Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-15334

January 31, 1964

BOARD OF ASSESSMENT APPEALS, CITY

ASSESSOR and CITY TREASURER OF
QUEZON CITY,petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.
Assistant City Attorney Jaime R. Agloro for
petitioners.
Ross, Selph and Carrascoso for respondent.
PAREDES, J.:
From the stipulation of facts and evidence adduced
during the hearing, the following appear:
On October 20, 1902, the Philippine Commission
enacted Act No. 484 which authorized the Municipal
Board of Manila to grant a franchise to construct,
maintain and operate an electric street railway and
electric light, heat and power system in the City of
Manila and its suburbs to the person or persons
making the most favorable bid. Charles M. Swift was
awarded the said franchise on March 1903, the terms
and conditions of which were embodied in Ordinance
No. 44 approved on March 24, 1903. Respondent
Manila Electric Co. (Meralco for short), became the
transferee and owner of the franchise.
Meralco's electric power is generated by its hydroelectric plant located at Botocan Falls, Laguna and is
transmitted to the City of Manila by means of electric
transmission wires, running from the province of
Laguna to the said City. These electric transmission
wires which carry high voltage current, are fastened
to insulators attached on steel towers constructed by
respondent at intervals, from its hydro-electric plant
in the province of Laguna to the City of Manila. The

respondent Meralco has constructed 40 of these steel

towers within Quezon City, on land belonging to it. A
photograph of one of these steel towers is attached to
the petition for review, marked Annex A. Three steel
towers were inspected by the lower court and parties
and the following were the descriptions given there
of by said court:
The first steel tower is located in South
Tatalon, Espaa Extension, Quezon City.
The findings were as follows: the ground
around one of the four posts was excavated
to a depth of about eight (8) feet, with an
opening of about one (1) meter in diameter,
decreased to about a quarter of a meter as it
we deeper until it reached the bottom of the
post; at the bottom of the post were two
parallel steel bars attached to the leg means
of bolts; the tower proper was attached to
the leg three bolts; with two cross metals to
prevent mobility; there was no concrete
foundation but there was adobe stone
underneath; as the bottom of the excavation
was covered with water about three inches
high, it could not be determined with
certainty to whether said adobe stone was
placed purposely or not, as the place
abounds with this kind of stone; and the
tower carried five high voltage wires
without cover or any insulating materials.
The second tower inspected was located in
Kamuning Road, K-F, Quezon City, on land
owned by the petitioner approximate more
than one kilometer from the first tower. As
in the first tower, the ground around one of
the four legs was excavate from seven to
eight (8) feet deep and one and a half (1-)
meters wide. There being very little water at
the bottom, it was seen that there was no
concrete foundation, but there soft adobe
beneath. The leg was likewise provided with
two parallel steel bars bolted to a square
metal frame also bolted to each corner. Like
the first one, the second tower is made up of
metal rods joined together by means of

bolts, so that by unscrewing the bolts, the

tower could be dismantled and reassembled.
The third tower examined is located along
Kamias Road, Quezon City. As in the first
two towers given above, the ground around
the two legs of the third tower was
excavated to a depth about two or three
inches beyond the outside level of the steel
bar foundation. It was found that there was
no concrete foundation. Like the two
previous ones, the bottom arrangement of
the legs thereof were found to be resting on
soft adobe, which, probably due to high
humidity, looks like mud or clay. It was also
found that the square metal frame supporting
the legs were not attached to any material or
foundation.
On November 15, 1955, petitioner City Assessor of
Quezon City declared the aforesaid steel towers for
real property tax under Tax declaration Nos. 31992
and 15549. After denying respondent's petition to
cancel these declarations, an appeal was taken by
respondent to the Board of Assessment Appeals of
Quezon City, which required respondent to pay the
amount of P11,651.86 as real property tax on the said
steel towers for the years 1952 to 1956. Respondent
paid the amount under protest, and filed a petition for
review in the Court of Tax Appeals (CTA for short)
which rendered a decision on December 29, 1958,
ordering the cancellation of the said tax declarations
and the petitioner City Treasurer of Quezon City to
refund to the respondent the sum of P11,651.86. The
motion for reconsideration having been denied, on
April 22, 1959, the instant petition for review was
filed.
In upholding the cause of respondents, the CTA held
that: (1) the steel towers come within the term
"poles" which are declared exempt from taxes under
part II paragraph 9 of respondent's franchise; (2) the
steel towers are personal properties and are not
subject to real property tax; and (3) the City Treasurer
of Quezon City is held responsible for the refund of

the amount paid. These are assigned as errors by the

petitioner in the brief.
The tax exemption privilege of the petitioner is
quoted hereunder:
PAR 9. The grantee shall be liable to pay the
same taxes upon its real estate, buildings,
plant (not including poles, wires,
transformers, and insulators), machinery and
personal property as other persons are or
may be hereafter required by law to pay ...
Said percentage shall be due and payable at
the time stated in paragraph nineteen of Part
One hereof, ... and shall be in lieu of all
taxes and assessments of whatsoever nature
and by whatsoever authority upon the
privileges, earnings, income, franchise, and
poles, wires, transformers, and insulators of
the grantee from which taxes and
assessments the grantee is hereby expressly
exempted. (Par. 9, Part Two, Act No. 484
Respondent's Franchise; emphasis supplied.)
The word "pole" means "a long, comparatively
slender usually cylindrical piece of wood or timber,
as typically the stem of a small tree stripped of its
branches; also by extension, a similar typically
cylindrical piece or object of metal or the like". The
term also refers to "an upright standard to the top of
which something is affixed or by which something is
supported; as a dovecote set on a pole; telegraph
poles; a tent pole; sometimes, specifically a vessel's
master (Webster's New International Dictionary 2nd
Ed., p. 1907.) Along the streets, in the City of Manila,
may be seen cylindrical metal poles, cubical concrete
poles, and poles of the PLDT Co. which are made of
two steel bars joined together by an interlacing metal
rod. They are called "poles" notwithstanding the fact
that they are no made of wood. It must be noted from
paragraph 9, above quoted, that the concept of the
"poles" for which exemption is granted, is not
determined by their place or location, nor by the
character of the electric current it carries, nor the
material or form of which it is made, but the use to
which they are dedicated. In accordance with the

definitions, pole is not restricted to a long cylindrical

piece of wood or metal, but includes "upright
standards to the top of which something is affixed or
by which something is supported. As heretofore
described, respondent's steel supports consists of a
framework of four steel bars or strips which are
bound by steel cross-arms atop of which are crossarms supporting five high voltage transmission wires
(See Annex A) and their sole function is to support or
carry such wires.
The conclusion of the CTA that the steel supports in
question are embraced in the term "poles" is not a
novelty. Several courts of last resort in the United
States have called these steel supports "steel towers",
and they denominated these supports or towers, as
electric poles. In their decisions the words "towers"
and "poles" were used interchangeably, and it is well
understood in that jurisdiction that a transmission
tower or pole means the same thing.
In a proceeding to condemn land for the use of
electric power wires, in which the law provided that
wires shall be constructed upon suitable poles, this
term was construed to mean either wood or metal
poles and in view of the land being subject to
overflow, and the necessary carrying of numerous
wires and the distance between poles, the statute was
interpreted to include towers or poles. (Stemmons
and Dallas Light Co. (Tex) 212 S.W. 222, 224; 32-A
Words and Phrases, p. 365.)
The term "poles" was also used to denominate the
steel supports or towers used by an association used
to convey its electric power furnished to subscribers
and members, constructed for the purpose of
fastening high voltage and dangerous electric wires
alongside public highways. The steel supports or
towers were made of iron or other metals consisting
of two pieces running from the ground up some thirty
feet high, being wider at the bottom than at the top,
the said two metal pieces being connected with crisscross iron running from the bottom to the top,
constructed like ladders and loaded with high voltage
electricity. In form and structure, they are like the

steel towers in question. (Salt River Valley Users'

Ass'n v. Compton, 8 P. 2nd, 249-250.)
The term "poles" was used to denote the steel towers
of an electric company engaged in the generation of
hydro-electric power generated from its plant to the
Tower of Oxford and City of Waterbury. These steel
towers are about 15 feet square at the base and
extended to a height of about 35 feet to a point, and
are embedded in the cement foundations sunk in the
earth, the top of which extends above the surface of
the soil in the tower of Oxford, and to the towers are
attached insulators, arms, and other equipment
capable of carrying wires for the transmission of
electric power (Connecticut Light and Power Co. v.
Oxford, 101 Conn. 383, 126 Atl. p. 1).
In a case, the defendant admitted that the structure on
which a certain person met his death was built for the
purpose of supporting a transmission wire used for
carrying high-tension electric power, but claimed that
the steel towers on which it is carried were so large
that their wire took their structure out of the
definition of a pole line. It was held that in defining
the word pole, one should not be governed by the
wire or material of the support used, but was
considering the danger from any elevated wire
carrying electric current, and that regardless of the
size or material wire of its individual members, any
continuous series of structures intended and used
solely or primarily for the purpose of supporting
wires carrying electric currents is a pole line
(Inspiration Consolidation Cooper Co. v. Bryan 252
P. 1016).
It is evident, therefore, that the word "poles", as used
in Act No. 484 and incorporated in the petitioner's
franchise, should not be given a restrictive and
narrow interpretation, as to defeat the very object for
which the franchise was granted. The poles as
contemplated thereon, should be understood and
taken as a part of the electric power system of the
respondent Meralco, for the conveyance of electric
current from the source thereof to its consumers. If
the respondent would be required to employ "wooden
poles", or "rounded poles" as it used to do fifty years

back, then one should admit that the Philippines is

one century behind the age of space. It should also be
conceded by now that steel towers, like the ones in
question, for obvious reasons, can better effectuate
the purpose for which the respondent's franchise was
granted.
Granting for the purpose of argument that the steel
supports or towers in question are not embraced
within the term poles, the logical question posited is
whether they constitute real properties, so that they
can be subject to a real property tax. The tax law does
not provide for a definition of real property; but
Article 415 of the Civil Code does, by stating the
following are immovable property:
(1) Land, buildings, roads, and constructions
of all kinds adhered to the soil;
xxx

xxx

xxx

(3) Everything attached to an immovable in

a fixed manner, in such a way that it cannot
be separated therefrom without breaking the
material or deterioration of the object;
xxx

xxx

xxx

(5) Machinery, receptacles, instruments or

implements intended by the owner of the
tenement for an industry or works which
may be carried in a building or on a piece of
land, and which tends directly to meet the
needs of the said industry or works;
xxx

xxx

xxx

The steel towers or supports in question, do not come

within the objects mentioned in paragraph 1, because
they do not constitute buildings or constructions
adhered to the soil. They are not construction
analogous to buildings nor adhering to the soil. As
per description, given by the lower court, they are
removable and merely attached to a square metal
frame by means of bolts, which when unscrewed

could easily be dismantled and moved from place to

place. They can not be included under paragraph 3, as
they are not attached to an immovable in a fixed
manner, and they can be separated without breaking
the material or causing deterioration upon the object
to which they are attached. Each of these steel towers
or supports consists of steel bars or metal strips,
joined together by means of bolts, which can be
disassembled by unscrewing the bolts and
reassembled by screwing the same. These steel
towers or supports do not also fall under paragraph 5,
for they are not machineries, receptacles, instruments
or implements, and even if they were, they are not
intended for industry or works on the land. Petitioner
is not engaged in an industry or works in the land in
which the steel supports or towers are constructed.
It is finally contended that the CTA erred in ordering
the City Treasurer of Quezon City to refund the sum
of P11,651.86, despite the fact that Quezon City is
not a party to the case. It is argued that as the City
Treasurer is not the real party in interest, but Quezon
City, which was not a party to the suit,
notwithstanding its capacity to sue and be sued, he
should not be ordered to effect the refund. This
question has not been raised in the court below, and,
therefore, it cannot be properly raised for the first
time on appeal. The herein petitioner is indulging in
legal technicalities and niceties which do not help
him any; for factually, it was he (City Treasurer)
whom had insisted that respondent herein pay the real
estate taxes, which respondent paid under protest.
Having acted in his official capacity as City Treasurer
of Quezon City, he would surely know what to do,
under the circumstances.
IN VIEW HEREOF, the decision appealed from is
hereby affirmed, with costs against the petitioners.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-47943

May 31, 1982

MANILA ELECTRIC COMPANY, petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS,
BOARD OF ASSESSMENT APPEALS OF
BATANGAS and PROVINCIAL ASSESSOR OF
BATANGAS, respondents.

AQUINO, J.:
This case is about the imposition of the realty tax on
two oil storage tanks installed in 1969 by Manila
Electric Company on a lot in San Pascual, Batangas
which it leased in 1968 from Caltex (Phil.), Inc. The
tanks are within the Caltex refinery compound. They
have a total capacity of 566,000 barrels. They are
used for storing fuel oil for Meralco's power plants.
According to Meralco, the storage tanks are made of
steel plates welded and assembled on the spot. Their
bottoms rest on a foundation consisting of compacted
earth as the outermost layer, a sand pad as the
intermediate layer and a two-inch thick bituminous
asphalt stratum as the top layer. The bottom of each
tank is in contact with the asphalt layer,
The steel sides of the tank are directly supported
underneath by a circular wall made of concrete,
eighteen inches thick, to prevent the tank from
sliding. Hence, according to Meralco, the tank is not
attached to its foundation. It is not anchored or
welded to the concrete circular wall. Its bottom plate
is not attached to any part of the foundation by bolts,
screws or similar devices. The tank merely sits on its
foundation. Each empty tank can be floated by
flooding its dike-inclosed location with water four
feet deep. (pp. 29-30, Rollo.)

On the other hand, according to the hearing

commissioners of the Central Board of Assessment
Appeals, the area where the two tanks are located is
enclosed with earthen dikes with electric steel poles
on top thereof and is divided into two parts as the site
of each tank. The foundation of the tanks is elevated
from the remaining area. On both sides of the earthen
dikes are two separate concrete steps leading to the
foundation of each tank.
Tank No. 2 is supported by a concrete foundation
with an asphalt lining about an inch thick. Pipelines
were installed on the sides of each tank and are
connected to the pipelines of the Manila Enterprises
Industrial Corporation whose buildings and pumping
station are near Tank No. 2.
The Board concludes that while the tanks rest or sit
on their foundation, the foundation itself and the
walls, dikes and steps, which are integral parts of the
tanks, are affixed to the land while the pipelines are
attached to the tanks. (pp. 60-61, Rollo.) In 1970, the
municipal treasurer of Bauan, Batangas, on the basis
of an assessment made by the provincial assessor,
required Meralco to pay realty taxes on the two tanks.
For the five-year period from 1970 to 1974, the tax
and penalties amounted to P431,703.96 (p. 27,
Rollo). The Board required Meralco to pay the tax
and penalties as a condition for entertaining its appeal
from the adverse decision of the Batangas board of
assessment appeals.
The Central Board of Assessment Appeals (composed
of Acting Secretary of Finance Pedro M. Almanzor as
chairman and Secretary of Justice Vicente Abad
Santos and Secretary of Local Government and
Community Development Jose Roo as members) in
its decision dated November 5, 1976 ruled that the
tanks together with the foundation, walls, dikes,
steps, pipelines and other appurtenances constitute
taxable improvements.
Meralco received a copy of that decision on February
28, 1977. On the fifteenth day, it filed a motion for
reconsideration which the Board denied in its

resolution of November 25, 1977, a copy of which

was received by Meralco on February 28, 1978.
On March 15, 1978, Meralco filed this special civil
action of certiorari to annul the Board's decision and
resolution. It contends that the Board acted without
jurisdiction and committed a grave error of law in
holding that its storage tanks are taxable real
property.
Meralco contends that the said oil storage tanks do
not fall within any of the kinds of real property
enumerated in article 415 of the Civil Code and,
therefore, they cannot be categorized as realty by
nature, by incorporation, by destination nor by
analogy. Stress is laid on the fact that the tanks are
not attached to the land and that they were placed on
leased land, not on the land owned by Meralco.
This is one of those highly controversial, borderline
or penumbral cases on the classification of property
where strong divergent opinions are inevitable. The
issue raised by Meralco has to be resolved in the light
of the provisions of the Assessment Law,
Commonwealth Act No. 470, and the Real Property
Tax Code, Presidential Decree No. 464 which took
effect on June 1, 1974.
Section 2 of the Assessment Law provides that the
realty tax is due "on real property, including land,
buildings, machinery, and other improvements" not
specifically exempted in section 3 thereof. This
provision is reproduced with some modification in
the Real Property Tax Code which provides:
Sec. 38. Incidence of Real Property Tax. They
shall be levied, assessed and collected in all
provinces, cities and municipalities an annual ad
valorem tax on real property, such as land, buildings,
machinery and other improvements affixed or
attached to real property not hereinafter specifically
exempted.
The Code contains the following definition in its
section 3:

k)
Improvements is a valuable addition
made to property or an amelioration in its condition,
amounting to more than mere repairs or replacement
of waste, costing labor or capital and intended to
enhance its value, beauty or utility or to adapt it for
new or further purposes.
We hold that while the two storage tanks are not
embedded in the land, they may, nevertheless, be
considered as improvements on the land, enhancing
its utility and rendering it useful to the oil industry. It
is undeniable that the two tanks have been installed
with some degree of permanence as receptacles for
the considerable quantities of oil needed by Meralco
for its operations.
Oil storage tanks were held to be taxable realty in
Standard Oil Co. of New Jersey vs. Atlantic City, 15
Atl. 2nd 271.
For purposes of taxation, the term "real property"
may include things which should generally be
regarded as personal property(84 C.J.S. 171, Note 8).
It is a familiar phenomenon to see things classed as
real property for purposes of taxation which on
general principle might be considered personal
property (Standard Oil Co. of New York vs.
Jaramillo, 44 Phil. 630, 633).
The case of Board of Assessment Appeals vs. Manila
Electric Company, 119 Phil. 328, wherein Meralco's
steel towers were held not to be subject to realty tax,
is not in point because in that case the steel towers
were regarded as poles and under its franchise
Meralco's poles are exempt from taxation. Moreover,
the steel towers were not attached to any land or
building. They were removable from their metal
frames.
Nor is there any parallelism between this case and
Mindanao Bus Co. vs. City Assessor, 116 Phil. 501,
where the tools and equipment in the repair, carpentry
and blacksmith shops of a transportation company
were held not subject to realty tax because they were
personal property.

WHEREFORE, the petition is dismissed. The Board's

questioned decision and resolution are affirmed. No
costs.
SO ORDERED.

U.S. Supreme Court

property, but a contract creating security for the

money advanced, and, on liquidation of the assets,
the transferee stood merely as a secured creditor

Valdes v. Central Altagracia, Inc., 225 U.S. 58 (1912)

Valdes v. Central Altagracia, Incorporated
Nos. 193, 196

The mere form of an instrument transferring property

of a debtor cannot exclude the power of creditors to
inquire into the reality and substance of a contract
unrecorded, although required by law to be recorded
in order to be effective against third parties.

antiquated and of a limited capacity. The

establishment was known as the Central Altagracia,
and Sanchez, while not a cane grower, carried on the
business of a central -- that is, of acquiring cane
grown by others and manufacturing it into sugar at
his factory. On the eighteenth day of January, 1905,
Sanchez leased his land and plant to Salvador
Castello for a period of ten years. The lease gave to
the tenant (Castello) the right to install in the plant

Submitted March 6, 1912

Decided May 13, 1912
225 U.S. 58
APPEALS FROM THE DISTRICT COURT OF THE
UNITED STATES FOR PORTO RICO
Syllabus
The record in this case shows that the court below did
not err in bringing this case to a speedy conclusion
and avoiding the loss occasioned by the litigation to
all concerned.
A litigant cannot, after all parties have acquiesced in
the order setting the case for trial and the court has
denied his request for continuance, refuse to proceed
with the trial on the ground that the time to plead has
not expired, and when such refusal to proceed is
inconsistent with his prior attitude in the case.
The granting of a continuance is within the sound
discretion of the trial court, and not subject to be
reviewed on appeal except in cases of clear error and
abuse; in this case, the record shows that the refusal
to continue on account of absence of witness was not
an abuse, but a just exercise, of discretion.
Under the circumstances of this case, and in view of
the existence of an equity of redemption under prior
transfers, held that a transfer of all the property of a
corporation to one advancing money to enable it to
continue its business was not a conditional sale of the

Under the general law of Porto Rico, machinery

placed on property by a tenant does not become
immobilized; when, however, a tenant places it there
pursuant to contract that it shall belong to the owner,
it becomes immobilized as to that tenant and his
assigns with notice, although it does not become so
as to creditors not having legal notice of the lease.

"such machinery as he may deem convenient, which

said machinery at the end

In this case, held that the lien of the attachment of a

creditor of the tenant on machinery placed by the
tenant on a sugar Central in Porto Rico is superior to
the claim of the transferee of an unrecorded

of the lessor, Sanchez. The tenant was given one year

in which to begin the work of repairing and
improving the plant, and it was provided that,

Page 225 U. S. 59
lease, even though the lease required the tenant to
place the machinery on the property.
5 P.R. 155 affirmed.
The facts are stated in the opinion.
MR. CHIEF JUSTICE WHITE delivered the opinion
of the Court.
These cases were consolidated below, tried together,
a like statement of facts was made applicable to both,
and the court disposed of them in one opinion. We
shall do likewise. Stating only things deemed to be
essential as shown by the pleadings and documents
annexed to them and the finding of facts made below,
the case is this: Joaquin Sanchez owned in Porto Rico
a tract of land of about 22 acres (cuerdas) on which
was a sugar house containing a mill for crushing cane
and an evaporating apparatus for manufacturing the
juice of the cane into sugar. All of the machinery was

Page 225 U. S. 60
of the years mentioned (the term of the lease) shall
become the exclusive property"

"upon the expiration of this term, if the necessary

improvements shall not have been begun by him
(Castello), then this contract shall be null and void,
and no cause of action shall accrue to any of the
contracting parties by reason thereof."
Further agreeing on the subject of the improved
machinery which was to be placed in the plant, the
contract provided:
"Upon the expiration of the term agreed on under this
contract, any improvement or machinery installed in
the said central shall remain for the benefit of Don
Joaquin Sanchez, and Don Salvador Castello shall
have no right to claim anything for the improvements
made."
The rental was thus provided for:
"After each crop, such profits as may be produced by
the Central Altagracia shall be distributed, and
twenty-five percent (25%) thereof shall be
immediately paid to Don Joaquin Sanchez as
equivalent for the rental of said central and of the

twenty-two (22) cuerdas of land surrounding the

same. The remaining seventy-five percent (75%)
shall belong to Don Salvador Castello, who may
interest therein whomsoever he may wish, either for
the whole or part thereof."
It was stipulated, however, that, in fixing the profits,
no charge should be made for repairs of the existing
machinery or for new machinery put in, as the entire
cost of these matters was to be borne by the lessee,
Castello. The lease provided, moreover, that, in case
of the death of Sanchez, the obligations of the
contract should be binding on his heirs, and in the
case of the death of Castello, his brother, Gerardo
Castello, should take his place,
"and be a contracting party if he so desired.
Otherwise, the plantation, in such a condition at it
may be at his death, shall immediately pass into the
possession of its owner, Don Joaquin Sanchez."

capacity consequent upon the improvement of the

machinery by the corporation. The lease further
provided for the employment of Castello as
superintendent at a salary, for a substitution of
Gerardo Castello, in the event of the absence or death
of his brother Salvador, and, for this reason, it is to be
assumed Gerardo made himself a party to the transfer
of the lease. This transfer of the lease to the
corporation was never put upon the public records.
The corporation was organized under the laws of the
State of Maine, and, under the transfer, took charge
of the plant. The season for grinding cane and the
manufacture of sugar in Porto Rico usually
commences
"about the month of December of each year, and
terminates in the months of May, June, or July of the
year following, according to the amount of cane to be
ground."
Central factories in Porto Rico usually

In June,
Page 225 U. S. 61
1905, by a supplementary contract, the lease was
extended without change of its terms and conditions
for an additional period of ten years, making the total
term twenty years. Although executed under private
signature, this lease, conformably to the laws of Porto
Rico, was produced before a notary and made
authentic, and in such form was duly registered on
the public records, as required by the Porte Rican
laws.
On the first day of July, 1905, Salvador and Gerardo
Castello transferred all their rights acquired under the
lease, as above stated, to Frederick L. Cornwell for
"the corporation to be organized under the name of
Central Altagracia, of which he is the trustee." This
transfer bound the corporation to all the obligations
in favor of the original lessor, Sanchez, provided that
the corporation should issue to Castello a certain
number of paid-up shares of its capital stock and a
further number of shares as the output of sugar from
the plant increased as the result of its enlarged

"make contracts with the people (colonos) growing

cane, so that growers of cane will deliver the same to
be ground, and such contracts

because it is certain that, in the fall of 1906

(October), the corporation borrowed from the
commercial firm of Nevers & Callaghan in New York
City the sum of twenty-five thousand dollars
($25,000) to enable the corporation to pay for new
and enlarged machinery which it had ordered, and
which was placed in the factory in time to be used in
the grinding season of 1906-07, which began in
December, 1906. While such grinding season was
progressing, on April 11, 1907, the corporation,
through its president, under the authority of its board
of directors, sold to one Ramon Valdes all its rights
acquired under the lease transferred by Castello. This
transfer expressly included all the machinery
previously placed by the corporation in the sugar
house, as well as machinery which might be
thereafter installed during the term of redemption
hereafter to be referred to, and which, it was
declared, conformably to the original lease, "shall be
a part of said factory for the manufacture of sugar."
The consideration for the sale was stated in the
contract to be
"thirty-five thousand dollars ($35,000) received by
the corporation, twenty-five thousand four hundred
dollars

Page 225 U. S. 62
Page 225 U. S. 63
are usually made and entered into in the months of
June, July, and August."
In other words, on the termination of one grinding
season, in the months of June or July, it is usual in the
ensuing August to make new contracts for the cane to
be delivered in the following grinding season, which,
as we have said, commences in December. The
contract transferring the lease to the Central
Altagracia, Incorporated, was made in July, 1905, at
the end, therefore, of the grinding season of that year.
To what extent the corporation contracted for cane to
be delivered to it for grinding during the season of
1905-06, which began in December, 1905, does not
appear. It is inferable, however, that the corporation
began the work of installing new machinery to give
the plant a larger capacity within the year stipulated
in the lease from Sanchez to Castello. We say this

($25,400) whereof had been paid prior to this act [of

sale], and to its entire satisfaction, and the balance of
nine thousand six hundred dollars ($9,600) shall be
turned over to the vendor corporation by Senor
Valdes immediately upon being required to do so by
the former."
This sale was made subject to a right to redeem the
property within a year on paying Valdes the entire
amount of his debt. There was a stipulation that
Valdes assumed all the obligations of the lease
transferred by Castello to the company.
The undoubted purpose was not to interfere with the
operation of the plant by the corporation, since there
was a provision in the contract binding Valdes to
lease the property to the corporation pending the

period of redemption. This sale was passed in Porto

Rico before a notary public, but was never put upon
the public records. At the time it was made, there was
a very considerable sum unpaid on the debt of Nevers
& Callaghan. This fact, joined with the period when
the sale with the right to redeem was made -- that is,
the approaching end of the sugar-making season of
1906 and 1907 -- coupled with other facts to which
we shall hereafter make reference, all tend to
establish that, at that time, either because insufficient
capital had been put into the venture or because the
business had been carried on at a loss, the affairs of
the corporation were embarrassed, if it was not
insolvent. A short while before the commencement of
the grinding season of 1907-1908 in October, 1907,
in the City of New York, the corporation, through its
president, declaring himself to be authorized by the
board of directors, sanctioned by a vote of the
stockholders, apparently made an absolute sale of all
the rights of the corporation under the lease, and all
its title to the machinery which the corporation had
put into the plant. This sale was declared to be for a
consideration of sixty-five thousand ($65,000) dollars
which the company acknowledged to have received
from Valdes, first, by the payment of the thirty-five

until the payment of the deferred price, and upon the

stipulation that any default by the corporation entitled
Valdes ipso facto to take possession of the property.
Neither this act of sale from Valdes to the corporation
nor the one made by the corporation to Valdes were
ever put upon the public records.
Prior to the making of the sales just stated, or about
that time, the corporation defaulted in the payment of
a note held by Nevers & Callaghan for a portion of
the money which they had loaned the corporation
under the circumstances which we have previously
stated, and that firm sued in the court below the
corporation to recover the debt.
The grinding season of 1907-1908 commenced in
December, 1907, and was obviously not a successful
one, for the debt of Nevers & Callaghan was not
paid, and in May, 1908, a judgment was recovered by
them against the corporation for about $17,000, with
interest, and in the same month execution was issued
and levied upon the machinery in the sugar house.
Previous to, or not long subsequent to, the time
Nevers & Callaghan
Page 225 U. S. 65

Page 225 U. S. 64
($35,000) dollars cash, as stated in the previous sale
made subject to the equity of redemption, and thirty
thousand ($30,000) dollars which "the company has
received afterwards in cash from Valdes." There was
a provision in the contract to the effect that, as the
purpose of the previous contract of sale, which had
been made subject to the equity of redemption, was
accomplished by the new sale, the previous sale was
declared to be no longer operative.
A few days afterwards, likewise in the City of New
York (on November 2, 1907), Valdes sold to the
company all the rights which he had acquired from it
by the previous sale, the price being sixty-five
thousand ($65,000) dollars, payable in installments
falling due in the years 1908, 1909, 1910, and 1911,
respectively. This transfer was put in the form of a
conditional sale which reserved the title in Valdes

commenced their suit, the precise date not being

stated in the record, the heirs of Sanchez, the original
lessor, brought a suit in the court below against the
corporation. The nature of the suit and the relief
sought is not disclosed, but it is inferable from the
facts stated that the suit either sought to recover the
property on the ground that there was no power in
Castello to transfer the lease or upon the ground of
default in the conditions as to payment of profits as
rental which the lease stipulated. It would seem also,
at about the same time, either one or both of the
Castellos brought a suit against the company,
presumably upon the theory that there had been a
default in the obligations assumed in their favor by
the corporation at the time it took the transfer of the
lease. In the meanwhile also, probably as the result of
the want of success of the corporation, discord arose
between its stockholders, and a suit growing out of
that state of things was brought in the lower court.

This litigation was commenced in June, 1908, by the

bringing by Valdes of an action at law in the court
below to recover the plant on the ground that, by the
default in paying one of the installments of the price
stated in the conditional sale, the right to the relief
prayed had arisen. On the same day, Valdes
commenced a suit in equity against the corporation in
aid of the suit at law. The bill alleged the default of
the corporation, the bringing of the suit at law, the
confusion in the affairs of the corporation, the
judgment and levy of the execution by Nevers and
Callaghan, and the threat to sell the machinery under
such execution, the refusal of the corporation to
deliver possession of the property, the waste and
destruction of the value of the property which would
result if there was no one representing the
corporation having power to contract for cane to be
delivered during the next grinding season, etc., etc.
The prayer was for the appointment of a receiver to
take charge of the property, with authority
Page 225 U. S. 66
to carry on the same, make the necessary contracts
for cane for the future, it being prayed that the
receiver should be empowered to issue receiver's
certificates to the extent necessary to the
accomplishment of the purposes which the bill had in
view.
On the same day, a bill was filed on behalf of the
corporation against Valdes. This bill attacked the sale
made to Valdes and by him to the corporation. It was
charged that the price stated to have been paid by
Valdes as a consideration of the conditional sale was
fictitious, and that the only sum he had advanced at
that time was the $35,000 which it was the purpose to
secure by means of the sale with the equity of
redemption. That, at that time, Valdes exacted as a
consideration for his loan that he be made a director
and vice-president of the company. The bill then
stated that, it having become evident in the following
autumn that the corporation would require more
money to increase its plant, to pay off the sum due
Nevers & Callaghan, and for the operation of the

plant, Valdes agreed to advance the money if he were

made president of the company at a stipulated salary,
given a bonus in the stock of the company, and upon
the condition that the papers be executed embodying
the so-called sale of the company to Valdes and the
practically simultaneous conditional sale by Valdes to
the company. The bill then alleged that Valdes,
having thus become the president of the company,
failed to carry out his agreement to advance the
money, failed to provide for the debt of Nevers &
Callaghan, mismanaged the affairs of the property in
many alleged particulars, and did various acts to the
prejudice of the company and to his own wrongful
enrichment, which it is unnecessary to recapitulate.
The necessity of contracting for cane during the
contract season in order that the plant might continue
during the next operating season to be a going
concern, and the waste and loss which would
otherwise

The execution of the Nevers & Callaghan judgment

was stayed pending an appeal which had been taken
to this Court. The only difference which seems to
have arisen concerning the appointment of the
receiver grew out of the fact that a prayer of the
Central Altagracia, asking the court to appoint as
receiver Mr. Pettingill, a member of the bar and one
of the counsel of the corporation, and who was also
its treasurer, was denied. Despite this, the fair
inference is that the ultimate action of the court was
not objected to by anyone, because of the hope that
the result of a successful operation of the plant during
the coming crop season might ameliorate the affairs
of the corporation, and thus prevent further
controversies. We say this not only because of the
conduct of the parties prior to the order appointing
the receiver, but because,

demurrers which had been filed in the consolidated

cause of Valdes against the corporation and of the
corporation against Valdes be overruled, and the
defendants were required to answer on or before
Monday, July 26, in order that, upon the following
day, the 27th of July, the issues raised might be tried
before the court without the intervention of a master.
It was provided in the order, however, that nothing in
this direction should prevent the parties from filing
such additional pleadings as it is deemed necessary
for the protection of their rights by way of cross bill
or amendment, etc. To make the order efficacious, it
was declared that nothing would be done in the suit
of the heirs of Sanchez against Castello and the
Altagracia,

Page 225 U. S. 68

Page 225 U. S. 67

after that order, the solicitors of the Altagracia

Company and Valdes put a stipulation of record that,
until the following October, no steps whatever should
be taken in the proceedings, and not even then unless
the attorneys for both parties should be in Porto Rico.

which was pending on appeal, and that a demurrer

filed to the suit of Castello against the Central would
be overruled; that the demurrer in the suit at law of
Valdes would remain in abeyance to await the final
action of the court on the trial of all the issues in the
equity causes, and that a stay of the Nevers &
Callaghan execution would be also disposed of when
the equity cases came to be decided. This order was
followed by a memorandum opinion filed on July the
21st stating very fully the position of the respective
suits, the necessity for action in order to preserve the
property from waste, and reiterating the view that,
whatever might be the rights of the Central Altagracia
or of Valdes under the lease, those rights would be
subordinate to the ultimate determination of the suit
brought by the heirs of Sanchez. To the action of the
court as above stated no objection appears to have
been made. On the contrary, between the time of that
order and the period fixed for the commencement of
a hearing, the Central Altagracia, Valdes, and Nevers
& Callaghan modified their pleadings to the extent
deemed by them necessary to present for trial the
issues upon which they relied. In the case of the
Central Altagracia, this was done by filing, on July
22, an amended bill of complaint in its suit against
Valdes, and on July 26 its answer in the suit of
Valdes. The acceptance by Valdes of the terms of the
order was shown by an answer filed to the bill in the

be occasioned, were fully alleged. Valdes and the

firm of Nevers & Callaghan and the individual
members of that firm were made defendants. The
prayer was for the appointment of a receiver and with
power to carry on the business of the central, with
power, for that purpose, to contract for cane for the
coming season, with authority to issue receiver's
certificates for the purpose of borrowing the money
which might be required.
The judge, being about to leave Porto Rico for a brief
period, declined to appoint a permanent receiver, but
named a temporary one to keep the property together
until a further hearing could be had, interference in
the meanwhile with the custodian being enjoined.
Shortly thereafter, creditors of the corporation
intervened and joined in the prayer made by both of
the complainants for the appointment of a receiver. In
July, the two suits were by order consolidated, and,
after a hearing, a receiver was appointed and
authority given him to continue the property as a
going concern and to borrow a limited amount of
money on receiver's certificates, if necessary, to
secure contracts for cane for the coming crop season.

