Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-46245 May 31, 1982
MERALCO SECURITIES INDUSTRIAL CORPORATION, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF
LAGUNA and PROVINCIAL ASSESSOR OF LAGUNA, respondents.

AQUINO, J.:
In this special civil action of certiorari, Meralco Securities Industrial Corporation assails the decision of
the Central Board of Assessment Appeals (composed of the Secretary of Finance as chairman and
the Secretaries of Justice and Local Government and Community Development as members) dated
May 6, 1976, holding that Meralco Securities' oil pipeline is subject to realty tax.
The record reveals that pursuant to a pipeline concession issued under the Petroleum Act of 1949,
Republic Act No. 387, Meralco Securities installed from Batangas to Manila a pipeline system
consisting of cylindrical steel pipes joined together and buried not less than one meter below the
surface along the shoulder of the public highway. The portion passing through Laguna is about thirty
kilometers long.
The pipes for white oil products measure fourteen inches in diameter by thirty-six feet with a maximum
capacity of 75,000 barrels daily. The pipes for fuel and black oil measure sixteen inches by forty-eight
feet with a maximum capacity of 100,000 barrels daily.
The pipes are embedded in the soil and are firmly and solidly welded together so as to preclude
breakage or damage thereto and prevent leakage or seepage of the oil. The valves are welded to the
pipes so as to make the pipeline system one single piece of property from end to end.
In order to repair, replace, remove or transfer segments of the pipeline, the pipes have to be cold-cut
by means of a rotary hard-metal pipe-cutter after digging or excavating them out of the ground where
they are buried. In points where the pipeline traversed rivers or creeks, the pipes were laid beneath
the bed thereof. Hence, the pipes are permanently attached to the land.
However, Meralco Securities notes that segments of the pipeline can be moved from one place to
another as shown in the permit issued by the Secretary of Public Works and Communications which
permit provides that the government reserves the right to require the removal or transfer of the pipes
by and at the concessionaire's expense should they be affected by any road repair or improvement.
Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial assessor of Laguna
treated the pipeline as real property and issued Tax Declarations Nos. 6535-6537, San Pedro; 7473-
7478, Cabuyao; 7967-7971, Sta. Rosa; 9882-9885, Biñan and 15806-15810, Calamba, containing the
assessed values of portions of the pipeline.
Meralco Securities appealed the assessments to the Board of Assessment Appeals of Laguna
composed of the register of deeds as chairman and the provincial auditor as member. That board in
its decision of June 18, 1975 upheld the assessments (pp. 47-49, Rollo).
Meralco Securities brought the case to the Central Board of Assessment Appeals. As already stated,
that Board, composed of Acting Secretary of Finance Pedro M. Almanzor as chairman and Secretary
of Justice Vicente Abad Santos and Secretary of Local Government and Community Development
Jose Roño as members, ruled that the pipeline is subject to realty tax (p. 40, Rollo).
A copy of that decision was served on Meralco Securities' counsel on August 27, 1976. Section 36 of
the Real Property Tax Code, Presidential Decree No. 464, which took effect on June 1, 1974, provides
that the Board's decision becomes final and executory after the lapse of fifteen days from the date of
receipt of a copy of the decision by the appellant.
Under Rule III of the amended rules of procedure of the Central Board of Assessment Appeals (70
O.G. 10085), a party may ask for the reconsideration of the Board's decision within fifteen days after
receipt. On September 7, 1976 (the eleventh day), Meralco Securities filed its motion for
reconsideration.
Secretary of Finance Cesar Virata and Secretary Roño (Secretary Abad Santos abstained) denied the
motion in a resolution dated December 2, 1976, a copy of which was received by appellant's counsel
on May 24, 1977 (p. 4, Rollo). On June 6, 1977, Meralco Securities filed the instant petition for
certiorari.
The Solicitor General contends that certiorari is not proper in this case because the Board acted within
its jurisdiction and did not gravely abuse its discretion and Meralco Securities was not denied due
process of law.
Meralco Securities explains that because the Court of Tax Appeals has no jurisdiction to review the
decision of the Central Board of Assessment Appeals and because no judicial review of the Board's
decision is provided for in the Real Property Tax Code, Meralco Securities' recourse is to file a petition
for certiorari.
We hold that certiorari was properly availed of in this case. It is a writ issued by a superior court to an
inferior court, board or officer exercising judicial or quasi-judicial functions whereby the record of a
particular case is ordered to be elevated for review and correction in matters of law (14 C.J.S. 121-
122; 14 Am Jur. 2nd 777).
The rule is that as to administrative agencies exercising quasi-judicial power there is an underlying
power in the courts to scrutinize the acts of such agencies on questions of law and jurisdiction even
though no right of review is given by the statute (73 C.J.S. 506, note 56).
"The purpose of judicial review is to keep the administrative agency within its jurisdiction and protect
substantial rights of parties affected by its decisions" (73 C.J.S. 507, See. 165). The review is a part
of the system of checks and balances which is a limitation on the separation of powers and which
forestalls arbitrary and unjust adjudications.
Judicial review of the decision of an official or administrative agency exercising quasi-judicial functions
is proper in cases of lack of jurisdiction, error of law, grave abuse of discretion, fraud or collusion or in
case the administrative decision is corrupt, arbitrary or capricious (Mafinco Trading Corporation vs.
Ople, L-37790, March 25, 1976, 70 SCRA 139, 158; San Miguel Corporation vs. Secretary of Labor,
L-39195, May 16, 1975, 64 SCRA 56, 60, Mun. Council of Lemery vs. Prov. Board of Batangas, 56
Phil. 260, 268).
The Central Board of Assessment Appeals, in confirming the ruling of the provincial assessor and the
provincial board of assessment appeals that Meralco Securities' pipeline is subject to realty tax,
reasoned out that the pipes are machinery or improvements, as contemplated in the Assessment Law
and the Real Property Tax Code; that they do not fall within the category of property exempt from
realty tax under those laws; that articles 415 and 416 of the Civil Code, defining real and personal
property, have no application to this case; that even under article 415, the steel pipes can be regarded
as realty because they are constructions adhered to the soil and things attached to the land in a fixed
manner and that Meralco Securities is not exempt from realty tax under the Petroleum Law (pp. 36-
40).
Meralco Securities insists that its pipeline is not subject to realty tax because it is not real property
within the meaning of article 415. This contention is not sustainable under the provisions of the
Assessment Law, the Real Property Tax Code and the Civil Code.
Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land,
buildings, machinery, and other improvements" not specifically exempted in section 3 thereof. This
provision is reproduced with some modification in the Real Property Tax Code which provides:
SEC. 38. Incidence of Real Property Tax.— There shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on real
property, such as land, buildings, machinery and other improvements affixed or
attached to real property not hereinafter specifically exempted. *
It is incontestable that the pipeline of Meralco Securities does not fall within any of the classes of
exempt real property enumerated in section 3 of the Assessment Law and section 40 of the Real
Property Tax Code.
Pipeline means a line of pipe connected to pumps, valves and control devices for conveying liquids,
gases or finely divided solids. It is a line of pipe running upon or in the earth, carrying with it the right
to the use of the soil in which it is placed (Note 21[10],54 C.J.S. 561).
Article 415[l] and [3] provides that real property may consist of constructions of all kinds adhered to
the soil and everything attached to an immovable in a fixed manner, in such a way that it cannot be
separated therefrom without breaking the material or deterioration of the object.
The pipeline system in question is indubitably a construction adhering to the soil (Exh. B, p. 39, Rollo).
It is attached to the land in such a way that it cannot be separated therefrom without dismantling the
steel pipes which were welded to form the pipeline.
Insofar as the pipeline uses valves, pumps and control devices to maintain the flow of oil, it is in a
sense machinery within the meaning of the Real Property Tax Code.
It should be borne in mind that what are being characterized as real property are not the steel pipes
but the pipeline system as a whole. Meralco Securities has apparently two pipeline systems.
A pipeline for conveying petroleum has been regarded as real property for tax purposes (Miller County
Highway, etc., Dist. vs. Standard Pipe Line Co., 19 Fed. 2nd 3; Board of Directors of Red River Levee
Dist. No. 1 of Lafayette County, Ark vs. R. F. C., 170 Fed. 2nd 430; 50 C. J. 750, note 86).
The other contention of Meralco Securities is that the Petroleum Law exempts it from the payment of
realty taxes. The alleged exemption is predicated on the following provisions of that law which exempt
Meralco Securities from local taxes and make it liable for taxes of general application:
ART. 102. Work obligations, taxes, royalties not to be changed.— Work obligations,
special taxes and royalties which are fixed by the provisions of this Act or by the
concession for any of the kinds of concessions to which this Act relates, are considered
as inherent on such concessions after they are granted, and shall not be increased or
decreased during the life of the concession to which they apply; nor shall any
other special taxes or levies be applied to such concessions, nor shall
0concessionaires under this Act be subject to any provincial, municipal or other local
 taxes or levies; nor shall any sales tax be charged on any petroleum produced from
the concession or portion thereof, manufactured by the concessionaire and used in the
working of his concession. All such concessionaires, however, shall be subject to such
taxes as are of general application in addition to taxes and other levies specifically
provided in this Act.
Meralco Securities argues that the realty tax is a local tax or levy and not a tax of general application.
This argument is untenable because the realty tax has always been imposed by the lawmaking body
and later by the President of the Philippines in the exercise of his lawmaking powers, as shown in
section 342 et seq. of the Revised Administrative Code, Act No. 3995, Commonwealth Act No. 470
and Presidential Decree No. 464.
The realty tax is enforced throughout the Philippines and not merely in a particular municipality or city
but the proceeds of the tax accrue to the province, city, municipality and barrio where the realty taxed
is situated (Sec. 86, P.D. No. 464). In contrast, a local tax is imposed by the municipal or city council
by virtue of the Local Tax Code, Presidential Decree No. 231, which took effect on July 1, 1973 (69
O.G. 6197).
We hold that the Central Board of Assessment Appeals did not act with grave abuse of discretion, did
not commit any error of law and acted within its jurisdiction in sustaining the holding of the provincial
assessor and the local board of assessment appeals that Meralco Securities' pipeline system in
Laguna is subject to realty tax.
WHEREFORE, the questioned decision and resolution are affirmed. The petition is dismissed. No
costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 106041 January 29, 1993

BENGUET CORPORATION, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF
ZAMBALES, PROVINCIAL ASSESSOR OF ZAMBALES, PROVINCE OF ZAMBALES, and
MUNICIPALITY OF SAN MARCELINO, respondents.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.
CRUZ, J.:
The realty tax assessment involved in this case amounts to P11,319,304.00. It has been imposed on
the petitioner's tailings dam and the land thereunder over its protest.
The controversy arose in 1985 when the Provincial Assessor of Zambales assessed the said
properties as taxable improvements. The assessment was appealed to the Board of Assessment
Appeals of the Province of Zambales. On August 24, 1988, the appeal was dismissed mainly on the
ground of the petitioner's "failure to pay the realty taxes that fell due during the pendency of the
appeal."
The petitioner seasonably elevated the matter to the Central Board of Assessment Appeals,1 one of
the herein respondents. In its decision dated March 22, 1990, the Board reversed the dismissal of the
appeal but, on the merits, agreed that "the tailings dam and the lands submerged thereunder (were)
subject to realty tax."
For purposes of taxation the dam is considered as real property as it comes within the
object mentioned in paragraphs (a) and (b) of Article 415 of the New Civil Code. It is a
construction adhered to the soil which cannot be separated or detached without
breaking the material or causing destruction on the land upon which it is attached. The
immovable nature of the dam as an improvement determines its character as real
property, hence taxable under Section 38 of the Real Property Tax Code. (P.D. 464).
Although the dam is partly used as an anti-pollution device, this Board cannot accede
to the request for tax exemption in the absence of a law authorizing the same.
xxx xxx xxx
We find the appraisal on the land submerged as a result of the construction of the
tailings dam, covered by Tax Declaration Nos.
002-0260 and 002-0266, to be in accordance with the Schedule of Market Values for
Zambales which was reviewed and allowed for use by the Ministry (Department) of
Finance in the 1981-1982 general revision. No serious attempt was made by
Petitioner-Appellant Benguet Corporation to impugn its reasonableness, i.e., that the
P50.00 per square meter applied by Respondent-Appellee Provincial Assessor is
indeed excessive and unconscionable. Hence, we find no cause to disturb the market
 value applied by Respondent Appellee Provincial Assessor of Zambales on the
properties of Petitioner-Appellant Benguet Corporation covered by Tax Declaration
Nos. 002-0260 and 002-0266.
This petition for certiorari now seeks to reverse the above ruling.
The principal contention of the petitioner is that the tailings dam is not subject to realty tax because it
is not an "improvement" upon the land within the meaning of the Real Property Tax Code. More
particularly, it is claimed —
(1) as regards the tailings dam as an "improvement":
(a) that the tailings dam has no value separate from and independent
of the mine; hence, by itself it cannot be considered an improvement
separately assessable;
(b) that it is an integral part of the mine;
(c) that at the end of the mining operation of the petitioner corporation
in the area, the tailings dam will benefit the local community by serving
as an irrigation facility;
(d) that the building of the dam has stripped the property of any
commercial value as the property is submerged under water wastes
from the mine;
(e) that the tailings dam is an environmental pollution control device for
which petitioner must be commended rather than penalized with a
realty tax assessment;
(f) that the installation and utilization of the tailings dam as a pollution
control device is a requirement imposed by law;
(2) as regards the valuation of the tailings dam and the submerged lands:
(a) that the subject properties have no market value as they cannot be
sold independently of the mine;
(b) that the valuation of the tailings dam should be based on its
incidental use by petitioner as a water reservoir and not on the alleged
cost of construction of the dam and the annual build-up expense;
(c) that the "residual value formula" used by the Provincial Assessor
and adopted by respondent CBAA is arbitrary and erroneous; and
(3) as regards the petitioner's liability for penalties for
non-declaration of the tailings dam and the submerged lands for realty tax purposes:
(a) that where a tax is not paid in an honest belief that it is not due, no
penalty shall be collected in addition to the basic tax;
(b) that no other mining companies in the Philippines operating a
tailings dam have been made to declare the dam for realty tax
purposes.
The petitioner does not dispute that the tailings dam may be considered realty within the meaning of
Article 415. It insists, however, that the dam cannot be subjected to realty tax as a separate and
independent property because it does not constitute an "assessable improvement" on the mine
although a considerable sum may have been spent in constructing and maintaining it.
To support its theory, the petitioner cites the following cases:
1. Municipality of Cotabato v. Santos (105 Phil. 963), where this Court considered the dikes and gates
constructed by the taxpayer in connection with a fishpond operation as integral parts of the fishpond.
2. Bislig Bay Lumber Co. v. Provincial Government of Surigao (100 Phil. 303), involving a road
constructed by the timber concessionaire in the area, where this Court did not impose a realty tax on
the road primarily for two reasons:
In the first place, it cannot be disputed that the ownership of the road that was
constructed by appellee belongs to the government by right of accession not only
because it is inherently incorporated or attached to the timber land . . . but also because
upon the expiration of the concession said road would ultimately pass to the national
government. . . . In the second place, while the road was constructed by appellee
primarily for its use and benefit, the privilege is not exclusive, for . . . appellee cannot
prevent the use of portions of the concession for homesteading purposes. It is also
duty bound to allow the free use of forest products within the concession for the
personal use of individuals residing in or within the vicinity of the land. . . . In other
words, the government has practically reserved the rights to use the road to promote
its varied activities. Since, as above shown, the road in question cannot be considered
as an improvement which belongs to appellee, although in part is for its benefit, it is
clear that the same cannot be the subject of assessment within the meaning of Section
2 of C.A.No. 470.
Apparently, the realty tax was not imposed not because the road was an integral part of the lumber
concession but because the government had the right to use the road to promote its varied activities.
3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an American case, where it was declared
that the reservoir dam went with and formed part of the reservoir and that the dam would be "worthless
and useless except in connection with the outlet canal, and the water rights in the reservoir represent
and include whatever utility or value there is in the dam and headgates."
4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the United States. This case involved
drain tunnels constructed by plaintiff when it expanded its mining operations downward, resulting in a
constantly increasing flow of water in the said mine. It was held that:
Whatever value they have is connected with and in fact is an integral part of the mine
itself. Just as much so as any shaft which descends into the earth or an underground
incline, tunnel, or drift would be which was used in connection with the mine.
On the other hand, the Solicitor General argues that the dam is an assessable improvement because
it enhances the value and utility of the mine. The primary function of the dam is to receive, retain and
hold the water coming from the operations of the mine, and it also enables the petitioner to impound
water, which is then recycled for use in the plant.
There is also ample jurisprudence to support this view, thus:
. . . The said equipment and machinery, as appurtenances to the gas station building
or shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are
necessary to the operation of the gas station, for without them the gas station would
be useless and which have been attached or affixed permanently to the gas station
site or embedded therein, are taxable improvements and machinery within the
meaning of the Assessment Law and the Real Property Tax Code. (Caltex [Phil.] Inc.
v. CBAA, 114 SCRA 296).
We hold that while the two storage tanks are not embedded in the land, they may,
nevertheless, be considered as improvements on the land, enhancing its utility and
rendering it useful to the oil industry. It is undeniable that the two tanks have been
installed with some degree of permanence as receptacles for the considerable
quantities of oil needed by MERALCO for its operations. (Manila Electric Co. v. CBAA,
114 SCRA 273).
The pipeline system in question is indubitably a construction adhering to the soil. It is
attached to the land in such a way that it cannot be separated therefrom without
dismantling the steel pipes which were welded to form the pipeline. (MERALCO
Securities Industrial Corp. v. CBAA, 114 SCRA 261).
The tax upon the dam was properly assessed to the plaintiff as a tax upon real estate.
(Flax-Pond Water Co. v. City of Lynn, 16 N.E. 742).
The oil tanks are structures within the statute, that they are designed and used by the
owner as permanent improvement of the free hold, and that for such reasons they
were properly assessed by the respondent taxing district as improvements. (Standard
Oil Co. of New Jersey v. Atlantic City, 15 A 2d. 271)
The Real Property Tax Code does not carry a definition of "real property" and simply says that the
realty tax is imposed on "real property, such as lands, buildings, machinery and other improvements
affixed or attached to real property." In the absence of such a definition, we apply Article 415 of the
Civil Code, the pertinent portions of which state:
Art. 415. The following are immovable property.
(1) Lands, buildings and constructions of all kinds adhered to the soil;
xxx xxx xxx
(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot
be separated therefrom without breaking the material or deterioration of the object.
Section 2 of C.A. No. 470, otherwise known as the Assessment Law, provides that the realty tax is
due "on the real property, including land, buildings, machinery and other improvements" not
specifically exempted in Section 3 thereof. A reading of that section shows that the tailings dam of the
petitioner does not fall under any of the classes of exempt real properties therein enumerated.
Is the tailings dam an improvement on the mine? Section 3(k) of the Real Property Tax Code defines
improvement as follows:
(k) Improvements — is a valuable addition made to property or an amelioration in its
condition, amounting to more than mere repairs or replacement of waste, costing labor
or capital and intended to enhance its value, beauty or utility or to adopt it for new or
further purposes.
The term has also been interpreted as "artificial alterations of the physical condition of the ground that
are reasonably permanent in character."2
The Court notes that in the Ontario case the plaintiff admitted that the mine involved therein could not
be operated without the aid of the drain tunnels, which were indispensable to the successful
development and extraction of the minerals therein. This is not true in the present case.
Even without the tailings dam, the petitioner's mining operation can still be carried out because the
primary function of the dam is merely to receive and retain the wastes and water coming from the
mine. There is no allegation that the water coming from the dam is the sole source of water for the
mining operation so as to make the dam an integral part of the mine. In fact, as a result of the
construction of the dam, the petitioner can now impound and recycle water without having to spend
for the building of a water reservoir. And as the petitioner itself points out, even if the petitioner's mine
is shut down or ceases operation, the dam may still be used for irrigation of the surrounding areas,
again unlike in the Ontario case.
As correctly observed by the CBAA, the Kendrick case is also not applicable because it involved water
reservoir dams used for different purposes and for the benefit of the surrounding areas. By contrast,
the tailings dam in question is being used exclusively for the benefit of the petitioner.
Curiously, the petitioner, while vigorously arguing that the tailings dam has no separate existence, just
as vigorously contends that at the end of the mining operation the tailings dam will serve the local
community as an irrigation facility, thereby implying that it can exist independently of the mine.
From the definitions and the cases cited above, it would appear that whether a structure constitutes
an improvement so as to partake of the status of realty would depend upon the degree of permanence
intended in its construction and use. The expression "permanent" as applied to an improvement does
not imply that the improvement must be used perpetually but only until the purpose to which the
principal realty is devoted has been accomplished. It is sufficient that the improvement is intended to
remain as long as the land to which it is annexed is still used for the said purpose.
The Court is convinced that the subject dam falls within the definition of an "improvement" because it
is permanent in character and it enhances both the value and utility of petitioner's mine. Moreover, the
immovable nature of the dam defines its character as real property under Article 415 of the Civil Code
and thus makes it taxable under Section 38 of the Real Property Tax Code.
The Court will also reject the contention that the appraisal at P50.00 per square meter made by the
Provincial Assessor is excessive and that his use of the "residual value formula" is arbitrary and
erroneous.
Respondent Provincial Assessor explained the use of the "residual value formula" as follows:
A 50% residual value is applied in the computation because, while it is true that when
slime fills the dike, it will then be covered by another dike or stage, the stage covered
is still there and still exists and since only one face of the dike is filled, 50% or the other
face is unutilized.
In sustaining this formula, the CBAA gave the following justification:
We find the appraisal on the land submerged as a result of the construction of the
tailings dam, covered by Tax Declaration Nos.002-0260 and 002-0266, to be in
accordance with the Schedule of Market Values for San Marcelino, Zambales, which
is fifty (50.00) pesos per square meter for third class industrial land (TSN, page 17,
July 5, 1989) and Schedule of Market Values for Zambales which was reviewed and
allowed for use by the Ministry (Department) of Finance in the 1981-1982 general
revision. No serious attempt was made by Petitioner-Appellant Benguet Corporation
to impugn its reasonableness, i.e, that the P50.00 per square meter applied by
Respondent-Appellee Provincial Assessor is indeed excessive and unconscionable.
Hence, we find no cause to disturb the market value applied by Respondent-Appellee
Provincial Assessor of Zambales on the properties of Petitioner-Appellant Benguet
Corporation covered by Tax Declaration Nos. 002-0260 and 002-0266.
It has been the long-standing policy of this Court to respect the conclusions of quasi-judicial agencies
like the CBAA, which, because of the nature of its functions and its frequent exercise thereof, has
developed expertise in the resolution of assessment problems. The only exception to this rule is where
it is clearly shown that the administrative body has committed grave abuse of discretion calling for the
intervention of this Court in the exercise of its own powers of review. There is no such showing in the
case at bar.
We disagree, however, with the ruling of respondent CBAA that it cannot take cognizance of the issue
of the propriety of the penalties imposed upon it, which was raised by the petitioner for the first time
only on appeal. The CBAA held that this "is an entirely new matter that petitioner can take up with the
Provincial Assessor (and) can be the subject of another protest before the Local Board or a negotiation
with the local sanggunian . . ., and in case of an adverse decision by either the Local Board or the
local sanggunian, (it can) elevate the same to this Board for appropriate action."
There is no need for this time-wasting procedure. The Court may resolve the issue in this petition
instead of referring it back to the local authorities. We have studied the facts and circumstances of this
case as above discussed and find that the petitioner has acted in good faith in questioning the
assessment on the tailings dam and the land submerged thereunder. It is clear that it has not done so
for the purpose of evading or delaying the payment of the questioned tax. Hence, we hold that the
petitioner is not subject to penalty for itsnon-declaration of the tailings dam and the submerged lands
for realty tax purposes.
WHEREFORE, the petition is DISMISSED for failure to show that the questioned decision of
respondent Central Board of Assessment Appeals is tainted with grave abuse of discretion except as
to the imposition of penalties upon the petitioner which is hereby SET ASIDE. Costs against the
petitioner. It is so ordered.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-50466 May 31, 1982
CALTEX (PHILIPPINES) INC., petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF
PASAY, respondents.

