G.R. No.

L-11658            February 15, 1918

LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J. G.
WILLIAMSON, defendants-appellees.

Booram and Mahoney for appellant.

Williams, Ferrier and SyCip for appellees.

CARSON, J.:

The "Compañia Agricola Filipina" bought a considerable quantity of rice-

cleaning machinery company from the defendant machinery company, and
executed a chattel mortgage thereon to secure payment of the purchase
price. It included in the mortgage deed the building of strong materials in
which the machinery was installed, without any reference to the land on
which it stood. The indebtedness secured by this instrument not having
been paid when it fell due, the mortgaged property was sold by the sheriff,
in pursuance of the terms of the mortgage instrument, and was bought in
by the machinery company. The mortgage was registered in the chattel
mortgage registry, and the sale of the property to the machinery company
in satisfaction of the mortgage was annotated in the same registry on
December 29, 1913.

A few weeks thereafter, on or about the 14th of January, 1914, the

"Compañia Agricola Filipina" executed a deed of sale of the land upon
which the building stood to the machinery company, but this deed of sale,
although executed in a public document, was not registered. This deed
makes no reference to the building erected on the land and would appear
to have been executed for the purpose of curing any defects which might
be found to exist in the machinery company's title to the building under the
sheriff's certificate of sale. The machinery company went into possession of
the building at or about the time when this sale took place, that is to say,
the month of December, 1913, and it has continued in possession ever
since.

At or about the time when the chattel mortgage was executed in favor of
the machinery company, the mortgagor, the "Compañia Agricola Filipina"
executed another mortgage to the plaintiff upon the building, separate and
apart from the land on which it stood, to secure payment of the balance of
its indebtedness to the plaintiff under a contract for the construction of the
building. Upon the failure of the mortgagor to pay the amount of the
indebtedness secured by the mortgage, the plaintiff secured judgment for
that amount, levied execution upon the building, bought it in at the sheriff's
sale on or about the 18th of December, 1914, and had the sheriff's
certificate of the sale duly registered in the land registry of the Province of
Cavite.

At the time when the execution was levied upon the building, the defendant
machinery company, which was in possession, filed with the sheriff a sworn
statement setting up its claim of title and demanding the release of the
property from the levy. Thereafter, upon demand of the sheriff, the plaintiff
executed an indemnity bond in favor of the sheriff in the sum of P12,000, in
reliance upon which the sheriff sold the property at public auction to the
plaintiff, who was the highest bidder at the sheriff's sale.

This action was instituted by the plaintiff to recover possession of the

building from the machinery company.

The trial judge, relying upon the terms of article 1473 of the Civil Code,
gave judgment in favor of the machinery company, on the ground that the
company had its title to the building registered prior to the date of registry of
the plaintiff's certificate.

Article 1473 of the Civil Code is as follows:

If the same thing should have been sold to different vendees, the
ownership shall be transfer to the person who may have the first
taken possession thereof in good faith, if it should be personal
property.

Should it be real property, it shall belong to the person acquiring it

who first recorded it in the registry.

Should there be no entry, the property shall belong to the person who
first took possession of it in good faith, and, in the absence thereof, to
the person who presents the oldest title, provided there is good faith.

The registry her referred to is of course the registry of real property, and it
must be apparent that the annotation or inscription of a deed of sale of real
property in a chattel mortgage registry cannot be given the legal effect of
an inscription in the registry of real property. By its express terms, the
Chattel Mortgage Law contemplates and makes provision for mortgages of
personal property; and the sole purpose and object of the chattel mortgage
registry is to provide for the registry of "Chattel mortgages," that is to say,
mortgages of personal property executed in the manner and form
prescribed in the statute. The building of strong materials in which the rice-
cleaning machinery was installed by the "Compañia Agricola Filipina" was
real property, and the mere fact that the parties seem to have dealt with it
separate and apart from the land on which it stood in no wise changed its
character as real property. It follows that neither the original registry in the
chattel mortgage of the building and the machinery installed therein, not the
annotation in that registry of the sale of the mortgaged property, had any
effect whatever so far as the building was concerned.

We conclude that the ruling in favor of the machinery company cannot be

sustained on the ground assigned by the trial judge. We are of opinion,
however, that the judgment must be sustained on the ground that the
agreed statement of facts in the court below discloses that neither the
purchase of the building by the plaintiff nor his inscription of the sheriff's
certificate of sale in his favor was made in good faith, and that the
machinery company must be held to be the owner of the property under the
third paragraph of the above cited article of the code, it appearing that the
company first took possession of the property; and further, that the building
and the land were sold to the machinery company long prior to the date of
the sheriff's sale to the plaintiff.

It has been suggested that since the provisions of article 1473 of the Civil
Code require "good faith," in express terms, in relation to "possession" and
"title," but contain no express requirement as to "good faith" in relation to
the "inscription" of the property on the registry, it must be presumed that
good faith is not an essential requisite of registration in order that it may
have the effect contemplated in this article. We cannot agree with this
contention. It could not have been the intention of the legislator to base the
preferential right secured under this article of the code upon an inscription
of title in bad faith. Such an interpretation placed upon the language of this
section would open wide the door to fraud and collusion. The public records
cannot be converted into instruments of fraud and oppression by one who
secures an inscription therein in bad faith. The force and effect given by law
to an inscription in a public record presupposes the good faith of him who
enters such inscription; and rights created by statute, which are predicated
upon an inscription in a public registry, do not and cannot accrue under an
inscription "in bad faith," to the benefit of the person who thus makes the
inscription.

Construing the second paragraph of this article of the code, the supreme
court of Spain held in its sentencia of the 13th of May, 1908, that:

This rule is always to be understood on the basis of the good faith

mentioned in the first paragraph; therefore, it having been found that
the second purchasers who record their purchase had knowledge of
the previous sale, the question is to be decided in accordance with
the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and
Maranon [1911] edition.)

Although article 1473, in its second paragraph, provides that the title
of conveyance of ownership of the real property that is first recorded
in the registry shall have preference, this provision must always be
understood on the basis of the good faith mentioned in the first
paragraph; the legislator could not have wished to strike it out and to
sanction bad faith, just to comply with a mere formality which, in given
cases, does not obtain even in real disputes between third persons.
(Note 2, art. 1473, Civ. Code, issued by the publishers of the La
Revista de los Tribunales, 13th edition.)

The agreed statement of facts clearly discloses that the plaintiff, when he
bought the building at the sheriff's sale and inscribed his title in the land
registry, was duly notified that the machinery company had bought the
building from plaintiff's judgment debtor; that it had gone into possession
long prior to the sheriff's sale; and that it was in possession at the time
when the sheriff executed his levy. The execution of an indemnity bond by
the plaintiff in favor of the sheriff, after the machinery company had filed its
sworn claim of ownership, leaves no room for doubt in this regard. Having
bought in the building at the sheriff's sale with full knowledge that at the
time of the levy and sale the building had already been sold to the
machinery company by the judgment debtor, the plaintiff cannot be said to
have been a purchaser in good faith; and of course, the subsequent
inscription of the sheriff's certificate of title must be held to have been
tainted with the same defect.
Perhaps we should make it clear that in holding that the inscription of the
sheriff's certificate of sale to the plaintiff was not made in good faith, we
should not be understood as questioning, in any way, the good faith and
genuineness of the plaintiff's claim against the "Compañia Agricola
Filipina." The truth is that both the plaintiff and the defendant company
appear to have had just and righteous claims against their common debtor.
No criticism can properly be made of the exercise of the utmost diligence
by the plaintiff in asserting and exercising his right to recover the amount of
his claim from the estate of the common debtor. We are strongly inclined to
believe that in procuring the levy of execution upon the factory building and
in buying it at the sheriff's sale, he considered that he was doing no more
than he had a right to do under all the circumstances, and it is highly
possible and even probable that he thought at that time that he would be
able to maintain his position in a contest with the machinery company.
There was no collusion on his part with the common debtor, and no thought
of the perpetration of a fraud upon the rights of another, in the ordinary
sense of the word. He may have hoped, and doubtless he did hope, that
the title of the machinery company would not stand the test of an action in a
court of law; and if later developments had confirmed his unfounded hopes,
no one could question the legality of the propriety of the course he adopted.

But it appearing that he had full knowledge of the machinery company's

claim of ownership when he executed the indemnity bond and bought in the
property at the sheriff's sale, and it appearing further that the machinery
company's claim of ownership was well founded, he cannot be said to have
been an innocent purchaser for value. He took the risk and must stand by
the consequences; and it is in this sense that we find that he was not a
purchaser in good faith.

One who purchases real estate with knowledge of a defect or lack of title in
his vendor cannot claim that he has acquired title thereto in good faith as
against the true owner of the land or of an interest therein; and the same
rule must be applied to one who has knowledge of facts which should have
put him upon such inquiry and investigation as might be necessary to
acquaint him with the defects in the title of his vendor. A purchaser cannot
close his eyes to facts which should put a reasonable man upon his guard,
and then claim that he acted in good faith under the belief that there was no
defect in the title of the vendor. His mere refusal to believe that such defect
exists, or his willful closing of his eyes to the possibility of the existence of a
defect in his vendor's title, will not make him an innocent purchaser for
value, if afterwards develops that the title was in fact defective, and it
appears that he had such notice of the defects as would have led to its
discovery had he acted with that measure of precaution which may
reasonably be acquired of a prudent man in a like situation. Good faith, or
lack of it, is in its analysis a question of intention; but in ascertaining the
intention by which one is actuated on a given occasion, we are necessarily
controlled by the evidence as to the conduct and outward acts by which
alone the inward motive may, with safety, be determined. So it is that "the
honesty of intention," "the honest lawful intent," which constitutes good faith
implies a "freedom from knowledge and circumstances which ought to put a
person on inquiry," and so it is that proof of such knowledge overcomes the
presumption of good faith in which the courts always indulge in the
absence of proof to the contrary. "Good faith, or the want of it, is not a
visible, tangible fact that can be seen or touched, but rather a state or
condition of mind which can only be judged of by actual or fancied tokens
or signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber
Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley,
119 Mich., 8, 10, 17.)

We conclude that upon the grounds herein set forth the disposing part of
the decision and judgment entered in the court below should be affirmed
with costs of this instance against the appellant. So ordered.

G.R. No. L-41506             March 25, 1935

PHILIPPINE REFINING CO., INC., plaintiff-appellant,

vs.
FRANCISCO JARQUE, JOSE COROMINAS, and ABOITIZ &
CO., defendants.
JOSE COROMINAS, in his capacity as assignee of the estate of the
insolvent Francisco Jarque, appellee.

Thos. G. Ingalls, Vicente Pelaez and DeWitt, Perkins and Brady for
appellant.
D.G. McVean and Vicente L. Faelnar for appellee.

MALCOLM, J.:
First of all the reason why the case has been decided by the court in
banc needs explanation. A motion was presented by counsel for the
appellant in which it was asked that the case be heard and determined by
the court sitting in banc because the admiralty jurisdiction of the court was
involved, and this motion was granted in regular course. On further
investigation it appears that this was error. The mere mortgage of a ship is
a contract entered into by the parties to it without reference to navigation or
perils of the sea, and does not, therefore, confer admiralty jurisdiction.
(Bogart vs. Steamboat John Jay [1854], 17 How., 399.)

Coming now to the merits, it appears that on varying dates the Philippine
Refining Co., Inc., and Francisco Jarque executed three mortgages on the
motor vessels Pandan and Zaragoza. These documents were recorded in
the record of transfers and incumbrances of vessels for the port of Cebu
and each was therein denominated a "chattel mortgage". Neither of the first
two mortgages had appended an affidavit of good faith. The third mortgage
contained such an affidavit, but this mortgage was not registered in the
customs house until May 17, 1932, or within the period of thirty days prior
to the commencement of insolvency proceedings against Francisco Jarque;
also, while the last mentioned mortgage was subscribed by Francisco
Jarque and M. N. Brink, there was nothing to disclose in what capacity the
said M. N. Brink signed. A fourth mortgage was executed by Francisco
Jarque and Ramon Aboitiz on the motorship Zaragoza and was entered in
the chattel mortgage registry of the register of deeds on May 12, 1932, or
again within the thirty-day period before the institution of insolvency
proceedings. These proceedings were begun on June 2, 1932, when a
petition was filed with the Court of First Instance of Cebu in which it was
prayed that Francisco Jarque be declared an insolvent debtor, which soon
thereafter was granted, with the result that an assignment of all the
properties of the insolvent was executed in favor of Jose Corominas.

On these facts, Judge Jose M. Hontiveros declined to order the foreclosure

of the mortgages, but on the contrary sustained the special defenses of
fatal defectiveness of the mortgages. In so doing we believe that the trial
judge acted advisedly.

Vessels are considered personal property under the civil law. (Code of
Commerce, article 585.) Similarly under the common law, vessels are
personal property although occasionally referred to as a peculiar kind of
personal property. (Reynolds vs. Nielson [1903], 96 Am. Rep., 1000;
Atlantic Maritime Co vs. City of Gloucester [1917], 117 N. E., 924.) Since
the term "personal property" includes vessels, they are subject to mortgage
agreeably to the provisions of the Chattel Mortgage Law. (Act No. 1508,
section 2.) Indeed, it has heretofore been accepted without discussion that
a mortgage on a vessel is in nature a chattel mortgage. (McMicking vs.
Banco Español-Filipino [1909], 13 Phil., 429; Arroyo vs. Yu de Sane [1930],
54 Phil., 511.) The only difference between a chattel mortgage of a vessel
and a chattel mortgage of other personalty is that it is not now necessary
for a chattel mortgage of a vessel to be noted n the registry of the register
of deeds, but it is essential that a record of documents affecting the title to
a vessel be entered in the record of the Collector of Customs at the port of
entry. (Rubiso and Gelito vs. Rivera [1917], 37 Phil., 72; Arroyo vs. Yu de
Sane, supra.) Otherwise a mortgage on a vessel is generally like other
chattel mortgages as to its requisites and validity. (58 C.J., 92.)

The Chattell Mortgage Law in its section 5, in describing what shall be

deemed sufficient to constitute a good chattel mortgage, includes the
requirement of an affidavit of good faith appended to the mortgage and
recorded therewith. The absence of the affidavit vitiates a mortgage as
against creditors and subsequent encumbrancers. (Giberson vs. A. N.
Jureidini Bros. [1922], 44 Phil., 216; Benedicto de Tarrosa vs. F. M. Yap
Tico & Co. and Provincial Sheriff of Occidental Negros [1923], 46 Phil.,
753.) As a consequence a chattel mortgage of a vessel wherein the
affidavit of good faith required by the Chattel Mortgage Law is lacking, is
unenforceable against third persons.

In effect appellant asks us to find that the documents appearing in the

record do not constitute chattel mortgages or at least to gloss over the
failure to include the affidavit of good faith made a requisite for a good
chattel mortgage by the Chattel Mortgage Law. Counsel would further have
us disregard article 585 of the Code of Commerce, but no reason is shown
for holding this article not in force. Counsel would further have us revise
doctrines heretofore announced in a series of cases, which it is not
desirable to do since those principles were confirmed after due liberation
and constitute a part of the commercial law of the Philippines. And finally
counsel would have us make rulings on points entirely foreign to the issues
of the case. As neither the facts nor the law remains in doubt, the seven
assigned errors will be overruled.

Judgment affirmed, the costs of this instance to be paid by the appellant.

.R. No. L-41643             July 31, 1935

B.H. BERKENKOTTER, plaintiff-appellant,
vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE
INSURANCE COMPANY, MABALACAT SUGAR COMPANY and THE
PROVINCE SHERIFF OF PAMPANGA, defendants-appellees.

Briones and Martinez for appellant.

Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees.

VILLA-REAL, J.:

This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the

judgment of the Court of First Instance of Manila, dismissing said plaintiff's
complaint against Cu Unjiengs e Hijos et al., with costs.

In support of his appeal, the appellant assigns six alleged errors as

committed by the trial court in its decision in question which will be
discussed in the course of this decision.

The first question to be decided in this appeal, which is raised in the first
assignment of alleged error, is whether or not the lower court erred in
declaring that the additional machinery and equipment, as improvement
incorporated with the central are subject to the mortgage deed executed in
favor of the defendants Cu Unjieng e Hijos.

It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar
Co., Inc., owner of the sugar central situated in Mabalacat, Pampanga,
obtained from the defendants, Cu Unjieng e Hijos, a loan secured by a first
mortgage constituted on two parcels and land "with all its buildings,
improvements, sugar-cane mill, steel railway, telephone line, apparatus,
utensils and whatever forms part or is necessary complement of said
sugar-cane mill, steel railway, telephone line, now existing or that may in
the future exist is said lots."

On October 5, 1926, shortly after said mortgage had been constituted, the
Mabalacat Sugar Co., Inc., decided to increase the capacity of its sugar
central by buying additional machinery and equipment, so that instead of
milling 150 tons daily, it could produce 250. The estimated cost of said
additional machinery and equipment was approximately P100,000. In order
to carry out this plan, B.A. Green, president of said corporation, proposed
to the plaintiff, B.H. Berkenkotter, to advance the necessary amount for the
purchase of said machinery and equipment, promising to reimburse him as
soon as he could obtain an additional loan from the mortgagees, the herein
defendants Cu Unjieng e Hijos. Having agreed to said proposition made in
a letter dated October 5, 1926 (Exhibit E), B.H. Berkenkotter, on October
9th of the same year, delivered the sum of P1,710 to B.A. Green, president
of the Mabalacat Sugar Co., Inc., the total amount supplied by him to said
B.A. Green having been P25,750. Furthermore, B.H. Berkenkotter had a
credit of P22,000 against said corporation for unpaid salary. With the loan
of P25,750 and said credit of P22,000, the Mabalacat Sugar Co., Inc.,
purchased the additional machinery and equipment now in litigation.

On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc.,
applied to Cu Unjieng e Hijos for an additional loan of P75,000 offering as
security the additional machinery and equipment acquired by said B.A.
Green and installed in the sugar central after the execution of the original
mortgage deed, on April 27, 1927, together with whatever additional
equipment acquired with said loan. B.A. Green failed to obtain said loan.

Article 1877 of the Civil Code provides as follows.

ART. 1877. A mortgage includes all natural accessions,

improvements, growing fruits, and rents not collected when the
obligation falls due, and the amount of any indemnities paid or due
the owner by the insurers of the mortgaged property or by virtue of
the exercise of the power of eminent domain, with the declarations,
amplifications, and limitations established by law, whether the estate
continues in the possession of the person who mortgaged it or
whether it passes into the hands of a third person.

In the case of Bischoff vs. Pomar and Compañia General de Tabacos (12

Phil., 690), cited with approval in the case of Cea vs. Villanueva (18 Phil.,
538), this court laid shown the following doctrine:

1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES

IMPROVEMENTS AND FIXTURES. — It is a rule, established by the
Civil Code and also by the Mortgage Law, with which the decisions of
the courts of the United States are in accord, that in a mortgage of
 real estate, the improvements on the same are included; therefore, all
objects permanently attached to a mortgaged building or land,
although they may have been placed there after the mortgage was
constituted, are also included. (Arts. 110 and 111 of the Mortgage
Law, and 1877 of the Civil Code; decision of U.S. Supreme Court in
the matter of Royal Insurance Co. vs. R. Miller, liquidator, and
Amadeo [26 Sup. Ct. Rep., 46; 199 U.S., 353].)

2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. —

In order that it may be understood that the machinery and other
objects placed upon and used in connection with a mortgaged estate
are excluded from the mortgage, when it was stated in the mortgage
that the improvements, buildings, and machinery that existed thereon
were also comprehended, it is indispensable that the exclusion
thereof be stipulated between the contracting parties.

The appellant contends that the installation of the machinery and

equipment claimed by him in the sugar central of the Mabalacat Sugar
Company, Inc., was not permanent in character inasmuch as B.A. Green,
in proposing to him to advance the money for the purchase thereof, made it
appear in the letter, Exhibit E, that in case B.A. Green should fail to obtain
an additional loan from the defendants Cu Unjieng e Hijos, said machinery
and equipment would become security therefor, said B.A. Green binding
himself not to mortgage nor encumber them to anybody until said plaintiff
be fully reimbursed for the corporation's indebtedness to him.

Upon acquiring the machinery and equipment in question with money

obtained as loan from the plaintiff-appellant by B.A. Green, as president of
the Mabalacat Sugar Co., Inc., the latter became owner of said machinery
and equipment, otherwise B.A. Green, as such president, could not have
offered them to the plaintiff as security for the payment of his credit.

Article 334, paragraph 5, of the Civil Code gives the character of real
property to "machinery, liquid containers, instruments or implements
intended by the owner of any building or land for use in connection with any
industry or trade being carried on therein and which are expressly adapted
to meet the requirements of such trade or industry.

If the installation of the machinery and equipment in question in the central

of the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity
existing therein, for its sugar industry, converted them into real property by
reason of their purpose, it cannot be said that their incorporation therewith
was not permanent in character because, as essential and principal
elements of a sugar central, without them the sugar central would be
unable to function or carry on the industrial purpose for which it was
established. Inasmuch as the central is permanent in character, the
necessary machinery and equipment installed for carrying on the sugar
industry for which it has been established must necessarily be permanent.

Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H.
Berkenkotter to hold said machinery and equipment as security for the
payment of the latter's credit and to refrain from mortgaging or otherwise
encumbering them until Berkenkotter has been fully reimbursed therefor, is
not incompatible with the permanent character of the incorporation of said
machinery and equipment with the sugar central of the Mabalacat Sugar
Co., Inc., as nothing could prevent B.A. Green from giving them as security
at least under a second mortgage.

As to the alleged sale of said machinery and equipment to the plaintiff and
appellant after they had been permanently incorporated with sugar central
of the Mabalacat Sugar Co., Inc., and while the mortgage constituted on
said sugar central to Cu Unjieng e Hijos remained in force, only the right of
redemption of the vendor Mabalacat Sugar Co., Inc., in the sugar central
with which said machinery and equipment had been incorporated, was
transferred thereby, subject to the right of the defendants Cu Unjieng e
Hijos under the first mortgage.

For the foregoing considerations, we are of the opinion and so hold: (1)
That the installation of a machinery and equipment in a mortgaged sugar
central, in lieu of another of less capacity, for the purpose of carrying out
the industrial functions of the latter and increasing production, constitutes a
permanent improvement on said sugar central and subjects said machinery
and equipment to the mortgage constituted thereon (article 1877, Civil
Code); (2) that the fact that the purchaser of the new machinery and
equipment has bound himself to the person supplying him the purchase
money to hold them as security for the payment of the latter's credit, and to
refrain from mortgaging or otherwise encumbering them does not alter the
permanent character of the incorporation of said machinery and equipment
with the central; and (3) that the sale of the machinery and equipment in
question by the purchaser who was supplied the purchase money, as a
loan, to the person who supplied the money, after the incorporation thereof
with the mortgaged sugar central, does not vest the creditor with ownership
of said machinery and equipment but simply with the right of redemption.

Wherefore, finding no error in the appealed judgment, it is affirmed in all its

parts, with costs to the appellant. So ordered.

G.R. No. L-40411             August 7, 1935

DAVAO SAW MILL CO., INC., plaintiff-appellant,

vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO.,
INC., defendants-appellees.

Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven
for appellant.
J.W. Ferrier for appellees.

MALCOLM, J.:

The issue in this case, as announced in the opening sentence of the

decision in the trial court and as set forth by counsel for the parties on
appeal, involves the determination of the nature of the properties described
in the complaint. The trial judge found that those properties were personal
in nature, and as a consequence absolved the defendants from the
complaint, with costs against the plaintiff.

The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the
Government of the Philippine Islands. It has operated a sawmill in
the sitio of Maa, barrio of Tigatu, municipality of Davao, Province of Davao.
However, the land upon which the business was conducted belonged to
another person. On the land the sawmill company erected a building which
housed the machinery used by it. Some of the implements thus used were
clearly personal property, the conflict concerning machines which were
placed and mounted on foundations of cement. In the contract of lease
between the sawmill company and the owner of the land there appeared
the following provision:
 That on the expiration of the period agreed upon, all the
improvements and buildings introduced and erected by the party of
the second part shall pass to the exclusive ownership of the party of
the first part without any obligation on its part to pay any amount for
said improvements and buildings; also, in the event the party of the
second part should leave or abandon the land leased before the time
herein stipulated, the improvements and buildings shall likewise pass
to the ownership of the party of the first part as though the time
agreed upon had expired: Provided, however, That the machineries
and accessories are not included in the improvements which will pass
to the party of the first part on the expiration or abandonment of the
land leased.

In another action, wherein the Davao Light & Power Co., Inc., was the
plaintiff and the Davao, Saw, Mill Co., Inc., was the defendant, a judgment
was rendered in favor of the plaintiff in that action against the defendant in
that action; a writ of execution issued thereon, and the properties now in
question were levied upon as personalty by the sheriff. No third party claim
was filed for such properties at the time of the sales thereof as is borne out
by the record made by the plaintiff herein. Indeed the bidder, which was the
plaintiff in that action, and the defendant herein having consummated the
sale, proceeded to take possession of the machinery and other properties
described in the corresponding certificates of sale executed in its favor by
the sheriff of Davao.

As connecting up with the facts, it should further be explained that the

Davao Saw Mill Co., Inc., has on a number of occasions treated the
machinery as personal property by executing chattel mortgages in favor of
third persons. One of such persons is the appellee by assignment from the
original mortgages.

Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to

the Code, real property consists of —

1. Land, buildings, roads and constructions of all kinds adhering to

the soil;

xxx     xxx     xxx

5. Machinery, liquid containers, instruments or implements intended

by the owner of any building or land for use in connection with any
 industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade of industry.

Appellant emphasizes the first paragraph, and appellees the last mentioned
paragraph. We entertain no doubt that the trial judge and appellees are
right in their appreciation of the legal doctrines flowing from the facts.

In the first place, it must again be pointed out that the appellant should
have registered its protest before or at the time of the sale of this property.
It must further be pointed out that while not conclusive, the characterization
of the property as chattels by the appellant is indicative of intention and
impresses upon the property the character determined by the parties. In
this connection the decision of this court in the case of Standard Oil Co. of
New York vs. Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not,
furnishes the key to such a situation.

It is, however not necessary to spend overly must time in the resolution of
this appeal on side issues. It is machinery which is involved; moreover,
machinery not intended by the owner of any building or land for use in
connection therewith, but intended by a lessee for use in a building erected
on the land by the latter to be returned to the lessee on the expiration or
abandonment of the lease.

A similar question arose in Puerto Rico, and on appeal being taken to the
United States Supreme Court, it was held that machinery which is movable
in its nature only becomes immobilized when placed in a plant by the owner
of the property or plant, but not when so placed by a tenant, a usufructuary,
or any person having only a temporary right, unless such person acted as
the agent of the owner. In the opinion written by Chief Justice White, whose
knowledge of the Civil Law is well known, it was in part said:

To determine this question involves fixing the nature and character of

the property from the point of view of the rights of Valdes and its
nature and character from the point of view of Nevers & Callaghan as
a judgment creditor of the Altagracia Company and the rights derived
by them from the execution levied on the machinery placed by the
corporation in the plant. Following the Code Napoleon, the Porto
Rican Code treats as immovable (real) property, not only land and
buildings, but also attributes immovability in some cases to property
of a movable nature, that is, personal property, because of the
destination to which it is applied. "Things," says section 334 of the
Porto Rican Code, "may be immovable either by their own nature or
by their destination or the object to which they are applicable."
Numerous illustrations are given in the fifth subdivision of section
335, which is as follows: "Machinery, vessels, instruments or
implements intended by the owner of the tenements for the industrial
or works that they may carry on in any building or upon any land and
which tend directly to meet the needs of the said industry or works."
(See also Code Nap., articles 516, 518 et seq. to and inclusive of
article 534, recapitulating the things which, though in themselves
movable, may be immobilized.) So far as the subject-matter with
which we are dealing — machinery placed in the plant — it is plain,
both under the provisions of the Porto Rican Law and of the Code
Napoleon, that machinery which is movable in its nature only
becomes immobilized when placed in a plant by the owner of the
property or plant. Such result would not be accomplished, therefore,
by the placing of machinery in a plant by a tenant or a usufructuary or
any person having only a temporary right. (Demolombe, Tit. 9, No.
203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447;
and decisions quoted in Fuzier-Herman ed. Code Napoleon under
articles 522 et seq.) The distinction rests, as pointed out by
Demolombe, upon the fact that one only having a temporary right to
the possession or enjoyment of property is not presumed by the law
to have applied movable property belonging to him so as to deprive
him of it by causing it by an act of immobilization to become the
property of another. It follows that abstractly speaking the machinery
put by the Altagracia Company in the plant belonging to Sanchez did
not lose its character of movable property and become immovable by
destination. But in the concrete immobilization took place because of
the express provisions of the lease under which the Altagracia held,
since the lease in substance required the putting in of improved
machinery, deprived the tenant of any right to charge against the
lessor the cost such machinery, and it was expressly stipulated that
the machinery so put in should become a part of the plant belonging
to the owner without compensation to the lessee. Under such
conditions the tenant in putting in the machinery was acting but as the
agent of the owner in compliance with the obligations resting upon
him, and the immobilization of the machinery which resulted arose in
legal effect from the act of the owner in giving by contract a
permanent destination to the machinery.
 xxx     xxx     xxx

The machinery levied upon by Nevers & Callaghan, that is, that which
was placed in the plant by the Altagracia Company, being, as regards
Nevers & Callaghan, movable property, it follows that they had the
right to levy on it under the execution upon the judgment in their
favor, and the exercise of that right did not in a legal sense conflict
with the claim of Valdes, since as to him the property was a part of
the realty which, as the result of his obligations under the lease, he
could not, for the purpose of collecting his debt, proceed separately
against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)

Finding no reversible error in the record, the judgment appealed from will
be affirmed, the costs of this instance to be paid by the appellant.

G.R. No. L-7057           October 29, 1954

MACHINERY & ENGINEERING SUPPLIES, INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, HON. POTENCIANO
PECSON, JUDGE OF THE COURT OF FIRST INSTANCE OF MANILA,
IPO LIMESTONE CO., INC., and ANTONIO VILLARAMA, respondents.

Vicente J. Francisco for petitioner.

Capistrano and Capistrano for respondents.

CONCEPCION, J.:

This is an appeal by certiorari, taken by petitioner Machinery and

Engineering Supplies Inc., from a decision of the Court of Appeals denying
an original petition for certiorari filed by said petitioner against Hon.
Potenciano Pecson, Ipo Limestone Co., Inc., and Antonio Villarama, the
respondents herein.

The pertinent facts are set forth in the decision of the Court of Appeals,
from which we quote:

On March 13, 1953, the herein petitioner filed a complaint for replevin
in the Court of First Instance of Manila, Civil Case No. 19067, entitled
"Machinery and Engineering Supplies, Inc., Plaintiff, vs. Ipo
Limestone Co., Inc., and Dr. Antonio Villarama, defendants", for the
recovery of the machinery and equipment sold and delivered to said
defendants at their factory in barrio Bigti, Norzagaray, Bulacan. Upon
application ex-parte of the petitioner company, and upon approval of
petitioner's bond in the sum of P15,769.00, on March 13,1953,
respondent judge issued an order, commanding the Provincial Sheriff
of Bulacan to seize and take immediate possession of the properties
specified in the order (Appendix I, Answer). On March 19, 1953, two
deputy sheriffs of Bulacan, the said Ramon S. Roco, and a crew of
technical men and laborers proceeded to Bigti, for the purpose of
carrying the court's order into effect. Leonardo Contreras, Manager of
the respondent Company, and Pedro Torres, in charge thereof, met
the deputy sheriffs, and Contreras handed to them a letter addressed
to Atty. Leopoldo C. Palad, ex-oficio Provincial Sheriff of Bulacan,
signed by Atty. Adolfo Garcia of the defendants therein, protesting
against the seizure of the properties in question, on the ground that
they are not personal properties. Contending that the Sheriff's duty is
merely ministerial, the deputy sheriffs, Roco, the latter's crew of
technicians and laborers, Contreras and Torres, went to the factory.
Roco's attention was called to the fact that the equipment could not
possibly be dismantled without causing damages or injuries to the
wooden frames attached to them. As Roco insisted in dismantling the
equipment on his own responsibility, alleging that the bond was
posted for such eventuality, the deputy sheriffs directed that some of
the supports thereof be cut (Appendix 2). On March 20, 1953, the
defendant Company filed an urgent motion, with a counter-bond in
the amount of P15,769, for the return of the properties seized by the
deputy sheriffs. On the same day, the trial court issued an order,
directing the Provincial Sheriff of Bulacan to return the machinery and
equipment to the place where they were installed at the time of the
seizure (Appendix 3). On March 21, 1953, the deputy sheriffs
returned the properties seized, by depositing them along the road,
near the quarry, of the defendant Company, at Bigti, without the
benefit of inventory and without re-installing hem in their former
position and replacing the destroyed posts, which rendered their use
impracticable. On March 23, 1953, the defendants' counsel asked the
provincial Sheriff if the machinery and equipment, dumped on the
road would be re-installed tom their former position and condition
(letter, Appendix 4). On March 24, 1953, the Provincial Sheriff filed an
urgent motion in court, manifesting that Roco had been asked to
furnish the Sheriff's office with the expenses, laborers, technical men
 and equipment, to carry into effect the court's order, to return the
seized properties in the same way said Roco found them on the day
of seizure, but said Roco absolutely refused to do so, and asking the
court that the Plaintiff therein be ordered to provide the required aid
or relieve the said Sheriff of the duty of complying with the said order
dated March 20, 1953 (Appendix 5). On March 30, 1953, the trial
court ordered the Provincial Sheriff and the Plaintiff to reinstate the
machinery and equipment removed by them in their original condition
in which they were found before their removal at the expense of the
Plaintiff (Appendix 7). An urgent motion of the Provincial Sheriff dated
April 15, 1953, praying for an extension of 20 days within which to
comply with the order of the Court (appendix 10) was denied; and on
May 4, 1953, the trial court ordered the Plaintiff therein to furnish the
Provincial Sheriff within 5 days with the necessary funds, technical
men, laborers, equipment and materials to effect the repeatedly
mentioned re-installation (Appendix 13). (Petitioner's brief, Appendix
A, pp. I-IV.)

Thereupon petitioner instituted in the Court of Appeals civil case G.R. No.
11248-R, entitled "Machinery and Engineering Supplies, Inc. vs. Honorable
Potenciano Pecson, Provincial Sheriff of Bulacan, Ipo Limestone Co., Inc.,
and Antonio Villarama." In the petition therein filed, it was alleged that, in
ordering the petitioner to furnish the provincial sheriff of Bulacan "with
necessary funds, technical men, laborers, equipment and materials, to
effect the installation of the machinery and equipment" in question, the
Court of Firs Instance of Bulacan had committed a grave abuse if discretion
and acted in excess of its jurisdiction, for which reason it was prayed that
its order to this effect be nullified, and that, meanwhile, a writ of preliminary
injunction be issued to restrain the enforcement o said order of may 4,
1953. Although the aforementioned writ was issued by the Court of
Appeals, the same subsequently dismissed by the case for lack of merit,
with costs against the petitioner, upon the following grounds:

While the seizure of the equipment and personal properties was

ordered by the respondent Court, it is, however, logical to presume
that said court did not authorize the petitioner or its agents to destroy,
as they did, said machinery and equipment, by dismantling and
unbolting the same from their concrete basements, and cutting and
sawing their wooden supports, thereby rendering them unserviceable
and beyond repair, unless those parts removed, cut and sawed be
replaced, which the petitioner, not withstanding the respondent
Court's order, adamantly refused to do. The Provincial Sheriff' s
tortious act, in obedience to the insistent proddings of the president of
the Petitioner, Ramon S. Roco, had no justification in law,
notwithstanding the Sheriffs' claim that his duty was ministerial. It was
the bounden duty of the respondent Judge to give redress to the
respondent Company, for the unlawful and wrongful acts committed
by the petitioner and its agents. And as this was the true object of the
order of March 30, 1953, we cannot hold that same was within its
jurisdiction to issue. The ministerial duty of the Sheriff should have its
limitations. The Sheriff knew or must have known what is inherently
right and inherently wrong, more so when, as in this particular case,
the deputy sheriffs were shown a letter of respondent Company's
attorney, that the machinery were not personal properties and,
therefore, not subject to seizure by the terms of the order. While it
may be conceded that this was a question of law too technical to
decide on the spot, it would not have costs the Sheriff much time and
difficulty to bring the letter to the court's attention and have the
equipment and machinery guarded, so as not to frustrate the order of
seizure issued by the trial court. But acting upon the directives of the
president of the Petitioner, to seize the properties at any costs, in
issuing the order sought to be annulled, had not committed abuse of
discretion at all or acted in an arbitrary or despotic manner, by reason
of passion or personal hostility; on the contrary, it issued said order,
guided by the well known principle that of the property has to be
returned, it should be returned in as good a condition as when taken
(Bachrach Motor Co., Inc., vs. Bona, 44 Phil., 378). If any one had
gone beyond the scope of his authority, it is the respondent Provincial
Sheriff. But considering that fact that he acted under the pressure of
Ramon S. Roco, and that the order impugned was issued not by him,
but by the respondent Judge, We simply declare that said Sheriff' act
was most unusual and the result of a poor judgment. Moreover, the
Sheriff not being an officer exercising judicial functions, the writ may
not reach him, for certiorari lies only to review judicial actions.

The Petitioner complains that the respondent Judge had completely

disregarded his manifestation that the machinery and equipment
seized were and still are the Petitioner's property until fully paid for
and such never became immovable. The question of ownership and
the applicability of Art. 415 of the new Civil Code are immaterial in the
 determination of the only issue involved in this case. It is a matter of
evidence which should be decided in the hearing of the case on the
merits. The question as to whether the machinery or equipment in
litigation are immovable or not is likewise immaterial, because the
only issue raised before the trial court was whether the Provincial
Sheriff of Bulacan, at the Petitioner's instance, was justified in
destroying the machinery and in refusing to restore them to their
original form , at the expense of the Petitioner. Whatever might be the
legal character of the machinery and equipment, would not be in any
way justify their justify their destruction by the Sheriff's and the said
Petitioner's. (Petitioner's brief, Appendix A, pp. IV-VII.)

A motion for reconsideration of this decision of the Court of Appeals having

been denied , petitioner has brought the case to Us for review by writ
of certiorari. Upon examination of the record, We are satisfied, however
that the Court of Appeals was justified in dismissing the case.

The special civil action known as replevin, governed by Rule 62 of Court, is

applicable only to "personal property".

Ordinarily replevin may be brought to recover any specific personal

property unlawfully taken or detained from the owner thereof,
provided such property is capable of identification and delivery; but
replevin will not lie for the recovery of real property or incorporeal
personal property. (77 C. J. S. 17) (Emphasis supplied.)

When the sheriff repaired to the premises of respondent, Ipo Limestone

Co., Inc., machinery and equipment in question appeared to be attached to
the land, particularly to the concrete foundation of said premises, in a fixed
manner, in such a way that the former could not be separated from the
latter "without breaking the material or deterioration of the object." Hence,
in order to remove said outfit, it became necessary, not only to unbolt the
same, but , also, to cut some of its wooden supports. Moreover, said
machinery and equipment were "intended by the owner of the tenement for
an industry" carried on said immovable and tended." For these reasons,
they were already immovable property pursuant to paragraphs 3 and 5 of
Article 415 of Civil Code of the Philippines, which are substantially identical
to paragraphs 3 and 5 of Article 334 of the Civil Code of Spain. As such
immovable property, they were not subject to replevin.
 In so far as an article, including a fixture annexed by a tenant, is
regarded as part of the realty, it is not the subject for personality; . . . .

. . . the action of replevin does not lie for articles so annexed to the
realty as to be part as to be part thereof, as, for example, a house or
a turbine pump constituting part of a building's cooling system; . . .
(36 C. J. S. 1000 & 1001)

Moreover, as the provincial sheriff hesitated to remove the property in

question, petitioner's agent and president, Mr. Ramon Roco, insisted "on
the dismantling at his own responsibility," stating that., precisely, "that is the
reason why plaintiff posted a bond ." In this manner, petitioner clearly
assumed the corresponding risks.

Such assumption of risk becomes more apparent when we consider that,

pursuant to Section 5 of Rule 62 of the Rules of Court, the defendant in an
action for replevin is entitled to the return of the property in dispute upon
the filing of a counterbond, as provided therein. In other words, petitioner
knew that the restitution of said property to respondent company might be
ordered under said provision of the Rules of Court, and that, consequently,
it may become necessary for petitioner to meet the liabilities incident to
such return.

Lastly, although the parties have not cited, and We have not found, any
authority squarely in point — obviously real property are not subject to
replevin — it is well settled that, when the restitution of what has been
ordered, the goods in question shall be returned in substantially the same
condition as when taken (54 C.J., 590-600, 640-641). Inasmuch as the
machinery and equipment involved in this case were duly installed and
affixed in the premises of respondent company when petitioner's
representative caused said property to be dismantled and then removed, it
follows that petitioner must also do everything necessary to the
reinstallation of said property in conformity with its original condition.

Wherefore, the decision of the Court of Appeals is hereby affirmed, with

costs against the petitioner. So ordered.

G.R. No. L-18456           November 30, 1963

CONRADO P. NAVARRO, plaintiff-appellee,
vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.

Deogracias Tañedo, Jr. for plaintiff-appellee.

Renato A. Santos for defendants-appellants.

PAREDES, J.:

On December 14, 1959, defendants Rufino G. Pineda and his mother

Juana Gonzales (married to Gregorio Pineda), borrowed from plaintiff
Conrado P. Navarro, the sum of P2,500.00, payable 6 months after said
date or on June 14, 1959. To secure the indebtedness, Rufino executed a
document captioned "DEED OF REAL ESTATE and CHATTEL
MORTGAGES", whereby Juana Gonzales, by way of Real Estate
Mortgage hypothecated a parcel of land, belonging to her, registered with
the Register of Deeds of Tarlac, under Transfer Certificate of Title No.
25776, and Rufino G. Pineda, by way of Chattel Mortgage, mortgaged his
two-story residential house, having a floor area of 912 square meters,
erected on a lot belonging to Atty. Vicente Castro, located at Bo. San
Roque, Tarlac, Tarlac; and one motor truck, registered in his name, under
Motor Vehicle Registration Certificate No. A-171806. Both mortgages were
contained in one instrument, which was registered in both the Office of the
Register of Deeds and the Motor Vehicles Office of Tarlac.

When the mortgage debt became due and payable, the defendants, after
demands made on them, failed to pay. They, however, asked and were
granted extension up to June 30, 1960, within which to pay. Came June 30,
defendants again failed to pay and, for the second time, asked for another
extension, which was given, up to July 30, 1960. In the second extension,
defendant Pineda in a document entitled "Promise", categorically stated
that in the remote event he should fail to make good the obligation on such
date (July 30, 1960), the defendant would no longer ask for further
extension and there would be no need for any formal demand, and plaintiff
could proceed to take whatever action he might desire to enforce his rights,
under the said mortgage contract. In spite of said promise, defendants,
failed and refused to pay the obligation.

On August 10, 1960, plaintiff filed a complaint for foreclosure of the

mortgage and for damages, which consisted of liquidated damages in the
sum of P500.00 and 12% per annum interest on the principal, effective on
the date of maturity, until fully paid.

Defendants, answering the complaint, among others, stated —

Defendants admit that the loan is overdue but deny that portion of
paragraph 4 of the First Cause of Action which states that the
defendants unreasonably failed and refuse to pay their obligation to
the plaintiff the truth being the defendants are hard up these days and
pleaded to the plaintiff to grant them more time within which to pay
their obligation and the plaintiff refused;

WHEREFORE, in view of the foregoing it is most respectfully prayed

that this Honorable Court render judgment granting the defendants
until January 31, 1961, within which to pay their obligation to the
plaintiff.

On September 30, 1960, plaintiff presented a Motion for summary

Judgment, claiming that the Answer failed to tender any genuine and
material issue. The motion was set for hearing, but the record is not clear
what ruling the lower court made on the said motion. On November 11,
1960, however, the parties submitted a Stipulation of Facts, wherein the
defendants admitted the indebtedness, the authenticity and due execution
of the Real Estate and Chattel Mortgages; that the indebtedness has been
due and unpaid since June 14, 1960; that a liability of 12% per annum as
interest was agreed, upon failure to pay the principal when due and
P500.00 as liquidated damages; that the instrument had been registered in
the Registry of Property and Motor Vehicles Office, both of the province of
Tarlac; that the only issue in the case is whether or not the residential
house, subject of the mortgage therein, can be considered a Chattel and
the propriety of the attorney's fees.

On February 24, 1961, the lower court held —

... WHEREFORE, this Court renders decision in this Case:

(a) Dismissing the complaint with regard to defendant Gregorio

Pineda;

(b) Ordering defendants Juana Gonzales and the spouses Rufino

Pineda and Ramon Reyes, to pay jointly and severally and within
 ninety (90) days from the receipt of the copy of this decision to the
plaintiff Conrado P. Navarro the principal sum of P2,550.00 with 12%
compounded interest per annum from June 14, 1960, until said
principal sum and interests are fully paid, plus P500.00 as liquidated
damages and the costs of this suit, with the warning that in default of
said payment of the properties mentioned in the deed of real estate
mortgage and chattel mortgage (Annex "A" to the complaint) be sold
to realize said mortgage debt, interests, liquidated damages and
costs, in accordance with the pertinent provisions of Act 3135, as
amended by Act 4118, and Art. 14 of the Chattel Mortgage Law, Act
1508; and

(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to

deliver immediately to the Provincial Sheriff of Tarlac the personal
properties mentioned in said Annex "A", immediately after the lapse
of the ninety (90) days above-mentioned, in default of such payment.

The above judgment was directly appealed to this Court, the defendants
therein assigning only a single error, allegedly committed by the lower
court, to wit —

In holding that the deed of real estate and chattel mortgages

appended to the complaint is valid, notwithstanding the fact that the
house of the defendant Rufino G. Pineda was made the subject of the
chattel mortgage, for the reason that it is erected on a land that
belongs to a third person.

Appellants contend that article 415 of the New Civil Code, in classifying a
house as immovable property, makes no distinction whether the owner of
the land is or not the owner of the building; the fact that the land belongs to
another is immaterial, it is enough that the house adheres to the land; that
in case of immovables by incorporation, such as houses, trees, plants, etc;
the Code does not require that the attachment or incorporation be made by
the owner of the land, the only criterion being the union or incorporation
with the soil. In other words, it is claimed that "a building is an immovable
property, irrespective of whether or not said structure and the land on which
it is adhered to, belong to the same owner" (Lopez v. Orosa, G.R. Nos. L-
10817-8, Feb. 28, 1958). (See also the case of Leung Yee v. Strong
Machinery Co., 37 Phil. 644). Appellants argue that since only movables
can be the subject of a chattel mortgage (sec. 1, Act No. 3952) then the
mortgage in question which is the basis of the present action, cannot give
rise to an action for foreclosure, because it is nullity. (Citing Associated Ins.
Co., et al. v. Isabel Iya v. Adriano Valino, et al., L-10838, May 30, 1958.)

The trial court did not predicate its decision declaring the deed of chattel
mortgage valid solely on the ground that the house mortgaged was erected
on the land which belonged to a third person, but also and principally on
the doctrine of estoppel, in that "the parties have so expressly agreed" in
the mortgage to consider the house as chattel "for its smallness and mixed
materials of sawali and wood". In construing arts. 334 and 335 of the
Spanish Civil Code (corresponding to arts. 415 and 416, N.C.C.), for
purposes of the application of the Chattel Mortgage Law, it was held that
under certain conditions, "a property may have a character different from
that imputed to it in said articles. It is undeniable that the parties to a
contract may by agreement, treat as personal property that which by nature
would be real property" (Standard Oil Co. of N.Y. v. Jaranillo, 44 Phil. 632-
633)."There can not be any question that a building of mixed materials may
be the subject of a chattel mortgage, in which case, it is considered as
between the parties as personal property. ... The matter depends on the
circumstances and the intention of the parties". "Personal property may
retain its character as such where it is so agreed by the parties interested
even though annexed to the realty ...". (42 Am. Jur. 209-210, cited in
Manarang, et al. v. Ofilada, et al., G.R. No. L-8133, May 18, 1956; 52 O.G.
No. 8, p. 3954.) The view that parties to a deed of chattel mortgagee may
agree to consider a house as personal property for the purposes of said
contract, "is good only insofar as the contracting parties are concerned. It is
based partly, upon the principles of estoppel ..." (Evangelista v. Alto Surety,
No. L-11139, Apr. 23, 1958). In a case, a mortgage house built on a rented
land, was held to be a personal property, not only because the deed of
mortgage considered it as such, but also because it did not form part of the
land (Evangelista v. Abad [CA];36 O.G. 2913), for it is now well settled that
an object placed on land by one who has only a temporary right to the
same, such as a lessee or usufructuary, does not become immobilized by
attachment (Valdez v. Central Altagracia, 222 U.S. 58, cited in Davao
Sawmill Co., Inc. v. Castillo, et al., 61 Phil. 709). Hence, if a house
belonging to a person stands on a rented land belonging to another person,
it may be mortgaged as a personal property is so stipulated in the
document of mortgage. (Evangelista v. Abad, supra.) It should be noted,
however, that the principle is predicated on statements by the owner
declaring his house to be a chattel, a conduct that may conceivably estop
him from subsequently claiming otherwise (Ladera, et al.. v. C. N. Hodges,
et al., [CA]; 48 O.G. 5374). The doctrine, therefore, gathered from these
cases is that although in some instances, a house of mixed materials has
been considered as a chattel between them, has been recognized, it has
been a constant criterion nevertheless that, with respect to third persons,
who are not parties to the contract, and specially in execution proceedings,
the house is considered as an immovable property (Art. 1431, New Civil
Code).

In the case at bar, the house in question was treated as personal or

movable property, by the parties to the contract themselves. In the deed of
chattel mortgage, appellant Rufino G. Pineda conveyed by way of "Chattel
Mortgage" "my personal properties", a residential house and a truck. The
mortgagor himself grouped the house with the truck, which is, inherently a
movable property. The house which was not even declared for taxation
purposes was small and made of light construction materials: G.I. sheets
roofing, sawali and wooden walls and wooden posts; built on land
belonging to another.

The cases cited by appellants are not applicable to the present case. The
Iya cases (L-10837-38, supra), refer to a building or a house of strong
materials, permanently adhered to the land, belonging to the owner of the
house himself. In the case of Lopez v. Orosa, (L-10817-18), the subject
building was a theatre, built of materials worth more than P62,000,
attached permanently to the soil. In these cases and in the Leung Yee
case, supra, third persons assailed the validity of the deed of chattel
mortgages; in the present case, it was one of the parties to the contract of
mortgages who assailed its validity.

CONFORMABLY WITH ALL THE FOREGOING, the decision appealed

from, should be, as it is hereby affirmed, with costs against appellants.

G.R. No. L-50466 May 31, 1982

CALTEX (PHILIPPINES) INC., petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF
PASAY, respondents.
AQUINO, J.:

This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc. in
its gas stations located on leased land.

The machines and equipment consists of underground tanks, elevated tank, elevated water tanks,
water tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoists, truck hoists,
air compressors and tireflators. The city assessor described the said equipment and machinery in
this manner:

A gasoline service station is a piece of lot where a building or shed is erected, a

water tank if there is any is placed in one corner of the lot, car hoists are placed in an
adjacent shed, an air compressor is attached in the wall of the shed or at the
concrete wall fence.

The controversial underground tank, depository of gasoline or crude oil, is dug deep
about six feet more or less, a few meters away from the shed. This is done to prevent
conflagration because gasoline and other combustible oil are very inflammable.

This underground tank is connected with a steel pipe to the gasoline pump and the
gasoline pump is commonly placed or constructed under the shed. The footing of the
pump is a cement pad and this cement pad is imbedded in the pavement under the
shed, and evidence that the gasoline underground tank is attached and connected to
the shed or building through the pipe to the pump and the pump is attached and
affixed to the cement pad and pavement covered by the roof of the building or shed.

The building or shed, the elevated water tank, the car hoist under a separate shed,
the air compressor, the underground gasoline tank, neon lights signboard, concrete
fence and pavement and the lot where they are all placed or erected, all of them
used in the pursuance of the gasoline service station business formed the entire
gasoline service-station.

As to whether the subject properties are attached and affixed to the tenement, it is
clear they are, for the tenement we consider in this particular case are (is) the
pavement covering the entire lot which was constructed by the owner of the gasoline
station and the improvement which holds all the properties under question, they are
attached and affixed to the pavement and to the improvement.

The pavement covering the entire lot of the gasoline service station, as well as all the
improvements, machines, equipments and apparatus are allowed by Caltex
(Philippines) Inc. ...

The underground gasoline tank is attached to the shed by the steel pipe to the pump,
so with the water tank it is connected also by a steel pipe to the pavement, then to
the electric motor which electric motor is placed under the shed. So to say that the
gasoline pumps, water pumps and underground tanks are outside of the service
station, and to consider only the building as the service station is grossly erroneous.
(pp. 58-60, Rollo).

The said machines and equipment are loaned by Caltex to gas station operators under an
appropriate lease agreement or receipt. It is stipulated in the lease contract that the operators, upon
demand, shall return to Caltex the machines and equipment in good condition as when received,
ordinary wear and tear excepted.

The lessor of the land, where the gas station is located, does not become the owner of the machines
and equipment installed therein. Caltex retains the ownership thereof during the term of the lease.

The city assessor of Pasay City characterized the said items of gas station equipment and
machinery as taxable realty. The realty tax on said equipment amounts to P4,541.10 annually (p. 52,
Rollo). The city board of tax appeals ruled that they are personalty. The assessor appealed to the
Central Board of Assessment Appeals.

The Board, which was composed of Secretary of Finance Cesar Virata as chairman, Acting
Secretary of Justice Catalino Macaraig, Jr. and Secretary of Local Government and Community
Development Jose Roño, held in its decision of June 3, 1977 that the said machines and equipment
are real property within the meaning of sections 3(k) & (m) and 38 of the Real Property Tax Code,
Presidential Decree No. 464, which took effect on June 1, 1974, and that the definitions of real
property and personal property in articles 415 and 416 of the Civil Code are not applicable to this
case.

The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's place) in its
resolution of January 12, 1978, denying Caltex's motion for reconsideration, a copy of which was
received by its lawyer on April 2, 1979.

On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the
Board's decision and for a declaration that t he said machines and equipment are personal property
not subject to realty tax (p. 16, Rollo).

The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate jurisdiction
over this case is not correct. When Republic act No. 1125 created the Tax Court in 1954, there was
as yet no Central Board of Assessment Appeals. Section 7(3) of that law in providing that the Tax
Court had jurisdiction to review by appeal decisions of provincial or city boards of assessment
appeals had in mind the local boards of assessment appeals but not the Central Board of
Assessment Appeals which under the Real Property Tax Code has appellate jurisdiction over
decisions of the said local boards of assessment appeals and is, therefore, in the same category as
the Tax Court.

Section 36 of the Real Property Tax Code provides that the decision of the Central Board of
Assessment Appeals shall become final and executory after the lapse of fifteen days from the receipt
of its decision by the appellant. Within that fifteen-day period, a petition for reconsideration may be
filed. The Code does not provide for the review of the Board's decision by this Court.

Consequently, the only remedy available for seeking a review by this Court of the decision of the
Central Board of Assessment Appeals is the special civil action of certiorari, the recourse resorted to
herein by Caltex (Philippines), Inc.

The issue is whether the pieces of gas station equipment and machinery already enumerated are
subject to realty tax. This issue has to be resolved primarily under the provisions of the Assessment
Law and the Real Property Tax Code.
Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land,
buildings, machinery, and other improvements" not specifically exempted in section 3 thereof. This
provision is reproduced with some modification in the Real Property Tax Code which provides:

SEC. 38. Incidence of Real Property Tax.— There shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on real
property, such as land, buildings, machinery and other improvements affixed or
attached to real property not hereinafter specifically exempted.

The Code contains the following definitions in its section 3:

k) Improvements — is a valuable addition made to property or an amelioration in its

condition, amounting to more than mere repairs or replacement of waste, costing
labor or capital and intended to enhance its value, beauty or utility or to adapt it for
new or further purposes.

m) Machinery — shall embrace machines, mechanical contrivances, instruments,

appliances and apparatus attached to the real estate. It includes the physical
facilities available for production, as well as the installations and appurtenant service
facilities, together with all other equipment designed for or essential to its
manufacturing, industrial or agricultural purposes (See sec. 3[f], Assessment Law).

We hold that the said equipment and machinery, as appurtenances to the gas station building or
shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the
operation of the gas station, for without them the gas station would be useless, and which have been
attached or affixed permanently to the gas station site or embedded therein, are taxable
improvements and machinery within the meaning of the Assessment Law and the Real Property Tax
Code.

Caltex invokes the rule that machinery which is movable in its nature only becomes immobilized
when placed in a plant by the owner of the property or plant but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right, unless such person acted as the agent of
the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil 709).

That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding machinery
that becomes real property by destination. In the Davao Saw Mills case the question was whether
the machinery mounted on foundations of cement and installed by the lessee on leased land should
be regarded as real property for purposes of execution of a judgment against the lessee. The sheriff
treated the machinery as personal property. This Court sustained the sheriff's action. (Compare with
Machinery & Engineering Supplies, Inc. vs. Court of Appeals, 96 Phil. 70, where in a replevin case
machinery was treated as realty).

Here, the question is whether the gas station equipment and machinery permanently affixed by
Caltex to its gas station and pavement (which are indubitably taxable realty) should be subject to the
realty tax. This question is different from the issue raised in the Davao Saw Mill case.

Improvements on land are commonly taxed as realty even though for some purposes they might be
considered personalty (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar phenomenon to see things
classed as real property for purposes of taxation which on general principle might be considered
personal property" (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric Co.,
119 Phil. 328, where Meralco's steel towers were considered poles within the meaning of paragraph
9 of its franchise which exempts its poles from taxation. The steel towers were considered
personalty because they were attached to square metal frames by means of bolts and could be
moved from place to place when unscrewed and dismantled.

Nor are Caltex's gas station equipment and machinery the same as tools and equipment in the
repair shop of a bus company which were held to be personal property not subject to realty tax
(Mindanao Bus Co. vs. City Assessor, 116 Phil. 501).

The Central Board of Assessment Appeals did not commit a grave abuse of discretion in upholding
the city assessor's is imposition of the realty tax on Caltex's gas station and equipment.

WHEREFORE, the questioned decision and resolution of the Central Board of Assessment Appeals
are affirmed. The petition for certiorari is dismissed for lack of merit. No costs.

SO ORDERED.

G.R. No. 106041 January 29, 1993

BENGUET CORPORATION, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF
ASSESSMENT APPEALS OF ZAMBALES, PROVINCIAL ASSESSOR
OF ZAMBALES, PROVINCE OF ZAMBALES, and MUNICIPALITY OF
SAN MARCELINO, respondents.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.

CRUZ, J.:

The realty tax assessment involved in this case amounts to

P11,319,304.00. It has been imposed on the petitioner's tailings dam and
the land thereunder over its protest.

The controversy arose in 1985 when the Provincial Assessor of Zambales

assessed the said properties as taxable improvements. The assessment
was appealed to the Board of Assessment Appeals of the Province of
Zambales. On August 24, 1988, the appeal was dismissed mainly on the
ground of the petitioner's "failure to pay the realty taxes that fell due during
the pendency of the appeal."
The petitioner seasonably elevated the matter to the Central Board of
Assessment Appeals,  one of the herein respondents. In its decision dated
1

March 22, 1990, the Board reversed the dismissal of the appeal but, on the
merits, agreed that "the tailings dam and the lands submerged thereunder
(were) subject to realty tax."

For purposes of taxation the dam is considered as real property

as it comes within the object mentioned in paragraphs (a) and
(b) of Article 415 of the New Civil Code. It is a construction
adhered to the soil which cannot be separated or detached
without breaking the material or causing destruction on the land
upon which it is attached. The immovable nature of the dam as
an improvement determines its character as real property,
hence taxable under Section 38 of the Real Property Tax Code.
(P.D. 464).

Although the dam is partly used as an anti-pollution device, this

Board cannot accede to the request for tax exemption in the
absence of a law authorizing the same.

xxx xxx xxx

We find the appraisal on the land submerged as a result of the

construction of the tailings dam, covered by Tax Declaration
Nos.
002-0260 and 002-0266, to be in accordance with the Schedule
of Market Values for Zambales which was reviewed and
allowed for use by the Ministry (Department) of Finance in the
1981-1982 general revision. No serious attempt was made by
Petitioner-Appellant Benguet Corporation to impugn its
reasonableness, i.e., that the P50.00 per square meter applied
by Respondent-Appellee Provincial Assessor is indeed
excessive and unconscionable. Hence, we find no cause to
disturb the market value applied by Respondent Appellee
Provincial Assessor of Zambales on the properties of Petitioner-
Appellant Benguet Corporation covered by Tax Declaration
Nos. 002-0260 and 002-0266.

This petition for certiorari now seeks to reverse the above ruling.

The principal contention of the petitioner is that the tailings dam is not
subject to realty tax because it is not an "improvement" upon the land
within the meaning of the Real Property Tax Code. More particularly, it is
claimed —

(1) as regards the tailings dam as an "improvement":

(a) that the tailings dam has no value separate from

and independent of the mine; hence, by itself it
cannot be considered an improvement separately
assessable;

(b) that it is an integral part of the mine;

(c) that at the end of the mining operation of the

petitioner corporation in the area, the tailings dam
will benefit the local community by serving as an
irrigation facility;

(d) that the building of the dam has stripped the

property of any commercial value as the property is
submerged under water wastes from the mine;

(e) that the tailings dam is an environmental

pollution control device for which petitioner must be
commended rather than penalized with a realty tax
assessment;

(f) that the installation and utilization of the tailings

dam as a pollution control device is a requirement
imposed by law;

(2) as regards the valuation of the tailings dam and the

submerged lands:

(a) that the subject properties have no market value

as they cannot be sold independently of the mine;

(b) that the valuation of the tailings dam should be

based on its incidental use by petitioner as a water
 reservoir and not on the alleged cost of construction
of the dam and the annual build-up expense;

(c) that the "residual value formula" used by the

Provincial Assessor and adopted by respondent
CBAA is arbitrary and erroneous; and

(3) as regards the petitioner's liability for penalties for

non-declaration of the tailings dam and the submerged lands
for realty tax purposes:

(a) that where a tax is not paid in an honest belief

that it is not due, no penalty shall be collected in
addition to the basic tax;

(b) that no other mining companies in the

Philippines operating a tailings dam have been
made to declare the dam for realty tax purposes.

The petitioner does not dispute that the tailings dam may be considered
realty within the meaning of Article 415. It insists, however, that the dam
cannot be subjected to realty tax as a separate and independent property
because it does not constitute an "assessable improvement" on the mine
although a considerable sum may have been spent in constructing and
maintaining it.

To support its theory, the petitioner cites the following cases:

1. Municipality of Cotabato v. Santos (105 Phil. 963), where this Court

considered the dikes and gates constructed by the taxpayer in connection
with a fishpond operation as integral parts of the fishpond.

2. Bislig Bay Lumber Co. v. Provincial Government of Surigao (100 Phil.

303), involving a road constructed by the timber concessionaire in the area,
where this Court did not impose a realty tax on the road primarily for two
reasons:

In the first place, it cannot be disputed that the ownership of the

road that was constructed by appellee belongs to the
government by right of accession not only because it is
inherently incorporated or attached to the timber land . . . but
 also because upon the expiration of the concession said road
would ultimately pass to the national government. . . . In the
second place, while the road was constructed by appellee
primarily for its use and benefit, the privilege is not exclusive,
for . . . appellee cannot prevent the use of portions of the
concession for homesteading purposes. It is also duty bound to
allow the free use of forest products within the concession for
the personal use of individuals residing in or within the vicinity
of the land. . . . In other words, the government has practically
reserved the rights to use the road to promote its varied
activities. Since, as above shown, the road in question cannot
be considered as an improvement which belongs to appellee,
although in part is for its benefit, it is clear that the same cannot
be the subject of assessment within the meaning of Section 2 of
C.A.
No. 470.

Apparently, the realty tax was not imposed not because the road was an
integral part of the lumber concession but because the government had the
right to use the road to promote its varied activities.

3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an American

case, where it was declared that the reservoir dam went with and formed
part of the reservoir and that the dam would be "worthless and useless
except in connection with the outlet canal, and the water rights in the
reservoir represent and include whatever utility or value there is in the dam
and headgates."

4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the United
States. This case involved drain tunnels constructed by plaintiff when it
expanded its mining operations downward, resulting in a constantly
increasing flow of water in the said mine. It was held that:

Whatever value they have is connected with and in fact is an

integral part of the mine itself. Just as much so as any shaft
which descends into the earth or an underground incline,
tunnel, or drift would be which was used in connection with the
mine.
On the other hand, the Solicitor General argues that the dam is an
assessable improvement because it enhances the value and utility of the
mine. The primary function of the dam is to receive, retain and hold the
water coming from the operations of the mine, and it also enables the
petitioner to impound water, which is then recycled for use in the plant.

There is also ample jurisprudence to support this view, thus:

. . . The said equipment and machinery, as appurtenances to

the gas station building or shed owned by Caltex (as to which it
is subject to realty tax) and which fixtures are necessary to the
operation of the gas station, for without them the gas station
would be useless and which have been attached or affixed
permanently to the gas station site or embedded therein, are
taxable improvements and machinery within the meaning of the
Assessment Law and the Real Property Tax Code. (Caltex
[Phil.] Inc. v. CBAA, 114 SCRA 296).

We hold that while the two storage tanks are not embedded in
the land, they may, nevertheless, be considered as
improvements on the land, enhancing its utility and rendering it
useful to the oil industry. It is undeniable that the two tanks
have been installed with some degree of permanence as
receptacles for the considerable quantities of oil needed by
MERALCO for its operations. (Manila Electric Co. v. CBAA, 114
SCRA 273).

The pipeline system in question is indubitably a construction

adhering to the soil. It is attached to the land in such a way that
it cannot be separated therefrom without dismantling the steel
pipes which were welded to form the pipeline. (MERALCO
Securities Industrial Corp. v. CBAA, 114 SCRA 261).

The tax upon the dam was properly assessed to the plaintiff as
a tax upon real estate. (Flax-Pond Water Co. v. City of Lynn, 16
N.E. 742).

The oil tanks are structures within the statute, that they are
designed and used by the owner as permanent improvement of
the free hold, and that for such reasons they were properly
 assessed by the respondent taxing district as improvements.
(Standard Oil Co. of New Jersey v. Atlantic City, 15 A 2d. 271)

The Real Property Tax Code does not carry a definition of "real property"
and simply says that the realty tax is imposed on "real property, such as
lands, buildings, machinery and other improvements affixed or attached to
real property." In the absence of such a definition, we apply Article 415 of
the Civil Code, the pertinent portions of which state:

Art. 415. The following are immovable property.

(1) Lands, buildings and constructions of all kinds adhered to

the soil;

xxx xxx xxx

(3) Everything attached to an immovable in a fixed manner, in

such a way that it cannot be separated therefrom without
breaking the material or deterioration of the object.

Section 2 of C.A. No. 470, otherwise known as the Assessment Law,

provides that the realty tax is due "on the real property, including land,
buildings, machinery and other improvements" not specifically exempted in
Section 3 thereof. A reading of that section shows that the tailings dam of
the petitioner does not fall under any of the classes of exempt real
properties therein enumerated.

Is the tailings dam an improvement on the mine? Section 3(k) of the Real
Property Tax Code defines improvement as follows:

(k) Improvements — is a valuable addition made to property or

an amelioration in its condition, amounting to more than mere
repairs or replacement of waste, costing labor or capital and
intended to enhance its value, beauty or utility or to adopt it for
new or further purposes.

The term has also been interpreted as "artificial alterations of the physical
condition of the ground that are reasonably permanent in character." 2

The Court notes that in the Ontario case the plaintiff admitted that the mine
involved therein could not be operated without the aid of the drain tunnels,
which were indispensable to the successful development and extraction of
the minerals therein. This is not true in the present case.

Even without the tailings dam, the petitioner's mining operation can still be
carried out because the primary function of the dam is merely to receive
and retain the wastes and water coming from the mine. There is no
allegation that the water coming from the dam is the sole source of water
for the mining operation so as to make the dam an integral part of the mine.
In fact, as a result of the construction of the dam, the petitioner can now
impound and recycle water without having to spend for the building of a
water reservoir. And as the petitioner itself points out, even if the
petitioner's mine is shut down or ceases operation, the dam may still be
used for irrigation of the surrounding areas, again unlike in the Ontario
case.

As correctly observed by the CBAA, the Kendrick case is also not

applicable because it involved water reservoir dams used for different
purposes and for the benefit of the surrounding areas. By contrast, the
tailings dam in question is being used exclusively for the benefit of the
petitioner.

Curiously, the petitioner, while vigorously arguing that the tailings dam has
no separate existence, just as vigorously contends that at the end of the
mining operation the tailings dam will serve the local community as an
irrigation facility, thereby implying that it can exist independently of the
mine.

From the definitions and the cases cited above, it would appear that
whether a structure constitutes an improvement so as to partake of the
status of realty would depend upon the degree of permanence intended in
its construction and use. The expression "permanent" as applied to an
improvement does not imply that the improvement must be used
perpetually but only until the purpose to which the principal realty is
devoted has been accomplished. It is sufficient that the improvement is
intended to remain as long as the land to which it is annexed is still used for
the said purpose.

The Court is convinced that the subject dam falls within the definition of an
"improvement" because it is permanent in character and it enhances both
the value and utility of petitioner's mine. Moreover, the immovable nature of
the dam defines its character as real property under Article 415 of the Civil
Code and thus makes it taxable under Section 38 of the Real Property Tax
Code.

The Court will also reject the contention that the appraisal at P50.00 per
square meter made by the Provincial Assessor is excessive and that his
use of the "residual value formula" is arbitrary and erroneous.

Respondent Provincial Assessor explained the use of the "residual value

formula" as follows:

A 50% residual value is applied in the computation because,

while it is true that when slime fills the dike, it will then be
covered by another dike or stage, the stage covered is still
there and still exists and since only one face of the dike is filled,
50% or the other face is unutilized.

In sustaining this formula, the CBAA gave the following justification:

We find the appraisal on the land submerged as a result of the

construction of the tailings dam, covered by Tax Declaration
Nos.
002-0260 and 002-0266, to be in accordance with the Schedule
of Market Values for San Marcelino, Zambales, which is fifty
(50.00) pesos per square meter for third class industrial land
(TSN, page 17, July 5, 1989) and Schedule of Market Values
for Zambales which was reviewed and allowed for use by the
Ministry (Department) of Finance in the 1981-1982 general
revision. No serious attempt was made by Petitioner-Appellant
Benguet Corporation to impugn its reasonableness, i.e, that the
P50.00 per square meter applied by Respondent-Appellee
Provincial Assessor is indeed excessive and unconscionable.
Hence, we find no cause to disturb the market value applied by
Respondent-Appellee Provincial Assessor of Zambales on the
properties of Petitioner-Appellant Benguet Corporation covered
by Tax Declaration Nos. 002-0260 and 002-0266.

It has been the long-standing policy of this Court to respect the conclusions
of quasi-judicial agencies like the CBAA, which, because of the nature of its
functions and its frequent exercise thereof, has developed expertise in the
resolution of assessment problems. The only exception to this rule is where
it is clearly shown that the administrative body has committed grave abuse
of discretion calling for the intervention of this Court in the exercise of its
own powers of review. There is no such showing in the case at bar.

We disagree, however, with the ruling of respondent CBAA that it cannot

take cognizance of the issue of the propriety of the penalties imposed upon
it, which was raised by the petitioner for the first time only on appeal. The
CBAA held that this "is an entirely new matter that petitioner can take up
with the Provincial Assessor (and) can be the subject of another protest
before the Local Board or a negotiation with the local sanggunian . . ., and
in case of an adverse decision by either the Local Board or the
local sanggunian, (it can) elevate the same to this Board for appropriate
action."

There is no need for this time-wasting procedure. The Court may resolve
the issue in this petition instead of referring it back to the local authorities.
We have studied the facts and circumstances of this case as above
discussed and find that the petitioner has acted in good faith in questioning
the assessment on the tailings dam and the land submerged thereunder. It
is clear that it has not done so for the purpose of evading or delaying the
payment of the questioned tax. Hence, we hold that the petitioner is not
subject to penalty for its
non-declaration of the tailings dam and the submerged lands for realty tax
purposes.

WHEREFORE, the petition is DISMISSED for failure to show that the

questioned decision of respondent Central Board of Assessment Appeals is
tainted with grave abuse of discretion except as to the imposition of
penalties upon the petitioner which is hereby SET ASIDE. Costs against
the petitioner. It is so ordered.

G.R. No. 137705               August 22, 2000

SERG'S PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners,

vs.
PCI LEASING AND FINANCE, INC., respondent.

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 Decision of the Court of Appeals (CA) in CA-GR SP No. 47332 and
1  2 

its February 26, 1999 Resolution denying reconsideration. The decretal

3 

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, the Regional Trial Court (RTC) of Quezon
5 

City (Branch 218) issued a Writ of Seizure. The March 18, 1998
6  7 

Resolution denied petitioners’ Motion for Special Protective Order, praying

8 

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
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, substantial justice requires that such lapse by itself should not
14 
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. Section 3 thereof reads:
15 

"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:

x x x           x x x          x x x

(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;

x x x           x x x          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." In that
16 

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. After agreeing to such stipulation,
18 

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, the Court upheld the intention of the

19 

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 Mills also held that the machinery used in a factory and
20 

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. Hence, while the
22 

parties are bound by the Agreement, third persons acting in good faith are
not affected by its stipulation characterizing the subject machinery as
personal. In any event, there is no showing that any specific third party
23 

would be adversely affected.

Validity of the Lease Agreement

In their Memorandum, petitioners contend that the Agreement is a loan and

not a lease. Submitting documents supposedly showing that they own the
24 

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." In
25 

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, the Court explained that the policy
27 

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

Besides, these questions require a determination of facts and a

presentation of evidence, both of which have no place in a petition for
certiorari in the CA under Rule 65 or in a petition for review in this Court
under Rule 45. 29

Reliance on the Lease Agreement

It should be pointed out that the Court in this case may rely on the Lease
Agreement, for nothing on record shows that it has been nullified or
annulled. In fact, petitioners assailed it first only in the RTC proceedings,
which had ironically been instituted by respondent. Accordingly, it must be
presumed valid and binding as the law between the parties.

Makati Leasing and Finance Corporation is also instructive on this point. In

30 

that case, the Deed of Chattel Mortgage, which characterized the subject
machinery as personal property, was also assailed because respondent
had allegedly been required "to sign a printed form of chattel mortgage
which was in a blank 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 initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant to Article 1390 of
the new Civil Code, by a proper action in court. There is nothing on record
to show that the mortgage has 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

Petitioners contend that "if the Court allows these machineries to be seized,
then its workers would be out of work and thrown into the streets." They
31 

also allege that the seizure would nullify all efforts to rehabilitate the
corporation.
Petitioners’ arguments do not preclude the implementation of the Writ.  As
1âwphi1

earlier discussed, law and jurisprudence support its propriety. Verily, the
above-mentioned consequences, if they come true, should not be blamed
on this Court, but on the petitioners for failing to avail themselves of the
remedy under Section 5 of Rule 60, which allows the filing of a counter-
bond. The provision states:

"SEC. 5. Return of property. -- If the adverse party objects to the sufficiency

of the applicant’s bond, or of the surety or sureties thereon, he cannot
immediately require the return of the property, but if he does not so object,
he may, at any time before the delivery of the property to the applicant,
require the return thereof, by filing with the court where the action is
pending a bond executed to the applicant, in double the value of the
property as stated in the applicant’s affidavit for the delivery thereof to the
applicant, if such delivery be adjudged, and for the payment of such sum to
him as may be recovered against the adverse party, and by serving a copy
bond on the applicant."

WHEREFORE, the Petition is DENIED and the assailed Decision of the

Court of Appeals AFFIRMED. Costs against petitioners.

SO ORDERED.

G.R. No. 156295 : September 23, 2003

MARCELO R. SORIANO, Petitioner, vs. SPOUSES RICARDO and

ROSALINA GALIT, Respondents.

DECISION

YNARES-SANTIAGO, J.:

Petitioner was issued a writ of possession in Civil Case No. 6643 1 for Sum of
Money by the Regional Trial Court of Balanga, Bataan, Branch 1. The writ of
possession was, however, nullified by the Court of Appeals in CA-G.R. SP No.
658912 because it included a parcel of land which was not among those
explicitly enumerated in the Certificate of Sale issued by the Deputy Sheriff,
but on which stand the immovables covered by the said Certificate.
Petitioner contends that the sale of these immovables necessarily
encompasses the land on which they stand.
Dissatisfied, petitioner filed the instant petition for review on certiorari.

Respondent Ricardo Galit contracted a loan from petitioner Marcelo Soriano,

in the total sum of P480,000.00, evidenced by four promissory notes in the
amount of P120,000.00 each dated August 2, 1996;3 August 15,
1996;4 September 4, 19965 and September 14, 1996.6 This loan was secured
by a real estate mortgage over a parcel of land covered by Original
Certificate of Title No. 569.7 After he failed to pay his obligation, Soriano
filed a complaint for sum of money against him with the Regional Trial Court
of Balanga City, Branch 1, which was docketed as Civil Case No. 6643. 8 cräläwvirtualibräry

Respondents, the Spouses Ricardo and Rosalina Galit, failed to file their
answer. Hence, upon motion of Marcelo Soriano, the trial court declared the
spouses in default and proceeded to receive evidence for petitioner
Soriano ex parte.

On July 7, 1997, the Regional Trial Court of Balanga City, Branch 1 rendered
judgment9 in favor of petitioner Soriano, the dispositive portion of which
reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and

against the defendant ordering the latter to pay:

1. the plaintiff the amount of P350,000.00 plus 12% interest to be computed

from the dates of maturity of the promissory notes until the same are fully
paid;

2. the plaintiff P20,000.00, as attorneys fees; and

3. the costs of suit.

SO ORDERED.10 cräläwvirtualibräry

The judgment became final and executory. Accordingly, the trial court issued
a writ of execution in due course, by virtue of which, Deputy Sheriff Renato
E. Robles levied on the following real properties of the Galit spouses:

1. A parcel of land covered by Original Certificate of Title No. T-569

(Homestead Patent No. 14692) situated in the Bo. of Tapulac, Orani, Bataan.
Bounded on the SW, along line 1-2 by Lot No. 3, Cad. 145; containing an
area of THIRTY FIVE THOUSAND SEVEN HUNDRED FIFTY NINE (35,759)
SQUARE METERS, more or less x x x;
2. STORE/HOUSE CONSTRUCTED on Lot No. 1103 made of strong materials
G.I. roofing situated at Centro I, Orani, Bataan, x x x containing an area of
30 sq. meters, more or less x x x (constructed on TCT No. T40785);

3. BODEGA constructed on Lot 1103, made of strong materials, G.I. roofing,

situated in Centro I, Orani, Bataan, x x x with a floor area of 42.75 sq. m.
more or less x x x.11
cräläwvirtualibräry

At the sale of the above-enumerated properties at public auction held

on December 23, 1998, petitioner was the highest and only bidder with a bid
price of P483,000.00. Accordingly, on February 4, 1999, Deputy Sheriff
Robles issued a Certificate of Sale of Execution of Real Property, 12 which
reads:

CERTIFICATE OF SALE ON EXECUTION OF REAL PROPERTY

TO ALL WHO MAY SEE THESE PRESENTS:

GREETINGS:

I HEREBY that (sic) by virtue of the writ of execution dated October 16,
1998, issued in the above-entitled case by the HON. BENJAMIN T. VIANZON,
ordering the Provincial Sheriff of Bataan or her authorized Deputy Sheriff to
cause to be made (sic) the sum of P350,000.00 plus 12% interest to be
computed from the date of maturity of the promissory notes until the same
are fully paid; P20,000.00 as attorneys fees plus legal expenses in the
implementation of the writ of execution, the undersigned Deputy Sheriff sold
at public auction on December 23, 1998 the rights and interests of
defendants Sps. Ricardo and Rosalina Galit, to the plaintiff Marcelo Soriano,
the highest and only bidder for the amount of FOUR HNDRED EIGHTY THREE
THOUSAND PESOS (P483,000.00, Philippine Currency), the following real
estate properties more particularly described as follows :

ORIGINAL CERTIFICATE OF TITLE NO. T-569

A parcel of land (Homestead Patent No. 14692) situated in the Bo. of

Tapulac, Orani, Bataan, x x x. Bounded on the SW., along line 1-2 by Lot No.
3, Cad. 145, containing an area of THIRTY FIVE THOUSAND SEVEN
HUNDRED FIFTY NINE (35,759) SQUARE METERS, more or less x x x

TAX DEC. NO. PROPERTY INDEX NO. 018-09-001-02

STOREHOUSE constructed on Lot 1103, made of strong materials G.I.
roofing situated at Centro I, Orani, Bataan x x x containing an area of 30 sq.
meters, more or less x x (constructed on TCT No. 40785)

TAX DEC. NO. 86 PROPERTY INDEX No. 018-09-001-02

BODEGA constructed on Lot 1103, made of strong materials G.I. roofing

situated in Centro I, Orani, Bataan, x x x with a floor area of 42.75 sq. m.
more or less x x x

IT IS FURTHER CERTIFIED, that the aforesaid highest and lone bidder,

Marcelo Soriano, being the plaintiff did not pay to the Provincial Sheriff of
Bataan the amount of P483,000.00, the sale price of the above-described
property which amount was credited to partial/full satisfaction of the
judgment embodied in the writ of execution.

The period of redemption of the above described real properties together

with all the improvements thereon will expire One (1) year from and after
the registration of this Certificate of Sale with the Register of Deeds.

This Certificate of Sheriffs Sale is issued to the highest and lone bidder,
Marcelo Soriano, under guarantees prescribed by law.

Balanga, Bataan, February 4, 1999.

On April 23, 1999, petitioner caused the registration of the Certificate of Sale
on Execution of Real Property with the Registry of Deeds.

The said Certificate of Sale registered with the Register of Deeds includes at
the dorsal portion thereof the following entry, not found in the Certificate of
Sale on file with Deputy Sheriff Renato E. Robles:13 cräläwvirtualibräry

ORIGINAL CERTIFICATE OF TITLE NO. T-40785

A parcel of land (Lot No. 1103 of the Cadastral Survey of Orani) , with the
improvements thereon, situated in the Municipality of Orani, Bounded on the
NE; by Calle P. Gomez; on the E. by Lot No. 1104; on the SE by Calle
Washington; and on the W. by Lot 4102, containing an area of ONE
HUNDRED THIRTY NINE (139) SQUARE METERS, more or less. All points
referred to are indicated on the plan; bearing true; declination 0 deg. 40E.,
date of survey, February 191-March 1920.

On February 23, 2001, ten months from the time the Certificate of Sale on
Execution was registered with the Registry of Deeds, petitioner moved 14 for
the issuance of a writ of possession. He averred that the one-year period of
redemption had elapsed without the respondents having redeemed the
properties sold at public auction; thus, the sale of said properties had
already become final. He also argued that after the lapse of the redemption
period, the titles to the properties should be considered, for all legal intents
and purposes, in his name and favor.15 cräläwvirtualibräry

On June 4, 2001, the Regional Trial Court of Balanga City, Branch 1 granted
the motion for issuance of writ of possession.16 Subsequently, on July 18,
2001, a writ of possession17 was issued in petitioners favor which reads:

WRIT OF POSSESSION

Mr. Renato E. Robles

Deputy Sheriff
RTC, Br. 1, Balanga City

Greetings :

WHEREAS on February 3, 2001, the counsel for plaintiff filed Motion for the
Issuance of Writ of Possession;

WHEREAS on June 4, 2001, this court issued an order granting the issuance
of the Writ of Possession;

WHEREFORE, you are hereby commanded to place the herein plaintiff

Marcelo Soriano in possession of the property involved in this case situated
(sic) more particularly described as:

1. STORE HOUSE constructed on Lot No. 1103 situated at Centro 1, Orani,

Bataan covered by TCT No. 40785;

2. BODEGA constructed on Lot No. 1103 with an area of 42.75 square

meters under Tax Declaration No. 86 situated at Centro 1, Orani, Bataan;

3. Original Certificate of Title No. 40785 with an area of 134 square meters
known as Lot No. 1103 of the Cadastral Survey of Orani

against the mortgagor/former owners Sps. Ricardo and Rosalinda (sic) Galit,
her (sic) heirs, successors, assigns and all persons claiming rights and
interests adverse to the petitioner and make a return of this writ every thirty
(30) days from receipt hereof together with all the proceedings thereon until
the same has been fully satisfied.
WITNESS THE HONORABLE BENJAMIN T. VIANZON, Presiding Judge, this
18th day of July 2001, at Balanga City.

(Sgd)
GILBERT S. ARGONZA
O
IC

Respondents filed a petition for certiorari with the Court of Appeals, which
was docketed as CA-G.R. SP No. 65891, assailing the inclusion of the parcel
of land covered by Transfer Certificate of Title No. T-40785 among the list of
real properties in the writ of possession.18 Respondents argued that said
property was not among those sold on execution by Deputy Sheriff Renato
E. Robles as reflected in the Certificate of Sale on Execution of Real
Property.

In opposition, petitioner prayed for the dismissal of the petition because

respondent spouses failed to move for the reconsideration of the assailed
order prior to the filing of the petition. Moreover, the proper remedy against
the assailed order of the trial court is an appeal, or a motion to quash the
writ of possession.

On May 13, 2002, the Court of Appeals rendered judgment as follows:

WHEREFORE, the instant petition is hereby GRANTED. Accordingly, the writ

of possession issued by the Regional Trial Court of Balanga City, Branch 1,
on 18 July 2001 is declared NULL and VOID.

In the event that the questioned writ of possession has already been
implemented, the Deputy Sheriff of the Regional Trial Court of Balanga City,
Branch 1, and private respondent Marcelo Soriano are hereby ordered to
cause the redelivery of Transfer Certificate of Title No. T-40785 to the
petitioners.

SO ORDERED.19 cräläwvirtualibräry

Aggrieved, petitioner now comes to this Court maintaining that

1.) THE SPECIAL CIVIL ACTION OF CERTIORARI UNDER RULE 65 IS NOT

THE PLAIN, SPEEDY AND ADEQUATE REMEDY OF THE RESPONDENTS IN
ASSAILING THE WRIT OF POSSESSION ISSUED BY THE LOWER COURT BUT
THERE WERE STILL OTHER REMEDIES AVAILABLE TO THEM AND WHICH
WERE NOT RESORTED TO LIKE THE FILING OF A MOTION FOR
RECONSIDERATION OR MOTION TO QUASH OR EVEN APPEAL.
2.) THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DECLARAING
THE CERTIFICATE OF SALE ON EXECUTION OF REAL PROPERTY AS NULL
AND VOID AND SUBSEQUENTLY THE WRIT OF POSSESSION BECAUSE THE
SAME IS A PUBLIC DOCUMENT WHICH ENJOYS THE PRESUMPTION OF
REGULARITY AND IT CANNOT BE OVERCOME BY A MERE STRANGE FEELING
THAT SOMETHING IS AMISS ON ITS SURFACE SIMPLY BECAUSE THE
TYPEWRITTEN WORDS ON THE FRONT PAGE AND AT THE DORSAL PORTION
THEREOF IS DIFFERENT OR THAT IT IS UNLIKELY FOR THE SHERIFF TO USE
THE DORSAL PORTION OF THE FIRST PAGE BECAUSE THE SECOND PAGE IS
MERELY HALF FILLED AND THE NOTATION ON THE DORSAL PORTION
COULD STILL BE MADE AT THE SECOND PAGE.

On the first ground, petitioner contends that respondents were not without
remedy before the trial court. He points out that respondents could have
filed a motion for reconsideration of the Order dated June 4, 1999, but they
did not do so. Respondents could also have filed an appeal but they,
likewise, did not do so. When the writ of possession was issued, respondents
could have filed a motion to quash the writ. Again they did not. Respondents
cannot now avail of the special civil action for certiorari as a substitute for
these remedies. They should suffer the consequences for sleeping on their
rights.

We disagree.

Concededly, those who seek to avail of the procedural remedies provided by

the rules must adhere to the requirements thereof, failing which the right to
do so is lost. It is, however, equally settled that the Rules of Court seek to
eliminate undue reliance on technical rules and to make litigation as
inexpensive as practicable and as convenient as can be done. 20 This is in
accordance with the primary purpose of the 1997 Rules of Civil Procedure as
provided in Rule 1, Section 6, which reads:

Section 6. Construction. These rules shall be liberally construed in order to

promote their objective of securing a just, speedy and inexpensive
determination of every action and proceeding.21 cräläwvirtualibräry

The rules of procedure are not to be applied in a very rigid, technical sense
and are used only to help secure substantial justice. If a technical and rigid
enforcement of the rules is made, their aim would be defeated. 22 They
should be liberally construed so that litigants can have ample opportunity to
prove their claims and thus prevent a denial of justice due to
technicalities.23 Thus, in China Banking Corporation v. Members of the Board
of Trustees of Home Development Mutual Fund,24 it was held:
while certiorari as a remedy may not be used as a substitute for an appeal,
especially for a lost appeal, this rule should not be strictly enforced if the
petition is genuinely meritorious.25] It has been said that where the rigid
application of the rules would frustrate substantial justice, or bar
the vindication of a legitimate grievance, the courts are justified in
exempting a particular case from the operation of the
rules.26 (Emphasis ours)

Indeed, well-known is the rule that departures from procedure may be

forgiven where they do not appear to have impaired the substantial rights of
the parties.27 Apropos in this regard is Cometa v. CA,28 where we said that

There is no question that petitioners were remiss in attending with dispatch

to the protection of their interests as regards the subject lots, and for that
reason the case in the lower court was dismissed on a technicality and no
definitive pronouncement on the inadequacy of the price paid for the levied
properties was ever made. In this regard, it bears stressing that procedural
rules are not to be belittled or dismissed simply because their non-
observance may have resulted in prejudice to a partys substantive rights as
in this case. Like all rules, they are required to be followed except when
only for the most persuasive of reasons they may be relaxed to
relieve a litigant of an injustice not commensurate with the degree
of his thoughtlessness in not complying with the procedure
prescribed.29  (emphasis and italics supplied.)

