjustly enriching CHIONGBIAN for the reason that she received just
compensation for the property at the time of its taking by the government and that the
property is now worth several hundreds of millions of pesos due to the improvements
introduced by MCIAA.xxxv[9]

On the other hand, aside from praying that this Court affirm the decision of the Court of
Appeals, the private respondent CHIONGBIAN prays that the petition be denied for the
reason that it violates the 1997 Rules on Civil Procedure, more specifically the requirement
of a certification of non-forum shopping. CHIONGBIAN claims that the Verification and
Certification on Non-Forum Shopping executed by the MCIAA on September 13, 1999 was
signed by a Colonel Marcelino A. Cordova whose appointment as Assistant General
Manager of MCIAA was disapproved by the Civil Service Commission as early as
September 2, 1999. It is CHIONGBIANs position that since his appointment was
disapproved, the Verification attached to the petition for review on certiorari cannot be
considered as having been executed by the plaintiff or principal party who under Section 5,
Rule 7 of the Rules of Court can validly make the certification in the instant petition.
Consequently, the petition should be considered as not being verified and as such should
not be considered as having been filed at all.

After a careful consideration of the arguments presented by the parties, we resolve to grant
the petition.

We first resolve the procedural issue.

We are not persuaded by CHIONGBIANs claim that the Verification and Certification
against forum shopping accompanying MCIAAs petition was insufficient for allegedly having
been signed by one who was not qualified to do so. As pointed out by the MCIAA, Colonel
Cordova signed the Verification and Certification against forum shopping as Acting General
Manager of the MCIAA, pursuant to Office Order No. 5322-99 dated September 10, 1999
issued by the General Manager of MCIAA, Alfonso Allere.xxxv[10] Colonel Cordova did not
sign the Verification and Certification against forum shopping pursuant to his appointment
as assistant General Manager of the MCIAA, which was later disapproved by the
Commission on Appointments. This fact has not been disputed by CHIONGBIAN.

We come now to the substantive aspects of the case wherein the issue to be resolved is
whether the abandonment of the public use for which Lot No. 941 was expropriated entitles
CHIONGBIAN to reacquire it.

In Fery vs. Municipality of Cabanatuanxxxv[11], this Court had occasion to rule on the same
issue as follows:

The answer to that question depends upon the character of the title acquired by the
expropriator, whether it be the State, a province, a municipality, or a corporation which has
the right to acquire property under the power of eminent domain. If, for example, land is
expropriated for a particular purpose, with the condition that when that purpose is ended or
abandoned the property shall return to its former owner, then, of course, when the purpose
is terminated or abandoned the former owner reacquires the property so expropriated. If, for
example, land is expropriated for a public street and the expropriation is granted upon
condition that the city can only use it for a public street, then, of course, when the city
abandons its use as a public street, it returns to the former owner, unless there is some
statutory provision to the contrary. Many other similar examples might be given. If, upon the
contrary, however, the decree of expropriation gives to the entity a fee simple title, then, of
course, the land becomes the absolute property of the expropriator, whether it be the State,
a province, or municipality, and in that case the non-user does not have the effect of
defeating the title acquired by the expropriation proceedings.

When land has been acquired for public use in fee simple, unconditionally, either by the
exercise of eminent domain or by purchase, the former owner retains no rights in the land,
and the public use may be abandoned, or the land may be devoted to a different use,
without any impairment of the estate or title acquired, or any reversion to the former
owner.xxxv[12]
In the present case, evidence reveals that Lot No. 941 was appropriated by the Republic of
the Philippines through expropriation proceedings in Civil Case No. R-1881. The dispositive
portion of the decision in said case reads insofar as pertinent as follows:

IN VIEW OF THE FOREGOING, judgment is hereby rendered:

1. Declaring the expropriation of Lots Nos. 75, 76, 89, 90, 91, 105, 106, 107, 108, 104,
921-A, 88, 93, 913-B, 72, 77, 916, 777-A, 918, 919, 920, 764-A, 988, 744-A, 745-A, 746,
747, 752-A, 263-A, 941, 942, 740-A, 743, 985, 956, 976-A, 984, 989-A; and 947, including
in the Lahug Airport, Cebu City, justified and in lawful exercise of the right of eminent
domain;

2. Declaring the fair market values of the lots thus taken and condemning the plaintiff to
pay the same to the respective owners with legal interest from the dates indicated therein,
as follows: Lots Nos. 75, 76, 89, 90, 91, 92, 105, 106, 107, 108-P31, 977 (minus P10,639 or
P21,278 as balance in favor of Mamerto Escao, Inc., with legal interest from November 16,
1947 until fully paid; xxx Lot No. 941- P34,415.00 in favor of Virginia Chiongbian, with
legal interest from November 16, 1947 until fully paid; xxx

3. After the payment of the foregoing financial obligation to the landowners, directing
the latter to deliver to the plaintiff the corresponding Transfer Certificate of Title to their
representative lots; and upon the presentation of the said titles to the Register of Deeds,
ordering the latter to cancel the same and to issue, in lieu thereof, new Transfer Certificates
of Title in the name of the plaintiff.

NO COST.

SO ORDERED.xxxv[13] (Emphasis supplied)

The terms of the judgment are clear and unequivocal and grant title to Lot No. 941 in fee
simple to the Republic of the Philippines. There was no condition imposed to the effect that
the lot would return to CHIONGBIAN or that CHIONGBIAN had a right to repurchase the
same if the purpose for which it was expropriated is ended or abandoned or if the property
was to be used other than as the Lahug airport.

CHIONGBIAN cannot rely on the ruling in Mactan Cebu International Airport vs. Court of
Appealsxxxv[14] wherein the presentation of parol evidence was allowed to prove the
existence of a written agreement containing the right to repurchase. Said case did not
involve expropriation proceedings but a contract of sale. This Court consequently allowed
the presentation of parol evidence to prove the existence of an agreement allowing the right
of repurchase based on the following ratiocination:

Under the parol evidence rule, when the terms of an agreement have been reduced into
writing, it is considered as containing all the terms agreed upon, and there can be, between
the parties and their successors-in-interest, no evidence of such terms other than the
contents of the written agreement. However, a party may present evidence to modify,
explain or add to the terms of the written agreement if he puts in issue in his pleading, the
failure of the written agreement to express the true intent of the parties thereto. In the case
at bench, the fact which private respondents seek to establish by parol evidence consists of
the agreement or representation made by the NAC that induced Inez Ouano to execute the
deed of sale; that the vendors and their heirs are given the right of repurchase should the
government no longer need the property. Where a parol contemporaneous agreement was
the moving cause of the written contract, or where the parol agreement forms part of the
consideration of the written contract, and it appears that the written contract was executed
on the faith of the parol contract or representation, such evidence is admissible. It is
recognized that proof is admissible of any collateral parol agreement that is not inconsistent
with the terms of the written contract though it may relate to the same subject matter. The
rule excluding parol evidence to vary or contradict a writing does not extend so far as to
preclude the admission of existing evidence to show prior or contemporaneous collateral
parol agreements between the parties, but such evidence may be received, regardless of
whether or not the written agreement contains any reference to such collateral agreement,
and whether the action is at law or in equity.

More importantly, no objection was made by petitioner when private respondents introduced
evidence to show the right of repurchase granted by the NAC to Inez Ouano. It has been
repeatedly laid down as a rule of evidence that a protest or objection against the admission
of any evidence must be made at the proper time, and if not so made, it will be understood
to have been waived.xxxv[15]

This pronouncement is not applicable to the present case since the parol evidence rule
which provides that when the terms of a written agreement have been reduced to writing, it
is considered as containing all the terms agreed upon, and there can be, between the
parties and their successors-in-interest, no evidence of such terms other than the contents
of the written agreement applies to written agreements and has no application to a
judgment of a court. To permit CHIONGBIAN to prove the existence of a compromise
settlement which she claims to have entered into with the Republic of the Philippines prior
to the rendition of judgment in the expropriation case would result in a modification of the
judgment of a court which has long become final and executory.

And even assuming for the sake of argument that CHIONGBIAN could prove the existence
of the alleged written agreement acknowledging her right to repurchase Lot No. 941 through
parol evidence, the Court of Appeals erred in holding that the evidence presented by
CHIONGBIAN was admissible.

Under 1403 of the Civil Code, a contract for the sale of real property shall be unenforceable
unless the same, or some note or memorandum thereof, be in writing, and subscribed by
the party charged, or by his agent; evidence, therefore of the agreement cannot be
received without the writing or a secondary evidence of its contents.

Contrary to the finding of the Court of Appeals, the records reveal that MCIAA objected to
the purpose for which the testimonies of CHIONGBIANxxxv[16] and Patrosinio
Bercedexxxv[17] (BERCEDE) were offered, i.e. to prove the existence of the alleged written
agreement evincing a right to repurchase Lot No. 941 in favor of CHIONGBIAN, for being in
violation of the Statute of Frauds. MCIAA also objected to the purpose for which the
testimony of Attorney Manuel Pastrana (PASTRANA) was offered, i.e. to prove the
existence of the alleged written agreement and an alleged deed of sale, on the same
ground.xxxv[18] Consequently, the testimonies of these witnesses are inadmissible under
the Statute of Frauds to prove the existence of the alleged sale.

Aside from being inadmissible under the provisions of the Statute of Frauds, CHIONGBIANs
and BERCEDEs testimonies are also inadmissible for being hearsay in nature. Evidence is
hearsay if its probative value is not based on the personal knowledge of the witness but on
the knowledge of another person who is not on the witness stand.xxxv[19] CHIONGBIAN,
through deposition, testified that:

ATTY. DUBLIN (To Witness)

Q: Mrs. Chiongbian, you said a while ago that there was an assurance by the
government to return this property to you in case Lahug Airport will be no longer used, is
that correct?

WITNESS:

A: Yes, sir. That is true.

ATTY. DUBLIN: (To witness)

Q: Can you recall when was this verbal assurance made?

A: I cannot remember anymore.

Q: You cannot also remember the year in which the alleged assurance was made?

A: I cannot also remember because Im very forgetful.

Q: Now, can you tell us so far as you can remember who was that person or
government authority or employee that made the alleged assurance?

A: The owner of the property.

Q: Now, how many times was this assurance being made to you to return this property
in case the Lahug Airport will no longer be used?

A: 2 or 3, I cannot recall.

Q: You cannot also remember in what particular place or places was this assurance
being made?

A: In my previous residence in Mabolo.

DEPOSITION OFFICER:

The assurance was made in my previous residence at Mabolo.

WITNESS:

A: I entrusted that to my lawyer, Atty. Pedro Calderon.

ATTY. DUBLIN: (to witness)

Q: You mean the assurance was made personally to your lawyer at that time, Atty.
Pedro Calderon?

A: Yes, sir.

Q: So you are now trying to tell us that that assurance was never made to you
personally. Is that right, Mam?

A: He assured me directly that the property will be returned to me.

Q: When you said he, are you referring to your lawyer at that time, Atty. Pedro Calderon

A: Yes, sir.

Q: So, in effect, it was your lawyer, Atty. Pedro Calderon, who made the assurance to
you that the property will be returned in case Lahug Airport will be abandoned?

A: Yes, sir.xxxv[20]

CHIONGBIANs testimony shows that she had no personal knowledge of the alleged
assurance made by the Republic of the Philippines that Lot No. 941 would be returned to
her in the event that the Lahug Airport was closed. She stated that she only learned of the
alleged assurance of the Republic of the Philippines through her lawyer, Attorney Calderon,
who was not presented as a witness.

BERCEDEs testimony regarding the alleged agreement is likewise inadmissible to prove

the existence of the agreement for also being hearsay in nature. Like CHIONGBIAN,
BERCEDE did not have personal knowledge of the alleged assurance made by the
Republic of the Philippines to his father that their land would be returned should the Lahug
Airport cease to operate for he only learned of the alleged assurance through his father.

PASTRANAs testimony does little to help CHIONGBIANs cause. He claims that subsequent
to the execution of the alleged written agreement but prior to the rendition of judgment in the
expropriation case, the Republic and CHIONGBIAN executed a Deed of Sale over Lot No.
941 wherein CHIONGBIAN sold the aforementioned lot to the Republic of the Philippines.
However, CHIONGBIAN never mentioned the existence of a deed of sale.xxxv[21] In fact,
the records disclose that Lot No. 941 was transferred to the Republic of the Philippines
pursuant to the judgment of expropriation in Civil Case No. R-1881 which CHIONGBIAN
herself enforced by filing a motion for withdrawal of the money after the decision was
rendered.xxxv[22] Moreover, since the very terms of the judgment in Civil Case No. R-1881
are silent regarding the alleged deed of sale or of the alleged written agreement
acknowledging the right of CHIONGBIAN to repurchase Lot No. 941, the only logical
conclusion is that no sale in fact took place and that no compromise agreement was
executed prior to the rendition of the judgment. Had CHIONGBIAN and the Republic
executed a contract of sale as claimed by PASTRANA, the Republic of the Philippines
would not have needed to pursue the expropriation case inasmuch as it would be
duplicitous and would result in the Republic of the Philippines expropriating something it
had already owned. Expropriation lies only when it is made necessary by the opposition of
the owner to the sale or by the lack of agreement as to the price.xxxv[23] Consequently,
CHIONGBIAN cannot compel MCIAA to reconvey Lot No. 941 to her since she has no
cause of action against MCIAA.

Finally, CHIONGBIAN cannot invoke the modified judgment of the Court of Appeals in the
case of Republic of the Philippines vs. Escao, et. al.xxxv[24] where her co-defendants,
Mamerto Escao, Inc., Milagros Urgello and Maria Atega Vda. De Deen entered into
separate and distinct compromise agreements with the Republic of the Philippines wherein
they agreed to sell their land subject of the expropriation proceedings to the latter subject to
the resolutory condition that in the event the Republic of the Philippines no longer uses said
property as an airport, title and ownership of said property shall revert to its respective
owners upon reimbursement of the price paid therefor without interest. MCIAA correctly
points out that since CHIONGBIAN did not appeal the judgment of expropriation in Civil
Case No. R-1881 and was not a party to the appeal of her co-defendants, the judgment
therein cannot redound to her benefit. And even assuming that CHIONGBIAN was a party
to the appeal, she was not a party to the compromise agreements entered into by her co-
defendants. A compromise is a contract whereby the parties, by making reciprocal
concessions, avoid litigation or put an end to one already commenced.xxxv[25] Essentially,
it is a contract perfected by mere consent, the latter being manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to constitute the
contract.xxxv[26] A judicial compromise has the force of law and is conclusive between the
partiesxxxv[27] and it is not valid and binding on a party who did not sign the same.xxxv[28]
Since CHIONGBIAN was not a party to the compromise agreements, she cannot legally
invoke the same.

ACCORDINGLY, the Decision of the Court of Appeals is hereby REVERSED and SET
ASIDE. The complaint of Virgina Chiongbian against the Mactan-Cebu International Airport
Authority for reconveyance of Lot No. 941 is DISMISSED.

SO ORDERED.

FIRST DIVISION

[G.R. No. 146587. July 2, 2002]

REPUBLIC OF THE PHILIPPINES, represented by the General Manager of the
PHILIPPINE INFORMATION AGENCY (PIA), petitioner, vs. THE HONORABLE COURT OF
APPEALS and the HEIRS OF LUIS SANTOS as herein represented by DR. SABINO
SANTOS and PURIFICACION SANTOS IMPERIAL, respondents.

DECISION

VITUG, J.:

Petitioner instituted expropriation proceedings on 19 September 1969 before the Regional

Trial Court ("RTC") of Bulacan, docketed Civil Cases No. 3839-M, No. 3840-M, No. 3841-M
and No. 3842-M, covering a total of 544,980 square meters of contiguous land situated
along MacArthur Highway, Malolos, Bulacan, to be utilized for the continued broadcast
operation and use of radio transmitter facilities for the Voice of the Philippines project.
Petitioner, through the Philippine Information Agency (PIA), took over the premises after the
previous lessee, the Voice of America, had ceased its operations thereat. Petitioner made a
deposit of P517,558.80, the sum provisionally fixed as being the reasonable value of the
property. On 26 February 1979, or more than nine years after the institution of the
expropriation proceedings, the trial court issued this order -

"WHEREFORE, premises considered, judgment is hereby rendered:

"Condemning the properties of the defendants in Civil Cases Nos. 3839-M to 3842-M
located at KM 43, MacArthur Highway, Malolos, Bulacan and covered by several transfer
certificates of title appearing in the Commissioners Appraisal Report consisting of the total
area of 544,980 square meters, as indicated in plan, Exhibit A, for plaintiff, also marked as
Exhibit I for the defendants, and as Appendix A attached to the Commissioners Appraisal
Report, for the purpose stated by the plaintiff in its complaint;

"Ordering the plaintiff to pay the defendants the just compensation for said property which is
the fair market value of the land condemned, computed at the rate of six pesos (P6.00) per
square meter, with legal rate of interest from September 19, 1969, until fully paid; and

"Ordering the plaintiff to pay the costs of suit, which includes the aforesaid fees of
commissioners, Atty. Victorino P. Evangelista and Mr. Pablo Domingo."xxxv[1]

The bone of contention in the instant controversy is the 76,589-square meter property
previously owned by Luis Santos, predecessor-in-interest of herein respondents, which
forms part of the expropriated area.

It would appear that the national government failed to pay to herein respondents the
compensation pursuant to the foregoing decision, such that a little over five years later, or
on 09 May 1984, respondents filed a manifestation with a motion seeking payment for the
expropriated property. On 07 June 1984, the Bulacan RTC, after ascertaining that the heirs
remained unpaid in the sum of P1,058,655.05, issued a writ of execution served on the
plaintiff, through the Office of the Solicitor General, for the implementation thereof. When
the order was not complied with, respondents again filed a motion urging the trial court to
direct the provincial treasurer of Bulacan to release to them the amount of P72,683.55, a
portion of the sum deposited by petitioner at the inception of the expropriation proceedings
in 1969, corresponding to their share of the deposit. The trial court, in its order of 10 July
1984, granted the motion.

In the meantime, President Joseph Ejercito Estrada issued Proclamation No. 22,xxxv[2]
transferring 20 hectares of the expropriated property to the Bulacan State University for the
expansion of its facilities and another 5 hectares to be used exclusively for the propagation
of the Philippine carabao. The remaining portion was retained by the PIA. This fact
notwithstanding, and despite the 1984 court order, the Santos heirs remained unpaid, and
no action was taken on their case until 16 September 1999 when petitioner filed its
manifestation and motion to permit the deposit in court of the amount of P4,664,000.00 by
way of just compensation for the expropriated property of the late Luis Santos subject to
such final computation as might be approved by the court. This time, the Santos heirs,
opposing the manifestation and motion, submitted a counter-motion to adjust the
compensation from P6.00 per square meter previously fixed in the 1979 decision to its
current zonal valuation pegged at P5,000.00 per square meter or, in the alternative, to
cause the return to them of the expropriated property. On 01 March 2000, the Bulacan RTC
ruled in favor of respondents and issued the assailed order, vacating its decision of 26
February 1979 and declaring it to be unenforceable on the ground of prescription -

"WHEREFORE, premises considered, the court hereby:

"1) declares the decision rendered by this Court on February 26, 1979 no longer
enforceable, execution of the same by either a motion or an independent action having
already prescribed in accordance with Section 6, Rule 39 of both the 1964 Revised Rules of
Court and the 1997 Rules of Civil Procedure;

"2) denies the plaintiffs Manifestation and Motion to Permit Plaintiff to Deposit in Court
Payment for Expropriated Properties dated September 16, 1999 for the reason stated in the
next preceding paragraph hereof; and

"3) orders the return of the expropriated property of the late defendant Luis Santos to his
heirs conformably with the ruling of the Supreme Court in Government of Sorsogon vs. Vda.
De Villaroya, 153 SCRA 291, without prejudice to any case which the parties may deem
appropriate to institute in relation with the amount already paid to herein oppositors and the
purported transfer of a portion of the said realty to the Bulacan State University pursuant to
Proclamation No. 22 issued by President Joseph Ejercito."xxxv[3]

Petitioner brought the matter up to the Court of Appeals but the petition was outrightly
denied. It would appear that the denial was based on Section 4, Rule 65, of the 1997 Rules
of Civil Procedure which provided that the filing of a motion for reconsideration in due time
after filing of the judgment, order or resolution interrupted the running of the sixty-day period
within which to file a petition for certiorari; and that if a motion for reconsideration was
denied, the aggrieved party could file the petition only within the remaining period, but which
should not be less than five days in any event, reckoned from the notice of such denial. The
reglementary period, however, was later modified by A.M. No. 00-2-03 S.C., now reading
thusly:

Sec. 4. When and where petition filed. --- The petition shall be filed not later than sixty (60)
days from notice of the judgment, order or resolution. In case a motion for reconsideration
or new trial is timely filed, whether such motion is required or not, the sixty (60) day period
shall be counted from notice of the denial of said motion.

The amendatory provision, being curative in nature, should be made applicable to all cases
still pending with the courts at the time of its effectivity.

In Narzoles vs. NLRC,xxxv[4] the Court has said:

The Court has observed that Circular No. 39-98 has generated tremendous confusion
resulting in the dismissal of numerous cases for late filing. This may have been because,
historically, i.e., even before the 1997 revision to the Rules of Civil Procedure, a party had a
fresh period from receipt of the order denying the motion for reconsideration to file a petition
for certiorari. Were it not for the amendments brought about by Circular No. 39-98, the
cases so dismissed would have been resolved on the merits. Hence, the Court deemed it
wise to revert to the old rule allowing a party a fresh 60-day period from notice of the denial
of the motion for reconsideration to file a petition for certiorari. x x x

The latest amendments took effect on September 1, 2000, following its publication in the
Manila Bulletin on August 4, 2000 and in the Philippine Daily Inquirer on August 7, 2000,
two newspapers of general circulation.

In view of its purpose, the Resolution further amending Section 4, Rule 65, can only be
described as curative in nature, and the principles governing curative statutes are
applicable.

Curative statutes are enacted to cure defects in a prior law or to validate legal proceedings
which would otherwise be void for want of conformity with certain legal requirements.
(Erectors, Inc. vs. National Labor Relations Commission, 256 SCRA 629 [1996].) They are
intended to supply defects, abridge superfluities and curb certain evils. They are intended to
enable persons to carry into effect that which they have designed or intended, but has failed
of expected legal consequence by reason of some statutory disability or irregularity in their
own action. They make valid that which, before the enactment of the statute was invalid.
Their purpose is to give validity to acts done that would have been invalid under existing
laws, as if existing laws have been complied with. (Batong Buhay Gold Mines, Inc. vs. Dela
Serna, 312 SCRA 22 [1999].) Curative statutes, therefore, by their very essence, are
retroactive. (Municipality of San Narciso, Quezon vs. Mendez, Sr., 239 SCRA 11
[1994].)xxxv[5]

At all events, petitioner has a valid point in emphasizing the "public nature" of the
expropriated property. The petition being imbued with public interest, the Court has resolved
to give it due course and to decide the case on its merits.
Assailing the finding of prescription by the trial court, petitioner here posited that a motion
which respondents had filed on 17 February 1984, followed up by other motions subsequent
thereto, was made within the reglementary period that thereby interrupted the 5-year
prescriptive period within which to enforce the 1979 judgment. Furthermore, petitioner
claimed, the receipt by respondents of partial compensation in the sum of P72,683.55 on 23
July 1984 constituted partial compliance on the part of petitioners and effectively estopped
respondents from invoking prescription expressed in Section 6, Rule 39, of the Rules of
Court.xxxv[6]

In opposing the petition, respondents advanced the view that pursuant to Section 6, Rule
39, of the Rules of Court, the failure of petitioner to execute the judgment, dated 26
February 1979, within five years after it had become final and executory, rendered it
unenforceable by mere motion. The motion for payment, dated 09 May 1984, as well as the
subsequent disbursement to them of the sum of P72,683.55 by the provincial treasurer of
Bulacan, could not be considered as having interrupted the five-year period, since a motion,
to be considered otherwise, should instead be made by the prevailing party, in this case by
petitioner. Respondents maintained that the P72,683.55 paid to them by the provincial
treasurer of Bulacan pursuant to the 1984 order of the trial court was part of the initial
deposit made by petitioner when it first entered possession of the property in 1969 and
should not be so regarded as a partial payment. Respondents further questioned the right of
PIA to transfer ownership of a portion of the property to the Bulacan State University even
while the just compensation due the heirs had yet to be finally settled.