The hope of a beneficial result from the operation of

the plant by the receiver proved delusive. As a result
of such operation, there was a considerable loss
represented by outstanding receiver's certificates,
with no means of paying except out of the property.
Obviously for this reason, the record contains a
statement that, on July 12, 1909, a conference was
had between the court and all parties concerned to
determine what steps should be taken to meet the
situation. It appears that, at that conference, the
counsel representing the heirs of Sanchez and of
Nevers & Callaghan stated their opposition to a
continuance of the receivership.
On July 17, 1909, the court placed a memorandum on
the files, indicating its purpose to bring the litigation,
receivership, etc., to an end, and to cause "immediate
issue to be raised on the pleadings for that purpose."
This memorandum was entitled in all the pending
causes concerning the property. It directed that

Page 225 U. S. 69

suit of the company and the cross-bill in the same

cause, and Nevers & Callaghan manifested their
acquiescence by obtaining leave to make themselves
parties and asserting their rights by cross-bill and
answers which it is unnecessary to detail.

The record further recites:

When the consolidated cause was called for trial on

the morning of July 27, the counsel for the Central
Altagracia moved a continuance in order to take the
testimony of certain witnesses in Philadelphia and
New York for the purpose of proving some of the
allegations of the complaint

"Said counsel for the Central Altagracia stated that he

desired time to file exceptions to the answer and an
answer to the cross-bill in suit No. 565, and the court
granted until the morning of July 28 for such
purpose. Later in the day of July 27, one of the
counsel for Valdes having requested the court to
postpone the hearing of the cause until the morning
of the 29th because of an unexpected professional
engagement elsewhere, the request was
communicated by the court to the other counsel in the
cause."

Page 225 U. S. 70

Thereupon the record again recites:

as to the wrongdoing of Valdes in administering the

affairs of the corporation. This application was
supported by the affidavit of Mr. Pettingill, the
counsel of the corporation. The record states that the
request for continuance was opposed by all the other
counsel, and the application was denied. In doing so,
the court stated:

"Messrs. Pettingill &

"That the matter has been pending for more than a

year, and that counsel had full notice of the court's
intention to press the matters to issue and trial, and
that it is not disposed to delay matters at this time,
when the admissions of the pleadings are so broad
that the proofs available here in Porto Rico are
probably sufficient, and the amended complaint
already on file in suit No. 565, -- Valdes v. Central
Altagracia -- and the answer thereto and the answer
recently filed in suit No. 564 -- Altagracia v. Valdes -as well as the cross-bill also recently filed in suit No.
465, make so many allegations and admissions as that
the real issue between the parties can be plainly seen,
and that, in the opinion of the court, enough proof is
available here in Porto Rico."
The court thereupon declared that the Altagracia
Company might by the next day, if it so desired, file
exceptions to the answer in suit 565 and an answer to
the cross-complaint -- indeed, that the corporation
might, if it wished, treat them as filed, and proceed
with the cause and file them at any convenient time
thereafter. Thereupon, the record states:

Page 225 U. S. 71
Cornwell, attorneys for the Central Altagracia, stated
that they withdrew any statement they have hitherto
made in the cause in that regard, and desired to be
understood that they would not except to the answer
in suit No. 565, or plead or answer to the cross-bill
therein save and except within the time which they
contended the rules governing this Court of equity
gave them, and would stand upon what they
considered their rights in that regard."
When the court assembled the next day, on the
morning of the 28th, a statement concerning the
occurrence of the previous day as to the continuance,
etc., just reviewed, was read by the court in the
presence of all the counsel, whereupon the record
recites:
"N. B. Pettingill, counsel for the Central Altagracia,
in response to the same, stated that he objected to
proceeding to take any evidence in any of the causes
at that time, or the testimony of any witnesses,
because the same was not at issue or in condition for
the taking of evidence, and objected to the taking of
such evidence until the issues of said causes are made
up in accordance with the rules of practice applicable
to equity causes."

"Which objection was overruled by the court on the

ground that the action called for thereby is not
necessary. That the bill was amended within three
days; an answer was immediately filed to it and a
cross-bill also filed, the said cross-bill making only
the same claims as were made in suit No. 563 at law,
and that, anyway, the issue could be tried on the bill
and answer in both suits. . . ."
This ruling of the court having been excepted to, the
trial proceeded from day to day, the counsel for the
Central Altagracia taking no part in the same and
virtually treating the proceedings as though they did
not concern that corporation.
In substance, the court decided: first, that as the result
of the contracts between Valdes and the Central
Altagracia, he was not the owner of the rights of that
corporation under the lease, or of the machinery
which
Page 225 U. S. 72
had been placed in the sugar house by the Altagracia
Company, or of the other assets of the corporation,
but that he was merely a secured creditor. The sum of
the secured debt was fixed after making allowances
for some not very material credits which the
corporation was held to be entitled to. Second, that
the judgment in favor of Nevers & Callaghan was
valid, and that that firm, by virtue of its execution
and levy upon the machinery, had a prior right to
Valdes. Third, the sums due to various creditors of
the corporation were fixed and the equities or
priorities were classified as follows: (a) taxes due by
the corporation and the sum of the receiver's
certificates and certain costs; (b) the judgment of
Nevers & Callaghan, and (c) the debt of Valdes; (d)
debts due the other creditors. Without going into
details, it suffices to say that, for the purpose of
enforcing these conclusions, the decree directed a
sale of all the rights of the Central Altagracia in and
to the lease, machinery, contract, etc., and imposed
the duty upon Valdes, if he became the purchaser, to

pay enough cash to discharge the costs, taxes,

receiver's certificates, and the claim of Nevers &
Callaghan.
These appeals were then prosecuted, the one by the
Central Altagracia and the other by Valdes. We shall
endeavor as briefly as may be to dispose of the
contentions relied upon to secure a reversal.
I. The Central Altagracia appeal. -- The alleged errors
insisted on in behalf of that company relate to the
asserted arbitrary action of the court in forcing the
cause to trial without affording the time which it is
insisted the corporation was entitled to under the
equity rules applicable to the subject, and second, the
refusal of the court to grant a continuance upon the
affidavit as to the absence of material witnesses.
We think all the contentions on this subject are
demonstrated to be devoid of merit by the statement
of the case which we have made. In the first place, it
is manifest
Page 225 U. S. 73
from that statement that the proceeding leading up to
the appointment of a receiver and the power given to
administer the property was largely the result of the
assent of the corporation. In the second place, when
the unsuccessful financial issue of the receivership
had become manifest, we think the statement makes
it perfectly clear that the steps taken by the court for
the purpose of bringing the case to a speedy
conclusion, and thus avoiding the further loss which
would result to all interests concerned, were also
acquiesced in by all the parties in interest who
complied with the terms of that order and took
advantage of the rights which it conferred. We think
also the statement makes it apparent that the refusal
on the part of the corporation to proceed with the
trial, upon the theory that the time to plead allowed
by the equity rules had not elapsed, was the result of
a change of view because of the action of the court in
refusing the continuance on account of the absent
witnesses -- a change of front which was inconsistent
with the rights which the corporation had exercised in

accord with the order setting the cause for trial, and
with the rights of all the other parties to the cause
which had arisen from that order and from the virtual
approval of it, or at least acquiescence in it, by all
concerned.
Considering the assignments of error insofar as they
relate alone to overruling of the application for
continuance, based upon the absence of witnesses, it
suffices to say that the elementary rule is that the
granting of a continuance of the cause was peculiarly
within the sound discretion of the court below -- a
discretion not subject to be reviewed on appeal
except in case of such clear error as to amount to a
plain abuse springing from an arbitrary exercise of
power. Instead of coming within this latter category,
we think the facts as to the refusal to continue and the
conduct of the parties make it clear that there was not
only no abuse, but a just exercise, of discretion.
Page 225 U. S. 74
II. As to the Appeal of Valdes. -- Two propositions
are relied upon: first, that error was committed in
treating Valdes merely as a secured creditor, and in
not holding him to be the absolute owner of the rights
and property alleged to have been transferred by the
so-called conditional sale. Second, that, in any event,
error was committed in awarding to Nevers &
Callaghan priority over Valdes.
The first proposition is supported by a reference to
the Porto Rican Code and decisions of the Supreme
Court of Spain and the opinions of Spanish law
writers. But the contention is not relevant, and the
authorities cited to sustain it are inapposite to the case
to be here decided, because the argument rests upon
an imaginary premise -- that is, that the ruling of the
court below denied that right under the Spanish law
to make a conditional sale, or held that such a sale, if
made, would not have the effect which the argument
insists it was entitled to. This is true because the
action of the court was solely based upon a premise
of fact, viz., that, under the circumstances of the case
and in view of the prior sale with the equity of
redemption, the cancellation of that sale, and the

transfer made by the corporation to Valdes, and the

immediate transfer of the same rights by him to the
corporation in the form of a conditional sale, the
failure to register any of the contracts, and the
relation of Valdes to the corporation at the time the
contracts were made, it resulted that whatever might
be the mere form, in substance and effect, no
conditional sale was made, but a mere contract was
entered into which the parties intended to be a mere
security to Valdes for money advanced and to be
advanced by him. This being the case, it is manifest
that it is wholly irrelevant to argue that error was
committed in not applying the assumed principles of
the Porto Rican and Spanish law governing in the
case of a conditional sale, when the ruling which the
court made proceeded upon the conclusion that there
was no conditional sale.
Page 225 U. S. 75
The contention that, under the Porto Rican law, the
form was controlling because proof of the substance
was not admissible seems not to have been raised
below, but, if it had been, is obviously without merit,
as the case as presented involved not a controversy
alone between the parties to the contract, but the
effect and operation of the contract upon third parties,
the creditors of the corporation. The contention is
additionally without merit since it assumes that the
mere form of the contract excluded the power of
creditors to inquire into its reality and substance,
even although the contract was never inscribed upon
the public records so as to bind third parties. That its
character was such as to require inscription we shall
in a few moments demonstrate in coming to consider
the second proposition -- that is, upon the hypothesis
that Valdes was but a secured creditor, was error
committed in subordinating his claim to the prior
claim of Nevers & Callaghan under their judgment
and execution?
To determine this question involves fixing the nature
and character of the property from the point of view
of the rights of Valdes, and its nature and character
from the point of view of Nevers & Callaghan as a
judgment creditor of the Altagracia Company, and the

rights derived by them from the execution levied on

the machinery placed by the corporation in the plant.
Following the Code Napoleon, the Porto Rican Code
treats as immovable (real) property not only land and
buildings, but also attributes immovability in some
cases to property of a movable nature -- that is,
personal property -- because of the destination to
which it is applied. "Things," says 334 of the Porto
Rican Code, "may be immovable either by their own
nature or by their destination, or the object to which
they are applicable." Numerous illustrations are given
in the fifth subdivision of section 335, which is as
follows:

property of another. It follows that, abstractly

speaking, the machinery put by the Altagracia
Company in the plant belonging to Sanchez did not
lose its character of movable property and become
immovable by destination. But, in the concrete,
immobilization took place because of the express
provisions of the lease under which the Altagracia
held, since the lease in substance required the putting
in of improved machinery, deprived the tenant of any
right to charge against the lessor the cost of such
machinery, and it was expressly stipulated that the
machinery so put in should become a part of the plant
belonging to the owner without compensation to the
lessee.

"Machinery, vessels, instruments, or

one and the same time assert the existence in himself

of rights and yet repudiate the obligations resulting
from the rights thus asserted.
Nevers & Callaghan were creditors of the
corporation. They were not parties to nor had they
legal notice of the lease and its conditions from
which alone it arose that machinery put in the
premises by the Altagracia became immovable
property. The want of notice arose from the failure to
record the transfer from Castello to the Altagracia, or
from the Altagracia to Valdes, and from Valdes
apparently conditionally back to the corporation -- a
clear result of 613 of the Civil Code of Porto Rico,
providing,

Page 225 U. S. 77
Page 225 U. S. 76
implements intended by the owner of the tenements
for the industry or works that they may carry on in
any building or upon any land, and which tend
directly to meet the needs of the said industry or
works."
See also Code Nap., articles 516, 518, et seq., to and
inclusive of article 534, recapitulating the things
which, though in themselves movable, may be
immobilized. So far as the subject matter with which
we are dealing -- machinery placed in the plant -- it is
plain, both under the provisions of the Porto Rican
law and of the Code Napoleon, that machinery which
is movable in its nature only becomes immobilized
when placed in a plant by the owner of the property
or plant. Such result would not be accomplished,
therefore, by the placing of machinery in a plant by a
tenant or a usufructuary or any person having only a
temporary right. Demolombe, Tit. 9, No. 203; Aubry
et Rau, Tit. 2, p. 12, 164; Laurent, Tit. 5, No. 447,
and decisions quoted in Fuzier-Herman ed., Code
Napoleon, under article 522 et seq. The distinction
rests, as pointed out by Demolombe, upon the fact
that one only having a temporary right to the
possession or enjoyment of property is not presumed
by the law to have applied movable property
belonging to him so as to deprive him of it by causing
it, by an act of immobilization, to become the

Under such conditions, the tenant, in putting in the

machinery, was acting but as the agent of the owner,
in compliance with the obligations resting upon him,
and the immobilization of the machinery which
resulted arose in legal effect from the Act of the
owner in giving by contract a permanent destination
to the machinery. It is true, says Aubry and Rau, vol.
2, 164, par. 2, p. 12, that
"the immobilization with which the article is
concerned can only arise from an act of the owner
himself or his representative. Hence, the objects
which are dedicated to the use of a piece of land or a
building by a lessee cannot be considered as having
become immovable by destination except in the case
where they have been applied for account of the
proprietor, or in execution of an obligation imposed
by the lease."
It follows that the machinery placed by the
corporation in the plant, by the fact of its being so
placed, lost its character as a movable, and became
united with and a part of the plant as an immovable
by destination. It also follows that, as to Valdes, who
claimed under the lease, and who had expressly
assumed the obligations of the lease, the machinery,
for all the purposes of the exercise of his rights, was
but a part of the real estate -- a conclusion which
cannot be avoided without saying that Valdes could at

"The titles of ownership or of other real rights

relating
Page 225 U. S. 78
to immovables which are not properly inscribed or
annotated in the registry of property shall not be
prejudicial to third parties."
It is not disputable that the duty to inscribe the lease
by necessary implication resulted from the general
provisions of article 2 of the mortgage law of Porto
Rico, as stated in paragraphs 1, 2, and 3 thereof, and
explicitly also arose from the express requirement of
paragraph 6, relating to the registry of "contracts for
the lease of real property for a period exceeding six
years. . . ." It is true that, in a strict sense, the
contracts between Castello and the Altagracia
Company and with Valdes were not contracts of
lease, but for the transfer of a contract of that
character. But such a transfer was clearly a contract
concerning real rights to immovable property within
the purview of article 613 of the Civil Code, just
previously quoted. Especially is this the case in view
of the stipulations of the lease as to the
immobilization of movable property placed in the
plant, and the other obligations imposed upon the
lessee.

"The sale which a lessee makes to a third person to

whom he transfers his right of lease is the sale of an
immovable right, and not simply a sale of a movable
one."
See numerous decisions of the courts of France,
beginning with the decision on February 2, 1842, of
the Court of Cassation (Journal du Palais [1842] vol.
1, 171). See also numerous authorities collected
under the heading above stated in paragraph 21,
under articles 516, 517, and 518 of the Code
Napoleon. Fuzier-Herman ed. of that Code, p. 643.
The machinery levied upon by Nevers & Callaghan -that is, that which was placed in the plant by the
Altagracia Company, being, as regards Nevers &
Callaghan, movable property, it follows that they had
the right to levy on it under the execution upon the
judgment in their favor, and the exercise of that right
did not in a legal sense conflict with the claim of
Valdes, since, as to him, the property was a part of
the realty, which as the result
Page 225 U. S. 79
of his obligations under the lease, he could not, for
the purpose of collecting his debt, proceed separately
against.
As a matter of precaution, we say that nothing we
have said affects the rights, whatever they may be, of
the heirs of Sanchez, the original lessor.
Affirmed.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
August 7, 1935
G.R. No. 40411
DAVAO SAW MILL CO., INC., plaintiff-appellant,
vs.
APRONIANO G. CASTILLO and DAVAO LIGHT
& POWER CO., INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo
Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening
sentence of the decision in the trial court and as set
forth by counsel for the parties on appeal, involves
the determination of the nature of the properties
described in the complaint. The trial judge found that
those properties were personal in nature, and as a
consequence absolved the defendants from the
complaint, with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a
lumber concession from the Government of the
Philippine Islands. It has operated a sawmill in the
sitio of Maa, barrio of Tigatu, municipality of Davao,
Province of Davao. However, the land upon which
the business was conducted belonged to another
person. On the land the sawmill company erected a
building which housed the machinery used by it.
Some of the implements thus used were clearly
personal property, the conflict concerning machines
which were placed and mounted on foundations of
cement. In the contract of lease between the sawmill
company and the owner of the land there appeared
the following provision:
That on the expiration of the period agreed upon, all
the improvements and buildings introduced and

erected by the party of the second part shall pass to

the exclusive ownership of the party of the first part
without any obligation on its part to pay any amount
for said improvements and buildings; also, in the
event the party of the second part should leave or
abandon the land leased before the time herein
stipulated, the improvements and buildings shall
likewise pass to the ownership of the party of the first
part as though the time agreed upon had expired:
Provided, however, That the machineries and
accessories are not included in the improvements
which will pass to the party of the first part on the
expiration or abandonment of the land leased.
In another action, wherein the Davao Light & Power
Co., Inc., was the plaintiff and the Davao, Saw, Mill
Co., Inc., was the defendant, a judgment was
rendered in favor of the plaintiff in that action against
the defendant in that action; a writ of execution
issued thereon, and the properties now in question
were levied upon as personalty by the sheriff. No
third party claim was filed for such properties at the
time of the sales thereof as is borne out by the record
made by the plaintiff herein. Indeed the bidder, which
was the plaintiff in that action, and the defendant
herein having consummated the sale, proceeded to
take possession of the machinery and other properties
described in the corresponding certificates of sale
executed in its favor by the sheriff of Davao.
As connecting up with the facts, it should further be
explained that the Davao Saw Mill Co., Inc., has on a
number of occasions treated the machinery as
personal property by executing chattel mortgages in
favor of third persons. One of such persons is the
appellee by assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is
in point. According to the Code, real property
consists of
1. Land, buildings, roads and constructions of all
kinds adhering to the soil;
xxx

xxx

xxx

5. Machinery, liquid containers, instruments or

implements intended by the owner of any building or
land for use in connection with any industry or trade
being carried on therein and which are expressly
adapted to meet the requirements of such trade of
industry.
Appellant emphasizes the first paragraph, and
appellees the last mentioned paragraph. We entertain
no doubt that the trial judge and appellees are right in
their appreciation of the legal doctrines flowing from
the facts.
In the first place, it must again be pointed out that the
appellant should have registered its protest before or
at the time of the sale of this property. It must further
be pointed out that while not conclusive, the
characterization of the property as chattels by the
appellant is indicative of intention and impresses
upon the property the character determined by the
parties. In this connection the decision of this court in
the case of Standard Oil Co. of New York vs.
Jaramillo ([1923], 44 Phil., 630), whether obiter dicta
or not, furnishes the key to such a situation.
It is, however not necessary to spend overly must
time in the resolution of this appeal on side issues. It
is machinery which is involved; moreover, machinery
not intended by the owner of any building or land for
use in connection therewith, but intended by a lessee
for use in a building erected on the land by the latter
to be returned to the lessee on the expiration or
abandonment of the lease.
A similar question arose in Puerto Rico, and on
appeal being taken to the United States Supreme
Court, it was held that machinery which is movable
in its nature only becomes immobilized when placed
in a plant by the owner of the property or plant, but
not when so placed by a tenant, a usufructuary, or any
person having only a temporary right, unless such
person acted as the agent of the owner. In the opinion
written by Chief Justice White, whose knowledge of
the Civil Law is well known, it was in part said:

To determine this question involves fixing the nature

and character of the property from the point of view
of the rights of Valdes and its nature and character
from the point of view of Nevers & Callaghan as a
judgment creditor of the Altagracia Company and the
rights derived by them from the execution levied on
the machinery placed by the corporation in the plant.
Following the Code Napoleon, the Porto Rican Code
treats as immovable (real) property, not only land and
buildings, but also attributes immovability in some
cases to property of a movable nature, that is,
personal property, because of the destination to which
it is applied. "Things," says section 334 of the Porto
Rican Code, "may be immovable either by their own
nature or by their destination or the object to which
they are applicable." Numerous illustrations are given
in the fifth subdivision of section 335, which is as
follows: "Machinery, vessels, instruments or
implements intended by the owner of the tenements
for the industrial or works that they may carry on in
any building or upon any land and which tend
directly to meet the needs of the said industry or
works." (See also Code Nap., articles 516, 518 et seq.
to and inclusive of article 534, recapitulating the
things which, though in themselves movable, may be
immobilized.) So far as the subject-matter with which
we are dealing machinery placed in the plant it
is plain, both under the provisions of the Porto Rican
Law and of the Code Napoleon, that machinery
which is movable in its nature only becomes
immobilized when placed in a plant by the owner of
the property or plant. Such result would not be
accomplished, therefore, by the placing of machinery
in a plant by a tenant or a usufructuary or any person
having only a temporary right. (Demolombe, Tit. 9,
No. 203; Aubry et Rau, Tit. 2, p. 12, Section 164;
Laurent, Tit. 5, No. 447; and decisions quoted in
Fuzier-Herman ed. Code Napoleon under articles 522
et seq.) The distinction rests, as pointed out by
Demolombe, upon the fact that one only having a
temporary right to the possession or enjoyment of
property is not presumed by the law to have applied
movable property belonging to him so as to deprive
him of it by causing it by an act of immobilization to
become the property of another. It follows that
abstractly speaking the machinery put by the

Altagracia Company in the plant belonging to

Sanchez did not lose its character of movable
property and become immovable by destination. But
in the concrete immobilization took place because of
the express provisions of the lease under which the
Altagracia held, since the lease in substance required
the putting in of improved machinery, deprived the
tenant of any right to charge against the lessor the
cost such machinery, and it was expressly stipulated
that the machinery so put in should become a part of
the plant belonging to the owner without
compensation to the lessee. Under such conditions
the tenant in putting in the machinery was acting but
as the agent of the owner in compliance with the
obligations resting upon him, and the immobilization
of the machinery which resulted arose in legal effect
from the act of the owner in giving by contract a
permanent destination to the machinery.
xxx

xxx

xxx

The machinery levied upon by Nevers & Callaghan,

that is, that which was placed in the plant by the
Altagracia Company, being, as regards Nevers &
Callaghan, movable property, it follows that they had
the right to levy on it under the execution upon the
judgment in their favor, and the exercise of that right
did not in a legal sense conflict with the claim of
Valdes, since as to him the property was a part of the
realty which, as the result of his obligations under the
lease, he could not, for the purpose of collecting his
debt, proceed separately against. (Valdes vs. Central
Altagracia [192], 225 U.S., 58.)
Finding no reversible error in the record, the
judgment appealed from will be affirmed, the costs of
this instance to be paid by the appellant.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-17870

2. That petitioner has its main office and shop at

Cagayan de Oro City. It maintains Branch Offices
and/or stations at Iligan City, Lanao; Pagadian,
Zamboanga del Sur; Davao City and Kibawe,
Bukidnon Province;

September 29, 1962

MINDANAO BUS COMPANY, petitioner,

vs.
THE CITY ASSESSOR & TREASURER and the
BOARD OF TAX APPEALS of Cagayan de Oro
City, respondents.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.

3. That the machineries sought to be assessed by the

respondent as real properties are the following:
(a) Hobart Electric Welder Machine, appearing in the
attached photograph, marked Annex "A";
(b) Storm Boring Machine, appearing in the attached
photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in the
attached photograph, marked Annex "C";

LABRADOR, J.:
This is a petition for the review of the decision of the
Court of Tax Appeals in C.T.A. Case No. 710 holding
that the petitioner Mindanao Bus Company is liable
to the payment of the realty tax on its maintenance
and repair equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City
assessed at P4,400 petitioner's above-mentioned
equipment. Petitioner appealed the assessment to the
respondent Board of Tax Appeals on the ground that
the same are not realty. The Board of Tax Appeals of
the City sustained the city assessor, so petitioner
herein filed with the Court of Tax Appeals a petition
for the review of the assessment.
In the Court of Tax Appeals the parties submitted the
following stipulation of facts:
Petitioner and respondents, thru their respective
counsels agreed to the following stipulation of facts:
1. That petitioner is a public utility solely engaged in
transporting passengers and cargoes by motor trucks,
over its authorized lines in the Island of Mindanao,
collecting rates approved by the Public Service
Commission;

(d) Black and Decker Grinder, appearing in the

attached photograph, marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the
attached photograph, marked Annex "E";
(f) Battery charger (Tungar charge machine)
appearing in the attached photograph, marked Annex
"F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the
attached photograph, marked Annex "G".
4. That these machineries are sitting on cement or
wooden platforms as may be seen in the attached
photographs which form part of this agreed
stipulation of facts;
5. That petitioner is the owner of the land where it
maintains and operates a garage for its TPU motor
trucks; a repair shop; blacksmith and carpentry shops,
and with these machineries which are placed therein,
its TPU trucks are made; body constructed; and same
are repaired in a condition to be serviceable in the
TPU land transportation business it operates;

6. That these machineries have never been or were

never used as industrial equipments to produce
finished products for sale, nor to repair machineries,
parts and the like offered to the general public
indiscriminately for business or commercial purposes
for which petitioner has never engaged in, to
date.1awphl.nt
The Court of Tax Appeals having sustained the
respondent city assessor's ruling, and having denied a
motion for reconsideration, petitioner brought the
case to this Court assigning the following errors:
1. The Honorable Court of Tax Appeals erred in
upholding respondents' contention that the questioned
assessments are valid; and that said tools, equipments
or machineries are immovable taxable real properties.
2. The Tax Court erred in its interpretation of
paragraph 5 of Article 415 of the New Civil Code,
and holding that pursuant thereto the movable
equipments are taxable realties, by reason of their
being intended or destined for use in an industry.
3. The Court of Tax Appeals erred in denying
petitioner's contention that the respondent City
Assessor's power to assess and levy real estate taxes
on machineries is further restricted by section 31,
paragraph (c) of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion
for reconsideration.
Respondents contend that said equipments, tho
movable, are immobilized by destination, in
accordance with paragraph 5 of Article 415 of the
New Civil Code which provides:
Art. 415. The following are immovable properties:
xxx

xxx

xxx

(5) Machinery, receptacles, instruments or

implements intended by the owner of the tenement
for an industry or works which may be carried on in a
building or on a piece of land, and which tend

directly to meet the needs of the said industry or

works. (Emphasis ours.)
Note that the stipulation expressly states that the
equipment are placed on wooden or cement
platforms. They can be moved around and about in
petitioner's repair shop. In the case of B. H.
Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the
Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the
Civil Code, gives the character of real property to
"machinery, liquid containers, instruments or
implements intended by the owner of any building or
land for use in connection with any industry or trade
being carried on therein and which are expressly
adapted to meet the requirements of such trade or
industry."
If the installation of the machinery and equipment in
question in the central of the Mabalacat Sugar Co.,
Inc., in lieu of the other of less capacity existing
therein, for its sugar and industry, converted them
into real property by reason of their purpose, it
cannot be said that their incorporation therewith was
not permanent in character because, as essential and
principle elements of a sugar central, without them
the sugar central would be unable to function or carry
on the industrial purpose for which it was established.
Inasmuch as the central is permanent in character, the
necessary machinery and equipment installed for
carrying on the sugar industry for which it has been
established must necessarily be permanent.
(Emphasis ours.)

Thus, cash registers, typewriters, etc., usually found

and used in hotels, restaurants, theaters, etc. are
merely incidentals and are not and should not be
considered immobilized by destination, for these
businesses can continue or carry on their functions
without these equity comments. Airline companies
use forklifts, jeep-wagons, pressure pumps, IBM
machines, etc. which are incidentals, not essentials,
and thus retain their movable nature. On the other
hand, machineries of breweries used in the
manufacture of liquor and soft drinks, though
movable in nature, are immobilized because they are
essential to said industries; but the delivery trucks
and adding machines which they usually own and use
and are found within their industrial compounds are
merely incidental and retain their movable nature.
Similarly, the tools and equipments in question in this
instant case are, by their nature, not essential and
principle municipal elements of petitioner's business
of transporting passengers and cargoes by motor
trucks. They are merely incidentals acquired as
movables and used only for expediency to facilitate
and/or improve its service. Even without such tools
and equipments, its business may be carried on, as
petitioner has carried on, without such equipments,
before the war. The transportation business could be
carried on without the repair or service shop if its
rolling equipment is repaired or serviced in another
shop belonging to another.
The law that governs the determination of the
question at issue is as follows:
Art. 415. The following are immovable property:

So that movable equipments to be immobilized in

contemplation of the law must first be "essential and
principal elements" of an industry or works without
which such industry or works would be "unable to
function or carry on the industrial purpose for which
it was established." We may here distinguish,
therefore, those movable which become immobilized
by destination because they are essential and
principal elements in the industry for those which
may not be so considered immobilized because they
are merely incidental, not essential and principal.

xxx

xxx

xxx

(5) Machinery, receptacles, instruments or

implements intended by the owner of the tenement
for an industry or works which may be carried on in a
building or on a piece of land, and which tend
directly to meet the needs of the said industry or
works; (Civil Code of the Phil.)

Aside from the element of essentiality the abovequoted provision also requires that the industry or
works be carried on in a building or on a piece of
land. Thus in the case of Berkenkotter vs. Cu
Unjieng, supra, the "machinery, liquid containers, and
instruments or implements" are found in a building
constructed on the land. A sawmill would also be
installed in a building on land more or less
permanently, and the sawing is conducted in the land
or building.
But in the case at bar the equipments in question are
destined only to repair or service the transportation
business, which is not carried on in a building or
permanently on a piece of land, as demanded by the
law. Said equipments may not, therefore, be deemed
real property.
Resuming what we have set forth above, we hold that
the equipments in question are not absolutely
essential to the petitioner's transportation business,
and petitioner's business is not carried on in a
building, tenement or on a specified land, so said
equipment may not be considered real estate within
the meaning of Article 415 (c) of the Civil Code.
WHEREFORE, the decision subject of the petition
for review is hereby set aside and the equipment in
question declared not subject to assessment as real
estate for the purposes of the real estate tax. Without
costs.
So ordered.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

that the amount due the appellant is a purchase price,

citing article 1922 of the Civil Code in support
thereof, and that his mortgage is but a modification of
the security given by the debtor on February 15,
1919, that is, prior to the mortgage executed in favor
of the Fidelity & Surety Co.