In short, since rules of procedure are mere tools designed to facilitate the
attainment of justice, their strict and rigid application which would result in
technicalities that tend to frustrate rather than promote substantial justice
must always be avoided.30 Technicality should not be allowed to stand in the
way of equitably and completely resolving the rights and obligations of the
parties.31
cräläwvirtualibräry

Eschewing, therefore, the procedural objections raised by petitioner, it

behooves us to address the issue of whether or not the questioned writ of
possession is in fact a nullity considering that it includes real property not
expressly mentioned in the Certificate of Sale of Real Property.

Petitioner, in sum, dwells on the general proposition that since the certificate
of sale is a public document, it enjoys the presumption of regularity and all
entries therein are presumed to be done in the performance of regular
functions.

The argument is not persuasive.

There are actually two (2) copies of the Certificate of Sale on Execution of
Real Properties issued on February 4, 1999 involved, namely: (a) copy which
is on file with the deputy sheriff; and (b) copy registered with the Registry of
Deeds. The object of scrutiny, however, is not the copy of the Certificate of
Sale on Execution of Real Properties issued by the deputy sheriff on
February 4, 1999,32 but the copy thereof subsequently registered by
petitioner with the Registry of Deeds on April 23, 1999, 33 which included an
entry on the dorsal portion of the first page thereof describing a parcel of
land covered by OCT No. T-40785 not found in the Certificate of Sale of Real
Properties on file with the sheriff.

True, public documents by themselves may be adequate to establish the

presumption of their validity. However, their probative weight must be
evaluated not in isolation but in conjunction with other evidence adduced by
the parties in the controversy, much more so in this case where
the contents of a copy thereof subsequently registered for documentation
purposes is being contested. No reason has been offered how and why the
questioned entry was subsequently intercalated in the copy of the certificate
of sale subsequently registered with the Registry of Deeds. Absent any
satisfactory explanation as to why said entry was belatedly inserted, the
surreptitiousness of its inclusion coupled with the furtive manner of its
intercalation casts serious doubt on the authenticity of petitioners copy of
the Certificate of Sale. Thus, it has been held that while a public document
like a notarized deed of sale is vested with the presumption of
regularity, this is not a guarantee of the validity of its contents.34 cräläwvirtualibräry

It must be pointed out in this regard that the issuance of a Certificate of Sale
is an end result of judicial foreclosure where statutory requirements are
strictly adhered to; where even the slightest deviations therefrom will
invalidate the proceeding35 and the sale.36 Among these requirements is an
explicit enumeration and correct description of what properties are to be sold
stated in the notice. The stringence in the observance of these requirements
is such that an incorrect title number together with a correct technical
description of the property to be sold and vice versa is deemed a substantial
and fatal error which results in the invalidation of the sale. 37
cräläwvirtualibräry

The certificate of sale is an accurate record of what properties were actually

sold to satisfy the debt. The strictness in the observance of accuracy and
correctness in the description of the properties renders the enumeration in
the certificate exclusive. Thus, subsequently including properties which have
not been explicitly mentioned therein for registration purposes under
suspicious circumstances smacks of fraud. The explanation that the land on
which the properties sold is necessarily included and, hence, was belatedly
typed on the dorsal portion of the copy of the certificate subsequently
registered is at best a lame excuse unworthy of belief.

The appellate court correctly observed that there was a marked difference in
the appearance of the typewritten words appearing on the first page of the
copy of the Certificate of Sale registered with the Registry of Deeds 38 and
those appearing at the dorsal portion thereof. Underscoring the irregularity
of the intercalation is the clearly devious attempt to let such an insertion
pass unnoticed by typing the same at the back of the first page instead of on
the second page which was merely half-filled and could accommodate the
entry with room to spare.

The argument that the land on which the buildings levied upon in execution
is necessarily included is, likewise, tenuous. Article 415 of the Civil Code
provides:

ART. 415. The following are immovable property:

(1) Land, buildings, roads and constructions of all kinds adhered to the soil.

xxx

(3) Everything attached to an immovable in a fixed manner, in such a way

that it cannot be separated therefrom without breaking them material or
deterioration of the object;

(4) Statues, reliefs, paintings or other objects for use or ornamentation,

placed in buildings or on lands by the owner of the immovable in such a
manner that it reveals the intention to attach them permanently to the
tenements;

(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;

(6) Animal houses, pigeon houses, beehives, fish ponds or breeding places
of similar nature, in case their owner has placed them or preserves them
with the intention to have them permanently attached to the land, and
forming a permanent part of it; the animals in these places are also
included;

xxx
(9) Docks and structures which, though floating, are intended by their
nature and object to remain at a fixed place on a river, lake or coast;

xxx.

The foregoing provision of the Civil Code enumerates land and

buildings separately. This can only mean that a building is, by itself,
considered immovable.39 Thus, it has been held that

. . . while it is true that a mortgage of land necessarily includes, in the

absence of stipulation of the improvements thereon, buildings, still a
building by itself may be mortgaged apart from the land on which it
has been built.  Such mortgage would be still a real estate mortgage
for the building would still be considered immovable property even if
dealt with separately and apart from the land.40  (emphasis and italics
supplied)

In this case, considering that what was sold by virtue of the writ of execution
issued by the trial court was merely the storehouse and bodega constructed
on the parcel of land covered by Transfer Certificate of Title No. T-40785,
which by themselves are real properties of respondents spouses, the same
should be regarded as separate and distinct from the conveyance of the lot
on which they stand.

WHEREFORE, in view of all the foregoing, the petition is hereby DENIED for
lack of merit. The Decision dated May 13, 2002 of the Court of Appeals in
CA-G.R. SP No. 65891, which declared the writ of possession issued by the
Regional Trial Court of Balanga City, Branch 1, on July 18, 2001, null and
void, is AFFIRMED in toto.

SO ORDERED.

G.R. No. 124293             January 31, 2005

J.G. SUMMIT HOLDINGS, INC., petitioner,

vs.
COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its Chairman and Members; ASSET
PRIVATIZATION TRUST; and PHILYARDS HOLDINGS, INC., respondents.

RESOLUTION

PUNO, J.:
For resolution before this Court are two motions filed by the petitioner, J.G. Summit Holdings, Inc. for
reconsideration of our Resolution dated September 24, 2003 and to elevate this case to the
Court En Banc. The petitioner questions the Resolution which reversed our Decision of November
20, 2000, which in turn reversed and set aside a Decision of the Court of Appeals promulgated on
July 18, 1995.

I. Facts

The undisputed facts of the case, as set forth in our Resolution of September 24, 2003, are as
follows:

On January 27, 1997, the National Investment and Development Corporation (NIDC), a government
corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of
Kobe, Japan (KAWASAKI) for the construction, operation and management of the Subic National
Shipyard, Inc. (SNS) which subsequently became the Philippine Shipyard and Engineering
Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute ₱330 million for
the capitalization of PHILSECO in the proportion of 60%-40% respectively. One of its salient
features is the grant to the parties of the right of first refusal should either of them decide to sell,
assign or transfer its interest in the joint venture, viz:

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any
third party without giving the other under the same terms the right of first refusal. This provision shall
not apply if the transferee is a corporation owned or controlled by the GOVERNMENT or by a
KAWASAKI affiliate.

On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the
Philippine National Bank (PNB). Such interests were subsequently transferred to the National
Government pursuant to Administrative Order No. 14. On December 8, 1986, President Corazon C.
Aquino issued Proclamation No. 50 establishing the Committee on Privatization (COP) and the
Asset Privatization Trust (APT) to take title to, and possession of, conserve, manage and dispose of
non-performing assets of the National Government. Thereafter, on February 27, 1987, a trust
agreement was entered into between the National Government and the APT wherein the latter was
named the trustee of the National Government's share in PHILSECO. In 1989, as a result of a quasi-
reorganization of PHILSECO to settle its huge obligations to PNB, the National Government's
shareholdings in PHILSECO increased to 97.41% thereby reducing KAWASAKI's shareholdings to
2.59%.

In the interest of the national economy and the government, the COP and the APT deemed it best to
sell the National Government's share in PHILSECO to private entities. After a series of negotiations
between the APT and KAWASAKI, they agreed that the latter's right of first refusal under the JVA be
"exchanged" for the right to top by five percent (5%) the highest bid for the said shares. They further
agreed that KAWASAKI would be entitled to name a company in which it was a stockholder, which
could exercise the right to top. On September 7, 1990, KAWASAKI informed APT that Philyards
Holdings, Inc. (PHI)1 would exercise its right to top.

At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of
the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for
the National Government's 87.6% equity share in PHILSECO. The provisions of the ASBR were
explained to the interested bidders who were notified that the bidding would be held on December 2,
1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National
Government's equity in PHILSECO consisting of 896,869,942 shares of stock (representing 87.67%
of PHILSECO's outstanding capital stock), which will be sold as a whole block in accordance with
the rules herein enumerated.

xxx xxx xxx

2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT Board
of Trustees and the Committee on Privatization (COP).

2.1 APT reserves the right in its sole discretion, to reject any or all bids.

3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the
National Government's 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED
MILLION (₱1,300,000,000.00).

xxx xxx xxx

6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting
following the bidding, for the purpose of determining whether or not it should be endorsed by the
APT Board of Trustees to the COP, and the latter approves the same. The APT shall advise
Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc., that the highest
bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such
advice from APT within which to exercise their "Option to Top the Highest Bid" by offering a bid
equivalent to the highest bid plus five (5%) percent thereof.

6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. exercise their
"Option to Top the Highest Bid," they shall so notify the APT about such exercise of their option and
deposit with APT the amount equivalent to ten percent (10%) of the highest bid plus five percent
(5%) thereof within the thirty (30)-day period mentioned in paragraph 6.0 above. APT will then serve
notice upon Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. declaring them as
the preferred bidder and they shall have a period of ninety (90) days from the receipt of the APT's
notice within which to pay the balance of their bid price.

6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail to exercise their
"Option to Top the Highest Bid" within the thirty (30)-day period, APT will declare the highest bidder
as the winning bidder.

xxx xxx xxx

12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the
official bid forms, including any addenda or amendments thereto issued during the bidding period.
The bidder shall likewise be responsible for informing itself with respect to any and all conditions
concerning the PHILSECO Shares which may, in any manner, affect the bidder's proposal. Failure
on the part of the bidder to so examine and inform itself shall be its sole risk and no relief for error or
omission will be given by APT or COP. . . .

At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. 2 submitted a bid of Two
Billion and Thirty Million Pesos (₱2,030,000,000.00) with an acknowledgment of
KAWASAKI/[PHILYARDS'] right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on
APT's recommendation based on the result of this bidding. Should the COP approve the highest bid,
APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc.
that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc.
and/or [PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar days from the
date of receipt of such advice from APT within which to exercise their "Option to Top the Highest
Bid" by offering a bid equivalent to the highest bid plus five (5%) percent thereof.

As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993
"subject to the right of Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's
bid by 5% as specified in the bidding rules."

On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its bid
on the grounds that: (a) the KAWASAKI/PHI consortium composed of KAWASAKI, [PHILYARDS],
Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the last four (4)
companies were the losing bidders thereby circumventing the law and prejudicing the weak winning
bidder; (b) only KAWASAKI could exercise the right to top; (c) giving the same option to top to PHI
constituted unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a
public bidding or auction sale; and (e) the JG Summit consortium was not estopped from questioning
the proceedings.

On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase
price of the subject bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised
its option to top the highest bid and that the COP had approved the same on January 6, 1994. On
February 24, 1994, the APT and PHI executed a Stock Purchase Agreement. Consequently,
petitioner filed with this Court a Petition for Mandamus under G.R. No. 114057. On May 11, 1994,
said petition was referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied the
same for lack of merit. It ruled that the petition for mandamus was not the proper remedy to question
the constitutionality or legality of the right of first refusal and the right to top that was exercised by
KAWASAKI/PHI, and that the matter must be brought "by the proper party in the proper forum at the
proper time and threshed out in a full blown trial." The Court of Appeals further ruled that the right of
first refusal and the right to top are prima facie legal and that the petitioner, "by participating in the
public bidding, with full knowledge of the right to top granted to KAWASAKI/[PHILYARDS] is…
estopped from questioning the validity of the award given to [PHILYARDS] after the latter exercised
the right to top and had paid in full the purchase price of the subject shares, pursuant to the ASBR."
Petitioner filed a Motion for Reconsideration of said Decision which was denied on March 15, 1996.
Petitioner thus filed a Petition for Certiorari with this Court alleging grave abuse of discretion on the
part of the appellate court.

On November 20, 2000, this Court rendered x x x [a] Decision ruling among others that the Court of
Appeals erred when it dismissed the petition on the sole ground of the impropriety of the special civil
action of mandamus because the petition was also one of certiorari. It further ruled that a shipyard
like PHILSECO is a public utility whose capitalization must be sixty percent (60%) Filipino-owned.
Consequently, the right to top granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR)
drafted for the sale of the 87.67% equity of the National Government in PHILSECO is illegal — not
only because it violates the rules on competitive bidding — but more so, because it allows foreign
corporations to own more than 40% equity in the shipyard. It also held that "although the petitioner
had the opportunity to examine the ASBR before it participated in the bidding, it cannot be estopped
from questioning the unconstitutional, illegal and inequitable provisions thereof." Thus, this Court
voided the transfer of the national government's 87.67% share in PHILSECO to Philyard[s] Holdings,
Inc., and upheld the right of JG Summit, as the highest bidder, to take title to the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and
Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to
APT its bid price of Two Billion Thirty Million Pesos (₱2,030,000,000.00), less its bid deposit plus
interests upon the finality of this Decision. In turn, APT is ordered to:

(a) accept the said amount of ₱2,030,000,000.00 less bid deposit and interests from
petitioner;

(b) execute a Stock Purchase Agreement with petitioner;

(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6%
of PHILSECO's total capitalization;

(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One
Million Five Hundred Thousand Pesos (₱2,131,500,000.00); and

(e) cause the cancellation of the stock certificates issued to PHI.

SO ORDERED.

In separate Motions for Reconsideration, respondents submit[ted] three basic issues for x x x
resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI
can exercise its right of first refusal only up to 40% of the total capitalization of PHILSECO; and (3)
Whether the right to top granted to KAWASAKI violates the principles of competitive
bidding.3 (citations omitted)

In a Resolution dated September 24, 2003, this Court ruled in favor of the respondents. On the first
issue, we held that Philippine Shipyard and Engineering Corporation (PHILSECO) is not a public
utility, as by nature, a shipyard is not a public utility 4 and that no law declares a shipyard to be a
public utility.5 On the second issue, we found nothing in the 1977 Joint Venture Agreement (JVA)
which prevents Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) from acquiring more
than 40% of PHILSECO’s total capitalization. 6 On the final issue, we held that the right to top granted
to KAWASAKI in exchange for its right of first refusal did not violate the principles of competitive
bidding.7

On October 20, 2003, the petitioner filed a Motion for Reconsideration 8 and a Motion to Elevate This
Case to the Court En Banc.9 Public respondents Committee on Privatization (COP) and Asset
Privatization Trust (APT), and private respondent Philyards Holdings, Inc. (PHILYARDS) filed their
Comments on J.G. Summit Holdings, Inc.’s (JG Summit’s) Motion for Reconsideration and Motion to
Elevate This Case to the Court En Banc on January 29, 2004 and February 3, 2004, respectively.

II. Issues

Based on the foregoing, the relevant issues to resolve to end this litigation are the following:

1. Whether there are sufficient bases to elevate the case at bar to the Court en banc.

2. Whether the motion for reconsideration raises any new matter or cogent reason to warrant
a reconsideration of this Court’s Resolution of September 24, 2003.

Motion to Elevate this Case to the

Court En Banc

The petitioner prays for the elevation of the case to the Court en banc on the following grounds:

1. The main issue of the propriety of the bidding process involved in the present case has
been confused with the policy issue of the supposed fate of the shipping industry which has
never been an issue that is determinative of this case. 10

2. The present case may be considered under the Supreme Court Resolution dated
February 23, 1984 which included among en banc cases those involving a novel question of
law and those where a doctrine or principle laid down by the Court en banc or in division may
be modified or reversed.11

3. There was clear executive interference in the judicial functions of the Court when the
Honorable Jose Isidro Camacho, Secretary of Finance, forwarded to Chief Justice Davide, a
memorandum dated November 5, 2001, attaching a copy of the Foreign Chambers Report
dated October 17, 2001, which matter was placed in the agenda of the Court and noted by it
in a formal resolution dated November 28, 2001.12

Opposing J.G. Summit’s motion to elevate the case en banc, PHILYARDS points out the petitioner’s
inconsistency in previously opposing PHILYARDS’ Motion to Refer the Case to the Court En
Banc. PHILYARDS contends that J.G. Summit should now be estopped from asking that the case be
referred to the Court en banc. PHILYARDS further contends that the Supreme Court en banc is not
an appellate court to which decisions or resolutions of its divisions may be appealed citing Supreme
Court Circular No. 2-89 dated February 7, 1989.13 PHILYARDS also alleges that there is no novel
question of law involved in the present case as the assailed Resolution was based on well-settled
jurisprudence. Likewise, PHILYARDS stresses that the Resolution was merely an outcome of the
motions for reconsideration filed by it and the COP and APT and is "consistent with the inherent
power of courts to ‘amend and control its process and orders so as to make them conformable to law
and justice.’ (Rule 135, sec. 5)"14 Private respondent belittles the petitioner’s allegations regarding
the change in ponente and the alleged executive interference as shown by former Secretary of
Finance Jose Isidro Camacho’s memorandum dated November 5, 2001 arguing that these do not
justify a referral of the present case to the Court en banc.

In insisting that its Motion to Elevate This Case to the Court En Banc should be granted, J.G.
Summit further argued that: its Opposition to the Office of the Solicitor General’s Motion to Refer is
different from its own Motion to Elevate; different grounds are invoked by the two motions; there was
unwarranted "executive interference"; and the change in ponente is merely noted in asserting that
this case should be decided by the Court en banc.15

We find no merit in petitioner’s contention that the propriety of the bidding process involved in the
present case has been confused with the policy issue of the fate of the shipping industry which,
petitioner maintains, has never been an issue that is determinative of this case. The Court’s
Resolution of September 24, 2003 reveals a clear and definitive ruling on the propriety of the bidding
process. In discussing whether the right to top granted to KAWASAKI in exchange for its right of first
refusal violates the principles of competitive bidding, we made an exhaustive discourse on the rules
and principles of public bidding and whether they were complied with in the case at bar. 16 This Court
categorically ruled on the petitioner’s argument that PHILSECO, as a shipyard, is a public utility
which should maintain a 60%-40% Filipino-foreign equity ratio, as it was a pivotal issue. In doing so,
we recognized the impact of our ruling on the shipbuilding industry which was beyond avoidance. 17
We reject petitioner’s argument that the present case may be considered under the Supreme Court
Resolution dated February 23, 1984 which included among en banc cases those involving a novel
question of law and those where a doctrine or principle laid down by the court en banc or in division
may be modified or reversed. The case was resolved based on basic principles of the right of first
refusal in commercial law and estoppel in civil law. Contractual obligations arising from rights of first
refusal are not new in this jurisdiction and have been recognized in numerous cases. 18 Estoppel is
too known a civil law concept to require an elongated discussion. Fundamental principles on public
bidding were likewise used to resolve the issues raised by the petitioner. To be sure, petitioner leans
on the right to top in a public bidding in arguing that the case at bar involves a novel issue. We are
not swayed. The right to top was merely a condition or a reservation made in the bidding rules which
was fully disclosed to all bidding parties. In Bureau Veritas, represented by Theodor H.
Hunermann v. Office of the President, et al., 19 we dealt with this conditionality, viz:

x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al., (L-18751, 28
April 1962, 4 SCRA 1245), that in an "invitation to bid, there is a condition imposed upon the
bidders to the effect that the bidding shall be subject to the right of the government to reject
any and all bids subject to its discretion. In the case at bar, the government has made its
choice and unless an unfairness or injustice is shown, the losing bidders have no cause to
complain nor right to dispute that choice. This is a well-settled doctrine in this jurisdiction
and elsewhere."

The discretion to accept or reject a bid and award contracts is vested in the Government agencies
entrusted with that function. The discretion given to the authorities on this matter is of such wide
latitude that the Courts will not interfere therewith, unless it is apparent that it is used as a shield to a
fraudulent award (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x The exercise of this discretion is
a policy decision that necessitates prior inquiry, investigation, comparison, evaluation, and
deliberation. This task can best be discharged by the Government agencies concerned, not by the
Courts. The role of the Courts is to ascertain whether a branch or instrumentality of the Government
has transgressed its constitutional boundaries. But the Courts will not interfere with executive or
legislative discretion exercised within those boundaries. Otherwise, it strays into the realm of policy
decision-making.

It is only upon a clear showing of grave abuse of discretion that the Courts will set aside the award of
a contract made by a government entity. Grave abuse of discretion implies a capricious, arbitrary
and whimsical exercise of power (Filinvest Credit Corp. v. Intermediate Appellate Court, No. 65935,
30 September 1988, 166 SCRA 155). The abuse of discretion must be so patent and gross as to
amount to an evasion of positive duty or to a virtual refusal to perform a duty enjoined by law, as to
act at all in contemplation of law, where the power is exercised in an arbitrary and despotic manner
by reason of passion or hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.], L-40867, 26 July
1988, 163 SCRA 489).

The facts in this case do not indicate any such grave abuse of discretion on the part of public
respondents when they awarded the CISS contract to Respondent SGS. In the "Invitation to
Prequalify and Bid" (Annex "C," supra), the CISS Committee made an express reservation of the
right of the Government to "reject any or all bids or any part thereof or waive any defects
contained thereon and accept an offer most advantageous to the Government." It is a well-
settled rule that where such reservation is made in an Invitation to Bid, the highest or lowest
bidder, as the case may be, is not entitled to an award as a matter of right (C & C Commercial
Corp. v. Menor, L-28360, 27 January 1983, 120 SCRA 112). Even the lowest Bid or any Bid may be
rejected or, in the exercise of sound discretion, the award may be made to another than the lowest
bidder (A.C. Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur., 788). (emphases supplied) 1awphi1.nét
Like the condition in the Bureau Veritas case, the right to top was a condition imposed by the
government in the bidding rules which was made known to all parties. It was a condition imposed
on all bidders equally, based on the APT’s exercise of its discretion in deciding on how best
to privatize the government’s shares in PHILSECO. It was not a whimsical or arbitrary condition
plucked from the ether and inserted in the bidding rules but a condition which the APT approved as
the best way the government could comply with its contractual obligations to KAWASAKI under the
JVA and its mandate of getting the most advantageous deal for the government. The right to top had
its history in the mutual right of first refusal in the JVA and was reached by agreement of the
government and KAWASAKI.

Further, there is no "executive interference" in the functions of this Court by the mere filing of a
memorandum by Secretary of Finance Jose Isidro Camacho. The memorandum was merely "noted"
to acknowledge its filing. It had no further legal significance. Notably too, the assailed Resolution
dated September 24, 2003 was decided unanimously by the Special First Division in favor of
the respondents.

Again, we emphasize that a decision or resolution of a Division is that of the Supreme Court 20 and
the Court en banc is not an appellate court to which decisions or resolutions of a Division may be
appealed.21

For all the foregoing reasons, we find no basis to elevate this case to the Court en banc.

Motion for Reconsideration

Three principal arguments were raised in the petitioner’s Motion for Reconsideration. First, that a fair
resolution of the case should be based on contract law, not on policy considerations; the contracts
do not authorize the right to top to be derived from the right of first refusal. 22 Second, that neither the
right of first refusal nor the right to top can be legally exercised by the consortium which is not the
proper party granted such right under either the JVA or the Asset Specific Bidding Rules
(ASBR).23 Third, that the maintenance of the 60%-40% relationship between the National Investment
and Development Corporation (NIDC) and KAWASAKI arises from contract and from the
Constitution because PHILSECO is a landholding corporation and need not be a public utility to be
bound by the 60%-40% constitutional limitation.24

On the other hand, private respondent PHILYARDS asserts that J.G. Summit has not been able to
show compelling reasons to warrant a reconsideration of the Decision of the Court. 25 PHILYARDS
denies that the Decision is based mainly on policy considerations and points out that it is premised
on principles governing obligations and contracts and corporate law such as the rule requiring
respect for contractual stipulations, upholding rights of first refusal, and recognizing the assignable
nature of contracts rights.26 Also, the ruling that shipyards are not public utilities relies on established
case law and fundamental rules of statutory construction. PHILYARDS stresses that KAWASAKI’s
right of first refusal or even the right to top is not limited to the 40% equity of the latter. 27 On the
landholding issue raised by J.G. Summit, PHILYARDS emphasizes that this is a non-issue and even
involves a question of fact. Even assuming that this Court can take cognizance of such question of
fact even without the benefit of a trial, PHILYARDS opines that landholding by PHILSECO at the
time of the bidding is irrelevant because what is essential is that ultimately a qualified entity would
eventually hold PHILSECO’s real estate properties. 28 Further, given the assignable nature of the right
of first refusal, any applicable nationality restrictions, including landholding limitations, would not
affect the right of first refusal itself, but only the manner of its exercise. 29 Also, PHILYARDS argues
that if this Court takes cognizance of J.G. Summit’s allegations of fact regarding PHILSECO’s
landholding, it must also recognize PHILYARDS’ assertions that PHILSECO’s landholdings were
sold to another corporation.30 As regards the right of first refusal, private respondent explains that
KAWASAKI’s reduced shareholdings (from 40% to 2.59%) did not translate to a deprivation or loss
of its contractually granted right of first refusal.31 Also, the bidding was valid because PHILYARDS
exercised the right to top and it was of no moment that losing bidders later joined PHILYARDS in
raising the purchase price.32

In cadence with the private respondent PHILYARDS, public respondents COP and APT contend:

1. The conversion of the right of first refusal into a right to top by 5% does not violate any
provision in the JVA between NIDC and KAWASAKI.

2. PHILSECO is not a public utility and therefore not governed by the constitutional
restriction on foreign ownership.

3. The petitioner is legally estopped from assailing the validity of the proceedings of the
public bidding as it voluntarily submitted itself to the terms of the ASBR which included the
provision on the right to top.

4. The right to top was exercised by PHILYARDS as the nominee of KAWASAKI and the fact
that PHILYARDS formed a consortium to raise the required amount to exercise the right to
top the highest bid by 5% does not violate the JVA or the ASBR.

5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition of lands does
not apply to PHILSECO because as admitted by petitioner itself, PHILSECO no longer owns
real property.

6. Petitioner’s motion to elevate the case to the Court en banc is baseless and would only
delay the termination of this case.33

In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the arguments of the
public and private respondents in this wise:

1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with losing bidders
through the exercise of a right to top, which is contrary to law and the constitution is null and
void for being violative of substantive due process and the abuse of right provision in the
Civil Code.

a. The bidders[’] right to top was actually exercised by losing bidders.

b. The right to top or the right of first refusal cannot co-exist with a genuine
competitive bidding.

c. The benefits derived from the right to top were unwarranted.

2. The landholding issue has been a legitimate issue since the start of this case but is
shamelessly ignored by the respondents.

a. The landholding issue is not a non-issue.

b. The landholding issue does not pose questions of fact.

 c. That PHILSECO owned land at the time that the right of first refusal was agreed
upon and at the time of the bidding are most relevant.

d. Whether a shipyard is a public utility is not the core issue in this case.

3. Fraud and bad faith attend the alleged conversion of an inexistent right of first refusal to
the right to top.

a. The history behind the birth of the right to top shows fraud and bad faith.

b. The right of first refusal was, indeed, "effectively useless."

4. Petitioner is not legally estopped to challenge the right to top in this case.

a. Estoppel is unavailing as it would stamp validity to an act that is prohibited by law

or against public policy.

b. Deception was patent; the right to top was an attractive nuisance.

c. The 10% bid deposit was placed in escrow.

J.G. Summit’s insistence that the right to top cannot be sourced from the right of first refusal is not
new and we have already ruled on the issue in our Resolution of September 24, 2003. We upheld
the mutual right of first refusal in the JVA.34 We also ruled that nothing in the JVA prevents
KAWASAKI from acquiring more than 40% of PHILSECO’s total capitalization. 35 Likewise, nothing in
the JVA or ASBR bars the conversion of the right of first refusal to the right to top. In sum, nothing
new and of significance in the petitioner’s pleading warrants a reconsideration of our ruling.

Likewise, we already disposed of the argument that neither the right of first refusal nor the right to
top can legally be exercised by the consortium which is not the proper party granted such right under
either the JVA or the ASBR. Thus, we held:

The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life
Assurance, Mitsui and ICTSI), has joined PHILYARDS in the latter's effort to raise ₱2.131 billion
necessary in exercising the right to top is not contrary to law, public policy or public morals. There is
nothing in the ASBR that bars the losing bidders from joining either the winning bidder (should the
right to top is not exercised) or KAWASAKI/PHI (should it exercise its right to top as it did), to raise
the purchase price. The petitioner did not allege, nor was it shown by competent evidence, that the
participation of the losing bidders in the public bidding was done with fraudulent intent. Absent any
proof of fraud, the formation by [PHILYARDS] of a consortium is legitimate in a free enterprise
system. The appellate court is thus correct in holding the petitioner estopped from questioning the
validity of the transfer of the National Government's shares in PHILSECO to respondent. 36

Further, we see no inherent illegality on PHILYARDS’ act in seeking funding from parties who were
losing bidders. This is a purely commercial decision over which the State should not interfere absent
any legal infirmity. It is emphasized that the case at bar involves the disposition of shares in a
corporation which the government sought to privatize. As such, the persons with whom PHILYARDS
desired to enter into business with in order to raise funds to purchase the shares are basically its
business. This is in contrast to a case involving a contract for the operation of or construction of a
government infrastructure where the identity of the buyer/bidder or financier constitutes an important
consideration. In such cases, the government would have to take utmost precaution to protect public
interest by ensuring that the parties with which it is contracting have the ability to satisfactorily
construct or operate the infrastructure.

On the landholding issue, J.G. Summit submits that since PHILSECO is a landholding company,
KAWASAKI could exercise its right of first refusal only up to 40% of the shares of PHILSECO due to
the constitutional prohibition on landholding by corporations with more than 40% foreign-owned
equity. It further argues that since KAWASAKI already held at least 40% equity in PHILSECO, the
right of first refusal was inutile and as such, could not subsequently be converted into the right to
top. 37 Petitioner also asserts that, at present, PHILSECO continues to violate the constitutional
provision on landholdings as its shares are more than 40% foreign-owned. 38 PHILYARDS admits that
it may have previously held land but had already divested such landholdings. 39 It contends, however,
that even if PHILSECO owned land, this would not affect the right of first refusal but only the
exercise thereof. If the land is retained, the right of first refusal, being a property right, could be
assigned to a qualified party. In the alternative, the land could be divested before the exercise of the
right of first refusal. In the case at bar, respondents assert that since the right of first refusal was
validly converted into a right to top, which was exercised not by KAWASAKI, but by PHILYARDS
which is a Filipino corporation (i.e., 60% of its shares are owned by Filipinos), then there is no
violation of the Constitution.40 At first, it would seem that questions of fact beyond cognizance by this
Court were involved in the issue. However, the records show that PHILYARDS admits it had
owned land up until the time of the bidding.41 Hence, the only issue is whether KAWASAKI
had a valid right of first refusal over PHILSECO shares under the JVA considering that
PHILSECO owned land until the time of the bidding and KAWASAKI already held 40% of
PHILSECO’s equity.

We uphold the validity of the mutual rights of first refusal under the JVA between KAWASAKI and
NIDC. First of all, the right of first refusal is a property right of PHILSECO shareholders, KAWASAKI
and NIDC, under the terms of their JVA. This right allows them to purchase the shares of their co-
shareholder before they are offered to a third party. The agreement of co-shareholders to
mutually grant this right to each other, by itself, does not constitute a violation of the
provisions of the Constitution limiting land ownership to Filipinos and Filipino corporations.
As PHILYARDS correctly puts it, if PHILSECO still owns land, the right of first refusal can be validly
assigned to a qualified Filipino entity in order to maintain the 60%-40% ratio. This transfer, by itself,
does not amount to a violation of the Anti-Dummy Laws, absent proof of any fraudulent intent. The
transfer could be made either to a nominee or such other party which the holder of the right of first
refusal feels it can comfortably do business with. Alternatively, PHILSECO may divest of its
landholdings, in which case KAWASAKI, in exercising its right of first refusal, can exceed 40% of
PHILSECO’s equity. In fact, it can even be said that if the foreign shareholdings of a
landholding corporation exceeds 40%, it is not the foreign stockholders’ ownership of the
shares which is adversely affected but the capacity of the corporation to own land – that is,
the corporation becomes disqualified to own land. This finds support under the basic corporate law
principle that the corporation and its stockholders are separate juridical entities. In this vein, the right
of first refusal over shares pertains to the shareholders whereas the capacity to own land pertains to
the corporation. Hence, the fact that PHILSECO owns land cannot deprive stockholders of their right
of first refusal. No law disqualifies a person from purchasing shares in a landholding
corporation even if the latter will exceed the allowed foreign equity, what the law disqualifies
is the corporation from owning land. This is the clear import of the following provisions in the
Constitution:

Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils,
all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and utilization of natural resources
shall be under the full control and supervision of the State. The State may directly undertake such
activities, or it may enter into co-production, joint venture, or production-sharing agreements with
Filipino citizens, or corporations or associations at least sixty per centum of whose capital is
owned by such citizens. Such agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and conditions as may be
provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other
than the development of water power, beneficial use may be the measure and limit of the grant.

xxx xxx xxx

Section 7. Save in cases of hereditary succession, no private lands shall be transferred or

conveyed except to individuals, corporations, or associations qualified to acquire or hold
lands of the public domain.42 (emphases supplied)

The petitioner further argues that "an option to buy land is void in itself (Philippine Banking
Corporation v. Lui She, 21 SCRA 52 [1967]). The right of first refusal granted to KAWASAKI, a
Japanese corporation, is similarly void. Hence, the right to top, sourced from the right of first refusal,
is also void."43 Contrary to the contention of petitioner, the case of Lui She did not that say "an option
to buy land is void in itself," for we ruled as follows:

x x x To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an

alien the right to buy real property on condition that he is granted Philippine citizenship. As
this Court said in Krivenko vs. Register of Deeds:

[A]liens are not completely excluded by the Constitution from the use of lands for residential
purposes. Since their residence in the Philippines is temporary, they may be granted temporary
rights such as a lease contract which is not forbidden by the Constitution. Should they desire to
remain here forever and share our fortunes and misfortunes, Filipino citizenship is not impossible to
acquire.

But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue
of which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50
years, then it becomes clear that the arrangement is a virtual transfer of ownership whereby
the owner divests himself in stages not only of the right to enjoy the land (jus possidendi, jus
utendi, jus fruendi and jus abutendi) but also of the right to dispose of it (jus disponendi) —
rights the sum total of which make up ownership. It is just as if today the possession is
transferred, tomorrow, the use, the next day, the disposition, and so on, until ultimately all
the rights of which ownership is made up are consolidated in an alien. And yet this is just exactly
what the parties in this case did within this pace of one year, with the result that Justina Santos'[s]
ownership of her property was reduced to a hollow concept. If this can be done, then the
Constitutional ban against alien landholding in the Philippines, as announced in Krivenko vs.
Register of Deeds, is indeed in grave peril.44 (emphases supplied; Citations omitted)

In Lui She, the option to buy was invalidated because it amounted to a virtual transfer of ownership
as the owner could not sell or dispose of his properties. The contract in Lui She prohibited the owner
of the land from selling, donating, mortgaging, or encumbering the property during the 50-year
period of the option to buy. This is not so in the case at bar where the mutual right of first refusal in
favor of NIDC and KAWASAKI does not amount to a virtual transfer of land to a non-Filipino. In fact,
the case at bar involves a right of first refusal over shares of stock while the Lui She case
involves an option to buy the land itself. As discussed earlier, there is a distinction between the
shareholder’s ownership of shares and the corporation’s ownership of land arising from the separate
juridical personalities of the corporation and its shareholders.
We note that in its Motion for Reconsideration, J.G. Summit alleges that PHILSECO continues to
violate the Constitution as its foreign equity is above 40% and yet owns long-term leasehold
rights which are real rights.45 It cites Article 415 of the Civil Code which includes in the definition of
immovable property, "contracts for public works, and servitudes and other real rights over immovable
property."46 Any existing landholding, however, is denied by PHILYARDS citing its recent financial
statements.47 First, these are questions of fact, the veracity of which would require introduction of
evidence. The Court needs to validate these factual allegations based on competent and reliable
evidence. As such, the Court cannot resolve the questions they pose. Second, J.G. Summit
misreads the provisions of the Constitution cited in its own pleadings, to wit:

29.2 Petitioner has consistently pointed out in the past that private respondent is not a 60%-40%
corporation, and this violates the Constitution x x x The violation continues to this day because under
the law, it continues to own real property…

xxx xxx xxx

32. To review the constitutional provisions involved, Section 14, Article XIV of the 1973 Constitution
(the JVA was signed in 1977), provided:

"Save in cases of hereditary succession, no private lands shall be transferred or conveyed except

to individuals, corporations, or associations qualified to acquire or hold lands of the public domain."

32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution.

32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the public
domain are corporations at least 60% of which is owned by Filipino citizens (Sec. 22,
Commonwealth Act 141, as amended). (emphases supplied)

As correctly observed by the public respondents, the prohibition in the Constitution applies only to
ownership of land.48 It does not extend to immovable or real property as defined under Article
415 of the Civil Code. Otherwise, we would have a strange situation where the ownership of
immovable property such as trees, plants and growing fruit attached to the land 49 would be limited to
Filipinos and Filipino corporations only.

III.

WHEREFORE, in view of the foregoing, the petitioner’s Motion for Reconsideration is DENIED WITH
FINALITY and the decision appealed from is AFFIRMED. The Motion to Elevate This Case to the
Court En Banc is likewise DENIED for lack of merit.

SO ORDERED.

G.R. No. L-26278             August 4, 1927

LEON SIBAL , plaintiff-appellant,

vs.
EMILIANO J. VALDEZ ET AL., defendants.
EMILIANO J. VALDEZ, appellee.

J. E. Blanco for appellant.

Felix B. Bautista and Santos and Benitez for appellee.

JOHNSON, J.:

The action was commenced in the Court of First Instance of the Province of
Tarlac on the 14th day of December 1924. The facts are about as
conflicting as it is possible for facts to be, in the trial causes.

As a first cause of action the plaintiff alleged that the defendant Vitaliano
Mamawal, deputy sheriff of the Province of Tarlac, by virtue of a writ of
execution issued by the Court of First Instance of Pampanga, attached and
sold to the defendant Emiliano J. Valdez the sugar cane planted by the
plaintiff and his tenants on seven parcels of land described in the complaint
in the third paragraph of the first cause of action; that within one year from
the date of the attachment and sale the plaintiff offered to redeem said
sugar cane and tendered to the defendant Valdez the amount sufficient to
cover the price paid by the latter, the interest thereon and any assessments
or taxes which he may have paid thereon after the purchase, and the
interest corresponding thereto and that Valdez refused to accept the money
and to return the sugar cane to the plaintiff.

As a second cause of action, the plaintiff alleged that the defendant

Emiliano J. Valdez was attempting to harvest the palay planted in four of
the seven parcels mentioned in the first cause of action; that he had
harvested and taken possession of the palay in one of said seven parcels
and in another parcel described in the second cause of action, amounting
to 300 cavans; and that all of said palay belonged to the plaintiff.

Plaintiff prayed that a writ of preliminary injunction be issued against the

defendant Emiliano J. Valdez his attorneys and agents, restraining them (1)
from distributing him in the possession of the parcels of land described in
the complaint; (2) from taking possession of, or harvesting the sugar cane
in question; and (3) from taking possession, or harvesting the palay in said
parcels of land. Plaintiff also prayed that a judgment be rendered in his
favor and against the defendants ordering them to consent to the
redemption of the sugar cane in question, and that the defendant Valdez be
condemned to pay to the plaintiff the sum of P1,056 the value of palay
harvested by him in the two parcels above-mentioned ,with interest and
costs.

On December 27, 1924, the court, after hearing both parties and upon
approval of the bond for P6,000 filed by the plaintiff, issued the writ of
preliminary injunction prayed for in the complaint.

The defendant Emiliano J. Valdez, in his amended answer, denied

generally and specifically each and every allegation of the complaint and
step up the following defenses:

(a) That the sugar cane in question had the nature of personal
property and was not, therefore, subject to redemption;

(b) That he was the owner of parcels 1, 2 and 7 described in the first
cause of action of the complaint;

(c) That he was the owner of the palay in parcels 1, 2 and 7; and

(d) That he never attempted to harvest the palay in parcels 4 and 5.

The defendant Emiliano J. Valdez by way of counterclaim, alleged that by

reason of the preliminary injunction he was unable to gather the sugar
cane, sugar-cane shoots (puntas de cana dulce) palay in said parcels of
land, representing a loss to him of P8,375.20 and that, in addition thereto,
he suffered damages amounting to P3,458.56. He prayed, for a judgment
(1) absolving him from all liability under the complaint; (2) declaring him to
be the absolute owner of the sugar cane in question and of the palay in
parcels 1, 2 and 7; and (3) ordering the plaintiff to pay to him the sum of
P11,833.76, representing the value of the sugar cane and palay in
question, including damages.

Upon the issues thus presented by the pleadings the cause was brought on
for trial. After hearing the evidence, and on April 28, 1926, the Honorable
Cayetano Lukban, judge, rendered a judgment against the plaintiff and in
favor of the defendants —

(1) Holding that the sugar cane in question was personal property
and, as such, was not subject to redemption;

(2) Absolving the defendants from all liability under the complaint; and
 (3) Condemning the plaintiff and his sureties Cenon de la Cruz, Juan
Sangalang and Marcos Sibal to jointly and severally pay to the
defendant Emiliano J. Valdez the sum of P9,439.08 as follows:

(a) P6,757.40, the value of the sugar cane;

(b) 1,435.68, the value of the sugar-cane shoots;

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

(d) 600.00, the value of 150 cavans of palay which the

defendant was not able to raise by reason of the injunction, at
P4 cavan. 9,439.08 From that judgment the plaintiff appealed
and in his assignments of error contends that the lower court
erred: (1) In holding that the sugar cane in question was
personal property and, therefore, not subject to redemption;

(2) In holding that parcels 1 and 2 of the complaint belonged to

Valdez, as well as parcels 7 and 8, and that the palay therein was
planted by Valdez;

(3) In holding that Valdez, by reason of the preliminary injunction

failed to realized P6,757.40 from the sugar cane and P1,435.68 from
sugar-cane shoots (puntas de cana dulce);

(4) In holding that, for failure of plaintiff to gather the sugar cane on
time, the defendant was unable to raise palay on the land, which
would have netted him the sum of P600; and.

(5) In condemning the plaintiff and his sureties to pay to the

defendant the sum of P9,439.08.

It appears from the record:

(1) That on May 11, 1923, the deputy sheriff of the Province of Tarlac,
by virtue of writ of execution in civil case No. 20203 of the Court of
First Instance of Manila (Macondray & Co., Inc. vs. Leon Sibal),levied
an attachment on eight parcels of land belonging to said Leon Sibal,
situated in the Province of Tarlac, designated in the second of
attachment as parcels 1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B, Exhibit 2-A).
 (2) That on July 30, 1923, Macondray & Co., Inc., bought said eight
parcels of land, at the auction held by the sheriff of the Province of
Tarlac, for the sum to P4,273.93, having paid for the said parcels
separately as follows (Exhibit C, and 2-A):

Parcel
1 ..................................................................... P1.00
2 ..................................................................... 2,000.00
3 ..................................................................... 120.93
4 ..................................................................... 1,000.00
5 ..................................................................... 1.00
6 ..................................................................... 1.00
7 with the house thereon .......................... 150.00

8 ..................................................................... 1,000.00
==========
4,273.93

(3) That within one year from the sale of said parcel of land, and on
the 24th day of September, 1923, the judgment debtor, Leon Sibal,
paid P2,000 to Macondray & Co., Inc., for the account of the
redemption price of said parcels of land, without specifying the
particular parcels to which said amount was to applied. The
redemption price said eight parcels was reduced, by virtue of said
transaction, to P2,579.97 including interest (Exhibit C and 2).

The record further shows:

(1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy
sheriff of the Province of Tarlac, by virtue of a writ of execution in civil
case No. 1301 of the Province of Pampanga (Emiliano J.
Valdez vs. Leon Sibal 1.º — the same parties in the present case),
attached the personal property of said Leon Sibal located in Tarlac,
 among which was included the sugar cane now in question in the
seven parcels of land described in the complaint (Exhibit A).

(2) That on May 9 and 10, 1924, said deputy sheriff sold at public
auction said personal properties of Leon Sibal, including the sugar
cane in question to Emilio J. Valdez, who paid therefor the sum of
P1,550, of which P600 was for the sugar cane (Exhibit A).

(3) That on April 29,1924, said deputy sheriff, by virtue of said writ of
execution, also attached the real property of said Leon Sibal in
Tarlac, including all of his rights, interest and participation therein,
which real property consisted of eleven parcels of land and a house
and camarin situated in one of said parcels (Exhibit A).

(4) That on June 25, 1924, eight of said eleven parcels, including the
house and the camarin, were bought by Emilio J. Valdez at the
auction held by the sheriff for the sum of P12,200. Said eight parcels
were designated in the certificate of sale as parcels 1, 3, 4, 5, 6, 7, 10
and 11. The house and camarin were situated on parcel 7 (Exhibit A).

(5) That the remaining three parcels, indicated in the certificate of the
sheriff as parcels 2, 12, and 13, were released from the attachment
by virtue of claims presented by Agustin Cuyugan and Domiciano
Tizon (Exhibit A).

(6) That on the same date, June 25, 1924, Macondray & Co. sold and
conveyed to Emilio J. Valdez for P2,579.97 all of its rights and
interest in the eight parcels of land acquired by it at public auction
held by the deputy sheriff of Tarlac in connection with civil case No.
20203 of the Court of First Instance of Manila, as stated above. Said
amount represented the unpaid balance of the redemption price of
said eight parcels, after payment by Leon Sibal of P2,000 on
September 24, 1923, fro the account of the redemption price, as
stated above. (Exhibit C and 2).

The foregoing statement of facts shows:

(1) The Emilio J. Valdez bought the sugar cane in question, located in
the seven parcels of land described in the first cause of action of the
complaint at public auction on May 9 and 10, 1924, for P600.
 (2) That on July 30, 1923, Macondray & Co. became the owner of
eight parcels of land situated in the Province of Tarlac belonging to
Leon Sibal and that on September 24, 1923, Leon Sibal paid to
Macondray & Co. P2,000 for the account of the redemption price of
said parcels.

(3) That on June 25, 1924, Emilio J. Valdez acquired from Macondray
& Co. all of its rights and interest in the said eight parcels of land.

(4) That on June 25, 1924, Emilio J. Valdez also acquired all of the
rights and interest which Leon Sibal had or might have had on said
eight parcels by virtue of the P2,000 paid by the latter to Macondray.

(5) That Emilio J. Valdez became the absolute owner of said eight
parcels of land.

The first question raised by the appeal is, whether the sugar cane in
question is personal or real property. It is contended that sugar cane comes
under the classification of real property as "ungathered products" in
paragraph 2 of article 334 of the Civil Code. Said paragraph 2 of article 334
enumerates as real property the following: Trees, plants, and ungathered
products, while they are annexed to the land or form an integral part of any
immovable property." That article, however, has received in recent years an
interpretation by the Tribunal Supremo de España, which holds that, under
certain conditions, growing crops may be considered as personal property.
(Decision of March 18, 1904, vol. 97, Civil Jurisprudence of Spain.)

Manresa, the eminent commentator of the Spanish Civil Code, in

discussing section 334 of the Civil Code, in view of the recent decisions of
the supreme Court of Spain, admits that growing crops are sometimes
considered and treated as personal property. He says:

No creemos, sin embargo, que esto excluya la excepcionque muchos

autores hacen tocante a la venta de toda cosecha o de parte de ella
cuando aun no esta cogida (cosa frecuente con la uvay y la naranja),
y a la de lenas, considerando ambas como muebles. El Tribunal
Supremo, en sentencia de 18 de marzo de 1904, al entender sobre
un contrato de arrendamiento de un predio rustico, resuelve que su
terminacion por desahucio no extingue los derechos del arrendario,
para recolectar o percibir los frutos correspondientes al año agricola,
dentro del que nacieron aquellos derechos, cuando el arrendor ha
 percibido a su vez el importe de la renta integra correspondiente, aun
cuando lo haya sido por precepto legal durante el curso del juicio,
fundandose para ello, no solo en que de otra suerte se daria al
desahucio un alcance que no tiene, sino en que, y esto es lo
interesante a nuestro proposito, la consideracion de inmuebles que
el articulo 334 del Codigo Civil atribuge a los frutos pendientes, no
les priva del caracter de productos pertenecientes, como tales, a
quienes a ellos tenga derecho, Ilegado el momento de su
recoleccion.

xxx     xxx     xxx

Mas actualmente y por virtud de la nueva edicion de la Ley

Hipotecaria, publicada en 16 de diciembre de 1909, con las reformas
introducidas por la de 21 de abril anterior, la hipoteca, salvo pacto
expreso que disponga lo contrario, y cualquiera que sea la naturaleza
y forma de la obligacion que garantice, no comprende los
frutos cualquiera que sea la situacion en que se encuentre. (3
Manresa, 5. edicion, pags. 22, 23.)

From the foregoing it appears (1) that, under Spanish authorities, pending
fruits and ungathered products may be sold and transferred as personal
property; (2) that the Supreme Court of Spain, in a case of ejectment of a
lessee of an agricultural land, held that the lessee was entitled to gather the
products corresponding to the agricultural year, because said fruits did not
go with the land but belonged separately to the lessee; and (3) that under
the Spanish Mortgage Law of 1909, as amended, the mortgage of a piece
of land does not include the fruits and products existing thereon, unless the
contract expressly provides otherwise.

An examination of the decisions of the Supreme Court of Louisiana may

give us some light on the question which we are discussing. Article 465 of
the Civil Code of Louisiana, which corresponds to paragraph 2 of article
334 of our Civil Code, provides: "Standing crops and the fruits of trees not
gathered, and trees before they are cut down, are likewise immovable, and
are considered as part of the land to which they are attached."

The Supreme Court of Louisiana having occasion to interpret that

provision, held that in some cases "standing crops" may be considered and
dealt with as personal property. In the case of Lumber Co. vs. Sheriff and
Tax Collector (106 La., 418) the Supreme Court said: "True, by article 465
of the Civil Code it is provided that 'standing crops and the fruits of trees
not gathered and trees before they are cut down . . . are considered as part
of the land to which they are attached, but the immovability provided for is
only one in abstracto and without reference to rights on or to the crop
acquired by others than the owners of the property to which the crop is
attached. . . . The existence of a right on the growing crop is a mobilization
by anticipation, a gathering as it were in advance, rendering the crop
movable quoad the right acquired therein. Our jurisprudence recognizes
the possible mobilization of the growing crop." (Citizens' Bank vs. Wiltz, 31
La. Ann., 244; Porche vs. Bodin, 28 La., Ann., 761; Sandel vs. Douglass,
27 La. Ann., 629; Lewis vs. Klotz, 39 La. Ann., 267.)

"It is true," as the Supreme Court of Louisiana said in the case of Porche
vs. Bodin (28 La. An., 761) that "article 465 of the Revised Code says that
standing crops are considered as immovable and as part of the land to
which they are attached, and article 466 declares that the fruits of an
immovable gathered or produced while it is under seizure are considered
as making part thereof, and incurred to the benefit of the person making the
seizure. But the evident meaning of these articles, is where the crops
belong to the owner of the plantation they form part of the immovable, and
where it is seized, the fruits gathered or produced inure to the benefit of the
seizing creditor.

A crop raised on leased premises in no sense forms part of the

immovable. It belongs to the lessee, and may be sold by him,
whether it be gathered or not, and it may be sold by his judgment
creditors. If it necessarily forms part of the leased premises the result
would be that it could not be sold under execution separate and apart
from the land. If a lessee obtain supplies to make his crop, the
factor's lien would not attach to the crop as a separate thing
belonging to his debtor, but the land belonging to the lessor would be
affected with the recorded privilege. The law cannot be construed so
as to result in such absurd consequences.

In the case of Citizen's Bank vs. Wiltz (31 La. Ann., 244)the court said:

If the crop quoad the pledge thereof under the act of 1874 was an

immovable, it would be destructive of the very objects of the act, it
would render the pledge of the crop objects of the act, it would render
 the pledge of the crop impossible, for if the crop was an inseparable
part of the realty possession of the latter would be necessary to that
of the former; but such is not the case. True, by article 465 C. C. it is
provided that "standing crops and the fruits of trees not gathered and
trees before they are cut down are likewise immovable and are
considered as part of the land to which they are attached;" but the
immovability provided for is only one in abstracto and without
reference to rights on or to the crop acquired by other than the
owners of the property to which the crop was attached. The
immovability of a growing crop is in the order of things temporary, for
the crop passes from the state of a growing to that of a gathered one,
from an immovable to a movable. The existence of a right on the
growing crop is a mobilization by anticipation, a gathering as it were
in advance, rendering the crop movable quoad the right acquired
thereon. The provision of our Code is identical with the Napoleon
Code 520, and we may therefore obtain light by an examination of the
jurisprudence of France.

The rule above announced, not only by the Tribunal Supremo de

España but by the Supreme Court of Louisiana, is followed in practically
every state of the Union.

From an examination of the reports and codes of the State of California and
other states we find that the settle doctrine followed in said states in
connection with the attachment of property and execution of judgment is,
that growing crops raised by yearly labor and cultivation are considered
personal property. (6 Corpuz Juris, p. 197; 17 Corpus Juris, p. 379; 23
Corpus Juris, p. 329: Raventas vs. Green, 57 Cal., 254; Norris vs. Watson,
55 Am. Dec., 161; Whipple vs. Foot, 3 Am. Dec., 442; 1 Benjamin on
Sales, sec. 126; McKenzie vs. Lampley, 31 Ala., 526; Crine vs. Tifts and
Co., 65 Ga., 644; Gillitt vs. Truax, 27 Minn., 528; Preston vs. Ryan, 45
Mich., 174; Freeman on Execution, vol. 1, p. 438; Drake on Attachment,
sec. 249; Mechem on Sales, sec. 200 and 763.)

Mr. Mechem says that a valid sale may be made of a thing, which though
not yet actually in existence, is reasonably certain to come into existence
as the natural increment or usual incident of something already in
existence, and then belonging to the vendor, and then title will vest in the
buyer the moment the thing comes into existence. (Emerson vs. European
Railway Co., 67 Me., 387; Cutting vs. Packers Exchange, 21 Am. St. Rep.,
63.) Things of this nature are said to have a potential existence. A man
may sell property of which he is potentially and not actually possessed. He
may make a valid sale of the wine that a vineyard is expected to produce;
or the gain a field may grow in a given time; or the milk a cow may yield
during the coming year; or the wool that shall thereafter grow upon sheep;
or what may be taken at the next cast of a fisherman's net; or fruits to grow;
or young animals not yet in existence; or the good will of a trade and the
like. The thing sold, however, must be specific and identified. They must be
also owned at the time by the vendor. (Hull vs. Hull, 48 Conn., 250 [40 Am.
Rep., 165].)

It is contended on the part of the appellee that paragraph 2 of article 334 of

the Civil Code has been modified by section 450 of the Code of Civil
Procedure as well as by Act No. 1508, the Chattel Mortgage Law. Said
section 450 enumerates the property of a judgment debtor which may be
subjected to execution. The pertinent portion of said section reads as
follows: "All goods, chattels, moneys, and other property, both real and
personal, * * * shall be liable to execution. Said section 450 and most of the
other sections of the Code of Civil Procedure relating to the execution of
judgment were taken from the Code of Civil Procedure of California. The
Supreme Court of California, under section 688 of the Code of Civil
Procedure of that state (Pomeroy, p. 424) has held, without variation, that
growing crops were personal property and subject to execution.

Act No. 1508, the Chattel Mortgage Law, fully recognized that growing
crops are personal property. Section 2 of said Act provides: "All personal
property shall be subject to mortgage, agreeably to the provisions of this
Act, and a mortgage executed in pursuance thereof shall be termed a
chattel mortgage." Section 7 in part provides: "If growing crops be
mortgaged the mortgage may contain an agreement stipulating that the
mortgagor binds himself properly to tend, care for and protect the crop
while growing.

It is clear from the foregoing provisions that Act No. 1508 was enacted on
the assumption that "growing crops" are personal property. This
consideration tends to support the conclusion hereinbefore stated, that
paragraph 2 of article 334 of the Civil Code has been modified by section
450 of Act No. 190 and by Act No. 1508 in the sense that "ungathered
products" as mentioned in said article of the Civil Code have the nature of
personal property. In other words, the phrase "personal property" should be
understood to include "ungathered products."

At common law, and generally in the United States, all annual crops
which are raised by yearly manurance and labor, and essentially owe
their annual existence to cultivation by man, . may be levied on as
personal property." (23 C. J., p. 329.) On this question Freeman, in
his treatise on the Law of Executions, says: "Crops, whether growing
or standing in the field ready to be harvested, are, when produced by
annual cultivation, no part of the realty. They are, therefore, liable to
voluntary transfer as chattels. It is equally well settled that they may
be seized and sold under execution. (Freeman on Executions, vol. p.
438.)

We may, therefore, conclude that paragraph 2 of article 334 of the Civil

Code has been modified by section 450 of the Code of Civil Procedure and
by Act No. 1508, in the sense that, for the purpose of attachment and
execution, and for the purposes of the Chattel Mortgage Law, "ungathered
products" have the nature of personal property. The lower court, therefore,
committed no error in holding that the sugar cane in question was personal
property and, as such, was not subject to redemption.

All the other assignments of error made by the appellant, as above stated,
relate to questions of fact only. Before entering upon a discussion of said
assignments of error, we deem it opportune to take special notice of the
failure of the plaintiff to appear at the trial during the presentation of
evidence by the defendant. His absence from the trial and his failure to
cross-examine the defendant have lent considerable weight to the evidence
then presented for the defense.

Coming not to the ownership of parcels 1 and 2 described in the first cause
of action of the complaint, the plaintiff made a futile attempt to show that
said two parcels belonged to Agustin Cuyugan and were the identical
parcel 2 which was excluded from the attachment and sale of real property
of Sibal to Valdez on June 25, 1924, as stated above. A comparison of the
description of parcel 2 in the certificate of sale by the sheriff (Exhibit A) and
the description of parcels 1 and 2 of the complaint will readily show that
they are not the same.

The description of the parcels in the complaint is as follows:

 1. La caña dulce sembrada por los inquilinos del ejecutado Leon
Sibal 1.º en una parcela de terreno de la pertenencia del citado
ejecutado, situada en Libutad, Culubasa, Bamban, Tarlac, de unas
dos hectareas poco mas o menos de superficie.

2. La caña dulce sembrada por el inquilino del ejecutado Leon Sibal

1.º, Ilamado Alejandro Policarpio, en una parcela de terreno de la
pertenencia del ejecutado, situada en Dalayap, Culubasa, Bamban,
Tarlac de unas dos hectareas de superficie poco mas o menos." The
description of parcel 2 given in the certificate of sale (Exhibit A) is as
follows:

2a. Terreno palayero situado en Culubasa, Bamban, Tarlac, de

177,090 metros cuadrados de superficie, linda al N. con Canuto
Sibal, Esteban Lazatin and Alejandro Dayrit; al E. con Francisco
Dizon, Felipe Mañu and others; al S. con Alejandro Dayrit, Isidro
Santos and Melecio Mañu; y al O. con Alejandro Dayrit and Paulino
Vergara. Tax No. 2854, vador amillarado P4,200 pesos.

On the other hand the evidence for the defendant purported to show that
parcels 1 and 2 of the complaint were included among the parcels bought
by Valdez from Macondray on June 25, 1924, and corresponded to parcel
4 in the deed of sale (Exhibit B and 2), and were also included among the
parcels bought by Valdez at the auction of the real property of Leon Sibal
on June 25, 1924, and corresponded to parcel 3 in the certificate of sale
made by the sheriff (Exhibit A). The description of parcel 4 (Exhibit 2) and
parcel 3 (Exhibit A) is as follows:

Parcels No. 4. — Terreno palayero, ubicado en el barrio de

Culubasa,Bamban, Tarlac, I. F. de 145,000 metros cuadrados de
superficie, lindante al Norte con Road of the barrio of Culubasa that
goes to Concepcion; al Este con Juan Dizon; al Sur con Lucio Maño
y Canuto Sibal y al Oeste con Esteban Lazatin, su valor amillarado
asciende a la suma de P2,990. Tax No. 2856.

As will be noticed, there is hardly any relation between parcels 1 and 2 of

the complaint and parcel 4 (Exhibit 2 and B) and parcel 3 (Exhibit A). But,
inasmuch as the plaintiff did not care to appear at the trial when the
defendant offered his evidence, we are inclined to give more weight to the
evidence adduced by him that to the evidence adduced by the plaintiff, with
respect to the ownership of parcels 1 and 2 of the compliant. We, therefore,
conclude that parcels 1 and 2 of the complaint belong to the defendant,
having acquired the same from Macondray & Co. on June 25, 1924, and
from the plaintiff Leon Sibal on the same date.

It appears, however, that the plaintiff planted the palay in said parcels and
harvested therefrom 190 cavans. There being no evidence of bad faith on
his part, he is therefore entitled to one-half of the crop, or 95 cavans. He
should therefore be condemned to pay to the defendant for 95 cavans only,
at P3.40 a cavan, or the sum of P323, and not for the total of 190 cavans
as held by the lower court.

As to the ownership of parcel 7 of the complaint, the evidence shows that

said parcel corresponds to parcel 1 of the deed of sale of Macondray & Co,
to Valdez (Exhibit B and 2), and to parcel 4 in the certificate of sale to
Valdez of real property belonging to Sibal, executed by the sheriff as above
stated (Exhibit A). Valdez is therefore the absolute owner of said parcel,
having acquired the interest of both Macondray and Sibal in said parcel.

With reference to the parcel of land in Pacalcal, Tarlac, described in

paragraph 3 of the second cause of action, it appears from the testimony of
the plaintiff himself that said parcel corresponds to parcel 8 of the deed of
sale of Macondray to Valdez (Exhibit B and 2) and to parcel 10 in the deed
of sale executed by the sheriff in favor of Valdez (Exhibit A). Valdez is
therefore the absolute owner of said parcel, having acquired the interest of
both Macondray and Sibal therein.

In this connection the following facts are worthy of mention:

Execution in favor of Macondray & Co., May 11, 1923. Eight parcels of land
were attached under said execution. Said parcels of land were sold to
Macondray & Co. on the 30th day of July, 1923. Rice paid P4,273.93. On
September 24, 1923, Leon Sibal paid to Macondray & Co. P2,000 on the
redemption of said parcels of land. (See Exhibits B and C ).

Attachment, April 29, 1924, in favor of Valdez. Personal property of Sibal

was attached, including the sugar cane in question. (Exhibit A) The said
personal property so attached, sold at public auction May 9 and 10, 1924.
April 29, 1924, the real property was attached under the execution in favor
of Valdez (Exhibit A). June 25, 1924, said real property was sold and
purchased by Valdez (Exhibit A).
June 25, 1924, Macondray & Co. sold all of the land which they had
purchased at public auction on the 30th day of July, 1923, to Valdez.

As to the loss of the defendant in sugar cane by reason of the injunction,

the evidence shows that the sugar cane in question covered an area of 22
hectares and 60 ares (Exhibits 8, 8-b and 8-c); that said area would have
yielded an average crop of 1039 picos and 60 cates; that one-half of the
quantity, or 519 picos and 80 cates would have corresponded to the
defendant, as owner; that during the season the sugar was selling at P13 a
pico (Exhibit 5 and 5-A). Therefore, the defendant, as owner, would have
netted P 6,757.40 from the sugar cane in question. The evidence also
shows that the defendant could have taken from the sugar cane 1,017,000
sugar-cane shoots (puntas de cana) and not 1,170,000 as computed by the
lower court. During the season the shoots were selling at P1.20 a thousand
(Exhibits 6 and 7). The defendant therefore would have netted P1,220.40
from sugar-cane shoots and not P1,435.68 as allowed by the lower court.

As to the palay harvested by the plaintiff in parcels 1 and 2 of the

complaint, amounting to 190 cavans, one-half of said quantity should
belong to the plaintiff, as stated above, and the other half to the defendant.
The court erred in awarding the whole crop to the defendant. The plaintiff
should therefore pay the defendant for 95 cavans only, at P3.40 a cavan, or
P323 instead of P646 as allowed by the lower court.

The evidence also shows that the defendant was prevented by the acts of
the plaintiff from cultivating about 10 hectares of the land involved in the
litigation. He expected to have raised about 600 cavans of palay, 300
cavans of which would have corresponded to him as owner. The lower
court has wisely reduced his share to 150 cavans only. At P4 a cavan, the
palay would have netted him P600.

In view of the foregoing, the judgment appealed from is hereby modified.

The plaintiff and his sureties Cenon de la Cruz, Juan Sangalang and
Marcos Sibal are hereby ordered to pay to the defendant jointly and
severally the sum of P8,900.80, instead of P9,439.08 allowed by the lower
court, as follows:

P6,757.40 for the sugar cane;

1,220.40 for the sugar cane shoots;
 for the palay harvested by plaintiff in parcels 1 and
323.00
2;
600.00 for the palay which defendant could have raised.

8,900.80
============

In all other respects, the judgment appealed from is hereby affirmed, with
costs. So ordered.

G.R. No. 155076             February 27, 2006

LUIS MARCOS P. LAUREL, Petitioner,

vs.
HON. ZEUS C. ABROGAR, Presiding Judge of the Regional Trial
Court, Makati City, Branch 150, PEOPLE OF THE PHILIPPINES&
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Respondents.

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari of the Decision 1 of the Court
of Appeals (CA) in CA-G.R. SP No. 68841 affirming the Order issued by
Judge Zeus C. Abrogar, Regional Trial Court (RTC), Makati City, Branch
150, which denied the "Motion to Quash (With Motion to Defer
Arraignment)" in Criminal Case No. 99-2425 for theft.

Philippine Long Distance Telephone Company (PLDT) is the holder of a

legislative franchise to render local and international telecommunication
services under Republic Act No. 7082.2 Under said law, PLDT is authorized
to establish, operate, manage, lease, maintain and purchase
telecommunication systems, including transmitting, receiving and switching
stations, for both domestic and international calls. For this purpose, it has
installed an estimated 1.7 million telephone lines nationwide. PLDT also
offers other services as authorized by Certificates of Public Convenience
and Necessity (CPCN) duly issued by the National Telecommunications
Commission (NTC), and operates and maintains an International Gateway
Facility (IGF). The PLDT network is thus principally composed of the Public
Switch Telephone Network (PSTN), telephone handsets and/or
telecommunications equipment used by its subscribers, the wires and
cables linking said telephone handsets and/or telecommunications
equipment, antenna, the IGF, and other telecommunications equipment
which provide interconnections.3  1avvphil.net

PLDT alleges that one of the alternative calling patterns that constitute
network fraud and violate its network integrity is that which is known as
International Simple Resale (ISR). ISR is a method of routing and
completing international long distance calls using International Private
Leased Lines (IPL), cables, antenna or air wave or frequency, which
connect directly to the local or domestic exchange facilities of the
terminating country (the country where the call is destined). The IPL is
linked to switching equipment which is connected to a PLDT telephone
line/number. In the process, the calls bypass the IGF found at the
terminating country, or in some instances, even those from the originating
country.4

One such alternative calling service is that offered by Baynet Co., Ltd.
(Baynet) which sells "Bay Super Orient Card" phone cards to people who
call their friends and relatives in the Philippines. With said card, one is
entitled to a 27-minute call to the Philippines for about ¥37.03 per minute.
After dialing the ISR access number indicated in the phone card, the ISR
operator requests the subscriber to give the PIN number also indicated in
the phone card. Once the caller’s identity (as purchaser of the phone card)
is confirmed, the ISR operator will then provide a Philippine local line to the
requesting caller via the IPL. According to PLDT, calls made through the
IPL never pass the toll center of IGF operators in the Philippines. Using the
local line, the Baynet card user is able to place a call to any point in the
Philippines, provided the local line is National Direct Dial (NDD) capable. 5

PLDT asserts that Baynet conducts its ISR activities by utilizing an IPL to
course its incoming international long distance calls from Japan. The IPL is
linked to switching equipment, which is then connected to PLDT telephone
lines/numbers and equipment, with Baynet as subscriber. Through the use
of the telephone lines and other auxiliary equipment, Baynet is able to
connect an international long distance call from Japan to any part of the
Philippines, and make it appear as a call originating from Metro Manila.
Consequently, the operator of an ISR is able to evade payment of access,
termination or bypass charges and accounting rates, as well as compliance
with the regulatory requirements of the NTC. Thus, the ISR operator offers
international telecommunication services at a lower rate, to the damage
and prejudice of legitimate operators like PLDT. 6

PLDT pointed out that Baynet utilized the following equipment for its ISR
activities: lines, cables, and antennas or equipment or device capable of
transmitting air waves or frequency, such as an IPL and telephone lines
and equipment; computers or any equipment or device capable of
accepting information applying the prescribed process of the information
and supplying the result of this process; modems or any equipment or
device that enables a data terminal equipment such as computers to
communicate with other data terminal equipment via a telephone line;
multiplexers or any equipment or device that enables two or more signals
from different sources to pass through a common cable or transmission
line; switching equipment, or equipment or device capable of connecting
telephone lines; and software, diskettes, tapes or equipment or device used
for recording and storing information.7

PLDT also discovered that Baynet subscribed to a total of 123 PLDT

telephone lines/numbers.8 Based on the Traffic Study conducted on the
volume of calls passing through Baynet’s ISR network which bypass the
IGF toll center, PLDT incurred an estimated monthly loss of
P10,185,325.96.9 Records at the Securities and Exchange Commission
(SEC) also revealed that Baynet was not authorized to provide international
or domestic long distance telephone service in the country. The following
are its officers: Yuji Hijioka, a Japanese national (chairman of the board of
directors); Gina C. Mukaida, a Filipina (board member and president); Luis
Marcos P. Laurel, a Filipino (board member and corporate secretary); Ricky
Chan Pe, a Filipino (board member and treasurer); and Yasushi Ueshima,
also a Japanese national (board member).

Upon complaint of PLDT against Baynet for network fraud, and on the
strength of two search warrants10 issued by the RTC of Makati, Branch 147,
National Bureau of Investigation (NBI) agents searched its office at the 7th
Floor, SJG Building, Kalayaan Avenue, Makati City on November 8, 1999.
Atsushi Matsuura, Nobuyoshi Miyake, Edourd D. Lacson and Rolando J.
Villegas were arrested by NBI agents while in the act of manning the
operations of Baynet. Seized in the premises during the search were
numerous equipment and devices used in its ISR activities, such as
multiplexers, modems, computer monitors, CPUs, antenna, assorted
computer peripheral cords and microprocessors, cables/wires, assorted
PLDT statement of accounts, parabolic antennae and voltage regulators.

State Prosecutor Ofelia L. Calo conducted an inquest investigation and

issued a Resolution11 on January 28, 2000, finding probable cause for theft
under Article 308 of the Revised Penal Code and Presidential Decree No.
40112 against the respondents therein, including Laurel.

On February 8, 2000, State Prosecutor Calo filed an Information with the

RTC of Makati City charging Matsuura, Miyake, Lacson and Villegas with
theft under Article 308 of the Revised Penal Code. After conducting the
requisite preliminary investigation, the State Prosecutor filed an Amended
Information impleading Laurel (a partner in the law firm of Ingles, Laurel,
Salinas, and, until November 19, 1999, a member of the board of directors
and corporate secretary of Baynet), and the other members of the board of
directors of said corporation, namely, Yuji Hijioka, Yasushi Ueshima,
Mukaida, Lacson and Villegas, as accused for theft under Article 308 of the
Revised Penal Code. The inculpatory portion of the Amended Information
reads:

On or about September 10-19, 1999, or prior thereto, in Makati City, and

within the jurisdiction of this Honorable Court, the accused, conspiring and
confederating together and all of them mutually helping and aiding one
another, with intent to gain and without the knowledge and consent of the
Philippine Long Distance Telephone (PLDT), did then and there willfully,
unlawfully and feloniously take, steal and use the international long
distance calls belonging to PLDT by conducting International Simple
Resale (ISR), which is a method of routing and completing international
long distance calls using lines, cables, antennae, and/or air wave frequency
which connect directly to the local or domestic exchange facilities of the
country where the call is destined, effectively stealing this business from
PLDT while using its facilities in the estimated amount of P20,370,651.92 to
the damage and prejudice of PLDT, in the said amount.

CONTRARY TO LAW.13

Accused Laurel filed a "Motion to Quash (with Motion to Defer

Arraignment)" on the ground that the factual allegations in the Amended
Information do not constitute the felony of theft under Article 308 of the
Revised Penal Code. He averred that the Revised Penal Code, or any
other special penal law for that matter, does not prohibit ISR operations. He
claimed that telephone calls with the use of PLDT telephone lines, whether
domestic or international, belong to the persons making the call, not to
PLDT. He argued that the caller merely uses the facilities of PLDT, and
what the latter owns are the telecommunication infrastructures or facilities
through which the call is made. He also asserted that PLDT is
compensated for the caller’s use of its facilities by way of rental; for an
outgoing overseas call, PLDT charges the caller per minute, based on the
duration of the call. Thus, no personal property was stolen from PLDT.
According to Laurel, the P20,370,651.92 stated in the Information, if
anything, represents the rental for the use of PLDT facilities, and not the
value of anything owned by it. Finally, he averred that the allegations in the
Amended Information are already subsumed under the Information for
violation of Presidential Decree (P.D.) No. 401 filed and pending in the
Metropolitan Trial Court of Makati City, docketed as Criminal Case No.
276766.

The prosecution, through private complainant PLDT, opposed the

motion,14 contending that the movant unlawfully took personal property
belonging to it, as follows: 1) intangible telephone services that are being
offered by PLDT and other telecommunication companies, i.e., the
connection and interconnection to their telephone lines/facilities; 2) the use
of those facilities over a period of time; and 3) the revenues derived in
connection with the rendition of such services and the use of such
facilities.15

The prosecution asserted that the use of PLDT’s intangible telephone

services/facilities allows electronic voice signals to pass through the same,
and ultimately to the called party’s number. It averred that such
service/facility is akin to electricity which, although an intangible property,
may, nevertheless, be appropriated and be the subject of theft. Such
service over a period of time for a consideration is the business that PLDT
provides to its customers, which enables the latter to send various
messages to installed recipients. The service rendered by PLDT is akin to
merchandise which has specific value, and therefore, capable of
appropriation by another, as in this case, through the ISR operations
conducted by the movant and his co-accused.
The prosecution further alleged that "international business calls and
revenues constitute personal property envisaged in Article 308 of the
Revised Penal Code." Moreover, the intangible telephone services/facilities
belong to PLDT and not to the movant and the other accused, because
they have no telephone services and facilities of their own duly authorized
by the NTC; thus, the taking by the movant and his co-accused of PLDT
services was with intent to gain and without the latter’s consent.

The prosecution pointed out that the accused, as well as the movant, were
paid in exchange for their illegal appropriation and use of PLDT’s telephone
services and facilities; on the other hand, the accused did not pay a single
centavo for their illegal ISR operations. Thus, the acts of the accused were
akin to the use of a "jumper" by a consumer to deflect the current from the
house electric meter, thereby enabling one to steal electricity. The
prosecution emphasized that its position is fortified by the Resolutions of
the Department of Justice in PLDT v. Tiongson, et al. (I.S. No. 97-0925)
and in PAOCTF-PLDT v. Elton John Tuason, et al. (I.S. No. 2000-370)
which were issued on August 14, 2000 finding probable cause for theft
against the respondents therein.

On September 14, 2001, the RTC issued an Order 16 denying the Motion to
Quash the Amended Information. The court declared that, although there is
no law that expressly prohibits the use of ISR, the facts alleged in the
Amended Information "will show how the alleged crime was committed by
conducting ISR," to the damage and prejudice of PLDT.

Laurel filed a Motion for Reconsideration17 of the Order, alleging that

international long distance calls are not personal property, and are not
capable of appropriation. He maintained that business or revenue is not
considered personal property, and that the prosecution failed to adduce
proof of its existence and the subsequent loss of personal property
belonging to another. Citing the ruling of the Court in United States v. De
Guzman,18 Laurel averred that the case is not one with telephone calls
which originate with a particular caller and terminates with the called party.
He insisted that telephone calls are considered privileged communications
under the Constitution and cannot be considered as "the property of
PLDT." He further argued that there is no kinship between telephone calls
and electricity or gas, as the latter are forms of energy which are generated
and consumable, and may be considered as personal property because of
such characteristic. On the other hand, the movant argued, the telephone
business is not a form of energy but is an activity.

In its Order19 dated December 11, 2001, the RTC denied the movant’s
Motion for Reconsideration. This time, it ruled that what was stolen from
PLDT was its "business" because, as alleged in the Amended Information,
the international long distance calls made through the facilities of PLDT
formed part of its business. The RTC noted that the movant was charged
with stealing the business of PLDT. To support its ruling, it cited
Strochecker v. Ramirez,20 where the Court ruled that interest in business is
personal property capable of appropriation. It further declared that, through
their ISR operations, the movant and his co-accused deprived PLDT of
fees for international long distance calls, and that the ISR used by the
movant and his co-accused was no different from the "jumper" used for
stealing electricity.

Laurel then filed a Petition for Certiorari with the CA, assailing the Order of
the RTC. He alleged that the respondent judge gravely abused his
discretion in denying his Motion to Quash the Amended Information. 21 As
gleaned from the material averments of the amended information, he was
charged with stealing the international long distance calls belonging to
PLDT, not its business. Moreover, the RTC failed to distinguish between
the business of PLDT (providing services for international long distance
calls) and the revenues derived therefrom. He opined that a "business" or
its revenues cannot be considered as personal property under Article 308
of the Revised Penal Code, since a "business" is "(1) a commercial or
mercantile activity customarily engaged in as a means of livelihood and
typically involving some independence of judgment and power of decision;
(2) a commercial or industrial enterprise; and (3) refers to transactions,
dealings or intercourse of any nature." On the other hand, the term
"revenue" is defined as "the income that comes back from an investment
(as in real or personal property); the annual or periodical rents, profits,
interests, or issues of any species of real or personal property." 22

Laurel further posited that an electric company’s business is the production

and distribution of electricity; a gas company’s business is the production
and/or distribution of gas (as fuel); while a water company’s business is the
production and distribution of potable water. He argued that the "business"
in all these cases is the commercial activity, while the goods and
merchandise are the products of such activity. Thus, in prosecutions for
theft of certain forms of energy, it is the electricity or gas which is alleged to
be stolen and not the "business" of providing electricity or gas. However,
since a telephone company does not produce any energy, goods or
merchandise and merely renders a service or, in the words of PLDT, "the
connection and interconnection to their telephone lines/facilities," such
service cannot be the subject of theft as defined in Article 308 of the
Revised Penal Code.23

He further declared that to categorize "business" as personal property

under Article 308 of the Revised Penal Code would lead to absurd
consequences; in prosecutions for theft of gas, electricity or water, it would
then be permissible to allege in the Information that it is the gas business,
the electric business or the water business which has been stolen, and no
longer the merchandise produced by such enterprise. 24

Laurel further cited the Resolution of the Secretary of Justice in Piltel v.

Mendoza,25 where it was ruled that the Revised Penal Code, legislated as it
was before present technological advances were even conceived, is not
adequate to address the novel means of "stealing" airwaves or airtime. In
said resolution, it was noted that the inadequacy prompted the filing of
Senate Bill 2379 (sic) entitled "The Anti-Telecommunications Fraud of
1997" to deter cloning of cellular phones and other forms of
communications fraud. The said bill "aims to protect in number (ESN) (sic)
or Capcode, mobile identification number (MIN), electronic-international
mobile equipment identity (EMEI/IMEI), or subscriber identity module" and
"any attempt to duplicate the data on another cellular phone without the
consent of a public telecommunications entity would be punishable by
law."26 Thus, Laurel concluded, "there is no crime if there is no law
punishing the crime."

On August 30, 2002, the CA rendered judgment dismissing the

petition.27 The appellate court ruled that a petition for certiorari under Rule
65 of the Rules of Court was not the proper remedy of the petitioner. On
the merits of the petition, it held that while business is generally an activity

which is abstract and intangible in form, it is nevertheless considered

"property" under Article 308 of the Revised Penal Code. The CA opined
that PLDT’s business of providing international calls is personal property
which may be the object of theft, and cited United States v. Carlos 28 to
support such conclusion. The tribunal also cited Strochecker v.
Ramirez,29 where this Court ruled that one-half interest in a day’s business
is personal property under Section 2 of Act No. 3952, otherwise known as
the Bulk Sales Law. The appellate court held that the operations of the ISR
are not subsumed in the charge for violation of P.D. No. 401.

Laurel, now the petitioner, assails the decision of the CA, contending that -

THE COURT OF APPEALS ERRED IN RULING THAT THE

PERSONAL PROPERTY ALLEGEDLY STOLEN PER THE
INFORMATION IS NOT THE "INTERNATIONAL LONG DISTANCE
CALLS" BUT THE "BUSINESS OF PLDT."

THE COURT OF APPEALS ERRED IN RULING THAT THE TERM

"BUSINESS" IS PERSONAL PROPERTY WITHIN THE MEANING
OF ART. 308 OF THE REVISED PENAL CODE.30

Petitioner avers that the petition for a writ of certiorari may be filed to nullify
an interlocutory order of the trial court which was issued with grave abuse
of discretion amounting to excess or lack of jurisdiction. In support of his
petition before the Court, he reiterates the arguments in his pleadings filed
before the CA. He further claims that while the right to carry on a business
or an interest or participation in business is considered property under the
New Civil Code, the term "business," however, is not. He asserts that the
Philippine Legislature, which approved the Revised Penal Code way back
in January 1, 1932, could not have contemplated to include international
long distance calls and "business" as personal property under Article 308
thereof.

In its comment on the petition, the Office of the Solicitor General (OSG)
maintains that the amended information clearly states all the essential
elements of the crime of theft. Petitioner’s interpretation as to whether an
"international long distance call" is personal property under the law is
inconsequential, as a reading of the amended information readily reveals
that specific acts and circumstances were alleged charging Baynet, through
its officers, including petitioner, of feloniously taking, stealing and illegally
using international long distance calls belonging to respondent PLDT by
conducting ISR operations, thus, "routing and completing international long
distance calls using lines, cables, antenna and/or airwave frequency which
connect directly to the local or domestic exchange facilities of the country
where the call is destined." The OSG maintains that the international long
distance calls alleged in the amended information should be construed to
mean "business" of PLDT, which, while abstract and intangible in form, is
personal property susceptible of appropriation. 31 The OSG avers that what
was stolen by petitioner and his co-accused is the business of PLDT
providing international long distance calls which, though intangible, is
personal property of the PLDT.32

For its part, respondent PLDT asserts that personal property under Article
308 of the Revised Penal Code comprehends intangible property such as
electricity and gas which are valuable articles for merchandise, brought and
sold like other personal property, and are capable of appropriation. It insists
that the business of international calls and revenues constitute personal
property because the same are valuable articles of merchandise. The
respondent reiterates that international calls involve (a) the intangible
telephone services that are being offered by it, that is, the connection and
interconnection to the telephone network, lines or facilities; (b) the use of its
telephone network, lines or facilities over a period of time; and (c) the
income derived in connection therewith.33

PLDT further posits that business revenues or the income derived in

connection with the rendition of such services and the use of its telephone
network, lines or facilities are personal properties under Article 308 of the
Revised Penal Code; so is the use of said telephone services/telephone
network, lines or facilities which allow electronic voice signals to pass
through the same and ultimately to the called party’s number. It is akin to
electricity which, though intangible property, may nevertheless be
appropriated and can be the object of theft. The use of respondent PLDT’s
telephone network, lines, or facilities over a period of time for consideration
is the business that it provides to its customers, which enables the latter to
send various messages to intended recipients. Such use over a period of
time is akin to merchandise which has value and, therefore, can be
appropriated by another. According to respondent PLDT, this is what
actually happened when petitioner Laurel and the other accused below
conducted illegal ISR operations.34

The petition is meritorious.

The issues for resolution are as follows: (a) whether or not the petition for
certiorari is the proper remedy of the petitioner in the Court of Appeals; (b)
whether or not international telephone calls using Bay Super Orient Cards
through the telecommunication services provided by PLDT for such calls,
or, in short, PLDT’s business of providing said telecommunication services,
are proper subjects of theft under Article 308 of the Revised Penal Code;
and (c) whether or not the trial court committed grave abuse of discretion
amounting to excess or lack of jurisdiction in denying the motion of the
petitioner to quash the amended information.

On the issue of whether or not the petition for certiorari instituted by the
petitioner in the CA is proper, the general rule is that a petition for certiorari
under Rule 65 of the Rules of Court, as amended, to nullify an order
denying a motion to quash the Information is inappropriate because the
aggrieved party has a remedy of appeal in the ordinary course of law.
Appeal and certiorari are mutually exclusive of each other. The remedy of
the aggrieved party is to continue with the case in due course and, when an
unfavorable judgment is rendered, assail the order and the decision on
appeal. However, if the trial court issues the order denying the motion to
quash the Amended Information with grave abuse of discretion amounting
to excess or lack of jurisdiction, or if such order is patently erroneous, or
null and void for being contrary to the Constitution, and the remedy of
appeal would not afford adequate and expeditious relief, the accused may
resort to the extraordinary remedy of certiorari. 35 A special civil action for
certiorari is also available where there are special circumstances clearly
demonstrating the inadequacy of an appeal. As this Court held in Bristol
Myers Squibb (Phils.), Inc. v. Viloria:36

Nonetheless, the settled rule is that a writ of certiorari may be granted in

cases where, despite availability of appeal after trial, there is at least a
prima facie showing on the face of the petition and its annexes that: (a) the
trial court issued the order with grave abuse of discretion amounting to lack
of or in excess of jurisdiction; (b) appeal would not prove to be a speedy
and adequate remedy; (c) where the order is a patent nullity; (d) the
decision in the present case will arrest future litigations; and (e) for certain
considerations such as public welfare and public policy. 37

In his petition for certiorari in the CA, petitioner averred that the trial court
committed grave abuse of its discretion amounting to excess or lack of
jurisdiction when it denied his motion to quash the Amended Information
despite his claim that the material allegations in the Amended Information
do not charge theft under Article 308 of the Revised Penal Code, or any
offense for that matter. By so doing, the trial court deprived him of his
constitutional right to be informed of the nature of the charge against him.
He further averred that the order of the trial court is contrary to the
constitution and is, thus, null and void. He insists that he should not be
compelled to undergo the rigors and tribulations of a protracted trial and
incur expenses to defend himself against a non-existent charge.

Petitioner is correct.

An information or complaint must state explicitly and directly every act or

omission constituting an offense38 and must allege facts establishing
conduct that a penal statute makes criminal; 39 and describes the property
which is the subject of theft to advise the accused with reasonable certainty
of the accusation he is called upon to meet at the trial and to enable him to
rely on the judgment thereunder of a subsequent prosecution for the same
offense.40 It must show, on its face, that if the alleged facts are true, an
offense has been committed. The rule is rooted on the constitutional right of
the accused to be informed of the nature of the crime or cause of the
accusation against him. He cannot be convicted of an offense even if
proven unless it is alleged or necessarily included in the Information filed
against him.

As a general prerequisite, a motion to quash on the ground that the

Information does not constitute the offense charged, or any offense for that
matter, should be resolved on the basis of said allegations whose truth and
veracity are hypothetically committed;41 and on additional facts admitted or
not denied by the prosecution.42 If the facts alleged in the Information do not
constitute an offense, the complaint or information should be quashed by
the court.43

We have reviewed the Amended Information and find that, as mentioned by

the petitioner, it does not contain material allegations charging the
petitioner of theft of personal property under Article 308 of the Revised
Penal Code. It, thus, behooved the trial court to quash the Amended
Information. The Order of the trial court denying the motion of the petitioner
to quash the Amended Information is a patent nullity.

On the second issue, we find and so hold that the international telephone
calls placed by Bay Super Orient Card holders, the telecommunication
services provided by PLDT and its business of providing said services are
not personal properties under Article 308 of the Revised Penal Code. The
construction by the respondents of Article 308 of the said Code to include,
within its coverage, the aforesaid international telephone calls,
telecommunication services and business is contrary to the letter and intent
of the law.

The rule is that, penal laws are to be construed strictly. Such rule is
founded on the tenderness of the law for the rights of individuals and on the
plain principle that the power of punishment is vested in Congress, not in
the judicial department. It is Congress, not the Court, which is to define a
crime, and ordain its punishment.44 Due respect for the prerogative of
Congress in defining crimes/felonies constrains the Court to refrain from a
broad interpretation of penal laws where a "narrow interpretation" is
appropriate. The Court must take heed to language, legislative history and
purpose, in order to strictly determine the wrath and breath of the conduct
the law forbids.45 However, when the congressional purpose is unclear, the
court must apply the rule of lenity, that is, ambiguity concerning the ambit of
criminal statutes should be resolved in favor of lenity. 46

Penal statutes may not be enlarged by implication or intent beyond the fair
meaning of the language used; and may not be held to include offenses
other than those which are clearly described, notwithstanding that the Court
may think that Congress should have made them more
comprehensive.47 Words and phrases in a statute are to be construed
according to their common meaning and accepted usage.

