G.R. No.

180110 May 30, 2016 reason cited by Capwire is that the cable system lies outside of Philippine territory, i.e., on international
CAPITOL WIRELESS, INC., , vs. THE PROVINCIAL TREASURER OF BATANGAS, THE PROVINCIAL ASSESSOR OF
BATANGAS, THE MUNICIPAL TREASURER AND ASSESSOR OF NASUGBU, BATANGAS,
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul and
set aside the Court of Appeals’ Decision1 dated May 30, 2007 and Resolution2 dated October 8, 2007 in CA-
G.R. SP No. 82264, which both denied the appeal of petitioner against the decision of the Regional Trial
Court.
Below are the acts of the case.
Petitioner Capitol Wireless Inc. (Capwire) is a Philippine corporation in the business of providing international
telecommunications services. 3 As such provider, Capwire has signed agreements with other local and
foreign telecommunications companies covering an international network of
submarine cable systems such as the Asia Pacific Cable Network System (APCN) (which connects Australia,
Thailand, Malaysia, Singapore, Hong Kong, Taiwan, Korea, Japan, Indonesia and the Philippines); the
BruneiMalaysia-Philippines Cable Network System (BMP-CNS), the PhilippinesItaly
(SEA-ME-WE-3 CNS), and the Guam Philippines (GP-CNS) systems. 4 The agreements provide for co-ownership
and other rights among the parties over the network. 5
Petitioner Capwire claims that it is co-owner only of the so-called "Wet Segment" of the APCN, while the
landing stations or terminals and Segment E of APCN located in Nasugbu, Batangas are allegedly owned by
the Philippine Long Distance Telephone Corporation (PLDT). 6 Moreover, it alleges that the Wet Segment is
laid in inten1ational, and not Philippine, waters. 7
Capwire claims that as co-owner, it does not own any particular physical part of the cable system but,
consistent with its financial contributions, it owns the right to use a certain capacity of the said systern. 8 This
property right is allegedly reported in its financial books as "Indefeasible Rights in Cable Systems." 9
However, for loan restructuring purposes, Capwire claims that "it was required to register the value of its right,"
hence, it engaged an appraiser to "assess the market value of the international submarine cable system and
the cost to Capwire." 10 On May 15, 2000, Capwire submitted a Sworn Statement of True Value of Real
Properties at the Provincial Treasurer's Office, Batangas City, Batangas Province, for the Wet Segment of the
system, stating:
System Sound Value
APCN P203,300,000.00
BMP-CNS p 65,662,000.00
SEA-ME-WE-3 CNSP P7,540,000.00
GP-CNS P1,789,000.00
Capwire claims that it also reported that the system "interconnects at the PLDT Landing Station in Nasugbu,
Batangas," which is covered by a transfer certificate of title and tax declarations in the name of PLDT. 11
As a result, the respondent Provincial Assessor of Batangas (Provincial Assessor) issued the following
Assessments of Real Property (ARP) against Capwire:
ARP Cable System Assessed Value
waters. 13
On February 7, 2003 and March 4, 2003, Capwire received a Warrant of Levy and a Notice of Auction Sale,
respectively, from the respondent Provincial Treasurer of Batangas (Provincial Treasurer). 14
On March I 0, 2003, Capwire filed a Petition for Prohibition and Declaration of Nullity of Warrant of Levy,
Notice of Auction Sale and/or Auction Sale with the Regional Trial Court (RTC) of Batangas City. 15
After the filing of the public respondents' Comment, 16 on May 5, 2003, the RTC issued an Order dismissing the
petition for failure of the petitioner Capwire to follow the requisite of payment under protest as well as failure
to appeal to the Local Board of Assessment Appeals (LBAA), as provided for in Sections 206 and 226 of
Republic Act (R.A.) No. 7160, or the Local Government Code. 17
Capwire filed a Motion for Reconsideration,18 but the same was likewise dismissed by the RTC in an
Order19 dated August 26, 2003. It then filed an appeal to the Court of Appeals. 20
On May 30, 2007, the Court of Appeals promulgated its Decision dismissing the appeal filed by Capwire and
affirming the order of the trial court.1âwphi1 The dispositive portion of the CA's decision states:
WHEREFORE, premises considered, the assailed Orders dated May 5, 2003 and August 26, 2003 of the
Regional Trial Court, Branch II of Batangas City, are AFFIRMED.
SO ORDERED.21
The appellate court held that the trial court correctly dismissed Capwire's petition because of the latter's
failure to comply with the requirements set in Sections 226 and 229 of the Local Government Code, that is, by
not availing of remedies before administrative bodies like the LBAA and the Central Board of Assessment
Appeals (CBAA). 22Although Capwire claims that it saw no need to undergo administrative proceedings
because its petition raises purely legal questions, the appellate comi did not share this view and noted that
the case raises questions of fact, such as the extent to which parts of the submarine cable system lie within
the territorial jurisdiction of the taxing authorities, the public respondents.23 Further, the CA noted that
Capwire failed to pay the tax assessed against it under protest, another strict requirement under Section 252
of the Local Government Code24
Hence, the instant petition for review of Capwire.
Petitioner Capwire asserts that recourse to the Local Board of Assessment Appeals, or payment of the tax
under protest, is inapplicable to the case at bar since there is no question of fact involved, or that the
question involved is not the reasonableness of the amount assessed but, rather, the authority and power of
the assessor to impose the tax and of the treasurer to collect it.25 It contends that there is only a pure question
of law since the issue is whether its submarine cable system, which it claims lies in international waters, is
taxable.26 Capwire holds the position that the cable system is not subject to tax.27
Respondents assessors and treasurers of the Province of Batangas and Municipality of Nasugbu, Batangas
disagree with Capwire and insist that the case presents questions of fact such as the extent and portion of
the submarine cable system that lies within the jurisdiction of the said local governments, as well as the
nature of the so-called indefeasible rights as property of Capwire.28 Such questions are allegedly resolvable
only before administrative agencies like the Local Board of Assessment Appeals. 29
The Court confronts the following issues: Is the case cognizable by the administrative agencies and covered
by the requirements in Sections 226 and 229 of the Local Government Code which makes the dismissal of
Capwire's petition by the RTC proper? May submarine communications cables be classified as taxable real
property by the local governments?

019-00967 BMP-CNS P52,529,600.00 The petition is denied. No error attended the ruling of the appellate court that the case involves factual
questions that should have been resolved before the appropriate administrative bodies.
019-00968 APCN P162,640,000.00 In disputes involving real property taxation, the general rule is to require the taxpayer to first avail of
administrative remedies and pay the tax under protest before allowing any resort to a judicial action, except
019-00969 SEA-ME-WE3-CNS P: 6,032,000.00 when the assessment itself is alleged to be illegal or is made without legal authority.30
For example, prior resort to administrative action is required when among the issues raised is an allegedly
019-00970 GP-CNS P: 1,431,200.00
erroneous assessment, like when the reasonableness of the amount is challenged, while direct court action is
In essence, the Provincial Assessor had determined that the submarine cable systems described in Capwire's permitted when only the legality, power, validity or authority of the; assessment itself is in question.JI Stated
Sworn Statement of True Value of Real Properties are taxable real property, a determination that was differently, the general rule of a prerequisite recourse to administrative remedies applies when questions of
contested by Capwire in an exchange of letters between the company and the public respondent. 12 The

Page 1 of 20
fact are raised, but the exception of direct court action is allowed when purely questions of law are
involved.32
This Court has previously and rather succinctly discussed the difference between a question of fact and a
question of law. In Cosmos Bottling Corporation v. Nagrama, Jr., 33 it held:
The Court has made numerous dichotomies between questions of law and fact. A reading of these
dichotomies shows that labels attached to law and fact are descriptive rather than definitive. We are not
alone in Our difficult task of clearly distinguishing questions of fact from questions of law. The United States
Supreme Court has ruled that: "we [do not] yet know of any other rule or principle that will unerringly
distinguish a factual finding from a legal conclusion."
In Ramos v. Pepsi-Cola Bottling Co. of the PI., the Court ruled:
There is a question of law in a given case when the doubt or difference arises as to what the law is on a
certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or the
falsehood of alleged facts.
We shall label this the doubt dichotomy.
In Republic v. Sandiganbayan, the Court ruled:
x x x A question of law exists when the doubt or controversy concerns the correct application of law or
jurisprudence to a certain set of facts; or when the issue does not call for an examination of the probative
value of the evidence presented, the truth or falsehood of facts being admitted. In contrast, a question of
fact exists when the doubt or difference arises as to the truth or falsehood of facts or when the query invites
calibration of the whole evidence considering mainly the credibility of the witnesses, the existence and
relevancy of specific surrounding circumstances as well as their relation to each other and to the whole, and
the probability of the situation.
For the sake of brevity, We shall label this the law application and calibration dichotomy.
In contrast, the dynamic legal scholarship in the United States has birthed many commentaries on the
question of law and question of fact dichotomy. As early as 1944, the law was described as growing
downward toward "roots of fact" which grew upward to meet it. In 1950, the late Professor Louis Jaffe saw
fact and law as a spectrum, with one shade blending imperceptibly into the other. Others have defined
questions of law as those that deal with the general body of legal principles; questions of fact deal with "all
other phenomena xx x." Kenneth Culp Davis also weighed in and noted that the difference between fact
and law has been characterized as that between "ought" questions and "is" questions.34
Guided by the quoted pronouncement, the Court sustains the CA's finding that petitioner's case is one
replete with questions of fact instead of pure questions of law, which renders its filing in a judicial forum
improper because it is instead cognizable by local administrative bodies like the Board of Assessment
Appeals, which are the proper venues for trying these factual issues. Verily, what is alleged by Capwire in its
petition as "the crux of the controversy," that is, "whether or not an indefeasible right over a submarine cable
system that lies in international waters can be subject to real property tax in the Philippines,"35 is not the
genuine issue that the case presents - as it is already obvious and fundamental that real property that lies
outside of Philippine territorial jurisdiction cannot be subjected to its domestic and sovereign power of real
property taxation - but, rather, such factual issues as the extent and status of Capwire's ownership of the
system, the actual length of the cable/s that lie in Philippine territory, and the corresponding assessment and
taxes due on the same, because the public respondents imposed and collected the assailed real property
tax on the finding that at least a portion or some portions of the submarine cable system that Capwire owns
or co-owns lies inside Philippine territory. Capwire's disagreement with such findings of the administrative
bodies presents little to no legal question that only the courts may directly resolve.
Instead, Capwire argues and makes claims on mere assumptions of certain facts as if they have been
already admitted or established, when they have not, since no evidence of such have yet been presented
in the proper agencies and even in the current petition. As such, it remains unsettled whether Capwire is a
mere co-owner, not full owner, of the subject submarine cable and, if the former, as to what extent; whether
all or certain portions of the cable are indeed submerged in water; and whether the waters wherein the
cable/s is/are laid are entirely outside of Philippine territorial or inland waters, i.e., in international waters.
More simply, Capwire argues based on mere legal conclusions, culminating on its claim of illegality of
respondents' acts, but the conclusions are yet unsupported by facts that should have been threshed out
quasi-judicially before the administrative agencies. It has been held that "a bare characterization in a
petition of unlawfulness, is merely a legal conclusion and a wish of the pleader, and such a legal conclusion
unsubstantiated by facts which could give it life, has no standing in any court where issues must be
presented and determined by facts in ordinary and concise language."36 Therefore, Capwire's resort to
judicial action, premised on its legal conclusion that its cables (the equipment being taxed) lie entirely on
international waters, without first administratively substantiating such a factual premise, is improper and was
rightly denied. Its proposition that the cables lie entirely beyond Philippine territory, and therefore, outside of
Philippine sovereignty, is a fact that is not subject to judicial notice since, on the contrary, and as will be
explained later, it is in fact certain that portions of the cable would definitely lie within Philippine waters.
Jurisprudence on the Local Government Code is clear that facts such as these must be threshed out
administratively, as the courts in these types of cases step in at the first instance only when pure questions of
law are involved.
Nonetheless, We proceed to decide on whether submarine wires or cables used for communications may be
taxed like other real estate.
We hold in the affirmative.
Submarine or undersea communications cables are akin to electric transmission lines which this Court has
recently declared in Manila Electric Company v. City Assessor and City Treasurer of Lucena City, 37 as "no
longer exempted from real prope1iy tax" and may qualify as "machinery" subject to real property tax under
the Local Government Code. To the extent that the equipment's location is determinable to be within the
taxing authority's jurisdiction, the Court sees no reason to distinguish between submarine cables used for
communications and aerial or underground wires or lines used for electric transmission, so that both pieces of
property do not merit a different treatment in the aspect of real property taxation.
Both electric lines and communications cables, in the strictest sense, are not directly adhered to the soil but
pass through posts, relays or landing stations, but both may be classified under the term "machinery" as real
property under Article 415(5)38 of the Civil Code for the simple reason that such pieces of equipment serve
the owner's business or tend to meet the needs of his industry or works that are on real estate. Even objects in
or on a body of water may be classified as such, as "waters" is classified as an immovable under Article
415(8)39 of the Code. A classic example is a boathouse which, by its nature, is a vessel and, therefore, a
personal property but, if it is tied to the shore and used as a residence, and since it floats on waters which is
immovable, is considered real property.40 Besides, the Court has already held that "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."41
Thus, absent any showing from Capwire of any express grant of an exemption for its lines and cables from
real property taxation, then this interpretation applies and Capwire's submarine cable may be held subject
to real property tax.
Having determined that Capwire is liable, and public respondents have the right to impose a real property
tax on its submarine cable, the issue that is unresolved is how much of such cable is taxable based on the
extent of Capwire's ownership or co-ownership of it and the length that is laid within respondents' taxing
jurisdiction. The matter, however, requires a factual determination that is best performed by the Local and
Central Boards of Assessment Appeals, a remedy which the petitioner did not avail of.
At any rate, given the importance of the issue, it is proper to lay down the other legal bases for the local
taxing authorities' power to tax portions of the submarine cables of petitioner. It is not in dispute that the
submarine cable system's Landing Station in Nasugbu, Batangas is owned by PLDT and not by Capwire.
Obviously, Capwire is not liable for the real property tax on this Landing Station. Nonetheless, Capwire admits
that it co-owns the submarine cable system that is subject of the tax assessed and being collected by public
respondents. As the Court takes judicial notice that Nasugbu is a coastal town and the surrounding sea falls
within what the United Nations Convention on the Law of the Sea (UN CLOS) would define as the country's
territorial sea (to the extent of 12 nautical miles outward from the nearest baseline, under Part II, Sections 1
and 2) over which the country has sovereignty, including the seabed and subsoil, it follows that indeed a
portion of the submarine cable system lies within Philippine territory and thus falls within the jurisdiction of the
said local taxing authorities.42 It easily belies Capwire's contention that the cable system is entirely in
international waters. And even if such portion does not lie in the 12-nautical-mile vicinity of the territorial sea
but further inward, in Prof Magallona v. Hon. Ermita, et al.43 this Court held that "whether referred to as
Page 2 of 20
Philippine 'internal waters' under A1iicle I of the Constitution44 or as 'archipelagic waters' under UNCLOS Part
III, Article 49(1, 2, 4),45 the Philippines exercises sovereignty over the body of water lying landward of (its)
baselines, including the air space over it and the submarine areas underneath." Further, under Part VI, Article
7946 of the UNCLOS, the Philippines clearly has jurisdiction with respect to cables laid in its territory that are
utilized in support of other installations and structures under its jurisdiction.