September 26, 1922

G.R. No. 18520
INVOLUNTARY INSOLVENCY OF PAUL
STROCHECKER, appellee,
vs.
ILDEFONSO RAMIREZ, creditor and appellant.
WILLIAM EDMONDS, assignee.
Lim & Lim for appellant.
Ross & Lawrence and Antonio T. Carrascoso, jr., for
the Fidelity & Surety Co.
ROMUALDEZ, J.:
The question at issue in this appeal is, which of the
two mortgages here in question must be given
preference? Is it the one in favor of the Fidelity &
Surety Co., or that in favor of Ildefonso Ramirez. The
first was declared by the trial court to be entitled to
preference.
In the lower court there were three mortgagees each
of whom claimed preference. They were the two
above mentioned and Concepcion Ayala. The latter's
claim was rejected by the trial court, and from that
ruling she did not appeal.
There is no question as to the priority in time of the
mortgage in favor of the Fidelity & Surety Co. which
was executed on March 10, 1919, and registered in
due time in the registry of property, that in favor of
the appellant being dated September 22, 1919, and
registered also in the registry.
The appellant claims preference on these grounds: (a)
That the first mortgage above-mentioned is not valid
because the property which is the subject-matter
thereof is not capable of being mortgaged, and the
description of said property is not sufficient; and (b)

As to the first ground, the thing that was mortgaged

to this corporation is described in the document as
follows:
. . . his half interest in the drug business known as
Antigua Botica Ramirez (owned by Srta. Dolores del
Rosario and the mortgagor herein referred to as the
partnership), located at Calle Real Nos. 123 and 125,
District of Intramuros, Manila, Philippine Islands.
With regard to the nature of the property thus
mortgaged, which is one-half interest in the business
above described, such interest is a personal property
capable of appropriation and not included in the
enumeration of real properties in article 335 of the
Civil Code, and may be the subject of mortgage. All
personal property may be mortgaged. (Sec. 2, Act
No. 1508.)
The description contained in the document is
sufficient. The law (sec. 7, Act No. 1508) requires
only a description of the following nature:
The description of the mortgaged property shall be
such as to enable the parties to the mortgage, or any
other person, after reasonable inquiry and
investigation, to identify the same.
Turning to the second error assigned, numbers 1, 2,
and 3 of article 1922 of the Civil Code invoked by
the appellant are not applicable. Neither he, as debtor,
nor the debtor himself, is in possession of the
property mortgaged, which is, and since the
registration of the mortgage has been, legally in
possession of the Fidelity & Surety Co. (Sec. 4, Act
No. 1508; Meyers vs. Thein, 15 Phil., 303.)
In no way can the mortgage executed in favor of the
appellant on September 22, 1919, be given effect as

of February 15, 1919, the date of the sale of the drug

store in question. On the 15th of February of that
year, there was a stipulation about a persons security,
but not a mortgage upon any property, and much less
upon the property in question.
Moreover, the appellant cannot deny the preferential
character of the mortgage in favor of the Fidelity &
Surety Co. because in the very document executed in
his favor it was stated that his mortgage was a second
mortgage, subordinate to the one made in favor of the
Fidelity & Surety Co.
The judgment appealed from is affirmed with costs
against the appellant. So ordered.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
August 4, 1927
G.R. No. 26278
LEON SIBAL , plaintiff-appellant,
vs.
EMILIANO J. VALDEZ ET AL., defendants.
EMILIANO J. VALDEZ, appellee.
J. E. Blanco for appellant.
Felix B. Bautista and Santos and Benitez for
appellee.
JOHNSON, J.:
The action was commenced in the Court of First
Instance of the Province of Tarlac on the 14th day of
December 1924. The facts are about as conflicting as
it is possible for facts to be, in the trial causes.
As a first cause of action the plaintiff alleged that the
defendant Vitaliano Mamawal, deputy sheriff of the
Province of Tarlac, by virtue of a writ of execution
issued by the Court of First Instance of Pampanga,
attached and sold to the defendant Emiliano J. Valdez
the sugar cane planted by the plaintiff and his tenants
on seven parcels of land described in the complaint in
the third paragraph of the first cause of action; that
within one year from the date of the attachment and
sale the plaintiff offered to redeem said sugar cane
and tendered to the defendant Valdez the amount
sufficient to cover the price paid by the latter, the
interest thereon and any assessments or taxes which
he may have paid thereon after the purchase, and the
interest corresponding thereto and that Valdez refused
to accept the money and to return the sugar cane to
the plaintiff.
As a second cause of action, the plaintiff alleged that
the defendant Emiliano J. Valdez was attempting to
harvest the palay planted in four of the seven parcels

mentioned in the first cause of action; that he had

harvested and taken possession of the palay in one of
said seven parcels and in another parcel described in
the second cause of action, amounting to 300 cavans;
and that all of said palay belonged to the plaintiff.
Plaintiff prayed that a writ of preliminary injunction
be issued against the defendant Emiliano J. Valdez
his attorneys and agents, restraining them (1) from
distributing him in the possession of the parcels of
land described in the complaint; (2) from taking
possession of, or harvesting the sugar cane in
question; and (3) from taking possession, or
harvesting the palay in said parcels of land. Plaintiff
also prayed that a judgment be rendered in his favor
and against the defendants ordering them to consent
to the redemption of the sugar cane in question, and
that the defendant Valdez be condemned to pay to the
plaintiff the sum of P1,056 the value of palay
harvested by him in the two parcels above-mentioned
,with interest and costs.
On December 27, 1924, the court, after hearing both
parties and upon approval of the bond for P6,000
filed by the plaintiff, issued the writ of preliminary
injunction prayed for in the complaint.
The defendant Emiliano J. Valdez, in his amended
answer, denied generally and specifically each and
every allegation of the complaint and step up the
following defenses:
(a) That the sugar cane in question had the nature of
personal property and was not, therefore, subject to
redemption;

The defendant Emiliano J. Valdez by way of

counterclaim, alleged that by reason of the
preliminary injunction he was unable to gather the
sugar cane, sugar-cane shoots (puntas de cana dulce)
palay in said parcels of land, representing a loss to
him of P8,375.20 and that, in addition thereto, he
suffered damages amounting to P3,458.56. He
prayed, for a judgment (1) absolving him from all
liability under the complaint; (2) declaring him to be
the absolute owner of the sugar cane in question and
of the palay in parcels 1, 2 and 7; and (3) ordering the
plaintiff to pay to him the sum of P11,833.76,
representing the value of the sugar cane and palay in
question, including damages.
Upon the issues thus presented by the pleadings the
cause was brought on for trial. After hearing the
evidence, and on April 28, 1926, the Honorable
Cayetano Lukban, judge, rendered a judgment
against the plaintiff and in favor of the defendants
(1) Holding that the sugar cane in question was
personal property and, as such, was not subject to
redemption;
(2) Absolving the defendants from all liability under
the complaint; and
(3) Condemning the plaintiff and his sureties Cenon
de la Cruz, Juan Sangalang and Marcos Sibal to
jointly and severally pay to the defendant Emiliano J.
Valdez the sum of P9,439.08 as follows:
(a) P6,757.40, the value of the sugar cane;
(b) 1,435.68, the value of the sugar-cane shoots;

(b) That he was the owner of parcels 1, 2 and 7

described in the first cause of action of the complaint;
(c) That he was the owner of the palay in parcels 1, 2
and 7; and
(d) That he never attempted to harvest the palay in
parcels 4 and 5.

(c) 646.00, the value of palay harvested by plaintiff;

(d) 600.00, the value of 150 cavans of palay which
the defendant was not able to raise by reason of the
injunction, at P4 cavan. 9,439.08
From that judgment the plaintiff appealed and in his
assignments of error contends that the lower court
erred:

(1) In holding that the sugar cane in question was

personal property and, therefore, not subject to
redemption;
(2) In holding that parcels 1 and 2 of the complaint
belonged to Valdez, as well as parcels 7 and 8, and
that the palay therein was planted by Valdez;
(3) In holding that Valdez, by reason of the
preliminary injunction failed to realized P6,757.40
from the sugar cane and P1,435.68 from sugar-cane
shoots (puntas de cana dulce);
(4) In holding that, for failure of plaintiff to gather
the sugar cane on time, the defendant was unable to
raise palay on the land, which would have netted him
the sum of P600; and
(5) In condemning the plaintiff and his sureties to pay
to the defendant the sum of P9,439.08.
It appears from the record:
(1) That on May 11, 1923, the deputy sheriff of the
Province of Tarlac, by virtue of writ of execution in
civil case No. 20203 of the Court of First Instance of
Manila (Macondray & Co., Inc. vs. Leon
Sibal),levied an attachment on eight parcels of land
belonging to said Leon Sibal, situated in the Province
of Tarlac, designated in the second of attachment as
parcels 1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B, Exhibit 2A).
(2) That on July 30, 1923, Macondray & Co., Inc.,
bought said eight parcels of land, at the auction held
by the sheriff of the Province of Tarlac, for the sum to
P4,273.93, having paid for the said parcels separately
as follows (Exhibit C, and 2-A):
Parcel
1 .....................................................................
P1.00
2 .....................................................................
2,000.00

3 .....................................................................
120.93
4 .....................................................................
1,000.00
5 .....................................................................
1.00
6 .....................................................................
1.00
7 with the house thereon .......................... 150.00
8 .....................................................................
1,000.00
==========
4,273.93
(3) That within one year from the sale of said parcel
of land, and on the 24th day of September, 1923, the
judgment debtor, Leon Sibal, paid P2,000 to
Macondray & Co., Inc., for the account of the
redemption price of said parcels of land, without
specifying the particular parcels to which said
amount was to applied. The redemption price said
eight parcels was reduced, by virtue of said
transaction, to P2,579.97 including interest (Exhibit
C and 2).
The record further shows:
(1) That on April 29, 1924, the defendant Vitaliano
Mamawal, deputy sheriff of the Province of Tarlac,
by virtue of a writ of execution in civil case No. 1301
of the Province of Pampanga (Emiliano J. Valdez vs.
Leon Sibal 1. the same parties in the present
case), attached the personal property of said Leon
Sibal located in Tarlac, among which was included
the sugar cane now in question in the seven parcels of
land described in the complaint (Exhibit A).
(2) That on May 9 and 10, 1924, said deputy sheriff
sold at public auction said personal properties of
Leon Sibal, including the sugar cane in question to
Emilio J. Valdez, who paid therefor the sum of
P1,550, of which P600 was for the sugar cane
(Exhibit A).
(3) That on April 29,1924, said deputy sheriff, by
virtue of said writ of execution, also attached the real
property of said Leon Sibal in Tarlac, including all of

his rights, interest and participation therein, which

real property consisted of eleven parcels of land and a
house and camarin situated in one of said parcels
(Exhibit A).
(4) That on June 25, 1924, eight of said eleven
parcels, including the house and the camarin, were
bought by Emilio J. Valdez at the auction held by the
sheriff for the sum of P12,200. Said eight parcels
were designated in the certificate of sale as parcels 1,
3, 4, 5, 6, 7, 10 and 11. The house and camarin were
situated on parcel 7 (Exhibit A).
(5) That the remaining three parcels, indicated in the
certificate of the sheriff as parcels 2, 12, and 13, were
released from the attachment by virtue of claims
presented by Agustin Cuyugan and Domiciano Tizon
(Exhibit A).
(6) That on the same date, June 25, 1924, Macondray
& Co. sold and conveyed to Emilio J. Valdez for
P2,579.97 all of its rights and interest in the eight
parcels of land acquired by it at public auction held
by the deputy sheriff of Tarlac in connection with
civil case No. 20203 of the Court of First Instance of
Manila, as stated above. Said amount represented the
unpaid balance of the redemption price of said eight
parcels, after payment by Leon Sibal of P2,000 on
September 24, 1923, fro the account of the
redemption price, as stated above. (Exhibit C and 2).
The foregoing statement of facts shows:
(1) The Emilio J. Valdez bought the sugar cane in
question, located in the seven parcels of land
described in the first cause of action of the complaint
at public auction on May 9 and 10, 1924, for P600.
(2) That on July 30, 1923, Macondray & Co. became
the owner of eight parcels of land situated in the
Province of Tarlac belonging to Leon Sibal and that
on September 24, 1923, Leon Sibal paid to
Macondray & Co. P2,000 for the account of the
redemption price of said parcels.

(3) That on June 25, 1924, Emilio J. Valdez acquired

from Macondray & Co. all of its rights and interest in
the said eight parcels of land.
(4) That on June 25, 1924, Emilio J. Valdez also
acquired all of the rights and interest which Leon
Sibal had or might have had on said eight parcels by
virtue of the P2,000 paid by the latter to Macondray.
(5) That Emilio J. Valdez became the absolute owner
of said eight parcels of land.
The first question raised by the appeal is, whether the
sugar cane in question is personal or real property. It
is contended that sugar cane comes under the
classification of real property as "ungathered
products" in paragraph 2 of article 334 of the Civil
Code. Said paragraph 2 of article 334 enumerates as
real property the following: Trees, plants, and
ungathered products, while they are annexed to the
land or form an integral part of any immovable
property." That article, however, has received in
recent years an interpretation by the Tribunal
Supremo de Espaa, which holds that, under certain
conditions, growing crops may be considered as
personal property. (Decision of March 18, 1904, vol.
97, Civil Jurisprudence of Spain.)
Manresa, the eminent commentator of the Spanish
Civil Code, in discussing section 334 of the Civil
Code, in view of the recent decisions of the supreme
Court of Spain, admits that growing crops are
sometimes considered and treated as personal
property. He says:
No creemos, sin embargo, que esto excluya la
excepcionque muchos autores hacen tocante a la
venta de toda cosecha o de parte de ella cuando aun
no esta cogida (cosa frecuente con la uvay y la
naranja), y a la de lenas, considerando ambas como
muebles. El Tribunal Supremo, en sentencia de 18 de
marzo de 1904, al entender sobre un contrato de
arrendamiento de un predio rustico, resuelve que su
terminacion por desahucio no extingue los derechos
del arrendario, para recolectar o percibir los frutos
correspondientes al ao agricola, dentro del que

nacieron aquellos derechos, cuando el arrendor ha

percibido a su vez el importe de la renta integra
correspondiente, aun cuando lo haya sido por
precepto legal durante el curso del juicio, fundandose
para ello, no solo en que de otra suerte se daria al
desahucio un alcance que no tiene, sino en que, y esto
es lo interesante a nuestro proposito, la consideracion
de inmuebles que el articulo 334 del Codigo Civil
atribuge a los frutos pendientes, no les priva del
caracter de productos pertenecientes, como tales, a
quienes a ellos tenga derecho, Ilegado el momento de
su recoleccion.
xxx

xxx

xxx

Mas actualmente y por virtud de la nueva edicion de

la Ley Hipotecaria, publicada en 16 de diciembre de
1909, con las reformas introducidas por la de 21 de
abril anterior, la hipoteca, salvo pacto expreso que
disponga lo contrario, y cualquiera que sea la
naturaleza y forma de la obligacion que garantice, no
comprende los frutos cualquiera que sea la situacion
en que se encuentre. (3 Manresa, 5. edicion, pags. 22,
23.)
From the foregoing it appears (1) that, under Spanish
authorities, pending fruits and ungathered products
may be sold and transferred as personal property; (2)
that the Supreme Court of Spain, in a case of
ejectment of a lessee of an agricultural land, held that
the lessee was entitled to gather the products
corresponding to the agricultural year, because said
fruits did not go with the land but belonged
separately to the lessee; and (3) that under the
Spanish Mortgage Law of 1909, as amended, the
mortgage of a piece of land does not include the
fruits and products existing thereon, unless the
contract expressly provides otherwise.
An examination of the decisions of the Supreme
Court of Louisiana may give us some light on the
question which we are discussing. Article 465 of the
Civil Code of Louisiana, which corresponds to
paragraph 2 of article 334 of our Civil Code,
provides: "Standing crops and the fruits of trees not
gathered, and trees before they are cut down, are

likewise immovable, and are considered as part of the

land to which they are attached."
The Supreme Court of Louisiana having occasion to
interpret that provision, held that in some cases
"standing crops" may be considered and dealt with as
personal property. In the case of Lumber Co. vs.
Sheriff and Tax Collector (106 La., 418) the Supreme
Court said: "True, by article 465 of the Civil Code it
is provided that 'standing crops and the fruits of trees
not gathered and trees before they are cut down . . .
are considered as part of the land to which they are
attached, but the immovability provided for is only
one in abstracto and without reference to rights on or
to the crop acquired by others than the owners of the
property to which the crop is attached. . . . The
existence of a right on the growing crop is a
mobilization by anticipation, a gathering as it were in
advance, rendering the crop movable quoad the right
acquired therein. Our jurisprudence recognizes the
possible mobilization of the growing crop." (Citizens'
Bank vs. Wiltz, 31 La. Ann., 244; Porche vs. Bodin,
28 La., Ann., 761; Sandel vs. Douglass, 27 La. Ann.,
629; Lewis vs. Klotz, 39 La. Ann., 267.)
"It is true," as the Supreme Court of Louisiana said in
the case of Porche vs. Bodin (28 La. An., 761) that
"article 465 of the Revised Code says that standing
crops are considered as immovable and as part of the
land to which they are attached, and article 466
declares that the fruits of an immovable gathered or
produced while it is under seizure are considered as
making part thereof, and incurred to the benefit of the
person making the seizure. But the evident meaning
of these articles, is where the crops belong to the
owner of the plantation they form part of the
immovable, and where it is seized, the fruits gathered
or produced inure to the benefit of the seizing
creditor.
A crop raised on leased premises in no sense forms
part of the immovable. It belongs to the lessee, and
may be sold by him, whether it be gathered or not,
and it may be sold by his judgment creditors. If it
necessarily forms part of the leased premises the
result would be that it could not be sold under

execution separate and apart from the land. If a lessee

obtain supplies to make his crop, the factor's lien
would not attach to the crop as a separate thing
belonging to his debtor, but the land belonging to the
lessor would be affected with the recorded privilege.
The law cannot be construed so as to result in such
absurd consequences.
In the case of Citizen's Bank vs. Wiltz (31 La. Ann.,
244)the court said:
If the crop quoad the pledge thereof under the act of
1874 was an immovable, it would be destructive of
the very objects of the act, it would render the pledge
of the crop objects of the act, it would render the
pledge of the crop impossible, for if the crop was an
inseparable part of the realty possession of the latter
would be necessary to that of the former; but such is
not the case. True, by article 465 C. C. it is provided
that "standing crops and the fruits of trees not
gathered and trees before they are cut down are
likewise immovable and are considered as part of the
land to which they are attached;" but the
immovability provided for is only one in abstracto
and without reference to rights on or to the crop
acquired by other than the owners of the property to
which the crop was attached. The immovability of a
growing crop is in the order of things temporary, for
the crop passes from the state of a growing to that of
a gathered one, from an immovable to a movable.
The existence of a right on the growing crop is a
mobilization by anticipation, a gathering as it were in
advance, rendering the crop movable quoad the right
acquired thereon. The provision of our Code is
identical with the Napoleon Code 520, and we may
therefore obtain light by an examination of the
jurisprudence of France.
The rule above announced, not only by the Tribunal
Supremo de Espaa but by the Supreme Court of
Louisiana, is followed in practically every state of the
Union.
From an examination of the reports and codes of the
State of California and other states we find that the
settle doctrine followed in said states in connection

with the attachment of property and execution of

judgment is, that growing crops raised by yearly
labor and cultivation are considered personal
property. (6 Corpuz Juris, p. 197; 17 Corpus Juris, p.
379; 23 Corpus Juris, p. 329: Raventas vs. Green, 57
Cal., 254; Norris vs. Watson, 55 Am. Dec., 161;
Whipple vs. Foot, 3 Am. Dec., 442; 1 Benjamin on
Sales, sec. 126; McKenzie vs. Lampley, 31 Ala., 526;
Crine vs. Tifts and Co., 65 Ga., 644; Gillitt vs. Truax,
27 Minn., 528; Preston vs. Ryan, 45 Mich., 174;
Freeman on Execution, vol. 1, p. 438; Drake on
Attachment, sec. 249; Mechem on Sales, sec. 200 and
763.)
Mr. Mechem says that a valid sale may be made of a
thing, which though not yet actually in existence, is
reasonably certain to come into existence as the
natural increment or usual incident of something
already in existence, and then belonging to the
vendor, and then title will vest in the buyer the
moment the thing comes into existence. (Emerson vs.
European Railway Co., 67 Me., 387; Cutting vs.
Packers Exchange, 21 Am. St. Rep., 63.) Things of
this nature are said to have a potential existence. A
man may sell property of which he is potentially and
not actually possessed. He may make a valid sale of
the wine that a vineyard is expected to produce; or
the gain a field may grow in a given time; or the milk
a cow may yield during the coming year; or the wool
that shall thereafter grow upon sheep; or what may be
taken at the next cast of a fisherman's net; or fruits to
grow; or young animals not yet in existence; or the
good will of a trade and the like. The thing sold,
however, must be specific and identified. They must
be also owned at the time by the vendor. (Hull vs.
Hull, 48 Conn., 250 [40 Am. Rep., 165].)
It is contended on the part of the appellee that
paragraph 2 of article 334 of the Civil Code has been
modified by section 450 of the Code of Civil
Procedure as well as by Act No. 1508, the Chattel
Mortgage Law. Said section 450 enumerates the
property of a judgment debtor which may be
subjected to execution. The pertinent portion of said
section reads as follows: "All goods, chattels,
moneys, and other property, both real and personal, *

* * shall be liable to execution. Said section 450 and

most of the other sections of the Code of Civil
Procedure relating to the execution of judgment were
taken from the Code of Civil Procedure of California.
The Supreme Court of California, under section 688
of the Code of Civil Procedure of that state (Pomeroy,
p. 424) has held, without variation, that growing
crops were personal property and subject to
execution.
Act No. 1508, the Chattel Mortgage Law, fully
recognized that growing crops are personal property.
Section 2 of said Act provides: "All personal property
shall be subject to mortgage, agreeably to the
provisions of this Act, and a mortgage executed in
pursuance thereof shall be termed a chattel
mortgage." Section 7 in part provides: "If growing
crops be mortgaged the mortgage may contain an
agreement stipulating that the mortgagor binds
himself properly to tend, care for and protect the crop
while growing.
It is clear from the foregoing provisions that Act No.
1508 was enacted on the assumption that "growing
crops" are personal property. This consideration tends
to support the conclusion hereinbefore stated, that
paragraph 2 of article 334 of the Civil Code has been
modified by section 450 of Act No. 190 and by Act
No. 1508 in the sense that "ungathered products" as
mentioned in said article of the Civil Code have the
nature of personal property. In other words, the
phrase "personal property" should be understood to
include "ungathered products."
At common law, and generally in the United States,
all annual crops which are raised by yearly
manurance and labor, and essentially owe their
annual existence to cultivation by man, . may be
levied on as personal property." (23 C. J., p. 329.) On
this question Freeman, in his treatise on the Law of
Executions, says: "Crops, whether growing or
standing in the field ready to be harvested, are, when
produced by annual cultivation, no part of the realty.
They are, therefore, liable to voluntary transfer as
chattels. It is equally well settled that they may be

seized and sold under execution. (Freeman on

Executions, vol. p. 438.)
We may, therefore, conclude that paragraph 2 of
article 334 of the Civil Code has been modified by
section 450 of the Code of Civil Procedure and by
Act No. 1508, in the sense that, for the purpose of
attachment and execution, and for the purposes of the
Chattel Mortgage Law, "ungathered products" have
the nature of personal property. The lower court,
therefore, committed no error in holding that the
sugar cane in question was personal property and, as
such, was not subject to redemption.
All the other assignments of error made by the
appellant, as above stated, relate to questions of fact
only. Before entering upon a discussion of said
assignments of error, we deem it opportune to take
special notice of the failure of the plaintiff to appear
at the trial during the presentation of evidence by the
defendant. His absence from the trial and his failure
to cross-examine the defendant have lent
considerable weight to the evidence then presented
for the defense.
Coming not to the ownership of parcels 1 and 2
described in the first cause of action of the complaint,
the plaintiff made a futile attempt to show that said
two parcels belonged to Agustin Cuyugan and were
the identical parcel 2 which was excluded from the
attachment and sale of real property of Sibal to
Valdez on June 25, 1924, as stated above. A
comparison of the description of parcel 2 in the
certificate of sale by the sheriff (Exhibit A) and the
description of parcels 1 and 2 of the complaint will
readily show that they are not the same.
The description of the parcels in the complaint is as
follows:
1. La caa dulce sembrada por los inquilinos del
ejecutado Leon Sibal 1. en una parcela de terreno de
la pertenencia del citado ejecutado, situada en
Libutad, Culubasa, Bamban, Tarlac, de unas dos
hectareas poco mas o menos de superficie.

2. La caa dulce sembrada por el inquilino del

ejecutado Leon Sibal 1., Ilamado Alejandro
Policarpio, en una parcela de terreno de la
pertenencia del ejecutado, situada en Dalayap,
Culubasa, Bamban, Tarlac de unas dos hectareas de
superficie poco mas o menos." The description of
parcel 2 given in the certificate of sale (Exhibit A) is
as follows:
2a. Terreno palayero situado en Culubasa, Bamban,
Tarlac, de 177,090 metros cuadrados de superficie,
linda al N. con Canuto Sibal, Esteban Lazatin and
Alejandro Dayrit; al E. con Francisco Dizon, Felipe
Mau and others; al S. con Alejandro Dayrit, Isidro
Santos and Melecio Mau; y al O. con Alejandro
Dayrit and Paulino Vergara. Tax No. 2854, vador
amillarado P4,200 pesos.
On the other hand the evidence for the defendant
purported to show that parcels 1 and 2 of the
complaint were included among the parcels bought
by Valdez from Macondray on June 25, 1924, and
corresponded to parcel 4 in the deed of sale (Exhibit
B and 2), and were also included among the parcels
bought by Valdez at the auction of the real property
of Leon Sibal on June 25, 1924, and corresponded to
parcel 3 in the certificate of sale made by the sheriff
(Exhibit A). The description of parcel 4 (Exhibit 2)
and parcel 3 (Exhibit A) is as follows:
Parcels No. 4. Terreno palayero, ubicado en el
barrio de Culubasa,Bamban, Tarlac, I. F. de 145,000
metros cuadrados de superficie, lindante al Norte con
Road of the barrio of Culubasa that goes to
Concepcion; al Este con Juan Dizon; al Sur con
Lucio Mao y Canuto Sibal y al Oeste con Esteban
Lazatin, su valor amillarado asciende a la suma de
P2,990. Tax No. 2856.
As will be noticed, there is hardly any relation
between parcels 1 and 2 of the complaint and parcel 4
(Exhibit 2 and B) and parcel 3 (Exhibit A). But,
inasmuch as the plaintiff did not care to appear at the
trial when the defendant offered his evidence, we are
inclined to give more weight to the evidence adduced
by him that to the evidence adduced by the plaintiff,

with respect to the ownership of parcels 1 and 2 of

the compliant. We, therefore, conclude that parcels 1
and 2 of the complaint belong to the defendant,
having acquired the same from Macondray & Co. on
June 25, 1924, and from the plaintiff Leon Sibal on
the same date.
It appears, however, that the plaintiff planted the
palay in said parcels and harvested therefrom 190
cavans. There being no evidence of bad faith on his
part, he is therefore entitled to one-half of the crop, or
95 cavans. He should therefore be condemned to pay
to the defendant for 95 cavans only, at P3.40 a cavan,
or the sum of P323, and not for the total of 190
cavans as held by the lower court.
As to the ownership of parcel 7 of the complaint, the
evidence shows that said parcel corresponds to parcel
1 of the deed of sale of Macondray & Co, to Valdez
(Exhibit B and 2), and to parcel 4 in the certificate of
sale to Valdez of real property belonging to Sibal,
executed by the sheriff as above stated (Exhibit A).
Valdez is therefore the absolute owner of said parcel,
having acquired the interest of both Macondray and
Sibal in said parcel.
With reference to the parcel of land in Pacalcal,
Tarlac, described in paragraph 3 of the second cause
of action, it appears from the testimony of the
plaintiff himself that said parcel corresponds to parcel
8 of the deed of sale of Macondray to Valdez (Exhibit
B and 2) and to parcel 10 in the deed of sale executed
by the sheriff in favor of Valdez (Exhibit A). Valdez
is therefore the absolute owner of said parcel, having
acquired the interest of both Macondray and Sibal
therein.
In this connection the following facts are worthy of
mention:
Execution in favor of Macondray & Co., May 11,
1923. Eight parcels of land were attached under said
execution. Said parcels of land were sold to
Macondray & Co. on the 30th day of July, 1923. Rice
paid P4,273.93. On September 24, 1923, Leon Sibal

paid to Macondray & Co. P2,000 on the redemption

of said parcels of land. (See Exhibits B and C ).
Attachment, April 29, 1924, in favor of Valdez.
Personal property of Sibal was attached, including
the sugar cane in question. (Exhibit A) The said
personal property so attached, sold at public auction
May 9 and 10, 1924. April 29, 1924, the real property
was attached under the execution in favor of Valdez
(Exhibit A). June 25, 1924, said real property was
sold and purchased by Valdez (Exhibit A).
June 25, 1924, Macondray & Co. sold all of the land
which they had purchased at public auction on the
30th day of July, 1923, to Valdez.
As to the loss of the defendant in sugar cane by
reason of the injunction, the evidence shows that the
sugar cane in question covered an area of 22 hectares
and 60 ares (Exhibits 8, 8-b and 8-c); that said area
would have yielded an average crop of 1039 picos
and 60 cates; that one-half of the quantity, or 519
picos and 80 cates would have corresponded to the
defendant, as owner; that during the season the sugar
was selling at P13 a pico (Exhibit 5 and 5-A).
Therefore, the defendant, as owner, would have
netted P 6,757.40 from the sugar cane in question.
The evidence also shows that the defendant could
have taken from the sugar cane 1,017,000 sugar-cane
shoots (puntas de cana) and not 1,170,000 as
computed by the lower court. During the season the
shoots were selling at P1.20 a thousand (Exhibits 6
and 7). The defendant therefore would have netted
P1,220.40 from sugar-cane shoots and not P1,435.68
as allowed by the lower court.
As to the palay harvested by the plaintiff in parcels 1
and 2 of the complaint, amounting to 190 cavans,
one-half of said quantity should belong to the
plaintiff, as stated above, and the other half to the
defendant. The court erred in awarding the whole
crop to the defendant. The plaintiff should therefore
pay the defendant for 95 cavans only, at P3.40 a
cavan, or P323 instead of P646 as allowed by the
lower court.

The evidence also shows that the defendant was

prevented by the acts of the plaintiff from cultivating
about 10 hectares of the land involved in the
litigation. He expected to have raised about 600
cavans of palay, 300 cavans of which would have
corresponded to him as owner. The lower court has
wisely reduced his share to 150 cavans only. At P4 a
cavan, the palay would have netted him P600.
In view of the foregoing, the judgment appealed from
is hereby modified. The plaintiff and his sureties
Cenon de la Cruz, Juan Sangalang and Marcos Sibal
are hereby ordered to pay to the defendant jointly and
severally the sum of P8,900.80, instead of P9,439.08
allowed by the lower court, as follows:
P6,757.40
for the sugar cane;
1,220.40for the sugar cane shoots;
323.00 for the palay harvested by plaintiff in parcels
1 and 2;
600.00 for the palay which defendant could have
raised.
8,900.80
============
In all other respects, the judgment appealed from is
hereby affirmed, with costs. So ordered.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-44237

February 28, 1989

VICTORIA ONG DE OCSIO, petitioner,

vs.
COURT OF APPEALS and the RELIGIOUS OF
THE VIRGIN MARY, represented by M.O. Leoncia
Pacquing, R.V.M., respondents.
Elpedio N. Cabasan for petitioner.
Padilla Law Office for private respondent.

NARVASA, J.:
From the adverse judgment of the Court of Appeals,
1 affirming in toto that of the Trial Court, 2 the
petitioner has come to this Court on an appeal by
certiorari to plead for reversal of (1) the factual
determination that she had sold the lot in controversy
to private respondent, and (2) the legal conclusion
that neither the 1973 nor the 1987 Constitution
disqualifies the corporation known as the Religious
of the Virgin Mary, from acquiring the land in
question and registering it in its name. In light of the
time-honored rule that findings of fact of the Court of
Appeals are generally final, and the doctrine lately
laid down by this Court on the precise legal issue
now raised by petitioner, her appeal must fail.

she was the owner, by purchase, of two (2) parcels of

land with specific boundaries comprehended in the
cadastral proceeding: Lot No. 1272, measuring 256
square meters, and Lot 1273 a road lot, measuring 21
square meters; and that as owner, she had been in
possession of both lots for fifteen (15) years, and her
predecessors-in-interest, for sixty (60) years. 4 Title
to the same parcels of land was however claimed by
the Religious of the Virgin Mary. 5 In its answer, it
averred that it had bought the lots from Victoria Ong
de Ocsio and had been in possession as owner thereof
for over four years, and its possession and that of its
predecessors was immemorial.

the testimonial and documentary evidence adduced

by the parties, that Virginia Ong de Ocsio's version of
the facts was not true-that it was another property, not
Lot No. 1272, that she had conveyed to the religious
corporation but that it was indeed Lot No. 1272 that
was subject of the sale and had indeed been
transferred to the latter. Now, findings of fact of this
sort, contained in a decision of the Court of Appeals
are by long and uniformly observed rule conclusive
on the parties and on the Supreme Court, as well; 7
subject only to a few specified exceptions, 8 none of
which obtains here, said findings may not be
reviewed on appeal.

Evidence was received on these conflicting assertions

after which the Cadastral Court rendered judgment,
declaring that the evidence satisfactorily established
that Victoria Ong de Ocsio had in truth sold Lot No.
1272 to the Religious of the Virgin Mary in virtue of
a deed of sale dated April 12, 1956 (Exhibit 1), and
Lot No. 1273 was a road right of way granted to the
City of Iligan. The judgment contained the following
dispositive portion, viz: 6

As regards the issue of law raised by her, petitioner

fares no better. Citing Manila Electric Co. v. CastroBartolome, 114 SCRA 799 (1982) and Republic v.
Villanueva, 114 SCRA 875 (1982), in relation to
Section 11, Article XIV of the 1973 Constitution, she
asserts that as the private respondent is a religious
corporation, it is disqualified to obtain judicial
confirmation of an imperfect title under Section 48(b)
of the Public Land Act which grants that right only to
natural persons. The cited rulings no longer control.
Current doctrine, first announced by the Court en
banc in Director of Lands v. I.A.C. 146 SCRA 509
(1986), is that open, continuous and exclusive
possession of alienable public land for at least thirty
(30) years in accordance with the Public Land Act
ipso jure converts the land to private property, and a
juridical person who thereafter acquires the same
may have title thereto confirmed in its name.
Virtually the same state of facts obtained in said case
that now obtain here. A private corporation had
purchased the land originally of the public domain
from parties who had, by themselves and through
their predecessors-in-interest, possessed and occupied
it since time immemorial. It had thereafter instituted
proceedings for confirmation of title under Section
48(b) of the Public Land Act. In upholding its right to
do so, the court held that the fact that the proceedings
had been instituted by said purchaser in its own name
and not in the name of the transferors was "xx simply
xx (an) accidental circumstance, productive of a
defect hardly more than procedural and in nowise
affecting the substance and merits of the right of

WHEREFORE, the court renders judgment

adjudicating Cadastral Lot 1272, Iligan Cadastre, to
the Religious of the Virgin Mary, a duly registered
domestic religious corporation, the members of
which are all Filipino citizens, with main office in the
City of Manila, but the building existing thereon is
hereby declared to be the property of claimant
Victoria Ong de Ocsio who is hereby ordered to
remove Said building out of the premises within 90
days from date hereof. The claim of Victoria Ong de
Ocsio with respect to said cadastral lot is dismiss. No
pronouncement is made as to costs.