As Chief Justice John Marshall declared, "it would be dangerous, indeed, to

carry the principle that a case which is within the reason or

mischief of a statute is within its provision, so far as to punish a crime not

enumerated in the statute because it is of equal atrocity, or of kindred
character with those which are enumerated.48 When interpreting a criminal
statute that does not explicitly reach the conduct in question, the Court
should not base an expansive reading on inferences from subjective and
variable understanding.49

Article 308 of the Revised Penal Code defines theft as follows:

Art. 308. Who are liable for theft.– Theft is committed by any person who,
with intent to gain but without violence, against or intimidation of persons
nor force upon things, shall take personal property of another without the
latter’s consent.
The provision was taken from Article 530 of the Spanish Penal Code which
reads:

1. Los que con ánimo de lucrarse, y sin violencia o intimidación en las

personas ni fuerza en las cosas, toman las cosas muebles ajenas sin la
voluntad de su dueño.50

For one to be guilty of theft, the accused must have an intent to steal
(animus furandi) personal property, meaning the intent to deprive another
of his ownership/lawful possession of personal property which intent is
apart from and concurrently with the general criminal intent which is an
essential element of a felony of dolo (dolus malus).

An information or complaint for simple theft must allege the following

elements: (a) the taking of personal property; (b) the said property belongs
to another; (c) the taking be done with intent to gain; and (d) the taking be
accomplished without the use of violence or intimidation of person/s or
force upon things.51

One is apt to conclude that "personal property" standing alone, covers both
tangible and intangible properties and are subject of theft under the
Revised Penal Code. But the words "Personal property" under the Revised
Penal Code must be considered in tandem with the word "take" in the law.
The statutory definition of "taking" and movable property indicates that,
clearly, not all personal properties may be the proper subjects of theft. The
general rule is that, only movable properties which have physical or
material existence and susceptible of occupation by another are proper
objects of theft.52 As explained by Cuelo Callon: "Cosa juridicamente es
toda sustancia corporal, material, susceptible de ser aprehendida que
tenga un valor cualquiera."53

According to Cuello Callon, in the context of the Penal Code, only those
movable properties which can be taken and carried from the place they are
found are proper subjects of theft. Intangible properties such as rights and
ideas are not subject of theft because the same cannot be "taken" from the
place it is found and is occupied or appropriated.

Solamente las cosas muebles y corporales pueden ser objeto de hurto. La

sustracción de cosas inmuebles y la cosas incorporales (v. gr., los
derechos, las ideas) no puede integrar este delito, pues no es posible
asirlas, tomarlas, para conseguir su apropiación. El Codigo emplea la
expresión "cosas mueble" en el sentido de cosa que es susceptible de ser
llevada del lugar donde se encuentra, como dinero, joyas, ropas, etcétera,
asi que su concepto no coincide por completo con el formulado por el
Codigo civil (arts. 335 y 336).54

Thus, movable properties under Article 308 of the Revised Penal Code
should be distinguished from the rights or interests to which they relate. A
naked right existing merely in contemplation of law, although it may be very
valuable to the person who is entitled to exercise it, is not the subject of
theft or larceny.55 Such rights or interests are intangible and cannot be
"taken" by another. Thus, right to produce oil, good will or an interest in
business, or the right to engage in business, credit or franchise are
properties. So is the credit line represented by a credit card. However, they
are not proper subjects of theft or larceny because they are without form or
substance, the mere "breath" of the Congress. On the other hand, goods,
wares and merchandise of businessmen and credit cards issued to them
are movable properties with physical and material existence and may be
taken by another; hence, proper subjects of theft.

There is "taking" of personal property, and theft is consummated when the

offender unlawfully acquires possession of personal property even if for a
short time; or if such property is under the dominion and control of the thief.
The taker, at some particular amount, must have obtained complete and
absolute possession and control of the property adverse to the rights of the
owner or the lawful possessor thereof.56 It is not necessary that the property
be actually carried away out of the physical possession of the lawful
possessor or that he should have made his escape with it. 57 Neither
asportation nor actual manual possession of property is required.
Constructive possession of the thief of the property is enough. 58

The essence of the element is the taking of a thing out of the possession of
the owner without his privity and consent and without animus revertendi. 59

Taking may be by the offender’s own hands, by his use of innocent persons
without any felonious intent, as well as any mechanical device, such as an
access device or card, or any agency, animate or inanimate, with intent to
gain. Intent to gain includes the unlawful taking of personal property for the
purpose of deriving utility, satisfaction, enjoyment and pleasure. 60
We agree with the contention of the respondents that intangible properties
such as electrical energy and gas are proper subjects of theft. The reason
for this is that, as explained by this Court in United States v. Carlos 61 and
United States v. Tambunting,62 based on decisions of the Supreme Court of
Spain and of the courts in England and the United States of America, gas
or electricity are capable of appropriation by another other than the owner.
Gas and electrical energy may be taken, carried away and appropriated. In
People v. Menagas,63 the Illinois State Supreme Court declared that
electricity, like gas, may be seen and felt. Electricity, the same as gas, is a
valuable article of merchandise, bought and sold like other personal
property and is capable of appropriation by another. It is a valuable article
of merchandise, bought and sold like other personal property, susceptible
of being severed from a mass or larger quantity and of being transported
from place to place. Electrical energy may, likewise, be taken and carried
away. It is a valuable commodity, bought and sold like other personal
property. It may be transported from place to place. There is nothing in the
nature of gas used for illuminating purposes which renders it incapable of
being feloniously taken and carried away.

In People ex rel Brush Electric Illuminating Co. v. Wemple, 64 the Court of

Appeals of New York held that electric energy is manufactured and sold in
determinate quantities at a fixed price, precisely as are coal, kerosene oil,
and gas. It may be conveyed to the premises of the consumer, stored in
cells of different capacity known as an accumulator; or it may be sent
through a wire, just as gas or oil may be transported either in a close tank
or forced through a pipe. Having reached the premises of the consumer, it
may be used in any way he may desire, being, like illuminating gas,
capable of being transformed either into heat, light, or power, at the option
of the purchaser. In Woods v. People,65 the Supreme Court of Illinois
declared that there is nothing in the nature of gas used for illuminating
purposes which renders it incapable of being feloniously taken and carried
away. It is a valuable article of merchandise, bought and sold like other
personal property, susceptible of being severed from a mass or larger
quantity and of being transported from place to place.

Gas and electrical energy should not be equated with business or services
provided by business entrepreneurs to the public. Business does not have
an exact definition. Business is referred as that which occupies the time,
attention and labor of men for the purpose of livelihood or profit. It
embraces everything that which a person can be employed. 66 Business
may also mean employment, occupation or profession. Business is also
defined as a commercial activity for gain benefit or advantage. 67 Business,
like services in business, although are properties, are not proper subjects
of theft under the Revised Penal Code because the same cannot be
"taken" or "occupied." If it were otherwise, as claimed by the respondents,
there would be no juridical difference between the taking of the business of
a person or the services provided by him for gain, vis-à-vis, the taking of
goods, wares or merchandise, or equipment comprising his business. 68 If it
was its intention to include "business" as personal property under Article
308 of the Revised Penal Code, the Philippine Legislature should have
spoken in language that is clear and definite: that business is personal
property under Article 308 of the Revised Penal Code. 69

We agree with the contention of the petitioner that, as gleaned from the
material averments of the Amended Information, he is charged of "stealing
the international long distance calls belonging to PLDT" and the use
thereof, through the ISR. Contrary to the claims of the OSG and
respondent PLDT, the petitioner is not charged of stealing P20,370,651.95
from said respondent. Said amount of P20,370,651.95 alleged in the
Amended Information is the aggregate amount of access, transmission or
termination charges which the PLDT expected from the international long
distance calls of the callers with the use of Baynet Super Orient Cards sold
by Baynet Co. Ltd.

In defining theft, under Article 308 of the Revised Penal Code, as the taking
of personal property without the consent of the owner thereof, the
Philippine legislature could not have contemplated the human voice which
is converted into electronic impulses or electrical current which are
transmitted to the party called through the PSTN of respondent PLDT and
the ISR of Baynet Card Ltd. within its coverage. When the Revised Penal
Code was approved, on December 8, 1930, international telephone calls
and the transmission and routing of electronic voice signals or impulses
emanating from said calls, through the PSTN, IPL and ISR, were still non-
existent. Case law is that, where a legislative history fails to evidence
congressional awareness of the scope of the statute claimed by the
respondents, a narrow interpretation of the law is more consistent with the
usual approach to the construction of the statute. Penal responsibility
cannot be extended beyond the fair scope of the statutory mandate. 70
Respondent PLDT does not acquire possession, much less, ownership of
the voices of the telephone callers or of the electronic voice signals or
current emanating from said calls. The human voice and the electronic
voice signals or current caused thereby are intangible and not susceptible
of possession, occupation or appropriation by the respondent PLDT or
even the petitioner, for that matter. PLDT merely transmits the electronic
voice signals through its facilities and equipment. Baynet Card Ltd., through
its operator, merely intercepts, reroutes the calls and passes them to its toll
center. Indeed, the parties called receive the telephone calls from Japan.

In this modern age of technology, telecommunications systems have

become so tightly merged with computer systems that it is difficult to know
where one starts and the other finishes. The telephone set is highly
computerized and allows computers to communicate across long
distances.71 The instrumentality at issue in this case is not merely a
telephone but a telephone inexplicably linked to a computerized
communications system with the use of Baynet Cards sold by the Baynet
Card Ltd. The corporation uses computers, modems and software, among
others, for its ISR.72

The conduct complained of by respondent PLDT is reminiscent of

"phreaking" (a slang term for the action of making a telephone system to do
something that it normally should not allow by "making the phone company
bend over and grab its ankles"). A "phreaker" is one who engages in the
act of manipulating phones and illegally markets telephone
services.73 Unless the phone company replaces all its hardware, phreaking
would be impossible to stop. The phone companies in North America were
impelled to replace all their hardware and adopted full digital switching
system known as the Common Channel Inter Office Signaling. Phreaking
occurred only during the 1960’s and 1970’s, decades after the Revised
Penal Code took effect.

The petitioner is not charged, under the Amended Information, for theft of
telecommunication or telephone services offered by PLDT. Even if he is,
the term "personal property" under Article 308 of the Revised Penal Code
cannot be interpreted beyond its seams so as to include
"telecommunication or telephone services" or computer services for that
matter. The word "service" has a variety of meanings dependent upon the
context, or the sense in which it is used; and, in some instances, it may
include a sale. For instance, the sale of food by restaurants is usually
referred to as "service," although an actual sale is involved. 74 It may also
mean the duty or labor to be rendered by one person to another;
performance of labor for the benefit of another. 75 In the case of PLDT, it is
to render local and international telecommunications services and such
other services as authorized by the CPCA issued by the NTC. Even at
common law, neither time nor services may be taken and occupied or
appropriated.76 A service is generally not considered property and a theft of
service would not, therefore, constitute theft since there can be no caption
or asportation.77 Neither is the unauthorized use of the equipment and
facilities of PLDT by the petitioner theft under the aforequoted provision of
the Revised Penal Code.78

If it was the intent of the Philippine Legislature, in 1930, to include services

to be the subject of theft, it should have incorporated the same in Article
308 of the Revised Penal Code. The Legislature did not. In fact, the
Revised Penal Code does not even contain a definition of services.

If taking of telecommunication services or the business of a person, is to be

proscribed, it must be by special statute79 or an amendment of the Revised
Penal Code. Several states in the United States, such as New York, New
Jersey, California and Virginia, realized that their criminal statutes did not
contain any provisions penalizing the theft of services and passed laws
defining and penalizing theft of telephone and computer services. The
Pennsylvania Criminal Statute now penalizes theft of services, thus:

(a) Acquisition of services. --

(1) A person is guilty of theft if he intentionally obtains services for himself

or for another which he knows are available only for compensation, by
deception or threat, by altering or tampering with the public utility meter or
measuring device by which such services are delivered or by causing or
permitting such altering or tampering, by making or maintaining any
unauthorized connection, whether physically, electrically or inductively, to a
distribution or transmission line, by attaching or maintaining the attachment
of any unauthorized device to any cable, wire or other component of an
electric, telephone or cable television system or to a television receiving set
connected to a cable television system, by making or maintaining any
unauthorized modification or alteration to any device installed by a cable
television system, or by false token or other trick or artifice to avoid
payment for the service.
In the State of Illinois in the United States of America, theft of labor or
services or use of property is penalized:

(a) A person commits theft when he obtains the temporary use of property,
labor or services of another which are available only for hire, by means of
threat or deception or knowing that such use is without the consent of the
person providing the property, labor or services.

In 1980, the drafters of the Model Penal Code in the United States of
America arrived at the conclusion that labor and services, including
professional services, have not been included within the traditional scope of
the term "property" in ordinary theft statutes. Hence, they decided to
incorporate in the Code Section 223.7, which defines and penalizes theft of
services, thus:

(1) A person is guilty of theft if he purposely obtains services which he

knows are available only for compensation, by deception or threat, or by
false token or other means to avoid payment for the service. "Services"
include labor, professional service, transportation, telephone or other public
service, accommodation in hotels, restaurants or elsewhere, admission to
exhibitions, use of vehicles or other movable property. Where
compensation for service is ordinarily paid immediately upon the rendering
of such service, as in the case of hotels and restaurants, refusal to pay or
absconding without payment or offer to pay gives rise to a presumption that
the service was obtained by deception as to intention to pay; (2) A person
commits theft if, having control over the disposition of services of others, to
which he is not entitled, he knowingly diverts such services to his own
benefit or to the benefit of another not entitled thereto.

Interestingly, after the State Supreme Court of Virginia promulgated its

decision in Lund v. Commonwealth,80 declaring that neither time nor
services may be taken and carried away and are not proper subjects of
larceny, the General Assembly of Virginia enacted Code No. 18-2-98 which
reads:

Computer time or services or data processing services or information or

data stored in connection therewith is hereby defined to be property which
may be the subject of larceny under § § 18.2-95 or 18.2-96, or
embezzlement under § 18.2-111, or false pretenses under § 18.2-178.
In the State of Alabama, Section 13A-8-10(a)(1) of the Penal Code of
Alabama of 1975 penalizes theft of services:

"A person commits the crime of theft of services if: (a) He intentionally
obtains services known by him to be available only for compensation by
deception, threat, false token or other means to avoid payment for the
services …"

In the Philippines, Congress has not amended the Revised Penal Code to
include theft of services or theft of business as felonies. Instead, it
approved a law, Republic Act No. 8484, otherwise known as the Access
Devices Regulation Act of 1998, on February 11, 1998. Under the law, an
access device means any card, plate, code, account number, electronic
serial number, personal identification number and other telecommunication
services, equipment or instrumentalities-identifier or other means of
account access that can be used to obtain money, goods, services or any
other thing of value or to initiate a transfer of funds other than a transfer
originated solely by paper instrument. Among the prohibited acts
enumerated in Section 9 of the law are the acts of obtaining money or
anything of value through the use of an access device, with intent to
defraud or intent to gain and fleeing thereafter; and of effecting transactions
with one or more access devices issued to another person or persons to
receive payment or any other thing of value. Under Section 11 of the law,
conspiracy to commit access devices fraud is a crime. However, the
petitioner is not charged of violation of R.A. 8484.

Significantly, a prosecution under the law shall be without prejudice to any

liability for violation of any provisions of the Revised Penal Code inclusive
of theft under Rule 308 of the Revised Penal Code and estafa under Article
315 of the Revised Penal Code. Thus, if an individual steals a credit card
and uses the same to obtain services, he is liable of the following: theft of
the credit card under Article 308 of the Revised Penal Code; violation of
Republic Act No. 8484; and estafa under Article 315(2)(a) of the Revised
Penal Code with the service provider as the private complainant. The
petitioner is not charged of estafa before the RTC in the Amended
Information.

Section 33 of Republic Act No. 8792, Electronic Commerce Act of 2000

provides:
Sec. 33. Penalties.— The following Acts shall be penalized by fine and/or
imprisonment, as follows:

a) Hacking or cracking which refers to unauthorized access into or

interference in a computer system/server or information and
communication system; or any access in order to corrupt, alter, steal, or
destroy using a computer or other similar information and communication
devices, without the knowledge and consent of the owner of the computer
or information and communications system, including the introduction of
computer viruses and the like, resulting on the corruption, destruction,
alteration, theft or loss of electronic data messages or electronic
documents shall be punished by a minimum fine of One hundred thousand
pesos (P100,000.00) and a maximum commensurate to the damage
incurred and a mandatory imprisonment of six (6) months to three (3)
years.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The

assailed Orders of the Regional Trial Court and the Decision of the Court of
Appeals are REVERSED and SET ASIDE. The Regional Trial Court is
directed to issue an order granting the motion of the petitioner to quash the
Amended Information.

SO ORDERED.

G.R. No. L-26053             February 21, 1967

CITY OF MANILA, plaintiff-appellee,
vs.
GERARDO GARCIA — CARMENCITA VILLANUEVA, MODESTA
PARAYNO — NARCISO PARAYNO, JUAN ASPERAS, MARIA TABIA —
SIMEON DILIMAN, AQUILINO BARRIOS — LEONORA RUIZ,
LAUREANO DIZO, BERNABE AYUDA — LEOGARDA DE LOS
SANTOS, ISABELO OBAOB — ANDREA RIPARIP, JOSE
BARRIENTOS, URBANO RAMOS,1 ELENA RAMOS, ESTEFANIA
NEPACINA, MODESTA SANCHEZ, MARCIAL LAZARO, MARCIANA
ALANO, HONORIO BERIÑO — SEDORA ORAYLE, GLORIA VELASCO,
WILARICO RICAMATA, BENEDICTO DIAZ, ANA DEQUIZ — (MRS.)
ALUNAN, LORENZO CARANDANG, JUAN PECAYO, FELICIDAD
MIRANDA — EMIGDIO EGIPTO, defendants-appellants.
Mauricio Z. Alunan for defendants-appellants.
City Fiscal's Office for plaintiff-appellee.

SANCHEZ, J.:

Plaintiff City of Manila is owner of parcels of land, forming one compact

area, bordering Kansas, Vermont and Singalong streets in Malate, Manila,
and covered by Torrens Titles Nos. 49763, 37082 and 37558. Shortly after
liberation from 1945 to 1947, defendants entered upon these premises
without plaintiff's knowledge and consent. They built houses of second-
class materials, again without plaintiff's knowledge and consent, and
without the necessary building permits from the city. There they lived thru
the years to the present.

In November, 1947, the presence of defendants having previously been

discovered, defendants Felicidad Miranda (Emigdio Egipto), Modesta C.
Parayno, Benedicto Diaz, Laureano Dizo, Jose Barrientos, Elena Ramos,
Estefania Nepacina, Modesta Sanchez, Honorio Beriño, Gloria Velasco,
Ana Dequis Alunan and Benedicto Ofiaza (predecessor of defendant
Carandang) were given by Mayor Valeriano E. Fugoso written permits —
each labeled "lease contract" — to occupy specific areas in the property
upon conditions therein set forth. Defendants Isabelo Obaob and Gerardo
Garcia (in the name of Marta A. Villanueva) received their permits from
Mayor Manuel de la Fuente on January 29 and March 18, respectively,
both of 1948. The rest of the 23 defendants exhibited none.

For their occupancy, defendants were charged nominal rentals. 1äwphï1.ñët

Following are the rentals due as of February, 1962:

Amt. due from

Area Monthly
NAME date of delinquency
in sq.m. Rental
to Feb. 1962
1. Gerardo Garcia 66.00 P7.92 P1,628.97
2. Modesta C. Parayno 87.75 10.53 379.08
3. Juan Asperas 39.00 4.68 9.36
4. Maria Tabia 35.20 5.76 570.24
5. Aquilino Barrios 54.00 4.32 99.36
(Leonora Ruiz)
6. Laureano Dizo 35.00 2.80 22.40
7. Bernabe Ayuda 39.60 3.17 323.34
8. Isabelo Obaob 75.52 9.06 208.38
9. Jose Barrientos 39.53 4.74 744.18
10. Cecilia Manzano in Paid up to
lieu of Urbano Ramos (deceased) 46.65 5.60 Feb. 1962.
11. Elena Ramos 34.80 2.78 186.26
12. Estefania Nepacina 41.80 3.34 504.34
13. Modesta Sanchez 33.48 2.68 444.88
14. Marcial Lazaro 22.40 1.79 688.32
15. Marciana Alano 25.80 2.06 255.44
16. Honorio Beriño 24.00 1.92 188.16
17. Gloria Velasco 32.40 2.59 56.98
18. Wilarico Ricamata 45.83 3.67 739.68
Paid up to
19. Benedicto Diaz 40.20 4.82
March 1962.
20. Ana Dequis Alunan 64.26 7.71 30.84
21. Lorenzo Carandang 45.03 5.40 437.40
22. Juan N. Pecayo 25.52 3.06 30.60
23. Felicidad Miranda 48.02 5.76 132.48

P7,580.69

Epifanio de los Santos Elementary School is close, though not contiguous,

to the property. Came the need for this school's expansion; it became
pressing. On September 14, 1961, plaintiff's City Engineer, pursuant to the
Mayor's directive to clear squatters' houses on city property, gave each of
defendants thirty (30) days to vacate and remove his construction or
improvement on the premises. This was followed by the City Treasurer's
demand on each defendant, made in February and March, 1962, for the
payment of the amount due by reason of the occupancy and to vacate in
fifteen (15) days. Defendants refused. Hence, this suit to recover
possession.2

The judgment below directed defendants to vacate the premises; to pay the
amounts heretofore indicated opposite their respective names; and to pay
their monthly rentals from March, 1962, until they vacate the said premises,
and the costs. Defendants appealed.

1. We are called upon to rule on the forefront question of whether the

trial court properly found that the city needs the premises for school
purposes.

The city's evidence on this point is Exhibit E, the certification of the

Chairman, Committee on Appropriations of the Municipal Board. That
document recites that the amount of P100,000.00 had been set aside
in Ordinance 4566, the 1962-1963 Manila City Budget, for the
construction of an additional building of the Epifanio de los Santos
Elementary School. It is indeed correct to say that the court below, at
the hearing, ruled out the admissibility of said document. But then, in
the decision under review, the trial judge obviously revised his views.
He there declared that there was need for defendants to vacate the
premises for school expansion; he cited the very document, Exhibit E,
aforesaid.

It is beyond debate that a court of justice may alter its ruling while the
case is within its power, to make it conformable to law and
justice.3 Such was done here. Defendants' remedy was to bring to the
attention of the court its contradictory stance. Not having done so,
this Court will not reopen the case solely for this purpose. 4

Anyway, elimination of the certification, Exhibit E, as evidence, would

not profit defendants. For, in reversing his stand, the trial judge could
well have taken — because the was duty bound to take — judicial
notice5 of Ordinance 4566. The reason being that the city charter of
Manila requires all courts sitting therein to take judicial notice of all
ordinances passed by the municipal board of Manila. 6 And, Ordinance
4566 itself confirms the certification aforesaid that an appropriation of
P100,000.00 was set aside for the "construction of additional
building" of the Epifanio de los Santos Elementary School.
Furthermore, defendants' position is vulnerable to assault from a third
direction. Defendants have absolutely no right to remain in the
premises. The excuse that they have permits from the mayor is at
best flimsy. The permits to occupy are recoverable on thirty days'
notice. They have been asked to leave; they refused to heed. It is in
this factual background that we say that the city's need for the
premises is unimportant. The city's right to throw defendants out of
the area cannot be gainsaid. The city's dominical right to possession
is paramount. If error there was in the finding that the city needs the
land, such error is harmless and will not justify reversal of the
judgment below.7

2. But defendants insist that they have acquired the legal status of
tenants. They are wrong.

They entered the land, built houses of second-class materials thereon

without the knowledge and consent of the city. Their homes were
erected without city permits.

These constructions are illegal. In a language familiar to all,

defendants are squatters:

Since the last global war, squatting on another's property in this

country has become a widespread vice. It was and is a blight.
Squatters' areas pose problems of health, sanitation. They are
breeding places for crime. They constitute proof that respect for the
law and the rights of others, even those of the government, are being
flouted. Knowingly, squatters have embarked on the pernicious act of
occupying property whenever and wherever convenient to their
interests — without as much as leave, and even against the will, of
the owner. They are emboldened seemingly because of their belief
that they could violate the law with impunity. The pugnaciousness of
some of them has tied up the hands of legitimate owners. The latter
are thus prevented from recovering possession by peaceful means.
Government lands have not been spared by them. They know, of
course, that intrusion into property, government or private, is wrong.
But, then, the mills of justice grind slow, mainly because of lawyers
who, by means, fair or foul, are quite often successful in procuring
delay of the day of reckoning. Rampancy of forcible entry into
government lands particularly, is abetted by the apathy of some
public officials to enforce the government's rights. Obstinacy of these
squatters is difficult to explain unless it is spawned by official
tolerance, if not outright encouragement or protection. Said squatters
have become insensible to the difference between right and wrong.
To them, violation of law means nothing. With the result that squatting
still exists, much to the detriment of public interest. It is high time that,
in this aspect, sanity and the rule of law be restored. It is in this
environment that we look into the validity of the permits granted
defendants herein.

These permits, erroneously labeled "lease" contracts, were issued by

the mayors in 1947 and 1948 when the effects of the war had
simmered down and when these defendants could have very well
adjusted themselves. Two decades have now elapsed since the
unlawful entry. Defendants could have, if they wanted to, located
permanent premises for their abode. And yet, usurpers that they are,
they preferred to remain on city property.

Defendants' entry as aforesaid was illegal. Their constructions are as

illegal, without permits.8 The city charter enjoins the mayor to
"safeguard all the lands" of the City of Manila. 9

Surely enough, the permits granted did not "safeguard" the city's land

in question. It is our considered view that the Mayor of the City of
Manila cannot legalize forcible entry into public property by the simple
expedient of giving permits, or, for that matter, executing leases.

Squatting is unlawful and no amount of acquiescence on the part of

the city officials will elevate it into a lawful act. In principle, a
compound of illegal entry and official permit to stay is obnoxious to
our concept of proper official norm of conduct. Because, such permit
does not serve social justice; it fosters moral decadence. It does not
promote public welfare; it abets disrespect for the law. It has its roots
in vice; so it is an infected bargain. Official approval of squatting
should not, therefore, be permitted to obtain in this country where
there is an orderly form of government.

We, accordingly, rule that the Manila mayors did not have authority to
give permits, written or oral, to defendants, and that the permits
herein granted are null and void.
 3. Let us look into the houses and constructions planted by
defendants on the premises. They clearly hinder and impair the use
of that property for school purposes. The courts may well take judicial
notice of the fact that housing school children in the elementary
grades has been and still is a perennial problem in the city. The
selfish interests of defendants must have to yield to the general good.
The public purpose of constructing the school building annex is
paramount.10

In the situation thus obtaining, the houses and constructions

aforesaid constitute public nuisance per se. And this, for the reason
that they hinder and impair the use of the property for a badly needed
school building, to the prejudice of the education of the youth of the
land.11 They shackle the hands of the government and thus obstruct
performance of its constitutionally ordained obligation to establish and
maintain a complete and adequate system of public education, and
more, to "provide at least free public primary instruction".12

Reason dictates that no further delay should be countenanced. The

public nuisance could well have been summarily abated by the city
authorities themselves, even without the aid of the courts.13

4. Defendants challenge the jurisdiction of the Court of First Instance

of Manila. They say that the case should have been started in the
municipal court. They prop up their position by the averment that
notice for them to vacate was only served in September, 1961, and
suit was started in July, 1962. Their legal ground is Section 1, Rule
70 of the Rules of Court. We have reached the conclusion that their
forcible entry dates back to the period from 1945 to 1947. That entry
was not legalized by the permits. Their possession continued to
remain illegal from incipiency. Suit was filed long after the one-year
limitation set forth in Section 1 of Rule 70. And the Manila Court of
First Instance has jurisdiction.14

Upon the premises, we vote to affirm the judgment under review. Costs
against defendants-appellants. So ordered.

G.R. No. L-69002 June 30, 1988

REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
AMANDA LAT VDA. DE CASTILLO, FLORENCIO T. CASTILLO,
SOLEDAD LOTA CASTILLO, CARLOS L. CASTILLO, NIEVES
KATIGBAK CASTILLO, MARIANO L. CASTILLO, HIPOLITA DYTIAPCO
CASTILLO, AIDA CASTILLO HERRERA, HERMITO HERRERA, JOSE L.
CASTILLO, LILIA MACEDA CASTILLO, TERESITA L. CASTILLO,
REGISTER OF DEEDS OF BATANGAS and THE INTERMEDIATE
APPELLATE COURT, respondents.

Castro, Nardo, Quintanilla, Gonzales & Macatangay Law Office for

respondents.

PARAS, J.:
This is a petition for review on certiorari of the April 26, 1984 Decision of the then Intermediate Appellate Court * reversing the February 6,
1976 Decision of the then Court of First Instance of Batangas, Branch VI, in Civil Case No. 2044.

The antecedental facts of this case, as found by the then Intermediate

Appellate Court, are as follows:

Sometime in 1951, the late Modesto Castillo applied for the

registration of two parcels of land, Lots 1 and 2, located in
Banadero, Tanauan, Batangas, described in Plan Psu-119166,
with a total area of 39,755 square meters. In a decision dated
August 31, 1951, the said Modesto Castillo, married to Amanda
Lat, was declared the true and absolute owner of the land with
the improvements thereon, for which Original Certificate of Title
No. 0-665 was, issued to him by the Register of Deeds at
Batangas, Batangas, on February 7, 1952. By virtue of an
instrument dated March 18, 1960, the said Lots 1 and 2
covered by Original Certificate of Title No. 0-665, together with
Lot No. 12374 covered by Transfer Certificate of Title No. 3254-
A and Lot No. 12377 covered by Transfer Certificate of Title No.
3251-A, were consolidated and sub-divided into Lots 1 to 9
under Pcs-1046. After the death of Modesto Castillo, or on
August 31, 1960, Amanda Lat Vda. de Castillo, et al., executed
a deed of partition and assumption of mortgage in favor of
Florencio L. Castillo, et al., as a result of which Original
 Certificate of Title No. D-665 was cancelled, and in lieu thereof,
new transfer cerfificates of title were issued to Florencio
Castillo, et al., to wit: Transfer Certificate of Title No. 21703 (Lot
4) (and) Transfer Certificate of Title No. 21704 to Florencio
Castillo (Lot 5); Transfer Certificate of Title No. T-21708 to
Carlos L. Castillo (Lot 7); Transfer Certificate of Title No. T-
21712 to Mariano L. Castillo (Lot 6); Transfer Certificate of Title
No. T-21713 to Jose L. Castillo (Lot 9); Transfer Certificate of
Title No. T-21718 to Aida C. Herrera (Lot 2); and Transfer
Certificate of Title No. T-21727 to Teresita L. Castillo (Lot 8).

The Republic of the Philippines filed Civil Case No. 2044 with
the lower court for the annulment of the certificates of title
issued to defendants Amanda Lat Vda. de Castillo, et al., as
heirs/successors of Modesto Castillo, and for the reversion of
the lands covered thereby (Lots 1 and 2, Psu-119166) to the
State. It was alleged that said lands had always formed part of
the Taal Lake, washed and inundated by the waters thereof,
and being of public ownership, it could not be the subject of
registration as private property. Appellants herein, defendants
below, alleged in their answer that the Government's action was
already barred by the decision of the registration court; that the
action has prescribed; and that the government was estopped
from questioning the ownership and possession of appellants.

After trial, the then Court of First Instance of Batangas, Branch VI, presided
over by Honorable Benjamin Relova, in a Decision dated February 6, 1976
(Record on Appeal, pp. 62-69), ruled in favor of herein petitioner Republic
of the Philippines. The decretal portion of the said decision, reads:

WHEREFORE, the Register of Deeds of Batangas is hereby

ordered to cancel Original Certificate of Title No. 0-665 in the
name of Modesto Castillo and the subsequent Transfer of
Certificates of Title issued over the property in the names of the
defendants. Lots Nos. 1 and 2 of Plan Psu-19166 are hereby
declared public lands belonging to the state. Without
pronouncement as to costs.

The Court of Appeals, on appeal, in a Decision promulgated on April

26,1984, reversed and set aside the appealed decision, and dismissed the
complaint (Record, pp. 31-41). Herein petitioner filed a Motion for
Reconsideration (Record, pp. 42-51), but the same was denied in a
Resolution promulgated on October 12,1984 (Record, p. 52). Hence, the
instant petition.

The sole issue raised in this case is whether or not the decision of the Land
Registration Court involving shore lands constitutes res adjudicata.

There is no question that one of the requisites of res judicata is that the
court rendering the final judgment must have jurisdiction over the subject
matter (Ramos v. Pablo, 146 SCRA 24 [1986]; that shores are properties of
the public domain intended for public use (Article 420, Civil Code) and,
therefore, not registrable. Thus, it has long been settled that portions of the
foreshore or of the territorial waters and beaches cannot be registered.
Their inclusion in a certificate of title does not convert the same into
properties of private ownership or confer title upon the registrant (Republic
v. Ayala y Cia, 14 SCRA, 259 [1965], citing the cases of Dizon, et al. v.
Bayona, et al., 98 Phil. 943; and Dizon, et al. v. Rodriguez, et al., 13 SCRA
704).

But an important bone of contention is the nature of the lands involved in

this case.

Petitioner contends "that "Lots 1 and 2, PSU-119166 had always formed

part of the Taal Lake, washed and inundated by the waters thereof.
Consequently, the same were not subject to registration, being outside the
commerce of men; and that since the lots in litigation are of public domain
(Art. 502), par. 4 Civil Code) the registration court (of 1951) did not have
jurisdiction to adjudicate said lands as private property, hence, res
judicata does not apply. (Rollo, pp. 37-38).

The Government presented both oral and documentary evidence.

As summarized by the Intermediate Appelate Court (now Court of

Appeals), the testimonies of the witnesses for the petitioner are as follows:

1. Rosendo Arcenas, a Geodetic Engineer connected with the

Bureau of Lands since 1961, testified to the effect that Lots 1
and 2, Psu-119166, which are the lots in question, adjoin the
cadastral survey of Tanauan, Batangas (Cad. 168); that the
original boundary of the original cadastral survey was foreshore
land as indicated on the plan; that the cadastral survey of
Tanauan was executed sometime in 1923; that the first survey
executed of the land after 1923 was the one executed in 1948
under Plan Psu-119166 that in the relocation survey of the
disputed lots in 1962 under SWO-40601, said lots were
annotated on the plan as claimed by the Republic of the
Philippines in the same manner that it was so annotated in Plan
Psu-119166; thus showing that the Government was the only
claimant of the land during the survey in 1948; that during the
relocation survey made in 1962, old points cannot be Identified
or located because they were under water by about forty
centimeters; that during the ocular inspection of the premises
on November 23, 1970, he found that 2 monuments of the lots
in question were washed out by the waters of the Baloyboy
Creek; that he also found duck pens along the lots in question;
that there are houses in the premises as well as some camotes
and bananas; and that he found also some shells ('suso') along
the banks of the Taal lake (Tsn, Nov. 16, 1970, pp. 13-21; Feb.
16, 1971, pp. 4-36).

2. Braulio Almendral testified to the effect that he is a resident

of Tanauan, Batangas, near the Taal lake; that like himself
there are other occupants of the land among whom are
Atanacio Tironas, Gavino Mendoza, Juliano Tirones, Agapito
Llarena, etc.; that it was they who filled up the area to make it
habitable; that they filled up the area with shells and sand; that
their occupation is duck raising; and that the Castillos never
stayed in or occupied the premises (Tsn, Nov. 16, 1970, pp. 32-
50).

3. Arsenio Ibay, a Geodetic Engineer connected with the

Bureau of Lands since 1968, also testified to the effect that in
accordance with the cadastral plan of Tanauan, the only private
claim of Sixto Castillo referred to Lots 1006 to 1008; that the
Castillos never asserted any private claim to the lots in question
during the cadastral survey;' that in the preparation of plan Psu-
119166, Lots 12374 and 12377 were made as reference to
conform to previously approved plans; that lot 12374 is a
portion of cadastral lot 10107, SWO-86738 while Lot 22377 is a
portion of Lot 10108 of the same plan (Tsn, Nov. 25, 1970, pp.
115-137).

4. Jose Isidro, a Land Investigator of the Bureau of Lands,

testified to the effect that pursuant to the order of the Director of
Lands, he, together with Engineer Rufino Santiago and the
barrio captain of Tanauan, Batangas, conducted an
investigation of the land in question; that he submitted a report
of investigation, dated October 19, 1970 (Exh. H-1); that
portions of the lot in question were covered by public land
applications filed by the occupants thereof; that Engineer
Santiago also submitted a report (Exh. H-8); that he had
notified Dr. Mariano Castillo before conducting the investigation
(Tsn, Nov. 25,1970, pp. 137-162).

5. Rufino Santiago, another Geodetic Engineer connected with

the Bureau of Lands, testified to the effect that on October
19,1970, he submitted a report of investigation regarding the
land in question; that he noted on the plan Exhibit H-9 the areas
on which the houses of Severo Alcantara and others were built;
that he found that the land was planted to coconuts which are
about 15 years old; that the land is likewise improved with rice
paddies; that the occupants thereof are duck raisers; that the
area had been elevated because of the waste matters and duck
feeds that have accumulated on the ground through the years
(Tsn, Nov. 26,1970, pp. 163-196).

6. Pablo Tapia, Barrio Captain of Tanauan, Batangas, since

1957, testified to the effect that the actual occupants of Lots I
and 2 are Atanacio Tirones,tc.; that during the war the water
line reached up to a point marked Exhibit A-9 and at present
the water has receded to a point up to Exhibit A-12; that the
reasons why the waters of Taal lake have receded to the
present level is because of the fillings made by the people living
in Lots 1 and 2; that there are several duck pens all over the
place; that the composition of the soil is a mixture of mud and
duck feeds; that improvements consist of bananas, bamboos
and palay; that the shoreline is not even in shape because of
the Baloyboy Creek; that the people in the area never came to
know about the registration case in which the lots in question
 were registered; that the people living in the area, even without
any government aid, helped one another in the construction of
irrigated rice paddies; that he helped them file their public land
applications for the portions occupied by them; that the
Castillos have never been in possession of the premises; that
the people depend upon duck raising as their means of their
livelihood; that Lots 1 and 2 were yet inexistent during the
Japanese occupation; and that the people started improving the
area only during liberation and began to build their houses
thereon. (Tsn, Nov. 26,1970, pp. 197-234).

Among the exhibits formally offered by the Government are: the Original
Plan of Tanauan, Batangas, particularly the Banader Estate, the Original
Plan of PSU-119166, Relocation Verification Survey Plan, maps, and
reports of Geodetic Engineers, all showing the original shoreline of the
disputed areas and the fact that the properties in question were under
water at the time and are still under water especially during the rainy
season (Hearing, March 17,1971, TSN, pp. 46-47).

On the other hand, private respondents maintain that Lots 1 and 2 have
always been in the possession of the Castillo family for more than 76 years
and that their possession was public, peaceful, continuous, and adverse
against the whole world and that said lots were not titled during the
cadastral survey of Tanauan, because they were still under water as a
result of the eruption of Taal Volcano on May 5, 1911 and that the
inundation of the land in question by the waters of Taal Lake was merely
accidental and does not affect private respondents' ownership and
possession thereof pursuant to Article 778 of the Law of Waters. They
finally insisted that this issue of facts had been squarely raised at the
hearing of the land registration case and, therefore, res judicata (Record
on Appeal, pp. 63-64). They submitted oral and documentary evidence in
support of their claim.

Also summarized by respondent Appellate Court, the testimonies of the

witnesses of private respondents are as follows:

1. Silvano Reano, testified to the effect that he was the

overseer of the property of the late Modesto Castillo located at
Banadero,Tanauan, Batangas since 1944 to 1965; that he also
knows Lots 1 and 2, the parcels of land in question, since he
 was managing said property; that the occupants of said Lots 1
and 2 were engaged in duck raising; that those occupants were
paying the Castillos certain amount of money because their
animals used to get inside the lots in question; that he was
present during the survey of the land in 1948; and that aside
from the duck pens which are built in the premises, the land is
planted to rice (Tsn, April 14, 1971, pp. 62-88).

2. Dr. Mariano Castillo, testified to the effect that the late

Modesto Castillo was a government official who held high
positions in the Government; and that upon his death the land
was subdivided among his legal heirs. (Appellee's Brief, pp. 4-
9).

As above-stated, the trial court decided the case in favor of the government
but the decision was reversed on appeal by the Court of Appeals.

A careful study of the merits of their varied contentions readily shows that
the evidence for the government has far outweighed the evidence for the
private respondents. Otherwise stated, it has been satisfactorily established
as found by the trial court, that the properties in question were the
shorelands of Taal Lake during the cadastral survey of 1923.

Explaining the first survey of 1923, which showed that Lots 1 and 2 are
parts of the Taal Lake, Engineer Rosendo Arcenas testified as follows:

ATTY. AGCAOILI:

Q Now, you mentioned Engineer that a subject

matter of that plan which appears to be Lots 1 and 2
are adjoining cadastral lots of the Tanauan
Cadastre, now, will you please state to the Court
what is the basis of that statement of yours?

A The basis of that statement is the plan itself,

because there is here an annotation that the
boundary on the northeastern side is Tanauan
Cadastre 168 which indicates that the boundary of
the original cadastral survey of Tanauan Cadastre
way back in the year 1923 adjoins a foreshore land
 which is also indicated in this plan as foreshore
lands of Taal lake, sir.

xxx xxx xxx

Q Now, on this plan Exhibit "A-2", there are two lots

indicated namely, Lots 12374 and 12377, what do
these lots represent?

A This is the cadastral lot executed in favor of a

certain Modesto Castillo that corresponds to Lots
12374 and another Lot 12377, sir.

Q At the time this survey plan Psu-119166 and

marked as Exhibit "A-2" was executed in 1948,
were these lots 1 and 2 already in existence as part
of the cadastral survey?

A No, sir, because there is already a foreshore

boundary.

Q Do I understand from you Mr. Witness at the time

of the survey of this land these two lots form part of
this portion?

A Yes, sir.

Q When again was the cadastral survey of

Tanauan, Batangas, executed if you know?

A In the year 1923, sir. (Hearing of Nov. 16, 1970,

TSN pp. 15-17).

Such fact was further verified in the Verification-Relocation Survey of 1948

by Engineer Arcenas who conducted said survey himself and reported the
following:

That as per original plan Psu-119166, it appears that Lot 1 and

Lot 2, Psu-119166 surveyed and approved in the name of
Modesto Castillo is a portion of Taal Lake and as such it
appears to be under water during the survey of cadastral Lot
 No. 12374 and Lot No. 12377, which was surveyed and
approved in the name of Modesto Castillo under Cad. 168. To
support this theory is the annotation appearing and printed
along lines 2-3-4-5 of Lot 1, Psu-119166 and along lines 4-5-6
of Lot 2, Psu-119166 which notations clearly indicates that such
boundary of property was a former shorelines of Taal Lake, in
other words, it was the extent of cultivation being the shorelines
and the rest of the area going to the southwestern direction are
already covered by water level.

Another theory to bolster and support this Idea is the actual

location now in the verification-relocation survey of a known
geographic point were Barrio Boundary Monument (BBM N. 22)
is under water level quite for sometimes as evidence by
earthworks (collection of mud) that amount over its surface by
eighty (80) centimeters below the ground, see notation
appearing on verification-relocation plan previously submitted.
(Re-Verification-Relocation Survey Exhibits, pp. 64-65).

Said surveys were further confirmed by the testimonies of witnesses to the

effect that from 1950 to 1969, during rainy season, the water of Taal lake
even went beyond the questioned lots; and that the water, which was about
one (1) foot, stayed up to more or less two (2) to three (3) months
(Testimonies of Braulio Almendral and Anastacio Tirones both residents of
Banadero, Tanauan, Batangas (Hearing of Nov. 16, 1970, TSN, pp. 41-42
and Hearing of Nov. 23, 1970, TSN, pp. 93, 98-99, respectively). In the
Relocation Survey of 1962, there were no definite boundary or area of Lots
1 and 2 because a certain point is existing which was under water by 40
centimeters (Testimony of Engineer Arcena, Hearing of Nov. 16,1970,
TSN, p. 20).

Lakeshore land or lands adjacent to the lake, like the lands in question
must be differentiated from foreshore land or that part of the land adjacent
to the sea which is alternately covered and left dry by the ordinary flow of
the tides (Castillo, Law on Natural Resources, Fifth Edition, 1954, p. 67).

Such distinction draws importance from the fact that accretions on the bank
of a lake, like Laguna de Bay, belong to the owners of the estate to which
they have been added (Gov't. v. Colegio de San Jose, 53 Phil. 423) while
accretion on a sea bank still belongs to the public domain, and is not
available for private ownership until formally declared by the government to
be no longer needed for public use (Ignacio v. Director of Lands, 108 Phil.
335 [1960]).

But said distinction will not help private respondents because there is no
accretion shown to exist in the case at bar. On the contrary, it was
established that the occupants of the lots who were engaged in duck
raising filled up the area with shells and sand to make it habitable.

The defense of long possession is likewise not available in this case

because, as already ruled by this Court, mere possession of land does not
by itself automatically divest the land of its public character (Cuevas v.
Pineda, 143 SCRA 674 [1968]).

PREMISES CONSIDERED, the April 26,1984 Decision of the then

Intermediate Appellate Court is hereby SET ASIDE and REVERSED and
the February 6,1976 Decision of the then Court of First Instance of
Batangas is hereby AFFIRMED and REINSTATED.

SO ORDERED.

.R. Nos. L-45338-39             July 31, 1991

REPUBLIC OF THE PHILIPPINES, petitioner-appellee,

vs.
POLICARPIO GONZALES and AUGUSTO JOSUE, respondents-
appellants.

Jose Z. Galsim for respondent-appellant P. Gonzales.

Jaime G. Manzano for appellant A. Josue.

FELICIANO, J.:

The Republic of the Philippines is the owner of two (2) parcels of land
situated in Tañong Malabon, Metro Manila and designated as Lots 1 and 2
of Plan MR-1018-D. Lot I which adjoins F. Sevilla Boulevard has an area of
605 square meters; Lot 2, an interior lot abutting F. Sevilla Boulevard only
on its northern portion, is 664 square meters in area. This piece of property
was formerly a deep swamp until the occupants thereof, among them
appellants Policarpio Gonzales and Augusta Josue, started filling it. Each
of appellants who are brothers-in-law, constructed a mixed residential and
commercial building on the interior part of Lot 2.

On 14 April 1955, then President Ramon Magsaysay issued Proclamation

No. 144, entitled "Reserving for Street Widening and Parking Space
Purposes Certain Parcels of the Public Domain Situated in the Municipality
of Malabon, Province of Rizal, Island of Luzon."  Lots 1 and 2 were
1

specifically withdrawn from sale or settlement and reserved for the

purposes mentioned in the Proclamation.

The Municipal Council of Malabon then passed Resolutions  authorizing the

2

filing of ejectment cases against appellants so that Proclamation No, 144

could be implemented. On 23 June 1955, the Assistant Provincial Fiscal of
Pasig, Rizal filed separate complaints against appellants for the recovery of
the portions of Lot 2 they were occupying.

Appellants disputed the light of the Government to recover the land

occupied by them. In his answer, Policarpio Gonzales claimed (1) that Lot 2
was covered by a lease application, and later a miscellaneous sales
application, filed before the Bureau of Lands; (2) that he had a municipal
permit to construct a building as well as a business license duly issued by
the Office of the Mayor of Malabon; and (3) that the lot occupied by him
was not needed by the Municipality of Malabon in the widening of F. Sevilla
Boulevard. The defenses interposed by Augusto Josue were substantially
similar to those raised by Policarpio Gonzales.

Upon agreement of the parties, the separate cases were tried jointly. On 28
January 1967, the trial court, presided over by then Judge Cecilia Muñoz-
Palma, rendered a decision with the following dispositive portion:

WHEREFORE, finding the complaints to be justified and meritorious,

this Court orders defendants Policarpio Gonzales and Augusto Josue
and/or their agents, representatives, successors-in-interest to vacate
Lots 1 and 2 of Plan MR1018-D as described in the complaint, and to
remove at their expense their respective buildings and/or
improvements erected and existing on said lots, and restore the
 possession thereof to the Republic of the Philippines, and to pay the
corresponding costs in the respective cases.

SO ORDERED. 3

Appellants appealed to the Court of Appeals. In a Resolution dated 1

December 1976, the Court of Appeals, speaking through Mr. Justice Luis
B. Reyes, certified the consolidated cases to this Court since the appeals
raised only a question of law, that is, whether Presidential Proclamation No.
144 was valid or not.4

Although appellants filed separate briefs before the Court of Appeals, their
common defense was presented and discussed in very similar language:

Stripped of surplusage, it is respectfully submitted that Proclamation

No. 144 dated April 14, 1955 of the President of the Philippines, more
particularly that portion which withdrew from sale and settlement the
land in question and reserving [the] same for parking space
purposes, is not in accordance with Section 83 of the Public Land
Law, Commonwealth Act No. 141, and therefore, invalid. Under said
law "parking space" is not one of those reservations for public benefit
which the President of the Philippines may designate by proclamation
from any tracts of land of the public domain. The reservation for
"parking lots" under the presidential proclamation in question is not
required by public interest, nor it is for the benefit of the public,
because only those who have cars can use the parking lot. Public use
or public benefit must be for the general public and not a use by or for
particular persons. The essential feature of public use is that it should
not be confined to privileged individuals, but open to the general
public. This is not so of the parking space as contemplated by the
presidential proclamation in question. (Citations omitted.)

Section 83 of Commonwealth Act No. 141, known as the Public Land Law
provides:

Upon the recommendation of the Secretary of Agriculture and

Commerce [now Secretary of Environment and Natural
Resources], the President may designate by proclamation any
tract or tracts of land of the public domain as reservation for the use
of the Commonwealth of the Philippines [now Republic of the
Philippines] or of any of its branches, or of the inhabitants thereof, in
 accordance with regulations prescribed for this purpose, 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 leguas comunales, public parks, public quarries, public fishponds,
workingmen's village and other improvements for the public benefit.
(Emphasis supplied)

Appellants urge this Court to declare Proclamation No. 144 invalid. They
contend that the setting aside of the lots occupied by them for parking
space purposes does not redound to the public benefit as required under
Section 83 of the Public Land Act. They claim that only certain privileged
individuals, i.e., those who have cars, can avail of the parking facility
without any advantage accruing to the general public.

As observed by the trial court, Proclamation No. 144 was issued by then
President Ramon Magsaysay in response to several resolutions passed by
the Municipal Council of Malabon, Rizal, which had become particularly
aware of the increasing vehicular traffic and congestion along F. Sevilla
Boulevard.  The Municipal Council had proposed to widen F. Sevilla
5

Boulevard and at the same time, to reserve an area for parking space to
ease up traffic problems, in anticipation of the completion of the then
proposed market and slaughterhouse located to the west of F. Sevilla
Boulevard. In this day and age, it is hardly open to debate that the public
has much to gain from the proposed widening of F. Sevilla Boulevard and
from establishment of a municipal parking area. Indiscriminate parking
along F. Sevilla Boulevard and other main thoroughfares was prevalent;
this, of course, caused the build up of traffic in the surrounding area to the
great discomfort and inconvenience of the public who use the streets.
Traffic congestion constitutes a threat to the health, welfare, safety and
convenience of the people and it can only be substantially relieved by
widening streets and providing adequate parking areas.

Under the Land Transportation and Traffic Code, parking in designated

areas along public streets or highways is allowed  which clearly indicates
6

that provision for parking spaces serves a useful purpose. In other

jurisdictions where traffic is at least as voluminous as here, the provision by
municipal governments of parking space is not limited to parking along
public streets or highways. There has been a marked trend to build off-
street parking facilities with the view to removing parked cars from the
streets. While the provision of off-street parking facilities or carparks has
been commonly undertaken by private enterprise, municipal governments
have been constrained to put up carparks in response to public necessity
where private enterprise had failed to keep up with the growing public
demand. American courts have upheld the right of municipal governments
to construct off-street parking facilities as clearly redounding to the public
benefit.
7

Appellants, however, allege that the benefits, if any, that may be derived
from the proposed street-widening and parking space will be confined to
people who have cars, hence there would be lacking the essential feature
of property reserved for public use or benefit. Appellants would restrict
property reserved for public use or benefit to include only property
susceptible of being utilized by a generally unlimited number of people. The
conception urged by appellants is both flawed and obsolete since the
number of users is not the yardstick in determining whether property is
properly reserved for public use or public benefit. In the first place, Section
83 above speaks not only of use by a local government but also of "quasi-
public uses or purposes." To constitute public use, the public in general
should have equal or common rights to use the land or facility involved on
the same terms, however limited in number the people who can actually
avail themselves of it at a given time.  There is nothing in Proclamation No.
8

144 which excludes non-car-owners from using a widened street or a

parking area should they in fact happen to be driving cars; the opportunity
to avail of the use thereof remains open for the public in general.

Besides, the benefits directly obtained by car-owners do not determine

either the validity or invalidity of Proclamation No. 144. What is important
are the long-term benefits which the proposed street widening and parking
areas make available to the public in the form of enhanced, safe and
orderly transportation on land. This is the kind of public benefit envisioned
by the Municipal Council of Malabon, Rizal and which was sought to be
promoted by the President in issuing Proclamation No. 144.

We believe and so hold that Proclamation No. 144 was lawful and valid.

Proclamation No. 144 specifically provided that the withdrawal of Lots No. 1
and 2 shall be subject to existing private rights, if any there be. Prior to the
issuance of Proclamation No. 144, appellants had applied for
miscellaneous sales applications over the lots respectively occupied by
them. Insofar as appellant Policarpio Gonzales is concerned, it is not
disputed that he had acknowledged the ownership of the National
Government of the land applied for by him.  Although not expressly stated,
9

Augusto Josue must be deemed to have similarly admitted that ownership

by the National Government since he filed a miscellaneous sales
application with the Bureau of Lands, an agency of the Government, an
application which can only be filed in respect of tracts of public land, not
private land.

The miscellaneous sales application, however, of appellant Policarpio

Gonzales had not been approved by the Bureau of Lands at the time
Proclamation No. 144 was issued; the land therefore retained its character
as land of the public domain. Upon the other hand, the miscellaneous sales
application of appellant Augusto Josue had already been rejected in an
Order of the Director of Lands dated 8 January 1954.  Accordingly, no
10

private rights had accrued and become vested in appellants. In both cases,
the lots remained public lands and were in fact subject to the free
disposition and control of the Government.

Appellants allege having built mixed residential and commercial buildings

on Lot 2.  The evidence of record discloses that appellants had secured the
1âwphi1

appropriate municipal permits or licenses therefor, that is, for the

construction of said buildings as well as the carrying on of business therein.
However, since the lease, sale or any other form of concession or
disposition and management of lands of the public domain was directly
under the executive control of the Director of Lands,  and not of local
11

government officials, the Malabon Municipal Mayor must be held to have

exceeded his authority in allowing the use of lands of the public domain to
appellants by constructing thereon commercial and residential use
buildings, or any other kind of building for that matter.

Sometime after Proclamation No. 144 was issued by the President,

appellants brought their predicament to the attention of the President. The
then Presidential Complaints and Action Committee ("PCAC") conducted
an investigation on the basis of which it eventually recommended the
exclusion from the reservation of the lots affected, in line with the "Land for
the Landless" policy of President Magsaysay's administration.  The then
12

Secretary of Agriculture and Natural Resources similarly recommended the

exclusion of the portion of Lot 2 occupied by appellants and forwarded to
the Office of the President a draft of a proposed amendment of
Proclamation No. 144 specifically excluding Lot 2 from the scope of
application thereof .The amendment, however, remained merely a proposal
for failure on the part of the President of the Philippines to act favorably
thereon.

WHEREFORE, the Petition for Review is hereby DENIED for lack of merit.
The Decision dated 28 January 1967 of then Court of First Instance of
Rizal, Branch 1 is hereby AFFIRMED. Costs against appellants.

SO ORDERED.

G.R. No. 100709 November 14, 1997

REPUBLIC OF THE PHILIPPINES, represented by the DIRECTOR OF LANDS, petitioner,

vs.
COURT OF APPEALS, JOSEFINA L. MORATO, SPOUSES NENITA CO and ANTONIO
QUILATAN AND THE REGISTER OF DEEDS OF QUEZON PROVINCE, respondents.

PANGANIBAN, J.:

Will the lease and/or mortgage of a portion of a realty acquired through free patent constitute
sufficient ground for the nullification of such land grant? Should such property revert to the State
once it is invaded by the sea and thus becomes foreshore land?

The Case

These are the two questions raised in the petition before us assailing the Court of
Appeals'   Decision in CA-G.R. CV No. 02667 promulgated on June 13, 1991 which answered the
1

said questions in the negative.   Respondent Court's dismissed   petitioner's appeal and affirmed in
2 3

toto the decision of the Regional Trial Court  of Calauag, Quezon, dated December 28, 1983 in Civil
4

Case No. C-608. In turn, the Regional Trial Court's decision dismissed petitioner's complaint for
cancellation of the Torrens Certificate of Title of Respondent Morato and for reversion of the parcel
of land subject thereof of the public domain.

The Facts

The petition of the solicitor general, representing the Republic of the Philippines, recites the following
facts: 
5

Sometime in December, 1972, respondent Morato filed a Free Patent Application No.
III-3-8186-B on a parcel of land with an area of 1,265 square meters situated at
Pinagtalleran, Calauag, Quezon. On January 16, 1974, the patent was approved and
the Register of Deeds of Quezon at Lucena City issued on February 4, 1974 Original
Certificate of Title No. P-17789. Both the free paten and the title specifically mandate
 that the land shall not be alienated nor encumbered within five years from the date of
the issuance of the patent (Sections 118 and 124 of CA No. 141, as amended).

Subsequently, the District Land Officer in Lucena City, acting upon reports that
respondent Morato had encumbered the land in violation of the condition of the
patent, conducted an investigation. Thereafter, it was established that the subject
land is a portion of the Calauag Bay, five (5) to six (6) feet deep under water during
high tide and two (2) feet deep at low tide, and not suitable to vegetation. Moreover,
on October 24, 1974, a portion of the land was mortgaged by respondent Morato to
respondents Nenita Co and Antonio Quilatan for P10,000.00 (pp. 2, 25, Folder of
Exhibits). The spouses Quilatan constructed a house on the land. Another portion of
the land was leased to Perfecto Advincula on February 2, 1976 at P100.00 a month,
where a warehouse was constructed.

On November 5, 1978, petitioner filed an amended complaint against respondents

Morato, spouses Nenita Co and Antonio Quilatan, and the Register of Deeds of
Quezon for the cancellation of title and reversion of a parcel of land to the public
domain, subject of a free patent in favor of respondent Morato, on the grounds that
the land is a foreshore land and was mortgaged and leased within the five-year
prohibitory period (p. 46, Records).

After trial, the lower court, on December 28, 1983, rendered a decision dismissing
petitioner's complaint. In finding for private respondents, the lower court ruled that
there was no violation of the 5-year period ban against alienating or encumbering the
land, because the land was merely leased and not alienated. It also found that the
mortgage to Nenita Co and Antonio Quilatan covered only the improvement and not
the land itself.

On appeal, the Court of Appeals affirmed the decision of the trial court. Thereafter, the Republic of
the Philippines filed the present petition. 
6

The Issues

Petitioner alleges that the following errors were committed by Respondent Court:  7

Respondent court erred in holding that the patent granted and certificate of title
issued to Respondent Morato cannot be cancelled and annulled since the certificate
of title becomes indefeasible after one year from the issuance of the title.

II

Respondent Court erred in holding that the questioned land is part of a disposable
public land and not a foreshore land.

The Court's Ruling

The petition is meritorious.

First Issue: Indefeasibility of a Free Patent Title

In resolving the first issue against petitioner, Respondent Court held:  8

. . . As ruled in Heirs of Gregorio Tengco vs. Heirs of Jose Alivalas, 168 SCRA 198. ".
. . The rule is well-settled that an original certificate of title issued on the strength of a
homestead patent partakes of the nature of a certificate of title issued in a judicial
proceeding, as long as the land disposed of is really part of the disposable land of
the public domain, and becomes indefeasible and incontrovertible upon the
expiration of one year from the date of promulgation of the order of the Director of
Lands for the issuance of the patent. (Republic v. Heirs of Carle, 105 Phil. 1227
(1959); Ingaran v. Ramelo, 107 Phil. 498 (1960); Lopez v. Padilla, (G.R. No. L-
27559, May 18, 1972, 45 SCRA 44). A homestead patent, one registered under the
Land Registration Act, becomes as indefeasible as a Torrens Title. (Pamintuan v.
San Agustin, 43 Phil. 558 (1982); El Hogar Filipino v. Olviga, 60 Phil. 17 (1934);
Duran v. Oliva, 113 Phil. 144 (1961); Pajomayo v. Manipon, G.R. No. L-33676, June
30, 1971, 39 SCRA 676). (p. 203).

Again, in Lopez vs. Court of Appeals, 169 SCRA 271, citing Iglesia ni Cristo

v. Hon. Judge, CFI of Nueva Ecija, Branch I, (123 SCRA 516 (1983) and Pajomayo,
et al. v. Manipon, et al. (39 SCRA 676 (1971) held that once a homestead patent
granted in accordance with the Public Land Act is registered pursuant to Section 122
of Act 496, the certificate of title issued in virtue of said patent has the force and
effect of a Torrens Title issued under the Land Registration Act.

Indefeasibility of the title, however, may not bar the State, thru the Solicitor General,
from filing an action for reversion, as ruled in Heirs of Gregorio Tengco v. Heirs of
Jose Aliwalas, (supra), as follows:

But, as correctly pointed out by the respondent Court of Appeals, Dr. Aliwalas' title to
the property having become incontrovertible, such may no longer be collaterally
attacked. If indeed there had been any fraud or misrepresentation in obtaining the
title, an action for reversion instituted by the Solicitor General would be the proper
remedy (Sec. 101, C.A. No. 141; Director of Lands v. Jugado, G.R. No. L-14702,
May 21, 1961, 2 SCRA 32; Lopez v. Padilla, supra). (p. 204).

Petitioner contends that the grant of Free Patent (IV-3) 275 and the subsequent issuance of Original
Certificate of Title No. P-17789 to Respondent Josefina L. Morato were subject to the conditions
provided for in Commonwealth Act (CA) No. 141. It alleges that on October 24, 1974, or nine (9)
months and eight (8) days after the grant of the patent, mortgaged a portion of the land" to
Respondent Nenita Co, who thereafter constructed a house thereon. Likewise, on February 2, 1976
and "within the five-year prohibitory period," Respondent Morato "leased a portion of the land to
Perfecto Advincula at a monthly rent of P100.00 who, shortly thereafter, constructed a house of
concrete materials on the subject land."  Further, petitioner argues that the defense of indefeasibility
9

of title is "inaccurate." The original certificate of title issued to Respondent Morato "contains the
seeds of its own cancellation": such certificate specifically states on its face that "it is subject to the
provisions of Sections 118, 119, 121, 122, 124 of CA No. 141, as amended."  10

Respondent Morato counters by stating that although a "portion of the land was previously leased," it
resulted "from the fact that Perfecto Advincula built a warehouse in the subject land without [her]
prior consent." The mortgage executed over the improvement "cannot be considered a violation of
the said grant since it can never affect the ownership."   She states further:
11
 . . . . the appeal of the petitioner was dismissed not because of the principle of
indefeasibility of title but mainly due to failure of the latter to support and prove the
alleged violations of respondent Morato. The records of this case will readily show
that although petitioner was able to establish that Morato committed some acts
during the prohibitory period of 5 years, a perusal thereof will also show that what
petitioner was able to prove never constituted a violation of the grant.  12

Respondent-Spouses Quilatan, on the other hand, state that the mortgage contract they entered into
with Respondent Morato "can never be considered as [an] 'alienation' inasmuch as the ownership
over the property remains with the owner."   Besides, it is the director of lands and not the Republic
13

of the Philippines who is the real party in interest in this case, contrary to the provision of the Public
Land Act which states that actions for reversion should be instituted by the solicitor general in the
name of Republic of the Philippines.  14

We find for petitioner.

Quoted below are relevant sections of Commonwealth Act No. 141, otherwise known as the Public
Land Act:

Sec. 118. Except in favor of the Government or any of its branches, units or
institutions, or legally constituted banking corporations, lands acquired under free
patent or homestead provisions shall not be subject to encumbrance or alienation
from the date of the approval of the application and for a term of five years from and
after the date of issuance of the patent or grant nor shall they become liable to the
satisfaction of any debt contracted prior to the expiration of said period; but the
improvements or crops on the land may be mortgaged or pledged to qualified
persons, associations, or corporations.

No alienation, transfer, or conveyance of any homestead after five years and before
twenty-five years after issuance of title shall be valid without the approval of the
Secretary of Agriculture and Natural Resources, which approval shall not be denied
except on constitutional and legal grounds. (As amended by Com. Act No. 456,
approved June 8, 1939.)

xxx xxx xxx

Sec. 121. Except with the consent of the grantee and the approval of the Secretary of
Agriculture and Natural Resources, and solely for educational, religious, or charitable
purposes or for a right of way, no corporation, association, or partnership may
acquire or have any right, title, interest, or property right whatsoever to any land
granted under the free patent, homestead, or individual sale provisions of this Act or
to any permanent improvement on such land. (As amended by Com. Act No. 615,
approved May 5, 1941)

Sec. 122. No land originally acquired in any manner under the provisions of this Act,
nor any permanent improvement on such land, shall be encumbered, alienation or
transferred, except to persons, corporations, association, or partnerships who may
acquire lands of the public domain under this Act or to corporations organized in the
Philippines authorized therefore by their charters.

Except in cases of hereditary successions, no land or any portion thereof originally

acquired under the free patent, homestead, or individual sale provisions of this Act,
 or any permanent improvement on such land, shall be transferred or assigned to any
individual, nor shall such land or any permanent improvement thereon be leased to
such individual, when the area of said land, added to that of this own, shall exceed
one hundred and forty-four hectares. Any transfer, assignment, or lease made in
violation hereto shall be null and void. (As amended by Com Act No. 615, Id.).

xxx xxx xxx

Sec. 124. Any acquisition, conveyance, alienation, transfer, or other contract made or
executed in violation of any of the provisions of sections one hundred and eighteen,
one hundred and twenty, one hundred and twenty-one, one hundred and twenty-two,
and one hundred and twenty-three of this Act shall be unlawful and null and void
from its execution and shall produce the effect of annulling and cancelling the grant,
title, patent, or permit originally issued, recognized or confirmed, actually or
presumatively, and cause the reversion of the property and its improvements to the
State. (Emphasis supplied)

The foregoing legal provisions clearly proscribe the encumbrance of a parcel of land acquired under
a free patent or homestead within five years from the grant of such patent. Furthermore, such
encumbrance results in the cancellation of the grant and the reversion of the land to the public
domain. Encumbrance has been defined as "[a]nything that impairs the use or transfer of property;
anything which constitutes a burden on the title; a burden or charge upon property; a claim or lien
upon property." It may be a "legal claim on an estate for the discharge of which the estate is liable;
and embarrassment of the estate or property so that it cannot be disposed of without being subject
to it; an estate, interest, or right in lands, diminishing their value to the general owner; a liability
resting upon an estate."   Do the contracts of lease and mortgage executed within five (5) years from
15

the issuance of the patent constitute an "encumbrance" and violate the terms and conditions of such
patent? Respondent Court answered in the negative:  16

From the evidence adduced by both parties, it has been proved that the area of the
portion of the land, subject matter of the lease contract (Exh. "B") executed by and
between Perfecto Advincula and Josefina L. Morato is only 10 x 12 square meters,
where the total area of the land granted to Morato is 1,265 square meters. It is clear
from this that the portion of the land leased by Advincula does not significantly affect
Morato's ownership and possession. Above all, the circumstances under which the
lease was executed do not reflect a voluntary and blatant intent to violate the
conditions provided for in the patent issued in her favor. On the contrary, Morato was
compelled to enter into that contract of lease
out of sympathy and the goodness of her heart to accommodate a fellow man. . . .

It is indisputable, however, that Respondent Morato cannot fully use or enjoy the land during the
duration of the lease contract. This restriction on the enjoyment of her property sufficiently meets the
definition of an encumbrance under Section 118 of the Public Land Act, because such contract
"impairs the use of the property" by the grantee. In a contract of lease which is consensual, bilateral,
onerous and commutative, the owner temporarily grants the use of his or her property to another
who undertakes to pay rent therefor.   During the term of the lease, the grantee of the patent cannot
17

enjoy the beneficial use of the land leased. As already observed, the Public Land Act does not
permit a grantee of a free patent from encumbering any portion of such land. Such encumbrance is a
ground for the nullification of the award.

Morato's resort to equity, i.e. that the lease was executed allegedly out of the goodness of her heart
without any intention of violating the law, cannot help her. Equity, which has been aptly described as
"justice outside legality," is applied only in the absence of, and never against, statutory law or judicial
rules of procedure. Positive rules prevail over all abstract arguments based on equity contra legem.  18

Respondents failed to justify their position that the mortgage should not be considered an
encumbrance. Indeed, we do not find any support for such contention. The questioned mortgage
falls squarely within the term "encumbrance" proscribed by Section 118 of the Public Land
Act.   Verily, a mortgage constitutes a legal limitation on the estate, and the foreclosure of such
19

mortgage would necessarily result in the auction of the property.  20

Even if only part of the property has been sold or alienated within the prohibited period of five years
from the issuance of the patent, such alienation is a sufficient cause for the reversion of the whole
estate to the State. As a condition for the grant of a free patent to an applicant, the law requires that
the land should not be encumbered, sold or alienated within five years from the issuance of
the patent. The sale or the alienation of part of the homestead violates that condition.  21

The prohibition against the encumbrance — lease and mortgage included — of a homestead which,
by analogy applies to a free patent, is mandated by the rationale for the grant, viz.:  22

It is well-known that the homestead laws were designed to distribute disposable

agricultural lots of the State to land-destitute citizens for their home and cultivation.
Pursuant to such benevolent intention the State prohibits the sale or incumbrance of
the homestead (Section 116) within five years after the grant of the patent. After that
five-year period the law impliedly permits alienation of the homestead; but in line with
the primordial purpose to favor the homesteader and his family the statute provides
that such alienation or conveyance (Section 117) shall be subject to the right of
repurchase by the homesteader, his widow or heirs within five years. This section
117 is undoubtedly a complement of section 116. It aims to preserve and keep in the
family of the homesteader that portion of public land which the State had gratuitously
given to him. It would, therefore, be in keeping with this fundamental idea to hold, as
we hold, that the right to repurchase exists not only when the original homesteader
makes the conveyance, but also when it is made by his widow or heirs. This
construction is clearly deducible from the terms of the statute.

By express provision of Section 118 of Commonwealth Act 141 and in conformity with the policy of
the law, any transfer or alienation of a free patent or homestead within five years from the issuance
of the patent is proscribed. Such transfer nullifies said alienation and constitutes a cause for the
reversion of the property to the State.

The prohibition against any alienation or encumbrance of the land grant is a proviso attached to the
approval of every application.   Prior to the fulfillment of the requirements of law, Respondent Morato
23

had only an inchoate right to the property; such property remained part of the public domain and,
therefore, not susceptible to alienation or encumbrance. Conversely, when a "homesteader has
complied with all the terms and conditions which entitled him to a patent for [a] particular tract of
public land, he acquires a vested interest therein and has to be regarded an equitable owner
thereof."   However, for Respondent Morato's title of ownership over the patented land to be
24

perfected, she should have complied with the requirements of the law, one of which was to keep the
property for herself and her family within the prescribed period of five (5) years. Prior to the
fulfillment of all requirements of the law, Respondent Morato's title over the property was incomplete.
Accordingly, if the requirements are not complied with, the State as the grantor could petition for the
annulment of the patent and the cancellation of the title.
Respondent Morato cannot use the doctrine of the indefeasibility of her Torrens title to bar the state
from questioning its transfer or encumbrance. The certificate of title issued to her clearly stipulated
that its award was "subject to the conditions provided for in Sections 118, 119, 121, 122 and 124 of
Commonwealth Act (CA) No. 141." Because she violated Section 118, the reversion of the property
to the public domain necessarily follows, pursuant to Section 124.

Second Issue: Foreshore Land

Revert to the Public Domain

There is yet another reason for granting this petition.

Although Respondent Court found that the subject land was foreshore land, it nevertheless
sustained the award thereof to Respondent Morato:  25

First of all, the issue here is whether the land in question, is really part of the
foreshore lands. The Supreme Court defines foreshore land in the case of Republic
vs. Alagad, 169 SCRA 455, 464, as follows:

Otherwise, where the rise in water level is due to, the "extraordinary"
action of nature, rainful, for instance, the portions inundated thereby
are not considered part of the bed or basin of the body of water in
question. It cannot therefore be said to be foreshore land but land
outside of the public dominion, and land capable of registration as
private property.

A foreshore land, on the other hand has been defined as follows:

. . . that part of (the land) which is between high

and low water and left dry by the flux and reflux of the
tides . . . . (Republic vs. C.A., Nos. L-43105, L-43190,
August 31, 1984, 131 SCRA 532; Government vs.
Colegio de San Jose, 53 Phil 423)

The strip of land that lies between the high and low
water marks and that is alternatively wet and dry
according to the flow of the tide. (Rep. vs. CA, supra,
539).

The factual findings of the lower court regarding the nature of the parcel of land in question reads:

Evidence disclose that the marginal area of the land radically

changed sometime in 1937 up to 1955 due to a strong earthquake
followed by frequent storms eventually eroding the land. From 1955
to 1968, however, gradual reclamation was undertaken by the lumber
company owned by the Moratos. Having thus restored the land thru
mostly human hands employed by the lumber company, the area
continued to be utilized by the owner of the sawmill up to the time of
his death in 1965. On or about March 17, 1973, there again was a
strong earthquake unfortunately causing destruction to hundreds of
residential houses fronting the Calauag Bay including the Santiago
Building, a cinema house constructed of concrete materials. The
 catastrophe totally caused the sinking of a concrete bridge at
Sumulong river also in the municipality of Calauag, Quezon.

On November 13, 1977 a typhoon code named "Unding" wrought

havoc as it lashed the main land of Calauag, Quezon causing again
great erosion this time than that which the area suffered in 1937. The
Court noted with the significance of the newspaper clipping entitled
"Baryo ng Mangingisda Kinain ng Dagat" (Exh. "11").

x x x           x x x          x x x

Evidently this was the condition of the land when on or about

December 5, 1972 defendant Josefina L. Morato filed with the Bureau
of Lands her free patent application. The defendant Josefina Morato
having taken possession of the land after the demise of Don Tomas
Morato, she introduced improvement and continued developing the
area, planted it to coconut tree. Having applied for a free patent,
defendant had the land area surveyed and an approved plan (Exh.
"9") based on the cadastral survey as early as 1927 (Exh. "10") was
secured. The area was declared for taxation purposes in the name of
defendant Josefina Morato denominated as Tax Declaration No.
4115 (Exh. "8") and the corresponding realty taxes religiously paid as
shown by Exh. "8-A"). (pp. 12-14, DECISION).

Being supported by substantial evidence and for failure of the appellant to show
cause which would warrant disturbance, the aforecited findings of the lower court,
must be respected.

Petitioner correctly contends, however, that Private Respondent Morato cannot own foreshore land:

Through the encroachment or erosion by the ebb and flow of the tide, a portion of the
subject land was invaded by the waves and sea advances. During high tide, at least
half of the land (632.5 square meters) is 6 feet deep under water and three (3) feet
deep during low tide. The Calauag Bay shore has extended up to a portion of the
questioned land.

While at the time of the grant of free patent to respondent Morato, the land was not
reached by the water, however, due to gradual sinking of the land caused by natural
calamities, the sea advances had permanently invaded a portion of subject land. As
disclosed at the trial, through the testimony of the court-appointed commissioner,
Engr. Abraham B. Pili, the land was under water during high tide in the month of
August 1978. The water margin covers half of the property, but during low tide, the
water is about a kilometer (TSN, July 19, 1979, p. 12). Also, in 1974, after the grant
of the patent, the land was covered with vegetation, but it disappeared in 1978 when
the land was reached by the tides (Exh. "E-1", "E-14"). In fact, in its decision dated
December 28, 1983, the lower court observed that the erosion of the land was
caused by natural calamities that struck the place in 1977 (Cf. Decision, pp. 17-18). 
26

Respondent-Spouses Quilatan argue, however, that it is "unfair and unjust if Josefina Morato will be
deprived of the whole property just because a portion thereof was immersed in water for reasons not
her own doing." 27
As a general rule, findings of facts of the Court of Appeals are binding and conclusive upon this
Court, unless such factual findings are palpably unsupported by the evidence on record or unless
the judgment itself is based on a misapprehension of facts.   The application for a free patent was
28

made in 1972. From the undisputed factual findings of the Court of Appeals, however, the land has
since become foreshore. Accordingly, it can no longer be subject of a free patent under the Public
Land Act. Government of the Philippine Islands vs. Cabañgis   explained the rationale for this
29

proscription:

Article 339, subsection 1, of the Civil Code, reads:

Art. 339. Property of public ownership is —

1. That devoted to public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, riverbanks, shores, roadsteads, and that of a
similar character.

xxx xxx xxx

Article 1, case 3, of the law of Waters of August 3, 1866, provides as follows:

Art. 1. The following are part of the national domain open to public use.

xxx xxx xxx

3. The Shores. By the shore is understood that space covered and uncovered by the
movement of the tide. Its interior or terrestrial limit is the line reached by the highest
equinoctal tides. Where the tides are not appreciable, the shore begins on the land
side at the line reached by the sea during ordinary storms or tempests.

In the case of Aragon vs. Insular Government (19 Phil. 223), with reference to article
339 of the Civil Code just quoted, this Court said:

We should not be understood, by this decision, to hold that in a case of gradual

encroachment or erosion by the ebb and flow of the tide, private property may not
become "property of public ownership." as defined in article 339 of the code, where it
appear that the owner has to all intents and purposes abandoned it and permitted it
to be totally destroyed, so as to become a part of the "playa" (shore of the sea),
"rada" (roadstead), or the like. . . .

In the Enciclopedia Juridica Española, volume XII, page 558, we read the following:

With relative frequency the opposite phenomenon occurs; that is, the sea advances
and private properties are permanently invaded by the waves, and in this case they
become part of the shore or breach. The then pass to the public domain, but the
owner thus dispossessed does not retain any right to the natural products resulting
from their new nature; it is a de facto case of eminent domain, and not subject to
indemnity.

In comparison, 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.

When the sea moved towards the estate and the tide invaded it, the invaded property became
foreshore land and passed to the realm of the public domain. In fact, the Court in Government
vs. Cabangis   annulled the registration of land subject of cadastral proceedings when the parcel
30

subsequently became foreshore land.   In another case, the Court voided the registration decree of
31

a trial court and held that said court had no jurisdiction to award foreshore land to any private person
or entity.   The subject land in this case, being foreshore land, should therefore be returned to the
32

public domain.

WHEREFORE, the petition is GRANTED. This Court hereby REVERSES and SETS ASIDE the
assailed Decision of Respondent Court and ORDERS the CANCELLATION of Free Patent No. (IV-
3) 275 issued to Respondent Morato and the subsequent Original Certificate of Title No. P-17789.
The subject land therefore REVERTS to the State. No costs.

SO ORDERED.

G.R. No. 133250           July 9, 2002

FRANCISCO I. CHAVEZ, petitioner,
vs.
PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY
DEVELOPMENT CORPORATION, respondents.

CARPIO, J.:

This is an original Petition for Mandamus with prayer for a writ of

preliminary injunction and a temporary restraining order. The petition seeks
to compel the Public Estates Authority ("PEA" for brevity) to disclose all
facts on PEA's then on-going renegotiations with Amari Coastal Bay and
Development Corporation ("AMARI" for brevity) to reclaim portions of
Manila Bay. The petition further seeks to enjoin PEA from signing a new
agreement with AMARI involving such reclamation.

The Facts

On November 20, 1973, the government, through the Commissioner of

Public Highways, signed a contract with the Construction and Development
Corporation of the Philippines ("CDCP" for brevity) to reclaim certain
foreshore and offshore areas of Manila Bay. The contract also included the
construction of Phases I and II of the Manila-Cavite Coastal Road. CDCP
obligated itself to carry out all the works in consideration of fifty percent of
the total reclaimed land.

On February 4, 1977, then President Ferdinand E. Marcos issued

Presidential Decree No. 1084 creating PEA. PD No. 1084 tasked PEA "to
reclaim land, including foreshore and submerged areas," and "to develop,
improve, acquire, x x x lease and sell any and all kinds of lands." 1 On the
same date, then President Marcos issued Presidential Decree No. 1085
transferring to PEA the "lands reclaimed in the foreshore and offshore of
the Manila Bay"2 under the Manila-Cavite Coastal Road and Reclamation
Project (MCCRRP).

On December 29, 1981, then President Marcos issued a memorandum

directing PEA to amend its contract with CDCP, so that "[A]ll future works in
MCCRRP x x x shall be funded and owned by PEA." Accordingly, PEA and
CDCP executed a Memorandum of Agreement dated December 29, 1981,
which stated:

"(i) CDCP shall undertake all reclamation, construction, and such

other works in the MCCRRP as may be agreed upon by the parties,
to be paid according to progress of works on a unit price/lump sum
basis for items of work to be agreed upon, subject to price escalation,
retention and other terms and conditions provided for in Presidential
Decree No. 1594. All the financing required for such works shall be
provided by PEA.

xxx

(iii) x x x CDCP shall give up all its development rights and hereby
agrees to cede and transfer in favor of PEA, all of the rights, title,
interest and participation of CDCP in and to all the areas of land
reclaimed by CDCP in the MCCRRP as of December 30, 1981 which
have not yet been sold, transferred or otherwise disposed of by
CDCP as of said date, which areas consist of approximately Ninety-
Nine Thousand Four Hundred Seventy Three (99,473) square meters
in the Financial Center Area covered by land pledge No. 5 and
approximately Three Million Three Hundred Eighty Two Thousand
 Eight Hundred Eighty Eight (3,382,888) square meters of reclaimed
areas at varying elevations above Mean Low Water Level located
outside the Financial Center Area and the First Neighborhood Unit." 3

On January 19, 1988, then President Corazon C. Aquino issued Special

Patent No. 3517, granting and transferring to PEA "the parcels of land so
reclaimed under the Manila-Cavite Coastal Road and Reclamation Project
(MCCRRP) containing a total area of one million nine hundred fifteen
thousand eight hundred ninety four (1,915,894) square meters."
Subsequently, on April 9, 1988, the Register of Deeds of the Municipality of
Parañaque issued Transfer Certificates of Title Nos. 7309, 7311, and 7312,
in the name of PEA, covering the three reclaimed islands known as the
"Freedom Islands" located at the southern portion of the Manila-Cavite
Coastal Road, Parañaque City. The Freedom Islands have a total land area
of One Million Five Hundred Seventy Eight Thousand Four Hundred and
Forty One (1,578,441) square meters or 157.841 hectares.

On April 25, 1995, PEA entered into a Joint Venture Agreement ("JVA" for
brevity) with AMARI, a private corporation, to develop the Freedom Islands.
The JVA also required the reclamation of an additional 250 hectares of
submerged areas surrounding these islands to complete the configuration
in the Master Development Plan of the Southern Reclamation Project-
MCCRRP. PEA and AMARI entered into the JVA through negotiation
without public bidding.4 On April 28, 1995, the Board of Directors of PEA, in
its Resolution No. 1245, confirmed the JVA. 5 On June 8, 1995, then
President Fidel V. Ramos, through then Executive Secretary Ruben Torres,
approved the JVA.6

On November 29, 1996, then Senate President Ernesto Maceda delivered

a privilege speech in the Senate and denounced the JVA as the
"grandmother of all scams." As a result, the Senate Committee on
Government Corporations and Public Enterprises, and the Committee on
Accountability of Public Officers and Investigations, conducted a joint
investigation. The Senate Committees reported the results of their
investigation in Senate Committee Report No. 560 dated September 16,
1997.7 Among the conclusions of their report are: (1) the reclaimed lands
PEA seeks to transfer to AMARI under the JVA are lands of the public
domain which the government has not classified as alienable lands and
therefore PEA cannot alienate these lands; (2) the certificates of title
covering the Freedom Islands are thus void, and (3) the JVA itself is illegal.
On December 5, 1997, then President Fidel V. Ramos issued Presidential
Administrative Order No. 365 creating a Legal Task Force to conduct a
study on the legality of the JVA in view of Senate Committee Report No.
560. The members of the Legal Task Force were the Secretary of
Justice,8 the Chief Presidential Legal Counsel,9 and the Government
Corporate Counsel.10 The Legal Task Force upheld the legality of the JVA,
contrary to the conclusions reached by the Senate Committees. 11

On April 4 and 5, 1998, the Philippine Daily Inquirer and Today published

reports that there were on-going renegotiations between PEA and AMARI
under an order issued by then President Fidel V. Ramos. According to
these reports, PEA Director Nestor Kalaw, PEA Chairman Arsenio Yulo
and retired Navy Officer Sergio Cruz composed the negotiating panel of
PEA.

On April 13, 1998, Antonio M. Zulueta filed before the Court a Petition for
Prohibition with Application for the Issuance of a Temporary Restraining
Order and Preliminary Injunction docketed as G.R. No. 132994 seeking to
nullify the JVA. The Court dismissed the petition "for unwarranted disregard
of judicial hierarchy, without prejudice to the refiling of the case before the
proper court."12

On April 27, 1998, petitioner Frank I. Chavez ("Petitioner" for brevity) as a

taxpayer, filed the instant Petition for Mandamus with Prayer for the
Issuance of a Writ of Preliminary Injunction and Temporary Restraining
Order. Petitioner contends the government stands to lose billions of pesos
in the sale by PEA of the reclaimed lands to AMARI. Petitioner prays that
PEA publicly disclose the terms of any renegotiation of the JVA, invoking
Section 28, Article II, and Section 7, Article III, of the 1987 Constitution on
the right of the people to information on matters of public concern.
Petitioner assails the sale to AMARI of lands of the public domain as a
blatant violation of Section 3, Article XII of the 1987 Constitution prohibiting
the sale of alienable lands of the public domain to private corporations.
Finally, petitioner asserts that he seeks to enjoin the loss of billions of
pesos in properties of the State that are of public dominion.

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

In a Resolution dated March 23, 1999, the Court gave due course to the
petition and required the parties to file their respective memoranda.

On March 30, 1999, PEA and AMARI signed the Amended Joint Venture
Agreement ("Amended JVA," for brevity). On May 28, 1999, the Office of
the President under the administration of then President Joseph E. Estrada
approved the Amended JVA.

Due to the approval of the Amended JVA by the Office of the President,
petitioner now prays that on "constitutional and statutory grounds the
renegotiated contract be declared null and void." 14

The Issues

The issues raised by petitioner, PEA 15 and AMARI16 are as follows:

I. WHETHER THE PRINCIPAL RELIEFS PRAYED FOR IN THE

PETITION ARE MOOT AND ACADEMIC BECAUSE OF
SUBSEQUENT EVENTS;

II. WHETHER THE PETITION MERITS DISMISSAL FOR FAILING

TO OBSERVE THE PRINCIPLE GOVERNING THE HIERARCHY OF
COURTS;

III. WHETHER THE PETITION MERITS DISMISSAL FOR NON-

EXHAUSTION OF ADMINISTRATIVE REMEDIES;

IV. WHETHER PETITIONER HAS LOCUS STANDI TO BRING THIS

SUIT;

V. WHETHER THE CONSTITUTIONAL RIGHT TO INFORMATION

INCLUDES OFFICIAL INFORMATION ON ON-GOING
NEGOTIATIONS BEFORE A FINAL AGREEMENT;

VI. WHETHER THE STIPULATIONS IN THE AMENDED JOINT

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

VII. WHETHER THE COURT IS THE PROPER FORUM FOR

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

The Court's Ruling

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

The petition prays that PEA publicly disclose the "terms and conditions of
the on-going negotiations for a new agreement." The petition also prays
that the Court enjoin PEA from "privately entering into, perfecting and/or
executing any new agreement with AMARI."

PEA and AMARI claim the petition is now moot and academic because
AMARI furnished petitioner on June 21, 1999 a copy of the signed
Amended JVA containing the terms and conditions agreed upon in the
renegotiations. Thus, PEA has satisfied petitioner's prayer for a public
disclosure of the renegotiations. Likewise, petitioner's prayer to enjoin the
signing of the Amended JVA is now moot because PEA and AMARI have
already signed the Amended JVA on March 30, 1999. Moreover, the Office
of the President has approved the Amended JVA on May 28, 1999.

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

We rule that the signing of the Amended JVA by PEA and AMARI and its
approval by the President cannot operate to moot the petition and divest
the Court of its jurisdiction. PEA and AMARI have still to implement the
Amended JVA. The prayer to enjoin the signing of the Amended JVA on
constitutional grounds necessarily includes preventing its implementation if
in the meantime PEA and AMARI have signed one in violation of the
Constitution. Petitioner's principal basis in assailing the renegotiation of the
JVA is its violation of Section 3, Article XII of the Constitution, which
prohibits the government from alienating lands of the public domain to
private corporations. If the Amended JVA indeed violates the Constitution,
it is the duty of the Court to enjoin its implementation, and if already
implemented, to annul the effects of such unconstitutional contract.