And as far as local government units are concerned, the areas described above are to be considered
subsumed under the term "municipal waters" which, under the Local Government Code, includes "not only
streams, lakes, and tidal waters within the municipality, not being the subject of private ownership and not
comprised within the national parks, public forest, timber lands, forest reserves or fishery reserves, but also
marine waters included between two lines drawn perpendicularly to the general coastline from points where
the boundary lines of the municipality or city touch the sea at low tide and a third line parallel with the
general coastline and fifteen (15) kilometers from it."47Although the term "municipal waters" appears in the
Code in the context of the grant of quarrying and fisheries privileges for a fee by local governments,48 its
inclusion in the Code's Book II which covers local taxation means that it may also apply as guide in
determining the territorial extent of the local authorities' power to levy real property taxation.
Thus, the jurisdiction or authority over such part of the subject submarine cable system lying within Philippine
jurisdiction includes the authority to tax the same, for taxation is one of the three basic and necessary
attributes of sovereignty,49 and such authority has been delegated by the national legislature to the local
governments with respect to real property.50 taxation.
As earlier stated, a way for Capwire to claim that its cable system is not covered by such authority is by
showing a domestic enactment or even contract, or an international agreement or treaty exempting the
same from real property taxation. It failed to do so, however, despite the fact that the burden of proving
exemption from local taxation is upon whom the subject real property is declared. 51 Under the Local
Government Code, every person by or for whom real property is declared, who shall claim tax exemption for
such property from real property taxation "shall file with the provincial, city or municipal assessor within thirty
(30) days from the date of the declaration of real property sufficient documentary evidence in support of
such claim."52 Capwire omitted to do so. And even under Capwire's legislative franchise, RA 4387, which
amended RA 2037, where it may be derived that there was a grant of real property tax exemption for
properties that are part of its franchise, or directly meet the needs of its business,53 such had been expressly
withdrawn by the Local Government Code, which took effect on January l, 1992, Sections 193 and 234 of
which provide:54
Section 193. Withdrawal of Tax Exemption Privileges. – Unless otherwise provided in this Code, tax exemptions
or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts, cooperatives duly registered
under R.A. No. 6938, nonstock and nonprofit hospitals and educational institutions, arc hereby withdrawn
upon the effectivity of this Code.
xxxx
Section 234. Exemptions from Real Property Tax. - The following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration
of otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,
mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements
actually, directly, and exclusively used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local
water districts and government-owned or controlled corporations engaged in the supply
and distribution of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R.A. No.
6938; and
(e) Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property tax previously granted to, or
presently enjoyed by, all persons, whether natural or .iuridical, including all government-owned or controlled
corporations arc hereby withdrawn upon the cffectivity of this Code.55
Such express withdrawal had been previously held effective upon exemptions bestowed by legislative
franchises granted prior to the effectivity of the Local Government Code.56 Capwire fails to allege or provide
any other privilege or exemption that were granted to it by the legislature after the enactment of the Local
Government Code. Therefore, the presumption stays that it enjoys no such privilege or exemption. Tax
exemptions arc strictly construed against the taxpayer because taxes are considered the lifeblood of the
nation.57
WHEREFORE, the petition is DENIED. The Court of Appeals’ Decision dated May 30, 2007 and Resolution dated
October 8. 2007 are AFFIRMED.
SO ORDERED
G.R. No. 137705 August 22, 2000
SERG'S PRODUCTS, INC., and SERGIO T. GOQUIOLAY, , vs. PCI LEASING AND FINANCE, INC., .
DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or immovable property be considered as personal or
movable, a party is estopped from subsequently claiming otherwise. Hence, such property is a proper
subject of a writ of replevin obtained by the other contracting party.
The Case
Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision1 of the Court of Appeals
(CA)2in CA-GR SP No. 47332 and its February 26, 1999 Resolution3 denying reconsideration. The decretal
portion of the CA Decision reads as follows:
"WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and Resolution dated March
31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED. The writ of preliminary injunction issued on June
15, 1998 is hereby LIFTED."4
In its February 18, 1998 Order,5 the Regional Trial Court (RTC) of Quezon City (Branch 218)6 issued a Writ of
Seizure.7 The March 18, 1998 Resolution8 denied petitioners’ Motion for Special Protective Order, praying that
the deputy sheriff be enjoined "from seizing immobilized or other real properties in (petitioners’) factory in
Cainta, Rizal and to return to their original place whatever immobilized machineries or equipments he may
have removed."9
The Facts
The undisputed facts are summarized by the Court of Appeals as follows:10
"On February 13, 1998, respondent PCI Leasing and Finance, Inc. ("PCI Leasing" for short) filed with the RTC-
QC a complaint for [a] sum of money (Annex ‘E’), with an application for a writ of replevin docketed as Civil
Case No. Q-98-33500.
"On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a writ of replevin
(Annex ‘B’) directing its sheriff to seize and deliver the machineries and equipment to PCI Leasing after 5 days
and upon the payment of the necessary expenses.
"On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioner’s factory, seized one
machinery with [the] word that he [would] return for the other machineries.
"On March 25, 1998, petitioners filed a motion for special protective order (Annex ‘C’), invoking the power of
the court to control the conduct of its officers and amend and control its processes, praying for a directive
for the sheriff to defer enforcement of the writ of replevin.
"This motion was opposed by PCI Leasing (Annex ‘F’), on the ground that the properties [were] still personal
and therefore still subject to seizure and a writ of replevin.
"In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as defined in
Article 415 of the Civil Code, the parties’ agreement to the contrary notwithstanding. They argued that to
give effect to the agreement would be prejudicial to innocent third parties. They further stated that PCI
Leasing [was] estopped from treating these machineries as personal because the contracts in which the
alleged agreement [were] embodied [were] totally sham and farcical.
"On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of the remaining
properties. He was able to take two more, but was prevented by the workers from taking the rest.
"On April 7, 1998, they went to [the CA] via an original action for certiorari."
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject machines were personal
property, and that they had only been leased, not owned, by petitioners. It also ruled that the "words of the
Page 3 of 20
contract are clear and leave no doubt upon the true intention of the contracting parties." Observing that
Petitioner Goquiolay was an experienced businessman who was "not unfamiliar with the ways of the trade," it
ruled that he "should have realized the import of the document he signed." The CA further held:
"Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon the case
below, since the merits of the whole matter are laid down before us via a petition whose sole purpose is to
inquire upon the existence of a grave abuse of discretion on the part of the [RTC] in issuing the assailed Order
and Resolution. The issues raised herein are proper subjects of a full-blown trial, necessitating presentation of
evidence by both parties. The contract is being enforced by one, and [its] validity is attacked by the other –
a matter x x x which respondent court is in the best position to determine."
Hence, this Petition.11
The Issues
In their Memorandum, petitioners submit the following issues for our consideration:
"A. Whether or not the machineries purchased and imported by SERG’S became real property by virtue of
immobilization.
B. Whether or not the contract between the parties is a loan or a lease."12
In the main, the Court will resolve whether the said machines are personal, not immovable, property which
may be a proper subject of a writ of replevin. As a preliminary matter, the Court will also address briefly the
procedural points raised by respondent.
The Court’s Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate expressly whether it was being filed under Rule 45 or
Rule 65 of the Rules of Court. It further alleges that the Petition erroneously impleaded Judge Hilario Laqui as
respondent.
There is no question that the present recourse is under Rule 45. This conclusion finds support in the very title of
the Petition, which is "Petition for Review on Certiorari."13
While Judge Laqui should not have been impleaded as a respondent,14 substantial justice requires that such
lapse by itself should not warrant the dismissal of the present Petition. In this light, the Court deems it proper to
remove, motu proprio, the name of Judge Laqui from the caption of the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their factory were not proper subjects of the Writ issued
by the RTC, because they were in fact real property. Serious policy considerations, they argue, militate
against a contrary characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of personal property
only.15Section 3 thereof reads:
"SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court shall issue an order and
the corresponding writ of replevin describing the personal property alleged to be wrongfully detained and
requiring the sheriff forthwith to take such property into his custody."
On the other hand, Article 415 of the Civil Code enumerates immovable or real property as follows:
"ART. 415. The following are immovable property:
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;
xxx xxx x x x"
In the present case, the machines that were the subjects of the Writ of Seizure were placed by petitioners in
the factory built on their own land. Indisputably, they were essential and principal elements of their
chocolate-making industry. Hence, although each of them was movable or personal property on its own, all
of them have become "immobilized by destination because they are essential and principal elements in the
industry."16 In that sense, petitioners are correct in arguing that the said machines are real, not personal,
property pursuant to Article 415 (5) of the Civil Code.17
Be that as it may, we disagree with the submission of the petitioners that the said machines are not proper
subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real property be considered as
personal.18After agreeing to such stipulation, they are consequently estopped from claiming otherwise.
Under the principle of estoppel, a party to a contract is ordinarily precluded from denying the truth of any
material fact found therein.
Hence, in Tumalad v. Vicencio,19 the Court upheld the intention of the parties to treat a house as a personal
property because it had been made the subject of a chattel mortgage. The Court ruled:
"x x x. Although there is no specific statement referring to the subject house as personal property, yet by
ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could only have
meant to convey the house as chattel, or at least, intended to treat the same as such, so that they should
not now be allowed to make an inconsistent stand by claiming otherwise."
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever Textile Mills20 also held that
the machinery used in a factory and essential to the industry, as in the present case, was a proper subject of
a writ of replevin because it was treated as personal property in a contract. Pertinent portions of the Court’s
ruling are reproduced hereunder:
"x x x. If a house of strong materials, like what was involved in the above Tumalad case, may be considered
as personal property for purposes of executing a chattel mortgage thereon as long as the parties to the
contract so agree and no innocent third party will be prejudiced thereby, there is absolutely no reason why a
machinery, which is movable in its nature and becomes immobilized only by destination or purpose, may not
be likewise treated as such. This is really because one who has so agreed is estopped from denying the
existence of the chattel mortgage."
In the present case, the Lease Agreement clearly provides that the machines in question are to be
considered as personal property. Specifically, Section 12.1 of the Agreement reads as follows:21
"12.1 The PROPERTY is, and shall at all times be and remain, personal property notwithstanding that the
PROPERTY or any part thereof may now be, or hereafter become, in any manner affixed or attached to or
embedded in, or permanently resting upon, real property or any building thereon, or attached in any
manner to what is permanent."
Clearly then, petitioners are estopped from denying the characterization of the subject machines as
personal property. Under the circumstances, they are proper subjects of the Writ of Seizure.
It should be stressed, however, that our holding -- that the machines should be deemed personal property
pursuant to the Lease Agreement – is good only insofar as the contracting parties are concerned.22 Hence,
while the parties are bound by the Agreement, third persons acting in good faith are not affected by its
stipulation characterizing the subject machinery as personal.23 In any event, there is no showing that any
specific third party would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement is a loan and not a lease.24 Submitting
documents supposedly showing that they own the subject machines, petitioners also argue in their Petition
that the Agreement suffers from "intrinsic ambiguity which places in serious doubt the intention of the parties
and the validity of the lease agreement itself."25 In their Reply to respondent’s Comment, they further allege
that the Agreement is invalid.26
These arguments are unconvincing. The validity and the nature of the contract are the lis mota of the civil
action pending before the RTC. A resolution of these questions, therefore, is effectively a resolution of the
merits of the case. Hence, they should be threshed out in the trial, not in the proceedings involving the
issuance of the Writ of Seizure.
Indeed, in La Tondeña Distillers v. CA,27 the Court explained that the policy under Rule 60 was that questions
involving title to the subject property – questions which petitioners are now raising -- should be determined in
the trial. In that case, the Court noted that the remedy of defendants under Rule 60 was either to post a
counter-bond or to question the sufficiency of the plaintiff’s bond. They were not allowed, however, to
invoke the title to the subject property. The Court ruled:
"In other words, the law does not allow the defendant to file a motion to dissolve or discharge the writ of
seizure (or delivery) on ground of insufficiency of the complaint or of the grounds relied upon therefor, as in
proceedings on preliminary attachment or injunction, and thereby put at issue the matter of the title or right
of possession over the specific chattel being replevied, the policy apparently being that said matter should
be ventilated and determined only at the trial on the merits."28
Page 4 of 20
Besides, these questions require a determination of facts and a presentation of evidence, both of which Parañaque to pay the real estate tax imposed by the City. MIAA then paid some of the real estate tax
have no place in a petition for certiorari in the CA under Rule 65 or in a petition for review in this Court under already due.
Rule 45.29 On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for
Reliance on the Lease Agreement the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows:
It should be pointed out that the Court in this case may rely on the Lease Agreement, for nothing on record TAX
shows that it has been nullified or annulled. In fact, petitioners assailed it first only in the RTC proceedings, TAXABLE YEAR TAX DUE PENALTY TOTAL
DECLARATION
which had ironically been instituted by respondent. Accordingly, it must be presumed valid and binding as
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
the law between the parties.
Makati Leasing and Finance Corporation30 is also instructive on this point. In that case, the Deed of Chattel E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
Mortgage, which characterized the subject machinery as personal property, was also assailed because E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
respondent had allegedly been required "to sign a printed form of chattel mortgage which was in a blank
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
form at the time of signing." The Court rejected the argument and relied on the Deed, ruling as follows:
"x x x. Moreover, even granting that the charge is true, such fact alone does not render a contract void ab E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
initio, but can only be a ground for rendering said contract voidable, or annullable pursuant to Article 1390 of E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
the new Civil Code, by a proper action in court. There is nothing on record to show that the mortgage has E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
been annulled. Neither is it disclosed that steps were taken to nullify the same. x x x"
Alleged Injustice Committed on the Part of Petitioners E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
Petitioners contend that "if the Court allows these machineries to be seized, then its workers would be out of *E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
work and thrown into the streets."31 They also allege that the seizure would nullify all efforts to rehabilitate the *E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
corporation.