The controversy at bar arose in connection with

cadastral proceedings initiated by the Director of
Lands, in behalf of the Republic, for the settlement
and adjudication of title to a large tract of land
measuring 261.5791 hectares, divided into 1,419 lots,
situated in the City of Iligan. 3

Let the corresponding decree issue 30 days after this

decision shall have become final.

Victoria Ong de Ocsio (herein petitioner) seasonably

presented an answer to the petition. She alleged that

Both the cadastral Court and the Court of Appeals

came to the conclusion, after analysing and weighing

As aforestated, the Court of Appeals affirmed the

cadastral court's decision in toto. So, too, will this
Court.

ownership sought to be confirmed." The ruling was

reaffirmed in two later cases, Director of Lands v.
Manila Electric Co., 153 SCRA 686 (September 11,
1987), and Republic v. C.A., 156 SCRA 344 (October
30, 1987) where the same question of law was raised.
In the latter it was expressly held that the prohibitions
in the 1973 and 1987 Constitutions against
acquisition or registration of lands by or in behalf of
private corporations do not apply to public lands
already converted to private ownership by natural
persons under the provisions of the Public Land Act.
In the present case, Virginia Ong de Ocsio and her
predecessors-in-interest having possessed Lot No.
1272 for the period and under the conditions
prescribed by law for acquisition of ownership of
disposable public land prior to the sale of the
property to the Religious of the Virgin Mary,
confirmation of title thereto in the latter's name is,
under the precedents referred to, entirely in order.
WHEREFORE, the judgment of the Court of Appeals
subject of the petition for review on certiorari is
AFFIRMED in toto. Costs against the petitioner.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 153201

"3. Upholding the counterclaims of the third party

defendants against the [petitioners. Petitioners] are
hereby required to pay [the] third party defendants
the sum of P30,000.00 as moral damages for the
clearly unfounded suit;

the LESSORS and the LESSEE have agreed and

hereby agree as follows:
"1. The TERM of this LEASE is FIVE (5) YEARS,
from and after the execution of this Contract of
Lease, renewable at the OPTION of the LESSORS;

January 26, 2005

JOSE MENCHAVEZ, JUAN MENCHAVEZ JR.,

SIMEON MENCHAVEZ, RODOLFO
MENCHAVEZ, CESAR MENCHAVEZ,
REYNALDO, MENCHAVEZ, ALMA
MENCHAVEZ, ELMA MENCHAVEZ, CHARITO
M. MAGA, FE M. POTOT, THELMA M.
REROMA, MYRNA M. YBAEZ, and SARAH M.
VILLABER, petitioners,
vs.
FLORENTINO TEVES JR., respondent.

"4. Requiring the [petitioners] to reimburse the third

party defendants the sum of P10,000.00 in the
concept of attorneys fees and appearance fees of
P300.00 per appearance;
"5. Requiring the [petitioners] to reimburse the third
party defendants the sum of P10,000.00 as exemplary
damages pro bono publico and litigation expenses
including costs, in the sum of P5,000.00."4
The assailed Resolution denied petitioners Motion
for Reconsideration.

DECISION
The Facts

"2. The LESSEE agrees to pay the LESSORS at the

residence of JUAN MENCHAVEZ SR., one of the
LESSORS herein, the sum of FORTY THOUSAND
PESOS (P40,000.00) Philippine Currency, annually x
x x;
"3. The LESSORS hereby warrant that the abovedescribed parcel of land is fit and good for the
intended use as FISHPOND;
"4. The LESSORS hereby warrant and assure to
maintain the LESSEE in the peaceful and adequate
enjoyment of the lease for the entire duration of the
contract;

PANGANIBAN, J.:
Avoid contract is deemed legally nonexistent. It
produces no legal effect. As a general rule, courts
leave parties to such a contract as they are, because
they are in pari delicto or equally at fault. Neither
party is entitled to legal protection.
The Case
Before us is a Petition for Review1 under Rule 45 of
the Rules of Court, assailing the February 28, 2001
Decision2 and the April 16, 2002 Resolution3 of the
Court of Appeals (CA) in CA-GR CV No. 51144.
The challenged Decision disposed as follows:
"WHEREFORE, the assailed decision is hereby
MODIFIED, as follows:
"1. Ordering [petitioners] to jointly and severally pay
the [respondent] the amount of P128,074.40 as actual
damages, and P50,000.00 as liquidated damages;
"2. Dismissing the third party complaint against the
third party defendants;

On February 28, 1986, a "Contract of Lease" was

executed by Jose S. Menchavez, Juan S. Menchavez
Sr., Juan S. Menchavez Jr., Rodolfo Menchavez,
Simeon Menchavez, Reynaldo Menchavez, Cesar
Menchavez, Charito M. Maga, Fe M. Potot, Thelma
R. Reroma, Myrna Ybaez, Sonia S. Menchavez,
Sarah Villaver, Alma S. Menchavez, and Elma S.
Menchavez, as lessors; and Florentino Teves Jr. as
lessee.l^vvphi1.net The pertinent portions of the
Contract are herein reproduced as follows:

"5. The LESSORS hereby further warrant that the

LESSEE can and shall enjoy the intended use of the
leased premises as FISHPOND FOR THE ENTIRE
DURATION OF THE CONTRACT;

"WHEREAS, the LESSORS are the absolute and

lawful co-owners of that area covered by FISHPOND
APPLICATION No. VI-1076 of Juan Menchavez,
Sr., filed on September 20, 1972, at Fisheries
Regional Office No. VII, Cebu City covering an area
of 10.0 hectares more or less located at Tabuelan,
Cebu;

"7. Any violation of the terms and conditions herein

provided, more particularly the warranties abovementioned, the parties of this Contract responsible
thereof shall pay liquidated damages in the amount of
not less than P50,000.00 to the offended party of this
Contract; in case the LESSORS violated therefor,
they bound themselves jointly and severally liable to
the LESSEE;"

"6. The LESSORS hereby warrant that the abovepremises is free from all liens and encumbrances, and
shall protect the LESSEE of his right of lease over
the said premises from any and all claims
whatsoever;

xxxxxxxxx
x x x x x x x x x.5
"NOW, THEREFORE, for and in consideration of the
mutual covenant and stipulations hereinafter set forth,

On June 2, 1988, Cebu RTC Sheriffs Gumersindo

Gimenez and Arturo Cabigon demolished the

fishpond dikes constructed by respondent and

delivered possession of the subject property to other
parties.6 As a result, he filed a Complaint for
damages with application for preliminary attachment
against petitioners. In his Complaint, he alleged that
the lessors had violated their Contract of Lease,
specifically the peaceful and adequate enjoyment of
the property for the entire duration of the Contract.
He claimed P157,184.40 as consequential damages
for the demolition of the fishpond dikes, P395,390.00
as unearned income, and an amount not less than
P100,000.00 for rentals paid.7

persons, associations, cooperatives or corporations,

subject to the following conditions.

Respondent further asserted that the lessors had

withheld from him the findings of the trial court in
Civil Case No. 510-T, entitled "Eufracia Colongan
and Paulino Pamplona v. Juan Menchavez Sr. and
Sevillana S. Menchavez." In that case involving the
same property, subject of the lease, the Menchavez
spouses were ordered to remove the dikes illegally
constructed and to pay damages and attorneys fees.8

3. All areas not fully developed within five years

from the date of the execution of the lease contract
shall automatically revert to the public domain for
disposition of the bureau; provided that a lessee who
failed to develop the area or any portion thereof shall
not be permitted to reapply for said area or any
portion thereof or any public land under this decree;
and/or any portion thereof or any public land under
this decree;

Petitioners filed a Third Party Complaint against

Benny and Elizabeth Allego, Albino Laput, Adrinico
Che and Charlemagne Arendain Jr., as agents of
Eufracia Colongan and Paulino Pamplona. The thirdparty defendants maintained that the Complaint filed
against them was unfounded. As agents of their
elderly parents, they could not be sued in their
personal capacity. Thus, they asserted their own
counterclaims.9
After trial on the merits, the RTC ruled thus:
"[The court must resolve the issues one by one.] As
to the question of whether the contract of lease
between Teves and the [petitioners] is valid, we must
look into the present law on the matter of fishponds.
And this is Pres. Decree No. 704 which provides in
Sec. 24:
Lease of fishponds-Public lands available for
fishpond development including those earmarked for
family-size fishponds and not yet leased prior to
November 9, 1972 shall be leased only to qualified

1. The lease shall be for a period of twenty five years

(25), renewable for another twenty five years;
2. Fifty percent of the area leased shall be developed
and be producing in commercial scale within three
years and the remaining portion shall be developed
and be producing in commercial scale within five
years; both periods begin from the execution of the
lease contract;

patent nullity. Being a patent nullity, [petitioners]

could not give any rights to Florentino Teves, Jr.
under the principle: NEMO DAT QUOD NON
HABET - meaning ONE CANNOT GIVE WHAT
HE DOES NOT HAVE, considering that this
property in litigation belongs to the State and not to
[petitioners]. Therefore, the first issue is resolved in
the negative, as the court declares the contract of
lease as invalid and void ab-initio.
"On the issue of whether [respondent] and
[petitioners] are guilty of mutual fraud, the court
rules that the [respondent] and [petitioners] are in
pari-delicto. As a consequence of this, the court must
leave them where they are found. x x x.
xxxxxxxxx
"x x x. Why? Because the defendants ought to have
known that they cannot lease what does not belong to
them for as a matter of fact, they themselves are still
applying for a lease of the same property under
litigation from the government.

4. No portion of the leased area shall be subleased.

The Constitution, (Sec. 2 & 3, Art. XII of the 1987
Constitution) states:
Sec. 2 - All lands of the public domain, waters,
minerals, coal, petroleum and other mineral oils, all
forces of potential energy, fisheries, forests, or
timber, wild life, flora and fauna and other natural
resources are owned by the state.
Sec. 3 - Lands of the public domain are classified
into agricultural, forest or timber, mineral lands and
national parks. Agricultural lands of the public
domain may be further classified by law according to
the uses to which they may be devoted. Alienable
lands of the public domain shall be limited to
agricultural lands x x x.
"As a consequence of these provisions, and the
declared public policy of the State under the Regalian
Doctrine, the lease contract between Florentino
Teves, Jr. and Juan Menchavez Sr. and his family is a

"On the other hand, Florentino Teves, being fully

aware that [petitioners were] not yet the owner[s],
had assumed the risks and under the principle of
VOLENTI NON FIT INJURIA NEQUES DOLUS He who voluntarily assumes a risk, does not suffer
damage[s] thereby. As a consequence, when Teves
leased the fishpond area from [petitioners]- who were
mere holders or possessors thereof, he took the risk
that it may turn out later that his application for lease
may not be approved.
"Unfortunately however, even granting that the lease
of [petitioners] and [their] application in 1972 were
to be approved, still [they] could not sublease the
same. In view therefore of these, the parties must be
left in the same situation in which the court finds
them, under the principle IN PARI DELICTO NON
ORITOR ACTIO, meaning[:] Where both are at fault,
no one can found a claim.
"On the third issue of whether the third party
defendants are liable for demolishing the dikes

pursuant to a writ of execution issued by the lower

court[, t]his must be resolved in the negative, that the
third party defendants are not liable.l^vvphi1.net
First, because the third party defendants are mere
agents of Eufracia Colongan and Eufenio Pamplona,
who are the ones who should be made liable if at all,
and considering that the demolition was pursuant to
an order of the court to restore the prevailing party in
that Civil Case 510-T, entitled: Eufracia Colongan v.
Menchavez.
"After the court has ruled that the contract of lease is
null and void ab-initio, there is no right of the
[respondent] to protect and therefore[,] there is no
basis for questioning the Sheriffs authority to
demolish the dikes in order to restore the prevailing
party, under the principle VIDETUR NEMO
QUISQUAM ID CAPERE QUOD EI NECESSE
EST ALII RESTITUERE - He will not be considered
as using force who exercise his rights and proceeds
by the force of law.
"WHEREFORE, in view of all foregoing [evidence]
and considerations, this court hereby renders
judgment as follows:
"1. Dismissing the x x x complaint by the
[respondent] against the [petitioners];
"2. Dismissing the third party complaint against the
third party defendants;
"3. Upholding the counterclaims of the third party
defendants against the [petitioners. The petitioners]
are hereby required to pay third party defendants the
sum of P30,000.00 as moral damages for this clearly
unfounded suit;

including costs, in the sum of P5,000.00."10

(Underscoring in the original)

petitioners are in pari delicto, and the courts must

leave them where they are found;

Respondent elevated the case to the Court of Appeals,

where it was docketed as CA-GR CV No. 51144.

"2. The Court of Appeals disregarded the evidence,

the law and jurisprudence in modifying the decision
of the trial court and ruled in effect that the Regional
Trial Court erred in dismissing the respondents
Complaint."16

Ruling of the Court of Appeals

The CA disagreed with the RTCs finding that
petitioners and respondent were in pari delicto. It
contended that while there was negligence on the part
of respondent for failing to verify the ownership of
the subject property, there was no evidence that he
had knowledge of petitioners lack of ownership.11 It
held as follows:

"5. Requiring the [petitioners] to pay to the third

party defendants the sum of P10,000.00 as exemplary
damages probono publico and litigation expenses

The Petition has merit.

Main Issue:
Were the Parties in Pari Delicto?

"x x x. Contrary to the findings of the lower court, it

was not duly proven and established that Teves had
actual knowledge of the fact that [petitioners] merely
usurped the property they leased to him. What Teves
admitted was that he did not ask for any additional
document other than those shown to him, one of
which was the fishpond application. In fact, [Teves]
consistently claimed that he did not bother to ask the
latter for their title to the property because he relied
on their representation that they are the lawful
owners of the fishpond they are holding for lease.
(TSN, July 11, 1991, pp. 8-11)"121awphi1.nt
The CA ruled that respondent could recover actual
damages in the amount of P128,074.40. Citing
Article 135613 of the Civil Code, it further awarded
liquidated damages in the amount of P50,000,
notwithstanding the nullity of the Contract.14
Hence, this Petition.15
The Issues

"4. Requiring the [petitioners] to reimburse the third

party defendants the sum of P10,000.00 in the
concept of attorneys fees and appearance fees of
P300.00 per appearance;

The Courts Ruling

Petitioners raise the following issues for our

consideration:
"1. The Court of Appeals disregarded the evidence,
the law and jurisprudence when it modified the trial
courts decision when it ruled in effect that the trial
court erred in holding that the respondent and

The Court shall discuss the two issues

simultaneously.
In Pari Delicto Rule on Void Contracts
The parties do not dispute the finding of the trial and
the appellate courts that the Contract of Lease was
void.17 Indeed, the RTC correctly held that it was the
State, not petitioners, that owned the fishpond. The
1987 Constitution specifically declares that all lands
of the public domain, waters, fisheries and other
natural resources belong to the State.18 Included here
are fishponds, which may not be alienated but only
leased.19 Possession thereof, no matter how long,
cannot ripen into ownership.20
Being merely applicants for the lease of the
fishponds, petitioners had no transferable right over
them. And even if the State were to grant their
application, the law expressly disallowed sublease of
the fishponds to respondent.21 Void are all contracts
in which the cause, object or purpose is contrary to
law, public order or public policy.22
A void contract is equivalent to nothing; it produces
no civil effect.23 It does not create, modify or
extinguish a juridical relation.24 Parties to a void
agreement cannot expect the aid of the law; the courts
leave them as they are, because they are deemed in

pari delicto or "in equal fault."25 To this rule,

however, there are exceptions that permit the return
of that which may have been given under a void
contract.26 One of the exceptions is found in Article
1412 of the Civil Code, which states:
"Art. 1412. If the act in which the unlawful or
forbidden cause consists does not constitute a
criminal offense, the following rules shall be
observed:
"(1) When the fault is on the part of both contracting
parties, neither may recover what he has given by
virtue of the contract, or demand the performance of
the others undertaking;
"(2) When only one of the contracting parties is at
fault, he cannot recover what he has given by reason
of the contract, or ask for the fulfillment of what has
been promised him. The other, who is not at fault,
may demand the return of what he has given without
any obligation to comply with his promise."
On this premise, respondent contends that he can
recover from petitioners, because he is an innocent
party to the Contract of Lease.27 Petitioners
allegedly induced him to enter into it through serious
misrepresentation.28
Finding of In Pari Delicto:
A Question of Fact
The issue of whether respondent was at fault or
whether the parties were in pari delicto is a question
of fact not normally taken up in a petition for review
on certiorari under Rule 45 of the Rules of Court.29
The present case, however, falls under two
recognized exceptions to this rule.30 This Court is
compelled to review the facts, since the CAs factual
findings are (1) contrary to those of the trial court;31
and (2) premised on an absence of evidence, a
presumption that is contradicted by the evidence on
record.32

Unquestionably, petitioners leased out a property that

did not belong to them, one that they had no authority
to sublease. The trial court correctly observed that
petitioners still had a pending lease application with
the State at the time they entered into the Contract
with respondent.33
Respondent, on the other hand, claims that petitioners
misled him into executing the Contract.34 He insists
that he relied on their assertions regarding their
ownership of the property. His own evidence,
however, rebuts his contention that he did not know
that they lacked ownership. At the very least, he had
notice of their doubtful ownership of the fishpond.
Respondent himself admitted that he was aware that
the petitioners lease application for the fishpond had
not yet been approved.35 Thus, he knowingly entered
into the Contract with the risk that the application
might be disapproved. Noteworthy is the fact that the
existence of a fishpond lease application necessarily
contradicts a claim of ownership. That respondent did
not know of petitioners lack of ownership is
therefore incredible.
The evidence of respondent himself shows that he
negotiated the lease of the fishpond with both Juan
Menchavez Sr. and Juan Menchavez Jr. in the office
of his lawyer, Atty. Jorge Esparagoza.36 His
counsels presence during the negotiations, prior to
the parties meeting of minds, further debunks his
claim of lack of knowledge. Lawyers are expected to
know that fishponds belong to the State and are
inalienable. It was reasonably expected of the counsel
herein to advise his client regarding the matter of
ownership.
Indeed, the evidence presented by respondent
demonstrates the contradictory claims of petitioners
regarding their alleged ownership of the fishpond. On
the one hand, they claimed ownership and, on the
other, they assured him that their fishpond lease
application would be approved.37 This circumstance
should have been sufficient to place him on notice. It
should have compelled him to determine their right
over the fishpond, including their right to lease it.

The Contract itself stated that the area was still

covered by a fishpond application.38 Nonetheless,
although petitioners declared in the Contract that they
co-owned the property, their erroneous declaration
should not be used against them. A cursory
examination of the Contract suggests that it was
drafted to favor the lessee. It can readily be presumed
that it was he or his counsel who prepared it -- a
matter supported by petitioners evidence.39 The
ambiguity should therefore be resolved against him,
being the one who primarily caused it.40
The CA erred in finding that petitioners had failed to
prove actual knowledge of respondent of the
ownership status of the property that had been leased
to him. On the contrary, as the party alleging the fact,
it was he who had the burden of proving through a
preponderance of evidence41 -- that they misled him
regarding the ownership of the fishpond. His
evidence fails to support this contention. Instead, it
reveals his fault in entering into a void Contract. As
both parties are equally at fault, neither may recover
against the other.42
Liquidated Damages Not Proper
The CA erred in awarding liquidated damages,
notwithstanding its finding that the Contract of Lease
was void. Even if it was assumed that respondent was
entitled to reimbursement as provided under
paragraph 1 of Article 1412 of the Civil Code, the
award of liquidated damages was contrary to
established legal principles.1a\^/phi1.net
Liquidated damages are those agreed upon by the
parties to a contract, to be paid in case of a breach
thereof.43 Liquidated damages are identical to
penalty insofar as legal results are concerned.44
Intended to ensure the performance of the principal
obligation, such damages are accessory and
subsidiary obligations.45 In the present case, it was
stipulated that the party responsible for the violation
of the terms, conditions and warranties of the
Contract would pay not less than P50,000 as
liquidated damages. Since the principal obligation

was void, there was no contract that could have been

breached by petitioners; thus, the stipulation on
liquidated damages was inexistent. The nullity of the
principal obligation carried with it the nullity of the
accessory obligation of liquidated damages.46
As explained earlier, the applicable law in the present
factual milieu is Article 1412 of the Civil Code. This
law merely allows innocent parties to recover what
they have given without any obligation to comply
with their prestation. No damages may be recovered
on the basis of a void contract; being nonexistent, the
agreement produces no juridical tie between the
parties involved. Since there is no contract, the
injured party may only recover through other sources
of obligations such as a law or a quasi-contract.47 A
party recovering through these other sources of
obligations may not claim liquidated damages, which
is an obligation arising from a contract.
WHEREFORE, the Petition is GRANTED and the
assailed Decision and Resolution SET ASIDE. The
Decision of the trial court is hereby REINSTATED.
No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 133250

July 9, 2002

FRANCISCO I. CHAVEZ, petitioner,

vs.
PUBLIC ESTATES AUTHORITY and AMARI
COASTAL BAY DEVELOPMENT
CORPORATION, respondents.
CARPIO, J.:
This is an original Petition for Mandamus with prayer
for a writ of preliminary injunction and a temporary
restraining order. The petition seeks to compel the
Public Estates Authority ("PEA" for brevity) to
disclose all facts on PEA's then on-going
renegotiations with Amari Coastal Bay and
Development Corporation ("AMARI" for brevity) to
reclaim portions of Manila Bay. The petition further
seeks to enjoin PEA from signing a new agreement
with AMARI involving such reclamation.
The Facts
On November 20, 1973, the government, through the
Commissioner of Public Highways, signed a contract
with the Construction and Development Corporation
of the Philippines ("CDCP" for brevity) to reclaim
certain foreshore and offshore areas of Manila Bay.
The contract also included the construction of Phases
I and II of the Manila-Cavite Coastal Road. CDCP
obligated itself to carry out all the works in
consideration of fifty percent of the total reclaimed
land.
On February 4, 1977, then President Ferdinand E.
Marcos issued Presidential Decree No. 1084 creating
PEA. PD No. 1084 tasked PEA "to reclaim land,
including foreshore and submerged areas," and "to
develop, improve, acquire, x x x lease and sell any
and all kinds of lands."1 On the same date, then

President Marcos issued Presidential Decree No.

1085 transferring to PEA the "lands reclaimed in the
foreshore and offshore of the Manila Bay"2 under the
Manila-Cavite Coastal Road and Reclamation Project
(MCCRRP).
On December 29, 1981, then President Marcos issued
a memorandum directing PEA to amend its contract
with CDCP, so that "[A]ll future works in MCCRRP
x x x shall be funded and owned by PEA."
Accordingly, PEA and CDCP executed a
Memorandum of Agreement dated December 29,
1981, which stated:
"(i) CDCP shall undertake all reclamation,
construction, and such other works in the MCCRRP
as may be agreed upon by the parties, to be paid
according to progress of works on a unit price/lump
sum basis for items of work to be agreed upon,
subject to price escalation, retention and other terms
and conditions provided for in Presidential Decree
No. 1594. All the financing required for such works
shall be provided by PEA.
xxx
(iii) x x x CDCP shall give up all its development
rights and hereby agrees to cede and transfer in favor
of PEA, all of the rights, title, interest and
participation of CDCP in and to all the areas of land
reclaimed by CDCP in the MCCRRP as of December
30, 1981 which have not yet been sold, transferred or
otherwise disposed of by CDCP as of said date,
which areas consist of approximately Ninety-Nine
Thousand Four Hundred Seventy Three (99,473)
square meters in the Financial Center Area covered
by land pledge No. 5 and approximately Three
Million Three Hundred Eighty Two Thousand Eight
Hundred Eighty Eight (3,382,888) square meters of
reclaimed areas at varying elevations above Mean
Low Water Level located outside the Financial Center
Area and the First Neighborhood Unit."3
On January 19, 1988, then President Corazon C.
Aquino issued Special Patent No. 3517, granting and
transferring to PEA "the parcels of land so reclaimed

under the Manila-Cavite Coastal Road and

Reclamation Project (MCCRRP) containing a total
area of one million nine hundred fifteen thousand
eight hundred ninety four (1,915,894) square meters."
Subsequently, on April 9, 1988, the Register of Deeds
of the Municipality of Paraaque issued Transfer
Certificates of Title Nos. 7309, 7311, and 7312, in the
name of PEA, covering the three reclaimed islands
known as the "Freedom Islands" located at the
southern portion of the Manila-Cavite Coastal Road,
Paraaque City. The Freedom Islands have a total
land area of One Million Five Hundred Seventy Eight
Thousand Four Hundred and Forty One (1,578,441)
square meters or 157.841 hectares.
On April 25, 1995, PEA entered into a Joint Venture
Agreement ("JVA" for brevity) with AMARI, a
private corporation, to develop the Freedom Islands.
The JVA also required the reclamation of an
additional 250 hectares of submerged areas
surrounding these islands to complete the
configuration in the Master Development Plan of the
Southern Reclamation Project-MCCRRP. PEA and
AMARI entered into the JVA through negotiation
without public bidding.4 On April 28, 1995, the
Board of Directors of PEA, in its Resolution No.
1245, confirmed the JVA.5 On June 8, 1995, then
President Fidel V. Ramos, through then Executive
Secretary Ruben Torres, approved the JVA.6
On November 29, 1996, then Senate President
Ernesto Maceda delivered a privilege speech in the
Senate and denounced the JVA as the "grandmother
of all scams." As a result, the Senate Committee on
Government Corporations and Public Enterprises,
and the Committee on Accountability of Public
Officers and Investigations, conducted a joint
investigation. The Senate Committees reported the
results of their investigation in Senate Committee
Report No. 560 dated September 16, 1997.7 Among
the conclusions of their report are: (1) the reclaimed
lands PEA seeks to transfer to AMARI under the JVA
are lands of the public domain which the government
has not classified as alienable lands and therefore
PEA cannot alienate these lands; (2) the certificates

of title covering the Freedom Islands are thus void,

and (3) the JVA itself is illegal.
On December 5, 1997, then President Fidel V. Ramos
issued Presidential Administrative Order No. 365
creating a Legal Task Force to conduct a study on the
legality of the JVA in view of Senate Committee
Report No. 560. The members of the Legal Task
Force were the Secretary of Justice,8 the Chief
Presidential Legal Counsel,9 and the Government
Corporate Counsel.10 The Legal Task Force upheld
the legality of the JVA, contrary to the conclusions
reached by the Senate Committees.11
On April 4 and 5, 1998, the Philippine Daily Inquirer
and Today published reports that there were on-going
renegotiations between PEA and AMARI under an
order issued by then President Fidel V. Ramos.
According to these reports, PEA Director Nestor
Kalaw, PEA Chairman Arsenio Yulo and retired Navy
Officer Sergio Cruz composed the negotiating panel
of PEA.
On April 13, 1998, Antonio M. Zulueta filed before
the Court a Petition for Prohibition with Application
for the Issuance of a Temporary Restraining Order
and Preliminary Injunction docketed as G.R. No.
132994 seeking to nullify the JVA. The Court
dismissed the petition "for unwarranted disregard of
judicial hierarchy, without prejudice to the refiling of
the case before the proper court."12
On April 27, 1998, petitioner Frank I. Chavez
("Petitioner" for brevity) as a taxpayer, filed the
instant Petition for Mandamus with Prayer for the
Issuance of a Writ of Preliminary Injunction and
Temporary Restraining Order. Petitioner contends the
government stands to lose billions of pesos in the sale
by PEA of the reclaimed lands to AMARI. Petitioner
prays that PEA publicly disclose the terms of any
renegotiation of the JVA, invoking Section 28, Article
II, and Section 7, Article III, of the 1987 Constitution
on the right of the people to information on matters
of public concern. Petitioner assails the sale to
AMARI of lands of the public domain as a blatant
violation of Section 3, Article XII of the 1987

Constitution prohibiting the sale of alienable lands of

the public domain to private corporations. Finally,
petitioner asserts that he seeks to enjoin the loss of
billions of pesos in properties of the State that are of
public dominion.
After several motions for extension of time,13 PEA
and AMARI filed their Comments on October 19,
1998 and June 25, 1998, respectively. Meanwhile, on
December 28, 1998, petitioner filed an Omnibus
Motion: (a) to require PEA to submit the terms of the
renegotiated PEA-AMARI contract; (b) for issuance
of a temporary restraining order; and (c) to set the
case for hearing on oral argument. Petitioner filed a
Reiterative Motion for Issuance of a TRO dated May
26, 1999, which the Court denied in a Resolution
dated June 22, 1999.

PRINCIPLE GOVERNING THE HIERARCHY OF

COURTS;
III. WHETHER THE PETITION MERITS
DISMISSAL FOR NON-EXHAUSTION OF
ADMINISTRATIVE REMEDIES;
IV. WHETHER PETITIONER HAS LOCUS
STANDI TO BRING THIS SUIT;
V. WHETHER THE CONSTITUTIONAL RIGHT
TO INFORMATION INCLUDES OFFICIAL
INFORMATION ON ON-GOING NEGOTIATIONS
BEFORE A FINAL AGREEMENT;

In a Resolution dated March 23, 1999, the Court gave

due course to the petition and required the parties to
file their respective memoranda.

VI. WHETHER THE STIPULATIONS IN THE

AMENDED JOINT VENTURE AGREEMENT FOR
THE TRANSFER TO AMARI OF CERTAIN
LANDS, RECLAIMED AND STILL TO BE
RECLAIMED, VIOLATE THE 1987
CONSTITUTION; AND

On March 30, 1999, PEA and AMARI signed the

Amended Joint Venture Agreement ("Amended JVA,"
for brevity). On May 28, 1999, the Office of the
President under the administration of then President
Joseph E. Estrada approved the Amended JVA.

VII. WHETHER THE COURT IS THE PROPER

FORUM FOR RAISING THE ISSUE OF
WHETHER THE AMENDED JOINT VENTURE
AGREEMENT IS GROSSLY
DISADVANTAGEOUS TO THE GOVERNMENT.

Due to the approval of the Amended JVA by the

Office of the President, petitioner now prays that on
"constitutional and statutory grounds the renegotiated
contract be declared null and void."14

The Court's Ruling

First issue: whether the principal reliefs prayed for in
the petition are moot and academic because of
subsequent events.

The Issues
The issues raised by petitioner, PEA15 and
AMARI16 are as follows:
I. WHETHER THE PRINCIPAL RELIEFS PRAYED
FOR IN THE PETITION ARE MOOT AND
ACADEMIC BECAUSE OF SUBSEQUENT
EVENTS;
II. WHETHER THE PETITION MERITS
DISMISSAL FOR FAILING TO OBSERVE THE

The petition prays that PEA publicly disclose the

"terms and conditions of the on-going negotiations
for a new agreement." The petition also prays that the
Court enjoin PEA from "privately entering into,
perfecting and/or executing any new agreement with
AMARI."
PEA and AMARI claim the petition is now moot and
academic because AMARI furnished petitioner on
June 21, 1999 a copy of the signed Amended JVA
containing the terms and conditions agreed upon in
the renegotiations. Thus, PEA has satisfied

petitioner's prayer for a public disclosure of the

renegotiations. Likewise, petitioner's prayer to enjoin
the signing of the Amended JVA is now moot because
PEA and AMARI have already signed the Amended
JVA on March 30, 1999. Moreover, the Office of the
President has approved the Amended JVA on May 28,
1999.

Constitution, the Court can still prevent the transfer

of title and ownership of alienable lands of the public
domain in the name of AMARI. Even in cases where
supervening events had made the cases moot, the
Court did not hesitate to resolve the legal or
constitutional issues raised to formulate controlling
principles to guide the bench, bar, and the public.17

Petitioner counters that PEA and AMARI cannot

avoid the constitutional issue by simply fast-tracking
the signing and approval of the Amended JVA before
the Court could act on the issue. Presidential approval
does not resolve the constitutional issue or remove it
from the ambit of judicial review.

Also, the instant petition is a case of first impression.