The Amended JVA is not an ordinary commercial contract but one which
seeks to transfer title and ownership to 367.5 hectares of reclaimed
lands and submerged areas of Manila Bay to a single private
corporation. It now becomes more compelling for the Court to resolve the
issue to insure the government itself does not violate a provision of the
Constitution intended to safeguard the national patrimony. Supervening
events, whether intended or accidental, cannot prevent the Court from
rendering a decision if there is a grave violation of the Constitution. In the
instant case, if the Amended JVA runs counter to the Constitution, the
Court can still prevent the transfer of title and ownership of alienable lands
of the public domain in the name of AMARI. Even in cases where
supervening events had made the cases moot, the Court did not hesitate to
resolve the legal or constitutional issues raised to formulate controlling
principles to guide the bench, bar, and the public. 17

Also, the instant petition is a case of first impression. All previous decisions
of the Court involving Section 3, Article XII of the 1987 Constitution, or its
counterpart provision in the 1973 Constitution, 18 covered agricultural
lands sold to private corporations which acquired the lands from private
parties. The transferors of the private corporations claimed or could claim
the right to judicial confirmation of their imperfect titles19 under Title
II of Commonwealth Act. 141 ("CA No. 141" for brevity). In the instant case,
AMARI seeks to acquire from PEA, a public corporation, reclaimed lands
and submerged areas for non-agricultural purposes by purchase under
PD No. 1084 (charter of PEA) and Title III of CA No. 141. Certain
undertakings by AMARI under the Amended JVA constitute the
consideration for the purchase. Neither AMARI nor PEA can claim judicial
confirmation of their titles because the lands covered by the Amended JVA
are newly reclaimed or still to be reclaimed. Judicial confirmation of
imperfect title requires open, continuous, exclusive and notorious
occupation of agricultural lands of the public domain for at least thirty years
since June 12, 1945 or earlier. Besides, the deadline for filing applications
for judicial confirmation of imperfect title expired on December 31, 1987. 20
Lastly, there is a need to resolve immediately the constitutional issue raised
in this petition because of the possible transfer at any time by PEA to
AMARI of title and ownership to portions of the reclaimed lands. Under the
Amended JVA, PEA is obligated to transfer to AMARI the latter's seventy
percent proportionate share in the reclaimed areas as the reclamation
progresses. The Amended JVA even allows AMARI to mortgage at any
time the entire reclaimed area to raise financing for the reclamation
project.21

Second issue: whether the petition merits dismissal for failing to

observe the principle governing the hierarchy of courts.

PEA and AMARI claim petitioner ignored the judicial hierarchy by seeking
relief directly from the Court. The principle of hierarchy of courts applies
generally to cases involving factual questions. As it is not a trier of facts,
the Court cannot entertain cases involving factual issues. The instant case,
however, raises constitutional issues of transcendental importance to the
public.22 The Court can resolve this case without determining any factual
issue related to the case. Also, the instant case is a petition for mandamus
which falls under the original jurisdiction of the Court under Section 5,
Article VIII of the Constitution. We resolve to exercise primary jurisdiction
over the instant case.

Third issue: whether the petition merits dismissal for non-exhaustion

of administrative remedies.

PEA faults petitioner for seeking judicial intervention in compelling PEA to

disclose publicly certain information without first asking PEA the needed
information. PEA claims petitioner's direct resort to the Court violates the
principle of exhaustion of administrative remedies. It also violates the rule
that mandamus may issue only if there is no other plain, speedy and
adequate remedy in the ordinary course of law.

PEA distinguishes the instant case from Tañada v. Tuvera 23 where the
Court granted the petition for mandamus even if the petitioners there did
not initially demand from the Office of the President the publication of the
presidential decrees. PEA points out that in Tañada, the Executive
Department had an affirmative statutory duty under Article 2 of the Civil
Code24 and Section 1 of Commonwealth Act No. 63825 to publish the
presidential decrees. There was, therefore, no need for the petitioners in
Tañada to make an initial demand from the Office of the President. In the
instant case, PEA claims it has no affirmative statutory duty to disclose
publicly information about its renegotiation of the JVA. Thus, PEA asserts
that the Court must apply the principle of exhaustion of administrative
remedies to the instant case in view of the failure of petitioner here to
demand initially from PEA the needed information.

The original JVA sought to dispose to AMARI public lands held by PEA, a
government corporation. Under Section 79 of the Government Auditing
Code,26 the disposition of government lands to private parties requires
public bidding. PEA was under a positive legal duty to disclose to the
public the terms and conditions for the sale of its lands. The law
obligated PEA to make this public disclosure even without demand from
petitioner or from anyone. PEA failed to make this public disclosure
because the original JVA, like the Amended JVA, was the result of
a negotiated contract, not of a public bidding. Considering that PEA had
an affirmative statutory duty to make the public disclosure, and was even in
breach of this legal duty, petitioner had the right to seek direct judicial
intervention.

Moreover, and this alone is determinative of this issue, the principle of

exhaustion of administrative remedies does not apply when the issue
involved is a purely legal or constitutional question. 27 The principal issue in
the instant case is the capacity of AMARI to acquire lands held by PEA in
view of the constitutional ban prohibiting the alienation of lands of the public
domain to private corporations. We rule that the principle of exhaustion of
administrative remedies does not apply in the instant case.

Fourth issue: whether petitioner has locus standi to bring this suit

PEA argues that petitioner has no standing to

institute mandamus proceedings to enforce his constitutional right to
information without a showing that PEA refused to perform an affirmative
duty imposed on PEA by the Constitution. PEA also claims that petitioner
has not shown that he will suffer any concrete injury because of the signing
or implementation of the Amended JVA. Thus, there is no actual
controversy requiring the exercise of the power of judicial review.

The petitioner has standing to bring this taxpayer's suit because the petition
seeks to compel PEA to comply with its constitutional duties. There are two
constitutional issues involved here. First is the right of citizens to
information on matters of public concern. Second is the application of a
constitutional provision intended to insure the equitable distribution of
alienable lands of the public domain among Filipino citizens. The thrust of
the first issue is to compel PEA to disclose publicly information on the sale
of government lands worth billions of pesos, information which the
Constitution and statutory law mandate PEA to disclose. The thrust of the
second issue is to prevent PEA from alienating hundreds of hectares of
alienable lands of the public domain in violation of the Constitution,
compelling PEA to comply with a constitutional duty to the nation.

Moreover, the petition raises matters of transcendental importance to the

public. In Chavez v. PCGG,28 the Court upheld the right of a citizen to bring
a taxpayer's suit on matters of transcendental importance to the public,
thus -

"Besides, petitioner emphasizes, the matter of recovering the ill-

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

Moreover, the mere fact that he is a citizen satisfies the requirement

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

xxx

In Tañada v. Tuvera, the Court asserted that when the issue

concerns a public right and the object of mandamus is to obtain the
enforcement of a public duty, the people are regarded as the real
parties in interest; and because it is sufficient that petitioner is a
citizen and as such is interested in the execution of the laws, he need
not show that he has any legal or special interest in the result of the
action. In the aforesaid case, the petitioners sought to enforce their
right to be informed on matters of public concern, a right then
 recognized in Section 6, Article IV of the 1973 Constitution, in
connection with the rule that laws in order to be valid and enforceable
must be published in the Official Gazette or otherwise effectively
promulgated. In ruling for the petitioners' legal standing, the Court
declared that the right they sought to be enforced 'is a public right
recognized by no less than the fundamental law of the land.'

Legaspi v. Civil Service Commission, while reiterating Tañada, further

declared that 'when a mandamus proceeding involves the assertion
of a public right, the requirement of personal interest is satisfied by
the mere fact that petitioner is a citizen and, therefore, part of the
general 'public' which possesses the right.'

Further, in Albano v. Reyes, we said that while expenditure of public

funds may not have been involved under the questioned contract for
the development, management and operation of the Manila
International Container Terminal, 'public interest [was] definitely
involved considering the important role [of the subject contract] . . . in
the economic development of the country and the magnitude of the
financial consideration involved.' We concluded that, as a
consequence, the disclosure provision in the Constitution would
constitute sufficient authority for upholding the petitioner's standing.

Similarly, the instant petition is anchored on the right of the people to

information and access to official records, documents and papers —
a right guaranteed under Section 7, Article III of the 1987
Constitution. Petitioner, a former solicitor general, is a Filipino citizen.
Because of the satisfaction of the two basic requisites laid down by
decisional law to sustain petitioner's legal standing, i.e. (1) the
enforcement of a public right (2) espoused by a Filipino citizen, we
rule that the petition at bar should be allowed."

We rule that since the instant petition, brought by a citizen, involves the
enforcement of constitutional rights - to information and to the equitable
diffusion of natural resources - matters of transcendental public importance,
the petitioner has the requisite locus standi.

Fifth issue: whether the constitutional right to information includes

official information on on-going negotiations before a final
agreement.
Section 7, Article III of the Constitution explains the people's right to
information on matters of public concern in this manner:

"Sec. 7. The right of the people to information on matters of public

concern shall be recognized. Access to official records, and to
documents, and papers pertaining to official acts, transactions,
or decisions, as well as to government research data used as basis
for policy development, shall be afforded the citizen, subject to such
limitations as may be provided by law." (Emphasis supplied)

The State policy of full transparency in all transactions involving public

interest reinforces the people's right to information on matters of public
concern. This State policy is expressed in Section 28, Article II of the
Constitution, thus:

"Sec. 28. Subject to reasonable conditions prescribed by law, the

State adopts and implements a policy of full public disclosure of
all its transactions involving public interest." (Emphasis supplied)

These twin provisions of the Constitution seek to promote transparency in

policy-making and in the operations of the government, as well as provide
the people sufficient information to exercise effectively other constitutional
rights. These twin provisions are essential to the exercise of freedom of
expression. If the government does not disclose its official acts,
transactions and decisions to citizens, whatever citizens say, even if
expressed without any restraint, will be speculative and amount to nothing.
These twin provisions are also essential to hold public officials "at all times
x x x accountable to the people,"29 for unless citizens have the proper
information, they cannot hold public officials accountable for anything.
Armed with the right information, citizens can participate in public
discussions leading to the formulation of government policies and their
effective implementation. An informed citizenry is essential to the existence
and proper functioning of any democracy. As explained by the Court
in Valmonte v. Belmonte, Jr.30 –

"An essential element of these freedoms is to keep open a continuing

dialogue or process of communication between the government and
the people. It is in the interest of the State that the channels for free
political discussion be maintained to the end that the government
may perceive and be responsive to the people's will. Yet, this open
 dialogue can be effective only to the extent that the citizenry is
informed and thus able to formulate its will intelligently. Only when the
participants in the discussion are aware of the issues and have
access to information relating thereto can such bear fruit."

PEA asserts, citing Chavez v. PCGG,31 that in cases of on-going

negotiations the right to information is limited to "definite propositions of the
government." PEA maintains the right does not include access to "intra-
agency or inter-agency recommendations or communications during the
stage when common assertions are still in the process of being formulated
or are in the 'exploratory stage'."

Also, AMARI contends that petitioner cannot invoke the right at the pre-
decisional stage or before the closing of the transaction. To support its
contention, AMARI cites the following discussion in the 1986 Constitutional
Commission:

"Mr. Suarez. And when we say 'transactions' which should be

distinguished from contracts, agreements, or treaties or whatever,
does the Gentleman refer to the steps leading to the consummation
of the contract, or does he refer to the contract itself?

Mr. Ople: The 'transactions' used here, I suppose is generic and

therefore, it can cover both steps leading to a contract and
already a consummated contract, Mr. Presiding Officer.

Mr. Suarez: This contemplates inclusion of negotiations leading

to the consummation of the transaction.

Mr. Ople: Yes, subject only to reasonable safeguards on the

national interest.

Mr. Suarez: Thank you."32 (Emphasis supplied)

AMARI argues there must first be a consummated contract before

petitioner can invoke the right. Requiring government officials to reveal their
deliberations at the pre-decisional stage will degrade the quality of
decision-making in government agencies. Government officials will hesitate
to express their real sentiments during deliberations if there is immediate
public dissemination of their discussions, putting them under all kinds of
pressure before they decide.
We must first distinguish between information the law on public bidding
requires PEA to disclose publicly, and information the constitutional right to
information requires PEA to release to the public. Before the consummation
of the contract, PEA must, on its own and without demand from anyone,
disclose to the public matters relating to the disposition of its property.
These include the size, location, technical description and nature of the
property being disposed of, the terms and conditions of the disposition, the
parties qualified to bid, the minimum price and similar information. PEA
must prepare all these data and disclose them to the public at the start of
the disposition process, long before the consummation of the contract,
because the Government Auditing Code requires public bidding. If PEA
fails to make this disclosure, any citizen can demand from PEA this
information at any time during the bidding process.

Information, however, on on-going evaluation or review of bids or

proposals being undertaken by the bidding or review committee is not
immediately accessible under the right to information. While the evaluation
or review is still on-going, there are no "official acts, transactions, or
decisions" on the bids or proposals. However, once the committee makes
its official recommendation, there arises a "definite proposition" on the
part of the government. From this moment, the public's right to information
attaches, and any citizen can access all the non-proprietary information
leading to such definite proposition. In Chavez v. PCGG,33 the Court ruled
as follows:

"Considering the intent of the framers of the Constitution, we believe

that it is incumbent upon the PCGG and its officers, as well as other
government representatives, to disclose sufficient public information
on any proposed settlement they have decided to take up with the
ostensible owners and holders of ill-gotten wealth. Such information,
though, must pertain to definite propositions of the government,
not necessarily to intra-agency or inter-agency recommendations or
communications during the stage when common assertions are still in
the process of being formulated or are in the "exploratory" stage.
There is need, of course, to observe the same restrictions on
disclosure of information in general, as discussed earlier – such as on
matters involving national security, diplomatic or foreign relations,
intelligence and other classified information." (Emphasis supplied)
Contrary to AMARI's contention, the commissioners of the 1986
Constitutional Commission understood that the right to
information "contemplates inclusion of negotiations leading to the
consummation of the transaction." Certainly, a consummated contract is
not a requirement for the exercise of the right to information. Otherwise, the
people can never exercise the right if no contract is consummated, and if
one is consummated, it may be too late for the public to expose its
defects.1âwphi1.nêt

Requiring a consummated contract will keep the public in the dark until the
contract, which may be grossly disadvantageous to the government or
even illegal, becomes a fait accompli. This negates the State policy of full
transparency on matters of public concern, a situation which the framers of
the Constitution could not have intended. Such a requirement will prevent
the citizenry from participating in the public discussion of
any proposed contract, effectively truncating a basic right enshrined in the
Bill of Rights. We can allow neither an emasculation of a constitutional
right, nor a retreat by the State of its avowed "policy of full disclosure of all
its transactions involving public interest."

The right covers three categories of information which are "matters of

public concern," namely: (1) official records; (2) documents and papers
pertaining to official acts, transactions and decisions; and (3) government
research data used in formulating policies. The first category refers to any
document that is part of the public records in the custody of government
agencies or officials. The second category refers to documents and papers
recording, evidencing, establishing, confirming, supporting, justifying or
explaining official acts, transactions or decisions of government agencies or
officials. The third category refers to research data, whether raw, collated
or processed, owned by the government and used in formulating
government policies.

The information that petitioner may access on the renegotiation of the JVA
includes evaluation reports, recommendations, legal and expert opinions,
minutes of meetings, terms of reference and other documents attached to
such reports or minutes, all relating to the JVA. However, the right to
information does not compel PEA to prepare lists, abstracts, summaries
and the like relating to the renegotiation of the JVA. 34 The right only affords
access to records, documents and papers, which means the opportunity to
inspect and copy them. One who exercises the right must copy the records,
documents and papers at his expense. The exercise of the right is also
subject to reasonable regulations to protect the integrity of the public
records and to minimize disruption to government operations, like rules
specifying when and how to conduct the inspection and copying. 35

The right to information, however, does not extend to matters recognized

as privileged information under the separation of powers. 36 The right does
not also apply to information on military and diplomatic secrets, information
affecting national security, and information on investigations of crimes by
law enforcement agencies before the prosecution of the accused, which
courts have long recognized as confidential. 37 The right may also be subject
to other limitations that Congress may impose by law.

There is no claim by PEA that the information demanded by petitioner is

privileged information rooted in the separation of powers. The information
does not cover Presidential conversations, correspondences, or
discussions during closed-door Cabinet meetings which, like internal
deliberations of the Supreme Court and other collegiate courts, or
executive sessions of either house of Congress, 38 are recognized as
confidential. This kind of information cannot be pried open by a co-equal
branch of government. A frank exchange of exploratory ideas and
assessments, free from the glare of publicity and pressure by interested
parties, is essential to protect the independence of decision-making of
those tasked to exercise Presidential, Legislative and Judicial power. 39 This
is not the situation in the instant case.

We rule, therefore, that the constitutional right to information includes

official information on on-going negotiations before a final contract. The
information, however, must constitute definite propositions by the
government and should not cover recognized exceptions like privileged
information, military and diplomatic secrets and similar matters affecting
national security and public order.40 Congress has also prescribed other
limitations on the right to information in several legislations. 41

Sixth issue: whether stipulations in the Amended JVA for the transfer
to AMARI of lands, reclaimed or to be reclaimed, violate the
Constitution.

The Regalian Doctrine

The ownership of lands reclaimed from foreshore and submerged areas is
rooted in the Regalian doctrine which holds that the State owns all lands
and waters of the public domain. Upon the Spanish conquest of the
Philippines, ownership of all "lands, territories and possessions" in the
Philippines passed to the Spanish Crown.42 The King, as the sovereign
ruler and representative of the people, acquired and owned all lands and
territories in the Philippines except those he disposed of by grant or sale to
private individuals.

The 1935, 1973 and 1987 Constitutions adopted the Regalian doctrine
substituting, however, the State, in lieu of the King, as the owner of all
lands and waters of the public domain. The Regalian doctrine is the
foundation of the time-honored principle of land ownership that "all lands
that were not acquired from the Government, either by purchase or by
grant, belong to the public domain."43 Article 339 of the Civil Code of 1889,
which is now Article 420 of the Civil Code of 1950, incorporated the
Regalian doctrine.

Ownership and Disposition of Reclaimed Lands

The Spanish Law of Waters of 1866 was the first statutory law governing
the ownership and disposition of reclaimed lands in the Philippines. On
May 18, 1907, the Philippine Commission enacted Act No. 1654 which
provided for the lease, but not the sale, of reclaimed lands of the
government to corporations and individuals. Later, on November 29,
1919, the Philippine Legislature approved Act No. 2874, the Public Land
Act, which authorized the lease, but not the sale, of reclaimed lands of
the government to corporations and individuals. On November 7, 1936,
the National Assembly passed Commonwealth Act No. 141, also known as
the Public Land Act, which authorized the lease, but not the sale, of
reclaimed lands of the government to corporations and individuals.
CA No. 141 continues to this day as the general law governing the
classification and disposition of lands of the public domain.

The Spanish Law of Waters of 1866 and the Civil Code of 1889

Under the Spanish Law of Waters of 1866, the shores, bays, coves, inlets
and all waters within the maritime zone of the Spanish territory belonged to
the public domain for public use.44 The Spanish Law of Waters of 1866
allowed the reclamation of the sea under Article 5, which provided as
follows:

"Article 5. Lands reclaimed from the sea in consequence of works

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

Under the Spanish Law of Waters, land reclaimed from the sea belonged to
the party undertaking the reclamation, provided the government issued the
necessary permit and did not reserve ownership of the reclaimed land to
the State.

Article 339 of the Civil Code of 1889 defined property of public dominion as
follows:

"Art. 339. Property of public dominion is –

1. That devoted to public use, such as roads, canals, rivers, torrents,

ports and bridges constructed by the State, riverbanks, shores,
roadsteads, and that of a similar character;

2. That belonging exclusively to the State which, without being of

general public use, is employed in some public service, or in the
development of the national wealth, such as walls, fortresses, and
other works for the defense of the territory, and mines, until granted
to private individuals."

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

Property of public dominion referred not only to property devoted to public

use, but also to property not so used but employed to develop the
national wealth. This class of property constituted property of public
dominion although employed for some economic or commercial activity to
increase the national wealth.
Article 341 of the Civil Code of 1889 governed the re-classification of
property of public dominion into private property, to wit:

"Art. 341. Property of public dominion, when no longer devoted to

public use or to the defense of the territory, shall become a part of the
private property of the State."

This provision, however, was not self-executing. The legislature, or the

executive department pursuant to law, must declare the property no longer
needed for public use or territorial defense before the government could
lease or alienate the property to private parties. 45

Act No. 1654 of the Philippine Commission

On May 8, 1907, the Philippine Commission enacted Act No. 1654 which
regulated the lease of reclaimed and foreshore lands. The salient
provisions of this law were as follows:

"Section 1. The control and disposition of the foreshore as

defined in existing law, and the title to all Government or public
lands made or reclaimed by the Government by dredging or
filling or otherwise throughout the Philippine Islands, shall be
retained by the Government without prejudice to vested rights and
without prejudice to rights conceded to the City of Manila in the
Luneta Extension.

Section 2. (a) The Secretary of the Interior shall cause all

Government or public lands made or reclaimed by the Government
by dredging or filling or otherwise to be divided into lots or blocks,
with the necessary streets and alleyways located thereon, and shall
cause plats and plans of such surveys to be prepared and filed with
the Bureau of Lands.

(b) Upon completion of such plats and plans the Governor-General

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

xxx
 (e) The leases above provided for shall be disposed of to the
highest and best bidder therefore, subject to such regulations and
safeguards as the Governor-General may by executive order
prescribe." (Emphasis supplied)

Act No. 1654 mandated that the government should retain title to all
lands reclaimed by the government. The Act also vested in the
government control and disposition of foreshore lands. Private parties could
lease lands reclaimed by the government only if these lands were no longer
needed for public purpose. Act No. 1654 mandated public bidding in the
lease of government reclaimed lands. Act No. 1654 made government
reclaimed lands sui generis in that unlike other public lands which the
government could sell to private parties, these reclaimed lands were
available only for lease to private parties.

Act No. 1654, however, did not repeal Section 5 of the Spanish Law of
Waters of 1866. Act No. 1654 did not prohibit private parties from
reclaiming parts of the sea under Section 5 of the Spanish Law of Waters.
Lands reclaimed from the sea by private parties with government
permission remained private lands.

Act No. 2874 of the Philippine Legislature

On November 29, 1919, the Philippine Legislature enacted Act No. 2874,
the Public Land Act.46 The salient provisions of Act No. 2874, on reclaimed
lands, were as follows:

"Sec. 6. The Governor-General, upon the recommendation of the

Secretary of Agriculture and Natural Resources, shall from time
to time classify the lands of the public domain into –

(a) Alienable or disposable,

(b) Timber, and

(c) Mineral lands, x x x.

Sec. 7. For the purposes of the government and disposition of

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

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

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

xxx

Sec. 55. Any tract of land of the public domain which, being neither
timber nor mineral land, shall be classified as suitable for
residential purposes or for commercial, industrial, or other
productive purposes other than agricultural purposes, and shall
be open to disposition or concession, shall be disposed of under the
provisions of this chapter, and not otherwise.

Sec. 56. The lands disposable under this title shall be classified

as follows:

(a) Lands reclaimed by the Government by dredging,

filling, or other means;

(b) Foreshore;

(c) Marshy lands or lands covered with water bordering upon

the shores or banks of navigable lakes or rivers;

(d) Lands not included in any of the foregoing classes.

x x x.

Sec. 58. The lands comprised in classes (a), (b), and (c) of

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

Section 56 of Act No. 2874 stated that lands "disposable under this
title48 shall be classified" as government reclaimed, foreshore and marshy
lands, as well as other lands. All these lands, however, must be suitable for
residential, commercial, industrial or other productive non-
agricultural purposes. These provisions vested upon the Governor-
General the power to classify inalienable lands of the public domain into
disposable lands of the public domain. These provisions also empowered
the Governor-General to classify further such disposable lands of the public
domain into government reclaimed, foreshore or marshy lands of the public
domain, as well as other non-agricultural lands.

Section 58 of Act No. 2874 categorically mandated that disposable lands of

the public domain classified as government reclaimed, foreshore and
marshy lands "shall be disposed of to private parties by lease only and
not otherwise." The Governor-General, before allowing the lease of these
lands to private parties, must formally declare that the lands were "not
necessary for the public service." Act No. 2874 reiterated the State policy to
lease and not to sell government reclaimed, foreshore and marshy lands of
the public domain, a policy first enunciated in 1907 in Act No. 1654.
Government reclaimed, foreshore and marshy lands remained sui generis,
as the only alienable or disposable lands of the public domain that the
government could not sell to private parties.

The rationale behind this State policy is obvious. Government reclaimed,

foreshore and marshy public lands for non-agricultural purposes retain their
inherent potential as areas for public service. This is the reason the
government prohibited the sale, and only allowed the lease, of these lands
to private parties. The State always reserved these lands for some future
public service.

Act No. 2874 did not authorize the reclassification of government

reclaimed, foreshore and marshy lands into other non-agricultural lands
under Section 56 (d). Lands falling under Section 56 (d) were the only
lands for non-agricultural purposes the government could sell to private
parties. Thus, under Act No. 2874, the government could not sell
government reclaimed, foreshore and marshy lands to private parties,
unless the legislature passed a law allowing their sale.49

Act No. 2874 did not prohibit private parties from reclaiming parts of the
sea pursuant to Section 5 of the Spanish Law of Waters of 1866. Lands
reclaimed from the sea by private parties with government permission
remained private lands.

Dispositions under the 1935 Constitution

On May 14, 1935, the 1935 Constitution took effect upon its ratification by
the Filipino people. The 1935 Constitution, in adopting the Regalian
doctrine, declared in Section 1, Article XIII, that –

"Section 1. All agricultural, timber, and mineral lands of the public

domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy and other natural resources of the
Philippines belong to the State, and their disposition, exploitation,
development, or utilization shall be limited to citizens of the
Philippines or to corporations or associations at least sixty per
centum of the capital of which is owned by such citizens, subject to
any existing right, grant, lease, or concession at the time of the
inauguration of the Government established under this
Constitution. Natural resources, with the exception of public
agricultural land, shall not be alienated, and no license,
concession, or lease for the exploitation, development, or utilization of
any of the natural resources shall be granted for a period exceeding
twenty-five years, renewable for another twenty-five years, except as
to water rights for irrigation, water supply, fisheries, or industrial uses
other than the development of water power, in which cases beneficial
use may be the measure and limit of the grant." (Emphasis supplied)

The 1935 Constitution barred the alienation of all natural resources except
public agricultural lands, which were the only natural resources the State
could alienate. Thus, foreshore lands, considered part of the State's natural
resources, became inalienable by constitutional fiat, available only for lease
for 25 years, renewable for another 25 years. The government could
alienate foreshore lands only after these lands were reclaimed and
classified as alienable agricultural lands of the public domain. Government
reclaimed and marshy lands of the public domain, being neither timber nor
mineral lands, fell under the classification of public agricultural
lands.50 However, government reclaimed and marshy lands, although
subject to classification as disposable public agricultural lands, could only
be leased and not sold to private parties because of Act No. 2874.

The prohibition on private parties from acquiring ownership of government

reclaimed and marshy lands of the public domain was only a statutory
prohibition and the legislature could therefore remove such prohibition. The
1935 Constitution did not prohibit individuals and corporations from
acquiring government reclaimed and marshy lands of the public domain
that were classified as agricultural lands under existing public land laws.
Section 2, Article XIII of the 1935 Constitution provided as follows:

"Section 2. No private corporation or association may acquire,

lease, or hold public agricultural lands in excess of one
thousand and twenty four hectares, nor may any individual
acquire such lands by purchase in excess of one hundred and
forty hectares, or by lease in excess of one thousand and
twenty-four hectares, or by homestead in excess of twenty-four
hectares. Lands adapted to grazing, not exceeding two thousand
hectares, may be leased to an individual, private corporation, or
association." (Emphasis supplied)

Still, after the effectivity of the 1935 Constitution, the legislature did not
repeal Section 58 of Act No. 2874 to open for sale to private parties
government reclaimed and marshy lands of the public domain. On the
contrary, the legislature continued the long established State policy of
retaining for the government title and ownership of government reclaimed
and marshy lands of the public domain.

Commonwealth Act No. 141 of the Philippine National Assembly

On November 7, 1936, the National Assembly approved Commonwealth

Act No. 141, also known as the Public Land Act, which compiled the then
existing laws on lands of the public domain. CA No. 141, as amended,
remains to this day the existing general law governing the classification
and disposition of lands of the public domain other than timber and mineral
lands.51
Section 6 of CA No. 141 empowers the President to classify lands of the
public domain into "alienable or disposable" 52 lands of the public domain,
which prior to such classification are inalienable and outside the commerce
of man. Section 7 of CA No. 141 authorizes the President to "declare what
lands are open to disposition or concession." Section 8 of CA No. 141
states that the government can declare open for disposition or concession
only lands that are "officially delimited and classified." Sections 6, 7 and 8
of CA No. 141 read as follows:

"Sec. 6. The President, upon the recommendation of the

Secretary of Agriculture and Commerce, shall from time to time
classify the lands of the public domain into –

(a) Alienable or disposable,

(b) Timber, and

(c) Mineral lands,

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

Sec. 7. For the purposes of the administration and disposition of

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

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

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

Thus, before the government could alienate or dispose of lands of the

public domain, the President must first officially classify these lands as
alienable or disposable, and then declare them open to disposition or
concession. There must be no law reserving these lands for public or
quasi-public uses.

The salient provisions of CA No. 141, on government reclaimed, foreshore

and marshy lands of the public domain, are as follows:

"Sec. 58. Any tract of land of the public domain which, being

neither timber nor mineral land, is intended to be used for
residential purposes or for commercial, industrial, or other
productive purposes other than agricultural, and is open to
disposition or concession, shall be disposed of under the
provisions of this chapter and not otherwise.

Sec. 59. The lands disposable under this title shall be classified

as follows:

(a) Lands reclaimed by the Government by dredging,

filling, or other means;

(b) Foreshore;

(c) Marshy lands or lands covered with water bordering upon

the shores or banks of navigable lakes or rivers;

(d) Lands not included in any of the foregoing classes.

Sec. 60. Any tract of land comprised under this title may be leased or
sold, as the case may be, to any person, corporation, or association
authorized to purchase or lease public lands for agricultural purposes.
x x x.

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

section fifty-nine shall be disposed of to private parties by lease
only and not otherwise, as soon as the President, upon
recommendation by the Secretary of Agriculture, shall declare that
the same are not necessary for the public service and are open to
disposition under this chapter. The lands included in class (d) may
be disposed of by sale or lease under the provisions of this Act."
(Emphasis supplied)
Section 61 of CA No. 141 readopted, after the effectivity of the 1935
Constitution, Section 58 of Act No. 2874 prohibiting the sale of government
reclaimed, foreshore and marshy disposable lands of the public domain. All
these lands are intended for residential, commercial, industrial or other
non-agricultural purposes. As before, Section 61 allowed only the lease of
such lands to private parties. The government could sell to private parties
only lands falling under Section 59 (d) of CA No. 141, or those lands for
non-agricultural purposes not classified as government reclaimed,
foreshore and marshy disposable lands of the public domain. Foreshore
lands, however, became inalienable under the 1935 Constitution which only
allowed the lease of these lands to qualified private parties.

Section 58 of CA No. 141 expressly states that disposable lands of the

public domain intended for residential, commercial, industrial or other
productive purposes other than agricultural "shall be disposed of under
the provisions of this chapter and not otherwise." Under Section 10 of
CA No. 141, the term "disposition" includes lease of the land. Any
disposition of government reclaimed, foreshore and marshy disposable
lands for non-agricultural purposes must comply with Chapter IX, Title III of
CA No. 141,54 unless a subsequent law amended or repealed these
provisions.

In his concurring opinion in the landmark case of Republic Real Estate

Corporation v. Court of Appeals,55 Justice Reynato S. Puno summarized
succinctly the law on this matter, as follows:

"Foreshore lands are lands of public dominion intended for public

use. So too are lands reclaimed by the government by dredging,
filling, or other means. Act 1654 mandated that the control and
disposition of the foreshore and lands under water remained in the
national government. Said law allowed only the 'leasing' of reclaimed
land. The Public Land Acts of 1919 and 1936 also declared that the
foreshore and lands reclaimed by the government were to be
"disposed of to private parties by lease only and not otherwise."
Before leasing, however, the Governor-General, upon
recommendation of the Secretary of Agriculture and Natural
Resources, had first to determine that the land reclaimed was not
necessary for the public service. This requisite must have been met
before the land could be disposed of. But even then, the foreshore
and lands under water were not to be alienated and sold to
 private parties. The disposition of the reclaimed land was only
by lease. The land remained property of the State." (Emphasis
supplied)

As observed by Justice Puno in his concurring opinion, "Commonwealth

Act No. 141 has remained in effect at present."

The State policy prohibiting the sale to private parties of government

reclaimed, foreshore and marshy alienable lands of the public domain, first
implemented in 1907 was thus reaffirmed in CA No. 141 after the 1935
Constitution took effect. The prohibition on the sale of foreshore lands,
however, became a constitutional edict under the 1935 Constitution.
Foreshore lands became inalienable as natural resources of the State,
unless reclaimed by the government and classified as agricultural lands of
the public domain, in which case they would fall under the classification of
government reclaimed lands.

After the effectivity of the 1935 Constitution, government reclaimed and

marshy disposable lands of the public domain continued to be only leased
and not sold to private parties.56 These lands remained sui generis, as the
only alienable or disposable lands of the public domain the government
could not sell to private parties.

Since then and until now, the only way the government can sell to private
parties government reclaimed and marshy disposable lands of the public
domain is for the legislature to pass a law authorizing such sale. CA No.
141 does not authorize the President to reclassify government reclaimed
and marshy lands into other non-agricultural lands under Section 59 (d).
Lands classified under Section 59 (d) are the only alienable or disposable
lands for non-agricultural purposes that the government could sell to private
parties.

Moreover, Section 60 of CA No. 141 expressly requires congressional

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

"Sec. 60. x x x The area so leased or sold shall be such as shall, in

the judgment of the Secretary of Agriculture and Natural Resources,
be reasonably necessary for the purposes for which such sale or
lease is requested, and shall not exceed one hundred and forty-four
 hectares: Provided, however, That this limitation shall not apply to
grants, donations, or transfers made to a province, municipality or
branch or subdivision of the Government for the purposes deemed by
said entities conducive to the public interest; but the land so
granted, donated, or transferred to a province, municipality or
branch or subdivision of the Government shall not be alienated,
encumbered, or otherwise disposed of in a manner affecting its
title, except when authorized by Congress: x x x." (Emphasis
supplied)

The congressional authority required in Section 60 of CA No. 141 mirrors

the legislative authority required in Section 56 of Act No. 2874.

One reason for the congressional authority is that Section 60 of CA No. 141
exempted government units and entities from the maximum area of public
lands that could be acquired from the State. These government units and
entities should not just turn around and sell these lands to private parties in
violation of constitutional or statutory limitations. Otherwise, the transfer of
lands for non-agricultural purposes to government units and entities could
be used to circumvent constitutional limitations on ownership of alienable or
disposable lands of the public domain. In the same manner, such transfers
could also be used to evade the statutory prohibition in CA No. 141 on the
sale of government reclaimed and marshy lands of the public domain to
private parties. Section 60 of CA No. 141 constitutes by operation of law a
lien on these lands.57

In case of sale or lease of disposable lands of the public domain falling

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

"Sec. 63. Whenever it is decided that lands covered by this chapter

are not needed for public purposes, the Director of Lands shall ask
the Secretary of Agriculture and Commerce (now the Secretary of
Natural Resources) for authority to dispose of the same. Upon receipt
of such authority, the Director of Lands shall give notice by public
advertisement in the same manner as in the case of leases or sales
of agricultural public land, x x x.
 Sec. 67. The lease or sale shall be made by oral bidding; and
adjudication shall be made to the highest bidder. x x x."
(Emphasis supplied)

Thus, CA No. 141 mandates the Government to put to public auction all
leases or sales of alienable or disposable lands of the public domain. 58

Like Act No. 1654 and Act No. 2874 before it, CA No. 141 did not repeal
Section 5 of the Spanish Law of Waters of 1866. Private parties could still
reclaim portions of the sea with government permission. However,
the reclaimed land could become private land only if classified as
alienable agricultural land of the public domain open to disposition
under CA No. 141. The 1935 Constitution prohibited the alienation of all
natural resources except public agricultural lands.

The Civil Code of 1950

The Civil Code of 1950 readopted substantially the definition of property of

public dominion found in the Civil Code of 1889. Articles 420 and 422 of the
Civil Code of 1950 state that –

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

(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and
are intended for some public service or for the development of the
national wealth.

x x x.

Art. 422. Property of public dominion, when no longer intended for

public use or for public service, shall form part of the patrimonial
property of the State."

Again, the government must formally declare that the property of public
dominion is no longer needed for public use or public service, before the
same could be classified as patrimonial property of the State. 59 In the case
of government reclaimed and marshy lands of the public domain, the
declaration of their being disposable, as well as the manner of their
disposition, is governed by the applicable provisions of CA No. 141.

Like the Civil Code of 1889, the Civil Code of 1950 included as property of
public dominion those properties of the State which, without being for public
use, are intended for public service or the "development of the national
wealth." Thus, government reclaimed and marshy lands of the State, even
if not employed for public use or public service, if developed to enhance the
national wealth, are classified as property of public dominion.

Dispositions under the 1973 Constitution

The 1973 Constitution, which took effect on January 17, 1973, likewise
adopted the Regalian doctrine. Section 8, Article XIV of the 1973
Constitution stated that –

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

petroleum and other mineral oils, all forces of potential energy,
fisheries, wildlife, and other natural resources of the Philippines
belong to the State. With the exception of agricultural, industrial
or commercial, residential, and resettlement lands of the public
domain, natural resources shall not be alienated, and no license,
concession, or lease for the exploration, development, exploitation, or
utilization of any of the natural resources shall be granted for a period
exceeding twenty-five years, renewable for not more than twenty-five
years, except as to water rights for irrigation, water supply, fisheries,
or industrial uses other than the development of water power, in
which cases, beneficial use may be the measure and the limit of the
grant." (Emphasis supplied)

The 1973 Constitution prohibited the alienation of all natural resources with
the exception of "agricultural, industrial or commercial, residential, and
resettlement lands of the public domain." In contrast, the 1935 Constitution
barred the alienation of all natural resources except "public agricultural
lands." However, the term "public agricultural lands" in the 1935
Constitution encompassed industrial, commercial, residential and
resettlement lands of the public domain.60 If the land of public domain were
neither timber nor mineral land, it would fall under the classification of
agricultural land of the public domain. Both the 1935 and 1973
Constitutions, therefore, prohibited the alienation of all natural
resources except agricultural lands of the public domain.

The 1973 Constitution, however, limited the alienation of lands of the public
domain to individuals who were citizens of the Philippines. Private
corporations, even if wholly owned by Philippine citizens, were no longer
allowed to acquire alienable lands of the public domain unlike in the 1935
Constitution. Section 11, Article XIV of the 1973 Constitution declared that
–

"Sec. 11. The Batasang Pambansa, taking into account conservation,

ecological, and development requirements of the natural resources,
shall determine by law the size of land of the public domain which
may be developed, held or acquired by, or leased to, any qualified
individual, corporation, or association, and the conditions therefor. No
private corporation or association may hold alienable lands of
the public domain except by lease not to exceed one thousand
hectares in area nor may any citizen hold such lands by lease in
excess of five hundred hectares or acquire by purchase, homestead
or grant, in excess of twenty-four hectares. No private corporation or
association may hold by lease, concession, license or permit, timber
or forest lands and other timber or forest resources in excess of one
hundred thousand hectares. However, such area may be increased
by the Batasang Pambansa upon recommendation of the National
Economic and Development Authority." (Emphasis supplied)

Thus, under the 1973 Constitution, private corporations could hold

alienable lands of the public domain only through lease. Only individuals
could now acquire alienable lands of the public domain, and private
corporations became absolutely barred from acquiring any kind of
alienable land of the public domain. The constitutional ban extended to
all kinds of alienable lands of the public domain, while the statutory ban
under CA No. 141 applied only to government reclaimed, foreshore and
marshy alienable lands of the public domain.

PD No. 1084 Creating the Public Estates Authority

On February 4, 1977, then President Ferdinand Marcos issued Presidential

Decree No. 1084 creating PEA, a wholly government owned and controlled
corporation with a special charter. Sections 4 and 8 of PD No. 1084, vests
PEA with the following purposes and powers:

"Sec. 4. Purpose. The Authority is hereby created for the following

purposes:

(a) To reclaim land, including foreshore and submerged areas,

by dredging, filling or other means, or to acquire reclaimed land;

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

dispose, lease and sell any and all kinds of lands, buildings,
estates and other forms of real property, owned, managed, controlled
and/or operated by the government;

(c) To provide for, operate or administer such service as may be

necessary for the efficient, economical and beneficial utilization of the
above properties.

Sec. 5. Powers and functions of the Authority. The Authority shall, in

carrying out the purposes for which it is created, have the following
powers and functions:

(a)To prescribe its by-laws.

xxx

(i) To hold lands of the public domain in excess of the area

permitted to private corporations by statute.

(j) To reclaim lands and to construct work across, or otherwise, any

stream, watercourse, canal, ditch, flume x x x.

xxx

(o) To perform such acts and exercise such functions as may be

necessary for the attainment of the purposes and objectives herein
specified." (Emphasis supplied)

PD No. 1084 authorizes PEA to reclaim both foreshore and submerged

areas of the public domain. Foreshore areas are those covered and
uncovered by the ebb and flow of the tide. 61 Submerged areas are those
permanently under water regardless of the ebb and flow of the
tide.62 Foreshore and submerged areas indisputably belong to the public
domain63 and are inalienable unless reclaimed, classified as alienable lands
open to disposition, and further declared no longer needed for public
service.

The ban in the 1973 Constitution on private corporations from acquiring

alienable lands of the public domain did not apply to PEA since it was then,
and until today, a fully owned government corporation. The constitutional
ban applied then, as it still applies now, only to "private corporations and
associations." PD No. 1084 expressly empowers PEA "to hold lands of
the public domain" even "in excess of the area permitted to private
corporations by statute." Thus, PEA can hold title to private lands, as
well as title to lands of the public domain.

In order for PEA to sell its reclaimed foreshore and submerged alienable
lands of the public domain, there must be legislative authority empowering
PEA to sell these lands. This legislative authority is necessary in view of
Section 60 of CA No.141, which states –

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

province, municipality, or branch or subdivision of the Government
shall not be alienated, encumbered or otherwise disposed of in a
manner affecting its title, except when authorized by Congress; x x
x." (Emphasis supplied)

Without such legislative authority, PEA could not sell but only lease its
reclaimed foreshore and submerged alienable lands of the public domain.
Nevertheless, any legislative authority granted to PEA to sell its reclaimed
alienable lands of the public domain would be subject to the constitutional
ban on private corporations from acquiring alienable lands of the public
domain. Hence, such legislative authority could only benefit private
individuals.

Dispositions under the 1987 Constitution

The 1987 Constitution, like the 1935 and 1973 Constitutions before it, has
adopted the Regalian doctrine. The 1987 Constitution declares that all
natural resources are "owned by the State," and except for alienable
agricultural lands of the public domain, natural resources cannot be
alienated. Sections 2 and 3, Article XII of the 1987 Constitution state that –
 "Section 2. All lands of the public domain, waters, minerals, coal,
petroleum and other mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State.
x x x.

Section 3. Lands of the public domain are classified into agricultural,

forest or timber, mineral lands, and national parks. Agricultural lands
of the public domain may be further classified by law according to the
uses which they may be devoted. Alienable lands of the public
domain shall be limited to agricultural lands. Private
corporations or associations may not hold such alienable lands
of the public domain except by lease, for a period not exceeding
twenty-five years, renewable for not more than twenty-five
years, and not to exceed one thousand hectares in area. Citizens
of the Philippines may lease not more than five hundred hectares, or
acquire not more than twelve hectares thereof by purchase,
homestead, or grant.

Taking into account the requirements of conservation, ecology, and

development, and subject to the requirements of agrarian reform, the
Congress shall determine, by law, the size of lands of the public
domain which may be acquired, developed, held, or leased and the
conditions therefor." (Emphasis supplied)

The 1987 Constitution continues the State policy in the 1973 Constitution
banning private corporations from acquiring any kind of alienable land
of the public domain. Like the 1973 Constitution, the 1987 Constitution
allows private corporations to hold alienable lands of the public
domain only through lease. As in the 1935 and 1973 Constitutions, the
general law governing the lease to private corporations of reclaimed,
foreshore and marshy alienable lands of the public domain is still CA No.
141.

The Rationale behind the Constitutional Ban

The rationale behind the constitutional ban on corporations from acquiring,
except through lease, alienable lands of the public domain is not well
understood. During the deliberations of the 1986 Constitutional
Commission, the commissioners probed the rationale behind this ban, thus:

"FR. BERNAS: Mr. Vice-President, my questions have reference to

page 3, line 5 which says:

`No private corporation or association may hold alienable lands of the

public domain except by lease, not to exceed one thousand hectares
in area.'

If we recall, this provision did not exist under the 1935 Constitution,
but this was introduced in the 1973 Constitution. In effect, it prohibits
private corporations from acquiring alienable public lands. But it has
not been very clear in jurisprudence what the reason for this is.
In some of the cases decided in 1982 and 1983, it was indicated
that the purpose of this is to prevent large landholdings. Is that
the intent of this provision?

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

FR. BERNAS: In existing decisions involving the Iglesia ni Cristo,

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

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

constitutional ban in this way:

"Indeed, one purpose of the constitutional prohibition against

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

However, if the constitutional intent is to prevent huge landholdings, the

Constitution could have simply limited the size of alienable lands of the
public domain that corporations could acquire. The Constitution could have
followed the limitations on individuals, who could acquire not more than 24
hectares of alienable lands of the public domain under the 1973
Constitution, and not more than 12 hectares under the 1987 Constitution.

If the constitutional intent is to encourage economic family-size farms,

placing the land in the name of a corporation would be more effective in
preventing the break-up of farmlands. If the farmland is registered in the
name of a corporation, upon the death of the owner, his heirs would inherit
shares in the corporation instead of subdivided parcels of the farmland.
This would prevent the continuing break-up of farmlands into smaller and
smaller plots from one generation to the next.

In actual practice, the constitutional ban strengthens the constitutional

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

The constitutional intent, under the 1973 and 1987 Constitutions, is to

transfer ownership of only a limited area of alienable land of the public
domain to a qualified individual. This constitutional intent is safeguarded by
the provision prohibiting corporations from acquiring alienable lands of the
public domain, since the vehicle to circumvent the constitutional intent is
removed. The available alienable public lands are gradually decreasing in
the face of an ever-growing population. The most effective way to insure
faithful adherence to this constitutional intent is to grant or sell alienable
lands of the public domain only to individuals. This, it would seem, is the
practical benefit arising from the constitutional ban.

The Amended Joint Venture Agreement

The subject matter of the Amended JVA, as stated in its second Whereas
clause, consists of three properties, namely:
 1. "[T]hree partially reclaimed and substantially eroded islands along
Emilio Aguinaldo Boulevard in Paranaque and Las Pinas, Metro
Manila, with a combined titled area of 1,578,441 square meters;"

2. "[A]nother area of 2,421,559 square meters contiguous to the three

islands;" and

3. "[A]t AMARI's option as approved by PEA, an additional 350

hectares more or less to regularize the configuration of the reclaimed
area."65

PEA confirms that the Amended JVA involves "the development of the
Freedom Islands and further reclamation of about 250 hectares x x x," plus
an option "granted to AMARI to subsequently reclaim another 350 hectares
x x x."66

In short, the Amended JVA covers a reclamation area of 750

hectares. Only 157.84 hectares of the 750-hectare reclamation project
have been reclaimed, and the rest of the 592.15 hectares are still
submerged areas forming part of Manila Bay.

Under the Amended JVA, AMARI will reimburse PEA the sum of
P1,894,129,200.00 for PEA's "actual cost" in partially reclaiming the
Freedom Islands. AMARI will also complete, at its own expense, the
reclamation of the Freedom Islands. AMARI will further shoulder all the
reclamation costs of all the other areas, totaling 592.15 hectares, still to be
reclaimed. AMARI and PEA will share, in the proportion of 70 percent and
30 percent, respectively, the total net usable area which is defined in the
Amended JVA as the total reclaimed area less 30 percent earmarked for
common areas. Title to AMARI's share in the net usable area, totaling
367.5 hectares, will be issued in the name of AMARI. Section 5.2 (c) of the
Amended JVA provides that –

"x x x, PEA shall have the duty to execute without delay the
necessary deed of transfer or conveyance of the title pertaining to
AMARI's Land share based on the Land Allocation Plan. PEA, when
requested in writing by AMARI, shall then cause the issuance
and delivery of the proper certificates of title covering AMARI's
Land Share in the name of AMARI, x x x; provided, that if more than
seventy percent (70%) of the titled area at any given time pertains to
AMARI, PEA shall deliver to AMARI only seventy percent (70%) of
 the titles pertaining to AMARI, until such time when a corresponding
proportionate area of additional land pertaining to PEA has been
titled." (Emphasis supplied)

Indisputably, under the Amended JVA AMARI will acquire and own a
maximum of 367.5 hectares of reclaimed land which will be titled in its
name.

To implement the Amended JVA, PEA delegated to the unincorporated

PEA-AMARI joint venture PEA's statutory authority, rights and privileges to
reclaim foreshore and submerged areas in Manila Bay. Section 3.2.a of the
Amended JVA states that –

"PEA hereby contributes to the joint venture its rights and privileges
to perform Rawland Reclamation and Horizontal Development as well
as own the Reclamation Area, thereby granting the Joint Venture the
full and exclusive right, authority and privilege to undertake the
Project in accordance with the Master Development Plan."

The Amended JVA is the product of a renegotiation of the original JVA

dated April 25, 1995 and its supplemental agreement dated August 9,
1995.

The Threshold Issue

The threshold issue is whether AMARI, a private corporation, can acquire

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

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

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

xxx

Section 3. x x x Alienable lands of the public domain shall be limited

to agricultural lands. Private corporations or associations may not
 hold such alienable lands of the public domain except by lease,
x x x."(Emphasis supplied)

Classification of Reclaimed Foreshore and Submerged Areas

PEA readily concedes that lands reclaimed from foreshore or submerged

areas of Manila Bay are alienable or disposable lands of the public domain.
In its Memorandum,67 PEA admits that –

"Under the Public Land Act (CA 141, as amended), reclaimed lands

are classified as alienable and disposable lands of the public
domain:

'Sec. 59. The lands disposable under this title shall be classified
as follows:

(a) Lands reclaimed by the government by dredging, filling, or

other means;

x x x.'" (Emphasis supplied)

Likewise, the Legal Task Force68 constituted under Presidential

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

"D. Conclusion

Reclaimed lands are lands of the public domain. However, by

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

The constitutional provision prohibiting private corporations from

holding public land, except by lease (Sec. 3, Art. XVII, 70 1987
Constitution), does not apply to reclaimed lands whose ownership
has passed on to PEA by statutory grant."
Under Section 2, Article XII of the 1987 Constitution, the foreshore and
submerged areas of Manila Bay are part of the "lands of the public domain,
waters x x x and other natural resources" and consequently "owned by the
State." As such, foreshore and submerged areas "shall not be alienated,"
unless they are classified as "agricultural lands" of the public domain. The
mere reclamation of these areas by PEA does not convert these inalienable
natural resources of the State into alienable or disposable lands of the
public domain. There must be a law or presidential proclamation officially
classifying these reclaimed lands as alienable or disposable and open to
disposition or concession. Moreover, these reclaimed lands cannot be
classified as alienable or disposable if the law has reserved them for some
public or quasi-public use.71

Section 8 of CA No. 141 provides that "only those lands shall be declared
open to disposition or concession which have been officially delimited
and classified."72 The President has the authority to classify inalienable
lands of the public domain into alienable or disposable lands of the public
domain, pursuant to Section 6 of CA No. 141. In Laurel vs. Garcia, 73 the
Executive Department attempted to sell the Roppongi property in Tokyo,
Japan, which was acquired by the Philippine Government for use as the
Chancery of the Philippine Embassy. Although the Chancery had
transferred to another location thirteen years earlier, the Court still ruled
that, under Article 42274 of the Civil Code, a property of public dominion
retains such character until formally declared otherwise. The Court ruled
that –

"The fact that the Roppongi site has not been used for a long time for
actual Embassy service does not automatically convert it to
patrimonial property. Any such conversion happens only if the
property is withdrawn from public use (Cebu Oxygen and Acetylene
Co. v. Bercilles, 66 SCRA 481 [1975]. A property continues to be
part of the public domain, not available for private appropriation
or ownership 'until there is a formal declaration on the part of
the government to withdraw it from being such' (Ignacio v.
Director of Lands, 108 Phil. 335 [1960]." (Emphasis supplied)

PD No. 1085, issued on February 4, 1977, authorized the issuance of

special land patents for lands reclaimed by PEA from the foreshore or
submerged areas of Manila Bay. On January 19, 1988 then President
Corazon C. Aquino issued Special Patent No. 3517 in the name of PEA for
the 157.84 hectares comprising the partially reclaimed Freedom Islands.
Subsequently, on April 9, 1999 the Register of Deeds of the Municipality of
Paranaque issued TCT Nos. 7309, 7311 and 7312 in the name of PEA
pursuant to Section 103 of PD No. 1529 authorizing the issuance of
certificates of title corresponding to land patents. To this day, these
certificates of title are still in the name of PEA.

PD No. 1085, coupled with President Aquino's actual issuance of a

special patent covering the Freedom Islands, is equivalent to an official
proclamation classifying the Freedom Islands as alienable or disposable
lands of the public domain. PD No. 1085 and President Aquino's issuance
of a land patent also constitute a declaration that the Freedom Islands are
no longer needed for public service. The Freedom Islands are thus
alienable or disposable lands of the public domain, open to
disposition or concession to qualified parties.

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

AMARI claims that the Freedom Islands are private lands because CDCP,
then a private corporation, reclaimed the islands under a contract dated
November 20, 1973 with the Commissioner of Public Highways. AMARI,
citing Article 5 of the Spanish Law of Waters of 1866, argues that "if the
ownership of reclaimed lands may be given to the party constructing the
works, then it cannot be said that reclaimed lands are lands of the public
domain which the State may not alienate." 75 Article 5 of the Spanish Law of
Waters reads as follows:
 "Article 5. Lands reclaimed from the sea in consequence of works
constructed by the State, or by the provinces, pueblos or private
persons, with proper permission, shall become the property of the
party constructing such works, unless otherwise provided by the
terms of the grant of authority." (Emphasis supplied)

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

Article 5 of the Spanish Law of Waters must be read together with laws
subsequently enacted on the disposition of public lands. In particular, CA
No. 141 requires that lands of the public domain must first be classified as
alienable or disposable before the government can alienate them. These
lands must not be reserved for public or quasi-public purposes. 78 Moreover,
the contract between CDCP and the government was executed after the
effectivity of the 1973 Constitution which barred private corporations from
acquiring any kind of alienable land of the public domain. This contract
could not have converted the Freedom Islands into private lands of a
private corporation.

Presidential Decree No. 3-A, issued on January 11, 1973, revoked all laws
authorizing the reclamation of areas under water and revested solely in the
National Government the power to reclaim lands. Section 1 of PD No. 3-A
declared that –

"The provisions of any law to the contrary notwithstanding, the

reclamation of areas under water, whether foreshore or inland, shall
 be limited to the National Government or any person authorized
by it under a proper contract. (Emphasis supplied)

x x x."

PD No. 3-A repealed Section 5 of the Spanish Law of Waters of 1866

because reclamation of areas under water could now be undertaken only
by the National Government or by a person contracted by the National
Government. Private parties may reclaim from the sea only under a
contract with the National Government, and no longer by grant or
permission as provided in Section 5 of the Spanish Law of Waters of 1866.

Executive Order No. 525, issued on February 14, 1979, designated PEA as
the National Government's implementing arm to undertake "all reclamation
projects of the government," which "shall be undertaken by the PEA or
through a proper contract executed by it with any person or entity."
Under such contract, a private party receives compensation for reclamation
services rendered to PEA. Payment to the contractor may be in cash, or in
kind consisting of portions of the reclaimed land, subject to the
constitutional ban on private corporations from acquiring alienable lands of
the public domain. The reclaimed land can be used as payment in kind only
if the reclaimed land is first classified as alienable or disposable land open
to disposition, and then declared no longer needed for public service.

The Amended JVA covers not only the Freedom Islands, but also an
additional 592.15 hectares which are still submerged and forming part of
Manila Bay. There is no legislative or Presidential act classifying these
submerged areas as alienable or disposable lands of the public
domain open to disposition. These submerged areas are not covered by
any patent or certificate of title. There can be no dispute that these
submerged areas form part of the public domain, and in their present state
are inalienable and outside the commerce of man. Until reclaimed from
the sea, these submerged areas are, under the Constitution, "waters x x x
owned by the State," forming part of the public domain and consequently
inalienable. Only when actually reclaimed from the sea can these
submerged areas be classified as public agricultural lands, which under the
Constitution are the only natural resources that the State may alienate.
Once reclaimed and transformed into public agricultural lands, the
government may then officially classify these lands as alienable or
disposable lands open to disposition. Thereafter, the government may
declare these lands no longer needed for public service. Only then can
these reclaimed lands be considered alienable or disposable lands of the
public domain and within the commerce of man.

The classification of PEA's reclaimed foreshore and submerged lands into

alienable or disposable lands open to disposition is necessary because
PEA is tasked under its charter to undertake public services that require the
use of lands of the public domain. Under Section 5 of PD No. 1084, the
functions of PEA include the following: "[T]o own or operate railroads,
tramways and other kinds of land transportation, x x x; [T]o construct,
maintain and operate such systems of sanitary sewers as may be
necessary; [T]o construct, maintain and operate such storm drains as may
be necessary." PEA is empowered to issue "rules and regulations as may
be necessary for the proper use by private parties of any or all of the
highways, roads, utilities, buildings and/or any of its properties and to
impose or collect fees or tolls for their use." Thus, part of the reclaimed
foreshore and submerged lands held by the PEA would actually be needed
for public use or service since many of the functions imposed on PEA by its
charter constitute essential public services.

Moreover, Section 1 of Executive Order No. 525 provides that PEA "shall
be primarily responsible for integrating, directing, and coordinating all
reclamation projects for and on behalf of the National Government." The
same section also states that "[A]ll reclamation projects shall be approved
by the President upon recommendation of the PEA, and shall be
undertaken by the PEA or through a proper contract executed by it with any
person or entity; x x x." Thus, under EO No. 525, in relation to PD No. 3-A
and PD No.1084, PEA became the primary implementing agency of the
National Government to reclaim foreshore and submerged lands of the
public domain. EO No. 525 recognized PEA as the government entity "to
undertake the reclamation of lands and ensure their maximum utilization
in promoting public welfare and interests."79 Since large portions of
these reclaimed lands would obviously be needed for public service, there
must be a formal declaration segregating reclaimed lands no longer
needed for public service from those still needed for public service.1âwphi1.nêt

Section 3 of EO No. 525, by declaring that all lands reclaimed by PEA

"shall belong to or be owned by the PEA," could not automatically operate
to classify inalienable lands into alienable or disposable lands of the public
domain. Otherwise, reclaimed foreshore and submerged lands of the public
domain would automatically become alienable once reclaimed by PEA,
whether or not classified as alienable or disposable.

The Revised Administrative Code of 1987, a later law than either PD No.
1084 or EO No. 525, vests in the Department of Environment and Natural
Resources ("DENR" for brevity) the following powers and functions:

"Sec. 4. Powers and Functions. The Department shall:

(1) x x x

xxx

(4) Exercise supervision and control over forest lands, alienable

and disposable public lands, mineral resources and, in the process
of exercising such control, impose appropriate taxes, fees, charges,
rentals and any such form of levy and collect such revenues for the
exploration, development, utilization or gathering of such resources;

xxx

(14) Promulgate rules, regulations and guidelines on the

issuance of licenses, permits, concessions, lease agreements
and such other privileges concerning the development,
exploration and utilization of the country's marine, freshwater,
and brackish water and over all aquatic resources of the country
and shall continue to oversee, supervise and police our natural
resources; cancel or cause to cancel such privileges upon failure,
non-compliance or violations of any regulation, order, and for all other
causes which are in furtherance of the conservation of natural
resources and supportive of the national interest;

(15) Exercise exclusive jurisdiction on the management and

disposition of all lands of the public domain and serve as the
sole agency responsible for classification, sub-classification,
surveying and titling of lands in consultation with appropriate
agencies."80 (Emphasis supplied)

As manager, conservator and overseer of the natural resources of the

State, DENR exercises "supervision and control over alienable and
disposable public lands." DENR also exercises "exclusive jurisdiction on
the management and disposition of all lands of the public domain." Thus,
DENR decides whether areas under water, like foreshore or submerged
areas of Manila Bay, should be reclaimed or not. This means that PEA
needs authorization from DENR before PEA can undertake reclamation
projects in Manila Bay, or in any part of the country.

DENR also exercises exclusive jurisdiction over the disposition of all lands
of the public domain. Hence, DENR decides whether reclaimed lands of
PEA should be classified as alienable under Sections 681 and 782 of CA No.
141. Once DENR decides that the reclaimed lands should be so classified,
it then recommends to the President the issuance of a proclamation
classifying the lands as alienable or disposable lands of the public domain
open to disposition. We note that then DENR Secretary Fulgencio S.
Factoran, Jr. countersigned Special Patent No. 3517 in compliance with the
Revised Administrative Code and Sections 6 and 7 of CA No. 141.

In short, DENR is vested with the power to authorize the reclamation of

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

Clearly, the mere physical act of reclamation by PEA of foreshore or

submerged areas does not make the reclaimed lands alienable or
disposable lands of the public domain, much less patrimonial lands of PEA.
Likewise, the mere transfer by the National Government of lands of the
public domain to PEA does not make the lands alienable or disposable
lands of the public domain, much less patrimonial lands of PEA.

Absent two official acts – a classification that these lands are alienable or
disposable and open to disposition and a declaration that these lands are
not needed for public service, lands reclaimed by PEA remain inalienable
lands of the public domain. Only such an official classification and formal
declaration can convert reclaimed lands into alienable or disposable lands
of the public domain, open to disposition under the Constitution, Title I and
Title III83 of CA No. 141 and other applicable laws. 84

PEA's Authority to Sell Reclaimed Lands

PEA, like the Legal Task Force, argues that as alienable or disposable
lands of the public domain, the reclaimed lands shall be disposed of in
accordance with CA No. 141, the Public Land Act. PEA, citing Section 60 of
CA No. 141, admits that reclaimed lands transferred to a branch or
subdivision of the government "shall not be alienated, encumbered, or
otherwise disposed of in a manner affecting its title, except when
authorized by Congress: x x x."85 (Emphasis by PEA)

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

Administrative Code of 1987, which states that –

"Sec. 48. Official Authorized to Convey Real Property. Whenever real

property of the Government is authorized by law to be conveyed,
the deed of conveyance shall be executed in behalf of the
government by the following: x x x."

Thus, the Court concluded that a law is needed to convey any real property
belonging to the Government. The Court declared that -

"It is not for the President to convey real property of the government
on his or her own sole will. Any such conveyance must be
authorized and approved by a law enacted by the Congress. It
requires executive and legislative concurrence." (Emphasis supplied)

PEA contends that PD No. 1085 and EO No. 525 constitute the legislative
authority allowing PEA to sell its reclaimed lands. PD No. 1085, issued on
February 4, 1977, provides that –

"The land reclaimed in the foreshore and offshore area of Manila

Bay pursuant to the contract for the reclamation and construction of
the Manila-Cavite Coastal Road Project between the Republic of the
Philippines and the Construction and Development Corporation of the
Philippines dated November 20, 1973 and/or any other contract or
reclamation covering the same area is hereby transferred,
conveyed and assigned to the ownership and administration of
the Public Estates Authority established pursuant to PD No. 1084;
Provided, however, That the rights and interests of the Construction
and Development Corporation of the Philippines pursuant to the
aforesaid contract shall be recognized and respected.
 Henceforth, the Public Estates Authority shall exercise the rights and
assume the obligations of the Republic of the Philippines
(Department of Public Highways) arising from, or incident to, the
aforesaid contract between the Republic of the Philippines and the
Construction and Development Corporation of the Philippines.

In consideration of the foregoing transfer and assignment, the Public

Estates Authority shall issue in favor of the Republic of the
Philippines the corresponding shares of stock in said entity with an
issued value of said shares of stock (which) shall be deemed fully
paid and non-assessable.

The Secretary of Public Highways and the General Manager of the

Public Estates Authority shall execute such contracts or agreements,
including appropriate agreements with the Construction and
Development Corporation of the Philippines, as may be necessary to
implement the above.

Special land patent/patents shall be issued by the Secretary of

Natural Resources in favor of the Public Estates Authority
without prejudice to the subsequent transfer to the contractor or
his assignees of such portion or portions of the land reclaimed
or to be reclaimed as provided for in the above-mentioned
contract. On the basis of such patents, the Land Registration
Commission shall issue the corresponding certificate of title."
(Emphasis supplied)

On the other hand, Section 3 of EO No. 525, issued on February 14, 1979,
provides that -

"Sec. 3. All lands reclaimed by PEA shall belong to or be owned

by the PEA which shall be responsible for its administration,
development, utilization or disposition in accordance with the
provisions of Presidential Decree No. 1084. Any and all income that
the PEA may derive from the sale, lease or use of reclaimed lands
shall be used in accordance with the provisions of Presidential
Decree No. 1084."

There is no express authority under either PD No. 1085 or EO No. 525 for
PEA to sell its reclaimed lands. PD No. 1085 merely transferred "ownership
and administration" of lands reclaimed from Manila Bay to PEA, while EO
No. 525 declared that lands reclaimed by PEA "shall belong to or be owned
by PEA." EO No. 525 expressly states that PEA should dispose of its
reclaimed lands "in accordance with the provisions of Presidential Decree
No. 1084," the charter of PEA.

PEA's charter, however, expressly tasks PEA "to develop, improve,

acquire, administer, deal in, subdivide, dispose, lease and sell any and all
kinds of lands x x x owned, managed, controlled and/or operated by the
government."87 (Emphasis supplied) There is, therefore, legislative
authority granted to PEA to sell its lands, whether patrimonial or
alienable lands of the public domain. PEA may sell to private parties
its patrimonial properties in accordance with the PEA charter free from
constitutional limitations. The constitutional ban on private corporations
from acquiring alienable lands of the public domain does not apply to the
sale of PEA's patrimonial lands.

PEA may also sell its alienable or disposable lands of the public

domain to private individuals since, with the legislative authority, there is
no longer any statutory prohibition against such sales and the constitutional
ban does not apply to individuals. PEA, however, cannot sell any of its
alienable or disposable lands of the public domain to private corporations
since Section 3, Article XII of the 1987 Constitution expressly prohibits such
sales. The legislative authority benefits only individuals. Private
corporations remain barred from acquiring any kind of alienable land of the
public domain, including government reclaimed lands.

The provision in PD No. 1085 stating that portions of the reclaimed lands
could be transferred by PEA to the "contractor or his assignees" (Emphasis
supplied) would not apply to private corporations but only to individuals
because of the constitutional ban. Otherwise, the provisions of PD No.
1085 would violate both the 1973 and 1987 Constitutions.

The requirement of public auction in the sale of reclaimed lands

Assuming the reclaimed lands of PEA are classified as alienable or

disposable lands open to disposition, and further declared no longer
needed for public service, PEA would have to conduct a public bidding in
selling or leasing these lands. PEA must observe the provisions of Sections
63 and 67 of CA No. 141 requiring public auction, in the absence of a law
exempting PEA from holding a public auction. 88 Special Patent No. 3517
expressly states that the patent is issued by authority of the Constitution
and PD No. 1084, "supplemented by Commonwealth Act No. 141, as
amended." This is an acknowledgment that the provisions of CA No. 141
apply to the disposition of reclaimed alienable lands of the public domain
unless otherwise provided by law. Executive Order No. 654, 89 which
authorizes PEA "to determine the kind and manner of payment for the
transfer" of its assets and properties, does not exempt PEA from the
requirement of public auction. EO No. 654 merely authorizes PEA to decide
the mode of payment, whether in kind and in installment, but does not
authorize PEA to dispense with public auction.

Moreover, under Section 79 of PD No. 1445, otherwise known as the

Government Auditing Code, the government is required to sell valuable
government property through public bidding. Section 79 of PD No. 1445
mandates that –

"Section 79. When government property has become

unserviceable for any cause, or is no longer needed, it shall, upon
application of the officer accountable therefor, be inspected by the
head of the agency or his duly authorized representative in the
presence of the auditor concerned and, if found to be valueless or
unsaleable, it may be destroyed in their presence. If found to be
valuable, it may be sold at public auction to the highest
bidder under the supervision of the proper committee on award or
similar body in the presence of the auditor concerned or other
authorized representative of the Commission, after advertising by
printed notice in the Official Gazette, or for not less than three
consecutive days in any newspaper of general circulation, or
where the value of the property does not warrant the expense of
publication, by notices posted for a like period in at least three public
places in the locality where the property is to be sold. In the event
that the public auction fails, the property may be sold at a
private sale at such price as may be fixed by the same
committee or body concerned and approved by the
Commission."

It is only when the public auction fails that a negotiated sale is allowed, in
which case the Commission on Audit must approve the selling price. 90 The
Commission on Audit implements Section 79 of the Government Auditing
Code through Circular No. 89-29691 dated January 27, 1989. This circular
emphasizes that government assets must be disposed of only through
public auction, and a negotiated sale can be resorted to only in case of
"failure of public auction."

At the public auction sale, only Philippine citizens are qualified to bid for
PEA's reclaimed foreshore and submerged alienable lands of the public
domain. Private corporations are barred from bidding at the auction sale of
any kind of alienable land of the public domain.

PEA originally scheduled a public bidding for the Freedom Islands on

December 10, 1991. PEA imposed a condition that the winning bidder
should reclaim another 250 hectares of submerged areas to regularize the
shape of the Freedom Islands, under a 60-40 sharing of the additional
reclaimed areas in favor of the winning bidder. 92 No one, however,
submitted a bid. On December 23, 1994, the Government Corporate
Counsel advised PEA it could sell the Freedom Islands through negotiation,
without need of another public bidding, because of the failure of the public
bidding on December 10, 1991.93

However, the original JVA dated April 25, 1995 covered not only the
Freedom Islands and the additional 250 hectares still to be reclaimed, it
also granted an option to AMARI to reclaim another 350 hectares. The
original JVA, a negotiated contract, enlarged the reclamation area to 750
hectares.94 The failure of public bidding on December 10, 1991, involving
only 407.84 hectares,95 is not a valid justification for a negotiated sale of
750 hectares, almost double the area publicly auctioned. Besides, the
failure of public bidding happened on December 10, 1991, more than three
years before the signing of the original JVA on April 25, 1995. The
economic situation in the country had greatly improved during the
intervening period.

Reclamation under the BOT Law and the Local Government Code

The constitutional prohibition in Section 3, Article XII of the 1987

Constitution is absolute and clear: "Private corporations or associations
may not hold such alienable lands of the public domain except by lease, x x
x." Even Republic Act No. 6957 ("BOT Law," for brevity), cited by PEA and
AMARI as legislative authority to sell reclaimed lands to private parties,
recognizes the constitutional ban. Section 6 of RA No. 6957 states –
 "Sec. 6. Repayment Scheme. - For the financing, construction,
operation and maintenance of any infrastructure projects undertaken
through the build-operate-and-transfer arrangement or any of its
variations pursuant to the provisions of this Act, the project proponent
x x x may likewise be repaid in the form of a share in the revenue of
the project or other non-monetary payments, such as, but not limited
to, the grant of a portion or percentage of the reclaimed land, subject
to the constitutional requirements with respect to the ownership
of the land: x x x." (Emphasis supplied)

A private corporation, even one that undertakes the physical reclamation of

a government BOT project, cannot acquire reclaimed alienable lands of the
public domain in view of the constitutional ban.

Section 302 of the Local Government Code, also mentioned by PEA and
AMARI, authorizes local governments in land reclamation projects to pay
the contractor or developer in kind consisting of a percentage of the
reclaimed land, to wit:

"Section 302. Financing, Construction, Maintenance, Operation, and

Management of Infrastructure Projects by the Private Sector. x x x

xxx

In case of land reclamation or construction of industrial estates, the

repayment plan may consist of the grant of a portion or percentage of
the reclaimed land or the industrial estate constructed."

Although Section 302 of the Local Government Code does not contain a
proviso similar to that of the BOT Law, the constitutional restrictions on land
ownership automatically apply even though not expressly mentioned in the
Local Government Code.

Thus, under either the BOT Law or the Local Government Code, the
contractor or developer, if a corporate entity, can only be paid with
leaseholds on portions of the reclaimed land. If the contractor or developer
is an individual, portions of the reclaimed land, not exceeding 12
hectares96 of non-agricultural lands, may be conveyed to him in ownership
in view of the legislative authority allowing such conveyance. This is the
only way these provisions of the BOT Law and the Local Government Code
can avoid a direct collision with Section 3, Article XII of the 1987
Constitution.

Registration of lands of the public domain

Finally, PEA theorizes that the "act of conveying the ownership of the
reclaimed lands to public respondent PEA transformed such lands of the
public domain to private lands." This theory is echoed by AMARI which
maintains that the "issuance of the special patent leading to the eventual
issuance of title takes the subject land away from the land of public domain
and converts the property into patrimonial or private property." In short,
PEA and AMARI contend that with the issuance of Special Patent No. 3517
and the corresponding certificates of titles, the 157.84 hectares comprising
the Freedom Islands have become private lands of PEA. In support of their
theory, PEA and AMARI cite the following rulings of the Court:

1. Sumail v. Judge of CFI of Cotabato,97 where the Court held –

"Once the patent was granted and the corresponding certificate of

title was issued, the land ceased to be part of the public domain and
became private property over which the Director of Lands has neither
control nor jurisdiction."

2. Lee Hong Hok v. David,98 where the Court declared -

"After the registration and issuance of the certificate and duplicate

certificate of title based on a public land patent, the land covered
thereby automatically comes under the operation of Republic Act 496
subject to all the safeguards provided therein."3. Heirs of Gregorio
Tengco v. Heirs of Jose Aliwalas,99 where the Court ruled -

"While the Director of Lands has the power to review homestead

patents, he may do so only so long as the land remains part of the
public domain and continues to be under his exclusive control; but
once the patent is registered and a certificate of title is issued, the
land ceases to be part of the public domain and becomes private
property over which the Director of Lands has neither control nor
jurisdiction."

4. Manalo v. Intermediate Appellate Court,100 where the Court held –

 "When the lots in dispute were certified as disposable on May 19,
1971, and free patents were issued covering the same in favor of the
private respondents, the said lots ceased to be part of the public
domain and, therefore, the Director of Lands lost jurisdiction over the
same."

5.Republic v. Court of Appeals,101 where the Court stated –

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

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

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

In the instant case, the only patent and certificates of title issued are those
in the name of PEA, a wholly government owned corporation performing
public as well as proprietary functions. No patent or certificate of title has
been issued to any private party. No one is asking the Director of Lands to
cancel PEA's patent or certificates of title. In fact, the thrust of the instant
petition is that PEA's certificates of title should remain with PEA, and the
land covered by these certificates, being alienable lands of the public
domain, should not be sold to a private corporation.

Registration of land under Act No. 496 or PD No. 1529 does not vest in the
registrant private or public ownership of the land. Registration is not a
mode of acquiring ownership but is merely evidence of ownership
previously conferred by any of the recognized modes of acquiring
ownership. Registration does not give the registrant a better right than what
the registrant had prior to the registration. 102 The registration of lands of the
public domain under the Torrens system, by itself, cannot convert public
lands into private lands.103

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

"NOW, THEREFORE, KNOW YE, that by authority of the Constitution

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

Thus, the provisions of CA No. 141 apply to the Freedom Islands on

matters not covered by PD No. 1084. Section 60 of CA No. 141 prohibits,
"except when authorized by Congress," the sale of alienable lands of the
public domain that are transferred to government units or entities. Section
60 of CA No. 141 constitutes, under Section 44 of PD No. 1529, a
"statutory lien affecting title" of the registered land even if not annotated on
the certificate of title.104 Alienable lands of the public domain held by
government entities under Section 60 of CA No. 141 remain public lands
because they cannot be alienated or encumbered unless Congress passes
a law authorizing their disposition. Congress, however, cannot authorize
the sale to private corporations of reclaimed alienable lands of the public
domain because of the constitutional ban. Only individuals can benefit from
such law.

The grant of legislative authority to sell public lands in accordance with

Section 60 of CA No. 141 does not automatically convert alienable lands of
the public domain into private or patrimonial lands. The alienable lands of
the public domain must be transferred to qualified private parties, or to
government entities not tasked to dispose of public lands, before these
lands can become private or patrimonial lands. Otherwise, the
constitutional ban will become illusory if Congress can declare lands of the
public domain as private or patrimonial lands in the hands of a government
agency tasked to dispose of public lands. This will allow private
corporations to acquire directly from government agencies limitless areas
of lands which, prior to such law, are concededly public lands.

Under EO No. 525, PEA became the central implementing agency of the

National Government to reclaim foreshore and submerged areas of the
public domain. Thus, EO No. 525 declares that –

"EXECUTIVE ORDER NO. 525

Designating the Public Estates Authority as the Agency Primarily

Responsible for all Reclamation Projects

Whereas, there are several reclamation projects which are ongoing or

being proposed to be undertaken in various parts of the country
which need to be evaluated for consistency with national programs;

Whereas, there is a need to give further institutional support to the

Government's declared policy to provide for a coordinated,
economical and efficient reclamation of lands;

Whereas, Presidential Decree No. 3-A requires that all reclamation of

areas shall be limited to the National Government or any person
authorized by it under proper contract;
 Whereas, a central authority is needed to act on behalf of the
National Government which shall ensure a coordinated and
integrated approach in the reclamation of lands;

Whereas, Presidential Decree No. 1084 creates the Public

Estates Authority as a government corporation to undertake
reclamation of lands and ensure their maximum utilization in
promoting public welfare and interests; and

Whereas, Presidential Decree No. 1416 provides the President with

continuing authority to reorganize the national government including
the transfer, abolition, or merger of functions and offices.

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers vested in me by the Constitution
and pursuant to Presidential Decree No. 1416, do hereby order and
direct the following:

Section 1. The Public Estates Authority (PEA) shall be primarily

responsible for integrating, directing, and coordinating all
reclamation projects for and on behalf of the National
Government. All reclamation projects shall be approved by the
President upon recommendation of the PEA, and shall be undertaken
by the PEA or through a proper contract executed by it with any
person or entity; Provided, that, reclamation projects of any national
government agency or entity authorized under its charter shall be
undertaken in consultation with the PEA upon approval of the
President.

x x x ."

As the central implementing agency tasked to undertake reclamation

projects nationwide, with authority to sell reclaimed lands, PEA took the
place of DENR as the government agency charged with leasing or selling
reclaimed lands of the public domain. The reclaimed lands being leased or
sold by PEA are not private lands, in the same manner that DENR, when it
disposes of other alienable lands, does not dispose of private lands but
alienable lands of the public domain. Only when qualified private parties
acquire these lands will the lands become private lands. In the hands of
the government agency tasked and authorized to dispose of alienable
of disposable lands of the public domain, these lands are still public,
not private lands.

Furthermore, PEA's charter expressly states that PEA "shall hold lands of
the public domain" as well as "any and all kinds of lands." PEA can hold
both lands of the public domain and private lands. Thus, the mere fact that
alienable lands of the public domain like the Freedom Islands are
transferred to PEA and issued land patents or certificates of title in PEA's
name does not automatically make such lands private.

To allow vast areas of reclaimed lands of the public domain to be

transferred to PEA as private lands will sanction a gross violation of the
constitutional ban on private corporations from acquiring any kind of
alienable land of the public domain. PEA will simply turn around, as PEA
has now done under the Amended JVA, and transfer several hundreds
of hectares of these reclaimed and still to be reclaimed lands to a single
private corporation in only one transaction. This scheme will effectively
nullify the constitutional ban in Section 3, Article XII of the 1987
Constitution which was intended to diffuse equitably the ownership of
alienable lands of the public domain among Filipinos, now numbering over
80 million strong.

This scheme, if allowed, can even be applied to alienable agricultural lands

of the public domain since PEA can "acquire x x x any and all kinds of
lands." This will open the floodgates to corporations and even individuals
acquiring hundreds of hectares of alienable lands of the public domain
under the guise that in the hands of PEA these lands are private lands.
This will result in corporations amassing huge landholdings never before
seen in this country - creating the very evil that the constitutional ban was
designed to prevent. This will completely reverse the clear direction of
constitutional development in this country. The 1935 Constitution allowed
private corporations to acquire not more than 1,024 hectares of public
lands.105 The 1973 Constitution prohibited private corporations from
acquiring any kind of public land, and the 1987 Constitution has
unequivocally reiterated this prohibition.

The contention of PEA and AMARI that public lands, once registered under
Act No. 496 or PD No. 1529, automatically become private lands is
contrary to existing laws. Several laws authorize lands of the public domain
to be registered under the Torrens System or Act No. 496, now PD No.
1529, without losing their character as public lands. Section 122 of Act No.
496, and Section 103 of PD No. 1529, respectively, provide as follows:

Act No. 496

"Sec. 122. Whenever public lands in the Philippine Islands belonging

to the x x x Government of the Philippine Islands are alienated,
granted, or conveyed to persons or the public or private
corporations, the same shall be brought forthwith under the
operation of this Act and shall become registered lands."

PD No. 1529

"Sec. 103. Certificate of Title to Patents. Whenever public land is by

the Government alienated, granted or conveyed to any person, the
same shall be brought forthwith under the operation of this Decree."
(Emphasis supplied)

Based on its legislative history, the phrase "conveyed to any person" in

Section 103 of PD No. 1529 includes conveyances of public lands to public
corporations.

Alienable lands of the public domain "granted, donated, or transferred to a

province, municipality, or branch or subdivision of the Government," as
provided in Section 60 of CA No. 141, may be registered under the Torrens
System pursuant to Section 103 of PD No. 1529. Such registration,
however, is expressly subject to the condition in Section 60 of CA No. 141
that the land "shall not be alienated, encumbered or otherwise disposed of
in a manner affecting its title, except when authorized by Congress."
This provision refers to government reclaimed, foreshore and marshy lands
of the public domain that have been titled but still cannot be alienated or
encumbered unless expressly authorized by Congress. The need for
legislative authority prevents the registered land of the public domain from
becoming private land that can be disposed of to qualified private parties.

The Revised Administrative Code of 1987 also recognizes that lands of the
public domain may be registered under the Torrens System. Section 48,
Chapter 12, Book I of the Code states –

"Sec. 48. Official Authorized to Convey Real Property. Whenever real

property of the Government is authorized by law to be conveyed, the
 deed of conveyance shall be executed in behalf of the government by
the following:

(1) x x x

(2) For property belonging to the Republic of the Philippines, but

titled in the name of any political subdivision or of any corporate
agency or instrumentality, by the executive head of the agency or
instrumentality." (Emphasis supplied)

Thus, private property purchased by the National Government for

expansion of a public wharf may be titled in the name of a government
corporation regulating port operations in the country. Private property
purchased by the National Government for expansion of an airport may
also be titled in the name of the government agency tasked to administer
the airport. Private property donated to a municipality for use as a town
plaza or public school site may likewise be titled in the name of the
municipality.106 All these properties become properties of the public domain,
and if already registered under Act No. 496 or PD No. 1529, remain
registered land. There is no requirement or provision in any existing law for
the de-registration of land from the Torrens System.

Private lands taken by the Government for public use under its power of
eminent domain become unquestionably part of the public domain.
Nevertheless, Section 85 of PD No. 1529 authorizes the Register of Deeds
to issue in the name of the National Government new certificates of title
covering such expropriated lands. Section 85 of PD No. 1529 states –

"Sec. 85. Land taken by eminent domain. Whenever any registered

land, or interest therein, is expropriated or taken by eminent domain,
the National Government, province, city or municipality, or any other
agency or instrumentality exercising such right shall file for
registration in the proper Registry a certified copy of the judgment
which shall state definitely by an adequate description, the particular
property or interest expropriated, the number of the certificate of title,
and the nature of the public use. A memorandum of the right or
interest taken shall be made on each certificate of title by the Register
of Deeds, and where the fee simple is taken, a new certificate shall
be issued in favor of the National Government, province, city,
municipality, or any other agency or instrumentality exercising such
 right for the land so taken. The legal expenses incident to the
memorandum of registration or issuance of a new certificate of title
shall be for the account of the authority taking the land or interest
therein." (Emphasis supplied)

Consequently, lands registered under Act No. 496 or PD No. 1529 are not
exclusively private or patrimonial lands. Lands of the public domain may
also be registered pursuant to existing laws.

AMARI makes a parting shot that the Amended JVA is not a sale to AMARI
of the Freedom Islands or of the lands to be reclaimed from submerged
areas of Manila Bay. In the words of AMARI, the Amended JVA "is not a
sale but a joint venture with a stipulation for reimbursement of the original
cost incurred by PEA for the earlier reclamation and construction works
performed by the CDCP under its 1973 contract with the Republic."
Whether the Amended JVA is a sale or a joint venture, the fact remains that
the Amended JVA requires PEA to "cause the issuance and delivery of the
certificates of title conveying AMARI's Land Share in the name of
AMARI."107

This stipulation still contravenes Section 3, Article XII of the 1987

Constitution which provides that private corporations "shall not hold such
alienable lands of the public domain except by lease." The transfer of title
and ownership to AMARI clearly means that AMARI will "hold" the
reclaimed lands other than by lease. The transfer of title and ownership is a
"disposition" of the reclaimed lands, a transaction considered a sale or
alienation under CA No. 141,108 the Government Auditing Code,109 and
Section 3, Article XII of the 1987 Constitution.

The Regalian doctrine is deeply implanted in our legal system. Foreshore

and submerged areas form part of the public domain and are inalienable.
Lands reclaimed from foreshore and submerged areas also form part of the
public domain and are also inalienable, unless converted pursuant to law
into alienable or disposable lands of the public domain. Historically, lands
reclaimed by the government are sui generis, not available for sale to
private parties unlike other alienable public lands. Reclaimed lands retain
their inherent potential as areas for public use or public service. Alienable
lands of the public domain, increasingly becoming scarce natural
resources, are to be distributed equitably among our ever-growing
population. To insure such equitable distribution, the 1973 and 1987
Constitutions have barred private corporations from acquiring any kind of
alienable land of the public domain. Those who attempt to dispose of
inalienable natural resources of the State, or seek to circumvent the
constitutional ban on alienation of lands of the public domain to private
corporations, do so at their own risk.

We can now summarize our conclusions as follows:

1. The 157.84 hectares of reclaimed lands comprising the Freedom

Islands, now covered by certificates of title in the name of PEA,
are alienable lands of the public domain. PEA may lease these
lands to private corporations but may not sell or transfer ownership of
these lands to private corporations. PEA may only sell these lands to
Philippine citizens, subject to the ownership limitations in the 1987
Constitution and existing laws.

2. The 592.15 hectares of submerged areas of Manila Bay remain

inalienable natural resources of the public domain until classified as
alienable or disposable lands open to disposition and declared no
longer needed for public service. The government can make such
classification and declaration only after PEA has reclaimed these
submerged areas. Only then can these lands qualify as agricultural
lands of the public domain, which are the only natural resources the
government can alienate. In their present state, the 592.15 hectares
of submerged areas are inalienable and outside the commerce of
man.

3. Since the Amended JVA seeks to transfer to AMARI, a private

corporation, ownership of 77.34 hectares110 of the Freedom Islands,
such transfer is void for being contrary to Section 3, Article XII of the
1987 Constitution which prohibits private corporations from acquiring
any kind of alienable land of the public domain.

4. Since the Amended JVA also seeks to transfer to AMARI

ownership of 290.156 hectares111 of still submerged areas of Manila
Bay, such transfer is void for being contrary to Section 2, Article XII of
the 1987 Constitution which prohibits the alienation of natural
resources other than agricultural lands of the public domain. PEA
may reclaim these submerged areas. Thereafter, the government can
classify the reclaimed lands as alienable or disposable, and further
 declare them no longer needed for public service. Still, the transfer of
such reclaimed alienable lands of the public domain to AMARI will be
void in view of Section 3, Article XII of the 1987 Constitution which
prohibits private corporations from acquiring any kind of alienable
land of the public domain.

Clearly, the Amended JVA violates glaringly Sections 2 and 3, Article XII of
the 1987 Constitution. Under Article 1409112 of the Civil Code, contracts
whose "object or purpose is contrary to law," or whose "object is outside
the commerce of men," are "inexistent and void from the beginning." The
Court must perform its duty to defend and uphold the Constitution, and
therefore declares the Amended JVA null and void ab initio.

Seventh issue: whether the Court is the proper forum to raise the
issue of whether the Amended JVA is grossly disadvantageous to the
government.

Considering that the Amended JVA is null and void ab initio, there is no
necessity to rule on this last issue. Besides, the Court is not a trier of facts,
and this last issue involves a determination of factual matters.

WHEREFORE, the petition is GRANTED. The Public Estates Authority and

Amari Coastal Bay Development Corporation are PERMANENTLY
ENJOINED from implementing the Amended Joint Venture Agreement
which is hereby declared NULL and VOID ab initio.

SO ORDERED.

G.R. No. 123586             August 12, 2004

SPOUSES BEDER MORANDARTE and MARINA FEBRERA, petitioners,

vs.
COURT OF APPEALS, REPUBLIC OF THE PHILIPPINES, and
SPOUSES VIRGINIO B. LACAYA and NENITA LACAYA, respondents.

DECISION
AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of

Court which seeks the reversal of the Decision, dated August 23, 1995, of
1 

the Court of Appeals (CA for brevity) in CA-G.R. CV No. 36258, affirming
the Decision, dated November 5, 1991, rendered by the Regional Trial
Court (Branch 7), Dipolog City, Zamboanga del Norte (RTC for brevity) in
Civil Case No. 3890, declaring Free Patent No. (IX-8) 785 and Original
2 

Certificate of Title No. P-21972, in the name of petitioner Beder Morandarte

(Morandarte for brevity), and all its derivative titles, null and void ab initio.

