THIRD DIVISION

March 11, 2015

G.R. No. 195661

UNKNOWN OWNER OF THE VESSEL MN CHINA JOY, SAMSUN SHIPPING LTD., and INTER-ASIA
MARINE TRANSPORT, INC., Petitioners,
vs.
ASIAN TERMINALS, INC., Respondent.

RESOLUTION

REYES, J.:

The instant petition for review on certiorari1 assails the Decision2 dated November 10, 2010 and
Resolution3 dated February 14, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93164. The CA reversed
and set aside the Decision4 dated January 30, 2009 of the Regional Trial Court (RTC) of Manila, Branch 51, in
Civil Case No. 99-93067, which dismissed for insufficiency of evidence the complaint for damages5 filed by
herein respondent Asian Terminals, Inc. (ATI) against Unknown Owner of the Vessel MJV China Joy
(shipowner),6 Samsun Shipping Ltd. (Samsun) and Inter-Asia Marine Transport, Inc. (Inter-Asia) (petitioners).

The CA aptly summed up the facts of the case as follows:

On 25 January 1997, the cargo ship M/V "China Joy" (the Vessel) arrived at the Mariveles Grain Terminal Wharf,
operated by plaintiff [ATI].

According to the Berth Term Grain Bills of Lading, the Vessel carried soybean meal that had been shipped by
ContiQuincyBunge L.L.C[.] (ContiQuincyBunge), an exporter of soybean meal and related products, in favor of
several consignees in the Philippines.

Under the Charter Party Agreement over M/V "China Joy," ContiQuincyBunge represented itself as the
Charterer of the Vessel, with San Miguel Foods, Inc. as Co-Charterer, and defendant [Samsun] represented
itself as the Agent of the Shipowners. Samsun is a foreign corporation not doing business in the Philippines.

On 3 February 1997[,] ATI used its Siwertell Unloader No. 2 to unload the soybean meal from the Vessel’s Hold
No. 2. The Siwertell Unloader is a pneumatic vacubator that uses compressed gas to vertically move heavy bulk
grain from within the hatch of the ship in order to unload it off the ship.

The unloading operations were suddenly halted when the head of Unloader No. 2 hit a flat low-carbon or "mild"
steel bar measuring around 8 to 10 inches in length, 4 inches in width, and 1 ¼ inch in thickness that was in the
middle of the mass of soybean meal. The flat steel bar lodged itself between the vertical screws of Unloader No.
2, causing portions of screw numbers 2 and 3 to crack and be sheared off under the torsional load.

According to the quotation of BMH Marine AB Sweden, the sole manufacturer of Siwertell unloaders, the
replacement cost of each screw is US$12,395.00 or US$24,790.00 for the 2 screws plus freight. The labor cost
to remove and re-assemble the screws is estimated at US$2,000.00.

On 4 February 1997, ATI sent a Note of Protest to the Master of the Vessel for the damages sustained by its
unloading equipment as a result of encountering the flat steel bar among the soybean meal. However, the
Vessel’s Master wrote a note on the Protest stating that it is not responsible for the damage because the metal
piece came from the cargo and not from the vessel itself.

On 5 March 1997, ATI sent a claim to defendant [Inter-Asia] for the amount of US$37,185.00 plus US$2,000.00
labor cost representing the damages sustained by its unloading equipment.
Inter-Asia rejected ATI’s claim for the alleged reason that it is not the Shipowner’s Agent. Inter-Asia informed ATI
that its principal is Samsun. Moreover, according to Inter-Asia, the owner of the Vessel is Trans-Pacific Shipping
Co., c/o Lasco Shipping Company. Inter-Asia, however, offered to relay ATI’s claim to Trans-Pacific through
Samsun.

As previously noted, the Charter Party Agreement states Samsun to be the Agent of the Shipowners, but since
Samsun is a foreign corporation not licensed to do business in the Philippines, it transacted its business through
Inter-Asia. Hence, Inter-Asia is the Agent of the Agent of the Shipowners.

When negotiations for settlement failed, ATI filed the instant Complaint for Damages against Samsun, Inter-Asia
and the "Unknown Owner of the Vessel M/V ‘China Joy’" on 9 March 1999.

In the joint Answer, Inter-Asia reiterated that it is not the Agent of the Shipowners.

Defendants further averred that the soybean meal was shipped on board the M/V "China Joy" under a Free-In-
and-Out-Stowed-and-Trimmed (FIOST) Clause, which supposedly means that the Shipper/Charterer itself
(ContiQuincyBunge LLC) loaded the cargo on board the Vessel, and the latter and her complement had no
participation therein except to provide the use of the Vessel’s gear. Similarly, under the FIOST clause, the
discharge of the cargo was to be done by the consignees’ designated personnel without any participation of the
Vessel and her complement.

Defendants argued that since the metal foreign object was found in the middle of the cargo, it could not have
come from the bottom of the hatch because the hatch had been inspected and found clean prior to loading.
Defendants further averred that neither could the metal bar have been part of the Vessel that had broken off and
fallen into the hatch because tests conducted on the metal piece revealed that said metal bar was not part of the
Vessel.

Defendants concluded that the metal bar could only have been already co-mingled with the soybean meal upon
loading by ContiQuincyBunge at loadport, and, therefore, defendants are not liable for the damages sustained
by the unloader of ATI.7 (Citations omitted)

Rulings of the RTC and CA

On January 30, 2009, the RTC rendered a Decision8 dismissing ATI’s complaint for insufficiency of evidence.
The RTC explained that while the damage to ATI’s Siwertell Unloader No. 2 was proven, "[t]he Court is at a
quandary as to who caused the piece of metal to [co-mingle] with the shipment."9

ATI thereafter filed an appeal,10 which the CA granted through the herein assailed decision, the dispositive
portion of which partially states:

WHEREFORE, the appeal is GRANTED, x x x. Defendants- appellees are found jointly and severally liable to
[ATI] for the amount of US$30,300.00 with interest thereon at 6% per annum from the filing of the Complaint on
9 March 1999 until the judgment becomes final and executory. Thereafter, an interest rate of 12% per annum
shall be imposed until the amount is fully and actually paid.

SO ORDERED.11

The CA explained its ruling, viz:

As a rule of evidence, the doctrine of res ipsa loquitur is peculiar to the law of negligence which recognizes that
prima facie negligence may be established without direct proof and furnishes a substitute for specific proof of
negligence.

xxxx
We find the application of the doctrine of res ipsa loquitur to be appropriate in the case at bar.

First. Since the cargo to be unloaded was free-flowing soybean meal in bulk, ATI correctly used a pneumatic
vacubator unloader to extract the soybean meal from the holds. Under normal unloading procedures of bulk
grain, it is not expected that a metal foreign object would be among the grain to be unloaded. x x x.

Such an accident does not occur in the ordinary course of things, unless the loading of the soybean meal at
loadport was mismanaged in some way that allowed a metal foreign object to be co-mingled with the soybean
meal cargo.

Second. The damage to the vertical screws of ATI’s unloader was caused by the presence of the metal bar
among the soybean meal in Hold No. 2 of the ship: an instrumentality within the exclusive control of the
shipowner.

x x x According to defendants, "the vessel and her complement had no participation in the loading and discharge
of said bulk cargo except to provide use of the vessel’s gear."