All previous decisions of the Court involving Section
3, Article XII of the 1987 Constitution, or its
counterpart provision in the 1973 Constitution,18
covered agricultural lands sold to private
corporations which acquired the lands from private
parties. The transferors of the private corporations
claimed or could claim the right to judicial
confirmation of their imperfect titles19 under Title II
of Commonwealth Act. 141 ("CA No. 141" for
brevity). In the instant case, AMARI seeks to acquire
from PEA, a public corporation, reclaimed lands and
submerged areas for non-agricultural purposes by
purchase under PD No. 1084 (charter of PEA) and
Title III of CA No. 141. Certain undertakings by
AMARI under the Amended JVA constitute the
consideration for the purchase. Neither AMARI nor
PEA can claim judicial confirmation of their titles
because the lands covered by the Amended JVA are
newly reclaimed or still to be reclaimed. Judicial
confirmation of imperfect title requires open,
continuous, exclusive and notorious occupation of
agricultural lands of the public domain for at least
thirty years since June 12, 1945 or earlier. Besides,
the deadline for filing applications for judicial
confirmation of imperfect title expired on December
31, 1987.20

We rule that the signing of the Amended JVA by PEA

and AMARI and its approval by the President cannot
operate to moot the petition and divest the Court of
its jurisdiction. PEA and AMARI have still to
implement the Amended JVA. The prayer to enjoin
the signing of the Amended JVA on constitutional
grounds necessarily includes preventing its
implementation if in the meantime PEA and AMARI
have signed one in violation of the Constitution.
Petitioner's principal basis in assailing the
renegotiation of the JVA is its violation of Section 3,
Article XII of the Constitution, which prohibits the
government from alienating lands of the public
domain to private corporations. If the Amended JVA
indeed violates the Constitution, it is the duty of the
Court to enjoin its implementation, and if already
implemented, to annul the effects of such
unconstitutional contract.
The Amended JVA is not an ordinary commercial
contract but one which seeks to transfer title and
ownership to 367.5 hectares of reclaimed lands and
submerged areas of Manila Bay to a single private
corporation. It now becomes more compelling for the
Court to resolve the issue to insure the government
itself does not violate a provision of the Constitution
intended to safeguard the national patrimony.
Supervening events, whether intended or accidental,
cannot prevent the Court from rendering a decision if
there is a grave violation of the Constitution. In the
instant case, if the Amended JVA runs counter to the

Lastly, there is a need to resolve immediately the

constitutional issue raised in this petition because of
the possible transfer at any time by PEA to AMARI
of title and ownership to portions of the reclaimed
lands. Under the Amended JVA, PEA is obligated to
transfer to AMARI the latter's seventy percent
proportionate share in the reclaimed areas as the
reclamation progresses. The Amended JVA even
allows AMARI to mortgage at any time the entire

reclaimed area to raise financing for the reclamation

project.21
Second issue: whether the petition merits dismissal
for failing to observe the principle governing the
hierarchy of courts.
PEA and AMARI claim petitioner ignored the
judicial hierarchy by seeking relief directly from the
Court. The principle of hierarchy of courts applies
generally to cases involving factual questions. As it is
not a trier of facts, the Court cannot entertain cases
involving factual issues. The instant case, however,
raises constitutional issues of transcendental
importance to the public.22 The Court can resolve
this case without determining any factual issue
related to the case. Also, the instant case is a petition
for mandamus which falls under the original
jurisdiction of the Court under Section 5, Article VIII
of the Constitution. We resolve to exercise primary
jurisdiction over the instant case.
Third issue: whether the petition merits dismissal for
non-exhaustion of administrative remedies.
PEA faults petitioner for seeking judicial intervention
in compelling PEA to disclose publicly certain
information without first asking PEA the needed
information. PEA claims petitioner's direct resort to
the Court violates the principle of exhaustion of
administrative remedies. It also violates the rule that
mandamus may issue only if there is no other plain,
speedy and adequate remedy in the ordinary course
of law.
PEA distinguishes the instant case from Taada v.
Tuvera23 where the Court granted the petition for
mandamus even if the petitioners there did not
initially demand from the Office of the President the
publication of the presidential decrees. PEA points
out that in Taada, the Executive Department had an
affirmative statutory duty under Article 2 of the Civil
Code24 and Section 1 of Commonwealth Act No.
63825 to publish the presidential decrees. There was,
therefore, no need for the petitioners in Taada to
make an initial demand from the Office of the

President. In the instant case, PEA claims it has no

affirmative statutory duty to disclose publicly
information about its renegotiation of the JVA. Thus,
PEA asserts that the Court must apply the principle of
exhaustion of administrative remedies to the instant
case in view of the failure of petitioner here to
demand initially from PEA the needed information.
The original JVA sought to dispose to AMARI public
lands held by PEA, a government corporation. Under
Section 79 of the Government Auditing Code,26 the
disposition of government lands to private parties
requires public bidding. PEA was under a positive
legal duty to disclose to the public the terms and
conditions for the sale of its lands. The law obligated
PEA to make this public disclosure even without
demand from petitioner or from anyone. PEA failed
to make this public disclosure because the original
JVA, like the Amended JVA, was the result of a
negotiated contract, not of a public bidding.
Considering that PEA had an affirmative statutory
duty to make the public disclosure, and was even in
breach of this legal duty, petitioner had the right to
seek direct judicial intervention.
Moreover, and this alone is determinative of this
issue, the principle of exhaustion of administrative
remedies does not apply when the issue involved is a
purely legal or constitutional question.27 The
principal issue in the instant case is the capacity of
AMARI to acquire lands held by PEA in view of the
constitutional ban prohibiting the alienation of lands
of the public domain to private corporations. We rule
that the principle of exhaustion of administrative
remedies does not apply in the instant case.

implementation of the Amended JVA. Thus, there is

no actual controversy requiring the exercise of the
power of judicial review.
The petitioner has standing to bring this taxpayer's
suit because the petition seeks to compel PEA to
comply with its constitutional duties. There are two
constitutional issues involved here. First is the right
of citizens to information on matters of public
concern. Second is the application of a constitutional
provision intended to insure the equitable distribution
of alienable lands of the public domain among
Filipino citizens. The thrust of the first issue is to
compel PEA to disclose publicly information on the
sale of government lands worth billions of pesos,
information which the Constitution and statutory law
mandate PEA to disclose. The thrust of the second
issue is to prevent PEA from alienating hundreds of
hectares of alienable lands of the public domain in
violation of the Constitution, compelling PEA to
comply with a constitutional duty to the nation.
Moreover, the petition raises matters of
transcendental importance to the public. In Chavez v.
PCGG,28 the Court upheld the right of a citizen to
bring a taxpayer's suit on matters of transcendental
importance to the public, thus -

Fourth issue: whether petitioner has locus standi to

bring this suit

"Besides, petitioner emphasizes, the matter of

recovering the ill-gotten wealth of the Marcoses is an
issue of 'transcendental importance to the public.' He
asserts that ordinary taxpayers have a right to initiate
and prosecute actions questioning the validity of acts
or orders of government agencies or
instrumentalities, if the issues raised are of
'paramount public interest,' and if they 'immediately
affect the social, economic and moral well being of
the people.'

PEA argues that petitioner has no standing to institute

mandamus proceedings to enforce his constitutional
right to information without a showing that PEA
refused to perform an affirmative duty imposed on
PEA by the Constitution. PEA also claims that
petitioner has not shown that he will suffer any
concrete injury because of the signing or

Moreover, the mere fact that he is a citizen satisfies

the requirement of personal interest, when the
proceeding involves the assertion of a public right,
such as in this case. He invokes several decisions of
this Court which have set aside the procedural matter
of locus standi, when the subject of the case involved
public interest.

xxx
In Taada v. Tuvera, the Court asserted that when the
issue concerns a public right and the object of
mandamus is to obtain the enforcement of a public
duty, the people are regarded as the real parties in
interest; and because it is sufficient that petitioner is a
citizen and as such is interested in the execution of
the laws, he need not show that he has any legal or
special interest in the result of the action. In the
aforesaid case, the petitioners sought to enforce their
right to be informed on matters of public concern, a
right then recognized in Section 6, Article IV of the
1973 Constitution, in connection with the rule that
laws in order to be valid and enforceable must be
published in the Official Gazette or otherwise
effectively promulgated. In ruling for the petitioners'
legal standing, the Court declared that the right they
sought to be enforced 'is a public right recognized by
no less than the fundamental law of the land.'
Legaspi v. Civil Service Commission, while
reiterating Taada, further declared that 'when a
mandamus proceeding involves the assertion of a
public right, the requirement of personal interest is
satisfied by the mere fact that petitioner is a citizen
and, therefore, part of the general 'public' which
possesses the right.'
Further, in Albano v. Reyes, we said that while
expenditure of public funds may not have been
involved under the questioned contract for the
development, management and operation of the
Manila International Container Terminal, 'public
interest [was] definitely involved considering the
important role [of the subject contract] . . . in the
economic development of the country and the
magnitude of the financial consideration involved.'
We concluded that, as a consequence, the disclosure
provision in the Constitution would constitute
sufficient authority for upholding the petitioner's
standing.
Similarly, the instant petition is anchored on the right
of the people to information and access to official

records, documents and papers a right guaranteed

under Section 7, Article III of the 1987 Constitution.
Petitioner, a former solicitor general, is a Filipino
citizen. Because of the satisfaction of the two basic
requisites laid down by decisional law to sustain
petitioner's legal standing, i.e. (1) the enforcement of
a public right (2) espoused by a Filipino citizen, we
rule that the petition at bar should be allowed."
We rule that since the instant petition, brought by a
citizen, involves the enforcement of constitutional
rights - to information and to the equitable diffusion
of natural resources - matters of transcendental public
importance, the petitioner has the requisite locus
standi.
Fifth issue: whether the constitutional right to
information includes official information on on-going
negotiations before a final agreement.
Section 7, Article III of the Constitution explains the
people's right to information on matters of public
concern in this manner:
"Sec. 7. The right of the people to information on
matters of public concern shall be recognized. Access
to official records, and to documents, and papers
pertaining to official acts, transactions, or decisions,
as well as to government research data used as basis
for policy development, shall be afforded the citizen,
subject to such limitations as may be provided by
law." (Emphasis supplied)
The State policy of full transparency in all
transactions involving public interest reinforces the
people's right to information on matters of public
concern. This State policy is expressed in Section 28,
Article II of the Constitution, thus:
"Sec. 28. Subject to reasonable conditions prescribed
by law, the State adopts and implements a policy of
full public disclosure of all its transactions involving
public interest." (Emphasis supplied)
These twin provisions of the Constitution seek to
promote transparency in policy-making and in the

operations of the government, as well as provide the

people sufficient information to exercise effectively
other constitutional rights. These twin provisions are
essential to the exercise of freedom of expression. If
the government does not disclose its official acts,
transactions and decisions to citizens, whatever
citizens say, even if expressed without any restraint,
will be speculative and amount to nothing. These
twin provisions are also essential to hold public
officials "at all times x x x accountable to the
people,"29 for unless citizens have the proper
information, they cannot hold public officials
accountable for anything. Armed with the right
information, citizens can participate in public
discussions leading to the formulation of government
policies and their effective implementation. An
informed citizenry is essential to the existence and
proper functioning of any democracy. As explained
by the Court in Valmonte v. Belmonte, Jr.30
"An essential element of these freedoms is to keep
open a continuing dialogue or process of
communication between the government and the
people. It is in the interest of the State that the
channels for free political discussion be maintained to
the end that the government may perceive and be
responsive to the people's will. Yet, this open
dialogue can be effective only to the extent that the
citizenry is informed and thus able to formulate its
will intelligently. Only when the participants in the
discussion are aware of the issues and have access to
information relating thereto can such bear fruit."
PEA asserts, citing Chavez v. PCGG,31 that in cases
of on-going negotiations the right to information is
limited to "definite propositions of the government."
PEA maintains the right does not include access to
"intra-agency or inter-agency recommendations or
communications during the stage when common
assertions are still in the process of being formulated
or are in the 'exploratory stage'."
Also, AMARI contends that petitioner cannot invoke
the right at the pre-decisional stage or before the
closing of the transaction. To support its contention,

AMARI cites the following discussion in the 1986

Constitutional Commission:
"Mr. Suarez. And when we say 'transactions' which
should be distinguished from contracts, agreements,
or treaties or whatever, does the Gentleman refer to
the steps leading to the consummation of the contract,
or does he refer to the contract itself?
Mr. Ople: The 'transactions' used here, I suppose is
generic and therefore, it can cover both steps leading
to a contract and already a consummated contract,
Mr. Presiding Officer.
Mr. Suarez: This contemplates inclusion of
negotiations leading to the consummation of the
transaction.
Mr. Ople: Yes, subject only to reasonable safeguards
on the national interest.
Mr. Suarez: Thank you."32 (Emphasis supplied)
AMARI argues there must first be a consummated
contract before petitioner can invoke the right.
Requiring government officials to reveal their
deliberations at the pre-decisional stage will degrade
the quality of decision-making in government
agencies. Government officials will hesitate to
express their real sentiments during deliberations if
there is immediate public dissemination of their
discussions, putting them under all kinds of pressure
before they decide.
We must first distinguish between information the
law on public bidding requires PEA to disclose
publicly, and information the constitutional right to
information requires PEA to release to the public.
Before the consummation of the contract, PEA must,
on its own and without demand from anyone,
disclose to the public matters relating to the
disposition of its property. These include the size,
location, technical description and nature of the
property being disposed of, the terms and conditions
of the disposition, the parties qualified to bid, the
minimum price and similar information. PEA must

prepare all these data and disclose them to the public

at the start of the disposition process, long before the
consummation of the contract, because the
Government Auditing Code requires public bidding.
If PEA fails to make this disclosure, any citizen can
demand from PEA this information at any time
during the bidding process.
Information, however, on on-going evaluation or
review of bids or proposals being undertaken by the
bidding or review committee is not immediately
accessible under the right to information. While the
evaluation or review is still on-going, there are no
"official acts, transactions, or decisions" on the bids
or proposals. However, once the committee makes its
official recommendation, there arises a "definite
proposition" on the part of the government. From this
moment, the public's right to information attaches,
and any citizen can access all the non-proprietary
information leading to such definite proposition. In
Chavez v. PCGG,33 the Court ruled as follows:
"Considering the intent of the framers of the
Constitution, we believe that it is incumbent upon the
PCGG and its officers, as well as other government
representatives, to disclose sufficient public
information on any proposed settlement they have
decided to take up with the ostensible owners and
holders of ill-gotten wealth. Such information,
though, must pertain to definite propositions of the
government, not necessarily to intra-agency or interagency recommendations or communications during
the stage when common assertions are still in the
process of being formulated or are in the
"exploratory" stage. There is need, of course, to
observe the same restrictions on disclosure of
information in general, as discussed earlier such as
on matters involving national security, diplomatic or
foreign relations, intelligence and other classified
information." (Emphasis supplied)
Contrary to AMARI's contention, the commissioners
of the 1986 Constitutional Commission understood
that the right to information "contemplates inclusion
of negotiations leading to the consummation of the
transaction." Certainly, a consummated contract is

not a requirement for the exercise of the right to

information. Otherwise, the people can never
exercise the right if no contract is consummated, and
if one is consummated, it may be too late for the
public to expose its defects.1wphi1.nt
Requiring a consummated contract will keep the
public in the dark until the contract, which may be
grossly disadvantageous to the government or even
illegal, becomes a fait accompli. This negates the
State policy of full transparency on matters of public
concern, a situation which the framers of the
Constitution could not have intended. Such a
requirement will prevent the citizenry from
participating in the public discussion of any proposed
contract, effectively truncating a basic right enshrined
in the Bill of Rights. We can allow neither an
emasculation of a constitutional right, nor a retreat by
the State of its avowed "policy of full disclosure of
all its transactions involving public interest."
The right covers three categories of information
which are "matters of public concern," namely: (1)
official records; (2) documents and papers pertaining
to official acts, transactions and decisions; and (3)
government research data used in formulating
policies. The first category refers to any document
that is part of the public records in the custody of
government agencies or officials. The second
category refers to documents and papers recording,
evidencing, establishing, confirming, supporting,
justifying or explaining official acts, transactions or
decisions of government agencies or officials. The
third category refers to research data, whether raw,
collated or processed, owned by the government and
used in formulating government policies.
The information that petitioner may access on the
renegotiation of the JVA includes evaluation reports,
recommendations, legal and expert opinions, minutes
of meetings, terms of reference and other documents
attached to such reports or minutes, all relating to the
JVA. However, the right to information does not
compel PEA to prepare lists, abstracts, summaries
and the like relating to the renegotiation of the
JVA.34 The right only affords access to records,

documents and papers, which means the opportunity

to inspect and copy them. One who exercises the
right must copy the records, documents and papers at
his expense. The exercise of the right is also subject
to reasonable regulations to protect the integrity of
the public records and to minimize disruption to
government operations, like rules specifying when
and how to conduct the inspection and copying.35
The right to information, however, does not extend to
matters recognized as privileged information under
the separation of powers.36 The right does not also
apply to information on military and diplomatic
secrets, information affecting national security, and
information on investigations of crimes by law
enforcement agencies before the prosecution of the
accused, which courts have long recognized as
confidential.37 The right may also be subject to other
limitations that Congress may impose by law.
There is no claim by PEA that the information
demanded by petitioner is privileged information
rooted in the separation of powers. The information
does not cover Presidential conversations,
correspondences, or discussions during closed-door
Cabinet meetings which, like internal deliberations of
the Supreme Court and other collegiate courts, or
executive sessions of either house of Congress,38 are
recognized as confidential. This kind of information
cannot be pried open by a co-equal branch of
government. A frank exchange of exploratory ideas
and assessments, free from the glare of publicity and
pressure by interested parties, is essential to protect
the independence of decision-making of those tasked
to exercise Presidential, Legislative and Judicial
power.39 This is not the situation in the instant case.
We rule, therefore, that the constitutional right to
information includes official information on on-going
negotiations before a final contract. The information,
however, must constitute definite propositions by the
government and should not cover recognized
exceptions like privileged information, military and
diplomatic secrets and similar matters affecting
national security and public order.40 Congress has

also prescribed other limitations on the right to

information in several legislations.41
Sixth issue: whether stipulations in the Amended JVA
for the transfer to AMARI of lands, reclaimed or to
be reclaimed, violate the Constitution.
The Regalian Doctrine
The ownership of lands reclaimed from foreshore and
submerged areas is rooted in the Regalian doctrine
which holds that the State owns all lands and waters
of the public domain. Upon the Spanish conquest of
the Philippines, ownership of all "lands, territories
and possessions" in the Philippines passed to the
Spanish Crown.42 The King, as the sovereign ruler
and representative of the people, acquired and owned
all lands and territories in the Philippines except
those he disposed of by grant or sale to private
individuals.
The 1935, 1973 and 1987 Constitutions adopted the
Regalian doctrine substituting, however, the State, in
lieu of the King, as the owner of all lands and waters
of the public domain. The Regalian doctrine is the
foundation of the time-honored principle of land
ownership that "all lands that were not acquired from
the Government, either by purchase or by grant,
belong to the public domain."43 Article 339 of the
Civil Code of 1889, which is now Article 420 of the
Civil Code of 1950, incorporated the Regalian
doctrine.
Ownership and Disposition of Reclaimed Lands
The Spanish Law of Waters of 1866 was the first
statutory law governing the ownership and
disposition of reclaimed lands in the Philippines. On
May 18, 1907, the Philippine Commission enacted
Act No. 1654 which provided for the lease, but not
the sale, of reclaimed lands of the government to
corporations and individuals. Later, on November 29,
1919, the Philippine Legislature approved Act No.
2874, the Public Land Act, which authorized the
lease, but not the sale, of reclaimed lands of the
government to corporations and individuals. On

November 7, 1936, the National Assembly passed

Commonwealth Act No. 141, also known as the
Public Land Act, which authorized the lease, but not
the sale, of reclaimed lands of the government to
corporations and individuals. CA No. 141 continues
to this day as the general law governing the
classification and disposition of lands of the public
domain.

works for the defense of the territory, and mines, until

granted to private individuals."

The Spanish Law of Waters of 1866 and the Civil

Code of 1889

Property of public dominion referred not only to

property devoted to public use, but also to property
not so used but employed to develop the national
wealth. This class of property constituted property of
public dominion although employed for some
economic or commercial activity to increase the
national wealth.

Under the Spanish Law of Waters of 1866, the shores,

bays, coves, inlets and all waters within the maritime
zone of the Spanish territory belonged to the public
domain for public use.44 The Spanish Law of Waters
of 1866 allowed the reclamation of the sea under
Article 5, which provided as follows:
"Article 5. Lands reclaimed from the sea in
consequence of works constructed by the State, or by
the provinces, pueblos or private persons, with proper
permission, shall become the property of the party
constructing such works, unless otherwise provided
by the terms of the grant of authority."
Under the Spanish Law of Waters, land reclaimed
from the sea belonged to the party undertaking the
reclamation, provided the government issued the
necessary permit and did not reserve ownership of
the reclaimed land to the State.
Article 339 of the Civil Code of 1889 defined
property of public dominion as follows:
"Art. 339. Property of public dominion is
1. That devoted to public use, such as roads, canals,
rivers, torrents, ports and bridges constructed by the
State, riverbanks, shores, roadsteads, and that of a
similar character;
2. That belonging exclusively to the State which,
without being of general public use, is employed in
some public service, or in the development of the
national wealth, such as walls, fortresses, and other

Property devoted to public use referred to property

open for use by the public. In contrast, property
devoted to public service referred to property used
for some specific public service and open only to
those authorized to use the property.

Article 341 of the Civil Code of 1889 governed the

re-classification of property of public dominion into
private property, to wit:
"Art. 341. Property of public dominion, when no
longer devoted to public use or to the defense of the
territory, shall become a part of the private property
of the State."
This provision, however, was not self-executing. The
legislature, or the executive department pursuant to
law, must declare the property no longer needed for
public use or territorial defense before the
government could lease or alienate the property to
private parties.45
Act No. 1654 of the Philippine Commission
On May 8, 1907, the Philippine Commission enacted
Act No. 1654 which regulated the lease of reclaimed
and foreshore lands. The salient provisions of this
law were as follows:
"Section 1. The control and disposition of the
foreshore as defined in existing law, and the title to
all Government or public lands made or reclaimed by
the Government by dredging or filling or otherwise
throughout the Philippine Islands, shall be retained
by the Government without prejudice to vested rights

and without prejudice to rights conceded to the City

of Manila in the Luneta Extension.
Section 2. (a) The Secretary of the Interior shall cause
all Government or public lands made or reclaimed by
the Government by dredging or filling or otherwise to
be divided into lots or blocks, with the necessary
streets and alleyways located thereon, and shall cause
plats and plans of such surveys to be prepared and
filed with the Bureau of Lands.

On November 29, 1919, the Philippine Legislature

enacted Act No. 2874, the Public Land Act.46 The
salient provisions of Act No. 2874, on reclaimed
lands, were as follows:
"Sec. 6. The Governor-General, upon the
recommendation of the Secretary of Agriculture and
Natural Resources, shall from time to time classify
the lands of the public domain into

(b) Upon completion of such plats and plans the

Governor-General shall give notice to the public that
such parts of the lands so made or reclaimed as are
not needed for public purposes will be leased for
commercial and business purposes, x x x.

(a) Alienable or disposable,

xxx

Sec. 7. For the purposes of the government and

disposition of alienable or disposable public lands,
the Governor-General, upon recommendation by the
Secretary of Agriculture and Natural Resources, shall
from time to time declare what lands are open to
disposition or concession under this Act."

(e) The leases above provided for shall be disposed of

to the highest and best bidder therefore, subject to
such regulations and safeguards as the GovernorGeneral may by executive order prescribe."
(Emphasis supplied)
Act No. 1654 mandated that the government should
retain title to all lands reclaimed by the government.
The Act also vested in the government control and
disposition of foreshore lands. Private parties could
lease lands reclaimed by the government only if these
lands were no longer needed for public purpose. Act
No. 1654 mandated public bidding in the lease of
government reclaimed lands. Act No. 1654 made
government reclaimed lands sui generis in that unlike
other public lands which the government could sell to
private parties, these reclaimed lands were available
only for lease to private parties.
Act No. 1654, however, did not repeal Section 5 of
the Spanish Law of Waters of 1866. Act No. 1654 did
not prohibit private parties from reclaiming parts of
the sea under Section 5 of the Spanish Law of Waters.
Lands reclaimed from the sea by private parties with
government permission remained private lands.

(b) Timber, and

(c) Mineral lands, x x x.

Sec. 8. Only those lands shall be declared open to

disposition or concession which have been officially
delimited or classified x x x.

(d) Lands not included in any of the foregoing

classes.
x x x.
Sec. 58. The lands comprised in classes (a), (b), and
(c) of section fifty-six shall be disposed of to private
parties by lease only and not otherwise, as soon as the
Governor-General, upon recommendation by the
Secretary of Agriculture and Natural Resources, shall
declare that the same are not necessary for the public
service and are open to disposition under this chapter.
The lands included in class (d) may be disposed of by
sale or lease under the provisions of this Act."
(Emphasis supplied)
Section 6 of Act No. 2874 authorized the GovernorGeneral to "classify lands of the public domain into x
x x alienable or disposable"47 lands. Section 7 of the
Act empowered the Governor-General to "declare
what lands are open to disposition or concession."
Section 8 of the Act limited alienable or disposable
lands only to those lands which have been "officially
delimited and classified."

xxx
Sec. 55. Any tract of land of the public domain
which, being neither timber nor mineral land, shall be
classified as suitable for residential purposes or for
commercial, industrial, or other productive purposes
other than agricultural purposes, and shall be open to
disposition or concession, shall be disposed of under
the provisions of this chapter, and not otherwise.
Sec. 56. The lands disposable under this title shall be
classified as follows:
(a) Lands reclaimed by the Government by dredging,
filling, or other means;
(b) Foreshore;

Act No. 2874 of the Philippine Legislature

(c) Marshy lands or lands covered with water

bordering upon the shores or banks of navigable
lakes or rivers;

Section 56 of Act No. 2874 stated that lands

"disposable under this title48 shall be classified" as
government reclaimed, foreshore and marshy lands,
as well as other lands. All these lands, however, must
be suitable for residential, commercial, industrial or
other productive non-agricultural purposes. These
provisions vested upon the Governor-General the
power to classify inalienable lands of the public
domain into disposable lands of the public domain.
These provisions also empowered the GovernorGeneral to classify further such disposable lands of
the public domain into government reclaimed,
foreshore or marshy lands of the public domain, as
well as other non-agricultural lands.
Section 58 of Act No. 2874 categorically mandated
that disposable lands of the public domain classified

as government reclaimed, foreshore and marshy lands

"shall be disposed of to private parties by lease only
and not otherwise." The Governor-General, before
allowing the lease of these lands to private parties,
must formally declare that the lands were "not
necessary for the public service." Act No. 2874
reiterated the State policy to lease and not to sell
government reclaimed, foreshore and marshy lands of
the public domain, a policy first enunciated in 1907
in Act No. 1654. Government reclaimed, foreshore
and marshy lands remained sui generis, as the only
alienable or disposable lands of the public domain
that the government could not sell to private parties.
The rationale behind this State policy is obvious.
Government reclaimed, foreshore and marshy public
lands for non-agricultural purposes retain their
inherent potential as areas for public service. This is
the reason the government prohibited the sale, and
only allowed the lease, of these lands to private
parties. The State always reserved these lands for
some future public service.
Act No. 2874 did not authorize the reclassification of
government reclaimed, foreshore and marshy lands
into other non-agricultural lands under Section 56
(d). Lands falling under Section 56 (d) were the only
lands for non-agricultural purposes the government
could sell to private parties. Thus, under Act No.
2874, the government could not sell government
reclaimed, foreshore and marshy lands to private
parties, unless the legislature passed a law allowing
their sale.49
Act No. 2874 did not prohibit private parties from
reclaiming parts of the sea pursuant to Section 5 of
the Spanish Law of Waters of 1866. Lands reclaimed
from the sea by private parties with government
permission remained private lands.
Dispositions under the 1935 Constitution
On May 14, 1935, the 1935 Constitution took effect
upon its ratification by the Filipino people. The 1935
Constitution, in adopting the Regalian doctrine,
declared in Section 1, Article XIII, that

"Section 1. All agricultural, timber, and mineral lands

of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of
potential energy and other natural resources of the
Philippines belong to the State, and their disposition,
exploitation, development, or utilization shall be
limited to citizens of the Philippines or to
corporations or associations at least sixty per centum
of the capital of which is owned by such citizens,
subject to any existing right, grant, lease, or
concession at the time of the inauguration of the
Government established under this Constitution.
Natural resources, with the exception of public
agricultural land, shall not be alienated, and no
license, concession, or lease for the exploitation,
development, or utilization of any of the natural
resources shall be granted for a period exceeding
twenty-five years, renewable for another twenty-five
years, except as to water rights for irrigation, water
supply, fisheries, or industrial uses other than the
development of water power, in which cases
beneficial use may be the measure and limit of the
grant." (Emphasis supplied)
The 1935 Constitution barred the alienation of all
natural resources except public agricultural lands,
which were the only natural resources the State could
alienate. Thus, foreshore lands, considered part of the
State's natural resources, became inalienable by
constitutional fiat, available only for lease for 25
years, renewable for another 25 years. The
government could alienate foreshore lands only after
these lands were reclaimed and classified as alienable
agricultural lands of the public domain. Government
reclaimed and marshy lands of the public domain,
being neither timber nor mineral lands, fell under the
classification of public agricultural lands.50
However, government reclaimed and marshy lands,
although subject to classification as disposable public
agricultural lands, could only be leased and not sold
to private parties because of Act No. 2874.
The prohibition on private parties from acquiring
ownership of government reclaimed and marshy
lands of the public domain was only a statutory

prohibition and the legislature could therefore

remove such prohibition. The 1935 Constitution did
not prohibit individuals and corporations from
acquiring government reclaimed and marshy lands of
the public domain that were classified as agricultural
lands under existing public land laws. Section 2,
Article XIII of the 1935 Constitution provided as
follows:
"Section 2. No private corporation or association may
acquire, lease, or hold public agricultural lands in
excess of one thousand and twenty four hectares, nor
may any individual acquire such lands by purchase in
excess of one hundred and forty hectares, or by lease
in excess of one thousand and twenty-four hectares,
or by homestead in excess of twenty-four hectares.
Lands adapted to grazing, not exceeding two
thousand hectares, may be leased to an individual,
private corporation, or association." (Emphasis
supplied)
Still, after the effectivity of the 1935 Constitution, the
legislature did not repeal Section 58 of Act No. 2874
to open for sale to private parties government
reclaimed and marshy lands of the public domain. On
the contrary, the legislature continued the long
established State policy of retaining for the
government title and ownership of government
reclaimed and marshy lands of the public domain.
Commonwealth Act No. 141 of the Philippine
National Assembly
On November 7, 1936, the National Assembly
approved Commonwealth Act No. 141, also known
as the Public Land Act, which compiled the then
existing laws on lands of the public domain. CA No.
141, as amended, remains to this day the existing
general law governing the classification and
disposition of lands of the public domain other than
timber and mineral lands.51
Section 6 of CA No. 141 empowers the President to
classify lands of the public domain into "alienable or
disposable"52 lands of the public domain, which
prior to such classification are inalienable and outside

the commerce of man. Section 7 of CA No. 141

authorizes the President to "declare what lands are
open to disposition or concession." Section 8 of CA
No. 141 states that the government can declare open
for disposition or concession only lands that are
"officially delimited and classified." Sections 6, 7 and
8 of CA No. 141 read as follows:
"Sec. 6. The President, upon the recommendation of
the Secretary of Agriculture and Commerce, shall
from time to time classify the lands of the public
domain into
(a) Alienable or disposable,
(b) Timber, and

disposition or concession. There must be no law

reserving these lands for public or quasi-public uses.
The salient provisions of CA No. 141, on government
reclaimed, foreshore and marshy lands of the public
domain, are as follows:
"Sec. 58. Any tract of land of the public domain
which, being neither timber nor mineral land, is
intended to be used for residential purposes or for
commercial, industrial, or other productive purposes
other than agricultural, and is open to disposition or
concession, shall be disposed of under the provisions
of this chapter and not otherwise.
Sec. 59. The lands disposable under this title shall be
classified as follows:

(c) Mineral lands,

and may at any time and in like manner transfer such
lands from one class to another,53 for the purpose of
their administration and disposition.

(a) Lands reclaimed by the Government by dredging,

filling, or other means;
(b) Foreshore;

Sec. 7. For the purposes of the administration and

disposition of alienable or disposable public lands,
the President, upon recommendation by the Secretary
of Agriculture and Commerce, shall from time to
time declare what lands are open to disposition or
concession under this Act.

(c) Marshy lands or lands covered with water

bordering upon the shores or banks of navigable
lakes or rivers;

Sec. 8. Only those lands shall be declared open to

disposition or concession which have been officially
delimited and classified and, when practicable,
surveyed, and which have not been reserved for
public or quasi-public uses, nor appropriated by the
Government, nor in any manner become private
property, nor those on which a private right
authorized and recognized by this Act or any other
valid law may be claimed, or which, having been
reserved or appropriated, have ceased to be so. x x x."

Sec. 60. Any tract of land comprised under this title

may be leased or sold, as the case may be, to any
person, corporation, or association authorized to
purchase or lease public lands for agricultural
purposes. x x x.

Thus, before the government could alienate or

dispose of lands of the public domain, the President
must first officially classify these lands as alienable
or disposable, and then declare them open to

(d) Lands not included in any of the foregoing

classes.