The factual antecedents are as follows:

Morandarte filed an application for free patent, dated December 5, 1972,

before the Bureau of Lands, Dipolog City District Land Office (BOL for
brevity), covering a parcel of land located at Sta. Filomena, Dipolog City
with an area of 4.5499 hectares and described as a portion of Lot 1038 of
Dipolog Cadastre No. 85. 3

On July 27, 1976, the District Land Officer of the BOL approved the free
patent application of Morandarte and directed the issuance of a free patent
in his favor. Accordingly, Free Patent No. (IX-8) 785 for Lot No. 7, Csd-09-
4 

05-00078-D was issued in the name of Morandarte. On September 20,

1976, the Register of Deeds of Zamboanga del Norte issued the
corresponding Original Certificate of Title No. (P-21972) 5954. 5

Subsequently, Morandarte caused a subdivision survey of the lot, dividing

the same into Lot No. 6781-A, with an area of 13,939 square meters, and
Lot No. 6781-B, with an area of 32,819 square meters. As a result of the
subdivision survey, Transfer Certificates of Title Nos. T-1835 and T-1836
covering Lots 6781-A and 6781-B, respectively, were issued in favor of
Morandarte on May 12, 1980 by the Registry of Deeds of Dipolog City. 6

On May 22, 1981, Morandarte and his wife, Marina Febrera, executed a
real estate mortgage over Lot 6781-B, subject of TCT No. 1836, in favor of
the Development Bank of the Philippines, Dipolog City branch (DBP for
brevity), in consideration of a loan in the amount of P52,160.00. 7
More than ten years after the issuance of the OCT in Morandarte's name,
or on March 19, 1987, respondent Republic of the Philippines (Republic for
brevity), represented by the Director of Lands, filed before the RTC a
Complaint for Annulment of Title and Reversion against the Morandarte
spouses, the Register of Deeds of Zamboanga del Norte, the Register of
Deeds of Dipolog City, and DBP, docketed as Civil Case No. 3890. 8

The Republic alleged that the BOL found that the subject land includes a
portion of the Miputak River which cannot be validly awarded as it is
outside the commerce of man and beyond the authority of the BOL to
dispose of. It claimed that the Morandarte spouses deliberately and
intentionally concealed such fact in the application to ensure approval
thereof. Considering that the Morandarte spouses are guilty of fraud and
misrepresentation in the procurement of their title, the Republic stressed
that their title is void.
9

The Register of Deeds of Dipolog City filed a Motion to Dismiss, dated April
7, 1987, praying for the dismissal of the complaint as against her since the
complaint failed to state a claim against her.10

In their Answer dated April 13, 1987, the Morandarte spouses denied the
allegations of the complaint and claimed that they were able to secure the
title in accordance and in compliance with the requirements of the law.
They alleged that the land is a portion of inherited property from Antonio L.
Morandarte whose ownership thereof is covered by Tax Declaration No.
2296.

As regards the Miputak River, they argued that the river changed its course
brought about by the fact that a portion of the Miputak River was leased by
the Bureau of Fisheries (BOF for brevity) to a certain Aguido Realiza whose
rights were subsequently transferred to Virginio Lacaya. They alleged that
they indicated in their survey plan the actual location of the Miputak River in
relation to the property but the BOL returned the survey with the directive
that the existence of the river should not be indicated as the original survey
did not show its existence, to which they complied with by submitting a new
survey plan which did not indicate the existence of the river.

In the alternative, they alleged that inclusion of the Miputak River should
not render the title void; only the portion of the property covered by the
Miputak River should be nullified but their title to the remaining portion
should be maintained. 11

For its part, DBP filed its Answer dated April 13, 1987 praying for the
dismissal of the complaint as against it since it had nothing to do with the
issuance of the title to the spouses. DBP interposed a cross-claim against
12 

the spouses for the payment of their outstanding obligations. The

13 

Morandarte spouses filed an Answer to the Crossclaim dated April 29,

1987. 14

No answer was filed by the Register of Deeds of Zamboanga del Norte.

On March 4, 1988, upon prior leave of court, herein respondent spouses

Virginio B. Lacaya and Nenita Lacaya filed their Complaint-In-Intervention
which alleged that they are holders of a fishpond lease agreement covering
a fishpond area of about 5.0335 hectares, 1.2681 hectares of which have
been included in the title issued to the Morandarte spouses. Considering
that the land of the Morandarte spouses encroaches on the area leased to
them, the Lacaya spouses submit that the former's title thereto is void. 15

In their Answer to the complaint-in-intervention, dated March 19, 1988, the

Morandarte spouses denied the allegations of the Lacaya spouses. They 16 

maintained that the portion of the fishpond originally belonged to Antonio L.

Morandarte, their predecessor-in-interest, and the Lacaya spouses have
never been in possession thereof but are actually squatters therein.

On the other hand, the Republic, in its Answer to the complaint-in-

intervention, dated March 21, 1988, adopted the allegations of the
complaint-in-intervention to further support its claim that the title of the
Morandarte spouses is void. The Lacaya spouses filed their Reply and
17 

Answer on March 30, 1988, denying the arguments of the Morandarte

spouses and reiterating the allegations in their complaint-in-intervention. 18

Following trial on the merits, on November 5, 1992, the RTC rendered a

Decision in favor of the Republic and the Lacaya spouses. The RTC
19 

declared that while fraud in the procurement of the title was not established
by the State, Morandarte's title is, nonetheless, void because it includes a
portion of the Miputak River which is outside the commerce of man and
beyond the authority of the BOL to dispose of. In addition, the RTC
sustained the fishpond rights of the Lacaya spouses over a portion included
in Morandarte's title based on a Deed of Transfer of Fishpond Rights from
Felipe B. Lacaya and a Fishpond Lease Agreement with the BOF.

The dispositive portion of the decision of the trial court reads:

WHEREFORE, judgment is hereby rendered:

1. Declaring null and void ab initio Free Patent No. (IX-5) (sic) 785
and Original Certificate of Title No. P-21972 in the name of Beder
Morandarte, as well as all derivative titles issued thereafter;

2. Ordering defendants spouses Beder Morandarte and Marina

Febrera to surrender their owner's duplicate copies of Transfer
Certificate of Title Nos. T-1835 and T-1836, which were the derivative
titles of Original Certificate of Title No. P-21972;

3. Directing the Register of Deeds of Zamboanga del Norte to cancel

Original Certificate of Title No. P-21972 in the name of Beder
Morandarte, and the Register of Deeds of Dipolog City to cancel
Transfer Certificate of Title Nos. T-1835 and T-1836 in the name of
the same defendant;

4. Ordering the reversion of the land in question to the state, free

from liens and encumbrances;

5. Enjoining defendants spouses Beder Morandarte and Marina

Febrera from exercising any act of ownership or possession of the
subject property;

6. Dismissing the Cross-Claim of defendant Development Bank of the

Philippines against Cross Defendants Spouses Beder Morandarte
and Marina Febrera, for being premature, but ordering the latter cross
defendants to give a substitute security in favor of DBP as indicated
in this decision;

7. Declaring valid and enforceable the Lease Agreement for a period

of twenty five years over the fishpond area of Intervenors;

8. Denying Intervenors' prayer for damages against defendants-

spouses Morandarte; and
 9. Dismissing, for lack of merit, the counterclaim and prayer for
damages of defendants spouses Morandarte against the Intervenors.

No costs against defendant-spouses Morandarte.

IT IS SO ORDERED. 20

Dissatisfied, the Morandarte spouses appealed to the CA. In a Decision

21 

dated August 23, 1995, the CA affirmed the decision of the

RTC, ratiocinating, as follows:
22 

The present controversial Miputak River used to occupy the area

adjacent to the northern and western boundaries of Lot No. 6781
Cad-85 (Exh. J). As time passed, it changed its course and occupies
(sic) Lot No. 6781 Cad-85 (identical to Lot 7, Exh. H). This will explain
Beder Morandarte's argument that when he applied for the Sales
Patent Lot 7 (identical to Lot 6781), the original technical description
did not show the Miputak River. But it is inescapable though, that
while originally, Lot 6781 is not occupied by the river, at the time that
the Sales Application was filed by Beder Morandarte, the Miputak
River was actually occupying said Lot 6781 or Lot 7 covered by his
Sales Application and the titles sought to be annulled in this case.

Rivers and their natural beds are undoubtedly properties of public

dominion (Art. 502 par. 1, Civil Code of the Philippines). Whether
navigable or not, rivers belong to the public and cannot be acquired
by prescription (Com vs. Meneses, 38 O.G. 2839, Paras, Civil Code,
p. 328, Vol. II, 12th Edition). In fact, a stream located within private
land is still property of public dominion, even if the Torrens Title of the
land does not show the existence of said stream (Talion vs. Sec. of
Public Works and Highways, L-24281, May 16, 1967; Paras, supra).

Correspondingly, Art. 462 of the same Civil Code provides:

Art. 462. Whenever a river, changing its course by natural causes,

opens a new bed through a private estate, this bed shall become of
public dominion.

The rule is the same that even if the new bed is on private property.
The bed becomes property of public dominion. Just as the old bed
had been of public dominion before the abandonment, the new
 riverbed shall likewise be of public dominion (Hilario vs. City of
Manila, L-19570, April 27, 1967). 23

On October 10, 1995, the Morandarte spouses filed a motion for

reconsideration. In its Resolution dated January 19, 1996, the CA found no
24 

justifiable cause or reason to modify or reverse its decision.

25

Hence, the instant petition for review anchored on the following assigned
errors:

A.

RESPONDENT COURT COMMITTED A GRAVE ERROR OF LAW

IN APPLYING ARTICLE 462 OF THE CIVIL CODE TO THIS CASE
WHEN THE CHANGE IN COURSE OF THE OLD MIPUTAK RIVER
WAS NOT DUE TO NATURAL CAUSES BUT WAS ACCIDENTAL.

B.

ASSUMING ARGUENDO THAT THE CHANGE OF COURSE OF

THE OLD MIPUTAK RIVER WAS DUE TO NATURAL CAUSE ONLY
A PORTION OF THE SUBJECT PROPERTY OF PETITIONERS
WAS AFFECTED THEREBY SO THAT THE TITLE OF
PETITIONERS TO THE REMAINING PORTION IS VALID AND
CANNOT BE NULLIFIED AS IT REMAINED PRIVATE PROPERTY.

C.

RESPONDENT COURT GRAVELY ERRED IN ORDERING THE

REVERSION OF LOT 7, CSD-09-05-00078-D TO THE PUBLIC
DOMAIN.

D.

RESPONDENT COURT GRAVELY ERRED IN NOT DECLARING

AS NULL AND VOID THE LEASE AGREEMENT EXECUTED IN
FAVOR OF INTERVENORS.

E.
 RESPONDENT COURT GRAVELY ERRED IN NOT DISMISSING
THE COMPLAINT CONSIDERING THAT NO FRAUD OR
MISREPRESENTATION WAS EMPLOYED BY THE SPOUSES
MORANDARTE IN OBTAINING THE TITLE. 26

The Morandarte spouses emphatically argue that the CA failed to take into
consideration the true state of the present Miputak River in relation to Lot 7.
They contend that the Miputak River changed its course due to the closure
of the river bed through the construction of dikes by the Lacaya spouses,
forcing the river to be diverted into Lot 6781-B. Thus, they submit that the
applicable provision is Article 77 of the Law of Waters, which provides
that "[l]ands accidentally inundated by the waters of lakes, or by creeks,
rivers and other streams shall continue to be the property of their
respective owners."

Furthermore, they staunchly claim that the Miputak River does not actually
correspond to Lot 7. The Miputak River occupies only 12,162 square
meters of Lot 7 which has an area of 45,499 square meters. Also, they
insist that the lower courts made capital, albeit erroneously, of their
agreement to a reversion. The reversion agreed to refers only to the 12,162
square meters portion covered by the Miputak River, which should be
voided, while the portion unaffected by the Miputak River is valid and their
title thereto should be maintained and respected.

Moreover, they vigorously contend that the CA erred in sustaining the

validity of fishpond rights of the Lacaya spouses. They aver that the Lacaya
spouses violated the terms of the lease agreement by constructing dikes
for the fishponds which caused the Miputak River to traverse the property
of the Morandarte spouses.

Prefatorily, it must be stated that in petitions for review on certiorari, only

questions of law may be raised by the parties and passed upon by this
Court. Factual findings of the trial court, when adopted and confirmed by
27 

the CA, are binding and conclusive upon the Supreme Court and generally
will not be reviewed on appeal. Inquiry upon the veracity of the CA's
28 

factual findings and conclusion is not the function of the Supreme Court for
the Court is not a trier of facts.
29

While this Court has recognized several exceptions to this rule, to wit: (1)
when the findings are grounded entirely on speculation, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd,
or impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of
facts are conflicting; (6) when in making its findings, the CA went beyond
the issues of the case, or its findings are contrary to the admissions of both
the appellant and the appellee; (7) when the findings are contrary to the
trial court; (8) when the findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in the
petition as well as in the petitioner's main and reply briefs are not disputed
by the respondent; (10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by the evidence on
record; and (11) when the CA manifestly overlooked certain relevant facts
not disputed by the parties, which, if properly considered, would justify a
different conclusion, none of these exceptions find application here.
30 

A complaint for reversion involves a serious controversy, involving a

question of fraud and misrepresentation committed against the government
and it seeks the return of the disputed portion of the public domain. It seeks
to cancel the original certificate of registration, and nullify the original
certificate of title, including the transfer certificate of title of the successors-
in-interest because the same were all procured through fraud and
misrepresentation. 31

The State, as the party alleging that fraud and misrepresentation attended
the application for free patent, bears the burden of proof. The
circumstances evidencing fraud and misrepresentation are as varied as the
people who perpetrate it in each case. It assumes different shapes and
forms and may be committed in as many different ways. Therefore, fraud
32 

and misrepresentation are never presumed but must be proved by clear

and convincing evidence; mere preponderance of evidence not even being
33 

adequate. 34

In this case, the State failed to prove that fraud and misrepresentation
attended the application for free patent. The RTC, in fact, recognized that
no fraud attended the application for free patent but declared reversion
35 

based on the judicial admission of the Morandarte spouses that reversion is

warranted due to the inalienability of the Miputak River. Ordinarily, a judicial
admission requires no proof and a party is precluded from denying it except
when it is shown that such admission was made through palpable mistake
or that no such admission was made. In this case, the exception finds
36 
application since the records lay bare that such admission was made
through mistake and not in the context it was considered. As reflected in
the Order dated May 25, 1998, the Morandarte spouses essentially agreed
37 

only to a reconveyance of the portion covering the Miputak River.

Undoubtedly, such acquiescence to return the portion covering the Miputak
River is not, and cannot be considered, an admission that fraud and
misrepresentation attended the application for free patent. This fact,
standing alone, does not prove fraud and misrepresentation.

Besides, it is undisputed that the original survey plan submitted by

Morandarte to the BOL reflected the true state of the Miputak River in Lot
1038 but the BOL did not approve the plan because a 1916 survey did not
so indicate the existence of a river traversing Lot 1038 such that
Morandarte was directed to submit an amended plan deleting the existence
of the Miputak River. This mothered the subsequent error of the BOL of
approving the amended plan as CAS-09-05-000078-D.

This error could have been discovered through a thorough ocular

inspection of the property claimed under the free patent application.
However, Aurelio F. Bureros, Hearing Officer I of the BOL, surprisingly
failed to notice the existence of the river traversing Lot 1038 in the field
investigation he conducted on January 10, 1976. 38

Neither did Bureros note the 13,339 square meter portion already covered
by an existing fishpond lease agreement granted by the BOF in favor of
Felipe B. Lacaya, the predecessor-in-interest of the Lacaya spouses. 39

The records reveal that as early as 1948, 4.6784 hectares of the public
40 

land have been leased for fishpond purposes. Aguido S. Realiza was the
initial grantee of a fishpond lease agreement. Amor A. Realiza, Aguido's
41 

son, acquired his fishpond permit on May 29, 1953. Amor A. Realiza
42 

transferred his fishpond rights to Felipe B. Lacaya on May 14, 1956. By 43 

1960, the public land leased for fishpond purposes had increased to 5.0335
hectares. Felipe B. Lacaya transferred his fishpond rights to Virgilio B.
44 

Lacaya on October 25, 1977. Thus, the fishpond rights have been in
45 

existence since 1948, prior to the 1972 free patent application of

Morandarte.

Regardless of the foregoing, Aurelio F. Bureros, concluded that Morandarte

is a qualified applicant and recommended that a free patent be granted to
him. This error culminated in the erroneous grant of a free patent on July
27, 1976 covering the Miputak River and land subject of the fishpond rights
of Felipe B. Lacaya. 46

Be that as it may, the mistake or error of the officials or agents of the BOL
in this regard cannot be invoked against the government with regard to
property of the public domain. It has been said that the State cannot be
estopped by the omission, mistake or error of its officials or agents. 47

It is well-recognized that if a person obtains a title under the Public Land

Act which includes, by oversight, lands which cannot be registered under
the Torrens system, or when the Director of Lands did not have jurisdiction
over the same because it is a public domain, the grantee does not, by
virtue of the said certificate of title alone, become the owner of the land or
property illegally included. Otherwise stated, property of the public domain
48 

is incapable of registration and its inclusion in a title nullifies that title.

49

The present controversy involves a portion of the public domain that was
merely erroneously included in the free patent. A different rule would apply
where fraud is convincingly shown. The absence of clear evidence of fraud
will not invalidate the entire title of the Morandarte spouses.

Accordingly, the 12,162-square meter portion traversed by the Miputak

River and the 13,339-square meter portion covered by the fishpond lease
agreement of the Lacaya spouses which were erroneously included in Free
Patent No. (IX-8) 785 and Original Certificate of Title No. P-21972 should
be reconveyed back to the State.

The Morandarte spouses cannot seek refuge in their claim that Antonio A.
Morandarte, their predecessor-in-interest, was already the owner of that
portion of Lot 1038 when the fishpond application of Aguido S. Realiza was
approved in 1948 because Lot 1038 was still part of the public domain
then. It was only in 1972, through Forestry Administrative Order No. 4-
1257, which was approved August 14, 1972, when Lot 1038 was declared
alienable or disposable property of the State. 50

It is a settled rule that unless a public land is shown to have been

reclassified as alienable or actually alienated by the State to a private
person, that piece of land remains part of the public domain. Hence,
Antonio A. Morandarte's occupation thereof, however long, cannot ripen
into private ownership. 51
The Morandarte spouses also unsuccessfully harp on the inapplicability of
Article 462 of the Civil Code by claiming that the change of course of the
Miputak River was due to a man-made cause and not by natural means.
They offered no iota of evidence to substantiate this claim, other than the
bare testimony of Beder Morandarte. Neither is there proof that the
movement of the river was caused by accident or calamity, such as a
typhoon, and not by the natural movements thereof. General statements,
which are mere conclusions of law and not proofs, are unavailing and
cannot suffice.

Besides, at the time of the filing of the application for free patent in 1972, a
portion of the Miputak River was already in its present course, traversing
Lot 1038, particularly Lot 7 of the amended plan submitted by Morandarte.

We need not delve on the question of whether the Lacaya spouses violated
the terms of the fishpond lease agreement. It is not material in this case in
the sense that it was not made an issue by the parties. Neither is there
evidence to corroborate the bare allegation of petitioners that the Lacaya
spouses constructed dikes for the fishponds which caused the Miputak
River to traverse Lot 7. What is significant here is the established fact that
there was an existing fishpond lease agreement between Felipe Lacaya
and the Bureau of Fisheries at the time of Morandarte's application for free
patent; in effect, proving that the area covering the fishpond belongs to the
Government and petitioners have no rights thereto.

In closing, we cannot but decry the carelessness of the BOL in having

issued the Free Patent in Morandarte's favor which covered the Miputak
River and the fishpond rights of Felipe B. Lacaya. Surely, a more diligent
search into their records and thorough ocular inspection of Lot 7 would
have revealed the presence of the Miputak River traversing therein and an
existing fishpond right thereon. Had more vigilance been exercised by the
BOL, the government agency entrusted specifically with the task of
administering and disposing of public lands, the present litigation could
have been averted.

WHEREFORE, the petition is partly GRANTED. The assailed Decision of

the Court of Appeals, dated August 23, 1995, in CA G.R. No. 36258 is
REVERSED insofar only as it affirmed the nullity of Free Patent No. (IX-8)
785 and Original Certificate of Title No. P-21972, in the name of petitioner
Beder Morandarte. In its stead, petitioners Spouses Beder Morandarte and
Marina Febrera are directed to reconvey to the respondent Republic of the
Philippines within thirty (30) days from the finality of this Decision the
12,162-square meter portion traversed by the Miputak River and the
13,339-square meter portion covered by the fishpond lease agreement of
the Lacaya spouses. No pronouncement as to costs.

SO ORDERED.

G.R. No. 136438             November 11, 2004

TEOFILO C. VILLARICO, petitioner,
vs.
VIVENCIO SARMIENTO, SPOUSES BESSIE SARMIENTO-DEL MUNDO
& BETH DEL MUNDO, ANDOK’S LITSON CORPORATION and
MARITES’ CARINDERIA, respondents.

DECISION

SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari of the Decision of the Court of

1 

Appeals dated December 7, 1998 in CA-G.R. CV No. 54883, affirming in

toto the Decision of the Regional Trial Court (RTC) of Parañaque City,
2 

Branch 259, dated November 14, 1996, in Civil Case No. 95-044.

The facts of this case, as gleaned from the findings of the Court of Appeals,
are:

Teofilo C. Villarico, petitioner, is the owner of a lot in La Huerta, Parañaque

City, Metro Manila with an area of sixty-six (66) square meters and covered
by Transfer Certificate of Title (T.C.T.) No. 95453 issued by the Registry of
Deeds, same city.
Petitioner’s lot is separated from the Ninoy Aquino Avenue (highway) by a
strip of land belonging to the government. As this highway was elevated by
four (4) meters and therefore higher than the adjoining areas, the
Department of Public Works and Highways (DPWH) constructed stairways
at several portions of this strip of public land to enable the people to have
access to the highway.

Sometime in 1991, Vivencio Sarmiento, his daughter Bessie Sarmiento and

her husband Beth Del Mundo, respondents herein, had a building
constructed on a portion of said government land. In November that same
year, a part thereof was occupied by Andok’s Litson Corporation and
Marites’ Carinderia, also impleaded as respondents.

In 1993, by means of a Deed of Exchange of Real Property, petitioner

acquired a 74.30 square meter portion of the same area owned by the
government. The property was registered in his name as T.C.T. No. 74430
in the Registry of Deeds of Parañaque City.

In 1995, petitioner filed with the RTC, Branch 259, Parañaque City, a
complaint for accion publiciana against respondents, docketed as Civil
Case No. 95-044. He alleged inter alia that respondents’ structures on the
government land closed his "right of way" to the Ninoy Aquino Avenue; and
encroached on a portion of his lot covered by T.C.T. No. 74430.

Respondents, in their answer, specifically denied petitioner’s allegations,

claiming that they have been issued licenses and permits by Parañaque
City to construct their buildings on the area; and that petitioner has no right
over the subject property as it belongs to the government.

After trial, the RTC rendered its Decision, the dispositive portion of which
reads:

"WHEREFORE, premises considered, judgment is hereby rendered:

1. Declaring the defendants to have a better right of possession

over the subject land except the portion thereof covered by
Transfer Certificate of Title No. 74430 of the Register of Deeds
of Parañaque;
 2. Ordering the defendants to vacate the portion of the subject
premises described in Transfer Certificate of Title No. 74430
and gives its possession to plaintiff; and

3. Dismissing the claim for damages of the plaintiff against the

defendants, and likewise dismissing the claim for attorney’s
fees of the latter against the former.

Without pronouncement as to costs.

SO ORDERED." 3

The trial court found that petitioner has never been in possession of any
portion of the public land in question. On the contrary, the defendants are
the ones who have been in actual possession of the area. According to the
trial court, petitioner was not deprived of his "right of way" as he could use
the Kapitan Tinoy Street as passageway to the highway.

On appeal by petitioner, the Court of Appeals issued its Decision affirming

the trial court’s Decision in toto, thus:

"WHEREFORE, the judgment hereby appealed from is hereby

AFFIRMED in toto, with costs against the plaintiff-appellant.

SO ORDERED." 4

In this petition, petitioner ascribes to the Court of Appeals the following

assignments of error:

"I

THE FINDINGS OF FACT OF THE HON. COURT OF APPEALS

CONTAINED A CONCLUSION WITHOUT CITATION OF SPECIFIC
EVIDENCE ON WHICH THE SAME WAS BASED.

II

THE HON. COURT OF APPEALS ERRED IN CONSIDERING THAT

THE ONLY ISSUE IN THIS CASE IS WHETHER OR NOT THE
PLAINTIFF-APPELLANT HAS ACQUIRED A RIGHT OF WAY OVER
 THE LAND OF THE GOVERNMENT WHICH IS BETWEEN HIS
PROPERTY AND THE NINOY AQUINO AVENUE.

III

THE HON. COURT OF APPEALS ERRED IN CONCLUDING THAT

ACCION PUBLICIANA IS NOT THE PROPER REMEDY IN THE
CASE AT BAR.

IV

THE HON. COURT OF APPEALS ERRED IN CONCLUDING THAT

THE EXISTENCE OF THE PLAINTIFF-APPELLANT’S RIGHT OF
WAY DOES NOT CARRY POSSESSION OVER THE SAME.

THE HON. COURT OF APPEALS ERRED IN NOT RESOLVING

THE ISSUE OF WHO HAS THE BETTER RIGHT OF POSSESSION
OVER THE SUBJECT LAND BETWEEN THE PLAINTIFF-
APPELLANT AND THE DEFENDANT-APPELLEES." 5

In their comment, respondents maintain that the Court of Appeals did not
err in ruling that petitioner’s action for accion publiciana is not the proper
remedy in asserting his "right of way" on a lot owned by the government.

Here, petitioner claims that respondents, by constructing their buildings on

the lot in question, have deprived him of his "right of way" and his right of
possession over a considerable portion of the same lot, which portion is
covered by his T.C.T. No. 74430 he acquired by means of exchange of real
property.

It is not disputed that the lot on which petitioner’s alleged "right of way"
exists belongs to the state or property of public dominion. Property of public
dominion is defined by Article 420 of the Civil Code as follows:

"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 other 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."

Public use is "use that is not confined to privileged individuals, but is open
to the indefinite public." Records show that the lot on which the stairways
6 

were built is for the use of the people as passageway to the highway.
Consequently, it is a property of public dominion.

Property of public dominion is outside the commerce of man and hence it:
(1) cannot be alienated or leased or otherwise be the subject matter of
contracts; (2) cannot be acquired by prescription against the State; (3) is
not subject to attachment and execution; and (4) cannot be burdened by
any voluntary easement. 7

Considering that the lot on which the stairways were constructed is a

property of public dominion, it can not be burdened by a voluntary
easement of right of way in favor of herein petitioner. In fact, its use by the
public is by mere tolerance of the government through the DPWH.
Petitioner cannot appropriate it for himself. Verily, he can not claim any
right of possession over it. This is clear from Article 530 of the Civil Code
which provides:

"ART. 530. Only things and rights which are susceptible of being
appropriated may be the object of possession."

Accordingly, both the trial court and the Court of Appeals erred in ruling that
respondents have better right of possession over the subject lot.

However, the trial court and the Court of Appeals found that defendants’
buildings were constructed on the portion of the same lot now covered by
T.C.T. No. 74430 in petitioner’s name. Being its owner, he is entitled to its
possession.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court

of Appeals dated December 7, 1998 in CA-G.R. CV No. 54883 is
AFFIRMED with MODIFICATION in the sense that neither petitioner nor
respondents have a right of possession over the disputed lot where the
stairways were built as it is a property of public dominion. Costs against
petitioner.
SO ORDERED.

G.R. No. 158687             January 27, 2006

FRISCO F. DOMALSIN, Petitioner,
vs.
SPOUSES JUANITO VALENCIANO and AMALIA
VALENCIANO, Respondents.

DECISION

CHICO-NAZARIO, J.:

Before Us is a petition for review which seeks to set aside the decision 1 of
the Court of Appeals in CA-G.R. SP No. 69415 dated 20 August 2002
which reversed and set aside the decision2 of Branch 63 of the Regional
Trial Court (RTC) of La Trinidad, Benguet, in Civil Case No. 01-CV-
1582(150) dated 23 January 2002, which affirmed the decision 3 of the
Municipal Circuit Trial Court (MCTC) of Tuba-Sablan, Tuba, Benguet, in
Civil Case No. 150 dated 20 November 2000, declaring petitioner Frisco F.
Domalsin the actual possessor of the lot in dispute and ordering, inter alia,
respondent spouses Juanito and Amalia Valenciano to vacate and deliver
the physical possession thereof to the former, and its Resolution 4 dated 20
May 2003 denying petitioner’s motion for reconsideration.

The respective allegations of the parties as contained in the complaint and

answer are substantially summarized by the Court of Appeals as follows:

The property subject of this action for forcible entry is a parcel of land
located at sitio Riverside, Camp 3, Tuba, Benguet. Respondent Frisco B.
Domalsin claims to be the lawful owner and possessor of said parcel of
land since 1979 up to the present. He declared it for taxation purposes in
1983 as (per) Tax Declaration No. 9540 issued on September 12, 1983 by
the Municipal Assessor of Tuba Benguet. He allegedly introduced
improvements consisting of levelling, excavation, riprapping of the earth
and a private road to the river, fruitbearing trees and other agricultural
plants of economic value. He was in continuous, adverse possession and
in the concept of an owner for the past nineteen (19) years.
On August 1, 1998, petitioners Spouses Juanito Valenciano and Amalia
Valenciano (Sps. Valenciano, for brevity) allegedly entered the premises to
construct a building made of cement and strong materials, without the
authority and consent of respondent, by means of force and strategy, and
without a building permit from the Department of Public Works and
Highways (DPWH, for brevity). Respondent protested and demanded that
petitioners Sps. Valenciano halt construction of said building, but the latter
refused to do so. Hence, he filed the instant case.

Petitioners Sps. Valenciano, on the other hand, claimed that the ongoing
construction was with the consent and conformity of the DPWH and in fact
the improvements found in the property were introduced by the residents
thereof, including its first residents, William and Gloria Banuca, and not by
respondent. The premises on which petitioners Sps. Valenciano are
constructing their house were leveled after the earthquake in 1990 by the
Banuca spouses. Petitioners Sps. Valenciano are just starting the
construction because the permission was only given now by Gloria
Banuca.5

On 18 August 1998, petitioner filed before the MCTC of Tuba, Benguet, a

complaint for Forcible Entry with Prayer for Preliminary Mandatory
Injunction with Application for Issuance of a Temporary Restraining Order
plus Damages.6 The complaint was amended on 27 August 1998. 7 Per
Order dated 19 August 1998, a Temporary Restraining Order (TRO) was
issued ordering respondents to desist and cease and refrain from
continuing the construction of a house on the land in question. 8

On 27 August 1998, respondent spouses Juanito and Amalia Valenciano

filed their Answer with Opposition to the Prayer for Issuance of Writ of
Preliminary Injunction.9 On 07 September 1998, they filed an Answer to the
Amended Complaint10 to which petitioner filed a Reply.11

On 15 September 1998, the MCTC issued another TRO. 12

The pre-trial order dated 6 November 1998 contained, among other things,
petitioner’s admission that he was temporarily not operating any business
in the area, and respondents’ admission regarding the issuance of Tax
Declarations on the property in dispute in petitioner’s name. 13
Trial ensued. Petitioner presented Mariano Suyam and Tonsing Binay-an,
two of his former truck drivers from 1981 to 1985 in his business of hauling
sand, gravel and other aggregates at Riverside, Camp 3, Tuba, Benguet.

Mariano Suyam testified that sometime in 1981, petitioner caused the

construction of a private road leading to the Bued River from Kennon Road.
He added that petitioner constructed two houses, the first was located
along the road-right-of-way of Kennon Road where respondents are now
constructing their house, while the second was located below the private
road around 40 to 60 meters down from Kennon Road. He explained that
the first house was used for sleeping quarters and resting center for
laborers, while petitioner used the second one as his quarters. He said
William Banuca was hired as foreman in 1983 and that the latter and his
family stayed in the second house.

Tonsing Binay-an corroborated the testimony of Suyam as regards the two

houses constructed by petitioner and added that petitioner was the
manager of Salamander Enterprises and had a concession permit from the
Bureau of Mines to haul gravel and sand.

Petitioner testified that he is a lawyer-businessman formerly engaged in

trucking business, hauling sand and gravel, and operated under the name
Salamander Enterprises.14 He narrated that while he was passing Kennon
Road, he discovered that a portion of the Bued River, Camp 3, Tuba
Benguet, can be a potential source of supplies for his business. Though the
area was steep and deep, he scouted a place where he can construct a
road from Kennon Road to the Bued River. In the course of cleaning the
area, his workers noticed that the place had been tilled. A certain Castillo
Binay-an appeared informing him that he was the occupant of the site of
the proposed private road. After agreeing on the consideration, the former
executed a Deed of Waiver and Quitclaim15 over the land in his favor.

Thereafter, the Office of the Highway District Engineer of Baguio, Ministry

of Public Highways (now Department of Public Works and Highways
[DPWH]) issued a permit in favor of petitioner to extract construction
materials at Camp 3, Tuba, Benguet,16 which was followed by the issuance
on 1 October 1981 of Commercial Permit No. 147 by the Office of the
Mines Regional Officer, Mineral Region No. 1, Bureau of Mines and Geo-
Sciences (Bureau of Mines).17 The Commercial Permit, which was
renewable every year, was last renewed in 1987. 18
Based on the Deed of Waiver and Quitclaim executed by Castillo Binay-an,
petitioner was able to apply for, and was issued, a tax declaration over the
land covering one hectare. Tax Declaration No. 9540 19 dated 12 September
1983 was issued to petitioner describing the land bounded on the North by
Bued River, on the South by Kennon Road, on the East by Kennon Road,
and on the West by a Creek. With the revision of the fair market value and
assessed value of lands, Tax Declaration No. 94-004-00327 dated 12
November 1994 was issued to him.20 From 1983 up to 1998, petitioner has
been regularly paying real property taxes over the land.

Petitioner disclosed that in 1983, William Banuca applied for, and was
accepted, as foreman.21 Due to the nature of his job, Banuca was permitted
to stay in the second house beside the private road. 22 Banuca now lives
permanently in said house after petitioner gave it to him. Petitioner
revealed that the houses his former laborers constructed were awarded to
them as a kind gesture to them. As to the land he occupied along the
Kennon Road where the first house was erected, he claims that same still
belongs to him. This house, which his laborers and drivers used as a
resting area, was cannibalized and leveled, and the land over which it once
stood was taken possession by respondents who are now building their
house thereon.

Gloria Banuca testified for respondents. She disclosed that it was she who
invited respondents to come and reside at Riverside, Camp 3, Tuba,
Benguet. She said she knew petitioner to be engaged in the sand and
gravel business in Tuba, Benguet, from 1981 to 1985, and that the latter
stopped in 1985 and never returned to haul sand and gravel at the Bued
River. She claimed she never saw petitioner introduce any improvements
on the land he claimed he bought from Castillo Binay-an, and that it was
she and the other residents who introduced the existing improvements.

She narrated that in 1983, she planted fruit-bearing trees in the area where
respondents were constructing their house which is located along the
Kennon Road’s road-right-of-way, fronting petitioner’s property. After the
earthquake of 1990, the private road constructed by petitioner became
impassable and it was she who hired the equipment used to clear the
same. She even leveled the area where respondents were building their
home. Based on the ocular inspection, she said this area is within the 15-
meter radius from the center of the road. This area, she claims, was sold to
her by the Spouses Jularbal. However, the agreement between them
shows that what was sold to her were the improvements near her house
which was 40 meters down from Kennon Road and the improvements
along Kennon Road.23

Agustin Domingo next testified for respondents. He testified that in 1986,

upon the invitation of Gloria Banuca, he transferred his residence to sitio
Riverside because of its proximity to his place of work. He stayed there for
good and even buried his father near his house. He said that in 1990, the
private road constructed by petitioner was covered by boulders, soil and
rocks, and it was Mrs. Banuca who initiated the clearing of the road. Finally,
he declared that since 1986, he never saw petitioner introduce any
improvement in the area.

Respondent Juanito Valenciano revealed that he is the cousin of Gloria

Banuca. He narrated that in 1984, he went to Riverside to see the latter
whose husband, William Banuca, was working as foreman of petitioner. At
that time, the lot under litigation was still a hill. It was Gloria Banuca who
leveled the hill and told him to construct his house there. Finding the place
to be an ideal place to build his house, he paid the Banucas P10,000.00 for
the improvements.

He explained that before he started building his house, he sought the

permission of the Benguet District Engineer, DPWH, which the latter
granted. In August 1998, he received a notice 24 to stop and desist from
continuing the construction of a permanent one-storey house made of
hollow blocks and cement since the condition was only to utilize light
materials. Thereafter, a letter dated 22 January 1999 was sent to him
informing him that the temporary permit issued to him for the
improvement/utilization of a portion of the national road along Kennon
Road had been revoked for non-submission of the waiver as required by
the Office of the District Engineer and his non-compliance with the
condition that no permanent structures are to be constructed within the
road-right-of-way. He, however, denied receiving said letter.

Juan de Vera, a retired DPWH foreman, testified last for the respondents.
He claimed he witnessed the execution of the document 25 regarding the
sale by Adriano Jularbal to Gloria Banuca of improvements found near the
house of the latter in the amount of P1,000.00.
The MCTC found that what is being contested is the possession of a
portion of the road-right-of way of Kennon Road which is located in front of
a parcel of land that petitioner bought by way of Deed of Waiver and
Quitclaim from Castillo Binay-an. It held that petitioner had prior material
possession over the subject land. It ruled that the destruction of his house
built thereon by the earthquake in 1990, and later cannibalized without
being reconstructed was not tantamount to abandonment of the site by the
petitioner because it was destroyed by a fortuitous event which was beyond
his control. It explained that his possession over the land must be
recognized by respondents who came later after the earthquake. It brushed
aside respondents’ allegation that the land in dispute was abandoned by
the latter after he stopped operating his sand and gravel business in 1985
and never returned anymore, and when the house erected on it was
destroyed during the 1990 earthquake, it was no longer reconstructed and
was subsequently leveled or demolished by Gloria Banuca. However, it
pronounced that respondents’ action to occupy the land was done in good
faith considering that their occupation of the land was with the assurance of
the seller (Gloria Banuca) and that they were armed with the permit issued
by the DPWH for him to construct his house thereon.

On 20 November 2000, the MCTC came out with its decision, the decretal
portion of which reads:

WHEREFORE PREMISES CONSIDERED, decision is hereby rendered in

favor of plaintiff, FRISCO DOMALSIN, and against defendants, JUANITO
VALENCIANO and AMALIA VALENCIANO, with the following:

1. Order to declare the injunction permanent.

2. Order the plaintiff as the actual possessor of the lot in question.

3. Order the defendant(s) to vacate and deliver the physical

possession voluntarily of the disputed land to plaintiff within 60 days
from receipt of this decision.

4. Order defendant(s) to remove his structure within from receipt of

this decision.

5. Order the defendant(s) to (sic) plaintiff the amount of P10,000.00,

as litigation expenses.
 6. Order defendant(s) to pay the cost of suit 26

Respondents appealed the decision to the RTC. 27 In affirming the decision
in toto the RTC ratiocinated:

It may be well to consider that even after plaintiff’s business ceased

operation, he religiously paid the taxes due thereon.

Appellant’s theory that the plaintiff-appellee abandoned the property does

not sit well and finds no support in the record. Notice that since 1985 up to
mid-1990, the Banucas never laid claim over the property taking into
consideration that they were already residents of the place. This only goes
to show that they acknowledged and respected the prior possession of the
plaintiff-appellee. Besides, what right has Gloria to cause the leveling of the
property destroying the natural contour thereof, to presume that plaintiff-
appellee abandoned it and to invite and allow other persons to settle
thereat? Absolutely none. Knowing fully well that the plaintiff-appellee has
prior possession of the property, Gloria’s actions are unjustified, to say the
least. Her consummated act of leveling the property without the knowledge
of the plaintiff-appellee is viewed as a test to determine whether or not the
latter is still interested in the property. From then on until 1998 (but before
the construction), the Banucas still recognize the plaintiff’s possession. But
as Gloria claims to have heard no word from the plaintiff, she unilaterally
declared that the place is now abandoned as she "invited and allowed" the
defendants to live and construct their house thereat.

Contrary to the assertion of the appellants, there was no abandonment

simply because plaintiff-appellee continuously paid the corresponding taxes
due thereon and that he promptly objected to the construction of the
defendants-appellants’ house. These are clear manifestations of his
intention not to abandon the property. Sad to say though that here is a
former employer. By passing off such property to be hers is so unkind,
unfair and against social order. It is very clear that the Banucas knew of the
prior possession of the plaintiff way back then so that they themselves
never personally build construction over the property. If they honestly
believe that they now "own" the land, why will they still have to invite other
people who are not their relatives to settle thereat? Why the preference of
strangers over relatives? The Court does not believe that they did not
receive any compensation for having "allowed" strangers, the defendants
included, to settle on the land.
From all the foregoing, Gloria is clearly in bad faith. And her being in bad
faith must be corrected and if warranted, must be meted appropriate
penalty. If the Banucas are in bad faith, then the appellants cannot have
better rights either. The Banucas transferred nothing to them. Defendants-
appellants cannot even be considered as builders in good faith. It must be
noted that they were prohibited by the plaintiff from going further but they
ignored it. They shall lose what was built (Art. 449, Civil Code). Again, if the
Banucas believe that they have an action or a right to deprive the plaintiff’s
possession, why did they not invoke judicial interference as required under
Art. 536 of the same code? Nonetheless, notwithstanding the fact of
leveling without the knowledge of the plaintiff-appellee, the same did not
affect his possession (Art. 537, Civil Code).28

Via a petition for review, respondents appealed to the Court of Appeals.

The Court of Appeals made a sudden turn-around and reversed the
decision under review. Its decision dated 20 August 2002 reads in part:

[T]here is a need to clarify a few things. What is undisputed are the identity
and nature of the property subject of the action for forcible entry. The
subject of the action concerns a portion of the road-right-of-way along
Kennon Road just above the private road constructed by respondent. The
problem, however, is that petitioners Sps. Valenciano started constructing a
house on the same spot where a house belonging to respondent once
stood. Both parties are now asserting that they are entitled to the
possession of said lot. But the decision of the lower court seems to imply
that respondent’s right to possess the subject property stems from his
acquisition of the one-hectare property below it. That is not the case.

We must emphasize that the subject of the deed of quitclaim and waiver of
rights of Castillo Binay-an was not the road-right-of-way but the sloping
terrain below it. This was the property acquired by the respondent to have
access to the sand and gravel on the Bued River. It did not include the
road-right-of-way. As regards Gloria Banucas’s claims, the evidence show
that her agreement with Jularbal involved only the improvements near her
residence down the private road and not the road-right-of-way. Since the
subject property is a road-right-of-way, it forms part of the public dominion.
It is not susceptible to private acquisition or ownership. Prolonged
occupation thereof, improvements introduced thereat or payment of the
realty taxes thereon will never ripen into ownership of said parcel of land.
Thus, what We have are two parties, neither of which can be owners, only
possessors of the subject property. Beyond these two, only the government
has a better right to the subject property which right it may exercise at any
time. This bears emphasizing because if either party has possessory rights
to the subject property, it is not predicated on ownership but only on their
actual possession of the subject property.

xxxx

There is no doubt that respondent had prior physical possession of the

subject property. He entered and acquired possession of the subject
property when he built his house thereon. The house was destroyed during
the 1990 earthquake and respondent did not rebuild it. The mound on
which it stood was later leveled by Gloria Banuca and in 1998 petitioners
Sps. Valenciano began construction thereat. Petitioners Sps. Valenciano
claim there was abandonment, but the lower court ruled that respondent
did not abandon the subject property as he continued to pay the realty
taxes thereon and objected to petitioners Sps. Valenciano’s construction.
We believe, and so hold, that at this point in time, it is immaterial whether
or not there was abandonment by respondent. The fact remains that Gloria
Banuca took possession of the subject property soon after the earthquake.
She leveled the mound and the ruins of respondent’s house, yet
respondent remained silent. Respondent objected only after petitioners
Sps. Valenciano started construction of the house on the subject property.
Respondent cannot now interpose an action for forcible entry against
petitioners Sps. Valenciano, which he should have filed against Gloria
Banuca, petitioners Sps. Valenciano’s predecessor-in-interest. But more
than a year had passed and his right to do so lapsed. Thus, respondent’s
prior possession is material only as against Gloria Banuca and only within a
period of one year from the time she wrested possession of the property
from respondent.

We view with distate Gloria Banuca’s ingratitude toward her husband’s

former employer. Her actions smack of the proverbial hand being offered in
aid but the person to whom it is offered would rather have the whole arm
instead. This is an instance where it is the employees who commit injustice
against their employer. Nonetheless, petitioners Sps. Valenciano should
not suffer because of Gloria Banuca’s ingratitude for the former came
across the property in good faith.
But respondent is also reminded that he only has himself to blame. His
failure to assert his right for an unreasonable and unexplained length of
time allowed Gloria Banuca to wrest possession from him. Especially in this
case where they do not and cannot own the subject property, actual
possession becomes particularly important.29

The case was disposed as follows:

WHEREFORE, in view of the foregoing, the petition is GRANTED and the

decision of the Municipal Circuit Trial Court of tuba-Sablan dated
November 20, 2000 as affirmed by the Regional Trial Court on January 23,
2002 is hereby REVERSED and SET ASIDE.30

The Motion for Reconsideration filed by petitioner was denied in a

resolution31 dated 20 May 2003.

Petitioner is now before us seeking redress. He assigns the following as

the errors committed by the Court of Appeals:

I.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

PRIVATE RESPONDENT (NOW PETITIONER) FRISCO DOMALSIN
ABANDONED THE PROPERTY SUBJECT OF THE LITIGATION.

II.

THE HONORABLE COURT OF APPEALS ERRED IN REVERSING AND

SETTING ASIDE THE DECISION OF THE REGIONAL TRIAL COURT OF
LA TRINIDAD, BENGUET, BRANCH 63 WHICH AFFIRMED THE
DECISION OF THE MUNICIPAL CIRCUIT TRIAL COURT OF TUBA-
SABLAN.

At the outset, it must be made clear that the property subject of this case is
a portion of the road-right-of way of Kennon Road which is located in front
of a parcel of land that petitioner bought by way of Deed of Waiver and
Quitclaim from Castillo Binay-an.32 The admission33 of petitioner in his
Amended Complaint that respondents started constructing a building within
the Kennon Road road-right-of-way belies his claim that the lot in question
is his.
In light of this exposition, it is clear that neither the petitioner nor the
respondents can own nor possess the subject property the same being part
of the public dominion. Property of public dominion is defined by Article 420
of the Civil Code as follows:

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
other 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.

Properties of public dominion are owned by the general public. 34 Public use
is "use that is not confined to privileged individuals, but is open to the
indefinite public."35 As the land in controversy is a portion of Kennon Road
which is for the use of the people, there can be no dispute that same is part
of public dominion. This being the case, the parties cannot appropriate the
land for themselves. Thus, they cannot claim any right of possession over
it. This is clear from Article 530 of the Civil Code which provides:

ART. 530. Only things and rights which are susceptible of being
appropriated may be the object of possession.

Notwithstanding the foregoing, it is proper to discuss the position of the

Court of Appeals for comprehensive understanding of the facts and the law
involved.

Petitioner maintains that the Court of Appeals erred when it ruled that he
abandoned the land being disputed contrary to the rulings of the MCTC and
RTC. The MCTC found there was no abandonment of the land because the
house erected thereon was destroyed by a fortuitous event (earthquake),
while the RTC ruled there was no abandonment because petitioner paid
taxes due on the land and that he promptly objected to the construction of
respondents’ house which are clear manifestations of his intention not to
abandon the property.

A reading of the decision of the Court of Appeals shows that it did not
reverse the two lower courts on the issue of abandonment. It merely
declared that such issue is not material in the resolution of the case at bar.
It faulted petitioner for not asserting his right for a long time allowing Gloria
Banuca to wrest the possession of the land in question from petitioner by
leveling the house he built thereon and pronounced that actual possession
becomes important in a case where parties do not and cannot own the land
in question.

From the foregoing it appears that the Court of Appeals did not give weight
or importance to the fact that petitioner had prior physical possession over
the subject land. It anchored its decision on the fact that the parties do not
and cannot own the land and that respondents now have actual possession
over it.

Ejectment proceedings are summary proceedings intended to provide an

expeditious means of protecting actual possession or right to possession of
property. Title is not involved. The sole issue to be resolved is the question
as to who is entitled to the physical or material possession of the premises
or possession de facto.36

The Court of Appeals erred when it preferred the present and actual
possession of respondents vis-à-vis the prior possession of petitioner on
the ground that the parties do not and cannot own the lot in question.
Regardless of the actual condition of the title to the property, the party in
peaceable, quiet possession shall not be thrown out by a strong hand,
violence or terror. Neither is the unlawful withholding of property allowed.
Courts will always uphold respect for prior possession. Thus, a party who
can prove prior possession can recover such possession even against the
owner himself. Whatever may be the character of his possession, if he has
in his favor prior possession in time, he has the security that entitles him to
remain on the property until a person with a better right lawfully ejects
him.37

The fact that the parties do not and cannot own the property under litigation
does not mean that the issue to be resolved is no longer priority of
possession. The determining factor for one to be entitled to possession will
be prior physical possession and not actual physical possession. Since title
is never in issue in a forcible entry case, the Court of Appeals should have
based its decision on who had prior physical possession. The main thing to
be proven in an action for forcible entry is prior possession and that same
was lost through force, intimidation, threat, strategy and stealth, so that it
behooves the court to restore possession regardless of title or ownership. 38

Inasmuch as prior physical possession must be respected, the Court of

Appeals should have ruled squarely on the issue of abandonment because
it gave precedence to the actual present possession of respondents. If,
indeed, there was abandonment of the land under consideration by
petitioner, only then should respondents be given the possession of the
same since abandonment is one way by which a possessor may lose his
possession.39

Abandonment of a thing is the voluntary renunciation of all rights which a

person may have in a thing, with the intent to lose such thing. 40 A thing is
considered abandoned and possession thereof lost if the spes recuperandi
(the hope of recovery) is gone and the animus revertendi (the intention of
returning) is finally given up.41

In the case before us, we find that petitioner never abandoned the subject
land. His opposition to the construction of respondents’ house upon
learning of the same and the subsequent filing of the instant case are clear
indicia of non-abandonment; otherwise, he could have just allowed the
latter to continue with the construction. Moreover, the fact that the house
petitioner built was destroyed by the earthquake in 1990, was never rebuilt
nor repaired and that same was leveled to the ground by Gloria Banuca do
not signify abandonment. Although his house was damaged by the
earthquake, Gloria Banuca, the person who supposedly demolished said
house, had no right to do the same. Her act of removing the house and
depriving petitioner of possession of the land was an act of forcible entry.
The entry of respondents in 1998 was likewise an act of forcible entry.

The next question is: Was the action filed the correct one and was it timely
filed?

Well-settled is the rule that what determines the nature of the action as well
as the court which has jurisdiction over the case are the allegations in the
complaint.42 In actions for forcible entry, the law tells us that two allegations
are mandatory for the municipal court to acquire jurisdiction: First, the
plaintiff must allege prior physical possession of the property. Second, he
must also allege that he was deprived of his possession by any of the
means provided for in Section 1, Rule 70 of the Rules of Court. 43 To effect
the ejectment of an occupant or deforciant on the land, the complaint
should embody such a statement of facts as to bring the party clearly within
the class of cases for which the statutes provide a remedy, as these
proceedings are summary in nature. The complaint must show enough on
its face to give the court jurisdiction without resort to parol evidence. 44

A look at the Amended Complaint filed by petitioner clearly shows a case

for forcible entry. Petitioner alleged therein that he has been in possession
of the subject land for the last nineteen years and that respondents, in the
first week of August 1998, without his permission and consent, entered the
land by means of force, strategy and stealth and started the construction of
a building thereon; and upon being informed thereof, he requested them to
stop their construction but respondents refused to vacate the land forcing
him to file the instant case to recover possession thereof.

The Court of Appeals pronounced that petitioner cannot interpose an action

for forcible entry against respondents and that the same should have been
filed against Gloria Banuca. It added that the right to file against the latter
had already lapsed because more than a year had passed by from the time
she wrestled possession of the property from the petitioner.

We find such pronouncement to be flawed. An action of forcible entry and

detainer may be maintained only against one in possession at the
commencement of the action, and not against one who does not in fact
hold the land.45 Under Section 1,46 Rule 70 of the Rules of Court, the action
may be filed against persons unlawfully withholding or depriving
possession or any person claiming under them. Considering that
respondents are the ones in present actual possession and are depriving
petitioner of the possession of the land in question, it is proper that they be
the ones to be named defendants in the case. The fact that Gloria Banuca
was supposedly the one who first committed forcible entry when she
allegedly demolished the house of petitioner does not make her the proper
party to be sued because she is no longer in possession or control of the
land in controversy.

As regards the timeliness of the filing of the case for forcible entry, we find
that same was filed within the one-year prescriptive period. We have ruled
that where forcible entry was made clandestinely, the one-year prescriptive
period should be counted from the time the person deprived of possession
demanded that the deforciant desist from such dispossession when the
former learned thereof.47 As alleged by petitioner in the Amended
Complaint, he was deprived of his possession over the land by force,
strategy and stealth. Considering that one of the means employed was
stealth because the intrusion was done by respondents without his
knowledge and consent, the one-year period should be counted from the
time he made the demand to respondents to vacate the land upon learning
of such dispossession. The record shows that upon being informed that
respondents were constructing a building in the subject land sometime in
the first week of August 1998, petitioner immediately protested and advised
the former to stop; but to no avail. The one-year period within which to file
the forcible entry case had not yet expired when the ejectment suit was
filed on 18 August 1998 with the MCTC.

Despite the foregoing findings, this Court finds that the MCTC and the
RTC, as well as the Court of Appeals, to be in error when they respectively
declared that petitioner and respondents to be entitled to the possession of
the land in dispute. The parties should not be permitted to take possession
of the land, much more, claim ownership thereof as said lot is part of the
public dominion.

WHEREFORE, the foregoing considered, the instant petition is hereby

PARTIALLY GRANTED. Nonetheless, there being a finding that the subject
property is a part of the public dominion, of which neither party is entitled to
own nor possess, the decisions of the Court of Appeals dated 20 August
2002, the Regional Trial Court of La Trinidad, Benguet, dated 23 January
2002, and the Municipal Circuit Trial Court of Tuba-Sablan, Tuba, Benguet,
dated 20 November 2000 are SET ASIDE. Respondents Juanito and
Amalia Valenciano are ordered to remove their structure on the subject
land within sixty (60) days from receipt of this decision, and to vacate and
deliver the physical possession thereof to the Office of the District
Engineer, Benguet Engineering District, Department of Public Works and
Highways.

SO ORDERED.

G.R. No. 155650             July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF
PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE,
CITY ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF
PARAÑAQUE, respondents.

DECISION

CARPIO, J.:

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy

Aquino International Airport (NAIA) Complex in Parañaque City under
Executive Order No. 903, otherwise known as the Revised Charter of the
Manila International Airport Authority ("MIAA Charter"). Executive Order
No. 903 was issued on 21 July 1983 by then President Ferdinand E.
Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the
MIAA Charter.

As operator of the international airport, MIAA administers the land,

improvements and equipment within the NAIA Complex. The MIAA Charter
transferred to MIAA approximately 600 hectares of land, 3 including the
runways and buildings ("Airport Lands and Buildings") then under the
Bureau of Air Transportation.4 The MIAA Charter further provides that no
portion of the land transferred to MIAA shall be disposed of through sale or
any other mode unless specifically approved by the President of the
Philippines.5

On 21 March 1997, the Office of the Government Corporate Counsel

(OGCC) issued Opinion No. 061. The OGCC opined that the Local
Government Code of 1991 withdrew the exemption from real estate tax
granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA
negotiated with respondent City of Parañaque to pay the real estate tax
imposed by the City. MIAA then paid some of the real estate tax already
due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax

Delinquency from the City of Parañaque for the taxable years 1992 to
2001. MIAA's real estate tax delinquency is broken down as follows:

TAX TAXABL TAX DUE PENALTY TOTAL

 DECLARATI
E YEAR
ON
E-016-01370 1992- 19,558,160.00 11,201,083.20 30,789,243.20
2001
E-016-01374 1992- 111,689,424.9 68,149,479.59 179,838,904.4
2001 0 9
E-016-01375 1992- 20,276,058.00 12,371,832.00 32,647,890.00
2001
E-016-01376 1992- 58,144,028.00 35,477,712.00 93,621,740.00
2001
E-016-01377 1992- 18,134,614.65 11,065,188.59 29,199,803.24
2001
E-016-01378 1992- 111,107,950.4 67,794,681.59 178,902,631.9
2001 0 9
E-016-01379 1992- 4,322,340.00 2,637,360.00 6,959,700.00
2001
E-016-01380 1992- 7,776,436.00 4,744,944.00 12,521,380.00
2001
*E-016-013- 1998- 6,444,810.00 2,900,164.50 9,344,974.50
85 2001
*E-016- 1998- 34,876,800.00 5,694,560.00 50,571,360.00
01387 2001
*E-016- 1998- 75,240.00 33,858.00 109,098.00
01396 2001
GRAND P392,435,861. P232,070,863. P 624,506,725.
TOTAL 95 47 42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for
P4,207,028.75

#9476101 for P28,676,480.00

#9476103 for P49,115.006

On 17 July 2001, the City of Parañaque, through its City Treasurer, issued
notices of levy and warrants of levy on the Airport Lands and Buildings. The
Mayor of the City of Parañaque threatened to sell at public auction the
Airport Lands and Buildings should MIAA fail to pay the real estate tax
delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC
Opinion No. 061. The OGCC pointed out that Section 206 of the Local
Government Code requires persons exempt from real estate tax to show
proof of exemption. The OGCC opined that Section 21 of the MIAA Charter
is the proof that MIAA is exempt from real estate tax.

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
Parañaque from imposing real estate tax on, levying against, and
auctioning for public sale the Airport Lands and Buildings. The petition was
docketed as CA-G.R. SP No. 66878.

On 5 October 2001, the Court of Appeals dismissed the petition because

MIAA filed it beyond the 60-day reglementary period. The Court of Appeals
also denied on 27 September 2002 MIAA's motion for reconsideration and
supplemental motion for reconsideration. Hence, MIAA filed on 5
December 2002 the present petition for review. 7

Meanwhile, in January 2003, the City of Parañaque posted notices of

auction sale at the Barangay Halls of Barangays Vitalez, Sto. Niño, and
Tambo, Parañaque City; in the public market of Barangay La Huerta; and in
the main lobby of the Parañaque City Hall. The City of Parañaque
published the notices in the 3 and 10 January 2003 issues of the Philippine
Daily Inquirer, a newspaper of general circulation in the Philippines. The
notices announced the public auction sale of the Airport Lands and
Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the
Legislative Session Hall Building of Parañaque City.

A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA
filed before this Court an Urgent Ex-Parte and Reiteratory Motion for the
Issuance of a Temporary Restraining Order. The motion sought to restrain
respondents — the City of Parañaque, City Mayor of
Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of
Parañaque, and the City Assessor of Parañaque ("respondents") — from
auctioning the Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary restraining order (TRO)
effective immediately. The Court ordered respondents to cease and desist
from selling at public auction the Airport Lands and Buildings. 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, 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 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 use the 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. —

xxxx

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
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 instrumentalities x 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 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,31 Laguna Lake

Development Authority,32 Fisheries Development Authority,33 Bases

Conversion Development Authority,34 Philippine 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
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. 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.

G.R. No. 150301             October 2, 2007

PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, THE HONORABLE
REGIONAL TRIAL COURT, BRANCH 169, MALABON, METRO
MANILA, THE MUNICIPALITY OF NAVOTAS, METRO MANILA, HON.
FLORANTE M. BARREDO, in his official capacity as Municipal
Treasurer of Navotas, Metro Manila, and HON. NORBERTO E.
AZARCON, in his capacity as Chairman of the Public Auction Sale
Committee of Navotas, Metro Manila, respondent.

DECISION

AZCUNA, J.:

This is a petition for review1 of the decision and resolution of the Court of
Appeals (CA), dated July 19, 2001 and September 19, 2001, respectively,
in CA-G.R. CV No. 42472, entitled "Philippine Fisheries Development
Authority v. The Municipality of Navotas, Metro Manila, et al."

The facts appear as follows:

The controversy arose when respondent Municipality of Navotas assessed

the real estate taxes allegedly due from petitioner Philippine Fisheries
Development Authority (PFDA) for the period 1981-1990 on properties
under its jurisdiction, management and operation located inside the
Navotas Fishing Port Complex (NFPC).

The assessed taxes had remained unpaid despite the demands made by
the municipality which prompted it, through Municipal Treasurer Florante M.
Barredo, to give notice to petitioner on October 29, 1990 that the NFPC will
be sold at public auction on November 30, 1990 in order that the
municipality will be able to collect on petitioner’s delinquent realty taxes
which, as of June 30, 1990, amounted to P23,128,304.51, inclusive of
penalties.

Petitioner sought the deferment of the auction sale claiming that the NFPC
is owned by the Republic of the Philippines, and pursuant to Presidential
Decree (P.D.) No. 977, it (PFDA) is not a taxable entity.
In view of the refusal of PFDA to pay the assessed realty taxes, the matter
was referred to the Department of Finance (DOF). On July 14, 1990 the
DOF stated that:

This Department takes cognizance of the allegations of [the Office of

the Mayor of Navotas] that PFDA has leased its properties to
beneficial users, such as "businessmen, private persons and entities
who are taxable persons." For this reason, it is imperative that the
Municipality should conduct an ocular inspection on the real
properties (land and building owned by PFDA) in order to identify the
properties actually leased and the taxable persons enjoying the
beneficial use thereof. The ocular inspection is necessary for reason
that the real properties, the use of which has been granted to taxable
persons, for consideration or otherwise, are subject to the payment of
real property taxes which must be paid by the grantees pursuant to
the provisions … of the Real Property Tax Code, as amended.

... Therefore, it is imperative to determine who the actual users of the

properties concerned [are]. If used by a non-taxable person other
than PFDA itself, it remains to be non-taxable. Otherwise, if said
properties are being used by taxable persons, same becomes taxable
properties. For this purpose, it is also incumbent upon PFDA to
furnish the Municipality copies of the deed of lease or other relevant
documents showing the leased properties and their beneficial users
for proper assessment.2

Notwithstanding the DOF’s instruction, respondent Municipality proceeded

to publish the notice of sale of NFPC in the November 2, 1990 issue
of Balita, a local newspaper.

On November 19, 1990, petitioner instituted Civil Case No. 1524 in the
Regional Trial Court (RTC) of Malabon, Metro Manila against respondent
Municipality, its Municipal Treasurer and the Chairman of the Public
Auction Sale Committee. Petitioner asked the RTC to enjoin the auction of
the NFPC on the ground that the properties comprising the NFPC are
owned by the Republic of the Philippines and are, thus, exempt from
taxation. According to petitioner, only a small portion of NFPC which had
been leased to private parties may be subjected to real property tax which
should be paid by the latter.
Respondent Municipality, on the other hand, insisted that: 1) the real
properties within NFPC are owned entirely by petitioner which, despite the
opportunity given, had failed to submit proof to the Municipal Assessor that
the properties are indeed owned by the Republic of the Philippines; 2) if the
properties in question really belong to the government, then the complaint
should have been instituted in the name of the Republic of the Philippines,
represented by the Office of the Solicitor General; and 3) the complaint is
fatally defective because of non-compliance with a condition precedent,
which is, payment of the disputed tax assessment under protest.

On December 8, 1990, the RTC issued a writ of preliminary injunction

enjoining respondent Municipality from proceeding with the public auction.

On February 19, 1993, however, the RTC dismissed the case and
dissolved the writ of preliminary injunction, thus:

[T]he plaintiff [petitioner] failed to present convincing evidence to

support its claim of realty tax exemption and ownership of the
property by the Republic of the Philippines as mandated by Sec. 9 of
P.D. 464. Notwithstanding receipt of the notices of tax assessments
from the defendants [public respondent], the plaintiff did not avail of
the remedies under the law by raising on appeal the said tax
assessments to the Local Board of Assessment Appeals, then to the
Central Board of Assessment Appeals and ultimately, to the Court of
Tax Appeals. Instead, the plaintiff continuously ignored the notices of
tax assessments on the pretext that the properties inside the NFPC
are exempt from payment of real estate taxes as they are owned by
the Republic of the Philippines. Assailing the validity of the tax
assessments of the NFPC properties is not the proper recourse for
the plaintiff but to pay first the tax assessments under protest and
then raise the same on appeal to the Local Board of Assessment
Appeals, then to the Central Board of Assessment Appeals, then
ultimately, to the Court of Tax Appeals pursuant to the Real Property
Tax Code.

The plaintiff failed in this regard, hence … the Municipality, exercising

its power to assess and collect taxes on real properties within its
jurisdiction, did the right thing, that is, to schedule the NFPC
properties for public auction. Furthermore, while the plaintiff is
insisting that the NFPC properties are owned by the Republic of the
 Philippines, and is therefore exempt from payment of real estate
taxes, yet it admitted that there are those lessees who leased
portion[s] of the complex, and [it was] even willing to submit [a] list of
these lessees … for proper tax assessments.

...

WHEREFORE, premises considered, judgment is hereby rendered in

favor of the defendant [public respondent Municipality of Navotas]
and against the plaintiff, ordering:

1. The DISMISSAL of this case;

2. The preliminary injunction previously issued in this case

DISSOLVED; and

3. The plaintiff to pay the defendant [public respondent]

Municipality the sum of P13,767.00 as actual damages.

SO ORDERED.3

The CA affirmed the ruling of the RTC in a Decision dated July 19, 2001,
the pertinent portions of which read:

The thrust of appellant PFDA’s arguments has shoved to the fore the
fact that the 67-hectare land on which the NFPC – Navotas Fishing
Port Complex – stands was reclaimed from the sea which explains
why it was bounded on the North by the Manila Bay, on the East by
Roxas Boulevard, on the South by the Manila Bay and on the West,
by the breakwater. Even the Municipality’s counsel, Atty. Victorino
Landas; Assessor, Arturo Coronel; and Treasurer, Florante Barredo
have admitted that much, as pointed out by PFDA. 4 Such being the
origin of the land, its ownership by the State as property of public
dominion5 can hardly be disputed.

The "reclaimed land; breakwaters; piers; wharves and quaywalls;

and, fish market building forming part of the Navotas Fish Port" were
furthermore certified by the Undersecretary of Public Works and
Highways6 as belonging to the national government since they were
built using the proceeds of the loan agreement entered into by and
between the Republic of the Philippines and the Asian Development
Bank on December 12, 1971.7

On August 11, 1976, the Philippine Fish Marketing Authority (PFMA)

was created as a body corporate by P.D. No. 977 to carry out –

... the policy of the Government to promote the development of the

fishing industry and improve efficiency in the handling, preserving,
marketing and distribution of fish and fishery/aquatic products through
the establishment and operation of fish markets and the efficient
operation of fishing ports’ harbors and other marketing facilities. 8

...

The PFMA was furthermore extended exemption from the payment of

income tax in this tenor:

The authority shall be exempted from the payment of income tax.

The foregoing exemption may, however, be entirely or partly lifted by

the President of the Philippines, upon recommendation of the
Secretary of Finance, not earlier than five years from the approval of
this Decree, if the President shall find the authority to be self-
sustaining and financially capable to pay such tax after providing for
debt service requirements of the authority and its projected capital
and operating expenditures.9

Meanwhile, harbor operations at the Navotas Fishing Port Complex

(NFPC) commenced on January 15, 1997 while the market operation
started on April 3, 1977.

On February 8, 1982, P.D. No. 977 was amended by Executive Order

No. 772. Insofar as material to the case at bar, the salient features of
the amendments introduced by the E.O. are:

(a) The creation of the Philippine Fisheries Development Authority

(PFDA) … to replace the Philippine Fish Marketing Authority (PFMA).

...
(b) The capitalization of the PFDA has included the Navotas Fishing
Port Complex (NFPC).

...

(c) The NFPC has been transferred to the exclusive jurisdiction,

control, administration, and supervision of the PFDA.

...

There can, therefore, [be] no escaping the conclusion that the

appellant PFDA became the owner of the Navotas Fishing Port
Complex as of February 8, 1982. It cannot be any sooner because
under P.D. No. 977, the NFPC was not made part of the capital of the
Philippine Fish Marketing Authority (PFMA), PFDA’s predecessor, as
only the Navotas Fish Landing was made part of such capital while
the Navotas Fishing Port and Fish Market were transferred merely to
the "exclusive jurisdiction, control, administration, and supervision" of
the PFMA. It was not then altogether clear if the Navotas Fishing Port
Complex (NFPC) was conveyed to the PFMA.

...

Indeed, it is quite true that a property continues to be part of the

public domain, and not available for alienation, private appropriation
or ownership, until it is withdrawn from being such by the Government
through the Executive Department or the Legislative, 10 and that it is
not for the President to convey valuable real property of the
Government on his own sole will as any such conveyance requires
executive and legislative concurrence.11

But the stark reality is that at the time E.O. No, 772 was issued on
February 8, 1982, President Marcos was exercising both executive
and legislative powers.12 Hence, his conveyance of the NFPC to form
part of the capital of PFDA cannot but be valid.

The fact that the PFDA has up to now no certificate of title to the
NFPC nor has the PFDA declared it for tax purposes is of no
consequence. Such a certificate is merely an evidence of ownership
and not the title itself,13 while a tax declaration does not prove nor
disprove ownership. What is significant is that the PFDA has openly
 declared and represented that it "owns, maintains and operates" the
NFPC when it leased a portion thereof to the Frabelle Fishing
Corporation on March 13, 1989.

All told, the PFDA being the owner of the NFPC beginning February
8, 1982 is liable for the realty taxes due thereon, its tax exemption
being only from the payment of income tax.14

WHEREFORE, the appealed decision is AFFIRMED, without

pronouncement as to costs.

SO ORDERED.15

Petitioner filed a motion for reconsideration but the same was denied by the
CA.

Petitioner now raises the following arguments:

One, the CA acknowledged that the property in question is a reclaimed

land. As such, it is a property of public dominion (Art. 420, Civil Code) and
is owned by the State. Notwithstanding this, the CA erroneously ruled that
the government had validly transferred ownership of the land to PFDA in
1982 when P.D. No. 977 was amended by E.O. No. 772 by virtue of which
the property became part of the assets of PFDA (Sec. 5 of E.O. No. 772);

Two, as a reclaimed land, the port complex should be considered a

reserved land. In NDC v. Cebu City,16 the Supreme Court held that a
reserved land is a public land that has been withheld or kept back from sale
or disposition. The land remains an absolute property of the government.
As its title remains with the State, the reserved land is tax exempt;

Three, in Government v. Cabangis17 and Lampria v. Director of Lands,18 this

Court declared that the land reclaimed from the sea, as a result of the
construction by the government of a breakwater fronting the place where it
is situated, belongs to the State in accordance with Article 5 of the Law of
Waters of 1866;

Four, petitioner merely operates the area or the NFPC complex in favor of
the Republic of the Philippines. Section 4.A of P.D. No. 977, as amended
by E.O. No. 772, provides that PFDA shall:
 [M]anage, administer, operate, improve and modernize, coordinate
and otherwise govern the activities, operation and facilities in the
fishing ports, markets and landings that may hereinafter be placed
under, or transferred to the Authority, and such other fish markets,
fishing ports/harbors and infrastructure facilities as may be
established under this Decree; to investigate, prepare, adopt,
implement and execute a comprehensive plan for the overall
development of fishing port and market complexes and update such
plan as may be necessary from time to time; to construct or authorize
the construction in the land area under its jurisdiction, of infrastructure
facilities, factory buildings, warehouses, cold storage and ice plants,
and other structures related to the fishing industry or necessary and
useful in the conduct of its business or in the attainment of the
purpose and objectives of this Decree; to acquire, hold and dispose
real and personal property in the exercise of its functions and powers.

Lastly, the NFPC property is intended for public use and public service. As
such, it is owned by the State, hence, exempt from real property tax.

The issue is whether petitioner is liable to pay real property tax.

Local government units, pursuant to the fiscal autonomy granted by the

provisions of Republic Act No. 7160 or the 1991 Local Government Code,
can impose realty taxes on juridical persons19 subject to the limitations
enumerated in Section 133 of the Code:

SEC. 133. Common Limitations on the Taxing Power 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:

...

(o) taxes, fees, charges of any kind on the national government, its
agencies and instrumentalities, and local government units.

Nonetheless, the above exemption does not apply when the beneficial use
of the government property has been granted to a taxable person. Section
234 (a) of the Code states that real property owned by the Republic of the
Philippines or any of its political subdivisions is exempted from payment of
the real property tax "except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person."

Thus, as a rule, petitioner PFDA, being an instrumentality 20 of the national

government, is exempt from real property tax but the exemption does not
extend to the portions of the NFPC that were leased to taxable or private
persons and entities for their beneficial use.

This is in consonance with the ruling in Philippine Fisheries Development

Authority v. Court of Appeals21 where this Court held that:

On the basis of the parameters set in the MIAA [Manila International

Airport Authority v. Court of Appeals]22 case, the Authority should be
classified as an instrumentality of the national government. As such, it
is generally exempt from payment of real property tax, except those
portions which have been leased to private entities.

In the MIAA case, petitioner Philippine Fisheries Development

Authority was cited as among the instrumentalities of the national
government …23

Indeed, the Authority is not a GOCC24 but an instrumentality of the

government. The Authority has a capital stock but it is not divided into
shares of stocks.25 Also, it has no stockholders or voting shares.
Hence, it is not a stock corporation. Neither it is a non-stock
corporation because it has no members.

...

The real property tax assessments issued by the City of Iloilo should
be upheld only with respect to the portions leased to private persons.
In case the Authority fails to pay the real property taxes due thereon,
said portions cannot be sold at public auction to satisfy the tax
delinquency.

...

The port built by the State in the Iloilo fishing complex is a property of
public dominion and cannot therefore be sold at public auction. Article
420 of the Civil Code provides:
 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 national wealth.

The Iloilo [F]ishing [P]ort [Complex/IFPC] which was constructed by

the State for public use and/or public service falls within the term
"port" in the aforecited provision. Being a property of public dominion
the same cannot be subject to execution or foreclosure sale. 26 …
Whether there are improvements in the fishing port complex that
should not be construed to be embraced within the term ‘port’
involves evidentiary matters that cannot be addressed in the present
case. As for now, considering that the Authority is a national
government instrumentality, any doubt on whether the entire IFPC
may be levied upon to satisfy the tax delinquency should be resolved
against the City of Iloilo.

Similarly, for the same reason, the NFPC cannot be sold at public auction
in satisfaction of the tax delinquency assessments made by the
Municipality of Navotas on the entire complex.

Additionally, the land on which the NFPC property sits is a reclaimed land,
which belongs to the State. In Chavez v. Public Estates Authority,27 the
Court declared that reclaimed lands are lands of the public domain and
cannot, without Congressional fiat, be subject of a sale, public or private. 28

In light of the above, petitioner is only liable to pay the amount

of P62,841,947.79 representing the total taxes due as of December 31,
2001 from PFDA-owned properties that were leased, as shown in the
Summary of Realty Taxes Due Properties Owned and/or Managed by
PFDA as per Realty Tax Order of Payment dated September 16, 2002. 29

WHEREFORE, the petition is GRANTED. The Decision and Resolution of

the Court of Appeals, dated July 19, 2001 and September 19, 2001,
respectively, in CA-G.R. CV No. 42472 are SET ASIDE. The Realty Tax
Order of Payment issued by respondent Municipality of Navotas on
September 16, 2002 is declared VOID EXCEPT as to the amount
of P62,841,947.79 representing the total taxes due as of December 31,
2001 on the properties leased by petitioner to private parties. Respondent
Municipality of Navotas is DIRECTED to refrain from levying on the
Navotas Fishing Port Complex (NFPC) to satisfy the payment of the real
property tax delinquency.

No costs.

SO ORDERED.

G.R. No. 178030               December 15, 2010

PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY

(PFDA), Petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, LOCAL BOARD OF
ASSESSMENT APPEALS OF LUCENA CITY, CITY OF LUCENA,
LUCENA CITY ASSESSOR AND LUCENA CITY
TREASURER, Respondents.

DECISION

CARPIO, J.:

The Case

This petition for review1 assails the 9 May 2007 Decision2 of the Court of
Tax Appeals in C.T.A. EB No. 193, affirming the 5 October 2005 Decision
of the Central Board of Assessment Appeals (CBAA) in CBAA Case No. L-
33. The CBAA dismissed the appeal of petitioner Philippine Fisheries
Development Authority (PFDA) from the Decision of the Local Board of
Assessment Appeals (LBAA) of Lucena City, ordering PFDA to pay the real
property taxes imposed by the City Government of Lucena on the Lucena
Fishing Port Complex.

The Facts
The facts as found by the CBAA are as follows:

The records show that the Lucena Fishing Port Complex (LFPC) is one of
the fishery infrastructure projects undertaken by the National Government
under the Nationwide Fish Port-Package. Located at Barangay Dalahican,
Lucena City, the fish port was constructed on a reclaimed land with an area
of 8.7 hectares more or less, at a total cost of PHP 296,764,618.77
financed through a loan (L/A PH-25 and 51) from the Overseas Economic
Cooperation Fund (OECF) of Japan, dated November 9, 1978 and May 31,
1978, respectively.

The Philippine Fisheries Development Authority (PFDA) was created by

virtue of P.D. 977 as amended by E.O. 772, with functions and powers to
(m)anage, operate, and develop the Navotas Fishing Port Complex and
such other fishing port complexes that may be established by the Authority.
Pursuant thereto, Petitioner-Appellant PFDA took over the management
and operation of LFPC in February 1992.

On October 26, 1999, in a letter addressed to PFDA, the City Government

of Lucena demanded payment of realty taxes on the LFPC property for the
period from 1993 to 1999 in the total amount of P39,397,880.00. This was
received by PFDA on November 24, 1999.

On October 17, 2000 another demand letter was sent by the Government
of Lucena City on the same LFPC property, this time in the amount of
P45,660,080.00 covering the period from 1993 to 2000.

On December 18, 2000 Petitioner-Appellant filed its Appeal before the

Local Board of Assessment Appeals of Lucena City, which was dismissed
for lack of merit. On November 6, 2001 Petitioner-Appellant filed its motion
for reconsideration; this was denied by the Appellee Local Board on
December 10, 2001.3

PFDA appealed to the CBAA. In its Decision dated 5 October 2005, the
CBAA dismissed the appeal for lack of merit. The CBAA ruled:

Ownership of LFPC however has, before hand, been handed over to the
PFDA, as provided for under Sec. 11 of P.D. No. 977, as amended, and
declared under the MCIAA case [Mactan Cebu International Airport
Authority v. Marcos, G.R. No. 120082, 11 September 1996, 261 SCRA
667]. The allegations therefore that PFDA is not the beneficial user of
LFPC and not a taxable person are rendered moot and academic by such
ownership of PFDA over LFPC.

xxx

PFDA’s Charter, P.D. 977, provided for exemption from income tax under
Par. 2, Sec. 10 thereof: "(t)he Authority shall be exempted from the
payment of income tax". Nothing was said however about PFDA’s
exemption from payment of real property tax: PFDA therefore was not to
lay claim for realty tax exemption on its Fishing Port Complexes. Reading
Sec. 40 of P.D. 464 and Sec. 234 of R.A. 7160 however, provided such
ground: LFPC is owned by the Republic of the Philippines, PFDA is only
tasked to manage, operate, and develop the same. Hence, LFPC is
exempted from payment of realty tax.

xxx

The ownership of LFPC as passed on by the Republic of the Philippines to

PFDA is bourne by Direct evidence: P.D. 977, as amended (supra).
Therefore, Petitioner-Appellant’s claim for realty tax exemption on LFPC is
untenable.

WHEREFORE, for all of the foregoing, the herein Appeal is hereby

dismissed for lack of merit.

SO ORDERED.4

PFDA moved for reconsideration, which the CBAA denied in its Resolution
dated 7 June 2006.5 On appeal, the Court of Tax Appeals denied PFDA’s
petition for review and affirmed the 5 October 2005 Decision of the CBAA.

Hence, this petition for review.

The Ruling of the Court of Tax Appeals

The Court of Tax Appeals held that PFDA is a government-owned or

controlled corporation, and is therefore subject to the real property tax
imposed by local government units pursuant to Section 232 in relation to
Sections 193 and 234 of the Local Government Code. Furthermore, the
Court of Tax Appeals ruled that PFDA failed to prove that it is exempt from
real property tax pursuant to Section 234 of the Local Government Code or
any of its provisions.

The Issue

The sole issue raised in this petition is whether PFDA is liable for the real
property tax assessed on the Lucena Fishing Port Complex.

The Ruling of the Court

The petition is meritorious.

In ruling that PFDA is not exempt from paying real property tax, the Court
of Tax Appeals cited Sections 193, 232, and 234 of the Local Government
Code which read:

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, non-stock and non-profit hospitals
and educational institutions, are hereby withdrawn upon the effectivity of
this Code.

Section 232. Power to Levy Real Property Tax. ‒ A province or city or a

municipality within the Metropolitan Manila Area may levy an annual ad
valorem tax on real property such as land, building, machinery, and other
improvement not hereinafter specifically exempted.

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 subdivision except when the beneficial use thereof has
been granted, for consideration or 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 juridical, including all government-owned or -controlled
corporations are hereby withdrawn upon the effectivity of this Code.

The Court of Tax Appeals held that as a government-owned or controlled

corporation, PFDA is subject to real property tax imposed by local
government units having jurisdiction over its real properties pursuant to
Section 232 of the Local Government Code. According to the Court of Tax
Appeals, Section 193 of the Local Government Code withdrew all tax
exemptions granted to government-owned or controlled corporations.
Furthermore, Section 234 of the Local Government Code explicitly provides
that any exemption from payment of real property tax granted to
government-owned or controlled corporations have already been withdrawn
upon the effectivity of the Local Government Code.

The ruling of the Court of Tax Appeals is anchored on the wrong premise
that the PFDA is a government-owned or controlled corporation. On the
contrary, this Court has already ruled that the PFDA is a government
instrumentality and not a government-owned or controlled corporation.

In the 2007 case of Philippine Fisheries Development Authority v. Court of

Appeals,6 the Court resolved the issue of whether the PFDA is a
government-owned or controlled corporation or an instrumentality of the
national government. In that case, the City of Iloilo assessed real property
taxes on the Iloilo Fishing Port Complex (IFPC), which was managed and
operated by PFDA. The Court held that PFDA is an instrumentality of the
government and is thus exempt from the payment of real property tax, thus:
The Court rules that the Authority [PFDA] is not a GOCC but an
instrumentality of the national government which is generally exempt
from payment of real property tax. However, said exemption does not
apply to the portions of the IFPC which the Authority leased to private
entities. With respect to these properties, the Authority is liable to pay
property tax. Nonetheless, the IFPC, being a property of public dominion
cannot be sold at public auction to satisfy the tax delinquency.

xxx

Indeed, the Authority is not a GOCC but an instrumentality of the

government. The Authority has a capital stock but it is not divided into
shares of stocks. Also, it has no stockholders or voting shares. Hence it is
not a stock corporation. Neither is it a non-stock corporation because it has
no members.

The Authority is actually a national government instrumentality which is

defined as an 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. 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.7 (Emphasis supplied) 1avvphi1

This ruling was affirmed by the Court in a subsequent PFDA case involving
the Navotas Fishing Port Complex, which is also managed and operated by
the PFDA. In consonance with the previous ruling, the Court held in the
subsequent PFDA case that the PFDA is a government instrumentality not
subject to real property tax except those portions of the Navotas Fishing
Port Complex that were leased to taxable or private persons and entities for
their beneficial use.8

Similarly, we hold that as a government instrumentality, the PFDA is

exempt from real property tax imposed on the Lucena Fishing Port
Complex, except those portions which are leased to private persons or
entities.
The exercise of the taxing power of local government units is subject to the
limitations enumerated in Section 133 of the Local Government
Code.9 Under Section 133(o)10 of the Local Government Code, local
government units have no power to tax instrumentalities of the national
government like the PFDA. Thus, PFDA is not liable to pay real property
tax assessed by the Office of the City Treasurer of Lucena City on the
Lucena Fishing Port Complex, except those portions which are leased to
private persons or entities.

Besides, the Lucena Fishing Port Complex is a property of public dominion

intended for public use, and is therefore exempt from real property tax
under Section 234(a)11 of the Local Government Code. Properties of public
dominion are owned by the State or the Republic of the Philippines. 12 Thus,
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 Lucena Fishing Port Complex, which is one of the major infrastructure
projects undertaken by the National Government under the Nationwide
Fishing Ports Package, is devoted for public use and falls within the term
"ports." The Lucena Fishing Port Complex "serves as PFDA’s commitment
to continuously provide post-harvest infrastructure support to the fishing
industry, especially in areas where productivity among the various players
in the fishing industry need to be enhanced." 13 As property of public
dominion, the Lucena Fishing Port Complex is owned by the Republic of
the Philippines and thus exempt from real estate tax.

WHEREFORE, we GRANT the petition. We SET ASIDE the Decision

dated 9 May 2007 of the Court of Tax Appeals in C.T.A. EB No. 193.
We DECLARE the Lucena Fishing Port Complex EXEMPT from real
property tax imposed by the City of Lucena. We declare VOID all the real
property tax assessments issued by the City of Lucena on the Lucena
Fishing Port Complex managed by Philippine Fisheries Development
Authority, EXCEPT for the portions that the Philippine Fisheries
Development Authority has leased to private parties.

SO ORDERED.

G.R. No. 163072               April 2, 2009

MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner,

vs.
CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG PASAY, CITY
MAYOR OF PASAY, CITY TREASURER OF PASAY, and CITY
ASSESSOR OF PASAY, Respondents.

DECISION

CARPIO, J.:

This is a petition for review on certiorari1 of the Decision2 dated 30 October

2002 and the Resolution dated 19 March 2004 of the Court of Appeals in
CA-G.R. SP No. 67416.

The Facts

Petitioner Manila International Airport Authority (MIAA) operates and

administers the Ninoy Aquino International Airport (NAIA) Complex under
Executive Order No. 903 (EO 903),3 otherwise known as the Revised
Charter of the Manila International Airport Authority. EO 903 was issued on
21 July 1983 by then President Ferdinand E. Marcos. Under Sections
34 and 225 of EO 903, approximately 600 hectares of land, including the
runways, the airport tower, and other airport buildings, were transferred to
MIAA. The NAIA Complex is located along the border between Pasay City
and Parañaque City.

On 28 August 2001, MIAA received Final Notices of Real Property Tax

Delinquency from the City of Pasay for the taxable years 1992 to 2001.
MIAA’s real property tax delinquency for its real properties located in NAIA
Complex, Ninoy Aquino Avenue, Pasay City (NAIA Pasay properties) is
tabulated as follows:
 TAX
DECLA
TAXABL
- TAX DUE PENALTY TOTAL
E YEAR
RATIO
N
A7-
1997- 243,522,855.0 123,351,728.1
183- 366,874,583.18
2001 0 8
08346
A7-
1992- 113,582,466.0
183- 71,159,414.98 184,741,880.98
2001 0
05224
A7-
1992-
191- 54,454,800.00 34,115,932.20 88,570,732.20
2001
00843
A7-
1992-
191- 1,632,960.00 1,023,049.44 2,656,009.44
2001
00140
A7-
1992-
191- 6,068,448.00 3,801,882.85 9,870,330.85
2001
00139
A7-
1992-
183- 59,129,520.00 37,044,644.28 96,174,164.28
2001
05409
A7-
1992-
183- 20,619,720.00 12,918,254.58 33,537,974.58
2001
05410
A7-
1992-
183- 7,908,240.00 4,954,512.36 12,862,752.36
2001
05413
A7-
1992-
183- 18,441,981.20 11,553,901.13 29,995,882.33
2001
05412
A7-
1992- 109,946,736.0
183- 68,881,630.13 178,828,366.13
2001 0
05411
 A7-
1992-
183- 7,440,000.00 4,661,160.00 12,101,160.00
2001
05245
₱642,747,726. ₱373,466,110. ₱1,016,213,836.
GRAND TOTAL
20 13 33

On 24 August 2001, the City of Pasay, through its City Treasurer, issued
notices of levy and warrants of levy for the NAIA Pasay properties. MIAA
received the notices and warrants of levy on 28 August 2001. Thereafter,
the City Mayor of Pasay threatened to sell at public auction the NAIA Pasay
properties if the delinquent real property taxes remain unpaid.

On 29 October 2001, MIAA filed with the Court of Appeals a petition for
prohibition and injunction with prayer for preliminary injunction or temporary
restraining order. The petition sought to enjoin the City of Pasay from
imposing real property taxes on, levying against, and auctioning for public
sale the NAIA Pasay properties.

On 30 October 2002, the Court of Appeals dismissed the petition and

upheld the power of the City of Pasay to impose and collect realty taxes on
the NAIA Pasay properties. MIAA filed a motion for reconsideration, which
the Court of Appeals denied. Hence, this petition.

The Court of Appeals’ Ruling

The Court of Appeals held that Sections 193 and 234 of Republic Act No.
7160 or the Local Government Code, which took effect on 1 January 1992,
withdrew the exemption from payment of real property taxes granted to
natural or juridical persons, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered
under Republic Act No. 6938, non-stock and non-profit hospitals and
educational institutions. Since MIAA is a government-owned corporation, it
follows that its tax exemption under Section 21 of EO 903 has been
withdrawn upon the effectivity of the Local Government Code.