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
Petitioners’ arguments do not preclude the implementation of the Writ.1âwphi1 As earlier discussed, law and
jurisprudence support its propriety. Verily, the above-mentioned consequences, if they come true, should not GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42
be blamed on this Court, but on the petitioners for failing to avail themselves of the remedy under Section 5 1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
of Rule 60, which allows the filing of a counter-bond. The provision states: #9476101 for P28,676,480.00
"SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the applicant’s bond, or of the #9476103 for P49,115.006
surety or sureties thereon, he cannot immediately require the return of the property, but if he does not so On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy and warrants of levy
object, he may, at any time before the delivery of the property to the applicant, require the return thereof, on the Airport Lands and Buildings. The Mayor of the City of Parañaque threatened to sell at public auction
by filing with the court where the action is pending a bond executed to the applicant, in double the value of the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a
the property as stated in the applicant’s affidavit for the delivery thereof to the applicant, if such delivery be clarification of OGCC Opinion No. 061.
adjudged, and for the payment of such sum to him as may be recovered against the adverse party, and by On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed
serving a copy bond on the applicant." out that Section 206 of the Local Government Code requires persons exempt from real estate tax to show
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals AFFIRMED. Costs against proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt
petitioners. from real estate tax.
SO ORDERED. On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction,
with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of
G.R. No. 155650 July 20, 2006 Parañaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands
MANILA INTERNATIONAL AIRPORT AUTHORITY vs. COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF and Buildings. The petition was docketed as CA-G.R. SP No. 66878.
PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day
TREASURER OF PARAÑAQUE, . reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for
DECISION reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002 the
CARPIO, J.: present petition for review.7
The Antecedents Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the Barangay Halls of
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Barangays Vitalez, Sto. Niño, and Tambo, Parañaque City; in the public market of Barangay La Huerta; and
Complex in Parañaque City under Executive Order No. 903, otherwise known as the Revised Charter of the in the main lobby of the Parañaque City Hall. The City of Parañaque published the notices in the 3 and 10
Manila International Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by January 2003 issues of the Philippine Daily Inquirer, a newspaper of general circulation in the Philippines. The
then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the MIAA notices announced the public auction sale of the Airport Lands and Buildings to the highest bidder on 7
Charter. February 2003, 10:00 a.m., at the Legislative Session Hall Building of Parañaque City.
As operator of the international airport, MIAA administers the land, improvements and equipment within the A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an
NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land,3 including the Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought
runways and buildings ("Airport Lands and Buildings") then under the Bureau of Air Transportation.4 The MIAA to restrain respondents — the City of Parañaque, City Mayor of Parañaque, Sangguniang Panglungsod ng
Charter further provides that no portion of the land transferred to MIAA shall be disposed of through sale or Parañaque, City Treasurer of Parañaque, and the City Assessor of Parañaque ("respondents") — from
any other mode unless specifically approved by the President of the Philippines.5 auctioning the Airport Lands and Buildings.
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court
OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate tax ordered respondents to cease and desist from selling at public auction the Airport Lands and Buildings.
granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of
Page 5 of 20
Respondents received the TRO on the same day that the Court issued it. However, respondents received the
TRO only at 1:25 p.m. or three hours after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued
during the hearing, MIAA, respondent City of Parañaque, and the Solicitor General subsequently submitted
their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of
MIAA. However, MIAA points out that it cannot claim ownership over these properties since the real owner of
the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to
devote the Airport Lands and Buildings for the benefit of the general public. Since the Airport Lands and
Buildings are devoted to public use and public service, the ownership of these properties remains with the
State. The Airport Lands and Buildings are thus inalienable and are not subject to real estate tax by local
governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real
estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government
Code because the Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA
invokes the principle that the government cannot tax itself. MIAA points out that the reason for tax
exemption of public property is that its taxation would not inure to any public advantage, since in such a
case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax
exemption privileges of "government-owned and-controlled corporations" upon the effectivity of the Local
Government Code. Respondents also argue that a basic rule of statutory construction is that the express
mention of one person, thing, or act excludes all others. An international airport is not among the exceptions
mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot claim
that the Airport Lands and Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we held that
the Local Government Code has withdrawn the exemption from real estate tax granted to international
airports. Respondents further argue that since MIAA has already paid some of the real estate tax
assessments, it is now estopped from claiming that the Airport Lands and Buildings are exempt from real
estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from
real estate tax under existing laws. If so exempt, then the real estate tax assessments issued by the City of
Parañaque, and all proceedings taken pursuant to such assessments, are void. In such event, the other issues
raised in this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local
governments.
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National
Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from
real estate tax. Respondents claim that the deletion of the phrase "any government-owned or controlled so
exempt by its charter" in Section 234(e) of the Local Government Code withdrew the real estate tax
exemption of government-owned or controlled corporations. The deleted phrase appeared in Section 40(a)
of the 1974 Real Property Tax Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax.
However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory
Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation as
follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or
non-stock corporation, vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or through its instrumentalities either
wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one
(51) percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock or non-stock corporation."
MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no
capital stock divided into shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA
Charter9 provides:
SECTION 10. Capital. — The capital of the Authority to be contributed by the National Government
shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion
(P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and equipment and such other
properties, movable and immovable[,] which may be contributed by the National Government or
transferred by it from any of its agencies, the valuation of which shall be determined jointly with the
Department of Budget and Management and the Commission on Audit on the date of such
contribution or transfer after making due allowances for depreciation and other deductions taking
into account the loans and other liabilities of the Authority at the time of the takeover of the assets
and other properties;
(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum
(70%) of the unremitted share of the National Government from 1983 to 1986 to be remitted to the
National Treasury as provided for in Section 11 of E. O. No. 903 as amended, shall be converted into
the equity of the National Government in the Authority. Thereafter, the Government contribution to
the capital of the Authority shall be provided in the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is divided into
shares and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it
is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock
corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code
defines a non-stock corporation as "one where no part of its income is distributable as dividends to its
members, trustees or officers." A non-stock corporation must have members. Even if we assume that the
Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation.
Non-stock corporations cannot distribute any part of their income to their members. Section 11 of the MIAA
Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury.11 This
prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable,
religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or
similar purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of these
purposes. MIAA, a public utility, is organized to operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or
controlled corporation. What then is the legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with
corporate powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a
government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if
not all corporate powers, administering special funds, and enjoying operational autonomy, usually
through a charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the instrumentality does not become
a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it
remains a government instrumentality exercising not only governmental but also corporate powers. Thus,
Page 6 of 20
MIAA exercises the governmental powers of eminent domain,12 police authority13 and the levying of fees and
charges.14 At the same time, MIAA exercises "all the powers of a corporation under the Corporation Law,
insofar as these powers are not inconsistent with the provisions of this Executive Order." 15
Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality
remains part of the National Government machinery although not integrated with the department
framework. The MIAA Charter expressly states that transforming MIAA into a "separate and autonomous
body"16 will make its operation more "financially viable."17
Many government instrumentalities are vested with corporate powers but they do not become stock or non-
stock corporations, which is a necessary condition before an agency or instrumentality is deemed a
government-owned or controlled corporation. Examples are the Mactan International Airport Authority, the
Philippine Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All these
government instrumentalities exercise corporate powers but they are not organized as stock or non-stock
corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These
government instrumentalities are sometimes loosely called government corporate entities. However, they are
not government-owned or controlled corporations in the strict sense as understood under the Administrative
Code, which is the governing law defining the legal relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which
states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units.(Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the national government,
which historically merely delegated to local governments the power to tax. While the 1987 Constitution now
includes taxation as one of the powers of local governments, local governments may only exercise such
power "subject to such guidelines and limitations as the Congress may provide." 18
When local governments invoke the power to tax on national government instrumentalities, such power is
construed strictly against local governments. The rule is that a tax is never presumed and there must be clear
language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved
against taxation. This rule applies with greater force when local governments seek to tax national
government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption.
However, when Congress grants an exemption to a national government instrumentality from local taxation,
such exemption is construed liberally in favor of the national government instrumentality. As this Court
declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely to
reduce the amount of money that has to be handled by government in the course of its operations.
For these reasons, provisions granting exemptions to government agencies may be construed
liberally, in favor of non tax-liability of such agencies.19
There is, moreover, no point in national and local governments taxing each other, unless a sound and
compelling policy requires such transfer of public funds from one government pocket to another.
There is also no reason for local governments to tax national government instrumentalities for rendering
essential public services to inhabitants of local governments. The only exception is when the legislature
clearly intended to tax government instrumentalities for the delivery of essential public services for sound and
compelling policy considerations. There must be express language in the law empowering local
governments to tax national government instrumentalities. Any doubt whether such power exists is resolved
against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local
governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine
Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (MC Culloch v. Maryland, 4
Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence
of power on the part of the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can regulate a federal instrumentality in such
a way as to prevent it from consummating its federal responsibilities, or even to seriously
burden it in the accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p.
140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what
local authorities may perceive to be undesirable activities or enterprise using the power to tax as "a
tool for regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or
the Republic of the Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private ownership.
ARTICLE 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. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character stated in the preceding
article, is patrimonial property.
ARTICLE 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.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads,
canals, rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports"
includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the
State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public
dominion and thus owned by the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the public for
international and domestic travel and transportation. The fact that the MIAA collects terminal fees and other
charges from the public does not remove the character of the Airport Lands and Buildings as properties for
public use. The operation by the government of a tollway does not change the character of the road as one
for public use. Someone must pay for the maintenance of the road, either the public indirectly through the
taxes they pay the government, or only those among the public who actually use the road through the toll
fees they pay upon using the road. The tollway system is even a more efficient and equitable manner of
taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it is of public
dominion or not. Article 420 of the Civil Code defines property of public dominion as one "intended for public
use." Even if the government collects toll fees, the road is still "intended for public use" if anyone can use the
road under the same terms and conditions as the rest of the public. The charging of fees, the limitation on
the kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road
do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute
the bulk of the income that maintains the operations of MIAA. The collection of such fees does not change
the character of MIAA as an airport for public use. Such fees are often termed user's tax. This means taxing
those among the public who actually use a public facility instead of taxing all the public including those who
Page 7 of 20
never use the particular public facility. A user's tax is more equitable — a principle of taxation mandated in
the 1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both
international and domestic air traffic,"22 are properties of public dominion because they are intended for
public use. As properties of public dominion, they indisputably belong to the State or the Republic of the
Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public
dominion. As properties of public dominion, the Airport Lands and Buildings are outside the commerce of
man. The Court has ruled repeatedly that properties of public dominion are outside the commerce of man.
As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that properties devoted to public
use are outside the commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in provinces and in towns
comprises the provincial and town roads, the squares, streets, fountains, and public waters, the
promenades, and public works of general service supported by said towns or provinces."
The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could
not in 1907 withdraw or exclude from public use a portion thereof in order to lease it for the sole
benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the
defendant for private use the plaintiff municipality exceeded its authority in the exercise of its
powers by executing a contract over a thing of which it could not dispose, nor is it empowered so
to do.
The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man
may be the object of a contract, and plazas and streets are outside of this commerce, as was
decided by the supreme court of Spain in its decision of February 12, 1895, which says: "Communal
things that cannot be sold because they are by their very nature outside of commerce are those for
public use, such as the plazas, streets, common lands, rivers, fountains, etc." (Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the
commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to public use and to be made
available to the public in general. They are outside the commerce of man and cannot be disposed
of or even leased by the municipality to private parties. While in case of war or during an
emergency, town plazas may be occupied temporarily by private individuals, as was done and as
was tolerated by the Municipality of Pozorrubio, when the emergency has ceased, said temporary
occupation or use must also cease, and the town officials should see to it that the town plazas
should ever be kept open to the public and free from encumbrances or illegal private
constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be
the subject of an auction sale.25
Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition
through public or private sale. Any encumbrance, levy on execution or auction sale of any property of public
dominion is void for being contrary to public policy. Essential public services will stop if properties of public
dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the City of
Parañaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-
payment of real estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from public
usethe Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No.
141, which "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,"27 provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the
President may designate by proclamation any tract or tracts of land of the public domain as
reservations for the use of the Republic of the Philippines or of any of its branches, or of the
inhabitants thereof, in accordance with regulations prescribed for this purposes, or for quasi-public
uses or purposes when the public interest requires it, including reservations for highways, rights of
way for railroads, hydraulic power sites, irrigation systems, communal pastures or lequas
communales, public parks, public quarries, public fishponds, working men's village and other
improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall
be non-alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until
again declared alienable under the provisions of this Act or by proclamation of the President.
(Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use,
these properties remain properties of public dominion and are inalienable. Since the Airport Lands and
Buildings are inalienable in their present status as properties of public dominion, they are not subject to levy
on execution or foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their
ownership remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for public use, and to withdraw such
public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which
states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. — (1) The
President shall have the power to reserve for settlement or public use, and for specific public
purposes, any of the lands of the public domain, the use of which is not otherwise directed by law.
The reserved land shall thereafter remain subject to the specific public purpose indicated until
otherwise provided by law or proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or
presidential proclamation from public use, they are properties of public dominion, owned by the Republic
and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12,
Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by
the Republic, thus:
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) For property belonging to and titled in the name of the Republic of the Philippines, by the
President, unless the authority therefor is expressly vested by law in another officer.
(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)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its
executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the
Republic can sign such deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the
Bureau of Air Transportation of the Department of Transportation and Communications. The MIAA Charter
provides:
SECTION 3. Creation of the Manila International Airport Authority. — x x x x
The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to the
ownership and administration of the Authority, subject to existing rights, if any. The Bureau of Lands
and other appropriate government agencies shall undertake an actual survey of the area
transferred within one year from the promulgation of this Executive Order and the corresponding
title to be issued in the name of the Authority. Any portion thereof shall not be disposed through sale
or through any other mode unless specifically approved by the President of the Philippines.
(Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. — All existing public airport facilities,
runways, lands, buildings and other property, movable or immovable, belonging to the Airport, and
Page 8 of 20
 all assets, powers, rights, interests and privileges belonging to the Bureau of Air
Transportation relating to airport works or air operations, including all equipment which are
necessary for the operation of crash fire and rescue facilities, are hereby transferred to the
Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air
Transportation and Transitory Provisions. — The Manila International Airport including the Manila
Domestic Airport as a division under the Bureau of Air Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash,
promissory notes or even stock since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and
Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of the Philippines for both
international and domestic air traffic, is required to provide standards of airport accommodation
and service comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded
to meet the current and future air traffic and other demands of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated that the objectives of providing
high standards of accommodation and service within the context of a financially viable operation,
will best be achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the
President of the Philippines is given continuing authority to reorganize the National Government,
which authority includes the creation of new entities, agencies and instrumentalities of the
Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant
to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely
to reorganize a division in the Bureau of Air Transportation into a separate and autonomous body. The
Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the
Republic. No party claims any ownership rights over MIAA's assets adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale
or through any other mode unless specifically approved by the President of the Philippines." This only means
that the Republic retained the beneficial ownership of the Airport Lands and Buildings because under Article
428 of the Civil Code, only the "owner has the right to x x x dispose of a thing." Since MIAA cannot dispose of
the Airport Lands and Buildings, MIAA does not own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without
the Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only
one who can authorize the sale or disposition of the Airport Lands and Buildings. This only confirms that the
Airport Lands and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by
the Republic of the Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment of the
real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local
governments from imposing "[t]axes, fees or charges of any kind on the National Government, its agencies
and instrumentalitiesx x x." The real properties owned by the Republic are titled either in the name of the
Republic itself or in the name of agencies or instrumentalities of the National Government. The Administrative
Code allows real property owned by the Republic to be titled in the name of agencies or instrumentalities of
the national government. Such real properties remain owned by the Republic and continue to be exempt
from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national
government. This happens when title of the real property is transferred to an agency or instrumentality even
as the Republic remains the owner of the real property. Such arrangement does not result in the loss of the
tax exemption. Section 234(a) of the Local Government Code states that real property owned by the
Republic loses its tax exemption only if the "beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person." MIAA, as a government instrumentality, is not a taxable person under Section
133(o) of the Local Government Code. Thus, even if we assume that the Republic has granted to MIAA the
beneficial use of the Airport Lands and Buildings, such fact does not make these real properties subject to
real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from
real estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is
subject to real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a
consideration to a taxable person and therefore such land area is subject to real estate tax. In Lung Center
of the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as well as those parts of
the hospital leased to private individuals are not exempt from such taxes. On the other hand, the
portions of the land occupied by the hospital and portions of the hospital used for its patients,
whether paying or non-paying, are exempt from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local
Government Code of 1991 withdrew the tax exemption of "all persons, whether natural or juridical" upon the
effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges – Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions are hereby withdrawn upon effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local
Government Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real
estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government Code that the withdrawn
exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay down
the explicit proposition that the withdrawal of realty tax exemption applies to all persons. The
reference to or the inclusion of GOCCs is only clarificatory or illustrative of the explicit provision.
The term "All persons" encompasses the two classes of persons recognized under our laws, natural
and juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative test is not just
whether MIAA is a GOCC, but whether MIAA is a juridical person at all. (Emphasis and underscoring
in the original)
The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status —
whether MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be examined
in isolation from Section 133(o) to ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew
the tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the
Local Government Code expressly provides otherwise, specifically prohibiting local governments from
imposing any kind of tax on national government instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. (Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local governments cannot impose any kind of tax on
national government instrumentalities like the MIAA. Local governments are devoid of power to tax the
national government, its agencies and instrumentalities. The taxing powers of local governments do not
Page 9 of 20
extend to the national government, its agencies and instrumentalities, "[u]nless otherwise provided in this
Code" as stated in the saving clause of Section 133. The saving clause refers to Section 234(a) on the
exception to the exemption from real estate tax of real property owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to
tax by local governments. The minority insists that the juridical persons exempt from local taxation are limited
to the three classes of entities specifically enumerated as exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly
registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational
institutions. It would be belaboring the obvious why the MIAA does not fall within any of the exempt
entities under Section 193. (Emphasis supplied)
The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government
Code. This theory will result in gross absurdities. It will make the national government, which itself is a juridical
person, subject to tax by local governments since the national government is not included in the
enumeration of exempt entities in Section 193. Under this theory, local governments can impose any kind of
local tax, and not only real estate tax, on the national government.
Under the minority's theory, many national government instrumentalities with juridical personalities will also be
subject to any kind of local tax, and not only real estate tax. Some of the national government
instrumentalities vested by law with juridical personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice
Research Institute,31Laguna Lake
Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development
Authority,34Philippine Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port Authority,37 Cebu
Port Authority,38 and Philippine National Railways.39
The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local
governments from imposing any kind of tax on national government instrumentalities. Section 133(o) does not
distinguish between national government instrumentalities with or without juridical personalities. Where the
law does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all national government
instrumentalities, with or without juridical personalities. The determinative test whether MIAA is exempt from
local taxation is not whether MIAA is a juridical person, but whether it is a national government instrumentality
under Section 133(o) of the Local Government Code. Section 133(o) is the specific provision of law
prohibiting local governments from imposing any kind of tax on the national government, its agencies and
instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this
Code." This means that unless the Local Government Code grants an express authorization, local
governments have no power to tax the national government, its agencies and instrumentalities. Clearly, the
rule is local governments have no power to tax the national government, its agencies and instrumentalities.
As an exception to this rule, local governments may tax the national government, its agencies and
instrumentalities only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code,
which makes the national government subject to real estate tax when it gives the beneficial use of its real
properties to a taxable entity. Section 234(a) of the Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax – The following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to
this exemption is when the government gives the beneficial use of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the national government, its
agencies and instrumentalities are subject to any kind of tax by local governments. The exception to the
exemption applies only to real estate tax and not to any other tax. The justification for the exception to the
exemption is that the real property, although owned by the Republic, is not devoted to public use or public
service but devoted to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government
Code, the later provisions prevail over Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted
rule of construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as
a juridical person, is subject to real property taxes, the general exemptions attaching to
instrumentalities under Section 133(o) of the Local Government Code being qualified by Sections
193 and 234 of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections
193 and 234 on the other. No one has urged that there is such a conflict, much less has any one presenteda
persuasive argument that there is such a conflict. The minority's assumption of an irreconcilable conflict in the
statutory provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its
subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided in this
Code." By its own words, Section 193 admits the superiority of other provisions of the Local Government Code
that limit the exercise of the taxing power in Section 193. When a provision of law grants a power but
withholds such power on certain matters, there is no conflict between the grant of power and the
withholding of power. The grantee of the power simply cannot exercise the power on matters withheld from
its power.
Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units."
Section 133 limits the grant to local governments of the power to tax, and not merely the exercise of a
delegated power to tax. Section 133 states that the taxing powers of local governments "shall not extend to
the levy" of any kind of tax on the national government, its agencies and instrumentalities. There is no clearer
limitation on the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section
133 logically prevails over Section 193 which grants local governments such taxing powers. By their very
meaning and purpose, the "common limitations" on the taxing power prevail over the grant or exercise of the
taxing power. If the taxing power of local governments in Section 193 prevails over the limitations on such
taxing power in Section 133, then local governments can impose any kind of tax on the national
government, its agencies and instrumentalities — a gross absurdity.
Local governments have no power to tax the national government, its agencies and instrumentalities, except
as otherwise provided in the Local Government Code pursuant to the saving clause in Section 133 stating
"[u]nless otherwise provided in this Code." This exception — which is an exception to the exemption of the
Republic from real estate tax imposed by local governments — refers to Section 234(a) of the Code. The
exception to the exemption in Section 234(a) subjects real property owned by the Republic, whether titled in
the name of the national government, its agencies or instrumentalities, to real estate tax if the beneficial use
of such property is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase "government-owned or
controlled corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions
of the Administrative Code admits that its definitions are not controlling when it provides:
SEC. 2. General Terms Defined. — Unless the specific words of the text, or the context as a whole, or
a particular statute, shall require a different meaning:
xxxx
The minority then concludes that reliance on the Administrative Code definition is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute
may require a different meaning than that defined in the Administrative Code. However, this does not
automatically mean that the definition in the Administrative Code does not apply to the Local Government
Code. Section 2 of the Administrative Code clearly states that "unless the specific words x x x of a particular
statute shall require a different meaning," the definition in Section 2 of the Administrative Code shall apply.
Thus, unless there is specific language in the Local Government Code defining the phrase "government-
owned or controlled corporation" differently from the definition in the Administrative Code, the definition in
the Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining the phrase
"government-owned or controlled corporation" differently from the definition in the Administrative Code.
Indeed, there is none. The Local Government Code is silent on the definition of the phrase "government-
owned or controlled corporation." The Administrative Code, however, expressly defines the phrase
"government-owned or controlled corporation." The inescapable conclusion is that the Administrative Code
Page 10 of 20
definition of the phrase "government-owned or controlled corporation" applies to the Local Government
Code.
The third whereas clause of the Administrative Code states that the Code "incorporates in a unified
document the major structural, functional and procedural principles and rules of governance." Thus, the
Administrative Code is the governing law defining the status and relationship of government departments,
bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides for a different status and
relationship for a specific government unit or entity, the provisions of the Administrative Code prevail.
The minority also contends that the phrase "government-owned or controlled corporation" should apply only
to corporations organized under the Corporation Code, the general incorporation law, and not to
corporations created by special charters. The minority sees no reason why government corporations with
special charters should have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled corporations" under the
Administrative Code refer to those corporations owned by the government or its instrumentalities
which are created not by legislative enactment, but formed and organized under the Corporation
Code through registration with the Securities and Exchange Commission. In short, these are GOCCs
without original charters.
xxxx
It might as well be worth pointing out that there is no point in requiring a capital structure for
GOCCs whose full ownership is limited by its charter to the State or Republic. Such GOCCs are not
empowered to declare dividends or alienate their capital shares.
The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing
legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does
not distinguish between one incorporated under the Corporation Code or under a special charter. Where
the law does not distinguish, courts should not distinguish.
Second, Congress has created through special charters several government-owned corporations organized
as stock corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of the
Philippines. The special charter40 of the Land Bank of the Philippines provides:
SECTION 81. Capital. — The authorized capital stock of the Bank shall be nine billion pesos, divided
into seven hundred and eighty million common shares with a par value of ten pesos each, which
shall be fully subscribed by the Government, and one hundred and twenty million preferred shares
with a par value of ten pesos each, which shall be issued in accordance with the provisions of
Sections seventy-seven and eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock – Par value. — The capital stock of the Bank shall be Five Billion
Pesos to be divided into Fifty Million common shares with par value of P100 per share. These shares
are available for subscription by the National Government. Upon the effectivity of this Charter, the
National Government shall subscribe to Twenty-Five Million common shares of stock worth Two Billion
Five Hundred Million which shall be deemed paid for by the Government with the net asset values
of the Bank remaining after the transfer of assets and liabilities as provided in Section 30 hereof.
(Emphasis supplied)
Other government-owned corporations organized as stock corporations under their special charters are the
Philippine Crop Insurance Corporation,42 Philippine International Trading Corporation,43 and the Philippine
National Bank44 before it was reorganized as a stock corporation under the Corporation Code. All these
government-owned corporations organized under special charters as stock corporations are subject to real
estate tax on real properties owned by them. To rule that they are not government-owned or controlled
corporations because they are not registered with the Securities and Exchange Commission would remove
them from the reach of Section 234 of the Local Government Code, thus exempting them from real estate
tax.
Third, the government-owned or controlled corporations created through special charters are those that
meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the
government-owned or controlled corporation must be established for the common good. The second
condition is that the government-owned or controlled corporation must meet the test of economic viability.
Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created
or established by special charters in the interest of the common good and subject to the test of
economic viability. (Emphasis and underscoring supplied)
The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations"
through special charters only if these entities are required to meet the twin conditions of common good and
economic viability. In other words, Congress has no power to create government-owned or controlled
corporations with special charters unless they are made to comply with the two conditions of common good
and economic viability. The test of economic viability applies only to government-owned or controlled
corporations that perform economic or commercial activities and need to compete in the market place.
Being essentially economic vehicles of the State for the common good — meaning for economic
development purposes — these government-owned or controlled corporations with special charters are
usually organized as stock corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and performing governmental or
public functions need not meet the test of economic viability. These instrumentalities perform essential public
services for the common good, services that every modern State must provide its citizens. These
instrumentalities need not be economically viable since the government may even subsidize their entire
operations. These instrumentalities are not the "government-owned or controlled corporations" referred to in
Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested
with corporate powers but performing essential governmental or public functions. Congress has plenary
authority to create government instrumentalities vested with corporate powers provided these
instrumentalities perform essential government functions or public services. However, when the legislature
creates through special charters corporations that perform economic or commercial activities, such entities
— known as "government-owned or controlled corporations" — must meet the test of economic viability
because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and
similar government-owned or controlled corporations, which derive their income to meet operating expenses
solely from commercial transactions in competition with the private sector. The intent of the Constitution is to
prevent the creation of government-owned or controlled corporations that cannot survive on their own in
the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional
Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the government creates
a corporation, there is a sense in which this corporation becomes exempt from the test of
economic performance. We know what happened in the past. If a government corporation loses,
then it makes its claim upon the taxpayers' money through new equity infusions from the
government and what is always invoked is the common good. That is the reason why this year, out
of a budget of P115 billion for the entire government, about P28 billion of this will go into equity
infusions to support a few government financial institutions. And this is all taxpayers' money which
could have been relocated to agrarian reform, to social services like health and education, to
augment the salaries of grossly underpaid public employees. And yet this is all going down the
drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this
becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the
responsibility of meeting the market test so that they become viable. And so, Madam President, I
reiterate, for the committee's consideration and I am glad that I am joined in this proposal by
Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST,"
together with the common good.45
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The
1987 Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant addition,
however, is the phrase "in the interest of the common good and subject to the test of economic
viability." The addition includes the ideas that they must show capacity to function efficiently in
business and that they should not go into activities which the private sector can do better.
Page 11 of 20
 Moreover, economic viability is more than financial viability but also includes capability to make
profit and generate benefits not quantifiable in financial terms.46(Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities vested with corporate powers
and performing essential public services. The State is obligated to render essential public services regardless
of the economic viability of providing such service. The non-economic viability of rendering such essential
public service does not excuse the State from withholding such essential services from the public.
However, government-owned or controlled corporations with special charters, organized essentially for
economic or commercial objectives, must meet the test of economic viability. These are the government-
owned or controlled corporations that are usually organized under their special charters as stock
corporations, like the Land Bank of the Philippines and the Development Bank of the Philippines. These are
the government-owned or controlled corporations, along with government-owned or controlled
corporations organized under the Corporation Code, that fall under the definition of "government-owned or
controlled corporations" in Section 2(10) of the Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did not create MIAA to
compete in the market place. MIAA does not compete in the market place because there is no competing
international airport operated by the private sector. MIAA performs an essential public service as the primary
domestic and international airport of the Philippines. The operation of an international airport requires the
presence of personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and departure of
passengers, screening out those without visas or travel documents, or those with hold departure
orders;
2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations;
3. The quarantine office of the Department of Health, to enforce health measures against the
spread of infectious diseases into the country;
4. The Department of Agriculture, to enforce measures against the spread of plant and animal
diseases into the country;
5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists
and the escape of criminals, as well as to secure the airport premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation and Communications, to authorize
aircraft to enter or leave Philippine airspace, as well as to land on, or take off from, the airport; and
7. The MIAA, to provide the proper premises — such as runway and buildings — for the government
personnel, passengers, and airlines, and to manage the airport operations.
All these agencies of government perform government functions essential to the operation of an
international airport.
MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its
revenues principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The
terminal fees that MIAA charges every passenger are regulatory or administrative fees47 and not income from
commercial transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory
Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined. – x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if
not all corporate powers, administering special funds, and enjoying operational autonomy, usually
through a charter. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or
controlled corporation. Without a change in its capital structure, MIAA remains a government instrumentality
under Section 2(10) of the Introductory Provisions of the Administrative Code. More importantly, as long as
MIAA renders essential public services, it need not comply with the test of economic viability. Thus, MIAA is
outside the scope of the phrase "government-owned or controlled corporations" under Section 16, Article XII
of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled
corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit
conditions for the creation of "government-owned or controlled corporations." The Administrative Code
defines what constitutes a "government-owned or controlled corporation." To belittle this phrase as
"clarificatory or illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the
Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock
corporation. Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII of
the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a
government instrumentality vested with corporate powers and performing essential public services pursuant
to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government instrumentality,
MIAA is not subject to any kind of tax by local governments under Section 133(o) of the Local Government
Code. The exception to the exemption in Section 234(a) does not apply to MIAA because MIAA is not a
taxable entity under the Local Government Code. Such exception applies only if the beneficial use of real
property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties
of public dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the
Civil Code provides:
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. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings
of MIAA are intended for public use, and at the very least intended for public service. Whether intended for
public use or public service, the Airport Lands and Buildings are properties of public dominion. As properties
of public dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real
estate tax under Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the
legal relation and status of government units, agencies and offices within the entire government machinery,
MIAA is a government instrumentality and not a government-owned or controlled corporation. Under Section
133(o) of the Local Government Code, MIAA as a government instrumentality is not a taxable person
because it is not subject to "[t]axes, fees or charges of any kind" by local governments. The only exception is
when MIAA leases its real property to a "taxable person" as provided in Section 234(a) of the Local
Government Code, in which case the specific real property leased becomes subject to real estate tax. Thus,
only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to
real estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are
properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420
specifically mentions "ports x x x constructed by the State," which includes public airports and seaports, as
properties of public dominion and owned by the Republic. As properties of public dominion owned by the
Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real
estate tax under Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that
properties of public dominion are not subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5
October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings
of the Manila International Airport Authority EXEMPT from the real estate tax imposed by the City of
Parañaque. We declare VOID all the real estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Parañaque on the Airport Lands and Buildings of the Manila International
Airport Authority, except for the portions that the Manila International Airport Authority has leased to private
parties. We also declare VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings
of the Manila International Airport Authority.
No costs.
SO ORDERED.
Page 12 of 20
 G.R. No. 181502 February 2, 2010
FLORENCIA G. DIAZ vs.REPUBLIC of the PHILIPPINES, .
RESOLUTION
CORONA, J.:
This is a letter-motion praying for reconsideration (for the third time) of the June 16, 2008 resolution of this
Court denying the petition for review filed by petitioner Florencia G. Diaz.
Petitioner’s late mother, Flora Garcia (Garcia), filed an application for registration of a vast tract of
land1 located in Laur, Nueva Ecija and Palayan City in the then Court of First Instance (CFI), Branch 1, Nueva
Ecija on August 12, 1976.2 She alleged that she possessed the land as owner and worked, developed and
harvested the agricultural products and benefits of the same continuously, publicly and adversely for more
or less 26 years.
The Republic of the Philippines, represented by the Office of the Solicitor General (OSG), opposed the
application because the land in question was within the Fort Magsaysay Military Reservation (FMMR),
established by virtue of Proclamation No. 237 (Proclamation 237)3 in 1955. Thus, it was inalienable as it formed
part of the public domain.
Significantly, on November 28, 1975, this Court already ruled in Director of Lands v. Reyes4 that the property
subject of Garcia’s application was inalienable as it formed part of a military reservation. Moreover, the
existence of Possessory Information Title No. 216 (allegedly registered in the name of a certain Melecio Padilla
on March 5, 1895), on which therein respondent Parañaque Investment and Development Corporation
anchored its claim on the land, was not proven. Accordingly, the decree of registration issued in its favor was
declared null and void.
Reyes notwithstanding, the CFI ruled in Garcia’s favor in a decision5 dated July 1, 1981.
The Republic eventually appealed the decision of the CFI to the Court of Appeals (CA). In its decision 6 dated
February 26, 1992, penned by Justice Vicente V. Mendoza (Mendoza decision),7 the appellate court
reversed and set aside the decision of the CFI. The CA found that Reyes was applicable to petitioner’s case
as it involved the same property.
The CA observed that Garcia also traced her ownership of the land in question to Possessory Information Title
No. 216. As Garcia’s right to the property was largely dependent on the existence and validity of the
possessory information title the probative value of which had already been passed upon by this Court
in Reyes, and inasmuch as the land was situated inside a military reservation, the CA concluded that she did
not validly acquire title thereto.
During the pendency of the case in the CA, Garcia passed away and was substituted by her heirs, one of
whom was petitioner Florencia G. Diaz.81avvphi1
Petitioner filed a motion for reconsideration of the Mendoza decision. While the motion was pending in the
CA, petitioner also filed a motion for recall of the records from the former CFI. Without acting on the motion
for reconsideration, the appellate court, with Justice Mendoza as ponente, issued a resolution9 upholding
petitioner’s right to recall the records of the case.
Subsequently, however, the CA encouraged the parties to reach an amicable settlement on the matter and
even gave the parties sufficient time to draft and finalize the same.
The parties ultimately entered into a compromise agreement with the Republic withdrawing its claim on the
more or less 4,689 hectares supposedly outside the FMMR. For her part, petitioner withdrew her application
for the portion of the property inside the military reservation. They filed a motion for approval of the amicable
settlement in the CA.10
On June 30, 1999, the appellate court approved the compromise agreement.11 On January 12, 2000, it
directed the Land Registration Administration to issue the corresponding decree of registration in petitioner’s
favor.12
However, acting on a letter written by a certain Atty. Restituto S. Lazaro, the OSG filed a motion for
reconsideration of the CA resolution ordering the issuance of the decree of registration. The OSG informed
the appellate court that the tract of land subject of the amicable settlement was still within the military
reservation.
On April 16, 2007, the CA issued an amended resolution (amended resolution)13 annulling the compromise
agreement entered into between the parties. The relevant part of the dispositive portion of the resolution
read:
ACCORDINGLY, the Court resolves to:
(1) x x x x x x
(2) x x x x x x
(3) x x x x x x
(4) x x x x x x
(5) x x x x x x
(6) REVERSE the Resolution dated June 30, 1999 of this Court approving the Amicable Settlement
dated May 18, 1999 executed between the Office of the Solicitor General and Florencia Garcia
Diaz[;]
(7) ANNUL and SET ASIDE the Amicable Settlement dated May 18, 1999 executed between the
Office of the Solicitor General and Florencia Garcia Diaz; the said Amicable Settlement is
hereby DECLARED to be without force and effect;
(8) GRANT the Motion for Reconsideration filed by the Office of the Solicitor General and,
consequently, SET ASIDE the Resolution dated January 12, 2000 which ordered, among other
matters, that a certificate of title be issued in the name of plaintiff-appellee Florencia Garcia Diaz
over the portion of the subject property in consonance with the Amicable Settlement dated May
18, 1999 approved by the Court in its Resolution dated June 30, 1999;
(9) SET ASIDE the Resolution dated June 30, 1999 approving the May 18, 1999 Amicable Settlement
and the Resolution dated September 20, 1999 amending the aforesaid June 30, 1999 Resolution;
and
(10) REINSTATE the Decision dated February 26, 1992 dismissing applicant-appellee Diaz’ registration
herein.
SO ORDERED.
(Emphasis supplied)
Petitioner moved for reconsideration. For the first time, she assailed the validity of the Mendoza decision – the
February 26, 1992 decision adverted to in the CA’s amended resolution. She alleged that Justice Mendoza
was the assistant solicitor general during the initial stages of the land registration proceedings in the trial court
and therefore should have inhibited himself when the case reached the CA. His failure to do so, she laments,
worked an injustice against her constitutional right to due process. Thus, the Mendoza decision should be
declared null and void. The motion was denied.14
Thereafter, petitioner filed a petition for review on certiorari 15 in this Court. It was denied for raising factual
issues.16She moved for reconsideration.17 This motion was denied with finality on the ground that there was no
substantial argument warranting a modification of the Court’s resolution. The Court then ordered that no
further pleadings would be entertained. Accordingly, we ordered entry of judgment to be made in due
course.18
Petitioner, however, insisted on filing a motion to lift entry of judgment and motion for leave to file a second
motion for reconsideration and to refer the case to the Supreme Court en banc.19 The Court denied20 it
considering that a second motion for reconsideration is a prohibited pleading.21 Furthermore, the motion to
refer the case to the bancwas likewise denied as the banc is not an appellate court to which decisions or
resolutions of the divisions may be appealed.22 We reiterated our directive that no further pleadings would
be entertained and that entry of judgment be made in due course.
Not one to be easily deterred, petitioner wrote identical letters, first addressed to Justice Leonardo A.
Quisumbing (then Acting Chief Justice) and then to Chief Justice Reynato S. Puno himself.23 The body of the
letter, undoubtedly in the nature of a third motion for reconsideration, is hereby reproduced in its entirety:
This is in response to your call for "Moral Forces" in order to "redirect the destiny of our country which is
suffering from moral decadence," that to your mind, is the problem which confronts us. (Inquirer, January 15,
2009, page 1)[.]
I recently lost my case with the Supreme Court, G.R. N[o]. 181502, and my lawyer has done all that is humanly
possible to convince the court to take a second look at the miscarriage of justice that will result from the
implementation of the DISMISSAL in a MINUTE RESOLUTION of our Petition for Review.
Pending before your Division (First Division) is a last plea for justice so that the case may be elevated to the
Supreme Court en banc. I hope the Court exercises utmost prudence in resolving the last plea. For ready
reference, a copy of the Motion is hereto attached as Annex "A".
The issue that was brought before the Honorable Supreme Court involves the Decision of then Justice
Vicente Mendoza of the Court of Appeals, which is NULL and VOID, ab initio.
It is null and void because destiny placed Hon. Justice Vicente Mendoza in a position in which it became
possible for him to discharge the minimum requirement of due process, [i.e.] the ability of the court to render
Page 13 of 20
"impartial justice," because Mr. Justice Mendoza became the ponente of the Court of Appeals Decision,
reversing the findings of the trial court, notwithstanding the fact that he, as Assistant Solicitor General, was the
very person who appeared on behalf of the Republic, as the oppositor in the very same land registration
proceedings in which he lost.
In other words, he discharged the duties of prosecutor and judge in the very same case.
In the case of the "Alabang Boys[,]" the public was outraged by the actions of Atty. Verano who admitted
having prepared a simple resolution to be signed by the Secretary of Justice.
In my case, the act complained of is the worst kind of violation of my constitutional right. It is simply immoral,
illegal and unconstitutional, for the prosecutor to eventually act as the judge, and reverse the very decision
in which he had lost.
If leaked to the tri-media[,] my case will certainly evoke even greater spite from the public, and put the
Supreme Court in bad light. I must confess that I was tempted to pursue such course of action. I however
believe that such an action will do more harm than good, and even destroy the good name of Hon. Justice
Mendoza.
I fully support your call for "moral force" that will slowly and eventually lead our country to redirect its destiny
and escape from this moral decadence, in which we all find ourselves.
I am content with the fact that at least, the Chief Justice continues to fight the dark forces that surround us
everyday.
I only ask that the Supreme Court endeavor to ensure that cases such as mine do not happen again, so that
the next person who seeks justice will not experience the pain and frustration that I suffered under our judicial
system.
Thank you, and more power to you, SIR. (Emphasis in the original).
The language of petitioner’s letter/motion is unmistakable. It is a thinly veiled threat precisely worded and
calculated to intimidate this Court into giving in to her demands to honor an otherwise legally infirm
compromise agreement, at the risk of being vilified in the media and by the public.
This Court will not be cowed into submission. We deny petitioner’s letter/third motion for reconsideration.
APPLICABILITY OF REYES
The Court agrees with the Republic’s position that Reyes is applicable to this case.
To constitute res judicata, the following elements must concur:
(1) the former judgment or order must be final;
(2) the judgment or order must be on the merits;
(3) it must have been rendered by a court having jurisdiction over the subject matter and parties;
and
(4) there must be between the first and second actions, identity of parties, of subject matter, and of
causes of action. 24
The first three requisites have undoubtedly been complied with. However, petitioner takes exception to the
fourth requisite, particularly on the issue of identity of parties. In her petition for review filed in this Court, she
contends that since the applicants in the two cases are different, the merits of the two cases should,
accordingly, be determined independently of each other.25
This contention is erroneous.
The facts obtaining in this case closely resemble those in Aquino v. Director of Lands.26 In that case, Quintin
Tañedo endeavored to secure title to a considerable tract of land by virtue of his possession thereof under
CA 141. When the case eventually reached this Court, we affirmed the trial court’s decision to dismiss the
proceedings as the property in question was part of the public domain. Quintin’s successor-in-interest,
Florencia Tañedo, who despite knowledge of the proceedings did not participate therein, thereafter sold the
same property to Benigno S. Aquino. The latter sought to have it registered in his name. The question in that
case, as well as in this one, was whether our decision in the case in which another person was the applicant
constituted res judicata as against his successors-in-interest.
We ruled there, and we so rule now, that in registration cases filed under the provisions of the Public Land Act
for the judicial confirmation of an incomplete and imperfect title, an order dismissing an application for
registration and declaring the land as part of the public domain constitutes res judicata, not only against the
adverse claimant, but also against all persons.27
We also declared in Aquino that:
From another point of view, the decision in the first action has become the "law of the case" or at least falls
within the rule of stare decisis. That adjudication should be followed unless manifestly erroneous. It was taken
and should be taken as the authoritative view of the highest tribunal in the Philippines. It is indispensable to
the due administration of justice especially by a court of last resort that a question once deliberately
examined and decided should be considered as settled and closed to further argument. x x x28
Be that as it may, the fact is that, even before the CFI came out with its decision in favor of petitioner on July
1, 1981, this Court, in Reyes, already made an earlier ruling on November 28, 1975 that the disputed realty
was inalienable as it formed part of a military reservation. Thus, petitioner’s argument that the findings of fact
of the trial court on her registrable title are binding on us – on the principle that findings of fact of lower courts
are accorded great respect and bind even this Court – is untenable. Rather, it was incumbent upon the
court a quo to respect this Court’s ruling in Reyes, and not the other way around.
However, despite having been apprised of the Court's findings in Reyes (which should have been a matter of
judicial notice in the first place), the trial court still insisted on its divergent finding and disregarded the Court's
decision in Reyes, declaring the subject land as forming part of a military reservation, and thus outside the
commerce of man.