The right of eminent domain is usually understood to be an ultimate right of the sovereign
power to appropriate any property within its territorial sovereignty for a public
purpose.xxxv[7] Fundamental to the independent existence of a State, it requires no
recognition by the Constitution, whose provisions are taken as being merely confirmatory of
its presence and as being regulatory, at most, in the due exercise of the power. In the
hands of the legislature, the power is inherent, its scope matching that of taxation, even that
of police power itself, in many respects. It reaches to every form of property the State needs
for public use and, as an old case so puts it, all separate interests of individuals in property
are held under a tacit agreement or implied reservation vesting upon the sovereign the right
to resume the possession of the property whenever the public interest so requires it.xxxv[8]

The ubiquitous character of eminent domain is manifest in the nature of the expropriation
proceedings. Expropriation proceedings are not adversarial in the conventional sense, for
the condemning authority is not required to assert any conflicting interest in the property.
Thus, by filing the action, the condemnor in effect merely serves notice that it is taking title
and possession of the property, and the defendant asserts title or interest in the property,
not to prove a right to possession, but to prove a right to compensation for the taking.xxxv[9]

Obviously, however, the power is not without its limits: first, the taking must be for public
use, and second, that just compensation must be given to the private owner of the
property.xxxv[10] These twin proscriptions have their origin in the recognition of the
necessity for achieving balance between the State interests, on the one hand, and private
rights, upon the other hand, by effectively restraining the former and affording protection to
the latter.xxxv[11] In determining public use, two approaches are utilized - the first is public
employment or the actual use by the public, and the second is public advantage or
benefit.xxxv[12] It is also useful to view the matter as being subject to constant growth,
which is to say that as society advances, its demands upon the individual so increases, and
each demand is a new use to which the resources of the individual may be
devoted.xxxv[13]

The expropriated property has been shown to be for the continued utilization by the PIA, a
significant portion thereof being ceded for the expansion of the facilities of the Bulacan
State University and for the propagation of the Philippine carabao, themselves in line with
the requirements of public purpose. Respondents question the public nature of the
utilization by petitioner of the condemned property, pointing out that its present use differs
from the purpose originally contemplated in the 1969 expropriation proceedings. The
argument is of no moment. The property has assumed a public character upon its
expropriation. Surely, petitioner, as the condemnor and as the owner of the property, is well
within its rights to alter and decide the use of that property, the only limitation being that it
be for public use, which, decidedly, it is.

In insisting on the return of the expropriated property, respondents would exhort on the
pronouncement in Provincial Government of Sorsogon vs. Vda. de Villaroyaxxxv[14] where
the unpaid landowners were allowed the alternative remedy of recovery of the property
there in question. It might be borne in mind that the case involved the municipal government
of Sorsogon, to which the power of eminent domain is not inherent, but merely delegated
and of limited application. The grant of the power of eminent domain to local governments
under Republic Act No. 7160xxxv[15] cannot be understood as being the pervasive and all-
encompassing power vested in the legislative branch of government. For local governments
to be able to wield the power, it must, by enabling law, be delegated to it by the national
legislature, but even then, this delegated power of eminent domain is not, strictly speaking,
a power of eminent, but only of inferior, domain or only as broad or confined as the real
authority would want it to be.xxxv[16]

Thus, in Valdehueza vs. Republicxxxv[17] where the private landowners had remained
unpaid ten years after the termination of the expropriation proceedings, this Court ruled -

The points in dispute are whether such payment can still be made and, if so, in what
amount. Said lots have been the subject of expropriation proceedings. By final and
executory judgment in said proceedings, they were condemned for public use, as part of an
airport, and ordered sold to the government. x x x It follows that both by virtue of the
judgment, long final, in the expropriation suit, as well as the annotations upon their title
certificates, plaintiffs are not entitled to recover possession of their expropriated lots - which
are still devoted to the public use for which they were expropriated - but only to demand the
fair market value of the same.

"Said relief may be granted under plaintiffs' prayer for: `such other remedies, which may be
deemed just and equitable under the premises'."xxxv[18]

The Court proceeded to reiterate its pronouncement in Alfonso vs. Pasay Cityxxxv[19]
where the recovery of possession of property taken for public use prayed for by the unpaid
landowner was denied even while no requisite expropriation proceedings were first
instituted. The landowner was merely given the relief of recovering compensation for his
property computed at its market value at the time it was taken and appropriated by the
State.

The judgment rendered by the Bulacan RTC in 1979 on the expropriation proceedings
provides not only for the payment of just compensation to herein respondents but likewise
adjudges the property condemned in favor of petitioner over which parties, as well as their
privies, are bound.xxxv[20] Petitioner has occupied, utilized and, for all intents and
purposes, exercised dominion over the property pursuant to the judgment. The exercise of
such rights vested to it as the condemnee indeed has amounted to at least a partial
compliance or satisfaction of the 1979 judgment, thereby preempting any claim of bar by
prescription on grounds of non-execution. In arguing for the return of their property on the
basis of non-payment, respondents ignore the fact that the right of the expropriatory
authority is far from that of an unpaid seller in ordinary sales, to which the remedy of
rescission might perhaps apply. An in rem proceeding, condemnation acts upon the
property.xxxv[21] After condemnation, the paramount title is in the public under a new and
independent title;xxxv[22] thus, by giving notice to all claimants to a disputed title,
condemnation proceedings provide a judicial process for securing better title against all the
world than may be obtained by voluntary conveyance.xxxv[23]

Respondents, in arguing laches against petitioner did not take into account that the same
argument could likewise apply against them. Respondents first instituted proceedings for
payment against petitioner on 09 May 1984, or five years after the 1979 judgment had
become final. The unusually long delay in bringing the action to compel payment against
herein petitioner would militate against them. Consistently with the rule that one should take
good care of his own concern, respondents should have commenced the proper action
upon the finality of the judgment which, indeed, resulted in a permanent deprivation of their
ownership and possession of the property.xxxv[24]

The constitutional limitation of just compensation is considered to be the sum equivalent to

the market value of the property, broadly described to be the price fixed by the seller in
open market in the usual and ordinary course of legal action and competition or the fair
value of the property as between one who receives, and one who desires to sell, it fixed at
the time of the actual taking by the government.xxxv[25] Thus, if property is taken for public
use before compensation is deposited with the court having jurisdiction over the case, the
final compensation must include interests on its just value to be computed from the time the
property is taken to the time when compensation is actually paid or deposited with the
court.xxxv[26] In fine, between the taking of the property and the actual payment, legal
interests accrue in order to place the owner in a position as good as (but not better than) the
position he was in before the taking occurred.xxxv[27]

The Bulacan trial court, in its 1979 decision, was correct in imposing interests on the zonal
value of the property to be computed from the time petitioner instituted condemnation
proceedings and took the property in September 1969. This allowance of interest on the
amount found to be the value of the property as of the time of the taking computed, being
an effective forbearance, at 12% per annumxxxv[28] should help eliminate the issue of the
constant fluctuation and inflation of the value of the currency over time.xxxv[29] Article 1250
of the Civil Code, providing that, in case of extraordinary inflation or deflation, the value of
the currency at the time of the establishment of the obligation shall be the basis for the
payment when no agreement to the contrary is stipulated, has strict application only to
contractual obligations.xxxv[30] In other words, a contractual agreement is needed for the
effects of extraordinary inflation to be taken into account to alter the value of the
currency.xxxv[31]

All given, the trial court of Bulacan in issuing its order, dated 01 March 2000, vacating its
decision of 26 February 1979 has acted beyond its lawful cognizance, the only authority left
to it being to order its execution. Verily, private respondents, although not entitled to the
return of the expropriated property, deserve to be paid promptly on the yet unpaid award of
just compensation already fixed by final judgment of the Bulacan RTC on 26 February 1979
at P6.00 per square meter, with legal interest thereon at 12% per annum computed from the
date of "taking" of the property, i.e., 19 September 1969, until the due amount shall have
been fully paid.

WHEREFORE, the petition is GRANTED. The resolution, dated 31 July 2000, of the Court
of Appeals dismissing the petition for certiorari, as well as its resolution of 04 January 2001
denying the motion for reconsideration, and the decision of the Regional Trial Court of
Bulacan, dated 01 March 2000, are SET ASIDE. Let the case be forthwith remanded to the
Regional Trial Court of Bulacan for the proper execution of its decision promulgated on 26
February 1979 which is hereby REINSTATED. No costs.

SO ORDERED.

EN BANC

G.R. No. 155001 May 5, 2003

DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA,

MANUEL ANTONIO B. BOÑE, MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V.
DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON, REMEDIOS P. ADOLFO,
BIENVENIDO C. HILARIO, MIASCOR WORKERS UNION - NATIONAL LABOR UNION
(MWU-NLU), and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION (PALEA),
petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL
AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS and SECRETARY LEANDRO M. MENDOZA, in his capacity as
Head of the Department of Transportation and Communications, respondents,
MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS
CORPORATION, MACROASIA-EUREST SERVICES, INC., MACROASIA-MENZIES
AIRPORT SERVICES CORPORATION, MIASCOR CATERING SERVICES
CORPORATION, MIASCOR AIRCRAFT MAINTENANCE CORPORATION, and
MIASCOR LOGISTICS CORPORATION, petitioners-in-intervention,
x---------------------------------------------------------x

G.R. No. 155547 May 5, 2003

SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. JARAULA,

petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL
AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS,
SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of
Transportation and Communications, and SECRETARY SIMEON A. DATUMANONG,
in his capacity as Head of the Department of Public Works and Highways,
respondents,
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON
VILLARAMA, PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR., HARLIN CAST
ABAYON, and BENASING O. MACARANBON, respondents-intervenors,

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

G.R. No. 155661 May 5, 2003

CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V.

GAERLAN, LEONARDO DE LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN RONALD
SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON and SAMAHANG
MANGGAGAWA SA PALIPARAN NG PILIPINAS (SMPP), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL
AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head
of the Department of Transportation and Communications, respondents.

PUNO, J.:

Petitioners and petitioners-in-intervention filed the instant petitions for prohibition under Rule
65 of the Revised Rules of Court seeking to prohibit the Manila International Airport
Authority (MIAA) and the Department of Transportation and Communications (DOTC) and
its Secretary from implementing the following agreements executed by the Philippine
Government through the DOTC and the MIAA and the Philippine International Air Terminals
Co., Inc. (PIATCO): (1) the Concession Agreement signed on July 12, 1997, (2) the
Amended and Restated Concession Agreement dated November 26, 1999, (3) the First
Supplement to the Amended and Restated Concession Agreement dated August 27, 1999,
(4) the Second Supplement to the Amended and Restated Concession Agreement dated
September 4, 2000, and (5) the Third Supplement to the Amended and Restated
Concession Agreement dated June 22, 2001 (collectively, the PIATCO Contracts).

The facts are as follows:

 In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to
conduct a comprehensive study of the Ninoy Aquino International Airport (NAIA) and
determine whether the present airport can cope with the traffic development up to
the year 2010. The study consisted of two parts: first, traffic forecasts, capacity of
existing facilities, NAIA future requirements, proposed master plans and
development plans; and second, presentation of the preliminary design of the
passenger terminal building. The ADP submitted a Draft Final Report to the DOTC in
December 1989.

Some time in 1993, six business leaders consisting of John Gokongwei, Andrew
Gotianun, Henry Sy, Sr., Lucio Tan, George Ty and Alfonso Yuchengco met with
then President Fidel V. Ramos to explore the possibility of investing in the
construction and operation of a new international airport terminal. To signify their
commitment to pursue the project, they formed the Asia's Emerging Dragon Corp.
(AEDC) which was registered with the Securities and Exchange Commission (SEC)
on September 15, 1993.

On October 5, 1994, AEDC submitted an unsolicited proposal to the Government

through the DOTC/MIAA for the development of NAIA International Passenger
Terminal III (NAIA IPT III) under a build-operate-and-transfer arrangement pursuant
to RA 6957 as amended by RA 7718 (BOT Law).1

On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the
Prequalification Bids and Awards Committee (PBAC) for the implementation of the NAIA
IPT III project.

On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of AEDC to
the National Economic and Development Authority (NEDA). A revised proposal, however,
was forwarded by the DOTC to NEDA on December 13, 1995. On January 5, 1996, the
NEDA Investment Coordinating Council (NEDA ICC) – Technical Board favorably endorsed
the project to the ICC – Cabinet Committee which approved the same, subject to certain
conditions, on January 19, 1996. On February 13, 1996, the NEDA passed Board
Resolution No. 2 which approved the NAIA IPT III project.

On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily newspapers
of an invitation for competitive or comparative proposals on AEDC's unsolicited proposal, in
accordance with Sec. 4-A of RA 6957, as amended. The alternative bidders were required
to submit three (3) sealed envelopes on or before 5:00 p.m. of September 20, 1996. The
first envelope should contain the Prequalification Documents, the second envelope the
Technical Proposal, and the third envelope the Financial Proposal of the proponent.

On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the Bid
Documents and the submission of the comparative bid proposals. Interested firms were
permitted to obtain the Request for Proposal Documents beginning June 28, 1996, upon
submission of a written application and payment of a non-refundable fee of P50,000.00
(US$2,000).
The Bid Documents issued by the PBAC provided among others that the proponent must
have adequate capability to sustain the financing requirement for the detailed engineering,
design, construction, operation, and maintenance phases of the project. The proponent
would be evaluated based on its ability to provide a minimum amount of equity to the
project, and its capacity to secure external financing for the project.

On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid
conference on July 29, 1996.

On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid Documents.
The following amendments were made on the Bid Documents:

a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in
its financial proposal an additional percentage of gross revenue share of the
Government, as follows:

i. First 5 years 5.0%

ii. Next 10 years 7.5%
iii. Next 10 years 10.0%

b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price
challenge. Proponent may offer an Annual Guaranteed Payment which need not be
of equal amount, but payment of which shall start upon site possession.

c. The project proponent must have adequate capability to sustain the financing
requirement for the detailed engineering, design, construction, and/or operation and
maintenance phases of the project as the case may be. For purposes of pre-
qualification, this capability shall be measured in terms of:

i. Proof of the availability of the project proponent and/or the consortium to

provide the minimum amount of equity for the project; and

ii. a letter testimonial from reputable banks attesting that the project
proponent and/or the members of the consortium are banking with them, that
the project proponent and/or the members are of good financial standing, and
have adequate resources.

d. The basis for the prequalification shall be the proponent's compliance with the
minimum technical and financial requirements provided in the Bid Documents and
the IRR of the BOT Law. The minimum amount of equity shall be 30% of the Project
Cost.

e. Amendments to the draft Concession Agreement shall be issued from time to

time. Said amendments shall only cover items that would not materially affect the
preparation of the proponent's proposal.
On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications
were made. Upon the request of prospective bidder People's Air Cargo & Warehousing Co.,
Inc (Paircargo), the PBAC warranted that based on Sec. 11.6, Rule 11 of the Implementing
Rules and Regulations of the BOT Law, only the proposed Annual Guaranteed Payment
submitted by the challengers would be revealed to AEDC, and that the challengers'
technical and financial proposals would remain confidential. The PBAC also clarified that
the list of revenue sources contained in Annex 4.2a of the Bid Documents was merely
indicative and that other revenue sources may be included by the proponent, subject to
approval by DOTC/MIAA. Furthermore, the PBAC clarified that only those fees and charges
denominated as Public Utility Fees would be subject to regulation, and those charges which
would be actually deemed Public Utility Fees could still be revised, depending on the
outcome of PBAC's query on the matter with the Department of Justice.

In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the Queries of
PAIRCARGO as Per Letter Dated September 3 and 10, 1996." Paircargo's queries and the
PBAC's responses were as follows:

1. It is difficult for Paircargo and Associates to meet the required minimum equity
requirement as prescribed in Section 8.3.4 of the Bid Documents considering that
the capitalization of each member company is so structured to meet the
requirements and needs of their current respective business undertaking/activities.
In order to comply with this equity requirement, Paircargo is requesting PBAC to just
allow each member of (sic) corporation of the Joint Venture to just execute an
agreement that embodies a commitment to infuse the required capital in case the
project is awarded to the Joint Venture instead of increasing each corporation's
current authorized capital stock just for prequalification purposes.

In prequalification, the agency is interested in one's financial capability at the time of

prequalification, not future or potential capability.

A commitment to put up equity once awarded the project is not enough to establish
that "present" financial capability. However, total financial capability of all member
companies of the Consortium, to be established by submitting the respective
companies' audited financial statements, shall be acceptable.

2. At present, Paircargo is negotiating with banks and other institutions for the
extension of a Performance Security to the joint venture in the event that the
Concessions Agreement (sic) is awarded to them. However, Paircargo is being
required to submit a copy of the draft concession as one of the documentary
requirements. Therefore, Paircargo is requesting that they'd (sic) be furnished copy
of the approved negotiated agreement between the PBAC and the AEDC at the
soonest possible time.

A copy of the draft Concession Agreement is included in the Bid Documents. Any
material changes would be made known to prospective challengers through bid
bulletins. However, a final version will be issued before the award of contract.
The PBAC also stated that it would require AEDC to sign Supplement C of the Bid
Documents (Acceptance of Criteria and Waiver of Rights to Enjoin Project) and to submit
the same with the required Bid Security.

On September 20, 1996, the consortium composed of People's Air Cargo and Warehousing
Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp.
(Security Bank) (collectively, Paircargo Consortium) submitted their competitive proposal to
the PBAC. On September 23, 1996, the PBAC opened the first envelope containing the
prequalification documents of the Paircargo Consortium. On the following day, September
24, 1996, the PBAC prequalified the Paircargo Consortium.

On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards
the Paircargo Consortium, which include:

a. The lack of corporate approvals and financial capability of PAIRCARGO;

b. The lack of corporate approvals and financial capability of PAGS;

c. The prohibition imposed by RA 337, as amended (the General Banking Act) on

the amount that Security Bank could legally invest in the project;

d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for

prequalification purposes; and

e. The appointment of Lufthansa as the facility operator, in view of the Philippine

requirement in the operation of a public utility.

The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the
issues raised by the latter, and that based on the documents submitted by Paircargo and
the established prequalification criteria, the PBAC had found that the challenger, Paircargo,
had prequalified to undertake the project. The Secretary of the DOTC approved the finding
of the PBAC.

The PBAC then proceeded with the opening of the second envelope of the Paircargo
Consortium which contained its Technical Proposal.

On October 3, 1996, AEDC reiterated its objections, particularly with respect to Paircargo's
financial capability, in view of the restrictions imposed by Section 21-B of the General
Banking Act and Sections 1380 and 1381 of the Manual Regulations for Banks and Other
Financial Intermediaries. On October 7, 1996, AEDC again manifested its objections and
requested that it be furnished with excerpts of the PBAC meeting and the accompanying
technical evaluation report where each of the issues they raised were addressed.

On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the
Paircargo Consortium containing their respective financial proposals. Both proponents
offered to build the NAIA Passenger Terminal III for at least $350 million at no cost to the
government and to pay the government: 5% share in gross revenues for the first five years
of operation, 7.5% share in gross revenues for the next ten years of operation, and 10%
share in gross revenues for the last ten years of operation, in accordance with the Bid
Documents. However, in addition to the foregoing, AEDC offered to pay the government a
total of P135 million as guaranteed payment for 27 years while Paircargo Consortium
offered to pay the government a total of P17.75 billion for the same period.

Thus, the PBAC formally informed AEDC that it had accepted the price proposal submitted
by the Paircargo Consortium, and gave AEDC 30 working days or until November 28, 1996
within which to match the said bid, otherwise, the project would be awarded to Paircargo.

As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary
Amado Lagdameo, on December 11, 1996, issued a notice to Paircargo Consortium
regarding AEDC's failure to match the proposal.

On February 27, 1997, Paircargo Consortium incorporated into Philippine International

Airport Terminals Co., Inc. (PIATCO).

AEDC subsequently protested the alleged undue preference given to PIATCO and
reiterated its objections as regards the prequalification of PIATCO.

On April 11, 1997, the DOTC submitted the concession agreement for the second-pass
approval of the NEDA-ICC.

On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for
Declaration of Nullity of the Proceedings, Mandamus and Injunction against the Secretary of
the DOTC, the Chairman of the PBAC, the voting members of the PBAC and Pantaleon D.
Alvarez, in his capacity as Chairman of the PBAC Technical Committee.

On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval, on
a no-objection basis, of the BOT agreement between the DOTC and PIATCO. As the ad
referendum gathered only four (4) of the required six (6) signatures, the NEDA merely noted
the agreement.

On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.

On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and
PIATCO, through its President, Henry T. Go, signed the "Concession Agreement for the
Build-Operate-and-Transfer Arrangement of the Ninoy Aquino International Airport
Passenger Terminal III" (1997 Concession Agreement). The Government granted PIATCO
the franchise to operate and maintain the said terminal during the concession period and to
collect the fees, rentals and other charges in accordance with the rates or schedules
stipulated in the 1997 Concession Agreement. The Agreement provided that the concession
period shall be for twenty-five (25) years commencing from the in-service date, and may be
renewed at the option of the Government for a period not exceeding twenty-five (25) years.
At the end of the concession period, PIATCO shall transfer the development facility to
MIAA.
On November 26, 1998, the Government and PIATCO signed an Amended and Restated
Concession Agreement (ARCA). Among the provisions of the 1997 Concession Agreement
that were amended by the ARCA were: Sec. 1.11 pertaining to the definition of "certificate
of completion"; Sec. 2.05 pertaining to the Special Obligations of GRP; Sec. 3.02 (a)
dealing with the exclusivity of the franchise given to the Concessionaire; Sec. 4.04
concerning the assignment by Concessionaire of its interest in the Development Facility;
Sec. 5.08 (c) dealing with the proceeds of Concessionaire's insurance; Sec. 5.10 with
respect to the temporary take-over of operations by GRP; Sec. 5.16 pertaining to the taxes,
duties and other imposts that may be levied on the Concessionaire; Sec. 6.03 as regards
the periodic adjustment of public utility fees and charges; the entire Article VIII concerning
the provisions on the termination of the contract; and Sec. 10.02 providing for the venue of
the arbitration proceedings in case a dispute or controversy arises between the parties to
the agreement.

Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The
First Supplement was signed on August 27, 1999; the Second Supplement on September 4,
2000; and the Third Supplement on June 22, 2001 (collectively, Supplements).

The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining "Revenues" or
"Gross Revenues"; Sec. 2.05 (d) of the ARCA referring to the obligation of MIAA to provide
sufficient funds for the upkeep, maintenance, repair and/or replacement of all airport
facilities and equipment which are owned or operated by MIAA; and further providing
additional special obligations on the part of GRP aside from those already enumerated in
Sec. 2.05 of the ARCA. The First Supplement also provided a stipulation as regards the
construction of a surface road to connect NAIA Terminal II and Terminal III in lieu of the
proposed access tunnel crossing Runway 13/31; the swapping of obligations between GRP
and PIATCO regarding the improvement of Sales Road; and the changes in the timetable. It
also amended Sec. 6.01 (c) of the ARCA pertaining to the Disposition of Terminal Fees;
Sec. 6.02 of the ARCA by inserting an introductory paragraph; and Sec. 6.02 (a) (iii) of the
ARCA referring to the Payments of Percentage Share in Gross Revenues.

The Second Supplement to the ARCA contained provisions concerning the clearing,
removal, demolition or disposal of subterranean structures uncovered or discovered at the
site of the construction of the terminal by the Concessionaire. It defined the scope of works;
it provided for the procedure for the demolition of the said structures and the consideration
for the same which the GRP shall pay PIATCO; it provided for time extensions, incremental
and consequential costs and losses consequent to the existence of such structures; and it
provided for some additional obligations on the part of PIATCO as regards the said
structures.

Finally, the Third Supplement provided for the obligations of the Concessionaire as regards
the construction of the surface road connecting Terminals II and III.

Meanwhile, the MIAA which is charged with the maintenance and operation of the NAIA
Terminals I and II, had existing concession contracts with various service providers to offer
international airline airport services, such as in-flight catering, passenger handling, ramp
and ground support, aircraft maintenance and provisions, cargo handling and warehousing,
and other services, to several international airlines at the NAIA. Some of these service
providers are the Miascor Group, DNATA-Wings Aviation Systems Corp., and the
MacroAsia Group. Miascor, DNATA and MacroAsia, together with Philippine Airlines (PAL),
are the dominant players in the industry with an aggregate market share of 70%.

On September 17, 2002, the workers of the international airline service providers, claiming
that they stand to lose their employment upon the implementation of the questioned
agreements, filed before this Court a petition for prohibition to enjoin the enforcement of
said agreements.2

On October 15, 2002, the service providers, joining the cause of the petitioning workers,
filed a motion for intervention and a petition-in-intervention.

On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and Constantino
Jaraula filed a similar petition with this Court.3

On November 6, 2002, several employees of the MIAA likewise filed a petition assailing the
legality of the various agreements.4

On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras, Rafael P.
Nantes, Eduardo C. Zialcita, Willie B. Villarama, Prospero C. Nograles, Prospero A. Pichay,
Jr., Harlin Cast Abayon and Benasing O. Macaranbon, moved to intervene in the case as
Respondents-Intervenors. They filed their Comment-In-Intervention defending the validity of
the assailed agreements and praying for the dismissal of the petitions.

During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on
November 29, 2002, in her speech at the 2002 Golden Shell Export Awards at Malacañang
Palace, stated that she will not "honor (PIATCO) contracts which the Executive Branch's
legal offices have concluded (as) null and void."5

Respondent PIATCO filed its Comments to the present petitions on November 7 and 27,
2002. The Office of the Solicitor General and the Office of the Government Corporate
Counsel filed their respective Comments in behalf of the public respondents.

On December 10, 2002, the Court heard the case on oral argument. After the oral
argument, the Court then resolved in open court to require the parties to file simultaneously
their respective Memoranda in amplification of the issues heard in the oral arguments within
30 days and to explore the possibility of arbitration or mediation as provided in the
challenged contracts.

