Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No.

76217 September 14, 1989 GERMAN MANAGEMENT & SERVICES, INC., petitioner, vs. HON. COURT OF APPEALS and ERNESTO VILLEZA, respondents. G.R. No. L-76216 September 14, 1989 GERMAN MANAGEMENT & SERVICES, INC., petitioner, vs. HON. COURT OF APPEALS and ORLANDO GERNALE, respondents. Alam, Verano & Associates for petitioner. Francisco D. Lozano for private respondents.

FERNAN, C.J.: Spouses Cynthia Cuyegkeng Jose and Manuel Rene Jose, residents of Pennsylvania, Philadelphia, USA are the owners of a parcel of land situated in Sitio Inarawan, San Isidro, Antipolo, Rizal, with an area of 232,942 square meters and covered by TCT No. 50023 of the Register of Deeds of the province of Rizal issued on September 11, 1980 which canceled TCT No. 56762/ T-560. The land was originally registered on August 5, 1948 in the Office of the Register of Deeds of Rizal as OCT No. 19, pursuant to a Homestead Patent granted by the President of the Philippines on July 27, 1948, under Act No. 141. On February 26, 1982, the spouses Jose executed a special power of attorney authorizing petitioner German Management Services to develop their property covered by TCT No. 50023 into a residential subdivision. Consequently, petitioner on February 9,1983 obtained Development Permit No. 00424 from the Human Settlements Regulatory Commission for said development. Finding that part of the property was occupied by private respondents and twenty other persons, petitioner advised the occupants to vacate the premises but the latter refused. Nevertheless, petitioner proceeded with the development of the subject property which included the portions occupied and cultivated by private respondents.

Private respondents filed an action for forcible entry against petitioner before the Municipal Trial Court of Antipolo, Rizal, alleging that they are mountainside farmers of Sitio Inarawan, San Isidro, Antipolo, Rizal and members of the Concerned Citizens of Farmer's Association; that they have occupied and tilled their farmholdings some twelve to fifteen years prior to the promulgation of P.D. No. 27; that during the first week of August 1983, petitioner, under a permit from the Office of the Provincial Governor of Rizal, was allowed to improve the Barangay Road at Sitio Inarawan, San Isidro, Antipolo, Rizal at its expense, subject to the condition that it shag secure the needed right of way from the owners of the lot to be affected; that on August 15, 1983 and thereafter, petitioner deprived private respondents of their property without due process of law by: (1) forcibly removing and destroying the barbed wire fence enclosing their farmholdings without notice; (2) bulldozing the rice, corn fruit bearing trees and other crops of private respondents by means of force, violence and intimidation, in violation of P.D. 1038 and (3) trespassing, coercing and threatening to harass, remove and eject private respondents from their respective farmholdings in violation of P.D. Nos. 316, 583, 815, and 1028. 1 On January 7,1985, the Municipal Trial Court dismissed private respondents' complaint for forcible entry. 2 On appeal, the Regional Trial Court of Antipolo, Rizal, Branch LXXI sustained the dismissal by the Municipal Trial Court. 3 Private respondents then filed a petition for review with the Court of Appeals. On July 24,1986, said court gave due course to their petition and reversed the decisions of the Municipal Trial Court and the Regional Trial Court. 4 The Appellate Court held that since private respondents were in actual possession of the property at the time they were forcibly ejected by petitioner, private respondents have a right to commence an action for forcible entry regardless of the legality or illegality of possession. 5 Petitioner moved to reconsider but the same was denied by the Appellate Court in its resolution dated September 26, 1986. 6 Hence, this recourse. The issue in this case is whether or not the Court of Appeals denied due process to petitioner when it reversed the decision of the court a quo without giving petitioner the opportunity to file its answer and whether or not private respondents are entitled to file a forcible entry case against petitioner. 7 We affirm. The Court of Appeals need not require petitioner to file an answer for due process to exist. The comment filed by petitioner on February 26, 1986 has sufficiently addressed the issues presented in the petition for review filed by private respondents before the Court of Appeals. Having heard both parties, the Appellate Court need not await or require any other additional pleading. Moreover, the fact that petitioner was heard by the Court of Appeals on its motion for reconsideration negates any violation of due process.

Notwithstanding petitioner's claim that it was duly authorized by the owners to develop the subject property, private respondents, as actual possessors, can commence a forcible entry case against petitioner because ownership is not in issue. Forcible entry is merely a quieting process and never determines the actual title to an estate. Title is not involved. 8 In the case at bar, it is undisputed that at the time petitioner entered the property, private respondents were already in possession thereof . There is no evidence that the spouses Jose were ever in possession of the subject property. On the contrary, private respondents' peaceable possession was manifested by the fact that they even planted rice, corn and fruit bearing trees twelve to fifteen years prior to petitioner's act of destroying their crops. Although admittedly petitioner may validly claim ownership based on the muniments of title it presented, such evidence does not responsively address the issue of prior actual possession raised in a forcible entry case. It must be stated that regardless of the actual condition of the title to the property, the party in peaceable quiet possession shall not be turned out by a strong hand, violence or terror. 9 Thus, a party who can prove prior possession can recover such possession even against the owner himself. Whatever may be the character of his prior possession, if he has in his favor priority in time, he has the security that entitles him to remain on the property until he is lawfully ejected by a person having a better right by accion publiciana or accion reivindicatoria . 10 Both the Municipal Trial Court and the Regional Trial Court have rationalized petitioner's drastic action of bulldozing and destroying the crops of private respondents on the basis of the doctrine of self-help enunciated in Article 429 of the New Civil Code. 11 Such justification is unavailing because the doctrine of self-help can only be exercised at the time of actual or threatened dispossession which is absent in the case at bar. When possession has already been lost, the owner must resort to judicial process for the recovery of property. This is clear from Article 536 of the Civil Code which states, "(I)n no case may possession be acquired through force or intimidation as long as there is a possessor who objects thereto. He who believes that he has an action or right to deprive another of the holding of a thing, must invoke the aid of the competent court, if the holder should refuse to deliver the thing." WHEREFORE, the Court resolved to DENY the instant petition. The decision of the Court of Appeals dated July 24,1986 is hereby AFFIRMED. Costs against petitioner. SO ORDERED. Bidin and Cortes, JJ., concur. Gutierrez, Jr., J., concurs in the result. Feliciano, J., is on leave.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-48250 December 28, 1979 GRAND UNION SUPERMARKET, INC. and NELIA SANTOS FANDINO, petitioners, vs. JOSE J. ESPINO JR., and THE HONORABLE COURT OF APPEALS, respondents.

GUERRERO, J. This is a petition tor certiorari by way of appeal from the decision of the Court of Appeals 1 dated September 26, 1977 rendered in CA-G.R. No. 55186-R entitled " Jose J. Espino, Jr., plaintiff-appellant. versus Grand Union Supermarket, Inc. and Nelia Santos-Fandino, defendants-appellees," the dispositive portion of which states;
WHEREFORE, the appealed judgment is hereby reversed and set aside. Defendants are ordered to pay plaintiff-jointly and severally, the sum of Seventy-Five Thousand Pesos (P75,000.00) by way of moral damages. Twenty-Five Thousand Pesos (P25,000.00) as exemplary damages, and Five Thousand Pesos (P5,000.00) as attorney's fee, Costs of both instances shall be taxed against the defendant defendants.

The facts of the case are as stated in the decision of the respondent court to wit: "Upon the evidence, and from the findings of the lower court, it appears that in the morning of August 22, 1970, plaintiff Jose J. Espino. Jr., a civil engineer and an executive of Procter and Gamble Philippines, Inc., and his wife and their two daughters went to shop at the defendants' South Supermarket in Makati. While his wife was shopping at the groceries section, plaintiff browsed around the other parts of the market. Finding a cylindrical "rat tail" file which he needed in his hobby and had been wanting to buy, plaintiff picked up that item from one of the shelves. He held it in his hand thinking that it might be lost, because of its tiny size, if he put it in his wife's grocery cart. In the course of their shopping, plaintiff and his wife saw the maid of plaintiff's aunt. While talking to this maid, plaintiff stuck the file into the front breast pocket of his shirt with a good part of the merchandise exposed. "At the check-out counter, the plaintiff paid for his wife's purchases which amounted to P77.00, but he forgot to pay for the file. As he was leaving by the exit of the supermarket on his way to his car, carrying two bags of groceries and accompanied by his wife and two daughter, plaintiff was approached by a uniformed guard of the supermarket who said: "Excuse me, Mr., I think you have something in your pocket which you have not paid for." (p. 5, tsn, Aug. 13, 1971), pointing to his left front breast

pocket. Suddenly reminded of the file, plaintiff apologized thus: "I am sorry," and he turned back toward the cashier to pay for the file. But the guard stopped him and led him instead toward the rear of the supermarket. The plaintiff protested but the guard was firm saying: "No, Mr., please come with me. It is the procedure of the supermarket to bring people that we apprehend to the back of the supermarket" (p. 8, Ibid). The time was between 9 and 10 o'clock. A crowd of customers on their way into the supermarket saw the plaintiff being stopped and led by a uniformed guard toward the rear of the supermarket. Plaintiff acquiesced and signaled to his wife and daughters to wait. "Into a cubicle which was immediately adjacent to the area where deliveries to the supermarket were being made, the plaintiff was ushered. The guard directed him to a table and gave the file to the man seated at the desk. Another man stood beside the plaintiff. The man at the desk looked at the plaintiff and the latter immediately explained the circumstances that led to the finding of the file in his possession. The man at the desk pulled out a sheet of paper and began to ask plaintiff's name, age, residence and other personal data. Plaintiff was asked to make a brief statement, and on the sheet of paper or "Incident Report" he wrote down the following: "While talking to my aunt's maid with my wife, I put this item in my shirt pocket. I forgot to check it out with my wife's items" (Exhibit A). Meanwhile, the plaintiff's wife joined him and asked what had taken him so long. "The guard who had accosted plaintiff took him back inside the supermarket in the company of his wife. Plaintiff and his wife were directed across the main entrance to the shopping area, down the line of check-out counters, to a desk beside the first checkout counter. To the woman seated at the desk, who turned out to be defendant Nelia Santos-Fandino, the guard presented the incident report and the file, Exhibit B. Defendant Fandino read the report and addressing the guard remarked: "Ano, nakaw na naman ito" (p. 22, Id.). Plaintiff explained and narrated the incident that led to the finding of the file in his pocket, telling Fandino that he was going to pay for the file because he needed it. But this defendant replied: "That is all they say, the people whom we cause not paying for the goods say... They all intended to pay for the things that are found to them." (p. 23, Id). Plaintiff objected and said that he was a regular customer of the supermarket. "Extracting a P5.00 bill from his pocket, plaintiff told Fandino that he was paying for the file whose cost was P3.85. Fandino reached over and took the P5.00 bill from plaintiff with these words: "We are fining you P5.00. That is your the fine." Plaintiff was shocked. He and his wife objected vigorously that he was not a common criminal, and they wanted to get back the P5.00. But Fandino told them that the money would be given as an incentive to the guards who apprehend pilferers. People were milling around them and staring at the plaintiff. Plaintiff gave up the discussion. He drew a P50.00 bill and took back the file. Fandino directed him to the nearest check-out counter where he had to fall in line. The people who heard the exchange of words between Fandino and plaintiff continued to stare at him. At the trial, plaintiff expressed his embarrassment and humiliation thus: " I felt as though I wanted to disappear into a hole on the ground" (p. 34, Id.). After paying for the file, plaintiff and his wife walked as fast as they could out of

the supermarket. His first impulse was to go back to the supermarket that night to throw rocks at its glass windows. But reason prevailed over passion and he thought that justice should take its due course. "Plaintiff was certain during the trial that when he signed the incident report, Exhibit A, inside the cubicle at the back of the supermarket only his brief statement of the facts (Exhibit A-2), aside from his name and personal circumstances, was written thereon. He swore that the following were not in the incident report at, the time he signed it:
Exhibit A-I which says opposite the stenciled word SUBJECT "Shoplifting" Exhibit A-3 which says opposite the stenciled words Action Taken: Released by Mrs. Fandino after paying the item. Exhibit A-4 which says opposite the stenciled words Remarks Noted: "Grd. Ebreo requested Grd. Paunil to apprehend subject shoplifter.