Defendants’argument is neither accurate nor meritorious. In

the first place, the terms of the Charter Party in this case was not Free-In-and-Out-Stowed-and-Trimmed
[FIOST] but Free-In-and-Spout- Trimmed-and-Free-Out [FISTFO].

xxxx

x x x [I]t appears that the FIOST clause in a Charter Party Agreement speaks of who is to bear the cost or
expense of loading, spout trimming and unloading the cargo. "Free In and Out" means that the shipowner is free
from such expenses. This becomes clearer when the

FIOST clause is stipulated as an adjunct to the terms of payment of the freight rate.

xxxx

Being a provision for the apportionment of expense (as an exclusion from the rate of freight to be paid), the
interpretation of the FIOST clause should not be extended to mean an apportionment of liability, unless specified
in clear and unambiguous terms.

While there are instances where a Charter Party Agreement clearly states that the Charterer will be liable to third
parties for damages caused by its cargo (as in the case of spills of petroleum oil cargo, or of damage to third
parties caused by toxic cargo), there is no such provision in this case. Therefore, liability or non-liability for such
damage cannot be presumed from the FIOST clause alone, and the Charter Party Agreement must be closely
scrutinized for the parties’ intention on liability.

Clause 22 of the Charter Party Agreement states:

"At loadport, the stevedores[,] although arranged by charterers, shippers, or their agents[, are] to be under the
direction and control of the Master. All claims for damage allegedly caused by stevedores [are] to be settled
between stevedores and Owners. Charterers shall render assistance to Owners to settle such damage in case
of need."

x x x Clause 22 clearly states that loading shall be done under the direction and control of the Master. Hence, if
the metal bar that damaged ATI’s unloader was inadvertently mixed into the soybean meal during loading, by
express provision of the Charter Party Agreement, the cost of the damage should be borne by the shipowner
because the loading was done under the supervision and control of the Master of the Vessel.
Hence, not only did defendants have presumed exclusive control of the Vessel during the loading of the soybean
meal by reason of them being the owners or agents of the owners thereof, they also had actual exclusive control
thereof by express stipulation in the Charter Party Agreement that the loading of the cargo shall be under the
direction and control of the Master of the Vessel.

This is as it should be, considering that the charter in this case is a contract of affreightment by which the owner
of a ship lets the whole or part of her to a merchant or other person for the conveyance of goods, on a particular
voyage, in consideration of the payment of freight. The Supreme Court has held that if the charter is a contract of
affreightment, the rights and the responsibilities of ownership rest on the owner. The charterer is free from
liability to third persons in respect of the ship.

Third. There is neither allegation nor evidence in the record that ATI’s negligence contributed to the damage of
its unloader.

All 3 requisites of res ipsa loquitur being present, the presumption or inference arises that defendants’
negligence was the proximate cause of the damage to ATI’s unloader. The burden of evidence shifted to
defendants to prove otherwise. Th[e] defendants failed to do so.

Defendants’ testimonial evidence consisted of the sole testimony of the former Operations Manager of Inter-
Asia, who x x x on cross-examination, x x x admitted that he was not present at the loading of the cargo and,
therefore, did not actually see that the soybean meal was free of any foreign metal object.

Defendants’ evidence, which heavily relies on (1) their erroneous interpretation of the FIOST clause in the
Charter Party Agreement; (2) the Master’s unsupported allegation written on the Note of Protest that the metal
bar did not come from the vessel; and (3) their witness’ dubious interpretation that the notation "loaded clean" on
the Berth Term[ ]Grain Bills of Lading means that the soybean meal had no foreign material included therein,
does not present a satisfactory answer to the question:

How did the metal bar get co-mingled with the soybean meal, and what did the Master of the Vessel do to
prevent such an occurrence? x x x.

By their failure to explain the circumstances that attended the accident, when knowledge of such circumstances
is accessible only to them, defendants failed to overcome the prima facie presumption that the accident arose
from or was caused by their negligence or want of care.

The res ipsa loquitur doctrine is based in part upon the theory that the defendant in charge of the instrumentality
which causes the injury either knows the cause of the accident or has the best opportunity of ascertaining it and
that the plaintiff has no such knowledge, and therefore is compelled to allege negligence in general terms and to
rely upon the proof of the happening of the accident in order to establish negligence. x x x.

xxxx

The prima facie evidence of defendants’ negligence, being unexplained and uncontroverted, is sufficient to
maintain the proposition affirmed. Hence, the negligence of the Master of the Vessel is conclusively presumed to
be the proximate cause of the damage sustained by ATI’s unloader. Moreover, since the Master’s liability is
ultimately that of the shipowner because he is the representative of the shipowner, the shipowner and its agents
are solidarily liable to pay ATI the amount of damages actually proved.

Articles 587 and 590 under Book III of the Code of Commerce provide for the liability of the shipowner and its
agents for acts of the Master or Captain, as follows:

Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise
from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt
himself therefrom by abandoning the vessel with all her equipment and the freight it may have earned during the
voyage.
Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their interests in the common fund
for the results of the acts of the captain referred to in Art. 587.12 (Citations omitted, italics and emphasis in the
original, and underscoring ours)

Anent the amount of the herein petitioners’ solidary liability, the CA found that only US$30,300.00 of ATI’s claim
is supported by evidence. The quotation submitted by the manufacturer of Siwertell unloaders indicated that (a)
the replacement cost for the two damaged screws is US$24,790.00,

(b) freight cost is US$3,510.00, and (c) labor cost in removing and re-assembling the screws is US$2,000.00.13

The CA, however, found no grounds to award attorney’s fees in ATI’s favor lest it be "tantamount to imposing a
premium on one’s right to litigate."14

The herein petitioners filed a motion for reconsideration before the CA, which denied the same through the
Resolution issued on February 14, 2011.

Issues

The instant petition raises the questions of whether or not the CA erred in (a) applying the doctrine of res ipsa
loquitur, and (b) rejecting the argument that "the petitioners had no participation in the loading and discharge of
the bulk cargo except to provide use of the vessel’s gear."15

In support thereof, the petitioners emphasize that the foreign metal object was found in the middle of the cargo.
Hence, it is logical to conclude that the metal came in with the cargo and could not have fallen off from some
appurtenance of the vessel before or after loading.16 The petitioners likewise claim that because of the Free-In-
and-Out Clause under which the cargo was carried, the charterer chose who were to effect the loading,
unloading and discharge of the goods, which tasks were performed without the participation of the vessel and its
complement.17Besides, notwithstanding Clause 22 of the Charter Party Agreement, the Master of the Vessel’s
control is figurative and pertains merely to the maintenance of the vessel’s seaworthiness, and not to acts of
covert negligence which could have been committed without even the charterer’s own knowledge.18 Further,
while it is true that in a contract of affreightment, the charterer is free from liability to third persons in respect of
the ship, in the instant petition, the offending factor which caused the damage was not the vessel, but the cargo
itself, thus, the liability should instead rest upon the cargo owner, who was not even impleaded as a party to the
case.19 The doctrine of res ipsa loquitur hence finds application herein but in support of the petitioners’ lack of
culpability since they possessed neither the knowledge nor the opportunity of ascertaining the presence of the
foreign metal object lodged in the middle of the soybean meal cargo.20

In its Comment,21 ATI contends that "the law does not distinguish between ‘covert’ and ‘evident’ negligence in
determining whether the doctrine of res ipsa loquitur applies."22 An unusual event occurred because proper care
was not observed. The event took place in Hold No. 2 of M/V China Joy, which was within the shipowner’s
exclusive control. There is likewise no evidence of ATI’s negligence, which could have contributed to the
damage of its own unloader. Besides, ATI did not witness the loading of the soybean meal cargo into M/V China
Joy at the Port of New Orleans, United States of America. Hence, ATI cannot furnish direct evidence on whether
or not the hold or hatch containing the cargo was inspected and found clean prior to loading, and sealed
thereafter.