In their consolidated Memorandum, the Office of the Solicitor General and the Office of the
Government Corporate Counsel prayed that the present petitions be given due course and
that judgment be rendered declaring the 1997 Concession Agreement, the ARCA and the
Supplements thereto void for being contrary to the Constitution, the BOT Law and its
Implementing Rules and Regulations.
On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003 PIATCO
commenced arbitration proceedings before the International Chamber of Commerce,
International Court of Arbitration (ICC) by filing a Request for Arbitration with the Secretariat
of the ICC against the Government of the Republic of the Philippines acting through the
DOTC and MIAA.

In the present cases, the Court is again faced with the task of resolving complicated issues
made difficult by their intersecting legal and economic implications. The Court is aware of
the far reaching fall out effects of the ruling which it makes today. For more than a century
and whenever the exigencies of the times demand it, this Court has never shirked from its
solemn duty to dispense justice and resolve "actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not there has been grave
abuse of discretion amounting to lack or excess of jurisdiction."6 To be sure, this Court will
not begin to do otherwise today.

We shall first dispose of the procedural issues raised by respondent PIATCO which they
allege will bar the resolution of the instant controversy.

Petitioners' Legal Standing to File

the present Petitions

a. G.R. Nos. 155001 and 155661

In G.R. No. 155001 individual petitioners are employees of various service providers 7
having separate concession contracts with MIAA and continuing service agreements with
various international airlines to provide in-flight catering, passenger handling, ramp and
ground support, aircraft maintenance and provisions, cargo handling and warehousing and
other services. Also included as petitioners are labor unions MIASCOR Workers Union-
National Labor Union and Philippine Airlines Employees Association. These petitioners filed
the instant action for prohibition as taxpayers and as parties whose rights and interests
stand to be violated by the implementation of the PIATCO Contracts.

Petitioners-Intervenors in the same case are all corporations organized and existing under
Philippine laws engaged in the business of providing in-flight catering, passenger handling,
ramp and ground support, aircraft maintenance and provisions, cargo handling and
warehousing and other services to several international airlines at the Ninoy Aquino
International Airport. Petitioners-Intervenors allege that as tax-paying international airline
and airport-related service operators, each one of them stands to be irreparably injured by
the implementation of the PIATCO Contracts. Each of the petitioners-intervenors have
separate and subsisting concession agreements with MIAA and with various international
airlines which they allege are being interfered with and violated by respondent PIATCO.

In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang Manggagawa
sa Paliparan ng Pilipinas - a legitimate labor union and accredited as the sole and exclusive
bargaining agent of all the employees in MIAA. Petitioners anchor their petition for
prohibition on the nullity of the contracts entered into by the Government and PIATCO
regarding the build-operate-and-transfer of the NAIA IPT III. They filed the petition as
taxpayers and persons who have a legitimate interest to protect in the implementation of the
PIATCO Contracts.

Petitioners in both cases raise the argument that the PIATCO Contracts contain stipulations
which directly contravene numerous provisions of the Constitution, specific provisions of the
BOT Law and its Implementing Rules and Regulations, and public policy. Petitioners
contend that the DOTC and the MIAA, by entering into said contracts, have committed
grave abuse of discretion amounting to lack or excess of jurisdiction which can be remedied
only by a writ of prohibition, there being no plain, speedy or adequate remedy in the
ordinary course of law.

In particular, petitioners assail the provisions in the 1997 Concession Agreement and the
ARCA which grant PIATCO the exclusive right to operate a commercial international
passenger terminal within the Island of Luzon, except those international airports already
existing at the time of the execution of the agreement. The contracts further provide that
upon the commencement of operations at the NAIA IPT III, the Government shall cause the
closure of Ninoy Aquino International Airport Passenger Terminals I and II as international
passenger terminals. With respect to existing concession agreements between MIAA and
international airport service providers regarding certain services or operations, the 1997
Concession Agreement and the ARCA uniformly provide that such services or operations
will not be carried over to the NAIA IPT III and PIATCO is under no obligation to permit such
carry over except through a separate agreement duly entered into with PIATCO.8

With respect to the petitioning service providers and their employees, upon the
commencement of operations of the NAIA IPT III, they allege that they will be effectively
barred from providing international airline airport services at the NAIA Terminals I and II as
all international airlines and passengers will be diverted to the NAIA IPT III. The petitioning
service providers will thus be compelled to contract with PIATCO alone for such services,
with no assurance that subsisting contracts with MIAA and other international airlines will be
respected. Petitioning service providers stress that despite the very competitive market, the
substantial capital investments required and the high rate of fees, they entered into their
respective contracts with the MIAA with the understanding that the said contracts will be in
force for the stipulated period, and thereafter, renewed so as to allow each of the petitioning
service providers to recoup their investments and obtain a reasonable return thereon.

Petitioning employees of various service providers at the NAIA Terminals I and II and of
MIAA on the other hand allege that with the closure of the NAIA Terminals I and II as
international passenger terminals under the PIATCO Contracts, they stand to lose
employment.

The question on legal standing is whether such parties have "alleged such a personal stake
in the outcome of the controversy as to assure that concrete adverseness which sharpens
the presentation of issues upon which the court so largely depends for illumination of
difficult constitutional questions."9 Accordingly, it has been held that the interest of a person
assailing the constitutionality of a statute must be direct and personal. He must be able to
show, not only that the law or any government act is invalid, but also that he sustained or is
in imminent danger of sustaining some direct injury as a result of its enforcement, and not
merely that he suffers thereby in some indefinite way. It must appear that the person
complaining has been or is about to be denied some right or privilege to which he is lawfully
entitled or that he is about to be subjected to some burdens or penalties by reason of the
statute or act complained of.10

We hold that petitioners have the requisite standing. In the above-mentioned cases,
petitioners have a direct and substantial interest to protect by reason of the implementation
of the PIATCO Contracts. They stand to lose their source of livelihood, a property right
which is zealously protected by the Constitution. Moreover, subsisting concession
agreements between MIAA and petitioners-intervenors and service contracts between
international airlines and petitioners-intervenors stand to be nullified or terminated by the
operation of the NAIA IPT III under the PIATCO Contracts. The financial prejudice brought
about by the PIATCO Contracts on petitioners and petitioners-intervenors in these cases
are legitimate interests sufficient to confer on them the requisite standing to file the instant
petitions.

b. G.R. No. 155547

In G.R. No. 155547, petitioners filed the petition for prohibition as members of the House of
Representatives, citizens and taxpayers. They allege that as members of the House of
Representatives, they are especially interested in the PIATCO Contracts, because the
contracts compel the Government and/or the House of Representatives to appropriate
funds necessary to comply with the provisions therein.11 They cite provisions of the PIATCO
Contracts which require disbursement of unappropriated amounts in compliance with the
contractual obligations of the Government. They allege that the Government obligations in
the PIATCO Contracts which compel government expenditure without appropriation is a
curtailment of their prerogatives as legislators, contrary to the mandate of the Constitution
that "[n]o money shall be paid out of the treasury except in pursuance of an appropriation
made by law."12

Standing is a peculiar concept in constitutional law because in some cases, suits are not
brought by parties who have been personally injured by the operation of a law or any other
government act but by concerned citizens, taxpayers or voters who actually sue in the
public interest. Although we are not unmindful of the cases of Imus Electric Co. v.
Municipality of Imus13 and Gonzales v. Raquiza14 wherein this Court held that
appropriation must be made only on amounts immediately demandable, public interest
demands that we take a more liberal view in determining whether the petitioners
suing as legislators, taxpayers and citizens have locus standi to file the instant
petition. In Kilosbayan, Inc. v. Guingona,15 this Court held "[i]n line with the liberal policy
of this Court on locus standi, ordinary taxpayers, members of Congress, and even
association of planters, and non-profit civic organizations were allowed to initiate and
prosecute actions before this Court to question the constitutionality or validity of laws, acts,
decisions, rulings, or orders of various government agencies or instrumentalities."16 Further,
"insofar as taxpayers' suits are concerned . . . (this Court) is not devoid of discretion as to
whether or not it should be entertained."17 As such ". . . even if, strictly speaking, they [the
petitioners] are not covered by the definition, it is still within the wide discretion of the Court
to waive the requirement and so remove the impediment to its addressing and resolving the
serious constitutional questions raised."18 In view of the serious legal questions involved
and their impact on public interest, we resolve to grant standing to the petitioners.

Other Procedural Matters

Respondent PIATCO further alleges that this Court is without jurisdiction to review the
instant cases as factual issues are involved which this Court is ill-equipped to resolve.
Moreover, PIATCO alleges that submission of this controversy to this Court at the first
instance is a violation of the rule on hierarchy of courts. They contend that trial courts have
concurrent jurisdiction with this Court with respect to a special civil action for prohibition and
hence, following the rule on hierarchy of courts, resort must first be had before the trial
courts.

After a thorough study and careful evaluation of the issues involved, this Court is of the view
that the crux of the instant controversy involves significant legal questions. The facts
necessary to resolve these legal questions are well established and, hence, need not be
determined by a trial court.

The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction
over the cases at bar. The said rule may be relaxed when the redress desired cannot be
obtained in the appropriate courts or where exceptional and compelling circumstances
justify availment of a remedy within and calling for the exercise of this Court's primary
jurisdiction.19

It is easy to discern that exceptional circumstances exist in the cases at bar that call for
the relaxation of the rule. Both petitioners and respondents agree that these cases are of
transcendental importance as they involve the construction and operation of the country's
premier international airport. Moreover, the crucial issues submitted for resolution are of first
impression and they entail the proper legal interpretation of key provisions of the
Constitution, the BOT Law and its Implementing Rules and Regulations. Thus, considering
the nature of the controversy before the Court, procedural bars may be lowered to give way
for the speedy disposition of the instant cases.

Legal Effect of the Commencement

of Arbitration Proceedings by

PIATCO

There is one more procedural obstacle which must be overcome. The Court is aware that
arbitration proceedings pursuant to Section 10.02 of the ARCA have been filed at the
instance of respondent PIATCO. Again, we hold that the arbitration step taken by PIATCO
will not oust this Court of its jurisdiction over the cases at bar.

In Del Monte Corporation-USA v. Court of Appeals,20 even after finding that the arbitration
clause in the Distributorship Agreement in question is valid and the dispute between the
parties is arbitrable, this Court affirmed the trial court's decision denying petitioner's Motion
to Suspend Proceedings pursuant to the arbitration clause under the contract. In so ruling,
this Court held that as contracts produce legal effect between the parties, their assigns and
heirs, only the parties to the Distributorship Agreement are bound by its terms, including the
arbitration clause stipulated therein. This Court ruled that arbitration proceedings could be
called for but only with respect to the parties to the contract in question. Considering that
there are parties to the case who are neither parties to the Distributorship Agreement nor
heirs or assigns of the parties thereto, this Court, citing its previous ruling in Salas, Jr. v.
Laperal Realty Corporation,21 held that to tolerate the splitting of proceedings by allowing
arbitration as to some of the parties on the one hand and trial for the others on the other
hand would, in effect, result in multiplicity of suits, duplicitous procedure and
unnecessary delay.22 Thus, we ruled that the interest of justice would best be served if the
trial court hears and adjudicates the case in a single and complete proceeding.

It is established that petitioners in the present cases who have presented legitimate
interests in the resolution of the controversy are not parties to the PIATCO Contracts.
Accordingly, they cannot be bound by the arbitration clause provided for in the ARCA and
hence, cannot be compelled to submit to arbitration proceedings. A speedy and decisive
resolution of all the critical issues in the present controversy, including those raised
by petitioners, cannot be made before an arbitral tribunal. The object of arbitration is
precisely to allow an expeditious determination of a dispute. This objective would not be met
if this Court were to allow the parties to settle the cases by arbitration as there are certain
issues involving non-parties to the PIATCO Contracts which the arbitral tribunal will not be
equipped to resolve.

Now, to the merits of the instant controversy.

Is PIATCO a qualified bidder?

Public respondents argue that the Paircargo Consortium, PIATCO's predecessor, was not a
duly pre-qualified bidder on the unsolicited proposal submitted by AEDC as the Paircargo
Consortium failed to meet the financial capability required under the BOT Law and the Bid
Documents. They allege that in computing the ability of the Paircargo Consortium to meet
the minimum equity requirements for the project, the entire net worth of Security Bank, a
member of the consortium, should not be considered.

PIATCO relies, on the other hand, on the strength of the Memorandum dated October 14,
1996 issued by the DOTC Undersecretary Primitivo C. Cal stating that the Paircargo
Consortium is found to have a combined net worth of P3,900,000,000.00, sufficient to meet
the equity requirements of the project. The said Memorandum was in response to a letter
from Mr. Antonio Henson of AEDC to President Fidel V. Ramos questioning the financial
capability of the Paircargo Consortium on the ground that it does not have the financial
resources to put up the required minimum equity of P2,700,000,000.00. This contention is
based on the restriction under R.A. No. 337, as amended or the General Banking Act that a
commercial bank cannot invest in any single enterprise in an amount more than 15% of its
net worth. In the said Memorandum, Undersecretary Cal opined:

The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that
financial capability will be evaluated based on total financial capability of all the
member companies of the [Paircargo] Consortium. In this connection, the Challenger
was found to have a combined net worth of P3,926,421,242.00 that could support a
project costing approximately P13 Billion.

It is not a requirement that the net worth must be "unrestricted." To impose that as a
requirement now will be nothing less than unfair.

The financial statement or the net worth is not the sole basis in establishing financial
capability. As stated in Bid Bulletin No. 3, financial capability may also be
established by testimonial letters issued by reputable banks. The Challenger has
complied with this requirement.

To recap, net worth reflected in the Financial Statement should not be taken as the
amount of the money to be used to answer the required thirty percent (30%) equity
of the challenger but rather to be used in establishing if there is enough basis to
believe that the challenger can comply with the required 30% equity. In fact, proof of
sufficient equity is required as one of the conditions for award of contract (Section
12.1 IRR of the BOT Law) but not for pre-qualification (Section 5.4 of the same
document).23

Under the BOT Law, in case of a build-operate-and-transfer arrangement, the

contract shall be awarded to the bidder "who, having satisfied the minimum
financial, technical, organizational and legal standards" required by the law, has
submitted the lowest bid and most favorable terms of the project. 24 Further, the 1994
Implementing Rules and Regulations of the BOT Law provide:

Section 5.4 Pre-qualification Requirements.

xxx xxx xxx

c. Financial Capability: The project proponent must have adequate capability to

sustain the financing requirements for the detailed engineering design, construction
and/or operation and maintenance phases of the project, as the case may be. For
purposes of pre-qualification, this capability shall be measured in terms of (i) proof
of the ability of the project proponent and/or the consortium to provide a
minimum amount of equity to the project, and (ii) a letter testimonial from
reputable banks attesting that the project proponent and/or members of the
consortium are banking with them, that they are in good financial standing,
and that they have adequate resources. The government agency/LGU concerned
shall determine on a project-to-project basis and before pre-qualification, the
minimum amount of equity needed. (emphasis supplied)
Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16, 1996
amending the financial capability requirements for pre-qualification of the project proponent
as follows:

6. Basis of Pre-qualification

The basis for the pre-qualification shall be on the compliance of the proponent to the
minimum technical and financial requirements provided in the Bid Documents and in
the IRR of the BOT Law, R.A. No. 6957, as amended by R.A. 7718.

The minimum amount of equity to which the proponent's financial capability will be
based shall be thirty percent (30%) of the project cost instead of the twenty
percent (20%) specified in Section 3.6.4 of the Bid Documents. This is to
correlate with the required debt-to-equity ratio of 70:30 in Section 2.01a of the draft
concession agreement. The debt portion of the project financing should not exceed
70% of the actual project cost.

Accordingly, based on the above provisions of law, the Paircargo Consortium or any
challenger to the unsolicited proposal of AEDC has to show that it possesses the requisite
financial capability to undertake the project in the minimum amount of 30% of the
project cost through (i) proof of the ability to provide a minimum amount of equity to the
project, and (ii) a letter testimonial from reputable banks attesting that the project proponent
or members of the consortium are banking with them, that they are in good financial
standing, and that they have adequate resources.

As the minimum project cost was estimated to be US$350,000,000.00 or roughly

P9,183,650,000.00,25 the Paircargo Consortium had to show to the satisfaction of the PBAC
that it had the ability to provide the minimum equity for the project in the amount of at least
P2,755,095,000.00.

Paircargo's Audited Financial Statements as of 1993 and 1994 indicated that it had a net
worth of P2,783,592.00 and P3,123,515.00 respectively.26 PAGS' Audited Financial
Statements as of 1995 indicate that it has approximately P26,735,700.00 to invest as its
equity for the project.27 Security Bank's Audited Financial Statements as of 1995 show that
it has a net worth equivalent to its capital funds in the amount of P3,523,504,377.00. 28

We agree with public respondents that with respect to Security Bank, the entire amount of
its net worth could not be invested in a single undertaking or enterprise, whether allied or
non-allied in accordance with the provisions of R.A. No. 337, as amended or the General
Banking Act:

Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding,
the Monetary Board, whenever it shall deem appropriate and necessary to further
national development objectives or support national priority projects, may authorize
a commercial bank, a bank authorized to provide commercial banking
services, as well as a government-owned and controlled bank, to operate
under an expanded commercial banking authority and by virtue thereof
 exercise, in addition to powers authorized for commercial banks, the powers
of an Investment House as provided in Presidential Decree No. 129, invest in
the equity of a non-allied undertaking, or own a majority or all of the equity in a
financial intermediary other than a commercial bank or a bank authorized to provide
commercial banking services: Provided, That (a) the total investment in equities
shall not exceed fifty percent (50%) of the net worth of the bank; (b) the equity
investment in any one enterprise whether allied or non-allied shall not exceed
fifteen percent (15%) of the net worth of the bank; (c) the equity investment of the
bank, or of its wholly or majority-owned subsidiary, in a single non-allied undertaking
shall not exceed thirty-five percent (35%) of the total equity in the enterprise nor shall
it exceed thirty-five percent (35%) of the voting stock in that enterprise; and (d) the
equity investment in other banks shall be deducted from the investing bank's net
worth for purposes of computing the prescribed ratio of net worth to risk assets.

xxx xxx xxx

Further, the 1993 Manual of Regulations for Banks provides:

SECTION X383. Other Limitations and Restrictions. — The following limitations and
restrictions shall also apply regarding equity investments of banks.

a. In any single enterprise. — The equity investments of banks in any single

enterprise shall not exceed at any time fifteen percent (15%) of the net worth of the
investing bank as defined in Sec. X106 and Subsec. X121.5.

Thus, the maximum amount that Security Bank could validly invest in the Paircargo
Consortium is only P528,525,656.55, representing 15% of its entire net worth. The total net
worth therefore of the Paircargo Consortium, after considering the maximum amounts that
may be validly invested by each of its members is P558,384,871.55 or only 6.08% of the
project cost,29 an amount substantially less than the prescribed minimum equity
investment required for the project in the amount of P2,755,095,000.00 or 30% of the
project cost.

The purpose of pre-qualification in any public bidding is to determine, at the earliest

opportunity, the ability of the bidder to undertake the project. Thus, with respect to the
bidder's financial capacity at the pre-qualification stage, the law requires the government
agency to examine and determine the ability of the bidder to fund the entire cost of the
project by considering the maximum amounts that each bidder may invest in the
project at the time of pre-qualification.

The PBAC has determined that any prospective bidder for the construction, operation and
maintenance of the NAIA IPT III project should prove that it has the ability to provide equity
in the minimum amount of 30% of the project cost, in accordance with the 70:30 debt-to-
equity ratio prescribed in the Bid Documents. Thus, in the case of Paircargo Consortium,
the PBAC should determine the maximum amounts that each member of the consortium
may commit for the construction, operation and maintenance of the NAIA IPT III project at
the time of pre-qualification. With respect to Security Bank, the maximum amount which
may be invested by it would only be 15% of its net worth in view of the restrictions imposed
by the General Banking Act. Disregarding the investment ceilings provided by applicable
law would not result in a proper evaluation of whether or not a bidder is pre-qualified to
undertake the project as for all intents and purposes, such ceiling or legal restriction
determines the true maximum amount which a bidder may invest in the project.

Further, the determination of whether or not a bidder is pre-qualified to undertake the

project requires an evaluation of the financial capacity of the said bidder at the time the bid
is submitted based on the required documents presented by the bidder. The PBAC should
not be allowed to speculate on the future financial ability of the bidder to undertake the
project on the basis of documents submitted. This would open doors to abuse and defeat
the very purpose of a public bidding. This is especially true in the case at bar which involves
the investment of billions of pesos by the project proponent. The relevant government
authority is duty-bound to ensure that the awardee of the contract possesses the minimum
required financial capability to complete the project. To allow the PBAC to estimate the
bidder's future financial capability would not secure the viability and integrity of the project.
A restrictive and conservative application of the rules and procedures of public bidding is
necessary not only to protect the impartiality and regularity of the proceedings but also to
ensure the financial and technical reliability of the project. It has been held that:

The basic rule in public bidding is that bids should be evaluated based on the
required documents submitted before and not after the opening of bids. Otherwise,
the foundation of a fair and competitive public bidding would be defeated. Strict
observance of the rules, regulations, and guidelines of the bidding process is
the only safeguard to a fair, honest and competitive public bidding. 30

Thus, if the maximum amount of equity that a bidder may invest in the project at the time
the bids are submitted falls short of the minimum amounts required to be put up by the
bidder, said bidder should be properly disqualified. Considering that at the pre-qualification
stage, the maximum amounts which the Paircargo Consortium may invest in the project fell
short of the minimum amounts prescribed by the PBAC, we hold that Paircargo Consortium
was not a qualified bidder. Thus the award of the contract by the PBAC to the Paircargo
Consortium, a disqualified bidder, is null and void.

While it would be proper at this juncture to end the resolution of the instant controversy, as
the legal effects of the disqualification of respondent PIATCO's predecessor would come
into play and necessarily result in the nullity of all the subsequent contracts entered by it in
pursuance of the project, the Court feels that it is necessary to discuss in full the pressing
issues of the present controversy for a complete resolution thereof.

II

Is the 1997 Concession Agreement valid?

Petitioners and public respondents contend that the 1997 Concession Agreement is invalid
as it contains provisions that substantially depart from the draft Concession Agreement
included in the Bid Documents. They maintain that a substantial departure from the draft
Concession Agreement is a violation of public policy and renders the 1997 Concession
Agreement null and void.

PIATCO maintains, however, that the Concession Agreement attached to the Bid
Documents is intended to be a draft, i.e., subject to change, alteration or modification, and
that this intention was clear to all participants, including AEDC, and DOTC/MIAA. It argued
further that said intention is expressed in Part C (6) of Bid Bulletin No. 3 issued by the
PBAC which states:

6. Amendments to the Draft Concessions Agreement

Amendments to the Draft Concessions Agreement shall be issued from time to time.
Said amendments shall only cover items that would not materially affect the
preparation of the proponent's proposal.

By its very nature, public bidding aims to protect the public interest by giving the public the
best possible advantages through open competition. Thus:

Competition must be legitimate, fair and honest. In the field of government contract
law, competition requires, not only `bidding upon a common standard, a common
basis, upon the same thing, the same subject matter, the same undertaking,' but
also that it be legitimate, fair and honest; and not designed to injure or defraud
the government.31

An essential element of a publicly bidded contract is that all bidders must be on equal
footing. Not simply in terms of application of the procedural rules and regulations imposed
by the relevant government agency, but more importantly, on the contract bidded upon.
Each bidder must be able to bid on the same thing. The rationale is obvious. If the winning
bidder is allowed to later include or modify certain provisions in the contract awarded such
that the contract is altered in any material respect, then the essence of fair competition in
the public bidding is destroyed. A public bidding would indeed be a farce if after the contract
is awarded, the winning bidder may modify the contract and include provisions which are
favorable to it that were not previously made available to the other bidders. Thus:

It is inherent in public biddings that there shall be a fair competition among the
bidders. The specifications in such biddings provide the common ground or basis for
the bidders. The specifications should, accordingly, operate equally or
indiscriminately upon all bidders.32

The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota:

The law is well settled that where, as in this case, municipal authorities can only let a
contract for public work to the lowest responsible bidder, the proposals and
specifications therefore must be so framed as to permit free and full competition. Nor
can they enter into a contract with the best bidder containing substantial
provisions beneficial to him, not included or contemplated in the terms and
specifications upon which the bids were invited.33
In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that the
draft concession agreement is subject to amendment, the pertinent portion of which was
quoted above, the PBAC also clarified that "[s]aid amendments shall only cover items
that would not materially affect the preparation of the proponent's proposal."

While we concede that a winning bidder is not precluded from modifying or amending
certain provisions of the contract bidded upon, such changes must not constitute
substantial or material amendments that would alter the basic parameters of the
contract and would constitute a denial to the other bidders of the opportunity to bid
on the same terms. Hence, the determination of whether or not a modification or
amendment of a contract bidded out constitutes a substantial amendment rests on whether
the contract, when taken as a whole, would contain substantially different terms and
conditions that would have the effect of altering the technical and/or financial proposals
previously submitted by other bidders. The alterations and modifications in the contract
executed between the government and the winning bidder must be such as to render such
executed contract to be an entirely different contract from the one that was bidded
upon.

