Case Summary (G.R. No. 171101)
Applicability and Interpretation of the Doctrine of Operative Facts
The operative facts doctrine, a principle of equity, recognizes that acts and consequences that occurred during the effectivity of a law or executive action, even if later declared void or unconstitutional, remain valid to avoid injustice. Contrary to some respondents’ views limiting its application only to laws declared unconstitutional, the Supreme Court clarified that it also applies to executive acts subsequently nullified, including administrative decisions such as PARC's prior approval of the SDP. The doctrine safeguards vested rights and prevents disruption of settled transactions done in reliance on the approved stock distribution. However, this doctrine is not an exception to applicable positive laws and cannot contravene statutory mandates such as the compulsory land distribution under CARL. It functions only where there is no clear prescription of law governing the situation.
Constitutionality of Section 31 of RA 6657
The Court declined to resolve the constitutionality of Section 31 of RA 6657 on procedural grounds, notably that the issue was not timely raised as the SDP had been approved since 1989 and benefits had been accepted without objection for many years. The provision under Section 31 allows corporate landowners to comply with agrarian reform by distributing shares of stock proportionate to land value to qualified beneficiaries instead of distributing land properties themselves. While this mechanism has generated significant controversy, the Court found no pressing need to declare its constitutionality in this case. Amendments to RA 6657 have effectively superseded the stock distribution option after June 30, 2009.
Coverage and Segregation of Agricultural Lands
Only 4,915.75 hectares of Hacienda Luisita agricultural land, those subject to the SDP, are presently considered covered by compulsory agrarian reform. Larger areas previously identified (e.g., 6,443 hectares) could be separately covered in the future at DAR’s discretion. Portions of the land, such as 500 hectares converted into industrial land and an 80.51-hectare lot expropriated for the Subic-Clark-Tarlac Expressway (SCTEX), have been validly converted or sold and are excluded from compulsory coverage but their proceeds must be accounted to the farmworker-beneficiaries.
Conversion of Agricultural Lands and Transactions with Third Parties
The conversion of agricultural lands into industrial/commercial uses was legally approved by DAR, supported by a majority of farmworker-beneficiaries, and is not deemed a violation of CARL or DAO 10. Regarding sales to third parties, including LIPCO and RCBC, the Court recognized their status as innocent purchasers by virtue of their good faith acquisitions accompanied by certificates of title and the DAR's final conversion order. Interlocking directors among corporations did not justify piercing corporate veils absent fraud. Regarding transfers to Luisita Realty Corporation (LRC), however, the Court ordered it be given opportunity to prove good faith, since it did not intervene in the proceedings.
Just Compensation and Date of Taking
HLI is entitled to just compensation for the agricultural lands covered by land distribution. The Court fixed the date of taking as November 21, 1989—the date when PARC approved the SDP—because this approval constituted constructive notice and operation of agrarian reform coverage over the lands. This date shall govern the valuation for compensation. Although some dissenters argued instead for valuation based on the Notice of Coverage in 2006, the Court prioritized social justice concerns favoring the original qualified farmworker-beneficiaries who gave up their land rights for stocks under the SDP. The computation of just compensation will be subject to further determination by DAR and Land Bank, with judicial review available. HLI shall not pay rental for the lands as the farmworker-beneficiaries’ benefits and shares relate to their status as employees and stockholders under the previous scheme.
Proceeds from Sale of Converted Lands and SCTEX Lot
Since the 500-hectare converted land and the 80.51-hectare SCTEX lot were excluded from compulsory coverage, HLI and its subsidiary Centennary Holdings, Inc. are liable to the farmworker-beneficiaries for the proceeds of sale of these lots minus legitimate corporate expenses, transfer taxes, and payments already made to the beneficiaries. The DAR is tasked to engage a reputable accounting firm to audit the corporate books and determine any unused balance to be distributed to the farmworker-beneficiaries.
Rights and Limitations on Transfer of Awarded Lands
The awarded lands may not be sold or conveyed within ten (10) years from issuance and registration of Emancipation Patents or Certificates of Land Ownership Award, which have not yet been issued to the original farmworker-beneficiaries (FWBs). Transfers are limited to hereditary succession, government, Land Bank of the Philippines, or qualified beneficiaries under DAR supervision. The law prohibits immediate disposition to third parties, including HLI, without proper authority, to uphold agrarian reform objectives and retention limits. The prohibition balances protection of farmers’ ownership against risks of premature land loss.
Grounds for Revocation of the Stock Distribution Plan (SDP)
PARC validly revoked the approval of the SDP due to failure by HLI to fully comply with conditions:
- Non-distribution or defective delivery of homelots to farmworker-beneficiaries.
- Inequitable stock distribution based on "man-days" rather than equal shares, resulting in dilution of original beneficiaries’ shares.
- Prolonged period for stock distribution (30 years), which violates DAO 10’s three-month implementation requirement.
The stock distribution failed to guarantee equal treatment and due benefits to all qualified beneficiaries, making it inconsistent with agrarian reform policy and administrative regulations.