ATI also asserts that the petitioners presented no evidence conclusively proving that the foreign metal object
was indeed in the middle and not at the top or bottom of the soybean meal cargo. Moreover, the petitioners’ only
witness, Alejandro Gilhang, the former Operations Manager of Inter-Asia, admitted that he was not present
during the loading, thus, he could not have seen if the cargo was free of any foreign metal object.23

ATI likewise points out that the petitioners have not explicitly quoted in verbatim any provision in the Charter
Party Agreement, which the latter invoke to vaguely argue that the loading of the cargo pertains exclusively to
the charterer. Therefore, the petitioners have nary a legal basis for their assertion that the shipowner has no
liability insofar as the loading operations are concerned. Besides, even if such provision in fact exists, ATI is not
privy to the Charter Party Agreement.24

Ruling of the Court

The Court agrees with the CA that the petitioners are liable to ATI for the damage sustained by the latter’s
unloader. However, the Court finds the petitioners’ liability to be based on quasi-delict and not on a contract of
carriage. The Court likewise deems it proper to modify the rate of interests on the amount of damages imposed
by the CA upon the petitioners.

The Court notes that the shipowner and shipowner’s agent, Samsun, are all juridical entities not registered and
not doing business in the Philippines. It was the charterer’s agent, Inter-Asia, a duly-registered domestic
corporation, which had filed the instant petition for itself and on behalf of the shipowner and Samsun.25 In the
course of the proceedings too, none of the parties had raised issues anent the validity of the service of summons
and the courts’ acquisition of jurisdiction over the persons of the petitioners.

The petitioners present two issues for the Court’s resolution, to wit:

(a)the applicability of the doctrine of res ipsa loquitur in the case at bar; and

(b)who participated and should thus assume liability for the loading of the soybean meal cargo.

In its Decision dated January 30, 2009, the RTC declared that while ATI indeed sustained damages to its
unloader, liability therefor cannot, however, be established with certainty.

In the assailed decision, the CA, on the other hand, discussed in detail why and how the three requisites to the
application of the doctrine of res ipsa loquitur are found to be attendant in the case at bar. First, the co-mingling
of the two foreign metal objects with the soybean meal cargo and the consequent damage to ATI’s unloader is
an accident which ordinarily does not occur in the absence of someone’s negligence. Second, the foreign metal
objects were found in the vessel’s Hold No. 2, which is within the exclusive control of the petitioners. Third,
records do not show that ATI’s negligence had in any way contributed to the damage caused to its unloader.

The Court agrees with the CA anent ATI’s entitlement to the payment of damages from the petitioners and the
applicability of the doctrine of res ipsa loquitur. However, the Court finds as misplaced the CA’s application of the
laws on maritime commerce and contracts of carriage for reasons discussed below.

There is no contract of carriage between the petitioners and ATI.

There is no contract of carriage between ATI, on one hand, and the shipowner, Samsun, ContiQuincyBunge
L.L.C., and Inter-Asia, on the other. It likewise bears stressing that the subject of the complaint, from which the
instant petition arose, is not the damage caused to the cargo, but to the equipment of an arrastre operator.
Further, ATI’s contractual relation is not with the petitioners, but with the consignee and with the Philippine Ports
Authority (PPA).

In Delgado Brothers, Inc. v. Home Insurance Company and Court of Appeals,26 the Court discusses the functions
of an arrastre operator, viz:

Under this provision, petitioner’s functions as arrastre operator are (1) to receive, handle, care for, and deliver all
merchandise imported and exported, upon or passing over Government-owned wharves and piers in the Port of
Manila, (2) as well as to record or cheek all merchandise which may be delivered to said port at shipside, and in
general[,] (3) to furnish light and water services and other incidental services in order to undertake its arrastre
service. Note that there is nothing in those functions which relate to the trade and business of navigation x x x,
nor to the use or operation of vessels x x x. Both as to the nature of the functions and the place of their
performance (upon wharves and piers shipside), petitioner’s services are clearly not maritime. As we held in the
Macondray case, they are no different from those of a depositary or warehouseman. Granting, arguendo, that
petitioner’s arrastre service depends on, assists, or furthers maritime transportation x x x, it may be deemed
merely incidental to its aforementioned functions as arrastre operator and does not, thereby, make petitioner’s
arrastre service maritime in character.27 (Citations omitted, italics in the original, emphasis and underscoring
ours)

"The functions of an arrastre operator involve the handling of cargo deposited on the wharf or between the
establishment of the consignee or shipper and the ship’s tackle. Being the custodian of the goods discharged
from a vessel, an arrastre operator’s duty is to take good care of the goods and to turn them over to the party
entitled to their possession."28

"The legal relationship between an arrastre operator and a consignee is akin to that between a warehouseman
and a depositor. As to both the nature of the functions and the place of their performance, an arrastre operator’s
services are clearly not maritime in character."29

In Insurance Company of North America v. Asian Terminals, Inc.,30 the Court explained that the liabilities of the
arrastre operator for losses and damages are set forth in the contract for cargo handling services it had executed
with the PPA. Corollarily then, the rights of an arrastre operator to be paid for damages it sustains from handling
cargoes do not likewise spring from contracts of carriage.

However, in the instant petition, the contending parties make no references at all to any provisions in the
contract for cargo handling services ATI had executed with the PPA.

Article 2176 of the New Civil Code and the doctrine of res ipsa loquitur apply.

Notwithstanding the above, the petitioners cannot evade liability for the damage caused to ATI’s unloader in
view of Article 2176 of the New Civil Code, which pertinently provides as follows:

Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to
pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this Chapter.