AQUINO, J.:
This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc. in
its gas stations located on leased land.
The machines and equipment consists of underground tanks, elevated tank, elevated water tanks,
water tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoists, truck hoists, air
compressors and tireflators. The city assessor described the said equipment and machinery in this
manner:
A gasoline service station is a piece of lot where a building or shed is erected, a water tank if there is
any is placed in one corner of the lot, car hoists are placed in an adjacent shed, an air compressor is
attached in the wall of the shed or at the concrete wall fence.
The controversial underground tank, depository of gasoline or crude oil, is dug deep about six feet
more or less, a few meters away from the shed. This is done to prevent conflagration because gasoline
and other combustible oil are very inflammable.
This underground tank is connected with a steel pipe to the gasoline pump and the gasoline pump is
commonly placed or constructed under the shed. The footing of the pump is a cement pad and this
cement pad is imbedded in the pavement under the shed, and evidence that the gasoline underground
tank is attached and connected to the shed or building through the pipe to the pump and the pump is
attached and affixed to the cement pad and pavement covered by the roof of the building or shed.
The building or shed, the elevated water tank, the car hoist under a separate shed, the air compressor,
the underground gasoline tank, neon lights signboard, concrete fence and pavement and the lot where
they are all placed or erected, all of them used in the pursuance of the gasoline service station
business formed the entire gasoline service-station.
As to whether the subject properties are attached and affixed to the tenement, it is clear they are, for
the tenement we consider in this particular case are (is) the pavement covering the entire lot which
was constructed by the owner of the gasoline station and the improvement which holds all the
properties under question, they are attached and affixed to the pavement and to the improvement.
The pavement covering the entire lot of the gasoline service station, as well as all the improvements,
machines, equipments and apparatus are allowed by Caltex (Philippines) Inc. ...
The underground gasoline tank is attached to the shed by the steel pipe to the pump, so with the water
tank it is connected also by a steel pipe to the pavement, then to the electric motor which electric motor
is placed under the shed. So to say that the gasoline pumps, water pumps and underground tanks are
outside of the service station, and to consider only the building as the service station is grossly
erroneous. (pp. 58-60, Rollo).
The said machines and equipment are loaned by Caltex to gas station operators under an appropriate
lease agreement or receipt. It is stipulated in the lease contract that the operators, upon demand, shall
return to Caltex the machines and equipment in good condition as when received, ordinary wear and
tear excepted.
The lessor of the land, where the gas station is located, does not become the owner of the machines
and equipment installed therein. Caltex retains the ownership thereof during the term of the lease.
The city assessor of Pasay City characterized the said items of gas station equipment and machinery
as taxable realty. The realty tax on said equipment amounts to P4,541.10 annually (p. 52, Rollo). The
city board of tax appeals ruled that they are personalty. The assessor appealed to the Central Board
of Assessment Appeals.
The Board, which was composed of Secretary of Finance Cesar Virata as chairman, Acting Secretary
of Justice Catalino Macaraig, Jr. and Secretary of Local Government and Community Development
Jose Roño, held in its decision of June 3, 1977 that the said machines and equipment are real property
within the meaning of sections 3(k) & (m) and 38 of the Real Property Tax Code, Presidential Decree
No. 464, which took effect on June 1, 1974, and that the definitions of real property and personal
property in articles 415 and 416 of the Civil Code are not applicable to this case.
The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's place) in its
resolution of January 12, 1978, denying Caltex's motion for reconsideration, a copy of which was
received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the Board's
decision and for a declaration that t he said machines and equipment are personal property not subject
to realty tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate jurisdiction
over this case is not correct. When Republic act No. 1125 created the Tax Court in 1954, there was
as yet no Central Board of Assessment Appeals. Section 7(3) of that law in providing that the Tax
Court had jurisdiction to review by appeal decisions of provincial or city boards of assessment appeals
had in mind the local boards of assessment appeals but not the Central Board of Assessment Appeals
which under the Real Property Tax Code has appellate jurisdiction over decisions of the said local
boards of assessment appeals and is, therefore, in the same category as the Tax Court.
Section 36 of the Real Property Tax Code provides that the decision of the Central Board of
Assessment Appeals shall become final and executory after the lapse of fifteen days from the receipt
of its decision by the appellant. Within that fifteen-day period, a petition for reconsideration may be
filed. The Code does not provide for the review of the Board's decision by this Court.
Consequently, the only remedy available for seeking a review by this Court of the decision of the
Central Board of Assessment Appeals is the special civil action of certiorari, the recourse resorted to
herein by Caltex (Philippines), Inc.
The issue is whether the pieces of gas station equipment and machinery already enumerated are
subject to realty tax. This issue has to be resolved primarily under the provisions of the Assessment
Law and the Real Property Tax Code.
Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land,
buildings, machinery, and other improvements" not specifically exempted in section 3 thereof. This
provision is reproduced with some modification in the Real Property Tax Code which provides:
SEC. 38. Incidence of Real Property Tax.— There shall be levied, assessed and collected in all
provinces, cities and municipalities an annual ad valorem tax on real property, such as land, buildings,
machinery and other improvements affixed or attached to real property not hereinafter specifically
exempted.
The Code contains the following definitions in its section 3:
k) Improvements — is a valuable addition made to property or an amelioration in its condition,
amounting to more than mere repairs or replacement of waste, costing labor or capital and intended
to enhance its value, beauty or utility or to adapt it for new or further purposes.
m) Machinery — shall embrace machines, mechanical contrivances, instruments, appliances and
apparatus attached to the real estate. It includes the physical facilities available for production, as well
as the installations and appurtenant service facilities, together with all other equipment designed for
or essential to its manufacturing, industrial or agricultural purposes (See sec. 3[f], Assessment Law).
We hold that the said equipment and machinery, as appurtenances to the gas station building or shed
owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the
operation of the gas station, for without them the gas station would be useless, and which have been
attached or affixed permanently to the gas station site or embedded therein, are taxable improvements
and machinery within the meaning of the Assessment Law and the Real Property Tax Code.
Caltex invokes the rule that machinery which is movable in its nature only becomes immobilized when
placed in a plant by the owner of the property or plant but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right, unless such person acted as the agent of
the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil 709).
That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding machinery that
becomes real property by destination. In the Davao Saw Mills case the question was whether the
machinery mounted on foundations of cement and installed by the lessee on leased land should be
regarded as real property for purposes of execution of a judgment against the lessee. The sheriff
treated the machinery as personal property. This Court sustained the sheriff's action. (Compare with
Machinery & Engineering Supplies, Inc. vs. Court of Appeals, 96 Phil. 70, where in a replevin case
machinery was treated as realty).
Here, the question is whether the gas station equipment and machinery permanently affixed by Caltex
to its gas station and pavement (which are indubitably taxable realty) should be subject to the realty
tax. This question is different from the issue raised in the Davao Saw Mill case.
Improvements on land are commonly taxed as realty even though for some purposes they might be
considered personalty (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar phenomenon to see things
classed as real property for purposes of taxation which on general principle might be considered
personal property" (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric Co.,
119 Phil. 328, where Meralco's steel towers were considered poles within the meaning of paragraph
9 of its franchise which exempts its poles from taxation. The steel towers were considered personalty
because they were attached to square metal frames by means of bolts and could be moved from place
to place when unscrewed and dismantled.
Nor are Caltex's gas station equipment and machinery the same as tools and equipment in the repair
shop of a bus company which were held to be personal property not subject to realty tax (Mindanao
Bus Co. vs. City Assessor, 116 Phil. 501).
The Central Board of Assessment Appeals did not commit a grave abuse of discretion in upholding
the city assessor's is imposition of the realty tax on Caltex's gas station and equipment.
WHEREFORE, the questioned decision and resolution of the Central Board of Assessment Appeals
are affirmed. The petition for certiorari is dismissed for lack of merit. No costs.
SO ORDERED.

SPECIAL FIRST DIVISION

G.R. No. 124293 January 31, 2005

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

RESOLUTION
PUNO, J.:
For resolution before this Court are two motions filed by the petitioner, J.G. Summit Holdings, Inc. for
reconsideration of our Resolution dated September 24, 2003 and to elevate this case to the Court En
Banc. The petitioner questions the Resolution which reversed our Decision of November 20, 2000,
which in turn reversed and set aside a Decision of the Court of Appeals promulgated on July 18, 1995.
I. Facts
The undisputed facts of the case, as set forth in our Resolution of September 24, 2003, are as follows:
On January 27, 1997, the National Investment and Development Corporation (NIDC), a government
corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of
Kobe, Japan (KAWASAKI) for the construction, operation and management of the Subic National
Shipyard, Inc. (SNS) which subsequently became the Philippine Shipyard and Engineering
Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute ₱330 million for
the capitalization of PHILSECO in the proportion of 60%-40% respectively. One of its salient features
is the grant to the parties of the right of first refusal should either of them decide to sell, assign or
transfer its interest in the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any
third party without giving the other under the same terms the right of first refusal. This provision shall
not apply if the transferee is a corporation owned or controlled by the GOVERNMENT or by a
KAWASAKI affiliate.
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the Philippine
National Bank (PNB). Such interests were subsequently transferred to the National Government
pursuant to Administrative Order No. 14. On December 8, 1986, President Corazon C. Aquino issued
Proclamation No. 50 establishing the Committee on Privatization (COP) and the Asset Privatization
Trust (APT) to take title to, and possession of, conserve, manage and dispose of non-performing
assets of the National Government. Thereafter, on February 27, 1987, a trust agreement was entered
into between the National Government and the APT wherein the latter was named the trustee of the
National Government's share in PHILSECO. In 1989, as a result of a quasi-reorganization of
PHILSECO to settle its huge obligations to PNB, the National Government's shareholdings in
PHILSECO increased to 97.41% thereby reducing KAWASAKI's shareholdings to 2.59%.
In the interest of the national economy and the government, the COP and the APT deemed it best to
sell the National Government's share in PHILSECO to private entities. After a series of negotiations
between the APT and KAWASAKI, they agreed that the latter's right of first refusal under the JVA be
"exchanged" for the right to top by five percent (5%) the highest bid for the said shares. They further
agreed that KAWASAKI would be entitled to name a company in which it was a stockholder, which
could exercise the right to top. On September 7, 1990, KAWASAKI informed APT that Philyards
Holdings, Inc. (PHI)1 would exercise its right to top.
At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of
the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for
the National Government's 87.6% equity share in PHILSECO. The provisions of the ASBR were
explained to the interested bidders who were notified that the bidding would be held on December 2,
1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National
Government's equity in PHILSECO consisting of 896,869,942 shares of stock (representing 87.67%
of PHILSECO's outstanding capital stock), which will be sold as a whole block in accordance with the
rules herein enumerated.
xxx xxx xxx
2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT Board
of Trustees and the Committee on Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the
National Government's 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED
MILLION (₱1,300,000,000.00).
xxx xxx xxx
6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting
following the bidding, for the purpose of determining whether or not it should be endorsed by the APT
Board of Trustees to the COP, and the latter approves the same. The APT shall advise Kawasaki
Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc., that the highest bid is
acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such
advice from APT within which to exercise their "Option to Top the Highest Bid" by offering a bid
equivalent to the highest bid plus five (5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. exercise their "Option
to Top the Highest Bid," they shall so notify the APT about such exercise of their option and deposit
with APT the amount equivalent to ten percent (10%) of the highest bid plus five percent (5%) thereof
within the thirty (30)-day period mentioned in paragraph 6.0 above. APT will then serve notice upon
Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. declaring them as the preferred
bidder and they shall have a period of ninety (90) days from the receipt of the APT's notice within
which to pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail to exercise their
"Option to Top the Highest Bid" within the thirty (30)-day period, APT will declare the highest bidder
as the winning bidder.
xxx xxx xxx
12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the official
bid forms, including any addenda or amendments thereto issued during the bidding period. The bidder
shall likewise be responsible for informing itself with respect to any and all conditions concerning the
PHILSECO Shares which may, in any manner, affect the bidder's proposal. Failure on the part of the
bidder to so examine and inform itself shall be its sole risk and no relief for error or omission will be
given by APT or COP. . . .
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc.2 submitted a bid of Two
Billion and Thirty Million Pesos (₱2,030,000,000.00) with an acknowledgment of
KAWASAKI/[PHILYARDS'] right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on
APT's recommendation based on the result of this bidding. Should the COP approve the highest bid,
APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc.
that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or
[PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of
receipt of such advice from APT within which to exercise their "Option to Top the Highest Bid" by
offering a bid equivalent to the highest bid plus five (5%) percent thereof.
As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993
"subject to the right of Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's
bid by 5% as specified in the bidding rules."
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its bid on
the grounds that: (a) the KAWASAKI/PHI consortium composed of KAWASAKI, [PHILYARDS], Mitsui,
Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the last four (4) companies
were the losing bidders thereby circumventing the law and prejudicing the weak winning bidder; (b)
only KAWASAKI could exercise the right to top; (c) giving the same option to top to PHI constituted
unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a public bidding or
auction sale; and (e) the JG Summit consortium was not estopped from questioning the proceedings.
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase price
of the subject bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised its
option to top the highest bid and that the COP had approved the same on January 6, 1994. On
February 24, 1994, the APT and PHI executed a Stock Purchase Agreement. Consequently, petitioner
filed with this Court a Petition for Mandamus under G.R. No. 114057. On May 11, 1994, said petition
was referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied the same for lack
of merit. It ruled that the petition for mandamus was not the proper remedy to question the
constitutionality or legality of the right of first refusal and the right to top that was exercised by
KAWASAKI/PHI, and that the matter must be brought "by the proper party in the proper forum at the
proper time and threshed out in a full blown trial." The Court of Appeals further ruled that the right of
first refusal and the right to top are prima facie legal and that the petitioner, "by participating in the
public bidding, with full knowledge of the right to top granted to KAWASAKI/[PHILYARDS]
is…estopped from questioning the validity of the award given to [PHILYARDS] after the latter
exercised the right to top and had paid in full the purchase price of the subject shares, pursuant to the
ASBR." Petitioner filed a Motion for Reconsideration of said Decision which was denied on March 15,
1996. Petitioner thus filed a Petition for Certiorari with this Court alleging grave abuse of discretion on
the part of the appellate court.
On November 20, 2000, this Court rendered x x x [a] Decision ruling among others that the Court of
Appeals erred when it dismissed the petition on the sole ground of the impropriety of the special civil
action of mandamus because the petition was also one of certiorari. It further ruled that a shipyard like
PHILSECO is a public utility whose capitalization must be sixty percent (60%) Filipino-owned.
Consequently, the right to top granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR)
drafted for the sale of the 87.67% equity of the National Government in PHILSECO is illegal — not
only because it violates the rules on competitive bidding — but more so, because it allows foreign
corporations to own more than 40% equity in the shipyard. It also held that "although the petitioner
had the opportunity to examine the ASBR before it participated in the bidding, it cannot be estopped
from questioning the unconstitutional, illegal and inequitable provisions thereof." Thus, this Court
voided the transfer of the national government's 87.67% share in PHILSECO to Philyard[s] Holdings,
Inc., and upheld the right of JG Summit, as the highest bidder, to take title to the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and
Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to
APT its bid price of Two Billion Thirty Million Pesos (₱2,030,000,000.00), less its bid deposit plus
interests upon the finality of this Decision. In turn, APT is ordered to:
(a) accept the said amount of ₱2,030,000,000.00 less bid deposit and interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6% of
PHILSECO's total capitalization;
(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One Million Five
Hundred Thousand Pesos (₱2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.
SO ORDERED.
In separate Motions for Reconsideration, respondents submit[ted] three basic issues for x x x
resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI
can exercise its right of first refusal only up to 40% of the total capitalization of PHILSECO; and (3)
Whether the right to top granted to KAWASAKI violates the principles of competitive bidding.3 (citations
omitted)
In a Resolution dated September 24, 2003, this Court ruled in favor of the respondents. On the first
issue, we held that Philippine Shipyard and Engineering Corporation (PHILSECO) is not a public utility,
as by nature, a shipyard is not a public utility4 and that no law declares a shipyard to be a public
utility.5 On the second issue, we found nothing in the 1977 Joint Venture Agreement (JVA) which
prevents Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) from acquiring more than 40%
of PHILSECO’s total capitalization.6 On the final issue, we held that the right to top granted to
KAWASAKI in exchange for its right of first refusal did not violate the principles of competitive bidding.7
On October 20, 2003, the petitioner filed a Motion for Reconsideration8 and a Motion to Elevate This
Case to the Court En Banc.9 Public respondents Committee on Privatization (COP) and Asset
Privatization Trust (APT), and private respondent Philyards Holdings, Inc. (PHILYARDS) filed their
Comments on J.G. Summit Holdings, Inc.’s (JG Summit’s) Motion for Reconsideration and Motion to
Elevate This Case to the Court En Banc on January 29, 2004 and February 3, 2004, respectively.
II. Issues
Based on the foregoing, the relevant issues to resolve to end this litigation are the following:
1. Whether there are sufficient bases to elevate the case at bar to the Court en banc.
2. Whether the motion for reconsideration raises any new matter or cogent reason to warrant a
reconsideration of this Court’s Resolution of September 24, 2003.
Motion to Elevate this Case to the
Court En Banc
The petitioner prays for the elevation of the case to the Court en banc on the following grounds:
1. The main issue of the propriety of the bidding process involved in the present case has been
confused with the policy issue of the supposed fate of the shipping industry which has never been an
issue that is determinative of this case.10
2. The present case may be considered under the Supreme Court Resolution dated February 23, 1984
which included among en banc cases those involving a novel question of law and those where a
doctrine or principle laid down by the Court en banc or in division may be modified or reversed.11
3. There was clear executive interference in the judicial functions of the Court when the Honorable
Jose Isidro Camacho, Secretary of Finance, forwarded to Chief Justice Davide, a memorandum dated
November 5, 2001, attaching a copy of the Foreign Chambers Report dated October 17, 2001, which
matter was placed in the agenda of the Court and noted by it in a formal resolution dated November
28, 2001.12
Opposing J.G. Summit’s motion to elevate the case en banc, PHILYARDS points out the petitioner’s
inconsistency in previously opposing PHILYARDS’ Motion to Refer the Case to the Court En
Banc. PHILYARDS contends that J.G. Summit should now be estopped from asking that the case be
referred to the Court en banc. PHILYARDS further contends that the Supreme Court en banc is not
an appellate court to which decisions or resolutions of its divisions may be appealed citing Supreme
Court Circular No. 2-89 dated February 7, 1989.13 PHILYARDS also alleges that there is no novel
question of law involved in the present case as the assailed Resolution was based on well-settled
jurisprudence. Likewise, PHILYARDS stresses that the Resolution was merely an outcome of the
motions for reconsideration filed by it and the COP and APT and is "consistent with the inherent power
of courts to ‘amend and control its process and orders so as to make them conformable to law and
justice.’ (Rule 135, sec. 5)"14 Private respondent belittles the petitioner’s allegations regarding the
change in ponente and the alleged executive interference as shown by former Secretary of Finance
Jose Isidro Camacho’s memorandum dated November 5, 2001 arguing that these do not justify a
referral of the present case to the Court en banc.
In insisting that its Motion to Elevate This Case to the Court En Banc should be granted, J.G. Summit
further argued that: its Opposition to the Office of the Solicitor General’s Motion to Refer is different
from its own Motion to Elevate; different grounds are invoked by the two motions; there was
unwarranted "executive interference"; and the change in ponente is merely noted in asserting that this
case should be decided by the Court en banc.15
We find no merit in petitioner’s contention that the propriety of the bidding process involved in the
present case has been confused with the policy issue of the fate of the shipping industry which,
petitioner maintains, has never been an issue that is determinative of this case. The Court’s Resolution
of September 24, 2003 reveals a clear and definitive ruling on the propriety of the bidding process. In
discussing whether the right to top granted to KAWASAKI in exchange for its right of first refusal
violates the principles of competitive bidding, we made an exhaustive discourse on the rules and
principles of public bidding and whether they were complied with in the case at bar.16 This Court
categorically ruled on the petitioner’s argument that PHILSECO, as a shipyard, is a public utility which
should maintain a 60%-40% Filipino-foreign equity ratio, as it was a pivotal issue. In doing so, we
recognized the impact of our ruling on the shipbuilding industry which was beyond avoidance.17
We reject petitioner’s argument that the present case may be considered under the Supreme Court
Resolution dated February 23, 1984 which included among en banc cases those involving a novel
question of law and those where a doctrine or principle laid down by the court en banc or in division
may be modified or reversed. The case was resolved based on basic principles of the right of first
refusal in commercial law and estoppel in civil law. Contractual obligations arising from rights of first
refusal are not new in this jurisdiction and have been recognized in numerous cases.18 Estoppel is too
known a civil law concept to require an elongated discussion. Fundamental principles on public bidding
were likewise used to resolve the issues raised by the petitioner. To be sure, petitioner leans on the
right to top in a public bidding in arguing that the case at bar involves a novel issue. We are not swayed.
The right to top was merely a condition or a reservation made in the bidding rules which was fully
disclosed to all bidding parties. In Bureau Veritas, represented by Theodor H. Hunermann v. Office
of the President, et al., 19 we dealt with this conditionality, viz:
x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al., (L-18751, 28
April 1962, 4 SCRA 1245), that in an "invitation to bid, there is a condition imposed upon the bidders
to the effect that the bidding shall be subject to the right of the government to reject any and
all bids subject to its discretion. In the case at bar, the government has made its choice and
unless an unfairness or injustice is shown, the losing bidders have no cause to complain nor
right to dispute that choice. This is a well-settled doctrine in this jurisdiction and elsewhere."
The discretion to accept or reject a bid and award contracts is vested in the Government agencies
entrusted with that function. The discretion given to the authorities on this matter is of such wide
latitude that the Courts will not interfere therewith, unless it is apparent that it is used as a shield to a
fraudulent award (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x The exercise of this discretion is
a policy decision that necessitates prior inquiry, investigation, comparison, evaluation, and
deliberation. This task can best be discharged by the Government agencies concerned, not by the
Courts. The role of the Courts is to ascertain whether a branch or instrumentality of the Government
has transgressed its constitutional boundaries. But the Courts will not interfere with executive or
legislative discretion exercised within those boundaries. Otherwise, it strays into the realm of policy
decision-making.
It is only upon a clear showing of grave abuse of discretion that the Courts will set aside the award of
a contract made by a government entity. Grave abuse of discretion implies a capricious, arbitrary and
whimsical exercise of power (Filinvest Credit Corp. v. Intermediate Appellate Court, No. 65935, 30
September 1988, 166 SCRA 155). The abuse of discretion must be so patent and gross as to amount
to an evasion of positive duty or to a virtual refusal to perform a duty enjoined by law, as to act at all
in contemplation of law, where the power is exercised in an arbitrary and despotic manner by reason
of passion or hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.], L-40867, 26 July 1988, 163
SCRA 489).
The facts in this case do not indicate any such grave abuse of discretion on the part of public
respondents when they awarded the CISS contract to Respondent SGS. In the "Invitation to Prequalify
and Bid" (Annex "C," supra), the CISS Committee made an express reservation of the right of the
Government to "reject any or all bids or any part thereof or waive any defects contained thereon
and accept an offer most advantageous to the Government." It is a well-settled rule that where
such reservation is made in an Invitation to Bid, the highest or lowest bidder, as the case may
be, is not entitled to an award as a matter of right (C & C Commercial Corp. v. Menor, L-28360, 27
January 1983, 120 SCRA 112). Even the lowest Bid or any Bid may be rejected or, in the exercise of
sound discretion, the award may be made to another than the lowest bidder (A.C. Esguerra & Sons v.
Aytona, supra, citing 43 Am. Jur., 788). (emphases supplied)1awphi1.nét
Like the condition in the Bureau Veritas case, the right to top was a condition imposed by the
government in the bidding rules which was made known to all parties. It was a condition imposed
on all bidders equally, based on the APT’s exercise of its discretion in deciding on how best to
privatize the government’s shares in PHILSECO. It was not a whimsical or arbitrary condition
plucked from the ether and inserted in the bidding rules but a condition which the APT approved as
the best way the government could comply with its contractual obligations to KAWASAKI under the
JVA and its mandate of getting the most advantageous deal for the government. The right to top had
its history in the mutual right of first refusal in the JVA and was reached by agreement of the
government and KAWASAKI.
Further, there is no "executive interference" in the functions of this Court by the mere filing of a
memorandum by Secretary of Finance Jose Isidro Camacho. The memorandum was merely "noted"
to acknowledge its filing. It had no further legal significance. Notably too, the assailed Resolution
dated September 24, 2003 was decided unanimously by the Special First Division in favor of
the respondents.
Again, we emphasize that a decision or resolution of a Division is that of the Supreme Court20 and the
Court en banc is not an appellate court to which decisions or resolutions of a Division may be
appealed.21
For all the foregoing reasons, we find no basis to elevate this case to the Court en banc.
Motion for Reconsideration
Three principal arguments were raised in the petitioner’s Motion for Reconsideration. First, that a fair
resolution of the case should be based on contract law, not on policy considerations; the contracts do
not authorize the right to top to be derived from the right of first refusal.22 Second, that neither the right
of first refusal nor the right to top can be legally exercised by the consortium which is not the proper
party granted such right under either the JVA or the Asset Specific Bidding Rules (ASBR).23 Third, that
the maintenance of the 60%-40% relationship between the National Investment and Development
Corporation (NIDC) and KAWASAKI arises from contract and from the Constitution because
PHILSECO is a landholding corporation and need not be a public utility to be bound by the 60%-40%
constitutional limitation.24
On the other hand, private respondent PHILYARDS asserts that J.G. Summit has not been able to
show compelling reasons to warrant a reconsideration of the Decision of the Court.25 PHILYARDS
denies that the Decision is based mainly on policy considerations and points out that it is premised on
principles governing obligations and contracts and corporate law such as the rule requiring respect for
contractual stipulations, upholding rights of first refusal, and recognizing the assignable nature of
contracts rights.26 Also, the ruling that shipyards are not public utilities relies on established case law
and fundamental rules of statutory construction. PHILYARDS stresses that KAWASAKI’s right of first
refusal or even the right to top is not limited to the 40% equity of the latter.27 On the landholding issue
raised by J.G. Summit, PHILYARDS emphasizes that this is a non-issue and even involves a question
of fact. Even assuming that this Court can take cognizance of such question of fact even without the
benefit of a trial, PHILYARDS opines that landholding by PHILSECO at the time of the bidding is
irrelevant because what is essential is that ultimately a qualified entity would eventually hold
PHILSECO’s real estate properties.28 Further, given the assignable nature of the right of first refusal,
any applicable nationality restrictions, including landholding limitations, would not affect the right of
first refusal itself, but only the manner of its exercise.29 Also, PHILYARDS argues that if this Court
takes cognizance of J.G. Summit’s allegations of fact regarding PHILSECO’s landholding, it must also
recognize PHILYARDS’ assertions that PHILSECO’s landholdings were sold to another
corporation.30 As regards the right of first refusal, private respondent explains that KAWASAKI’s
reduced shareholdings (from 40% to 2.59%) did not translate to a deprivation or loss of its contractually
granted right of first refusal.31 Also, the bidding was valid because PHILYARDS exercised the right to
top and it was of no moment that losing bidders later joined PHILYARDS in raising the purchase
price.32
In cadence with the private respondent PHILYARDS, public respondents COP and APT contend:
1. The conversion of the right of first refusal into a right to top by 5% does not violate any provision in
the JVA between NIDC and KAWASAKI.
2. PHILSECO is not a public utility and therefore not governed by the constitutional restriction on
foreign ownership.
3. The petitioner is legally estopped from assailing the validity of the proceedings of the public bidding
as it voluntarily submitted itself to the terms of the ASBR which included the provision on the right to
top.
4. The right to top was exercised by PHILYARDS as the nominee of KAWASAKI and the fact that
PHILYARDS formed a consortium to raise the required amount to exercise the right to top the highest
bid by 5% does not violate the JVA or the ASBR.
5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition of lands does not apply
to PHILSECO because as admitted by petitioner itself, PHILSECO no longer owns real property.
6. Petitioner’s motion to elevate the case to the Court en banc is baseless and would only delay the
termination of this case.33
In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the arguments of the public
and private respondents in this wise:
1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with losing bidders through
the exercise of a right to top, which is contrary to law and the constitution is null and void for being
violative of substantive due process and the abuse of right provision in the Civil Code.
a. The bidders[’] right to top was actually exercised by losing bidders.
b. The right to top or the right of first refusal cannot co-exist with a genuine competitive bidding.
c. The benefits derived from the right to top were unwarranted.
2. The landholding issue has been a legitimate issue since the start of this case but is shamelessly
ignored by the respondents.
a. The landholding issue is not a non-issue.
b. The landholding issue does not pose questions of fact.
c. That PHILSECO owned land at the time that the right of first refusal was agreed upon and at the
time of the bidding are most relevant.
d. Whether a shipyard is a public utility is not the core issue in this case.
3. Fraud and bad faith attend the alleged conversion of an inexistent right of first refusal to the right to
top.
a. The history behind the birth of the right to top shows fraud and bad faith.
b. The right of first refusal was, indeed, "effectively useless."
4. Petitioner is not legally estopped to challenge the right to top in this case.
a. Estoppel is unavailing as it would stamp validity to an act that is prohibited by law or against public
policy.
b. Deception was patent; the right to top was an attractive nuisance.
c. The 10% bid deposit was placed in escrow.
J.G. Summit’s insistence that the right to top cannot be sourced from the right of first refusal is not new
and we have already ruled on the issue in our Resolution of September 24, 2003. We upheld the
mutual right of first refusal in the JVA.34 We also ruled that nothing in the JVA prevents KAWASAKI
from acquiring more than 40% of PHILSECO’s total capitalization.35 Likewise, nothing in the JVA or
ASBR bars the conversion of the right of first refusal to the right to top. In sum, nothing new and of
significance in the petitioner’s pleading warrants a reconsideration of our ruling.
Likewise, we already disposed of the argument that neither the right of first refusal nor the right to top
can legally be exercised by the consortium which is not the proper party granted such right under
either the JVA or the ASBR. Thus, we held:
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life
Assurance, Mitsui and ICTSI), has joined PHILYARDS in the latter's effort to raise ₱2.131 billion
necessary in exercising the right to top is not contrary to law, public policy or public morals. There is
nothing in the ASBR that bars the losing bidders from joining either the winning bidder (should the
right to top is not exercised) or KAWASAKI/PHI (should it exercise its right to top as it did), to raise the
purchase price. The petitioner did not allege, nor was it shown by competent evidence, that the
participation of the losing bidders in the public bidding was done with fraudulent intent. Absent any
proof of fraud, the formation by [PHILYARDS] of a consortium is legitimate in a free enterprise system.
The appellate court is thus correct in holding the petitioner estopped from questioning the validity of
the transfer of the National Government's shares in PHILSECO to respondent.36
Further, we see no inherent illegality on PHILYARDS’ act in seeking funding from parties who were
losing bidders. This is a purely commercial decision over which the State should not interfere absent
any legal infirmity. It is emphasized that the case at bar involves the disposition of shares in a
corporation which the government sought to privatize. As such, the persons with whom PHILYARDS
desired to enter into business with in order to raise funds to purchase the shares are basically its
business. This is in contrast to a case involving a contract for the operation of or construction of a
government infrastructure where the identity of the buyer/bidder or financier constitutes an important
consideration. In such cases, the government would have to take utmost precaution to protect public
interest by ensuring that the parties with which it is contracting have the ability to satisfactorily construct
or operate the infrastructure.
On the landholding issue, J.G. Summit submits that since PHILSECO is a landholding company,
KAWASAKI could exercise its right of first refusal only up to 40% of the shares of PHILSECO due to
the constitutional prohibition on landholding by corporations with more than 40% foreign-owned equity.
It further argues that since KAWASAKI already held at least 40% equity in PHILSECO, the right of first
refusal was inutile and as such, could not subsequently be converted into the right to top. 37 Petitioner
also asserts that, at present, PHILSECO continues to violate the constitutional provision on
landholdings as its shares are more than 40% foreign-owned.38 PHILYARDS admits that it may have
previously held land but had already divested such landholdings.39 It contends, however, that even if
PHILSECO owned land, this would not affect the right of first refusal but only the exercise thereof. If
the land is retained, the right of first refusal, being a property right, could be assigned to a qualified
party. In the alternative, the land could be divested before the exercise of the right of first refusal. In
the case at bar, respondents assert that since the right of first refusal was validly converted into a right
to top, which was exercised not by KAWASAKI, but by PHILYARDS which is a Filipino corporation
(i.e., 60% of its shares are owned by Filipinos), then there is no violation of the Constitution.40 At first,
it would seem that questions of fact beyond cognizance by this Court were involved in the issue.
However, the records show that PHILYARDS admits it had owned land up until the time of the
bidding.41 Hence, the only issue is whether KAWASAKI had a valid right of first refusal over
PHILSECO shares under the JVA considering that PHILSECO owned land until the time of the
bidding and KAWASAKI already held 40% of PHILSECO’s equity.
We uphold the validity of the mutual rights of first refusal under the JVA between KAWASAKI and
NIDC. First of all, the right of first refusal is a property right of PHILSECO shareholders, KAWASAKI
and NIDC, under the terms of their JVA. This right allows them to purchase the shares of their co-
shareholder before they are offered to a third party. The agreement of co-shareholders to mutually
grant this right to each other, by itself, does not constitute a violation of the provisions of the
Constitution limiting land ownership to Filipinos and Filipino corporations. As PHILYARDS
correctly puts it, if PHILSECO still owns land, the right of first refusal can be validly assigned to a
qualified Filipino entity in order to maintain the 60%-40% ratio. This transfer, by itself, does not amount
to a violation of the Anti-Dummy Laws, absent proof of any fraudulent intent. The transfer could be
made either to a nominee or such other party which the holder of the right of first refusal feels it can
comfortably do business with. Alternatively, PHILSECO may divest of its landholdings, in which case
KAWASAKI, in exercising its right of first refusal, can exceed 40% of PHILSECO’s equity. In fact, it
can even be said that if the foreign shareholdings of a landholding corporation exceeds 40%,
it is not the foreign stockholders’ ownership of the shares which is adversely affected but the
capacity of the corporation to own land – that is, the corporation becomes disqualified to own land.
This finds support under the basic corporate law principle that the corporation and its stockholders are
separate juridical entities. In this vein, the right of first refusal over shares pertains to the shareholders
whereas the capacity to own land pertains to the corporation. Hence, the fact that PHILSECO owns
land cannot deprive stockholders of their right of first refusal. No law disqualifies a person from
purchasing shares in a landholding corporation even if the latter will exceed the allowed
foreign equity, what the law disqualifies is the corporation from owning land. This is the clear
import of the following provisions in the Constitution:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural resources
shall not be alienated. The exploration, development, and utilization of natural resources shall be under
the full control and supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose capital is owned by such
citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not
more than twenty-five years, and under such terms and conditions as may be provided by law. In
cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, beneficial use may be the measure and limit of the grant.
xxx xxx xxx
Section 7. Save in cases of hereditary succession, no private lands shall be transferred or
conveyed except to individuals, corporations, or associations qualified to acquire or hold lands
of the public domain.42 (emphases supplied)
The petitioner further argues that "an option to buy land is void in itself (Philippine Banking Corporation
v. Lui She, 21 SCRA 52 [1967]). The right of first refusal granted to KAWASAKI, a Japanese
corporation, is similarly void. Hence, the right to top, sourced from the right of first refusal, is also
void."43 Contrary to the contention of petitioner, the case of Lui She did not that say "an option to buy
land is void in itself," for we ruled as follows:
x x x To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an
alien the right to buy real property on condition that he is granted Philippine citizenship. As
this Court said in Krivenko vs. Register of Deeds:
[A]liens are not completely excluded by the Constitution from the use of lands for residential purposes.
Since their residence in the Philippines is temporary, they may be granted temporary rights such as a
lease contract which is not forbidden by the Constitution. Should they desire to remain here forever
and share our fortunes and misfortunes, Filipino citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue
of which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50
years, then it becomes clear that the arrangement is a virtual transfer of ownership whereby
the owner divests himself in stages not only of the right to enjoy the land (jus possidendi, jus
utendi, jus fruendi and jus abutendi) but also of the right to dispose of it (jus disponendi) —
rights the sum total of which make up ownership. It is just as if today the possession is
transferred, tomorrow, the use, the next day, the disposition, and so on, until ultimately all the
rights of which ownership is made up are consolidated in an alien. And yet this is just exactly what
the parties in this case did within this pace of one year, with the result that Justina Santos'[s] ownership
of her property was reduced to a hollow concept. If this can be done, then the Constitutional ban
against alien landholding in the Philippines, as announced in Krivenko vs. Register of Deeds, is
indeed in grave peril.44 (emphases supplied; Citations omitted)
In Lui She, the option to buy was invalidated because it amounted to a virtual transfer of ownership
as the owner could not sell or dispose of his properties. The contract in Lui She prohibited the owner
of the land from selling, donating, mortgaging, or encumbering the property during the 50-year period
of the option to buy. This is not so in the case at bar where the mutual right of first refusal in favor of
NIDC and KAWASAKI does not amount to a virtual transfer of land to a non-Filipino. In fact, the case
at bar involves a right of first refusal over shares of stock while the Lui She case involves
an option to buy the land itself. As discussed earlier, there is a distinction between the shareholder’s
ownership of shares and the corporation’s ownership of land arising from the separate juridical
personalities of the corporation and its shareholders.
We note that in its Motion for Reconsideration, J.G. Summit alleges that PHILSECO continues to
violate the Constitution as its foreign equity is above 40% and yet owns long-term leasehold rights
which are real rights.45 It cites Article 415 of the Civil Code which includes in the definition of
immovable property, "contracts for public works, and servitudes and other real rights over immovable
property."46 Any existing landholding, however, is denied by PHILYARDS citing its recent financial
statements.47 First, these are questions of fact, the veracity of which would require introduction of
evidence. The Court needs to validate these factual allegations based on competent and reliable
evidence. As such, the Court cannot resolve the questions they pose. Second, J.G. Summit misreads
the provisions of the Constitution cited in its own pleadings, to wit:
29.2 Petitioner has consistently pointed out in the past that private respondent is not a 60%-40%
corporation, and this violates the Constitution x x x The violation continues to this day because under
the law, it continues to own real property…
xxx xxx xxx
32. To review the constitutional provisions involved, Section 14, Article XIV of the 1973 Constitution
(the JVA was signed in 1977), provided:
"Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to
individuals, corporations, or associations qualified to acquire or hold lands of the public domain."
32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution.
32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the public
domain are corporations at least 60% of which is owned by Filipino citizens (Sec. 22, Commonwealth
Act 141, as amended). (emphases supplied)
As correctly observed by the public respondents, the prohibition in the Constitution applies only to
ownership of land.48 It does not extend to immovable or real property as defined under Article
415 of the Civil Code. Otherwise, we would have a strange situation where the ownership of
immovable property such as trees, plants and growing fruit attached to the land49 would be limited to
Filipinos and Filipino corporations only.
III.
WHEREFORE, in view of the foregoing, the petitioner’s Motion for Reconsideration is DENIED WITH
FINALITY and the decision appealed from is AFFIRMED. The Motion to Elevate This Case to the
Court En Banc is likewise DENIED for lack of merit.
SO ORDERED