Private respondent's complaint filed on October 8, 1970 is founded on Article 21 in relation to Article 2219 of the New Civil Code and prays for moral damages, exemplary damages, attorney s fees and 'expenses of litigation, costs of the suit and the return of the P5.00 fine. After trial, the Court of First Instance of Pasig, Rizal, Branch XIX dismissed the complaint, Interposing the appeal to the Court of Appeals, the latter reversed and set aside the appealed judgment, granting and damages as earlier stated. Not satisfied with the decision of the respondent court, petitioners instituted the present petition and submits the following grounds and/or assignment of errors, to wit:
I Respondent Court of Appeals erred in awarding moral and exemplary damages to the respondent Espino under Articles 19 and 21 in relation to Article 2219 of the Civil Code, considering that A. Respondent Espino was guilty of theft; B. Petitioners legitimately exercised their right of defense of property within the context of Article 429 of the Civil Code negating the application of Articles 19 and 21 of the same Code; C. Petitioners acted upon probable cause in stopping and investigating respondent Espino for shoplifting and as held in various decisions in the United States on shoplifting, a merchant who acts upon probable cause should not be held liable in damages by the suspected shoplifter; D. Petitioners did not exercise their right maliciously, wilfully or in bad faith; and/or E. The proximate cause of respondent Espino's alleged injury or suffering was his own negligence or forgetfulness; petitioners acted in good faith. II

Assuming arguendo that petitioners are hable for moral and exemplary damages, the award of P75,000.00 for moral damages and P25,000.00 for exemplary damages by the respondent Court of Appeals is not legally justified and/or is grossly excessive in the premises. III The award of P5,000.00 for attorney's fees by the respondent Court of Appeals is unjustified and unwarranted under Article 2199 of the Civil Code.

We agree with the holding of the respondent appellate court that "the evidence sustains the court's finding that the plaintiff had absolutely no intention to steal the file." The totality of the facts and circumstances as found by the Court of Appeals unerringly points to the conclusion that private respondent did not intend to steal the file and that is act of picking up the file from the open shelf was not criminal nor done with malice or criminal intent for on the contrary, he took the item with the intention of buying and paying for it. This Court needs only to stress the following undisputed facts which strongly and convincingly uphold the conclusion that private respondent was not "shoplifting." Thus, the facts that private respondent after picking the cylindrical "rat-tail" file costing P3.85 had placed it inside his left front breast pocket with a good portion of the item exposed to view and that he did not conceal it in his person or hid it from sight as well as the fact that he paid the purchases of his wife amounting to P77.00 at the checkout counter of the Supermarket, owed that he was not acting suspiciously or furtively. And the circumstance that he was with his family consisting of his wife Mrs. Caridad Jayme Espino, and their two daughters at the time negated any criminal intent on his part to steal. Moreover, when private respondent was approached by the guard of the Supermarket as he was leaving by the exit to his car who told him, "Excuse me, Mr., I think you have something in your pocket which you have not paid for," Espino, immediately apologized and answered, "I am sorry," which indicated his sincere apology or regrets. He turned back towards the cashier to pay for the file which proved his honesty sincerity and good faith in buying the item, and not to shoplift the same. His brief statement on the sheet of paper called the Incident Report where private respondent wrote the following: "While talking to my aunt's maid with my wife, I put this item in in my shirt pocket. I forgot to check it out with my wife's item," was an instant and contemporaneous explanation of the incident. Considering further the personal circumstances of the private respondent. his education, position and character showing that he is a graduate Mechanical Engineer from U.P. Class 1950, employed as an executive of Proctor & Gamble Phils., Inc., a corporate manager incharge of motoring and warehousing therein; honorably discharged from the Philippine Army in 1946; a Philippine government pensionado of the United States for six months; member of the Philippine veterans Legion; author of articles published in the Manila Sunday Times and Philippines Free Press; member of the Knights of Columbus, Council No. 3713; son of the late Jose Maria Espino, retired Minister, Department of Foreign Affairs at the Philippine Embassy Washington, We are fully convinced, as the trial and appellate courts were, that private respondent did not

intend to steal the article costing P3.85. Nothing in the records intimates or hints whatsoever that private respondent has had any police record of any sort much less suspicion of stealing or shoplifting. We do not lay down here any hard-and-fast rule as to what act or combination of acts constitute the crime of shoplifting for it must be stressed that each case must be considered and adjudged on a case-to-case basis and that in the determination of whether a person suspected of shoplifting has in truth and in fact committed the same, all the attendant facts and circumstances should be considered in their entirety and not from any single fact or circumstance from which to impute the stigma of shoplifting on any person suspected and apprehended therefor. We likewise concur with the Court of Appeals that "(u)pon the facts and under the law, plaintiff has clearly made the cause of action for damages against the defendants. Defendants wilfully caused loss or injury to plaintiff in a manner that was contrary to morals, good customs or public policy, making them amenable to damages under Articles 19 and 21 in relation to Article 2219 of the Civil Code." 2 That private respondent was falsely accused of shoplifting is evident. The Incident Report (Exhibit A) with the entries thereon under Exhibit A-1 which says opposite the stenciled word SUBJECT: "Shoplifting," Exhibit A-3 which says opposite the stenciled words Action Taken: Relesed by Mrs. Fandino after paying the item," Exhibit A-4 which says opposite the stenciled words Remarks Noted: Grd. Ebreo requested Grd. Paunil to apprehend subject shoplifter," established the opinion, judgment or thinking of the management of petitioner's supermarket upon private respondent's act of picking up the file. ln plain words, private respondent was regarded and pronounced a shoplifter and had committed "shoplifting." We also affirm the Court of Appeals' finding that petitioner Nelia Santos Fandino, after reading the incident report, remarked the following: "Ano, nakaw na naman ito". Such a remark made in the presence of private respondent and with reference to the incident report with its entries, was offensive to private respondent's dignity and defamatory to his character and honesty. When Espino explained that he was going to pay the file but simply forgot to do so, Fandino doubted the explanation. saying: "That is all what they say, the people whom we caught not paying for the goods say... they all intended to pay for the things that are found to them." Private respondent objected and said that he was a regular customer of the Supermarket. The admission of Fandino that she required private respondent to pay a fine of P5.00 and did in fact take the P5.00 bill of private respondent tendered by the latter to pay for the file, as a fine which would be given as an incentive to the guards who apprehend pilferers clearly proved that Fandino branded private respondent as a thief which was not right nor justified. The testimony of the guard that management instructed them to bring the suspected customers to the public area for the people to see those kind of customers in order that

they may be embarassed (p. 26, tsn, Sept. 30, 1971); that management wanted "the customers to be embarrassed in public so that they will not repeat the stealing again" (p. 2, tsn, Dec. 10, 1971); that the management asked the guards "to bring these customers to different cashiers in order that they will know that they are pilferers" (p. 2, Ibid.) may indicate the manner or pattern whereby a confirmed or self-confessed shoplifter is treated by the Supermarket management but in the case at bar, there is no showing that such procedure was taken in the case of the private respondent who denied strongly and vehemently the charge of shoplifting. Nonetheless, the false accusation charged against the private respondent after detaining and interrogating him by the uniformed guards and the mode and manner in which he was subjected, shouting at him, imposing upon him a fine, threatening to call the police and in the presence and hearing of many people at the Supermarket which brought and caused him humiliation and embarrassment, sufficiently rendered the petitioners liable for damages under Articles 19 and 21 in relation to Article 2219 of the Civil Code. We rule that under the facts of the case at bar, petitioners wilfully caused loss or injury to private respondent in a manner that was contrary to morals, good customs or public policy. It is against morals, good customs and public policy to humiliate, embarrass and degrade the dignity of a person. Everyone must respect the dignity, personality, privacy and peace of mind of his neighbors and other persons (Article 26, Civil Code). And one must act with justice, give everyone his due and observe honesty and good faith (Article 19, Civil Code). Private respondent is entitled to damages but We hold that the award of Seventy-Five Thousand Pesos (P75,000.00) for moral damages and Twenty-Five Thousand Pesos (P25,000.00, for exemplary damages is unconscionable and excessive. While no proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated, the assessment of such damages, except liquidated ones, is left to the discretion of the court, according to the circumstances of each case (Art. 2216, New Civil Code). In the case at bar, there is no question that the whole incident that befell respondent had arisen in such a manner that was created unwittingly by his own act of forgetting to pay for the file. It was his forgetfullness in checking out the item and paying for it that started the chain of events which led to his embarassment and humiliation thereby causing him mental anguish, wounded feelings and serious anxiety. Yet, private respondent's act of omission contributed to the occurrence of his injury or loss and such contributory negligence is a factor which may reduce the damages that private respondent may recover (Art. 2214, New Civil Code). Moreover, that many people were present and they saw and heard the ensuing interrogation and altercation appears to be simply a matter of coincidence in a supermarket which is a public place and the crowd of onlookers, hearers or bystanders was not deliberately sought or called by management to witness private respondent's predicament. We do not believe that private respondent was intentionally paraded in order to humiliate or embarrass him because petitioner's business depended for its success and patronage the good will of the buying public which can only be preserved and promoted by good public relations.

As succinctly expressed by Mr. Justice J. B. L. Reyes in his concurring and dissenting opinion in Pangasinan Transportation Company, Inc, vs. Legaspi, 12 SCRA 598, the purpose of moral damages is essentially indemnity or reparation, both punishment or correction. Moral damages are emphatically not intended to enrich a complainant at the expense of a defendant; they are awarded only to enable the injured party to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone, by reason of the defendant's culpable action. In other words, the award of moral damages is aimed at a restoration, within the limits of the possible, of the spiritual status quo ante and, it must be proportionate to the suffering inflicted. In Our considered estimation and assessment, moral damages in the amount of Five Thousand Pesos (P5,000.00) is reasonable and just to award to private respondent. The grant of Twenty-Five Thousand Pesos (P25,000.00) as exemplary damages is unjustified. Exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages (Art. 2229, New Civil Code). Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they could be adjudicated (Art. 2223, New Civil Code). Considering that exemplary damages are awarded for wanton acts, that they are penal in character granted not by way of compensation but as a punishment to the offender and as a warning to others as a sort of deterrent, We hold that the facts and circumstances of the case at bar do not warrant the grant of exemplary damages. Petitioners acted in good faith in trying to protect and recover their property, a right which the law accords to them. Under Article 429, New Civil Code, the owner or lawful possessor of a thing has a right to exclude any person from the enjoyment and disposal thereof and for this purpose, he may use such force as may be reasonably necessary to repel or prevent an actual or threatened unlawful physical invasion or usurpation of his property. And since a person who acts in the fulfillment of a duty or in the lawful exercise of a right or office exempts him from civil or criminal liability, petitioner may not be punished by imposing exemplary damages against him. We agree that petitioners acted upon probable cause in stopping and investigating private respondent for taking the file without paying for it, hence, the imposition of exemplary damages as a warning to others by way of a deterrent is without legal basis. We, therefore, eliminate the grant of exemplary damages to the private respondent. In the light of the reduction of the damages, We hereby likewise reduce the original award of Five Thousand Pesos (P5,000.00) as attorney's fees to Two Thousand Pesos (P2,000.00). WHEREFORE, IN VIEW OF THE FOREGOING, the judgment of the Court of Appeals is hereby modified. Petitioners are hereby ordered to pay, jointly and severally, to private respondent moral damages in the sum of Five Thousand Pesos (P5,000.00) and the amount of Two Thousand Pesos (P2,000.00) as and for attorney's fees; and further, to return the P5.00 fine to private respondent. No costs.