In Taylor v. Manila Electric Railroad and Light Co.,31 the Court explained that to establish a plaintiff’s right to
recovery for quasi-delicts, three elements must exist, to wit: (a) damages to the plaintiff; (b) negligence by act or
omission of which defendant personally, or some person for whose acts it must respond, was guilty; and (c) the
connection of cause and effect between the negligence and the damage.32

Negligence, on the other hand, is defined as the failure to observe that degree of care, precaution and vigilance
that the circumstances justly demand, whereby another suffers injury.33

In the case under consideration, the parties do not dispute the facts of damage upon ATI’s unloader, and of such
damage being the consequence of someone’s negligence. However, the petitioners deny liability claiming that it
was not established with reasonable certainty whose negligence had caused the co-mingling of the metal bars
with the soybean meal cargo. The Court, on this matter, agrees with the CA’s disquisition that the petitioners
should be held jointly and severally liable to ATI. ATI cannot be faulted for its lack of direct access to evidence
determinative as to who among the shipowner, Samsun, ContiQuincyBunge and Inter-Asia should assume
liability. The CA had exhaustively discussed why the doctrine of res ipsa loquitur applies. The metal bars which
caused damage to ATI’s unloader was found co-mingled with the cargo inside Hold No. 2 of the ship, which was
then within the exclusive control of the petitioners. Thus, the presumption that it was the petitioners’ collective
negligence, which caused the damage, stands. This is, however, without prejudice to the petitioners’ rights to
seek reimbursements among themselves from the party whose negligence primarily caused the damage.

A modification of the interests imposed on the damages awarded is in order.

Anent the interests imposed by the CA upon the damages to be paid to ATI, modification of the same is in order.
In Nacar v. Gallery Frames,34 the Court declared:

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines are
accordingly modified to embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on
1âwphi1

"Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:

1.When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

2.When an obligation, not constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages,
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the quantification
of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.

3.When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
6% per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.

x x x x.35 (Citation omitted, emphasis and italics in the original, and underscoring ours)

The Court agrees with the CA that as regards ATI’s claim, only the amount of US$30,300.00 is duly supported
by evidence. However, in view of Nacar, the said amount shall be subject to legal interest at the rate of six
percent (6%) per annum reckoned from the finality of this Resolution, the date when the quantification of
damages may be deemed to have been reasonably ascertained, until full satisfaction thereof.

WHEREFORE, the Decision dated November 10, 2010 of the Court of Appeals in CA-G.R. CV No. 93164 is
AFFIRMED with MODIFICATION. The petitioners, Unknown Owner of the Vessel M/V China Joy, Samsun
1âw phi 1

Shipping Ltd. and Inter-Asia Marine Transport, Inc., are hereby ordered to pay the respondent, Asian Terminals,
Inc., actual and compensatory damages in the amount of US$30,300.00, plus legal interest at the rate of six
percent (6%) per annum reckoned from the finality of this Resolution until full satisfaction thereof.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice
 January 20, 2016

G.R. No.176549

DEPARTMENT OF AGRARIAN REFORM, QUEZON CITY & PABLO MENDOZA, Petitioners,

vs.
ROMEO C. CARRIEDO, Respondent.

DECISION

JARDELEZA, J.:

This is a Petition for Review on Certiorari1 assailing the Court of Appeals Decision dated October 5, 20062 and
Resolution dated January 10, 20073 in CA-G.R. SP No. 88935. The Decision and Resolution reversed the Order
dated February 22, 20054 issued by the Department of Agrarian Reform-Central Office (DAR-CO) in
Administrative Case No. A-9999-03-CV-008-03 which directed that a 5.0001 hectare piece of agricultural land
(land) be placed under the Comprehensive Agrarian Reform Program pursuant to Republic Act (RA) No. 6657 or
the Comprehensive Agrarian Reform Law.

The Facts

The land originally formed part of the agricultural land covered by Transfer Certificate of Title (TCT) No.
17680,5which in turn, formed part of the total of 73.3157 hectares of agricultural land owned by Roman De Jesus
(Roman).6

On May 23, 1972, petitioner Pablo Mendoza (Mendoza) became the tenant of the land by virtue of a Contrato
King Pamamuisan7 executed between him and Roman. Pursuant to the Contrato, Mendoza has been paying
twenty-five (25) piculs of sugar every crop year as lease rental to Roman. It was later changed to Two Thousand
Pesos (P2, 000.00) per crop year, the land being no longer devoted to sugarcane.8

On November 7, 1979, Roman died leaving the entire 73.3157 hectares to his surviving wife Alberta Constales
(Alberta), and their two sons Mario De Jesus (Mario) and Antonio De Jesus (Antonio).9 On August 23, 1984,
Antonio executed a Deed of Extrajudicial Succession with Waiver of Right10 which made Alberta and Mario co-
owners in equal proportion of the agricultural land left by Roman.11

On June 26, 1986, Mario sold12 approximately 70.4788 hectares to respondent Romeo C. Carriedo (Carriedo),
covered by the following titles and tax declarations, to wit:

1. TCT No. 35055

2. (Tax Declaration) TD No. 48354

3. TCT No. 17681

4. TCT No. 56897

5. TCT No. 17680

The area sold to Carriedo included the land tenanted by Mendoza (forming part of the area covered by TCT No.
17680). Mendoza alleged that the sale took place without his knowledge and consent.

In June of 1990, Carriedo sold all of these landholdings to the Peoples’ Livelihood Foundation, Inc. (PLFI)
represented by its president, Bernabe Buscayno.13 All the lands, except that covered by TCT No. 17680, were
subjected to Voluntary Land Transfer/Direct Payment Scheme and were awarded to agrarian reform
beneficiaries in 1997.14

The parties to this case were involved in three cases concerning the land, to wit:

The Ejectment Case (DARAB Case No. 163-T-90 | CAG.R. SP No. 44521 | G.R. No. 143416)
On October 1, 1990, Carriedo filed a Complaint for Ejectment and Collection of Unpaid Rentals against Mendoza
before the Provincial Agrarian Reform Adjudication Board (PARAD) of Tarlac docketed as DARAB Case No.
163-T-90. He subsequently filed an Amended Complaint on October 30, 1990.15

In a Decision dated June 4, 1992,16 the PARAD ruled that Mendoza had knowledge of the sale, hence, he could
not deny the fact nor assail the validity of the conveyance. Mendoza violated Section 2 of Presidential Decree
(PD) No. 816,17 Section 50 of RA No. 119918 and Section 36 of RA No. 3844,19 and thus, the PARAD declared the
leasehold contract terminated, and ordered Mendoza to vacate the premises.20

Mendoza filed an appeal with the Department of Agrarian Reform Adjudication Board (DARAB). In a Decision
1âw phi 1

dated February 8, 1996,21 the DARAB affirmed the PARAD Decision in toto. The DARAB ruled that ownership of
the land belongs to Carriedo. That the deed of sale was unregistered did not affect Carriedo’s title to the land. By
virtue of his ownership, Carriedo was subrogated to the rights and obligation of the former landowner, Roman.22

Mendoza then filed a Petition for Review with the Court of Appeals (CA). The case was docketed as CA-G.R. SP
No. 44521. In a Decision dated September 7, 1998,23 the CA affirmed the DARAB decision in toto. The CA ruled
that Mendoza’s reliance on Section 6 of RA No. 6657 as ground to nullify the sale between De Jesus and
Carriedo was misplaced, the section being limited to retention limits. It reiterated that registration was not a
condition for the validity of the contract of sale between the parties.24 Mendoza’s Motions for Reconsideration and
New Trial were subsequently denied.25

Mendoza thus filed a Petition for Review on Certiorari with this Court, docketed as G.R. No. 143416. In a
Resolution dated August 9, 2000,26 this Court denied the petition for failure to comply with the requirements
under Rule 45 of the Rules of Court. An Entry of Judgment was issued on October 25, 2000.27 In effect, the
Decision of the CA was affirmed, and the following issues were settled with finality:

1) Carriedo is the absolute owner of the five (5) hectare land;

2) Mendoza had knowledge of the sale between Carriedo and Mario De Jesus, hence he is bound by the
sale; and

3) Due to his failure and refusal to pay the lease rentals, the tenancy relationship between Carriedo and
Mendoza had been terminated.