Control over Agricultural Lands and Status of Farmworker-Beneficiaries
Constitutional policy requires that control over agricultural land be in the hands of farmers. However, the stock distribution option implemented by HLI resulted in farmworker-beneficiaries holding only about 33% of corporate shares, insufficient to control corporate decisions. Given that majority control cannot be attained through the current stock distribution, and considering the revocation of the stock distribution approval, the Court recalled and set aside the prior option for farmworker-beneficiaries to remain as stockholders. The original 6,296 qualified FWBs will have their land distributed through DAR. Remaining FWBs who do not qualify retain their shares as ordinary stockholders. All benefits and homelots received by all farmworkers shall be respected with no requirement for reimbursement.
Final Directives and Modification of Prior Ruling
The Court:
- Affirmed PARC Resolutions placing the lands under compulsory coverage with modifications eliminating the option for FWBs to remain stockholders.
- Ordered segregation of converted land and SCTEX lot from the agricultural land for immediate land distribution to the 6,296 original FWBs identified by DAR.
- Directed HLI to pay farmworker-beneficiaries proceeds from sale of converted lands and SCTEX lot, subject to audit and deductions for legitimate expenses.
- Ordered determination and payment of just compensation to HLI for lands to be distributed, reckoned from November 21, 1989.
- Lifted previous temporary restraining orders and set reporting obligations for DAR to monitor implementation.
Concurring and Dissenting Opinions—Key Points
- Chief Justice Corona dissented on the refusal to declare Section 31 of RA 6657 unconstitutional, emphasizing the constitutional mandate that farmers must own the land they till, not stock in corporations; he opposed application of the operative facts doctrine, advocating outright land distribution with just compensation.
- Justice Brion concurred with the revocation of the SDP but dissented on the application of operative facts doctrine and on the treatment of compensation and op
Case Syllabus (G.R. No. 171101)
Case Background and Procedural Posture
- The Supreme Court of the Philippines, En Banc, resolved multiple motions for reconsideration and a motion for clarification filed by parties involved in the Hacienda Luisita agrarian dispute.
- The case revolves around the validity and revocation of the Stock Distribution Plan (SDP) and Stock Distribution Option Agreement (SDOA) initiated by Hacienda Luisita, Inc. (HLI) under Section 31 of Republic Act No. 6657 (RA 6657), or the Comprehensive Agrarian Reform Law (CARL).
- The Court initially promulgated a Decision on July 5, 2011, denying the petition of HLI and affirming the revocation of the SDP approval by the Presidential Agrarian Reform Council (PARC), while granting the farmworker-beneficiaries (FWBs) the option to remain as stockholders in HLI.
- The Court was tasked with resolving issues concerning just compensation, applicability of the operative fact doctrine, constitutionality of key legal provisions, and ownership and control over agricultural lands in Hacienda Luisita.
Applicability of the Operative Fact Doctrine
- The doctrine recognizes that acts done under a law or executive order prior to its declaration of unconstitutionality may have legal consequences that cannot be ignored.
- The Court affirmed that the doctrine applies broadly to executive acts, including decisions by administrative bodies and agencies, not only to statutes or quasi-legislative executive acts.
- The doctrine's application in this case protects the FWBs’ receipt of benefits (like homelots, shares, and production shares) even after the revocation of the SDP.
- Respondents' arguments that the doctrine should not apply were rejected because PARC Resolution No. 89-12-2, which approved the stock distribution plan, was an executive act later invalidated.
- The Court clarified that the option given to the FWBs to remain stockholders was an individual choice, not a binding referendum, and is consistent with equity and fairness.
- Equity as embodied in the operative fact doctrine can be applied in the presence of a positive law only if the law does not expressly negate it.
Constitutionality of Section 31 of RA 6657
- The Court declined to rule on the constitutionality of Section 31 of RA 6657, which allows stock distribution as a mode of agrarian reform compliance, holding that:
- The constitutional issue was not the lis mota (main issue) of the case.
- The challenge to constitutionality was raised belatedly, 18 years after the approval of the SDP.
- The Court avoids constitutional questions when disposition can be made on other grounds.
- The Dissenting Opinion raised grave constitutional concerns emphasizing that Section 31 effectively prohibits the direct or collective ownership of land by farmers and farmworkers and is thus invalid.
- The dissent argues that stock distribution options contradict the explicit mandate under the Philippine Constitution to grant land ownership to farmers.
Coverage of Compulsory Acquisition
- The disputed agricultural land area is approximately 4,915.75 hectares subjected to compulsory coverage following the revocation of the SDP, not the larger 6,443 hectares claimed by some parties.
- The Court restricted its ruling to the lands subject to the approved SDP and left open the possibility for the DAR to cover other lands in future proceedings.
- DAR is empowered to determine precise land areas to be distributed to FWBs, including adjustments due to common areas like roads and irrigation canals.
- Conversion of agricultural lands (500 hectares) to industrial or commercial use was ruled valid, supported by DAR Conversion Order dated August 14, 1996, and consenting farmworker-beneficiaries.
- The Court refused to find sales of converted lands to LIPCO and RCBC as invalid or bad faith, considering these as innocent purchases for value, despite interlocking directors with HLI.
- Piercing the corporate veil was declined due to lack of proof of fraud or public policy violation.
Just Compensation
- The Court held that HLI is entitled to ju