SO ORDERED. Makasiar, Fernandez, De Castro and Melencio-Herrera, JJ., concur, Teehankee (Chairman), took no part. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 4223 August 19, 1908

NICOLAS LUNOD, ET AL., plaintiffs-appellees, vs. HIGINO MENESES, defendant-appellant. T. Icasiano, for appellant. R. Salinas, for appellee. TORRES, J.: On the 14th of March, 1904, Nicolas Lunod, Juan de la Vega, Evaristo Rodriguez, Fernando Marcelo, Esteban Villena, Benito Litao, Ventura Hernandez, and Casimiro Pantanilla, residents of the town of Bulacan, province of the same name, filed a written complaint against Higino Meneses, alleging that they each owned and possessed farm lands, situated in the places known as Maytunas and Balot, near a small lake named Calalaran; that the defendant is the owner of a fish-pond and a strip of land situated in Paraanan, adjoining the said lake on one side, and the River Taliptip on the other; that from time immemorial, and consequently for more than twenty years before 1901, there existed and still exists in favor of the rice fields of the plaintiffs a statutory easement permitting the flow of water over the said land in Paraanan, which easement the said plaintiffs enjoyed until the year 1901 and consisted in that the water collected upon their lands and in the Calalaran Lake flow through Paraanan into the Taliptip River. From that year however, the defendant, without any right or reason, converted the land in Paraanan into a fishpond and by means of a dam and a bamboo net, prevented the free passage of the water through said place into the Taliptip River, that in consequence the lands of the plaintiff became flooded and damaged by the stagnant waters, there being no outlet except through the land in Paraanan; that their plantation were destroyed, causing the loss and damages to the extent of about P1,000, which loss and damage will continue if the obstructions to the flow of the water are allowed to remain, preventing its passage through said land and injuring the rice plantations of the plaintiffs. They therefore asked that judgment be entered against the defendant, declaring that the said tract of land in Paraanan is subject to a statutory easement permitting the flow of water from the property of the plaintiffs, and that, without prejudice to the issuing of a preliminary injunction, the defendant be ordered to remove and destroy the obstructions that impede the passage of the waters through Paraanan, and that in future, and forever, he abstain

from closing in any manner the aforesaid tract of land; that, upon judgment being entered, the said injunction be declared to be final and that the defendant be sentenced to pay to the plaintiffs an indemnity of P1,000, and the costs in the proceedings; that they be granted any other and further equitable or proper remedy in accordance with the facts alleged and proven. In view of the demurrer interposed by the plaintiffs to the answer of the defendant, the latter, on the 29th of August, 1904, filed an amended answer, denying each and everyone of the allegations of the complaint, and alleged that no statutory easement existed nor could exist in favor of the lands described in the complaint, permitting the waters to flow over the fish pond that he, together with his brothers, owned in the sitio of Bambang, the area and boundaries of which were stated by him, and which he and his brothers had inherited from their deceased mother. Apolinara de Leon; that the same had been surveyed by a land surveyor in September, 1881, he also denied that he had occupied or converted any land in the barrio of Bambang into a fishpond; therefore, and to sentence the plaintiffs to pay the costs and corresponding damages. Upon the evidence adduced by both parties to the suit, the court, on the 13th of March, 1907, entered judgment declaring that the plaintiffs were entitled to a decision in their favor, and sentenced the defendant to remove the dam placed on the east of the Paraanan passage on the side of the Taliptip River opposite the old dam in the barrio of Bambang, as well as to remove and destroy the obstacles to the free passage of the waters through the strip of land in Paraanan; to abstain in future, and forever, from obstructing or closing in any manner the course of the waters through the said strip of land. The request that the defendant be sentenced to pay an indemnity was denied, and no ruling was made as to costs. The defendant excepted to the above judgment and furthermore asked for a new trial which was denied and also excepted to, and, upon approval of the bill of exceptions, the question was submitted to this court. Notwithstanding the defendant's denial in his amended answer, it appears to have been clearly proven in this case that the lands owned by the plaintiffs in the aforesaid barrio, as well as the small adjoining lake, named Calalaran, are located in places relatively higher than the sitio called Paraanan where the land and fish pond of the defendant are situated, and which border on the Taliptip River; that during the rainy season the rain water which falls on he land of the plaintiffs, and which flows toward the small Calalaran Lake at flood time, has no outlet to the Taliptip River other than through the low land of Paraanan: that the border line between Calalaran and Paraanan there has existed from time immemorial a dam, constructed by the community for the purpose of preventing the salt waters from the Taliptip River, at high tide, from flooding the land in Calalaran, passing through the lowlands of Paraanan; but when rainfall was abundant, one of the residents was designated in his turn by the lieutenant or justice of the barrio to open the sluice gate in order to let out the water that flooded the rice fields, through the land of Paraanan to the above-mentioned river, that since 1901, the defendant constructed another dam along the boundary of this fishpond in Paraanan, thereby impeding the outlet of the waters that flood the fields of Calalaran, to the serious detriment of the growing crops.

According to article 530 of the Civil Code, an easement is charge imposed upon one estate for the benefit of another estate belonging to a different owner, and the realty in favor of which the easement is established is called the dominant estate, and the one charged with it the servient estate. The lands of Paraanan being the lower are subject to the easement of receiving and giving passage to the waters proceeding from the higher lands and the lake of Calalaran; this easement was not constituted by agreement between the interested parties; it is of a statutory nature, and the law had imposed it for the common public utility in view of the difference in the altitude of the lands in the barrio Bambang. Article 552 of the Civil code provides: Lower estates must receive the waters which naturally and without the intervention of man descend from the higher estates, as well as the stone or earth which they carry with them. Neither may the owner of the lower estates construct works preventing this easement, nor the one of the higher estate works increasing the burden. Article 563 of the said code reads also: The establishment, extent, form, and conditions of the easements of waters to which this section refers shall be governed by the special law relating thereto in everything not provided for in this code. The special law cited in the Law of Waters of August 3, 1866, article 111 of which, treating of natural easements relating to waters, provides: Lands situated at a lower level are subject to receive the waters that flow naturally, without the work of man, from the higher lands together with the stone or earth which they carry with them. Hence, the owner of the lower lands can not erect works that will impede or prevent such an easement or charge, constituted and imposed by the law upon his estate for the benefit of the higher lands belonging to different owners; neither can the latter do anything to increase or extend the easement. According to the provisions of law above referred to, the defendant, Meneses, had no right to construct the works, nor the dam which blocks the passage, through his lands and the outlet to the Taliptip River, of the waters which flood the higher lands of the plaintiffs; and having done so, to the detriment of the easement charged on his estate, he has violated the law which protects and guarantees the respective rights and regulates the duties of the owners of the fields in Calalaran and Paraanan.

It is true that article 388 of said code authorizes every owner to enclose his estate by means of walls, ditches fences or any other device, but his right is limited by the easement imposed upon his estate. The defendant Meneses might have constructed the works necessary to make and maintain a fish pond within his own land, but he was always under the strict and necessary obligation to respect the statutory easement of waters charged upon his property, and had no right to close the passage and outlet of the waters flowing from the lands of the plaintiffs and the lake of Calalaran into the Taliptip River. He could not lawfully injure the owners of the dominant estates by obstructing the outlet to the Taliptip River of the waters flooding the upper lands belonging to the plaintiffs. It is perhaps useful and advantageous to the plaintiffs and other owners of high lands in Calalaran, in addition to the old dike between the lake of said place and the low lands in Paraanan, to have another made by the defendant at the border of Paraanan adjoining the said river, for the purpose of preventing the salt waters of the Taliptip River flooding, at high tide, not only the lowlands in Paraanan but also the higher ones of Calalaran and its lake, since the plaintiffs can not prevent the defendant from protecting his lands against the influx of salt water; but the defendant could never be permitted to obstruct the flow of the waters through his lands to the Taliptip River during the heavy rains, when the high lands in Calalaran and the lake in said place are flooded, thereby impairing the right of the owners of the dominant estates. For the above reasons, and accepting the findings of the court below in the judgment appealed from in so far as they agree with the terms of this decision, we must and do hereby declare that the defendant, Higino Meneses, as the owner of the servient estate, is obliged to give passage to and allow the flow of the waters descending from the Calalaran Lake and from the land of the plaintiffs through his lands in Paraanan for their discharge into the Taliptip River; and he is hereby ordered to remove any obstacle that may obstruct the free passage of the waters whenever there may be either a small or large volume of running water through his lands in the sitio of Paraanan for their discharge into the Taliptip River; and in future to abstain from impeding, in any manner, the flow of the waters coming from the higher lands. The judgment appealed from is affirmed, in so far as it agrees with decision, and reversed in other respects, with the costs of this instance against the appellants. So ordered. Carson, Willard and Tracey, JJ., concur. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 183297 December 23, 2009

NATIONAL POWER CORPORATION, Petitioner, vs. OMAR G. MARUHOM, ELIAS G. MARUHOM, BUCAY G. MARUHOM, MAMOD G.

MARUHOM, FAROUK G. MARUHOM, HIDJARA G. MARUHOM, ROCANIA G. MARUHOM, POTRISAM G. MARUHOM, LUMBA G. MARUHOM, SINAB G. MARUHOM, ACMAD G. MARUHOM, SOLAYMAN G. MARUHOM, MOHAMAD M. IBRAHIM, CAIRORONESA M. IBRAHIM, and LUCMAN IBRAHIM, represented by his heirs ADORA B. IBRAHIM, NASSER B. IBRAHIM, JAMALODIN B. IBRAHIM, RAJID NABBEL B. IBRAHIM, AMEER B. IBRAHIM and SARAH AIZAH B. IBRAHIM,* Respondents. DECISION NACHURA, J.: Petitioner National Power Corporation (NPC) filed this Petition for Review on Certiorari, seeking to nullify the May 30, 2008 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 02065-MIN, affirming the Order dated November 13, 2007 issued by Hon. Amer R. Ibrahim, which granted respondents motion for issuance of a writ of execution. The antecedents. Lucman G. Ibrahim and his co-heirs Omar G. Maruhom, Elias G. Maruhom, Bucay G. Maruhom, Mamod G. Maruhom, Farouk G. Maruhom, Hidjara G. Maruhom, Rocania G. Maruhom, Potrisam G. Maruhom, Lumba G. Maruhom, Sinab G. Maruhom, Acmad G. Maruhom, Solayman G. Maruhom, Mohamad M. Ibrahim and Cairoronesa M. Ibrahim (respondents) are owners of a 70,000-square meter lot in Saduc, Marawi City. Sometime in 1978, NPC, without respondents knowledge and consent, took possession of the subterranean area of the land and constructed therein underground tunnels. The tunnels were used by NPC in siphoning the water of Lake Lanao and in the operation of NPCs Agus II, III, IV, V, VI, and VII projects located in Saguiran, Lanao del Sur; Nangca and Balo-i in Lanao del Norte; and Ditucalan and Fuentes in Iligan City. Respondents only discovered the existence of the tunnels sometime in July 1992. Thus, on October 7, 1992, respondents demanded that NPC pay damages and vacate the subterranean portion of the land, but the demand was not heeded. Hence, on November 23, 1994, respondents instituted an action for recovery of possession of land and damages against NPC with the Regional Trial Court (RTC) of Lanao del Sur, docketed as Civil Case No. 1298-94. After trial, the RTC rendered a decision,2 the decretal portion of which reads: WHEREFORE, judgment is hereby rendered: 1. Denying [respondents] prayer for [NPC] to dismantle the underground tunnels constructed beneath the lands of [respondents] in Lots 1, 2, and 3 of Survey Plan FP (VII5) 2278; 2. Ordering [NPC] to pay to [respondents] the fair market value of said 70,000 square meters of land covering Lots 1, 2, and 3 as described in Survey Plan FP (VII-5) 2278 less

the area of 21,995 square meters at P1,000.00 per square meter or a total of P48,005,000.00 for the remaining unpaid portion of 48,005 square meters; with 6% interest per annum from the filing of this case until paid; 3. Ordering [NPC] to pay [respondents] a reasonable monthly rental of P0.68 per square meter of the total area of 48,005 square meters effective from its occupancy of the foregoing area in 1978 or a total of P7,050,974.40. 4. Ordering [NPC] to pay [respondents] the sum of P200,000.00 as moral damages; and 5. Ordering [NPC] to pay the further sum of P200,000.00 as attorneys fees and the costs. SO ORDERED.3 Respondents then filed an Urgent Motion for Execution of Judgment Pending Appeal. On the other hand, NPC filed a Notice of Appeal. Thereafter, it filed a vigorous opposition to the motion for execution of judgment pending appeal with a motion for reconsideration of the RTC decision. On August 26, 1996, NPC withdrew its Notice of Appeal to give way to the hearing of its motion for reconsideration. On August 28, 1996, the RTC issued an Order granting execution pending appeal and denying NPCs motion for reconsideration. The Decision of the RTC was executed pending appeal and the funds of NPC were garnished by respondents. On October 4, 1996, Lucman Ibrahim and respondents Omar G. Maruhom, Elias G. Maruhom, Bucay G. Maruhom, Mamod G. Maruhom, Farouk G. Maruhom, Hidjara G. Maruhom, Potrisam G. Maruhom and Lumba G. Maruhom filed a Petition for Relief from Judgment,4 asserting as follows: 1. They did not file a motion to reconsider or appeal the decision within the reglementary period of fifteen (15) days from receipt of judgment because they believed in good faith that the decision was for damages and rentals and attorneys fees only as prayed for in the complaint; 2. It was only on August 26, 1996 that they learned that the amounts awarded to the respondents represented not only rentals, damages and attorneys fees but the greatest portion of which was payment of just compensation which, in effect, would make the petitioner NPC the owner of the parcels of land involved in the case; 3. When they learned of the nature of the judgment, the period of appeal had already expired; 4. They were prevented by fraud, mistake, accident, or excusable negligence from taking legal steps to protect and preserve their rights over their parcels of land insofar as the part of the decision decreeing just compensation for respondents properties;