By not applying our ruling in Reyes, the trial judge virtually nullified the decision of this Court and therefore
acted with grave abuse of discretion.29 Notably, a judgment rendered with grave abuse of discretion is void
and does not exist in legal contemplation.30
All lower courts, especially the trial court concerned in this case, ought to be reminded that it is their duty to
obey the decisions of the Supreme Court. A conduct becoming of inferior courts demands a conscious
awareness of the position they occupy in the interrelation and operation of our judicial system. As eloquently
declared by Justice J.B. L. Reyes, "There is only one Supreme Court from whose decision all other courts
should take their bearings."31
ACQUISITION OF PRIVATE RIGHTS
Petitioner, however, argues that Proclamation 237 itself recognizes that its effectivity is "subject to private
rights, if any there be."
By way of a background, we recognized in Reyes that the property where the military reservation is situated
is forest land. Thus:
Before the military reservation was established, the evidence is inconclusive as to possession, for it is shown by
the evidence that the land involved is largely mountainous and forested. As a matter of fact, at the time of
the hearing, it was conceded that approximately 13,957 hectares of said land consist of public forest. x x x
(Emphasis supplied)32
Concomitantly, we stated therein, and we remind petitioner now, that forest lands are not registrable under
CA 141.
[E]ven more important, Section 48[b] of CA No. 141, as amended, applies exclusively to public agricultural
land. Forest lands or area covered with forest are excluded. It is well-settled that forest land is incapable of
registration; and its inclusion in a title, whether such title be one issued using the Spanish sovereignty or under
the present Torrens system of registration, nullifies the title. (Emphasis supplied).33
However, it is true that forest lands may be registered when they have been reclassified as alienable by the
President in a clear and categorical manner (upon the recommendation of the proper department head
who has the authority to classify the lands of the public domain into alienable or disposable, timber and
mineral lands)34 coupled with possession by the claimant as well as that of her predecessors-in-interest.
Unfortunately for petitioner, she was not able to produce such evidence. Accordingly, her occupation
thereof, and that of her predecessors-in-interest, could not have ripened into ownership of the subject land.
This is because prior to the conversion of forest land as alienable land, any occupation or possession thereof
cannot be counted in reckoning compliance with the thirty-year possession requirement under
Commonwealth Act 141 (CA 141) or the Public Land Act.35 This was our ruling in Almeda v. CA.36 The rules on
the confirmation of imperfect titles do not apply unless and until the land classified as forest land is released
through an official proclamation to that effect. Then and only then will it form part of the disposable
agricultural lands of the public domain.37
Coming now to petitioner’s contention that her "private rights" to the property, meaning her and her
predecessors’ possession thereof prior to the establishment of the FMMR, must be respected, the same is
untenable. As earlier stated, we had already recognized the same land to be public forest even before the
FMMR was established. To reiterate:
Page 14 of 20
Before the military reservation was established, the evidence is inconclusive as to possession, for it is shown by
the evidence that the land involved is largely mountainous and forested. As a matter of fact, at the time of
the hearing, it was conceded that approximately 13,957 hectares of said land consist of public forest. x x x
Therefore, even if possession was for more than 30 years, it could never ripen to ownership.
But even assuming that the land in question was alienable land before it was established as a military
reservation, there was nevertheless still a dearth of evidence with respect to its occupation by petitioner and
her predecessors-in-interest for more than 30 years. In Reyes, we noted:
Evidently, Melecio Padilla, having died on February 9, 1900, barely five (5) years after the inscription of the
informacion possessoria, could not have converted the same into a record of ownership twenty (20) years
after such inscription, pursuant to Article 393 of the Spanish Mortgage Law.
xxx
During the lifetime of Melecio Padilla, only a small portion thereof was cleared and cultivated under the
‘kaingin’ system, while some portions were used as grazing land. After his death, his daughter, Maria Padilla,
caused the planting of vegetables and had about forty (40) tenants for the purpose. During the Japanese
occupation, Maria Padilla died. x x x
xxx
A mere casual cultivation of portions of the land by the claimant, and the raising thereon of cattle, do not
constitute possession under claim of ownership. In that sense, possession is not exclusive and notorious as to
give rise to a presumptive grant from the State. While grazing livestock over land is of course to be
considered with other acts of dominion to show possession, the mere occupancy of land by grazing livestock
upon it, without substantial inclosures, or other permanent improvements, is not sufficient to support a claim
of title thru acquisitive prescription. The possession of public land, however long the period may have
extended, never confers title thereto upon the possessor because the statute of limitations with regard to
public land does not operate against the State unless the occupant can prove possession and occupation
of the same under claim of ownership for the required number of years to constitute a grant from the State.38
xxx
Furthermore, the fact that the possessory information title on which petitioner also bases her claim of
ownership was found to be inexistent in Reyes,39 thus rendering its probative value suspect, further militates
against granting her application for registration.
NULLITY OF COMPROMISE AGREEMENT
On the compromise agreement between the parties, we agree with the CA that the same was null and void.
An amicable settlement or a compromise agreement is in the nature of a contract and must necessarily
comply with the provisions of Article 1318 of the New Civil Code which provides:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Petitioner was not able to provide any proof that the consent of the Republic, through the appropriate
government agencies, i.e. the Department of Environment and Natural Resources, Land Management
Bureau, Land Registration Authority, and the Office of the President, was secured by the OSG when it
executed the agreement with her.40 The lack of authority on the part of the OSG rendered the compromise
agreement between the parties null and void because although it is the duty of the OSG to represent the
State in cases involving land registration proceedings, it must do so only within the scope of the authority
granted to it by its principal, the Republic of the Philippines.41
In this case, although the OSG was authorized to appear as counsel for respondent, it was never given the
specific or special authority to enter into a compromise agreement with petitioner. This is in violation of the
provisions of Rule 138 Section 23, of the Rules of Court which requires "special authority" for attorneys to bind
their clients.
Section 23. Authority of attorneys to bind clients. – Attorneys have authority to bind their clients in any case
by any agreement in relation thereto made in writing, and in taking appeals, and in all matters of ordinary
judicial procedure. But they cannot, without special authority, compromise their client’s litigation, or receive
anything in discharge of a client’s claim but the full amount in cash. (Emphasis supplied).
Moreover, the land in question could not have been a valid subject matter of a contract because, being
forest land, it was inalienable. Article 1347 of the Civil Code provides:
Art. 1347. All things which are not outside the commerce of men, including future things, may be the object of
a contract. All rights which are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases expressly authorized by law.
All services which are not contrary to law, morals, good customs, public order or public policy may likewise
be the object of a contract. (Emphasis supplied)
Finally, the Court finds the cause or consideration of the obligation contrary to law and against public policy.
The agreement provided that, in consideration of petitioner’s withdrawal of her application for registration of
title from that portion of the property located within the military reservation, respondent was withdrawing its
claim on that part of the land situated outside said reservation. The Republic could not validly enter into such
undertaking as the subject matter of the agreement was outside the commerce of man.
PETITIONER’S CONTEMPT OF COURT
This Court, being the very institution that dispenses justice, cannot reasonably be expected to just sit by and
do nothing when it comes under attack.
That petitioner’s letter-motion constitutes an attack against the integrity of this Court cannot be denied.
Petitioner started her letter innocently enough by stating:
This is in response to your call for "Moral Forces" in order to "redirect the destiny of our country which is
suffering from moral decadence," that to your mind, is the problem which confronts us. (Inquirer, January 15,
2009, page 1)[.]
It, however, quickly progressed into a barely concealed resentment for what she perceived as this Court’s
failure to exercise "utmost prudence" in rendering "impartial justice" in deciding her case. Petitioner
recounted:
I recently lost my case with the Supreme Court, G.R. N[o]. 181502, and my lawyer has done all that is humanly
possible to convince the court to take a second look at the miscarriage of justice that will result from the
implementation of the DISMISSAL in a MINUTE RESOLUTION of our Petition for Review.
Pending before your Division (First Division) is a last plea for justice so that the case may be elevated to the
Supreme Court en banc. I hope the Court exercises utmost prudence in resolving the last plea. For ready
reference, a copy of the Motion is hereto attached as Annex "A".
The issue that was brought before the Honorable Supreme Court involves the Decision of then Justice
Vicente Mendoza of the Court of Appeals, which is NULL and VOID, ab initio.
It is null and void because destiny placed Hon. Justice Vicente Mendoza in a position in which it became
possible for him to discharge the minimum requirement of due process, [i.e.] the ability of the court to
render "impartial justice," because Mr. Justice Mendoza became the ponente of the Court of Appeals
Decision, reversing the findings of the trial court, notwithstanding the fact that he, as Assistant Solicitor
General, was the very person who appeared on behalf of the Republic, as the oppositor in the very same
land registration proceedings in which he lost. (Emphasis supplied).
Petitioner then indirectly hints that, when push comes to shove, she has no choice but to expose the
irregularity concerning the Mendoza decision to the media. This is evident in her arrogant declaration that:
If leaked to the tri-media[,] my case will certainly evoke even greater spite from the public, and put the
Supreme Court in bad light.
But she hastens to add in the same breath that:
I must confess that I was tempted to pursue such course of action. I however believe that such an action will
do more harm than good, and even destroy the good name of Hon. Justice Mendoza.
Petitioner ends her letter by taking this Court to task:
. . . endeavor to ensure that cases such as mine do not happen again, so that the next person who seeks
justice will not experience the pain and frustration that I suffered under our judicial system.
When required to show cause why she should not be cited for contempt for her baseless charges and veiled
threats, petitioner answered:
xxx
The Letter of January 26, 2009 is not a "veiled threat[.] It was written in response to the call of the Chief Justice
for a moral revolution. Juxtaposed against the factual backdrop of the "Alabang Boys" case and the
Meralco [c]ase, involving Mr. Justice Jose L. Sabio which also enjoyed wide publicity over the tri-media,
petitioner felt that the facts of the said cases pale in comparison to the facts of her case where the lawyer of
her opponent eventually became justice of the appellate court and ended up reversing the very decision in
which he lost, in clear violation of her [c]onstitutional [r]ight to fundamental fair play – for no contestant in
any litigation can ever serve as a judge without transgression of the due process clause. This is basic.
Page 15 of 20
Petitioner confesses that she may have been emotional in the delivery of her piece, because correctly or
incorrectly[,] she believes they are irrefutable. If in the course of that emotional delivery, she has offended
your honors’ sensibilities, she is ready for the punishment, and only prays that his Court temper its strike with
compassion – as her letter to the Chief Justice was never written with a view of threatening the Court.
xxx
Petitioner wrote the Chief Justice in order to obtain redress and correction of the inequity bestowed upon her
by destiny. It was never meant as a threat.
The Court now puts an end to petitioner’s irresponsible insinuations and threats of "going public" with this
case. We are not blind to petitioner’s clever and foxy interplay of threats alternating with false concern for
the reputation of this Court.
It is well to remind petitioner that the Court has consistently rendered justice with neither fear nor favor. The
disposition in this case was arrived at after a careful and thorough deliberation of the facts of this case and
all the matters pertaining thereto. The records of the case, in fact, show that all the pertinent issues raised by
petitioner were passed upon and sufficiently addressed by the appellate court and this Court in their
respective resolutions.
As to petitioner’s complaint regarding this Court’s denial of her petition through a mere minute resolution
(which allegedly deprived her of due process as the Court did not issue a full-blown decision stating the facts
and applicable jurisprudence), suffice it to say that the Court is not duty-bound to issue decisions or
resolutions signed by the justices all the time. It has ample discretion to formulate ponencias, extended
resolutions or even minute resolutions issued by or upon its authority, depending on its evaluation of a case,
as long as a legal basis exists. When a minute resolution (signed by the Clerk of Court upon orders of the
Court) denies or dismisses a petition or motion for reconsideration for lack of merit, it is understood that the
assailed decision or order, together with all its findings of fact and legal conclusions, are deemed sustained.42
Furthermore, petitioner has doggedly pursued her case in this Court by filing three successive motions for
reconsideration, including the letter-motion subject of this resolution. This, despite our repeated warnings that
"no further pleadings shall be entertained in this case." Her unreasonable persistence constitutes utter
defiance of this Court’s orders and an abuse of the rules of procedure. This, alongside her thinly veiled threats
to leak her case to the media to gain public sympathy – although the tone of petitioner’s compliance with
our show-cause resolution was decidedly subdued compared to her earlier letters – constitutes contempt of
court.
In Republic v. Unimex,43 we held:
A statement of this Court that no further pleadings would be entertained is a declaration that the Court has
already considered all issues presented by the parties and that it has adjudicated the case with finality. It is a
directive to the parties to desist from filing any further pleadings or motions. Like all orders of this Court, it must
be strictly observed by the parties. It should not be circumvented by filing motions ill-disguised as requests for
clarification.
A FEW OBSERVATIONS
If petitioner was, as she adamantly insists, only guarding her constitutional right to due process, then why did
she question the validity of the Mendoza decision late in the proceedings, that is, only after her motion for
reconsideration in the CA (for its subsequent annulment of the compromise agreement) was denied? It is
obvious that it was only when her case became hopeless that her present counsel frantically searched for
some ground, any ground to resuscitate his client’s lost cause, subsequently raising the issue. This is evident
from a statement in her petition to this Court that:
It is this fresh discovery by the undersigned counsel of the nullity of the proceedings of the Court of
Appeals that places in doubt the entire proceedings it previously conducted, which led to the rendition of
the February 26, 1992 Decision, a fact that escaped the scrutiny of applicant for registration Flora L. Garcia, as
well as her lawyer, Atty. Cayetano Dante Diaz, who died in 1993, and the late Justice Fernando A. Santiago,
who stood as counsel for Flora L. Garcia’s successor-in-interest, herein petitioner, Florencia G.
Garcia.44(Emphasis supplied).
The above cited statement does not help petitioner’s cause at all. If anything, it only proves how desperate
the case has become for petitioner and her counsel.
WHEREFORE, the letter-motion dated January 26, 2009 of petitioner is NOTED and is hereby treated as a third
motion for reconsideration. The motion is DENIED considering that a third motion for reconsideration is a
prohibited pleading and the plea utterly lacks merit.
Petitioner is found GUILTY of contempt of court. Accordingly, a FINE of Five Thousand Pesos is hereby imposed
on her, payable within ten days from receipt of this resolution. She is hereby WARNED that any repetition
hereof shall be dealt with more severely.
Treble costs against petitioner.
SO ORDERED.
G.R. No. 199810
BEVERLY ANNE C. YAP, vs REPUBLIC OF THE PHILIPPINES, represented by THE REGIONAL EXECUTIVE DIRECTOR,
DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES (DENR),
DECISION
REYES, J.:
This is a petition for review on certiorari1 seeking to annul and set aside the Decision2 dated June 30, 2011
and, Resolution3 dated November 14, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 01753-MIN which
reversed and set aside the Decision4 dated October 24, 2008 of the Regional Trial Court (RTC) of Davao City,
Branch 16, in Civil Case No. 29,705-03, dismissing the complaint for reversion of a parcel of land.