Meanwhile, on October 5, 1999, the landholding covered by TCT No. 17680 with an area of 12.1065 hectares
was divided into sub-lots. 7.1065 hectares was transferred to Bernabe Buscayno et al. through a Deed of
Transfer28under PD No. 27.29 Eventually, TCT No. 17680 was partially cancelled, and in lieu thereof,
emancipation patents (EPs) were issued to Bernabe, Rod and Juanito, all surnamed Buscayno. These lots were
identified as Lots C, D and E covered by TCT Nos. 44384 to 44386 issued on September 10, 1999.30 Lots A and
B, consisting of approximately 5.0001 hectares and which is the land being occupied by Mendoza, were
registered in the name of Carriedo and covered by TCT No. 34428131 and TCT No. 344282.32

The Redemption Case (DARAB III-T-1476-97 | CA-G.R. SP No. 88936)

On July 21, 1997, Mendoza filed a Petition for Redemption33 with the PARAD. In an Order dated January 15,
2001,34the PARAD dismissed his petition on the grounds of litis pendentia and lack of the required certification
against forum-shopping. It dismissed the petition so that the pending appeal of DARAB Case No. 163-T-90 (the
ejectment case discussed above) with the CA can run its full course, since its outcome partakes of a prejudicial
question determinative of the tenability of Mendoza’s right to redeem the land under tenancy.35

Mendoza appealed to the DARAB which reversed the PARAD Order in a Decision dated November 12,
2003.36 The DARAB granted Mendoza redemption rights over the land. It ruled that at the time Carriedo filed his
complaint for ejectment on October 1, 1990, he was no longer the owner of the land, having sold the land to
PLFI in June of 1990. Hence, the cause of action pertains to PLFI and not to him.37 It also ruled that Mendoza
was not notified of the sale of the land to Carriedo and of the latter’s subsequent sale of it to PLFI. The absence
of the mandatory requirement of notice did not stop the running of the 180 day-period within which Mendoza
could exercise his right of redemption.38 Carriedo’s Motion for Reconsideration was subsequently denied.39

Carriedo filed a Petition for Review with the CA. In a Decision dated December 29, 2006,40 the CA reversed the
DARAB Decision. It ruled that Carriedo’s ownership of the land had been conclusively established and even
affirmed by this Court. Mendoza was not able to substantiate his claim that Carriedo was no longer the owner of
the land at the time the latter filed his complaint for ejectment. It held that the DARAB erred when it ruled that
Mendoza was not guilty of forum-shopping.41 Mendoza did not appeal the decision of the CA.

The Coverage Case (ADM Case No. A-9999-03-CV-008-03 | CA-G.R. SP No. 88935)

On February 26, 2002, Mendoza, his daughter Corazon Mendoza (Corazon) and Orlando Gomez (Orlando) filed
a Petition for Coverage42 of the land under RA No. 6657. They claimed that they had been in physical and
material possession of the land as tenants since 1956, and made the land productive.43 They prayed (1) that an
order be issued placing the land under Comprehensive Agrarian Reform Program (CARP); and (2) that the DAR,
the Provincial Agrarian Reform Officer (PARO) and the Municipal Agrarian Reform Officer (MARO) of Tarlac City
be ordered to proceed with the acquisition and distribution of the land in their favor.44 The petition was granted by
the Regional Director (RD) in an Order dated October 2, 2002,45 the dispositive portion of which reads:

WHEREFORE, foregoing premises considered, the petition for coverage under CARP filed by Pablo Mendoza,
et al[.], is given due course. Accordingly, the MARO and PARO are hereby directed to place within the ambit of
RA 6657 the landholding registered in the name of Romeo Carriedo covered and embraced by TCT Nos.
334281 and 334282, with an aggregate area of 45,000 and 5,001 square meters, respectively, and to distribute
the same to qualified farmer-beneficiaries.

SO ORDERED.46

On October 23, 2002, Carriedo filed a Protest with Motion to Reconsider the Order dated October 2, 2002 and to
Lift Coverage47 on the ground that he was denied his constitutional right to due process. He alleged that he was
not notified of the filing of the Petition for Coverage, and became aware of the same only upon receipt of the
challenged Order.

On October 24, 2002, Carriedo received a copy of a Notice of Coverage dated October 21, 200248 from MARO
Maximo E. Santiago informing him that the land had been placed under the coverage of the CARP.49 On
December 16, 2002, the RD denied Carriedo’s protest in an Order dated December 5, 2002.50 Carriedo filed an
appeal to the DAR-CO.

In an Order dated February 22, 2005,51 the DAR-CO, through Secretary Rene C. Villa, affirmed the Order of the
RD granting coverage. The DAR-CO ruled that Carriedo was no longer allowed to retain the land due to his
violation of the provisions of RA No. 6657. His act of disposing his agricultural landholdings was tantamount to
the exercise of his retention right, or an act amounting to a valid waiver of such right in accordance with
applicable laws and jurisprudence.52 However, it did not rule whether Mendoza was qualified to be a farmer-
beneficiary of the land. The dispositive portion of the Order reads:

WHEREFORE, premises considered, the instant appeal is hereby DISMISSED for lack of merit. Consequently,
the Order dated 2 October 2002 of the Regional Director of DAR III, is hereby AFFIRMED.

SO ORDERED.53

Carriedo filed a Petition for Review54 with the CA assailing the DAR-CO Order. The appeal was docketed as CA-
G.R. SP No. 88935. In a Decision dated October 5, 2006, the CA reversed the DAR-CO, and declared the land
as Carriedo’s retained area. The CA ruled that the right of retention is a constitutionally-guaranteed right, subject
to certain qualifications specified by the legislature.55 It serves to mitigate the effects of compulsory land
acquisition by balancing the rights of the landowner and the tenant by implementing the doctrine that social
justice was not meant to perpetrate an injustice against the landowner.56 It held that Carriedo did not commit any
of the acts which would constitute waiver of his retention rights found under Section 6 of DAR Administrative
Order No. 02, S.2003.57 The dispositive portion of the Decision reads:

WHEREFORE, premises considered and pursuant to applicable law and jurisprudence on the matter, the
present Petition is hereby GRANTED. Accordingly, the assailed Order of the Department of Agrarian Reform-
Central Office, Elliptical Road, Diliman, Quezon City (dated February 22, 2005) is hereby REVERSED and SET
ASIDE and a new one entered—DECLARING the subject landholding as the Petitioner’s retained area. No
pronouncements as to costs.

SO ORDERED.58

Hence, this petition.