5. They would never have agreed to the alienation of their property in favor of anybody, considering the fact that the parcels of land involved in this case were among the valuable properties they inherited from their dear father and they would rather see their land crumble to dust than sell it to anybody.5 After due proceedings, the RTC granted the petition and rendered a modified judgment dated September 8, 1997, thus: WHEREFORE, a modified judgment is hereby rendered: 1. Reducing the judgment award of [respondents] for the fair market value of P48,005,000.00 by [P]9,526,000.00 or for a difference [of] P38,479,000.00 and by the further sum of P33,603,500.00 subject of the execution pending appeal leaving a difference of [P]4,878,500.00 which may be the subject of execution upon the finality of this modified judgment with 6% interest per annum from the filing of the case until paid. 2. Awarding the sum of P1,476,911.00 to herein [respondents] Omar G. Maruhom, Elias G. Maruhom, Bucay G. Maruhom, Mahmod G. Maruhom, Farouk G. Maruhom, Hidjara G. Maruhom, Portrisam G. Maruhom and Lumba G. Maruhom as reasonable rental deductible from the awarded sum of P7,050,974.40 pertaining to [respondents]. 3. Ordering [NPC] embodied in the August 7, 1996 decision to pay [respondents] the sum of P200,000.00 as moral damages; and further sum of P200,000.00 as attorneys fees and costs. SO ORDERED.6 Lucman Ibrahim and NPC then filed their separate appeals with the CA, docketed as CA-G.R. CV No. 57792. On June 8, 2005, the CA rendered a Decision,7 setting aside the modified judgment and reinstating the original Decision, amending it further by deleting the award of moral damages and reducing the amount of rentals and attorneys fees, thus: WHEREFORE, premises considered, herein Appeals are hereby partially GRANTED, the Modified Judgment is ordered SET ASIDE and rendered of no force and effect and the original Decision of the court a quo dated 7 August 1996 is hereby RESTORED with the MODIFICATION that the award of moral damages is DELETED and the amounts of rentals and attorneys fees are REDUCED to P6,887,757.40 and P50,000.00, respectively. In this connection, the Clerk of Court of RTC Lanao del Sur is hereby directed to reassess and determine the additional filing fee that should be paid by Plaintiff-Appellant IBRAHIM taking into consideration the total amount of damages sought in the complaint vis--vis the actual amount of damages awarded by this Court. Such additional filing fee shall constitute as a lien on the judgment. SO ORDERED8

The above decision was affirmed by this Court on June 29, 2007 in G.R. No. 168732, viz.: WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals in C.A.-G.R. CV No. 57792 dated June 8, 2005 is AFFIRMED. No costs. SO ORDERED.9 NPC moved for reconsideration of the Decision, but this Court denied it on August 29, 2007. To satisfy the judgment, respondents filed with the RTC a motion for execution of its August 7, 1996 decision, as modified by the CA. On November 13, 2007, the RTC granted the motion, and issued the corresponding writ of execution. Subsequently, a notice of garnishment was issued upon NPCs depositary bank. NPC then filed a Petition for Certiorari (with Urgent Prayer for the Immediate Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction) with the CA, docketed as CA-G.R. SP No. 02065-MIN. It argued that the RTC gravely abused its discretion when it granted the motion for execution without ordering respondents to transfer their title in favor of NPC. By allowing the payment of just compensation for a parcel of land without the concomitant right of NPC to get title thereto, the RTC clearly varied the terms of the judgment in G.R. No. 168732, justifying the issuance of a writ of certiorari. NPC also prayed for the issuance of a temporary restraining order (TRO) to enjoin the implementation of the writ of execution and notice of garnishment. On November 29, 2007, the CA granted NPCs prayer and issued a TRO, enjoining the implementation of the writ of execution and the notice of garnishment. On May 30, 2008, the CA rendered the now assailed Decision,10 dismissing NPCs petition for certiorari. Rejecting NPCs argument, the CA declared that this Courts Decision in G.R. No. 168732 intended NPC to pay the full value of the property as compensation without ordering the transfer of respondents title to the land. According to the CA, in a plethora of cases involving lands traversed by NPCs transmission lines, it had been consistently ruled that an easement is compensable by the full value of the property despite the fact that NPC was only after a right-ofway easement, if by such easement it perpetually or indefinitely deprives the land owner of his proprietary rights by imposing restrictions on the use of the property. The CA, therefore, ordered NPC to pay its admitted obligation to respondents amounting to P36,219,887.20.11 NPC is now before us faulting the CA for dismissing the formers petition for certiorari. It also prayed for a TRO to enjoin respondents and all persons acting under their authority from implementing the May 30, 2008 Decision of the CA. In its July 9, 2008 Resolution,12 this Court granted NPCs prayer, and issued a TRO enjoining the execution of the assailed CA Decision. In the main, NPC insists that the payment of just compensation for the land carries with it the correlative right to obtain title or ownership of the land taken. It stresses that this Courts

Decision in G.R. No. 168732 is replete with pronouncements that the just compensation awarded to respondents corresponds to compensation for the entire land and not just for an easement or a burden on the property, thereby necessitating a transfer of title and ownership to NPC upon satisfaction of judgment. NPC added that by granting respondents motion for execution, and consequently issuing the writ of execution and notice of garnishment, the RTC and the CA allowed respondents to retain title to the property even after the payment of full compensation. This, according to NPC, was a clear case of unjust enrichment. The petition lacks merit. It is a fundamental legal axiom that a writ of execution must conform strictly to the dispositive portion of the decision sought to be executed. A writ of execution may not vary from, or go beyond, the terms of the judgment it seeks to enforce. When a writ of execution does not conform strictly to a decisions dispositive portion, it is null and void.13 Admittedly, the tenor of the dispositive portion of the August 7, 1996 RTC decision, as modified by the CA and affirmed by this Court, did not order the transfer of ownership upon payment of the adjudged compensation. Neither did such condition appear in the text of the RTC decision, and of this Courts Decision in G.R. No. 168732. As aptly pointed out by the CA in its assailed Decision: [NPC], by its selective quotations from the Decision in G.R. No. 168732, would have Us suppose that the High Court, in decreeing that [NPC] pay the full value of the property as just compensation, implied that [NPC] was entitled to the entire land, including the surface area and not just the subterranean portion. No such inference can be drawn from [the] reading of the entirety of the High Courts Decision. On the contrary, a perusal of the subject Decision yields to this Court the unmistakable sense that the High Court intended [NPC] to pay the full value of the subject property as just compensation without ordering the transfer o[f] respondents title to the land. This is patent from the following language of the High Court as quoted by [NPC] itself: In disregarding this procedure and failing to recognize respondents ownership of the sub-terrain portion, petitioner took a risk and exposed itself to greater liability with the passage of time. It must be emphasized that the acquisition of the easement is not without expense. The underground tunnels impose limitations on respondents use of the property for an indefinite period and deprive them of its ordinary use. Based upon the foregoing, respondents are clearly entitled to the payment of just compensation. Notwithstanding the fact that [NPC] only occupies the sub-terrain portion, it is liable to pay not merely an easement but rather the full compensation for land. This is so because in this case, the nature of the easement practically deprives the owners of its normal beneficial use. Respondents, as the owners of the property thus expropriated, are entitled to a just compensation which should be neither more nor less, whenever it is possible to make the assessment, than the money equivalent of said property.14 Clearly, the writ of execution issued by the RTC and affirmed by the CA does not vary, but is, in fact, consistent with the final decision in this case. The assailed writ is, therefore, valid.

Indeed, expropriation is not limited to the acquisition of real property with a corresponding transfer of title or possession. The right-of-way easement resulting in a restriction or limitation on property rights over the land traversed by transmission lines also falls within the ambit of the term expropriation.15 As we explained in Camarines Norte Electric Cooperative, Inc. v. Court of Appeals:16 The acquisition of an easement of a right-of-way falls within the purview of the power of eminent domain. Such conclusion finds support in easements of right-of-way where the Supreme Court sustained the award of just compensation for private property condemned for public use. The Supreme Court, in Republic v. PLDT thus held that: "Normally, of course, the power of eminent domain results in the taking or appropriation of title to, and possession of, the expropriated property; but no cogent reason appears why said power may not be availed of to impose only a burden upon the owner of condemned property, without loss of title and possession. It is unquestionable that real property may, through expropriation, be subjected to an easement of right-of-way." However, a simple right-of-way easement transmits no rights, except the easement. Vines Realty retains full ownership and it is not totally deprived of the use of the land. It can continue doing what it wants to do with the land, except those that would result in contact with the wires.1avvphi1 The acquisition of this easement, nevertheless, is not gratis. Considering the nature and effect of the installation power lines, the limitations on the use of the land for an indefinite period deprives private respondents of its ordinary use. For these reasons, Vines Realty is entitled to payment of just compensation, which must be neither more nor less than the money equivalent of the property.17 It is, therefore, clear that NPCs acquisition of an easement of right-of-way on the lands of respondents amounted to expropriation of the portions of the latters property for which they are entitled to a reasonable and just compensation. The term just compensation had been defined as the full and fair equivalent of the property taken from its owner by the expropriator. The measure is not the taker's gain, but the owner's loss. The word just is used to intensify the meaning of the word compensation and to convey thereby the idea that the equivalent to be rendered for the property to be taken shall be real, substantial, full, and ample.18 In Camarines Norte Electric Cooperative, Inc. v. Court of Appeals19 and National Power Corporation v. Manubay Agro-Industrial Development Corporation,20 this Court sustained the award of just compensation equivalent to the fair and full value of the property even if petitioners only sought the continuation of the exercise of their right-of-way easement and not the ownership over the land. There is simply no basis for NPC to claim that the payment of fair market value without the concomitant transfer of title constitutes an unjust enrichment.