The Issue

The issue raised in this petition is whether the NAIA Pasay properties of
MIAA are exempt from real property tax.
 The Court’s Ruling

The petition is meritorious.

In ruling that MIAA is not exempt from paying real property tax, the Court of
Appeals cited Sections 193 and 234 of the Local Government Code which
read:

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, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code.

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 or otherwise to a taxable person;

(b) Charitable institutions, churches, parsonages or convents

appurtenant thereto, mosques, non-profit 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

environment 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 juridical, including all government-owned or controlled
corporations are hereby withdrawn upon the effectivity of this Code.

The Court of Appeals held that as a government-owned corporation,

MIAA’s tax exemption under Section 21 of EO 903 has already been
withdrawn upon the effectivity of the Local Government Code in 1992.

In Manila International Airport Authority v. Court of Appeals 6 (2006 MIAA

case), this Court already resolved the issue of whether the airport lands
and buildings of MIAA are exempt from tax under existing laws. The 2006
MIAA case originated from a petition for prohibition and injunction which
MIAA filed with the Court of Appeals, seeking to restrain the City of
Parañaque from imposing real property tax on, levying against, and
auctioning for public sale the airport lands and buildings located in
Parañaque City. The only difference between the 2006 MIAA case and this
case is that the 2006 MIAA case involved airport lands and buildings
located in Parañaque City while this case involved airport lands and
buildings located in Pasay City. The 2006 MIAA case and this case raised
the same threshold issue: whether the local government can impose real
property tax on the airport lands, consisting mostly of the runways, as well
as the airport buildings, of MIAA. In the 2006 MIAA case, this Court held:

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.

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. 7 (Emphasis in the
original)

The definition of "instrumentality" under Section 2(10) of the Introductory

Provisions of the Administrative Code of 1987 uses the phrase "includes x
x x government-owned or controlled corporations" which means that a
government "instrumentality" may or may not be a "government-owned or
controlled corporation." Obviously, the term government "instrumentality"
is broader than the term "government-owned or controlled corporation."
Section 2(10) provides:

SEC. 2. General Terms Defined.– 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. This term includes regulatory agencies, chartered
institutions and government-owned or controlled corporations.
The term "government-owned or controlled corporation" has a separate
definition under Section 2(13)8 of the Introductory Provisions of the
Administrative Code of 1987:

SEC. 2. General Terms Defined.– 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: Provided, That
government-owned or controlled corporations may further be categorized
by the department of Budget, the Civil Service Commission, and the
Commission on Audit for the purpose of the exercise and discharge of their
respective powers, functions and responsibilities with respect to such
corporations.

The fact that two terms have separate definitions means that while a
government "instrumentality" may include a "government-owned or
controlled corporation," there may be a government "instrumentality" that
will not qualify as a "government-owned or controlled corporation."

A close scrutiny of the definition of "government-owned or controlled

corporation" in Section 2(13) will show that MIAA would not fall under such
definition. MIAA is a government "instrumentality" that does not
qualify as a "government-owned or controlled corporation." As
explained in the 2006 MIAA case:

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. x x x

Section 3 of the Corporation Code 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.

xxx
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. 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. x x x

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, MIAA exercises the governmental powers of
eminent domain, police authority and the levying of fees and charges. 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."9

Thus, MIAA is not a government-owned or controlled corporation but a

government instrumentality which is exempt from any kind of tax from the
local governments. Indeed, the exercise of the taxing power of local
government units is subject to the limitations enumerated in Section 133 of
the Local Government Code.10 Under Section 133(o)11 of the Local
Government Code, local government units have no power to tax
instrumentalities of the national government like the MIAA. Hence, MIAA is
not liable to pay real property tax for the NAIA Pasay properties.

Furthermore, the airport lands and buildings of MIAA are properties of

public dominion intended for public use, and as such are exempt from real
property tax under Section 234(a) of the Local Government Code.
However, under the same provision, if MIAA leases its real property to a
taxable person, the specific property leased becomes subject to real
property tax.12 In this case, only those portions of the NAIA Pasay
properties which are leased to taxable persons like private parties are
subject to real property tax by the City of Pasay.

WHEREFORE, we GRANT the petition. We SET ASIDE the Decision

dated 30 October 2002 and the Resolution dated 19 March 2004 of the
Court of Appeals in CA-G.R. SP No. 67416. We DECLARE the NAIA
Pasay properties of the Manila International Airport Authority EXEMPT from
real property tax imposed by the City of Pasay. We declare VOID all the
real property tax assessments, including the final notices of real property
tax delinquencies, issued by the City of Pasay on the NAIA Pasay
properties of the Manila International Airport Authority, except for the
portions that the Manila International Airport Authority has leased to private
parties.

No costs.

SO ORDERED.

G.R. No. 185023               August 24, 2011

CITY OF PASIG, REPRESENTED BY THE CITY TREASURER and THE CITY

ASSESSOR, Petitioner,
vs.
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT, Respondent.

DECISION

CARPIO, J.:
 The Case

This is a petition1 for review on certiorari under Rule 45 of the Rules of Court. The petition challenges
the 17 October 2008 Decision2 of the Court of Appeals in CA-G.R. SP No. 97498, affirming the 6
November 2006 Decision3 of the Regional Trial Court (RTC), National Capital Judicial Region, Pasig
City, Branch 155, in SCA No. 2901.

The Facts

Mid-Pasig Land Development Corporation (MPLDC) owned two parcels of land, with a total area of
18.4891 hectares, situated in Pasig City. The properties are covered by Transfer Certificate of Title
(TCT) Nos. 337158 and 469702 and Tax Declaration Nos. E-030-01185 and E-030-01186 under the
name of MPLDC. Portions of the properties are leased to different business establishments.

In 1986, the registered owner of MPLDC, Jose Y. Campos (Campos), voluntarily surrendered
MPLDC to the Republic of the Philippines.

On 30 September 2002, the Pasig City Assessor’s Office sent MPLDC two notices of tax
delinquency for its failure to pay real property tax on the properties for the period 1979 to 2001
totaling ₱256,858,555.86. In a letter dated 29 October 2002, Independent Realty Corporation (IRC)
President Ernesto R. Jalandoni (Jalandoni) and Treasurer Rosario Razon informed the Pasig City
Treasurer that the tax for the period 1979 to 1986 had been paid, and that the properties were
exempt from tax beginning 1987.

In letters dated 10 July 2003 and 8 January 2004, the Pasig City Treasurer informed MPLDC and
IRC that the properties were not exempt from tax. In a letter dated 16 February 2004, MPLDC
General Manager Antonio Merelos (Merelos) and Jalandoni again informed the Pasig City Treasurer
that the properties were exempt from tax. In a letter dated 11 March 2004, the Pasig City Treasurer
again informed Merelos that the properties were not exempt from tax.

On 20 October 2005, the Pasig City Assessor’s Office sent MPLDC a notice of final demand for
payment of tax for the period 1987 to 2005 totaling ₱389,027,814.48. On the same day, MPLDC
paid ₱2,000,000 partial payment under protest.

On 9 November 2005, MPLDC received two warrants of levy on the properties. On 1 December
2005, respondent Republic of the Philippines, through the Presidential Commission on Good
Government (PCGG), filed with the RTC a petition for prohibition with prayer for issuance of a
temporary restraining order or writ of preliminary injunction to enjoin petitioner Pasig City from
auctioning the properties and from collecting real property tax.

On 2 December 2005, the Pasig City Treasurer offered the properties for sale at public auction.
Since there was no other bidder, Pasig City bought the properties and was issued the corresponding
certificates of sale.

On 19 December 2005, PCGG filed with the RTC an amended petition for certiorari, prohibition and
mandamus against Pasig City. PCGG prayed that: (1) the assessments for the payment of real
property tax and penalty be declared void; (2) the warrants of levy on the properties be declared
void; (3) the public auction be declared void; (4) the issuance of certificates of sale be declared void;
(5) Pasig City be prohibited from assessing MPLDC real property tax and penalty; (6) Pasig City be
prohibited from collecting real property tax and penalty from MPLDC; (7) Pasig City be ordered to
assess the actual occupants of the properties real property tax and penalty; and (8) Pasig City be
ordered to collect real property tax and penalty from the actual occupants of the properties.

The RTC’s Ruling

In its 6 November 2006 Decision, the RTC granted the petition for certiorari, prohibition and
mandamus. The RTC held:

The primordial issue to be resolved in the present case is whether or not respondent City of Pasig,
through the City Treasurer and the City Assessor, acted with grave abuse of discretion amounting to
lack or excess of jurisdiction when it assessed, levied and sold in public auction the "payanig"
properties for non-payment of real property taxes.

However, before dwelling on the merits of the main issue, certain matters need to be addressed by
the Court, to wit:

1. Does the Court have jurisdiction over the instant petition?

2. Who owns the so-called "payanig" properties that were subjected to payment of real
property taxes by respondent?

The Court maintains that it is not precluded from assuming jurisdiction over the instant amended
petition which involves the legality of the assailed actions by respondent in assessing and collecting
real property tax on the properties owned by the Republic of the Philippines. It is a jurisprudential
doctrine that the issue is purely legal when the authority of the respondent to assess and collect real
property taxes on the subject properties is being questioned (Ty vs. Trampe, 250 SCRA 500).

xxxx

In the instant proceeding, there is no dispute that the properties are surrendered ill-gotten wealth of
former President Marcos. As such, the same assumes [sic] a public character and thus belongs [sic]
to the Republic of the Philippines. x x x

xxxx

Hence, upon the voluntary surrender by Jose Y. Campos, the controlling owner of Mid-Pasig and
Independent Realty Corporation, of the "payanig" properties to PCGG, a clear admission that these
properties were part of the ill-gotten wealth of former President Marcos was already evident. As
such, there was already constructive reconveyance to the State, which immediately placed these
reconveyed properties under the control and stewardship of the PCGG as representative of the
Republic of the Philippines. Under such special circumstance, these voluntary surrendered
properties had already belonged to the State.

xxxx

Premised on the foregoing, the "payanig" properties, being part of the recovered ill-gotten wealth of
President Marcos, and therefore are owned by the State itself, are exempt from payment of real
property taxes. It is only when the beneficial use of said properties has been granted to a taxable
person that the same may be subject to imposition of real property tax.
Furthermore, in real estate taxation, the unpaid tax attaches to the property and is chargeable
against the taxable person who had actual or beneficial use and possession of it regardless of
whether or not he is the owner (Testate Estate of Concordia T. Lim vs. City of Manila, 182 SCRA
482).

In the instant case, the taxable persons being referred to are the lessees occupying and/or doing
business therein and have beneficial use over portions within the "payanig" properties.

xxxx

Consequently, there can be no iota of doubt that respondent City of Pasig abused its discretion by
committing the acts sought to be annulled herein despite knowledge of the fact that ownership over
the subject properties belong to petitioner. But what is more appalling in the instant action is that
such abuse was capriciously committed by respondent City of Pasig against the sovereign State
itself from where that atxing local government unit derives its very existence. The spring cannot rise
higher than its source.

xxxx

In sum, the acts of respondent in assessing real property taxes on properties owned and controlled
by the Republic of the Philippines, in collecting taxes from Mid-Pasig in lieu of the actual occupants
or beneficial users of certain portions thereof, and in auctioning said properties in favor of
respondent, followed by the corresponding certificate of sale, are all unequivocally tainted with grave
abuse of discretion amounting to lack or excess of jurisdiction.

WHEREFORE, in the light of the foregoing, the instant Amended Petition is hereby GRANTED.

Accordingly, the following acts of respondent are hereby ANNULLED and SET ASIDE.

1. the assessment dated September 30, 2002 for the payment of real property taxes and
penalties made by the City of Pasig on two (2) parcels of land covered by TCT No. 337158
and TCT No. 469702 registered under the name of Mid-Pasig;

2. the warrants of levy dated November 8, 2005 issued thereon by the City of Pasig;

3. the subsequent public auction sale of subject properties held on December 2, 2005
followed by the issuance of the corresponding Certificate of Sale;

FURTHER, the City of Pasig is hereby PROHIBITED from further:

1. Assessing real property taxes and penalties charges [sic] on the said properties;

2. Collecting said taxes and penalty charges from the State;

3. Disposing or encumbering the subject properties or any portion thereof;

FURTHER, the City of Pasig is hereby COMMANDED:

1. To return or effect the refund of the amount of Two Million Pesos (Php 2,000,000.00) paid
under protest by Mid-Pasig Land Development Corporation on October 20, 2005, or credit
 the same amount to any outstanding tax liability that said corporation may have with the City
of Pasig; and

2. To assess and collect from the actual occupants or beneficial users of the subject
properties, and not from the State, whatever real property taxes and penalties that may be
due on the respective areas occupied by them.

SO ORDERED.4

Pasig City appealed to the Court of Appeals.

The Court of Appeals’ Ruling

In its 31 March 2008 Decision,5 the Court of Appeals set aside the RTC’s 6 November 2006
Decision. The Court of Appeals held:

We find nothing in PCGG’s petition that supports its claim regarding Pasig City’s alleged grave
abuse of discretion. It is undisputed that the subject parcels of land are registered in the name of
Mid-Pasig, a private entity. Although the government, through the PCGG have [sic] sequestered
Mid-Pasig and all its assets including the subject parcels of land, the sequestration per se, did not
operate to convert Mid-Pasig and its properties to public property. "The power of the PCGG to
sequester property claimed to be ‘ill-gotten’ means to place or cause to be placed under its
possession or control said property, or any building or office wherein any such property and any
records pertaining thereto may be found, including ‘business enterprises and entities’ — for the
purpose of preventing the destruction, concealment or dissipation of, and otherwise conserving and
preserving the same — until it can be determined, through appropriate judicial proceedings, whether
the property was in truth ‘ill-gotten,’ i.e., acquired through or as a result of improper or illegal use of
or the conversion of funds belonging to the Government or any of its branches, instrumentalities,
enterprises, banks or financial institutions, or by taking undue advantage of official position,
authority, relationship, connection or influence, resulting in unjust enrichment of the ostensible
owner and great damage and prejudice to the State." x x x As such, prior to a valid court declaration
the "PCGG cannot perform acts of strict ownership of [sic] sequestered property. It is a mere
conservator." In view thereof and the fact that Mid-Pasig and its properties have not been validly
declared by the Sandiganbayan as "ill-gotten" wealth, the same are not yet public properties. The
PCGG even admitted that the transfer certificates of title covering the subject parcels of land in the
name of Mid-Pasig have not been cancelled due to an order of the Sandiganbayan. The trial court
also found that the subject parcels of land are the subject of litigation between Ortigas and Company
Limited Partnership and the PCGG in Civil Case No. 0093 pending before the Sandiganbayan.
These facts clearly show that the Sandiganbayan has not validly declared yet that the subject
parcels of land are "ill-gotten" wealth. If so, they cannot be claimed yet as properties of the State:
they remain properties of a private entity. Thus, Pasig City through its City Assessor and City
Treasurer did not act with grave abuse of discretion when it issued real property tax assessment on
the subject parcels of land.

Even admitting that the subject parcels of land are already owned by the State, we still see no grave
abuse of discretion on the part of Pasig City when it issued the challenged tax assessment, for it is
well settled that the test of exemptions from taxation is the use of the property for purposes
mentioned in the Constitution. The owner of the property does not matter. Even if he is not a tax-
exempt entity, as long as the property is being used for religious, charitable or educational purposes,
the property is exempt from tax. Conversely, even if the government owns the property, if the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person, the
property is subject to tax. Here, the PCGG admitted that portions of the subject properties were
leased to private entities engaged in commercial dealings. As well, the trial court found that lessees
occupy different areas of the subject parcels of land beginning 1992 until 2005. Therefore,
considering that portions of the subject parcels of land are used for commercial purposes, the duty
imposed by law to owners and administrators of real property to declare the same for tax purposes
and the fact that the tax declarations over the subject parcels of land are in the name of Mid-Pasig,
again, Pasig City did not act with grave abuse of discretion when it issued the challenged tax
assessment.

The foregoing snowball to one conclusion — the allegations in PCGG’s petition imputing grave
abuse of discretion on the part of Pasig City, acting through the City Assessor and City Treasurer, in
the assessment and collection of the taxes were made in order to justify the filing of the petition for
certiorari, prohibition and mandamus with the trial court.

The extraordinary remedies of certiorari, prohibition and mandamus may be resorted to only when
there is no other plain, available, speedy and adequate remedy in the course of law. Where
administrative remedies are available, petitions for the issuance of these peremptory writs do not lie
in order to give the administrative body the opportunity to decide the matter by itself correctly and to
prevent unnecessary and premature resort to courts.

Republic Act No. 7160 or the Local Government Code of 1991, clearly sets forth the administrative
remedies available to a taxpayer or real property owner who is not satisfied with the assessment or
reasonableness of the real property tax sought to be collected. The Supreme Court outlined said
remedies, to wit:

Should the taxpayer/real property owner question the excessiveness or reasonableness of the
assessment, Section 252 directs that the taxpayer should first pay the tax due before his protest can
be entertained. There shall be annotated on the tax receipts the words "paid under protest." It is only
after the taxpayer has paid the tax due that he may file a protest in writing within thirty days from
payment of the tax to the Provincial, City or Municipal Treasurer, who shall decide the protest within
sixty days from receipt. In no case is the local treasurer obliged to entertain the protest unless the
tax due has been paid.

If the local treasurer denies the protest or fails to act upon it within the 60-day period provided for in
Section 252, the taxpayer/real property owner may then appeal or directly file a verified petition with
the LBAA within sixty days from denial of the protest or receipt of the notice of assessment, as
provided in Section 226 of R.A. No. 7160[.]

And, if the taxpayer is not satisfied with the decision of the LBAA, he may elevate the same to the
CBAA, which exercises exclusive jurisdiction to hear and decide all appeals from the decisions,
orders and resolutions of the Local Boards involving contested assessments of real properties,
claims for tax refund and/or tax credits or overpayments of taxes. An appeal may be taken to the
CBAA by filing a notice of appeal within thirty days from receipt thereof.

From the Central Board Assessment Appeals, the dispute may then be taken to the Court of Tax
Appeals by filing a verified petition for review under Rule 42 of the Revised Rules of Court; to the
Court of tax Appeals en banc; and finally to the Supreme Court via a petition for review on certiorari
pursuant to Rule 45 of the Revised Rules of Court.

We are not convinced with PCGG’s stance that their recourse of filing the petition for certiorari,
prohibition and mandamus before the trial court is proper as they are questioning not merely the
correctness of the tax assessment but the actions of Pasig City, through its City Assessor and City
Treasurer, which were done in grave abuse of discretion amounting to lack or excess of jurisdiction.
The well-established rule is that allegations in the complaint and the character of the relief sought
determine the nature of an action. A perusal of the petition before the trial court plainly shows that
what is actually being assailed is the correctness of the assessments made by the City Assessor of
Pasig City on the subject parcels of land. PCGG claims, among others, that: 1) the subject parcels of
land are exempt from real property taxation as they are public property; 2) even if the subject parcels
of land are subject to tax, as the beneficial use thereof was granted to private persons and entities,
only the portion thereof used for commerce is subject to tax and the users thereof are the ones liable
to pay the tax; and 3) the right of Pasig City to collect the real property taxes pertaining to 1987 to
1998 has already prescribed. These claims essentially involve questions of fact, which are improper
in a petition for certiorari, prohibition and mandamus; hence, the petition should have been brought,
at the very first instance, to the Local Board Assessment Appeals, which has authority to rule on the
objections of any interested party who is not satisfied with the action of the assessor. Under the
doctrine of primacy of administrative remedies, an error in the assessment must be administratively
pursued to the exclusion of ordinary courts whose decisions would be void for lack of jurisdiction.

Granting that the assessor’s authority and the legality of the assessment are indeed an issue, the
proper remedy is a suit for the refund of the real property tax after paying the same under protest. It
must be pointed out that in order for the trial court to resolve the instant petition, the issues of the
correctness of the tax assessment and collection must also necessarily be dealt with; hence, a
petition for certiorari, prohibition and mandamus is not the proper remedy. x x x [T]he resolution of
the issues raised in the instant case involve examination and determination of relevant and material
facts, i.e. facts relating to the ownership of the subject parcels of land, the portion of the subject
parcel of land used for commercial purposes and the identities of the lessees and the users thereof.
Since resolution of factual issues is not allowed in a petition for certiorari, prohibition and mandamus,
the trial court is precluded from entertaining the petition.

Finally, Section 252 of the R.A. No. 7160 requires payment under protest in assailing real property
tax assessment. Even an appeal shall not suspend the collection of the atx assessed without
prejudice to a later adjustment pending the outcome of the appeal. This principle is consistent with
the time-honored principle that taxes are the lifeblood of the nation. But the PCGG failed to pay the
tax assessment prior to questioning it before the trial court; hence, the trial court should have
dismissed PCGG’s petition in line with the Supreme Court pronouncement that a trial court has no
jurisdiction to entertain a similar petition absent payment under protest.

In conclusion and taking all the foregoing into account, we hold that the trial court had no jurisdiction
to take cognizance and decide PCGG petition for certiorari, prohibition and mandamus; the trial court
should have dismissed the petition. 6

PCGG filed a motion for reconsideration. In its 17 October 2008 Decision, the Court of Appeals
reversed itself. The Court of Appeals held:

At the outset, although as a rule, administrative remedies must first be exhausted before ersort to
judicial action can prosper, there is a well-settled exception in cases where the controversy does not
involve questions of fact but only of law. We find that the Republic has shown a cause for the
application of the foregoing exception. Essentially, the Republic has raised a pure question of law —
whether or not the City of Pasig has the power to impose real property tax on the subject properties,
which are owned by the State. It bears stressing that the Republic did not raise any question
concerning the amount of the real property tax or the determination thereof. Thus, having no plain,
speedy, and adequate remedy in law, the Republic correctly resorted to judicial action via the
petition for certiorari, prohibition, and mandamus, to seek redress.
We are convinced that the subject properties were not sequestered by the government so as to
amount to a deprivation of property without due process of law; instead, they were voluntarily
surrendered to the State by Campos, a self-admitted crony of the then President Marcos. The
relinquishment of the subject properties to the State as ill-gotten wealth of Marcos, as recognized by
the Supreme Court, makes a judicial declaration that the same were ill-gotten unnecessary. By virtue
of said relinquishment, the State correctly exercised dominion over the subject properties.
Indubitably, the subject properties, being ill-gotten wealth, belong to the State. x x x By its nature, ill-
gotten wealth is owned by the State. As a matter of fact, the Republic continues to exercise
dominion over the subject properties. 7

Hence, the present petition.

Issues

Pasig City raises as issues that the lower courts erred in granting PCGG’s petition for certiorari,
prohibition and mandamus and in ordering Pasig City to assess and collect real property tax from the
lessees of the properties.

The Court’s Ruling

The petition is partly meritorious.

As correctly found by the RTC and the Court of Appeals, the Republic of the Philippines owns the
properties. Campos voluntarily surrendered MPLDC, which owned the properties, to the Republic of
the Philippines. In Republic of the Philippines v. Sandiganbayan,8 the Court stated:

x x x Jose Y. Campos, "a confessed crony of former President Ferdinand E. Marcos," voluntarily
surrendered or turned over to the PCGG the properties, assets and corporations he held in trust for
the deposed President. Among the corporations he surrendered were the Independent Realty
Corporation and the Mid-Pasig Land Development Corporation. 9

In Republic of the Philippines v. Sandiganbayan,10 the Court stated:

The antecedent facts are stated by the Solicitor General as follows:

xxxx

"3. Sometime in the later part of August 1987, defendant Jose D. Campos, Jr., having been served
with summons on August 5, 1987, filed with the respondent Court an undated ‘Manifestation and
Motion to Dismiss Complaint with Respect to Jose D. Campos’ praying that he be removed as party
defendant from the complaint on the grounds that he had ‘voluntarily surrendered or turned over any
share in his name on [sic] any of the corporations referred to, aside from disclaiming any interest,
ownership or right thereon to the Government of the Republic of the Philippines’ and that he was
‘entitled to the immunity granted by the Presidential Commission on Good Government pursuant to
Executive Order No. 14, under the Commission’s Resolution dated May 28, 1986 to Mr. Jose Y.
Campos and his family’ he ‘being a member of the immediate family of Jose Y. Campos.’

xxxx
In the instant case, the PCGG issued a resolution dated May 28, 1986, granting immunity from both
civil and criminal prosecutions to Jose Y. Campos and his family. The pertinent provisions of the
resolution read as follows:

"3.0. In consideration of the full cooperation of Mr. Jose Y. Campos to this Commission, his voluntary
surrender of the properties and assets disclosed and declared by him to belong to deposed
President Ferdinand E. Marcos to the Government of the Republic of the Philippines, his full,
complete and truthful disclosures, and his commitment to pay a sum of money as determined by the
Philippine Government, this Commission has decided and agreed:

xxxx

Undoubtedly, this resolution embodies a compromise agreement between the PCGG on one hand
and Jose Y. Campos on the other. Hence, in exchange for the voluntary surrender of the ill-gotten
properties acquired by the then President Ferdinand E. Marcos and his family which were in Jose
Campos’ control, the latter and his family were given full immunity in both civil and criminal
prosecutions. x x x

xxxx

By virtue of the PCGG’s May 28, 1986 resolution, Jose Campos, Jr. was given full immunity from
both civil and criminal prosecutions in exchange for the "full cooperation of Mr. Jose Y. Campos to
this Commission, his voluntary surrender of the properties and assets disclosed and declared by him
to belong to deposed President Ferdinand E. Marcos to the Government of the Republic of the
Philippines, his full, complete and truthful disclosures, and his commitment to pay a sum of money
as determined by the Philippine Government." In addition, Campos, Jr. had already waived and
surrendered to the Republic his registered equity interest in the Marcos/Romualdez corporations
involved in the civil case.11

Even as the Republic of the Philippines is now the owner of the properties in view of the voluntary
surrender of MPLDC by its former registered owner, Campos, to the State, such transfer does not
prevent a third party with a better right from claiming such properties in the proper forum. In the
meantime, the Republic of the Philippines is the presumptive owner of the properties for taxation
purposes.

Section 234(a) of Republic Act No. 7160 states that properties owned by the Republic of the
Philippines are exempt from real property tax "except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person." Thus, the portions of the
properties not leased to taxable entities are exempt from real estate tax while the portions of the
properties leased to taxable entities are subject to real estate tax. The law imposes the liability to
pay real estate tax on the Republic of the Philippines for the portions of the properties leased to
taxable entities. It is, of course, assumed that the Republic of the Philippines passes on the real
estate tax as part of the rent to the lessees.

In Philippine Fisheries Development Authority v. Central Board of Assessment Appeals,12 the Court

held:

In the 2007 case of Philippine Fisheries Development Authority v. Court of Appeals, the Court
resolved the issue of whether the PFDA is a government-owned or controlled corporation or an
instrumentality of the national government. In that case, the City of Iloilo assessed real property
taxes on the Iloilo Fishing Port Complex (IFPC), which was managed and operated by PFDA.
The Court held that PFDA is an instrumentality of the government and is thus exempt from
the payment of real property tax, thus:

The Court rules that the Authority is not a GOCC but an instrumentality of the national
government which is generally exempt from payment of real property tax. However, said
exemption does not apply to the portions of the IFPC which the Authority leased to private
entities. With respect to these properties, the Authority is liable to pay property tax.
Nonetheless, the IFPC, being a property of public dominion cannot be sold at public auction to
satisfy the tax delinquency.

xxxx

This ruling was affirmed by the Court in a subsequent PFDA case involving the Navotas Fishing Port
Complex, which is also managed and operated by the PFDA. In consonance with the previous
ruling, the Court held in the subsequent PFDA case that the PFDA is a government
instrumentality not subject to real property tax except those portions of the Navotas Fishing
Port Complex that were leased to taxable or private persons and entities for their beneficial
use.

Similarly, we hold that as a government instrumentality, the PFDA is exempt from real property tax
imposed on the Lucena Fishing Port Complex, except those portions which are leased to private
persons or entities.13 (Emphasis supplied)

In Government Service Insurance System v. City Treasurer of the City of Manila,14 the Court held:

x x x The tax exemption the property of the Republic or its instrumentalities carries ceases
only if, as stated in Sec. 234(a) of the LGC of 1991, "beneficial use thereof has been granted,
for a consideration or otherwise, to a taxable person." GSIS, as a government instrumentality, is
not a taxable juridical person under Sec. 133(o) of the LGC. GSIS, however, lost in a sense that
status with respect to the Katigbak property when it contracted its beneficial use to MHC,
doubtless a taxable person. Thus, the real estate tax assessment of Php 54,826,599.37
covering 1992 to 2002 over the subject Katigbak property is valid insofar as said tax
delinquency is concerned as assessed over said property.15 (Emphasis supplied)

In Manila International Airport Authority v. Court of Appeals,16 the Court held:

x x x 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.17 (Emphasis supplied)

In Lung Center of the Philippines v. Quezon City,18 the Court held:

x x x While portions of the hospital are used for the treatment of patients and the dispensation of
medical services to them, whether paying or non-paying, other portions thereof are being leased to
private individuals for their clinics and a canteen. Further, a portion of the land is being leased to a
private individual for her business enterprise under the business name "Elliptical Orchids and
Garden Center." Indeed, the petitioner’s evidence shows that it collected ₱1,136,483.45 as rentals in
1991 and ₱1,679,999.28 for 1992 from the said lessees.

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. 19 (Emphasis supplied)

Article 420 of the Civil Code classifies as properties of public dominion those that are "intended for
public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks,
shores, roadsteads" and those that "are intended for some public service or for the development of
the national wealth." Properties of public dominion are not only exempt from real estate tax, they are
exempt from sale at public auction. In Heirs of Mario Malabanan v. Republic,20 the Court held that, "It
is clear that property of public dominion, which generally includes property belonging to the State,
cannot be x x x subject of the commerce of man." 21

In Philippine Fisheries Development Authority v. Court of Appeals,22 the Court held:

x x x [T]he real property tax assessments issued by the City of Iloilo should be upheld only with
respect to the portions leased to private persons. In case the Authority fails to pay the real
property taxes due thereon, said portions cannot be sold at public auction to satisfy the tax
delinquency. In Chavez v. Public Estates Authority it was held that reclaimed lands are lands of
the public dominion and cannot, without Congressional fiat, be subject of a sale, public or
private x x x.

In the same vein, the port built by the State in the Iloilo fishing complex is a property of the
public dominion and cannot therefore be sold at public auction. Article 420 of the Civil Code,
provides:

"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."

The Iloilo fishing port which was constructed by the State for public use and/or public service
falls within the term "port" in the aforecited provision. Being a property of public dominion
the same cannot be subject to execution or foreclosure sale. In like manner, the reclaimed land
on which the IFPC is built cannot be the object of a private or public sale without Congressional
authorization.23 (Emphasis supplied)

In Manila International Airport Authority,24 the Court held:

x x x [T]he 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.

The term "ports x x x constructed by the Sate" 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 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.

xxxx

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.25 (Emphasis supplied) lawphi1

In the present case, the parcels of land are not properties of public dominion because they are not
"intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the
State, banks, shores, roadsteads." Neither are they "intended for some public service or for the
development of the national wealth." MPLDC leases portions of the properties to different business
establishments. Thus, the portions of the properties leased to taxable entities are not only subject to
real estate tax, they can also be sold at public auction to satisfy the tax delinquency.

In sum, only those portions of the properties leased to taxable entities are subject to real estate tax
for the period of such leases. Pasig City must, therefore, issue to respondent new real property tax
assessments covering the portions of the properties leased to taxable entities. If the Republic of the
Philippines fails to pay the real property tax on the portions of the properties leased to taxable
entities, then such portions may be sold at public auction to satisfy the tax delinquency.

WHEREFORE, the petition is PARTIALLY GRANTED. The Court SETS ASIDE the 17 October

2008 Decision of the Court of Appeals in CA-G.R. SP No. 97498 and declares VOID the 30
September 2002 real property tax assessment issued by Pasig City on the subject properties of Mid-
Pasig Land Development Corporation, the 8 November 2005 warrants of levy on the properties, and
the 2 December 2005 auction sale. Pasig City is DIRECTED to issue to respondent new real
property tax assessments covering only the portions of the properties actually leased to taxable
entities, and only for the period of such leases. Interests and penalties on such new real property tax
assessment shall accrue only after receipt of such new assessment by respondent.
SO ORDERED.

G.R. No. 161030               September 14, 2011

JOSE FERNANDO, JR., ZOILO FERNANDO, NORMA FERNANDO

BANARES, ROSARIO FERNANDO TANGKENCGO, HEIRS OF TOMAS
FERNANDO, represented by ALFREDO V. FERNANDO, HEIRS OF
GUILLERMO FERNANDO, represented by Ronnie H. Fernando, HEIRS
OF ILUMINADA FERNANDO, represented by Benjamin Estrella and
HEIRS OF GERMOGENA FERNANDO, Petitioners,
vs.
LEON ACUNA, HERMOGENES FERNANDO, HEIRS OF SPOUSES
ANTONIO FERNANDO AND FELISA CAMACHO, represented by
HERMOGENES FERNANDO, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure seeking to reverse and set aside the Decision 1 dated
November 24, 2003 of the Court of Appeals in CA-G.R. CV No. 75773,
entitled "Jose Fernando, Jr., et al. v. Heirs of Germogena Fernando, et al.,"
which reversed and set aside the Decision2 dated May 16, 2002 of Branch
84, Regional Trial Court (RTC) of Malolos, Bulacan in Civil Case No. 256-
M-97.

At the heart of this controversy is a parcel of land covered by Original

Certificate of Title (OCT) No. RO-487 (997) 3 registered in the names of
Jose A. Fernando, married to Lucila Tinio, and Antonia A. Fernando,
married to Felipe Galvez, and located in San Jose, Baliuag, Bulacan. When
they died intestate, the property remained undivided. Petitioners herein –
namely, Jose Fernando, Jr., Zoilo Fernando, Norma Fernando Banares,
Rosario Fernando Tangkencgo, the heirs of Tomas Fernando, the heirs of
Guillermo Fernando, the heirs of Iluminada Fernando and the heirs of
Germogena Fernando – are the heirs and successors-in-interest of the
deceased registered owners. However, petitioners failed to agree on the
division of the subject property amongst themselves, even after compulsory
conciliation before the Barangay Lupon.
Thus, petitioners, except for the heirs of Germogena Fernando, filed a
Complaint4 for partition on April 17, 1997 against the heirs of Germogena
Fernando. In the Complaint, plaintiffs alleged, among others, that they and
defendants are common descendants and compulsory heirs of the late
spouses Jose A. Fernando and Lucila Tinio, and the late spouses Antonia
A. Fernando and Felipe Galvez. They further claimed that their
predecessors-in-interest died intestate and without instructions as to the
disposition of the property left by them covered by OCT No. RO-487 (997).
There being no settlement, the heirs are asking for their rightful and lawful
share because they wish to build up their homes or set up their business in
the respective portions that will be allotted to them. In sum, they prayed
that the subject property be partitioned into eight equal parts,
corresponding to the hereditary interest of each group of heirs.

In their Answer5 filed on May 20, 1997, defendants essentially admitted all

of the allegations in the complaint. They alleged further that they are not
opposing the partition and even offered to share in the expenses that will
be incurred in the course of the proceedings.

In his Complaint in Intervention6 filed on January 12, 1998, respondent

Leon Acuna (Acuna) averred that in the Decision 7 dated November 29,
1929 of the Cadastral Court of Baliuag, Bulacan, the portion of the property
identified as Lot 1303 was already adjudicated to: (a) Antonio Fernando,
married to Felisa Camacho; (b) spouses Jose Martinez and Gregoria
Sison; (c) spouses Ignacio de la Cruz and Salud Wisco; and (d) Jose
Fernando, married to Lucila Tinio, the petitioners’ predecessor-in-interest.
He likewise claimed that in a 1930 Decision of the Cadastral Court, the
portion identified as Lot 1302 was also already adjudicated to other people
as well.

Respondent Acuna further alleged that Salud Wisco, through her

authorized attorney-in-fact, Amador W. Cruz, sold her lawful share
denominated as Lot 1303-D with an area of 3,818 square meters to Simeon
P. Cunanan,8 who in turn sold the same piece of land to him as evidenced
by a Deed of Sale.9 He also belied petitioners’ assertion that the subject
property has not been settled by the parties after the death of the original
owners in view of the Decision10 dated July 30, 1980 of the Court of First
Instance (CFI) of Baliuag, Bulacan, in LRC Case No. 80-389 which ordered
the Register of Deeds of Bulacan to issue the corresponding certificates of
title to the claimants of the portion of the subject property designated as Lot
1302.11 Norma Fernando, one of the petitioners in the instant case, even
testified in LRC Case No. 80-389. According to respondent Acuna, this
circumstance betrayed bad faith on the part of petitioners in filing the
present case for partition.

Respondent Acuna likewise averred that the action for partition cannot
prosper since the heirs of the original owners of the subject property,
namely Rosario, Jose Jr., Norma, Tomas, Guillermo, Leopoldo,
Hermogena, Illuminada and Zoilo, all surnamed Fernando, and Lucila Tinio,
purportedly had already sold their respective one-tenth (1/10) share each in
the subject property to Ruperta Sto. Domingo Villasenor for the amount of
₱35,000.00 on January 25, 1978 as evidenced by a "Kasulatan sa Bilihang
Patuluyan."12 He added that he was in possession of the original copy of
OCT No. RO-487 (997) and that he had not commenced the issuance of
new titles to the subdivided lots because he was waiting for the owners of
the other portions of the subject property to bear their respective shares in
the cost of titling.

Subsequently, a Motion for Intervention13 was filed on June 23, 1998 by

respondent Hermogenes Fernando (Hermogenes), for himself and on
behalf of the heirs of the late spouses, Antonio A. Fernando and Felisa
Camacho. According to him, in the July 30, 1980 Decision of the CFI of
Bulacan, their predecessors-in-interest had already been adjudged owners
of Lots 1302-A, 1302-F, 1302-G,14 1302-H and 1302-J of OCT No. RO-487
(997) and any adverse distribution of the properties would cause
respondents damage and prejudice. He would also later claim, in his
Answer-in-Intervention,15 that the instant case is already barred by res
judicata and, should be dismissed.

In the interest of substantial justice, the trial court allowed the respondents
to intervene in the case.

The plaintiffs and defendants jointly moved to have the case submitted for
judgment on the pleadings on May 7, 1999. 16 However, the trial court
denied said motion in a Resolution17 dated August 23, 1999 primarily due to
the question regarding the ownership of the property to be partitioned, in
light of the intervention of respondents Acuna and Hermogenes who were
claiming legal right thereto.
In their Manifestation18 filed on April 12, 2000, petitioners affirmed their
execution of a Deed of Sale in favor of Ruperta Sto. Domingo Villasenor in
1978, wherein they sold to her 1,000 square meters from Lot 1303 for the
sum of ₱ 35,000.00.

After the pre-trial conference, trial ensued. On September 19, 2000,

petitioner Elizabeth Alarcon testified that they (plaintiffs) are not claiming
the entire property covered by OCT No. RO-487 (997) but only the area
referred to as Lot 1303 and Sapang Bayan. She also admitted that Lot
1302 had already been divided into ten (10) sublots and allocated to
various owners pursuant to the July 30, 1980 Decision of the CFI of
Baliuag, Bulacan and these owners already have their own titles. She
likewise claimed that the entire area consisting of Lot 1303 and Sapang
Bayan is based on the subdivision plan of Lot 1303. She admitted that
plaintiffs’ predecessor-in-interest was only allocated a portion of Lot 1303
based on the said plan. However, she claimed that the November 29, 1929
Decision subdividing Lot 1303 was never implemented nor executed by the
parties.19

Petitioner Norma Fernando testified on October 3, 2000 that she is one of

the children of Jose A. Fernando and Lucila Tinio. She affirmed that
plaintiffs were only claiming Lot 1303 and Sapang Bayan. She also testified
that Sapang Bayan was supposedly included in Lot 1302 and was
previously a river until it dried up. Unlike Lot 1302, the rest of the property
was purportedly not distributed. She likewise averred that she is aware of a
November 29, 1929 Decision concerning the distribution of Lot 1303 issued
by the cadastral court but insisted that the basis of the claims of the
petitioners over Lot 1303 is the title in the name of her ascendants and not
said Decision.20

On November 16, 2000, as previously directed by the trial court and agreed
to by the parties, counsel for respondent Hermogenes prepared and
submitted an English translation of the November 29, 1929 Decision. The
same was admitted and marked in evidence as Exhibit "X" 21 as a common
exhibit of the parties. The petitioners also presented Alfredo Borja, the
Geodetic Engineer who conducted a relocation survey of the subject
property.

After plaintiffs rested their case, respondent Hermogenes testified on

December 7, 2000. In his testimony, he claimed to know the plaintiffs and
defendants as they were allegedly his relatives and neighbors. He
confirmed that according to the November 29, 1929 Decision, portions of
Lot 1303 was designated as Lots 1303-A, 1303-B, 1303-C and 1303-D
which were adjudicated to certain persons, including Jose Fernando, while
the rest of Lot 1303 was adjudicated to his parents, Antonio A. Fernando
married to Felisa Camacho. According to respondent Hermogenes, his
family’s tenant and the latter’s children occupied the portion of Lot 1303
allotted to his (Hermogenes) parents while the rest of Lot 1303 was
occupied by the persons named in the said November 29, 1929 Decision.
He admitted, however, that nobody among the purported possessors of Lot
1303 registered the lots assigned to them in the Decision. 22

On January 18, 2001, respondent Hermogenes presented a witness,

Engineer Camilo Vergara who testified that the subject land is divided into
Lots 1302 and 1303 with a creek dividing the two lots known as Sapang
Bayan. He also identified a Sketch Plan numbered as PSD-45657 and
approved on November 11, 1955.23 During the hearing on January 30,
2001, respondent Hermogenes made an oral offer of his evidence and
rested his case. On the same date, respondent Acuna, in lieu of his
testimony, offered for the parties to simply stipulate on the due execution
and authenticity of the Deeds of Sale dated April 6, 1979 and December
28, 1980, showing the transfer of Lot 1303-D from Salud Wisco to Simeon
Cunanan and subsequently to respondent Acuna. When counsel for
plaintiffs and defendants agreed to the stipulation, albeit objecting to the
purpose for which the deeds of sale were offered, the trial court admitted
Acuna’s exhibits and Acuna rested his case.24

On February 15, 2001, plaintiffs recalled Norma Fernando as a rebuttal

witness. In her rebuttal testimony, she identified the tax declaration 25 over
the said property in the name of Jose A. Fernando; an official
receipt26 dated October 3, 1997 issued by the Office of the Treasurer of the
Municipality of Baliuag, Bulacan for payment of real property taxes from
1991 to 1997; and a real property tax clearance 27 dated October 6, 1997, to
show that plaintiffs have allegedly been paying the real property taxes on
the entire property covered by OCT No. RO-487 (997). However, she
further testified that they were now willing to pay taxes only over the portion
with an area of 44,234 square meters, which is included in their claim. 28

In a Decision dated May 16, 2002, the trial court ruled that plaintiffs and
defendants (petitioners herein) were indeed the descendants and
successors-in-interest of the registered owners, Jose A. Fernando (married
to Lucila Tinio) and Antonia Fernando (married to Felipe Galvez), of the
property covered by OCT No. RO-487 (997). After finding that the parties
admitted that Lot 1302 was already distributed and titled in the names of
third persons per the July 30, 1980 Decision of the CFI of Baliuag, Bulacan
the trial court proceeded to rule on the allocation of Lot 1303 and Sapang
Bayan.

With respect to Lot 1303, the trial court found that the November 29, 1929
Decision of the Cadastral Court, adjudicating said lot to different persons
and limiting Jose Fernando’s share to Lot 1303-C, was never implemented
nor executed despite the lapse of more than thirty years. Thus, the said
decision has already prescribed and can no longer be executed. The trial
court ordered the reversion of Lot 1303 to the ownership of spouses Jose
A. Fernando and Lucila Tinio and spouses Antonia A. Fernando and Felipe
Galvez under OCT No. RO-487 (997) and allowed the partition of Lot 1303
among petitioners as successors-in-interest of said registered owners.
Excluded from the partition, however, were the portions of the property
which petitioners admitted had been sold or transferred to Ruperta Sto.
Domingo Villasenor and respondent Acuna.

As for the ownership of Sapang Bayan, the trial court found that the same
had not been alleged in the pleadings nor raised as an issue during the
pre-trial conference. Also, according to the trial court, the parties failed to
clearly show whether Sapang Bayan was previously a dry portion of either
Lot 1302 or Lot 1303. Neither was there any proof that Sapang Bayan was
a river that just dried up or that it was an accretion which the adjoining lots
gradually received from the effects of the current of water. It was likewise
not established who were the owners of the lots adjoining Sapang Bayan.
The trial court concluded that none of the parties had clearly and
sufficiently established their claims over Sapang Bayan.

The dispositive portion of the May 16, 2002 Decision of the trial court
reads:

WHEREFORE, all the foregoing considered, judgment is hereby rendered

ordering the reversion of Lot 1303, except the portions allotted to Acuna
and Ruperta Sto. Domingo Villasenor, to the ownership of Jose Fernando
and Lucia Tinio and Antonia Fernando and Felipe Galvez under OCT No.
997 and thereafter allowing the partition of said Lot 1303 among the
plaintiffs and the defendants as successors-in-interest of Jose and Lucia as
well as Antonia and Felipe after the settlement of any inheritance tax, fees,
dues and/or obligation chargeable against their estate. 29

All the parties, with the exception of respondent Acuna, elevated this case
to the Court of Appeals which rendered the assailed November 24, 2003
Decision, the dispositive portion of which reads:

WHEREFORE, premises considered, the decision dated May 16, 2002, of

the Regional Trial Court of Malolos, Bulacan, Third Judicial Region, Branch
84, in Civil Case No. 256-M-97, is hereby REVERSED and SET ASIDE and
the complaint dated April 17, 1997 filed by plaintiffs-appellants is
dismissed. Costs against plaintiffs-appellants. 30

Hence, plaintiffs and defendants in the court a quo elevated the matter for
our review through the instant petition.

Petitioner raises the following issues for consideration:

1. Whether or not the ownership of Lot 1303 and the Sapang Bayan
portion of the piece of land covered by O.C.T. No. RO-487 (997) or
Plan Psu-39080 should revert to the descendants and heirs of the
late spouses Jose Fernando and Lucila Tinio and Antonia Fernando,
married to Felipe Galvez;

2. Whether or not a title registered under the Torrens system, as the

subject original certificate of title is the best evidence of ownership of
land and is a notice against the world.31

The petition is without merit.

Petitioners based their claims to the disputed areas designated as Lot 1303
and Sapang Bayan on their ascendants’ title, OCT No. RO-487 (997),
which was issued on February 26, 1927 in the name of Jose A. Fernando
married to Lucila Tinio and Antonia A. Fernando married to Felipe Galvez.
The Court now rules on these claims in seriatim.

Petitioners’ claim with respect to Lot 1303

As the records show, in the November 29, 1929 Decision of the Cadastral
Court of Baliuag, Bulacan (in Cadastral Record No. 14, GLRO Cad. Record
No. 781) which was written in Spanish, Lot 1303 had already been divided
and adjudicated to spouses Jose A. Fernando and Lucila Tinio; spouses
Antonia A. Fernando and Felipe Galvez; spouses Antonio A. Fernando and
Felisa Camacho; spouses Jose Martinez and Gregoria Sison; and spouses
Ignacio de la Cruz and Salud Wisco from whom respondent Acuna derived
his title. The English translation of the said November 29, 1929 Decision
was provided by respondent Hermogenes and was adopted by all the
parties as a common exhibit designated as Exhibit "X." The agreed English
translation of said Decision reads:

Lot No. 1303 – This lot is decreed in record No. 448, G.L.R.O. Record No.
25414 and actually with Original Certificate No. 997 (exhibited today) in the
name of Jose A. Fernando and Antonia A. Fernando, who now pray that
said lot be subdivided in accordance with the answers recorded in the
instant cadastral record, and the sketch, Exh. "A", which is attached to the
records.

A part or portion of the lot has been claimed by Antonio A. Fernando, of

legal age, married to Felisa Camacho; another portion by the spouses Jose
Martinez and Gregoria Sison; another portion by Antonia A. Fernando, of
legal age, married to Felipe Galvez; another portion by Jose A. Fernando,
of legal age, married to Lucila Tinio; and another portion by the spouses
Ignacio de la Cruz and Salud Wisco, both of legal age. The part claimed by
the spouses Jose A. Martinez and Gregoria Sison is Lot 1303-A of Exh. A;
the part claimed by Antonia A. Fernando is Lot 1303-B of said exhibit; the
part claimed by Jose A. Fernando is Lot 1303-C of said exhibit, and the
part claimed by the spouses Ignacio de la Cruz and Salud Wisco is Lot
1303-D of the aforementioned Exhibit.

The subdivision of said lot is hereby ordered, separating from the same the
portions that correspond to each of the claimants, which portions are
known as Lots 1303-A, 1303-B, 1303-C, and 1303-D in the sketch, Exh.
"A", and once subdivided, are adjudicated in favor of the spouses, Jose
Martinez and Gregoria Sison, of legal age, Lot No. 1303-A, in favor of
Antonia A. Fernando, of legal age, married to Felipe Galvez, Lot No. 1303-
B; in favor of Jose A. Fernando, of legal age, married to Lucila Tinio, Lot
1303-C; in favor of the spouses Ignacio de la Cruz and Salud Wisco, of
legal age, Lot 1303-D; and the rest of Lot 1303 is adjudged in favor of
Antonio A. Fernando married to Felisa Camacho. It is likewise ordered that
once the subdivision plan is approved, the same be forwarded by the
Director of Lands to this Court for its final decision.

It is ordered that the expense for mentioned subdivision, shall be for the
account of the spouses Jose Martinez and Gregoria Sison, Antonia A.
Fernando, Jose A. Fernando, the spouses Ignacio de la Cruz and Salud
Wisco, and Antonio A. Fernando.32

From the foregoing, it would appear that petitioners’ ascendants

themselves petitioned for the cadastral court to divide Lot 1303 among the
parties to the 1929 case and they were only allocated Lots 1303-B and
1303-C. Still, as the trial court noted, the November 29, 1929 Decision was
never fully implemented in the sense that the persons named therein
merely proceeded to occupy the lots assigned to them without having
complied with the other directives of the cadastral court which would have
led to the titling of the properties in their names. Nonetheless, it is
undisputed that the persons named in the said November 29, 1929
Decision and, subsequently, their heirs and assigns have since been in
peaceful and uncontested possession of their respective lots for more than
seventy (70) years until the filing of the suit for partition on April 17, 1997 by
petitioners which is the subject matter of this case. Respondent
Hermogenes, who testified that petitioners were his relatives and
neighbors, further affirmed before the trial court that the persons named in
the November 29, 1929 Decision took possession of their respective lots:

ATTY. VENERACION:

Q – This Jose A. Fernando married to Lucila Tinio, you testified earlier are
the parents of the plaintiffs. Did they take possession of lot 1303-C?

A – Yes, sir. They took possession.

Q – Did they take possession of the other lots?

A – No. Yes, the portion…

Q – The other lots in the name of the other persons. Did they take
possession of that?

A – Yes, they took took possession of the other… No, sir.

Q – I am asking you whether they took possession, the children…

ATTY. SANTIAGO:

The questions are already answered, your Honor.

ATTY. VENERACION:

What is the answer?

ATTY. SANTIAGO:

It’s in the record.

COURT:

The persons named in the Decision already took possession of the lots
allotted to them as per that Decision. So that was already answered.
Anything else?

ATTY. VENERACION;

No more question, Your Honor.33

It is noteworthy that petitioners do not dispute that the November 29, 1929
Decision of the cadastral court already adjudicated the ownership of Lot
1303 to persons other than the registered owners thereof. Petitioners
would, nonetheless, claim that respondents’ purported failure to execute
the November 29, 1929 Decision over Lot 1303 (i.e., their failure to secure
their own titles) meant that the entire Lot 1303 being still registered in the
name of their ascendants rightfully belongs to them. This is on the theory
that respondents’ right to have the said property titled in their names have
long prescribed.

On this point, we agree with the appellate court.

Section 47 of Presidential Decree No. 1529, otherwise known as the

Property Registration Decree, states that "[n]o title to registered land in
derogation of the title of the registered owner shall be acquired by
prescription or adverse possession." Thus, the Court has held that the right
to recover possession of registered land is imprescriptible because
possession is a mere consequence of ownership. 34

However, in Heirs of Anacleto B. Nieto v. Municipality of Meycauayan,

Bulacan,35 the Court had recognized the jurisprudential thread regarding the
exception to the foregoing doctrine that while it is true that a Torrens title is
indefeasible and imprescriptible, the registered landowner may lose his
right to recover possession of his registered property by reason of laches.

Thus, in Heirs of Batiog Lacamen v. Heirs of Laruan, 36 the Court had held
that while a person may not acquire title to the registered property through
continuous adverse possession, in derogation of the title of the original
registered owner, the heir of the latter, however, may lose his right to
recover back the possession of such property and the title thereto, by
reason of laches.

In the more recent case of Bartola M. Vda. De Tirona v. Encarnacion, 37 we

similarly held that while jurisprudence is settled on the imprescriptibility and
indefeasibility of a Torrens title, there is equally an abundance of cases
where we unequivocally ruled that registered owners may lose their right to
recover possession of property through the equitable principle of laches.

Laches means the failure or neglect for an unreasonable and unexplained

length of time to do that which, by observance of due diligence, could or
should have been done earlier. It is negligence or omission to assert a right
within a reasonable time, warranting the presumption that the party entitled
to assert his right either has abandoned or declined to assert it. Laches
thus operates as a bar in equity.38 The essential elements of laches are: (a)
conduct on the part of the defendant, or of one under whom he claims,
giving rise to the situation complained of; (b) delay in asserting
complainant’s rights after he had knowledge of defendant’s acts and after
he has had the opportunity to sue; (c) lack of knowledge or notice by
defendant that the complainant will assert the right on which he bases his
suit; and (d) injury or prejudice to the defendant in the event the relief is
accorded to the complainant.39

In view of respondents’ decades long possession and/or ownership of their

respective lots by virtue of a court judgment and the erstwhile registered
owners’ inaction and neglect for an unreasonable and unexplained length
of time in pursuing the recovery of the land, assuming they retained any
right to recover the same, it is clear that respondents’ possession may no
longer be disturbed. The right of the registered owners as well as their
successors-in-interest to recover possession of the property is already a
stale demand and, thus, is barred by laches.

In the same vein, we uphold the finding of the Court of Appeals that the title
of petitioners’ ascendants wrongfully included lots belonging to third
persons.40 Indeed, petitioners’ ascendants appeared to have acknowledged
this fact as they were even the ones that prayed for the cadastral court to
subdivide Lot 1303 as evident in the November 29, 1929 Decision. We
concur with the Court of Appeals that petitioners’ ascendants held the
property erroneously titled in their names under an implied trust for the
benefit of the true owners. Article 1456 of the Civil Code provides:

ART. 1456. If property is acquired through mistake or fraud, the person

obtaining it is, by force of law, considered a trustee of an implied trust for
the benefit of the person from whom the property comes.

As aptly observed by the appellate court, the party thus aggrieved has the
right to recover his or their title over the property by way of reconveyance
while the same has not yet passed to an innocent purchaser for value. 41 As
we held in Medizabel v. Apao,42 the essence of an action for reconveyance
is that the certificate of title is respected as incontrovertible. What is sought
is the transfer of the property, in this case its title, which has been
wrongfully or erroneously registered in another person's name, to its rightful
owner or to one with a better right. It is settled in jurisprudence that mere
issuance of the certificate of title in the name of any person does not
foreclose the possibility that the real property may be under co-ownership
with persons not named in the certificate or that the registrant may only be
a trustee or that other parties may have acquired interest subsequent to the
issuance of the certificate of title.43

We cannot subscribe to petitioners’ argument that whatever rights or claims

respondents may have under the November 29, 1929 Decision has
prescribed for their purported failure to fully execute the same. We again
concur with the Court of Appeals in this regard. An action for reconveyance
of registered land based on implied trust prescribes in ten (10) years, the
point of reference being the date of registration of the deed or the date of
the issuance of the certificate of title over the property. However, this Court
has ruled that the ten-year prescriptive period applies only when the person
enforcing the trust is not in possession of the property. If a person claiming
to be its owner is in actual possession of the property, the right to seek
reconveyance, which in effect seeks to quiet title to the property, does not
prescribe. The reason is that the one who is in actual possession of the
land claiming to be its owner may wait until his possession is disturbed or
his title is attacked before taking steps to vindicate his right. 44

Petitioners’ claim with respect to Sapang Bayan

As for the issue of the ownership of Sapang Bayan, we sustain the

appellate court insofar as it ruled that petitioners failed to substantiate their
ownership over said area. However, we find that the Court of Appeals erred
in ruling that the principle of accretion is applicable. The said principle is
embodied in Article 457 of the Civil Code which states that "[t]o the owners
of lands adjoining the banks of rivers belong the accretion which they
gradually receive from the effects of the current of the waters." We have
held that for Article 457 to apply the following requisites must concur: (1)
that the deposit be gradual and imperceptible; (2) that it be made through
the effects of the current of the water; and (3) that the land where accretion
takes place is adjacent to the banks of rivers.45 The character of the
Sapang Bayan property was not shown to be of the nature that is being
referred to in the provision which is an accretion known as alluvion as no
evidence had been presented to support this assertion.

In fact from the transcripts of the proceedings, the parties could not agree
how Sapang Bayan came about. Whether it was a gradual deposit received
from the river current or a dried-up creek bed connected to the main river
could not be ascertained.

Even assuming that Sapang Bayan was a dried-up creek bed, under Article
420, paragraph 146 and Article 502, paragraph 147 of the Civil Code, rivers
and their natural beds are property of public dominion. In the absence of
any provision of law vesting ownership of the dried-up river bed in some
other person, it must continue to belong to the State.

We ruled on this issue in Republic v. Court of Appeals, 48 to wit:

The lower court cannot validly order the registration of Lots 1 and 2 in the
names of the private respondents. These lots were portions of the bed of
the Meycauayan river and are therefore classified as property of the public
domain under Article 420 paragraph 1 and Article 502, paragraph 1 of the
Civil Code of the Philippines. They are not open to registration under the
Land Registration act. The adjudication of the lands in question as private
property in the names of the private respondents is null and void. 49 
1avvphi1

Furthermore, in Celestial v. Cachopero,50 we similarly ruled that a dried-up

creek bed is property of public dominion:

A creek, like the Salunayan Creek, is a recess or arm extending from a

river and participating in the ebb and flow of the sea. As such, under
Articles 420(1) and 502(1) of the Civil Code, the Salunayan Creek,
including its natural bed, is property of the public domain which is not
susceptible to private appropriation and acquisitive prescription. And,
absent any declaration by the government, that a portion of the creek has
dried-up does not, by itself, alter its inalienable character. 51

Therefore, on the basis of the law and jurisprudence on the matter, Sapang
Bayan cannot be adjudged to any of the parties in this case.

WHEREFORE, premises considered, the petition is hereby DENIED. The

assailed Decision dated November 24, 2003 of the Court of Appeals in CA-
G.R. CV No. 75773 is hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

.R. No. 191109               July 18, 2012

REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE

RECLAMATION AUTHORITY (PRA), Petitioner,
vs.
CITY OF PARANAQUE, Respondent.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, on pure questions of law, assailing the January 8, 2010
Order of the Regional Trial Court, Branch 195, Parafiaque City (RTC),
1 

which ruled that petitioner Philippine Reclamation Authority (PRA) is a

government-owned and controlled corporation (GOCC), a taxable entity,
and, therefore, . not exempt from payment of real property taxes. The
pertinent portion of the said order reads:

In view of the finding of this court that petitioner is not exempt from
payment of real property taxes, respondent Parañaque City Treasurer
Liberato M. Carabeo did not act xxx without or in excess of jurisdiction, or
with grave abuse of discretion amounting to lack or in excess of jurisdiction
in issuing the warrants of levy on the subject properties.

WHEREFORE, the instant petition is dismissed. The Motion for Leave to

File and Admit Attached Supplemental Petition is denied and the
supplemental petition attached thereto is not admitted.

The Public Estates Authority (PEA) is a government corporation created by

virtue of Presidential Decree (P.D.) No. 1084 (Creating the Public Estates
Authority, Defining its Powers and Functions, Providing Funds Therefor and
For Other Purposes) which took effect on February 4,

1977 to provide a coordinated, economical and efficient reclamation of

lands, and the administration and operation of lands belonging to, managed
and/or operated by, the government with the object of maximizing their
utilization and hastening their development consistent with public interest.

On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued
by then President Ferdinand Marcos, PEA was designated as the agency
primarily responsible for integrating, directing and coordinating all
reclamation projects for and on behalf of the National Government.

On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O.

No. 380 transforming PEA into PRA, which shall perform all the powers and
functions of the PEA relating to reclamation activities.

By virtue of its mandate, PRA reclaimed several portions of the foreshore

and offshore areas of Manila Bay, including those located in Parañaque
City, and was issued Original Certificates of Title (OCT Nos. 180, 202, 206,
207, 289, 557, and 559) and Transfer Certificates of Title (TCT Nos.
104628, 7312, 7309, 7311, 9685, and 9686) over the reclaimed lands.

On February 19, 2003, then Parañaque City Treasurer Liberato M.

Carabeo (Carabeo) issued Warrants of Levy on PRA’s reclaimed properties
(Central Business Park and Barangay San Dionisio) located in Parañaque
City based on the assessment for delinquent real property taxes made by
then Parañaque City Assessor Soledad Medina Cue for tax years 2001 and
2002.

On March 26, 2003, PRA filed a petition for prohibition with prayer for
temporary restraining order (TRO) and/or writ of preliminary injunction
against Carabeo before the RTC.

On April 3, 2003, after due hearing, the RTC issued an order denying
PRA’s petition for the issuance of a temporary restraining order.

On April 4, 2003, PRA sent a letter to Carabeo requesting the latter not to
proceed with the public auction of the subject reclaimed properties on April
7, 2003. In response, Carabeo sent a letter stating that the public auction
could not be deferred because the RTC had already denied PRA’s TRO
application.

On April 25, 2003, the RTC denied PRA’s prayer for the issuance of a writ
of preliminary injunction for being moot and academic considering that the
auction sale of the subject properties on April 7, 2003 had already been
consummated.

On August 3, 2009, after an exchange of several pleadings and the failure

of both parties to arrive at a compromise agreement, PRA filed a Motion for
Leave to File and Admit Attached Supplemental Petition which sought to
declare as null and void the assessment for real property taxes, the levy
based on the said assessment, the public auction sale conducted on April
7, 2003, and the Certificates of Sale issued pursuant to the auction sale.

On January 8, 2010, the RTC rendered its decision dismissing PRA’s

petition. In ruling that PRA was not exempt from payment of real property
taxes, the RTC reasoned out that it was a GOCC under Section 3 of P.D.
No. 1084. It was organized as a stock corporation because it had an
authorized capital stock divided into no par value shares. In fact, PRA
admitted its corporate personality and that said properties were registered
in its name as shown by the certificates of title. Therefore, as a GOCC,
local tax exemption is withdrawn by virtue of Section 193 of Republic Act
(R.A.) No. 7160 Local Government Code (LGC) which was the prevailing
law in 2001 and 2002 with respect to real property taxation. The RTC also
ruled that the tax exemption claimed by PRA under E.O. No. 654 had
already been expressly repealed by R.A. No. 7160 and that PRA failed to
comply with the procedural requirements in Section 206 thereof.

Not in conformity, PRA filed this petition for certiorari assailing the January
8, 2010 RTC Order based on the following GROUNDS

THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER

IS LIABLE TO PAY REAL PROPERTY TAX ON THE SUBJECT
RECLAIMED LANDS CONSIDERING

THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF

THE NATIONAL GOVERNMENT AND IS, THEREFORE, EXEMPT FROM
PAYMENT OF REAL PROPERTY TAX UNDER SECTIONS 234(A) AND
133(O) OF REPUBLIC ACT 7160 OR THE LOCAL GOVERNMENT CODE
VIS-À-VIS MANILA INTERNATIONAL AIRPORT AUTHORITY V. COURT
OF APPEALS.

II

THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT

RECLAIMED LANDS ARE PART OF THE PUBLIC DOMAIN AND,
HENCE, EXEMPT FROM REAL PROPERTY TAX.

PRA asserts that it is not a GOCC under Section 2(13) of the Introductory
Provisions of the Administrative Code. Neither is it a GOCC under Section
16, Article XII of the 1987 Constitution because it is not required to meet
the test of economic viability. Instead, PRA is a government instrumentality
vested with corporate powers and performing an essential public service
pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. Although it has a capital stock divided into shares, it is
not authorized to distribute dividends and allotment of surplus and profits to
its stockholders. Therefore, it may not be classified as a stock corporation
because it lacks the second requisite of a stock corporation which is the
distribution of dividends and allotment of surplus and profits to the
stockholders.

It insists that it may not be classified as a non-stock corporation because it

has no members and it is not organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry, agriculture and
like chambers as provided in Section 88 of the Corporation Code.

Moreover, PRA points out that it was not created to compete in the market
place as there was no competing reclamation company operated by the
private sector. Also, while PRA is vested with corporate powers under P.D.
No. 1084, such circumstance does not make it a corporation but merely an
incorporated instrumentality and that the mere fact that an incorporated
instrumentality of the National Government holds title to real property does
not make said instrumentality a GOCC. Section 48, Chapter 12, Book I of
the Administrative Code of 1987 recognizes a scenario where a piece of
land owned by the Republic is titled in the name of a department, agency or
instrumentality.

Thus, PRA insists that, as an incorporated instrumentality of the National

Government, it is exempt from payment of real property tax except when
the beneficial use of the real property is granted to a taxable person. PRA
claims that based on Section 133(o) of the LGC, local governments cannot
tax the national government which delegate to local governments the
power to tax.

It explains that reclaimed lands are part of the public domain, owned by the
State, thus, exempt from the payment of real estate taxes. Reclaimed lands
retain their inherent potential as areas for public use or public service.
While the subject reclaimed lands are still in its hands, these lands remain
public lands and form part of the public domain. Hence, the assessment of
real property taxes made on said lands, as well as the levy thereon, and
the public sale thereof on April 7, 2003, including the issuance of the
certificates of sale in favor of the respondent Parañaque City, are invalid
and of no force and effect.

On the other hand, the City of Parañaque (respondent) argues that PRA
since its creation consistently represented itself to be a GOCC. PRA’s very
own charter (P.D. No. 1084) declared it to be a GOCC and that it has
entered into several thousands of contracts where it represented itself to be
a GOCC. In fact, PRA admitted in its original and amended petitions and
pre-trial brief filed with the RTC of Parañaque City that it was a GOCC.

Respondent further argues that PRA is a stock corporation with an

authorized capital stock divided into 3 million no par value shares, out of
which 2 million shares have been subscribed and fully paid up. Section 193
of the LGC of 1991 has withdrawn tax exemption privileges granted to or
presently enjoyed by all persons, whether natural or juridical, including
GOCCs.

Hence, since PRA is a GOCC, it is not exempt from the payment of real
property tax.

THE COURT’S RULING

The Court finds merit in the petition.

Section 2(13) of the Introductory Provisions of the Administrative Code of

1987 defines a GOCC 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.

On the other hand, 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

From the above definitions, it is clear that a GOCC must be "organized as a

stock or non-stock corporation" while an instrumentality is vested by law
with corporate powers. 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.

When the law vests in a government instrumentality corporate powers, the

instrumentality does not necessarily 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.

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 GOCC.
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. They are not, however, GOCCs in the strict
sense as understood under the Administrative Code, which is the
governing law defining the legal relationship and status of government
entities.
2

Correlatively, Section 3 of the Corporation Code 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."
Section 87 thereof defines a non-stock corporation as "one where no part
of its income is distributable as dividends to its members, trustees or
officers." Further, Section 88 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."

Two requisites must concur before one may be classified as a stock

corporation, namely: (1) that it has capital stock divided into shares; and (2)
that it is authorized to distribute dividends and allotments of surplus and
profits to its stockholders. If only one requisite is present, it cannot be
properly classified as a stock corporation. As for non-stock corporations,
they must have members and must not distribute any part of their income
to said members. 3
In the case at bench, PRA is not a GOCC because it is neither a stock nor
a non-stock corporation. It cannot be considered as a stock corporation
because although it has a capital stock divided into no par value shares as
provided in Section 7 of P.D. No. 1084, it is not authorized to distribute
4 

dividends, surplus allotments or profits to stockholders. There is no

provision whatsoever in P.D. No. 1084 or in any of the subsequent
executive issuances pertaining to PRA, particularly, E.O. No. 525, E.O. No.
5 

654 and EO No. 798 that authorizes PRA to distribute dividends, surplus
6  7 

allotments or profits to its stockholders.

PRA cannot be considered a non-stock corporation either because it does

not have members. A non-stock corporation must have
members. Moreover, it was not organized for any of the purposes
8 

mentioned in Section 88 of the Corporation Code. Specifically, it was

created to manage all government reclamation projects.

Furthermore, there is another reason why the PRA cannot be classified as

a GOCC. Section 16, Article XII of the 1987 Constitution provides as
follows:

Section 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.

The fundamental provision above authorizes Congress to create GOCCs

through special charters on two conditions: 1) the GOCC must be
established for the common good; and 2) the GOCC must meet the test of
economic viability. In this case, PRA may have passed the first condition of
common good but failed the second one - economic viability. Undoubtedly,
the purpose behind the creation of PRA was not for economic or
commercial activities. Neither was it created to compete in the market place
considering that there were no other competing reclamation companies
being operated by the private sector. As mentioned earlier, PRA was
created essentially to perform a public service considering that it was
primarily responsible for a coordinated, economical and efficient
reclamation, administration and operation of lands belonging to the
government with the object of maximizing their utilization and hastening
their development consistent with the public interest. Sections 2 and 4 of
P.D. No. 1084 reads, as follows:

Section 2. Declaration of policy. It is the declared policy of the State to

provide for a coordinated, economical and efficient reclamation of lands,
and the administration and operation of lands belonging to, managed
and/or operated by the government, with the object of maximizing their
utilization and hastening their development consistent with the public
interest.

Section 4. Purposes. The Authority is hereby created for the following

purposes:

(a) To reclaim land, including foreshore and submerged areas, by

dredging, filling or other means, or to acquire reclaimed land;

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

dispose, lease and sell any and all kinds of lands, buildings, estates
and other forms of real property, owned, managed, controlled and/or
operated by the government.

(c) To provide for, operate or administer such services as may be

necessary for the efficient, economical and beneficial utilization of the
above properties.

The twin requirement of common good and economic viability was lengthily
discussed in the case of Manila International Airport Authority v. Court of
Appeals, the pertinent portion of which reads:
9 

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.

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 incometo 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. 1âwphi1

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. Moreover, economic viability is more than financial viability
but also includes capability to make profit and generate benefits not
quantifiable in financial terms.

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. [Emphases supplied]

This Court is convinced that PRA is not a GOCC either under Section 2(3)
of the Introductory Provisions of the Administrative Code or under Section
16, Article XII of the 1987 Constitution. The facts, the evidence on record
and jurisprudence on the issue support the position that PRA was not
organized either as a stock or a non-stock corporation. Neither was it
created by Congress to operate commercially and compete in the private
market. Instead, PRA is a government instrumentality vested with corporate
powers and performing an essential public service pursuant to Section
2(10) of the Introductory Provisions of the Administrative Code. Being an
incorporated government instrumentality, it is exempt from payment of real
property tax.

Clearly, respondent has no valid or legal basis in taxing the subject

reclaimed lands managed by PRA. On the other hand, Section 234(a) of
the LGC, in relation to its Section 133(o), exempts PRA from paying realty
taxes and protects it from the taxing powers of local government units.

Sections 234(a) and 133(o) of the LGC provide, as follows:

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.

xxxx

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
supplied]

It is clear from Section 234 that real property owned by the Republic of the
Philippines (the Republic) is exempt from real property tax unless the
beneficial use thereof has been granted to a taxable person. In this case,
there is no proof that PRA granted the beneficial use of the subject
reclaimed lands to a taxable entity. There is no showing on record either
that PRA leased the subject reclaimed properties to a private taxable entity.

This exemption should be read in relation to Section 133(o) of the same

Code, which prohibits local governments from imposing "taxes, fees or
charges of any kind on the National Government, its agencies and
instrumentalities x x x." 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.

Indeed, the Republic grants the beneficial use of its real property to an
agency or instrumentality of the national government. This happens when
the 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, unless "the
beneficial use thereof has been granted, for consideration or otherwise, to
a taxable person."10

The rationale behind Section 133(o) has also been explained in the case of
the Manila International Airport Authority, to wit:
11 

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."

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.

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" (McCulloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent power
to wield it. [Emphases supplied]

The Court agrees with PRA that the subject reclaimed lands are still part of
the public domain, owned by the State and, therefore, exempt from
payment of real estate taxes.
Section 2, Article XII of the 1987 Constitution reads in part, as follows:

Section 2. All lands of the public domain, waters, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, fisheries, forests or
timber, wildlife, flora and fauna, and other natural resources are owned by
the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and
utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities,
or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least
60 per centum of whose capital is owned by such citizens. Such
agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and
conditions as may provided by law. In cases of water rights for irrigation,
water supply, fisheries, or industrial uses other than the development of
waterpower, beneficial use may be the measure and limit of the grant.

Similarly, Article 420 of the Civil Code enumerates properties belonging to

the State:

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. [Emphases supplied]

Here, the subject lands are reclaimed lands, specifically portions of the
foreshore and offshore areas of Manila Bay. As such, these lands remain
public lands and form part of the public domain. In the case of Chavez v.
Public Estates Authority and AMARI Coastal Development
Corporation, the Court held that foreshore and submerged areas irrefutably
12 

belonged to the public domain and were inalienable unless reclaimed,

classified as alienable lands open to disposition and further declared no
longer needed for public service. The fact that alienable lands of the public
domain were transferred to the PEA (now PRA) and issued land patents or
certificates of title in PEA’s name did not automatically make such lands
private. This Court also held therein that reclaimed lands retained their
inherent potential as areas for public use or public service.

As the central implementing agency tasked to undertake reclamation

projects nationwide, with authority to sell reclaimed lands, PEA took the
place of DENR as the government agency charged with leasing or selling
reclaimed lands of the public domain. The reclaimed lands being leased or
sold by PEA are not private lands, in the same manner that DENR, when it
disposes of other alienable lands, does not dispose of private lands but
alienable lands of the public domain. Only when qualified private parties
acquire these lands will the lands become private lands. In the hands of the
government agency tasked and authorized to dispose of alienable of
disposable lands of the public domain, these lands are still public, not
private lands.

Furthermore, PEA's charter expressly states that PEA "shall hold lands of
the public domain" as well as "any and all kinds of lands." PEA can hold
both lands of the public domain and private lands. Thus, the mere fact that
alienable lands of the public domain like the Freedom Islands are
transferred to PEA and issued land patents or certificates of title in PEA's
name does not automatically make such lands private. 13

Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of

the Administrative Code of 1987, thus:

SEC 14. Power to Reserve Lands of the Public and Private Dominion 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.

Reclaimed lands such as the subject lands in issue are reserved lands for
public use. They are properties of public dominion. The ownership of such
lands remains with the State unless they are withdrawn by law or
presidential proclamation from public use.

Under Section 2, Article XII of the 1987 Constitution, the foreshore and
submerged areas of Manila Bay are part of the "lands of the public domain,
waters x x x and other natural resources" and consequently "owned by the
State." As such, foreshore and submerged areas "shall not be alienated,"
unless they are classified as "agricultural lands" of the public domain. The
mere reclamation of these areas by PEA does not convert these inalienable
natural resources of the State into alienable or disposable lands of the
public domain. There must be a law or presidential proclamation officially
classifying these reclaimed lands as alienable or disposable and open to
disposition or concession. Moreover, these reclaimed lands cannot be
classified as alienable or disposable if the law has reserved them for some
public or quasi-public use.

As the Court has repeatedly ruled, properties of public dominion are not
subject to execution or foreclosure sale. Thus, the assessment, levy and
14 

foreclosure made on the subject reclaimed lands by respondent, as well as

the issuances of certificates of title in favor of respondent, are without
basis.

WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of

the Regional Trial Court, Branch 195, Parañaque City, is REVERSED and
SET ASIDE. All reclaimed properties owned by the Philippine Reclamation
Authority are hereby declared EXEMPT from real estate taxes. All real
estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Parañaque on the subject reclaimed
properties; the assailed auction sale, dated April 7, 2003; and the
Certificates of Sale subsequently issued by the Parañaque City Treasurer
in favor of the City of Parañaque, are all declared VOID.

SO ORDERED.

G.R. No. 191667               April 17, 2013

LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
EDUARDO M. CACAYURAN, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this Petition for Review on Certiorari1 is the March 26, 2010 Decision2 of the Court of
Appeals (CA) in CA-G.R. CV. No. 89732 which affirmed with modification the April 10, 2007
Decision3 of the Regional Trial Court (RTC) of Agoo, La Union, Branch 31, declaring inter alia the
nullity of the loan agreements entered into by petitioner Land Bank of the Philippines (Land Bank)
and the Municipality of Agoo, La Union (Municipality).

The Facts

From 2005 to 2006, the Municipality’s Sangguniang Bayan (SB) passed certain resolutions to
implement a multi-phased plan (Redevelopment Plan) to redevelop the Agoo Public Plaza (Agoo
Plaza) where the Imelda Garden and Jose Rizal Monument were situated.

To finance phase 1 of the said plan, the SB initially passed Resolution No. 68-2005 4 on April 19,
2005, authorizing then Mayor Eufranio Eriguel (Mayor Eriguel) to obtain a loan from Land Bank and
incidental thereto, mortgage a 2,323.75 square meter lot situated at the southeastern portion of the
Agoo Plaza (Plaza Lot) as collateral. To serve as additional security, it further authorized the
assignment of a portion of its internal revenue allotment (IRA) and the monthly income from the
proposed project in favor of Land Bank.5 The foregoing terms were confirmed, approved and ratified
on October 4, 2005 through Resolution No. 139-2005. 6 Consequently, on November 21, 2005, Land
Bank extended a ₱4,000,000.00 loan in favor of the Municipality (First Loan), 7 the proceeds of which
were used to construct ten (10) kiosks at the northern and southern portions of the Imelda Garden.
After completion, these kiosks were rented out.8

On March 7, 2006, the SB passed Resolution No. 58-2006, 9 approving the construction of a
commercial center on the Plaza Lot as part of phase II of the Redevelopment Plan. To finance the
project, Mayor Eriguel was again authorized to obtain a loan from Land Bank, posting as well the
same securities as that of the First Loan. All previous representations and warranties of Mayor
Eriguel related to the negotiation and obtention of the new loan 10 were ratified on September 5, 2006
through Resolution No. 128-2006. 11 In consequence, Land Bank granted a second loan in favor of
the Municipality on October 20, 2006 in the principal amount of ₱28,000,000.00 (Second Loan). 12

Unlike phase 1 of the Redevelopment Plan, the construction of the commercial center at the Agoo
Plaza was vehemently objected to by some residents of the Municipality. Led by respondent
Eduardo Cacayuran (Cacayuran), these residents claimed that the conversion of the Agoo Plaza into
a commercial center, as funded by the proceeds from the First and Second Loans (Subject Loans),
were "highly irregular, violative of the law, and detrimental to public interests, and will result to
wanton desecration of the said historical and public park."13 The foregoing was embodied in a
Manifesto,14 launched through a signature campaign conducted by the residents and Cacayuran.

In addition, Cacayuran wrote a letter15 dated December 8, 2006 addressed to Mayor Eriguel, Vice
Mayor Antonio Eslao (Vice Mayor Eslao), and the members of the SB namely, Violeta Laroya-Balbin,
Jaime Boado, Jr., Rogelio De Vera, James Dy, Crisogono Colubong, Ricardo Fronda, Josephus
Komiya, Erwina Eriguel, Felizardo Villanueva, and Gerard Mamuyac (Implicated Officers),
expressing the growing public clamor against the conversion of the Agoo Plaza into a commercial
center. He then requested the foregoing officers to furnish him certified copies of various documents
related to the aforementioned conversion including, among others, the resolutions approving the
Redevelopment Plan as well as the loan agreements for the sake of public information and
transparency.

Unable to get any response, Cacayuran, invoking his right as a taxpayer, filed a Complaint 16 against
the Implicated Officers and Land Bank, assailing, among others, the validity of the Subject Loans on
the ground that the Plaza Lot used as collateral thereof is property of public dominion and therefore,
beyond the commerce of man.17
Upon denial of the Motion to Dismiss dated December 27, 2006, 18 the Implicated Officers and Land
Bank filed their respective Answers.

For its part, Land Bank claimed that it is not privy to the Implicated Officers’ acts of destroying the
Agoo Plaza. It further asserted that Cacayuran did not have a cause of action against it since he was
not privy to any of the Subject Loans.19

During the pendency of the proceedings, the construction of the commercial center was completed
and the said structure later became known as the Agoo’s People Center (APC).

On May 8, 2007, the SB passed Municipal Ordinance No. 02-2007, 20 declaring the area where the
APC stood as patrimonial property of the Municipality.

The Ruling of the RTC

In its Decision dated April 10, 2007,21 the RTC ruled in favor of Cacayuran, declaring the nullity of the
Subject Loans.22 It found that the resolutions approving the said loans were passed in a highly
irregular manner and thus, ultra vires; as such, the Municipality is not bound by the
same.23 Moreover, it found that the Plaza Lot is proscribed from collateralization given its nature as
property for public use.24

Aggrieved, Land Bank filed its Notice of Appeal on April 23, 2007. 25 On the other hand, the
Implicated Officers’ appeal was deemed abandoned and dismissed for their failure to file an
appellants’ brief despite due notice. 26 In this regard, only Land Bank’s appeal was given due course
by the CA.

Ruling of the CA

In its Decision dated March 26, 2010,27 the CA affirmed with modification the RTC’s ruling, excluding
Vice Mayor Eslao from any personal liability arising from the Subject Loans. 28

It held, among others, that: (1) Cacayuran had locus standi to file his complaint, considering that (a)
he was born, raised and a bona fide resident of the Municipality; and (b) the issue at hand involved
public interest of transcendental importance;29 (2) Resolution Nos. 68-2005, 139-2005, 58-2006, 128-
2006 and all other related resolutions (Subject Resolutions) were invalidly passed due to the SB’s
non-compliance with certain sections of Republic Act No. 7160, otherwise known as the "Local
Government Code of 1991" (LGC); (3) the Plaza Lot, which served as collateral for the Subject
Loans, is property of public dominion and thus, cannot be appropriated either by the State or by
private persons;30 and (4) the Subject Loans are ultra vires because they were transacted without
proper authority and their collateralization constituted improper disbursement of public funds.

Dissatisfied, Land Bank filed the instant petition.

Issues Before the Court

The following issues have been raised for the Court’s resolution: (1) whether Cacayuran has
standing to sue; (2) whether the Subject Resolutions were validly passed; and (3) whether the
Subject Loans are ultra vires.

The Court’s Ruling

The petition lacks merit.

A. Cacayuran’s standing to sue

Land Bank claims that Cacayuran did not have any standing to contest the construction of the APC
as it was funded through the proceeds coming from the Subject Loans and not from public funds.
Besides, Cacayuran was not even a party to any of the Subject Loans and is thus, precluded from
questioning the same.

The argument is untenable.

It is hornbook principle that a taxpayer is allowed to sue where there is a claim that public funds are
illegally disbursed, or that public money is being deflected to any improper purpose, or that there is
wastage of public funds through the enforcement of an invalid or unconstitutional law. A person
suing as a taxpayer, however, must show that the act complained of directly involves the illegal
disbursement of public funds derived from taxation. In other words, for a taxpayer’s suit to prosper,
two requisites must be met namely, (1) public funds derived from taxation are disbursed by a political
subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed; and
(2) the petitioner is directly affected by the alleged act.31

Records reveal that the foregoing requisites are present in the instant case.

First, although the construction of the APC would be primarily sourced from the proceeds of the
Subject Loans, which Land Bank insists are not taxpayer’s money, there is no denying that public
funds derived from taxation are bound to be expended as the Municipality assigned a portion of its
IRA as a security for the foregoing loans. Needless to state, the Municipality’s IRA, which serves as
the local government unit’s just share in the national taxes, 32 is in the nature of public funds derived
from taxation. The Court believes, however, that although these funds may be posted as a security,
its collateralization should only be deemed effective during the incumbency of the public officers who
approved the same, else those who succeed them be effectively deprived of its use.

In any event, it is observed that the proceeds from the Subject Loans had already been converted
into public funds by the Municipality’s receipt thereof. Funds coming from private sources become
impressed with the characteristics of public funds when they are under official custody. 33

Accordingly, the first requisite has been clearly met.

Second, as a resident-taxpayer of the Municipality, Cacayuran is directly affected by the conversion

of the Agoo Plaza which was funded by the proceeds of the Subject Loans. It is well-settled that
public plazas are properties for public use34 and therefore, belongs to the public dominion. 35 As such,
it can be used by anybody and no one can exercise over it the rights of a private owner. 36 In this
light, Cacayuran had a direct interest in ensuring that the Agoo Plaza would not be exploited for
commercial purposes through the APC’s construction. Moreover, Cacayuran need not be privy to the
Subject Loans in order to proffer his objections thereto. In Mamba v. Lara, it has been held that a
taxpayer need not be a party to the contract to challenge its validity; as long as taxes are involved,
people have a right to question contracts entered into by the government. 37

Therefore, as the above-stated requisites obtain in this case, Cacayuran has standing to file the
instant suit.

B. Validity of the Subject Resolutions

Land Bank avers that the Subject Resolutions provided ample authority for Mayor Eriguel to contract
the Subject Loans. It posits that Section 444(b)(1)(vi) of the LGC merely requires that the municipal
mayor be authorized by the SB concerned and that such authorization need not be embodied in an
ordinance.38

A careful perusal of Section 444(b)(1)(vi) of the LGC shows that while the authorization of the
municipal mayor need not be in the form of an ordinance, the obligation which the said local
executive is authorized to enter into must be made pursuant to a law or ordinance, viz:

Sec. 444. The Chief Executive: Powers, Duties, Functions and Compensation. -

xxxx

(b) For efficient, effective and economical governance the purpose of which is the general welfare of
the municipality and its inhabitants pursuant to Section 16 of this Code, the municipal mayor shall:

xxxx

(vi) Upon authorization by the sangguniang bayan, represent the municipality in all its business
transactions and sign on its behalf all bonds, contracts, and obligations, and such other documents
made pursuant to law or ordinance; (Emphasis and underscoring supplied)

In the present case, while Mayor Eriguel’s authorization to contract the Subject Loans was not
contained – as it need not be contained – in the form of an ordinance, the said loans and even the
Redevelopment Plan itself were not approved pursuant to any law or ordinance but through mere
resolutions. The distinction between ordinances and resolutions is well-perceived. While ordinances
are laws and possess a general and permanent character, resolutions are merely declarations of the
sentiment or opinion of a lawmaking body on a specific matter and are temporary in nature. 39 As
opposed to ordinances, "no rights can be conferred by and be inferred from a resolution." 40 In this
accord, it cannot be denied that the SB violated Section 444(b)(1)(vi) of the LGC altogether.

Noticeably, the passage of the Subject Resolutions was also tainted with other irregularities, such as
(1) the SB’s failure to submit the Subject Resolutions to the Sangguniang Panlalawigan of La Union
for its review contrary to Section 56 of the LGC; 41 and (2) the lack of publication and posting in
contravention of Section 59 of the LGC.42

In fine, Land Bank cannot rely on the Subject Resolutions as basis to validate the Subject Loans.

C. Ultra vires nature of the Subject

Loans

Neither can Land Bank claim that the Subject Loans do not constitute ultra vires acts of the officers
who approved the same.

Generally, an ultra vires act is one committed outside the object for which a corporation is created as
defined by the law of its organization and therefore beyond the powers conferred upon it by
law.43 There are two (2) types of ultra vires acts. As held in Middletown Policemen's Benevolent
Association v. Township of Middletown:44
There is a distinction between an act utterly beyond the jurisdiction of a municipal corporation and
the irregular exercise of a basic power under the legislative grant in matters not in themselves
jurisdictional. The former are ultra vires in the primary sense and void; the latter, ultra vires only in a
secondary sense which does not preclude ratification or the application of the doctrine of estoppel in
the interest of equity and essential justice. (Emphasis and underscoring supplied)

In other words, an act which is outside of the municipality’s jurisdiction is considered as a void ultra
vires act, while an act attended only by an irregularity but remains within the municipality’s power is
considered as an ultra vires act subject to ratification and/or validation. To the former belongs
municipal contracts which (a) are entered into beyond the express, implied or inherent powers of the
local government unit; and (b) do not comply with the substantive requirements of law e.g., when
expenditure of public funds is to be made, there must be an actual appropriation and certificate of
availability of funds; while to the latter belongs those which (a) are entered into by the improper
department, board, officer of agent; and (b)do not comply with the formal requirements of a written
contract e.g., the Statute of Frauds.45

Applying these principles to the case at bar, it is clear that the Subject Loans belong to the first class
of ultra vires acts deemed as void.

Records disclose that the said loans were executed by the Municipality for the purpose of funding
the conversion of the Agoo Plaza into a commercial center pursuant to the Redevelopment Plan.
However, the conversion of the said plaza is beyond the Municipality’s jurisdiction considering the
property’s nature as one for public use and thereby, forming part of the public dominion. Accordingly,
it cannot be the object of appropriation either by the State or by private persons. 46 Nor can it be the
subject of lease or any other contractual undertaking. 47 In Villanueva v. Castañeda, Jr.,48 citing
Espiritu v. Municipal Council of Pozorrubio, 49 the Court pronounced that:

x x x 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. 1âwphi1

In this relation, Article 1409(1) of the Civil Code provides that a contract whose purpose is contrary
to law, morals, good customs, public order or public policy is considered void 50 and as such, creates
no rights or obligations or any juridical relations. 51 Consequently, given the unlawful purpose behind
the Subject Loans which is to fund the commercialization of the Agoo Plaza pursuant to the
Redevelopment Plan, they are considered as ultra vires in the primary sense thus, rendering them
void and in effect, non-binding on the Municipality.