In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc.,34 this Court quoted
with approval the ruling of the trial court that an amendment to a contract awarded through
public bidding, when such subsequent amendment was made without a new public bidding,
is null and void:

The Court agrees with the contention of counsel for the plaintiffs that the due
execution of a contract after public bidding is a limitation upon the right of the
contracting parties to alter or amend it without another public bidding, for otherwise
what would a public bidding be good for if after the execution of a contract
after public bidding, the contracting parties may alter or amend the contract,
or even cancel it, at their will? Public biddings are held for the protection of the
public, and to give the public the best possible advantages by means of open
competition between the bidders. He who bids or offers the best terms is awarded
the contract subject of the bid, and it is obvious that such protection and best
possible advantages to the public will disappear if the parties to a contract executed
after public bidding may alter or amend it without another previous public bidding. 35

Hence, the question that comes to fore is this: is the 1997 Concession Agreement the same
agreement that was offered for public bidding, i.e., the draft Concession Agreement
attached to the Bid Documents? A close comparison of the draft Concession Agreement
attached to the Bid Documents and the 1997 Concession Agreement reveals that the
documents differ in at least two material respects:

a. Modification on the Public

Utility Revenues and Non-Public

Utility Revenues that may be

collected by PIATCO

The fees that may be imposed and collected by PIATCO under the draft Concession
Agreement and the 1997 Concession Agreement may be classified into three distinct
categories: (1) fees which are subject to periodic adjustment of once every two years in
accordance with a prescribed parametric formula and adjustments are made effective only
upon written approval by MIAA; (2) fees other than those included in the first category which
maybe adjusted by PIATCO whenever it deems necessary without need for consent of
DOTC/MIAA; and (3) new fees and charges that may be imposed by PIATCO which have
not been previously imposed or collected at the Ninoy Aquino International Airport
Passenger Terminal I, pursuant to Administrative Order No. 1, Series of 1993, as amended.
The glaring distinctions between the draft Concession Agreement and the 1997 Concession
Agreement lie in the types of fees included in each category and the extent of the
supervision and regulation which MIAA is allowed to exercise in relation thereto.

For fees under the first category, i.e., those which are subject to periodic adjustment in
accordance with a prescribed parametric formula and effective only upon written approval
by MIAA, the draft Concession Agreement includes the following:36

(1) aircraft parking fees;

(2) aircraft tacking fees;

(3) groundhandling fees;

(4) rentals and airline offices;

(5) check-in counter rentals; and

(6) porterage fees.

Under the 1997 Concession Agreement, fees which are subject to adjustment and
effective upon MIAA approval are classified as "Public Utility Revenues" and include:37

(1) aircraft parking fees;

(2) aircraft tacking fees;

(3) check-in counter fees; and

(4) Terminal Fees.

The implication of the reduced number of fees that are subject to MIAA approval is best
appreciated in relation to fees included in the second category identified above. Under the
1997 Concession Agreement, fees which PIATCO may adjust whenever it deems
necessary without need for consent of DOTC/MIAA are "Non-Public Utility Revenues" and
is defined as "all other income not classified as Public Utility Revenues derived from
operations of the Terminal and the Terminal Complex."38 Thus, under the 1997 Concession
Agreement, ground handling fees, rentals from airline offices and porterage fees are no
longer subject to MIAA regulation.

Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the right
to regulate (1) lobby and vehicular parking fees and (2) other new fees and charges that
may be imposed by PIATCO. Such regulation may be made by periodic adjustment and is
effective only upon written approval of MIAA. The full text of said provision is quoted below:

Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft
parking fees, aircraft tacking fees, groundhandling fees, rentals and airline offices,
check-in-counter rentals and porterage fees shall be allowed only once every two
years and in accordance with the Parametric Formula attached hereto as Annex F.
Provided that adjustments shall be made effective only after the written express
approval of the MIAA. Provided, further, that such approval of the MIAA, shall be
contingent only on the conformity of the adjustments with the above said parametric
formula. The first adjustment shall be made prior to the In-Service Date of the
Terminal.

The MIAA reserves the right to regulate under the foregoing terms and
conditions the lobby and vehicular parking fees and other new fees and
charges as contemplated in paragraph 2 of Section 6.01 if in its judgment the
users of the airport shall be deprived of a free option for the services they
cover.39

On the other hand, the equivalent provision under the 1997 Concession Agreement reads:

Section 6.03 Periodic Adjustment in Fees and Charges.

xxx xxx xxx

(c) Concessionaire shall at all times be judicious in fixing fees and charges
constituting Non-Public Utility Revenues in order to ensure that End Users are not
unreasonably deprived of services. While the vehicular parking fee, porterage fee
and greeter/well wisher fee constitute Non-Public Utility Revenues of
Concessionaire, GRP may intervene and require Concessionaire to explain
and justify the fee it may set from time to time, if in the reasonable opinion of
GRP the said fees have become exorbitant resulting in the unreasonable deprivation
of End Users of such services.40

Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking fee,
(2) porterage fee and (3) greeter/well wisher fee, all that MIAA can do is to require PIATCO
to explain and justify the fees set by PIATCO. In the draft Concession Agreement,
vehicular parking fee is subject to MIAA regulation and approval under the second
paragraph of Section 6.03 thereof while porterage fee is covered by the first paragraph of
the same provision. There is an obvious relaxation of the extent of control and regulation by
MIAA with respect to the particular fees that may be charged by PIATCO.
Moreover, with respect to the third category of fees that may be imposed and collected by
PIATCO, i.e., new fees and charges that may be imposed by PIATCO which have not been
previously imposed or collected at the Ninoy Aquino International Airport Passenger
Terminal I, under Section 6.03 of the draft Concession Agreement MIAA has reserved the
right to regulate the same under the same conditions that MIAA may regulate fees under
the first category, i.e., periodic adjustment of once every two years in accordance with a
prescribed parametric formula and effective only upon written approval by MIAA. However,
under the 1997 Concession Agreement, adjustment of fees under the third category is not
subject to MIAA regulation.

With respect to terminal fees that may be charged by PIATCO,41 as shown earlier, this was
included within the category of "Public Utility Revenues" under the 1997 Concession
Agreement. This classification is significant because under the 1997 Concession
Agreement, "Public Utility Revenues" are subject to an "Interim Adjustment" of fees upon
the occurrence of certain extraordinary events specified in the agreement. 42 However, under
the draft Concession Agreement, terminal fees are not included in the types of fees that
may be subject to "Interim Adjustment."43

Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except terminal
fees, are denominated in US Dollars44 while payments to the Government are in Philippine
Pesos. In the draft Concession Agreement, no such stipulation was included. By
stipulating that "Public Utility Revenues" will be paid to PIATCO in US Dollars while
payments by PIATCO to the Government are in Philippine currency under the 1997
Concession Agreement, PIATCO is able to enjoy the benefits of depreciations of the
Philippine Peso, while being effectively insulated from the detrimental effects of exchange
rate fluctuations.

When taken as a whole, the changes under the 1997 Concession Agreement with respect
to reduction in the types of fees that are subject to MIAA regulation and the relaxation of
such regulation with respect to other fees are significant amendments that substantially
distinguish the draft Concession Agreement from the 1997 Concession Agreement. The
1997 Concession Agreement, in this respect, clearly gives PIATCO more favorable
terms than what was available to other bidders at the time the contract was bidded
out. It is not very difficult to see that the changes in the 1997 Concession Agreement
translate to direct and concrete financial advantages for PIATCO which were not
available at the time the contract was offered for bidding. It cannot be denied that under the
1997 Concession Agreement only "Public Utility Revenues" are subject to MIAA regulation.
Adjustments of all other fees imposed and collected by PIATCO are entirely within its
control. Moreover, with respect to terminal fees, under the 1997 Concession Agreement, the
same is further subject to "Interim Adjustments" not previously stipulated in the draft
Concession Agreement. Finally, the change in the currency stipulated for "Public Utility
Revenues" under the 1997 Concession Agreement, except terminal fees, gives PIATCO an
added benefit which was not available at the time of bidding.

b. Assumption by the

Government of the liabilities of

PIATCO in the event of the latter's

default thereof

Under the draft Concession Agreement, default by PIATCO of any of its obligations to
creditors who have provided, loaned or advanced funds for the NAIA IPT III project does not
result in the assumption by the Government of these liabilities. In fact, nowhere in the said
contract does default of PIATCO's loans figure in the agreement. Such default does not
directly result in any concomitant right or obligation in favor of the Government.

However, the 1997 Concession Agreement provides:

Section 4.04 Assignment.

xxx xxx xxx

(b) In the event Concessionaire should default in the payment of an Attendant

Liability, and the default has resulted in the acceleration of the payment due date of
the Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and
Concessionaire shall immediately inform GRP in writing of such default. GRP shall,
within one hundred eighty (180) Days from receipt of the joint written notice of the
Unpaid Creditors and Concessionaire, either (i) take over the Development Facility
and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to
be substituted as concessionaire and operator of the Development Facility in
accordance with the terms and conditions hereof, or designate a qualified operator
acceptable to GRP to operate the Development Facility, likewise under the terms
and conditions of this Agreement; Provided that if at the end of the 180-day period
GRP shall not have served the Unpaid Creditors and Concessionaire written notice
of its choice, GRP shall be deemed to have elected to take over the Development
Facility with the concomitant assumption of Attendant Liabilities.

(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as
concessionaire, the latter shall form and organize a concession company qualified to
take over the operation of the Development Facility. If the concession company
should elect to designate an operator for the Development Facility, the concession
company shall in good faith identify and designate a qualified operator acceptable to
GRP within one hundred eighty (180) days from receipt of GRP's written notice. If
the concession company, acting in good faith and with due diligence, is unable to
designate a qualified operator within the aforesaid period, then GRP shall at the end
of the 180-day period take over the Development Facility and assume Attendant
Liabilities.

The term "Attendant Liabilities" under the 1997 Concession Agreement is defined as:

Attendant Liabilities refer to all amounts recorded and from time to time outstanding
in the books of the Concessionaire as owing to Unpaid Creditors who have
provided, loaned or advanced funds actually used for the Project, including all
 interests, penalties, associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses, and further including amounts owed by
Concessionaire to its suppliers, contractors and sub-contractors.

Under the above quoted portions of Section 4.04 in relation to the definition of "Attendant
Liabilities," default by PIATCO of its loans used to finance the NAIA IPT III project
triggers the occurrence of certain events that leads to the assumption by the
Government of the liability for the loans. Only in one instance may the Government
escape the assumption of PIATCO's liabilities, i.e., when the Government so elects and
allows a qualified operator to take over as Concessionaire. However, this circumstance is
dependent on the existence and availability of a qualified operator who is willing to
take over the rights and obligations of PIATCO under the contract, a circumstance
that is not entirely within the control of the Government.

Without going into the validity of this provision at this juncture, suffice it to state that Section
4.04 of the 1997 Concession Agreement may be considered a form of security for the loans
PIATCO has obtained to finance the project, an option that was not made available in the
draft Concession Agreement. Section 4.04 is an important amendment to the 1997
Concession Agreement because it grants PIATCO a financial advantage or benefit which
was not previously made available during the bidding process. This financial
advantage is a significant modification that translates to better terms and conditions for
PIATCO.

PIATCO, however, argues that the parties to the bidding procedure acknowledge that the
draft Concession Agreement is subject to amendment because the Bid Documents permit
financing or borrowing. They claim that it was the lenders who proposed the amendments to
the draft Concession Agreement which resulted in the 1997 Concession Agreement.

We agree that it is not inconsistent with the rationale and purpose of the BOT Law to allow
the project proponent or the winning bidder to obtain financing for the project, especially in
this case which involves the construction, operation and maintenance of the NAIA IPT III.
Expectedly, compliance by the project proponent of its undertakings therein would involve a
substantial amount of investment. It is therefore inevitable for the awardee of the contract to
seek alternate sources of funds to support the project. Be that as it may, this Court
maintains that amendments to the contract bidded upon should always conform to the
general policy on public bidding if such procedure is to be faithful to its real nature and
purpose. By its very nature and characteristic, competitive public bidding aims to protect the
public interest by giving the public the best possible advantages through open
competition.45 It has been held that the three principles in public bidding are (1) the offer to
the public; (2) opportunity for competition; and (3) a basis for the exact comparison of bids.
A regulation of the matter which excludes any of these factors destroys the distinctive
character of the system and thwarts the purpose of its adoption. 46 These are the basic
parameters which every awardee of a contract bidded out must conform to, requirements of
financing and borrowing notwithstanding. Thus, upon a concrete showing that, as in this
case, the contract signed by the government and the contract-awardee is an entirely
different contract from the contract bidded, courts should not hesitate to strike down said
contract in its entirety for violation of public policy on public bidding. A strict adherence on
the principles, rules and regulations on public bidding must be sustained if only to preserve
the integrity and the faith of the general public on the procedure.

Public bidding is a standard practice for procuring government contracts for public service
and for furnishing supplies and other materials. It aims to secure for the government the
lowest possible price under the most favorable terms and conditions, to curtail favoritism in
the award of government contracts and avoid suspicion of anomalies and it places all
bidders in equal footing.47 Any government action which permits any substantial
variance between the conditions under which the bids are invited and the contract
executed after the award thereof is a grave abuse of discretion amounting to lack or
excess of jurisdiction which warrants proper judicial action.

In view of the above discussion, the fact that the foregoing substantial amendments were
made on the 1997 Concession Agreement renders the same null and void for being
contrary to public policy. These amendments convert the 1997 Concession Agreement to
an entirely different agreement from the contract bidded out or the draft Concession
Agreement. It is not difficult to see that the amendments on (1) the types of fees or charges
that are subject to MIAA regulation or control and the extent thereof and (2) the assumption
by the Government, under certain conditions, of the liabilities of PIATCO directly
translates concrete financial advantages to PIATCO that were previously not
available during the bidding process. These amendments cannot be taken as merely
supplements to or implementing provisions of those already existing in the draft Concession
Agreement. The amendments discussed above present new terms and conditions which
provide financial benefit to PIATCO which may have altered the technical and financial
parameters of other bidders had they known that such terms were available.

III

Direct Government Guarantee

Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession
Agreement provides:

Section 4.04 Assignment

xxx xxx xxx

(b) In the event Concessionaire should default in the payment of an Attendant

Liability, and the default resulted in the acceleration of the payment due date of the
Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and
Concessionaire shall immediately inform GRP in writing of such default. GRP shall
within one hundred eighty (180) days from receipt of the joint written notice of the
Unpaid Creditors and Concessionaire, either (i) take over the Development Facility
and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified
to be substituted as concessionaire and operator of the Development facility in
accordance with the terms and conditions hereof, or designate a qualified operator
acceptable to GRP to operate the Development Facility, likewise under the terms
 and conditions of this Agreement; Provided, that if at the end of the 180-day period
GRP shall not have served the Unpaid Creditors and Concessionaire written notice
of its choice, GRP shall be deemed to have elected to take over the
Development Facility with the concomitant assumption of Attendant Liabilities.

(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as

concessionaire, the latter shall form and organize a concession company qualified to
takeover the operation of the Development Facility. If the concession company
should elect to designate an operator for the Development Facility, the concession
company shall in good faith identify and designate a qualified operator acceptable to
GRP within one hundred eighty (180) days from receipt of GRP's written notice. If
the concession company, acting in good faith and with due diligence, is unable to
designate a qualified operator within the aforesaid period, then GRP shall at the end
of the 180-day period take over the Development Facility and assume Attendant
Liabilities.

….

Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts recorded and from time to time
outstanding in the books of the Concessionaire as owing to Unpaid Creditors
who have provided, loaned or advanced funds actually used for the Project,
including all interests, penalties, associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses, and further including amounts owed by
Concessionaire to its suppliers, contractors and sub-contractors.48

It is clear from the above-quoted provisions that Government, in the event that PIATCO
defaults in its loan obligations, is obligated to pay "all amounts recorded and from time
to time outstanding from the books" of PIATCO which the latter owes to its creditors. 49
These amounts include "all interests, penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related expenses."50 This obligation of the
Government to pay PIATCO's creditors upon PIATCO's default would arise if the
Government opts to take over NAIA IPT III. It should be noted, however, that even if the
Government chooses the second option, which is to allow PIATCO's unpaid creditors
operate NAIA IPT III, the Government is still at a risk of being liable to PIATCO's creditors
should the latter be unable to designate a qualified operator within the prescribed period. 51
In effect, whatever option the Government chooses to take in the event of PIATCO's
failure to fulfill its loan obligations, the Government is still at a risk of assuming
PIATCO's outstanding loans. This is due to the fact that the Government would only be
free from assuming PIATCO's debts if the unpaid creditors would be able to designate a
qualified operator within the period provided for in the contract. Thus, the Government's
assumption of liability is virtually out of its control. The Government under the
circumstances provided for in the 1997 Concession Agreement is at the mercy of the
existence, availability and willingness of a qualified operator. The above contractual
provisions constitute a direct government guarantee which is prohibited by law.
One of the main impetus for the enactment of the BOT Law is the lack of government funds
to construct the infrastructure and development projects necessary for economic growth
and development. This is why private sector resources are being tapped in order to finance
these projects. The BOT law allows the private sector to participate, and is in fact
encouraged to do so by way of incentives, such as minimizing the unstable flow of returns, 52
provided that the government would not have to unnecessarily expend scarcely available
funds for the project itself. As such, direct guarantee, subsidy and equity by the government
in these projects are strictly prohibited.53 This is but logical for if the government would
in the end still be at a risk of paying the debts incurred by the private entity in the
BOT projects, then the purpose of the law is subverted.

Section 2(n) of the BOT Law defines direct guarantee as follows:

(n) Direct government guarantee — An agreement whereby the government or any

of its agencies or local government units assume responsibility for the repayment of
debt directly incurred by the project proponent in implementing the project in
case of a loan default.

Clearly by providing that the Government "assumes" the attendant liabilities, which consists
of PIATCO's unpaid debts, the 1997 Concession Agreement provided for a direct
government guarantee for the debts incurred by PIATCO in the implementation of the NAIA
IPT III project. It is of no moment that the relevant sections are subsumed under the title of
"assignment". The provisions providing for direct government guarantee which is prohibited
by law is clear from the terms thereof.

The fact that the ARCA superseded the 1997 Concession Agreement did not cure this fatal
defect. Article IV, Section 4.04(c), in relation to Article I, Section 1.06, of the ARCA
provides:

Section 4.04 Security

xxx xxx xxx

(c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith
and enter into direct agreement with the Senior Lenders, or with an agent of
such Senior Lenders (which agreement shall be subject to the approval of the
Bangko Sentral ng Pilipinas), in such form as may be reasonably acceptable to both
GRP and Senior Lenders, with regard, inter alia, to the following parameters:

xxx xxx xxx

(iv) If the Concessionaire [PIATCO] is in default under a payment

obligation owed to the Senior Lenders, and as a result thereof the Senior
Lenders have become entitled to accelerate the Senior Loans, the Senior
Lenders shall have the right to notify GRP of the same, and without prejudice
to any other rights of the Senior Lenders or any Senior Lenders' agent may
have (including without limitation under security interests granted in favor of
 the Senior Lenders), to either in good faith identify and designate a nominee
which is qualified under sub-clause (viii)(y) below to operate the Development
Facility [NAIA Terminal 3] or transfer the Concessionaire's [PIATCO] rights
and obligations under this Agreement to a transferee which is qualified under
sub-clause (viii) below;

xxx xxx xxx

(vi) if the Senior Lenders, acting in good faith and using reasonable efforts,
are unable to designate a nominee or effect a transfer in terms and conditions
satisfactory to the Senior Lenders within one hundred eighty (180) days after
giving GRP notice as referred to respectively in (iv) or (v) above, then GRP
and the Senior Lenders shall endeavor in good faith to enter into any other
arrangement relating to the Development Facility [NAIA Terminal 3] (other
than a turnover of the Development Facility [NAIA Terminal 3] to GRP) within
the following one hundred eighty (180) days. If no agreement relating to the
Development Facility [NAIA Terminal 3] is arrived at by GRP and the Senior
Lenders within the said 180-day period, then at the end thereof the
Development Facility [NAIA Terminal 3] shall be transferred by the
Concessionaire [PIATCO] to GRP or its designee and GRP shall make a
termination payment to Concessionaire [PIATCO] equal to the
Appraised Value (as hereinafter defined) of the Development Facility
[NAIA Terminal 3] or the sum of the Attendant Liabilities, if greater.
Notwithstanding Section 8.01(c) hereof, this Agreement shall be deemed
terminated upon the transfer of the Development Facility [NAIA Terminal 3] to
GRP pursuant hereto;

xxx xxx xxx

Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts in each case supported by verifiable

evidence from time to time owed or which may become owing by
Concessionaire [PIATCO] to Senior Lenders or any other persons or entities
who have provided, loaned, or advanced funds or provided financial facilities to
Concessionaire [PIATCO] for the Project [NAIA Terminal 3], including, without
limitation, all principal, interest, associated fees, charges, reimbursements,
and other related expenses (including the fees, charges and expenses of any
agents or trustees of such persons or entities), whether payable at maturity, by
acceleration or otherwise, and further including amounts owed by Concessionaire
[PIATCO] to its professional consultants and advisers, suppliers, contractors and
sub-contractors.54

It is clear from the foregoing contractual provisions that in the event that PIATCO fails to
fulfill its loan obligations to its Senior Lenders, the Government is obligated to directly
negotiate and enter into an agreement relating to NAIA IPT III with the Senior Lenders,
should the latter fail to appoint a qualified nominee or transferee who will take the place of
PIATCO. If the Senior Lenders and the Government are unable to enter into an agreement
after the prescribed period, the Government must then pay PIATCO, upon transfer of NAIA
IPT III to the Government, termination payment equal to the appraised value of the project
or the value of the attendant liabilities whichever is greater. Attendant liabilities as
defined in the ARCA includes all amounts owed or thereafter may be owed by PIATCO not
only to the Senior Lenders with whom PIATCO has defaulted in its loan obligations but to all
other persons who may have loaned, advanced funds or provided any other type of financial
facilities to PIATCO for NAIA IPT III. The amount of PIATCO's debt that the Government
would have to pay as a result of PIATCO's default in its loan obligations -- in case no
qualified nominee or transferee is appointed by the Senior Lenders and no other agreement
relating to NAIA IPT III has been reached between the Government and the Senior Lenders
-- includes, but is not limited to, "all principal, interest, associated fees, charges,
reimbursements, and other related expenses . . . whether payable at maturity, by
acceleration or otherwise."55

It is clear from the foregoing that the ARCA provides for a direct guarantee by the
government to pay PIATCO's loans not only to its Senior Lenders but all other
entities who provided PIATCO funds or services upon PIATCO's default in its loan
obligation with its Senior Lenders. The fact that the Government's obligation to pay
PIATCO's lenders for the latter's obligation would only arise after the Senior Lenders fail to
appoint a qualified nominee or transferee does not detract from the fact that, should the
conditions as stated in the contract occur, the ARCA still obligates the Government to pay
any and all amounts owed by PIATCO to its lenders in connection with NAIA IPT III. Worse,
the conditions that would make the Government liable for PIATCO's debts is triggered by
PIATCO's own default of its loan obligations to its Senior Lenders to which loan contracts
the Government was never a party to. The Government was not even given an option as to
what course of action it should take in case PIATCO defaulted in the payment of its senior
loans. The Government, upon PIATCO's default, would be merely notified by the Senior
Lenders of the same and it is the Senior Lenders who are authorized to appoint a qualified
nominee or transferee. Should the Senior Lenders fail to make such an appointment, the
Government is then automatically obligated to "directly deal and negotiate" with the Senior
Lenders regarding NAIA IPT III. The only way the Government would not be liable for
PIATCO's debt is for a qualified nominee or transferee to be appointed in place of PIATCO
to continue the construction, operation and maintenance of NAIA IPT III. This "pre-
condition", however, will not take the contract out of the ambit of a direct guarantee by the
government as the existence, availability and willingness of a qualified nominee or
transferee is totally out of the government's control. As such the Government is virtually
at the mercy of PIATCO (that it would not default on its loan obligations to its Senior
Lenders), the Senior Lenders (that they would appoint a qualified nominee or transferee or
agree to some other arrangement with the Government) and the existence of a qualified
nominee or transferee who is able and willing to take the place of PIATCO in NAIA IPT III.

The proscription against government guarantee in any form is one of the policy
considerations behind the BOT Law. Clearly, in the present case, the ARCA obligates the
Government to pay for all loans, advances and obligations arising out of financial facilities
extended to PIATCO for the implementation of the NAIA IPT III project should PIATCO
default in its loan obligations to its Senior Lenders and the latter fails to appoint a qualified
nominee or transferee. This in effect would make the Government liable for PIATCO's loans
should the conditions as set forth in the ARCA arise. This is a form of direct government
guarantee.