In fine, the issuance by the RTC of a writ of execution and the notice of garnishment to satisfy the judgment in favor of respondents could not be considered grave abuse of discretion. The term grave abuse of discretion, in its juridical sense, connotes capricious, despotic, oppressive, or whimsical exercise of judgment as is equivalent to lack of jurisdiction. The abuse must be of such degree as to amount to an evasion of positive duty or a virtual refusal to perform a duty enjoined by law, as where the power is exercised in an arbitrary and capricious manner by reason of passion and hostility. The word capricious, usually used in tandem with the term arbitrary, conveys the notion of willful and unreasoning action. Thus, when seeking the corrective hand of certiorari, a clear showing of caprice and arbitrariness in the exercise of discretion is imperative.21 In this case, NPC utterly failed to demonstrate caprice or arbitrariness on the part of the RTC in granting respondents motion for execution. Accordingly, the CA committed no reversible error in dismissing NPCs petition for certiorari. It is almost trite to say that execution is the fruit and the end of the suit and is the life of the law. A judgment, if left unexecuted, would be nothing but an empty victory for the prevailing party. Litigation must end sometime and somewhere. An effective and efficient administration of justice requires that once a judgment has become final, the winning party be not deprived of the fruits of the verdict. Courts must, therefore, guard against any scheme calculated to bring about that result. Constituted as they are to put an end to controversies, courts should frown upon any attempt to prolong them.22 We, therefore, write finis to this litigation. WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals in CAG.R. SP No. 02065-MIN is AFFIRMED. The temporary restraining order issued by this Court on July 9, 2008 is LIFTED. SO ORDERED.
NATIONAL POWERcralawcralawcralawG.R. No. 164079 CORPORATION, Petitioner, Present:
cralaw cralawcralawcralawYNARES-SANTIAGO,

J., Chairperson,

-versus-cralawAUSTRIA-MARTINEZ,
cralawcralawcralawcralawCALLEJO, cralawCHICO-NAZARIO,

SR., NACHURA, JJ.

and

DR. ANTERO BONGBONGcralawPromulgated: And ROSARIO BONGBONG, Respondents.cralawcralawApril 4, 2007 x--------------------------------------------------x DECISION

CALLEJO, SR., J.:

Before the Court is a Petition for Review of the Decision of the Court of Appeals (CA) in CA-G.R. CV No. 65913 dated May 23, 2003, and the Resolution dated April 12, 2004 denying the motion for reconsideration thereof.

Spouses Antero and Rosario Bongbong are the registered owners of a 364,451-square-meter parcel of land situated at Barangay Sambulawan, Villaba, Leyte. The property is covered by Original Certificate of Title (OCT) No. R-2189 of the Register of Deeds of the Province of Leyte.

As early as 1996, the National Power Corporation (NPC) negotiated with the spouses Bongbong to use a portion of the property for the construction of a 230 KV LCIP Malitbog-Tabango CETL TWR SITE 1046 for the Leyte-Cebu Interconnection Project. When the spouses Bongbong agreed, NPC occupied a 25,100-sq-m portion of the property.

On April 22, 1996, NPC paid the spouses Bongbong the amount of P33,582.00 representing the value of the improvements that were damaged by the construction of the project. The voucher for the payment of easement fee was prepared. However, when NPC offered a check for P163,150.00 (representing 10% of the total market value of the area affected) as payment for the easement fee, Antero refused to accept the amount and demanded that NPC pay the full value of the 25,100-sq-m portion it had occupied. On October 28, 1997, the spouses Bongbong received the P163,150.00 under protest.chanroblesvirtuallawlibrary

On October 3, 1997, the spouses Bongbong demanded that the NPC pay P8,748,448.00 which they alleged to be the just and reasonable value for their land and improvements.The refusal of NPC to heed their demands prompted the spouses Bongbong to file a complaint for just compensation before the Regional Trial Court (RTC) of Palompon, Leyte. The case against NPC was docketed as Civil Case No. PN-0207.

In the complaint, the spouses Bongbong alleged that NPC was given the authority to enter the property due to its assurances and promises that it would pay just compensation, but it never did.It pointed out that nearby landowners were paid P300.00 per sq m; considering that the price of land has increased with the devaluation of the peso, the amount of P250.00 per sq m was reasonable. They prayed, among others, that commissioners be appointed to determine the fair market value of the land as well as the improvements thereon; and to recommend that the total amount due and payable to them be at least P7,493,448.00 (P250.00 per square meter), and that they be paid 10% of the proceeds as attorneys fees, and P100,000.00 as litigation expenses.

In its Answer, NPC claimed that its obligation towards the spouses Bongbong had already been extinguished when it paid the amount of P33,582.15 for the damaged improvements on April 22, 1996, and the easement fee pursuant to Republic Act (R.A.) No. 6395, as amended by Presidential Decree (P.D.) No. 938, in the amount of P163,150.00 on October 28, 1997.

On May 21, 1999, the spouses Bongbong filed a Motion to Admit as Supplement to the Amended Complaint the New Reappraisal of Plaintiffs Real Property and Improvements, dated February 8, 1999. In the said Reappraisal, which was issued by the Provincial Appraisal Committee (PAC) of Leyte (Resolution No. 03-99), the lot was valued at P300.00 per sq m.

NPC opposed the motion, alleging that the payment of just compensation should be based on the market value of the property at the time of its taking in 1997; pursuant to its charter, it paid only an easement fee.chanroblesvirtuallawlibrary

On July 2, 1999, the trial court issued another Order admitting the PAC Reappraisal.On August 2, 1999, the trial court directed the spouses Bongbong to submit in writing their proposal on the amount of just

compensation, and to furnish a copy thereof to Atty. Marianito delos Santos, NPCs counsel, who was given ten days to comment thereon.chanroblesvirtuallawlibrary

On August 18, 1999, the spouses Bongbong filed a Motion to Resolve the Market Value of Plaintiffs Property and Improvements, praying that the court declare the value of the land at P350.00 per sq m or the total amount of P8,785,000.00, and declare the value of the improvements to be P1,218,448.00, a total of P10,003,448.00.

Among the pertinent documents the spouses Bongbong submitted to the court were the following:

1.cralawList of Affected Improvements for the Province of Leyte affected by the NPC Transmission Lines Project. 2.cralawOriginal Certificate of Title No. N-2189 over the subject property; 3.cralawTax Declaration No. ARP No. 00034 covering the subject property; 4.cralawDisbursement Voucher for the payment of the easement fee of P163,150.00; 5.cralawCertification dated October 24, 1997, acknowledging receipt under protest of the payment of P163,150.00 as easement fee; 6.cralawResolution No. 11-97 of the Provincial Appraisal Committee dated May 2, 1997, finding the value of the subject property consisting of 25,100 square meters to be P1,631,500.00 at P65.00 per square meter; 7.cralawLetter dated January 21, 1999 of Dante Polloso, Project Manager of NPC, to Atty. Rafael Iriarte, Leyte Provincial Assessor, requesting for the reappraisal of the subject property; 8.cralawReappraisal by the Provincial Appraisal Committee dated February 8, 1999, finding the market value of the subject property to be P7,530,000.00 at P300.00 per square meter; 9.cralawLetter dated October 3, 1997 of Antero Bongbong to NPC, demanding payment of P7,530,000.00 for the 25,100 square meters of land plus P1,218,448.00 for coconuts and other damages;

10.cralawPermission to Enter Property for Construction of Transmission Line Project; 11.cralawDeed of Absolute Sale dated January 16, 1997 between NPC and Spouses Felipe and Mercedes Larrazabal over a portion of a parcel of land situated in Naghalin, Kananga, Leyte consisting of 11,281 square meters for P3,384,300.00 at P300.00 per square meter; 12.cralawDeed of Absolute Sale dated January 16, 1997 between NPC and Melchor Larrazabal, in behalf of Faustino Larrazabal, over a portion of a parcel of land situated in Naghalin, Kananga, Leyte consisting of 5,027 square meters for P1,508,000.00 at P300.00 per square meter; 13.cralawDeed of Absolute Sale dated January 16, 1997 between NPC and Fedelina L. Tuazon over a portion of a parcel of land situated in Naghalin, Kananga, Leyte consisting of 5,700 square meters for P1,710,000.00 at P300.00 per square meter; 14.cralawDeed of Absolute Sale dated July 8, 1997 between NPC and Merlo Aznar, as representative of Aznar Enterprises, over a portion of a parcel of land situated in Tabango, San Isidro, Leyte consisting of 61,008 square meters for P18,302,400.00 at P300.00 per square meter; 15.cralawDeed of Absolute Sale dated January 16, 1997 between NPC and Florence Tan over a portion of a parcel of land situated in Naghalin, Kananga, Leyte consisting of 4,075 square meters for P1,426,250.00 at P350.00 per square meter; 16.cralawDeed of Absolute Sale dated March 4, 1997 between NPC and Yolinda O. Beduya over a portion of a parcel of land situated in Campokpok, Tabango, Leyte consisting of 2,109 square meters for P632,700.00 at P300.00 per square meter; and 17.cralawDeed of Absolute Sale dated March 4, 1997 between NPC and Trinidad O. Palanas over a parcel of land situated in Campokpok, Tabango, Leyte consisting of 2,109 square meters for P632,700.00 at P300.00 per square meter.

On November 5, 1999, the trial court issued an Order fixing the just compensation due to respondent, thus: WHEREFORE, all the foregoing premises considered, this Court has determined that the value of the plaintiffs property at the time of taking in 1997 is THREE HUNDRED

(P300.00) PESOS per square meter or the total amount of SEVEN MILLION FIVE HUNDRED THIRTY THOUSAND (P7,530,000.00) PESOS.

SO ORDERED.

cralawThe

trial court stressed that just compensation should be reckoned from 1997 when the taking took

place. It noted that, in 1997, NPC consistently paid P300.00 per square meter to the spouses Felipe and Mercedes Larrazabal, Melchor Larrazabal, Fedelina Tuazon, Aznar Enterprises, Inc., Yolinda Beduya, and Trinidad Palanas for the properties it acquired for its transmission lines. It held that NPC should not discriminate against the spouses Bongbong, who should thus be paid the same rate.

NPC elevated the case to the CA through a notice of appeal. On May 23, 2003, the CA rendered a Decision affirming the RTC decision, thus:

WHEREFORE, the assailed November 5, 1999 Order of the Regional Trial Court of Palompon, Leyte is AFFIRMED in its entirety.
cralaw

SO ORDERED.

The CA found no cogent reason to reverse the finding of the trial court. It agreed with the trial court that the spouses Bongbong should not be discriminated against in the determination of just compensation.Considering therefore that NPC had paid P300.00 per square meter for properties belonging to other landowners in the Province of Leyte for the construction of its transmission line, it should pay respondents the same amount. The appellate court stressed that the value of the property at the time the government took possession of the land, not the increased value resulting from the passage of time, represents the true value to be paid as just compensation for the property taken. chanroblesvirtuallawlibrary

Moreover, the CA held that Section 5, Rule 67 of the Revised Rules of Civil Procedure on the creation of a board of commissioners does not apply to the present case since it is not an expropriation proceeding.chanroblesvirtuallawlibrary On April 12, 2004, the CA resolved to deny NPCs motion for reconsideration. chanroblesvirtuallawlibrary NPC, now petitioner, filed the instant petition seeking the reversal of the CA decision on the following grounds:

1.

The Court of Appeals seriously and grossly erred in failing to consider: (a) the value of the land (which was P65.00 per square meter as of May 2, 1997) and its character (which was and still is agricultural) at the time of its taking by NAPOCOR in early 1997; and (b) that the P300.00 per square meter valuation thereof is the post-taking reappraisal value made by the Provincial Appraisal Committee (PAC) on February 8, 1999, and as such is inapplicable and cannot be given retroactive effect. The Court of Appeals seriously and grossly erred in ignoring and in not applying NAPOCORs Charter RA No. 6395, as amended, as legal basis for the payment of just compensation which should consist of simple right-of-way easement fee of ten [percent] (10%) of the value of the land, instead of full compensation, as the reasonable and adequate disturbance or compensation fee for the right-of-way easement on agricultural land of respondents traversed by its overhead transmission lines. Assuming arguendo that full compensation, instead of simple easement fee is proper, the Court of Appeals seriously and grossly erred in not ordering the transfer of the title and ownership over the subject parcel of land in favor of NAPOCOR.

2.

3.