EN BANC

[G.R. NO. 155076 : January 13, 2009]

LUIS MARCOS P. LAUREL, Petitioner, v. HON. ZEUS C. ABROGAR, Presiding Judge of the
Regional Trial Court, Makati City, Branch 150, PEOPLE OF THE PHILIPPINES & PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY Respondents.
RESOLUTION
YNARES-SANTIAGO, J.:

On February 27, 2006, this Court's First Division rendered judgment in this case as follows:
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Orders of the Regional
Trial Court and the Decision of the Court of Appeals are REVERSED and SET ASIDE. The Regional
Trial Court is directed to issue an order granting the motion of the petitioner to quash the Amended
Information.
SO ORDERED.1
By way of brief background, petitioner is one of the accused in Criminal Case No. 99-2425, filed with
the Regional Trial Court of Makati City, Branch 150. The Amended Information charged the accused
with theft under Article 308 of the Revised Penal Code, committed as follows:
On or about September 10-19, 1999, or prior thereto in Makati City, and within the jurisdiction of this
Honorable Court, the accused, conspiring and confederating together and all of them mutually helping
and aiding one another, with intent to gain and without the knowledge and consent of the Philippine
Long Distance Telephone (PLDT), did then and there willfully, unlawfully and feloniously take, steal
and use the international long distance calls belonging to PLDT by conducting International Simple
Resale (ISR), which is a method of routing and completing international long distance calls using lines,
cables, antenae, and/or air wave frequency which connect directly to the local or domestic exchange
facilities of the country where the call is destined, effectively stealing this business from PLDT while
using its facilities in the estimated amount of P20,370,651.92 to the damage and prejudice of PLDT,
in the said amount.
CONTRARY TO LAW.2
Petitioner filed a "Motion to Quash (with Motion to Defer Arraignment)," on the ground that the factual
allegations in the Amended Information do not constitute the felony of theft. The trial court denied the
Motion to Quash the Amended Information, as well petitioner's subsequent Motion for
Reconsideration.
Petitioner's special civil action for certiorari was dismissed by the Court of Appeals. Thus, petitioner
filed the instant Petition for Review with this Court.
In the above-quoted Decision, this Court held that the Amended Information does not contain material
allegations charging petitioner with theft of personal property since international long distance calls
and the business of providing telecommunication or telephone services are not personal properties
under Article 308 of the Revised Penal Code.
Respondent Philippine Long Distance Telephone Company (PLDT) filed a Motion for Reconsideration
with Motion to Refer the Case to the Supreme Court En Banc. It maintains that the Amended
Information charging petitioner with theft is valid and sufficient; that it states the names of all the
accused who were specifically charged with the crime of theft of PLDT's international calls and
business of providing telecommunication or telephone service on or about September 10 to 19, 1999
in Makati City by conducting ISR or International Simple Resale; that it identifies the international calls
and business of providing telecommunication or telephone service of PLDT as the personal properties
which were unlawfully taken by the accused; and that it satisfies the test of sufficiency as it enabled a
person of common understanding to know the charge against him and the court to render judgment
properly.
PLDT further insists that the Revised Penal Code should be interpreted in the context of the Civil
Code's definition of real and personal property. The enumeration of real properties in Article 415 of
the Civil Code is exclusive such that all those not included therein are personal properties. Since
Article 308 of the Revised Penal Code used the words "personal property" without qualification, it
follows that all "personal properties" as understood in the context of the Civil Code, may be the subject
of theft under Article 308 of the Revised Penal Code. PLDT alleges that the international calls and
business of providing telecommunication or telephone service are personal properties capable of
appropriation and can be objects of theft.
PLDT also argues that "taking" in relation to theft under the Revised Penal Code does not require
"asportation," the sole requisite being that the object should be capable of "appropriation." The element
of "taking" referred to in Article 308 of the Revised Penal Code means the act of depriving another of
the possession and dominion of a movable coupled with the intention, at the time of the "taking," of
withholding it with the character of permanency. There must be intent to appropriate, which means to
deprive the lawful owner of the thing. Thus, the term "personal properties" under Article 308 of the
Revised Penal Code is not limited to only personal properties which are "susceptible of being severed
from a mass or larger quantity and of being transported from place to place."
PLDT likewise alleges that as early as the 1930s, international telephone calls were in existence;
hence, there is no basis for this Court's finding that the Legislature could not have contemplated the
theft of international telephone calls and the unlawful transmission and routing of electronic voice
signals or impulses emanating from such calls by unlawfully tampering with the telephone device as
within the coverage of the Revised Penal Code.
According to respondent, the "international phone calls" which are "electric currents or sets of electric
impulses transmitted through a medium, and carry a pattern representing the human voice to a
receiver," are personal properties which may be subject of theft. Article 416(3) of the Civil Code deems
"forces of nature" (which includes electricity) which are brought under the control by science, are
personal property.
In his Comment to PLDT's motion for reconsideration, petitioner Laurel claims that a telephone call is
a conversation on the phone or a communication carried out using the telephone. It is not synonymous
to electric current or impulses. Hence, it may not be considered as personal property susceptible of
appropriation. Petitioner claims that the analogy between generated electricity and telephone calls is
misplaced. PLDT does not produce or generate telephone calls. It only provides the facilities or
services for the transmission and switching of the calls. He also insists that "business" is not personal
property. It is not the "business" that is protected but the "right to carry on a business." This right is
what is considered as property. Since the services of PLDT cannot be considered as "property," the
same may not be subject of theft.
The Office of the Solicitor General (OSG) agrees with respondent PLDT that "international phone calls
and the business or service of providing international phone calls" are subsumed in the enumeration
and definition of personal property under the Civil Code hence, may be proper subjects of theft. It
noted that the cases of United States v. Genato,3 United States v. Carlos4 and United States v.
Tambunting,5 which recognized intangible properties like gas and electricity as personal properties,
are deemed incorporated in our penal laws. Moreover, the theft provision in the Revised Penal Code
was deliberately couched in broad terms precisely to be all-encompassing and embracing even such
scenario that could not have been easily anticipated.
According to the OSG, prosecution under Republic Act (RA) No. 8484 or the Access Device
Regulations Act of 1998 and RA 8792 or the Electronic Commerce Act of 2000 does not preclude
prosecution under the Revised Penal Code for the crime of theft. The latter embraces unauthorized
appropriation or use of PLDT's international calls, service and business, for personal profit or gain, to
the prejudice of PLDT as owner thereof. On the other hand, the special laws punish the surreptitious
and advanced technical means employed to illegally obtain the subject service and business. Even
assuming that the correct indictment should have been under RA 8484, the quashal of the information
would still not be proper. The charge of theft as alleged in the Information should be taken in relation
to RA 8484 because it is the elements, and not the designation of the crime, that control.
Considering the gravity and complexity of the novel questions of law involved in this case, the Special
First Division resolved to refer the same to the Banc.
We resolve to grant the Motion for Reconsideration but remand the case to the trial court for proper
clarification of the Amended Information.
Article 308 of the Revised Penal Code provides:
Art. 308. Who are liable for theft. - Theft is committed by any person who, with intent to gain but without
violence against, or intimidation of persons nor force upon things, shall take personal property of
another without the latter's consent.
The elements of theft under Article 308 of the Revised Penal Code are as follows: (1) that there be
taking of personal property; (2) that said property belongs to another; (3) that the taking be done with
intent to gain; (4) that the taking be done without the consent of the owner; and (5) that the taking be
accomplished without the use of violence against or intimidation of persons or force upon things.
Prior to the passage of the Revised Penal Code on December 8, 1930, the definition of the term
"personal property" in the penal code provision on theft had been established in Philippine
jurisprudence. This Court, in United States v. Genato, United States v. Carlos, and United States v.
Tambunting, consistently ruled that any personal property, tangible or intangible, corporeal or
incorporeal, capable of appropriation can be the object of theft.
Moreover, since the passage of the Revised Penal Code on December 8, 1930, the term "personal
property" has had a generally accepted definition in civil law. In Article 335 of the Civil Code of Spain,
"personal property" is defined as "anything susceptible of appropriation and not included in the
foregoing chapter (not real property)." Thus, the term "personal property" in the Revised Penal Code
should be interpreted in the context of the Civil Code provisions in accordance with the rule on statutory
construction that where words have been long used in a technical sense and have been judicially
construed to have a certain meaning, and have been adopted by the legislature as having a certain
meaning prior to a particular statute, in which they are used, the words used in such statute should be
construed according to the sense in which they have been previously used.6 In fact, this Court used
the Civil Code definition of "personal property" in interpreting the theft provision of the penal code in
United States v. Carlos.
Cognizant of the definition given by jurisprudence and the Civil Code of Spain to the term "personal
property" at the time the old Penal Code was being revised, still the legislature did not limit or qualify
the definition of "personal property" in the Revised Penal Code. Neither did it provide a restrictive
definition or an exclusive enumeration of "personal property" in the Revised Penal Code, thereby
showing its intent to retain for the term an extensive and unqualified
interpretation.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Consequently, any property which is not included in the enumeration of real properties under the Civil
Code and capable of appropriation can be the subject of theft under the Revised Penal Code.
The only requirement for a personal property to be the object of theft under the penal code is that it be
capable of appropriation. It need not be capable of "asportation," which is defined as "carrying
away."7 Jurisprudence is settled that to "take" under the theft provision of the penal code does not
require asportation or carrying away.8
To appropriate means to deprive the lawful owner of the thing.9 The word "take" in the Revised Penal
Code includes any act intended to transfer possession which, as held in the assailed Decision, may
be committed through the use of the offenders' own hands, as well as any mechanical device, such
as an access device or card as in the instant case. This includes controlling the destination of the
property stolen to deprive the owner of the property, such as the use of a meter tampering, as held in
Natividad v. Court of Appeals,10 use of a device to fraudulently obtain gas, as held in United States v.
Tambunting, and the use of a jumper to divert electricity, as held in the cases of United States v.
Genato, United States v. Carlos, and United States v. Menagas.11
As illustrated in the above cases, appropriation of forces of nature which are brought under control by
science such as electrical energy can be achieved by tampering with any apparatus used for
generating or measuring such forces of nature, wrongfully redirecting such forces of nature from such
apparatus, or using any device to fraudulently obtain such forces of nature. In the instant case,
petitioner was charged with engaging in International Simple Resale (ISR) or the unauthorized routing
and completing of international long distance calls using lines, cables, antennae, and/or air wave
frequency and connecting these calls directly to the local or domestic exchange facilities of the country
where destined.
As early as 1910, the Court declared in Genato that ownership over electricity (which an international
long distance call consists of), as well as telephone service, is protected by the provisions on theft of
the Penal Code. The pertinent provision of the Revised Ordinance of the City of Manila, which was
involved in the said case, reads as follows:
Injury to electric apparatus; Tapping current; Evidence. - No person shall destroy, mutilate, deface, or
otherwise injure or tamper with any wire, meter, or other apparatus installed or used for generating,
containing, conducting, or measuring electricity, telegraph or telephone service, nor tap or otherwise
wrongfully deflect or take any electric current from such wire, meter, or other apparatus.
No person shall, for any purpose whatsoever, use or enjoy the benefits of any device by means of
which he may fraudulently obtain any current of electricity or any telegraph or telephone service; and
the existence in any building premises of any such device shall, in the absence of satisfactory
explanation, be deemed sufficient evidence of such use by the persons benefiting thereby.
It was further ruled that even without the above ordinance the acts of subtraction punished therein are
covered by the provisions on theft of the Penal Code then in force, thus:
Even without them (ordinance), the right of the ownership of electric current is secured by articles 517
and 518 of the Penal Code; the application of these articles in cases of subtraction of gas, a fluid used
for lighting, and in some respects resembling electricity, is confirmed by the rule laid down in the
decisions of the supreme court of Spain of January 20, 1887, and April 1, 1897, construing and
enforcing the provisions of articles 530 and 531 of the Penal Code of that country, articles 517 and
518 of the code in force in these islands.
The acts of "subtraction" include: (a) tampering with any wire, meter, or other apparatus installed or
used for generating, containing, conducting, or measuring electricity, telegraph or telephone service;
(b) tapping or otherwise wrongfully deflecting or taking any electric current from such wire, meter, or
other apparatus; and (c) using or enjoying the benefits of any device by means of which one may
fraudulently obtain any current of electricity or any telegraph or telephone service.
In the instant case, the act of conducting ISR operations by illegally connecting various equipment or
apparatus to private respondent PLDT's telephone system, through which petitioner is able to resell
or re-route international long distance calls using respondent PLDT's facilities constitutes all three acts
of subtraction mentioned above.
The business of providing telecommunication or telephone service is likewise personal property which
can be the object of theft under Article 308 of the Revised Penal Code. Business may be appropriated
under Section 2 of Act No. 3952 (Bulk Sales Law), hence, could be object of theft:
Section 2. Any sale, transfer, mortgage, or assignment of a stock of goods, wares, merchandise,
provisions, or materials otherwise than in the ordinary course of trade and the regular prosecution of
the business of the vendor, mortgagor, transferor, or assignor, or any sale, transfer, mortgage, or
assignment of all, or substantially all, of the business or trade theretofore conducted by the vendor,
mortgagor, transferor or assignor, or all, or substantially all, of the fixtures and equipment used in and
about the business of the vendor, mortgagor, transferor, or assignor, shall be deemed to be a sale
and transfer in bulk, in contemplation of the Act. x x x.
In Strochecker v. Ramirez,12 this Court stated:
With regard to the nature of the property thus mortgaged which is one-half interest in the business
above described, such interest is a personal property capable of appropriation and not included in the
enumeration of real properties in article 335 of the Civil Code, and may be the subject of mortgage.
Interest in business was not specifically enumerated as personal property in the Civil Code in force at
the time the above decision was rendered. Yet, interest in business was declared to be personal
property since it is capable of appropriation and not included in the enumeration of real properties.
Article 414 of the Civil Code provides that all things which are or may be the object of appropriation
are considered either real property or personal property. Business is likewise not enumerated as
personal property under the Civil Code. Just like interest in business, however, it may be appropriated.
Following the ruling in Strochecker v. Ramirez, business should also be classified as personal
property. Since it is not included in the exclusive enumeration of real properties under Article 415, it is
therefore personal property.13
As can be clearly gleaned from the above disquisitions, petitioner's acts constitute theft of respondent
PLDT's business and service, committed by means of the unlawful use of the latter's facilities. In this
regard, the Amended Information inaccurately describes the offense by making it appear that what
petitioner took were the international long distance telephone calls, rather than respondent PLDT's
business.
A perusal of the records of this case readily reveals that petitioner and respondent PLDT extensively
discussed the issue of ownership of telephone calls. The prosecution has taken the position that said
telephone calls belong to respondent PLDT. This is evident from its Comment where it defined the
issue of this case as whether or not "the unauthorized use or appropriation of PLDT international
telephone calls, service and facilities, for the purpose of generating personal profit or gain that should
have otherwise belonged to PLDT, constitutes theft."14
In discussing the issue of ownership, petitioner and respondent PLDT gave their respective
explanations on how a telephone call is generated.15 For its part, respondent PLDT explains the
process of generating a telephone call as follows:
38. The role of telecommunication companies is not limited to merely providing the medium (i.e. the
electric current) through which the human voice/voice signal of the caller is transmitted. Before the
human voice/voice signal can be so transmitted, a telecommunication company, using its facilities,
must first break down or decode the human voice/voice signal into electronic impulses and subject the
same to further augmentation and enhancements. Only after such process of conversion will the
resulting electronic impulses be transmitted by a telecommunication company, again, through the use
of its facilities. Upon reaching the destination of the call, the telecommunication company will again
break down or decode the electronic impulses back to human voice/voice signal before the called
party receives the same. In other words, a telecommunication company both converts/reconverts the
human voice/voice signal and provides the medium for transmitting the same.
39. Moreover, in the case of an international telephone call, once the electronic impulses originating
from a foreign telecommunication company country (i.e. Japan) reaches the Philippines through a
local telecommunication company (i.e. private respondent PLDT), it is the latter which decodes,
augments and enhances the electronic impulses back to the human voice/voice signal and provides
the medium (i.e. electric current) to enable the called party to receive the call. Thus, it is not true that
the foreign telecommunication company provides (1) the electric current which transmits the human
voice/voice signal of the caller and (2) the electric current for the called party to receive said human
voice/voice signal.
40. Thus, contrary to petitioner Laurel's assertion, once the electronic impulses or electric current
originating from a foreign telecommunication company (i.e. Japan) reaches private respondent PLDT's
network, it is private respondent PLDT which decodes, augments and enhances the electronic
impulses back to the human voice/voice signal and provides the medium (i.e. electric current) to enable
the called party to receive the call. Without private respondent PLDT's network, the human voice/voice
signal of the calling party will never reach the called party.16
In the assailed Decision, it was conceded that in making the international phone calls, the human voice
is converted into electrical impulses or electric current which are transmitted to the party called. A
telephone call, therefore, is electrical energy. It was also held in the assailed Decision that intangible
property such as electrical energy is capable of appropriation because it may be taken and carried
away. Electricity is personal property under Article 416 (3) of the Civil Code, which enumerates "forces
of nature which are brought under control by science."17
Indeed, while it may be conceded that "international long distance calls," the matter alleged to be
stolen in the instant case, take the form of electrical energy, it cannot be said that such international
long distance calls were personal properties belonging to PLDT since the latter could not have
acquired ownership over such calls. PLDT merely encodes, augments, enhances, decodes and
transmits said calls using its complex communications infrastructure and facilities. PLDT not being the
owner of said telephone calls, then it could not validly claim that such telephone calls were taken
without its consent. It is the use of these communications facilities without the consent of PLDT that
constitutes the crime of theft, which is the unlawful taking of the telephone services and business.
Therefore, the business of providing telecommunication and the telephone service are personal
property under Article 308 of the Revised Penal Code, and the act of engaging in ISR is an act of
"subtraction" penalized under said article. However, the Amended Information describes the thing
taken as, "international long distance calls," and only later mentions "stealing the business from PLDT"
as the manner by which the gain was derived by the accused. In order to correct this inaccuracy of
description, this case must be remanded to the trial court and the prosecution directed to amend the
Amended Information, to clearly state that the property subject of the theft are the services and
business of respondent PLDT. Parenthetically, this amendment is not necessitated by a mistake in
charging the proper offense, which would have called for the dismissal of the information under Rule
110, Section 14 and Rule 119, Section 19 of the Revised Rules on Criminal Procedure. To be sure,
the crime is properly designated as one of theft. The purpose of the amendment is simply to ensure
that the accused is fully and sufficiently apprised of the nature and cause of the charge against him,
and thus guaranteed of his rights under the Constitution.
ACCORDINGLY, the motion for reconsideration is GRANTED. The assailed Decision dated February
27, 2006 is RECONSIDERED and SET ASIDE. The Decision of the Court of Appeals in CA-G.R. SP
No. 68841 affirming the Order issued by Judge Zeus C. Abrogar of the Regional Trial Court of Makati
City, Branch 150, which denied the Motion to Quash (With Motion to Defer Arraignment) in Criminal
Case No. 99-2425 for theft, is AFFIRMED. The case is remanded to the trial court and the Public
Prosecutor of Makati City is hereby DIRECTED to amend the Amended Information to show that the
property subject of the theft were services and business of the private offended party.
SO ORDERED.

THIRD DIVISION

[G.R. NO. 136438 : November 11, 2004]

TEOFILO C. VILLARICO, Petitioner, v. VIVENCIO SARMIENTO, SPOUSES BESSIE
SARMIENTO-DEL MUNDO & BETH DEL MUNDO, ANDOK'S LITSON CORPORATION and
MARITES' CARINDERIA, Respondents.