The BOT Law and its implementing rules provide that in order for an unsolicited proposal for
a BOT project may be accepted, the following conditions must first be met: (1) the project
involves a new concept in technology and/or is not part of the list of priority projects, (2) no
direct government guarantee, subsidy or equity is required, and (3) the government
agency or local government unit has invited by publication other interested parties to a
public bidding and conducted the same.56 The failure to meet any of the above conditions
will result in the denial of the proposal. It is further provided that the presence of direct
government guarantee, subsidy or equity will "necessarily disqualify a proposal from being
treated and accepted as an unsolicited proposal."57 The BOT Law clearly and strictly
prohibits direct government guarantee, subsidy and equity in unsolicited proposals that the
mere inclusion of a provision to that effect is fatal and is sufficient to deny the proposal. It
stands to reason therefore that if a proposal can be denied by reason of the existence of
direct government guarantee, then its inclusion in the contract executed after the said
proposal has been accepted is likewise sufficient to invalidate the contract itself. A
prohibited provision, the inclusion of which would result in the denial of a proposal cannot,
and should not, be allowed to later on be inserted in the contract resulting from the said
proposal. The basic rules of justice and fair play alone militate against such an occurrence
and must not, therefore, be countenanced particularly in this instance where the
government is exposed to the risk of shouldering hundreds of million of dollars in debt.

This Court has long and consistently adhered to the legal maxim that those that cannot be
done directly cannot be done indirectly.58 To declare the PIATCO contracts valid despite
the clear statutory prohibition against a direct government guarantee would not only
make a mockery of what the BOT Law seeks to prevent -- which is to expose the
government to the risk of incurring a monetary obligation resulting from a contract of
loan between the project proponent and its lenders and to which the Government is
not a party to -- but would also render the BOT Law useless for what it seeks to
achieve –- to make use of the resources of the private sector in the "financing,
operation and maintenance of infrastructure and development projects" 59 which are
necessary for national growth and development but which the government,
unfortunately, could ill-afford to finance at this point in time.

IV

Temporary takeover of business affected with public interest

Article XII, Section 17 of the 1987 Constitution provides:

Section 17. In times of national emergency, when the public interest so requires, the
State may, during the emergency and under reasonable terms prescribed by it,
temporarily take over or direct the operation of any privately owned public utility or
business affected with public interest.
The above provision pertains to the right of the State in times of national emergency, and in
the exercise of its police power, to temporarily take over the operation of any business
affected with public interest. In the 1986 Constitutional Commission, the term "national
emergency" was defined to include threat from external aggression, calamities or national
disasters, but not strikes "unless it is of such proportion that would paralyze government
service."60 The duration of the emergency itself is the determining factor as to how long the
temporary takeover by the government would last.61 The temporary takeover by the
government extends only to the operation of the business and not to the ownership thereof.
As such the government is not required to compensate the private entity-owner of the
said business as there is no transfer of ownership, whether permanent or temporary.
The private entity-owner affected by the temporary takeover cannot, likewise, claim just
compensation for the use of the said business and its properties as the temporary takeover
by the government is in exercise of its police power and not of its power of eminent
domain.

Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:

Section 5.10 Temporary Take-over of operations by GRP.

….

(c) In the event the development Facility or any part thereof and/or the operations of
Concessionaire or any part thereof, become the subject matter of or be included in
any notice, notification, or declaration concerning or relating to acquisition, seizure or
appropriation by GRP in times of war or national emergency, GRP shall, by written
notice to Concessionaire, immediately take over the operations of the Terminal
and/or the Terminal Complex. During such take over by GRP, the Concession
Period shall be suspended; provided, that upon termination of war, hostilities or
national emergency, the operations shall be returned to Concessionaire, at which
time, the Concession period shall commence to run again. Concessionaire shall be
entitled to reasonable compensation for the duration of the temporary take
over by GRP, which compensation shall take into account the reasonable cost
for the use of the Terminal and/or Terminal Complex, (which is in the amount
at least equal to the debt service requirements of Concessionaire, if the
temporary take over should occur at the time when Concessionaire is still servicing
debts owed to project lenders), any loss or damage to the Development Facility, and
other consequential damages. If the parties cannot agree on the reasonable
compensation of Concessionaire, or on the liability of GRP as aforesaid, the matter
shall be resolved in accordance with Section 10.01 [Arbitration]. Any amount
determined to be payable by GRP to Concessionaire shall be offset from the amount
next payable by Concessionaire to GRP.62

PIATCO cannot, by mere contractual stipulation, contravene the Constitutional

provision on temporary government takeover and obligate the government to pay
"reasonable cost for the use of the Terminal and/or Terminal Complex."63 Article XII,
section 17 of the 1987 Constitution envisions a situation wherein the exigencies of the times
necessitate the government to "temporarily take over or direct the operation of any privately
owned public utility or business affected with public interest." It is the welfare and interest of
the public which is the paramount consideration in determining whether or not to temporarily
take over a particular business. Clearly, the State in effecting the temporary takeover is
exercising its police power. Police power is the "most essential, insistent, and illimitable of
powers."64 Its exercise therefore must not be unreasonably hampered nor its exercise be a
source of obligation by the government in the absence of damage due to arbitrariness of its
exercise.65 Thus, requiring the government to pay reasonable compensation for the
reasonable use of the property pursuant to the operation of the business contravenes the
Constitution.

Regulation of Monopolies

A monopoly is "a privilege or peculiar advantage vested in one or more persons or

companies, consisting in the exclusive right (or power) to carry on a particular business or
trade, manufacture a particular article, or control the sale of a particular commodity." 66 The
1987 Constitution strictly regulates monopolies, whether private or public, and even
provides for their prohibition if public interest so requires. Article XII, Section 19 of the 1987
Constitution states:

Sec. 19. The state shall regulate or prohibit monopolies when the public interest so
requires. No combinations in restraint of trade or unfair competition shall be allowed.

Clearly, monopolies are not per se prohibited by the Constitution but may be permitted to
exist to aid the government in carrying on an enterprise or to aid in the performance of
various services and functions in the interest of the public.67 Nonetheless, a
determination must first be made as to whether public interest requires a monopoly. As
monopolies are subject to abuses that can inflict severe prejudice to the public, they are
subject to a higher level of State regulation than an ordinary business undertaking.

In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA, is
granted the "exclusive right to operate a commercial international passenger terminal
within the Island of Luzon" at the NAIA IPT III.68 This is with the exception of already
existing international airports in Luzon such as those located in the Subic Bay Freeport
Special Economic Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in Laoag
City.69 As such, upon commencement of PIATCO's operation of NAIA IPT III, Terminals 1
and 2 of NAIA would cease to function as international passenger terminals. This, however,
does not prevent MIAA to use Terminals 1 and 2 as domestic passenger terminals or in any
other manner as it may deem appropriate except those activities that would compete with
NAIA IPT III in the latter's operation as an international passenger terminal. 70 The right
granted to PIATCO to exclusively operate NAIA IPT III would be for a period of twenty-five
(25) years from the In-Service Date71 and renewable for another twenty-five (25) years at
the option of the government.72 Both the 1997 Concession Agreement and the ARCA
further provide that, in view of the exclusive right granted to PIATCO, the concession
contracts of the service providers currently servicing Terminals 1 and 2 would no
longer be renewed and those concession contracts whose expiration are subsequent
to the In-Service Date would cease to be effective on the said date.73

The operation of an international passenger airport terminal is no doubt an undertaking

imbued with public interest. In entering into a Build–Operate-and-Transfer contract for the
construction, operation and maintenance of NAIA IPT III, the government has determined
that public interest would be served better if private sector resources were used in its
construction and an exclusive right to operate be granted to the private entity undertaking
the said project, in this case PIATCO. Nonetheless, the privilege given to PIATCO is subject
to reasonable regulation and supervision by the Government through the MIAA, which is the
government agency authorized to operate the NAIA complex, as well as DOTC, the
department to which MIAA is attached.74

This is in accord with the Constitutional mandate that a monopoly which is not prohibited
must be regulated.75 While it is the declared policy of the BOT Law to encourage private
sector participation by "providing a climate of minimum government regulations,"76 the same
does not mean that Government must completely surrender its sovereign power to protect
public interest in the operation of a public utility as a monopoly. The operation of said public
utility can not be done in an arbitrary manner to the detriment of the public which it seeks to
serve. The right granted to the public utility may be exclusive but the exercise of the right
cannot run riot. Thus, while PIATCO may be authorized to exclusively operate NAIA IPT III
as an international passenger terminal, the Government, through the MIAA, has the right
and the duty to ensure that it is done in accord with public interest. PIATCO's right to
operate NAIA IPT III cannot also violate the rights of third parties.

Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:

3.01 Concession Period

xxx xxx xxx

(e) GRP confirms that certain concession agreements relative to certain services
and operations currently being undertaken at the Ninoy Aquino International Airport
passenger Terminal I have a validity period extending beyond the In-Service
Date. GRP through DOTC/MIAA, confirms that these services and operations shall
not be carried over to the Terminal and the Concessionaire is under no legal
obligation to permit such carry-over except through a separate agreement duly
entered into with Concessionaire. In the event Concessionaire becomes involved in
any litigation initiated by any such concessionaire or operator, GRP undertakes and
hereby holds Concessionaire free and harmless on full indemnity basis from and
against any loss and/or any liability resulting from any such litigation, including the
cost of litigation and the reasonable fees paid or payable to Concessionaire's
counsel of choice, all such amounts shall be fully deductible by way of an offset from
any amount which the Concessionaire is bound to pay GRP under this Agreement.

During the oral arguments on December 10, 2002, the counsel for the petitioners-in-
intervention for G.R. No. 155001 stated that there are two service providers whose
 contracts are still existing and whose validity extends beyond the In-Service Date.
One contract remains valid until 2008 and the other until 2010. 77

We hold that while the service providers presently operating at NAIA Terminal 1 do not have
an absolute right for the renewal or the extension of their respective contracts, those
contracts whose duration extends beyond NAIA IPT III's In-Service-Date should not be
unduly prejudiced. These contracts must be respected not just by the parties thereto but
also by third parties. PIATCO cannot, by law and certainly not by contract, render a valid
and binding contract nugatory. PIATCO, by the mere expedient of claiming an exclusive
right to operate, cannot require the Government to break its contractual obligations to the
service providers. In contrast to the arrastre and stevedoring service providers in the case
of Anglo-Fil Trading Corporation v. Lazaro78 whose contracts consist of temporary hold-
over permits, the affected service providers in the cases at bar, have a valid and binding
contract with the Government, through MIAA, whose period of effectivity, as well as the
other terms and conditions thereof, cannot be violated.

In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The provisions
of the 1997 Concession Agreement and the ARCA did not strip government, thru the MIAA,
of its right to supervise the operation of the whole NAIA complex, including NAIA IPT III. As
the primary government agency tasked with the job,79 it is MIAA's responsibility to ensure
that whoever by contract is given the right to operate NAIA IPT III will do so within the
bounds of the law and with due regard to the rights of third parties and above all, the
interest of the public.

VI

CONCLUSION

In sum, this Court rules that in view of the absence of the requisite financial capacity of the
Paircargo Consortium, predecessor of respondent PIATCO, the award by the PBAC of the
contract for the construction, operation and maintenance of the NAIA IPT III is null and void.
Further, considering that the 1997 Concession Agreement contains material and substantial
amendments, which amendments had the effect of converting the 1997 Concession
Agreement into an entirely different agreement from the contract bidded upon, the 1997
Concession Agreement is similarly null and void for being contrary to public policy. The
provisions under Sections 4.04(b) and (c) in relation to Section 1.06 of the 1997 Concession
Agreement and Section 4.04(c) in relation to Section 1.06 of the ARCA, which constitute a
direct government guarantee expressly prohibited by, among others, the BOT Law and its
Implementing Rules and Regulations are also null and void. The Supplements, being
accessory contracts to the ARCA, are likewise null and void.

WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession
Agreement and the Supplements thereto are set aside for being null and void.

SO ORDERED.
Davide, Jr., C.J., Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez,
Corona, and Carpio-Morales, JJ., concur.
Vitug, J., see separate (dissenting) opinion.
Panganiban, J., please see separate opinion.
Quisumbing, J., no jurisdiction, please see separate opinion of J. Vitug in which he concurs.
Carpio, J., no part.
Callejo, Sr., J., also concur in the separate opinion of J. Panganiban.
Azcuna, J., joins the separate opinion of J. Vitug.

SEPARATE OPINIONS

VITUG, J.:

This Court is bereft of jurisdiction to hear the petitions at bar. The Constitution provides that
the Supreme Court shall exercise original jurisdiction over, among other actual
controversies, petitions for certiorari, prohibition, mandamus, quo warranto, and habeas
corpus.1 The cases in question, although denominated to be petitions for prohibition,
actually pray for the nullification of the PIATCO contracts and to restrain respondents from
implementing said agreements for being illegal and unconstitutional.

Section 2, Rule 65 of the Rules of Court states:

"When the proceedings of any tribunal, corporation, board, officer or person, whether
exercising judicial, quasi-judicial or ministerial functions, are without or in excess of
its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal or any other plain, speedy and adequate remedy
in the ordinary course of law, a person aggrieved thereby may file a verified petition
in the proper court, alleging the facts with certainty and praying that judgment be
rendered commanding the respondent to desist from further proceedings in the
action or matter specified therein, or otherwise granting such incidental reliefs as law
and justice may require."

The rule is explicit. A petition for prohibition may be filed against a tribunal, corporation,
board, officer or person, exercising judicial, quasi-judicial or ministerial functions. What the
petitions seek from respondents do not involve judicial, quasi-judicial or ministerial
functions. In prohibition, only legal issues affecting the jurisdiction of the tribunal, board or
officer involved may be resolved on the basis of undisputed facts.2 The parties allege,
respectively, contentious evidentiary facts. It would be difficult, if not anomalous, to decide
the jurisdictional issue on the basis of the contradictory factual submissions made by the
parties.3 As the Court has so often exhorted, it is not a trier of facts.

The petitions, in effect, are in the nature of actions for declaratory relief under Rule 63 of the
Rules of Court. The Rules provide that any person interested under a contract may, before
breach or violation thereof, bring an action in the appropriate Regional Trial Court to
determine any question of construction or validity arising, and for a declaration of his rights
or duties thereunder.4 The Supreme Court assumes no jurisdiction over petitions for
declaratory relief which are cognizable by regional trial courts.5

As I have so expressed in Tolentino vs. Secretary of Finance,6 reiterated in Santiago vs.

Guingona, Jr.7 , the Supreme Court should not be thought of as having been tasked with the
awesome responsibility of overseeing the entire bureaucracy. Pervasive and limitless, such
as it may seem to be under the 1987 Constitution, judicial power still succumbs to the
paramount doctrine of separation of powers. The Court may not at good liberty intrude, in
the guise of sovereign imprimatur, into every affair of government. What significance can
still then remain of the time-honored and widely acclaimed principle of separation of powers
if, at every turn, the Court allows itself to pass upon at will the disposition of a co-equal,
independent and coordinate branch in our system of government. I dread to think of the so
varied uncertainties that such an undue interference can lead to.

Accordingly, I vote for the dismissal of the petition.

Quisumbing, and Azcuna, JJ., concur.

PANGANIBAN, J.:

The five contracts for the construction and the operation of Ninoy Aquino International
Airport (NAIA) Terminal III, the subject of the consolidated Petitions before the Court, are
replete with outright violations of law, public policy and the Constitution. The only proper
thing to do is declare them all null and void ab initio and let the chips fall where they may.
Fiat iustitia ruat coelum.

The facts leading to this controversy are already well presented in the ponencia. I shall not
burden the readers with a retelling thereof. Instead, I will cut to the chase and directly
address the two sets of gut issues:

1. The first issue is procedural: Does the Supreme Court have original jurisdiction to hear
and decide the Petitions? Corollarily, do petitioners have locus standi and should this Court
decide the cases without any mandatory referral to arbitration?

2. The second one is substantive in character: Did the subject contracts violate the
Constitution, the laws, and public policy to such an extent as to render all of them void and
inexistent?

My answer to all the above questions is a firm "Yes."

The Procedural Issue:

Jurisdiction, Standing and Arbitration

Definitely and surely, the issues involved in these Petitions are clearly of transcendental
importance and of national interest. The subject contracts pertain to the construction and
the operation of the country's premiere international airport terminal - an ultramodern world-
class public utility that will play a major role in the country's economic development and
serve to project a positive image of our country abroad. The five build-operate-&-transfer
(BOT) contracts, while entailing the investment of billions of pesos in capital and the
availment of several hundred millions of dollars in loans, contain provisions that tend to
establish a monopoly, require the disbursements of public funds sans appropriations, and
provide government guarantees in violation of statutory prohibitions, as well as other
provisions equally offensive to law, public policy and the Constitution. Public interest will
inevitably be affected thereby.

Thus, objections to these Petitions, grounded upon (a) the hierarchy of courts, (b) the need
for arbitration prior to court action, and (c) the alleged lack of sufficient personality, standing
or interest, being in the main procedural matters, must now be set aside, as they have been
in past cases. This Court must be permitted to perform its constitutional duty of determining
whether the other agencies of government have acted within the limits of the Constitution
and the laws, or if they have gravely abused the discretion entrusted to them. 1

Hierarchy of Courts

The Court has, in the past, held that questions relating to gargantuan government contracts
ought to be settled without delay.2 This holding applies with greater force to the instant
cases. Respondent Piatco is partly correct in averring that petitioners can obtain relief from
the regional trial courts via an action to annul the contracts.

Nevertheless, the unavoidable consequence of having to await the rendition and the finality
of any such judgment would be a prolonged state of uncertainty that would be prejudicial to
the nation, the parties and the general public. And, in light of the feared loss of jobs of the
petitioning workers, consequent to the inevitable pretermination of contracts of the
petitioning service providers that will follow upon the heels of the impending opening of
NAIA Terminal III, the need for relief is patently urgent, and therefore, direct resort to this
Court through the special civil action of prohibition is thus justified. 3

Contrary to Piatco's argument that the resolution of the issues raised in the Petitions will
require delving into factual questions,4 I submit that their disposition ultimately turns on
questions of law.5 Further, many of the significant and relevant factual questions can be
easily addressed by an examination of the documents submitted by the parties. In any
event, the Petitions raise some novel questions involving the application of the amended
BOT Law, which this Court has seen fit to tackle.

Arbitration

Should the dispute be referred to arbitration prior to judicial recourse? Respondent Piatco
claims that Section 10.02 of the Amended and Restated Concession Agreement (ARCA)
provides for arbitration under the auspices of the International Chamber of Commerce to
settle any dispute or controversy or claim arising in connection with the Concession
Agreement, its amendments and supplements. The government disagrees, however,
insisting that there can be no arbitration based on Section 10.02 of the ARCA, since all the
Piatco contracts are void ab initio. Therefore, all contractual provisions, including Section
10.02 of the ARCA, are likewise void, inexistent and inoperative. To support its stand, the
government cites Chavez v. Presidential Commission on Good Government:6 "The void
agreement will not be rendered operative by the parties' alleged performance (partial or full)
of their respective prestations. A contract that violates the Constitution and the law is null
and void ab initio and vests no rights and creates no obligations. It produces no legal effect
at all."

As will be discussed at length later, the Piatco contracts are indeed void in their entirety;
thus, a resort to the aforesaid provision on arbitration is unavailing. Besides, petitioners and
petitioners-in-intervention have pointed out that, even granting arguendo that the arbitration
clause remained a valid provision, it still cannot bind them inasmuch as they are not parties
to the Piatco contracts. And in the final analysis, it is unarguable that the arbitration process
provided for under Section 10.02 of the ARCA, to be undertaken by a panel of three (3)
arbitrators appointed in accordance with the Rules of Arbitration of the International
Chamber of Commerce, will not be able to address, determine and definitively resolve the
constitutional and legal questions that have been raised in the Petitions before us.

Locus Standi

Given this Court's previous decisions in cases of similar import, no one will seriously doubt
that, being taxpayers and members of the House of Representatives, Petitioners Baterina et
al. have locus standi to bring the Petition in GR No. 155547. In Albano v. Reyes,7 this Court
held that the petitioner therein, suing as a citizen, taxpayer and member of the House of
Representatives, was sufficiently clothed with standing to bring the suit questioning the
validity of the assailed contract. The Court cited the fact that public interest was involved, in
view of the important role of the Manila International Container Terminal (MICT) in the
country's economic development and the magnitude of the financial consideration. This,
notwithstanding the fact that expenditure of public funds was not required under the
assailed contract.

In the cases presently under consideration, petitioners' personal and substantial interest in
the controversy is shown by the fact that certain provisions in the Piatco contracts create
obligations on the part of government (through the DOTC and the MIAA) to disburse public
funds without prior congressional appropriations.

Petitioners thus correctly assert that the injury to them has a twofold aspect: (1) they are
adversely affected as taxpayers on account of the illegal disbursement of public funds; and
(2) they are prejudiced qua legislators, since the contractual provisions requiring the
government to incur expenditures without appropriations also operate as limitations upon
the exclusive power and prerogative of Congress over the public purse. As members of the
House of Representatives, they are actually deprived of discretion insofar as the inclusion of
those items of expenditure in the budget is concerned. To prevent such encroachment upon
the legislative privilege and obviate injury to the institution of which they are members,
petitioners-legislators have locus standi to bring suit.
Messrs. Agan et al. and Lopez et al., are likewise taxpayers and thus possessed of standing
to challenge the illegal disbursement of public funds. Messrs. Agan et al., in particular, are
employees (or representatives of employees) of various service providers that have (1)
existing concession agreements with the MIAA to provide airport services necessary to the
operation of the NAIA and (2) service agreements to furnish essential support services to
the international airlines operating at the NAIA.

On the other hand, Messrs. Lopez et al. are employees of the MIAA. These petitioners
(Messrs. Agan et al. and Messrs. Lopez et al.) are confronted with the prospect of being laid
off from their jobs and losing their means of livelihood when their employer-companies are
forced to shut down or otherwise retrench and cut back on manpower. Such development
would result from the imminent implementation of certain provisions in the contracts that
tend toward the creation of a monopoly in favor of Piatco, its subsidiaries and related
companies.

Petitioners-in-intervention are service providers in the business of furnishing airport-related

services to international airlines and passengers in the NAIA and are therefore competitors
of Piatco as far as that line of business is concerned. On account of provisions in the Piatco
contracts, petitioners-in-intervention have to enter into a written contract with Piatco so as
not to be shut out of NAIA Terminal III and barred from doing business there. Since there is
no provision to ensure or safeguard free and fair competition, they are literally at its mercy.
They claim injury on account of their deprivation of property (business) and of the liberty to
contract, without due process of law.

And even if petitioners and petitioners-in-intervention were not sufficiently clothed with legal
standing, I have at the outset already established that, given its impact on the public and on
national interest, this controversy is laden with transcendental importance and constitutional
significance. Hence, I do not hesitate to adopt the same position as was enunciated in
Kilosbayan v. Guingona Jr.8 that "in cases of transcendental importance, the Court may
relax the standing requirements and allow a suit to prosper even when there is no direct
injury to the party claiming the right of judicial review."9

The Substantive Issue:

Violations of the Constitution and the Laws

From the Outset, the Bidding Process Was Flawed and Tainted

After studying the documents submitted and arguments advanced by the parties, I have no
doubt that, right at the outset, Piatco was not qualified to participate in the bidding process
for the Terminal III project, but was nevertheless permitted to do so. It even won the bidding
and was helped along by what appears to be a series of collusive and corrosive acts.

The build-operate-and-transfer (BOT) project for the NAIA Passenger Terminal III comes
under the category of an "unsolicited proposal," which is the subject of Section 4-A of the
BOT Law.10 The unsolicited proposal was originally submitted by the Asia's Emerging
Dragon Corporation (AEDC) to the Department of Transportation and Communications
(DOTC) and the Manila International Airport Authority (MIAA), which reviewed and
approved the proposal.

The draft of the concession agreement as negotiated between AEDC and DOTC/MIAA was
endorsed to the National Economic Development Authority (NEDA-ICC), which in turn
reviewed it on the basis of its scope, economic viability, financial indicators and risks; and
thereafter approved it for bidding.

The DOTC/MIAA then prepared the Bid Documents, incorporating therein the negotiated
Draft Concession Agreement, and published invitations for public bidding, i.e., for the
submission of comparative or competitive proposals. Piatco's predecessor-in-interest, the
Paircargo Consortium, was the only company that submitted a competitive bid or price
challenge.

At this point, I must emphasize that the law requires the award of a BOT project to the
bidder that has satisfied the minimum requirements; and met the technical, financial,
organizational and legal standards provided in the BOT Law. Section 5 of this statute states:

"Sec. 5. Public bidding of projects. - . . .

"In the case of a build-operate-and-transfer arrangement, the contract shall be

awarded to the bidder who, having satisfied the minimum financial, technical,
organizational and legal standards required by this Act, has submitted the
lowest bid and most favorable terms for the project, based on the present value of its
proposed tolls, fees, rentals and charges over a fixed term for the facility to be
constructed, rehabilitated, operated and maintained according to the prescribed
minimum design and performance standards, plans and specifications. . . ."
(Emphasis supplied.)