Antecedent Facts
Consuelo Vda. de dela Cruz applied for free patent over a parcel of land constituting about 1,292 square
meters, designated as Lot No. 9087, Cad. 102, located in Daliao, Toril, Davao City. As she could not wait for
the approval of her application, she executed a Deed of Waiver/Quitclaim5 on November 25, 1981 in favor
of Rollie Pagarigan (Pagarigan).6
Pagarigan filed his own Free Patent Application (FPA)7 and subsequently, Free Patent No. (XI-1)5133 was
issued to him over said lot. Original Certificate of Title (OCT) No. P-111828 was thereby issued in his name on
November 25, 1982.9
On September 5, 1989, Pagarigan mortgaged the lot to Banco Davao-Davao City Development Bank (the
Bank). For failure to pay his loan, the property was foreclosed, and was eventually sold to the Bank at public
auction on October 26, 1990. These proceedings were duly annotated in the title.10
However, the land covered by OCT No. P-11182 was allegedly occupied by Teodoro Valparaiso and Pedro
Malalis (protestants). On October 24, 1990, the protestants filed a formal protest with the Bureau of Lands
(Bureau). They prayed for the recall of the free patent issued to Pagarigan, and for the institution of a
corresponding action for reversion considering that they have been in adverse, exclusive, and continuous
occupation of the subject property since 1945, cultivating it, and planting various crops, nipa palms and
coconut trees on said land.11
On January 2 7, 1992, the protestants caused the annotation of a notice of lis pendens in OCT No. P-11182.
Assigned as Entry No. 647677, said notice of lis pendens pertained to Civil Case No. 20-435-912 instituted by
the protestants against Pagarigan, Menardo Metran and Rene Galope to enjoin them from demolishing the
former's houses pending the determination of the Department of Environment and Natural Resources (DENR)
on the propriety of cancelling the title obtained by Pagarigan.13
The administrative protest of the protestants reached the Office of the Secretary of the DENR. On May 15,
1995, Secretary Angel C. Alcala rendered a Decision14 against Pagarigan, the salient portion and the fallo of
which read as follows:
From the Investigation Reports submitted by both the Department's Regional Office involved and this Office
as well as from the other pieces of evidence available, both documentary and testimonial, it is obvious that
actual fraud and bad faith have been committed by [Pagarigan] in his subject public land application
which led to the issuance of the title. The following facts and circumstances are uncontroverted, to wit; that
the [protestants] have been in actual occupation of the land in dispute since 1945 and have introduced
improvements thereon; that [Pagarigan] never occupied the same nor his predecessor-in-interest, Consuelo
dela Cruz, that [Pagarigan] misrepresented in his application that he was the actual occupant and that
there were no others who occupied the lot in dispute; that the title was issued sans an actual ground survey;
and that [Pagarigan] did not post a copy of his Notice for [FPA] on both the Bulletin Boards of Daliao and
Lizardo as required by law.
xxxx
Page 16 of 20
WHEREFORE, the instant appeal is hereby given DUE COURSE and the subject Decision appealed from SET
ASIDE and REVOKED. Consequently, the Regional Executive Director (RED), DENR Region XI, Davao City, is
hereby ordered to institute an action for cancellation of Original Certificate of Title (OCT) No. V-11182 of the
Registry of Deeds of Davao City covering Lot No. 9087, Cad-102, and for the reversion of the property
covered thereby to the government.
After the cancellation of the subject title and the land already reverted to the government, Regional.
Executive. Director (RED) concerned shall then order the ground survey of the land in dispute and give due
course to the public land applications of the [protestants].
so ORDERED.15
Meanwhile, on November 5, 1992, without consolidating title over the land in its name, the Bank sold the
subject property to herein petitioner Beverly Anne C. Yap (Yap) and Rosanna F. Villamor (Villamor). Upon the
execution of the deed of sale, OCT No. P-11182 was delivered to them and Transfer Certificate of Title No.
36698316 was eventually issued in the name ofYap and Villamor on December 16, 2003.17
On February 28, 1997, the Department of Transportation and Communication filed a complaint for
expropriation of a portion of the subject lot before the RTC of Davao City, Branch 13, docketed as Civil Case
No. 25,084-97.18
On February 19, 2003, the RTC Branch 13 rendered its Decision.19 Confronted with the issue of who among the
claimants shall be entitled to just compensation, the trial court ruled in this wise:
WHEREFORE, it is the judgment of this court that[:]
1. The plaintiff is entitled to expropriate the land subject of this case for the purpose of road right of way to
the Davao Fish Port, which is for public use;
2. The just compensation for the land is ₱278,[000].00;
3. [Villamor and Yap] are the ones entitled to the payment of just compensation for the property subject of
this case, and plaintiff is directed to pay the said amount to the said defendants;
4. The Commissioner's Fee of ₱3,850.00 shall be paid by plaintiff to Asian Appraisal Company, Inc., and may
be deducted from the just compensation for the land being expropriated.
This case is now considered closed.
SO ORDERED.20
Ruling of the RTC
On May 22, 2003, the respondent, through the Office of the Solicitor General (OSG), filed the Complaint for
Cancellation of Patent, Nullification of Title and Reversion with the RTC of Davao City.21 The case was raffled
to Branch 16 thereof.
On October 24, 2008, the RTC Branch 16 rendered a Decision22 dismissing the respondent's complaint. The
court ruled that since the subject land has already been sold to third persons, it must be shown that the latter
were part of the fraud and/or misrepresentation committed by the original grantee, or at least were aware
of it. However, since the RTC Branch 13 already declared in its decision in Civil Case No. 25,084-97 that Yap
and Villamor were purchasers in good faith and for value of the land in question, RTC Branch 16 maintained
that, as a court of co-equal jurisdiction, it is bound by the said finding under the principle of conclusiveness of
judgment. Moreover, the fact that it took the respondent 26 years, from the issuance of the free patent
before it instituted an action for reversion, militates against its cause. Thefallo of the trial court's decision
reads:
IN VIEW of the foregoing, judgment 1s hereby rendered dismissing the instant complaint.
Defendants' [sic] [Bank] and Pagarigan compulsory counterclaim[ s] are likewise dismissed in the absence of
proof that there was malice or bad faith on [the respondent's] part when it sought the reversion of the
property.
The dismissal of the action necessarily carries with it the dismissal of defendant's [sic] [Bank] cross-claim
against [Pagarigan].
SO ORD[E]RED.23
Ruling of the CA
The respondent elevated its case to the CA. On June 30, 2011 , the CA rendered the assailed
Decision24 reversing that of the trial court. In so ruling, the CA adopted the findings of the DENR as to the
commission of fraud by Pagarigan in his FPA, and held that neither the Bank nor Yap and Villamor were
innocent purchasers for value. Further, the CA maintained that the decision of the RTC Branch 13 did not
constitute res judicata insofar as the same has not yet attained finality. The fallo of the CA decision reads:
WHEREFORE, We GRANT the appeal and REVERSE the decision of the [RTC]. We declare Free Patent No. (XI-
1)5133 and [OCT] No. P-11182 issued in the name of [Pagarigan], and [TCT] No. T-366983 in the name of [Yap]
and [Villamar], and all subsequent [TCTs] derived therefrom, as null and void. We order the reversion of Lot
9087, Cad. 102, [l]ocated in Daliao, ToriI, Davao City, to the mass of public domain.
SO ORDERED.25
The Bank,26 Yap,27 and Villamor28 sought reconsideration of the CA decision, but their motion was evenly
denied in the Resolution29 dated November 14, 2011.
Hence this petition filed solely by Yap.
Yap propounds the following assignments of errors:
I. Whether or not the decision of the CA is not in accord with the applicable decision enunciated by the
Court in the case of Spouses Macadangdang v. Spouses Martinez;30
II. Whether or not the CA departed from the rule declared by the Court in the case of Saad Agro-Industries,
Inc. v. Republic of the Philippines,31 that in reversion proceedings the same must be proved by clear and
convincing evidence, mere preponderance of evidence not even being adequate; and
III. Whether or not the decision of the CA runs counter to the rule on res judicata.321âwphi1
Yap asserts that she and Villamor purchased the subject property in good faith and for value. She maintains
that on its face, nothing appears in OCT No. P-11182 indicating that some other person has a right to, or
interest over the property covered thereby. As such, there was no obligation on their part to look beyond the
certificate of title to determine the legal condition of the concerned property.
Granting that a notice of lis pendens was annotated in OCT No. P- 11182 filed before the Register of Deeds of
Davao City, the same, however, was not offered in evidence and should not have been considered.
Accordingly, the presumption that Yap and Villamor were purchasers in good faith and for value was not
effectively rebutted.
Moreover, in the case for expropriation heard before the RTC Branch 13, they were already adjudged as
innocent purchasers for value. Under the principle of res judicata, it was but proper for RTC Branch 16 to
uphold said pronouncement. Accordingly, it was an error on the part of the CA to reverse the same.
Invoking the Court's ruling in Saad Agro-Jndustries,33 Yap asserts that the respondent failed to discharge the
burden of proving the alleged fraud and misrepresentation which attended Pagarigan's FPA.
Ruling of the Court
Yap's contentions are untenable. The decision of the CA does not run counter to the rule on conclusiveness
of judgment.
Yap asserts that the CA erred in setting aside the decision of RTC Branch 16 in violation of the rule on res
judicata. It was a finding already made by the RTC Branch 13, a co-equal branch that the land is now in the
hands of innocent purchasers for value. Thus, the respondent's complaint for reversion must be dismissed on
the basis of the principle of conclusiveness of judgment.
The Court does not agree.
In a catena of cases, the Court discussed the doctrine of conclusiveness of judgment, as a concept of res
judicata as follows:
The second concept - conclusiveness of judgment - states that a fact or question which was in issue in a
former suit and was there judicially passed upon and determined by a court of competent jurisdiction, is
conclusively settled by the judgment therein as far as the parties to that action and persons in privity with
them are concerned and cannot be again litigated in any future action between such parties or their privies,
in the same court or any other court of concurrent jurisdiction on either the same or different cause of action,
while the judgment remains unreversed by proper authority. It has been held that in order that a judgment in
one action can be conclusive as to a particular matter in another action between the same parties or their
privies, it is essential that the issue be identical. If a particular point or question is in issue in the second action,
and the judgment will depend on the determination of that particular point or question, a former judgment
between the same parties or their privies will be final and conclusive in the second if that same point or
question was in issue and adjudicated in the first suit x x x. Identity of cause of action is not required but
merely identity of issue.
Justice Feliciano, in Smith Bell & Company (Phils.), Inc. v. Court of Appeals x x x, reiterated Lopez v. Reyes x x x
in regard to the distinction between bar by former judgment which bars the prosecution of a second action
Page 17 of 20
upon the same claim, demand, or cause of action, and conclusiveness of judgment which bars the
relitigation of particular facts or issues in another litigation between the same parties on a different claim or
cause of action.
The general rule precluding the re-litigation of material facts or questions which were in issue and
adjudicated in former action are commonly applied to all matters essentially connected with the subject
matter of the litigation. Thus, it extends to questions necessarily implied in the final judgment, although no
specific finding may have been made in reference thereto and although such matters were directly referred
to in the pleadings and were not actually or formally presented. Under this rule, if the record of the former
trial shows that the judgment could not have been rendered without deciding the particular matter, it will be
considered as having settled that matter as to all future actions between the parties and if a judgment
necessarily presupposes certain premises, they are as conclusive as the judgment itself.34 (Emphasis and
underlining ours, and emphasis in the original deleted)
In Nabus v. CA,35 the Court stressed that when a party seeks relief upon a cause of action different from the
one asserted by him in a previous one, the judgment in the former suit is conclusive only as to such points or
questions as were actually in issue or adjudicated therein.36 However, in Calalang v. Register of Deeds of
Quezon City,37 the Court clarified that the bar on re-litigation of a matter or question extends to those
questions necessarily implied in the final judgment, although no specific finding may have been made in
reference thereto, and although those matters were directly referred to in the pleadings and were not
actually or formally presented.38 "If the record of the former trial shows that the judgment could not have
been rendered without deciding a particular matter, it will be considered as having settled that matter as to
all future actions between the parties."39 Verily, as developed, these principles now embody paragraph (c) of
Section 47, Rule 39 of the Rules of Court, which reads:
(c) In any other litigation between the same parties or their successors in interest, that only is deemed to have
been adjudged in a former judgment or final order which appears upon its face to have been so adjudged,
or which was actually and necessarily included therein or necessary thereto.
Guided by the foregoing, the Court finds that RTC Branch 16 falsely appreciated the decision of RTC Branch
13. The Court quotes the pertinent portions of the Decision dated February 19, 2003 of the RTC Branch 13:
THE COURT'S RULING:
CLAIMS OF [THE PROTESTANTS]:
[The protestants] claim that the decision of the Secretary of the DENR in effect conferred ownership of the
land to them, so that they should be paid the compensation and not defendants Yap and Villamar. In fact,
defendant Malalis had declared the property for taxation purposes, and had paid the taxes thereon from
the time they had occupied the land.
[The protestants] alleged that the land subject of this case is still in the name of [Pagarigan], and OCT No. P-
11182 has not yet been cancelled and transferred in the names of defendants Yap and Villamar, who never
even set foot on the land, nor declared the land for taxation purposes. The alleged sale of [the Bank] of the
land to Yap and Villamor did not confer ownership of the land to them, because the land had not been
delivered to them by the owner, and they have not exercised ownership over the same. In short their claim of
ownership is based on a technicality, and no amount of technicality may serve as a solid foundation for the
enjoyment of the fruits of fraud, [the protestants] alleged.
CLAIMS OF DEFENDANTS YAP AND VILLAMOR:
Defendants Yap and Villamar for their part, dispute the claim of [the protestants]. They alleged that they
were buyers in good faith of the property, and in fact, the owner's copy of OCT No. P-11182 has been
delivered to them by [the Bank]. They alleged that the title which was issued to [Pagarigan] cannot be
attacked collaterally as in this case. There should be a case filed in court to annul the title if indeed the same
was fraudulently issued. For as long as the title is not yet declared null and void, the same remains valid, and
whoever succeeds to the same is the owner of the land, they alleged. Moreover, since they are purchasers in
good faith, and for value, they have a right to be protected, defendants Yap and Villamar alleged.
THE COURT'S RULING:
The Decision of the Secretary of the DENR, in the case cited by [the protestants] cannot justify the court to
declare that the title issued to [Pagarigan] is void, and that [the protestants] are the owners of the property in
question.
As correctly stated by defendants Yap and Villamar in their Memorandum, a Torrens title cannot be
collaterally attacked. The title must be attacked directly in a case filed in court specifically to annul the said
title. The alleged fraud in the issuance of OCT No. P-11182 therefore cannot be raised in this case, and the
court will not consider the decision of the DENR Secretary to say that the title of [Pagarigan] is void, and that
the [protestants] are the owners of the land subject of this case.