DECISION

SANDOVAL-GUTIERREZ, J.:
Before us is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals dated
December 7, 1998 in CA-G.R. CV No. 54883, affirming in toto the Decision2 of the Regional Trial Court
(RTC) of Paranaque City, Branch 259, dated November 14, 1996, in Civil Case No. 95-044.
The facts of this case, as gleaned from the findings of the Court of Appeals, are:
Teofilo C. Villarico, petitioner, is the owner of a lot in La Huerta, Paranaque City, Metro Manila with an
area of sixty-six (66) square meters and covered by Transfer Certificate of Title (T.C.T.) No. 95453
issued by the Registry of Deeds, same city.
Petitioner's lot is separated from the Ninoy Aquino Avenue (highway) by a strip of land belonging to
the government. As this highway was elevated by four (4) meters and therefore higher than the
adjoining areas, the Department of Public Works and Highways (DPWH) constructed stairways at
several portions of this strip of public land to enable the people to have access to the highway.
Sometime in 1991, Vivencio Sarmiento, his daughter Bessie Sarmiento and her husband Beth Del
Mundo, respondents herein, had a building constructed on a portion of said government land. In
November that same year, a part thereof was occupied by Andok's Litson Corporation and Marites'
Carinderia, also impleaded as respondents.
In 1993, by means of a Deed of Exchange of Real Property, petitioner acquired a 74.30 square meter
portion of the same area owned by the government. The property was registered in his name as T.C.T.
No. 74430 in the Registry of Deeds of Paranaque City.
In 1995, petitioner filed with the RTC, Branch 259, Paranaque City, a complaint for accion publiciana
against respondents, docketed as Civil Case No. 95-044. He alleged inter alia that respondents'
structures on the government land closed his "right of way" to the Ninoy Aquino Avenue; and
encroached on a portion of his lot covered by T.C.T. No. 74430.
Respondents, in their answer, specifically denied petitioner's allegations, claiming that they have been
issued licenses and permits by Paranaque City to construct their buildings on the area; and that
petitioner has no right over the subject property as it belongs to the government.
After trial, the RTC rendered its Decision, the dispositive portion of which reads:
"WHEREFORE, premises considered, judgment is hereby rendered:
1. Declaring the defendants to have a better right of possession over the subject land except the
portion thereof covered by Transfer Certificate of Title No. 74430 of the Register of Deeds of
Paranaque;
2. Ordering the defendants to vacate the portion of the subject premises described in Transfer
Certificate of Title No. 74430 and gives its possession to plaintiff; and
3. Dismissing the claim for damages of the plaintiff against the defendants, and likewise dismissing
the claim for attorney's fees of the latter against the former.
Without pronouncement as to costs.
SO ORDERED."3
The trial court found that petitioner has never been in possession of any portion of the public land in
question. On the contrary, the defendants are the ones who have been in actual possession of the
area. According to the trial court, petitioner was not deprived of his "right of way" as he could use the
Kapitan Tinoy Street as passageway to the highway.
On appeal by petitioner, the Court of Appeals issued its Decision affirming the trial court's Decision in
toto, thus:
"WHEREFORE, the judgment hereby appealed from is hereby AFFIRMED in toto, with costs against
the plaintiff-appellant.
SO ORDERED."4
In this petition, petitioner ascribes to the Court of Appeals the following assignments of error:
"I
THE FINDINGS OF FACT OF THE HON. COURT OF APPEALS CONTAINED A CONCLUSION
WITHOUT CITATION OF SPECIFIC EVIDENCE ON WHICH THE SAME WAS BASED.
II
THE HON. COURT OF APPEALS ERRED IN CONSIDERING THAT THE ONLY ISSUE IN THIS
CASE IS WHETHER OR NOT THE PLAINTIFF-APPELLANT HAS ACQUIRED A RIGHT OF WAY
OVER THE LAND OF THE GOVERNMENT WHICH IS BETWEEN HIS PROPERTY AND THE
NINOY AQUINO AVENUE.
III
THE HON. COURT OF APPEALS ERRED IN CONCLUDING THAT ACCION PUBLICIANA IS NOT
THE PROPER REMEDY IN THE CASE AT BAR.
IV
THE HON. COURT OF APPEALS ERRED IN CONCLUDING THAT THE EXISTENCE OF THE
PLAINTIFF-APPELLANT'S RIGHT OF WAY DOES NOT CARRY POSSESSION OVER THE SAME.
V
THE HON. COURT OF APPEALS ERRED IN NOT RESOLVING THE ISSUE OF WHO HAS THE
BETTER RIGHT OF POSSESSION OVER THE SUBJECT LAND BETWEEN THE PLAINTIFF-
APPELLANT AND THE DEFENDANT-APPELLEES."5
In their comment, respondents maintain that the Court of Appeals did not err in ruling that petitioner's
action for accion publiciana is not the proper remedy in asserting his "right of way" on a lot owned by
the government.
Here, petitioner claims that respondents, by constructing their buildings on the lot in question, have
deprived him of his "right of way" and his right of possession over a considerable portion of the same
lot, which portion is covered by his T.C.T. No. 74430 he acquired by means of exchange of real
property.
It is not disputed that the lot on which petitioner's alleged "right of way" exists belongs to the state or
property of public dominion. Property of public dominion is defined by Article 420 of the Civil Code as
follows:
"ART. 420. The following things are property of public dominion:
(1) Those intended for public use such as roads, canals, rivers, torrents, ports and bridges constructed
by the State, banks, shores, roadsteads, and other of similar character.
(2) Those which belong to the State, without being for public use, and are intended for some public
service or for the development of the national wealth."
Public use is "use that is not confined to privileged individuals, but is open to the indefinite
public."6 Records show that the lot on which the stairways were built is for the use of the people as
passageway to the highway. Consequently, it is a property of public dominion.
Property of public dominion is outside the commerce of man and hence it: (1) cannot be alienated or
leased or otherwise be the subject matter of contracts; (2) cannot be acquired by prescription against
the State; (3) is not subject to attachment and execution; and (4) cannot be burdened by any voluntary
easement.7
Considering that the lot on which the stairways were constructed is a property of public dominion, it
cannot be burdened by a voluntary easement of right of way in favor of herein petitioner. In fact, its
use by the public is by mere tolerance of the government through the DPWH. Petitioner cannot
appropriate it for himself. Verily, he cannot claim any right of possession over it. This is clear from
Article 530 of the Civil Code which provides:
"ART. 530. Only things and rights which are susceptible of being appropriated may be the object of
possession."
Accordingly, both the trial court and the Court of Appeals erred in ruling that respondents have better
right of possession over the subject lot.
However, the trial court and the Court of Appeals found that defendants' buildings were constructed
on the portion of the same lot now covered by T.C.T. No. 74430 in petitioner's name. Being its owner,
he is entitled to its possession.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated December
7, 1998 in CA-G.R. CV No. 54883 is AFFIRMED with MODIFICATION in the sense that neither
petitioner nor respondents have a right of possession over the disputed lot where the stairways were
built as it is a property of public dominion. Costs against petitioner.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-66807 January 26, 1989
REPUBLIC OF THE PHILIPPINES, represented by the DIRECTOR OF LANDS, petitioner,
vs.
MELITONA ALAGAD, SPOUSES CARMEN ALAGAD AND ESPIRIDION KOLIMLIM, JUSTO
ALAGAD, CARLOS ALAGAD, SPOUSES LIBRADA ALAGAD AND EMERSON ABANO,
DEMETRIO ALAGAD, ANTONIO ALAGAD, REGISTER OF DEEDS OF LAGUNA, and the
INTERMEDIATE APPELLATE COURT (Fourth Civil Cases Division), respondents.
The Solicitor General for petitioner.
Alberto, Salazar & Associates for private respondents.

SARMIENTO, J.:
The Republic appeals from the decision of the Court of Appeals 1 affirming two orders of the defunct
Court of First Instance of Laguna 2 dismissing its petition for "annulment of title and reversion.3 The
facts appear in the decision appealed from:
On or about October 11, 1951, defendants filed an application for registration of their title over a parcel
of land situated at Linga, Pila, Laguna, with an area of 8.1263 hectares, reflected in survey plan Psu-
116971, which was amended after the land was divided into two parcels, namely, Lot 1 with an area
of 5.2476 hectares and Lot 2 with an area of 2.8421 hectares, reflected in survey plan Psu-226971,
amd. 2.
The Republic opposed the application on the stereo-typed ground that applicants and their
predecessors have not been in possession of the land openly, continuously, publicly and adversely
under a bona fide claim of ownership since July 26, 1894 and the land has not ceased to be a part of
the public domain. It appears that barrio folk also opposed the application. (LRC Case No. 189.
G.L.R.O. Rec. No. 4922 of the Court of First Instance of Laguna).
By virtue of a final judgment in said case, promulgated January 16, 1956, supplemented by orders
issued on March 21, 1956 and August 13, 1956, defendants were declared owners of Lot 1 and the
remaining portion, or Lot 2, was declared public land. Decree No. N-51479 was entered and Original
Certificate of Title No. 0- 40 1, dated October 18, 1956, was issued in the names of defendants.
In August, 1966, Civil Case No. 52 of the Municipal Court of Pila, Laguna, was filed by defendants to
evict the barrio folk occupying portions of Lot 1. On August 8, 1968, judgment was rendered in the
eviction case ordering the defendants therein to return possession of the premises to herein
defendants, as plaintiffs therein. The defendants therein did not appeal.
The foregoing anterior proceedings triggered the filing of the instant case. On October 6, 1970, as
prayed for in the complaint, a writ of preliminary injunction was issued enjoining the Provincial Sheriff
of Laguna or his deputies from enforcing the writ of execution issued in Civil Case No. 52, and the
defendants from selling, mortgaging, disposing or otherwise entering into any transaction affecting the
area.
This case was set for pre-trial on July 6, 1971. Despite notice of the pre-trial, Atty. Alejandro A.
Ponferada, Special Attorney, Bureau of Lands, representing plaintiff Republic, did not appear. On July
16, 1971, the court a quo dismissed the complaint. The Republic filed a motion for reconsideration,
was set for hearing, and finally denied by the court a quo, hence, this appeal.
Plaintiff filed its record on appeal on March 13, 1972. It appears that the appeal was dismissed by this
Court for failure to show in the record on appeal that the appeal was perfected on time. Plaintiff went
to the Supreme Court on a petition for review on the action of this Court. On November 19, 1982, the
Supreme Court set aside the dismissal resolution of this Court and ordered Us to reinstate and give
due course to plaintiffs appeal.4
In commencing proceedings below, the Republic claims that the decree and title [rendered and issued
in LRC Case No. 189, G.L.R.O. Rec. No. L-4922] insofar as the 1.42 hectare northwestern portion on
end of Lot 1, Psu-116971, Amd. 2, is concerned, are void ab initio, 5 for the following reasons:
(a) That said l.42 hectare northwestern portion or end of Lot l, Psu-116971, Amd. 2, like the adjoining
Lot 2 of the same survey plan containing 2.8421 hectares, had since time immemorial, been foreshore
land reached and covered by the waters of the Laguna de Bay (Republic vs. Ayala y Cia, L-20950,
May 31, 1965; Antonio Dizon, et al., vs. Juan de G. Rodriguez, et al., L-20355- 56, April 30, 1965);
(b) That moreover said 1.42 hectare portion is actually now the site of Barrio Aplaya, formerly a sitio
of Linga, Pila, Laguna, having been occupied by the barrio people since the American occupation of
the country in the early 1900's where they established their houses;
(c) That the barrio people of Aplaya thru the years since the early 1900's have filled up and elevated
the land to its present condition of being some feet above the level of the adjoining Lot 2 of plan Psu-
116971 and the rest of Lot 1 of the same survey plan so much so that this barrio site of Aplaya where
there are now sixty-eight (68) houses occupied by more than one hundred (100) families is no longer
reached and covered by the waters of the Laguna de Bay; and
(d) That were it not for the fillings made by the barrio people, the land in question would not have been
fit for human habitation, so much so that defendants and their predecessors-in-interest could not have
acquired an imperfect title to the property which could be judicially confirmed in a registration case, as
in fact said defendants and their predecessors-in-interest have never been in actual possession of the
land in question, the actual occupants thereof being the barrio people of Aplaya; 6
In sustaining the trial court, the Court of Appeals held that under Section 20, of Rule 20, of the Rules
of Court, dismissal was proper upon failure of the Republic to appear for pre-trial. It likewise ruled that
the judgment, dated January 16, 1956, in the said LRC No. 189 has long become final, titles to the
properties had been issued (in favor of the private respondents), and that res judicata, consequently,
was a bar.
In its petition, the Republic assails the decision insofar as it sustained the lower court: (1) in dismissing
the petition for failure of the Republic to appear for pre-trial; and (2) in holding that res judicata is an
obstacle to the suit.
I.
With respect to the first question, we hold that the Court of Appeals has been guilty of grave abuse of
discretion. It is well-established that the State cannot be bound by, or estopped from, the mistakes or
negligent acts of its official or agents, 7 much more, non-suited as a result thereof.
This is so because:
... [T]he state as a persona in law is the judicial entity, which is the source of any asserted right to
ownership in land under the basic doctrine embodied in the 1935 Constitution as well as the present
charter. It is charged moreover with the conservation of such patrimony. There is need therefore of
the most rigorous scrutiny before private claims to portions thereof are judicially accorded recognition,
especially so where the matter is sought to be raked up anew after almost fifty years. Such primordial
consideration, not the apparent carelessness, much less the acquiescense of public officials, is the
controlling norm . . . 8
The cases of Ramos v. Centra l Bank of the Philippines 9 and Nilo v. Romero, 10 cited by the Court of
Appeals in support of its decision, are not applicable. In Ramos, we applied estoppel upon finding of
bad faith on the part of the State (the Central Bank) in deliberately reneging on its promises. In Nilo,
we denied efforts to impugn the jurisdiction of the court on the ground that the defendant had been
"erroneously' represented in the complaint by the City Attorney when it should have been the City
Mayor, on a holding that the City Attorney, in any event, could have ably defended the City (Davao
City). In both cases, it is seen that the acts that gave rise to estoppel were voluntary and intentional in
character, in which cases, it could not be said that the Government had been prejudiced by some
negligent act or omission.
There is no merit either, in claims that res judicata is an impediment to reversion of property.
In Republic v. Court of Appeals, 11 this Court stated:
... [a] certificate of title may be ordered cancelled (Republic v Animas, et al., . supra), and the
cancellation may be pursued through an ordinary action therefor. This action cannot be barred by the
prior judgment of the land registration court, since the said court had no jurisdiction over the subject
matter. And if there was no such jurisdiction, then the principle of res judicata does not apply. For it is
a well-settled rule that for a prior judgment to constitute a bar to a subsequent case, the following
requisites must concur; (1) it must be a final judgment; (2) it must have been rendered by a court
having jurisdiction over the subject matter and over the parties; (3) it must be a judgment on the merits;
and (4) there must be, between the first and second actions, identity of parties, identity of subject
matter and identity of cause of action (Municipality of Daet vs. CA, 93 SCRA 503; Mendoza vs. Arrieta,
et al., 91 SCRA 113)...12
In the case at bar, if the parcel registered in the names of the private respondents were foreshore land,
the land registration court could not have validly awarded title thereto. It would have been without the
authority to do so. The fact that the Bureau of Lands had failed to appeal from the decree of registration
could not have validated the court's decision, rendered without jurisdiction.
II.
"Property, according to the Civil Code, is either of public dominion or of private ownership." 13 Property
is of public dominion if it is:
(1) ... 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; 14 or if it:
(2) . . . belong[s] to the State, without being for public use, and are intended for some public service
or for the development of the national wealth. 15
All other property of the State, it is provided further, which is not of the character mentioned in ... article
[4201, is patrimonial property,16 meaning to say, property 'open to disposition17 by the Government, or
otherwise, property pertaining to the national domain, or public lands.18 Property of the public
dominion, on the other hand, refers to things held by the State by regalian right. They are things res
publicae in nature and hence, incapable of private appropriation. Thus, under the present Constitution,
[w]ith the exception of agricultural lands, all other natural resources shall not be alienated.'19
Specifically:
ART. 502. The following are of public dominion:
(1) Rivers and their natural beds;
(2) Continuous or intermittent waters of springs and brooks running in their natural beds and the beds
themselves;
(3) Waters rising continuously or intermittently on lands of public dominion;
(4) Lakes and lagoons formed by Nature on public lands, and their beds;
(5) Rain waters running through ravines or sand beds, which are also of public dominion;
(6) Subterranean waters on public lands;
(7) Waters found within the zone of operation of public works, even if constructed by a contractor;
(8) Waters rising continuously or intermittently on lands belonging to private persons, to the State, to
a province, or to a city or municipality from the moment they leave such lands;
(9) The waste waters of fountains, sewers and public establishments.20
So also is it ordained by the Spanish Law of Waters of August 3, 1866:
Art. 44. Natural ponds and lakes existing upon public lands and fed by public waters, belong to the
public domain.
Lakes, ponds, and pools existing upon the lands of private individuals, or the State or provinces,
belong to the respective owners of such lands, and those situated upon lands of communal use belong
to their respective pueblos.21
Assuming, therefore, for purposes of this petition, that the lands subject of the Republic's reversion
efforts are foreshore in nature, the Republic has legitimate reason to demand reconveyance. In that
case, res judicata or estoppel is no defense.22
Of course, whether or not the properties in question are, indeed, foreshore lands is the core of
controversy. According to the trial court, the aforementioned parcel of land is a portion of the
public domain belonging to the Republic of the Philippines, 23 and hence, available disposition and
registration. As we have pointed out, the Government holds otherwise, and that as foreshore laud, it
is not registerable.
The question, so it follows, is one of fact: Is the parcel foreshore or is it part and parcel of the public
domain?
Laguna de Bay has long been recognized as a lake .24 Thus:
Laguna de Bay is a body of water formed in depressions of the earth; it contains fresh water coming
from rivers and brooks or springs, and is connected with Manila Bay by the Pasig River. According to
the definition just quoted, Laguna de Bay is a lake. 25
And, "[i]nasmuch as Laguna de Bay is a lake, so Colegio de San Jose further tells us, "we must resort
to the legal provisions governing the ownership and use of lakes and their beds and shores, in order
to determine the character and ownership of the parcels of land in question.26 The recourse to legal
provisions is necessary, for under Article 74 of the Law of Waters, [T]he natural bed or basin of lakes
... is the ground covered by their waters when at their highest ordinary depth. 27 and in which case, it
forms part of the national dominion. When Laguna de Bay's waters are at their highest ordinary depth
has been defined as:
... the highest depth of the waters of Laguna de Bay during the dry season, such depth being the
regular, common, natural, which occurs always or most of the time during the year . . . 28
Otherwise, where the rise in water level is due to the extraordinary action of nature, rainfall for instance,
the portions inundated thereby are not considered part of the bed or basin of the body of water in
question. It cannot therefore be said to be foreshore land but land outside of the public dominion, and
land capable of registration as private property.
A foreshore land, on the other hand, has been defined as follows:
. . . that part of (the land) which is between high and low water and left dry by the flux and reflux of the
tides... 29
The strip of land that lies between the high and low water marks and that is alternatively wet and dry
according to the flow of the tide.30
If the submergence, however, of the land is due to precipitation, it does not become foreshore, despite
its proximity to the waters.
The case, then, has to be decided alongside these principles and regretfully, the Court cannot make
a ruling, in the first place, because it is not a trier of facts, and in the second, it is in possession of no
evidence to assist it in arriving at a conclusive disposition 31 We therefore remand the case to the court
a quo to determine whether or not the property subject of controversy is foreshore. We, consequently,
reverse both the Court of Appeals and the trial court and reinstate the Republic's complaint.
WHEREFORE, this case is hereby REMANDED to the trial court for further proceedings.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 92013 July 25, 1990
SALVADOR H. LAUREL, petitioner,
vs.
RAMON GARCIA, as head of the Asset Privatization Trust, RAUL MANGLAPUS, as Secretary
of Foreign Affairs, and CATALINO MACARAIG, as Executive Secretary, respondents.
G.R. No. 92047 July 25, 1990
DIONISIO S. OJEDA, petitioner,
vs.
EXECUTIVE SECRETARY MACARAIG, JR., ASSETS PRIVATIZATION TRUST CHAIRMAN
RAMON T. GARCIA, AMBASSADOR RAMON DEL ROSARIO, et al., as members of the
PRINCIPAL AND BIDDING COMMITTEES ON THE UTILIZATION/DISPOSITION PETITION OF
PHILIPPINE GOVERNMENT PROPERTIES IN JAPAN, respondents.
Arturo M. Tolentino for petitioner in 92013.

GUTIERREZ, JR., J.:

These are two petitions for prohibition seeking to enjoin respondents, their representatives and agents
from proceeding with the bidding for the sale of the 3,179 square meters of land at 306 Roppongi, 5-
Chome Minato-ku Tokyo, Japan scheduled on February 21, 1990. We granted the prayer for a
temporary restraining order effective February 20, 1990. One of the petitioners (in G.R. No. 92047)
likewise prayes for a writ of mandamus to compel the respondents to fully disclose to the public the
basis of their decision to push through with the sale of the Roppongi property inspire of strong public
opposition and to explain the proceedings which effectively prevent the participation of Filipino citizens
and entities in the bidding process.
The oral arguments in G.R. No. 92013, Laurel v. Garcia, et al. were heard by the Court on March 13,
1990. After G.R. No. 92047, Ojeda v. Secretary Macaraig, et al. was filed, the respondents were
required to file a comment by the Court's resolution dated February 22, 1990. The two petitions were
consolidated on March 27, 1990 when the memoranda of the parties in the Laurel case were
deliberated upon.
The Court could not act on these cases immediately because the respondents filed a motion for an
extension of thirty (30) days to file comment in G.R. No. 92047, followed by a second motion for an
extension of another thirty (30) days which we granted on May 8, 1990, a third motion for extension of
time granted on May 24, 1990 and a fourth motion for extension of time which we granted on June 5,
1990 but calling the attention of the respondents to the length of time the petitions have been pending.
After the comment was filed, the petitioner in G.R. No. 92047 asked for thirty (30) days to file a reply.
We noted his motion and resolved to decide the two (2) cases.
I
The subject property in this case is one of the four (4) properties in Japan acquired by the Philippine
government under the Reparations Agreement entered into with Japan on May 9, 1956, the other lots
being:
(1) The Nampeidai Property at 11-24 Nampeidai-machi, Shibuya-ku, Tokyo which has an area of
approximately 2,489.96 square meters, and is at present the site of the Philippine Embassy Chancery;
(2) The Kobe Commercial Property at 63 Naniwa-cho, Kobe, with an area of around 764.72 square
meters and categorized as a commercial lot now being used as a warehouse and parking lot for the
consulate staff; and
(3) The Kobe Residential Property at 1-980-2 Obanoyama-cho, Shinohara, Nada-ku, Kobe, a
residential lot which is now vacant.
The properties and the capital goods and services procured from the Japanese government for
national development projects are part of the indemnification to the Filipino people for their losses in
life and property and their suffering during World War II.
The Reparations Agreement provides that reparations valued at $550 million would be payable in
twenty (20) years in accordance with annual schedules of procurements to be fixed by the Philippine
and Japanese governments (Article 2, Reparations Agreement). Rep. Act No. 1789, the Reparations
Law, prescribes the national policy on procurement and utilization of reparations and development
loans. The procurements are divided into those for use by the government sector and those for private
parties in projects as the then National Economic Council shall determine. Those intended for the
private sector shall be made available by sale to Filipino citizens or to one hundred (100%) percent
Filipino-owned entities in national development projects.
The Roppongi property was acquired from the Japanese government under the Second Year
Schedule and listed under the heading "Government Sector", through Reparations Contract No. 300
dated June 27, 1958. The Roppongi property consists of the land and building "for the Chancery of
the Philippine Embassy" (Annex M-D to Memorandum for Petitioner, p. 503). As intended, it became
the site of the Philippine Embassy until the latter was transferred to Nampeidai on July 22, 1976 when
the Roppongi building needed major repairs. Due to the failure of our government to provide necessary
funds, the Roppongi property has remained undeveloped since that time.
A proposal was presented to President Corazon C. Aquino by former Philippine Ambassador to Japan,
Carlos J. Valdez, to make the property the subject of a lease agreement with a Japanese firm - Kajima
Corporation — which shall construct two (2) buildings in Roppongi and one (1) building in Nampeidai
and renovate the present Philippine Chancery in Nampeidai. The consideration of the construction
would be the lease to the foreign corporation of one (1) of the buildings to be constructed in Roppongi
and the two (2) buildings in Nampeidai. The other building in Roppongi shall then be used as the
Philippine Embassy Chancery. At the end of the lease period, all the three leased buildings shall be
occupied and used by the Philippine government. No change of ownership or title shall occur. (See
Annex "B" to Reply to Comment) The Philippine government retains the title all throughout the lease
period and thereafter. However, the government has not acted favorably on this proposal which is
pending approval and ratification between the parties. Instead, on August 11, 1986, President Aquino
created a committee to study the disposition/utilization of Philippine government properties in Tokyo
and Kobe, Japan through Administrative Order No. 3, followed by Administrative Orders Numbered 3-
A, B, C and D.
On July 25, 1987, the President issued Executive Order No. 296 entitling non-Filipino citizens or
entities to avail of separations' capital goods and services in the event of sale, lease or disposition.
The four properties in Japan including the Roppongi were specifically mentioned in the first "Whereas"
clause.
Amidst opposition by various sectors, the Executive branch of the government has been pushing, with
great vigor, its decision to sell the reparations properties starting with the Roppongi lot. The property
has twice been set for bidding at a minimum floor price of $225 million. The first bidding was a failure
since only one bidder qualified. The second one, after postponements, has not yet materialized. The
last scheduled bidding on February 21, 1990 was restrained by his Court. Later, the rules on bidding
were changed such that the $225 million floor price became merely a suggested floor price.
The Court finds that each of the herein petitions raises distinct issues. The petitioner in G.R. No. 92013
objects to the alienation of the Roppongi property to anyone while the petitioner in G.R. No. 92047
adds as a principal objection the alleged unjustified bias of the Philippine government in favor of selling
the property to non-Filipino citizens and entities. These petitions have been consolidated and are
resolved at the same time for the objective is the same - to stop the sale of the Roppongi property.
The petitioner in G.R. No. 92013 raises the following issues:
(1) Can the Roppongi property and others of its kind be alienated by the Philippine Government?; and
(2) Does the Chief Executive, her officers and agents, have the authority and jurisdiction, to sell the
Roppongi property?
Petitioner Dionisio Ojeda in G.R. No. 92047, apart from questioning the authority of the government
to alienate the Roppongi property assails the constitutionality of Executive Order No. 296 in making
the property available for sale to non-Filipino citizens and entities. He also questions the bidding
procedures of the Committee on the Utilization or Disposition of Philippine Government Properties in
Japan for being discriminatory against Filipino citizens and Filipino-owned entities by denying them
the right to be informed about the bidding requirements.
II
In G.R. No. 92013, petitioner Laurel asserts that the Roppongi property and the related lots were
acquired as part of the reparations from the Japanese government for diplomatic and consular use by
the Philippine government. Vice-President Laurel states that the Roppongi property is classified as
one of public dominion, and not of private ownership under Article 420 of the Civil Code (See infra).
The petitioner submits that the Roppongi property comes under "property intended for public service"
in paragraph 2 of the above provision. He states that being one of public dominion, no ownership by
any one can attach to it, not even by the State. The Roppongi and related properties were acquired
for "sites for chancery, diplomatic, and consular quarters, buildings and other improvements" (Second
Year Reparations Schedule). The petitioner states that they continue to be intended for a necessary
service. They are held by the State in anticipation of an opportune use. (Citing 3 Manresa 65-66).
Hence, it cannot be appropriated, is outside the commerce of man, or to put it in more simple terms,
it cannot be alienated nor be the subject matter of contracts (Citing Municipality of Cavite v. Rojas, 30
Phil. 20 [1915]). Noting the non-use of the Roppongi property at the moment, the petitioner avers that
the same remains property of public dominion so long as the government has not used it for other
purposes nor adopted any measure constituting a removal of its original purpose or use.
The respondents, for their part, refute the petitioner's contention by saying that the subject property is
not governed by our Civil Code but by the laws of Japan where the property is located. They rely upon
the rule of lex situs which is used in determining the applicable law regarding the acquisition, transfer
and devolution of the title to a property. They also invoke Opinion No. 21, Series of 1988, dated
January 27, 1988 of the Secretary of Justice which used the lex situs in explaining the inapplicability
of Philippine law regarding a property situated in Japan.
The respondents add that even assuming for the sake of argument that the Civil Code is applicable,
the Roppongi property has ceased to become property of public dominion. It has become patrimonial
property because it has not been used for public service or for diplomatic purposes for over thirteen
(13) years now (Citing Article 422, Civil Code) and because the intention by the Executive Department
and the Congress to convert it to private use has been manifested by overt acts, such as, among
others: (1) the transfer of the Philippine Embassy to Nampeidai (2) the issuance of administrative
orders for the possibility of alienating the four government properties in Japan; (3) the issuance of
Executive Order No. 296; (4) the enactment by the Congress of Rep. Act No. 6657 [the
Comprehensive Agrarian Reform Law] on June 10, 1988 which contains a provision stating that funds
may be taken from the sale of Philippine properties in foreign countries; (5) the holding of the public
bidding of the Roppongi property but which failed; (6) the deferment by the Senate in Resolution No.
55 of the bidding to a future date; thus an acknowledgment by the Senate of the government's intention
to remove the Roppongi property from the public service purpose; and (7) the resolution of this Court
dismissing the petition in Ojeda v. Bidding Committee, et al., G.R. No. 87478 which sought to enjoin
the second bidding of the Roppongi property scheduled on March 30, 1989.
III
In G.R. No. 94047, petitioner Ojeda once more asks this Court to rule on the constitutionality of
Executive Order No. 296. He had earlier filed a petition in G.R. No. 87478 which the Court dismissed
on August 1, 1989. He now avers that the executive order contravenes the constitutional mandate to
conserve and develop the national patrimony stated in the Preamble of the 1987 Constitution. It also
allegedly violates:
(1) The reservation of the ownership and acquisition of alienable lands of the public domain to Filipino
citizens. (Sections 2 and 3, Article XII, Constitution; Sections 22 and 23 of Commonwealth Act
141).i•t•c-aüsl
(2) The preference for Filipino citizens in the grant of rights, privileges and concessions covering the
national economy and patrimony (Section 10, Article VI, Constitution);
(3) The protection given to Filipino enterprises against unfair competition and trade practices;
(4) The guarantee of the right of the people to information on all matters of public concern (Section 7,
Article III, Constitution);
(5) The prohibition against the sale to non-Filipino citizens or entities not wholly owned by Filipino
citizens of capital goods received by the Philippines under the Reparations Act (Sections 2 and 12 of
Rep. Act No. 1789); and
(6) The declaration of the state policy of full public disclosure of all transactions involving public interest
(Section 28, Article III, Constitution).
Petitioner Ojeda warns that the use of public funds in the execution of an unconstitutional executive
order is a misapplication of public funds He states that since the details of the bidding for the Roppongi
property were never publicly disclosed until February 15, 1990 (or a few days before the scheduled
bidding), the bidding guidelines are available only in Tokyo, and the accomplishment of requirements
and the selection of qualified bidders should be done in Tokyo, interested Filipino citizens or entities
owned by them did not have the chance to comply with Purchase Offer Requirements on the
Roppongi. Worse, the Roppongi shall be sold for a minimum price of $225 million from which price
capital gains tax under Japanese law of about 50 to 70% of the floor price would still be deducted.
IV
The petitioners and respondents in both cases do not dispute the fact that the Roppongi site and the
three related properties were through reparations agreements, that these were assigned to the
government sector and that the Roppongi property itself was specifically designated under the
Reparations Agreement to house the Philippine Embassy.
The nature of the Roppongi lot as property for public service is expressly spelled out. It is dictated by
the terms of the Reparations Agreement and the corresponding contract of procurement which bind
both the Philippine government and the Japanese government.
There can be no doubt that it is of public dominion unless it is convincingly shown that the property
has become patrimonial. This, the respondents have failed to do.
As property of public dominion, the Roppongi lot is outside the commerce of man. It cannot be
alienated. Its ownership is a special collective ownership for general use and enjoyment, an application
to the satisfaction of collective needs, and resides in the social group. The purpose is not to serve the
State as a juridical person, but the citizens; it is intended for the common and public welfare and cannot
be the object of appropration. (Taken from 3 Manresa, 66-69; cited in Tolentino, Commentaries on the
Civil Code of the Philippines, 1963 Edition, Vol. II, p. 26).
The applicable provisions of the Civil Code are:
ART. 419. Property is either of public dominion or of private ownership.
ART. 420. The following things are property of public dominion
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed
by the State, banks shores roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public
service or for the development of the national wealth.
ART. 421. All other property of the State, which is not of the character stated in the preceding article,
is patrimonial property.
The Roppongi property is correctly classified under paragraph 2 of Article 420 of the Civil Code as
property belonging to the State and intended for some public service.
Has the intention of the government regarding the use of the property been changed because the lot
has been Idle for some years? Has it become patrimonial?
The fact that the Roppongi site has not been used for a long time for actual Embassy service does not
automatically convert it to patrimonial property. Any such conversion happens only if the property is
withdrawn from public use (Cebu Oxygen and Acetylene Co. v. Bercilles, 66 SCRA 481 [1975]). A
property continues to be part of the public domain, not available for private appropriation or ownership
until there is a formal declaration on the part of the government to withdraw it from being such (Ignacio
v. Director of Lands, 108 Phil. 335 [1960]).
The respondents enumerate various pronouncements by concerned public officials insinuating a
change of intention. We emphasize, however, that an abandonment of the intention to use the
Roppongi property for public service and to make it patrimonial property under Article 422 of the Civil
Code must be definite Abandonment cannot be inferred from the non-use alone specially if the non-
use was attributable not to the government's own deliberate and indubitable will but to a lack of
financial support to repair and improve the property (See Heirs of Felino Santiago v. Lazaro, 166
SCRA 368 [1988]). Abandonment must be a certain and positive act based on correct legal premises.
A mere transfer of the Philippine Embassy to Nampeidai in 1976 is not relinquishment of the Roppongi
property's original purpose. Even the failure by the government to repair the building in Roppongi is
not abandonment since as earlier stated, there simply was a shortage of government funds. The recent
Administrative Orders authorizing a study of the status and conditions of government properties in
Japan were merely directives for investigation but did not in any way signify a clear intention to dispose
of the properties.
Executive Order No. 296, though its title declares an "authority to sell", does not have a provision in
its text expressly authorizing the sale of the four properties procured from Japan for the government
sector. The executive order does not declare that the properties lost their public character. It merely
intends to make the properties available to foreigners and not to Filipinos alone in case of a sale, lease
or other disposition. It merely eliminates the restriction under Rep. Act No. 1789 that reparations goods
may be sold only to Filipino citizens and one hundred (100%) percent Filipino-owned entities. The text
of Executive Order No. 296 provides:
Section 1. The provisions of Republic Act No. 1789, as amended, and of other laws to the contrary
notwithstanding, the above-mentioned properties can be made available for sale, lease or any other
manner of disposition to non-Filipino citizens or to entities owned by non-Filipino citizens.
Executive Order No. 296 is based on the wrong premise or assumption that the Roppongi and the
three other properties were earlier converted into alienable real properties. As earlier stated, Rep. Act
No. 1789 differentiates the procurements for the government sector and the private sector (Sections
2 and 12, Rep. Act No. 1789). Only the private sector properties can be sold to end-users who must
be Filipinos or entities owned by Filipinos. It is this nationality provision which was amended by
Executive Order No. 296.
Section 63 (c) of Rep. Act No. 6657 (the CARP Law) which provides as one of the sources of funds
for its implementation, the proceeds of the disposition of the properties of the Government in foreign
countries, did not withdraw the Roppongi property from being classified as one of public dominion
when it mentions Philippine properties abroad. Section 63 (c) refers to properties which are alienable
and not to those reserved for public use or service. Rep Act No. 6657, therefore, does not authorize
the Executive Department to sell the Roppongi property. It merely enumerates possible sources of
future funding to augment (as and when needed) the Agrarian Reform Fund created under Executive
Order No. 299. Obviously any property outside of the commerce of man cannot be tapped as a source
of funds.
The respondents try to get around the public dominion character of the Roppongi property by insisting
that Japanese law and not our Civil Code should apply.
It is exceedingly strange why our top government officials, of all people, should be the ones to insist
that in the sale of extremely valuable government property, Japanese law and not Philippine law
should prevail. The Japanese law - its coverage and effects, when enacted, and exceptions to its
provision — is not presented to the Court It is simply asserted that the lex loci rei sitae or Japanese
law should apply without stating what that law provides. It is a ed on faith that Japanese law would
allow the sale.
We see no reason why a conflict of law rule should apply when no conflict of law situation exists. A
conflict of law situation arises only when: (1) There is a dispute over the title or ownership of an
immovable, such that the capacity to take and transfer immovables, the formalities of conveyance, the
essential validity and effect of the transfer, or the interpretation and effect of a conveyance, are to be
determined (See Salonga, Private International Law, 1981 ed., pp. 377-383); and (2) A foreign law on
land ownership and its conveyance is asserted to conflict with a domestic law on the same matters.
Hence, the need to determine which law should apply.
In the instant case, none of the above elements exists.
The issues are not concerned with validity of ownership or title. There is no question that the property
belongs to the Philippines. The issue is the authority of the respondent officials to validly dispose of
property belonging to the State. And the validity of the procedures adopted to effect its sale. This is
governed by Philippine Law. The rule of lex situs does not apply.
The assertion that the opinion of the Secretary of Justice sheds light on the relevance of the lex
situs rule is misplaced. The opinion does not tackle the alienability of the real properties procured
through reparations nor the existence in what body of the authority to sell them. In discussing who are
capable of acquiring the lots, the Secretary merely explains that it is the foreign law which should
determine who can acquire the properties so that the constitutional limitation on acquisition of lands
of the public domain to Filipino citizens and entities wholly owned by Filipinos is inapplicable. We see
no point in belaboring whether or not this opinion is correct. Why should we discuss who can acquire
the Roppongi lot when there is no showing that it can be sold?
The subsequent approval on October 4, 1988 by President Aquino of the recommendation by the
investigating committee to sell the Roppongi property was premature or, at the very least, conditioned
on a valid change in the public character of the Roppongi property. Moreover, the approval does not
have the force and effect of law since the President already lost her legislative powers. The Congress
had already convened for more than a year.
Assuming for the sake of argument, however, that the Roppongi property is no longer of public
dominion, there is another obstacle to its sale by the respondents.
There is no law authorizing its conveyance.
Section 79 (f) of the Revised Administrative Code of 1917 provides
Section 79 (f ) Conveyances and contracts to which the Government is a party. — In cases in which
the Government of the Republic of the Philippines is a party to any deed or other instrument conveying
the title to real estate or to any other property the value of which is in excess of one hundred thousand
pesos, the respective Department Secretary shall prepare the necessary papers which, together with
the proper recommendations, shall be submitted to the Congress of the Philippines for approval by
the same. Such deed, instrument, or contract shall be executed and signed by the President of the
Philippines on behalf of the Government of the Philippines unless the Government of the Philippines
unless the authority therefor be expressly vested by law in another officer. (Emphasis supplied)
The requirement has been retained in Section 48, Book I of the Administrative Code of 1987 (Executive
Order No. 292).
SEC. 48. Official Authorized to Convey Real Property. — Whenever real property of the Government
is authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the
government by the following:
(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President,
unless the authority therefor is expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled in the name of any political
subdivision or of any corporate agency or instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)
It is not for the President to convey valuable real property of the government on his or her own sole
will. Any such conveyance must be authorized and approved by a law enacted by the Congress. It
requires executive and legislative concurrence.
Resolution No. 55 of the Senate dated June 8, 1989, asking for the deferment of the sale of the
Roppongi property does not withdraw the property from public domain much less authorize its sale. It
is a mere resolution; it is not a formal declaration abandoning the public character of the Roppongi
property. In fact, the Senate Committee on Foreign Relations is conducting hearings on Senate
Resolution No. 734 which raises serious policy considerations and calls for a fact-finding investigation
of the circumstances behind the decision to sell the Philippine government properties in Japan.
The resolution of this Court in Ojeda v. Bidding Committee, et al., supra, did not pass upon the
constitutionality of Executive Order No. 296. Contrary to respondents' assertion, we did not uphold the
authority of the President to sell the Roppongi property. The Court stated that the constitutionality of
the executive order was not the real issue and that resolving the constitutional question was "neither
necessary nor finally determinative of the case." The Court noted that "[W]hat petitioner ultimately
questions is the use of the proceeds of the disposition of the Roppongi property." In emphasizing that
"the decision of the Executive to dispose of the Roppongi property to finance the CARP ... cannot be
questioned" in view of Section 63 (c) of Rep. Act No. 6657, the Court did not acknowledge the fact
that the property became alienable nor did it indicate that the President was authorized to dispose of
the Roppongi property. The resolution should be read to mean that in case the Roppongi property is
re-classified to be patrimonial and alienable by authority of law, the proceeds of a sale may be used
for national economic development projects including the CARP.
Moreover, the sale in 1989 did not materialize. The petitions before us question the proposed 1990
sale of the Roppongi property. We are resolving the issues raised in these petitions, not the issues
raised in 1989.
Having declared a need for a law or formal declaration to withdraw the Roppongi property from public
domain to make it alienable and a need for legislative authority to allow the sale of the property, we
see no compelling reason to tackle the constitutional issues raised by petitioner Ojeda.
The Court does not ordinarily pass upon constitutional questions unless these questions are properly
raised in appropriate cases and their resolution is necessary for the determination of the case (People
v. Vera, 65 Phil. 56 [1937]). The Court will not pass upon a constitutional question although properly
presented by the record if the case can be disposed of on some other ground such as the application
of a statute or general law (Siler v. Louisville and Nashville R. Co., 213 U.S. 175, [1909], Railroad
Commission v. Pullman Co., 312 U.S. 496 [1941]).
The petitioner in G.R. No. 92013 states why the Roppongi property should not be sold:
The Roppongi property is not just like any piece of property. It was given to the Filipino people in
reparation for the lives and blood of Filipinos who died and suffered during the Japanese military
occupation, for the suffering of widows and orphans who lost their loved ones and kindred, for the
homes and other properties lost by countless Filipinos during the war. The Tokyo properties are a
monument to the bravery and sacrifice of the Filipino people in the face of an invader; like the
monuments of Rizal, Quezon, and other Filipino heroes, we do not expect economic or financial
benefits from them. But who would think of selling these monuments? Filipino honor and national
dignity dictate that we keep our properties in Japan as memorials to the countless Filipinos who died
and suffered. Even if we should become paupers we should not think of selling them. For it would be
as if we sold the lives and blood and tears of our countrymen. (Rollo- G.R. No. 92013, p.147)
The petitioner in G.R. No. 92047 also states:
Roppongi is no ordinary property. It is one ceded by the Japanese government in atonement for its
past belligerence for the valiant sacrifice of life and limb and for deaths, physical dislocation and
economic devastation the whole Filipino people endured in World War II.
It is for what it stands for, and for what it could never bring back to life, that its significance today
remains undimmed, inspire of the lapse of 45 years since the war ended, inspire of the passage of 32
years since the property passed on to the Philippine government.
Roppongi is a reminder that cannot — should not — be dissipated ... (Rollo-92047, p. 9)
It is indeed true that the Roppongi property is valuable not so much because of the inflated prices
fetched by real property in Tokyo but more so because of its symbolic value to all Filipinos — veterans
and civilians alike. Whether or not the Roppongi and related properties will eventually be sold is a
policy determination where both the President and Congress must concur. Considering the properties'
importance and value, the laws on conversion and disposition of property of public dominion must be
faithfully followed.
WHEREFORE, IN VIEW OF THE FOREGOING, the petitions are GRANTED. A writ of prohibition is
issued enjoining the respondents from proceeding with the sale of the Roppongi property in Tokyo,
Japan. The February 20, 1990 Temporary Restraining Order is made PERMANENT.
SO ORDERED.

SECOND DIVISION

G.R. No. 184203, November 26, 2014

CITY OF LAPU-LAPU, Petitioner, v. PHILIPPINE ECONOMIC ZONE AUTHORITY, Respondent.

G.R. NO. 187583

PROVINCE OF BATAAN, REPRESENTED BY GOVERNOR ENRIQUE T. GARCIA, JR., AND
EMERLINDA S. TALENTO, IN HER CAPACITY AS PROVINCIAL TREASURER OF
BATAAN, Petitioners, v. PHILIPPINE ECONOMIC ZONE AUTHORITY, Respondent.

DECISION
LEONEN, J.:
The Philippine Economic Zone Authority is exempt from payment of real property taxes.

These are consolidated1 petitions for review on certiorari the City of Lapu-Lapu and the Province of
Bataan separately filed against the Philippine Economic Zone Authority (PEZA).

In G.R. No. 184203, the City of Lapu-Lapu (the City) assails the Court of Appeals’ decision2 dated
January 11, 2008 and resolution3 dated August 6, 2008, dismissing the City’s appeal for being the
wrong mode of appeal. The City appealed the Regional Trial Court, Branch 111, Pasay City’s
decision finding the PEZA exempt from payment of real property taxes.

In G.R. No. 187583, the Province of Bataan (the Province) assails the Court of Appeals’
decision4 dated August 27, 2008 and resolution5 dated April 16, 2009, granting the PEZA’s petition
for certiorari. The Court of Appeals ruled that the Regional Trial Court, Branch 115, Pasay City
gravely abused its discretion in finding the PEZA liable for real property taxes to the Province of
Bataan.

Facts common to the consolidated petitions

In the exercise of his legislative powers,6 President Ferdinand E. Marcos issued Presidential Decree
No. 66 in 1972, declaring as government policy the establishment of export processing zones in
strategic locations in the Philippines. Presidential Decree No. 66 aimed “to encourage and promote
foreign commerce as a means of making the Philippines a center of international trade, of
strengthening our export trade and foreign exchange position, of hastening industrialization, of
reducing domestic unemployment, and of accelerating the development of the
country.”7chanRoblesvirtualLawlibrary

To carry out this policy, the Export Processing Zone Authority (EPZA) was created to operate,
administer, and manage the export processing zones established in the Port of Mariveles,
Bataan8 and such other export processing zones that may be created by virtue of the
decree.9chanRoblesvirtualLawlibrary

The decree declared the EPZA non-profit in character10 with all its revenues devoted to its
development, improvement, and maintenance.11 To maintain this non-profit character, the EPZA
was declared exempt from all taxes that may be due to the Republic of the Philippines, its provinces,
cities, municipalities, and other government agencies and instrumentalities.12 Specifically, Section
21 of Presidential Decree No. 66 declared the EPZA exempt from payment of real property
taxes:chanroblesvirtuallawlibrary
Section 21. Non-profit Character of the Authority; Exemption from Taxes. The Authority shall be non-
profit and shall devote and use all its returns from its capital investment, as well as excess revenues
from its operations, for the development, improvement and maintenance and other related
expenditures of the Authority to pay its indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section 1 of this Decree. In consonance therewith, the
Authority is hereby declared exempt:ChanRoblesVirtualawlibrary
....

(b) From all income taxes, franchise taxes, realty taxes and all other kinds of taxes and licenses to
be paid to the National Government, its provinces, cities, municipalities and other government
agencies and instrumentalities[.]

In 1979, President Marcos issued Proclamation No. 1811, establishing the Mactan Export
Processing Zone. Certain parcels of land of the public domain located in the City of Lapu-Lapu in
Mactan, Cebu were reserved to serve as site of the Mactan Export Processing Zone.

In 1995, the PEZA was created by virtue of Republic Act No. 7916 or “the Special Economic Zone
Act of 1995”13 to operate, administer, manage, and develop economic zones in the country.14 The
PEZA was granted the power to register, regulate, and supervise the enterprises located in the
economic zones.15 By virtue of the law, the export processing zone in Mariveles, Bataan became
the Bataan Economic Zone16 and the Mactan Export Processing Zone the Mactan Economic
Zone.17chanRoblesvirtualLawlibrary

As for the EPZA, the law required it to “evolve into the PEZA in accordance with the guidelines and
regulations set forth in an executive order issued for [the] purpose.”18chanRoblesvirtualLawlibrary

On October 30, 1995, President Fidel V. Ramos issued Executive Order No. 282, directing the PEZA
to assume and exercise all of the EPZA’s powers, functions, and responsibilities “as provided in
Presidential Decree No. 66, as amended, insofar as they are not inconsistent with the powers,
functions, and responsibilities of the PEZA, as mandated under [the Special Economic Zone Act of
1995].”19 All of EPZA’s properties, equipment, and assets, among others, were ordered transferred
to the PEZA.20chanRoblesvirtualLawlibrary

Facts of G.R. No. 184203

In the letter21 dated March 25, 1998, the City of Lapu-Lapu, through the Office of the Treasurer,
demanded from the PEZA ?32,912,350.08 in real property taxes for the period from 1992 to 1998 on
the PEZA’s properties located in the Mactan Economic Zone.
The City reiterated its demand in the letter22 dated May 21, 1998. It cited Sections 193 and 234 of
the Local Government Code of 1991 that withdrew the real property tax exemptions previously
granted to or presently enjoyed by all persons. The City pointed out that no provision in the Special
Economic Zone Act of 1995 specifically exempted the PEZA from payment of real property taxes,
unlike Section 21 of Presidential Decree No. 66 that explicitly provided for EPZA’s exemption. Since
no legal provision explicitly exempted the PEZA from payment of real property taxes, the City argued
that it can tax the PEZA.

The City made subsequent demands23 on the PEZA. In its last reminder24 dated May 13, 2002, the
City assessed the PEZA ?86,843,503.48 as real property taxes for the period from 1992 to 2002.

On September 11, 2002, the PEZA filed a petition for declaratory relief25 with the Regional Trial
Court of Pasay City, praying that the trial court declare it exempt from payment of real property
taxes. The case was raffled to Branch 111.

The City answered26 the petition, maintaining that the PEZA is liable for real property taxes. To
support its argument, the City cited a legal opinion dated September 6, 1999 issued by the
Department of Justice,27 which stated that the PEZA is not exempt from payment of real property
taxes. The Department of Justice based its opinion on Sections 193 and 234 of the Local
Government Code that withdrew the tax exemptions, including real property tax exemptions,
previously granted to all persons.

A reply28 was filed by the PEZA to which the City filed a rejoinder.29chanRoblesvirtualLawlibrary

Pursuant to Rule 63, Section 3 of Rules of Court,30 the Office of the Solicitor General filed a
comment31 on the PEZA’s petition for declaratory relief. It agreed that the PEZA is exempt from
payment of real property taxes, citing Sections 24 and 51 of the Special Economic Zone Act of 1995.

The trial court agreed with the Solicitor General. Section 24 of the Special Economic Zone Act of
1995 provides:chanroblesvirtuallawlibrary
SEC. 24. Exemption from National and Local Taxes. – Except for real property taxes on land owned
by developers, no taxes, local and national, shall be imposed on business establishments operating
within the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business
enterprises within the ECOZONE shall be paid and remitted as follows:

a. Three percent (3%) to the National Government;

b. Two percent (2%) which shall be directly remitted by the business establishments to the
treasurer’s office of the municipality or city where the enterprise is located.

Section 51 of the law, on the other hand, provides:chanroblesvirtuallawlibrary

SEC. 51. Ipso-Facto Clause. – All privileges, benefits, advantages or exemptions granted to special
economic zones under Republic Act No. 7227, shall ipso-facto be accorded to special economic
zones already created or to be created under this Act. The free port status shall not be vested upon
new special economic zones.

Based on Section 51, the trial court held that all privileges, benefits, advantages, or exemptions
granted to special economic zones created under the Bases Conversion and Development Act of
1992 apply to special economic zones created under the Special Economic Zone Act of 1995. Since
these benefits include exemption from payment of national or local taxes, these benefits apply to
special economic zones owned by the PEZA.

According to the trial court, the PEZA remained tax-exempt regardless of Section 24 of the Special
Economic Zone Act of 1995. It ruled that Section 24, which taxes real property owned by developers
of economic zones, only applies to private developers of economic zones, not to public developers
like the PEZA. The PEZA, therefore, is not liable for real property taxes on the land it owns.

Characterizing the PEZA as an agency of the National Government, the trial court ruled that the City
had no authority to tax the PEZA under Sections 133(o) and 234(a) of the Local Government Code
of 1991.

In the resolution32 dated June 14, 2006, the trial court granted the PEZA’s petition for declaratory
relief and declared it exempt from payment of real property taxes.

The City filed a motion for reconsideration,33 which the trial court denied in its resolution34 dated
September 26, 2006.

The City then appealed35 to the Court of Appeals.

The Court of Appeals noted the following issues the City raised in its appellant’s brief: (1) whether
the trial court had jurisdiction over the PEZA’s petition for declaratory relief; (2) whether the PEZA is
a government agency performing governmental functions; and (3) whether the PEZA is exempt from
payment of real property taxes.

The issues presented by the City, according to the Court of Appeals, are pure questions of law which
should have been raised in a petition for review on certiorari directly filed before this court. Since the
City availed itself of the wrong mode of appeal, the Court of Appeals dismissed the City’s appeal in
the decision36 dated January 11, 2008.

The City filed a motion for extension of time to file a motion for reconsideration,37 which the Court of
Appeals denied in the resolution38 dated April 11, 2008.

Despite the denial of its motion for extension, the City filed a motion for reconsideration.39 In the
resolution40 dated August 6, 2008, the Court of Appeals denied that motion.

In its petition for review on certiorari with this court,41 the City argues that the Court of Appeals “hid
under the skirts of technical rules”42 in resolving its appeal. The City maintains that its appeal
involved mixed questions of fact and law. According to the City, whether the PEZA performed
governmental functions “cannot completely be addressed by law but [by] the factual and actual
activities [the PEZA is] carrying out.”43chanRoblesvirtualLawlibrary

Even assuming that the petition involves pure questions of law, the City contends that the subject
matter of the case “is of extreme importance with [far-reaching] consequence that [its magnitude]
would surely shape and determine the course of our nation’s future.”44 The Court of Appeals, the
City argues, should have resolved the case on the merits.