Petitioner argues that the deeds of sale relied upon by the trial court involve parcels of land 20 to 40 kilometers away from Villaba, Leyte, and as such are classified and declared as either residential, industrial or commercial lots. On the other hand, respondents property is classified as agricultural. It asserts that the value of the land and its character at the time it was taken by the government should be the criteria in determining just compensation; hence, it should not have been based on the reappraisal made by the PAC on February 8, 1999.chanroblesvirtuallawlibrary Petitioner further contends that it should only pay an easement fee and not the full value of the property since it acquired only a simple right-of-way easement for the passage of its overhead transmission lines;

respondents retained the full ownership and right to use the land. It points out that under Sec. 3-A of R.A. No. 6395, as amended by P.D. No. 938, it is only authorized to acquire a right-of-way easement where a portion of a land will be traversed by transmission lines, and to pay only an easement fee 10% of the market value of the land.chanroblesvirtuallawlibrary Finally, petitioner submits that the CA should have ordered the transfer of the title and ownership over the subject portion of the land to petitioner after it had adjudged the latter liable for the full market value of the property.chanroblesvirtuallawlibrary Respondents, for their part, aver that the present petition should be dismissed for having been filed out of time. Petitioners Motion for Extension to File a Petition for Review should have been filed on or before June 30, 2004, that is, fifteen days from its receipt of the notice denying its motion for reconsideration; respondent filed the petition only on July 8, 2006. The Court, in effect, granted no extension of time since petitioner failed to file its motion for extension of time. chanroblesvirtuallawlibrary Respondents further contend that the court a quo and the CA did not err in fixing the value of the land at P300.00 per sq m, the reappraisal price determined by the PAC of Leyte. They aver that, since petitioner did not file an expropriation case, it had no basis to insist that just compensation be fixed at the price of the property at the time of the taking (P65.00 per sq m). Finally, they assert that the CA was under no duty to order the transfer of the title and ownership of the land to petitioner since no payment had yet been made.chanroblesvirtuallawlibrary The issues in this case are as follows: (1) whether the petition for review should be denied for having been filed out of time; (2) whether the trial court, as affirmed by the CA, was correct in fixing just compensation at P300.00 per sq m; (3) whether petitioner is obliged to pay the full value of the property taken or easement fee only; (4) whether the procedure laid down in Rule 67 should be followed in determining just compensation; and (5) whether the CA erred in not ordering the transfer of the title over the subject property to petitioner after it was ordered to pay its full market value. The petition is partially granted. The present petition has, indeed, been filed out of time. The records show that petitioners Regional Counsel in CebuCity received the CA Resolution denying the motion for reconsideration on June 15, 2004; hence, petitioner had until June 30, 2004 to file a petition for review or a motion for

extension of time to file a petition for review with this Court. On June 23, 2004, however, the case was indorsed to the Office of the Solicitor General (OSG). It was only on July 8, 2004 that the OSG was able to file a motion for extension of time to file a petition for review with the Court. While we agree with respondent that the petition has been filed out of time, we do not agree with its plea that the petition should be dismissed solely on this ground. As much as possible, appeals should not be dismissed on a mere technicality in order to afford the litigants the maximum opportunity for the adjudication of their cases on the merits. While rules of procedure must be faithfully followed, they may be relaxed, for persuasive and weighty reasons, to relieve a litigant of an injustice commensurate with his failure to comply with the prescribed procedure. chanroblesvirtuallawlibrary Petitioner, through the OSG, explained that it failed to file the motion for extension of time because it did not participate in the proceedings below and the case had been indorsed to it only on June 23, 2004. Further, the Solicitor to whom it was assigned received the records of the case only on July 2, 2004. We find this explanation adequate to warrant the relaxation of the rules. As will be shown later, a contrary view would cause an injustice to petitioner whose appeal deserves to be heard on the merits. We agree with the contention of petitioner that the trial court erred in the determination of just compensation at P300.00 per sq m based on the fact that it paid a similar rate to the other landowners whose properties were likewise acquired by petitioner. Just compensation is the fair value of the property as between one who receives, and one who desires to sell, fixed at the time of the actual

taking by the government. This rule holds true when the property is taken before the filing of an expropriation suit, and even if it is the property owner who brings the action for compensation. The nature and character of the land at the time of its taking is the principal criterion for determining how much just compensation should be given to the landowner. In determining just compensation, all the facts as to the condition of the property and its surroundings, its improvements and capabilities, should be considered.chanroblesvirtuallawlibrary In the present case, the trial court determined just compensation without considering the differences in the nature and character or condition of the property compared to the other properties in the province which petitioner had purchased. It simply relied on the fact that petitioner paid P300.00 per sq m to the other landowners whose lands had been taken as a result of the construction of transmission lines. But a perusal of the Deeds of Sale shows that the properties covered by the transmission lines are located in the municipalities of Kananga, Leyte or Tabango, Leyte, while the subject property is located in Villaba, Leyte; the Deeds of Sale describe the properties as industrial, residential/commercial, while the tax declaration of the subject property describes it as agricultural. Petitioner consistently pointed out these differences and the trial court should not have ignored them.It must be stressed that although the determination of the amount of just compensation is within the courts discretion, it should not be done arbitrarily or capriciously. It must be based on all established rules, upon correct legal principles and competent evidence.chanroblesvirtuallawlibrary In addition, petitioner insists that commissioners should at least be appointed to determine just compensation in accordance with the procedure

in Section 5 of Rule 67. On this point, we do not agree with petitioner. Rule 67 need not be followed where the expropriator has violated procedural requirements. This is clearly expressed in Republic v. Court of Appeals. In the said case, the National Irrigation Administration (NIA) contended that it was deprived of due process when the trial court determined just compensation without the assistance of commissioners. The Court held as follows:

Rule 67, however, presupposes that NIA exercised its right of eminent domain by filing a complaint for that purpose before the appropriate court. Judicial determination of the propriety of the exercise of the power of eminent domain and the just compensation for the subject property then follows. The proceedings give the property owner the chance to object to the taking of his property and to present evidence on its value and on the consequential damage to other parts of his property. Respondent was not given these opportunities, as NIA did not observe the procedure in Rule 67. Worse, NIA refused to pay respondent just compensation. The seizure of ones property without payment, even though intended for public use, is a taking without due process of law and a denial of the equal protection of the laws. NIA, not respondent, transgressed the requirements of due process. When a government agency itself violates procedural requirements, it waives the usual procedure prescribed in Rule 67. This Court ruled in the recent case of National Power Corporation (NPC) v. Court of Appeals, to wit: We have held that the usual procedure in the determination of just compensation is waived when the government itself initially violates procedural requirements. NPCs taking of Pobres property without filing the appropriate expropriation proceedings and paying him just compensation is a transgression of procedural due process.(Emphasis supplied.) Like in NPC, the present case is not an action for expropriation. NIA never filed expropriation proceedings although it had ample opportunity to do so. Respondents complaint is an ordinary civil action for the recovery of possession of the Property or its value, and damages. Under these circumstances, a trial before commissioners is not necessary.
In National Power Corporation v. Court of Appeals, the Court clarified that when there is no action for expropriation and the case involves only a complaint for damages or just compensation, the provisions of Rule 67 would not apply, thus:

In this case, NPC appropriated Pobres Property without resort to expropriation proceedings. NPC dismissed its own complaint for the second expropriation. At no point did NPC institute expropriation proceedings for the lots outside the 5,554 square-meter portion subject of the second expropriation. The only issues that the

trial court had to settle were the amount of just compensation and damages that NPC had to pay Pobre. This case ceased to be an action for expropriation when NPC dismissed its complaint for expropriation. Since this case has been reduced to a simple case of recovery of damages, the provisions of the Rules of Court on the ascertainment of the just compensation to be paid were no longer applicable. A trial before commissioners, for instance, was dispensable.
Further, petitioner insists that if any amount should be paid to respondents, it should only be an easement fee of 10% the value of the property, not the full value, since it acquired only a simple right-of-way easement for the passage of its overhead transmission lines. It points out that its charter authorizes the acquisition only of a right-of-way easement for its transmission lines and the payment of an easement fee. Again, we do not agree. The Court has consistently held that the determination of just compensation is a judicial function. No statute, decree, or executive order can mandate that its own determination shall prevail over the courts findings.chanroblesvirtuallawlibrary In National Power Corporation v. Manubay Agro-Industrial Development Corporation , petitioner (also the NPC) likewise sought the expropriation of certain properties which would be traversed by its

transmission lines. In the said case, petitioner similarly argued that only an easement fee should be paid to respondent since the construction of the transmission lines would be a mere encumbrance on the property, and respondent would not be deprived of its beneficial enjoyment. It posited that respondent should be compensated only for what it would actually lose, that is, a portion of the aerial domain above its property. The Court noted, however, that petitioner sought, and was later granted, authority to enter the property and demolish all the improvements thereon. It, therefore, concluded that the expropriation would, in fact, not be limited to an easement of a right of way only. Similarly, the expropriation by petitioner in the present case does not amount to a mere encumbrance on the property. The records in this case show that petitioner has occupied a 25,100-sq-m area of respondents property. This was not disputed by respondents. Further, the Court ruled in the Manubay case that:

Granting arguendo that what petitioner acquired over respondents property was purely an easement of a right of way, still, we cannot sustain its view that it should pay only an easement fee, and not the full value of the property. The acquisition of such an easement falls within the purview of the power of eminent domain. This conclusion finds support in similar cases in which the Supreme Court sustained the award of just compensation for private property condemned for public use. Republic v. PLDT held, thus: x x x. Normally, of course, the power of eminent domain results in the taking or appropriation of title to, and possession of, the expropriated property; but no cogent reason appears why the said power may not be availed of to impose only a burden upon the owner of condemned property, without loss of title and possession. It is unquestionable that real property may, through expropriation, be subjected to an easement of right of way. True, an easement of a right of way transmits no rights except the easement itself, and respondent retains full ownership of the property. The acquisition of such easement is, nevertheless, not gratis. As correctly observed by the CA, considering the nature and the effect of the installation power lines, the limitations on the use of the land for an indefinite period would deprive respondent of normal use of the property. For this reason, the latter is entitled to payment of just compensation, which must be neither more nor less than the monetary equivalent of the land.
Finally, the CA did not err in not directing the transfer of the title over the subject property to petitioner since no payment has yet been made. It is only upon payment of just compensation that title over the property passes to the expropriator.chanroblesvirtuallawlibrary

In sum, we find that the trial court arbitrarily fixed the amount of just compensation due to respondent at P300.00 per sq m without considering the differences in the nature, character and condition of the subject property compared to other properties in the province which petitioner had acquired. For this reason, the Court has no alternative but to remand the case to the trial court for the proper determination of just compensation. IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The case is REMANDED to the Regional Trial Court of Palompon, Leyte, for the proper determination of just compensation.

[G.R. No. 135219. January 17, 2002] PHILIPPINE NATIONAL BANK, petitioner, vs. THE COURT OF APPEALS and ERNESTO AUSTRIA and LORETO Q. QUINTANA, respondents. DECISION YNARES-SANTIAGO, J.: Before us is a petition for review under Rule 45 of the Rules of Court, seeking a reversal of the Court of Appeals resolution in CA-G.R. SP No. 48660 dated August 25, 1998, which affirmed the order of the Regional Trial Court of Makati, Branch 60 in LRC Case No. M-2635. Sometime during the late 70s, the spouses Godofredo and Wilma Monsod obtained a loan in the amount of P120,000.00 from petitioner Philippine National Bank (PNB). To secure their loan, the Monsods mortgaged to PNB a parcel of land covered by TCT No. S-84843, located within the Monte Villa de Monsod Subdivision in Paraaque, Rizal. Due to Monsods failure to pay their loan obligation, PNB extrajudicially foreclosed the mortgage. At the auction sale of the subject real property, PNB was declared the highest bidder. On December 21, 1981, a certificate of sale was issued in favor of PNB, and was registered on July 11, 1984. Upon expiration of the redemption period on July 12, 1985, ownership of the property was consolidated in PNB. Thereafter, TCT No. S-84843 was cancelled and TCT No. 99480 was issued in PNBs name. On June 23, 1992, PNB filed an Ex-Parte Petition for the Issuance of Writ of Possession with Branch 60 of the Regional Trial Court of Makati City, docketed as LRC Case No. M-2635. Pursuant to the provisions of Act No. 3135, as amended, the trial court conducted an ex parte hearing. PNBs representative testified that the foreclosed property is occupied by one Ernesto Austria. According to PNB, Mr. Austria was invited by the bank to a conference to discuss the ownership of the foreclosed lot, however, he did not honor the banks invitation.