Sec. 61. The lands comprised in classes (a), (b), and

(c) of section fifty-nine shall be disposed of to private
parties by lease only and not otherwise, as soon as the
President, upon recommendation by the Secretary of
Agriculture, shall declare that the same are not
necessary for the public service and are open to
disposition under this chapter. The lands included in
class (d) may be disposed of by sale or lease under
the provisions of this Act." (Emphasis supplied)

Section 61 of CA No. 141 readopted, after the

effectivity of the 1935 Constitution, Section 58 of Act
No. 2874 prohibiting the sale of government
reclaimed, foreshore and marshy disposable lands of
the public domain. All these lands are intended for
residential, commercial, industrial or other nonagricultural purposes. As before, Section 61 allowed
only the lease of such lands to private parties. The
government could sell to private parties only lands
falling under Section 59 (d) of CA No. 141, or those
lands for non-agricultural purposes not classified as
government reclaimed, foreshore and marshy
disposable lands of the public domain. Foreshore
lands, however, became inalienable under the 1935
Constitution which only allowed the lease of these
lands to qualified private parties.
Section 58 of CA No. 141 expressly states that
disposable lands of the public domain intended for
residential, commercial, industrial or other productive
purposes other than agricultural "shall be disposed of
under the provisions of this chapter and not
otherwise." Under Section 10 of CA No. 141, the
term "disposition" includes lease of the land. Any
disposition of government reclaimed, foreshore and
marshy disposable lands for non-agricultural
purposes must comply with Chapter IX, Title III of
CA No. 141,54 unless a subsequent law amended or
repealed these provisions.
In his concurring opinion in the landmark case of
Republic Real Estate Corporation v. Court of
Appeals,55 Justice Reynato S. Puno summarized
succinctly the law on this matter, as follows:
"Foreshore lands are lands of public dominion
intended for public use. So too are lands reclaimed by
the government by dredging, filling, or other means.
Act 1654 mandated that the control and disposition of
the foreshore and lands under water remained in the
national government. Said law allowed only the
'leasing' of reclaimed land. The Public Land Acts of
1919 and 1936 also declared that the foreshore and
lands reclaimed by the government were to be
"disposed of to private parties by lease only and not
otherwise." Before leasing, however, the Governor-

General, upon recommendation of the Secretary of

Agriculture and Natural Resources, had first to
determine that the land reclaimed was not necessary
for the public service. This requisite must have been
met before the land could be disposed of. But even
then, the foreshore and lands under water were not to
be alienated and sold to private parties. The
disposition of the reclaimed land was only by lease.
The land remained property of the State." (Emphasis
supplied)
As observed by Justice Puno in his concurring
opinion, "Commonwealth Act No. 141 has remained
in effect at present."
The State policy prohibiting the sale to private parties
of government reclaimed, foreshore and marshy
alienable lands of the public domain, first
implemented in 1907 was thus reaffirmed in CA No.
141 after the 1935 Constitution took effect. The
prohibition on the sale of foreshore lands, however,
became a constitutional edict under the 1935
Constitution. Foreshore lands became inalienable as
natural resources of the State, unless reclaimed by the
government and classified as agricultural lands of the
public domain, in which case they would fall under
the classification of government reclaimed lands.
After the effectivity of the 1935 Constitution,
government reclaimed and marshy disposable lands
of the public domain continued to be only leased and
not sold to private parties.56 These lands remained
sui generis, as the only alienable or disposable lands
of the public domain the government could not sell to
private parties.
Since then and until now, the only way the
government can sell to private parties government
reclaimed and marshy disposable lands of the public
domain is for the legislature to pass a law authorizing
such sale. CA No. 141 does not authorize the
President to reclassify government reclaimed and
marshy lands into other non-agricultural lands under
Section 59 (d). Lands classified under Section 59 (d)
are the only alienable or disposable lands for non-

agricultural purposes that the government could sell

to private parties.

parties. Section 60 of CA No. 141 constitutes by

operation of law a lien on these lands.57

Moreover, Section 60 of CA No. 141 expressly

requires congressional authority before lands under
Section 59 that the government previously transferred
to government units or entities could be sold to
private parties. Section 60 of CA No. 141 declares
that

In case of sale or lease of disposable lands of the

public domain falling under Section 59 of CA No.
141, Sections 63 and 67 require a public bidding.
Sections 63 and 67 of CA No. 141 provide as
follows:

"Sec. 60. x x x The area so leased or sold shall be

such as shall, in the judgment of the Secretary of
Agriculture and Natural Resources, be reasonably
necessary for the purposes for which such sale or
lease is requested, and shall not exceed one hundred
and forty-four hectares: Provided, however, That this
limitation shall not apply to grants, donations, or
transfers made to a province, municipality or branch
or subdivision of the Government for the purposes
deemed by said entities conducive to the public
interest; but the land so granted, donated, or
transferred to a province, municipality or branch or
subdivision of the Government shall not be alienated,
encumbered, or otherwise disposed of in a manner
affecting its title, except when authorized by
Congress: x x x." (Emphasis supplied)
The congressional authority required in Section 60 of
CA No. 141 mirrors the legislative authority required
in Section 56 of Act No. 2874.
One reason for the congressional authority is that
Section 60 of CA No. 141 exempted government
units and entities from the maximum area of public
lands that could be acquired from the State. These
government units and entities should not just turn
around and sell these lands to private parties in
violation of constitutional or statutory limitations.
Otherwise, the transfer of lands for non-agricultural
purposes to government units and entities could be
used to circumvent constitutional limitations on
ownership of alienable or disposable lands of the
public domain. In the same manner, such transfers
could also be used to evade the statutory prohibition
in CA No. 141 on the sale of government reclaimed
and marshy lands of the public domain to private

"Sec. 63. Whenever it is decided that lands covered

by this chapter are not needed for public purposes,
the Director of Lands shall ask the Secretary of
Agriculture and Commerce (now the Secretary of
Natural Resources) for authority to dispose of the
same. Upon receipt of such authority, the Director of
Lands shall give notice by public advertisement in
the same manner as in the case of leases or sales of
agricultural public land, x x x.
Sec. 67. The lease or sale shall be made by oral
bidding; and adjudication shall be made to the
highest bidder. x x x." (Emphasis supplied)
Thus, CA No. 141 mandates the Government to put
to public auction all leases or sales of alienable or
disposable lands of the public domain.58
Like Act No. 1654 and Act No. 2874 before it, CA
No. 141 did not repeal Section 5 of the Spanish Law
of Waters of 1866. Private parties could still reclaim
portions of the sea with government permission.
However, the reclaimed land could become private
land only if classified as alienable agricultural land of
the public domain open to disposition under CA No.
141. The 1935 Constitution prohibited the alienation
of all natural resources except public agricultural
lands.
The Civil Code of 1950
The Civil Code of 1950 readopted substantially the
definition of property of public dominion found in
the Civil Code of 1889. Articles 420 and 422 of the
Civil Code of 1950 state that

"Art. 420. The following things are property of public

dominion:
(1) Those intended for public use, such as roads,
canals, rivers, torrents, ports and bridges constructed
by the State, banks, shores, roadsteads, and others of
similar character;
(2) Those which belong to the State, without being
for public use, and are intended for some public
service or for the development of the national wealth.
x x x.
Art. 422. Property of public dominion, when no
longer intended for public use or for public service,
shall form part of the patrimonial property of the
State."
Again, the government must formally declare that the
property of public dominion is no longer needed for
public use or public service, before the same could be
classified as patrimonial property of the State.59 In
the case of government reclaimed and marshy lands
of the public domain, the declaration of their being
disposable, as well as the manner of their disposition,
is governed by the applicable provisions of CA No.
141.
Like the Civil Code of 1889, the Civil Code of 1950
included as property of public dominion those
properties of the State which, without being for
public use, are intended for public service or the
"development of the national wealth." Thus,
government reclaimed and marshy lands of the State,
even if not employed for public use or public service,
if developed to enhance the national wealth, are
classified as property of public dominion.
Dispositions under the 1973 Constitution
The 1973 Constitution, which took effect on January
17, 1973, likewise adopted the Regalian doctrine.
Section 8, Article XIV of the 1973 Constitution stated
that

"Sec. 8. All lands of the public domain, waters,

minerals, coal, petroleum and other mineral oils, all
forces of potential energy, fisheries, wildlife, and
other natural resources of the Philippines belong to
the State. With the exception of agricultural,
industrial or commercial, residential, and resettlement
lands of the public domain, natural resources shall
not be alienated, and no license, concession, or lease
for the exploration, development, exploitation, or
utilization of any of the natural resources shall be
granted for a period exceeding twenty-five years,
renewable for not more than twenty-five years,
except as to water rights for irrigation, water supply,
fisheries, or industrial uses other than the
development of water power, in which cases,
beneficial use may be the measure and the limit of
the grant." (Emphasis supplied)
The 1973 Constitution prohibited the alienation of all
natural resources with the exception of "agricultural,
industrial or commercial, residential, and resettlement
lands of the public domain." In contrast, the 1935
Constitution barred the alienation of all natural
resources except "public agricultural lands."
However, the term "public agricultural lands" in the
1935 Constitution encompassed industrial,
commercial, residential and resettlement lands of the
public domain.60 If the land of public domain were
neither timber nor mineral land, it would fall under
the classification of agricultural land of the public
domain. Both the 1935 and 1973 Constitutions,
therefore, prohibited the alienation of all natural
resources except agricultural lands of the public
domain.
The 1973 Constitution, however, limited the
alienation of lands of the public domain to
individuals who were citizens of the Philippines.
Private corporations, even if wholly owned by
Philippine citizens, were no longer allowed to acquire
alienable lands of the public domain unlike in the
1935 Constitution. Section 11, Article XIV of the
1973 Constitution declared that
"Sec. 11. The Batasang Pambansa, taking into
account conservation, ecological, and development

requirements of the natural resources, shall determine

by law the size of land of the public domain which
may be developed, held or acquired by, or leased to,
any qualified individual, corporation, or association,
and the conditions therefor. No private corporation or
association may hold alienable lands of the public
domain except by lease not to exceed one thousand
hectares in area nor may any citizen hold such lands
by lease in excess of five hundred hectares or acquire
by purchase, homestead or grant, in excess of twentyfour hectares. No private corporation or association
may hold by lease, concession, license or permit,
timber or forest lands and other timber or forest
resources in excess of one hundred thousand
hectares. However, such area may be increased by the
Batasang Pambansa upon recommendation of the
National Economic and Development Authority."
(Emphasis supplied)
Thus, under the 1973 Constitution, private
corporations could hold alienable lands of the public
domain only through lease. Only individuals could
now acquire alienable lands of the public domain,
and private corporations became absolutely barred
from acquiring any kind of alienable land of the
public domain. The constitutional ban extended to all
kinds of alienable lands of the public domain, while
the statutory ban under CA No. 141 applied only to
government reclaimed, foreshore and marshy
alienable lands of the public domain.
PD No. 1084 Creating the Public Estates Authority
On February 4, 1977, then President Ferdinand
Marcos issued Presidential Decree No. 1084 creating
PEA, a wholly government owned and controlled
corporation with a special charter. Sections 4 and 8 of
PD No. 1084, vests PEA with the following purposes
and powers:
"Sec. 4. Purpose. The Authority is hereby created for
the following purposes:
(a) To reclaim land, including foreshore and
submerged areas, by dredging, filling or other means,
or to acquire reclaimed land;

(b) To develop, improve, acquire, administer, deal in,

subdivide, dispose, lease and sell any and all kinds of
lands, buildings, estates and other forms of real
property, owned, managed, controlled and/or
operated by the government;
(c) To provide for, operate or administer such service
as may be necessary for the efficient, economical and
beneficial utilization of the above properties.
Sec. 5. Powers and functions of the Authority. The
Authority shall, in carrying out the purposes for
which it is created, have the following powers and
functions:
(a)To prescribe its by-laws.

The ban in the 1973 Constitution on private

corporations from acquiring alienable lands of the
public domain did not apply to PEA since it was then,
and until today, a fully owned government
corporation. The constitutional ban applied then, as it
still applies now, only to "private corporations and
associations." PD No. 1084 expressly empowers PEA
"to hold lands of the public domain" even "in excess
of the area permitted to private corporations by
statute." Thus, PEA can hold title to private lands, as
well as title to lands of the public domain.
In order for PEA to sell its reclaimed foreshore and
submerged alienable lands of the public domain,
there must be legislative authority empowering PEA
to sell these lands. This legislative authority is
necessary in view of Section 60 of CA No.141, which
states

xxx
(i) To hold lands of the public domain in excess of
the area permitted to private corporations by statute.
(j) To reclaim lands and to construct work across, or
otherwise, any stream, watercourse, canal, ditch,
flume x x x.
xxx
(o) To perform such acts and exercise such functions
as may be necessary for the attainment of the
purposes and objectives herein specified." (Emphasis
supplied)
PD No. 1084 authorizes PEA to reclaim both
foreshore and submerged areas of the public domain.
Foreshore areas are those covered and uncovered by
the ebb and flow of the tide.61 Submerged areas are
those permanently under water regardless of the ebb
and flow of the tide.62 Foreshore and submerged
areas indisputably belong to the public domain63 and
are inalienable unless reclaimed, classified as
alienable lands open to disposition, and further
declared no longer needed for public service.

"Sec. 60. x x x; but the land so granted, donated or

transferred to a province, municipality, or branch or
subdivision of the Government shall not be alienated,
encumbered or otherwise disposed of in a manner
affecting its title, except when authorized by
Congress; x x x." (Emphasis supplied)
Without such legislative authority, PEA could not sell
but only lease its reclaimed foreshore and submerged
alienable lands of the public domain. Nevertheless,
any legislative authority granted to PEA to sell its
reclaimed alienable lands of the public domain would
be subject to the constitutional ban on private
corporations from acquiring alienable lands of the
public domain. Hence, such legislative authority
could only benefit private individuals.
Dispositions under the 1987 Constitution
The 1987 Constitution, like the 1935 and 1973
Constitutions before it, has adopted the Regalian
doctrine. The 1987 Constitution declares that all
natural resources are "owned by the State," and
except for alienable agricultural lands of the public
domain, natural resources cannot be alienated.
Sections 2 and 3, Article XII of the 1987 Constitution
state that

"Section 2. All lands of the public domain, waters,

minerals, coal, petroleum and other mineral oils, all
forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources
are owned by the State. With the exception of
agricultural lands, all other natural resources shall not
be alienated. The exploration, development, and
utilization of natural resources shall be under the full
control and supervision of the State. x x x.
Section 3. Lands of the public domain are classified
into agricultural, forest or timber, mineral lands, and
national parks. Agricultural lands of the public
domain may be further classified by law according to
the uses which they may be devoted. Alienable lands
of the public domain shall be limited to agricultural
lands. Private corporations or associations may not
hold such alienable lands of the public domain except
by lease, for a period not exceeding twenty-five
years, renewable for not more than twenty-five years,
and not to exceed one thousand hectares in area.
Citizens of the Philippines may lease not more than
five hundred hectares, or acquire not more than
twelve hectares thereof by purchase, homestead, or
grant.
Taking into account the requirements of conservation,
ecology, and development, and subject to the
requirements of agrarian reform, the Congress shall
determine, by law, the size of lands of the public
domain which may be acquired, developed, held, or
leased and the conditions therefor." (Emphasis
supplied)
The 1987 Constitution continues the State policy in
the 1973 Constitution banning private corporations
from acquiring any kind of alienable land of the
public domain. Like the 1973 Constitution, the 1987
Constitution allows private corporations to hold
alienable lands of the public domain only through
lease. As in the 1935 and 1973 Constitutions, the
general law governing the lease to private
corporations of reclaimed, foreshore and marshy
alienable lands of the public domain is still CA No.
141.

The Rationale behind the Constitutional Ban

The rationale behind the constitutional ban on
corporations from acquiring, except through lease,
alienable lands of the public domain is not well
understood. During the deliberations of the 1986
Constitutional Commission, the commissioners
probed the rationale behind this ban, thus:
"FR. BERNAS: Mr. Vice-President, my questions
have reference to page 3, line 5 which says:
`No private corporation or association may hold
alienable lands of the public domain except by lease,
not to exceed one thousand hectares in area.'
If we recall, this provision did not exist under the
1935 Constitution, but this was introduced in the
1973 Constitution. In effect, it prohibits private
corporations from acquiring alienable public lands.
But it has not been very clear in jurisprudence what
the reason for this is. In some of the cases decided in
1982 and 1983, it was indicated that the purpose of
this is to prevent large landholdings. Is that the intent
of this provision?

landholdings by corporations or private persons had

spawned social unrest."
However, if the constitutional intent is to prevent
huge landholdings, the Constitution could have
simply limited the size of alienable lands of the
public domain that corporations could acquire. The
Constitution could have followed the limitations on
individuals, who could acquire not more than 24
hectares of alienable lands of the public domain
under the 1973 Constitution, and not more than 12
hectares under the 1987 Constitution.
If the constitutional intent is to encourage economic
family-size farms, placing the land in the name of a
corporation would be more effective in preventing
the break-up of farmlands. If the farmland is
registered in the name of a corporation, upon the
death of the owner, his heirs would inherit shares in
the corporation instead of subdivided parcels of the
farmland. This would prevent the continuing breakup of farmlands into smaller and smaller plots from
one generation to the next.

In Ayog v. Cusi,64 the Court explained the rationale

behind this constitutional ban in this way:

In actual practice, the constitutional ban strengthens

the constitutional limitation on individuals from
acquiring more than the allowed area of alienable
lands of the public domain. Without the constitutional
ban, individuals who already acquired the maximum
area of alienable lands of the public domain could
easily set up corporations to acquire more alienable
public lands. An individual could own as many
corporations as his means would allow him. An
individual could even hide his ownership of a
corporation by putting his nominees as stockholders
of the corporation. The corporation is a convenient
vehicle to circumvent the constitutional limitation on
acquisition by individuals of alienable lands of the
public domain.

"Indeed, one purpose of the constitutional prohibition

against purchases of public agricultural lands by
private corporations is to equitably diffuse land
ownership or to encourage 'owner-cultivatorship and
the economic family-size farm' and to prevent a
recurrence of cases like the instant case. Huge

The constitutional intent, under the 1973 and 1987

Constitutions, is to transfer ownership of only a
limited area of alienable land of the public domain to
a qualified individual. This constitutional intent is
safeguarded by the provision prohibiting corporations
from acquiring alienable lands of the public domain,

MR. VILLEGAS: I think that is the spirit of the

provision.
FR. BERNAS: In existing decisions involving the
Iglesia ni Cristo, there were instances where the
Iglesia ni Cristo was not allowed to acquire a mere
313-square meter land where a chapel stood because
the Supreme Court said it would be in violation of
this." (Emphasis supplied)

since the vehicle to circumvent the constitutional

intent is removed. The available alienable public
lands are gradually decreasing in the face of an evergrowing population. The most effective way to insure
faithful adherence to this constitutional intent is to
grant or sell alienable lands of the public domain only
to individuals. This, it would seem, is the practical
benefit arising from the constitutional ban.
The Amended Joint Venture Agreement
The subject matter of the Amended JVA, as stated in
its second Whereas clause, consists of three
properties, namely:
1. "[T]hree partially reclaimed and substantially
eroded islands along Emilio Aguinaldo Boulevard in
Paranaque and Las Pinas, Metro Manila, with a
combined titled area of 1,578,441 square meters;"
2. "[A]nother area of 2,421,559 square meters
contiguous to the three islands;" and
3. "[A]t AMARI's option as approved by PEA, an
additional 350 hectares more or less to regularize the
configuration of the reclaimed area."65
PEA confirms that the Amended JVA involves "the
development of the Freedom Islands and further
reclamation of about 250 hectares x x x," plus an
option "granted to AMARI to subsequently reclaim
another 350 hectares x x x."66
In short, the Amended JVA covers a reclamation area
of 750 hectares. Only 157.84 hectares of the 750hectare reclamation project have been reclaimed, and
the rest of the 592.15 hectares are still submerged
areas forming part of Manila Bay.
Under the Amended JVA, AMARI will reimburse
PEA the sum of P1,894,129,200.00 for PEA's "actual
cost" in partially reclaiming the Freedom Islands.
AMARI will also complete, at its own expense, the
reclamation of the Freedom Islands. AMARI will
further shoulder all the reclamation costs of all the
other areas, totaling 592.15 hectares, still to be

reclaimed. AMARI and PEA will share, in the

proportion of 70 percent and 30 percent, respectively,
the total net usable area which is defined in the
Amended JVA as the total reclaimed area less 30
percent earmarked for common areas. Title to
AMARI's share in the net usable area, totaling 367.5
hectares, will be issued in the name of AMARI.
Section 5.2 (c) of the Amended JVA provides that

The Threshold Issue

"x x x, PEA shall have the duty to execute without

delay the necessary deed of transfer or conveyance of
the title pertaining to AMARI's Land share based on
the Land Allocation Plan. PEA, when requested in
writing by AMARI, shall then cause the issuance and
delivery of the proper certificates of title covering
AMARI's Land Share in the name of AMARI, x x x;
provided, that if more than seventy percent (70%) of
the titled area at any given time pertains to AMARI,
PEA shall deliver to AMARI only seventy percent
(70%) of the titles pertaining to AMARI, until such
time when a corresponding proportionate area of
additional land pertaining to PEA has been titled."
(Emphasis supplied)

"Section 2. All lands of the public domain, waters,

minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources
are owned by the State. With the exception of
agricultural lands, all other natural resources shall not
be alienated. x x x.

Reclaimed lands are lands of the public domain.

However, by statutory authority, the rights of
ownership and disposition over reclaimed lands have
been transferred to PEA, by virtue of which PEA, as
owner, may validly convey the same to any qualified
person without violating the Constitution or any
statute.

xxx

The constitutional provision prohibiting private

corporations from holding public land, except by
lease (Sec. 3, Art. XVII,70 1987 Constitution), does
not apply to reclaimed lands whose ownership has
passed on to PEA by statutory grant."

Indisputably, under the Amended JVA AMARI will

acquire and own a maximum of 367.5 hectares of
reclaimed land which will be titled in its name.
To implement the Amended JVA, PEA delegated to
the unincorporated PEA-AMARI joint venture PEA's
statutory authority, rights and privileges to reclaim
foreshore and submerged areas in Manila Bay.
Section 3.2.a of the Amended JVA states that
"PEA hereby contributes to the joint venture its rights
and privileges to perform Rawland Reclamation and
Horizontal Development as well as own the
Reclamation Area, thereby granting the Joint Venture
the full and exclusive right, authority and privilege to
undertake the Project in accordance with the Master
Development Plan."
The Amended JVA is the product of a renegotiation
of the original JVA dated April 25, 1995 and its
supplemental agreement dated August 9, 1995.

The threshold issue is whether AMARI, a private

corporation, can acquire and own under the Amended
JVA 367.5 hectares of reclaimed foreshore and
submerged areas in Manila Bay in view of Sections 2
and 3, Article XII of the 1987 Constitution which
state that:

Section 3. x x x Alienable lands of the public domain

shall be limited to agricultural lands. Private
corporations or associations may not hold such
alienable lands of the public domain except by lease,
x x x."(Emphasis supplied)
Classification of Reclaimed Foreshore and
Submerged Areas
PEA readily concedes that lands reclaimed from
foreshore or submerged areas of Manila Bay are
alienable or disposable lands of the public domain. In
its Memorandum,67 PEA admits that
"Under the Public Land Act (CA 141, as amended),
reclaimed lands are classified as alienable and
disposable lands of the public domain:
'Sec. 59. The lands disposable under this title shall be
classified as follows:
(a) Lands reclaimed by the government by dredging,
filling, or other means;
x x x.'" (Emphasis supplied)

Likewise, the Legal Task Force68 constituted under

Presidential Administrative Order No. 365 admitted
in its Report and Recommendation to then President
Fidel V. Ramos, "[R]eclaimed lands are classified as
alienable and disposable lands of the public
domain."69 The Legal Task Force concluded that
"D. Conclusion

Under Section 2, Article XII of the 1987

Constitution, the foreshore and submerged areas of
Manila Bay are part of the "lands of the public
domain, waters x x x and other natural resources" and
consequently "owned by the State." As such,
foreshore and submerged areas "shall not be
alienated," unless they are classified as "agricultural
lands" of the public domain. The mere reclamation of
these areas by PEA does not convert these inalienable
natural resources of the State into alienable or
disposable lands of the public domain. There must be
a law or presidential proclamation officially
classifying these reclaimed lands as alienable or
disposable and open to disposition or concession.
Moreover, these reclaimed lands cannot be classified
as alienable or disposable if the law has reserved
them for some public or quasi-public use.71
Section 8 of CA No. 141 provides that "only those
lands shall be declared open to disposition or
concession which have been officially delimited and
classified."72 The President has the authority to
classify inalienable lands of the public domain into

alienable or disposable lands of the public domain,

pursuant to Section 6 of CA No. 141. In Laurel vs.
Garcia,73 the Executive Department attempted to sell
the Roppongi property in Tokyo, Japan, which was
acquired by the Philippine Government for use as the
Chancery of the Philippine Embassy. Although the
Chancery had transferred to another location thirteen
years earlier, the Court still ruled that, under Article
42274 of the Civil Code, a property of public
dominion retains such character until formally
declared otherwise. The Court ruled that
"The fact that the Roppongi site has not been used for
a long time for actual Embassy service does not
automatically convert it to patrimonial property. Any
such conversion happens only if the property is
withdrawn from public use (Cebu Oxygen and
Acetylene Co. v. Bercilles, 66 SCRA 481 [1975]. A
property continues to be part of the public domain,
not available for private appropriation or ownership
'until there is a formal declaration on the part of the
government to withdraw it from being such' (Ignacio
v. Director of Lands, 108 Phil. 335 [1960]."
(Emphasis supplied)
PD No. 1085, issued on February 4, 1977, authorized
the issuance of special land patents for lands
reclaimed by PEA from the foreshore or submerged
areas of Manila Bay. On January 19, 1988 then
President Corazon C. Aquino issued Special Patent
No. 3517 in the name of PEA for the 157.84 hectares
comprising the partially reclaimed Freedom Islands.
Subsequently, on April 9, 1999 the Register of Deeds
of the Municipality of Paranaque issued TCT Nos.
7309, 7311 and 7312 in the name of PEA pursuant to
Section 103 of PD No. 1529 authorizing the issuance
of certificates of title corresponding to land patents.
To this day, these certificates of title are still in the
name of PEA.
PD No. 1085, coupled with President Aquino's actual
issuance of a special patent covering the Freedom
Islands, is equivalent to an official proclamation
classifying the Freedom Islands as alienable or
disposable lands of the public domain. PD No. 1085
and President Aquino's issuance of a land patent also

constitute a declaration that the Freedom Islands are

no longer needed for public service. The Freedom
Islands are thus alienable or disposable lands of the
public domain, open to disposition or concession to
qualified parties.
At the time then President Aquino issued Special
Patent No. 3517, PEA had already reclaimed the
Freedom Islands although subsequently there were
partial erosions on some areas. The government had
also completed the necessary surveys on these
islands. Thus, the Freedom Islands were no longer
part of Manila Bay but part of the land mass. Section
3, Article XII of the 1987 Constitution classifies
lands of the public domain into "agricultural, forest or
timber, mineral lands, and national parks." Being
neither timber, mineral, nor national park lands, the
reclaimed Freedom Islands necessarily fall under the
classification of agricultural lands of the public
domain. Under the 1987 Constitution, agricultural
lands of the public domain are the only natural
resources that the State may alienate to qualified
private parties. All other natural resources, such as
the seas or bays, are "waters x x x owned by the
State" forming part of the public domain, and are
inalienable pursuant to Section 2, Article XII of the
1987 Constitution.

by the terms of the grant of authority." (Emphasis

supplied)
Under Article 5 of the Spanish Law of Waters of
1866, private parties could reclaim from the sea only
with "proper permission" from the State. Private
parties could own the reclaimed land only if not
"otherwise provided by the terms of the grant of
authority." This clearly meant that no one could
reclaim from the sea without permission from the
State because the sea is property of public dominion.
It also meant that the State could grant or withhold
ownership of the reclaimed land because any
reclaimed land, like the sea from which it emerged,
belonged to the State. Thus, a private person
reclaiming from the sea without permission from the
State could not acquire ownership of the reclaimed
land which would remain property of public
dominion like the sea it replaced.76 Article 5 of the
Spanish Law of Waters of 1866 adopted the timehonored principle of land ownership that "all lands
that were not acquired from the government, either
by purchase or by grant, belong to the public
domain."77

AMARI claims that the Freedom Islands are private

lands because CDCP, then a private corporation,
reclaimed the islands under a contract dated
November 20, 1973 with the Commissioner of Public
Highways. AMARI, citing Article 5 of the Spanish
Law of Waters of 1866, argues that "if the ownership
of reclaimed lands may be given to the party
constructing the works, then it cannot be said that
reclaimed lands are lands of the public domain which
the State may not alienate."75 Article 5 of the
Spanish Law of Waters reads as follows:

Article 5 of the Spanish Law of Waters must be read

together with laws subsequently enacted on the
disposition of public lands. In particular, CA No. 141
requires that lands of the public domain must first be
classified as alienable or disposable before the
government can alienate them. These lands must not
be reserved for public or quasi-public purposes.78
Moreover, the contract between CDCP and the
government was executed after the effectivity of the
1973 Constitution which barred private corporations
from acquiring any kind of alienable land of the
public domain. This contract could not have
converted the Freedom Islands into private lands of a
private corporation.

"Article 5. Lands reclaimed from the sea in

consequence of works constructed by the State, or by
the provinces, pueblos or private persons, with proper
permission, shall become the property of the party
constructing such works, unless otherwise provided

Presidential Decree No. 3-A, issued on January 11,

1973, revoked all laws authorizing the reclamation of
areas under water and revested solely in the National
Government the power to reclaim lands. Section 1 of
PD No. 3-A declared that

"The provisions of any law to the contrary

notwithstanding, the reclamation of areas under
water, whether foreshore or inland, shall be limited to
the National Government or any person authorized by
it under a proper contract. (Emphasis supplied)
x x x."
PD No. 3-A repealed Section 5 of the Spanish Law of
Waters of 1866 because reclamation of areas under
water could now be undertaken only by the National
Government or by a person contracted by the
National Government. Private parties may reclaim
from the sea only under a contract with the National
Government, and no longer by grant or permission as
provided in Section 5 of the Spanish Law of Waters
of 1866.
Executive Order No. 525, issued on February 14,
1979, designated PEA as the National Government's
implementing arm to undertake "all reclamation
projects of the government," which "shall be
undertaken by the PEA or through a proper contract
executed by it with any person or entity." Under such
contract, a private party receives compensation for
reclamation services rendered to PEA. Payment to
the contractor may be in cash, or in kind consisting of
portions of the reclaimed land, subject to the
constitutional ban on private corporations from
acquiring alienable lands of the public domain. The
reclaimed land can be used as payment in kind only if
the reclaimed land is first classified as alienable or
disposable land open to disposition, and then
declared no longer needed for public service.
The Amended JVA covers not only the Freedom
Islands, but also an additional 592.15 hectares which
are still submerged and forming part of Manila Bay.
There is no legislative or Presidential act classifying
these submerged areas as alienable or disposable
lands of the public domain open to disposition. These
submerged areas are not covered by any patent or
certificate of title. There can be no dispute that these
submerged areas form part of the public domain, and
in their present state are inalienable and outside the
commerce of man. Until reclaimed from the sea,

these submerged areas are, under the Constitution,

"waters x x x owned by the State," forming part of
the public domain and consequently inalienable. Only
when actually reclaimed from the sea can these
submerged areas be classified as public agricultural
lands, which under the Constitution are the only
natural resources that the State may alienate. Once
reclaimed and transformed into public agricultural
lands, the government may then officially classify
these lands as alienable or disposable lands open to
disposition. Thereafter, the government may declare
these lands no longer needed for public service. Only
then can these reclaimed lands be considered
alienable or disposable lands of the public domain
and within the commerce of man.
The classification of PEA's reclaimed foreshore and
submerged lands into alienable or disposable lands
open to disposition is necessary because PEA is
tasked under its charter to undertake public services
that require the use of lands of the public domain.
Under Section 5 of PD No. 1084, the functions of
PEA include the following: "[T]o own or operate
railroads, tramways and other kinds of land
transportation, x x x; [T]o construct, maintain and
operate such systems of sanitary sewers as may be
necessary; [T]o construct, maintain and operate such
storm drains as may be necessary." PEA is
empowered to issue "rules and regulations as may be
necessary for the proper use by private parties of any
or all of the highways, roads, utilities, buildings
and/or any of its properties and to impose or collect
fees or tolls for their use." Thus, part of the reclaimed
foreshore and submerged lands held by the PEA
would actually be needed for public use or service
since many of the functions imposed on PEA by its
charter constitute essential public services.
Moreover, Section 1 of Executive Order No. 525
provides that PEA "shall be primarily responsible for
integrating, directing, and coordinating all
reclamation projects for and on behalf of the National
Government." The same section also states that "[A]ll
reclamation projects shall be approved by the
President upon recommendation of the PEA, and
shall be undertaken by the PEA or through a proper

contract executed by it with any person or entity; x x

x." Thus, under EO No. 525, in relation to PD No. 3A and PD No.1084, PEA became the primary
implementing agency of the National Government to
reclaim foreshore and submerged lands of the public
domain. EO No. 525 recognized PEA as the
government entity "to undertake the reclamation of
lands and ensure their maximum utilization in
promoting public welfare and interests."79 Since
large portions of these reclaimed lands would
obviously be needed for public service, there must be
a formal declaration segregating reclaimed lands no
longer needed for public service from those still
needed for public service.1wphi1.nt
Section 3 of EO No. 525, by declaring that all lands
reclaimed by PEA "shall belong to or be owned by
the PEA," could not automatically operate to classify
inalienable lands into alienable or disposable lands of
the public domain. Otherwise, reclaimed foreshore
and submerged lands of the public domain would
automatically become alienable once reclaimed by
PEA, whether or not classified as alienable or
disposable.
The Revised Administrative Code of 1987, a later law
than either PD No. 1084 or EO No. 525, vests in the
Department of Environment and Natural Resources
("DENR" for brevity) the following powers and
functions:
"Sec. 4. Powers and Functions. The Department
shall:
(1) x x x
xxx
(4) Exercise supervision and control over forest
lands, alienable and disposable public lands, mineral
resources and, in the process of exercising such
control, impose appropriate taxes, fees, charges,
rentals and any such form of levy and collect such
revenues for the exploration, development, utilization
or gathering of such resources;

xxx
(14) Promulgate rules, regulations and guidelines on
the issuance of licenses, permits, concessions, lease
agreements and such other privileges concerning the
development, exploration and utilization of the
country's marine, freshwater, and brackish water and
over all aquatic resources of the country and shall
continue to oversee, supervise and police our natural
resources; cancel or cause to cancel such privileges
upon failure, non-compliance or violations of any
regulation, order, and for all other causes which are in
furtherance of the conservation of natural resources
and supportive of the national interest;
(15) Exercise exclusive jurisdiction on the
management and disposition of all lands of the public
domain and serve as the sole agency responsible for
classification, sub-classification, surveying and titling
of lands in consultation with appropriate agencies."80
(Emphasis supplied)
As manager, conservator and overseer of the natural
resources of the State, DENR exercises "supervision
and control over alienable and disposable public
lands." DENR also exercises "exclusive jurisdiction
on the management and disposition of all lands of the
public domain." Thus, DENR decides whether areas
under water, like foreshore or submerged areas of
Manila Bay, should be reclaimed or not. This means
that PEA needs authorization from DENR before
PEA can undertake reclamation projects in Manila
Bay, or in any part of the country.
DENR also exercises exclusive jurisdiction over the
disposition of all lands of the public domain. Hence,
DENR decides whether reclaimed lands of PEA
should be classified as alienable under Sections 681
and 782 of CA No. 141. Once DENR decides that the
reclaimed lands should be so classified, it then
recommends to the President the issuance of a
proclamation classifying the lands as alienable or
disposable lands of the public domain open to
disposition. We note that then DENR Secretary
Fulgencio S. Factoran, Jr. countersigned Special
Patent No. 3517 in compliance with the Revised

Administrative Code and Sections 6 and 7 of CA No.

141.

affecting its title, except when authorized by

Congress: x x x."85 (Emphasis by PEA)

In short, DENR is vested with the power to authorize

the reclamation of areas under water, while PEA is
vested with the power to undertake the physical
reclamation of areas under water, whether directly or
through private contractors. DENR is also
empowered to classify lands of the public domain
into alienable or disposable lands subject to the
approval of the President. On the other hand, PEA is
tasked to develop, sell or lease the reclaimed
alienable lands of the public domain.