Moreover, a Torrens title has the presumption of having been validly issued, and the defendants Yap and
Villamor are not expected to look beyond the title to determine its validity. They are purchasers in good faith
and for value, and are therefore entitled to the protection of the court.
Contrary to the allegation of [the protestants], there was in fact a valid delivery of the land to defendants
Yap and Villamor. The execution of a Deed of Sale in their favor by defendant [Bank], and delivery to them
of the owner's copy of OCT No. P-11182 is a constructive delivery of the property sold to them.
Although defendants Yap and Villamar had not taken actual physical possession of the property covered by
OCT No. P-11182, the same did not divest them of the ownership of the land covered by the said title. The
occupation and possession of [the protestants] of the land in question did not ripen into ownership because
their occupation (even in the concept of an owner) cannot defeat a Torrens title. OCT No. P-11182 is
presumed to be valid until declared void by the courts.40
The foregoing shows that the question of whether or not Yap and Villamar are innocent purchasers was not
an actual issue of fact in the case before the RTC Branch 13, and which called for said court's adjudication.
"An issue of fact is a point supported by one party's evidence and controverted by another's."41 That Yap and
Villamor were buyers in good faith is merely an allegation which was not proven in court. The RTC Branch 13
did not actually make any clear pronouncement on the matter.
The expropriation proceeding was filed on February 28, 1997. The protestants caused the annotation of a
notice of lis pendens on the original copy of OCT No. P-11182 on January 27, 1992. Accordingly, if indeed the
question on whether Yap and Villamar are buyers in good faith was an actual issue of fact before the
expropriation proc;eeding, the protestants could have easily controverted such claim by the mere
expedience of presenting a certified original copy of OCT No. P-11182. Forsooth, the notice at the back of a
Torrens title serves as notice to the whole world of the pending controversy over the land so registered.42
The RTC Branch 13 basically anchored its judgment on the indefeasibility of a Torrens title. Pursuant to the
well-settled rule that a certificate of title cannot be subject to collateral attack and can only be altered,
modified, or cancelled in a direct proceeding in accordance with law,43 it was clear that the trial court was
without jurisdiction in an expropriation proceeding, to rule whether the title issued to Pagarigan is void -
notwithstanding the decision of the DENR Secretary. Thereupon, since the position of the protestants rests
mainly on the validity of Pagarigan's title which cannot be considered in the action, RTC Branch 13, in effect,
posited that there was no legal way for it to rule otherwise.
Accordingly, and as similarly advanced by the OSG in its Comment, the RTC Branch 13's pronouncement
that Yap and Villamor were buyers in good faith was, at best, a mere obiter dictum. Contrary to Yap's claim,
there was nothing final or conclusive with the decision of the RTC Branch 13 which the CA should be bound.
Neither the Bank, nor Yap and Villamor were purchasers in good faith and for value. Reversion of subject lot is
in order.
"[F]actual findings of administrative or quasi-judicial bodies, which are deemed to have acquired expertise in
matters within their respective jurisdictions, are generally accorded not only respect but even finality, and
bind the Court when supported by substantial evidence."44
The fact that Pagarigan fraudulently secured his free patent was duly established by the investigation
conducted by the DENR through Senior
Special Investigator Domingo Mendez. The decision of the DENR is very clear in this regard, thus:
From the Investigation Reports submitted by both the Department's Regional Office involved and this Office
as well as from the other pieces of evidence available, both documentary and testimonial, it is obvious that
actual fraud and bad faith have been committed by [Pagarigan] in his subject public land application
which led to the issuance of the title. The following facts and circumstances are uncontroverted, to wit; that
the [protestants] have been in actual occupation of the land in di spute since 1945 and have introduced
improvements thereon; that [Pagarigan] never occupied the same nor his predecessor-in-interest, Consuelo
de la Cruz; that [Pagarigan] misrepresented in his application that he was the actual occupant and that
there were no others who occupied the lot in dispute; that the title was issued sans an actual ground survey;
and that [Pagarigan] did not post a copy of his Notice for [FPA] on both the Bulletin Boards of Daliao and
Lizardo as required by law.45 (Emphasis ours)
Thus, the DENR ordered for the institution of the present action seeking the cancellation of the certificate of
title issued in the name of Pagarigan, and for the reversion of the land covered thereby to the government.
Page 18 of 20
However, as adverted to above, Section 32 of Presidential Decree No. 1529 mandates that for a reversion
case to prosper, it is not enough to prove that the original grantee of a patent has obtained the same
through fraud; it must also be proven that the subject property has not yet been acquired by an innocent
purchaser for value, because fraudulent acquisition cannot affect the titles of the latter.
Henceforth, the ultimate resolution of this case boils down to the determination on whether the subsequent
conveyances of the subject lot from Pagarigan were made to innocent purchasers for value. Specifically,
based on the records, can we regard the Bank, and thereafter, Yap and Villamor as innocent purchasers for
value?
The Court answers in the negative.
Verily, the Court is in full accord with the following disquisitions of the CA on the matter, thus:
It cannot be overemphasized that [the Bank], being in the business of extending loans secured by real estate
mortgage, is familiar with rules on land registration. As such, it was, as here, expected to exercise more care
and prudence than private individuals in its dealings with registered lands. Accordingly, given inter alia the
suspicion-provoking presence of occupants other than the owner on the land to be mortgaged, it behooved
them to conduct a more exhaustive investigation on the history of the mortgagor's title. That appellee Bank
accepted in mortgage the property in question notwithstanding the existence of structures on the property
and which were in actual, visible, and public possession of persons other than the mortgagor, constitutes
gross negligence amounting to bad faith.46(Citation omitted)
Yap and Villamor are not innocent purchasers for value.
As pointed out by the CA, the respondent argued that at the time Yap and Villamar purchased the said lot
from the Bank, a notice of lis pendens was already annotated on OCT No. P-11182; hence, they cannot be
considered as innocent purchasers for value. Yap and Villamor, on the other hand, contended that the
owner's duplicate copy they received from the Bank did not contain any annotations of encumbrance or
liens; hence, they cannot be bound by such annotation.47
In the present petition, Yap maintains that the presumption that she and Villamor are buyers in good faith
and for value has not been rebutted. She adds that even if it is assumed, for the sake of argument, that their
predecessor-in-interest committed fraud and misrepresentation, their title as innocent purchasers and for
value will not in any way be affected.48
This Court cannot sanction Yap's assertion. Time and again, the Court has ruled that the burden of proof to
establish the status of a purchaser and registrant in good faith lies upon the one who asserts it. This onus
probandi cannot be discharged by mere invocation of the legal presumption of good faith.49
It must be emphasized that aside from the fact that a notice of lis pendens was already annotated on OCT
No. P-11182 even before Yap and Villamar purchased the subject property, it was also established that when
they did so, the said property was still registered in the name of Pagarigan since the Bank did not consolidate
its title thereto.50Stated simply, Yap and Villamor purchased the subject property not from the registered
owner.
In Trifonia D. Gabutan, et al. v. Dante D. Nacalaban, et al.,51 the Court held that:
A buyer for value in good Faith is one who buys property of another, without notice that some other person
has a right to, or interest in, such property and pays full and fair price for the same, at the time of such
purchase, or before he has notice of the claim or interest of some other persons in the property. He buys the
property with the well-founded belief that the person from whom he receives the thing had title to the
property and capacity to convey it.
To prove good faith, a buyer of registered and titled land need only show that he relied on the face of the
title to the property. He need not prove that he made further inquiry for he is not obliged to explore beyond
the four comers of the title. Such degree of proof of good faith, however, is sufficient only when the following
conditions concur: first, the seller is the registered owner of the land; second, the latter is in possession thereof;
and third, at the time of the sale, the buyer was not aware of any claim or interest of some other person in
the property, or of any defect or restriction in the title of the seller or in his capacity to convey title to the
property.
Absent one or two of the foregoing conditions, then the law itself puts the buyer on notice and obliges the
latter to exercise a higher degree of diligence by scrutinizing the certificate of title and examining all factual
circumstances in order to determine the seller's title and capacity to transfer any interest in the property.
Under such circumstance, it is no longer sufficient for said buyer to merely show that he relied on the face of
the title; he must now also show that he exercised reasonable precaution by inquiring beyond the title.
Failure to exercise such degree of precaution makes him a buyer in bad faith.52 (Emphasis and italics in the
original)
Verily, as the Court held in a catena of cases:
[T]he law protects to a greater degree a purchaser who buys from the registered owner himself. Corollarily, it
requires a higher degree of prudence from one who buys from a person who is not the registered owner,
although the land object of the transaction is registered. While one who buys from the registered owner does
not need to look behind the certificate of title, one who buys from one who is not the registered owner is
expected to examine not only the certificate of title but all factual circumstances necessary for him to
determine if there are any flaws in the title of the transferor, or in his capacity to transfer the land.
This Court has consistently applied the stricter rule when it comes to deciding the issue of good faith of one
who buys from one who is not the registered owner, but who exhibits a certificate of title.53(Emphasis in the
original)
Neither estoppel nor laches lies
against the respondent m the
present case
Citing the cases of Saad Agro-Jndustries54 and Republic of the Philippines v. CA, 55 the RTC Branch 16 opined
that in an action for reversion, the defenses of equitable estoppel, laches and Torrens System in land titles are
available - without, however, stating that the foregoing also applies in this case, and how.
In any event, neither of said cases is on all fours with the present case. Said cases did not dwell on whether
an FPA was granted through the employment of fraud and/or misrepresentation, nor the question of whether
the concerned properties were conveyed to innocent purchasers.
In Saad Agro-Industries, free patent was alleged to have been mistakenly issued over a property that was
claimed by therein respondent as inalienable for being part of a track of land classified as forest land.
However, it was established that government has not yet classified the lot in question as forest reserve prior to
the issuance of the concerned free patent. Moreover, it was also established that therein subject property
was already conveyed to an innocent purchaser for value, Saad Agro-Industries, Inc. before the action for
reversion was instituted.
In Republic of the Philippines v. CA,56 therein petitioner instituted an action to annul the certificates of title
that were issued on the basis of a null and void subdivision plan. While therein petitioner sufficiently proved
that the actual area of the disputed property was unduly enlarged in the said subdivision plan, it, however,
presented no proof that therein respondent committed fraud when it submitted the subdivision plan to the
Land Registration Commission for approval. Since the plan was presumed to have been subjected to
investigation, study and verification by said commission, there was no one to be blamed except therein
petitioner, acting through said body, itself. Thus, for having allowed and approved the subdivision plan, the
government was held to be in estoppel to question the same, and seek the annulment of titles issued
pursuant thereto. Moreover, when the action was instituted, the subdivided properties were already sold to
innocent purchasers for value. Additionally, although therein petitioner asserted that the action was instituted
to protect the integrity of the Torrens System, it was, however, unjustifiable that it took nearly 20 years before
therein petitioner acted on the matter. Verily, therein petitioner's prolonged inaction was held as tantamount
to laches.
In the instant case, it was established that Pagarigan's FPA was secured on the basis of his fraudulent
representations.1âwphi1 The respondent cannot be faulted for having been misled into believing that an
applicant is legally qualified to be granted free patent as to render it estopped from asserting its right to
recover its own property. While the action for reversion was instituted only in 2003, the circumstances leading
to the institution of the case hardly spells inaction or neglect on the part of the respondent as to be
considered guilty of laches.
Forsooth, there was no prolonged inaction on the part of the respondent in this case. This can be gleaned in
the decision57 of the DENR Secretary. Shortly after the protestants filed a formal protest with the Bureau on
October 24, 1990, the Officer-in-Charge, Regional Executive Director (RED) of the DENR Region XI, Davao City
immediately ordered an investigation on November 15, 1990,58 and the same commenced on November 19,
1990. On February 14, 1994, the RED issued a decision dismissing the protestants' protest.59 Undaunted, the
protestants elevated their case to the Office of the DENR Secretary. On May 15, 1995, the DENR Secretary
set-aside the RED's decision and ordered the institution of appropriate action for the cancellation of OCT No.
P-11182, and for the reversion of the property covered thereby to the government.
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The instant action does not undermine the indefeasibility of Torrens title
In the case of Lorzano v. Tabayag, Jr.,60 the Court reiterated that a Torrens title emanating from a free patent
which was secured through fraud does not become indefeasible because the patent from whence the title
sprung is itself void and of no effect whatsoever. Thus:
Once a patent is registered and the corresponding certificate of title is issued, the land covered thereby
ceases to be part of public domain and becomes private property, and the Torrens Title issued pursuant to
the patent becomes indefeasible upon the expiration of one year from the date of such issuance. However,
a title emanating from a free patent which was secured through fraud does not become indefeasible,
precisely because the patent from whence the title sprung is itself void and of no effect whatsoever.61
On this point, the Court's ruling m Republic v. Heirs of Felipe Alejaga, Sr.62 is instructive:
True, once a patent is registered and the corresponding certificate of title [is] issued, the land covered by
them ceases to be part of the public domain and becomes private property. Further, the Torrens Title issued
pursuant to the patent becomes indefeasible a year after the issuance of the latter. However, this
indefeasibility of a title does not attach to titles secured by fraud and misrepresentation. Well-settled is the
doctrine that the registration of a patent under the Torrens System does not by itself vest title; it merely
confirms the registrant's already existing one. Verily, registration under the Torrens System is not a mode of
acquiring ownership.63 (Citations omitted)

A fraudulently acquired free patent may only be assailed by the government m an action for reversion
Nonetheless, a free patent that was fraudulently acquired, and the certificate of title issued pursuant to the
same, may only be assailed by the government in an action for reversion, pursuant to Section 101 of the
Public Land Act. In Sherwill Development Corporation v. Sitio Sta. Nino Residents Association, Inc.,64 the Court
pointed out that:
It is also to the public interest that one who succeeds in fraudulently acquiring title to a public land should not
be allowed to benefit therefrom, and the State should, therefore, have an even existing authority, thru its
duly-authorized officers, to inquire into the circumstances surrounding the issuance of any such title, to the
end that the Republic, thru the Solicitor General or any other officer who may be authorized by Jaw, may file
the corresponding action for the reversion of the land involved to the public domain, subject thereafter to
disposal to other qualified persons in accordance with law. In other words, the indefeasibility of a title over
land previously public is not a bar to an investigation by the Director of Lands as to how such title has been
acquired, if the purpose of such investigation is to determine whether or not fraud had been committed in
securing such title in order that the appropriate action for reversion may be filed by the Government.65
WHEREFORE, the petition is hereby DENIED. The Decision dated June 30, 2011 and Resolution dated
November 14, 2011 of the Court of Appeals in CA-GR. CV No. 01753-MIN are AFFIRMED.
SO ORDERED.

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