On August 28, 1992, the trial court granted PNBs petition and a writ of possession was issued on October 26, 1992. On December 11, 1992, respondents Ernesto and Loreto Quintana Austria filed a Motion for Intervention and to Recall and/or Stop the Enforcement of the Writ of Possession. The Austrias alleged that they are the actual occupants of the subject lot, which they purportedly bought from the Monsods as early as 1974. They claimed that the foreclosed property was enclosed within a concrete fence and formed part of their family compound. PNB allegedly knew of this fact even before it granted the loan to the Monsods, because the banks credit investigators were advised of the same when they inspected the property in the summer of 1976. Consequently, the Austrias maintained that the issuance of the possessory writ ex parte was improper, since it will deprive them of their property without due process. Due to the Austrias refusal to vacate the premises, the sheriff failed to enforce the challenged writ. On July 27, 1993, on motion of PNB, the trial court issued an alias writ of possession. Again, the writ was not implemented. On September 17, 1993, the sheriff sought to enforce the first alias writ of possession for the second time. The Austrias filed a Second Motion for Intervention seeking to restrain the enforcement of the writ of possession issued on October 26, 1992. PNB then filed an Urgent Ex-Parte Motion for Issuance of Break Open Order and, subsequently, an Opposition to the Austrias Second Motion for Intervention. On January 31, 1994, the trial court denied the Austrias second motion and granted PNBs Motion for Issuance of Break Open Order. The trial court ruled that the Austrias can no longer be permitted to intervene in the case during said stage of the proceedings and that the remedy of the Austrias was to file an ordinary civil action to assert their claim of ownership over the property. In the meantime, the first alias writ of possession lapsed. PNB thus filed an Ex-Parte Motion for Issuance of Second Alias Writ of Possession, and on November 29, 1994, a second alias writ was issued. Unfazed, the Austrias filed an Omnibus Motion on January 25, 1995, seeking a recall of the second alias writ and a reconsideration of the trial courts order denying their motion to intervene. Meanwhile, the second alias writ had likewise expired. PNB filed a Manifestation and Motion for Issuance of Third Alias Writ of Possession, which the trial court granted anew in an order dated October 10, 1995. However, on December 12, 1995, the Austrias again filed a motion to set aside the trial courts order dated October 10, 1995 and to recall the third alias writ.

Consequent to the filing of this fourth motion, the sheriff again failed to implement the third alias writ, which also lapsed. Thus, on February 15, 1996, PNB filed another Motion for Issuance of a Fourth Alias Writ, which was granted on March 26, 1996. The trial court, after hearing the Austrias fourth motion, issued an order on October 4, 1996, denying the same, on the ground that the issuance of a possessory writ for a property sold at public auction pursuant to an extra-judicial foreclosure proceeding was a ministerial duty on its part. The Austrias failed to establish any legal ground for recalling the writs, even as they claimed a superior right to the subject property. On February 19, 1997, the fourth alias writ was issued by the trial court. The writ was partially implemented with the posting of PNB security guards within the premises of the foreclosed lot. On April 17, 1997, the Austrias, for the fifth time, filed a motion to stop the enforcement of the fourth alias writ and to set aside all prior writs issued by the trial court. In the meantime, the Austrias filed before the Regional Trial Court of Paraaque, an action for cancellation of PNBs title to the property, docketed as Civil Case No. 97-0184. On October 28, 1997, the trial court denied the Austrias fifth motion but ruled that: any writ of possession that may be issued in this case, is declared unenforceable against the MOVANTS ERNESTO AUSTRIA and the HEIRS OF LORETO AUSTRIA, until the Court declares otherwise. PNB filed a motion for reconsideration, which was denied on May 20, 1998. A petition for certiorari under Rule 65 of the Rules of Court was filed by PNB before the Court of Appeals. However, the Court of Appeals dismissed the petition, stating: There is no prima facie showing of grave abuse of discretion on the part of respondent Judge in issuing his assailed Order which the Court finds to be in accord with law, the pertinent rules and jurisprudence cited therein. Hence, PNB filed the instant petition, contending that: I THE COURT OF APPEALS COMMITTED A SERIOUS ERROR BY SIMPLY ADOPTING THE FINDINGS OF THE TRIAL COURT THAT WRIT OF POSSESSION CANNOT BE ENFORCED AGAINST RESPONDENT AUSTRIA. SAID FINDINGS ARE UNPROVEN AND UNSUPPORTED BY EVIDENCE. II THE COURT OF APPEALS COMMITTED SERIOUS MISAPPREHENSION OF FACTS IN:

A) SUPPORTING THE JURISPRUDENCE CITED BY THE TRIAL COURT IN THE OCTOBER 28, 1997 ORDER. THE RULINGS DO NOT JUSTIFY THE NONENFORCEMENT OF THE WRIT OF POSSESSION AGAINST RESPONDENTS. RESPONDENTS WERE GIVEN THE OPPORTUNITY TO BE HEARD BUT NO EVIDENCE WAS PRESENTED TO SUPPORT THEIR CLAIM; B) NOT GIVING DUE CONSIDERATION TO THE FACT THAT PNB HAS THE LEGAL RIGHT TO POSSESS THE PROPERTY AS ITS REGISTERED OWNER; C) LOSING SIGHT OF THE FACT THAT THE TRIAL COURT BELATEDLY ISSUED THE OCTOBER 28, 1997 ORDER DIRECTING THAT THE WRIT OF POSSESSION CANNOT BE ENFORCED AGAINST THE RESPONDENTS. THE TRIAL COURT HAD EARLIER ISSUED FOUR (4) POSSESSORY WRITS ALL OF WHICH WERE DIRECTED AGAINST RESPONDENTS AUSTRIA & QUINTANA. The basic issue to be resolved in this case is whether or not an ex-parte writ of possession issued pursuant to Act No. 3135, as amended, can be enforced against a third person who is in actual possession of the foreclosed property and who is not in privity with the debtor/ mortgagor. Petitioner PNB maintains that the trial courts order was based on the unproven allegation that respondents had purchased the property from the Monsods before the latter mortgaged it to PNB. According to petitioner PNB, respondents did not adduce any proof to support their claim of ownership, even as they were repeatedly given the opportunity to do so during the hearings on the numerous motions filed by respondents themselves. Petitioner PNB also submits that since it is the registered owner of the property, it is entitled to a writ of possession as a matter of right. The bank insists that it could rely on the title of the registered land which does not have any annotation of respondents supposed rights. Petitioner PNB likewise avers that the trial court could not now belatedly refuse to enforce the writ of possession against respondents. The trial court had already issued a total of four possessory writs directing the ouster of all occupants of the lot, including respondents herein. On the other hand, respondents assert that the trial court correctly held that the writ of possession can only be implemented against the debtor/mortgagor and his successors-in-interest. Since respondents acquired their rights as owners of the property by virtue of a sale made to them by the Monsods prior to the banks mortgage lien, respondents can not be dispossessed therefrom without due notice and hearing, through the simple expedient of an ex-parte possessory writ. We agree with respondents. Under applicable laws and jurisprudence, they can not be ejected from the property by means of an ex-parte writ of possession. The operative provision under Act No. 3135, as amended, is Section 6, which states: Sec. 6. Redemption. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successors in interest or any person having a lien on the

property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such redemption shall be governed by the provisions of section four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act. (Italics ours) Despite the evolutionary development of our procedural laws throughout the years, the pertinent rule in the Code of Civil Procedure remains practically unchanged. Particularly, Rule 39, Section 33, second paragraph, which relates to the right of possession of a purchaser of property in an extrajudicial foreclosure sale: Sec. 33. x x x Upon the expiration of the right of redemption, the purchaser or redemptioner shall be substituted to and acquire all the rights, title, interest and claim of the judgment obligor to the property at the time of levy. The possession of the property shall be given to the purchaser or last redemptioner by the same officer unless a third party is actually holding the property adversely to the judgment obligor. (Italics ours) Thus, in Barican v. Intermediate Appellate Court, we held that the obligation of a court to issue an ex-parte writ of possession in favor of the purchaser in an extrajudicial foreclosure sale ceases to be ministerial once it appears that there is a third party in possession of the property who is claiming a right adverse to that of the debtor/mortgagor. The same principle was inversely applied in a more recent case, where we ruled that a writ of possession may be issued in an extrajudicial foreclosure of real estate mortgage, only if the debtor is in possession and no third party had intervened. Although the factual nuances of this case may slightly differ from the aforecited cases, the availing circumstances are undeniably similar a party in possession of the foreclosed property is asserting a right adverse to the debtor/mortgagor and is a stranger to the foreclosure proceedings in which the ex-parte writ of possession was applied for. It should be stressed that the foregoing doctrinal pronouncements are not without support in substantive law. Notably, the Civil Code protects the actual possessor of a property, to wit: Art. 433. Actual possession under claim of ownership raises a disputable presumption of ownership. The true owner must resort to judicial process for the recovery of the property. Under the aforequoted provision, one who claims to be the owner of a property possessed by another must bring the appropriate judicial action for its physical recovery. The term judicial process could mean no less than an ejectment suit or reinvindicatory action, in which the ownership claims of the contending parties may be properly heard and adjudicated. An ex-parte petition for issuance of a possessory writ under Section 7 of Act No. 3135 is not, strictly speaking, a judicial process as contemplated above. Even if the same may be considered a judicial proceeding for the enforcement of ones right of possession as purchaser in a foreclosure sale, it is not an ordinary suit filed in court, by which one party sues another for the enforcement or protection of a right, or the prevention or redress of a wrong.

It should be emphasized that an ex-parte petition for issuance of a writ of possession is a nonlitigious proceeding authorized in an extrajudicial foreclosure of mortgage pursuant to Act 3135, as amended. Unlike a judicial foreclosure of real estate mortgage under Rule 68 of the Rules of Court, any property brought within the ambit of the act is foreclosed by the filing of a petition, not with any court of justice, but with the office of the sheriff of the province where the sale is to be made. As such, a third person in possession of an extrajudicially foreclosed realty, who claims a right superior to that of the original mortgagor, will have no opportunity to be heard on his claim in a proceeding of this nature. It stands to reason, therefore, that such third person may not be dispossessed on the strength of a mere ex-parte possessory writ, since to do so would be tantamount to his summary ejectment, in violation of the basic tenets of due process. Besides, as earlier stressed, Article 433 of the Civil Code, cited above, requires nothing less than an action for ejectment to be brought even by the true owner. After all, the actual possessor of a property enjoys a legal presumption of just title in his favor, which must be overcome by the party claiming otherwise. In the case at bar, petitioner PNB admitted that as early as 1990, it was aware that the subject lot was occupied by the Austrias. Yet, instead of bringing an action in court for the ejectment of respondents, it chose to simply file an ex-parte petition for a writ of possession pursuant to its alleged right as purchaser in the extra-judicial foreclosure sale. We cannot sanction this procedural shortcut. To enforce the writ against an unwitting third party possessor, who took no part in the foreclosure proceedings, would be tantamount to the taking of real property without the benefit of proper judicial intervention. Consequently, it was not a ministerial duty of the trial court under Act No. 3135 to issue a writ of possession for the ouster of respondents from the lot subject of this instant case. The trial court was without authority to grant the ex-parte writ, since petitioner PNBs right of possession under said Act could be rightfully recognized only against the Monsods and the latters successors-ininterest, but not against respondents who assert a right adverse to the Monsods. Hence, the trial court cannot be precluded from correcting itself by refusing to enforce the writs it had previously issued. Its lack of authority to direct issuance of the writs against respondents assured that its earlier orders would never attain finality in the first place. In the same vein, respondents are not obliged to prove their ownership of the foreclosed lot in the ex-parte proceedings conducted below. The trial court has no jurisdiction to determine who between the parties is entitled to ownership and possession of the foreclosed lot. Likewise, registration of the lot in petitioner PNBs name does not automatically entitle the latter to possession thereof. As discussed earlier, petitioner PNB must resort to the appropriate judicial process for recovery of the property and cannot simply invoke its title in an ex-parte proceeding to justify the ouster of respondents. WHEREFORE, the instant petition is DENIED and the resolution of the Court of Appeals in CA G.R. SP No. 48660 is AFFIRMED.

EN BANC

MANILA INTERNATIONAL 155650

AIRPORT AUTHORITY, Petitioner,

G.R. No.