In Laurel vs. Garcia,86 the Court cited Section 48 of

the Revised Administrative Code of 1987, which
states that

Clearly, the mere physical act of reclamation by PEA

of foreshore or submerged areas does not make the
reclaimed lands alienable or disposable lands of the
public domain, much less patrimonial lands of PEA.
Likewise, the mere transfer by the National
Government of lands of the public domain to PEA
does not make the lands alienable or disposable lands
of the public domain, much less patrimonial lands of
PEA.
Absent two official acts a classification that these
lands are alienable or disposable and open to
disposition and a declaration that these lands are not
needed for public service, lands reclaimed by PEA
remain inalienable lands of the public domain. Only
such an official classification and formal declaration
can convert reclaimed lands into alienable or
disposable lands of the public domain, open to
disposition under the Constitution, Title I and Title
III83 of CA No. 141 and other applicable laws.84
PEA's Authority to Sell Reclaimed Lands
PEA, like the Legal Task Force, argues that as
alienable or disposable lands of the public domain,
the reclaimed lands shall be disposed of in
accordance with CA No. 141, the Public Land Act.
PEA, citing Section 60 of CA No. 141, admits that
reclaimed lands transferred to a branch or subdivision
of the government "shall not be alienated,
encumbered, or otherwise disposed of in a manner

"Sec. 48. Official Authorized to Convey Real

Property. Whenever real property of the Government
is authorized by law to be conveyed, the deed of
conveyance shall be executed in behalf of the
government by the following: x x x."
Thus, the Court concluded that a law is needed to
convey any real property belonging to the
Government. The Court declared that "It is not for the President to convey real property of
the government on his or her own sole will. Any such
conveyance must be authorized and approved by a
law enacted by the Congress. It requires executive
and legislative concurrence." (Emphasis supplied)
PEA contends that PD No. 1085 and EO No. 525
constitute the legislative authority allowing PEA to
sell its reclaimed lands. PD No. 1085, issued on
February 4, 1977, provides that
"The land reclaimed in the foreshore and offshore
area of Manila Bay pursuant to the contract for the
reclamation and construction of the Manila-Cavite
Coastal Road Project between the Republic of the
Philippines and the Construction and Development
Corporation of the Philippines dated November 20,
1973 and/or any other contract or reclamation
covering the same area is hereby transferred,
conveyed and assigned to the ownership and
administration of the Public Estates Authority
established pursuant to PD No. 1084; Provided,
however, That the rights and interests of the
Construction and Development Corporation of the
Philippines pursuant to the aforesaid contract shall be
recognized and respected.
Henceforth, the Public Estates Authority shall
exercise the rights and assume the obligations of the

Republic of the Philippines (Department of Public

Highways) arising from, or incident to, the aforesaid
contract between the Republic of the Philippines and
the Construction and Development Corporation of
the Philippines.
In consideration of the foregoing transfer and
assignment, the Public Estates Authority shall issue
in favor of the Republic of the Philippines the
corresponding shares of stock in said entity with an
issued value of said shares of stock (which) shall be
deemed fully paid and non-assessable.
The Secretary of Public Highways and the General
Manager of the Public Estates Authority shall execute
such contracts or agreements, including appropriate
agreements with the Construction and Development
Corporation of the Philippines, as may be necessary
to implement the above.
Special land patent/patents shall be issued by the
Secretary of Natural Resources in favor of the Public
Estates Authority without prejudice to the subsequent
transfer to the contractor or his assignees of such
portion or portions of the land reclaimed or to be
reclaimed as provided for in the above-mentioned
contract. On the basis of such patents, the Land
Registration Commission shall issue the
corresponding certificate of title." (Emphasis
supplied)
On the other hand, Section 3 of EO No. 525, issued
on February 14, 1979, provides that "Sec. 3. All lands reclaimed by PEA shall belong to
or be owned by the PEA which shall be responsible
for its administration, development, utilization or
disposition in accordance with the provisions of
Presidential Decree No. 1084. Any and all income
that the PEA may derive from the sale, lease or use of
reclaimed lands shall be used in accordance with the
provisions of Presidential Decree No. 1084."
There is no express authority under either PD No.
1085 or EO No. 525 for PEA to sell its reclaimed
lands. PD No. 1085 merely transferred "ownership

and administration" of lands reclaimed from Manila

Bay to PEA, while EO No. 525 declared that lands
reclaimed by PEA "shall belong to or be owned by
PEA." EO No. 525 expressly states that PEA should
dispose of its reclaimed lands "in accordance with the
provisions of Presidential Decree No. 1084," the
charter of PEA.
PEA's charter, however, expressly tasks PEA "to
develop, improve, acquire, administer, deal in,
subdivide, dispose, lease and sell any and all kinds of
lands x x x owned, managed, controlled and/or
operated by the government."87 (Emphasis supplied)
There is, therefore, legislative authority granted to
PEA to sell its lands, whether patrimonial or alienable
lands of the public domain. PEA may sell to private
parties its patrimonial properties in accordance with
the PEA charter free from constitutional limitations.
The constitutional ban on private corporations from
acquiring alienable lands of the public domain does
not apply to the sale of PEA's patrimonial lands.
PEA may also sell its alienable or disposable lands of
the public domain to private individuals since, with
the legislative authority, there is no longer any
statutory prohibition against such sales and the
constitutional ban does not apply to individuals. PEA,
however, cannot sell any of its alienable or disposable
lands of the public domain to private corporations
since Section 3, Article XII of the 1987 Constitution
expressly prohibits such sales. The legislative
authority benefits only individuals. Private
corporations remain barred from acquiring any kind
of alienable land of the public domain, including
government reclaimed lands.
The provision in PD No. 1085 stating that portions of
the reclaimed lands could be transferred by PEA to
the "contractor or his assignees" (Emphasis supplied)
would not apply to private corporations but only to
individuals because of the constitutional ban.
Otherwise, the provisions of PD No. 1085 would
violate both the 1973 and 1987 Constitutions.
The requirement of public auction in the sale of
reclaimed lands

Assuming the reclaimed lands of PEA are classified

as alienable or disposable lands open to disposition,
and further declared no longer needed for public
service, PEA would have to conduct a public bidding
in selling or leasing these lands. PEA must observe
the provisions of Sections 63 and 67 of CA No. 141
requiring public auction, in the absence of a law
exempting PEA from holding a public auction.88
Special Patent No. 3517 expressly states that the
patent is issued by authority of the Constitution and
PD No. 1084, "supplemented by Commonwealth Act
No. 141, as amended." This is an acknowledgment
that the provisions of CA No. 141 apply to the
disposition of reclaimed alienable lands of the public
domain unless otherwise provided by law. Executive
Order No. 654,89 which authorizes PEA "to
determine the kind and manner of payment for the
transfer" of its assets and properties, does not exempt
PEA from the requirement of public auction. EO No.
654 merely authorizes PEA to decide the mode of
payment, whether in kind and in installment, but does
not authorize PEA to dispense with public auction.
Moreover, under Section 79 of PD No. 1445,
otherwise known as the Government Auditing Code,
the government is required to sell valuable
government property through public bidding. Section
79 of PD No. 1445 mandates that
"Section 79. When government property has become
unserviceable for any cause, or is no longer needed, it
shall, upon application of the officer accountable
therefor, be inspected by the head of the agency or his
duly authorized representative in the presence of the
auditor concerned and, if found to be valueless or
unsaleable, it may be destroyed in their presence. If
found to be valuable, it may be sold at public auction
to the highest bidder under the supervision of the
proper committee on award or similar body in the
presence of the auditor concerned or other authorized
representative of the Commission, after advertising
by printed notice in the Official Gazette, or for not
less than three consecutive days in any newspaper of
general circulation, or where the value of the property
does not warrant the expense of publication, by

notices posted for a like period in at least three public

places in the locality where the property is to be sold.
In the event that the public auction fails, the property
may be sold at a private sale at such price as may be
fixed by the same committee or body concerned and
approved by the Commission."
It is only when the public auction fails that a
negotiated sale is allowed, in which case the
Commission on Audit must approve the selling
price.90 The Commission on Audit implements
Section 79 of the Government Auditing Code through
Circular No. 89-29691 dated January 27, 1989. This
circular emphasizes that government assets must be
disposed of only through public auction, and a
negotiated sale can be resorted to only in case of
"failure of public auction."
At the public auction sale, only Philippine citizens
are qualified to bid for PEA's reclaimed foreshore
and submerged alienable lands of the public domain.
Private corporations are barred from bidding at the
auction sale of any kind of alienable land of the
public domain.
PEA originally scheduled a public bidding for the
Freedom Islands on December 10, 1991. PEA
imposed a condition that the winning bidder should
reclaim another 250 hectares of submerged areas to
regularize the shape of the Freedom Islands, under a
60-40 sharing of the additional reclaimed areas in
favor of the winning bidder.92 No one, however,
submitted a bid. On December 23, 1994, the
Government Corporate Counsel advised PEA it could
sell the Freedom Islands through negotiation, without
need of another public bidding, because of the failure
of the public bidding on December 10, 1991.93
However, the original JVA dated April 25, 1995
covered not only the Freedom Islands and the
additional 250 hectares still to be reclaimed, it also
granted an option to AMARI to reclaim another 350
hectares. The original JVA, a negotiated contract,
enlarged the reclamation area to 750 hectares.94 The
failure of public bidding on December 10, 1991,
involving only 407.84 hectares,95 is not a valid

justification for a negotiated sale of 750 hectares,

almost double the area publicly auctioned. Besides,
the failure of public bidding happened on December
10, 1991, more than three years before the signing of
the original JVA on April 25, 1995. The economic
situation in the country had greatly improved during
the intervening period.
Reclamation under the BOT Law and the Local
Government Code
The constitutional prohibition in Section 3, Article
XII of the 1987 Constitution is absolute and clear:
"Private corporations or associations may not hold
such alienable lands of the public domain except by
lease, x x x." Even Republic Act No. 6957 ("BOT
Law," for brevity), cited by PEA and AMARI as
legislative authority to sell reclaimed lands to private
parties, recognizes the constitutional ban. Section 6
of RA No. 6957 states
"Sec. 6. Repayment Scheme. - For the financing,
construction, operation and maintenance of any
infrastructure projects undertaken through the buildoperate-and-transfer arrangement or any of its
variations pursuant to the provisions of this Act, the
project proponent x x x may likewise be repaid in the
form of a share in the revenue of the project or other
non-monetary payments, such as, but not limited to,
the grant of a portion or percentage of the reclaimed
land, subject to the constitutional requirements with
respect to the ownership of the land: x x x."
(Emphasis supplied)
A private corporation, even one that undertakes the
physical reclamation of a government BOT project,
cannot acquire reclaimed alienable lands of the public
domain in view of the constitutional ban.
Section 302 of the Local Government Code, also
mentioned by PEA and AMARI, authorizes local
governments in land reclamation projects to pay the
contractor or developer in kind consisting of a
percentage of the reclaimed land, to wit:

"Section 302. Financing, Construction, Maintenance,

Operation, and Management of Infrastructure
Projects by the Private Sector. x x x
xxx
In case of land reclamation or construction of
industrial estates, the repayment plan may consist of
the grant of a portion or percentage of the reclaimed
land or the industrial estate constructed."
Although Section 302 of the Local Government Code
does not contain a proviso similar to that of the BOT
Law, the constitutional restrictions on land ownership
automatically apply even though not expressly
mentioned in the Local Government Code.
Thus, under either the BOT Law or the Local
Government Code, the contractor or developer, if a
corporate entity, can only be paid with leaseholds on
portions of the reclaimed land. If the contractor or
developer is an individual, portions of the reclaimed
land, not exceeding 12 hectares96 of non-agricultural
lands, may be conveyed to him in ownership in view
of the legislative authority allowing such conveyance.
This is the only way these provisions of the BOT
Law and the Local Government Code can avoid a
direct collision with Section 3, Article XII of the
1987 Constitution.
Registration of lands of the public domain
Finally, PEA theorizes that the "act of conveying the
ownership of the reclaimed lands to public
respondent PEA transformed such lands of the public
domain to private lands." This theory is echoed by
AMARI which maintains that the "issuance of the
special patent leading to the eventual issuance of title
takes the subject land away from the land of public
domain and converts the property into patrimonial or
private property." In short, PEA and AMARI contend
that with the issuance of Special Patent No. 3517 and
the corresponding certificates of titles, the 157.84
hectares comprising the Freedom Islands have
become private lands of PEA. In support of their

theory, PEA and AMARI cite the following rulings of

the Court:
1. Sumail v. Judge of CFI of Cotabato,97 where the
Court held
"Once the patent was granted and the corresponding
certificate of title was issued, the land ceased to be
part of the public domain and became private
property over which the Director of Lands has neither
control nor jurisdiction."
2. Lee Hong Hok v. David,98 where the Court
declared "After the registration and issuance of the certificate
and duplicate certificate of title based on a public
land patent, the land covered thereby automatically
comes under the operation of Republic Act 496
subject to all the safeguards provided therein."3.
Heirs of Gregorio Tengco v. Heirs of Jose
Aliwalas,99 where the Court ruled "While the Director of Lands has the power to review
homestead patents, he may do so only so long as the
land remains part of the public domain and continues
to be under his exclusive control; but once the patent
is registered and a certificate of title is issued, the
land ceases to be part of the public domain and
becomes private property over which the Director of
Lands has neither control nor jurisdiction."
4. Manalo v. Intermediate Appellate Court,100 where
the Court held
"When the lots in dispute were certified as disposable
on May 19, 1971, and free patents were issued
covering the same in favor of the private respondents,
the said lots ceased to be part of the public domain
and, therefore, the Director of Lands lost jurisdiction
over the same."
5.Republic v. Court of Appeals,101 where the Court
stated

"Proclamation No. 350, dated October 9, 1956, of

President Magsaysay legally effected a land grant to
the Mindanao Medical Center, Bureau of Medical
Services, Department of Health, of the whole lot,
validly sufficient for initial registration under the
Land Registration Act. Such land grant is constitutive
of a 'fee simple' title or absolute title in favor of
petitioner Mindanao Medical Center. Thus, Section
122 of the Act, which governs the registration of
grants or patents involving public lands, provides that
'Whenever public lands in the Philippine Islands
belonging to the Government of the United States or
to the Government of the Philippines are alienated,
granted or conveyed to persons or to public or private
corporations, the same shall be brought forthwith
under the operation of this Act (Land Registration
Act, Act 496) and shall become registered lands.'"

or certificates of title. In fact, the thrust of the instant

petition is that PEA's certificates of title should
remain with PEA, and the land covered by these
certificates, being alienable lands of the public
domain, should not be sold to a private corporation.

The first four cases cited involve petitions to cancel

the land patents and the corresponding certificates of
titles issued to private parties. These four cases
uniformly hold that the Director of Lands has no
jurisdiction over private lands or that upon issuance
of the certificate of title the land automatically comes
under the Torrens System. The fifth case cited
involves the registration under the Torrens System of
a 12.8-hectare public land granted by the National
Government to Mindanao Medical Center, a
government unit under the Department of Health. The
National Government transferred the 12.8-hectare
public land to serve as the site for the hospital
buildings and other facilities of Mindanao Medical
Center, which performed a public service. The Court
affirmed the registration of the 12.8-hectare public
land in the name of Mindanao Medical Center under
Section 122 of Act No. 496. This fifth case is an
example of a public land being registered under Act
No. 496 without the land losing its character as a
property of public dominion.

Jurisprudence holding that upon the grant of the

patent or issuance of the certificate of title the
alienable land of the public domain automatically
becomes private land cannot apply to government
units and entities like PEA. The transfer of the
Freedom Islands to PEA was made subject to the
provisions of CA No. 141 as expressly stated in
Special Patent No. 3517 issued by then President
Aquino, to wit:

In the instant case, the only patent and certificates of

title issued are those in the name of PEA, a wholly
government owned corporation performing public as
well as proprietary functions. No patent or certificate
of title has been issued to any private party. No one is
asking the Director of Lands to cancel PEA's patent

Thus, the provisions of CA No. 141 apply to the

Freedom Islands on matters not covered by PD No.
1084. Section 60 of CA No. 141 prohibits, "except
when authorized by Congress," the sale of alienable
lands of the public domain that are transferred to
government units or entities. Section 60 of CA No.

Registration of land under Act No. 496 or PD No.

1529 does not vest in the registrant private or public
ownership of the land. Registration is not a mode of
acquiring ownership but is merely evidence of
ownership previously conferred by any of the
recognized modes of acquiring ownership.
Registration does not give the registrant a better right
than what the registrant had prior to the
registration.102 The registration of lands of the
public domain under the Torrens system, by itself,
cannot convert public lands into private lands.103

"NOW, THEREFORE, KNOW YE, that by authority

of the Constitution of the Philippines and in
conformity with the provisions of Presidential Decree
No. 1084, supplemented by Commonwealth Act No.
141, as amended, there are hereby granted and
conveyed unto the Public Estates Authority the
aforesaid tracts of land containing a total area of one
million nine hundred fifteen thousand eight hundred
ninety four (1,915,894) square meters; the technical
description of which are hereto attached and made an
integral part hereof." (Emphasis supplied)

141 constitutes, under Section 44 of PD No. 1529, a

"statutory lien affecting title" of the registered land
even if not annotated on the certificate of title.104
Alienable lands of the public domain held by
government entities under Section 60 of CA No. 141
remain public lands because they cannot be alienated
or encumbered unless Congress passes a law
authorizing their disposition. Congress, however,
cannot authorize the sale to private corporations of
reclaimed alienable lands of the public domain
because of the constitutional ban. Only individuals
can benefit from such law.
The grant of legislative authority to sell public lands
in accordance with Section 60 of CA No. 141 does
not automatically convert alienable lands of the
public domain into private or patrimonial lands. The
alienable lands of the public domain must be
transferred to qualified private parties, or to
government entities not tasked to dispose of public
lands, before these lands can become private or
patrimonial lands. Otherwise, the constitutional ban
will become illusory if Congress can declare lands of
the public domain as private or patrimonial lands in
the hands of a government agency tasked to dispose
of public lands. This will allow private corporations
to acquire directly from government agencies
limitless areas of lands which, prior to such law, are
concededly public lands.
Under EO No. 525, PEA became the central
implementing agency of the National Government to
reclaim foreshore and submerged areas of the public
domain. Thus, EO No. 525 declares that
"EXECUTIVE ORDER NO. 525
Designating the Public Estates Authority as the
Agency Primarily Responsible for all Reclamation
Projects
Whereas, there are several reclamation projects
which are ongoing or being proposed to be
undertaken in various parts of the country which need
to be evaluated for consistency with national
programs;

x x x ."
Whereas, there is a need to give further institutional
support to the Government's declared policy to
provide for a coordinated, economical and efficient
reclamation of lands;
Whereas, Presidential Decree No. 3-A requires that
all reclamation of areas shall be limited to the
National Government or any person authorized by it
under proper contract;
Whereas, a central authority is needed to act on
behalf of the National Government which shall
ensure a coordinated and integrated approach in the
reclamation of lands;
Whereas, Presidential Decree No. 1084 creates the
Public Estates Authority as a government corporation
to undertake reclamation of lands and ensure their
maximum utilization in promoting public welfare and
interests; and
Whereas, Presidential Decree No. 1416 provides the
President with continuing authority to reorganize the
national government including the transfer, abolition,
or merger of functions and offices.
NOW, THEREFORE, I, FERDINAND E. MARCOS,
President of the Philippines, by virtue of the powers
vested in me by the Constitution and pursuant to
Presidential Decree No. 1416, do hereby order and
direct the following:
Section 1. The Public Estates Authority (PEA) shall
be primarily responsible for integrating, directing,
and coordinating all reclamation projects for and on
behalf of the National Government. All reclamation
projects shall be approved by the President upon
recommendation of the PEA, and shall be undertaken
by the PEA or through a proper contract executed by
it with any person or entity; Provided, that,
reclamation projects of any national government
agency or entity authorized under its charter shall be
undertaken in consultation with the PEA upon
approval of the President.

As the central implementing agency tasked to

undertake reclamation projects nationwide, with
authority to sell reclaimed lands, PEA took the place
of DENR as the government agency charged with
leasing or selling reclaimed lands of the public
domain. The reclaimed lands being leased or sold by
PEA are not private lands, in the same manner that
DENR, when it disposes of other alienable lands,
does not dispose of private lands but alienable lands
of the public domain. Only when qualified private
parties acquire these lands will the lands become
private lands. In the hands of the government agency
tasked and authorized to dispose of alienable of
disposable lands of the public domain, these lands are
still public, not private lands.
Furthermore, PEA's charter expressly states that PEA
"shall hold lands of the public domain" as well as
"any and all kinds of lands." PEA can hold both lands
of the public domain and private lands. Thus, the
mere fact that alienable lands of the public domain
like the Freedom Islands are transferred to PEA and
issued land patents or certificates of title in PEA's
name does not automatically make such lands
private.
To allow vast areas of reclaimed lands of the public
domain to be transferred to PEA as private lands will
sanction a gross violation of the constitutional ban on
private corporations from acquiring any kind of
alienable land of the public domain. PEA will simply
turn around, as PEA has now done under the
Amended JVA, and transfer several hundreds of
hectares of these reclaimed and still to be reclaimed
lands to a single private corporation in only one
transaction. This scheme will effectively nullify the
constitutional ban in Section 3, Article XII of the
1987 Constitution which was intended to diffuse
equitably the ownership of alienable lands of the
public domain among Filipinos, now numbering over
80 million strong.
This scheme, if allowed, can even be applied to
alienable agricultural lands of the public domain

since PEA can "acquire x x x any and all kinds of

lands." This will open the floodgates to corporations
and even individuals acquiring hundreds of hectares
of alienable lands of the public domain under the
guise that in the hands of PEA these lands are private
lands. This will result in corporations amassing huge
landholdings never before seen in this country creating the very evil that the constitutional ban was
designed to prevent. This will completely reverse the
clear direction of constitutional development in this
country. The 1935 Constitution allowed private
corporations to acquire not more than 1,024 hectares
of public lands.105 The 1973 Constitution prohibited
private corporations from acquiring any kind of
public land, and the 1987 Constitution has
unequivocally reiterated this prohibition.
The contention of PEA and AMARI that public lands,
once registered under Act No. 496 or PD No. 1529,
automatically become private lands is contrary to
existing laws. Several laws authorize lands of the
public domain to be registered under the Torrens
System or Act No. 496, now PD No. 1529, without
losing their character as public lands. Section 122 of
Act No. 496, and Section 103 of PD No. 1529,
respectively, provide as follows:
Act No. 496
"Sec. 122. Whenever public lands in the Philippine
Islands belonging to the x x x Government of the
Philippine Islands are alienated, granted, or conveyed
to persons or the public or private corporations, the
same shall be brought forthwith under the operation
of this Act and shall become registered lands."
PD No. 1529
"Sec. 103. Certificate of Title to Patents. Whenever
public land is by the Government alienated, granted
or conveyed to any person, the same shall be brought
forthwith under the operation of this Decree."
(Emphasis supplied)
Based on its legislative history, the phrase "conveyed
to any person" in Section 103 of PD No. 1529

includes conveyances of public lands to public

corporations.
Alienable lands of the public domain "granted,
donated, or transferred to a province, municipality, or
branch or subdivision of the Government," as
provided in Section 60 of CA No. 141, may be
registered under the Torrens System pursuant to
Section 103 of PD No. 1529. Such registration,
however, is expressly subject to the condition in
Section 60 of CA No. 141 that the land "shall not be
alienated, encumbered or otherwise disposed of in a
manner affecting its title, except when authorized by
Congress." This provision refers to government
reclaimed, foreshore and marshy lands of the public
domain that have been titled but still cannot be
alienated or encumbered unless expressly authorized
by Congress. The need for legislative authority
prevents the registered land of the public domain
from becoming private land that can be disposed of to
qualified private parties.
The Revised Administrative Code of 1987 also
recognizes that lands of the public domain may be
registered under the Torrens System. Section 48,
Chapter 12, Book I of the Code states
"Sec. 48. Official Authorized to Convey Real
Property. Whenever real property of the Government
is authorized by law to be conveyed, the deed of
conveyance shall be executed in behalf of the
government by the following:
(1) x x x
(2) For property belonging to the Republic of the
Philippines, but titled in the name of any political
subdivision or of any corporate agency or
instrumentality, by the executive head of the agency
or instrumentality." (Emphasis supplied)
Thus, private property purchased by the National
Government for expansion of a public wharf may be
titled in the name of a government corporation
regulating port operations in the country. Private
property purchased by the National Government for

expansion of an airport may also be titled in the name

of the government agency tasked to administer the
airport. Private property donated to a municipality for
use as a town plaza or public school site may
likewise be titled in the name of the municipality.106
All these properties become properties of the public
domain, and if already registered under Act No. 496
or PD No. 1529, remain registered land. There is no
requirement or provision in any existing law for the
de-registration of land from the Torrens System.
Private lands taken by the Government for public use
under its power of eminent domain become
unquestionably part of the public domain.
Nevertheless, Section 85 of PD No. 1529 authorizes
the Register of Deeds to issue in the name of the
National Government new certificates of title
covering such expropriated lands. Section 85 of PD
No. 1529 states
"Sec. 85. Land taken by eminent domain. Whenever
any registered land, or interest therein, is
expropriated or taken by eminent domain, the
National Government, province, city or municipality,
or any other agency or instrumentality exercising
such right shall file for registration in the proper
Registry a certified copy of the judgment which shall
state definitely by an adequate description, the
particular property or interest expropriated, the
number of the certificate of title, and the nature of the
public use. A memorandum of the right or interest
taken shall be made on each certificate of title by the
Register of Deeds, and where the fee simple is taken,
a new certificate shall be issued in favor of the
National Government, province, city, municipality, or
any other agency or instrumentality exercising such
right for the land so taken. The legal expenses
incident to the memorandum of registration or
issuance of a new certificate of title shall be for the
account of the authority taking the land or interest
therein." (Emphasis supplied)
Consequently, lands registered under Act No. 496 or
PD No. 1529 are not exclusively private or
patrimonial lands. Lands of the public domain may
also be registered pursuant to existing laws.

AMARI makes a parting shot that the Amended JVA

is not a sale to AMARI of the Freedom Islands or of
the lands to be reclaimed from submerged areas of
Manila Bay. In the words of AMARI, the Amended
JVA "is not a sale but a joint venture with a
stipulation for reimbursement of the original cost
incurred by PEA for the earlier reclamation and
construction works performed by the CDCP under its
1973 contract with the Republic." Whether the
Amended JVA is a sale or a joint venture, the fact
remains that the Amended JVA requires PEA to
"cause the issuance and delivery of the certificates of
title conveying AMARI's Land Share in the name of
AMARI."107
This stipulation still contravenes Section 3, Article
XII of the 1987 Constitution which provides that
private corporations "shall not hold such alienable
lands of the public domain except by lease." The
transfer of title and ownership to AMARI clearly
means that AMARI will "hold" the reclaimed lands
other than by lease. The transfer of title and
ownership is a "disposition" of the reclaimed lands, a
transaction considered a sale or alienation under CA
No. 141,108 the Government Auditing Code,109 and
Section 3, Article XII of the 1987 Constitution.
The Regalian doctrine is deeply implanted in our
legal system. Foreshore and submerged areas form
part of the public domain and are inalienable. Lands
reclaimed from foreshore and submerged areas also
form part of the public domain and are also
inalienable, unless converted pursuant to law into
alienable or disposable lands of the public domain.
Historically, lands reclaimed by the government are
sui generis, not available for sale to private parties
unlike other alienable public lands. Reclaimed lands
retain their inherent potential as areas for public use
or public service. Alienable lands of the public
domain, increasingly becoming scarce natural
resources, are to be distributed equitably among our
ever-growing population. To insure such equitable
distribution, the 1973 and 1987 Constitutions have
barred private corporations from acquiring any kind
of alienable land of the public domain. Those who

attempt to dispose of inalienable natural resources of

the State, or seek to circumvent the constitutional ban
on alienation of lands of the public domain to private
corporations, do so at their own risk.
We can now summarize our conclusions as follows:
1. The 157.84 hectares of reclaimed lands comprising
the Freedom Islands, now covered by certificates of
title in the name of PEA, are alienable lands of the
public domain. PEA may lease these lands to private
corporations but may not sell or transfer ownership of
these lands to private corporations. PEA may only
sell these lands to Philippine citizens, subject to the
ownership limitations in the 1987 Constitution and
existing laws.
2. The 592.15 hectares of submerged areas of Manila
Bay remain inalienable natural resources of the
public domain until classified as alienable or
disposable lands open to disposition and declared no
longer needed for public service. The government can
make such classification and declaration only after
PEA has reclaimed these submerged areas. Only then
can these lands qualify as agricultural lands of the
public domain, which are the only natural resources
the government can alienate. In their present state,
the 592.15 hectares of submerged areas are
inalienable and outside the commerce of man.
3. Since the Amended JVA seeks to transfer to
AMARI, a private corporation, ownership of 77.34
hectares110 of the Freedom Islands, such transfer is
void for being contrary to Section 3, Article XII of
the 1987 Constitution which prohibits private
corporations from acquiring any kind of alienable
land of the public domain.
4. Since the Amended JVA also seeks to transfer to
AMARI ownership of 290.156 hectares111 of still
submerged areas of Manila Bay, such transfer is void
for being contrary to Section 2, Article XII of the
1987 Constitution which prohibits the alienation of
natural resources other than agricultural lands of the
public domain. PEA may reclaim these submerged
areas. Thereafter, the government can classify the

reclaimed lands as alienable or disposable, and

further declare them no longer needed for public
service. Still, the transfer of such reclaimed alienable
lands of the public domain to AMARI will be void in
view of Section 3, Article XII of the 1987
Constitution which prohibits private corporations
from acquiring any kind of alienable land of the
public domain.
Clearly, the Amended JVA violates glaringly Sections
2 and 3, Article XII of the 1987 Constitution. Under
Article 1409112 of the Civil Code, contracts whose
"object or purpose is contrary to law," or whose
"object is outside the commerce of men," are
"inexistent and void from the beginning." The Court
must perform its duty to defend and uphold the
Constitution, and therefore declares the Amended
JVA null and void ab initio.
Seventh issue: whether the Court is the proper forum
to raise the issue of whether the Amended JVA is
grossly disadvantageous to the government.
Considering that the Amended JVA is null and void
ab initio, there is no necessity to rule on this last
issue. Besides, the Court is not a trier of facts, and
this last issue involves a determination of factual
matters.
WHEREFORE, the petition is GRANTED. The
Public Estates Authority and Amari Coastal Bay
Development Corporation are PERMANENTLY
ENJOINED from implementing the Amended Joint
Venture Agreement which is hereby declared NULL
and VOID ab initio.
SO ORDERED.

SECOND DIVISION
HEIRS OF THE LATE SPOUSES G.R. No. 151312
PEDRO S. PALANCA AND
SOTERRANEA RAFOLS VDA.
DE PALANCA namely: IMELDA
R. PALANCA, MAMERTA R. Present:
PALANCA, OFELIA P. MIGUEL,
ESTEFANIA P. PE, CANDELARIA
P. PUNZALAN, NICOLAS R. PUNO, J.,
Chairperson,
PALANCA, CONSTANTINO R. SANDOVALGUTIERREZ,
PALANCA, EDMUNDO PALANCA, CORONA,*
LEOCADIA R. PALANCA and AZCUNA, and
OLIVERIO R. PALANCA, represented GARCIA, JJ.
by their attorney-in-fact, OFELIA P.
MIGUEL,
Petitioners, Promulgated:
- versus August 30, 2006
REPUBLIC OF THE PHILIPPINES,
(represented by the Lands Management
Bureau), REGIONAL TRIAL COURT
OF PALAWAN (Office of the
Executive Judge) and the REGISTER
OF DEEDS OF PALAWAN,
Respondents.
X
------------------------------------------------------------------------------------- X
DECISION
AZCUNA, J.:
Before this Court is a petition for review on certiorari
under Rule 45 of the Rules of Court seeking the
reversal of the decision[1] dated July 16, 2001, and
the resolution[2] dated December 21, 2001, of the
Court of Appeals (CA) in CA-G.R. SP No. 62081
entitled Republic of the Philippines (Represented by
the Lands Management Bureau) v. Court of First
Instance (CFI) of Palawan (now Regional Trial

Court), Seventh Judicial District, Branch II presided

over by Former District Judge, Jose P. Rodriguez, et
al.
The antecedent facts[3] are as follows:
On July 19, 1973, the heirs of Pedro S. Palanca,
(petitioners herein), filed an application to bring the
pieces of land they allegedly owned under the
operation of the Land Registration Act. These are: a
two hundred thirty-nine thousand nine hundred
eighty (239,980) square meter parcel of land situated
in Barrio Panlaitan, Municipality of Busuanga,
Province of Palawan, as shown on plan Psu-04000074, and a one hundred seventy-six thousand five
hundred eighty-eight (176,588) square meter land in
Barrio of Panlaitan (Island of Capari), Municipality
of New Busuanga, Province of Palawan, as shown on
plan Psu-04-000073. They acquired said realties by
inheritance from the late Pedro S. Palanca, who had
occupied and possessed said land openly and
continuously in the concept of an owner since 1934,
or 39 years before the filing of said application, and
planted on said lands about 1,200 coconut trees on
each land, declared the same for taxation purposes
and paid the taxes thereof. The first parcel of land is
presently occupied by Lopez, Libarra, an encargado
of herein (petitioners), while the second is occupied
by (petitioner) Candelaria Punzalan. In Civil Case
No. 573 entitled Heirs of Pedro Palanca, Plaintiffs,
vs. Alfonso Guillamac, Defendant, for Recovery of
Possession of a Parcel of Land the Court of First
Instance of Palawan rendered a decision on March 4,
1970, declaring (petitioners), the heirs of Pedro S.
Palanca, as the rightful possessors of the land at
Talampulan Island, Bario of Panlaitan, Municipality
of Busuanga, Province of Palawan, covered by Psu04-000074, including the two (2) hectare portion
occupied and claimed by Alfonso Guillamac.
It also appears that the jurisdictional requirements as
to notices, as prescribed by Section 31, Act No. 496,
namely publication in the Official Gazette, were
complied with.