The City insists that the trial court had no jurisdiction to hear the PEZA’s petition for declaratory
relief. According to the City, the case involves real property located in the City of Lapu-Lapu. The
petition for declaratory relief should have been filed before the Regional Trial Court of the City of
Lapu-Lapu.45chanRoblesvirtualLawlibrary

Moreover, the Province of Bataan, the City of Baguio, and the Province of Cavite allegedly
demanded real property taxes from the PEZA. The City argues that the PEZA should have likewise
impleaded these local government units as respondents in its petition for declaratory relief. For its
failure to do so, the PEZA violated Rule 63, Section 2 of the Rules of Court, and the trial court should
have dismissed the petition.46chanRoblesvirtualLawlibrary

This court ordered the PEZA to comment on the City’s petition for review on
certiorari.47chanRoblesvirtualLawlibrary

At the outset of its comment, the PEZA argues that the Court of Appeals’ decision dated January 11,
2008 had become final and executory. After the Court of Appeals had denied the City’s appeal, the
City filed a motion for extension of time to file a motion for reconsideration. Arguing that the time to
file a motion for reconsideration is not extendible, the PEZA filed its motion for reconsideration out of
time. The City has no more right to appeal to this court.48chanRoblesvirtualLawlibrary

The PEZA maintains that the City availed itself of the wrong mode of appeal before the Court of
Appeals. Since the City raised pure questions of law in its appeal, the PEZA argues that the proper
remedy is a petition for review on certiorari with this court, not an ordinary appeal before the
appellate court. The Court of Appeals, therefore, correctly dismissed outright the City’s appeal
under Rule 50, Section 2 of the Rules of Court.49chanRoblesvirtualLawlibrary

On the merits, the PEZA argues that it is an agency and instrumentality of the National
Government. It is therefore exempt from payment of real property taxes under Sections 133(o) and
234(a) of the Local Government Code.50 It adds that the tax privileges under Sections 24 and 51 of
the Special Economic Zone Act of 1995 applied to it.51chanRoblesvirtualLawlibrary

Considering that the site of the Mactan Economic Zone is a reserved land under Proclamation No.
1811, the PEZA claims that the properties sought to be taxed are lands of public dominion exempt
from real property taxes.52chanRoblesvirtualLawlibrary
As to the jurisdiction issue, the PEZA counters that the Regional Trial Court of Pasay had jurisdiction
to hear its petition for declaratory relief under Rule 63, Section 1 of the Rules of Court.53 It also
argued that it need not implead the Province of Bataan, the City of Baguio, and the Province of
Cavite as respondents considering that their demands came after the PEZA had already filed the
petition in court.54chanRoblesvirtualLawlibrary

Facts of G.R. No. 187583

After the City of Lapu-Lapu had demanded payment of real property taxes from the PEZA, the
Province of Bataan followed suit. In its letter55 dated May 29, 2003, the Province, through the Office
of the Provincial Treasurer, informed the PEZA that it would be sending a real property tax billing to
the PEZA. Arguing that the PEZA is a developer of economic zones, the Province claimed that the
PEZA is liable for real property taxes under Section 24 of the Special Economic Zone Act of 1995.

In its reply letter56 dated June 18, 2003, the PEZA requested the Province to suspend the service of
the real property tax billing. It cited its petition for declaratory relief against the City of Lapu-Lapu
pending before the Regional Trial Court, Branch 111, Pasay City as basis.

The Province argued that serving a real property tax billing on the PEZA “would not in any way affect
[its] petition for declaratory relief before [the Regional Trial Court] of Pasay City.” 57 Thus, in its
letter58 dated June 27, 2003, the Province notified the PEZA of its real property tax liabilities for June
1, 1995 to December 31, 2002 totalling ?110,549,032.55.

After having been served a tax billing, the PEZA again requested the Province to suspend collecting
its alleged real property tax liabilities until the Regional Trial Court of Pasay City resolves its petition
for declaratory relief.59chanRoblesvirtualLawlibrary

The Province ignored the PEZA’s request. On January 20, 2004, the Province served on the PEZA
a statement of unpaid real property tax for the period from June 1995 to December
2004.60chanRoblesvirtualLawlibrary

The PEZA again requested the Province to suspend collecting its alleged real property taxes.61 The
Province denied the request in its letter62 dated January 29, 2004, then served on the PEZA a
warrant of levy63 covering the PEZA’s real properties located in Mariveles, Bataan.

The PEZA’s subsequent requests64 for suspension of collection were all denied by the
Province.65 The Province then served on the PEZA a notice of delinquency in the payment of real
property taxes66 and a notice of sale of real property for unpaid real property tax.67 The Province
finally sent the PEZA a notice of public auction of the latter’s properties in Mariveles,
Bataan.68chanRoblesvirtualLawlibrary

On June 14, 2004, the PEZA filed a petition for injunction69 with prayer for issuance of a temporary
restraining order and/or writ of preliminary injunction before the Regional Trial Court of Pasay City,
arguing that it is exempt from payment of real property taxes. It added that the notice of sale issued
by the Province was void because it was not published in a newspaper of general circulation as
required by Section 260 of the Local Government Code.70chanRoblesvirtualLawlibrary

The case was raffled to Branch 115.

In its order71 dated June 18, 2004, the trial court issued a temporary restraining order against the
Province. After the PEZA had filed a P100,000.00 bond,72 the trial court issued a writ of preliminary
injunction,73 enjoining the Province from selling the PEZA’s real properties at public auction.

On March 3, 2006, the PEZA and Province both manifested that each would file a memorandum
after which the case would be deemed submitted for decision. The parties then filed their respective
memoranda.74chanRoblesvirtualLawlibrary

In the order75 dated January 31, 2007, the trial court denied the PEZA’s petition for injunction. The
trial court ruled that the PEZA is not exempt from payment of real property taxes. According to the
trial court, Sections 193 and 234 of the Local Government Code had withdrawn the real property tax
exemptions previously granted to all persons, whether natural or juridical.76 As to the tax
exemptions under Section 51 of the Special Economic Zone Act of 1995, the trial court ruled that the
provision only applies to businesses operating within the economic zones, not to the
PEZA.77chanRoblesvirtualLawlibrary
The PEZA filed before the Court of Appeals a petition for certiorari78 with prayer for issuance of a
temporary restraining order.

The Court of Appeals issued a temporary restraining order, enjoining the Province and its Provincial
Treasurer from selling PEZA's properties at public auction scheduled on October 17, 2007.79 It also
ordered the Province to comment on the PEZA’s petition.

In its comment,80 the Province alleged that it received a copy of the temporary restraining order only
on October 18, 2007 when it had already sold the PEZA’s properties at public auction. Arguing that
the act sought to be enjoined was already fait accompli, the Province prayed for the dismissal of the
petition for certiorari.

The PEZA then filed a supplemental petition for certiorari, prohibition, and mandamus81 against the
Province, arguing that the Provincial Treasurer of Bataan acted with grave abuse of discretion in
issuing the notice of delinquency and notice of sale. It maintained that it is exempt from payment of
real property taxes because it is a government instrumentality. It added that its lands are property of
public dominion which cannot be sold at public auction.

The PEZA also filed a motion82 for issuance of an order affirming the temporary restraining order and
a writ of preliminary injunction to enjoin the Province from consolidating title over the PEZA’s
properties.

In its resolution83 dated January 16, 2008, the Court of Appeals admitted the supplemental petition
for certiorari, prohibition, and mandamus. It required the Province to comment on the supplemental
petition and to file a memorandum on the PEZA’s prayer for issuance of temporary restraining order.

The Province commented84 on the PEZA’s supplemental petition, to which the PEZA
replied.85chanRoblesvirtualLawlibrary

The Province then filed a motion86 for leave to admit attached rejoinder with motion to dismiss. In
the rejoinder with motion to dismiss,87 the Province argued for the first time that the Court of Appeals
had no jurisdiction over the subject matter of the action.

According to the Province, the PEZA erred in filing a petition for certiorari. Arguing that the PEZA
sought to reverse a Regional Trial Court decision in a local tax case, the Province claimed that the
court with appellate jurisdiction over the action is the Court of Tax Appeals. The PEZA then prayed
that the Court of Appeals dismiss the petition for certiorari for lack of jurisdiction over the subject
matter of the action.

The Court of Appeals held that the issue before it was whether the trial court judge gravely abused
his discretion in dismissing the PEZA’s petition for prohibition. This issue, according to the Court of
Appeals, is properly addressed in a petition for certiorari over which it has jurisdiction to resolve. It,
therefore, maintained jurisdiction to resolve the PEZA’s petition for
certiorari.88chanRoblesvirtualLawlibrary

Although it admitted that appeal, not certiorari, was the PEZA’s proper remedy to reverse the trial
court’s decision,89 the Court of Appeals proceeded to decide the petition for certiorari in “the broader
interest of justice.”90chanRoblesvirtualLawlibrary

The Court of Appeals ruled that the trial court judge gravely abused his discretion in dismissing the
PEZA’s petition for prohibition. It held that Section 21 of Presidential Decree No. 66 and Section 51
of the Special Economic Zone Act of 1995 granted the PEZA exemption from payment of real
property taxes.91 Based on the criteria set in Manila International Airport Authority v. Court of
Appeals,92 the Court of Appeals found that the PEZA is an instrumentality of the national
government. No taxes, therefore, could be levied on it by local government
units.93chanRoblesvirtualLawlibrary

In the decision94 dated August 27, 2008, the Court of Appeals granted the PEZA’s petition for
certiorari. It set aside the trial court’s decision and nullified all the Province’s proceedings with
respect to the collection of real property taxes from the PEZA.

The Province filed a motion for reconsideration,95 which the Court of Appeals denied in the
resolution96 dated April 16, 2009 for lack of merit.
In its petition for review on certiorari with this court,97 the Province of Bataan insists that the Court of
Appeals had no jurisdiction to take cognizance of the PEZA’s petition for certiorari. The Province
maintains that the Court of Tax Appeals had jurisdiction to hear the PEZA’s petition since it involved
a local tax case decided by a Regional Trial Court.98chanRoblesvirtualLawlibrary

The Province reiterates that the PEZA is not exempt from payment of real property taxes. The
Province points out that the EPZA, the PEZA’s predecessor, had to be categorically exempted from
payment of real property taxes. The EPZA, therefore, was not inherently exempt from payment of
real property taxes and so is the PEZA. Since Congress omitted from the Special Economic Zone
Act of 1995 a provision specifically exempting the PEZA from payment of real property taxes, the
Province argues that the PEZA is a taxable entity. It cited the rule in statutory construction that
provisions omitted in revised statutes are deemed repealed.99chanRoblesvirtualLawlibrary

With respect to Sections 24 and 51 of the Special Economic Zone Act of 1995 granting tax
exemptions and benefits, the Province argues that these provisions only apply to business
establishments operating within special economic zones,100 not to the PEZA.

This court ordered the PEZA to comment on the Province’s petition for review on
certiorari.101chanRoblesvirtualLawlibrary

In its comment,102 the PEZA argues that the Court of Appeals had jurisdiction to hear its petition for
certiorari since the issue was whether the trial court committed grave abuse of discretion in denying
its petition for injunction. The PEZA maintains that it is exempt from payment of real property taxes
under Section 21 of Presidential Decree No. 66 and Section 51 of the Special Economic Zone Act of
1995.

The Province filed its reply,103 reiterating its arguments in its petition for review on certiorari.

On the PEZA’s motion,104 this court consolidated the petitions filed by the City of Lapu-Lapu and the
Province of Bataan.105chanRoblesvirtualLawlibrary

The issues for our resolution are the following:

I. Whether the Court of Appeals erred in dismissing the City of Lapu-Lapu’s appeal for raising pure
questions of law;

II. Whether the Regional Trial Court, Branch 111, Pasay City had jurisdiction to hear, try, and decide
the City of Lapu-Lapu’s petition for declaratory relief;

III. Whether the petition for injunction filed before the Regional Trial Court, Branch 115, Pasay City,
is a local tax case appealable to the Court of Tax Appeals; and

IV. Whether the PEZA is exempt from payment of real property taxes.

We deny the consolidated petitions.

I.

The Court of Appeals did not err in

dismissing the City of Lapu-Lapu’s
appeal for raising pure questions of law

Under the Rules of Court, there are three modes of appeal from Regional Trial Court decisions. The
first mode is through an ordinary appeal before the Court of Appeals where the decision assailed
was rendered in the exercise of the Regional Trial Court’s original jurisdiction. Ordinary appeals are
governed by Rule 41, Sections 3 to 13 of the Rules of Court. In ordinary appeals, questions of fact
or mixed questions of fact and law may be raised.106chanRoblesvirtualLawlibrary

The second mode is through a petition for review before the Court of Appeals where the decision
assailed was rendered by the Regional Trial Court in the exercise of its appellate jurisdiction. Rule
42 of the Rules of Court governs petitions for review before the Court of Appeals. In petitions for
review under Rule 42, questions of fact, of law, or mixed questions of fact and law may be
raised.107chanRoblesvirtualLawlibrary

The third mode is through an appeal by certiorari before this court under Rule 45 where only
questions of law shall be raised.108chanRoblesvirtualLawlibrary

A question of fact exists when there is doubt as to the truth or falsity of the alleged facts.109 On the
other hand, there is a question of law if the appeal raises doubt as to the applicable law on a certain
set of facts.110chanRoblesvirtualLawlibrary

Under Rule 50, Section 2, an improper appeal before the Court of Appeals is dismissed outright and
shall not be referred to the proper court:
SEC. 2. Dismissal of improper appeal to the Court of Appeals. – An appeal under Rule 41 taken
from the Regional Trial Court to the Court of Appeals raising only questions of law shall be
dismissed, issues purely of law not being reviewable by said court. Similarly, an appeal by notice of
appeal instead of by petition for review from the appellate judgment of a Regional Trial Court shall
be dismissed.

An appeal erroneously taken to the Court of Appeals shall not be transferred to the appropriate court
but shall be dismissed outright.

Rule 50, Section 2 repealed Rule 50, Section 3 of the 1964 Rules of Court, which provided that
improper appeals to the Court of Appeals shall not be dismissed but shall be certified to the proper
court for resolution:
Sec. 3. Where appealed case erroneously, brought. — Where the appealed case has been
erroneously brought to the Court of Appeals, it shall not dismiss the appeal, but shall certify the case
to the proper court, with a specific and clear statement of the grounds therefor.

With respect to appeals by certiorari directly filed before this court but which raise questions of fact,
paragraph 4(b) of Circular No. 2-90 dated March 9, 1990 states that this court “retains the option, in
the exercise of its sound discretion and considering the attendant circumstances, either itself to take
cognizance of and decide such issues or to refer them to the Court of Appeals for determination.”

In Indoyon, Jr. v. Court of Appeals,111 we said that this court “cannot tolerate ignorance of the law on
appeals.”112 It is not this court’s task to determine for litigants their proper remedies under the
Rules.113chanRoblesvirtualLawlibrary

We agree that the City availed itself of the wrong mode of appeal before the Court of Appeals. The
City raised pure questions of law in its appeal. The issue of whether the Regional Trial Court of
Pasay had jurisdiction over the PEZA’s petition for declaratory relief is a question of law, jurisdiction
being a matter of law.114 The issue of whether the PEZA is a government instrumentality exempt
from payment of real property taxes is likewise a question of law since this question is resolved by
examining the provisions of the PEZA’s charter as well as other laws relating to the
PEZA.115chanRoblesvirtualLawlibrary

The Court of Appeals, therefore, did not err in dismissing the City’s appeal pursuant to Rule 50,
Section 2 of the Rules of Court.

Nevertheless, considering the important questions involved in this case, we take cognizance of the
City’s petition for review on certiorari in the interest of justice.

In Municipality of Pateros v. The Honorable Court of Appeals,116 the Municipality of Pateros filed an
appeal under Rule 42 before the Court of Appeals, which the Court of Appeals denied outright for
raising pure questions of law. This court agreed that the Municipality of Pateros “committed a
procedural infraction”117 and should have directly filed a petition for review on certiorari before this
court. Nevertheless, “in the interest of justice and in order to write finis to [the] controversy,”118 this
court “opt[ed] to relax the rules”119 and proceeded to decide the case. This court
said:chanroblesvirtuallawlibrary
While it is true that rules of procedure are intended to promote rather than frustrate the ends of
justice, and while the swift unclogging of the dockets of the courts is a laudable objective, it
nevertheless must not be met at the expense of substantial justice.

The Court has allowed some meritorious cases to proceed despite inherent procedural defects and
lapses. This is in keeping with the principle that rules of procedure are mere tools designed to
facilitate the attainment of justice, and that strict and rigid application of rules which should result in
technicalities that tend to frustrate rather than promote substantial justice must always be avoided. It
is a far better and more prudent cause of action for the court to excuse a technical lapse and afford
the parties a review of the case to attain the ends of justice, rather than dispose of the case on
technicality and cause grave injustice to the parties, giving a false impression of speedy disposal of
cases while actually resulting in more delay, if not a miscarriage of justice.120

Similar to Municipality of Pateros, we opt to relax the rules in this case. The PEZA operates or
otherwise administers special economic zones all over the country. Resolving the substantive issue
of whether the PEZA is taxable for real property taxes will clarify the taxing powers of all local
government units where special economic zones are operated. This case, therefore, should be
decided on the merits.
II.

The Regional Trial Court of Pasay had

no jurisdiction to hear, try, and decide
the PEZA’s petition for declaratory relief
against the City of Lapu-Lapu

Rule 63 of the Rules of Court governs actions for declaratory relief. Section 1 of Rule 63 provides:
SECTION 1. Who may file petition. – Any person interested under a deed, will, contract or other
written instrument, or whose rights are affected by a statute, executive order or regulation,
ordinance, or any other governmental regulation may, before breach or violation, thereof, bring an
action in the appropriate Regional Trial Court to determine any question of construction or validity
arising, and for a declaration of his rights or duties, thereunder.

An action for reformation of an instrument, to quiet title to real property or remove clouds therefrom,
or to consolidate ownership under Article 1607 of the Civil Code, may be brought under this Rule.

The court with jurisdiction over petitions for declaratory relief is the Regional Trial Court, the subject
matter of litigation in an action for declaratory relief being incapable of pecuniary
estimation.121 Section 19 of the Judiciary Reorganization Act of 1980 provides:
SEC. 19. Jurisdiction in Civil Cases. – Regional Trial Courts shall exercise exclusive original
jurisdiction:

(1) In all civil actions in which the subject of litigation is incapable of pecuniary estimation[.]

Consistent with the law, the Rules state that a petition for declaratory relief is filed “in the appropriate
Regional Trial Court.”122

A special civil action for declaratory relief is filed for a judicial determination of any question of
construction or validity arising from, and for a declaration of rights and duties, under any of the
following subject matters: a deed, will, contract or other written instrument, statute, executive order
or regulation, ordinance, or any other governmental regulation.123 However, a declaratory judgment
may issue only if there has been “no breach of the documents in question.”124 If the contract or
statute subject matter of the action has already been breached, the appropriate ordinary civil action
must be filed.125 If adequate relief is available through another form of action or proceeding, the
other action must be preferred over an action for declaratory relief.126chanRoblesvirtualLawlibrary

In Ollada v. Central Bank of the Philippines,127 the Central Bank issued CB-IED Form No. 5 requiring
certified public accountants to submit an accreditation under oath before they were allowed to certify
financial statements submitted to the bank. Among those financial statements the Central Bank
disallowed were those certified by accountant Felipe B. Ollada. 128chanRoblesvirtualLawlibrary

Claiming that the requirement “restrained the legitimate pursuit of one’s trade,”129 Ollada filed a
petition for declaratory relief against the Central Bank.

This court ordered the dismissal of Ollada’s petition “without prejudice to [his] seeking relief in
another appropriate action.”130 According to this court, Ollada’s right had already been violated
when the Central Bank refused to accept the financial statements he prepared. Since there was
already a breach, a petition for declaratory relief was not proper. Ollada must pursue the
“appropriate ordinary civil action or proceeding.”131 This court explained:chanroblesvirtuallawlibrary
Petitioner commenced this action as, and clearly intended it to be one for Declaratory Relief under
the provisions of Rule 66 of the Rules of Court. On the question of when a special civil action of this
nature would prosper, we have already held that the complaint for declaratory relief will not prosper if
filed after a contract, statute or right has been breached or violated. In the present case such is
precisely the situation arising from the facts alleged in the petition for declaratory relief. As vigorously
claimed by petitioner himself, respondent had already invaded or violated his right and caused him
injury — all these giving him a complete cause of action enforceable in an appropriate ordinary civil
action or proceeding. The dismissal of the action was, therefore, proper in the light of our ruling in De
Borja vs. Villadolid, 47 O.G. (5) p. 2315, and Samson vs. Andal, G.R. No. L-3439, July 31, 1951,
where we held that an action for declaratory relief should be filed before there has been a breach of
a contract, statutes or right, and that it is sufficient to bar such action, that there had been a breach
— which would constitute actionable violation. The rule is that an action for Declaratory Relief is
proper only if adequate relief is not available through the means of other existing forms of action or
proceeding (1 C.J.S. 1027-1028). 132

It is also required that the parties to the action for declaratory relief be those whose rights or
interests are affected by the contract or statute in question.133 “There must be an actual justiciable
controversy or the ‘ripening seeds’ of one”134 between the parties. The issue between the parties
“must be ripe for judicial determination.”135 An action for declaratory relief based on theoretical or
hypothetical questions cannot be filed for our courts are not advisory
courts.136chanRoblesvirtualLawlibrary

In Republic v. Roque,137 this court dismissed respondents’ petition for declaratory relief for lack of
justiciable controversy. According to this court, “[the respondents’] fear of prospective prosecution
[under the Human Security Act] was solely based on remarks of certain government officials which
were addressed to the general public.”138chanRoblesvirtualLawlibrary

In Velarde v. Social Justice Society,139 this court refused to resolve the issue of “whether or not [a
religious leader’s endorsement] of a candidate for elective office or in urging or requiring the
members of his flock to vote for a specific candidate is violative [of the separation
clause].”140 According to the court, there was no justiciable controversy and ordered the dismissal of
the Social Justice Society’s petition for declaratory relief. This court explained:
Indeed, SJS merely speculated or anticipated without factual moorings that, as religious leaders, the
petitioner and his co-respondents below had endorsed or threatened to endorse a candidate or
candidates for elective offices; and that such actual or threatened endorsement "will enable [them] to
elect men to public office who [would] in turn be forever beholden to their leaders, enabling them to
control the government"[;] and "pos[ing] a clear and present danger of serious erosion of the
people’s faith in the electoral process[;] and reinforc[ing] their belief that religious leaders determine
the ultimate result of elections," which would then be violative of the separation clause.

Such premise is highly speculative and merely theoretical, to say the least. Clearly, it does not
suffice to constitute a justiciable controversy. The Petition does not even allege any indication or
manifest intent on the part of any of the respondents below to champion an electoral candidate, or to
urge their so-called flock to vote for, or not to vote for, a particular candidate. It is a time-honored
rule that sheer speculation does not give rise to an actionable right.

Obviously, there is no factual allegation that SJS’ rights are being subjected to any threatened,
imminent and inevitable violation that should be prevented by the declaratory relief sought. The
judicial power and duty of the courts to settle actual controversies involving rights that are legally
demandable and enforceable cannot be exercised when there is no actual or threatened violation of
a legal right.

All that the 5-page SJS Petition prayed for was "that the question raised in paragraph 9 hereof be
resolved." In other words, it merely sought an opinion of the trial court on whether the speculated
acts of religious leaders endorsing elective candidates for political offices violated the constitutional
principle on the separation of church and state. SJS did not ask for a declaration of its rights and
duties; neither did it pray for the stoppage of any threatened violation of its declared rights. Courts,
however, are proscribed from rendering an advisory opinion.141

In sum, a petition for declaratory relief must satisfy six requisites:

[F]irst, the subject matter of the controversy must be a deed, will, contract or other written
instrument, statute, executive order or regulation, or ordinance; second, the terms of said documents
and the validity thereof are doubtful and require judicial construction; third, there must have been no
breach of the documents in question; fourth, there must be an actual justiciable controversy or the
"ripening seeds" of one between persons whose interests are adverse; fifth, the issue must be ripe
for judicial determination; and sixth, adequate relief is not available through other means or other
forms of action or proceeding.142 (Emphases omitted)

We rule that the PEZA erred in availing itself of a petition for declaratory relief against the City. The
City had already issued demand letters and real property tax assessment against the PEZA, in
violation of the PEZA’s alleged tax-exempt status under its charter. The Special Economic Zone Act
of 1995, the subject matter of PEZA’s petition for declaratory relief, had already been breached. The
trial court, therefore, had no jurisdiction over the petition for declaratory relief.

There are several aspects of jurisdiction.143 Jurisdiction over the subject matter is “the power to hear
and determine cases of the general class to which the proceedings in question belong.”144 It is
conferred by law, which may either be the Constitution or a statute.145 Jurisdiction over the subject
matter means “the nature of the cause of action and the relief sought.”146 Thus, the cause of action
and character of the relief sought as alleged in the complaint are examined to determine whether a
court had jurisdiction over the subject matter.147 Any decision rendered by a court without
jurisdiction over the subject matter of the action is void.148chanRoblesvirtualLawlibrary

Another aspect of jurisdiction is jurisdiction over the person. It is “the power of [a] court to render a
personal judgment or to subject the parties in a particular action to the judgment and other rulings
rendered in the action.”149 A court automatically acquires jurisdiction over the person of the plaintiff
upon the filing of the initiatory pleading.150 With respect to the defendant, voluntary appearance in
court or a valid service of summons vests the court with jurisdiction over the defendant’s
person.151 Jurisdiction over the person of the defendant is indispensable in actions in personam or
those actions based on a party’s personal liability.152 The proceedings in an action in personam are
void if the court had no jurisdiction over the person of the defendant.153chanRoblesvirtualLawlibrary

Jurisdiction over the res or the thing under litigation is acquired either “by the seizure of the property
under legal process, whereby it is brought into actual custody of the law; or as a result of the
institution of legal proceedings, in which the power of the court is recognized and made
effective.”154 Jurisdiction over the res is necessary in actions in rem or those actions “directed
against the thing or property or status of a person and seek judgments with respect thereto as
against the whole world.”155 The proceedings in an action in rem are void if the court had no
jurisdiction over the thing under litigation.156chanRoblesvirtualLawlibrary

In the present case, the Regional Trial Court had no jurisdiction over the subject matter of the action,
specifically, over the remedy sought. As this court explained in Malana v.
Tappa:157chanRoblesvirtualLawlibrary
. . . an action for declaratory relief presupposes that there has been no actual breach of the
instruments involved or of rights arising thereunder. Since the purpose of an action for declaratory
relief is to secure an authoritative statement of the rights and obligations of the parties under a
statute, deed, or contract for their guidance in the enforcement thereof, or compliance therewith, and
not to settle issues arising from an alleged breach thereof, it may be entertained only before the
breach or violation of the statute, deed, or contract to which it refers. A petition for declaratory relief
gives a practical remedy for ending controversies that have not reached the state where another
relief is immediately available; and supplies the need for a form of action that will set controversies at
rest before they lead to a repudiation of obligations, an invasion of rights, and a commission of
wrongs.

Where the law or contract has already been contravened prior to the filing of an action for
declaratory relief, the courts can no longer assume jurisdiction over the action. In other words, a
court has no more jurisdiction over an action for declaratory relief if its subject has already been
infringed or transgressed before the institution of the action.158 (Emphasis supplied)

The trial court should have dismissed the PEZA’s petition for declaratory relief for lack of jurisdiction.

Once an assessment has already been issued by the assessor, the proper remedy of a taxpayer
depends on whether the assessment was erroneous or illegal.

An erroneous assessment “presupposes that the taxpayer is subject to the tax but is disputing the
correctness of the amount assessed.”159 With an erroneous assessment, the taxpayer claims that
the local assessor erred in determining any of the items for computing the real property tax, i.e., the
value of the real property or the portion thereof subject to tax and the proper assessment levels. In
case of an erroneous assessment, the taxpayer must exhaust the administrative remedies provided
under the Local Government Code before resorting to judicial action.

The taxpayer must first pay the real property tax under protest. Section 252 of the Local Government
Code provides:
SECTION 252. Payment Under Protest. -(a) No protest shall be entertained unless the taxpayer first
pays the tax. There shall be annotated on the tax receipts the words "paid under protest". The
protest in writing must be filed within thirty (30) days from payment of the tax to the provincial, city
treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who
shall decide the protest within sixty (60) days from receipt.
(b) The tax or a portion thereof paid under protest, shall be held in trust by the treasurer concerned.

(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the
tax protested shall be refunded to the protestant, or applied as tax credit against his existing or
future tax liability.

(d) In the event that the protest is denied or upon the lapse of the sixty day period prescribed in
subparagraph (a), the taxpayer may avail of the remedies as provided for in Chapter 3, Title II, Book
II of this Code.