The same provision requires that the price challenge via public bidding "must be conducted
under a two-envelope/two-stage system: the first envelope to contain the technical proposal
and the second envelope to contain the financial proposal." Moreover, the 1994
Implementing Rules and Regulations (IRR) provide that only those bidders that have
passed the prequalification stage are permitted to have their two envelopes reviewed.

In other words, prospective bidders must prequalify by submitting their prequalification

documents for evaluation; and only the pre-qualified bidders would be entitled to have their
bids opened, evaluated and appreciated. On the other hand, disqualified bidders are to be
informed of the reason for their disqualification. This procedure was confirmed and
reiterated in the Bid Documents, which I quote thus: "Prequalified proponents will be
considered eligible to move to second stage technical proposal evaluation. The second and
third envelopes of pre-disqualified proponents will be returned."11

Aside from complying with the legal and technical requirements (track record or experience
of the firm and its key personnel), a project proponent desiring to prequalify must also
demonstrate its financial capacity to undertake the project. To establish such capability, a
proponent must prove that it is able to raise the minimum amount of equity required for the
project and to procure the loans or financing needed for it. Section 5.4(c) of the 1994 IRR
provides:

"Sec. 5.4. Prequalification Requirements. - To pre-qualify, a project proponent must

comply with the following requirements:

xxx xxx xxx

"c. Financial Capability. The project proponent must have adequate capability to
sustain the financing requirements for the detailed engineering design, construction,
and/or operation and maintenance phases of the project, as the case may be. For
purposes of prequalification, this capability shall be measured in terms of: (i) proof of
the ability of the project proponent and/or the consortium to provide a minimum
amount of equity to the project, and (ii) a letter testimonial from reputable banks
attesting that the project proponent and/or members of the consortium are banking
with them, that they are in good financial standing, and that they have adequate
resources. The government Agency/LGU concerned shall determine on a project-to-
project basis, and before prequalification, the minimum amount of equity needed. . . .
." (Italics supplied)

Since the minimum amount of equity for the project was set at 30 percent 12 of the minimum
project cost of US$350 million, the minimum amount of equity required of any proponent
stood at US$105 million. Converted to pesos at the exchange rate then of P26.239 to
US$1.00 (as quoted by the Bangko Sentral ng Pilipinas), the peso equivalent of the
minimum equity was P2,755,095,000.

However, the combined equity or net worth of the Paircargo consortium stood at only
P558,384,871.55.13 This amount was only slightly over 6 percent of the minimum project
cost and very much short of the required minimum equity, which was equivalent to 30
percent of the project cost. Such deficiency should have immediately caused the
disqualification of the Paircargo consortium. This matter was brought to the attention of the
Prequalification and Bidding Committee (PBAC).

Notwithstanding the glaring deficiency, DOTC Undersecretary Primitivo C. Cal, concurrent

chair of the PBAC, declared in a Memorandum dated 14 October 1996 that "the Challenger
(Paircargo consortium) was found to have a combined net worth of P3,926,421,242.00 that
could support a project costing approximately P13 billion." To justify his conclusion, he
asserted: "It is not a requirement that the networth must be `unrestricted'. To impose this as
a requirement now will be nothing less than unfair."

He further opined, "(T)he networth reflected in the Financial Statement should not be taken
as the amount of money to be used to answer the required thirty (30%) percent equity of the
challenger but rather to be used in establishing if there is enough basis to believe that the
challenger can comply with the required 30% equity. In fact, proof of sufficient equity is
required as one of the conditions for award of contract (Sec. 12.1 of IRR of the BOT Law)
but not for prequalification (Sec. 5.4 of same document)."
On the basis of the foregoing dubious declaration, the Paircargo consortium was deemed
prequalified and thus permitted to proceed to the other stages of the bidding process.

By virtue of the prequalified status conferred upon the Paircargo, Undersecretary Cal's
findings in effect relieved the consortium of the need to comply with the financial capability
requirement imposed by the BOT Law and IRR. This position is unmistakably and squarely
at odds with the Supreme Court's consistent doctrine emphasizing the strict application of
pertinent rules, regulations and guidelines for the public bidding process, in order to place
each bidder - actual or potential - on the same footing. Thus, it is unarguably irregular and
contrary to the very concept of public bidding to permit a variance between the conditions
under which bids are invited and those under which proposals are submitted and approved.

Republic v. Capulong,14 teaches that if one bidder is relieved from having to conform to the
conditions that impose some duty upon it, that bidder is not contracting in fair competition
with those bidders that propose to be bound by all conditions. The essence of public bidding
is, after all, an opportunity for fair competition and a basis for the precise comparison of
bids.15 Thus, each bidder must bid under the same conditions; and be subject to the same
guidelines, requirements and limitations. The desired result is to be able to determine the
best offer or lowest bid, all things being equal.

Inasmuch as the Paircargo consortium did not possess the minimum equity equivalent to 30
percent of the minimum project cost, it should not have been prequalified or allowed to
participate further in the bidding. The Prequalification and Bidding Committee (PBAC)
should therefore not have opened the two envelopes of the consortium containing its
technical and financial proposals; required AEDC to match the consortium's bid; 16 or
awarded the Concession Agreement to the consortium's successor-in-interest, Piatco.

As there was effectively no public bidding to speak of, the entire bidding process having
been flawed and tainted from the very outset, therefore, the award of the concession to
Paircargo's successor Piatco was void, and the Concession Agreement executed with the
latter was likewise void ab initio. For this reason, Piatco cannot and should not be allowed
to benefit from that Agreement.17

AEDC Was Deprived of the Right to Match PIATCO's Price Challenge

In DOTC PBAC Bid Bulletin No. 4 (par. 3), Undersecretary Cal declared that, for purposes
of matching the price challenge of Piatco, AEDC as originator of the unsolicited proposal
would be permitted access only to the schedule of proposed Annual Guaranteed Payments
submitted by Piatco, and not to the latter's financial and technical proposals that constituted
the basis for the price challenge in the first place. This was supposedly in keeping with
Section 11.6 of the 1994 IRR, which provides that proprietary information is to be respected,
protected and treated with utmost confidentiality, and is therefore not to form part of the
bidding/tender and related documents.

This pronouncement, I believe, was a grievous misapplication of the mentioned provision.

The "proprietary information" referred to in Section 11.6 of the IRR pertains only to the
proprietary information of the originator of an unsolicited proposal, and not to those
belonging to a challenger. The reason for the protection accorded proprietary information at
all is the fact that, according to Section 4-A of the BOT Law as amended, a proposal
qualifies as an "unsolicited proposal" when it pertains to a project that involves "a new
concept or technology", and/or a project that is not on the government's list of priority
projects.

To be considered as utilizing a new concept or technology, a project must involve the

possession of exclusive rights (worldwide or regional) over a process; or possession of
intellectual property rights over a design, methodology or engineering concept. 18 Patently,
the intent of the BOT Law is to encourage individuals and groups to come up with creative
innovations, fresh ideas and new technology. Hence, the significance and necessity of
protecting proprietary information in connection with unsolicited proposals. And to make the
encouragement real, the law also extends to such individuals and groups what amounts to a
"right of first refusal" to undertake the project they conceptualized, involving the use of new
technology or concepts, through the mechanism of matching a price challenge.

A competing bid is never just any figure conjured from out of the blue; it is arrived at after
studying economic, financial, technical and other, factors; it is likewise based on certain
assumptions as to the nature of the business, the market potentials, the probable demand
for the product or service, the future behavior of cost items, political and other risks, and so
on. It is thus self-evident that in order to be able to intelligently match a bid or price
challenge, a bidder must be given access to the assumptions and the calculations that went
into crafting the competing bid.

In this instance, the financial and technical proposals of Piatco would have provided AEDC
with the necessary information to enable it to make a reasonably informed matching bid. To
put it more simply, a bidder unable to access the competitor's assumptions will never figure
out how the competing bid came about; requiring him to "counter-propose" is like having
him shoot at a target in the dark while blindfolded.

By withholding from AEDC the challenger's financial and technical proposals containing the
critical information it needed, Undersecretary Cal actually and effectively deprived AEDC of
the ability to match the price challenge. One could say that AEDC did not have the benefit
of a "level playing field." It seems to me, though, that AEDC was actually shut out of the
game altogether.

At the end of the day, the bottom line is that the validity and the propriety of the award to
Piatco had been irreparably impaired.

Delayed Issuance of the Notice of Award Violated the BOT Law and the IRR

Section 9.5 of the IRR requires that the Notice of Award must indicate the time frame within
which the winner of the bidding (and therefore the prospective awardee) shall submit the
prescribed performance security, proof of commitment of equity contributions, and
indications of sources of financing (loans); and, in the case of joint ventures, an agreement
showing that the members are jointly and severally responsible for the obligations of the
project proponent under the contract.
The purpose of having a definite and firm timetable for the submission of the
aforementioned requirements is not only to prevent delays in the project implementation,
but also to expose and weed out unqualified proponents, who might have unceremoniously
slipped through the earlier prequalification process, by compelling them to put their money
where their mouths are, so to speak.

Nevertheless, this provision can be easily circumvented by merely postponing the actual
issuance of the Notice of Award, in order to give the favored proponent sufficient time to
comply with the requirements. Hence, to avert or minimize the manipulation of the post-
bidding process, the IRR not only set out the precise sequence of events occurring between
the completion of the evaluation of the technical bids and the issuance of the Notice of
Award, but also specified the timetables for each such event. Definite allowable extensions
of time were provided for, as were the consequences of a failure to meet a particular
deadline.

In particular, Section 9.1 of the 1994 IRR prescribed that within 30 calendar days from the
time the second-stage evaluation shall have been completed, the Committee must come to
a decision whether or not to award the contract and, within 7 days therefrom, the Notice of
Award must be approved by the head of agency or local government unit (LGU) concerned,
and its issuance must follow within another 7 days thereafter.

Section 9.2 of the IRR set the procedure applicable to projects involving substantial
government undertakings as follows: Within 7 days after the decision to award is made, the
draft contract shall be submitted to the ICC for clearance on a no-objection basis. If the draft
contract includes government undertakings already previously approved, then the
submission shall be for information only.

However, should there be additional or new provisions different from the original
government undertakings, the draft shall have to be reviewed and approved. The ICC has
15 working days to act thereon, and unless otherwise specified, its failure to act on the
contract within the specified time frame signifies that the agency or LGU may proceed with
the award. The head of agency or LGU shall approve the Notice of Award within seven days
of the clearance by the ICC on a no-objection basis, and the Notice itself has to be issued
within seven days thereafter.

The highly regulated time-frames within which the agents of government were to act
evinced the intent to impose upon them the duty to act expeditiously throughout the
process, to the end that the project be prosecuted and implemented without delay. This
regulated scenario was likewise intended to discourage collusion and substantially reduce
the opportunity for agents of government to abuse their discretion in the course of the award
process.

Despite the clear timetables set out in the IRR, several lengthy and still-unexplained delays
occurred in the award process, as can be observed from the presentation made by the
counsel for public respondents,19 quoted hereinbelow:
 "11 Dec. 1996 - The Paircargo Joint Venture was informed by the PBAC that AEDC
failed to match and that negotiations preparatory to Notice of Award should be
commenced. This was the decision to award that should have commenced the
running of the 7-day period to approve the Notice of Award, as per Section 9.1 of the
IRR, or to submit the draft contract to the ICC for approval conformably with Section
9.2.

"01 April 1997 - The PBAC resolved that a copy of the final draft of the Concession
Agreement be submitted to the NEDA for clearance on a no-objection basis. This
resolution came more than 3 months too late as it should have been made on the
20th of December 1996 at the latest.

"16 April 1997 - The PBAC resolved that the period of signing the Concession
Agreement be extended by 15 days.

"18 April 1997 - NEDA approved the Concession Agreement. Again this is more than
3 months too late as the NEDA's decision should have been released on the 16th of
January 1997 or fifteen days after it should have been submitted to it for review.

"09 July 1997 - The Notice of Award was issued to PIATCO. Following the provisions
of the IRR, the Notice of Award should have been issued fourteen days after NEDA's
approval, or the 28th of January 1997. In any case, even if it were to be assumed
that the release of NEDA's approval on the 18th of April was timely, the Notice of
Award should have been issued on the 9th of May 1997. In both cases, therefore,
the release of the Notice of Award occurred in a decidedly less than timely fashion."

This chronology of events bespeaks an unmistakable disregard, if not disdain, by the

persons in charge of the award process for the time limitations prescribed by the IRR. Their
attitude flies in the face of this Court's solemn pronouncement in Republic v. Capulong,20
that "strict observance of the rules, regulations and guidelines of the bidding process is the
only safeguard to a fair, honest and competitive public bidding."

From the foregoing, the only conclusion that can possibly be drawn is that the BOT law and
its IRR were repeatedly violated with unmitigated impunity - and by agents of government,
no less! On account of such violation, the award of the contract to Piatco, which
undoubtedly gained time and benefited from the delays, must be deemed null and void from
the beginning.

Further Amendments Resulted in a Substantially Different Contract, Awarded Without

Public Bidding

But the violations and desecrations did not stop there. After the PBAC made its decision on
December 11, 1996 to award the contract to Piatco, the latter negotiated changes to the
Contract bidded out and ended up with what amounts to a substantially new contract
without any public bidding. This Contract was subsequently further amended four more
times through negotiation and without any bidding. Thus, the contract actually executed
between Piatco and DOTC/MIAA on July 12, 1997 (the Concession Agreement or "CA")
differed from the contract bidded out (the draft concession agreement or "DCA") in the
following very significant respects:

1. The CA inserted stipulations creating a monopoly in favor of Piatco in the

business of providing airport-related services for international airlines and
passengers.21

2. The CA provided that government is to answer for Piatco's unpaid loans and debts
(lumped under the term Attendant Liabilities) in the event Piatco fails to pay its senior
lenders.22

3. The CA provided that in case of termination of the contract due to the fault of
government, government shall pay all expenses that Piatco incurred for the project
plus the appraised value of the Terminal.23

4. The CA imposed new and special obligations on government, including delivery of

clean possession of the site for the terminal; acquisition of additional land at the
government's expense for construction of road networks required by Piatco's
approved plans and specifications; and assistance to Piatco in securing site utilities,
as well as all necessary permits, licenses and authorizations.24

5. Where Section 3.02 of the DCA requires government to refrain from competing
with the contractor with respect to the operation of NAIA Terminal III, Section 3.02(b)
of the CA excludes and prohibits everyone, including government, from directly or
indirectly competing with Piatco, with respect to the operation of, as well as
operations in, NAIA Terminal III. Operations in is sufficiently broad to encompass all
retail and other commercial business enterprises operating within Terminal III,
inclusive of the businesses of providing various airport-related services to
international airlines, within the scope of the prohibition.

6. Under Section 6.01 of the DCA, the following fees are subject to the written
approval of MIAA: lease/rental charges, concession privilege fees for passenger
services, food services, transportation utility concessions, groundhandling, catering
and miscellaneous concession fees, porterage fees, greeter/well-wisher fees,
carpark fees, advertising fees, VIP facilities fees and others. Moreover, adjustments
to the groundhandling fees, rentals and porterage fees are permitted only once every
two years and in accordance with a parametric formula, per DCA Section 6.03.
However, the CA as executed with Piatco provides in Section 6.06 that all the
aforesaid fees, rentals and charges may be adjusted without MIAA's approval or
intervention. Neither are the adjustments to these fees and charges subject to or
limited by any parametric formula.25

7. Section 1.29 of the DCA provides that the terminal fees, aircraft tacking fees,
aircraft parking fees, check-in counter fees and other fees are to be quoted and paid
in Philippine pesos. But per Section 1.33 of the CA, all the aforesaid fees save the
terminal fee are denominated in US Dollars.
 8. Under Section 8.07 of the DCA, the term attendant liabilities refers to liabilities
pertinent to NAIA Terminal III, such as payment of lease rentals and performance of
other obligations under the Land Lease Agreement; the obligations under the Tenant
Agreements; and payment of all taxes, fees, charges and assessments of whatever
kind that may be imposed on NAIA Terminal III or parts thereof. But in Section 1.06
of the CA, Attendant Liabilities refers to unpaid debts of Piatco: "All amounts
recorded and from time to time outstanding in the books of (Piatco) as owing to
Unpaid Creditors who have provided, loaned or advanced funds actually used for the
Project, including all interests, penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related expenses, and further including
amounts owed by [Piatco] to its suppliers, contractors and subcontractors."

9. Per Sections 8.04 and 8.06 of the DCA, government may, on account of the
contractors breach, rescind the contract and select one of four options: (a) take over
the terminal and assume all its attendant liabilities; (b) allow the contractor's creditors
to assign the Project to another entity acceptable to DOTC/MIAA; (c) pay the
contractor rent for the facilities and equipment the DOTC may utilize; or (d) purchase
the terminal at a price established by independent appraisers. Depending on the
option selected, government may take immediate possession and control of the
terminal and its operations. Government will be obligated to compensate the
contractor for the "equivalent or proportionate contract costs actually disbursed," but
only where government is the one in breach of the contract. But under Section
8.06(a) of the CA, whether on account of Piatco's breach of contract or its inability to
pay its creditors, government is obliged to either (a) take over Terminal III and
assume all of Piatco's debts or (b) permit the qualified unpaid creditors to be
substituted in place of Piatco or to designate a new operator. And in the event of
government's breach of contract, Piatco may compel it to purchase the terminal at
fair market value, per Section 8.06(b) of the CA.

10. Under the DCA, any delay by Piatco in the payment of the amounts due the
government constitutes breach of contract. However, under the CA, such delay does
not necessarily constitute breach of contract, since Piatco is permitted to suspend
payments to the government in order to first satisfy the claims of its secured
creditors, per Section 8.04(d) of the CA.

It goes without saying that the amendment of the Contract bidded out (the DCA or draft
concession agreement) - in such substantial manner, without any public bidding, and after
the bidding process had been concluded on December 11, 1996 - is violative of public
policy on public biddings, as well as the spirit and intent of the BOT Law. The whole point of
going through the public bidding exercise was completely lost. Its very rationale was totally
subverted by permitting Piatco to amend the contract for which public bidding had already
been concluded. Competitive bidding aims to obtain the best deal possible by fostering
transparency and preventing favoritism, collusion and fraud in the awarding of contracts.
That is the reason why procedural rules pertaining to public bidding demand strict
observance.26
In a relatively early case, Caltex v. Delgado Brothers,27 this Court made it clear that
substantive amendments to a contract for which a public bidding has already been finished
should only be awarded after another public bidding:

"The due execution of a contract after public bidding is a limitation upon the right of
the contracting parties to alter or amend it without another public bidding, for
otherwise what would a public bidding be good for if after the execution of a contract
after public bidding, the contracting parties may alter or amend the contract, or even
cancel it, at their will? Public biddings are held for the protection of the public, and to
give the public the best possible advantages by means of open competition between
the bidders. He who bids or offers the best terms is awarded the contract subject of
the bid, and it is obvious that such protection and best possible advantages to the
public will disappear if the parties to a contract executed after public bidding may
alter or amend it without another previous public bidding."28

The aforementioned case dealt with the unauthorized amendment of a contract executed
after public bidding; in the situation before us, the amendments were made also after the
bidding, but prior to execution. Be that as it may, the same rationale underlying Caltex
applies to the present situation with equal force. Allowing the winning bidder to renegotiate
the contract for which the bidding process has ended is tantamount to permitting it to put in
anything it wants. Here, the winning bidder (Piatco) did not even bother to wait until after
actual execution of the contract before rushing to amend it. Perhaps it believed that if the
changes were made to a contract already won through bidding (DCA) instead of waiting
until it is executed, the amendments would not be noticed or discovered by the public.

In a later case, Mata v. San Diego,29 this Court reiterated its ruling as follows:

"It is true that modification of government contracts, after the same had been
awarded after a public bidding, is not allowed because such modification serves to
nullify the effects of the bidding and whatever advantages the Government had
secured thereby and may also result in manifest injustice to the other bidders. This
prohibition, however, refers to a change in vital and essential particulars of the
agreement which results in a substantially new contract."

Piatco's counter-argument may be summed up thus: There was nothing in the 1994 IRR
that prohibited further negotiations and eventual amendments to the DCA even after the
bidding had been concluded. In fact, PBAC Bid Bulletin No. 3 states: "[A]mendments to the
Draft Concession Agreement shall be issued from time to time. Said amendments will only
cover items that would not materially affect the preparation of the proponent's proposal."

I submit that accepting such warped argument will result in perverting the policy underlying
public bidding. The BOT Law cannot be said to allow the negotiation of contractual
stipulations resulting in a substantially new contract after the bidding process and price
challenge had been concluded. In fact, the BOT Law, in recognition of the time, money and
effort invested in an unsolicited proposal, accords its originator the privilege of matching the
challenger's bid.
Section 4-A of the BOT Law specifically refers to a "lower price proposal" by a competing
bidder; and to the right of the original proponent "to match the price" of the challenger.
Thus, only the price proposals are in play. The terms, conditions and stipulations in the
contract for which public bidding has been concluded are understood to remain intact and
not be subject to further negotiation. Otherwise, the very essence of public bidding will be
destroyed - there will be no basis for an exact comparison between bids.

Moreover, Piatco misinterpreted the meaning behind PBAC Bid Bulletin No. 3. The phrase
amendments . . . from time to time refers only to those amendments to the draft concession
agreement issued by the PBAC prior to the submission of the price challenge; it certainly
does not include or permit amendments negotiated for and introduced after the bidding
process, has been terminated.

Piatco's Concession Agreement Was Further Amended, (ARCA) Again Without Public
Bidding

Not satisfied with the Concession Agreement, Piatco - once more without bothering with
public bidding - negotiated with government for still more substantial changes. The result
was the Amended and Restated Concession Agreement (ARCA) executed on November
26, 1998. The following changes were introduced:

1. The definition of Attendant Liabilities was further amended with the result that the
unpaid loans of Piatco, for which government may be required to answer, are no
longer limited to only those loans recorded in Piatco's books or loans whose
proceeds were actually used in the Terminal III project.30

2. Although the contract may be terminated due to breach by Piatco, it will not be
liable to pay the government any Liquidated Damages if a new operator is
designated to take over the operation of the terminal.31

3. The Liquidated Damages which government becomes liable for in case of its
breach of contract were substantially increased. 32

4. Government's right to appoint a comptroller for Piatco in case the latter

encounters liquidity problems was deleted.33

5. Government is made liable for Incremental and Consequential Costs and Losses
in case it fails to comply or cause any third party under its direct or indirect control to
comply with the special obligations imposed on government.34

6. The insurance policies obtained by Piatco covering the terminal are now required
to be assigned to the Senior Lenders as security for the loans; previously, their
proceeds were to be used to repair and rehabilitate the facility in case of damage.35

7. Government bound itself to set the initial rate of the terminal fee, to be charged
when Terminal III begins operations, at an amount higher than US$20. 36
 8. Government waived its defense of the illegality of the contract and even agreed to
be liable to pay damages to Piatco in the event the contract was declared illegal. 37

9. Even though government may be entitled to terminate the ARCA on account of

breach by Piatco, government is still liable to pay Piatco the appraised value of
Terminal III or the Attendant Liabilities, if the termination occurs before the In-Service
Date.38 This condition contravenes the BOT Law provision on termination
compensation.

10. Government is obligated to take the administrative action required for Piatco's
imposition, collection and application of all Public Utility Revenues.39 No such
obligation existed previously.

11. Government is now also obligated to perform and cause other persons and
entities under its direct or indirect control to perform all acts necessary to perfect the
security interests to be created in favor of Piatco's Senior Lenders.40 No such
obligation existed previously.

12. DOTC/MIAA's right of intervention in instances where Piatco's Non-Public Utility

Revenues become exorbitant or excessive has been removed.41

13. The illegality and unenforceability of the ARCA or any of its material provisions
was made an event of default on the part of government only, thus constituting a
ground for Piatco to terminate the ARCA.42

14. Amounts due from and payable by government under the contract were made
payable on demand - net of taxes, levies, imposts, duties, charges or fees of any
kind except as required by law.43

15. The Parametric Formula in the contract, which is utilized to compute for
adjustments/increases to the public utility revenues (i.e., aircraft parking and tacking
fees, check-in counter fee and terminal fee), was revised to permit Piatco to input its
more costly short-term borrowing rates instead of the longer-terms rates in the
computations for adjustments, with the end result that the changes will redound to its
greater financial benefit.

16. The Certificate of Completion simply deleted the successful performance-testing

of the terminal facility in accordance with defined performance standards as a pre-
condition for government's acceptance of the terminal facility.44

In sum, the foregoing revisions and amendments as embodied in the ARCA constitute very
material alterations of the terms and conditions of the CA, and give further manifestly undue
advantage to Piatco at the expense of government. Piatco claims that the changes to the
CA were necessitated by the demands of its foreign lenders. However, no proof whatsoever
has been adduced to buttress this claim.
In any event, it is quite patent that the sum total of the aforementioned changes resulted in
drastically weakening the position of government to a degree that seems quite excessive,
even from the standpoint of a businessperson who regularly transacts with banks and
foreign lenders, is familiar with their mind-set, and understands what motivates them. On
the other hand, whatever it was that impelled government officials concerned to accede to
those grossly disadvantageous changes, I can only hazard a guess.