During the initial hearing of the case, verbal

oppositions to the application were made by the
Provincial Fiscal of Palawan purportedly for and in
behalf of the Bureau of Forest Development, the
Bureau of Lands, and the Department of Agrarian
Reform, some inhabitants of the subject properties
and a businessman by the name of Alfonso
Guillamac. The Provincial Fiscal stated that the lands
subject of the application had no clearance from the
Bureau of Forestry and that portions thereof may still
be part of the timberland block and/or public forest
under the administration of the Bureau of Forestry
and had not been certified as being alienable and
disposable by the Bureau of Lands. He therefore
requested that the resolution on the application be
stayed pending the examination and issuance of the
required clearance by the Bureau of Forest
Development.[4] After the lapse of three years from
the date of the initial hearing, however, no valid and
formal opposition was filed by any of the oppositors
in the form and manner required by law.[5] Neither
did the Provincial Fiscal present witnesses from the
relevant government bureaus and agencies to support
his contention that the subject lands had not yet been
cleared for public disposition.
On the other hand, petitioners submitted the plan and
technical description of the land, a survey certificate
approved by the Bureau of Lands and also tax
declarations showing that they have consistently paid
the realty taxes accruing on the property. Petitioners
likewise presented six witnesses in support of their
application, namely Constantino Palanca, Ofelia
Palanca-Miguel, Lopez Libarra, Alejandro Cabajar,
Alfonso Lucero and Augustin Timbancaya.
Both Constantino Palanca and Ofelia Palanca-Miguel
testified that: (1) they were heirs of one Pedro S.
Palanca; (2) they, together with their other siblings,
were applicants for the registration of two parcels of
land located in Barrio Panlaitan, Busuanga, Palawan;
(3) their father, Pedro S. Palanca, acquired ownership
over the subject properties by continuous, public and
notorious possession; (4) their father built a house on
each parcel of land and planted coconut trees; (5)
since their fathers death, they have continued their

possession over the lands in the concept of owners

and adverse to all claimants; and (6) the properties
have been declared for taxation purposes and the
corresponding taxes religiously paid for over forty
(40) years.[6]
Lopez Libarra and Alejandro Cabajar testified that
they knew the late Pedro S. Palanca and worked for
the latter as an overseer and a capataz respectively in
the cultivation of the subject properties. Cabajar, in
particular, claimed that he helped clear the lands
sometime in the mid-1920s, planted upon such lands
coconut trees which are now bearing fruit, and
continued working with Pedro S. Palanca until the
latters death in 1943. He subsequently went to work
for the heirs of Pedro S. Palanca whom he confirms
now own and manage the properties.[7]
For his part, Libarra testified that he had been the
overseer of the two coconut plantations of the late
Pedro S. Palanca since 1934. He identified the
location of the properties, averring that one plantation
is in Talampulan, Panlaitan Island and the other in
Talampetan, Capari Island. He further testified that at
the time he was employed in 1934, there were
already improvements in the form of coconut trees
planted in the areas, a number of which were already
bearing fruits. His duties included overseeing and
cleaning the plantations, making copra and replanting
the area when necessary. He also claimed he worked
with Pedro S. Palanca until the latters death in 1943
and continues to work for the latters heirs up to the
present.[8]
Also presented were Alfonso Lucero and Augustin
Timbancaya, who testified thus:

Alfonso Lucero testified that he is a Forester in the

Bureau of Forest Development, formerly the Bureau
of Forestry. He was once assigned as the Chief of
Land Classification Party No. 55 in Palawan.
Presently, he is a member of the Composite Land
Classification Team No. 32 in the province with
station at Puerto Princessa City. He has been
employed with the Bureau of Forest Development for
about 30 years, starting as a Forest Guard in 1947. As
chief of Land Classification Party No. 55, he covered
the territory from Puerto Princesa City northward up

to Busuanga, where the land in question is located.

His duty was to supervise the team that conducted the
limitation, segregation and deviation of agricultural
lands within the area. He served in this capacity for
twelve (12) years until December 1975. As such, he
issued certifications after due classification by his
office, of alienable and disposable land for
administration by the Bureau of Lands and eventual
disposition to interested parties. He had been in
Busuanga, Palawan a number of times and is familiar
with the lands in question, one of which is in
Talampetan, Capari Island and the other in
Talampulan, Panlaitan Island. He is aware that the
lands in question are claimed and administered by the
heirs of Pedro S. Palanca. The improvements on the
land are at least 40 years old in his estimation. He
recalls having issued a certification of release of this
property for disposition to private parties, but could
not remember the exact date when he did so. He
identified Exhibits JJ and KK to be certifications to
the effect that Talampulan in Panlaitan Island and
Talampetan, a portion of Capari Island, both in
Busuanga (formerly Coron), Palawan, are fully
cultivated and mainly planted to coconuts before
World War II by herein applicants, the heirs of Pedro
S. Palanca. He is fully convinced that the lands in
question have already been released before the war
for agricultural purposes in favor of Pedro S. Palanca,
applicants predecessor-in-interest. Releases of
agricultural lands which are done in bulk at present
was not in vogue before the last war, for releases at
that time were made on a case-to-case basis. Under
the pre-war system, an application for a piece of land
was individually referred to the then Bureau of
Forestry which in turn conducted a classification of
the area as to its availability, whether it be for sale,
homestead, etc. On the basis of the Bureau of
Forestry investigation, a certification was then issued
as to its availability for the purpose for which the
application was made. The certification was made on
the basis of such application, and was called the
isolated case release or the case-to-case basis. This
procedure was followed in the case of herein
applicants and there seemed to be no reason to doubt
that the area was in fact released to herein applicants.

Therefore, the area is no longer under the jurisdiction

of the Bureau of Forest Development.
Alfonso Lucero also testified that as Chief of Land
Classification Party No. 55, he was the one directly in
charge of classification and release of lands of public
domain for agricultural purposes. His office is
directly under the bureau chief in Manila, although
for administrative purposes he is carried with the
district forestry office in Puerto Princesa City. The
certifications he issue carry much weight in land
classification and releases in the province unless
revoked by the Manila Office.
Augustin O. Timbancaya testified that he is a licensed
geodetic engineer, formerly called a land surveyor.
His services were engaged by applicant Ofelia P.
Miguel, the representative of the other applicants, to
conduct and prepare a land plan for two parcels of
land subject of the application. He went personally to
the lands in question. He executed Exhibit U, the
Plan of Land covered by PSU-04-000073, containing
an area of one hundred seventy-six thousand, five
hundred eighty-eight (176,588) square meters
situated at Talampetan, Capari Island, Busuanga,
Palawan, approved by the Director of Lands on June
25, 1973. He also identified Exhibit V, the Plan of
Land under PSU-04-000074, containing an area of
two hundred thirty-nine thousand, nine hundred
eighty (239, 980) square meters located at
Talampulan, Panlaitan Island, Busuanga, Palawan,
which was also approved by the Director of Lands on
June 25, 1973. Both lands are in barrio Panlaitan,
Busuanga (formerly Coron), Palawan, and have an
aggregate total area of four hundred sixteen thousand
five hundred sixty-eight (416,568) square meters. All
these surveys were properly monumented. He
personally prepared the technical description for both
lots. He also prepared the Geodetic Engineers
Certificates and had the same notarized by Atty.
Remigio Raton, the first on January 24, 1972 and the
second on March 14, 1972. He believes that both
parcels of land have been released for agricultural
purposes because if it were otherwise, the survey
plans he executed would not have been approved by
the Director of Lands. In other words, the approval of

the Land Plans by the Director of the Bureau of

Lands indicates that the lands in question have been
previously released for alienation and disposition.
Both parcels of land have been fully developed and
the coconuts planted thereon are about 50 years old.
He has no doubt that these lands were released for
agricultural purposes long ago.[9]

After trial, the CFI of Palawan issued a decision on

December 15, 1977 declaring petitioners as the
owners in fee simple of the two parcels of land in
question. Thereafter, Original Certificate of Title
(OCT) No. 4295 was issued in the name of
petitioners. Subsequently, out of OCT No. 4295,
Transfer Certificates of Title Nos. T-7095, T-7096, T10396, T-10397, T-10398, T-10399, T-10418, and T10884 were issued.
On December 6, 2000, or after almost twenty-three
years, respondent Republic of the Philippines filed
with the CA a petition[10] for annulment of
judgment, cancellation of the decree of registration
and title, and reversion. Respondent sought to annul
the December 15, 1977 decision of the CFI, arguing
that the decision was null and void because the two
lands in question were unclassified public forest land
and, as such, were not capable of private
appropriation. In support of this proposition,
respondent presented Land Classification Map No.
839, Project 2-A dated December 9, 1929 showing
that the subject properties were unclassified lands as
of that date as well as a certification dated November
24, 2000 issued by the Community Environment and
Natural Resources Office stating that the islands of
Talampulan and Capar(i) Island located in the
municipality of Busuanga, Palawan are within the
unclassified public forest. Respondent likewise drew
attention to Executive Proclamation No. 219 issued
on July 2, 1967 which classified the Province of
Palawan as a National Game Refuge and Bird
Sanctuary and the small islands off Palawan as
national reserves closed to exploitation and
settlement under the administration of the Parks and
Wildlife Office, subject only to existing private
rights.[11] In view of the fact that the properties were

never classified as alienable and disposable,

respondent argued that the CFI did not have
jurisdiction to make a disposition of the same.
In addition, respondent asserted that the participants
in the proceedings committed perfidious acts
amounting to extrinsic fraud which is one of the
grounds for the annulment of a judgment.
Respondent maintained that a culture of collusion
existed between and among the petitioners, the
Provincial Fiscal and the ranking officer of the
District Forestry Office, Alfonso Lucero, such that
the State was deprived of the opportunity to fairly
present its case to the court.
On July 16, 2001, the CA rendered the assailed
decision, the dispositive portion of which reads:
WHEREFORE, the instant petition is GRANTED.
The decision of the then Court of First Instance of
Palawan, Branch II, dated December 15, 1977, in
Land Registration Case No. N-21, LRC Record No.
N-44308 is hereby declared NULL and VOID.
Accordingly, Decree No. N-172081 and the
corresponding Original Certificate of Title No. 4295
issued in the name of the Heirs of Pedro S. Palanca,
as well as the subsequent Transfer Certificates of
Title Nos. T-7095, T-7096, T-10396, T-10397, T10398, T-10399, T-10410 and T-10884 and all
subsequent TCTs issued thereafter are also declared
NULL and VOID. Private respondents Heirs of Pedro
S. Palanca are DIRECTED to surrender said transfer
certificates of title to public respondent Register of
Deeds of Palawan; and the latter is also DIRECTED
to cause the cancellation thereof.
SO ORDERED.[12]
Petitioners motion for reconsideration was likewise
denied by the CA in a resolution[13] dated December
21, 2001. Hence, this petition.
Petitioners contend that the CA disregarded settled
jurisprudence and applicable land laws when it ruled
that the subject properties covered by their
application for registration were forest lands and that,

consequently, the land registration court did not have

jurisdiction to award the same to them. They opine
that it is not necessary for them to prove that the
government had expressly given a grant of the
subject properties to Pedro S. Palanca, their
predecessor-in-interest, separate of the legislative
grant given to them purportedly under
Commonwealth Act No. 141 (Public Land Act).
Petitioners furthermore insist that a particular land
need not be formally released by an act of the
Executive before it can be deemed open to private
ownership, citing the cases of Ramos v. Director of
Lands[14] and Ankron v. Government of the
Philippine Islands.[15] They likewise argue that the
CA erred in relying upon Executive Proclamation No.
219 and upon Land Classification Map No. 839,
Project 2-A to nullify petitioners mother title.
According to petitioners, the reversal of the CFIs
decision violated the principle of res judicata as well
as the rule on incontrovertibility of land titles under
Act No. 496.
Respondent, on the other hand, denies the allegations
of the petition in its comment[16] dated August 6,
2002 and contends that (a) the claim that the subject
parcels of land are public agricultural lands by virtue
of a legislative grant is unfounded and baseless; (b)
the land registration court of Puerto Princesa,
Palawan, was devoid of jurisdictional competence to
order titling of a portion of forest land; (c) the CA is
correct in declaring that there must be a prior release
of the subject lands for agricultural purposes; (d) the
rules on res judicata and the incontestability of
Torrens titles do not find proper applications in the
exercise of the power of reversion by the State; and
(e) estoppel and laches will not operate against the
State. Respondent also reiterates its contention that
collusion existed between the parties in the
proceedings below which prevented a fair submission
of the controversy, to the damage and prejudice of the
Republic.
At the outset, it must be emphasized that an action for
reversion filed by the State to recover property
registered in favor of any party which is part of the
public forest or of a forest reservation never

prescribes. Verily, non-disposable public lands

registered under the Land Registration Act may be
recovered by the State at any time[17] and the
defense of res judicata would not apply as courts
have no jurisdiction to dispose of such lands of the
public domain.[18] That being said, it must likewise
be kept in mind that in an action to annul a judgment,
the burden of proving the judgments nullity rests
upon the petitioner. The petitioner has to establish by
clear and convincing evidence that the judgment
being challenged is fatally defective.[19]
Under the facts and circumstances of this case, the
Court finds that respondent met the required burden
of proof. Consequently, the CA did not err in granting
respondents petition to annul the decision of the land
registration court. This petition for review, therefore,
lacks merit.
Section 48(b) of the Public Land Act upon which
petitioners anchor their claim states:
Sec. 48. The following-described citizens of the
Philippines, occupying lands of the public domain or
claiming to own any such lands or an interest therein,
but whose titles have not been perfected or
completed, may apply to the Court of First Instance
of the province where the land is located for
confirmation of their claims and the issuance of a
certificate of title therefor, under the Land
Registration Act, to wit:
xxx
(b) Those who, by themselves or through their
predecessors-in-interest, have been in continuous,
exclusive, and notorious possession and occupation
of agricultural lands of the public domain, under a
bona fide claim of acquisition or ownership, for at
least thirty years immediately preceding the filing of
the application for confirmation of title, except when
prevented by war or force majeure. Those shall be
conclusively presumed to have performed all the
conditions essential to a government grant and shall
be entitled to a certificate of title under the provisions
of this chapter.

The above provision clearly requires the concurrence

of two things: (1) that the land sought to be registered
is public agricultural land, and (2) that the applicant
seeking registration must have possessed and
occupied the same for at least thirty years prior to the
filing of the application. That the petitioners, through
Pedro S. Palanca, have been in possession of the
properties since 1934 is not disputed. What is in
doubt is the compliance with the first requisite.
To reiterate, the validity of the CFI decision was
impugned on the basis of the courts lack of
jurisdiction. If the properties were alienable public
lands, then the CFI, acting as a land registration
court, had jurisdiction over them and could validly
confirm petitioners imperfect title. Otherwise, if the
properties were indeed public forests, then the CA
was correct in declaring that the land registration
court never acquired jurisdiction over the subject
matter of the case and, as a result, its decision
decreeing the registration of the properties in favor of
petitioners would be null and void.
The reason for this is the fact that public forests are
inalienable public lands. The possession of public
forests on the part of the claimant, however long,
cannot convert the same into private property.[20]
Possession in such an event, even if spanning decades
or centuries, could never ripen into ownership.[21] It
bears stressing that unless and until the land
classified as forest is released in an official
proclamation to that effect so that it may form part of
the disposable lands of the public domain, the rules
on confirmation of imperfect title do not apply.[22]
In the present case, Land Classification Map No. 839,
Project 2-A[23] indicated that the Talampulan and
Capari Islands on which the properties were located
were unclassified public lands as of December 9,
1929. It was by virtue of Executive Proclamation No.
219 issued on July 2, 1967 that these islands were
subsequently classified as national reserves. Based on
these, it becomes evident that the subject properties

have never been released for public disposition.

Obviously, from the time that petitioners and their
predecessor-in-interest were occupying the properties
in 1934 until the time that an application for
registration was filed in 1973, these properties
remained as inalienable public lands.
While it is true that the land classification map does
not categorically state that the islands are public
forests, the fact that they were unclassified lands
leads to the same result. In the absence of the
classification as mineral or timber land, the land
remains unclassified land until released and rendered
open to disposition.[24] When the property is still
unclassified, whatever possession applicants may
have had, and however long, still cannot ripen into
private ownership.[25] This is because, pursuant to
Constitutional precepts, all lands of the public
domain belong to the State, and the State is the
source of any asserted right to ownership in such
lands and is charged with the conservation of such
patrimony.[26] Thus, the Court has emphasized the
need to show in registration proceedings that the
government, through a positive act, has declassified
inalienable public land into disposable land for
agricultural or other purposes.[27]
Petitioners reliance upon Ramos v. Director of
Lands[28] and Ankron v. Government[29] is
misplaced. These cases were decided under the
Philippine Bill of 1902 and the first Public Land Act
No. 926 enacted by the Philippine Commission on
October 7, 1926, under which there was no legal
provision vesting in the Chief Executive or President
of the Philippines the power to classify lands of the
public domain into mineral, timber and agricultural
so that the courts then were free to make
corresponding classifications in justiciable cases, or
were vested with implicit power to do so, depending
upon the preponderance of the evidence.
As petitioners themselves admit, registration of the
properties is sought under Commonwealth Act No.
141. Sections 6 and 7 of the Act provide as follows:

Section 6. The President, upon the recommendation

of the Secretary of Agriculture and Commerce, shall
from time to time classify the lands of the public
domain into
(a) Alienable or disposable,
(b) Timber, and
(c) Mineral lands,
and may at any time and in a like manner transfer
such lands from one class to another, for the purposes
of their administration and disposition.
Section 7. For the purposes of the administration and
disposition of alienable or disposable public lands,
the President, upon recommendation by the Secretary
of Agriculture and Commerce, shall from time to
time declare what lands are open to disposition or
concession under this Act.

Based on the foregoing, the classification or

reclassification of public lands into alienable or
disposable, mineral or forest lands is the exclusive
prerogative of the Executive Department of the
government. Clearly, the courts no longer have the
authority, whether express or implied, to determine
the classification of lands of the public domain.[30]
To the Courts mind, petitioners have failed to present
incontrovertible proof that the lands they claimed had
previously been classified as alienable. The bare
allegation of Alfonso Lucero that a certification had
been issued releasing the properties for agricultural
purposes is not sufficient to prove this fact. The best
evidence would be the document itself which,
however, was not produced in this case. It was error
for the land registration court to have taken Mr.
Luceros testimony at face value, absent any other
evidence to conclusively prove that the land had been
released for public disposition.
Furthermore, it must be pointed out that petitioners
contention that the State has the burden to prove that
the land which it avers to be of public domain is
really of such nature applies only in instances where

the applicant has been in possession of the property

since time immemorial. When referring to this type
of possession, it means possession of which no
person living has seen the beginning and the
existence of which such person has learned from the
latters elders.[31] Immemorial possession justifies
the presumption that the land had never been part of
the public domain or that it had been private property
even before the Spanish conquest.[32] The
possession of petitioners in this case does not fall
under the above-named exception as their possession,
by their own admission, only commenced sometime
in 1934.
To reiterate, where there is a showing that lots sought
to be registered are part of the public domain, the
applicant for land registration under Section 48 of
Commonwealth Act No. 141 must secure a
certification from the government that the lands
claimed to have been possessed by the applicant as
owner for more than 30 years are alienable and
disposable.[33] Petitioners failure to do so in this
case, when taken with the evidence adduced by
respondent showing that the lands in question indeed
remain part of the public domain and form part of the
national reserves, confirms that the CFI never
acquired jurisdiction to order the registration of such
lands in favor of petitioners, and certainly justifies
their reversion to the State.
WHEREFORE, the petition is DENIED for lack of
merit. No costs.
SO ORDERED.

Republic of the Philippines

Supreme Court
Baguio City

property in the concept of an owner for more than 30

years.[4]
After trial and hearing, the RTC issued a Decision on
July 29, 2006, granting the petitioners application,
thus:

SECOND DIVISION
JEAN TAN, ROSELLER C. ANACINTO, CARLO
LOILO ESPINEDA and DAISY ALIADO
MANAOIS, represented in this act by their Attorneyin-Fact,
MA. WILHELMINA E. TOBIAS,
Petitioners,

- versus

REPUBLIC OF THE PHILIPPINES,

Respondent.
G.R. No. 193443
RESOLUTION
REYES, J.:
This is a petition for review under Rule 45 of the
Decision[1] dated July 6, 2009 and Resolution[2]
dated August 12, 2010 Resolution of the Court of
Appeals (CA) in CA-G.R. CV No. 88995. The facts
leading to its filing are as follows:
On June 14, 2001, the petitioners filed with the
Regional Trial Court (RTC) of Naic, Cavite, an
application for land registration covering a parcel of
land identified as Lot 9972, Cad-459-D of Indang
Cadastre, situated in Barangay Bancod, Indang,
Cavite and with an area of 6,920 square meters.[3]
The petitioners alleged that they acquired the subject
property from Gregonio Gatdula pursuant to a Deed
of Absolute Sale dated April 25, 1996; and they and
their predecessors-in-interest have been in open,
continuous and exclusive possession of the subject

WHEREFORE, in view of the foregoing, this Court

confirming its previous Order of general default,
decrees and adjudges Lot No. 9972 consisting of
6,920 square meters, Cad. 459-D, Indang Cadastre
and its technical description as herein abovedescribed situated in Brgy. Bancod, Indang, Cavite,
pursuant to the provisions of Act 496 as amended by
P.D. 1529, as it is hereby decreed and adjudged to be
confirmed and registered in the names of Jean Tan, of
legal age, Filipino, single, with postal address at
Room 54 T. Pinpin St., Binondo, Manila; Roseller C.
Anaci[n]to, of legal age, Filipino, single, with postal
address at Moncario Villag[e], Ampid-1, San Mateo,
Rizal; Carlo Loilo Espineda, of legal age, Filipino,
with postal address at Cluster F. Cogeo, Antipolo,
Rizal and Daisy Aliado Manaois, of legal age,
Filipino and resident of Panghulo Road, Malabon,
Metro Manila.
Once this decision becomes final, let the
corresponding decree of registration be issued by the
Administrator, Land Registration Authority.
SO ORDERED.[5]

The CA gave due course to the appeal filed by the

Republic of the Philippines. By way of the assailed
Decision, the CA ruled that the petitioners failed to
prove that they and their predecessors-in-interest
have been in possession of the subject property for
the requisite period of 30 years. The CA posit:
We now determine if appellees have the right to
register their title on such land despite the fact that
their possession commenced only after 12 June 1945.
Records show that the appellees possession over the
subject property can be reckoned only from 21 June
1983, the date when according to evidence, the

subject property became alienable and disposable.

From said date up to the filing of the application for
registration of title over the subject property on 14
June 2001, only eighteen (18) years had lapsed. Thus,
appellees possession of the subject property fell short
of the requirement of open, continuous and exclusive
possession of at least 30 years.
Moreover, there was no adequate evidence which
would show that appellees and their predecessors-ininterest exercised acts of dominion over the subject
land as to indicate possession in the concept of
owner. The testimonies of appellees witnesses
regarding actual possession are belied by the absence
of evidence on actual use of or improvements on the
subject property. Appellees presented only various
tax declarations to prove possession. However,
except for the Certification, showing payment of tax
due on tax declaration for the year 2003, there are no
other evidence showing that all the taxes due
corresponding to the rest of the tax declarations were
in fact paid by appellees or their predecessors-ininterest.
In sum, appellees were unable to prove that they or
their predecessors-in-interest have been in possession
of the subject property for more than 30 years, which
possession is characterized as open, continuous,
exclusive, and notorious, in the concept of an owner.
Appellees failed to discharge their duty of
substantiating possession and title to the subject land.
WHEREFORE, the appeal is hereby GRANTED and
the Decision dated 29 July 2006 of the Regional Trial
Court (RTC) of Naic, Cavite, Branch 15 is
REVERSED and SET ASIDE.
SO ORDERED.[6] (citation omitted)

The petitioners moved for reconsideration but this

was denied by the CA in its August 12, 2010
Resolution.[7]
The petitioners question the conclusion arrived at by
the CA, alleging that the evidence they presented

prove that they and their predecessors-in-interest

have been in possession and occupation of the subject
property for more than 30 years. The petitioners
claim that the following sufficed to demonstrate that
they acquired title over the subject property by
prescription:
a.
the testimony of their attorney-in-fact,
Ma. Wilhelmina Tobias, stating that:
i.
the
petitioners have been in actual, notorious and open
possession of the subject property since the time they
purchased the same in 1996;
ii.
the
petitioners have regularly paid the taxes due on the
subject property;
iii.
the
petitioners predecessors-in-interest, Victorio Garcia,
Felipe Gatdula and Gregonio Gatdula, had been in
possession of the subject property for more than 30
years and had religiously paid the taxes due thereon;
and
iv.
the subject
property is agricultural, alienable and disposable;
b.
the testimony of the caretaker of the
subject property, Margarito Pena, stating that:
i.

he resides

near the subject property;

ii.
he
witnessed the execution of the deed of sale that
petitioners entered into with Gregonio Gatdula; and
iii.
the
petitioners and predecessors-in-interest have been in
possession of the subject property for more than 30
years;
c.
the testimony of Ferdinand Encarnacion,
a clerk in the Docket Division of the Land
Registration Authority (LRA), stating that:
i.
no
opposition to the petitioners application was filed
before the LRA;

ii.
an
examiner of the LRA found nothing wrong with the
petitioners application; and
iii.
no title
covering the subject property was previously issued;

This Court is faced with the lone issue of whether the

petitioners have proven themselves qualified to the
benefits under the relevant laws on the confirmation
of imperfect or incomplete titles.
Our Ruling

d.
Tax Declaration Nos. 2935, 2405 and
1823 for the years 1961, 1967 and 1974 in the name
of Victorio Garcia;[8]
e.
Tax Declaration Nos. 1534 and 3850 for
the years 1980 and 1985 in the name of Felipe
Gatdula;[9]
f.
Tax Declaration Nos. 22453-A and 2925
for the years 1991 and 1994 in the name of Gregonio
Gatdula;[10]
g.
Tax Declaration Nos. 21956-A, 22096A, 22097-A and 97-05078 in the name of the
petitioners;[11]
h.
Resolution No. 69, Series of 1998, of the
Sangguniang Bayan of Indang, Cavite, which
approved the reclassification of several lots,
including the subject property, from agricultural to
residential/commercial;[12]
i.
DARCO Conversion Order No.
040210005-(340)-99, Series of 2000, issued by the
Department of Agrarian Reform on July 13, 2000,
which converted several parcels of land, including
the subject property, from agricultural to
residential/commercial;[13]
j.
Certification issued by the Department
of Environment and Natural Resources (DENR)
CALABARZON dated October 29, 2002, stating that
the subject area falls within the Alienable and
Disposable Land Project No. 13-A of Indang, Cavite
per LC Map 3091 certified on June 21, 1983.[14]

Issue

Commonwealth Act No. 141, otherwise known as the

Public Land Act governs the classification and
disposition of lands forming part of the public
domain. Section 11 thereof provides that one of the
modes of disposing public lands suitable for
agricultural purposes is by confirmation of imperfect
or incomplete titles. Section 48 thereof enumerates
those who are considered to have acquired an
imperfect or incomplete title over an alienable and
disposable public land.
Presidential Decree No. 1529 (P.D. No. 1529),
otherwise known as the Property Registration Decree,
is a codification of all the laws relative to the
registration of property and Section 14 thereof
specifies those who are qualified to register their
incomplete title over an alienable and disposable
public land under the Torrens system. Particularly:
Section 14. Who may apply. The following persons
may file in the proper Court of First Instance an
application for registration of title to land, whether
personally or through their authorized
representatives:
(1) Those who by themselves or through their
predecessors-in-interest have been in open,
continuous, exclusive and notorious possession and
occupation of alienable and disposable lands of the
public domain under a bona fide claim of ownership
since June 12, 1945, or earlier.
(2) Those who have acquired ownership of private
lands by prescription under the provision of existing
laws.
(3) Those who have acquired ownership of private
lands or abandoned river beds by right of accession
or accretion under the existing laws.
(4) Those who have acquired ownership of land in
any other manner provided for by law.

As this Court clarified in Heirs of Malabanan v.

Republic of the Philippines,[15] and Republic of the
Philippines v. East Silverlane Realty Development
Corporation,[16] Section 14(1) covers alienable and
disposable lands while Section 14(2) covers private
property. Thus, for ones possession and occupation of
an alienable and disposable public land to give rise to
an imperfect title, the same should have commenced
on June 12, 1945 or earlier. On the other, for one to
claim that his possession and occupation of private
property has ripened to imperfect title, the same
should have been for the prescriptive period provided
under the Civil Code. Without need for an extensive
extrapolation, the private property contemplated in
Section 14(2) is patrimonial property as defined in
Article 421 in relation to Articles 420 and 422 of the
Civil Code.
Going further, it was explained in Heirs of
Malabanan and East Silverlane, that possession and
occupation of an alienable and disposable public land
for the periods provided under the Civil Code will not
convert it to patrimonial or private property. There
must be an express declaration that the property is no
longer intended for public service or the development
of national wealth. In the absence thereof, the
property remains to be alienable and disposable and
may not be acquired by prescription under Section
14(2) of P.D. No. 1529. Thus:
In Heirs of Malabanan, this Court ruled that
possession and occupation of an alienable and
disposable public land for the periods provided under
the Civil Code do not automatically convert said
property into private property or release it from the
public domain. There must be an express declaration
that the property is no longer intended for public
service or development of national wealth. Without
such express declaration, the property, even if
classified as alienable or disposable, remains property
of the State, and thus, may not be acquired by
prescription.

Nonetheless, Article 422 of the Civil Code states that

[p]roperty of public dominion, when no longer
intended for public use or for public service, shall
form part of the patrimonial property of the State. It
is this provision that controls how public dominion
property may be converted into patrimonial property
susceptible to acquisition by prescription. After all,
Article 420 (2) makes clear that those property which
belong to the State, without being for public use, and
are intended for some public service or for the
development of the national wealth are public
dominion property. For as long as the property
belongs to the State, although already classified as
alienable or disposable, it remains property of the
public dominion if when it is intended for some
public service or for the development of the national
wealth. (emphasis supplied)
Accordingly, there must be an express declaration by
the State that the public dominion property is no
longer intended for public service or the development
of the national wealth or that the property has been
converted into patrimonial. Without such express
declaration, the property, even if classified as
alienable or disposable, remains property of the
public dominion, pursuant to Article 420(2), and thus
incapable of acquisition by prescription. It is only
when such alienable and disposable lands are
expressly declared by the State to be no longer
intended for public service or for the development of
the national wealth that the period of acquisitive
prescription can begin to run. Such declaration shall
be in the form of a law duly enacted by Congress or a
Presidential Proclamation in cases where the
President is duly authorized by law.
In other words, for one to invoke the provisions of
Section 14(2) and set up acquisitive prescription
against the State, it is primordial that the status of the
property as patrimonial be first established.
Furthermore, the period of possession preceding the
classification of the property as patrimonial cannot be
considered in determining the completion of the
prescriptive period.[17]

The petitioners application is obviously anchored on

Section 14(2) of P.D. No. 1529 as they do not claim
to have possessed, by themselves or their
predecessors-in-interest, the subject property since
June 12, 1945 or earlier. That it was thru prescription
that they had acquired an imperfect title over the
subject property is the foundation upon which the
petitioners rest their application.
Unfortunately, this Court finds the evidence
presented by the petitioners to be wanting. The
petitioners failed to demonstrate that they and their
predecessors-in-interest possessed the property in the
requisite manner, which this Court explained as
follows:
It is concerned with lapse of time in the manner and
under conditions laid down by law, namely, that the
possession should be in the concept of an owner,
public, peaceful, uninterrupted and adverse.
Possession is open when it is patent, visible,
apparent, notorious and not clandestine. It is
continuous when uninterrupted, unbroken and not
intermittent or occasional; exclusive when the
adverse possessor can show exclusive dominion over
the land and an appropriation of it to his own use and
benefit; and notorious when it is so conspicuous that
it is generally known and talked of by the public or
the people in the neighborhood. The party who
asserts ownership by adverse possession must prove
the presence of the essential elements of acquisitive
prescription.[18]

Tax declarations per se do not qualify as competent

evidence of actual possession for purposes of
prescription. More so, if the payment of the taxes due
on the property is episodic, irregular and random
such as in this case. Indeed, how can the petitioners
claim of possession for the entire prescriptive period
be ascribed any ounce of credibility when taxes were
paid only on eleven (11) occasions within the 40-year
period from 1961 to 2001? In Wee v. Republic of the
Philippines,[19] this Court stated that:

It bears stressing that petitioner presented only five

tax declarations (for the years 1957, 1961, 1967,
1980 and 1985) for a claimed possession and
occupation of more than 45 years (1945-1993). This
type of intermittent and sporadic assertion of alleged
ownership does not prove open, continuous,
exclusive and notorious possession and occupation.
In any event, in the absence of other competent
evidence, tax declarations do not conclusively
establish either possession or declarants right to
registration of title.[20] (emphasis supplied and
citation omitted)

and frivolous. The testimonies of Margarito Pena and

Ma. Wilhelmina Tobias do not merit consideration
and do not make up for the inherent inadequacy of
the eleven (11) tax declarations submitted by the
petitioners. Such witnesses did not state what specific
acts of ownership or dominion were performed by the
petitioners and predecessors-in-interest and simply
made that general assertion that the latter possessed
and occupied the subject property for more than
thirty (30) years, which, by all means, is a mere
conclusion of law. The RTC should have tackled
evidence of such nature with a disposition to
incredulity, if not with an outright rejection.

In East Silverlane, it was emphasized that adverse,

continuous, open, public possession in the concept of
an owner is a conclusion of law and the burden to
prove it by clear, positive and convincing evidence is
on the applicant. A claim of ownership will not
proper on the basis of tax declarations if
unaccompanied by proof of actual possession.[21]

Furthermore, the petitioners application was filed

after only (1) year from the time the subject property
may be considered patrimonial. DARCO Conversion
Order No. 040210005-(340)-99, Series of 2000, was
issued by the DAR only on July 13, 2000, which
means that the counting of the thirty (30)-year
prescriptive period for purposes of acquiring
ownership of a public land under Section 14(2) can
only start from such date. Before the property was
declared patrimonial by virtue of such conversion
order, it cannot be acquired by prescription. This is

While there was an attempt to supplement the tax

declaration by testimonial evidence, the same is futile

clear from the pronouncements of this Court in Heirs

of Malabanan quoted above and in Republic of the
Philippines v. Rizalvo,[22] which states:
On this basis, respondent would have been eligible
for application for registration because his claim of
ownership and possession over the subject property
even exceeds thirty (30) years. However, it is
jurisprudentially clear that the thirty (30)-year period
of prescription for purposes of acquiring ownership
and registration of public land under Section 14 (2) of
P.D. No. 1529 only begins from the moment the State
expressly declares that the public dominion property
is no longer intended for public service or the
development of the national wealth or that the
property has been converted into patrimonial.[23]

WHEREFORE, premises considered, the instant

petition is DENIED for lack of merit. The July 6,
2009 Decision and August 12, 2010 Resolution of the
Court of Appeals are AFFIRMED.
SO ORDERED.