Petitioners maintain that the CA committed a reversible error in declaring the land as Carriedo’s retained area.59

They claim that Paragraph 4, Section 6 of RA No. 6657 prohibits any sale, disposition, lease, management
contract or transfer of possession of private lands upon effectivity of the law.60 Thus, Regional Director Renato
Herrera correctly observed that Carriedo’s act of disposing his agricultural property would be tantamount to his
exercise of retention under the law. By violating the law, Carriedo could no longer retain what was left of his
property. "To rule otherwise would be a roundabout way of rewarding a landowner who has violated the explicit
provisions of the Comprehensive Agrarian Reform Law."61

They also assert that Carriedo waived his right to retain for failure or neglect for an unreasonable length of time
to do that which he may have done earlier by exercising due diligence, warranting a presumption that he
abandoned his right or declined to assert it.62 Petitioners claim that Carriedo has not filed an Application for
Retention over the subject land over a considerable passage of time since the same was acquired for
distribution to qualified farmer beneficiaries.63

Lastly, they argue that Certificates of Land Ownership Awards (CLOAs) already generated in favor of his co-
petitioners Corazon Mendoza and Rolando Gomez cannot be set aside. CLOAs under RA No. 6657 are enrolled
in the Torrens system of registration which makes them indefeasible as certificates of title issued in registration
proceedings.64

The Issue

The sole issue for our consideration is whether Carriedo has the right to retain the land.

Our Ruling

We rule in the affirmative. Carriedo did not waive his right of retention over the land. 1âw phi 1

The 1987 Constitution expressly recognizes landowner retention rights under Article XIII, Section 4, to wit:

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. In determining retention limits, the State shall
respect the right of small landowners. The State shall further provide incentives for voluntary land-sharing.
(Emphasis supplied.)

RA No. 6657 implements this directive, thus:

Section 6. 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-size 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.

xxx

The right to choose the area to be retained, which shall be compact or contiguous, shall pertain to the
landowner: Provided, however, That in case the area selected for retention by the landowner is tenanted, the
tenant shall have the option to choose whether to remain therein or be a beneficiary in the same or another
agricultural land with similar or comparable features. In case the tenant chooses to remain in the retained area,
he shall be considered a leaseholder and shall lose his right to be a beneficiary under this Act. In case the tenant
chooses to be a beneficiary in another agricultural land, he loses his right as a leaseholder to the land retained
by the landowner. The tenant must exercise this option within a period of one (1) year from the time the
landowner manifests his choice of the area for retention. In all cases, the security of tenure of the farmers or
farmworkers on the land prior to the approval of this Act shall be respected. xxx (Emphasis supplied.)

In Danan v. Court of Appeals,65 we explained the rationale for the grant of the right of retention under agrarian
reform laws such as RA No. 6657 and its predecessor PD No. 27, to wit:
The right of retention is a constitutionally guaranteed right, which is subject to qualification by the legislature. It
serves to mitigate the effects of compulsory land acquisition by balancing the rights of the landowner and the
tenant and by implementing the doctrine that social justice was not meant to perpetrate an injustice against the
landowner. A retained area, as its name denotes, is land which is not supposed to anymore leave the
landowner's dominion, thus sparing the government from the inconvenience of taking land only to return it to the
landowner afterwards, which would be a pointless process. For as long as the area to be retained is compact or
contiguous and does not exceed the retention ceiling of five (5) hectares, a landowner's choice of the area to be
retained must prevail. xxx66

To interpret Section 6 of RA No. 6657, DAR issued Administrative Order No. 02, Series of 2003 (DAR AO 02-
03). Section 6 of DAR AO 02-03 provides for the instances when a landowner is deemed to have waived his
right of retention, to wit:

Section 6. Waiver of the Right of Retention. – The landowner waives his right to retain by committing any of the
following act or omission:

6.1 Failure to manifest an intention to exercise his right to retain within sixty (60) calendar days from
receipt of notice of CARP coverage.

6.2 Failure to state such intention upon offer to sell or application under the [Voluntary Land Transfer
(VLT)]/[Direct Payment Scheme (DPS)] scheme.

6.3 Execution of any document stating that he expressly waives his right to retain. The MARO and/or
PARO and/or Regional Director shall attest to the due execution of such document.

6.4 Execution of a Landowner Tenant Production Agreement and Farmer’s Undertaking (LTPA-FU)
or Application to Purchase and Farmer’s Undertaking (APFU) covering subject property.

6.5 Entering into a VLT/DPS or [Voluntary Offer to Sell (VOS)] but failing to manifest an intention to
exercise his right to retain upon filing of the application for VLT/DPS or VOS.

6.6 Execution and submission of any document indicating that he is consenting to the CARP coverage of
his entire landholding.

6.7 Performing any act constituting estoppel by laches which is the failure or neglect for an unreasonable
length of time to do that which he may have done earlier by exercising due diligence, warranting a
presumption that he abandoned his right or declined to assert it.

Petitioners cannot rely on the RD’s Order dated October 2, 2002 which granted Mendoza’s petition for coverage
on the ground that Carriedo violated paragraph 4 Section 667 of RA No. 6657 for disposing of his agricultural
land, consequently losing his right of retention. At the time when the Order was rendered, up to the time when it
was affirmed by the DAR-CO in its Order dated February 22, 2005, the applicable law is Section 6 of DAR 02-
03. Section 6 clearly shows that the disposition of agricultural land is not an act constituting waiver of the right of
retention.

Thus, as correctly held by the CA, Carriedo "[n]ever committed any of the acts or omissions above-stated (DAR
AO 02-03). Not even the sale made by the herein petitioner in favor of PLFI can be considered as a waiver of his
right of retention. Likewise, the Records of the present case is bereft of any showing that the herein petitioner
expressly waived (in writing) his right of retention as required under sub-section 6.3, section 6, DAR
Administrative Order No. 02-S.2003."68

Petitioners claim that Carriedo’s alleged failure to exercise his right of retention after a long period of time
constituted a waiver of his retention rights, as envisioned in Item 6.7 of DAR AO 02-03.

We disagree.

Laches is defined as the failure or neglect for an unreasonable and unexplained length of time, to do that which
by exercising due diligence could or should have been done earlier; it is negligence or omission to assert a right
within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or
declined to assert it.69 Where a party sleeps on his rights and allows laches to set in, the same is fatal to his
case.70
Section 4 of DAR AO 02-03 provides:

Section 4. Period to Exercise Right of Retention under RA 6657

4.1 The landowner may exercise his right of retention at any time before receipt of notice of coverage.

4.2 Under the Compulsory Acquisition (CA) scheme, the landowner shall exercise his right of retention
within sixty (60) days from receipt of notice of coverage.

4.3 Under the Voluntary Offer to Sell (VOS) and the Voluntary Land Transfer (VLT)/Direct Payment
Scheme (DPS), the landowner shall exercise his right of retention simultaneously at the time of offer for
sale or transfer.

The foregoing rules give Carriedo any time before receipt of the notice of coverage to exercise his right of
retention, or if under compulsory acquisition (as in this case), within sixty (60) days from receipt of the notice of
coverage. The validity of the notice of coverage is the very subject of the controversy before this court. Thus, the
period within which Carriedo should exercise his right of retention cannot commence until final resolution of this
case.