Should the taxpayer find the action on the protest unsatisfactory, the taxpayer may appeal with the
Local Board of Assessment Appeals within 60 days from receipt of the decision on the protest:
SECTION 226. Local Board of Assessment Appeals. - Any owner or person having legal interest in
the property who is not satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of receipt of the written notice
of assessment, appeal to the Board of Assessment Appeals of the provincial or city by filing a
petition under oath in the form prescribed for the purpose, together with copies of the tax
declarations and such affidavits or documents submitted in support of the appeal.

Payment under protest and appeal to the Local Board of Assessment Appeals are “successive
administrative remedies to a taxpayer who questions the correctness of an assessment.”160 The
Local Board Assessment Appeals shall not entertain an appeal “without the action of the local
assessor”161 on the protest.

If the taxpayer is still unsatisfied after appealing with the Local Board of Assessment Appeals, the
taxpayer may appeal with the Central Board of Assessment Appeals within 30 days from receipt of
the Local Board’s decision:
SECTION 229. Action by the Local Board of Assessment Appeals. - (a) The Board shall decide the
appeal within one hundred twenty (120) days from the date of receipt of such appeal. The Board,
after hearing, shall render its decision based on substantial evidence or such relevant evidence on
record as a reasonable mind might accept as adequate to support the conclusion.

(b) In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses,
administer oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoena
duces tecum. The proceedings of the Board shall be conducted solely for the purpose of
ascertaining the facts without necessarily adhering to technical rules applicable in judicial
proceedings.

(c) The secretary of the Board shall furnish the owner of the property or the person having legal
interest therein and the provincial or city assessor with a copy of the decision of the Board. In case
the provincial or city assessor concurs in the revision or the assessment, it shall be his duty to notify
the owner of the property or the person having legal interest therein of such fact using the form
prescribed for the purpose. The owner of the property or the person having legal interest therein or
the assessor who is not satisfied with the decision of the Board, may, within thirty (30) days after
receipt of the decision of said Board, appeal to the Central Board of Assessment Appeals, as herein
provided. The decision of the Central Board shall be final and executory. (Emphasis supplied)

On the other hand, an assessment is illegal if it was made without authority under the law.162 In
case of an illegal assessment, the taxpayer may directly resort to judicial action without paying under
protest the assessed tax and filing an appeal with the Local and Central Board of Assessment
Appeals.

In Ty v. Trampe,163 the Municipal Assessor of Pasig sent Alejandro B. Ty a notice of assessment

with respect to Ty’s real properties in Pasig. Without resorting to the administrative remedies under
the Local Government Code, Ty filed before the Regional Trial Court a petition, praying that the trial
court nullify the notice of assessment. In assessing the real property taxes due, the Municipal
Assessor used a schedule of market values solely prepared by him. This, Ty argued, was void for
being contrary to the Local Government Code requiring that the schedule of market values be jointly
prepared by the provincial, city, and municipal assessors of the municipalities within the Metropolitan
Manila Area.

This court ruled that the assessment was illegal for having been issued without authority of the
Municipal Assessor. Reconciling provisions of the Real Property Tax Code and the Local
Government Code, this court held that the schedule of market values must be jointly prepared by the
provincial, city, and municipal assessors of the municipalities within the Metropolitan Manila Area.

As to the issue of exhaustion of administrative remedies, this court held that Ty did not err in directly
resorting to judicial action. According to this court, payment under protest is required only “where
there is a question as to the reasonableness of the amount assessed.”164 As to appeals before the
Local and Central Board of Assessment Appeals, they are “fruitful only where questions of fact are
involved.”165chanRoblesvirtualLawlibrary

Ty raised the issue of the legality of the notice of assessment, an issue that did not go into the
reasonableness of the amount assessed. Neither did the issue involve a question of fact. Ty raised
a question of law and, therefore, need not resort to the administrative remedies provided under the
Local Government Code.

In the present case, the PEZA did not avail itself of any of the remedies against a notice of
assessment. A petition for declaratory relief is not the proper remedy once a notice of assessment
was already issued.

Instead of a petition for declaratory relief, the PEZA should have directly resorted to a judicial
action. The PEZA should have filed a complaint for injunction, the “appropriate ordinary civil
action”166 to enjoin the City from enforcing its demand and collecting the assessed taxes from the
PEZA. After all, a declaratory judgment as to the PEZA’s tax-exempt status is useless unless the
City is enjoined from enforcing its demand.

Injunction “is a judicial writ, process or proceeding whereby a party is ordered to do or refrain from
doing a certain act.”167 “It may be the main action or merely a provisional remedy for and as incident
in the main action.”168 The essential requisites of a writ of injunction are: “(1) there must be a right in
esse or the existence of a right to be protected; and (2) the act against which the injunction is
directed to constitute a violation of such right.”169chanRoblesvirtualLawlibrary

We note, however, that the City confused the concepts of jurisdiction and venue in contending that
the Regional Trial Court of Pasay had no jurisdiction because the real properties involved in this
case are located in the City of Lapu-Lapu.

On the one hand, jurisdiction is “the power to hear and determine cases of the general class to
which the proceedings in question belong.”170 Jurisdiction is a matter of substantive law.171 Thus, an
action may be filed only with the court or tribunal where the Constitution or a statute says it can be
brought.172 Objections to jurisdiction cannot be waived and may be brought at any stage of the
proceedings, even on appeal.173 When a case is filed with a court which has no jurisdiction over the
action, the court shall motu proprio dismiss the case.174chanRoblesvirtualLawlibrary

On the other hand, venue is “the place of trial or geographical location in which an action or
proceeding should be brought.”175 In civil cases, venue is a matter of procedural law.176 A party’s
objections to venue must be brought at the earliest opportunity either in a motion to dismiss or in the
answer; otherwise the objection shall be deemed waived.177 When the venue of a civil action is
improperly laid, the court cannot motu proprio dismiss the case.178chanRoblesvirtualLawlibrary

The venue of an action depends on whether the action is a real or personal action. Should the
action affect title to or possession of real property, or interest therein, it is a real action. The action
should be filed in the proper court which has jurisdiction over the area wherein the real property
involved, or a portion thereof, is situated.179 If the action is a personal action, the action shall be filed
with the proper court where the plaintiff or any of the principal plaintiffs resides, or where the
defendant or any of the principal defendants resides, or in the case of a non-resident defendant
where he may be found, at the election of the plaintiff.180chanRoblesvirtualLawlibrary

The City was objecting to the venue of the action, not to the jurisdiction of the Regional Trial Court of
Pasay. In essence, the City was contending that the PEZA’s petition is a real action as it affects title
to or possession of real property, and, therefore, the PEZA should have filed the petition with the
Regional Trial Court of Lapu-Lapu City where the real properties are located.

However, whatever objections the City has against the venue of the PEZA’s action for declaratory
relief are already deemed waived. Objections to venue must be raised at the earliest possible
opportunity.181 The City did not file a motion to dismiss the petition on the ground that the venue
was improperly laid. Neither did the City raise this objection in its answer.

In any event, the law sought to be judicially interpreted in this case had already been breached. The
Regional Trial Court of Pasay, therefore, had no jurisdiction over the PEZA’s petition for declaratory
relief against the City.
III.

The Court of Appeals had no jurisdiction

over the PEZA’s petition for certiorari
against the Province of Bataan

Appeal is the remedy “to obtain a reversal or modification of a judgment on the merits.”182 A
judgment on the merits is one which “determines the rights and liabilities of the parties based on the
disclosed facts, irrespective of the formal, technical or dilatory objections.”183 It is not even
necessary that the case proceeded to trial.184 So long as the “judgment is general”185 and “the
parties had a full legal opportunity to be heard on their respective claims and contentions,” 186 the
judgment is on the merits.

On the other hand, certiorari is a special civil action filed to annul or modify a proceeding of a
tribunal, board, or officer exercising judicial or quasi-judicial functions.187 Certiorari, which in Latin
means “to be more fully informed,”188 was originally a remedy in the common law. This court
discussed the history of the remedy of certiorari in Spouses Delos Santos v. Metropolitan Bank and
Trust Company:189chanRoblesvirtualLawlibrary
In the common law, from which the remedy of certiorari evolved, the writ of certiorari was issued out
of Chancery, or the King’s Bench, commanding agents or officers of the inferior courts to return the
record of a cause pending before them, so as to give the party more sure and speedy justice, for the
writ would enable the superior court to determine from an inspection of the record whether the
inferior court’s judgment was rendered without authority. The errors were of such a nature that, if
allowed to stand, they would result in a substantial injury to the petitioner to whom no other remedy
was available. If the inferior court acted without authority, the record was then revised and corrected
in matters of law. The writ of certiorari was limited to cases in which the inferior court was said to be
exceeding its jurisdiction or was not proceeding according to essential requirements of law and
would lie only to review judicial or quasi-judicial acts.190

In our jurisdiction, the term “certiorari” is used in two ways. An appeal before this court raising pure
questions of law is commenced by filing a petition for review on certiorari under Rule 45 of the Rules
of Court. An appeal by certiorari, which continues the proceedings commenced before the lower
courts,191 is filed to reverse or modify judgments or final orders.192 Under the Rules, an appeal by
certiorari must be filed within 15 days from notice of the judgment or final order, or of the denial of
the appellant’s motion for new trial or reconsideration.193chanRoblesvirtualLawlibrary

A petition for certiorari under Rule 65, on the other hand, is an independent and original action filed
to set aside proceedings conducted without or in excess of jurisdiction or with grave abuse of
discretion amounting to lack or excess of jurisdiction.194 Under the Rules, a petition for certiorari
may only be filed if there is no appeal or any plain, speedy, or adequate remedy in the ordinary
course of law.195 The petition must be filed within 60 days from notice of the judgment, order, or
resolution.196chanRoblesvirtualLawlibrary

Because of the longer period to file a petition for certiorari, some litigants attempt to file petitions for
certiorari as substitutes for lost appeals by certiorari. However, Rule 65 is clear that a petition for
certiorari will not prosper if appeal is available. Appeal is the proper remedy even if the error, or one
of the errors, raised is grave abuse of discretion on the part of the court rendering judgment.197 If
appeal is available, a petition for certiorari cannot be filed.

In this case, the trial court’s decision dated January 31, 2007 is a judgment on the merits. Based on
the facts disclosed by the parties, the trial court declared the PEZA liable to the Province of Bataan
for real property taxes. The PEZA’s proper remedy against the trial court’s decision, therefore, is
appeal.

Since the PEZA filed a petition for certiorari against the trial court’s decision, it availed itself of the
wrong remedy. As the Province of Bataan contended, the trial court’s decision dated January 31,
2007 “is only an error of judgment appealable to the higher level court and may not be corrected by
filing a petition for certiorari.”198 That the trial court judge allegedly committed grave abuse of
discretion does not make the petition for certiorari the correct remedy. The PEZA should have
raised this ground in an appeal filed within 15 days from notice of the assailed resolution.

This court, “in the liberal spirit pervading the Rules of Court and in the interest of substantial
justice,”199 has treated petitions for certiorari as an appeal: “(1) if the petition for certiorari was filed
within the reglementary period within which to file a petition for review on certiorari; (2) when errors
of judgment are averred; and (3) when there is sufficient reason to justify the relaxation of the
rules.”200 Considering that “the nature of an action is determined by the allegations of the complaint
or the petition and the character of the relief sought,”201 a petition which “actually avers errors of
judgment rather than errors than that of jurisdiction”202 may be considered a petition for review.

However, suspending the application of the Rules has its disadvantages. Relaxing procedural rules
may reduce the “effective enforcement of substantive rights,”203 leading to “arbitrariness, caprice,
despotism, or whimsicality in the settlement of disputes.”204 Therefore, for this court to suspend the
application of the Rules, the accomplishment of substantial justice must outweigh the importance of
predictability of court procedures.

The PEZA’s petition for certiorari may be treated as an appeal. First, the petition for certiorari was
filed within the 15-day reglementary period for filing an appeal. The PEZA filed its petition for
certiorari before the Court of Appeals on October 15, 2007,205 which was 12 days from October 3,
2007206 when the PEZA had notice of the trial court’s order denying the motion for reconsideration.

Second, the petition for certiorari raised errors of judgment. The PEZA argued that the trial court
erred in ruling that it is not exempt from payment of real property taxes given Section 21 of
Presidential Decree No. 66 and Sections 11 and 51 of the Special Economic Zone Act of
1995.207chanRoblesvirtualLawlibrary

Third, there is sufficient reason to relax the rules given the importance of the substantive issue
presented in this case.

However, the PEZA’s petition for certiorari was filed before the wrong court. The PEZA should have
filed its petition before the Court of Tax Appeals.

The Court of Tax Appeals has the exclusive appellate jurisdiction over local tax cases decided by
Regional Trial Courts. Section 7, paragraph (a)(3) of Republic Act No. 1125, as amended by
Republic Act No. 9282, provides:chanroblesvirtuallawlibrary
Sec. 7. Jurisdiction. – The [Court of Tax Appeals] shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

....

3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided
or resolved by them in the exercise of their original or appellate jurisdiction[.]

The local tax cases referred to in Section 7, paragraph (a)(3) of Republic Act No. 1125, as amended,
include cases involving real property taxes. Real property taxation is governed by Book II of the
Local Government Code on “Local Taxation and Fiscal Matters.” Real property taxes are collected
by the Local Treasurer,208 not by the Bureau of Internal Revenue in charge of collecting national
internal revenue taxes, fees, and charges.209chanRoblesvirtualLawlibrary

Section 7, paragraph (a)(5) of Republic Act No. 1125, as amended by Republic Act No. 9282,
separately provides for the exclusive appellate jurisdiction of the Court of Tax Appeals over
decisions of the Central Board of Assessment Appeals involving the assessment or collection of real
property taxes:chanroblesvirtuallawlibrary
Sec. 7. Jurisdiction. – The [Court of Tax Appeals] shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

....

5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction
over cases involving the assessment and taxation of real property originally decided by the provincial
or city board of assessment appeals[.]

This separate provision, nevertheless, does not bar the Court of Tax Appeals from taking
cognizance of trial court decisions involving the collection of real property tax cases. Sections
256210 and 266211 of the Local Government Code expressly allow local government units to file “in
any court of competent jurisdiction” civil actions to collect basic real property taxes. Should the trial
court rule against them, local government units cannot be barred from appealing before the Court of
Tax Appeals – the “highly specialized body specifically created for the purpose of reviewing tax
cases.”212chanRoblesvirtualLawlibrary

We have also ruled that the Court of Tax Appeals, not the Court of Appeals, has the exclusive
original jurisdiction over petitions for certiorari assailing interlocutory orders issued by Regional Trial
Courts in a local tax case. We explained in The City of Manila v. Hon. Grecia-Cuerdo213 that while
the Court of Tax Appeals has no express grant of power to issue writs of certiorari under Republic
Act No. 1125,214 as amended, the tax court’s judicial power as defined in the Constitution215 includes
the power to determine “whether or not there has been grave abuse of discretion amounting to lack
or excess of jurisdiction on the part of the [Regional Trial Court] in issuing an interlocutory order of
jurisdiction in cases falling within the exclusive appellate jurisdiction of the tax court.”216 We further
elaborated:chanroblesvirtuallawlibrary
Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must have
the authority to issue, among others, a writ of certiorari. In transferring exclusive jurisdiction over
appealed tax cases to the CTA, it can reasonably be assumed that the law intended to transfer also
such power as is deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There
is no perceivable reason why the transfer should only be considered as partial, not total.

....

If this Court were to sustain petitioners' contention that jurisdiction over their certiorari petition lies
with the CA, this Court would be confirming the exercise by two judicial bodies, the CA and the CTA,
of jurisdiction over basically the same subject matter – precisely the split-jurisdiction situation which
is anathema to the orderly administration of justice. The Court cannot accept that such was the
legislative motive, especially considering that the law expressly confers on the CTA, the tribunal with
the specialized competence over tax and tariff matters, the role of judicial review over local tax cases
without mention of any other court that may exercise such power. Thus, the Court agrees with the
ruling of the CA that since appellate jurisdiction over private respondents' complaint for tax refund is
vested in the CTA, it follows that a petition for certiorari seeking nullification of an interlocutory order
issued in the said case should, likewise, be filed with the same court. To rule otherwise would lead to
an absurd situation where one court decides an appeal in the main case while another court rules on
an incident in the very same case.

Stated differently, it would be somewhat incongruent with the pronounced judicial abhorrence to split
jurisdiction to conclude that the intention of the law is to divide the authority over a local tax case
filed with the RTC by giving to the CA or this Court jurisdiction to issue a writ of certiorari against
interlocutory orders of the RTC but giving to the CTA the jurisdiction over the appeal from the
decision of the trial court in the same case. It is more in consonance with logic and legal soundness
to conclude that the grant of appellate jurisdiction to the CTA over tax cases filed in and decided by
the RTC carries with it the power to issue a writ of certiorari when necessary in aid of such appellate
jurisdiction. The supervisory power or jurisdiction of the CTA to issue a writ of certiorari in aid of its
appellate jurisdiction should co-exist with, and be a complement to, its appellate jurisdiction to
review, by appeal, the final orders and decisions of the RTC, in order to have complete supervision
over the acts of the latter.217 (Citations omitted)

In this case, the petition for injunction filed before the Regional Trial Court of Pasay was a local tax
case originally decided by the trial court in its original jurisdiction. Since the PEZA assailed a
judgment, not an interlocutory order, of the Regional Trial Court, the PEZA’s proper remedy was an
appeal to the Court of Tax Appeals.

Considering that the appellate jurisdiction of the Court of Tax Appeals is to the exclusion of all other
courts, the Court of Appeals had no jurisdiction to take cognizance of the PEZA’s petition. The Court
of Appeals acted without jurisdiction in rendering the decision in CA-G.R. SP No. 100984. Its
decision in CA-G.R. SP No. 100984 is void.218chanRoblesvirtualLawlibrary

The filing of appeal in the wrong court does not toll the period to appeal. Consequently, the decision
of the Regional Trial Court, Branch 115, Pasay City, became final and executory after the lapse of
the 15th day from the PEZA’s receipt of the trial court’s decision.219 The denial of the petition for
injunction became final and executory.
IV.

The remedy of a taxpayer depends on the

stage in which the local government unit is
enforcing its authority to impose real
property taxes

The proper remedy of a taxpayer depends on the stage in which the local government unit is
enforcing its authority to collect real property taxes. For the guidance of the members of the bench
and the bar, we reiterate the taxpayer’s remedies against the erroneous or illegal assessment of real
property taxes.

Exhaustion of administrative remedies under the Local Government Code is necessary in cases of
erroneous assessments where the correctness of the amount assessed is assailed. The taxpayer
must first pay the tax then file a protest with the Local Treasurer within 30 days from date of payment
of tax.220 If protest is denied or upon the lapse of the 60-day period to decide the protest, the
taxpayer may appeal to the Local Board of Assessment Appeals within 60 days from the denial of
the protest or the lapse of the 60-day period to decide the protest.221 The Local Board of
Assessment Appeals has 120 days to decide the appeal.222chanRoblesvirtualLawlibrary

If the taxpayer is unsatisfied with the Local Board’s decision, the taxpayer may appeal before the
Central Board of Assessment Appeals within 30 days from receipt of the Local Board’s
decision.223chanRoblesvirtualLawlibrary

The decision of the Central Board of Assessment Appeals is appealable before the Court of Tax
Appeals En Banc.224 The appeal before the Court of Tax Appeals shall be filed following the
procedure under Rule 43 of the Rules of Court.225chanRoblesvirtualLawlibrary

The Court of Tax Appeals’ decision may then be appealed before this court through a petition for
review on certiorari under Rule 45 of the Rules of Court raising pure questions of
law.226chanRoblesvirtualLawlibrary

In case of an illegal assessment where the assessment was issued without authority, exhaustion of
administrative remedies is not necessary and the taxpayer may directly resort to judicial
action.227 The taxpayer shall file a complaint for injunction before the Regional Trial Court228 to
enjoin the local government unit from collecting real property taxes.

The party unsatisfied with the decision of the Regional Trial Court shall file an appeal, not a petition
for certiorari, before the Court of Tax Appeals, the complaint being a local tax case decided by the
Regional Trial Court.229 The appeal shall be filed within fifteen (15) days from notice of the trial
court’s decision.

The Court of Tax Appeals’ decision may then be appealed before this court through a petition for
review on certiorari under Rule 45 of the Rules of Court raising pure questions of
law.230chanRoblesvirtualLawlibrary

In case the local government unit has issued a notice of delinquency, the taxpayer may file a
complaint for injunction to enjoin the impending sale of the real property at public auction. In case
the local government unit has already sold the property at public auction, the taxpayer must first
deposit with the court the amount for which the real property was sold, together with interest of 2%
per month from the date of sale to the time of the institution of action. The taxpayer may then file a
complaint to assail the validity of the public auction.231 The decisions of the Regional Trial Court in
these cases shall be appealable before the Court of Tax Appeals,232 and the latter’s decisions
appealable before this court through a petition for review on certiorari under Rule 45 of the Rules of
Court.233chanRoblesvirtualLawlibrary
V.

The PEZA is exempt from payment

of real property taxes

The jurisdictional errors in this case render these consolidated petitions moot. We do not review
void decisions rendered without jurisdiction.

However, the PEZA alleged that several local government units, including the City of Baguio and the
Province of Cavite, have issued their respective real property tax assessments against the
PEZA. Other local government units will likely follow suit, and either the PEZA or the local
government units taxing the PEZA may file their respective actions against each other.

In the interest of judicial economy234 and avoidance of conflicting decisions involving the same
issues,235 we resolve the substantive issue of whether the PEZA is exempt from payment of real
property taxes.

Real property taxes are annual taxes levied on real property such as lands, buildings, machinery,
and other improvements not otherwise specifically exempted under the Local Government
Code.236 Real property taxes are ad valorem, with the amount charged based on a fixed proportion
of the value of the property.237 Under the law, provinces, cities, and municipalities within the
Metropolitan Manila Area have the power to levy real property taxes within their respective
territories.238chanRoblesvirtualLawlibrary

The general rule is that real properties are subject to real property taxes. This is true especially
since the Local Government Code has withdrawn exemptions from real property taxes of all persons,
whether natural or juridical:chanroblesvirtuallawlibrary
SEC. 234. Exemptions from Real Property Tax. – The following are exempted from payment of real
property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,

nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly, and
exclusively used for religious, charitable or educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or –controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided under R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property taxes previously granted to,
or presently enjoyed by, all persons, whether natural or juridical, including government-owned or -
controlled corporations are hereby withdrawn upon the effectivity of this Code. (Emphasis supplied)

The person liable for real property taxes is the “taxable person who had actual or beneficial use and
possession [of the real property for the taxable period,] whether or not [the person owned the
property for the period he or she is being taxed].”239chanRoblesvirtualLawlibrary

The exceptions to the rule are provided in the Local Government Code. Under Section 133(o), local
government units have no power to levy taxes of any kind on the national government, its agencies
and instrumentalities and local government units:chanroblesvirtuallawlibrary
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless
otherwise provided herein, the exercise of taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:

....

(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units.

Specifically on real property taxes, Section 234 enumerates the persons and real property exempt
from real property taxes:chanroblesvirtuallawlibrary
SEC. 234. Exemptions from Real Property Tax. – The following are exempted from payment of real
property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,

nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly, and
exclusively used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or –controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided under R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously granted to,
or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or -
controlled corporations are hereby withdrawn upon the effectivity of this Code. (Emphasis supplied)

For persons granted tax exemptions or incentives before the effectivity of the Local Government
Code, Section 193 withdrew these tax exemption privileges. These persons consist of both natural
and juridical persons, including government-owned or controlled
corporations:chanroblesvirtuallawlibrary
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. 6938, non stock and non profit hospitals and educational institutions, are
hereby withdrawn upon effectivity of this Code.

As discussed, Section 234 withdrew all tax privileges with respect to real property taxes.

Nevertheless, local government units may grant tax exemptions under such terms and conditions as
they may deem necessary:chanroblesvirtuallawlibrary
SEC. 192. Authority to Grant Tax Exemption Privileges. – Local government units may, through
ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and
conditions as they may deem necessary.

In Mactan Cebu International Airport Authority v. Hon. Marcos,240 this court classified the exemptions
from real property taxes into ownership, character, and usage exemptions.

Ownership exemptions are exemptions based on the ownership of the real property. The
exemptions of real property owned by the Republic of the Philippines, provinces, cities,
municipalities, barangays, and registered cooperatives fall under this
classification.241chanRoblesvirtualLawlibrary

Character exemptions are exemptions based on the character of the real property. Thus, no real
property taxes may be levied on charitable institutions, houses and temples of prayer like churches,
parsonages, or convents appurtenant thereto, mosques, and non profit or religious
cemeteries.242chanRoblesvirtualLawlibrary

Usage exemptions are exemptions based on the use of the real property. Thus, no real property
taxes may be levied on real property such as: (1) lands and buildings actually, directly, and
exclusively used for religious, charitable or educational purpose; (2) machineries and equipment
actually, directly and exclusively used by local water districts or by government-owned or controlled
corporations engaged in the supply and distribution of water and/or generation and transmission of
electric power; and (3) machinery and equipment used for pollution control and environmental
protection.243chanRoblesvirtualLawlibrary

Persons may likewise be exempt from payment of real properties if their charters, which were
enacted or reenacted after the effectivity of the Local Government Code, exempt them payment of
real property taxes.244chanRoblesvirtualLawlibrary
V. (A)

The PEZA is an instrumentality of the national government

An instrumentality is “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.”245chanRoblesvirtualLawlibrary

Examples of instrumentalities of the national government are the Manila International Airport
Authority,246 the Philippine Fisheries Development Authority,247 the Government Service Insurance
System,248 and the Philippine Reclamation Authority.249 These entities are not integrated within the
department framework but are nevertheless vested with special functions to carry out a declared
policy of the national government.

Similarly, the PEZA is an instrumentality of the national government. It is not integrated within the
department framework but is an agency attached to the Department of Trade and Industry.250 Book
IV, Chapter 7, Section 38(3)(a) of the Administrative Code of 1987 defines
“attachment”:chanroblesvirtuallawlibrary
SEC. 38. Definition of Administrative Relationship. – Unless otherwise expressly stated in the Code
or in other laws defining the special relationships of particular agencies, administrative relationships
shall be categorized and defined as follows:

....

(3) Attachment.–(a) This refers to the lateral relationship between the department or its equivalent
and the attached agency or corporation for purposes of policy and program coordination. The
coordination may be accomplished by having the department represented in the governing board of
the attached agency or corporation, either as chairman or as a member, with or without voting rights,
if this is permitted by the charter; having the attached corporation or agency comply with a system of
periodic reporting which shall reflect the progress of the programs and projects; and having the
department or its equivalent provide general policies through its representative in the board, which
shall serve as the framework for the internal policies of the attached corporation or agency[.]