Present:

PANGANIBAN, C.J., PUNO, QUISUMBING, YNARES-SANTIAGO, SANDOVALGUTIERREZ, - versus CARPIO, AUSTRIA-MARTINEZ, CORONA, CARPIO MORALES, CALLEJO, SR.,

AZCUNA, COURT OF APPEALS, CITY OF TINGA,

PARAAQUE, CITY MAYOR OF NAZARIO,

PARAAQUE, SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY ASSESSOR OF PARAAQUE, and CITY TREASURER OF PARAAQUE,
Respondents. July 20, 2006

CHICOGARCIA, and VELASCO, JR., JJ.

Promulgated:

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ---x

D E C I S I ON

CARPIO, J.:

The Antecedents

Petitioner Manila

International Airport Authority (MIAA)

operates the Ninoy Aquino International Airport (NAIA) Complex in Paraaque 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. 909 and 298 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, including the runways and buildings (Airport Lands and Buildings) then under the Bureau of Air Transportation. 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.

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 Paraaque 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 Paraaque for the taxable years 1992 to 2001. MIAAs real estate tax delinquency is broken down as follows:

TAX DECLARATION E-016-01370 E-016-01374 E-016-01375 E-016-01376 E-016-01377 E-016-01378 E-016-01379 E-016-01380 *E-016-013-85 *E-016-01387 *E-016-01396 GRAND TOTAL

TAXABLE TAX DUE PENALTY YEAR 1992-2001 19,558,160.00 11,201,083.20 1992-2001 111,689,424.90 68,149,479.59 1992-2001 20,276,058.00 12,371,832.00 1992-2001 58,144,028.00 35,477,712.00 1992-2001 18,134,614.65 11,065,188.59 1992-2001 111,107,950.40 67,794,681.59 1992-2001 4,322,340.00 2,637,360.00 1992-2001 7,776,436.00 4,744,944.00 1998-2001 6,444,810.00 2,900,164.50 1998-2001 34,876,800.00 5,694,560.00 1998-2001 75,240.00 33,858.00 P392,435,861.95 P232,070,863.47 P

TOTAL 30,789,243.20 179,838,904.49 32,647,890.00 93,621,740.00 29,199,803.24 178,902,631.99 6,959,700.00 12,521,380.00 9,344,974.50 50,571,360.00 109,098.00 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75 #9476101 P28,676,480.00 #9476103 for P49,115.00 for

On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque 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 Paraaque 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 MIAAs motion for reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for review.

Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the Barangay Halls of Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market of Barangay La Huerta; and in the main lobby of the Paraaque City Hall. The City of Paraaque 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 Paraaque 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 Paraaque, City Mayor of Paraaque, Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque, and the City Assessor of Paraaque (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 Paraaque, 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. Marcos 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 Paraaque, and all proceedings taken pursuant to such assessments, are void. In such event, the other issues raised in this petition become moot.

The Courts Ruling

We rule that MIAAs 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 follows: a government-owned or controlled corporation as

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. of the MIAA Charter provides: Section 10

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

of

the

Corporation

Code

defines

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. 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

government

instrumentality

corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized exercising not only governmental but also as a stock or non-stock corporation, it remains a government instrumentality 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.

Likewise,

when

the

law

makes

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 will make its operation more financially viable.

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. Philippines Examples are the Mactan International Airport and Bangko Sentral ng Pilipinas. All these Authority, the Philippine Ports Authority, the University of the government instrumentalities exercise corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) loosely they are of the Introductory government Provisions corporate or of the Administrative Code. These government instrumentalities are sometimes However, called not entities. controlled government-owned

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 tax

the the

basic national

principle

that

local which

governments

cannot

government,

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. Congress grants an exemption to a However, when government As national

instrumentality from local taxation, such exemption is construed liberally in favor of the national government instrumentality. 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 taxliability 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 services to instrumentalities inhabitants of for local rendering essential The public only governments.

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. Corporation:

As this Court

held in Basco v. Philippine Amusements and Gaming

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.

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 Under Article 420 constitute a port constructed by the State.

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 users 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 users tax is more equitable a principle of taxation mandated in the 1987 Constitution. The Airport Lands and Buildings of MIAA, which its Charter calls the principal airport of the Philippines for both international and domestic air traffic, are properties of public dominion because they are intended for public use. the Republic of the Philippines. As properties of public dominion, they indisputably belong to the State or

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)

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. (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.

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. tax. This will happen if the City of Paraaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate

Before MIAA can encumber 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, 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 mens 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

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 MIAAs 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.

d.

Transfer

to

MIAA

was

Meant

to

Implement

Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau of Air Transportation of the Department of Transportation and Communications. The MIAA Charter provides:

SECTION 3. Creation of the Manila International Airport Authority. x x x x

The land where the Airport is presently located as well as the surrounding land area of approximately six hundred hectares, are hereby transferred, conveyed and assigned to the ownership and administration of the Authority, subject to existing rights, if any. The Bureau of Lands and other appropriate government agencies shall undertake an actual survey of the area transferred within one year from the promulgation of this Executive Order and the corresponding title to be issued in the name of the Authority. Any portion thereof shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines. (Emphasis supplied)

SECTION 22. Transfer of Existing Facilities and Intangible Assets . All existing public airport facilities, runways, lands, buildings and other property, movable or immovable, belonging to the Airport, and 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 MIAAs 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. own the Airport Lands and Buildings. Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not

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. Airport Lands and Buildings belong to the Republic. This only confirms that the

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 Such arrangement does Section 234(a) of the transferred to an agency or instrumentality even as the Republic remains the owner of the real property. not result in the loss of the tax exemption.

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.

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. 193 provides: Section

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 MIAAs 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 . government, Section 133. its agencies and instrumentalities, The taxing powers of local governments do not extend to the national [u]nless otherwise provided in this Code as stated in the saving clause of 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. three classes of The minority insists that the juridical entities specifically enumerated as persons exempt from local taxation are limited to the 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 minoritys 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 minoritys 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, Philippine Rice Research Institute, Laguna Lake Development Authority, Fisheries Development Authority, Bases Conversion Development Authority, Philippine Ports Authority, Cagayan de Oro Port Authority, San Fernando Port Authority, Cebu Port Authority, and Philippine National Railways.

The minoritys theory violates Section 133(o) of the Local Government Code which expressly prohibits local governments from imposing any kind of tax on national not government distinguish instrumentalities. Section 133(o) does

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 a persuasive argument that The minoritys assumption of an less has any one presented there is such a conflict. error for two reasons.

irreconcilable conflict in the statutory provisions is an egregious

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. clearer limitation on the taxing power than this. There is no

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 If the taxing common limitations on the taxing power prevail over the grant or exercise of the taxing power .

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 absurdity. a gross

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 minoritys 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 Section 2 of the Administrative Code clearly definition in the Administrative Code does not apply to the Local Government Code. 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. the phrase government-owned or controlled Thus, unless corporation there is specific language in the Local Government Code defining 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. government-owned Indeed, there is none. or controlled The Local The Government Code is silent on the definition of the phrase corporation. 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. law Thus, defining the the Administrative status and offices, Code is the of and governing government relationship agencies

departments,

bureaus,

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. courts should not distinguish. Where the law does 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 The Philippines and the Development Bank of the Philippines. special charter 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 charter 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, Philippine International Trading Corporation, and the Philippine National Bank 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. second viability. provides: condition is that the government-owned The or

controlled corporation must meet the test of economic Section 16, Article XII of the 1987 Constitution

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. other words, Congress has no power to In 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 with to create government instrumentalities vested 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 committees 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.

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. (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 noneconomic 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 fees and not income from commercial transactions.

MIAA

falls

under under

the

definition 2(10)

of of

a the

government Introductory

instrumentality

Section

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 governmentowned 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 Article 420 of the Civil Code provides: State or the Republic.

Art. 420. dominion:

The following things are

property

of

public

(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. from real estate As properties of public dominion, the Airport tax under Section 234(a) of the Local Lands and Buildings are owned by the Republic and thus exempt 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 Paraaque.

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. subject to execution or foreclosure sale. This Court has also repeatedly ruled that properties of public dominion are not

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 Paraaque. We declare VOID all the real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of Paraaque 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.

ANTONIO T. CARPIO Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN Chief Justice

REYNATO S. PUNO

LEONARDO A. QUISUMBING Associate Justice

Associate Justice

CONSUELO YNARESSANTIAGO Associate Justice

ANGELINA SANDOVALGUTIERREZ

Associate Justice

MA. ALICIA AUSTRIAMARTINEZ Associate Justice

RENATO C. CORONA

Associate Justice

CONCHITA CARPIO MORALES

Associate Justice

ROMEO J. CALLEJO, SR.

Associate Justice

ADOLFO S. AZCUNA Associate Justice

DANTE O. TINGA Associate Justice

MINITA V. CHICO-NAZARIO

CANCIO C. GARCIA

Associate Justice

Associate Justice

PRESBITERO J. VELASCO, JR. Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court.

ARTEMIO V. PANGANIBAN
Chief Justice

Dated 16 September 1983. Dated 26 July 1987. Section 3, MIAA Charter. Section 22, MIAA Charter. Section 3, MIAA Charter.

Rollo, pp. 22-23.

Under Rule 45 of the 1997 Rules of Civil Procedure. 330 Phil. 392 (1996).

MIAA Charter as amended by Executive Order No. 298. See note 2. Batas Pambansa Blg. 68. Section 11 of the MIAA Charter provides:

Contribution to the General Fund for the Maintenance and Operation of other Airports. Within thirty (30) days after the close of each quarter, twenty percentum (20%) of the gross operating income, excluding payments for utilities of tenants and concessionaires and terminal fee collections, shall be remitted to the General Fund in the National Treasury to be used for the maintenance and operation of other international and domestic airports in the country. Adjustments in the amount paid by the Authority to the National Treasury under this Section shall be made at the end of each year based on the audited financial statements of the Authority. Section 5(j), MIAA Charter. Section 6, MIAA Charter. Section 5(k), MIAA Charter. Section 5(o), MIAA Charter. Third Whereas Clause, MIAA Charter. Id.

CONSTITUTION, Art. X, Sec. 5. 274 Phil. 1060, 1100 (1991) quoting C. Dallas Sands, 3 STATUTES and STATUTORY CONSTRUCTION 207. 274 Phil. 323, 339-340 (1991).

CONSTITUTION, Art. VI, Sec. 28(1). First Whereas Clause, MIAA Charter.

30 Phil. 602, 606-607 (1915). 102 Phil. 866, 869-870 (1958). PNB v. Puruganan, 130 Phil. 498 (1968). See also Martinez v. CA, 155 Phil. 591 (1974). MIAA Charter, Sec.16. Chavez v. Public Estates Authority, 433 Phil. 506 (2002). Section 3, MIAA Charter. G.R. No. 144104, 29 June 2004, 433 SCRA 119, 138.

Republic Act No. 7653, 14 June 1993, Sec. 5. Executive Order No. 1061, 5 November 1985, Sec. 3(p). Republic Act No. 4850, 18 July 1966, Sec. 5. Presidential Decree No. 977, 11 August 1976, Section 4(j). Republic Act No. 7227, 13 March 1992, Sec. 3. Presidential Decree No. 857, 23 December 1975, Sec. 6(b)(xvi).

Republic Act No. 4663, 18 June 1966, Sec. 7(m). Republic Act No. 4567, 19 June 1965, Sec. 7(m). Republic Act No. 7621, 26 June 1992, Sec. 7(m). Republic Act No. 4156, 20 June 1964. Section 4(b). Republic Act No. 3844, 8 August 1963, as amended by Republic Act No. 7907, 23 February 1995. Executive Order No. 81, 3 December 1986.

Republic Act No. 8175, 29 December 1995. Presidential Decree No. 252, 21 July 1973, as amended by Presidential Decree No. 1071, 25 January 1977 and Executive Order No. 1067, 25 November 1985. Executive Order No. 80, 3 December 1986. III RECORDS, CONSTITUTIONAL COMMISSION 63 (22 August 1986).

2003 ed., 1181. Manila International Airport Authority v. Airspan Corporation, G.R. No. 157581, 1 December 2004, 445 SCRA 471.