There is no question in my mind that the ARCA was unauthorized and illegal for lack of
public bidding and for being patently disadvantageous to government.

The Three Supplements Imposed New Obligations on Government, Also Without

Prior Public Bidding

After Piatco had managed to breach the protective rampart of public bidding, it recklessly
went on a rampage of further assaults on the ARCA.

The First Supplement Is as Void as the ARCA

In the First Supplement ("FS") executed on August 27, 1999, the following changes were
made to the ARCA:

1. The amounts payable by Piatco to government were reduced by allowing

additional exceptions to the Gross Revenues in which government is supposed to
participate.45

2. Made part of the properties which government is obliged to construct and/or

maintain and keep in good repair are (a) the access road connecting Terminals II
and III - the construction of this access road is the obligation of Piatco, in lieu of its
obligation to construct an Access Tunnel connecting Terminals II and III; and (b) the
taxilane and taxiway - these are likewise part of Piatco's obligations, since they are
part and parcel of the project as described in Clause 1.3 of the Bid Documents . 46

3. The MIAA is obligated to provide funding for the maintenance and repair of the
airports and facilities owned or operated by it and by third persons under its control.
It will also be liable to Piatco for the latter's losses, expenses and damages as well
as liability to third persons, in case MIAA fails to perform such obligations. In
addition, MIAA will also be liable for the incremental and consequential costs of the
remedial work done by Piatco on account of the former's default.47

4. The FS also imposed on government ten (10) "Additional Special Obligations,"

including the following:

(a) Working for the removal of the general aviation traffic from the NAIA
airport complex48

(b) Providing through MIAA the land required by Piatco for the taxilane and
one taxiway at no cost to Piatco49
 (c) Implementing the government's existing storm drainage master plan50

(d) Coordinating with DPWH the financing, the implementation and the
completion of the following works before the In-Service Date: three left-
turning overpasses (EDSA to Tramo St., Tramo to Andrews Ave., and
Manlunas Road to Sales Ave.);51 and a road upgrade and improvement
program involving widening, repair and resurfacing of Sales Road, Andrews
Avenue and Manlunas Road; improvement of Nichols Interchange; and
removal of squatters along Andrews Avenue.52

(e) Dealing directly with BCDA and the Phil. Air Force in acquiring additional
land or right of way for the road upgrade and improvement program. 53

5. Government is required to work for the immediate reversion to MIAA of the

Nayong Pilipino National Park.54

6. Government's share in the terminal fees collected was revised from a flat rate of
P180 to 36 percent thereof; together with government's percentage share in the
gross revenues of Piatco, the amount will be remitted to government in pesos
instead of US dollars.55 This amendment enables Piatco to benefit from the further
erosion of the peso-dollar exchange rate, while preventing government from building
up its foreign exchange reserves.

7. All payments from Piatco to government are now to be invoiced to MIAA, and
payments are to accrue to the latter's exclusive benefit.56 This move appears to be in
support of the funds MIAA advanced to DPWH.

I must emphasize that the First Supplement is void in two respects. First, it is merely an
amendment to the ARCA, upon which it is wholly dependent; therefore, since the ARCA is
void, inexistent and not capable of being ratified or amended, it follows that the FS too is
void, inexistent and inoperative. Second, even assuming arguendo that the ARCA is
somehow remotely valid, nonetheless the FS, in imposing significant new obligations upon
government, altered the fundamental terms and stipulations of the ARCA, thus
necessitating a public bidding all over again. That the FS was entered into sans public
bidding renders it utterly void and inoperative.

The Second Supplement Is Similarly Void and Inexistent

The Second Supplement ("SS") was executed between the government and Piatco on
September 4, 2000. It calls for Piatco, acting not as concessionaire of NAIA Terminal III but
as a public works contractor, to undertake - in the government's stead - the clearing,
removal, demolition and disposal of improvements, subterranean obstructions and waste
materials at the project site.57

The scope of the works, the procedures involved, and the obligations of the contractor are
provided for in Parts II and III of the SS. Section 4.1 sets out the compensation to be paid,
listing specific rates per cubic meter of materials for each phase of the work - excavation,
leveling, removal and disposal, backfilling and dewatering. The amounts collectible by
Piatco are to be offset against the Annual Guaranteed Payments it must pay government.

Though denominated as Second Supplement, it was nothing less than an entirely new
public works contract. Yet it, too, did not undergo any public bidding, for which reason it is
also void and inoperative.

Not surprisingly, Piatco had to subcontract the works to a certain Wintrack Builders, a firm
reputedly owned by a former high-ranking DOTC official. But that is another story
altogether.

The Third Supplement Is Likewise Void and Inexistent

The Third Supplement ("TS"), executed between the government and Piatco on June 22,
2001, passed on to the government certain obligations of Piatco as Terminal III
concessionaire, with respect to the surface road connecting Terminals II and III.

By way of background, at the inception of and forming part of the NAIA Terminal III project
was the proposed construction of an access tunnel crossing Runway 13/31, which. would
connect Terminal III to Terminal II. The Bid Documents in Section 4.1.2.3[B][i] declared that
the said access tunnel was subject to further negotiation; but for purposes of the bidding,
the proponent should submit a bid for it as well. Therefore, the tunnel was supposed to be
part and parcel of the Terminal III project.

However, in Section 5 of the First Supplement, the parties declared that the access tunnel
was not economically viable at that time. In lieu thereof, the parties agreed that a surface
access road (now called the T2-T3 Road) was to be constructed by Piatco to connect the
two terminals. Since it was plainly in substitution of the tunnel, the surface road construction
should likewise be considered part and parcel of the same project, and therefore part of
Piatco's obligation as well. While the access tunnel was estimated to cost about P800
million, the surface road would have a price tag in the vicinity of about P100 million, thus
producing significant savings for Piatco.

Yet, the Third Supplement, while confirming that Piatco would construct the T2-T3 Road,
nevertheless shifted to government some of the obligations pertaining to the former, as
follows:

1. Government is now obliged to remove at its own expense all tenants, squatters,
improvements and/or waste materials on the site where the T2-T3 road is to be
constructed.58 There was no similar obligation on the part of government insofar as
the access tunnel was concerned.

2. Should government fail to carry out its obligation as above described, Piatco may
undertake it on government's behalf, subject to the terms and conditions (including
compensation payments) contained in the Second Supplement.59

3. MIAA will answer for the operation, maintenance and repair of the T2-T3 Road.60
The TS depends upon and is intended to supplement the ARCA as well as the First
Supplement, both of which are void and inexistent and not capable of being ratified or
amended. It follows that the TS is likewise void, inexistent and inoperative. And even if,
hypothetically speaking, both ARCA and FS are valid, still, the Third Supplement - imposing
as it does significant new obligations upon government - would in effect alter the terms and
stipulations of the ARCA in material respects, thus necessitating another public bidding.
Since the TS was not subjected to public bidding, it is consequently utterly void as well. At
any rate, the TS created new monetary obligations on the part of government, for which
there were no prior appropriations. Hence it follows that the same is void ab initio.

In patiently tracing the progress of the Piatco contracts from their inception up to the
present, I noted that the whole process was riddled with significant lapses, if not outright
irregularity and wholesale violations of law and public policy. The rationale of beginning at
the beginning, so to speak, will become evident when the question of what to do with the
five Piatco contracts is discussed later on.

In the meantime, I shall take up specific, provisions or changes in the contracts and
highlight the more prominent objectionable features.

Government Directly Guarantees Piatco Debts

Certainly the most discussed provision in the parties' arguments is the one creating an
unauthorized, direct government guarantee of Piatco's obligations in favor of the lenders.

Section 4-A of the BOT Law as amended states that unsolicited proposals, such as the
NAIA Terminal III Project, may be accepted by government provided inter alia that no direct
government guarantee, subsidy or equity is required. In short, such guarantee is prohibited
in unsolicited proposals. Section 2(n) of the same legislation defines direct government
guarantee as "an agreement whereby the government or any of its agencies or local
government units (will) assume responsibility for the repayment of debt directly incurred by
the project proponent in implementing the project in case of a loan default."

Both the CA and the ARCA have provisions that undeniably create such prohibited
government guarantee. Section 4.04 (c)(iv) to (vi) of the ARCA, which is similar to Section
4.04 of the CA, provides thus:

"(iv) that if Concessionaire is in default under a payment obligation owed to the

Senior Lenders, and as a result thereof the Senior Lenders have become entitled to
accelerate the Senior Loans, the Senior Lenders shall have the right to notify GRP of
the same . . .;

(v) . . . the Senior Lenders may after written notification to GRP, transfer the
Concessionaire's rights and obligations to a transferee . . .;

(vi) if the Senior Lenders . . . are unable to . . . effect a transfer . . ., then GRP and
the Senior Lenders shall endeavor . . . to enter into any other arrangement relating to
the Development Facility . . . If no agreement relating to the Development Facility is
 arrived at by GRP and the Senior Lenders within the said 180-day period, then at the
end thereof the Development Facility shall be transferred by the Concessionaire to
GRP or its designee and GRP shall make a termination payment to Concessionaire
equal to the Appraised Value (as hereinafter defined) of the Development Facility or
the sum of the Attendant Liabilities, if greater. . . ."

In turn, the term Attendant Liabilities is defined in Section 1.06 of the ARCA as follows:

"Attendant Liabilities refer to all amounts in each case supported by verifiable

evidence from time to time owed or which may become, owing by Concessionaire to
Senior Lenders or any other persons or entities who have provided, loaned or
advanced funds or provided financial facilities to Concessionaire for the Project,
including, without limitation, all principal, interest, associated fees, charges,
reimbursements, and other related expenses (including the fees, charges and
expenses of any agents or trustees of such persons or entities), whether payable at
maturity, by acceleration or otherwise, and further including amounts owed by
Concessionaire to its professional consultants and advisers, suppliers, contractors
and sub-contractors."

Government's agreement to pay becomes effective in the event of a default by Piatco on

any of its loan obligations to the Senior Lenders, and the amount to be paid by
government is the greater of either the Appraised Value of Terminal III or the aggregate
amount of the moneys owed by Piatco - whether to the Senior Lenders or to other
entities, including its suppliers, contractors and subcontractors. In effect, therefore, this
agreement already constitutes the prohibited assumption by government of responsibility for
repayment of Piatco's debts in case of a loan default. In fine, a direct government
guarantee.

It matters not that there is a roundabout procedure prescribed by Section 4.04(c)(iv), (v) and
(vi) that would require, first, an attempt (albeit unsuccessful) by the Senior Lenders to
transfer Piatco's rights to a transferee of their choice; and, second, an effort (equally
unsuccessful) to "enter into any other arrangement" with the government regarding the
Terminal III facility, before government is required to make good on its guarantee. What is
abundantly clear is the fact that, in the devious labyrinthine process detailed in the aforesaid
section, it is entirely within the Senior Lenders' power, prerogative and control - exercisable
via a mere refusal or inability to agree upon "a transferee" or "any other arrangement"
regarding the terminal facility - to push the process forward to the ultimate contractual cul-
de-sac, wherein government will be compelled to abjectly surrender and make good on its
guarantee of payment.

Piatco also argues that there is no proviso requiring government to pay the Senior Lenders
in the event of Piatco's default. This is literally true, in the sense that Section 4.04(c)(vi) of
ARCA speaks of government making the termination payment to Piatco, not to the lenders.
However, it is almost a certainty that the Senior Lenders will already have made Piatco sign
over to them, ahead of time, its right to receive such payments from government; and/or
they may already have had themselves appointed its attorneys-in-fact for the purpose of
collecting and receiving such payments.
Nevertheless, as petitioners-in-intervention pointed out in their Memorandum,61 the
termination payment is to be made to Piatco, not to the lenders; and there is no provision
anywhere in the contract documents to prevent it from diverting the proceeds to its own
benefit and/or to ensure that it will necessarily use the same to pay off the Senior Lenders
and other creditors, in order to avert the foreclosure of the mortgage and other liens on the
terminal facility. Such deficiency puts the interests of government at great risk. Indeed, if the
unthinkable were to happen, government would be paying several hundreds of millions of
dollars, but the mortgage liens on the facility may still be foreclosed by the Senior Lenders
just the same.

Consequently, the Piatco contracts are also objectionable for grievously failing to
adequately protect government's interests. More accurately, the contracts would
consistently weaken and do away with protection of government interests. As such, they are
therefore grossly lopsided in favor of Piatco and/or its Senior Lenders.

While on this subject, it is well to recall the earlier discussion regarding a particularly
noticeable alteration of the concept of "Attendant Liabilities." In Section 1.06 of the CA
defining the term, the Piatco debts to be assumed/paid by government were qualified by the
phrases recorded and from time to time outstanding in the books of the Concessionaire and
actually used for the project. These phrases were eliminated from the ARCA's definition of
Attendant Liabilities.

Since no explanation has been forthcoming from Piatco as to the possible justification for
such a drastic change, the only conclusion, possible is that it intends to have all of its debts
covered by the guarantee, regardless of whether or not they are disclosed in its books. This
has particular reference to those borrowings which were obtained in violation of the loan
covenants requiring Piatco to maintain a minimum 70:30 debt-to-equity ratio, and even if the
loan proceeds were not actually used for the project itself.

This point brings us back to the guarantee itself. In Section 4.04(c)(vi) of ARCA, the amount
which government has guaranteed to pay as termination payment is the greater of either (i)
the Appraised Value of the terminal facility or (ii) the aggregate of the Attendant Liabilities.
Given that the Attendant Liabilities may include practically any Piatco debt under the sun, it
is highly conceivable that their sum may greatly exceed the appraised value of the facility,
and government may end up paying very much more than the real worth of Terminal III. (So
why did government have to bother with public bidding anyway?)

In the final analysis, Section 4.04(c)(iv) to (vi) of the ARCA is diametrically at odds with the
spirit and the intent of the BOT Law. The law meant to mobilize private resources (the
private sector) to take on the burden and the risks of financing the construction, operation
and maintenance of relevant infrastructure and development projects for the simple reason
that government is not in a position to do so. By the same token, government guarantee
was prohibited, since it would merely defeat the purpose and raison d'être of a build-
operate-and-transfer project to be undertaken by the private sector.

To the extent that the project proponent is able to obtain loans to fund the project, those
risks are shared between the project proponent on the one hand, and its banks and other
lenders on the other. But where the proponent or its lenders manage to cajol or coerce the
government into extending a guarantee of payment of the loan obligations, the risks
assumed by the lenders are passed right back to government. I cannot understand why, in
the instant case, government cheerfully assented to re-assuming the risks of the project
when it gave the prohibited guarantee and thus simply negated the very purpose of the BOT
Law and the protection it gives the government.

Contract Termination Provisions in the Piatco Contracts Are Void

The BOT Law as amended provides for contract termination as follows:

"Sec. 7. Contract Termination. - In the event that a project is revoked, cancelled or

terminated by the government through no fault of the project proponent or by mutual
agreement, the Government shall compensate the said project proponent for its
actual expenses incurred in the project plus a reasonable rate of return thereon not
exceeding that stated in the contract as of the date of such revocation, cancellation
or termination: Provided, That the interest of the Government in this instances [sic]
shall be duly insured with the Government Service Insurance System or any other
insurance entity duly accredited by the Office of the Insurance Commissioner:
Provided, finally, That the cost of the insurance coverage shall be included in the
terms and conditions of the bidding referred to above.

"In the event that the government defaults on certain major obligations in the
contract and such failure is not remediable or if remediable shall remain unremedied
for an unreasonable length of time, the project proponent/contractor may, by prior
notice to the concerned national government agency or local government unit
specifying the turn-over date, terminate the contract. The project
proponent/contractor shall be reasonably compensated by the Government for
equivalent or proportionate contract cost as defined in the contract."

The foregoing statutory provision in effect provides for the following limited instances when
termination compensation may be allowed:

1. Termination by the government through no fault of the project proponent

2. Termination upon the parties' mutual agreement

3. Termination by the proponent due to government's default on certain major

contractual obligations

To emphasize, the law does not permit compensation for the project proponent when
contract termination is due to the proponent's own fault or breach of contract.

This principle was clearly violated in the Piatco Contracts. The ARCA stipulates that
government is to pay termination compensation to Piatco even when termination is initiated
by government for the following causes:
 "(i) Failure of Concessionaire to finish the Works in all material respects in
accordance with the Tender Design and the Timetable;

(ii) Commission by Concessionaire of a material breach of this Agreement . . .;

(iii) . . . a change in control of Concessionaire arising from the sale, assignment,

transfer or other disposition of capital stock which results in an ownership structure
violative of statutory or constitutional limitations;

(iv) A pattern of continuing or repeated non-compliance, willful violation, or non-

performance of other terms and conditions hereof which is hereby deemed a
material breach of this Agreement . . ."62

As if that were not bad enough, the ARCA also inserted into Section 8.01 the phrase
"Subject to Section 4.04." The effect of this insertion is that in those instances where
government may terminate the contract on account of Piatco's breach, and it is
nevertheless required under the ARCA to make termination compensation to Piatco even
though unauthorized by law, such compensation is to be equivalent to the payment amount
guaranteed by government - either a) the Appraised Value of the terminal facility or (b) the
aggregate of the Attendant Liabilities, whichever amount is greater!

Clearly, this condition is not in line with Section 7 of the BOT Law. That provision permits a
project proponent to recover the actual expenses it incurred in the prosecution of the project
plus a reasonable rate of return not in excess of that provided in the contract; or to be
compensated for the equivalent or proportionate contract cost as defined in the contract, in
case the government is in default on certain major contractual obligations.

Furthermore, in those instances where such termination compensation is authorized by the

BOT Law, it is indispensable that the interest of government be duly insured. Section 5.08
the ARCA mandates insurance coverage for the terminal facility; but all insurance policies
are to be assigned, and all proceeds are payable, to the Senior Lenders. In brief, the
interest being secured by such coverage is that of the Senior Lenders, not that of
government. This can hardly be considered compliance with law.

In essence, the ARCA provisions on termination compensation result in another

unauthorized government guarantee, this time in favor of Piatco.

A Prohibited Direct Government Subsidy, Which at the Same Time Is an Assault on

the National Honor

Still another contractual provision offensive to law and public policy is Section 8.01(d) of the
ARCA, which is a "bolder and badder" version of Section 8.04(d) of the CA.

It will be recalled that Section 4-A of the BOT Law as amended prohibits not only direct
government guarantees, but likewise a direct government subsidy for unsolicited proposals.
Section 13.2. b. iii. of the 1999 IRR defines a direct government subsidy as encompassing
"an agreement whereby the Government . . . will . . . postpone any payments due from the
proponent."

Despite the statutory ban, Section 8.01 (d) of the ARCA provides thus:

"(d) The provisions of Section 8.01(a) notwithstanding, and for the purpose of
preventing a disruption of the operations in the Terminal and/or Terminal Complex,
in the event that at any time Concessionaire is of the reasonable opinion that it shall
be unable to meet a payment obligation owed to the Senior Lenders, Concessionaire
shall give prompt notice to GRP, through DOTC/MIAA and to the Senior Lenders. In
such circumstances, the Senior Lenders (or the Senior Lenders' Representative)
may ensure that after making provision for administrative expenses and
depreciation, the cash resources of Concessionaire shall first be used and applied to
meet all payment obligations owed to the Senior Lenders. Any excess cash, after
meeting such payment obligations, shall be earmarked for the payment of all sums
payable by Concessionaire to GRP under this Agreement. If by reason of the
foregoing GRP should be unable to collect in full all payments due to GRP under this
Agreement, then the unpaid balance shall be payable within a 90-day grace period
counted from the relevant due date, with interest per annum at the rate equal to the
average 91-day Treasury Bill Rate as of the auction date immediately preceding the
relevant due date. If payment is not effected by Concessionaire within the grace
period, then a spread of five (5%) percent over the applicable 91-day Treasury Bill
Rate shall be added on the unpaid amount commencing on the expiry of the grace
period up to the day of full payment. When the temporary illiquidity of
Concessionaire shall have been corrected and the cash position of Concessionaire
should indicate its ability to meet its maturing obligations, then the provisions set
forth under this Section 8.01(d) shall cease to apply. The foregoing remedial
measures shall be applicable only while there remains unpaid and outstanding
amounts owed to the Senior Lenders." (Emphasis supplied)

By any manner of interpretation or application, Section 8.01(d) of the ARCA clearly

mandates the indefinite postponement of payment of all of Piatco's obligations to the
government, in order to ensure that Piatco's obligations to the Senior Lenders are paid in
full first. That is nothing more or less than the direct government subsidy prohibited by the
BOT Law and the IRR. The fact that Piatco will pay interest on the unpaid amounts owed to
government does not change the situation or render the prohibited subsidy any less
unacceptable.

But beyond the clear violations of law, there are larger issues involved in the ARCA. Earlier,
I mentioned that Section 8.01(d) of the ARCA completely eliminated the proviso in Section
8.04(d) of the CA which gave government the right to appoint a financial controller to
manage the cash position of Piatco during situations of financial distress. Not only has
government been deprived of any means of monitoring and managing the situation; worse,
as can be seen from Section 8.01(d) above-quoted, the Senior Lenders have effectively
locked in on the right to exercise financial controllership over Piatco and to allocate its cash
resources to the payment of all amounts owed to the Senior Lenders before allowing any
payment to be made to government.
In brief, this particular provision of the ARCA has placed in the hands of foreign lenders the
power and the authority to determine how much (if at all) and when the Philippine
government (as grantor of the franchise) may be allowed to receive from Piatco. In that
situation, government will be at the mercy of the foreign lenders. This is a situation
completely contrary to the rationale of the BOT Law and to public policy.

The aforesaid provision rouses mixed emotions - shame and disgust at the parties'
(especially the government officials') docile submission and abject servitude and
surrender to the imperious and excessive demands of the foreign lenders, on the one
hand; and vehement outrage at the affront to the sovereignty of the Republic and to
the national honor, on the other. It is indeed time to put an end to such an
unbearable, dishonorable situation.

The Piatco Contracts Unarguably Violate Constitutional Injunctions

I will now discuss the manner in which the Piatco Contracts offended the Constitution.

The Exclusive Right Granted to Piatco to Operate a Public Utility Is Prohibited by the
Constitution

While Section 2.02 of the ARCA spoke of granting to Piatco "a franchise to operate and
maintain the Terminal Complex," Section 3.02(a) of the same ARCA granted to Piatco, for
the entire term of the concession agreement, "the exclusive right to operate a commercial
international passenger terminal within the Island of Luzon" with the exception of those
three terminals already existing63 at the time of execution of the ARCA.

Section 11 of Article XII of the Constitution prohibits the grant of a "franchise, certificate, or
any other form of authorization for the operation of a public utility" that is "exclusive in
character."

In its Opinion No. 078, Series of 1995, the Department of justice held that "the NAIA
Terminal III which . . . is a 'terminal for public use' is a public utility." Consequently, the
constitutional prohibition against the exclusivity of a franchise applies to the franchise for the
operation of NAIA Terminal III as well.

What was granted to Piatco was not merely a franchise, but an "exclusive right" to operate
an international passenger terminal within the "Island of Luzon." What this grant effectively
means is that the government is now estopped from exercising its inherent power to award
any other person another franchise or a right to operate such a public utility, in the event
public interest in Luzon requires it. This restriction is highly detrimental to government and
to the public interest. Former Secretary of Justice Hernando B. Perez expressed this point
well in his Memorandum for the President dated 21 May 2002:

"Section 3.02 on 'Exclusivity'

"This provision gives to PIATCO (the Concessionaire) the exclusive right to operate
a commercial international airport within the Island of Luzon with the exception of
 those already existing at the time of the execution of the Agreement, such as the
airports at Subic, Clark and Laoag City. In the case of the Clark International Airport,
however, the provision restricts its operation beyond its design capacity of 850,000
passengers per annum and the operation of new terminal facilities therein until after
the new NAIA Terminal III shall have consistently reached or exceeded its design
capacity of ten (10) million passenger capacity per year for three (3) consecutive
years during the concession period.

"This is an onerous and disadvantageous provision. It effectively grants PIATCO a

monopoly in Luzon and ties the hands of government in the matter of developing
new airports which may be found expedient and necessary in carrying out any future
plan for an inter-modal transportation system in Luzon.

"Additionally, it imposes an unreasonable restriction on the operation of the Clark

International Airport which could adversely affect the operation and development of
the Clark Special Economic Zone to the economic prejudice of the local
constituencies that are being benefited by its operation." (Emphasis supplied)

While it cannot be gainsaid that an enterprise that is a public utility may happen to constitute
a monopoly on account of the very nature of its business and the absence of competition,
such a situation does not however constitute justification to violate the constitutional
prohibition and grant an exclusive franchise or exclusive right to operate a public utility.

Piatco's contention that the Constitution does not actually prohibit monopolies is beside the
point. As correctly argued,64 the existence of a monopoly by a public utility is a situation
created by circumstances that do not encourage competition. This situation is different from
the grant of a franchise to operate a public utility, a privilege granted by government. Of
course, the grant of a franchise may result in a monopoly. But making such franchise
exclusive is what is expressly proscribed by the Constitution.