At this juncture, it is equally observed that the land on which the Agoo Plaza is situated cannot be
converted into patrimonial property – as the SB tried to when it passed Municipal Ordinance No. 02-
200752 – absent any express grant by the national government. 53 As public land used for public use,
the foregoing lot rightfully belongs to and is subject to the administration and control of the Republic
of the Philippines.54 Hence, without the said grant, the Municipality has no right to claim it as
patrimonial property.

Nevertheless, while the Subject Loans cannot bind the Municipality for being ultra vires, the officers
who authorized the passage of the Subject Resolutions are personally liable. Case law states that
public officials can be held personally accountable for acts claimed to have been performed in
connection with official duties where they have acted ultra vires,55 as in this case.

WHEREFORE, the petition is DENIED. Accordingly, the March 26, 2010 Decision of the Court of
Appeals in CA-G.R. CV. No. 89732 is hereby AFFIRMED.
SO ORDERED.

G.R. No. 192986               January 15, 2013

ADVOCATES FOR TRUTH IN LENDING, INC. and EDUARDO B.

OLAGUER, Petitioners,
vs.
BANGKO SENTRAL MONETARY BOARD, represented by its
Chairman, GOVERNOR ARMANDO M. TETANGCO, JR., and its
incumbent members: JUANITA D. AMATONG, ALFREDO C. ANTONIO,
PETER FA VILA, NELLY F. VILLAFUERTE, IGNACIO R. BUNYE and
CESAR V. PURISIMA, Respondents.

DECISION

REYES, J.:

Petitioners, claiming that they are raising issues of transcendental

importance to the public, filed directly with this Court this Petition for
Certiorari under Rule 65 of the 1997 Rules of Court, seeking to declare that
the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), replacing the
Central Bank Monetary Board (CB-MB) by virtue of Republic Act (R.A.) No.
7653, has no authority to continue enforcing Central Bank Circular No.
905,1 issued by the CB-MB in 1982, which "suspended" Act No. 2655, or
the Usury Law of 1916.

Factual Antecedents

Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit,

non-stock corporation organized to engage in pro bono concerns and
activities relating to money lending issues. It was incorporated on July 9,
2010,2 and a month later, it filed this petition, joined by its founder and
president, Eduardo B. Olaguer, suing as a taxpayer and a citizen.

R.A. No. 265, which created the Central Bank (CB) of the Philippines on
June 15, 1948, empowered the CB-MB to, among others, set the maximum
interest rates which banks may charge for all types of loans and other
credit operations, within limits prescribed by the Usury Law. Section 109 of
R.A. No. 265 reads:
Sec. 109. Interest Rates, Commissions and Charges. — The Monetary
Board may fix the maximum rates of interest which banks may pay on
deposits and on other obligations.

The Monetary Board may, within the limits prescribed in the Usury Law fix
the maximum rates of interest which banks may charge for different types
of loans and for any other credit operations, or may fix the maximum
differences which may exist between the interest or rediscount rates of the
Central Bank and the rates which the banks may charge their customers if
the respective credit documents are not to lose their eligibility for rediscount
or advances in the Central Bank.

Any modifications in the maximum interest rates permitted for the

borrowing or lending operations of the banks shall apply only to future
operations and not to those made prior to the date on which the
modification becomes effective.

In order to avoid possible evasion of maximum interest rates set by the

Monetary Board, the Board may also fix the maximum rates that banks may
pay to or collect from their customers in the form of commissions,
discounts, charges, fees or payments of any sort. (Underlining ours)

On March 17, 1980, the Usury Law was amended by Presidential Decree
(P.D.) No. 1684, giving the CB-MB authority to prescribe different maximum
rates of interest which may be imposed for a loan or renewal thereof or the
forbearance of any money, goods or credits, provided that the changes are
effected gradually and announced in advance. Thus, Section 1-a of Act No.
2655 now reads:

Sec. 1-a. The Monetary Board is hereby authorized to prescribe the

maximum rate or rates of interest for the loan or renewal thereof or the
forbearance of any money, goods or credits, and to change such rate or
rates whenever warranted by prevailing economic and social conditions:
Provided, That changes in such rate or rates may be effected gradually on
scheduled dates announced in advance.

In the exercise of the authority herein granted the Monetary Board may
prescribe higher maximum rates for loans of low priority, such as consumer
loans or renewals thereof as well as such loans made by pawnshops,
finance companies and other similar credit institutions although the rates
prescribed for these institutions need not necessarily be uniform. The
Monetary Board is also authorized to prescribe different maximum rate or
rates for different types of borrowings, including deposits and deposit
substitutes, or loans of financial intermediaries. (Underlining and emphasis
ours)

In its Resolution No. 2224 dated December 3, 1982, 3 the CB-MB issued CB
Circular No. 905, Series of 1982, effective on January 1, 1983. Section 1 of
the Circular, under its General Provisions, removed the ceilings on interest
rates on loans or forbearance of any money, goods or credits, to wit:

Sec. 1. The rate of interest, including commissions, premiums, fees and

other charges, on a loan or forbearance of any money, goods, or credits,
regardless of maturity and whether secured or unsecured, that may be
charged or collected by any person, whether natural or juridical, shall not
be subject to any ceiling prescribed under or pursuant to the Usury Law, as
amended. (Underscoring and emphasis ours)

The Circular then went on to amend Books I to IV of the CB’s "Manual of

Regulations for Banks and Other Financial Intermediaries" (Manual of
Regulations) by removing the applicable ceilings on specific interest rates.
Thus, Sections 5, 9 and 10 of CB Circular No. 905 amended Book I,
Subsections 1303, 1349, 1388.1 of the Manual of Regulations, by removing
the ceilings for interest and other charges, commissions, premiums, and
fees applicable to commercial banks; Sections 12 and 17 removed the
interest ceilings for thrift banks (Book II, Subsections 2303, 2349); Sections
19 and 21 removed the ceilings applicable to rural banks (Book III,
Subsection 3152.3-c); and, Sections 26, 28, 30 and 32 removed the
ceilings for non-bank financial intermediaries (Book IV, Subsections
4303Q.1 to 4303Q.9, 4303N.1, 4303P).4

On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653
establishing the Bangko Sentral ng Pilipinas (BSP) to replace the CB. The
repealing clause thereof, Section 135, reads:

Sec. 135. Repealing Clause. — Except as may be provided for in Sections

46 and 132 of this Act, Republic Act No. 265, as amended, the provisions
of any other law, special charters, rule or regulation issued pursuant to said
Republic Act No. 265, as amended, or parts thereof, which may be
inconsistent with the provisions of this Act are hereby repealed.
Presidential Decree No. 1792 is likewise repealed.
Petition for Certiorari

To justify their skipping the hierarchy of courts and going directly to this
Court to secure a writ of certiorari, petitioners contend that the
transcendental importance of their Petition can readily be seen in the
issues raised therein, to wit:

a) Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had
the statutory or constitutional authority to prescribe the maximum
rates of interest for all kinds of credit transactions and forbearance of
money, goods or credit beyond the limits prescribed in the Usury
Law;

b) If so, whether the CB-MB exceeded its authority when it issued CB

Circular No. 905, which removed all interest ceilings and thus
suspended Act No. 2655 as regards usurious interest rates;

c) Whether under R.A. No. 7653, the new BSP-MB may continue to
enforce CB Circular No. 905.5

Petitioners attached to their petition copies of several Senate Bills and

Resolutions of the 10th Congress, which held its sessions from 1995 to
1998, calling for investigations by the Senate Committee on Banks and
Financial Institutions into alleged unconscionable commercial rates of
interest imposed by these entities. Senate Bill (SB) Nos. 37 6 and
1860,7 filed by Senator Vicente C. Sotto III and the late Senator Blas F.
Ople, respectively, sought to amend Act No. 2655 by fixing the rates of
interest on loans and forbearance of credit; Philippine Senate Resolution
(SR) No. 1053,8 10739 and 1102,10 filed by Senators Ramon B. Magsaysay,
Jr., Gregorio B. Honasan and Franklin M. Drilon, respectively, urged the
aforesaid Senate Committee to investigate ways to curb the high
commercial interest rates then obtaining in the country; Senator Ernesto
Maceda filed SB No. 1151 to prohibit the collection of more than two
months of advance interest on any loan of money; and Senator Raul Roco
filed SR No. 114411 seeking an investigation into an alleged cartel of
commercial banks, called "Club 1821", reportedly behind the regime of high
interest rates. The petitioners also attached news clippings 12 showing that
in February 1998 the banks’ prime lending rates, or interests on loans to
their best borrowers, ranged from 26% to 31%.
Petitioners contend that under Section 1-a of Act No. 2655, as amended by
P.D. No. 1684, the CB-MB was authorized only to prescribe or set the
maximum rates of interest for a loan or renewal thereof or for the
forbearance of any money, goods or credits, and to change such rates
whenever warranted by prevailing economic and social conditions, the
changes to be effected gradually and on scheduled dates; that nothing in
P.D. No. 1684 authorized the CB-MB to lift or suspend the limits of interest
on all credit transactions, when it issued CB Circular No. 905. They further
insist that under Section 109 of R.A. No. 265, the authority of the CB-MB
was clearly only to fix the banks’ maximum rates of interest, but always
within the limits prescribed by the Usury Law.

Thus, according to petitioners, CB Circular No. 905, which was

promulgated without the benefit of any prior public hearing, is void because
it violated Article 5 of the New Civil Code, which provides that "Acts
executed against the provisions of mandatory or prohibitory laws shall be
void, except when the law itself authorizes their validity."

They further claim that just weeks after the issuance of CB Circular No.
905, the benchmark 91-day Treasury bills (T-bills), 13 then known as "Jobo"
bills14 shot up to 40% per annum, as a result. The banks immediately
followed suit and re-priced their loans to rates which were even higher than
those of the "Jobo" bills. Petitioners thus assert that CB Circular No. 905 is
also unconstitutional in light of Section 1 of the Bill of Rights, which
commands that "no person shall be deprived of life, liberty or property
without due process of law, nor shall any person be denied the equal
protection of the laws."

Finally, petitioners point out that R.A. No. 7653 did not re-enact a provision
similar to Section 109 of R.A. No. 265, and therefore, in view of the
repealing clause in Section 135 of R.A. No. 7653, the BSP-MB has been
stripped of the power either to prescribe the maximum rates of interest
which banks may charge for different kinds of loans and credit transactions,
or to suspend Act No. 2655 and continue enforcing CB Circular No. 905.

Ruling

The petition must fail.

A. The Petition is procedurally infirm.

The decision on whether or not to accept a petition for certiorari, as well as
to grant due course thereto, is addressed to the sound discretion of the
court.15 A petition for certiorari being an extraordinary remedy, the party
seeking to avail of the same must strictly observe the procedural rules laid
down by law, and non-observance thereof may not be brushed aside as
mere technicality.16

As provided in Section 1 of Rule 65, a writ of certiorari is directed against a

tribunal exercising judicial or quasi-judicial functions. 17 Judicial functions are
exercised by a body or officer clothed with authority to determine what the
law is and what the legal rights of the parties are with respect to the matter
in controversy. Quasi-judicial function is a term that applies to the action or
discretion of public administrative officers or bodies given the authority to
investigate facts or ascertain the existence of facts, hold hearings, and
draw conclusions from them as a basis for their official action using
discretion of a judicial nature.18

The CB-MB (now BSP-MB) was created to perform executive functions

with respect to the establishment, operation or liquidation of banking and
credit institutions, and branches and agencies thereof. 19 It does not perform
judicial or quasi-judicial functions. Certainly, the issuance of CB Circular
No. 905 was done in the exercise of an executive function. Certiorari will
not lie in the instant case.20

B. Petitioners have no locus standi to file the Petition

Locus standi is defined as "a right of appearance in a court of justice on a

given question." In private suits, Section 2, Rule 3 of the 1997 Rules of Civil
Procedure provides that "every action must be prosecuted or defended in
the name of the real party in interest," who is "the party who stands to be
benefited or injured by the judgment in the suit or the party entitled to the
avails of the suit." Succinctly put, a party’s standing is based on his own
right to the relief sought.21

Even in public interest cases such as this petition, the Court has generally
adopted the "direct injury" test that the person who impugns the validity of a
statute must have "a personal and substantial interest in the case such that
he has sustained, or will sustain direct injury as a result." 22 Thus, while
petitioners assert a public right to assail CB Circular No. 905 as an illegal
executive action, it is nonetheless required of them to make out a sufficient
interest in the vindication of the public order and the securing of relief. It is
significant that in this petition, the petitioners do not allege that they
sustained any personal injury from the issuance of CB Circular No. 905.

Petitioners also do not claim that public funds were being misused in the
enforcement of CB Circular No. 905. In Kilosbayan, Inc. v.
Morato,23 involving the on-line lottery contract of the PCSO, there was no
allegation that public funds were being misspent, which according to the
Court would have made the action a public one, "and justify relaxation of
the requirement that an action must be prosecuted in the name of the real
party-in-interest." The Court held, moreover, that the status of Kilosbayan
as a people’s organization did not give it the requisite personality to
question the validity of the contract. Thus:

Petitioners do not in fact show what particularized interest they have for
bringing this suit. It does not detract from the high regard for petitioners as
civic leaders to say that their interest falls short of that required to maintain
an action under the Rule 3, Sec. 2.24

C. The Petition raises no issues of transcendental importance.

In the 1993 case of Joya v. Presidential Commission on Good

Government,25 it was held that no question involving the constitutionality or
validity of a law or governmental act may be heard and decided by the
court unless there is compliance with the legal requisites for judicial inquiry,
namely: (a) that the question must be raised by the proper party; (b) that
there must be an actual case or controversy; (c) that the question must be
raised at the earliest possible opportunity; and (d) that the decision on the
constitutional or legal question must be necessary to the determination of
the case itself.

In Prof. David v. Pres. Macapagal-Arroyo,26 the Court summarized the

requirements before taxpayers, voters, concerned citizens, and legislators
can be accorded a standing to sue, viz:

(1) the cases involve constitutional issues;

(2) for taxpayers, there must be a claim of illegal disbursement of

public funds or that the tax measure is unconstitutional;
 (3) for voters, there must be a showing of obvious interest in the
validity of the election law in question;

(4) for concerned citizens, there must be a showing that the issues
raised are of transcendental importance which must be settled early;
and

(5) for legislators, there must be a claim that the official action
complained of infringes upon their prerogatives as legislators.

While the Court may have shown in recent decisions a certain toughening
in its attitude concerning the question of legal standing, it has nonetheless
always made an exception where the transcendental importance of the
issues has been established, notwithstanding the petitioners’ failure to
show a direct injury.27 In CREBA v. ERC,28 the Court set out the following
instructive guides as determinants on whether a matter is of transcendental
importance, namely: (1) the character of the funds or other assets involved
in the case; (2) the presence of a clear case of disregard of a constitutional
or statutory prohibition by the public respondent agency or instrumentality
of the government; and (3) the lack of any other party with a more direct
and specific interest in the questions being raised. Further, the Court stated
in Anak Mindanao Party-List Group v. The Executive Secretary 29 that the
rule on standing will not be waived where these determinants are not
established.

In the instant case, there is no allegation of misuse of public funds in the

implementation of CB Circular No. 905. Neither were borrowers who were
actually affected by the suspension of the Usury Law joined in this petition.
Absent any showing of transcendental importance, the petition must fail.

More importantly, the Court notes that the instant petition adverted to the
regime of high interest rates which obtained at least 15 years ago, when
the banks’ prime lending rates ranged from 26% to 31%, 30 or even 29 years
ago, when the 91-day Jobo bills reached 40% per annum. In contrast,
according to the BSP, in the first two (2) months of 2012 the bank lending
rates averaged 5.91%, which implies that the banks’ prime lending rates
were lower; moreover, deposit interests on savings and long-term deposits
have also gone very low, averaging 1.75% and 1.62%, respectively. 31

Judging from the most recent auctions of T-bills, the savings rates must be
approaching 0%.  In the auctions held on November 12, 2012, the rates of
1âwphi1
3-month, 6-month and 1-year T-bills have dropped to 0.150%, 0.450% and
0.680%, respectively.32 According to Manila Bulletin, this very low interest
regime has been attributed to "high liquidity and strong investor demand
amid positive economic indicators of the country." 33

While the Court acknowledges that cases of transcendental importance

demand that they be settled promptly and definitely, brushing aside, if we
must, technicalities of procedure,34 the delay of at least 15 years in the filing
of the instant petition has actually rendered moot and academic the issues
it now raises.

For its part, BSP-MB maintains that the petitioners’ allegations of

constitutional and statutory violations of CB Circular No. 905 are really
mere challenges made by petitioners concerning the wisdom of the
Circular. It explains that it was in view of the global economic downturn in
the early 1980’s that the executive department through the CB-MB had to
formulate policies to achieve economic recovery, and among these policies
was the establishment of a market-oriented interest rate structure which
would require the removal of the government-imposed interest rate
ceilings.35

D. The CB-MB merely suspended the effectivity of the Usury Law when it
issued CB Circular No. 905.

The power of the CB to effectively suspend the Usury Law pursuant to P.D.
No. 1684 has long been recognized and upheld in many cases. As the
Court explained in the landmark case of Medel v. CA, 36 citing several
cases, CB Circular No. 905 "did not repeal nor in anyway amend the Usury
Law but simply suspended the latter’s effectivity;" 37 that "a CB Circular
cannot repeal a law, [for] only a law can repeal another law;" 38 that "by
virtue of CB Circular No. 905, the Usury Law has been rendered
ineffective;"39 and "Usury has been legally non-existent in our jurisdiction.
Interest can now be charged as lender and borrower may agree upon." 40

In First Metro Investment Corp. v. Este Del Sol Mountain Reserve,

Inc.41 cited in DBP v. Perez,42 we also belied the contention that the CB was
engaged in self-legislation. Thus:

Central Bank Circular No. 905 did not repeal nor in any way amend the
Usury Law but simply suspended the latter’s effectivity. The illegality of
usury is wholly the creature of legislation. A Central Bank Circular cannot
repeal a law. Only a law can repeal another law. x x x. 43

In PNB v. Court of Appeals,44 an escalation clause in a loan agreement

authorized the PNB to unilaterally increase the rate of interest to 25% per
annum, plus a penalty of 6% per annum on past dues, then to 30% on
October 15, 1984, and to 42% on October 25, 1984. The Supreme Court
invalidated the rate increases made by the PNB and upheld the 12%
interest imposed by the CA, in this wise:

P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting
parties to stipulate freely regarding any subsequent adjustment in the
interest rate that shall accrue on a loan or forbearance of money, goods or
credits. In fine, they can agree to adjust, upward or downward, the interest
previously stipulated. x x x.45

Thus, according to the Court, by lifting the interest ceiling, CB Circular No.
905 merely upheld the parties’ freedom of contract to agree freely on the
rate of interest. It cited Article 1306 of the New Civil Code, under which the
contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public policy.

E. The BSP-MB has authority to enforce CB Circular No. 905.

Section 1 of CB Circular No. 905 provides that "The rate of interest,

including commissions, premiums, fees and other charges, on a loan or
forbearance of any money, goods, or credits, regardless of maturity and
whether secured or unsecured, that may be charged or collected by any
person, whether natural or juridical, shall not be subject to any ceiling
prescribed under or pursuant to the Usury Law, as amended." It does not
purport to suspend the Usury Law only as it applies to banks, but to all
lenders.

Petitioners contend that, granting that the CB had power to "suspend" the
Usury Law, the new BSP-MB did not retain this power of its predecessor, in
view of Section 135 of R.A. No. 7653, which expressly repealed R.A. No.
265. The petitioners point out that R.A. No. 7653 did not reenact a
provision similar to Section 109 of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No. 265 covered only
loans extended by banks, whereas under Section 1-a of the Usury Law, as
amended, the BSP-MB may prescribe the maximum rate or rates of interest
for all loans or renewals thereof or the forbearance of any money, goods or
credits, including those for loans of low priority such as consumer loans, as
well as such loans made by pawnshops, finance companies and similar
credit institutions. It even authorizes the BSP-MB to prescribe different
maximum rate or rates for different types of borrowings, including deposits
and deposit substitutes, or loans of financial intermediaries.

Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No.
265, now R.A. No. 7653, merely supplemented it as it concerns loans by
banks and other financial institutions. Had R.A. No. 7653 been intended to
repeal Section 1-a of Act No. 2655, it would have so stated in unequivocal
terms.

Moreover, the rule is settled that repeals by implication are not favored,
because laws are presumed to be passed with deliberation and full
knowledge of all laws existing pertaining to the subject. 46 An implied repeal
is predicated upon the condition that a substantial conflict or repugnancy is
found between the new and prior laws. Thus, in the absence of an express
repeal, a subsequent law cannot be construed as repealing a prior law
unless an irreconcilable inconsistency and repugnancy exists in the terms
of the new and old laws.47 We find no such conflict between the provisions
of Act 2655 and R.A. No. 7653.

F. The lifting of the ceilings for interest rates does not authorize stipulations
charging excessive, unconscionable, and iniquitous interest.

It is settled that nothing in CB Circular No. 905 grants lenders a carte

blanche authority to raise interest rates to levels which will either enslave
their borrowers or lead to a hemorrhaging of their assets. 48 As held in
Castro v. Tan:49

The imposition of an unconscionable rate of interest on a money debt, even

if knowingly and voluntarily assumed, is immoral and unjust. It is
tantamount to a repugnant spoliation and an iniquitous deprivation of
property, repulsive to the common sense of man. It has no support in law,
in principles of justice, or in the human conscience nor is there any reason
whatsoever which may justify such imposition as righteous and as one that
may be sustained within the sphere of public or private morals. 50

Stipulations authorizing iniquitous or unconscionable interests have been

invariably struck down for being contrary to morals, if not against the
law.51 Indeed, under Article 1409 of the Civil Code, these contracts are
deemed inexistent and void ab initio, and therefore cannot be ratified, nor
may the right to set up their illegality as a defense be waived.

Nonetheless, the nullity of the stipulation of usurious interest does not

affect the lender’s right to recover the principal of a loan, nor affect the
other terms thereof.52 Thus, in a usurious loan with mortgage, the right to
foreclose the mortgage subsists, and this right can be exercised by the
creditor upon failure by the debtor to pay the debt due. The debt due is
considered as without the stipulated excessive interest, and a legal interest
of 12% per annum will be added in place of the excessive interest formerly
imposed,53following the guidelines laid down in the landmark case of
Eastern Shipping Lines, Inc. v. Court of Appeals, 54 regarding the manner of
computing legal interest:

II. With regard particularly to an award of interest in the concept of actual

and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of

a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of

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

3. When the judgment of the court awarding a sum of money

becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.55 (Citations omitted)

The foregoing rules were further clarified in Sunga-Chan v. Court of

Appeals, 56 as follows:

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of

interest, if proper, and the applicable rate, as follows: The 12% per annum
rate under CB Circular No. 416 shall apply only to loans or forbearance of
money, goods, or credits, as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the 6% per annum under Art.
2209 of the Civil Code applies "when the transaction involves the payment
of indemnities in the concept of damage arising from the breach or a delay
in the performance of obligations in general," with the application of both
rates reckoned "from the time the complaint was filed until the [adjudged]
amount is fully paid." In either instance, the reckoning period for the
commencement of the running of the legal interest shall be subject to the
condition "that the courts are vested with discretion, depending on the
equities of each case, on the award of interest." 57 (Citations omitted)

WHEREFORE, premises considered, the Petition for certiorari is

DISMISSED.

SO ORDERED.

G.R. No. L40474 August 29, 1975

CEBU OXYGEN & ACETYLENE CO., INC., petitioner,
vs.
HON. PASCUAL A. BERCILLES Presiding Judge, Branch XV, 14th
Judicial District, and JOSE L. ESPELETA, Assistant Provincial Fiscal,
Province of Cebu, representing the Solicitor General's Office and the
Bureau of Lands, respondents.

Jose Antonio R Conde for petitioner.

Office of the Acting Solicitor General Hugo E. Gutierrez, Jr., Assistant

Solicitor General Octavio R. Ramirez and Trial Attorney David R. Hilario for
respondents. .

CONCEPCION, Jr., J.:

This is a petition for the review of the order of the Court of First Instance of
Cebu dismissing petitioner's application for registration of title over a parcel
of land situated in the City of Cebu.

The parcel of land sought to be registered was only a portion of M. Borces

Street, Mabolo, Cebu City. On September 23, 1968, the City Council of
Cebu, through Resolution No. 2193, approved on October 3, 1968,
declared the terminal portion of M. Borces Street, Mabolo, Cebu City, as an
abandoned road, the same not being included in the City Development
Plan.  Subsequently, on December 19, 1968, the City Council of Cebu
1

passed Resolution No. 2755, authorizing the Acting City Mayor to sell the
land through a public bidding.  Pursuant thereto, the lot was awarded to the
2

herein petitioner being the highest bidder and on March 3, 1969, the City of
Cebu, through the Acting City Mayor, executed a deed of absolute sale to
the herein petitioner for a total consideration of P10,800.00.  By virtue of
3

the aforesaid deed of absolute sale, the petitioner filed an application with
the Court of First instance of Cebu to have its title to the land registered.
4

On June 26, 1974, the Assistant Provincial Fiscal of Cebu filed a motion to
dismiss the application on the ground that the property sought to be
registered being a public road intended for public use is considered part of
the public domain and therefore outside the commerce of man.
Consequently, it cannot be subject to registration by any private individual. 5
After hearing the parties, on October 11, 1974 the trial court issued an
order dismissing the petitioner's application for registration of title.  Hence,
6

the instant petition for review.

For the resolution of this case, the petitioner poses the following questions:

(1) Does the City Charter of Cebu City (Republic Act No. 3857)
under Section 31, paragraph 34, give the City of Cebu the valid
right to declare a road as abandoned? and

(2) Does the declaration of the road, as abandoned, make it the

patrimonial property of the City of Cebu which may be the
object of a common contract?

(1) The pertinent portions of the Revised Charter of Cebu City provides:

Section 31. Legislative Powers. Any provision of law and

executive order to the contrary notwithstanding, the City
Council shall have the following legislative powers:

xxx xxx xxx

(34) ...; to close any city road, street or alley, boulevard,

avenue, park or square. Property thus withdrawn from public
servitude may be used or conveyed for any purpose for which
other real property belonging to the City may be lawfully used
or conveyed.

From the foregoing, it is undoubtedly clear that the City of Cebu is

empowered to close a city road or street. In the case of Favis vs. City of
Baguio,  where the power of the city Council of Baguio City to close city
7

streets and to vacate or withdraw the same from public use was similarly
assailed, this court said:

5. So it is, that appellant may not challenge the city council's act
of withdrawing a strip of Lapu-Lapu Street at its dead end from
public use and converting the remainder thereof into an alley.
These are acts well within the ambit of the power to close a city
street. The city council, it would seem to us, is the authority
competent to determine whether or not a certain property is still
necessary for public use.
 Such power to vacate a street or alley is discretionary. And the
discretion will not ordinarily be controlled or interfered with by
the courts, absent a plain case of abuse or fraud or collusion.
Faithfulness to the public trust will be presumed. So the fact
that some private interests may be served incidentally will not
invalidate the vacation ordinance.

(2) Since that portion of the city street subject of petitioner's application for
registration of title was withdrawn from public use, it follows that such
withdrawn portion becomes patrimonial property which can be the object of
an ordinary contract.

Article 422 of the Civil Code expressly provides that "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."

Besides, the Revised Charter of the City of Cebu heretofore quoted, in very
clear and unequivocal terms, states that: "Property thus withdrawn from
public servitude may be used or conveyed for any purpose for which other
real property belonging to the City may be lawfully used or conveyed."

Accordingly, the withdrawal of the property in question from public use and
its subsequent sale to the petitioner is valid. Hence, the petitioner has a
registerable title over the lot in question.

WHEREFORE, the order dated October 11, 1974, rendered by the

respondent court in Land Reg. Case No. N-948, LRC Rec. No. N-44531 is
hereby set aside, and the respondent court is hereby ordered to proceed
with the hearing of the petitioner's application for registration of title.

SO ORDERED.

G.R. No. 92013 July 25, 1990

SALVADOR H. LAUREL, petitioner,
vs.
RAMON GARCIA, as head of the Asset Privatization Trust, RAUL
MANGLAPUS, as Secretary of Foreign Affairs, and CATALINO
MACARAIG, as Executive Secretary, respondents.
G.R. No. 92047 July 25, 1990

DIONISIO S. OJEDA, petitioner,
vs.
EXECUTIVE SECRETARY MACARAIG, JR., ASSETS PRIVATIZATION
TRUST CHAIRMAN RAMON T. GARCIA, AMBASSADOR RAMON DEL
ROSARIO, et al., as members of the PRINCIPAL AND BIDDING
COMMITTEES ON THE UTILIZATION/DISPOSITION PETITION OF
PHILIPPINE GOVERNMENT PROPERTIES IN JAPAN, respondents.

Arturo M. Tolentino for petitioner in 92013.

GUTIERREZ, JR., J.:
These are two petitions for prohibition seeking to enjoin respondents, their representatives and agents from proceeding with the
bidding for the sale of the 3,179 square meters of land at 306 Roppongi, 5-Chome Minato-ku Tokyo, Japan scheduled on February
21, 1990. We granted the prayer for a temporary restraining order effective February 20, 1990. One of the petitioners (in G.R. No.
92047) likewise prayes for a writ of mandamus to compel the respondents to fully disclose to the public the basis of their decision
to push through with the sale of the Roppongi property inspire of strong public opposition and to explain the proceedings which
effectively prevent the participation of Filipino citizens and entities in the bidding process.

The oral arguments in G.R. No. 92013, Laurel v. Garcia, et al. were

heard by the Court on March 13, 1990. After G.R. No. 92047, Ojeda v.
Secretary Macaraig, et al. was filed, the respondents were required to
file a comment by the Court's resolution dated February 22, 1990. The
two petitions were consolidated on March 27, 1990 when the
memoranda of the parties in the Laurel case were deliberated upon.

The Court could not act on these cases immediately because the
respondents filed a motion for an extension of thirty (30) days to file
comment in G.R. No. 92047, followed by a second motion for an
extension of another thirty (30) days which we granted on May 8,
1990, a third motion for extension of time granted on May 24, 1990
and a fourth motion for extension of time which we granted on June 5,
1990 but calling the attention of the respondents to the length of time
the petitions have been pending. After the comment was filed, the
petitioner in G.R. No. 92047 asked for thirty (30) days to file a reply.
We noted his motion and resolved to decide the two (2) cases.

I
The subject property in this case is one of the four (4) properties in
Japan acquired by the Philippine government under the Reparations
Agreement entered into with Japan on May 9, 1956, the other lots
being:

(1) The Nampeidai Property at 11-24 Nampeidai-machi, Shibuya-ku,

Tokyo which has an area of approximately 2,489.96 square meters,
and is at present the site of the Philippine Embassy Chancery;

(2) The Kobe Commercial Property at 63 Naniwa-cho, Kobe, with an

area of around 764.72 square meters and categorized as a commercial
lot now being used as a warehouse and parking lot for the consulate
staff; and

(3) The Kobe Residential Property at 1-980-2 Obanoyama-cho,

Shinohara, Nada-ku, Kobe, a residential lot which is now vacant.

The properties and the capital goods and services procured from the
Japanese government for national development projects are part of
the indemnification to the Filipino people for their losses in life and
property and their suffering during World War II.

The Reparations Agreement provides that reparations valued at $550

million would be payable in twenty (20) years in accordance with
annual schedules of procurements to be fixed by the Philippine and
Japanese governments (Article 2, Reparations Agreement). Rep. Act
No. 1789, the Reparations Law, prescribes the national policy on
procurement and utilization of reparations and development loans.
The procurements are divided into those for use by the government
sector and those for private parties in projects as the then National
Economic Council shall determine. Those intended for the private
sector shall be made available by sale to Filipino citizens or to one
hundred (100%) percent Filipino-owned entities in national
development projects.

The Roppongi property was acquired from the Japanese government

under the Second Year Schedule and listed under the heading
"Government Sector", through Reparations Contract No. 300 dated
June 27, 1958. The Roppongi property consists of the land and
building "for the Chancery of the Philippine Embassy" (Annex M-D to
Memorandum for Petitioner, p. 503). As intended, it became the site of
the Philippine Embassy until the latter was transferred to Nampeidai
on July 22, 1976 when the Roppongi building needed major repairs.
Due to the failure of our government to provide necessary funds, the
Roppongi property has remained undeveloped since that time.

A proposal was presented to President Corazon C. Aquino by former

Philippine Ambassador to Japan, Carlos J. Valdez, to make the
property the subject of a lease agreement with a Japanese firm -
Kajima Corporation — which shall construct two (2) buildings in
Roppongi and one (1) building in Nampeidai and renovate the present
Philippine Chancery in Nampeidai. The consideration of the
construction would be the lease to the foreign corporation of one (1)
of the buildings to be constructed in Roppongi and the two (2)
buildings in Nampeidai. The other building in Roppongi shall then be
used as the Philippine Embassy Chancery. At the end of the lease
period, all the three leased buildings shall be occupied and used by
the Philippine government. No change of ownership or title shall
occur. (See Annex "B" to Reply to Comment) The Philippine
government retains the title all throughout the lease period and
thereafter. However, the government has not acted favorably on this
proposal which is pending approval and ratification between the
parties. Instead, on August 11, 1986, President Aquino created a
committee to study the disposition/utilization of Philippine
government properties in Tokyo and Kobe, Japan through
Administrative Order No. 3, followed by Administrative Orders
Numbered 3-A, B, C and D.

On July 25, 1987, the President issued Executive Order No. 296
entitling non-Filipino citizens or entities to avail of separations' capital
goods and services in the event of sale, lease or disposition. The four
properties in Japan including the Roppongi were specifically
mentioned in the first "Whereas" clause.

Amidst opposition by various sectors, the Executive branch of the

government has been pushing, with great vigor, its decision to sell
the reparations properties starting with the Roppongi lot. The
property has twice been set for bidding at a minimum floor price of
$225 million. The first bidding was a failure since only one bidder
qualified. The second one, after postponements, has not yet
materialized. The last scheduled bidding on February 21, 1990 was
restrained by his Court. Later, the rules on bidding were changed
such that the $225 million floor price became merely a suggested
floor price.

The Court finds that each of the herein petitions raises distinct
issues. The petitioner in G.R. No. 92013 objects to the alienation of
the Roppongi property to anyone while the petitioner in G.R. No.
92047 adds as a principal objection the alleged unjustified bias of the
Philippine government in favor of selling the property to non-Filipino
citizens and entities. These petitions have been consolidated and are
resolved at the same time for the objective is the same - to stop the
sale of the Roppongi property.

The petitioner in G.R. No. 92013 raises the following issues:

(1) Can the Roppongi property and others of its kind be alienated by
the Philippine Government?; and

(2) Does the Chief Executive, her officers and agents, have the
authority and jurisdiction, to sell the Roppongi property?

Petitioner Dionisio Ojeda in G.R. No. 92047, apart from questioning

the authority of the government to alienate the Roppongi property
assails the constitutionality of Executive Order No. 296 in making the
property available for sale to non-Filipino citizens and entities. He
also questions the bidding procedures of the Committee on the
Utilization or Disposition of Philippine Government Properties in
Japan for being discriminatory against Filipino citizens and Filipino-
owned entities by denying them the right to be informed about the
bidding requirements.

II

In G.R. No. 92013, petitioner Laurel asserts that the Roppongi

property and the related lots were acquired as part of the reparations
from the Japanese government for diplomatic and consular use by
the Philippine government. Vice-President Laurel states that the
Roppongi property is classified as one of public dominion, and not of
private ownership under Article 420 of the Civil Code (See infra).
The petitioner submits that the Roppongi property comes under
"property intended for public service" in paragraph 2 of the above
provision. He states that being one of public dominion, no ownership
by any one can attach to it, not even by the State. The Roppongi and
related properties were acquired for "sites for chancery, diplomatic,
and consular quarters, buildings and other improvements" (Second
Year Reparations Schedule). The petitioner states that they continue
to be intended for a necessary service. They are held by the State in
anticipation of an opportune use. (Citing 3 Manresa 65-66). Hence, it
cannot be appropriated, is outside the commerce of man, or to put it
in more simple terms, it cannot be alienated nor be the subject matter
of contracts (Citing Municipality of Cavite v. Rojas, 30 Phil. 20 [1915]).
Noting the non-use of the Roppongi property at the moment, the
petitioner avers that the same remains property of public dominion so
long as the government has not used it for other purposes nor
adopted any measure constituting a removal of its original purpose or
use.

The respondents, for their part, refute the petitioner's contention by

saying that the subject property is not governed by our Civil Code but
by the laws of Japan where the property is located. They rely upon the
rule of lex situs which is used in determining the applicable law
regarding the acquisition, transfer and devolution of the title to a
property. They also invoke Opinion No. 21, Series of 1988, dated
January 27, 1988 of the Secretary of Justice which used the lex
situs in explaining the inapplicability of Philippine law regarding a
property situated in Japan.

The respondents add that even assuming for the sake of argument
that the Civil Code is applicable, the Roppongi property has ceased to
become property of public dominion. It has become patrimonial
property because it has not been used for public service or for
diplomatic purposes for over thirteen (13) years now (Citing Article
422, Civil Code) and because the intention by the Executive
Department and the Congress to convert it to private use has been
manifested by overt acts, such as, among others: (1) the transfer of
the Philippine Embassy to Nampeidai (2) the issuance of
administrative orders for the possibility of alienating the four
government properties in Japan; (3) the issuance of Executive Order
No. 296; (4) the enactment by the Congress of Rep. Act No. 6657 [the
Comprehensive Agrarian Reform Law] on June 10, 1988 which
contains a provision stating that funds may be taken from the sale of
Philippine properties in foreign countries; (5) the holding of the public
bidding of the Roppongi property but which failed; (6) the deferment
by the Senate in Resolution No. 55 of the bidding to a future date;
thus an acknowledgment by the Senate of the government's intention
to remove the Roppongi property from the public service purpose;
and (7) the resolution of this Court dismissing the petition in Ojeda v.
Bidding Committee, et al., G.R. No. 87478 which sought to enjoin the
second bidding of the Roppongi property scheduled on March 30,
1989.

III

In G.R. No. 94047, petitioner Ojeda once more asks this Court to rule
on the constitutionality of Executive Order No. 296. He had earlier
filed a petition in G.R. No. 87478 which the Court dismissed on
August 1, 1989. He now avers that the executive order contravenes
the constitutional mandate to conserve and develop the national
patrimony stated in the Preamble of the 1987 Constitution. It also
allegedly violates:

(1) The reservation of the ownership and acquisition of alienable

lands of the public domain to Filipino citizens. (Sections 2 and 3,
Article XII, Constitution; Sections 22 and 23 of Commonwealth Act
141). i•t•c-aüsl

(2) The preference for Filipino citizens in the grant of rights, privileges
and concessions covering the national economy and patrimony
(Section 10, Article VI, Constitution);

(3) The protection given to Filipino enterprises against unfair

competition and trade practices;

(4) The guarantee of the right of the people to information on all

matters of public concern (Section 7, Article III, Constitution);

(5) The prohibition against the sale to non-Filipino citizens or entities

not wholly owned by Filipino citizens of capital goods received by the
Philippines under the Reparations Act (Sections 2 and 12 of Rep. Act
No. 1789); and
(6) The declaration of the state policy of full public disclosure of all
transactions involving public interest (Section 28, Article III,
Constitution).

Petitioner Ojeda warns that the use of public funds in the execution of
an unconstitutional executive order is a misapplication of public
funds He states that since the details of the bidding for the Roppongi
property were never publicly disclosed until February 15, 1990 (or a
few days before the scheduled bidding), the bidding guidelines are
available only in Tokyo, and the accomplishment of requirements and
the selection of qualified bidders should be done in Tokyo, interested
Filipino citizens or entities owned by them did not have the chance to
comply with Purchase Offer Requirements on the Roppongi. Worse,
the Roppongi shall be sold for a minimum price of $225 million from
which price capital gains tax under Japanese law of about 50 to 70%
of the floor price would still be deducted.

IV

The petitioners and respondents in both cases do not dispute the fact
that the Roppongi site and the three related properties were through
reparations agreements, that these were assigned to the government
sector and that the Roppongi property itself was specifically
designated under the Reparations Agreement to house the Philippine
Embassy.

The nature of the Roppongi lot as property for public service is

expressly spelled out. It is dictated by the terms of the Reparations
Agreement and the corresponding contract of procurement which
bind both the Philippine government and the Japanese government.

There can be no doubt that it is of public dominion unless it is

convincingly shown that the property has become patrimonial. This,
the respondents have failed to do.

As property of public dominion, the Roppongi lot is outside the

commerce of man. It cannot be alienated. Its ownership is a special
collective ownership for general use and enjoyment, an application to
the satisfaction of collective needs, and resides in the social group.
The purpose is not to serve the State as a juridical person, but the
citizens; it is intended for the common and public welfare and cannot
be the object of appropration. (Taken from 3 Manresa, 66-69; cited in
Tolentino, Commentaries on the Civil Code of the Philippines, 1963
Edition, Vol. II, p. 26).

The applicable provisions of the Civil Code are:

ART. 419. Property is either of public dominion or of

private ownership.

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.

ART. 421. All other property of the State, which is not of the
character stated in the preceding article, is patrimonial
property.

The Roppongi property is correctly classified under paragraph 2 of

Article 420 of the Civil Code as property belonging to the State and
intended for some public service.

Has the intention of the government regarding the use of the property
been changed because the lot has been Idle for some years? Has it
become patrimonial?

The fact that the Roppongi site has not been used for a long time for
actual Embassy service does not automatically convert it to
patrimonial property. Any such conversion happens only if the
property is withdrawn from public use (Cebu Oxygen and Acetylene
Co. v. Bercilles, 66 SCRA 481 [1975]). A property continues to be part
of the public domain, not available for private appropriation or
ownership until there is a formal declaration on the part of the
government to withdraw it from being such (Ignacio v. Director of
Lands, 108 Phil. 335 [1960]).
The respondents enumerate various pronouncements by concerned
public officials insinuating a change of intention. We emphasize,
however, that an abandonment of the intention to use the Roppongi
property for public service and to make it patrimonial property under
Article 422 of the Civil Code must be definite Abandonment cannot be
inferred from the non-use alone specially if the non-use was
attributable not to the government's own deliberate and indubitable
will but to a lack of financial support to repair and improve the
property (See Heirs of Felino Santiago v. Lazaro, 166 SCRA 368
[1988]). Abandonment must be a certain and positive act based on
correct legal premises.

A mere transfer of the Philippine Embassy to Nampeidai in 1976 is not

relinquishment of the Roppongi property's original purpose. Even the
failure by the government to repair the building in Roppongi is not
abandonment since as earlier stated, there simply was a shortage of
government funds. The recent Administrative Orders authorizing a
study of the status and conditions of government properties in Japan
were merely directives for investigation but did not in any way signify
a clear intention to dispose of the properties.

Executive Order No. 296, though its title declares an "authority to

sell", does not have a provision in its text expressly authorizing the
sale of the four properties procured from Japan for the government
sector. The executive order does not declare that the properties lost
their public character. It merely intends to make the
properties available to foreigners and not to Filipinos alone in case of
a sale, lease or other disposition. It merely eliminates the restriction
under Rep. Act No. 1789 that reparations goods may be sold only to
Filipino citizens and one hundred (100%) percent Filipino-owned
entities. The text of Executive Order No. 296 provides:

Section 1. The provisions of Republic Act No. 1789, as

amended, and of other laws to the contrary
notwithstanding, the above-mentioned properties can be
made available for sale, lease or any other manner of
disposition to non-Filipino citizens or to entities owned by
non-Filipino citizens.
Executive Order No. 296 is based on the wrong premise or
assumption that the Roppongi and the three other properties were
earlier converted into alienable real properties. As earlier stated, Rep.
Act No. 1789 differentiates the procurements for the government
sector and the private sector (Sections 2 and 12, Rep. Act No. 1789).
Only the private sector properties can be sold to end-users who must
be Filipinos or entities owned by Filipinos. It is this nationality
provision which was amended by Executive Order No. 296.

Section 63 (c) of Rep. Act No. 6657 (the CARP Law) which provides as
one of the sources of funds for its implementation, the proceeds of
the disposition of the properties of the Government in foreign
countries, did not withdraw the Roppongi property from being
classified as one of public dominion when it mentions Philippine
properties abroad. Section 63 (c) refers to properties which are
alienable and not to those reserved for public use or service. Rep Act
No. 6657, therefore, does not authorize the Executive Department to
sell the Roppongi property. It merely enumerates possible sources of
future funding to augment (as and when needed) the Agrarian Reform
Fund created under Executive Order No. 299. Obviously any property
outside of the commerce of man cannot be tapped as a source of
funds.

The respondents try to get around the public dominion character of

the Roppongi property by insisting that Japanese law and not our
Civil Code should apply.

It is exceedingly strange why our top government officials, of all

people, should be the ones to insist that in the sale of extremely
valuable government property, Japanese law and not Philippine law
should prevail. The Japanese law - its coverage and effects, when
enacted, and exceptions to its provision — is not presented to the
Court It is simply asserted that the lex loci rei sitae or Japanese law
should apply without stating what that law provides. It is a ed on faith
that Japanese law would allow the sale.

We see no reason why a conflict of law rule should apply when no

conflict of law situation exists. A conflict of law situation arises only
when: (1) There is a dispute over the title or ownership of an
immovable, such that the capacity to take and transfer immovables,
the formalities of conveyance, the essential validity and effect of the
transfer, or the interpretation and effect of a conveyance, are to be
determined (See Salonga, Private International Law, 1981 ed., pp. 377-
383); and (2) A foreign law on land ownership and its conveyance is
asserted to conflict with a domestic law on the same matters. Hence,
the need to determine which law should apply.

In the instant case, none of the above elements exists.

The issues are not concerned with validity of ownership or title. There
is no question that the property belongs to the Philippines. The issue
is the authority of the respondent officials to validly dispose of
property belonging to the State. And the validity of the procedures
adopted to effect its sale. This is governed by Philippine Law. The rule
of lex situs does not apply.

The assertion that the opinion of the Secretary of Justice sheds light
on the relevance of the lex situs rule is misplaced. The opinion does
not tackle the alienability of the real properties procured through
reparations nor the existence in what body of the authority to sell
them. In discussing who are capable of acquiring the lots, the
Secretary merely explains that it is the foreign law which should
determine who can acquire the properties so that the constitutional
limitation on acquisition of lands of the public domain to Filipino
citizens and entities wholly owned by Filipinos is inapplicable. We see
no point in belaboring whether or not this opinion is correct. Why
should we discuss who can acquire the Roppongi lot when there is no
showing that it can be sold?

The subsequent approval on October 4, 1988 by President Aquino of

the recommendation by the investigating committee to sell the
Roppongi property was premature or, at the very least, conditioned
on a valid change in the public character of the Roppongi property.
Moreover, the approval does not have the force and effect of law
since the President already lost her legislative powers. The Congress
had already convened for more than a year.

Assuming for the sake of argument, however, that the Roppongi

property is no longer of public dominion, there is another obstacle to
its sale by the respondents.
There is no law authorizing its conveyance.

Section 79 (f) of the Revised Administrative Code of 1917 provides

Section 79 (f ) Conveyances and contracts to which the

Government is a party. — In cases in which the
Government of the Republic of the Philippines is a party to
any deed or other instrument conveying the title to real
estate or to any other property the value of which is in
excess of one hundred thousand pesos, the respective
Department Secretary shall prepare the necessary papers
which, together with the proper recommendations, shall be
submitted to the Congress of the Philippines for approval
by the same. Such deed, instrument, or contract shall be
executed and signed by the President of the Philippines on
behalf of the Government of the Philippines unless the
Government of the Philippines unless the authority
therefor be expressly vested by law in another officer.
(Emphasis supplied)

The requirement has been retained in Section 48, Book I of the

Administrative Code of 1987 (Executive Order No. 292).

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)

It is not for the President to convey valuable real property of the

government on his or her own sole will. Any such conveyance must
be authorized and approved by a law enacted by the Congress. It
requires executive and legislative concurrence.

Resolution No. 55 of the Senate dated June 8, 1989, asking for the
deferment of the sale of the Roppongi property does not withdraw the
property from public domain much less authorize its sale. It is a mere
resolution; it is not a formal declaration abandoning the public
character of the Roppongi property. In fact, the Senate Committee on
Foreign Relations is conducting hearings on Senate Resolution No.
734 which raises serious policy considerations and calls for a fact-
finding investigation of the circumstances behind the decision to sell
the Philippine government properties in Japan.

The resolution of this Court in Ojeda v. Bidding Committee, et al.,

supra, did not pass upon the constitutionality of Executive Order No.
296. Contrary to respondents' assertion, we did not uphold the
authority of the President to sell the Roppongi property. The Court
stated that the constitutionality of the executive order was not the real
issue and that resolving the constitutional question was "neither
necessary nor finally determinative of the case." The Court noted that
"[W]hat petitioner ultimately questions is the use of the proceeds of
the disposition of the Roppongi property." In emphasizing that "the
decision of the Executive to dispose of the Roppongi property to
finance the CARP ... cannot be questioned" in view of Section 63 (c) of
Rep. Act No. 6657, the Court did not acknowledge the fact that the
property became alienable nor did it indicate that the President was
authorized to dispose of the Roppongi property. The resolution
should be read to mean that in case the Roppongi property is re-
classified to be patrimonial and alienable by authority of law, the
proceeds of a sale may be used for national economic development
projects including the CARP.

Moreover, the sale in 1989 did not materialize. The petitions before us
question the proposed 1990 sale of the Roppongi property. We are
resolving the issues raised in these petitions, not the issues raised in
1989.

Having declared a need for a law or formal declaration to withdraw the

Roppongi property from public domain to make it alienable and a
need for legislative authority to allow the sale of the property, we see
no compelling reason to tackle the constitutional issues raised by
petitioner Ojeda.

The Court does not ordinarily pass upon constitutional questions

unless these questions are properly raised in appropriate cases and
their resolution is necessary for the determination of the case (People
v. Vera, 65 Phil. 56 [1937]). The Court will not pass upon a
constitutional question although properly presented by the record if
the case can be disposed of on some other ground such as the
application of a statute or general law (Siler v. Louisville and Nashville
R. Co., 213 U.S. 175, [1909], Railroad Commission v. Pullman Co., 312
U.S. 496 [1941]).

The petitioner in G.R. No. 92013 states why the Roppongi property
should not be sold:

The Roppongi property is not just like any piece of

property. It was given to the Filipino people in reparation
for the lives and blood of Filipinos who died and suffered
during the Japanese military occupation, for the suffering
of widows and orphans who lost their loved ones and
kindred, for the homes and other properties lost by
countless Filipinos during the war. The Tokyo properties
are a monument to the bravery and sacrifice of the Filipino
people in the face of an invader; like the monuments of
Rizal, Quezon, and other Filipino heroes, we do not expect
economic or financial benefits from them. But who would
think of selling these monuments? Filipino honor and
national dignity dictate that we keep our properties in
Japan as memorials to the countless Filipinos who died
and suffered. Even if we should become paupers we
should not think of selling them. For it would be as if we
sold the lives and blood and tears of our countrymen.
(Rollo- G.R. No. 92013, p.147)

The petitioner in G.R. No. 92047 also states:

Roppongi is no ordinary property. It is one ceded by the

Japanese government in atonement for its past
belligerence for the valiant sacrifice of life and limb and for
 deaths, physical dislocation and economic devastation the
whole Filipino people endured in World War II.

It is for what it stands for, and for what it could never bring
back to life, that its significance today remains undimmed,
inspire of the lapse of 45 years since the war ended, inspire
of the passage of 32 years since the property passed on to
the Philippine government.

Roppongi is a reminder that cannot — should not — be

dissipated ... (Rollo-92047, p. 9)

It is indeed true that the Roppongi property is valuable not so much

because of the inflated prices fetched by real property in Tokyo but
more so because of its symbolic value to all Filipinos — veterans and
civilians alike. Whether or not the Roppongi and related properties
will eventually be sold is a policy determination where both the
President and Congress must concur. Considering the properties'
importance and value, the laws on conversion and disposition of
property of public dominion must be faithfully followed.

WHEREFORE, IN VIEW OF THE FOREGOING, the petitions are

GRANTED. A writ of prohibition is issued enjoining the respondents
from proceeding with the sale of the Roppongi property in Tokyo,
Japan. The February 20, 1990 Temporary Restraining Order is made
PERMANENT.

SO ORDERED.

G.R. No. 133250           July 9, 2002

FRANCISCO I. CHAVEZ, petitioner,
vs.
PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY
DEVELOPMENT CORPORATION, respondents.

CARPIO, J.:
This is an original Petition for Mandamus with prayer for a writ of
preliminary injunction and a temporary restraining order. The petition seeks
to compel the Public Estates Authority ("PEA" for brevity) to disclose all
facts on PEA's then on-going renegotiations with Amari Coastal Bay and
Development Corporation ("AMARI" for brevity) to reclaim portions of
Manila Bay. The petition further seeks to enjoin PEA from signing a new
agreement with AMARI involving such reclamation.

The Facts

On November 20, 1973, the government, through the Commissioner of

Public Highways, signed a contract with the Construction and Development
Corporation of the Philippines ("CDCP" for brevity) to reclaim certain
foreshore and offshore areas of Manila Bay. The contract also included the
construction of Phases I and II of the Manila-Cavite Coastal Road. CDCP
obligated itself to carry out all the works in consideration of fifty percent of
the total reclaimed land.

On February 4, 1977, then President Ferdinand E. Marcos issued

Presidential Decree No. 1084 creating PEA. PD No. 1084 tasked PEA "to
reclaim land, including foreshore and submerged areas," and "to develop,
improve, acquire, x x x lease and sell any and all kinds of lands." 1 On the
same date, then President Marcos issued Presidential Decree No. 1085
transferring to PEA the "lands reclaimed in the foreshore and offshore of
the Manila Bay"2 under the Manila-Cavite Coastal Road and Reclamation
Project (MCCRRP).

On December 29, 1981, then President Marcos issued a memorandum

directing PEA to amend its contract with CDCP, so that "[A]ll future works in
MCCRRP x x x shall be funded and owned by PEA." Accordingly, PEA and
CDCP executed a Memorandum of Agreement dated December 29, 1981,
which stated:

"(i) CDCP shall undertake all reclamation, construction, and such

other works in the MCCRRP as may be agreed upon by the parties,
to be paid according to progress of works on a unit price/lump sum
basis for items of work to be agreed upon, subject to price escalation,
retention and other terms and conditions provided for in Presidential
Decree No. 1594. All the financing required for such works shall be
provided by PEA.
 xxx

(iii) x x x CDCP shall give up all its development rights and hereby
agrees to cede and transfer in favor of PEA, all of the rights, title,
interest and participation of CDCP in and to all the areas of land
reclaimed by CDCP in the MCCRRP as of December 30, 1981 which
have not yet been sold, transferred or otherwise disposed of by
CDCP as of said date, which areas consist of approximately Ninety-
Nine Thousand Four Hundred Seventy Three (99,473) square meters
in the Financial Center Area covered by land pledge No. 5 and
approximately Three Million Three Hundred Eighty Two Thousand
Eight Hundred Eighty Eight (3,382,888) square meters of reclaimed
areas at varying elevations above Mean Low Water Level located
outside the Financial Center Area and the First Neighborhood Unit." 3

On January 19, 1988, then President Corazon C. Aquino issued Special

Patent No. 3517, granting and transferring to PEA "the parcels of land so
reclaimed under the Manila-Cavite Coastal Road and Reclamation Project
(MCCRRP) containing a total area of one million nine hundred fifteen
thousand eight hundred ninety four (1,915,894) square meters."
Subsequently, on April 9, 1988, the Register of Deeds of the Municipality of
Parañaque issued Transfer Certificates of Title Nos. 7309, 7311, and 7312,
in the name of PEA, covering the three reclaimed islands known as the
"Freedom Islands" located at the southern portion of the Manila-Cavite
Coastal Road, Parañaque City. The Freedom Islands have a total land area
of One Million Five Hundred Seventy Eight Thousand Four Hundred and
Forty One (1,578,441) square meters or 157.841 hectares.

On April 25, 1995, PEA entered into a Joint Venture Agreement ("JVA" for
brevity) with AMARI, a private corporation, to develop the Freedom Islands.
The JVA also required the reclamation of an additional 250 hectares of
submerged areas surrounding these islands to complete the configuration
in the Master Development Plan of the Southern Reclamation Project-
MCCRRP. PEA and AMARI entered into the JVA through negotiation
without public bidding.4 On April 28, 1995, the Board of Directors of PEA, in
its Resolution No. 1245, confirmed the JVA. 5 On June 8, 1995, then
President Fidel V. Ramos, through then Executive Secretary Ruben Torres,
approved the JVA.6
On November 29, 1996, then Senate President Ernesto Maceda delivered
a privilege speech in the Senate and denounced the JVA as the
"grandmother of all scams." As a result, the Senate Committee on
Government Corporations and Public Enterprises, and the Committee on
Accountability of Public Officers and Investigations, conducted a joint
investigation. The Senate Committees reported the results of their
investigation in Senate Committee Report No. 560 dated September 16,
1997.7 Among the conclusions of their report are: (1) the reclaimed lands
PEA seeks to transfer to AMARI under the JVA are lands of the public
domain which the government has not classified as alienable lands and
therefore PEA cannot alienate these lands; (2) the certificates of title
covering the Freedom Islands are thus void, and (3) the JVA itself is illegal.

On December 5, 1997, then President Fidel V. Ramos issued Presidential

Administrative Order No. 365 creating a Legal Task Force to conduct a
study on the legality of the JVA in view of Senate Committee Report No.
560. The members of the Legal Task Force were the Secretary of
Justice,8 the Chief Presidential Legal Counsel,9 and the Government
Corporate Counsel.10 The Legal Task Force upheld the legality of the JVA,
contrary to the conclusions reached by the Senate Committees. 11

On April 4 and 5, 1998, the Philippine Daily Inquirer and Today published

reports that there were on-going renegotiations between PEA and AMARI
under an order issued by then President Fidel V. Ramos. According to
these reports, PEA Director Nestor Kalaw, PEA Chairman Arsenio Yulo
and retired Navy Officer Sergio Cruz composed the negotiating panel of
PEA.

On April 13, 1998, Antonio M. Zulueta filed before the Court a Petition for
Prohibition with Application for the Issuance of a Temporary Restraining
Order and Preliminary Injunction docketed as G.R. No. 132994 seeking to
nullify the JVA. The Court dismissed the petition "for unwarranted disregard
of judicial hierarchy, without prejudice to the refiling of the case before the
proper court."12

On April 27, 1998, petitioner Frank I. Chavez ("Petitioner" for brevity) as a

taxpayer, filed the instant Petition for Mandamus with Prayer for the
Issuance of a Writ of Preliminary Injunction and Temporary Restraining
Order. Petitioner contends the government stands to lose billions of pesos
in the sale by PEA of the reclaimed lands to AMARI. Petitioner prays that
PEA publicly disclose the terms of any renegotiation of the JVA, invoking
Section 28, Article II, and Section 7, Article III, of the 1987 Constitution on
the right of the people to information on matters of public concern.
Petitioner assails the sale to AMARI of lands of the public domain as a
blatant violation of Section 3, Article XII of the 1987 Constitution prohibiting
the sale of alienable lands of the public domain to private corporations.
Finally, petitioner asserts that he seeks to enjoin the loss of billions of
pesos in properties of the State that are of public dominion.

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

In a Resolution dated March 23, 1999, the Court gave due course to the
petition and required the parties to file their respective memoranda.

On March 30, 1999, PEA and AMARI signed the Amended Joint Venture
Agreement ("Amended JVA," for brevity). On May 28, 1999, the Office of
the President under the administration of then President Joseph E. Estrada
approved the Amended JVA.

Due to the approval of the Amended JVA by the Office of the President,
petitioner now prays that on "constitutional and statutory grounds the
renegotiated contract be declared null and void." 14

The Issues

The issues raised by petitioner, PEA 15 and AMARI16 are as follows:

I. WHETHER THE PRINCIPAL RELIEFS PRAYED FOR IN THE

PETITION ARE MOOT AND ACADEMIC BECAUSE OF
SUBSEQUENT EVENTS;

II. WHETHER THE PETITION MERITS DISMISSAL FOR FAILING

TO OBSERVE THE PRINCIPLE GOVERNING THE HIERARCHY OF
COURTS;
 III. WHETHER THE PETITION MERITS DISMISSAL FOR NON-
EXHAUSTION OF ADMINISTRATIVE REMEDIES;

IV. WHETHER PETITIONER HAS LOCUS STANDI TO BRING THIS

SUIT;

V. WHETHER THE CONSTITUTIONAL RIGHT TO INFORMATION

INCLUDES OFFICIAL INFORMATION ON ON-GOING
NEGOTIATIONS BEFORE A FINAL AGREEMENT;

VI. WHETHER THE STIPULATIONS IN THE AMENDED JOINT

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

VII. WHETHER THE COURT IS THE PROPER FORUM FOR

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

The Court's Ruling

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

The petition prays that PEA publicly disclose the "terms and conditions of
the on-going negotiations for a new agreement." The petition also prays
that the Court enjoin PEA from "privately entering into, perfecting and/or
executing any new agreement with AMARI."

PEA and AMARI claim the petition is now moot and academic because
AMARI furnished petitioner on June 21, 1999 a copy of the signed
Amended JVA containing the terms and conditions agreed upon in the
renegotiations. Thus, PEA has satisfied petitioner's prayer for a public
disclosure of the renegotiations. Likewise, petitioner's prayer to enjoin the
signing of the Amended JVA is now moot because PEA and AMARI have
already signed the Amended JVA on March 30, 1999. Moreover, the Office
of the President has approved the Amended JVA on May 28, 1999.

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

We rule that the signing of the Amended JVA by PEA and AMARI and its
approval by the President cannot operate to moot the petition and divest
the Court of its jurisdiction. PEA and AMARI have still to implement the
Amended JVA. The prayer to enjoin the signing of the Amended JVA on
constitutional grounds necessarily includes preventing its implementation if
in the meantime PEA and AMARI have signed one in violation of the
Constitution. Petitioner's principal basis in assailing the renegotiation of the
JVA is its violation of Section 3, Article XII of the Constitution, which
prohibits the government from alienating lands of the public domain to
private corporations. If the Amended JVA indeed violates the Constitution,
it is the duty of the Court to enjoin its implementation, and if already
implemented, to annul the effects of such unconstitutional contract.

The Amended JVA is not an ordinary commercial contract but one which
seeks to transfer title and ownership to 367.5 hectares of reclaimed
lands and submerged areas of Manila Bay to a single private
corporation. It now becomes more compelling for the Court to resolve the
issue to insure the government itself does not violate a provision of the
Constitution intended to safeguard the national patrimony. Supervening
events, whether intended or accidental, cannot prevent the Court from
rendering a decision if there is a grave violation of the Constitution. In the
instant case, if the Amended JVA runs counter to the Constitution, the
Court can still prevent the transfer of title and ownership of alienable lands
of the public domain in the name of AMARI. Even in cases where
supervening events had made the cases moot, the Court did not hesitate to
resolve the legal or constitutional issues raised to formulate controlling
principles to guide the bench, bar, and the public. 17

Also, the instant petition is a case of first impression. All previous decisions
of the Court involving Section 3, Article XII of the 1987 Constitution, or its
counterpart provision in the 1973 Constitution, 18 covered agricultural
lands sold to private corporations which acquired the lands from private
parties. The transferors of the private corporations claimed or could claim
the right to judicial confirmation of their imperfect titles19 under Title
II of Commonwealth Act. 141 ("CA No. 141" for brevity). In the instant case,
AMARI seeks to acquire from PEA, a public corporation, reclaimed lands
and submerged areas for non-agricultural purposes by purchase under
PD No. 1084 (charter of PEA) and Title III of CA No. 141. Certain
undertakings by AMARI under the Amended JVA constitute the
consideration for the purchase. Neither AMARI nor PEA can claim judicial
confirmation of their titles because the lands covered by the Amended JVA
are newly reclaimed or still to be reclaimed. Judicial confirmation of
imperfect title requires open, continuous, exclusive and notorious
occupation of agricultural lands of the public domain for at least thirty years
since June 12, 1945 or earlier. Besides, the deadline for filing applications
for judicial confirmation of imperfect title expired on December 31, 1987. 20

Lastly, there is a need to resolve immediately the constitutional issue raised

in this petition because of the possible transfer at any time by PEA to
AMARI of title and ownership to portions of the reclaimed lands. Under the
Amended JVA, PEA is obligated to transfer to AMARI the latter's seventy
percent proportionate share in the reclaimed areas as the reclamation
progresses. The Amended JVA even allows AMARI to mortgage at any
time the entire reclaimed area to raise financing for the reclamation
project.21

Second issue: whether the petition merits dismissal for failing to

observe the principle governing the hierarchy of courts.

PEA and AMARI claim petitioner ignored the judicial hierarchy by seeking
relief directly from the Court. The principle of hierarchy of courts applies
generally to cases involving factual questions. As it is not a trier of facts,
the Court cannot entertain cases involving factual issues. The instant case,
however, raises constitutional issues of transcendental importance to the
public.22 The Court can resolve this case without determining any factual
issue related to the case. Also, the instant case is a petition for mandamus
which falls under the original jurisdiction of the Court under Section 5,
Article VIII of the Constitution. We resolve to exercise primary jurisdiction
over the instant case.

Third issue: whether the petition merits dismissal for non-exhaustion

of administrative remedies.

PEA faults petitioner for seeking judicial intervention in compelling PEA to

disclose publicly certain information without first asking PEA the needed
information. PEA claims petitioner's direct resort to the Court violates the
principle of exhaustion of administrative remedies. It also violates the rule
that mandamus may issue only if there is no other plain, speedy and
adequate remedy in the ordinary course of law.

PEA distinguishes the instant case from Tañada v. Tuvera 23 where the
Court granted the petition for mandamus even if the petitioners there did
not initially demand from the Office of the President the publication of the
presidential decrees. PEA points out that in Tañada, the Executive
Department had an affirmative statutory duty under Article 2 of the Civil
Code24 and Section 1 of Commonwealth Act No. 63825 to publish the
presidential decrees. There was, therefore, no need for the petitioners in
Tañada to make an initial demand from the Office of the President. In the
instant case, PEA claims it has no affirmative statutory duty to disclose
publicly information about its renegotiation of the JVA. Thus, PEA asserts
that the Court must apply the principle of exhaustion of administrative
remedies to the instant case in view of the failure of petitioner here to
demand initially from PEA the needed information.

The original JVA sought to dispose to AMARI public lands held by PEA, a
government corporation. Under Section 79 of the Government Auditing
Code,26 the disposition of government lands to private parties requires
public bidding. PEA was under a positive legal duty to disclose to the
public the terms and conditions for the sale of its lands. The law
obligated PEA to make this public disclosure even without demand from
petitioner or from anyone. PEA failed to make this public disclosure
because the original JVA, like the Amended JVA, was the result of
a negotiated contract, not of a public bidding. Considering that PEA had
an affirmative statutory duty to make the public disclosure, and was even in
breach of this legal duty, petitioner had the right to seek direct judicial
intervention.

Moreover, and this alone is determinative of this issue, the principle of

exhaustion of administrative remedies does not apply when the issue
involved is a purely legal or constitutional question. 27 The principal issue in
the instant case is the capacity of AMARI to acquire lands held by PEA in
view of the constitutional ban prohibiting the alienation of lands of the public
domain to private corporations. We rule that the principle of exhaustion of
administrative remedies does not apply in the instant case.

Fourth issue: whether petitioner has locus standi to bring this suit
PEA argues that petitioner has no standing to
institute mandamus proceedings to enforce his constitutional right to
information without a showing that PEA refused to perform an affirmative
duty imposed on PEA by the Constitution. PEA also claims that petitioner
has not shown that he will suffer any concrete injury because of the signing
or implementation of the Amended JVA. Thus, there is no actual
controversy requiring the exercise of the power of judicial review.

The petitioner has standing to bring this taxpayer's suit because the petition
seeks to compel PEA to comply with its constitutional duties. There are two
constitutional issues involved here. First is the right of citizens to
information on matters of public concern. Second is the application of a
constitutional provision intended to insure the equitable distribution of
alienable lands of the public domain among Filipino citizens. The thrust of
the first issue is to compel PEA to disclose publicly information on the sale
of government lands worth billions of pesos, information which the
Constitution and statutory law mandate PEA to disclose. The thrust of the
second issue is to prevent PEA from alienating hundreds of hectares of
alienable lands of the public domain in violation of the Constitution,
compelling PEA to comply with a constitutional duty to the nation.

Moreover, the petition raises matters of transcendental importance to the

public. In Chavez v. PCGG,28 the Court upheld the right of a citizen to bring
a taxpayer's suit on matters of transcendental importance to the public,
thus -

"Besides, petitioner emphasizes, the matter of recovering the ill-

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

Moreover, the mere fact that he is a citizen satisfies the requirement

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

In Tañada v. Tuvera, the Court asserted that when the issue

concerns a public right and the object of mandamus is to obtain the
enforcement of a public duty, the people are regarded as the real
parties in interest; and because it is sufficient that petitioner is a
citizen and as such is interested in the execution of the laws, he need
not show that he has any legal or special interest in the result of the
action. In the aforesaid case, the petitioners sought to enforce their
right to be informed on matters of public concern, a right then
recognized in Section 6, Article IV of the 1973 Constitution, in
connection with the rule that laws in order to be valid and enforceable
must be published in the Official Gazette or otherwise effectively
promulgated. In ruling for the petitioners' legal standing, the Court
declared that the right they sought to be enforced 'is a public right
recognized by no less than the fundamental law of the land.'

Legaspi v. Civil Service Commission, while reiterating Tañada, further

declared that 'when a mandamus proceeding involves the assertion
of a public right, the requirement of personal interest is satisfied by
the mere fact that petitioner is a citizen and, therefore, part of the
general 'public' which possesses the right.'

Further, in Albano v. Reyes, we said that while expenditure of public

funds may not have been involved under the questioned contract for
the development, management and operation of the Manila
International Container Terminal, 'public interest [was] definitely
involved considering the important role [of the subject contract] . . . in
the economic development of the country and the magnitude of the
financial consideration involved.' We concluded that, as a
consequence, the disclosure provision in the Constitution would
constitute sufficient authority for upholding the petitioner's standing.

Similarly, the instant petition is anchored on the right of the people to

information and access to official records, documents and papers —
a right guaranteed under Section 7, Article III of the 1987
Constitution. Petitioner, a former solicitor general, is a Filipino citizen.
Because of the satisfaction of the two basic requisites laid down by
decisional law to sustain petitioner's legal standing, i.e. (1) the
 enforcement of a public right (2) espoused by a Filipino citizen, we
rule that the petition at bar should be allowed."

We rule that since the instant petition, brought by a citizen, involves the
enforcement of constitutional rights - to information and to the equitable
diffusion of natural resources - matters of transcendental public importance,
the petitioner has the requisite locus standi.

Fifth issue: whether the constitutional right to information includes

official information on on-going negotiations before a final
agreement.

Section 7, Article III of the Constitution explains the people's right to

information on matters of public concern in this manner:

"Sec. 7. The right of the people to information on matters of public

concern shall be recognized. Access to official records, and to
documents, and papers pertaining to official acts, transactions,
or decisions, as well as to government research data used as basis
for policy development, shall be afforded the citizen, subject to such
limitations as may be provided by law." (Emphasis supplied)

The State policy of full transparency in all transactions involving public

interest reinforces the people's right to information on matters of public
concern. This State policy is expressed in Section 28, Article II of the
Constitution, thus:

"Sec. 28. Subject to reasonable conditions prescribed by law, the

State adopts and implements a policy of full public disclosure of
all its transactions involving public interest." (Emphasis supplied)

These twin provisions of the Constitution seek to promote transparency in

policy-making and in the operations of the government, as well as provide
the people sufficient information to exercise effectively other constitutional
rights. These twin provisions are essential to the exercise of freedom of
expression. If the government does not disclose its official acts,
transactions and decisions to citizens, whatever citizens say, even if
expressed without any restraint, will be speculative and amount to nothing.
These twin provisions are also essential to hold public officials "at all times
x x x accountable to the people,"29 for unless citizens have the proper
information, they cannot hold public officials accountable for anything.
Armed with the right information, citizens can participate in public
discussions leading to the formulation of government policies and their
effective implementation. An informed citizenry is essential to the existence
and proper functioning of any democracy. As explained by the Court
in Valmonte v. Belmonte, Jr.30 –

"An essential element of these freedoms is to keep open a continuing

dialogue or process of communication between the government and
the people. It is in the interest of the State that the channels for free
political discussion be maintained to the end that the government
may perceive and be responsive to the people's will. Yet, this open
dialogue can be effective only to the extent that the citizenry is
informed and thus able to formulate its will intelligently. Only when the
participants in the discussion are aware of the issues and have
access to information relating thereto can such bear fruit."

PEA asserts, citing Chavez v. PCGG,31 that in cases of on-going

negotiations the right to information is limited to "definite propositions of the
government." PEA maintains the right does not include access to "intra-
agency or inter-agency recommendations or communications during the
stage when common assertions are still in the process of being formulated
or are in the 'exploratory stage'."

Also, AMARI contends that petitioner cannot invoke the right at the pre-
decisional stage or before the closing of the transaction. To support its
contention, AMARI cites the following discussion in the 1986 Constitutional
Commission:

"Mr. Suarez. And when we say 'transactions' which should be

distinguished from contracts, agreements, or treaties or whatever,
does the Gentleman refer to the steps leading to the consummation
of the contract, or does he refer to the contract itself?

Mr. Ople: The 'transactions' used here, I suppose is generic and

therefore, it can cover both steps leading to a contract and
already a consummated contract, Mr. Presiding Officer.

Mr. Suarez: This contemplates inclusion of negotiations leading

to the consummation of the transaction.
 Mr. Ople: Yes, subject only to reasonable safeguards on the
national interest.

Mr. Suarez: Thank you."32 (Emphasis supplied)

AMARI argues there must first be a consummated contract before

petitioner can invoke the right. Requiring government officials to reveal their
deliberations at the pre-decisional stage will degrade the quality of
decision-making in government agencies. Government officials will hesitate
to express their real sentiments during deliberations if there is immediate
public dissemination of their discussions, putting them under all kinds of
pressure before they decide.

We must first distinguish between information the law on public bidding

requires PEA to disclose publicly, and information the constitutional right to
information requires PEA to release to the public. Before the consummation
of the contract, PEA must, on its own and without demand from anyone,
disclose to the public matters relating to the disposition of its property.
These include the size, location, technical description and nature of the
property being disposed of, the terms and conditions of the disposition, the
parties qualified to bid, the minimum price and similar information. PEA
must prepare all these data and disclose them to the public at the start of
the disposition process, long before the consummation of the contract,
because the Government Auditing Code requires public bidding. If PEA
fails to make this disclosure, any citizen can demand from PEA this
information at any time during the bidding process.

Information, however, on on-going evaluation or review of bids or

proposals being undertaken by the bidding or review committee is not
immediately accessible under the right to information. While the evaluation
or review is still on-going, there are no "official acts, transactions, or
decisions" on the bids or proposals. However, once the committee makes
its official recommendation, there arises a "definite proposition" on the
part of the government. From this moment, the public's right to information
attaches, and any citizen can access all the non-proprietary information
leading to such definite proposition. In Chavez v. PCGG,33 the Court ruled
as follows:

"Considering the intent of the framers of the Constitution, we believe

that it is incumbent upon the PCGG and its officers, as well as other
 government representatives, to disclose sufficient public information
on any proposed settlement they have decided to take up with the
ostensible owners and holders of ill-gotten wealth. Such information,
though, must pertain to definite propositions of the government,
not necessarily to intra-agency or inter-agency recommendations or
communications during the stage when common assertions are still in
the process of being formulated or are in the "exploratory" stage.
There is need, of course, to observe the same restrictions on
disclosure of information in general, as discussed earlier – such as on
matters involving national security, diplomatic or foreign relations,
intelligence and other classified information." (Emphasis supplied)

Contrary to AMARI's contention, the commissioners of the 1986

Constitutional Commission understood that the right to
information "contemplates inclusion of negotiations leading to the
consummation of the transaction." Certainly, a consummated contract is
not a requirement for the exercise of the right to information. Otherwise, the
people can never exercise the right if no contract is consummated, and if
one is consummated, it may be too late for the public to expose its
defects.1âwphi1.nêt

Requiring a consummated contract will keep the public in the dark until the
contract, which may be grossly disadvantageous to the government or
even illegal, becomes a fait accompli. This negates the State policy of full
transparency on matters of public concern, a situation which the framers of
the Constitution could not have intended. Such a requirement will prevent
the citizenry from participating in the public discussion of
any proposed contract, effectively truncating a basic right enshrined in the
Bill of Rights. We can allow neither an emasculation of a constitutional
right, nor a retreat by the State of its avowed "policy of full disclosure of all
its transactions involving public interest."

The right covers three categories of information which are "matters of

public concern," namely: (1) official records; (2) documents and papers
pertaining to official acts, transactions and decisions; and (3) government
research data used in formulating policies. The first category refers to any
document that is part of the public records in the custody of government
agencies or officials. The second category refers to documents and papers
recording, evidencing, establishing, confirming, supporting, justifying or
explaining official acts, transactions or decisions of government agencies or
officials. The third category refers to research data, whether raw, collated
or processed, owned by the government and used in formulating
government policies.

The information that petitioner may access on the renegotiation of the JVA
includes evaluation reports, recommendations, legal and expert opinions,
minutes of meetings, terms of reference and other documents attached to
such reports or minutes, all relating to the JVA. However, the right to
information does not compel PEA to prepare lists, abstracts, summaries
and the like relating to the renegotiation of the JVA. 34 The right only affords
access to records, documents and papers, which means the opportunity to
inspect and copy them. One who exercises the right must copy the records,
documents and papers at his expense. The exercise of the right is also
subject to reasonable regulations to protect the integrity of the public
records and to minimize disruption to government operations, like rules
specifying when and how to conduct the inspection and copying. 35

The right to information, however, does not extend to matters recognized

as privileged information under the separation of powers. 36 The right does
not also apply to information on military and diplomatic secrets, information
affecting national security, and information on investigations of crimes by
law enforcement agencies before the prosecution of the accused, which
courts have long recognized as confidential. 37 The right may also be subject
to other limitations that Congress may impose by law.

There is no claim by PEA that the information demanded by petitioner is

privileged information rooted in the separation of powers. The information
does not cover Presidential conversations, correspondences, or
discussions during closed-door Cabinet meetings which, like internal
deliberations of the Supreme Court and other collegiate courts, or
executive sessions of either house of Congress, 38 are recognized as
confidential. This kind of information cannot be pried open by a co-equal
branch of government. A frank exchange of exploratory ideas and
assessments, free from the glare of publicity and pressure by interested
parties, is essential to protect the independence of decision-making of
those tasked to exercise Presidential, Legislative and Judicial power. 39 This
is not the situation in the instant case.

We rule, therefore, that the constitutional right to information includes

official information on on-going negotiations before a final contract. The
information, however, must constitute definite propositions by the
government and should not cover recognized exceptions like privileged
information, military and diplomatic secrets and similar matters affecting
national security and public order.40 Congress has also prescribed other
limitations on the right to information in several legislations. 41

Sixth issue: whether stipulations in the Amended JVA for the transfer
to AMARI of lands, reclaimed or to be reclaimed, violate the
Constitution.

The Regalian Doctrine

The ownership of lands reclaimed from foreshore and submerged areas is

rooted in the Regalian doctrine which holds that the State owns all lands
and waters of the public domain. Upon the Spanish conquest of the
Philippines, ownership of all "lands, territories and possessions" in the
Philippines passed to the Spanish Crown.42 The King, as the sovereign
ruler and representative of the people, acquired and owned all lands and
territories in the Philippines except those he disposed of by grant or sale to
private individuals.

The 1935, 1973 and 1987 Constitutions adopted the Regalian doctrine
substituting, however, the State, in lieu of the King, as the owner of all
lands and waters of the public domain. The Regalian doctrine is the
foundation of the time-honored principle of land ownership that "all lands
that were not acquired from the Government, either by purchase or by
grant, belong to the public domain."43 Article 339 of the Civil Code of 1889,
which is now Article 420 of the Civil Code of 1950, incorporated the
Regalian doctrine.

Ownership and Disposition of Reclaimed Lands

The Spanish Law of Waters of 1866 was the first statutory law governing
the ownership and disposition of reclaimed lands in the Philippines. On
May 18, 1907, the Philippine Commission enacted Act No. 1654 which
provided for the lease, but not the sale, of reclaimed lands of the
government to corporations and individuals. Later, on November 29,
1919, the Philippine Legislature approved Act No. 2874, the Public Land
Act, which authorized the lease, but not the sale, of reclaimed lands of
the government to corporations and individuals. On November 7, 1936,
the National Assembly passed Commonwealth Act No. 141, also known as
the Public Land Act, which authorized the lease, but not the sale, of
reclaimed lands of the government to corporations and individuals.
CA No. 141 continues to this day as the general law governing the
classification and disposition of lands of the public domain.

The Spanish Law of Waters of 1866 and the Civil Code of 1889

Under the Spanish Law of Waters of 1866, the shores, bays, coves, inlets
and all waters within the maritime zone of the Spanish territory belonged to
the public domain for public use.44 The Spanish Law of Waters of 1866
allowed the reclamation of the sea under Article 5, which provided as
follows:

"Article 5. Lands reclaimed from the sea in consequence of works

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

Under the Spanish Law of Waters, land reclaimed from the sea belonged to
the party undertaking the reclamation, provided the government issued the
necessary permit and did not reserve ownership of the reclaimed land to
the State.

Article 339 of the Civil Code of 1889 defined property of public dominion as
follows:

"Art. 339. Property of public dominion is –

1. That devoted to public use, such as roads, canals, rivers, torrents,

ports and bridges constructed by the State, riverbanks, shores,
roadsteads, and that of a similar character;

2. That belonging exclusively to the State which, without being of

general public use, is employed in some public service, or in the
development of the national wealth, such as walls, fortresses, and
other works for the defense of the territory, and mines, until granted
to private individuals."

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

Property of public dominion referred not only to property devoted to public

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

Article 341 of the Civil Code of 1889 governed the re-classification of

property of public dominion into private property, to wit:

"Art. 341. Property of public dominion, when no longer devoted to

public use or to the defense of the territory, shall become a part of the
private property of the State."

This provision, however, was not self-executing. The legislature, or the

executive department pursuant to law, must declare the property no longer
needed for public use or territorial defense before the government could
lease or alienate the property to private parties. 45

Act No. 1654 of the Philippine Commission

On May 8, 1907, the Philippine Commission enacted Act No. 1654 which
regulated the lease of reclaimed and foreshore lands. The salient
provisions of this law were as follows:

"Section 1. The control and disposition of the foreshore as

defined in existing law, and the title to all Government or public
lands made or reclaimed by the Government by dredging or
filling or otherwise throughout the Philippine Islands, shall be
retained by the Government without prejudice to vested rights and
without prejudice to rights conceded to the City of Manila in the
Luneta Extension.

Section 2. (a) The Secretary of the Interior shall cause all

Government or public lands made or reclaimed by the Government
by dredging or filling or otherwise to be divided into lots or blocks,
with the necessary streets and alleyways located thereon, and shall
cause plats and plans of such surveys to be prepared and filed with
the Bureau of Lands.
 (b) Upon completion of such plats and plans the Governor-General
shall give notice to the public that such parts of the lands so
made or reclaimed as are not needed for public purposes will be
leased for commercial and business purposes, x x x.

xxx

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

highest and best bidder therefore, subject to such regulations and
safeguards as the Governor-General may by executive order
prescribe." (Emphasis supplied)

Act No. 1654 mandated that the government should retain title to all
lands reclaimed by the government. The Act also vested in the
government control and disposition of foreshore lands. Private parties could
lease lands reclaimed by the government only if these lands were no longer
needed for public purpose. Act No. 1654 mandated public bidding in the
lease of government reclaimed lands. Act No. 1654 made government
reclaimed lands sui generis in that unlike other public lands which the
government could sell to private parties, these reclaimed lands were
available only for lease to private parties.

Act No. 1654, however, did not repeal Section 5 of the Spanish Law of
Waters of 1866. Act No. 1654 did not prohibit private parties from
reclaiming parts of the sea under Section 5 of the Spanish Law of Waters.
Lands reclaimed from the sea by private parties with government
permission remained private lands.

Act No. 2874 of the Philippine Legislature

On November 29, 1919, the Philippine Legislature enacted Act No. 2874,
the Public Land Act.46 The salient provisions of Act No. 2874, on reclaimed
lands, were as follows:

"Sec. 6. The Governor-General, upon the recommendation of the

Secretary of Agriculture and Natural Resources, shall from time
to time classify the lands of the public domain into –

(a) Alienable or disposable,

(b) Timber, and

(c) Mineral lands, x x x.

Sec. 7. For the purposes of the government and disposition of

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

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

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

xxx

Sec. 55. Any tract of land of the public domain which, being neither
timber nor mineral land, shall be classified as suitable for
residential purposes or for commercial, industrial, or other
productive purposes other than agricultural purposes, and shall
be open to disposition or concession, shall be disposed of under the
provisions of this chapter, and not otherwise.

Sec. 56. The lands disposable under this title shall be classified

as follows:

(a) Lands reclaimed by the Government by dredging,

filling, or other means;

(b) Foreshore;

(c) Marshy lands or lands covered with water bordering upon

the shores or banks of navigable lakes or rivers;

(d) Lands not included in any of the foregoing classes.

x x x.

Sec. 58. The lands comprised in classes (a), (b), and (c) of

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

Section 6 of Act No. 2874 authorized the Governor-General to "classify

lands of the public domain into x x x alienable or disposable" 47 lands.
Section 7 of the Act empowered the Governor-General to "declare what
lands are open to disposition or concession." Section 8 of the Act limited
alienable or disposable lands only to those lands which have been
"officially delimited and classified."

Section 56 of Act No. 2874 stated that lands "disposable under this
title48 shall be classified" as government reclaimed, foreshore and marshy
lands, as well as other lands. All these lands, however, must be suitable for
residential, commercial, industrial or other productive non-
agricultural purposes. These provisions vested upon the Governor-
General the power to classify inalienable lands of the public domain into
disposable lands of the public domain. These provisions also empowered
the Governor-General to classify further such disposable lands of the public
domain into government reclaimed, foreshore or marshy lands of the public
domain, as well as other non-agricultural lands.

Section 58 of Act No. 2874 categorically mandated that disposable lands of

the public domain classified as government reclaimed, foreshore and
marshy lands "shall be disposed of to private parties by lease only and
not otherwise." The Governor-General, before allowing the lease of these
lands to private parties, must formally declare that the lands were "not
necessary for the public service." Act No. 2874 reiterated the State policy to
lease and not to sell government reclaimed, foreshore and marshy lands of
the public domain, a policy first enunciated in 1907 in Act No. 1654.
Government reclaimed, foreshore and marshy lands remained sui generis,
as the only alienable or disposable lands of the public domain that the
government could not sell to private parties.

The rationale behind this State policy is obvious. Government reclaimed,

foreshore and marshy public lands for non-agricultural purposes retain their
inherent potential as areas for public service. This is the reason the
government prohibited the sale, and only allowed the lease, of these lands
to private parties. The State always reserved these lands for some future
public service.
Act No. 2874 did not authorize the reclassification of government
reclaimed, foreshore and marshy lands into other non-agricultural lands
under Section 56 (d). Lands falling under Section 56 (d) were the only
lands for non-agricultural purposes the government could sell to private
parties. Thus, under Act No. 2874, the government could not sell
government reclaimed, foreshore and marshy lands to private parties,
unless the legislature passed a law allowing their sale.49

Act No. 2874 did not prohibit private parties from reclaiming parts of the
sea pursuant to Section 5 of the Spanish Law of Waters of 1866. Lands
reclaimed from the sea by private parties with government permission
remained private lands.

Dispositions under the 1935 Constitution

On May 14, 1935, the 1935 Constitution took effect upon its ratification by
the Filipino people. The 1935 Constitution, in adopting the Regalian
doctrine, declared in Section 1, Article XIII, that –

"Section 1. All agricultural, timber, and mineral lands of the public

domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy and other natural resources of the
Philippines belong to the State, and their disposition, exploitation,
development, or utilization shall be limited to citizens of the
Philippines or to corporations or associations at least sixty per
centum of the capital of which is owned by such citizens, subject to
any existing right, grant, lease, or concession at the time of the
inauguration of the Government established under this
Constitution. Natural resources, with the exception of public
agricultural land, shall not be alienated, and no license,
concession, or lease for the exploitation, development, or utilization of
any of the natural resources shall be granted for a period exceeding
twenty-five years, renewable for another twenty-five years, except as
to water rights for irrigation, water supply, fisheries, or industrial uses
other than the development of water power, in which cases beneficial
use may be the measure and limit of the grant." (Emphasis supplied)

The 1935 Constitution barred the alienation of all natural resources except
public agricultural lands, which were the only natural resources the State
could alienate. Thus, foreshore lands, considered part of the State's natural
resources, became inalienable by constitutional fiat, available only for lease
for 25 years, renewable for another 25 years. The government could
alienate foreshore lands only after these lands were reclaimed and
classified as alienable agricultural lands of the public domain. Government
reclaimed and marshy lands of the public domain, being neither timber nor
mineral lands, fell under the classification of public agricultural
lands.50 However, government reclaimed and marshy lands, although
subject to classification as disposable public agricultural lands, could only
be leased and not sold to private parties because of Act No. 2874.