Even assuming that the period within which Carriedo could exercise his right of retention has commenced,
Carriedo cannot be said to have neglected to assert his right of retention over the land. The records show that
per Legal Report dated December 13, 199971 prepared by Legal Officer Ariel Reyes, Carriedo filed an
application for retention which was even contested by Pablo Mendoza’s son, Fernando.72 Though Carriedo
subsequently withdrew his application, his act of filing an application for retention belies the allegation that he
abandoned his right of retention or declined to assert it.

In their Memorandum73 however, petitioners, for the first time, invoke estoppel, citing DAR Administrative Order
No. 05 Series of 200674 (DAR AO 05-06) to support their argument that Carriedo waived his right of
retention.75 DAR AO 05-06 provides for the rules and regulations governing the acquisition and distribution of
agricultural lands subject of conveyances under Sections 6, 7076 and 73 (a)77 of RA No. 6657. Petitioners
particularly cite Item no. 4 of the Statement of Policies of DAR AO 05-06, to wit:

II. Statement of Policies

4. Where the transfer/sale involves more than the five (5) hectares retention area, the transfer is considered
violative of Sec. 6 of R.A. No. 6657.

In case of multiple or series of transfers/sales, the first five (5) hectares sold/conveyed without DAR clearance
and the corresponding titles issued by the Register of Deeds (ROD) in the name of the transferee shall, under
the principle of estoppel, be considered valid and shall be treated as the transferor/s’ retained area but in
no case shall the transferee exceed the five-hectare landholding ceiling pursuant to Sections 6, 70 and 73(a) of
R.A. No. 6657. Insofar as the excess area is concerned, the same shall likewise be covered considering that the
transferor has no right of disposition since CARP coverage has been vested as of 15 June 1988. Any
landholding still registered in the name of the landowner after earlier dispositions totaling an aggregate of five (5)
hectares can no longer be part of his retention area and therefore shall be covered under CARP. (Emphasis
supplied.)

Citing this provision, petitioners argue that Carriedo lost his right of retention over the land because he had
already sold or disposed, after the effectivity of RA No. 6657, more than fifty (50) hectares of land in favor of
another.78

In his Memorandum,79 Carriedo maintains that petitioners cannot invoke any administrative regulation to defeat
his right of retention. He argues that "administrative regulation must be in harmony with the provisions of law
otherwise the latter prevails."80

We cannot sustain petitioners' argument. Their reliance on DAR AO 05-06 is misplaced. As will be seen below,
nowhere in the relevant provisions of RA No. 6657 does it indicate that a multiple or series of transfers/sales of
land would result in the loss of retention rights. Neither do they provide that the multiple or series of transfers or
sales amounts to the waiver of such right.

The relevant portion of Section 6 of RA No. 6657 referred to in Item no. 4 of DAR AO 05-06 provides:
Section 6. 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-size farm, such as the 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. xxx

Upon the effectivity of this Act, any sale, disposition, lease, management, contract or transfer of
possession of private lands executed by the original landowner in violation of the Act shall be null and
void: Provided, however, That those executed prior to this Act shall be valid only when registered with the
Register of Deeds within a period of three (3) months after the effectivity of this Act. Thereafter, all Registers of
Deeds shall inform the Department of Agrarian Reform (DAR) within thirty (30) days of any transaction involving
agricultural lands in excess of five (5) hectares. (Emphasis supplied.)

Section 70 of RA No. 6657, also referred to in Item no. 4 of DAR AO 05-06 partly provides:

The sale or disposition of agricultural lands retained by a landowner as a consequence of Section 6 hereof shall
be valid as long as the total landholdings that shall be owned by the transferee thereof inclusive of the land to be
acquired shall not exceed the landholding ceilings provided for in this Act. Any sale or disposition of
agricultural lands after the effectivity of this Act found to be contrary to the provisions hereof shall be
null and void. xxx (Emphasis supplied.)

Finally, Section 73 (a) of RA No. 6657 as referred to in Item No. 4 of DAR AO 05-06 provides,

Section 73. Prohibited Acts and Omissions. – The following are prohibited:

(a) The ownership or possession, for the purpose of circumventing the provisions of this Act, of agricultural lands
in excess of the total retention limits or award ceilings by any person, natural or juridical, except those under
collective ownership by farmer-beneficiaries; xxx

Sections 6 and 70 are clear in stating that any sale and disposition of agricultural lands in violation of the RA No.
6657 shall be null and void. Under the facts of this case, the reasonable reading of these three provisions in
relation to the constitutional right of retention should be that the consequence of nullity pertains to the area/s
which were sold, or owned by the transferee, in excess of the 5-hectare land ceiling. Thus, the CA was correct in
declaring that the land is Carriedo’s retained area.81

Item no. 4 of DAR AO 05-06 attempts to defeat the above reading by providing that, under the principle
of estoppel, the sale of the first five hectares is valid. But, it hastens to add that the first five hectares sold
corresponds to the transferor/s’ retained area. Thus, since the sale of the first five hectares is valid, therefore,
the landowner loses the five hectares because it happens to be, at the same time, the retained area limit. In
reality, Item No. 4 of DAR AO 05-06 operates as a forfeiture provision in the guise of estoppel. It punishes the
landowner who sells in excess of five hectares. Forfeitures, however, partake of a criminal penalty.82

In Perez v. LPG Refillers Association of the Philippines, Inc.,83 this Court said that for an administrative regulation
to have the force of a penal law, (1) the violation of the administrative regulation must be made a crime by the
delegating statute itself; and (2) the penalty for such violation must be provided by the statute itself.84

Sections 6, 70 and 73 (a) of RA No. 6657 clearly do not provide that a sale or disposition of land in excess of 5
hectares results in a forfeiture of the five hectare retention area. Item no. 4 of DAR AO 05-06 imposes a penalty
where none was provided by law.

As this Court also held in People v. Maceren,85 to wit:

The reason is that the Fisheries law does not expressly prohibit electro fishing. As electro fishing is not banned
under the law, the Secretary of Agriculture and Natural Resources and the Natural Resources and the
Commissioner of Fisheries are powerless to penalize it. In other words, Administrative Order Nos. 84 and 84-1,
in penalizing electro fishing, are devoid of any legal basis.

Had the lawmaking body intended to punish electro fishing, a penal provision to that effect could have been
easily embodied in the old Fisheries Law.86
The repugnancy between the law and Item no. 4 of DAR AO 05-06 is apparent by a simple comparison of their
texts. The conflict undermines the statutorily-guaranteed right of the landowner to choose the land he shall
retain, and DAR AO 05-06, in effect, amends RA No. 6657.