Actually, the aforementioned Section 3.02 of the ARCA more than just guaranteed
exclusivity; it also guaranteed that the government will not improve or expand the facilities
at Clark - and in fact is required to put a cap on the latter's operations - until after Terminal
III shall have been operated at or beyond its peak capacity for three consecutive years.65 As
counsel for public respondents pointed out, in the real world where the rate of influx of
international passengers can fluctuate substantially from year to year, it may take many
years before Terminal III sees three consecutive years' operations at peak capacity. The
Diosdado Macapagal International Airport may thus end up stagnating for a long time.
Indeed, in order to ensure greater profits for Piatco, the economic progress of a region has
had to be sacrificed.

The Piatco Contracts Violate the Time Limitation on Franchises

Section 11 of Article XII of the Constitution also provides that "no franchise, certificate or
any other form of authorization for the operation of a public utility shall be . . . for a longer
period than fifty years." After all, a franchise held for an unreasonably long time would likely
give rise to the same evils as a monopoly.
The Piatco Contracts have come up with an innovative way to circumvent the prohibition
and obtain an extension. This fact can be gleaned from Section 8.03(b) of the ARCA, which
I quote thus:

"Sec. 8.03. Termination Procedure and Consequences of Termination. -

a) x x x xxx xxx

b) In the event the Agreement is terminated pursuant to Section 8.01 (b)

hereof, Concessionaire shall be entitled to collect the Liquidated Damages
specified in Annex 'G'. The full payment by GRP to Concessionaire of the
Liquidated Damages shall be a condition precedent to the transfer by
Concessionaire to GRP of the Development Facility. Prior to the full payment
of the Liquidated Damages, Concessionaire shall to the extent practicable
continue to operate the Terminal and the Terminal Complex and shall be
entitled to retain and withhold all payments to GRP for the purpose of
offsetting the same against the Liquidated Damages. Upon full payment of
the Liquidated Damages, Concessionaire shall immediately transfer the
Development Facility to GRP on 'as-is-where-is' basis."

The aforesaid easy payment scheme is less beneficial than it first appears. Although it
enables government to avoid having to make outright payment of an obligation that will
likely run into billions of pesos, this easy payment plan will nevertheless cost government
considerable loss of income, which it would earn if it were to operate Terminal III by itself.
Inasmuch as payments to the concessionaire (Piatco) will be on "installment basis," interest
charges on the remaining unpaid balance would undoubtedly cause the total outstanding
balance to swell. Piatco would thus be entitled to remain in the driver's seat and keep
operating the terminal for an indefinite length of time.

The Contracts Create Two Monopolies for Piatco

By way of background, two monopolies were actually created by the Piatco contracts. The
first and more obvious one refers to the business of operating an international passenger
terminal in Luzon, the business end of which involves providing international airlines with
parking space for their aircraft, and airline passengers with the use of departure and arrival
areas, check-in counters, information systems, conveyor systems, security equipment and
paraphernalia, immigrations and customs processing areas; and amenities such as comfort
rooms, restaurants and shops.

In furtherance of the first monopoly, the Piatco Contracts stipulate that the NAIA Terminal III
will be the only facility to be operated as an international passenger terminal; 66 that NAIA
Terminals I and II will no longer be operated as such;67 and that no one (including the
government) will be allowed to compete with Piatco in the operation of an international
passenger terminal in the NAIA Complex.68 Given that, at this time, the government and
Piatco are the only ones engaged in the business of operating an international passenger
terminal, I am not acutely concerned with this particular monopolistic situation.
There was however another monopoly within the NAIA created by the subject contracts for
Piatco - in the business of providing international airlines with the following: groundhandling,
in-flight catering, cargo handling, and aircraft repair and maintenance services. These are
lines of business activity in which are engaged many service providers (including the
petitioners-in-intervention), who will be adversely affected upon full implementation of the
Piatco Contracts, particularly Sections 3.01(d)69 and (e)70 of both the ARCA and the CA.

On the one hand, Section 3.02(a) of the ARCA makes Terminal III the only international
passenger terminal at the NAIA, and therefore the only place within the NAIA Complex
where the business of providing airport-related services to international airlines may be
conducted. On the other hand, Section 3.01(d) of the ARCA requires government, through
the MIAA, not to allow service providers with expired MIAA contracts to renew or extend
their contracts to render airport-related services to airlines. Meanwhile, Section 3.01(e) of
the ARCA requires government, through the DOTC and MIAA, not to allow service
providers - those with subsisting concession agreements for services and operations being
conducted at Terminal I - to carry over their concession agreements, services and
operations to Terminal III, unless they first enter into a separate agreement with Piatco.

The aforementioned provisions vest in Piatco effective and exclusive control over which
service provider may and may not operate at Terminal III and render the airport-related
services needed by international airlines. It thereby possesses the power to exclude
competition. By necessary implication, it also has effective control over the fees and
charges that will be imposed and collected by these service providers.

This intention is exceedingly clear in the declaration by Piatco that it is "completely within its
rights to exclude any party that it has not contracted with from NAIA Terminal III." 71

Worse, there is nothing whatsoever in the Piatco Contracts that can serve to restrict, control
or regulate the concessionaire's discretion and power to reject any service provider and/or
impose any term or condition it may see fit in any contract it enters into with a service
provider. In brief, there is no safeguard whatsoever to ensure free and fair competition in
the service-provider sector.

In the meantime, and not surprisingly, Piatco is first in line, ready to exploit the unique
business opportunity. It announced72 that it has accredited three groundhandlers for
Terminal III. Aside from the Philippine Airlines, the other accredited entities are the
Philippine Airport and Ground Services Globeground, Inc. ("PAGSGlobeground") and the
Orbit Air Systems, Inc. ("Orbit"). PAGSGlobeground is a wholly-owned subsidiary of the
Philippine Airport and Ground Services, Inc. or PAGS,73 while Orbit is a wholly-owned
subsidiary of Friendship Holdings, Inc.,74 which is in turn owned 80 percent by PAGS.75
PAGS is a service provider owned 60 percent by the Cheng Family;76 it is a stockholder of
35 percent of Piatco77 and is the latter's designated contractor-operator for NAIA Terminal
III.78

Such entry into and domination of the airport-related services sector appear to be very
much in line with the following provisions contained in the First Addendum to the Piatco
Shareholders Agreement,79 executed on July 6, 1999, which appear to constitute a sort of
master plan to create a monopoly and combinations in restraint of trade:

"11. The Shareholders shall ensure:

a. x x x xxx x x x.;

b. That (Phil. Airport and Ground Services, Inc.) PAGS and/or its designated
Affiliates shall, at all times during the Concession Period, be exclusively authorized
by (PIATCO) to engage in the provision of ground-handling, catering and fueling
services within the Terminal Complex.

c. That PAIRCARGO and/or its designated Affiliate shall, during the Concession
Period, be the only entities authorized to construct and operate a warehouse for all
cargo handling and related services within the Site."

Precisely, proscribed by our Constitution are the monopoly and the restraint of trade being
fostered by the Piatco Contracts through the erection of barriers to the entry of other service
providers into Terminal III. In Tatad v. Secretary of the Department of Energy,80 the Court
ruled:

". . . [S]ection 19 of Article XII of the Constitution . . . mandates: 'The State shall
regulate or prohibit monopolies when the public interest so requires. No
combinations in restraint of trade or unfair competition shall be allowed.'

"A monopoly is a privilege or peculiar advantage vested in one or more persons or

companies, consisting in the exclusive right or power to carry on a particular
business or trade, manufacture a particular article, or control the sale or the whole
supply of a particular commodity. It is a form of market structure in which one or only
a few firms dominate the total sales of a product or service. On the other hand, a
combination in restraint of trade is an agreement or understanding between two or
more persons, in the form of a contract, trust, pool, holding company, or other form
of association, for the purpose of unduly restricting competition, monopolizing trade
and commerce in a certain commodity, controlling its production, distribution and
price, or otherwise interfering with freedom of trade without statutory authority.
Combination in restraint of trade refers to the means while monopoly refers to the
end.

"x x x xxx xxx

"Section 19, Article XII of our Constitution is anti-trust in history and in spirit. It
espouses competition. The desirability of competition is the reason for the prohibition
against restraint of trade, the reason for the interdiction of unfair competition, and the
reason for regulation of unmitigated monopolies. Competition is thus the underlying
principle of [S]ection 19, Article XII of our Constitution, . . ."81
Gokongwei Jr. v. Securities and Exchange Commission82 elucidates the criteria to be
employed: "A 'monopoly' embraces any combination the tendency of which is to prevent
competition in the broad and general sense, or to control prices to the detriment of the
public. In short, it is the concentration of business in the hands of a few. The material
consideration in determining its existence is not that prices are raised and competition
actually excluded, but that power exists to raise prices or exclude competition when
desired."83 (Emphasis supplied)

The Contracts Encourage Monopolistic Pricing, Too

Aside from creating a monopoly, the Piatco contracts also give the concessionaire virtually
limitless power over the charging of fees, rentals and so forth. What little "oversight
function" the government might be able and minded to exercise is less than sufficient to
protect the public interest, as can be gleaned from the following provisions:

"Sec. 6.06. Adjustment of Non-Public Utility Fees and Charges

"For fees, rentals and charges constituting Non-Public Utility Revenues,

Concessionaire may make any adjustments it deems appropriate without need for
the consent of GRP or any government agency subject to Sec. 6.03(c)."

Section 6.03(c) in turn provides:

"(c) Concessionaire shall at all times be judicious in fixing fees and charges
constituting Non-Public Utility Revenues in order to ensure that End Users are not
unreasonably deprived of services. While the vehicular parking fee, porterage fee
and greeter/wellwisher fee constitute Non-Public Utility Revenues of Concessionaire,
GRP may require Concessionaire to explain and justify the fee it may set from time
to time, if in the reasonable opinion of GRP the said fees have become exorbitant
resulting in the unreasonable deprivation of End Users of such services."

It will be noted that the above-quoted provision has no teeth, so the concessionaire can
defy the government without fear of any sanction. Moreover, Section 6.06 - taken together
with Section 6.03(c) of the ARCA - falls short of the standard set by the BOT Law as
amended, which expressly requires in Section 2(b) that the project proponent is "allowed to
charge facility users appropriate tolls, fees, rentals and charges not exceeding those
proposed in its bid or as negotiated and incorporated in the contract x x x."

The Piatco Contracts Violate Constitutional Prohibitions Against

Impairment of Contracts and Deprivation of Property Without Due Process

Earlier, I discussed how Section 3.01(e)84 of both the CA and the ARCA requires
government, through DOTC/MIAA, not to permit the carry-over to Terminal III of the
services and operations of certain service providers currently operating at Terminal I with
subsisting contracts.
By the In-Service Date, Terminal III shall be the only facility to be operated as an
international passenger terminal at the NAIA;85 thus, Terminals I and II shall no longer
operate as such,86 and no one shall be allowed to compete with Piatco in the operation of
an international passenger terminal in the NAIA.87 The bottom line is that, as of the In-
Service Date, Terminal III will be the only terminal where the business of providing airport-
related services to international airlines and passengers may be conducted at all.

Consequently, government through the DOTC/MIAA will be compelled to cease honoring

existing contracts with service providers after the In-Service Date, as they cannot be
allowed to operate in Terminal III.

In short, the CA and the ARCA obligate and constrain government to break its existing
contracts with these service providers.

Notably, government is not in a position to require Piatco to accommodate the displaced

service providers, and it would be unrealistic to think that these service providers can
perform their service contracts in some other international airport outside Luzon. Obviously,
then, these displaced service providers are - to borrow a quaint expression - up the river
without a paddle. In plainer terms, they will have lost their businesses entirely, in the blink of
an eye.

What we have here is a set of contractual provisions that impair the obligation of contracts
and contravene the constitutional prohibition against deprivation of property without due
process of law.88

Moreover, since the displaced service providers, being unable to operate, will be forced to
close shop, their respective employees - among them Messrs. Agan and Lopez et al. - have
very grave cause for concern, as they will find themselves out of employment and bereft of
their means of livelihood. This situation comprises still another violation of the constitution
prohibition against deprivation of property without due process.

True, doing business at the NAIA may be viewed more as a privilege than as a right.
Nonetheless, where that privilege has been availed of by the petitioners-in-intervention
service providers for years on end, a situation arises, similar to that in American Inter-
fashion v. GTEB.89 We held therein that a privilege enjoyed for seven years "evolved into
some form of property right which should not be removed x x x arbitrarily and without due
process." Said pronouncement is particularly relevant and applicable to the situation at bar
because the livelihood of the employees of petitioners-intervenors are at stake.

The Piatco Contracts Violate Constitutional Prohibition

Against Deprivation of Liberty Without Due Process

The Piatco Contracts by locking out existing service providers from entry into Terminal III
and restricting entry of future service providers, thereby infringed upon the freedom -
guaranteed to and heretofore enjoyed by international airlines - to contract with local service
providers of their choice, and vice versa.
Both the service providers and their client airlines will be deprived of the right to liberty,
which includes the right to enter into all contracts,90 and/or the right to make a contract in
relation to one's business.91

By Creating New Financial Obligations for Government,

Supplements to the ARCA Violate the Constitutional
Ban on Disbursement of Public Funds Without Valid Appropriation

Clearly prohibited by the Constitution is the disbursement of public funds out of the treasury,
except in pursuance of an appropriation made by law.92 The immediate effect of this
constitutional ban is that all the various agencies of government are constrained to limit their
expenditures to the amounts appropriated by law for each fiscal year; and to carefully count
their cash before taking on contractual commitments. Giving flesh and form to the injunction
of the fundamental law, Sections 46 and 47 of Executive Order 292, otherwise known as the
Administrative Code of 1987, provide as follows:

"Sec. 46. Appropriation Before Entering into Contract. - (1) No contract involving the
expenditure of public funds shall be entered into unless there is an appropriation
therefor, the unexpended balance of which, free of other obligations, is sufficient to
cover the proposed expenditure; and . .

"Sec. 47. Certificate Showing Appropriation to Meet Contract. - Except in the case of
a contract for personal service, for supplies for current consumption or to be carried
in stock not exceeding the estimated consumption for three (3) months, or banking
transactions of government-owned or controlled banks, no contract involving the
expenditure of public funds by any government agency shall be entered into or
authorized unless the proper accounting official of the agency concerned shall have
certified to the officer entering into the obligation that funds have been duly
appropriated for the purpose and that the amount necessary to cover the proposed
contract for the current calendar year is available for expenditure on account thereof,
subject to verification by the auditor concerned. The certificate signed by the proper
accounting official and the auditor who verified it, shall be attached to and become
an integral part of the proposed contract, and the sum so certified shall not thereafter
be available for expenditure for any other purpose until the obligation of the
government agency concerned under the contract is fully extinguished."

Referring to the aforequoted provisions, this Court has held that "(I)t is quite evident from
the tenor of the language of the law that the existence of appropriations and the availability
of funds are indispensable pre-requisites to or conditions sine qua non for the execution of
government contracts. The obvious intent is to impose such conditions as a priori requisites
to the validity of the proposed contract."93

Notwithstanding the constitutional ban, statutory mandates and Jurisprudential precedents,

the three Supplements to the ARCA, which were not approved by NEDA, imposed on
government the additional burden of spending public moneys without prior appropriation.
In the First Supplement ("FS") dated August 27, 1999, the following requirements were
imposed on the government:

• To construct, maintain and keep in good repair and operating condition all airport
support services, facilities, equipment and infrastructure owned and/or operated by
MIAA, which are not part of the Project or which are located outside the Site, even
though constructed by Concessionaire - including the access road connecting
Terminals II and III and the taxilane, taxiways and runways

• To obligate the MIAA to provide funding for the upkeep, maintenance and repair of
the airports and facilities owned or operated by it and by third persons under its
control in order to ensure compliance with international standards; and holding MIAA
liable to Piatco for the latter's losses, expenses and damages as well as for the
latter's liability to third persons, in case MIAA fails to perform such obligations; in
addition, MIAA will also be liable for the incremental and consequential costs of the
remedial work done by Piatco on account of the former's default.

• Section 4 of the FS imposed on government ten (10) "Additional Special

Obligations," including the following:

o Providing thru MIAA the land required by Piatco for the taxilane and one
taxiway, at no cost to Piatco
o Implementing the government's existing storm drainage master plan
o Coordinating with DPWH the financing, implementation and completion of the
following works before the In-Service Date: three left-turning overpasses
(Edsa to Tramo St., Tramo to Andrews Ave., and Manlunas Road to Sales
Ave.) and a road upgrade and improvement program involving widening,
repair and resurfacing of Sales Road, Andrews Avenue and Manlunas Road;
improvement of Nichols Interchange; and removal of squatters along
Andrews Avenue
o Dealing directly with BCDA and the Philippine Air Force in acquiring
additional land or right of way for the road upgrade and improvement program
o Requiring government to work for the immediate reversion to MIAA of the
Nayong Pilipino National Park, in order to permit the building of the second
west parallel taxiway

• Section 5 of the FS also provides that in lieu of the access tunnel, a surface access
road (T2-T3) will be constructed. This provision requires government to expend
funds to purchase additional land from Nayong Pilipino and to clear the same in
order to be able to deliver clean possession of the site to Piatco, as required in
Section 5(c) of the FS.

On the other hand, the Third Supplement ("TS") obligates the government to deliver, within
120 days from date thereof, clean possession of the land on which the T2-T3 Road is to be
constructed.
The foregoing contractual stipulations undeniably impose on government the expenditures
of public funds not included in any congressional appropriation or authorized by any other
statute. Piatco however attempts to take these stipulations out of the ambit of Sections 46
and 47 of the Administrative Code by characterizing them as stipulations for compliance on
a "best-efforts basis" only.

To determine whether the additional obligations under the Supplements may really be
undertaken on a best-efforts basis only, the nature of each of these obligations must be
examined in the context of its relevance and significance to the Terminal III Project, as well
as of any adverse impact that may result if such obligation is not performed or undertaken
on time. In short, the criteria for determining whether the best-efforts basis will apply is
whether the obligations are critical to the success of the Project and, accordingly, whether
failure to perform them (or to perform them on time) could result in a material breach of the
contract.

Viewed in this light, the "Additional Special Obligations" set out in Section 4 of the FS take
on a different aspect. In particular, each of the following may all be deemed to play a major
role in the successful and timely prosecution of the Terminal III Project: the obtention of land
required by PIATCO for the taxilane and taxiway; the implementation of government's
existing storm drainage master plan; and coordination with DPWH for the completion of the
three left-turning overpasses before the In-Service Date, as well as acquisition and delivery
of additional land for the construction of the T2-T3 access road.

Conversely, failure to deliver on any of these obligations may conceivably result in

substantial prejudice to the concessionaire, to such an extent as to constitute a material
breach of the Piatco Contracts. Whereupon, the concessionaire may outrightly terminate the
Contracts pursuant to Section 8.01(b)(i) and (ii) of the ARCA and seek payment of
Liquidated Damages in accordance with Section 8.02(a) of the ARCA; or the concessionaire
may instead require government to pay the Incremental and Consequential Losses under
Section 1.23 of the ARCA.94 The logical conclusion then is that the obligations in the
Supplements are not to be performed on a best-efforts basis only, but are unarguably
mandatory in character.

Regarding MIAA's obligation to coordinate with the DPWH for the complete implementation
of the road upgrading and improvement program for Sales, Andrews and Manlunas Roads
(which provide access to the Terminal III site) prior to the In-Service Date, it is essential to
take note of the fact that there was a pressing need to complete the program before the
opening of Terminal III.95 For that reason, the MIAA was compelled to enter into a
memorandum of agreement with the DPWH in order to ensure the timely completion of the
road widening and improvement program. MIAA agreed to advance the total amount of
P410.11 million to DPWH for the works, while the latter was committed to do the following:

"2.2.8. Reimburse all advance payments to MIAA including but not limited to interest,
fees, plus other costs of money within the periods CY2004 and CY2006 with
payment of no less than One Hundred Million Pesos (PhP100M) every year.
 "2.2.9. Perform all acts necessary to include in its CY2004 to CY2006 budget
allocation the repayments for the advances made by MIAA, to ensure that the
advances are fully repaid by CY2006. For this purpose, DPWH shall include the
amounts to be appropriated for reimbursement to MIAA in the "Not Needing
Clearance" column of their Agency Budget Matrix (ABM) submitted to the
Department of Budget and Management."

It can be easily inferred, then, that DPWH did not set aside enough funds to be able to
complete the upgrading program for the crucially situated access roads prior to the targeted
opening date of Terminal III; and that, had MIAA not agreed to lend the P410 Million, DPWH
would not have been able to complete the program on time. As a consequence, government
would have been in breach of a material obligation. Hence, this particular undertaking of
government may likewise not be construed as being for best-efforts compliance only.

They also Infringe on the Legislative Prerogative and Power Over the Public Purse

But the particularly sad thing about this transaction between MIAA and DPWH is the fact
that both agencies were maneuvered into (or allowed themselves to be maneuvered into)
an agreement that would ensure delivery of upgraded roads for Piatco's benefit, using funds
not allocated for that purpose. The agreement would then be presented to Congress as a
done deal. Congress would thus be obliged to uphold the agreement and support it with the
necessary allocations and appropriations for three years, in order to enable DPWH to
deliver on its committed repayments to MIAA. The net result is an infringement on the
legislative power over the public purse and a diminution of Congress' control over
expenditures of public funds - a development that would not have come about, were it not
for the Supplements. Very clever but very illegal!

EPILOGUE
What Do We Do Now?

In the final analysis, there remains but one ultimate question, which I raised during the Oral
Argument on December 10, 2002: What do we do with the Piatco Contracts and
Terminal III?96 (Feeding directly into the resolution of the decisive question is the other
nagging issue: Why should we bother with determining the legality and validity of these
contracts, when the Terminal itself has already been built and is practically complete?)

Prescinding from all the foregoing disquisition, I find that all the Piatco contracts, without
exception, are void ab initio, and therefore inoperative. Even the very process by which the
contracts came into being - the bidding and the award - has been riddled with irregularities
galore and blatant violations of law and public policy, far too many to ignore. There is thus
no conceivable way, as proposed by some, of saving one (the original Concession
Agreement) while junking all the rest.

Neither is it possible to argue for the retention of the Draft Concession Agreement (referred
to in the various pleadings as the Contract Bidded Out) as the contract that should be kept
in force and effect to govern the situation, inasmuch as it was never executed by the
parties. What Piatco and the government executed was the Concession Agreement which is
entirely different from the Draft Concession Agreement.

Ultimately, though, it would be tantamount to an outrageous, grievous and unforgivable

mutilation of public policy and an insult to ourselves if we opt to keep in place a contract -
any contract - for to do so would assume that we agree to having Piatco continue as the
concessionaire for Terminal III.

Despite all the insidious contraventions of the Constitution, law and public policy Piatco
perpetrated, keeping Piatco on as concessionaire and even rewarding it by allowing it to
operate and profit from Terminal III - instead of imposing upon it the stiffest sanctions
permissible under the laws - is unconscionable.

It is no exaggeration to say that Piatco may not really mind which contract we decide to
keep in place. For all it may care, we can do just as well without one, if we only let it
continue and operate the facility. After all, the real money will come not from building the
Terminal, but from actually operating it for fifty or more years and charging whatever it feels
like, without any competition at all. This scenario must not be allowed to happen.

If the Piatco contracts are junked altogether as I think they should be, should not AEDC
automatically be considered the winning bidder and therefore allowed to operate the
facility? My answer is a stone-cold 'No'. AEDC never won the bidding, never signed any
contract, and never built any facility. Why should it be allowed to automatically step in and
benefit from the greed of another?

Should government pay at all for reasonable expenses incurred in the construction of the
Terminal? Indeed it should, otherwise it will be unjustly enriching itself at the expense of
Piatco and, in particular, its funders, contractors and investors - both local and foreign. After
all, there is no question that the State needs and will make use of Terminal III, it being part
and parcel of the critical infrastructure and transportation-related programs of government.

In Melchor v. Commission on Audit,97 this Court held that even if the contract therein was
void, the principle of payment by quantum meruit was found applicable, and the contractor
was allowed to recover the reasonable value of the thing or services rendered (regardless
of any agreement as to the supposed value), in order to avoid unjust enrichment on the part
of government. The principle of quantum meruit was likewise applied in Eslao v.
Commission on Audit,98 because to deny payment for a building almost completed and
already occupied would be to permit government to unjustly enrich itself at the expense of
the contractor. The same principle was applied in Republic v. Court of Appeals.99

One possible practical solution would be for government - in view of the nullity of the Piatco
contracts and of the fact that Terminal III has already been built and is almost finished - to
bid out the operation of the facility under the same or analogous principles as build-operate-
and-transfer projects. To be imposed, however, is the condition that the winning bidder must
pay the builder of the facility a price fixed by government based on quantum meruit; on the
real, reasonable - not inflated - value of the built facility.
How the payment or series of payments to the builder, funders, investors and contractors
will be staggered and scheduled, will have to be built into the bids, along with the annual
guaranteed payments to government. In this manner, this whole sordid mess could result in
something truly beneficial for all, especially for the Filipino people.

WHEREFORE, I vote to grant the Petitions and to declare the subject contracts NULL and
VOID.