The prohibition on private parties from acquiring ownership of government

reclaimed and marshy lands of the public domain was only a statutory
prohibition and the legislature could therefore remove such prohibition. The
1935 Constitution did not prohibit individuals and corporations from
acquiring government reclaimed and marshy lands of the public domain
that were classified as agricultural lands under existing public land laws.
Section 2, Article XIII of the 1935 Constitution provided as follows:

"Section 2. No private corporation or association may acquire,

lease, or hold public agricultural lands in excess of one
thousand and twenty four hectares, nor may any individual
acquire such lands by purchase in excess of one hundred and
forty hectares, or by lease in excess of one thousand and
twenty-four hectares, or by homestead in excess of twenty-four
hectares. Lands adapted to grazing, not exceeding two thousand
hectares, may be leased to an individual, private corporation, or
association." (Emphasis supplied)

Still, after the effectivity of the 1935 Constitution, the legislature did not
repeal Section 58 of Act No. 2874 to open for sale to private parties
government reclaimed and marshy lands of the public domain. On the
contrary, the legislature continued the long established State policy of
retaining for the government title and ownership of government reclaimed
and marshy lands of the public domain.

Commonwealth Act No. 141 of the Philippine National Assembly

On November 7, 1936, the National Assembly approved Commonwealth

Act No. 141, also known as the Public Land Act, which compiled the then
existing laws on lands of the public domain. CA No. 141, as amended,
remains to this day the existing general law governing the classification
and disposition of lands of the public domain other than timber and mineral
lands.51

Section 6 of CA No. 141 empowers the President to classify lands of the

public domain into "alienable or disposable" 52 lands of the public domain,
which prior to such classification are inalienable and outside the commerce
of man. Section 7 of CA No. 141 authorizes the President to "declare what
lands are open to disposition or concession." Section 8 of CA No. 141
states that the government can declare open for disposition or concession
only lands that are "officially delimited and classified." Sections 6, 7 and 8
of CA No. 141 read as follows:

"Sec. 6. The President, upon the recommendation of the

Secretary of Agriculture and Commerce, shall from time to time
classify the lands of the public domain into –

(a) Alienable or disposable,

(b) Timber, and

(c) Mineral lands,

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

Sec. 7. For the purposes of the administration and disposition of

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

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

concession which have been officially delimited and
classified and, when practicable, surveyed, and which have not
been reserved for public or quasi-public uses, nor appropriated by
the Government, nor in any manner become private property, nor
those on which a private right authorized and recognized by this Act
or any other valid law may be claimed, or which, having been
reserved or appropriated, have ceased to be so. x x x."
Thus, before the government could alienate or dispose of lands of the
public domain, the President must first officially classify these lands as
alienable or disposable, and then declare them open to disposition or
concession. There must be no law reserving these lands for public or
quasi-public uses.

The salient provisions of CA No. 141, on government reclaimed, foreshore

and marshy lands of the public domain, are as follows:

"Sec. 58. Any tract of land of the public domain which, being

neither timber nor mineral land, is intended to be used for
residential purposes or for commercial, industrial, or other
productive purposes other than agricultural, and is open to
disposition or concession, shall be disposed of under the
provisions of this chapter and not otherwise.

Sec. 59. The lands disposable under this title shall be classified

as follows:

(a) Lands reclaimed by the Government by dredging,

filling, or other means;

(b) Foreshore;

(c) Marshy lands or lands covered with water bordering upon

the shores or banks of navigable lakes or rivers;

(d) Lands not included in any of the foregoing classes.

Sec. 60. Any tract of land comprised under this title may be leased or
sold, as the case may be, to any person, corporation, or association
authorized to purchase or lease public lands for agricultural purposes.
x x x.

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

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

Section 61 of CA No. 141 readopted, after the effectivity of the 1935

Constitution, Section 58 of Act No. 2874 prohibiting the sale of government
reclaimed, foreshore and marshy disposable lands of the public domain. All
these lands are intended for residential, commercial, industrial or other
non-agricultural purposes. As before, Section 61 allowed only the lease of
such lands to private parties. The government could sell to private parties
only lands falling under Section 59 (d) of CA No. 141, or those lands for
non-agricultural purposes not classified as government reclaimed,
foreshore and marshy disposable lands of the public domain. Foreshore
lands, however, became inalienable under the 1935 Constitution which only
allowed the lease of these lands to qualified private parties.

Section 58 of CA No. 141 expressly states that disposable lands of the

public domain intended for residential, commercial, industrial or other
productive purposes other than agricultural "shall be disposed of under
the provisions of this chapter and not otherwise." Under Section 10 of
CA No. 141, the term "disposition" includes lease of the land. Any
disposition of government reclaimed, foreshore and marshy disposable
lands for non-agricultural purposes must comply with Chapter IX, Title III of
CA No. 141,54 unless a subsequent law amended or repealed these
provisions.

In his concurring opinion in the landmark case of Republic Real Estate

Corporation v. Court of Appeals,55 Justice Reynato S. Puno summarized
succinctly the law on this matter, as follows:

"Foreshore lands are lands of public dominion intended for public

use. So too are lands reclaimed by the government by dredging,
filling, or other means. Act 1654 mandated that the control and
disposition of the foreshore and lands under water remained in the
national government. Said law allowed only the 'leasing' of reclaimed
land. The Public Land Acts of 1919 and 1936 also declared that the
foreshore and lands reclaimed by the government were to be
"disposed of to private parties by lease only and not otherwise."
Before leasing, however, the Governor-General, upon
recommendation of the Secretary of Agriculture and Natural
Resources, had first to determine that the land reclaimed was not
 necessary for the public service. This requisite must have been met
before the land could be disposed of. But even then, the foreshore
and lands under water were not to be alienated and sold to
private parties. The disposition of the reclaimed land was only
by lease. The land remained property of the State." (Emphasis
supplied)

As observed by Justice Puno in his concurring opinion, "Commonwealth

Act No. 141 has remained in effect at present."

The State policy prohibiting the sale to private parties of government

reclaimed, foreshore and marshy alienable lands of the public domain, first
implemented in 1907 was thus reaffirmed in CA No. 141 after the 1935
Constitution took effect. The prohibition on the sale of foreshore lands,
however, became a constitutional edict under the 1935 Constitution.
Foreshore lands became inalienable as natural resources of the State,
unless reclaimed by the government and classified as agricultural lands of
the public domain, in which case they would fall under the classification of
government reclaimed lands.

After the effectivity of the 1935 Constitution, government reclaimed and

marshy disposable lands of the public domain continued to be only leased
and not sold to private parties.56 These lands remained sui generis, as the
only alienable or disposable lands of the public domain the government
could not sell to private parties.

Since then and until now, the only way the government can sell to private
parties government reclaimed and marshy disposable lands of the public
domain is for the legislature to pass a law authorizing such sale. CA No.
141 does not authorize the President to reclassify government reclaimed
and marshy lands into other non-agricultural lands under Section 59 (d).
Lands classified under Section 59 (d) are the only alienable or disposable
lands for non-agricultural purposes that the government could sell to private
parties.

Moreover, Section 60 of CA No. 141 expressly requires congressional

authority before lands under Section 59 that the government previously
transferred to government units or entities could be sold to private parties.
Section 60 of CA No. 141 declares that –
 "Sec. 60. x x x The area so leased or sold shall be such as shall, in
the judgment of the Secretary of Agriculture and Natural Resources,
be reasonably necessary for the purposes for which such sale or
lease is requested, and shall not exceed one hundred and forty-four
hectares: Provided, however, That this limitation shall not apply to
grants, donations, or transfers made to a province, municipality or
branch or subdivision of the Government for the purposes deemed by
said entities conducive to the public interest; but the land so
granted, donated, or transferred to a province, municipality or
branch or subdivision of the Government shall not be alienated,
encumbered, or otherwise disposed of in a manner affecting its
title, except when authorized by Congress: x x x." (Emphasis
supplied)

The congressional authority required in Section 60 of CA No. 141 mirrors

the legislative authority required in Section 56 of Act No. 2874.

One reason for the congressional authority is that Section 60 of CA No. 141
exempted government units and entities from the maximum area of public
lands that could be acquired from the State. These government units and
entities should not just turn around and sell these lands to private parties in
violation of constitutional or statutory limitations. Otherwise, the transfer of
lands for non-agricultural purposes to government units and entities could
be used to circumvent constitutional limitations on ownership of alienable or
disposable lands of the public domain. In the same manner, such transfers
could also be used to evade the statutory prohibition in CA No. 141 on the
sale of government reclaimed and marshy lands of the public domain to
private parties. Section 60 of CA No. 141 constitutes by operation of law a
lien on these lands.57

In case of sale or lease of disposable lands of the public domain falling

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

"Sec. 63. Whenever it is decided that lands covered by this chapter

are not needed for public purposes, the Director of Lands shall ask
the Secretary of Agriculture and Commerce (now the Secretary of
Natural Resources) for authority to dispose of the same. Upon receipt
of such authority, the Director of Lands shall give notice by public
 advertisement in the same manner as in the case of leases or sales
of agricultural public land, x x x.

Sec. 67. The lease or sale shall be made by oral bidding; and

adjudication shall be made to the highest bidder. x x x."
(Emphasis supplied)

Thus, CA No. 141 mandates the Government to put to public auction all
leases or sales of alienable or disposable lands of the public domain. 58

Like Act No. 1654 and Act No. 2874 before it, CA No. 141 did not repeal
Section 5 of the Spanish Law of Waters of 1866. Private parties could still
reclaim portions of the sea with government permission. However,
the reclaimed land could become private land only if classified as
alienable agricultural land of the public domain open to disposition
under CA No. 141. The 1935 Constitution prohibited the alienation of all
natural resources except public agricultural lands.

The Civil Code of 1950

The Civil Code of 1950 readopted substantially the definition of property of

public dominion found in the Civil Code of 1889. Articles 420 and 422 of the
Civil Code of 1950 state that –

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

(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and
are intended for some public service or for the development of the
national wealth.

x x x.

Art. 422. Property of public dominion, when no longer intended for

public use or for public service, shall form part of the patrimonial
property of the State."
Again, the government must formally declare that the property of public
dominion is no longer needed for public use or public service, before the
same could be classified as patrimonial property of the State. 59 In the case
of government reclaimed and marshy lands of the public domain, the
declaration of their being disposable, as well as the manner of their
disposition, is governed by the applicable provisions of CA No. 141.

Like the Civil Code of 1889, the Civil Code of 1950 included as property of
public dominion those properties of the State which, without being for public
use, are intended for public service or the "development of the national
wealth." Thus, government reclaimed and marshy lands of the State, even
if not employed for public use or public service, if developed to enhance the
national wealth, are classified as property of public dominion.

Dispositions under the 1973 Constitution

The 1973 Constitution, which took effect on January 17, 1973, likewise
adopted the Regalian doctrine. Section 8, Article XIV of the 1973
Constitution stated that –

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

petroleum and other mineral oils, all forces of potential energy,
fisheries, wildlife, and other natural resources of the Philippines
belong to the State. With the exception of agricultural, industrial
or commercial, residential, and resettlement lands of the public
domain, natural resources shall not be alienated, and no license,
concession, or lease for the exploration, development, exploitation, or
utilization of any of the natural resources shall be granted for a period
exceeding twenty-five years, renewable for not more than twenty-five
years, except as to water rights for irrigation, water supply, fisheries,
or industrial uses other than the development of water power, in
which cases, beneficial use may be the measure and the limit of the
grant." (Emphasis supplied)

The 1973 Constitution prohibited the alienation of all natural resources with
the exception of "agricultural, industrial or commercial, residential, and
resettlement lands of the public domain." In contrast, the 1935 Constitution
barred the alienation of all natural resources except "public agricultural
lands." However, the term "public agricultural lands" in the 1935
Constitution encompassed industrial, commercial, residential and
resettlement lands of the public domain.60 If the land of public domain were
neither timber nor mineral land, it would fall under the classification of
agricultural land of the public domain. Both the 1935 and 1973
Constitutions, therefore, prohibited the alienation of all natural
resources except agricultural lands of the public domain.

The 1973 Constitution, however, limited the alienation of lands of the public
domain to individuals who were citizens of the Philippines. Private
corporations, even if wholly owned by Philippine citizens, were no longer
allowed to acquire alienable lands of the public domain unlike in the 1935
Constitution. Section 11, Article XIV of the 1973 Constitution declared that
–

"Sec. 11. The Batasang Pambansa, taking into account conservation,

ecological, and development requirements of the natural resources,
shall determine by law the size of land of the public domain which
may be developed, held or acquired by, or leased to, any qualified
individual, corporation, or association, and the conditions therefor. No
private corporation or association may hold alienable lands of
the public domain except by lease not to exceed one thousand
hectares in area nor may any citizen hold such lands by lease in
excess of five hundred hectares or acquire by purchase, homestead
or grant, in excess of twenty-four hectares. No private corporation or
association may hold by lease, concession, license or permit, timber
or forest lands and other timber or forest resources in excess of one
hundred thousand hectares. However, such area may be increased
by the Batasang Pambansa upon recommendation of the National
Economic and Development Authority." (Emphasis supplied)

Thus, under the 1973 Constitution, private corporations could hold

alienable lands of the public domain only through lease. Only individuals
could now acquire alienable lands of the public domain, and private
corporations became absolutely barred from acquiring any kind of
alienable land of the public domain. The constitutional ban extended to
all kinds of alienable lands of the public domain, while the statutory ban
under CA No. 141 applied only to government reclaimed, foreshore and
marshy alienable lands of the public domain.

PD No. 1084 Creating the Public Estates Authority

On February 4, 1977, then President Ferdinand Marcos issued Presidential
Decree No. 1084 creating PEA, a wholly government owned and controlled
corporation with a special charter. Sections 4 and 8 of PD No. 1084, vests
PEA with the following purposes and powers:

"Sec. 4. Purpose. The Authority is hereby created for the following

purposes:

(a) To reclaim land, including foreshore and submerged areas,

by dredging, filling or other means, or to acquire reclaimed land;

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

dispose, lease and sell any and all kinds of lands, buildings,
estates and other forms of real property, owned, managed, controlled
and/or operated by the government;

(c) To provide for, operate or administer such service as may be

necessary for the efficient, economical and beneficial utilization of the
above properties.

Sec. 5. Powers and functions of the Authority. The Authority shall, in

carrying out the purposes for which it is created, have the following
powers and functions:

(a)To prescribe its by-laws.

xxx

(i) To hold lands of the public domain in excess of the area

permitted to private corporations by statute.

(j) To reclaim lands and to construct work across, or otherwise, any

stream, watercourse, canal, ditch, flume x x x.

xxx

(o) To perform such acts and exercise such functions as may be

necessary for the attainment of the purposes and objectives herein
specified." (Emphasis supplied)
PD No. 1084 authorizes PEA to reclaim both foreshore and submerged
areas of the public domain. Foreshore areas are those covered and
uncovered by the ebb and flow of the tide. 61 Submerged areas are those
permanently under water regardless of the ebb and flow of the
tide.62 Foreshore and submerged areas indisputably belong to the public
domain63 and are inalienable unless reclaimed, classified as alienable lands
open to disposition, and further declared no longer needed for public
service.

The ban in the 1973 Constitution on private corporations from acquiring

alienable lands of the public domain did not apply to PEA since it was then,
and until today, a fully owned government corporation. The constitutional
ban applied then, as it still applies now, only to "private corporations and
associations." PD No. 1084 expressly empowers PEA "to hold lands of
the public domain" even "in excess of the area permitted to private
corporations by statute." Thus, PEA can hold title to private lands, as
well as title to lands of the public domain.

In order for PEA to sell its reclaimed foreshore and submerged alienable
lands of the public domain, there must be legislative authority empowering
PEA to sell these lands. This legislative authority is necessary in view of
Section 60 of CA No.141, which states –

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

province, municipality, or branch or subdivision of the Government
shall not be alienated, encumbered or otherwise disposed of in a
manner affecting its title, except when authorized by Congress; x x
x." (Emphasis supplied)

Without such legislative authority, PEA could not sell but only lease its
reclaimed foreshore and submerged alienable lands of the public domain.
Nevertheless, any legislative authority granted to PEA to sell its reclaimed
alienable lands of the public domain would be subject to the constitutional
ban on private corporations from acquiring alienable lands of the public
domain. Hence, such legislative authority could only benefit private
individuals.

Dispositions under the 1987 Constitution

The 1987 Constitution, like the 1935 and 1973 Constitutions before it, has
adopted the Regalian doctrine. The 1987 Constitution declares that all
natural resources are "owned by the State," and except for alienable
agricultural lands of the public domain, natural resources cannot be
alienated. Sections 2 and 3, Article XII of the 1987 Constitution state that –

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

petroleum and other mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State.
x x x.

Section 3. Lands of the public domain are classified into agricultural,

forest or timber, mineral lands, and national parks. Agricultural lands
of the public domain may be further classified by law according to the
uses which they may be devoted. Alienable lands of the public
domain shall be limited to agricultural lands. Private
corporations or associations may not hold such alienable lands
of the public domain except by lease, for a period not exceeding
twenty-five years, renewable for not more than twenty-five
years, and not to exceed one thousand hectares in area. Citizens
of the Philippines may lease not more than five hundred hectares, or
acquire not more than twelve hectares thereof by purchase,
homestead, or grant.

Taking into account the requirements of conservation, ecology, and

development, and subject to the requirements of agrarian reform, the
Congress shall determine, by law, the size of lands of the public
domain which may be acquired, developed, held, or leased and the
conditions therefor." (Emphasis supplied)

The 1987 Constitution continues the State policy in the 1973 Constitution
banning private corporations from acquiring any kind of alienable land
of the public domain. Like the 1973 Constitution, the 1987 Constitution
allows private corporations to hold alienable lands of the public
domain only through lease. As in the 1935 and 1973 Constitutions, the
general law governing the lease to private corporations of reclaimed,
foreshore and marshy alienable lands of the public domain is still CA No.
141.
The Rationale behind the Constitutional Ban

The rationale behind the constitutional ban on corporations from acquiring,

except through lease, alienable lands of the public domain is not well
understood. During the deliberations of the 1986 Constitutional
Commission, the commissioners probed the rationale behind this ban, thus:

"FR. BERNAS: Mr. Vice-President, my questions have reference to

page 3, line 5 which says:

`No private corporation or association may hold alienable lands of the

public domain except by lease, not to exceed one thousand hectares
in area.'

If we recall, this provision did not exist under the 1935 Constitution,
but this was introduced in the 1973 Constitution. In effect, it prohibits
private corporations from acquiring alienable public lands. But it has
not been very clear in jurisprudence what the reason for this is.
In some of the cases decided in 1982 and 1983, it was indicated
that the purpose of this is to prevent large landholdings. Is that
the intent of this provision?

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

FR. BERNAS: In existing decisions involving the Iglesia ni Cristo,

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

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

constitutional ban in this way:

"Indeed, one purpose of the constitutional prohibition against

purchases of public agricultural lands by private corporations is to
equitably diffuse land ownership or to encourage 'owner-
cultivatorship and the economic family-size farm' and to prevent a
recurrence of cases like the instant case. Huge landholdings by
corporations or private persons had spawned social unrest."
However, if the constitutional intent is to prevent huge landholdings, the
Constitution could have simply limited the size of alienable lands of the
public domain that corporations could acquire. The Constitution could have
followed the limitations on individuals, who could acquire not more than 24
hectares of alienable lands of the public domain under the 1973
Constitution, and not more than 12 hectares under the 1987 Constitution.

If the constitutional intent is to encourage economic family-size farms,

placing the land in the name of a corporation would be more effective in
preventing the break-up of farmlands. If the farmland is registered in the
name of a corporation, upon the death of the owner, his heirs would inherit
shares in the corporation instead of subdivided parcels of the farmland.
This would prevent the continuing break-up of farmlands into smaller and
smaller plots from one generation to the next.

In actual practice, the constitutional ban strengthens the constitutional

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

The constitutional intent, under the 1973 and 1987 Constitutions, is to

transfer ownership of only a limited area of alienable land of the public
domain to a qualified individual. This constitutional intent is safeguarded by
the provision prohibiting corporations from acquiring alienable lands of the
public domain, since the vehicle to circumvent the constitutional intent is
removed. The available alienable public lands are gradually decreasing in
the face of an ever-growing population. The most effective way to insure
faithful adherence to this constitutional intent is to grant or sell alienable
lands of the public domain only to individuals. This, it would seem, is the
practical benefit arising from the constitutional ban.

The Amended Joint Venture Agreement

The subject matter of the Amended JVA, as stated in its second Whereas
clause, consists of three properties, namely:

1. "[T]hree partially reclaimed and substantially eroded islands along

Emilio Aguinaldo Boulevard in Paranaque and Las Pinas, Metro
Manila, with a combined titled area of 1,578,441 square meters;"

2. "[A]nother area of 2,421,559 square meters contiguous to the three

islands;" and

3. "[A]t AMARI's option as approved by PEA, an additional 350

hectares more or less to regularize the configuration of the reclaimed
area."65

PEA confirms that the Amended JVA involves "the development of the
Freedom Islands and further reclamation of about 250 hectares x x x," plus
an option "granted to AMARI to subsequently reclaim another 350 hectares
x x x."66

In short, the Amended JVA covers a reclamation area of 750

hectares. Only 157.84 hectares of the 750-hectare reclamation project
have been reclaimed, and the rest of the 592.15 hectares are still
submerged areas forming part of Manila Bay.

Under the Amended JVA, AMARI will reimburse PEA the sum of
P1,894,129,200.00 for PEA's "actual cost" in partially reclaiming the
Freedom Islands. AMARI will also complete, at its own expense, the
reclamation of the Freedom Islands. AMARI will further shoulder all the
reclamation costs of all the other areas, totaling 592.15 hectares, still to be
reclaimed. AMARI and PEA will share, in the proportion of 70 percent and
30 percent, respectively, the total net usable area which is defined in the
Amended JVA as the total reclaimed area less 30 percent earmarked for
common areas. Title to AMARI's share in the net usable area, totaling
367.5 hectares, will be issued in the name of AMARI. Section 5.2 (c) of the
Amended JVA provides that –

"x x x, PEA shall have the duty to execute without delay the
necessary deed of transfer or conveyance of the title pertaining to
AMARI's Land share based on the Land Allocation Plan. PEA, when
requested in writing by AMARI, shall then cause the issuance
and delivery of the proper certificates of title covering AMARI's
 Land Share in the name of AMARI, x x x; provided, that if more than
seventy percent (70%) of the titled area at any given time pertains to
AMARI, PEA shall deliver to AMARI only seventy percent (70%) of
the titles pertaining to AMARI, until such time when a corresponding
proportionate area of additional land pertaining to PEA has been
titled." (Emphasis supplied)

Indisputably, under the Amended JVA AMARI will acquire and own a
maximum of 367.5 hectares of reclaimed land which will be titled in its
name.

To implement the Amended JVA, PEA delegated to the unincorporated

PEA-AMARI joint venture PEA's statutory authority, rights and privileges to
reclaim foreshore and submerged areas in Manila Bay. Section 3.2.a of the
Amended JVA states that –

"PEA hereby contributes to the joint venture its rights and privileges
to perform Rawland Reclamation and Horizontal Development as well
as own the Reclamation Area, thereby granting the Joint Venture the
full and exclusive right, authority and privilege to undertake the
Project in accordance with the Master Development Plan."

The Amended JVA is the product of a renegotiation of the original JVA

dated April 25, 1995 and its supplemental agreement dated August 9,
1995.

The Threshold Issue

The threshold issue is whether AMARI, a private corporation, can acquire

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

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

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

xxx
 Section 3. x x x Alienable lands of the public domain shall be limited
to agricultural lands. Private corporations or associations may not
hold such alienable lands of the public domain except by lease,
x x x."(Emphasis supplied)

Classification of Reclaimed Foreshore and Submerged Areas

PEA readily concedes that lands reclaimed from foreshore or submerged

areas of Manila Bay are alienable or disposable lands of the public domain.
In its Memorandum,67 PEA admits that –

"Under the Public Land Act (CA 141, as amended), reclaimed lands

are classified as alienable and disposable lands of the public
domain:

'Sec. 59. The lands disposable under this title shall be classified
as follows:

(a) Lands reclaimed by the government by dredging, filling, or

other means;

x x x.'" (Emphasis supplied)

Likewise, the Legal Task Force68 constituted under Presidential

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

"D. Conclusion

Reclaimed lands are lands of the public domain. However, by

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

The constitutional provision prohibiting private corporations from

holding public land, except by lease (Sec. 3, Art. XVII, 70 1987
Constitution), does not apply to reclaimed lands whose ownership
has passed on to PEA by statutory grant."
Under Section 2, Article XII of the 1987 Constitution, the foreshore and
submerged areas of Manila Bay are part of the "lands of the public domain,
waters x x x and other natural resources" and consequently "owned by the
State." As such, foreshore and submerged areas "shall not be alienated,"
unless they are classified as "agricultural lands" of the public domain. The
mere reclamation of these areas by PEA does not convert these inalienable
natural resources of the State into alienable or disposable lands of the
public domain. There must be a law or presidential proclamation officially
classifying these reclaimed lands as alienable or disposable and open to
disposition or concession. Moreover, these reclaimed lands cannot be
classified as alienable or disposable if the law has reserved them for some
public or quasi-public use.71

Section 8 of CA No. 141 provides that "only those lands shall be declared
open to disposition or concession which have been officially delimited
and classified."72 The President has the authority to classify inalienable
lands of the public domain into alienable or disposable lands of the public
domain, pursuant to Section 6 of CA No. 141. In Laurel vs. Garcia, 73 the
Executive Department attempted to sell the Roppongi property in Tokyo,
Japan, which was acquired by the Philippine Government for use as the
Chancery of the Philippine Embassy. Although the Chancery had
transferred to another location thirteen years earlier, the Court still ruled
that, under Article 42274 of the Civil Code, a property of public dominion
retains such character until formally declared otherwise. The Court ruled
that –

"The fact that the Roppongi site has not been used for a long time for
actual Embassy service does not automatically convert it to
patrimonial property. Any such conversion happens only if the
property is withdrawn from public use (Cebu Oxygen and Acetylene
Co. v. Bercilles, 66 SCRA 481 [1975]. A property continues to be
part of the public domain, not available for private appropriation
or ownership 'until there is a formal declaration on the part of
the government to withdraw it from being such' (Ignacio v.
Director of Lands, 108 Phil. 335 [1960]." (Emphasis supplied)

PD No. 1085, issued on February 4, 1977, authorized the issuance of

special land patents for lands reclaimed by PEA from the foreshore or
submerged areas of Manila Bay. On January 19, 1988 then President
Corazon C. Aquino issued Special Patent No. 3517 in the name of PEA for
the 157.84 hectares comprising the partially reclaimed Freedom Islands.
Subsequently, on April 9, 1999 the Register of Deeds of the Municipality of
Paranaque issued TCT Nos. 7309, 7311 and 7312 in the name of PEA
pursuant to Section 103 of PD No. 1529 authorizing the issuance of
certificates of title corresponding to land patents. To this day, these
certificates of title are still in the name of PEA.

PD No. 1085, coupled with President Aquino's actual issuance of a

special patent covering the Freedom Islands, is equivalent to an official
proclamation classifying the Freedom Islands as alienable or disposable
lands of the public domain. PD No. 1085 and President Aquino's issuance
of a land patent also constitute a declaration that the Freedom Islands are
no longer needed for public service. The Freedom Islands are thus
alienable or disposable lands of the public domain, open to
disposition or concession to qualified parties.

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

AMARI claims that the Freedom Islands are private lands because CDCP,
then a private corporation, reclaimed the islands under a contract dated
November 20, 1973 with the Commissioner of Public Highways. AMARI,
citing Article 5 of the Spanish Law of Waters of 1866, argues that "if the
ownership of reclaimed lands may be given to the party constructing the
works, then it cannot be said that reclaimed lands are lands of the public
domain which the State may not alienate." 75 Article 5 of the Spanish Law of
Waters reads as follows:
 "Article 5. Lands reclaimed from the sea in consequence of works
constructed by the State, or by the provinces, pueblos or private
persons, with proper permission, shall become the property of the
party constructing such works, unless otherwise provided by the
terms of the grant of authority." (Emphasis supplied)

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

Article 5 of the Spanish Law of Waters must be read together with laws
subsequently enacted on the disposition of public lands. In particular, CA
No. 141 requires that lands of the public domain must first be classified as
alienable or disposable before the government can alienate them. These
lands must not be reserved for public or quasi-public purposes. 78 Moreover,
the contract between CDCP and the government was executed after the
effectivity of the 1973 Constitution which barred private corporations from
acquiring any kind of alienable land of the public domain. This contract
could not have converted the Freedom Islands into private lands of a
private corporation.

Presidential Decree No. 3-A, issued on January 11, 1973, revoked all laws
authorizing the reclamation of areas under water and revested solely in the
National Government the power to reclaim lands. Section 1 of PD No. 3-A
declared that –

"The provisions of any law to the contrary notwithstanding, the

reclamation of areas under water, whether foreshore or inland, shall
 be limited to the National Government or any person authorized
by it under a proper contract. (Emphasis supplied)

x x x."

PD No. 3-A repealed Section 5 of the Spanish Law of Waters of 1866

because reclamation of areas under water could now be undertaken only
by the National Government or by a person contracted by the National
Government. Private parties may reclaim from the sea only under a
contract with the National Government, and no longer by grant or
permission as provided in Section 5 of the Spanish Law of Waters of 1866.

Executive Order No. 525, issued on February 14, 1979, designated PEA as
the National Government's implementing arm to undertake "all reclamation
projects of the government," which "shall be undertaken by the PEA or
through a proper contract executed by it with any person or entity."
Under such contract, a private party receives compensation for reclamation
services rendered to PEA. Payment to the contractor may be in cash, or in
kind consisting of portions of the reclaimed land, subject to the
constitutional ban on private corporations from acquiring alienable lands of
the public domain. The reclaimed land can be used as payment in kind only
if the reclaimed land is first classified as alienable or disposable land open
to disposition, and then declared no longer needed for public service.

The Amended JVA covers not only the Freedom Islands, but also an
additional 592.15 hectares which are still submerged and forming part of
Manila Bay. There is no legislative or Presidential act classifying these
submerged areas as alienable or disposable lands of the public
domain open to disposition. These submerged areas are not covered by
any patent or certificate of title. There can be no dispute that these
submerged areas form part of the public domain, and in their present state
are inalienable and outside the commerce of man. Until reclaimed from
the sea, these submerged areas are, under the Constitution, "waters x x x
owned by the State," forming part of the public domain and consequently
inalienable. Only when actually reclaimed from the sea can these
submerged areas be classified as public agricultural lands, which under the
Constitution are the only natural resources that the State may alienate.
Once reclaimed and transformed into public agricultural lands, the
government may then officially classify these lands as alienable or
disposable lands open to disposition. Thereafter, the government may
declare these lands no longer needed for public service. Only then can
these reclaimed lands be considered alienable or disposable lands of the
public domain and within the commerce of man.

The classification of PEA's reclaimed foreshore and submerged lands into

alienable or disposable lands open to disposition is necessary because
PEA is tasked under its charter to undertake public services that require the
use of lands of the public domain. Under Section 5 of PD No. 1084, the
functions of PEA include the following: "[T]o own or operate railroads,
tramways and other kinds of land transportation, x x x; [T]o construct,
maintain and operate such systems of sanitary sewers as may be
necessary; [T]o construct, maintain and operate such storm drains as may
be necessary." PEA is empowered to issue "rules and regulations as may
be necessary for the proper use by private parties of any or all of the
highways, roads, utilities, buildings and/or any of its properties and to
impose or collect fees or tolls for their use." Thus, part of the reclaimed
foreshore and submerged lands held by the PEA would actually be needed
for public use or service since many of the functions imposed on PEA by its
charter constitute essential public services.

Moreover, Section 1 of Executive Order No. 525 provides that PEA "shall
be primarily responsible for integrating, directing, and coordinating all
reclamation projects for and on behalf of the National Government." The
same section also states that "[A]ll reclamation projects shall be approved
by the President upon recommendation of the PEA, and shall be
undertaken by the PEA or through a proper contract executed by it with any
person or entity; x x x." Thus, under EO No. 525, in relation to PD No. 3-A
and PD No.1084, PEA became the primary implementing agency of the
National Government to reclaim foreshore and submerged lands of the
public domain. EO No. 525 recognized PEA as the government entity "to
undertake the reclamation of lands and ensure their maximum utilization
in promoting public welfare and interests."79 Since large portions of
these reclaimed lands would obviously be needed for public service, there
must be a formal declaration segregating reclaimed lands no longer
needed for public service from those still needed for public service.1âwphi1.nêt

Section 3 of EO No. 525, by declaring that all lands reclaimed by PEA

"shall belong to or be owned by the PEA," could not automatically operate
to classify inalienable lands into alienable or disposable lands of the public
domain. Otherwise, reclaimed foreshore and submerged lands of the public
domain would automatically become alienable once reclaimed by PEA,
whether or not classified as alienable or disposable.

The Revised Administrative Code of 1987, a later law than either PD No.
1084 or EO No. 525, vests in the Department of Environment and Natural
Resources ("DENR" for brevity) the following powers and functions:

"Sec. 4. Powers and Functions. The Department shall:

(1) x x x

xxx

(4) Exercise supervision and control over forest lands, alienable

and disposable public lands, mineral resources and, in the process
of exercising such control, impose appropriate taxes, fees, charges,
rentals and any such form of levy and collect such revenues for the
exploration, development, utilization or gathering of such resources;

xxx

(14) Promulgate rules, regulations and guidelines on the

issuance of licenses, permits, concessions, lease agreements
and such other privileges concerning the development,
exploration and utilization of the country's marine, freshwater,
and brackish water and over all aquatic resources of the country
and shall continue to oversee, supervise and police our natural
resources; cancel or cause to cancel such privileges upon failure,
non-compliance or violations of any regulation, order, and for all other
causes which are in furtherance of the conservation of natural
resources and supportive of the national interest;

(15) Exercise exclusive jurisdiction on the management and

disposition of all lands of the public domain and serve as the
sole agency responsible for classification, sub-classification,
surveying and titling of lands in consultation with appropriate
agencies."80 (Emphasis supplied)

As manager, conservator and overseer of the natural resources of the

State, DENR exercises "supervision and control over alienable and
disposable public lands." DENR also exercises "exclusive jurisdiction on
the management and disposition of all lands of the public domain." Thus,
DENR decides whether areas under water, like foreshore or submerged
areas of Manila Bay, should be reclaimed or not. This means that PEA
needs authorization from DENR before PEA can undertake reclamation
projects in Manila Bay, or in any part of the country.

DENR also exercises exclusive jurisdiction over the disposition of all lands
of the public domain. Hence, DENR decides whether reclaimed lands of
PEA should be classified as alienable under Sections 681 and 782 of CA No.
141. Once DENR decides that the reclaimed lands should be so classified,
it then recommends to the President the issuance of a proclamation
classifying the lands as alienable or disposable lands of the public domain
open to disposition. We note that then DENR Secretary Fulgencio S.
Factoran, Jr. countersigned Special Patent No. 3517 in compliance with the
Revised Administrative Code and Sections 6 and 7 of CA No. 141.

In short, DENR is vested with the power to authorize the reclamation of

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

Clearly, the mere physical act of reclamation by PEA of foreshore or

submerged areas does not make the reclaimed lands alienable or
disposable lands of the public domain, much less patrimonial lands of PEA.
Likewise, the mere transfer by the National Government of lands of the
public domain to PEA does not make the lands alienable or disposable
lands of the public domain, much less patrimonial lands of PEA.

Absent two official acts – a classification that these lands are alienable or
disposable and open to disposition and a declaration that these lands are
not needed for public service, lands reclaimed by PEA remain inalienable
lands of the public domain. Only such an official classification and formal
declaration can convert reclaimed lands into alienable or disposable lands
of the public domain, open to disposition under the Constitution, Title I and
Title III83 of CA No. 141 and other applicable laws. 84

PEA's Authority to Sell Reclaimed Lands

PEA, like the Legal Task Force, argues that as alienable or disposable
lands of the public domain, the reclaimed lands shall be disposed of in
accordance with CA No. 141, the Public Land Act. PEA, citing Section 60 of
CA No. 141, admits that reclaimed lands transferred to a branch or
subdivision of the government "shall not be alienated, encumbered, or
otherwise disposed of in a manner affecting its title, except when
authorized by Congress: x x x."85 (Emphasis by PEA)

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

Administrative Code of 1987, which states that –

"Sec. 48. Official Authorized to Convey Real Property. Whenever real

property of the Government is authorized by law to be conveyed,
the deed of conveyance shall be executed in behalf of the
government by the following: x x x."

Thus, the Court concluded that a law is needed to convey any real property
belonging to the Government. The Court declared that -

"It is not for the President to convey real property of the government
on his or her own sole will. Any such conveyance must be
authorized and approved by a law enacted by the Congress. It
requires executive and legislative concurrence." (Emphasis supplied)

PEA contends that PD No. 1085 and EO No. 525 constitute the legislative
authority allowing PEA to sell its reclaimed lands. PD No. 1085, issued on
February 4, 1977, provides that –

"The land reclaimed in the foreshore and offshore area of Manila

Bay pursuant to the contract for the reclamation and construction of
the Manila-Cavite Coastal Road Project between the Republic of the
Philippines and the Construction and Development Corporation of the
Philippines dated November 20, 1973 and/or any other contract or
reclamation covering the same area is hereby transferred,
conveyed and assigned to the ownership and administration of
the Public Estates Authority established pursuant to PD No. 1084;
Provided, however, That the rights and interests of the Construction
and Development Corporation of the Philippines pursuant to the
aforesaid contract shall be recognized and respected.
 Henceforth, the Public Estates Authority shall exercise the rights and
assume the obligations of the Republic of the Philippines
(Department of Public Highways) arising from, or incident to, the
aforesaid contract between the Republic of the Philippines and the
Construction and Development Corporation of the Philippines.

In consideration of the foregoing transfer and assignment, the Public

Estates Authority shall issue in favor of the Republic of the
Philippines the corresponding shares of stock in said entity with an
issued value of said shares of stock (which) shall be deemed fully
paid and non-assessable.

The Secretary of Public Highways and the General Manager of the

Public Estates Authority shall execute such contracts or agreements,
including appropriate agreements with the Construction and
Development Corporation of the Philippines, as may be necessary to
implement the above.

Special land patent/patents shall be issued by the Secretary of

Natural Resources in favor of the Public Estates Authority
without prejudice to the subsequent transfer to the contractor or
his assignees of such portion or portions of the land reclaimed
or to be reclaimed as provided for in the above-mentioned
contract. On the basis of such patents, the Land Registration
Commission shall issue the corresponding certificate of title."
(Emphasis supplied)

On the other hand, Section 3 of EO No. 525, issued on February 14, 1979,
provides that -

"Sec. 3. All lands reclaimed by PEA shall belong to or be owned

by the PEA which shall be responsible for its administration,
development, utilization or disposition in accordance with the
provisions of Presidential Decree No. 1084. Any and all income that
the PEA may derive from the sale, lease or use of reclaimed lands
shall be used in accordance with the provisions of Presidential
Decree No. 1084."

There is no express authority under either PD No. 1085 or EO No. 525 for
PEA to sell its reclaimed lands. PD No. 1085 merely transferred "ownership
and administration" of lands reclaimed from Manila Bay to PEA, while EO
No. 525 declared that lands reclaimed by PEA "shall belong to or be owned
by PEA." EO No. 525 expressly states that PEA should dispose of its
reclaimed lands "in accordance with the provisions of Presidential Decree
No. 1084," the charter of PEA.

PEA's charter, however, expressly tasks PEA "to develop, improve,

acquire, administer, deal in, subdivide, dispose, lease and sell any and all
kinds of lands x x x owned, managed, controlled and/or operated by the
government."87 (Emphasis supplied) There is, therefore, legislative
authority granted to PEA to sell its lands, whether patrimonial or
alienable lands of the public domain. PEA may sell to private parties
its patrimonial properties in accordance with the PEA charter free from
constitutional limitations. The constitutional ban on private corporations
from acquiring alienable lands of the public domain does not apply to the
sale of PEA's patrimonial lands.

PEA may also sell its alienable or disposable lands of the public

domain to private individuals since, with the legislative authority, there is
no longer any statutory prohibition against such sales and the constitutional
ban does not apply to individuals. PEA, however, cannot sell any of its
alienable or disposable lands of the public domain to private corporations
since Section 3, Article XII of the 1987 Constitution expressly prohibits such
sales. The legislative authority benefits only individuals. Private
corporations remain barred from acquiring any kind of alienable land of the
public domain, including government reclaimed lands.

The provision in PD No. 1085 stating that portions of the reclaimed lands
could be transferred by PEA to the "contractor or his assignees" (Emphasis
supplied) would not apply to private corporations but only to individuals
because of the constitutional ban. Otherwise, the provisions of PD No.
1085 would violate both the 1973 and 1987 Constitutions.

The requirement of public auction in the sale of reclaimed lands

Assuming the reclaimed lands of PEA are classified as alienable or

disposable lands open to disposition, and further declared no longer
needed for public service, PEA would have to conduct a public bidding in
selling or leasing these lands. PEA must observe the provisions of Sections
63 and 67 of CA No. 141 requiring public auction, in the absence of a law
exempting PEA from holding a public auction. 88 Special Patent No. 3517
expressly states that the patent is issued by authority of the Constitution
and PD No. 1084, "supplemented by Commonwealth Act No. 141, as
amended." This is an acknowledgment that the provisions of CA No. 141
apply to the disposition of reclaimed alienable lands of the public domain
unless otherwise provided by law. Executive Order No. 654, 89 which
authorizes PEA "to determine the kind and manner of payment for the
transfer" of its assets and properties, does not exempt PEA from the
requirement of public auction. EO No. 654 merely authorizes PEA to decide
the mode of payment, whether in kind and in installment, but does not
authorize PEA to dispense with public auction.

Moreover, under Section 79 of PD No. 1445, otherwise known as the

Government Auditing Code, the government is required to sell valuable
government property through public bidding. Section 79 of PD No. 1445
mandates that –

"Section 79. When government property has become

unserviceable for any cause, or is no longer needed, it shall, upon
application of the officer accountable therefor, be inspected by the
head of the agency or his duly authorized representative in the
presence of the auditor concerned and, if found to be valueless or
unsaleable, it may be destroyed in their presence. If found to be
valuable, it may be sold at public auction to the highest
bidder under the supervision of the proper committee on award or
similar body in the presence of the auditor concerned or other
authorized representative of the Commission, after advertising by
printed notice in the Official Gazette, or for not less than three
consecutive days in any newspaper of general circulation, or
where the value of the property does not warrant the expense of
publication, by notices posted for a like period in at least three public
places in the locality where the property is to be sold. In the event
that the public auction fails, the property may be sold at a
private sale at such price as may be fixed by the same
committee or body concerned and approved by the
Commission."

It is only when the public auction fails that a negotiated sale is allowed, in
which case the Commission on Audit must approve the selling price. 90 The
Commission on Audit implements Section 79 of the Government Auditing
Code through Circular No. 89-29691 dated January 27, 1989. This circular
emphasizes that government assets must be disposed of only through
public auction, and a negotiated sale can be resorted to only in case of
"failure of public auction."

At the public auction sale, only Philippine citizens are qualified to bid for
PEA's reclaimed foreshore and submerged alienable lands of the public
domain. Private corporations are barred from bidding at the auction sale of
any kind of alienable land of the public domain.

PEA originally scheduled a public bidding for the Freedom Islands on

December 10, 1991. PEA imposed a condition that the winning bidder
should reclaim another 250 hectares of submerged areas to regularize the
shape of the Freedom Islands, under a 60-40 sharing of the additional
reclaimed areas in favor of the winning bidder. 92 No one, however,
submitted a bid. On December 23, 1994, the Government Corporate
Counsel advised PEA it could sell the Freedom Islands through negotiation,
without need of another public bidding, because of the failure of the public
bidding on December 10, 1991.93

However, the original JVA dated April 25, 1995 covered not only the
Freedom Islands and the additional 250 hectares still to be reclaimed, it
also granted an option to AMARI to reclaim another 350 hectares. The
original JVA, a negotiated contract, enlarged the reclamation area to 750
hectares.94 The failure of public bidding on December 10, 1991, involving
only 407.84 hectares,95 is not a valid justification for a negotiated sale of
750 hectares, almost double the area publicly auctioned. Besides, the
failure of public bidding happened on December 10, 1991, more than three
years before the signing of the original JVA on April 25, 1995. The
economic situation in the country had greatly improved during the
intervening period.

Reclamation under the BOT Law and the Local Government Code

The constitutional prohibition in Section 3, Article XII of the 1987

Constitution is absolute and clear: "Private corporations or associations
may not hold such alienable lands of the public domain except by lease, x x
x." Even Republic Act No. 6957 ("BOT Law," for brevity), cited by PEA and
AMARI as legislative authority to sell reclaimed lands to private parties,
recognizes the constitutional ban. Section 6 of RA No. 6957 states –
 "Sec. 6. Repayment Scheme. - For the financing, construction,
operation and maintenance of any infrastructure projects undertaken
through the build-operate-and-transfer arrangement or any of its
variations pursuant to the provisions of this Act, the project proponent
x x x may likewise be repaid in the form of a share in the revenue of
the project or other non-monetary payments, such as, but not limited
to, the grant of a portion or percentage of the reclaimed land, subject
to the constitutional requirements with respect to the ownership
of the land: x x x." (Emphasis supplied)

A private corporation, even one that undertakes the physical reclamation of

a government BOT project, cannot acquire reclaimed alienable lands of the
public domain in view of the constitutional ban.

Section 302 of the Local Government Code, also mentioned by PEA and
AMARI, authorizes local governments in land reclamation projects to pay
the contractor or developer in kind consisting of a percentage of the
reclaimed land, to wit:

"Section 302. Financing, Construction, Maintenance, Operation, and

Management of Infrastructure Projects by the Private Sector. x x x

xxx

In case of land reclamation or construction of industrial estates, the

repayment plan may consist of the grant of a portion or percentage of
the reclaimed land or the industrial estate constructed."

Although Section 302 of the Local Government Code does not contain a
proviso similar to that of the BOT Law, the constitutional restrictions on land
ownership automatically apply even though not expressly mentioned in the
Local Government Code.

Thus, under either the BOT Law or the Local Government Code, the
contractor or developer, if a corporate entity, can only be paid with
leaseholds on portions of the reclaimed land. If the contractor or developer
is an individual, portions of the reclaimed land, not exceeding 12
hectares96 of non-agricultural lands, may be conveyed to him in ownership
in view of the legislative authority allowing such conveyance. This is the
only way these provisions of the BOT Law and the Local Government Code
can avoid a direct collision with Section 3, Article XII of the 1987
Constitution.

Registration of lands of the public domain

Finally, PEA theorizes that the "act of conveying the ownership of the
reclaimed lands to public respondent PEA transformed such lands of the
public domain to private lands." This theory is echoed by AMARI which
maintains that the "issuance of the special patent leading to the eventual
issuance of title takes the subject land away from the land of public domain
and converts the property into patrimonial or private property." In short,
PEA and AMARI contend that with the issuance of Special Patent No. 3517
and the corresponding certificates of titles, the 157.84 hectares comprising
the Freedom Islands have become private lands of PEA. In support of their
theory, PEA and AMARI cite the following rulings of the Court:

1. Sumail v. Judge of CFI of Cotabato,97 where the Court held –

"Once the patent was granted and the corresponding certificate of

title was issued, the land ceased to be part of the public domain and
became private property over which the Director of Lands has neither
control nor jurisdiction."

2. Lee Hong Hok v. David,98 where the Court declared -

"After the registration and issuance of the certificate and duplicate

certificate of title based on a public land patent, the land covered
thereby automatically comes under the operation of Republic Act 496
subject to all the safeguards provided therein."3. Heirs of Gregorio
Tengco v. Heirs of Jose Aliwalas,99 where the Court ruled -

"While the Director of Lands has the power to review homestead

patents, he may do so only so long as the land remains part of the
public domain and continues to be under his exclusive control; but
once the patent is registered and a certificate of title is issued, the
land ceases to be part of the public domain and becomes private
property over which the Director of Lands has neither control nor
jurisdiction."

4. Manalo v. Intermediate Appellate Court,100 where the Court held –

 "When the lots in dispute were certified as disposable on May 19,
1971, and free patents were issued covering the same in favor of the
private respondents, the said lots ceased to be part of the public
domain and, therefore, the Director of Lands lost jurisdiction over the
same."

5.Republic v. Court of Appeals,101 where the Court stated –

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

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

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

In the instant case, the only patent and certificates of title issued are those
in the name of PEA, a wholly government owned corporation performing
public as well as proprietary functions. No patent or certificate of title has
been issued to any private party. No one is asking the Director of Lands to
cancel PEA's patent or certificates of title. In fact, the thrust of the instant
petition is that PEA's certificates of title should remain with PEA, and the
land covered by these certificates, being alienable lands of the public
domain, should not be sold to a private corporation.

Registration of land under Act No. 496 or PD No. 1529 does not vest in the
registrant private or public ownership of the land. Registration is not a
mode of acquiring ownership but is merely evidence of ownership
previously conferred by any of the recognized modes of acquiring
ownership. Registration does not give the registrant a better right than what
the registrant had prior to the registration. 102 The registration of lands of the
public domain under the Torrens system, by itself, cannot convert public
lands into private lands.103

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

"NOW, THEREFORE, KNOW YE, that by authority of the Constitution

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

Thus, the provisions of CA No. 141 apply to the Freedom Islands on

matters not covered by PD No. 1084. Section 60 of CA No. 141 prohibits,
"except when authorized by Congress," the sale of alienable lands of the
public domain that are transferred to government units or entities. Section
60 of CA No. 141 constitutes, under Section 44 of PD No. 1529, a
"statutory lien affecting title" of the registered land even if not annotated on
the certificate of title.104 Alienable lands of the public domain held by
government entities under Section 60 of CA No. 141 remain public lands
because they cannot be alienated or encumbered unless Congress passes
a law authorizing their disposition. Congress, however, cannot authorize
the sale to private corporations of reclaimed alienable lands of the public
domain because of the constitutional ban. Only individuals can benefit from
such law.

The grant of legislative authority to sell public lands in accordance with

Section 60 of CA No. 141 does not automatically convert alienable lands of
the public domain into private or patrimonial lands. The alienable lands of
the public domain must be transferred to qualified private parties, or to
government entities not tasked to dispose of public lands, before these
lands can become private or patrimonial lands. Otherwise, the
constitutional ban will become illusory if Congress can declare lands of the
public domain as private or patrimonial lands in the hands of a government
agency tasked to dispose of public lands. This will allow private
corporations to acquire directly from government agencies limitless areas
of lands which, prior to such law, are concededly public lands.

Under EO No. 525, PEA became the central implementing agency of the

National Government to reclaim foreshore and submerged areas of the
public domain. Thus, EO No. 525 declares that –

"EXECUTIVE ORDER NO. 525

Designating the Public Estates Authority as the Agency Primarily

Responsible for all Reclamation Projects

Whereas, there are several reclamation projects which are ongoing or

being proposed to be undertaken in various parts of the country
which need to be evaluated for consistency with national programs;

Whereas, there is a need to give further institutional support to the

Government's declared policy to provide for a coordinated,
economical and efficient reclamation of lands;

Whereas, Presidential Decree No. 3-A requires that all reclamation of

areas shall be limited to the National Government or any person
authorized by it under proper contract;
 Whereas, a central authority is needed to act on behalf of the
National Government which shall ensure a coordinated and
integrated approach in the reclamation of lands;

Whereas, Presidential Decree No. 1084 creates the Public

Estates Authority as a government corporation to undertake
reclamation of lands and ensure their maximum utilization in
promoting public welfare and interests; and

Whereas, Presidential Decree No. 1416 provides the President with

continuing authority to reorganize the national government including
the transfer, abolition, or merger of functions and offices.

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers vested in me by the Constitution
and pursuant to Presidential Decree No. 1416, do hereby order and
direct the following:

Section 1. The Public Estates Authority (PEA) shall be primarily

responsible for integrating, directing, and coordinating all
reclamation projects for and on behalf of the National
Government. All reclamation projects shall be approved by the
President upon recommendation of the PEA, and shall be undertaken
by the PEA or through a proper contract executed by it with any
person or entity; Provided, that, reclamation projects of any national
government agency or entity authorized under its charter shall be
undertaken in consultation with the PEA upon approval of the
President.

x x x ."

As the central implementing agency tasked to undertake reclamation

projects nationwide, with authority to sell reclaimed lands, PEA took the
place of DENR as the government agency charged with leasing or selling
reclaimed lands of the public domain. The reclaimed lands being leased or
sold by PEA are not private lands, in the same manner that DENR, when it
disposes of other alienable lands, does not dispose of private lands but
alienable lands of the public domain. Only when qualified private parties
acquire these lands will the lands become private lands. In the hands of
the government agency tasked and authorized to dispose of alienable
of disposable lands of the public domain, these lands are still public,
not private lands.

Furthermore, PEA's charter expressly states that PEA "shall hold lands of
the public domain" as well as "any and all kinds of lands." PEA can hold
both lands of the public domain and private lands. Thus, the mere fact that
alienable lands of the public domain like the Freedom Islands are
transferred to PEA and issued land patents or certificates of title in PEA's
name does not automatically make such lands private.

To allow vast areas of reclaimed lands of the public domain to be

transferred to PEA as private lands will sanction a gross violation of the
constitutional ban on private corporations from acquiring any kind of
alienable land of the public domain. PEA will simply turn around, as PEA
has now done under the Amended JVA, and transfer several hundreds
of hectares of these reclaimed and still to be reclaimed lands to a single
private corporation in only one transaction. This scheme will effectively
nullify the constitutional ban in Section 3, Article XII of the 1987
Constitution which was intended to diffuse equitably the ownership of
alienable lands of the public domain among Filipinos, now numbering over
80 million strong.

This scheme, if allowed, can even be applied to alienable agricultural lands

of the public domain since PEA can "acquire x x x any and all kinds of
lands." This will open the floodgates to corporations and even individuals
acquiring hundreds of hectares of alienable lands of the public domain
under the guise that in the hands of PEA these lands are private lands.
This will result in corporations amassing huge landholdings never before
seen in this country - creating the very evil that the constitutional ban was
designed to prevent. This will completely reverse the clear direction of
constitutional development in this country. The 1935 Constitution allowed
private corporations to acquire not more than 1,024 hectares of public
lands.105 The 1973 Constitution prohibited private corporations from
acquiring any kind of public land, and the 1987 Constitution has
unequivocally reiterated this prohibition.

The contention of PEA and AMARI that public lands, once registered under
Act No. 496 or PD No. 1529, automatically become private lands is
contrary to existing laws. Several laws authorize lands of the public domain
to be registered under the Torrens System or Act No. 496, now PD No.
1529, without losing their character as public lands. Section 122 of Act No.
496, and Section 103 of PD No. 1529, respectively, provide as follows:

Act No. 496

"Sec. 122. Whenever public lands in the Philippine Islands belonging

to the x x x Government of the Philippine Islands are alienated,
granted, or conveyed to persons or the public or private
corporations, the same shall be brought forthwith under the
operation of this Act and shall become registered lands."

PD No. 1529

"Sec. 103. Certificate of Title to Patents. Whenever public land is by

the Government alienated, granted or conveyed to any person, the
same shall be brought forthwith under the operation of this Decree."
(Emphasis supplied)

Based on its legislative history, the phrase "conveyed to any person" in

Section 103 of PD No. 1529 includes conveyances of public lands to public
corporations.

Alienable lands of the public domain "granted, donated, or transferred to a

province, municipality, or branch or subdivision of the Government," as
provided in Section 60 of CA No. 141, may be registered under the Torrens
System pursuant to Section 103 of PD No. 1529. Such registration,
however, is expressly subject to the condition in Section 60 of CA No. 141
that the land "shall not be alienated, encumbered or otherwise disposed of
in a manner affecting its title, except when authorized by Congress."
This provision refers to government reclaimed, foreshore and marshy lands
of the public domain that have been titled but still cannot be alienated or
encumbered unless expressly authorized by Congress. The need for
legislative authority prevents the registered land of the public domain from
becoming private land that can be disposed of to qualified private parties.

The Revised Administrative Code of 1987 also recognizes that lands of the
public domain may be registered under the Torrens System. Section 48,
Chapter 12, Book I of the Code states –

"Sec. 48. Official Authorized to Convey Real Property. Whenever real

property of the Government is authorized by law to be conveyed, the
 deed of conveyance shall be executed in behalf of the government by
the following:

(1) x x x

(2) For property belonging to the Republic of the Philippines, but

titled in the name of any political subdivision or of any corporate
agency or instrumentality, by the executive head of the agency or
instrumentality." (Emphasis supplied)

Thus, private property purchased by the National Government for

expansion of a public wharf may be titled in the name of a government
corporation regulating port operations in the country. Private property
purchased by the National Government for expansion of an airport may
also be titled in the name of the government agency tasked to administer
the airport. Private property donated to a municipality for use as a town
plaza or public school site may likewise be titled in the name of the
municipality.106 All these properties become properties of the public domain,
and if already registered under Act No. 496 or PD No. 1529, remain
registered land. There is no requirement or provision in any existing law for
the de-registration of land from the Torrens System.

Private lands taken by the Government for public use under its power of
eminent domain become unquestionably part of the public domain.
Nevertheless, Section 85 of PD No. 1529 authorizes the Register of Deeds
to issue in the name of the National Government new certificates of title
covering such expropriated lands. Section 85 of PD No. 1529 states –

"Sec. 85. Land taken by eminent domain. Whenever any registered

land, or interest therein, is expropriated or taken by eminent domain,
the National Government, province, city or municipality, or any other
agency or instrumentality exercising such right shall file for
registration in the proper Registry a certified copy of the judgment
which shall state definitely by an adequate description, the particular
property or interest expropriated, the number of the certificate of title,
and the nature of the public use. A memorandum of the right or
interest taken shall be made on each certificate of title by the Register
of Deeds, and where the fee simple is taken, a new certificate shall
be issued in favor of the National Government, province, city,
municipality, or any other agency or instrumentality exercising such
 right for the land so taken. The legal expenses incident to the
memorandum of registration or issuance of a new certificate of title
shall be for the account of the authority taking the land or interest
therein." (Emphasis supplied)

Consequently, lands registered under Act No. 496 or PD No. 1529 are not
exclusively private or patrimonial lands. Lands of the public domain may
also be registered pursuant to existing laws.

AMARI makes a parting shot that the Amended JVA is not a sale to AMARI
of the Freedom Islands or of the lands to be reclaimed from submerged
areas of Manila Bay. In the words of AMARI, the Amended JVA "is not a
sale but a joint venture with a stipulation for reimbursement of the original
cost incurred by PEA for the earlier reclamation and construction works
performed by the CDCP under its 1973 contract with the Republic."
Whether the Amended JVA is a sale or a joint venture, the fact remains that
the Amended JVA requires PEA to "cause the issuance and delivery of the
certificates of title conveying AMARI's Land Share in the name of
AMARI."107

This stipulation still contravenes Section 3, Article XII of the 1987

Constitution which provides that private corporations "shall not hold such
alienable lands of the public domain except by lease." The transfer of title
and ownership to AMARI clearly means that AMARI will "hold" the
reclaimed lands other than by lease. The transfer of title and ownership is a
"disposition" of the reclaimed lands, a transaction considered a sale or
alienation under CA No. 141,108 the Government Auditing Code,109 and
Section 3, Article XII of the 1987 Constitution.

The Regalian doctrine is deeply implanted in our legal system. Foreshore

and submerged areas form part of the public domain and are inalienable.
Lands reclaimed from foreshore and submerged areas also form part of the
public domain and are also inalienable, unless converted pursuant to law
into alienable or disposable lands of the public domain. Historically, lands
reclaimed by the government are sui generis, not available for sale to
private parties unlike other alienable public lands. Reclaimed lands retain
their inherent potential as areas for public use or public service. Alienable
lands of the public domain, increasingly becoming scarce natural
resources, are to be distributed equitably among our ever-growing
population. To insure such equitable distribution, the 1973 and 1987
Constitutions have barred private corporations from acquiring any kind of
alienable land of the public domain. Those who attempt to dispose of
inalienable natural resources of the State, or seek to circumvent the
constitutional ban on alienation of lands of the public domain to private
corporations, do so at their own risk.

We can now summarize our conclusions as follows:

1. The 157.84 hectares of reclaimed lands comprising the Freedom

Islands, now covered by certificates of title in the name of PEA,
are alienable lands of the public domain. PEA may lease these
lands to private corporations but may not sell or transfer ownership of
these lands to private corporations. PEA may only sell these lands to
Philippine citizens, subject to the ownership limitations in the 1987
Constitution and existing laws.

2. The 592.15 hectares of submerged areas of Manila Bay remain

inalienable natural resources of the public domain until classified as
alienable or disposable lands open to disposition and declared no
longer needed for public service. The government can make such
classification and declaration only after PEA has reclaimed these
submerged areas. Only then can these lands qualify as agricultural
lands of the public domain, which are the only natural resources the
government can alienate. In their present state, the 592.15 hectares
of submerged areas are inalienable and outside the commerce of
man.

3. Since the Amended JVA seeks to transfer to AMARI, a private

corporation, ownership of 77.34 hectares110 of the Freedom Islands,
such transfer is void for being contrary to Section 3, Article XII of the
1987 Constitution which prohibits private corporations from acquiring
any kind of alienable land of the public domain.

4. Since the Amended JVA also seeks to transfer to AMARI

ownership of 290.156 hectares111 of still submerged areas of Manila
Bay, such transfer is void for being contrary to Section 2, Article XII of
the 1987 Constitution which prohibits the alienation of natural
resources other than agricultural lands of the public domain. PEA
may reclaim these submerged areas. Thereafter, the government can
classify the reclaimed lands as alienable or disposable, and further
 declare them no longer needed for public service. Still, the transfer of
such reclaimed alienable lands of the public domain to AMARI will be
void in view of Section 3, Article XII of the 1987 Constitution which
prohibits private corporations from acquiring any kind of alienable
land of the public domain.

Clearly, the Amended JVA violates glaringly Sections 2 and 3, Article XII of
the 1987 Constitution. Under Article 1409112 of the Civil Code, contracts
whose "object or purpose is contrary to law," or whose "object is outside
the commerce of men," are "inexistent and void from the beginning." The
Court must perform its duty to defend and uphold the Constitution, and
therefore declares the Amended JVA null and void ab initio.

Seventh issue: whether the Court is the proper forum to raise the
issue of whether the Amended JVA is grossly disadvantageous to the
government.

Considering that the Amended JVA is null and void ab initio, there is no
necessity to rule on this last issue. Besides, the Court is not a trier of facts,
and this last issue involves a determination of factual matters.

WHEREFORE, the petition is GRANTED. The Public Estates Authority and

Amari Coastal Bay Development Corporation are PERMANENTLY
ENJOINED from implementing the Amended Joint Venture Agreement
which is hereby declared NULL and VOID ab initio.

SO ORDERED.

G.R. No. 173819               November 23, 2007

REPUBLIC OF THE PHILIPPINES, Petitioner,

vs.
MA. ISABEL LAUREL BARANDIARAN, Respondent.

DECISION

CARPIO MORALES, J.:
Ma. Isabel Laurel Barandiaran (respondent) filed before the Municipal Trial
Court in Cities of Tanauan City, Batangas an Application for
Registration1 over a parcel of land which she specifically described as
follows:

A parcel of land (Lot No. 12753-C=Lot 13115 of the subdivision plan, Csd-
04-020537-D, being a portion of Lot 12753, Cad-168, Tanauan Cadastre,
L.R.C. Rec. No. ____) [sic], situated in the Barrio of Boot, Municipality of
Tanauan, Province of Batangas. Bounded on the NE., along line 1-2 by Lot
12753-B of this subdivision plan; on the SE., along line 2-3 by Lot 12753-E,
both of the subdivision plan; on the SW., along line 3-4-5 by Lot 12269;
along line 5-6 by Lot 12268; along line 6-7 by Lot 12266, all of Cad-168;
Tanauan Cadastre; and on the NW., along line 7-1 by Lot 12753-A, of the
subdivision plan x x x containing an area of TWENTY THREE THOUSAND
NINE HUNDRED SIXTY TWO (23,962) SQUARE METERS, more or
less.2 (Emphasis in the original)

The Republic of the Philippines (the Republic, herein petitioner),

represented by the Director of Lands, through the Solicitor General,
opposed the application on the ground that Lot No. 12753-C (the
questioned lot) is a portion of the public domain belonging to the Republic
and that neither respondent nor her predecessors-in-interest had been in
open, continuous, exclusive, and notorious possession or occupation
thereof since June 12, 1945 or prior thereto. 3

After respondent proved compliance with jurisdictional requirements, the

trial court issued on August 5, 2004 an Order of General Default, 4 no one,
other than the Republic, having appeared or filed an answer within the time
allowed for the purpose.

During the hearing, respondent testified5 as follows: A certain Isadora

Gonzales (Gonzales) was the owner of Lot No. 12753 (the lot) of which the
questioned lot forms part. When respondent and her siblings became
interested in buying the lot, they inquired from people in the vicinity and
from the Assessor’s Office in Tanauan and came to learn that the lot was
registered in Gonzales’ name in 1930. After negotiating with the heirs of
Gonzales, the latter executed on October 3, 2002 a Deed of Sale 6 in favor
of respondent and her siblings for a consideration of ₱100,000.
Respondent went on to declare: On June 9, 2003, she and her siblings
partitioned the lot and the questioned lot was allotted to her. 7 She
thereupon took possession of the questioned lot for which she hired an
overseer, and had it surveyed under her name. She also had the
questioned lot declared under her name for taxation purposes, and paid
taxes thereon. 1âwphi1

Carmen Garcia Azuelo (Azuelo), one of the heirs of Gonzales, corroborated

respondent’s testimony that she and her siblings bought the lot from her
(Azuelo) and her co-heirs.8 She added that Gonzales was, since time
immemorial, in possession of the lot which was registered in Gonzales’
name.9

By Decision of August 18, 2004, the trial court, finding respondent to have
a clear registrable title over the questioned lot, disposed as follows:

WHEREFORE, and upon confirmation of the Order of General Default, the

Court hereby adjudicates and decrees Lot No. 127[5]3-C, Cad-168 of the
subdivision plan Csd-04-020537-D with a total area of Twenty three
thousand nine hundred sixty two (23,962) square meters, situated at
Barangay Maria Paz (formerly Boot), Tanauan, Batangas, on the name of
Ma. Isabel Laurel Barandiaran with postal address at 2nd Floor, Rufina
Tower, Ayala Avenue, Makati City.

Once this decision shall have become final, let the corresponding decree of
registration be issued.10

The Republic appealed,11 contending that respondent had not proven that

the questioned lot is within the alienable and disposable land of the public
domain.12 By Decision13 dated July 21, 2006, the Court of Appeals affirmed
the trial court’s decision, observing as follows:

x x x [O]ther than the bare assertion of the Office of the Solicitor General
(OSG) that applicant-appellee Barandiaran possesses no registrable right
over the subject property, it failed to adduce concrete and convincing
evidence to support its stand. Neither were there private oppositors who
came to register their opposition in the instant application for registration,
which inclined us more to grant the instant application. 14

Hence, the present Petition15 faulting the appellate court:

. . . IN RULING THAT [THE QUESTIONED LOT] IS WITHIN THE
ALIENABLE AND DISPOSABLE LAND OF THE PUBLIC DOMAIN AND,
HENCE, AVAILABLE FOR PUBLIC APPROPRIATION. 16

The petition is meritorious.

The burden of proof to overcome the presumption of state ownership of

lands of the public domain lies on the person applying for registration. The
evidence to overcome the presumption must be "well-nigh
incontrovertible."17

To discharge the burden, respondent presented a Certification issued by

the Community Environment and Natural Resources Office of the
Department of Environment and Natural Resources. Such certificate does
not state, however, that the lot of which the questioned lot forms part is
alienable and disposable. The certification merely states that the lot "is not
covered by any kind of public land application or patent." 18

As for the notation on the subdivision plan of the lot stating that "the survey
is inside alienable and disposable area," 19 the same does not constitute
proof that the lot is alienable and disposable. So Republic v. Tri-Plus
Corporation20 instructs:

In the present case, the only evidence to prove the character of the subject
lands as required by law is the notation appearing in the Advance Plan
stating in effect that the said properties are alienable and
disposable. However, this is hardly the kind of proof required by law. To
prove that the land subject of an application for registration is alienable, an
applicant must establish the existence of a positive act of the government
such as a presidential proclamation or an executive order, an
administrative action, investigation reports of Bureau of Lands
investigators, and a legislative act or statute. The applicant may also
secure a certification from the Government that the lands applied for are
alienable and disposable. In the case at bar, while the Advance Plan
bearing the notation was certified by the Lands Management Services of
the DENR, the certification refers only to the technical correctness of the
survey plotted in the said plan and has nothing to do whatsoever with the
nature and character of the property surveyed. 21 (Emphasis and
underscoring supplied)
Respondent cites22 the rulings of the Court of Appeals in Guido Sinsuat v.
Director of Lands, et al. and Raymundo v. Bureau of Forestry and Diaz
which she quoted in her petition, albeit inaccurately. The rulings in said
cases are correctly quoted below:

xxxx

"[W]here it appears that the evidence of ownership and possession are so

significant and convincing, the government is not necessarily relieved of its
duty from presenting proofs to show that the parcel of land sought to be
registered is part of the public domain to enable [the courts] to evaluate the
evidence of both sides."23

x x x [W]hen the records shows that a certain property, the registration of

title to which is applied for has been possessed and cultivated by the
applicant and his predecessors-in-interest for a long number of years
without the government taking any action to dislodge the occupants from
their holdings, and when the land has passed from one hand to another by
inheritance or by purchase, the government is duty bound to prove that the
land which it avers to be of public domain is really of such nature." 24

Respondent argues thus:

In the case at bar, it was proven through documentary and testimonial

evidences that the applicant and her predecessors-in-interest has been in
open, peaceful, continuous and adverse possession of the subject land, in
the concept of an owner as early as 1945, as shown by the Declaration of
Real Property No. 030-00252 in the name of Isadora Gonzales. 25 (Citations
omitted)

Respondent has not, however, established by well-nigh incontrovertible

evidence that she and her predecessors-in-interest have been in open,
peaceful, continuous and adverse possession of the questioned lot in the
concept of an owner since 1945. While she claims having confirmed with
the Assessor’s Office in Tanauan that the lot was "registered" in Gonzales’
name in 1930, for what purpose was the registration made she did not
elaborate, as she did not even present any document to substantiate the
same.

Respecting the Declaration of Real Property in Gonzales’ name, the same

does not prove ownership of the questioned lot. It is settled that tax receipts
and declarations of ownership for tax purposes are "not incontrovertible
evidence of ownership; they only become evidence of ownership acquired
by prescription when accompanied by proof of actual possession of the
property."26 No such proof of actual possession of the property was
presented. Besides, the Declaration of Real Property shows that it was
effective in 1997, indicating that the declaration is of recent vintage. 27 It
cannot thus prove open, continuous, exclusive, and notorious possession
in the concept of an owner since time immemorial or since 1945.

WHEREFORE, the petition is GRANTED. The Court of Appeals Decision of

July 21, 2006 is REVERSED and SET ASIDE, and respondent’s
Application for Registration of Lot No. 12753-C is DISMISSED.

SO ORDERED.

G.R. No. 179987               September 3, 2013

HEIRS OF MARIO MALABANAN, (Represented by Sally A.

Malabanan), Petitioners,
vs.
REPUBLIC OF THE PHILIPPINES, Respondent.

RESOLUTION

BERSAMIN, J.:

For our consideration and resolution are the motions for reconsideration of
the parties who both assail the decision promulgated on April 29, 2009,
whereby we upheld the ruling of the Court of Appeals (CA) denying the
application of the petitioners for the registration of a parcel of land situated
in Barangay Tibig, Silang, Cavite on the ground that they had not
established by sufficient evidence their right to the registration in
accordance with either Section 14(1) or Section 14(2) of Presidential
Decree No. 1529 (Property Registration Decree).

Antecedents
The property subject of the application for registration is a parcel of land
situated in Barangay Tibig, Silang Cavite, more particularly identified as Lot
9864-A, Cad-452-D, with an area of 71,324-square meters. On February
20, 1998, applicant Mario Malabanan, who had purchased the property
from Eduardo Velazco, filed an application for land registration covering the
property in the Regional Trial Court (RTC) in Tagaytay City, Cavite,
claiming that the property formed part of the alienable and disposable land
of the public domain, and that he and his predecessors-in-interest had
been in open, continuous, uninterrupted, public and adverse possession
and occupation of the land for more than 30 years, thereby entitling him to
the judicial confirmation of his title.1

To prove that the property was an alienable and disposable land of the
public domain, Malabanan presented during trial a certification dated June
11, 2001 issued by the Community Environment and Natural Resources
Office (CENRO) of the Department of Environment and Natural Resources
(DENR), which reads:

This is to certify that the parcel of land designated as Lot No. 9864 Cad
452-D, Silang Cadastre as surveyed for Mr. Virgilio Velasco located at
Barangay Tibig, Silang, Cavite containing an area of 249,734 sq. meters as
shown and described on the Plan Ap-04-00952 is verified to be within the
Alienable or Disposable land per Land Classification Map No. 3013
established under Project No. 20-A and approved as such under FAO 4-
1656 on March 15, 1982.2

After trial, on December 3, 2002, the RTC rendered judgment granting

Malabanan’s application for land registration, disposing thusly:

WHEREFORE, this Court hereby approves this application for registration

and thus places under the operation of Act 141, Act 496 and/or P.D. 1529,
otherwise known as Property Registration Law, the lands described in Plan
Csd-04-0173123-D, Lot 9864-A and containing an area of Seventy One
Thousand Three Hundred Twenty Four (71,324) Square Meters, as
supported by its technical description now forming part of the record of this
case, in addition to other proofs adduced in the name of MARIO
MALABANAN, who is of legal age, Filipino, widower, and with residence at
Munting Ilog, Silang, Cavite.
Once this Decision becomes final and executory, the corresponding decree
of registration shall forthwith issue.

SO ORDERED.3

The Office of the Solicitor General (OSG) appealed the judgment to the CA,
arguing that Malabanan had failed to prove that the property belonged to
the alienable and disposable land of the public domain, and that the RTC
erred in finding that he had been in possession of the property in the
manner and for the length of time required by law for confirmation of
imperfect title.

On February 23, 2007, the CA promulgated its decision reversing the RTC
and dismissing the application for registration of Malabanan. Citing the
ruling in Republic v. Herbieto (Herbieto),4 the CA declared that under
Section 14(1) of the Property Registration Decree, any period of
possession prior to the classification of the land as alienable and
disposable was inconsequential and should be excluded from the
computation of the period of possession. Noting that the CENRO-DENR
certification stated that the property had been declared alienable and
disposable only on March 15, 1982, Velazco’s possession prior to March
15, 1982 could not be tacked for purposes of computing Malabanan’s
period of possession.

Due to Malabanan’s intervening demise during the appeal in the CA, his
heirs elevated the CA’s decision of February 23, 2007 to this Court through
a petition for review on certiorari.

The petitioners assert that the ruling in Republic v. Court of Appeals and
Corazon Naguit5 (Naguit) remains the controlling doctrine especially if the
property involved is agricultural land. In this regard, Naguit ruled that any
possession of agricultural land prior to its declaration as alienable and
disposable could be counted in the reckoning of the period of possession to
perfect title under the Public Land Act (Commonwealth Act No. 141) and
the Property Registration Decree. They point out that the ruling in Herbieto,
to the effect that the declaration of the land subject of the application for
registration as alienable and disposable should also date back to June 12,
1945 or earlier, was a mere obiter dictum considering that the land
registration proceedings therein were in fact found and declared void ab
initio for lack of publication of the notice of initial hearing.
The petitioners also rely on the ruling in Republic v. T.A.N. Properties,
Inc.6 to support their argument that the property had been ipso jure
converted into private property by reason of the open, continuous,
exclusive and notorious possession by their predecessors-in-interest of an
alienable land of the public domain for more than 30 years. According to
them, what was essential was that the property had been "converted" into
private property through prescription at the time of the application without
regard to whether the property sought to be registered was previously
classified as agricultural land of the public domain.

As earlier stated, we denied the petition for review on certiorari because

Malabanan failed to establish by sufficient evidence possession and
occupation of the property on his part and on the part of his predecessors-
in interest since June 12, 1945, or earlier.

Petitioners’ Motion for Reconsideration

In their motion for reconsideration, the petitioners submit that the mere
classification of the land as alienable or disposable should be deemed
sufficient to convert it into patrimonial property of the State. Relying on the
rulings in Spouses De Ocampo v. Arlos,7 Menguito v. Republic8 and
Republic v. T.A.N. Properties, Inc.,9 they argue that the reclassification of
the land as alienable or disposable opened it to acquisitive prescription
under the Civil Code; that Malabanan had purchased the property from
Eduardo Velazco believing in good faith that Velazco and his
predecessors-in-interest had been the real owners of the land with the right
to validly transmit title and ownership thereof; that consequently, the ten-
year period prescribed by Article 1134 of the Civil Code, in relation to
Section 14(2) of the Property Registration Decree, applied in their favor;
and that when Malabanan filed the application for registration on February
20, 1998, he had already been in possession of the land for almost 16
years reckoned from 1982, the time when the land was declared alienable
and disposable by the State.

The Republic’s Motion for Partial Reconsideration

The Republic seeks the partial reconsideration in order to obtain a

clarification with reference to the application of the rulings in Naguit and
Herbieto.
Chiefly citing the dissents, the Republic contends that the decision has
enlarged, by implication, the interpretation of Section 14(1) of the Property
Registration Decree through judicial legislation. It reiterates its view that an
applicant is entitled to registration only when the land subject of the
application had been declared alienable and disposable since June 12,
1945 or earlier.

Ruling

We deny the motions for reconsideration.

In reviewing the assailed decision, we consider to be imperative to discuss

the different classifications of land in relation to the existing applicable land
registration laws of the Philippines.

Classifications of land according to ownership

Land, which is an immovable property,10 may be classified as either of

public dominion or of private ownership.11 Land is considered of public
dominion if it either: (a) is intended for public use; or (b) belongs to the
State, without being for public use, and is intended for some public service
or for the development of the national wealth. 12 Land belonging to the State
that is not of such character, or although of such character but no longer
intended for public use or for public service forms part of the patrimonial
property of the State.13 Land that is other than part of the patrimonial
property of the State, provinces, cities and municipalities is of private
ownership if it belongs to a private individual.

Pursuant to the Regalian Doctrine (Jura Regalia), a legal concept first

introduced into the country from the West by Spain through the Laws of the
Indies and the Royal Cedulas,14 all lands of the public domain belong to the
State.15 This means that the State is the source of any asserted right to
ownership of land, and is charged with the conservation of such
patrimony.16

All lands not appearing to be clearly under private ownership are presumed
to belong to the State. Also, public lands remain part of the inalienable land
of the public domain unless the State is shown to have reclassified or
alienated them to private persons.17
Classifications of public lands
according to alienability

Whether or not land of the public domain is alienable and disposable

primarily rests on the classification of public lands made under the
Constitution. Under the 1935 Constitution, 18 lands of the public domain
were classified into three, namely, agricultural, timber and
mineral.19 Section 10, Article XIV of the 1973 Constitution classified lands of
the public domain into seven, specifically, agricultural, industrial or
commercial, residential, resettlement, mineral, timber or forest, and grazing
land, with the reservation that the law might provide other classifications.
The 1987 Constitution adopted the classification under the 1935
Constitution into agricultural, forest or timber, and mineral, but added
national parks.20 Agricultural lands may be further classified by law
according to the uses to which they may be devoted. 21 The identification of
lands according to their legal classification is done exclusively by and
through a positive act of the Executive Department. 22

Based on the foregoing, the Constitution places a limit on the type of public
land that may be alienated. Under Section 2, Article XII of the 1987
Constitution, only agricultural lands of the public domain may be alienated;
all other natural resources may not be.

Alienable and disposable lands of the State fall into two categories, to wit:
(a) patrimonial lands of the State, or those classified as lands of private
ownership under Article 425 of the Civil Code,23 without limitation; and (b)
lands of the public domain, or the public lands as provided by the
Constitution, but with the limitation that the lands must only be agricultural.
Consequently, lands classified as forest or timber, mineral, or national
parks are not susceptible of alienation or disposition unless they are
reclassified as agricultural.24 A positive act of the Government is necessary
to enable such reclassification,25 and the exclusive prerogative to classify
public lands under existing laws is vested in the Executive Department, not
in the courts.26 If, however, public land will be classified as neither
agricultural, forest or timber, mineral or national park, or when public land is
no longer intended for public service or for the development of the national
wealth, thereby effectively removing the land from the ambit of public
dominion, a declaration of such conversion must be made in the form of a
law duly enacted by Congress or by a Presidential proclamation in cases
where the President is duly authorized by law to that effect. 27 Thus, until the
Executive Department exercises its prerogative to classify or reclassify
lands, or until Congress or the President declares that the State no longer
intends the land to be used for public service or for the development of
national wealth, the Regalian Doctrine is applicable.

Disposition of alienable public lands

Section 11 of the Public Land Act (CA No. 141) provides the manner by
which alienable and disposable lands of the public domain, i.e., agricultural
lands, can be disposed of, to wit:

Section 11. Public lands suitable for agricultural purposes can be disposed
of only as follows, and not otherwise:

(1) For homestead settlement;

(2) By sale;

(3) By lease; and

(4) By confirmation of imperfect or incomplete titles;

(a) By judicial legalization; or

(b) By administrative legalization (free patent).

The core of the controversy herein lies in the proper interpretation of

Section 11(4), in relation to Section 48(b) of the Public Land Act, which
expressly requires possession by a Filipino citizen of the land since June
12, 1945, or earlier, viz:

Section 48. The following-described citizens of the Philippines, occupying

lands of the public domain or claiming to own any such lands or an interest
therein, but whose titles have not been perfected or completed, may apply
to the Court of First Instance of the province where the land is located for
confirmation of their claims and the issuance of a certificate of title
thereafter, under the Land Registration Act, to wit:

xxxx
(b) Those who by themselves or through their predecessors-in-interest
have been in open, continuous, exclusive, and notorious possession and
occupation of alienable and disposable lands of the public domain, under a
bona fide claim of acquisition of ownership, since June 12, 1945, or earlier,
immediately preceding the filing of the applications for confirmation of title,
except when prevented by war or force majeure. These shall be
conclusively presumed to have performed all the conditions essential to a
Government grant and shall be entitled to a certificate of title under the
provisions of this chapter. (Bold emphasis supplied)

Note that Section 48(b) of the Public Land Act used the words "lands of the
public domain" or "alienable and disposable lands of the public domain" to
clearly signify that lands otherwise classified, i.e., mineral, forest or timber,
or national parks, and lands of patrimonial or private ownership, are outside
the coverage of the Public Land Act. What the law does not include, it
excludes. The use of the descriptive phrase "alienable and disposable"
further limits the coverage of Section 48(b) to only the agricultural lands of
the public domain as set forth in Article XII, Section 2 of the 1987
Constitution. Bearing in mind such limitations under the Public Land Act,
the applicant must satisfy the following requirements in order for his
application to come under Section 14(1) of the Property Registration
Decree,28 to wit:

1. The applicant, by himself or through his predecessor-in-interest,

has been in possession and occupation of the property subject of the
application;

2. The possession and occupation must be open, continuous,

exclusive, and notorious;

3. The possession and occupation must be under a bona fide claim of

acquisition of ownership;

4. The possession and occupation must have taken place since June
12, 1945, or earlier; and

5. The property subject of the application must be an agricultural land

of the public domain.

Taking into consideration that the Executive Department is vested with the
authority to classify lands of the public domain, Section 48(b) of the Public
Land Act, in relation to Section 14(1) of the Property Registration Decree,
presupposes that the land subject of the application for registration must
have been already classified as agricultural land of the public domain in
order for the provision to apply. Thus, absent proof that the land is already
classified as agricultural land of the public domain, the Regalian Doctrine
applies, and overcomes the presumption that the land is alienable and
disposable as laid down in Section 48(b) of the Public Land Act. However,
emphasis is placed on the requirement that the classification required by
Section 48(b) of the Public Land Act is classification or reclassification of a
public land as agricultural.

The dissent stresses that the classification or reclassification of the land as

alienable and disposable agricultural land should likewise have been made
on June 12, 1945 or earlier, because any possession of the land prior to
such classification or reclassification produced no legal effects. It observes
that the fixed date of June 12, 1945 could not be minimized or glossed over
by mere judicial interpretation or by judicial social policy concerns, and
insisted that the full legislative intent be respected.

We find, however, that the choice of June 12, 1945 as the reckoning point
of the requisite possession and occupation was the sole prerogative of
Congress, the determination of which should best be left to the wisdom of
the lawmakers. Except that said date qualified the period of possession and
occupation, no other legislative intent appears to be associated with the
fixing of the date of June 12, 1945. Accordingly, the Court should interpret
only the plain and literal meaning of the law as written by the legislators.

Moreover, an examination of Section 48(b) of the Public Land Act indicates

that Congress prescribed no requirement that the land subject of the
registration should have been classified as agricultural since June 12,
1945, or earlier. As such, the applicant’s imperfect or incomplete title is
derived only from possession and occupation since June 12, 1945, or
earlier. This means that the character of the property subject of the
application as alienable and disposable agricultural land of the public
domain determines its eligibility for land registration, not the ownership or
title over it.

Alienable public land held by a possessor, either personally or through his

predecessors-in-interest, openly, continuously and exclusively during the
prescribed statutory period is converted to private property by the mere
lapse or completion of the period.29 In fact, by virtue of this doctrine,
corporations may now acquire lands of the public domain for as long as the
lands were already converted to private ownership, by operation of law, as
a result of satisfying the requisite period of possession prescribed by the
Public Land Act.30 It is for this reason that the property subject of the
application of Malabanan need not be classified as alienable and
disposable agricultural land of the public domain for the entire duration of
the requisite period of possession.

To be clear, then, the requirement that the land should have been classified
as alienable and disposable agricultural land at the time of the application
for registration is necessary only to dispute the presumption that the land is
inalienable.

The declaration that land is alienable and disposable also serves to

determine the point at which prescription may run against the State. The
imperfect or incomplete title being confirmed under Section 48(b) of the
Public Land Act is title that is acquired by reason of the applicant’s
possession and occupation of the alienable and disposable agricultural
land of the public domain. Where all the necessary requirements for a grant
by the Government are complied with through actual physical, open,
continuous, exclusive and public possession of an alienable and disposable
land of the public domain, the possessor is deemed to have acquired by
operation of law not only a right to a grant, but a grant by the Government,
because it is not necessary that a certificate of title be issued in order that
such a grant be sanctioned by the courts.31

If one follows the dissent, the clear objective of the Public Land Act to
adjudicate and quiet titles to unregistered lands in favor of qualified Filipino
citizens by reason of their occupation and cultivation thereof for the number
of years prescribed by law32 will be defeated. Indeed, we should always
bear in mind that such objective still prevails, as a fairly recent legislative
development bears out, when Congress enacted legislation (Republic Act
No. 10023)33 in order to liberalize stringent requirements and procedures in
the adjudication of alienable public land to qualified applicants, particularly
residential lands, subject to area limitations. 34

On the other hand, if a public land is classified as no longer intended for

public use or for the development of national wealth by declaration of
Congress or the President, thereby converting such land into patrimonial or
private land of the State, the applicable provision concerning disposition
and registration is no longer Section 48(b) of the Public Land Act but the
Civil Code, in conjunction with Section 14(2) of the Property Registration
Decree.35 As such, prescription can now run against the State.

To sum up, we now observe the following rules relative to the disposition of
public land or lands of the public domain, namely:

(1) As a general rule and pursuant to the Regalian Doctrine, all lands
of the public domain belong to the State and are inalienable. Lands
that are not clearly under private ownership are also presumed to
belong to the State and, therefore, may not be alienated or disposed;

(2) The following are excepted from the general rule, to wit:

(a) Agricultural lands of the public domain are rendered

alienable and disposable through any of the exclusive modes
enumerated under Section 11 of the Public Land Act. If the
mode is judicial confirmation of imperfect title under Section
48(b) of the Public Land Act, the agricultural land subject of the
application needs only to be classified as alienable and
disposable as of the time of the application, provided the
applicant’s possession and occupation of the land dated back
to June 12, 1945, or earlier. Thereby, a conclusive presumption
that the applicant has performed all the conditions essential to a
government grant arises,36 and the applicant becomes the
owner of the land by virtue of an imperfect or incomplete title.
By legal fiction, the land has already ceased to be part of the
public domain and has become private property. 37

(b) Lands of the public domain subsequently classified or

declared as no longer intended for public use or for the
development of national wealth are removed from the sphere of
public dominion and are considered converted into patrimonial
lands or lands of private ownership that may be alienated or
disposed through any of the modes of acquiring ownership
under the Civil Code. If the mode of acquisition is prescription,
whether ordinary or extraordinary, proof that the land has been
already converted to private ownership prior to the requisite
acquisitive prescriptive period is a condition sine qua non in
 observance of the law (Article 1113, Civil Code) that property of
the State not patrimonial in character shall not be the object of
prescription.

To reiterate, then, the petitioners failed to present sufficient evidence to

establish that they and their predecessors-in-interest had been in
possession of the land since June 12, 1945. Without satisfying the requisite
character and period of possession - possession and occupation that is
open, continuous, exclusive, and notorious since June 12, 1945, or earlier -
the land cannot be considered ipso jure converted to private property even
upon the subsequent declaration of it as alienable and disposable.
Prescription never began to run against the State, such that the land has
remained ineligible for registration under Section 14(1) of the Property
Registration Decree. Likewise, the land continues to be ineligible for land
registration under Section 14(2) of the Property Registration Decree unless
Congress enacts a law or the President issues a proclamation declaring the
land as no longer intended for public service or for the development of the
national wealth.
1âwphi1

WHEREFORE, the Court DENIES the petitioners' Motion for

Reconsideration and the respondent's Partial Motion for Reconsideration
for their lack of merit.

SO ORDERED.