In Romulo, Mabanta, Buenaventura, Sayoc & De Los Angeles (RMBSA) v. Home Development Mutual
Fund (HDMF),87 this Court was confronted with the issue of the validity of the amendments to the rules and
regulations implementing PD No. 1752.88 In that case, PD No. 1752 (as amended by RA No. 7742) exempted
RMBSA from the Pag-Ibig Fund coverage for the period January 1 to December 31, 1995. In September 1995,
however, the HDMF Board of Trustees issued a board resolution amending and modifying the rules and
regulations implementing RA No. 7742. As amended, the rules now required that for a company to be entitled to
a waiver or suspension of fund coverage, it must have a plan providing for both provident/retirement and housing
benefits superior to those provided in the Pag-Ibig Fund. In ruling against the amendment and modification of the
rules, this Court held that—

In the present case, when the Board of Trustees of the HDMF required in Section 1, Rule VII of the 1995
Amendments to the Rules and Regulations Implementing R.A. No. 7742 that employers should have both
provident/retirement and housing benefits for all its employees in order to qualify for exemption from the Fund, it
effectively amended Section 19 of P.D. No. 1752. And when the Board subsequently abolished that exemption
through the 1996 Amendments, it repealed Section 19 of P.D. No. 1752. Such amendment and subsequent
repeal of Section 19 are both invalid, as they are not within the delegated power of the Board. The HDMF
cannot, in the exercise of its rule-making power, issue a regulation not consistent with the law it seeks to apply.
Indeed, administrative issuances must not override, supplant or modify the law, but must remain consistent with
the law they intend to carry out. Only Congress can repeal or amend the law.89 (Citations omitted; underscoring
supplied.)

Laws, as well as the issuances promulgated to implement them, enjoy the presumption of validity.90 However,
administrative regulations that alter or amend the statute or enlarge or impair its scope are void, and courts not
only may, but it is their obligation to strike down such regulations.91 Thus, in this case, because Item no. 4 of
DAR AO 05-06 is patently null and void, the presumption of validity cannot be accorded to it. The invalidity of this
provision constrains us to strike it down for being ultra vires.

In Conte v. Commission on Audit,92 the sole issue of whether the Commission on Audit (COA) acted in grave
abuse of discretion when it disallowed in audit therein petitioners' claim of financial assistance under Social
Security System (SSS) Resolution No. 56 was presented before this Court. The COA disallowed the claims
because the financial assistance under the challenged resolution is similar to a separate retirement plan which
results in the increase of benefits beyond what is allowed under existing laws. This Court, sitting en banc, upheld
the findings of the COA, and invalidated SSS Resolution No. 56 for being ultra vires, to wit:

xxx Said Sec. 28 (b) as amended by RA 4968 in no uncertain terms bars the creation of any insurance or
retirement plan — other than the GSIS — for government officers and employees, in order to prevent the undue
and [iniquitous] proliferation of such plans. It is beyond cavil that Res. 56 contravenes the said provision of law
and is therefore invalid, void and of no effect. xxx

We are not unmindful of the laudable purposes for promulgating Res. 56, and the positive results it must have
had xxx. But it is simply beyond dispute that the SSS had no authority to maintain and implement such
retirement plan, particularly in the face of the statutory prohibition. The SSS cannot, in the guise of rule-making,
legislate or amend laws or worse, render them nugatory.

It is doctrinal that in case of conflict between a statute and an administrative order, the former must prevail. A
rule or regulation must conform to and be consistent with the provisions of the enabling statute in order for such
rule or regulation to be valid. The rule-making power of a public administrative body is a delegated legislative
power, which it may not use either to abridge the authority given it by the Congress or the Constitution or to
enlarge its power beyond the scope intended. xxx Though well-settled is the rule that retirement laws are
liberally interpreted in favor of the retiree, nevertheless, there is really nothing to interpret in either RA 4968 or
Res. 56, and correspondingly, the absence of any doubt as to the ultra-vires nature and illegality of the
disputed resolution constrains us to rule against petitioners.93 (Citations omitted; emphasis and
underscoring supplied.)

Administrative regulations must be in harmony with the provisions of the law for administrative regulations
cannot extend the law or amend a legislative enactment.94 Administrative issuances must not override, but must
remain consistent with the law they seek to apply and implement. They are intended to carry out, not to supplant
or modify the law.95 Administrative or executive acts, orders and regulations shall be valid only when they are not
contrary to the laws or the Constitution.96 Administrative regulations issued by a Department Head in conformity
with law have the force of law.97 As he exercises the rule-making power by delegation of the lawmaking body, it is
a requisite that he should not transcend the bounds demarcated by the statute for the exercise of that power;
otherwise, he would be improperly exercising legislative power in his own right and not as a surrogate of the
lawmaking body.98

If the implementing rules and regulations are issued in excess of the rule-making authority of the administrative
agency, they are without binding effect upon the courts. At best, the same may be treated as administrative
interpretations of the law and as such, they may be set aside by the Supreme Court in the final determination of
what the law means.99

While this Court is mindful of the DAR’s commitment to the implementation of agrarian reform, it must be
conceded that departmental zeal may not be permitted to outrun the authority conferred by statute.100 Neither the
high dignity of the office nor the righteousness of the motive then is an acceptable substitute; otherwise the rule
of law becomes a myth.101

As a necessary consequence of the invalidity of Item no. 4 of DAR AO 05-06 for being ultra vires, we hold that
Carriedo did not waive his right to retain the land, nor can he be considered to be in estoppel.

Finally, petitioners cannot argue that the CLOAs allegedly granted in favor of his co-petitioners Corazon and
Orlando cannot be set aside. They claim that CLOAs under RA No. 6657 are enrolled in the Torrens system of
registration which makes them indefeasible as certificates of title issued in registration proceedings.102 Even as
these allegedly issued CLOAs are not in the records, we hold that CLOAs are not equivalent to a Torrens
certificate of title, and thus are not indefeasible.

CLOAs and EPs are similar in nature to a Certificate of Land Transfer (CLT) in ordinary land registration
proceedings. CLTs, and in turn the CLOAs and EPs, are issued merely as preparatory steps for the eventual
issuance of a certificate of title. They do not possess the indefeasibility of certificates of title. Justice Oswald D.
Agcaoili, in Property Registration Decree and Related Laws (Land Titles and Deeds),103 notes, to wit:

Under PD No. 27, beneficiaries arc issued certificates of land transfers (ClTs) to entitle them to possess lands.
Thereafter, they are issued emancipation patents (EPs) after compliance with all necessary conditions. Such
EPs, upon their presentation to the Register of Deeds, shall be the basis for the issuance of the corresponding
transfer certificates of title (TCTs) in favor of the corresponding beneficiaries.

Under RA No. 6657, the procedure has been simplified. Only certificates of land ownership award (CLOAs) are
issued, in lieu of EPs, after compliance with all prerequisites. Upon presentation of the CLOAs to the Register of
Deeds, TCTs are issued to the designated beneficiaries. CLTs are no longer issued.

The issuance of EPs or CLOAs to beneficiaries does not absolutely bar the landowner from retaining the area
covered thereby. Under AO No. 2, series of 1994, an EP or CLOA may be cancelled if the land covered is later
found to be part of the landowner's retained area. (Citations omitted; underscoring supplied.)

The issue, however, involving the issuance, recall or cancellation of EPs or CLOAs, is lodged with the
DAR,104 which has the primary jurisdiction over the matter.105

WHEREFORE, premises considered, the Petition is hereby DENIED for lack of merit. The assailed Decision of
the Court of Appeals dated October 5, 2006 is AFFIRMED. Item no. 4 of DAR Administrative Order No. 05,
Series of 2006 is hereby declared INVALID, VOID and OF NO EFFECT for being ultra vires.

SO ORDERED.

FRANCIS H. JARDELEZA
Associate Justice