Attachment, which enjoys “a larger measure of independence”251 compared with other administrative
relationships such as supervision and control, is further explained in Beja, Sr. v. Court of
Appeals:252chanRoblesvirtualLawlibrary
An attached agency has a larger measure of independence from the Department to which it is
attached than one which is under departmental supervision and control or administrative
supervision. This is borne out by the “lateral relationship” between the Department and the attached
agency. The attachment is merely for “policy and program coordination.” With respect to
administrative matters, the independence of an attached agency from Departmental control and
supervision is further reinforced by the fact that even an agency under a Department’s administrative
supervision is free from Departmental interference with respect to appointments and
other personnel actions “in accordance with the decentralization of personnel functions” under the
Administrative Code of 1987. Moreover, the Administrative Code explicitly provides that Chapter 8 of
Book IV on supervision and control shall not apply to chartered institutions attached to a
Department.253

With the PEZA as an attached agency to the Department of Trade and Industry, the 13-person
PEZA Board is chaired by the Department Secretary.254 Among the powers and functions of the
PEZA is its ability to coordinate with the Department of Trade and Industry for policy and program
formulation and implementation.255 In strategizing and prioritizing the development of special
economic zones, the PEZA coordinates with the Department of Trade and
Industry.256chanRoblesvirtualLawlibrary

The PEZA also administers its own funds and operates autonomously, with the PEZA Board
formulating and approving the PEZA’s annual budget.257 Appointments and other personnel actions
in the PEZA are also free from departmental interference, with the PEZA Board having the exclusive
and final authority to promote, transfer, assign and reassign officers of the
PEZA.258chanRoblesvirtualLawlibrary

As an instrumentality of the national government, the PEZA is vested with special functions or
jurisdiction by law. Congress created the PEZA to operate, administer, manage and develop special
economic zones in the Philippines.259 Special economic zones are areas with highly developed or
which have the potential to be developed into agro-industrial, industrial tourist/recreational,
commercial, banking, investment and financial centers.260 By operating, administering, managing,
and developing special economic zones which attract investments and promote use of domestic
labor, the PEZA carries out the following policy of the Government:chanroblesvirtuallawlibrary
SECTION 2. Declaration of Policy. — It is the declared policy of the government to translate into
practical realities the following State policies and mandates in the 1987 Constitution, namely:

(a) “The State recognizes the indispensable role of the private sector, encourages private enterprise,
and provides incentives to needed investments.” (Sec. 20, Art. II)

(b) “The State shall promote the preferential use of Filipino labor, domestic materials and locally
produced goods, and adopt measures that help make them competitive.” (Sec. 12, Art. XII)

In pursuance of these policies, the government shall actively encourage, promote, induce and
accelerate a sound and balanced industrial, economic and social development of the country in
order to provide jobs to the people especially those in the rural areas, increase their productivity and
their individual and family income, and thereby improve the level and quality of their living condition
through the establishment, among others, of special economic zones in suitable and strategic
locations in the country and through measures that shall effectively attract legitimate and productive
foreign investments.261

Being an instrumentality of the national government, the PEZA cannot be taxed by local government
units.

Although a body corporate vested with some corporate powers,262 the PEZA is not a government-
owned or controlled corporation taxable for real property taxes.

Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines the term
“government-owned or controlled corporation”:chanroblesvirtuallawlibrary
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:

....

(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) per cent
of its capital stock: Provided, That government-owned or controlled corporations may be further
categorized by the Department of the Budget, the Civil Service Commission, and the Commission on
Audit for purposes of the exercise and discharge of their respective powers, functions and
responsibilities with respect to such corporations.

Government entities are created by law, specifically, by the Constitution or by statute. In the case of
government-owned or controlled corporations, they are incorporated by virtue of special
charters263 to participate in the market for special reasons which may be related to dysfunctions or
inefficiencies of the market structure. This is to adjust reality as against the concept of full
competition where all market players are price takers. Thus, under the Constitution, government-
owned or controlled corporations are created in the interest of the common good and should satisfy
the test of economic viability.264 Article XII, Section 16 of the Constitution
provides:chanroblesvirtuallawlibrary
Section 16. The Congress shall not, except by general law, provide for the formation, organization,
or regulation of private corporations. Government-owned or controlled corporations may be created
or established by special charters in the interest of the common good and subject to the test of
economic viability.

Economic viability is “the capacity to function efficiently in business.”265 To be economically viable,

the entity “should not go into activities which the private sector can do
better.”266chanRoblesvirtualLawlibrary

To be considered a government-owned or controlled corporation, the entity must have been

organized as a stock or non-stock corporation.267chanRoblesvirtualLawlibrary

Government instrumentalities, on the other hand, are also created by law but partake of sovereign
functions. When a government entity performs sovereign functions, it need not meet the test of
economic viability. In Manila International Airport Authority v. Court of Appeals,268 this court
explained:chanroblesvirtuallawlibrary
In contrast, government instrumentalities vested with corporate powers and performing
governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that every modern
State must provide its citizens. These instrumentalities need not be economically viable since the
government may even subsidize their entire operations. These instrumentalities are not the
"government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987
Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or public
functions. Congress has plenary authority to create government instrumentalities vested with
corporate powers provided these instrumentalities perform essential government functions or public
services. However, when the legislature creates through special charters corporations that perform
economic or commercial activities, such entities — known as "government-owned or controlled
corporations" — must meet the test of economic viability because they compete in the market place.

....

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:chanroblesvirtuallawlibrary
MR. OPLE: Madam President, the reason for this concern is really that when the government
creates a corporation, there is a sense in which this corporation becomes exempt from the test of
economic performance. We know what happened in the past. If a government corporation loses,
then it makes its claim upon the taxpayers' money through new equity infusions from the government
and what is always invoked is the common good. That is the reason why this year, out of a budget of
P115 billion for the entire government, about P28 billion of this will go into equity infusions to support
a few government financial institutions. And this is all taxpayers' money which could have been
relocated to agrarian reform, to social services like health and education, to augment the salaries of
grossly underpaid public employees. And yet this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good,"
this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the
responsibility of meeting the market test so that they become viable. And so, Madam President, I
reiterate, for the committee's consideration and I am glad that I am joined in this proposal by
Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC
TEST," together with the common good.

....

Clearly, the test of economic viability does not apply to government entities vested with corporate
powers and performing essential public services. The State is obligated to render essential public
services regardless of the economic viability of providing such service. The non-economic viability of
rendering such essential public service does not excuse the State from withholding such essential
services from the public.269 (Emphases and citations omitted)

The law created the PEZA’s charter. Under the Special Economic Zone Act of 1995, the PEZA was
established primarily to perform the governmental function of operating, administering, managing,
and developing special economic zones to attract investments and provide opportunities for
preferential use of Filipino labor.

Under its charter, the PEZA was created a body corporate endowed with some corporate
powers. However, it was not organized as a stock270 or non-stock271 corporation. Nothing in the
PEZA’s charter provides that the PEZA’s capital is divided into shares.272 The PEZA also has no
members who shall share in the PEZA’s profits.

The PEZA does not compete with other economic zone authorities in the country. The government
may even subsidize the PEZA’s operations. Under Section 47 of the Special Economic Zone Act of
1995, “any sum necessary to augment [the PEZA’s] capital outlay shall be included in the General
Appropriations Act to be treated as an equity of the national
government.”273chanRoblesvirtualLawlibrary

The PEZA, therefore, need not be economically viable. It is not a government-owned or controlled
corporation liable for real property taxes.
V. (B)

The PEZA assumed the non-profit character, including the tax exempt status, of the EPZA

The PEZA’s predecessor, the EPZA, was declared non-profit in character with all its revenues
devoted for its development, improvement, and maintenance. Consistent with this non-profit
character, the EPZA was explicitly declared exempt from real property taxes under its charter.
Section 21 of Presidential Decree No. 66 provides:chanroblesvirtuallawlibrary
Section 21. Non-profit Character of the Authority; Exemption from Taxes. The Authority shall be non-
profit and shall devote and use all its returns from its capital investment, as well as excess revenues
from its operations, for the development, improvement and maintenance and other related
expenditures of the Authority to pay its indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section 1 of this Decree. In consonance therewith, the
Authority is hereby declared exempt:ChanRoblesVirtualawlibrary
....

(b) From all income taxes, franchise taxes, realty taxes and all other kinds of taxes and licenses to
be paid to the National Government, its provinces, cities, municipalities and other government
agencies and instrumentalities[.]

The Special Economic Zone Act of 1995, on the other hand, does not specifically exempt the PEZA
from payment of real property taxes.

Nevertheless, we rule that the PEZA is exempt from real property taxes by virtue of its charter. A
provision in the Special Economic Zone Act of 1995 explicitly exempting the PEZA is
unnecessary. The PEZA assumed the real property exemption of the EPZA under Presidential
Decree No. 66.

Section 11 of the Special Economic Zone Act of 1995 mandated the EPZA “to evolve into the PEZA
in accordance with the guidelines and regulations set forth in an executive order issued for this
purpose.” President Ramos then issued Executive Order No. 282 in 1995, ordering the PEZA to
assume the EPZA’s powers, functions, and responsibilities under Presidential Decree No. 66 not
inconsistent with the Special Economic Zone Act of 1995:chanroblesvirtuallawlibrary
SECTION 1. Assumption of EPZA’s Powers and Functions by PEZA. All the powers, functions and
responsibilities of EPZA as provided under its Charter, Presidential Decree No. 66, as amended,
insofar as they are not inconsistent with the powers, functions and responsibilities of the PEZA, as
mandated under Republic Act No. 7916, shall hereafter be assumed and exercised by the PEZA.
Henceforth, the EPZA shall be referred to as the PEZA.

The following sections of the Special Economic Zone Act of 1995 provide for the PEZA’s powers,
functions, and responsibilities:chanroblesvirtuallawlibrary
SEC. 5. Establishment of ECOZONES. – To ensure the viability and geographical dispersal of
ECOZONES through a system of prioritization, the following areas are initially identified as
ECOZONES, subject to the criteria specified in Section 6:

....

The metes and bounds of each ECOZONE are to be delineated and more particularly described in a
proclamation to be issued by the President of the Philippines, upon the recommendation of the
Philippine Economic Zone Authority (PEZA), which shall be established under this Act, in
coordination with the municipal and / or city council, National Land Use Coordinating Committee and
/ or the Regional Land Use Committee.

SEC. 6. Criteria for the Establishment of Other ECOZONES. – In addition to the ECOZONES
identified in Section 5 of this Act, other areas may be established as ECOZONES in a proclamation
to be issued by the President of the Philippines subject to the evaluation and recommendation of the
PEZA, based on a detailed feasibility and engineering study which must conform to the following
criteria:

(a) The proposed area must be identified as a regional growth center in the Medium-Term Philippine
Development Plan or by the Regional Development Council;

(b) The existence of required infrastructure in the proposed ECOZONE, such as roads, railways,
telephones, ports, airports, etc., and the suitability and capacity of the proposed site to absorb such
improvements;

(c) The availability of water source and electric power supply for use of the ECOZONE;

(d) The extent of vacant lands available for industrial and commercial development and future
expansion of the ECOZONE as well as of lands adjacent to the ECOZONE available for
development of residential areas for the ECOZONE workers;

(e) The availability of skilled, semi-skilled and non-skilled trainable labor force in and around the
ECOZONE;

(f) The area must have a significant incremental advantage over the existing economic zones and its
potential profitability can be established;

(g) The area must be strategically located; and

(h) The area must be situated where controls can easily be established to curtail smuggling
activities.

Other areas which do not meet the foregoing criteria may be established as ECOZONES: Provided,
That the said area shall be developed only through local government and/or private sector initiative
under any of the schemes allowed in Republic Act No. 6957 (the build-operate-transfer law), and
without any financial exposure on the part of the national government: Provided, further, That the
area can be easily secured to curtail smuggling activities: Provided, finally, That after five (5) years
the area must have attained a substantial degree of development, the indicators of which shall be
formulated by the PEZA.

SEC. 7. ECOZONE to be a Decentralized Agro-Industrial, Industrial, Commercial / Trading, Tourist,

Investment and Financial Community. - Within the framework of the Constitution, the interest of
national sovereignty and territorial integrity of the Republic, ECOZONE shall be developed, as much
as possible, into a decentralized, self-reliant and self-sustaining industrial, commercial/trading, agro-
industrial, tourist, banking, financial and investment center with minimum government intervention.
Each ECOZONE shall be provided with transportation, telecommunications, and other facilities
needed to generate linkage with industries and employment opportunities for its own inhabitants and
those of nearby towns and cities.

The ECOZONE shall administer itself on economic, financial, industrial, tourism development and
such other matters within the exclusive competence of the national government.

The ECOZONE may establish mutually beneficial economic relations with other entities within the
country, or, subject to the administrative guidance of the Department of Foreign Affairs and/or the
Department of Trade and Industry, with foreign entities or enterprises.

Foreign citizens and companies owned by non-Filipinos in whatever proportion may set up
enterprises in the ECOZONE, either by themselves or in joint venture with Filipinos in any sector of
industry, international trade and commerce within the ECOZONE. Their assets, profits and other
legitimate interests shall be protected: Provided, That the ECOZONE through the PEZA may require
a minimum investment for any ECOZONE enterprises in freely convertible currencies: Provided,
further, That the new investment shall fall under the priorities, thrusts and limits provided for in the
Act.

SEC. 8. ECOZONE to be Operated and Managed as Separate Customs Territory. – The ECOZONE
shall be managed and operated by the PEZA as separate customs territory.

The PEZA is hereby vested with the authority to issue certificate of origin for products manufactured
or processed in each ECOZONE in accordance with the prevailing rules or origin, and the pertinent
regulations of the Department of Trade and Industry and/or the Department of Finance.

SEC. 9. Defense and Security. – The defense of the ECOZONE and the security of its perimeter
fence shall be the responsibility of the national government in coordination with the PEZA. Military
forces sent by the national government for the purpose of defense shall not interfere in the internal
affairs of any of the ECOZONE and expenditure for these military forces shall be borne by the
national government. The PEZA may provide and establish the ECOZONES’ internal security and
firefighting forces.

SEC. 10. Immigration. – Any investor within the ECOZONE whose initial investment shall not be less
than One Hundred Fifty Thousand Dollars ($150,000.00), his/her spouse and dependent children
under twenty-one (21) years of age shall be granted permanent resident status within the
ECOZONE. They shall have freedom of ingress and egress to and from the ECOZONE without any
need of special authorization from the Bureau of Immigration.

The PEZA shall issue working visas renewable every two (2) years to foreign executives and other
aliens, processing highly-technical skills which no Filipino within the ECOZONE possesses, as
certified by the Department of Labor and Employment. The names of aliens granted permanent
resident status and working visas by the PEZA shall be reported to the Bureau of Immigration within
thirty (30) days after issuance thereof.
SEC. 13. General Powers and Functions of the Authority. – The PEZA shall have the following
powers and functions:

(a) To operate, administer, manage and develop the ECOZONE according to the principles and
provisions set forth in this Act;

(b) To register, regulate and supervise the enterprises in the ECOZONE in an efficient and
decentralized manner;

(c) To coordinate with local government units and exercise general supervision over the
development, plans, activities and operations of the ECOZONES, industrial estates, export
processing zones, free trade zones, and the like;

(d) In coordination with local government units concerned and appropriate agencies, to construct,
acquire, own, lease, operate and maintain on its own or through contract, franchise, license, bulk
purchase from the private sector and build-operate-transfer scheme or joint venture, adequate
facilities and infrastructure, such as light and power systems, water supply and distribution systems,
telecommunication and transportation, buildings, structures, warehouses, roads, bridges, ports and
other facilities for the operation and development of the ECOZONE;

(e) To create, operate and/or contract to operate such agencies and functional units or offices of the
authority as it may deem necessary;

(f) To adopt, alter and use a corporate seal; make contracts, lease, own or otherwise dispose of
personal or real property; sue and be sued; and otherwise carry out its duties and functions as
provided for in this Act;

(g) To coordinate the formulation and preparation of the development plans of the different entities
mentioned above;

(h) To coordinate with the National Economic Development Authority (NEDA), the Department of
Trade and Industry (DTI), the Department of Science and Technology (DOST), and the local
government units and appropriate government agencies for policy and program formulation and
implementation; and

(i) To monitor and evaluate the development and requirements of entities in subsection (a) and
recommend to the local government units or other appropriate authorities the location, incentives,
basic services, utilities and infrastructure required or to be made available for said entities.

SEC. 17. Investigation and Inquiries. – Upon a written formal complaint made under oath, which on
its face provides reasonable basis to believe that some anomaly or irregularity might have been
committed, the PEZA or the administrator of the ECOZONE concerned, shall have the power to
inquire into the conduct of firms or employees of the ECOZONE and to conduct investigations, and
for that purpose may subpoena witnesses, administer oaths, and compel the production of books,
papers, and other evidences: Provided, That to arrive at the truth, the investigator(s) may grant
immunity from prosecution to any person whose testimony or whose possessions of documents or
other evidence is necessary or convenient to determine the truth in any investigation conducted by
him or under the authority of the PEZA or the administrator of the ECOZONE concerned.

SEC. 21. Development Strategy of the ECOZONE. - The strategy and priority of development of
each ECOZONE established pursuant to this Act shall be formulated by the PEZA, in coordination
with the Department of Trade and Industry and the National Economic and Development Authority;
Provided, That such development strategy is consistent with the priorities of the national government
as outlined in the medium-term Philippine development plan. It shall be the policy of the government
and the PEZA to encourage and provide Incentives and facilitate private sector participation in the
construction and operation of public utilities and infrastructure in the ECOZONE, using any of the
schemes allowed in Republic Act No. 6957 (the build-operate-transfer law).

SEC. 22. Survey of Resources. The PEZA shall, in coordination with appropriate authorities and
neighboring cities and

municipalities, immediately conduct a survey of the physical, natural assets and potentialities of the
ECOZONE areas under its

jurisdiction.
SEC. 26. Domestic Sales. – Goods manufactured by an ECOZONE enterprise shall be made
available for immediate retail sales in the domestic market, subject to payment of corresponding
taxes on the raw materials and other regulations that may be adopted by the Board of the PEZA.

However, in order to protect the domestic industry, there shall be a negative list of Industries that will
be drawn up by the PEZA. Enterprises engaged in the industries included in the negative list shall
not be allowed to sell their products locally. Said negative list shall be regularly updated by the
PEZA.

The PEZA, in coordination with the Department of Trade and Industry and the Bureau of Customs,
shall jointly issue the necessary implementing rules and guidelines for the effective Implementation
of this section.

SEC. 29. Eminent Domain. – The areas comprising an ECOZONE may be expanded or reduced
when necessary. For this purpose, the government shall have the power to acquire, either by
purchase, negotiation or condemnation proceedings, any private lands within or adjacent to the
ECOZONE for:

a. Consolidation of lands for zone development purposes;

b. Acquisition of right of way to the ECOZONE; and

c. The protection of watershed areas and natural assets valuable to the prosperity of the ECOZONE.

If in the establishment of a publicly-owned ECOZONE, any person or group of persons who has
been occupying a parcel of land within the Zone has to be evicted, the PEZA shall provide the
person or group of persons concerned with proper disturbance compensation: Provided, however,
That in the case of displaced agrarian reform beneficiaries, they shall be entitled to the benefits
under the Comprehensive Agrarian Reform Law, including but not limited to Section 36 of Republic
Act No. 3844, in addition to a homelot in the relocation site and preferential employment in the
project being undertaken.

SEC. 32. Shipping and Shipping Register. – Private shipping and related business including private
container terminals may operate freely in the ECOZONE, subject only to such minimum reasonable
regulations of local application which the PEZA may prescribe.

The PEZA shall, in coordination with the Department of Transportation and Communications,
maintain a shipping register for each ECOZONE as a business register of convenience for ocean-
going vessels and issue related certification.

Ships of all sizes, descriptions and nationalities shall enjoy access to the ports of the ECOZONE,
subject only to such reasonable requirement as may be prescribed by the PEZA In coordination with
the appropriate agencies of the national government.

SEC. 33. Protection of Environment. - The PEZA, in coordination with the appropriate agencies,
shall take concrete and appropriate steps and enact the proper measure for the protection of the
local environment.

SEC. 34. Termination of Business. - Investors In the ECOZONE who desire to terminate business or
operations shall comply with such requirements and procedures which the PEZA shall set,
particularly those relating to the clearing of debts. The assets of the closed enterprise can be
transferred and the funds con be remitted out of the ECOZONE subject to the rules, guidelines and
procedures prescribed jointly by the Bangko Sentral ng Pilipinas, the Department of Finance and the
PEZA.

SEC. 35. Registration of Business Enterprises. - Business enterprises within a designated

ECOZONE shall register with the PEZA to avail of all incentives and benefits provided for in this Act.

SEC. 36. One Stop Shop Center. - The PEZA shall establish a one stop shop center for the purpose
of facilitating the registration of new enterprises in the ECOZONE. Thus, all appropriate government
agencies that are Involved In registering, licensing or issuing permits to investors shall assign their
representatives to the ECOZONE to attend to Investor’s requirements.

SEC. 39. Master Employment Contracts. - The PEZA, in coordination with the Department of Tabor
and Employment, shall prescribe a master employment contract for all ECOZONE enterprise staff
members and workers, the terms of which provide salaries and benefits not less than those provided
under this Act, the Philippine Labor Code, as amended, and other relevant issuances of the national
government.

SEC. 41. Migrant Worker. - The PEZA, in coordination with the Department of Labor and
Employment, shall promulgate appropriate measures and programs leading to the expansion of the
services of the ECOZONE to help the local governments of nearby areas meet the needs of the
migrant workers.

SEC. 42. Incentive Scheme. - An additional deduction equivalent to one- half (1/2) of the value of
training expenses incurred in developing skilled or unskilled labor or for managerial or other
management development programs incurred by enterprises in the ECOZONE can be deducted
from the national government's share of three percent (3%) as provided In Section 24.

The PEZA, the Department of Labor and Employment, and the Department of Finance shall jointly
make a review of the incentive scheme provided In this section every two (2) years or when
circumstances so warrant.

SEC. 43. Relationship with the Regional Development Council. - The PEZA shall determine the
development goals for the ECOZONE within the framework of national development plans, policies
and goals, and the administrator shall, upon approval by the PEZA Board, submit the ECOZONE
plans, programs and projects to the regional development council for inclusion in and as inputs to
the overall regional development plan.

SEC. 44. Relationship with the Local Government Units. - Except as herein provided, the local
government units comprising the ECOZONE shall retain their basic autonomy and identity. The cities
shall be governed by their respective charters and the municipalities shall operate and function In
accordance with Republic Act No. 7160, otherwise known as the Local Government

Code of 1991.

SEC. 45. Relationship of PEZA to Privately-Owned Industrial Estates. – Privately-owned industrial

estates shall retain their autonomy and independence and shall be monitored by the PEZA for the
implementation of incentives.

SEC. 46. Transfer of Resources. - The relevant functions of the Board of Investments over industrial
estates and agri-export processing estates shall be transferred to the PEZA. The resources of
government-owned Industrial estates and similar bodies except the Bases Conversion Development
Authority and those areas identified under Republic Act No. 7227, are hereby transferred to the
PEZA as the holding agency. They are hereby detached from their mother agencies and attached to
the PEZA for policy, program and operational supervision.

The Boards of the affected government-owned industrial estates shall be phased out and only the
management level and an appropriate number of personnel shall be retained.

Government personnel whose services are not retained by the PEZA or any government office
within the ECOZONE shall be entitled to separation pay and such retirement and other benefits they
are entitled to under the laws then in force at the time of their separation: Provided, That in no case
shall the separation pay be less than one and one-fourth (1 1/4) month of every year of service.

The non-profit character of the EPZA under Presidential Decree No. 66 is not inconsistent with any
of the powers, functions, and responsibilities of the PEZA. The EPZA’s non-profit character,
including the EPZA’s exemption from real property taxes, must be deemed assumed by the PEZA.

In addition, the Local Government Code exempting instrumentalities of the national government from
real property taxes was already in force274 when the PEZA’s charter was enacted in 1995. It would
have been redundant to provide for the PEZA’s exemption in its charter considering that the PEZA is
already exempt by virtue of Section 133(o) of the Local Government Code.

As for the EPZA, Commonwealth Act No. 470 or the Assessment Law was in force when the EPZA’s
charter was enacted. Unlike the Local Government Code, Commonwealth Act No. 470 does not
contain a provision specifically exempting instrumentalities of the national government from payment
of real property taxes.275 It was necessary to put an exempting provision in the EPZA’s charter.
Contrary to the PEZA’s claim, however, Section 24 of the Special Economic Zone Act of 1995 is not
a basis for the PEZA’s exemption. Section 24 of the Special Economic Zone Act of 1995
provides:chanroblesvirtuallawlibrary
Sec. 24. Exemption from National and Local Taxes. — Except for real property taxes on land owned
by developers, no taxes, local and national, shall be imposed on business establishments operating
within the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business
enterprises within the ECOZONE shall be paid and remitted as follows:chanroblesvirtuallawlibrary
(a) Three percent (3%) to the National Government;

(b) Two percent (2%) which shall be directly remitted by the business establishments to the
treasurer's office of the municipality or city where the enterprise is located. (Emphasis supplied)

Tax exemptions provided under Section 24 apply only to business establishments operating within
economic zones. Considering that the PEZA is not a business establishment but an instrumentality
performing governmental functions, Section 24 is inapplicable to the PEZA.

Also, contrary to the PEZA’s claim, developers of economic zones, whether public or private
developers, are liable for real property taxes on lands they own. Section 24 does not distinguish
between a public and private developer. Thus, courts cannot distinguish.276 Unless the public
developer is exempt under the Local Government Code or under its charter enacted after the Local
Government Code’s effectivity, the public developer must pay real property taxes on their land.

At any rate, the PEZA cannot be taxed for real property taxes even if it acts as a developer or
operator of special economic zones. The PEZA is an instrumentality of the national government
exempt from payment of real property taxes under Section 133(o) of the Local Government
Code. As this court said in Manila International Airport Authority, “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.”277chanRoblesvirtualLawlibrary
V. (C)

Real properties under the PEZA’s title are owned by the Republic of the Philippines

Under Section 234(a) of the Local Government Code, real properties owned by the Republic of the
Philippines are exempt from real property taxes:
SEC. 234. Exemptions from Real Property Tax. – The following are exempted from payment of 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[.]

Properties owned by the state are either property of public dominion or patrimonial property. Article
420 of the Civil Code of the Philippines enumerates property of public dominion:
Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without belonging for public use, and are intended for some
public service or for the development of the national wealth.

Properties of public dominion are outside the commerce of man. These properties are exempt from
“levy, encumbrance or disposition through public or private sale.”278 As this court explained
in Manila International Airport Authority:
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[.]279

On the other hand, all other properties of the state that are not intended for public use or are not
intended for some public service or for the development of the national wealth are patrimonial
properties. Article 421 of the Civil Code of the Philippines provides:
Art. 421. All other property of the State, which is not of the character stated in the preceding article,
is patrimonial property.
Patrimonial properties are also properties of the state, but the state may dispose of its patrimonial
property similar to private persons disposing of their property. Patrimonial properties are within the
commerce of man and are susceptible to prescription, unless otherwise
provided.280chanRoblesvirtualLawlibrary

In this case, the properties sought to be taxed are located in publicly owned economic zones. These
economic zones are property of public dominion. The City seeks to tax properties located within the
Mactan Economic Zone,281 the site of which was reserved by President Marcos under Proclamation
No. 1811, Series of 1979. Reserved lands are lands of the public domain set aside for settlement or
public use, and for specific public purposes by virtue of a presidential proclamation.282 Reserved
lands are inalienable and outside the commerce of man,283 and remain property of the Republic until
withdrawn from public use either by law or presidential proclamation.284 Since no law or presidential
proclamation has been issued withdrawing the site of the Mactan Economic Zone from public use,
the property remains reserved land.

As for the Bataan Economic Zone, the law consistently characterized the property as a port. Under
Republic Act No. 5490, Congress declared Mariveles, Bataan “a principal port of entry”285 to serve
as site of a foreign trade zone where foreign and domestic merchandise may be brought in without
being subject to customs and internal revenue laws and regulations of the Philippines.286 Section 4
of Republic Act No. 5490 provided that the foreign trade zone in Mariveles, Bataan “shall at all times
remain to be owned by the Government”:
SEC. 4. Powers and Duties. – The Foreign Trade Zone Authority shall have the following powers
and duties:
a. To fix and delimit the site of the Zone which at all times remain to be owned by the
Government, and which shall have a contiguous and adequate area with well defined and
policed boundaries, with adequate enclosures to segregate the Zone from the customs
territory for protection of revenues, together with suitable provisions for ingress and egress of
persons, conveyance, vessels and merchandise sufficient for the purpose of this Act[.]
(Emphasis supplied)

The port in Mariveles, Bataan then became the Bataan Economic Zone under the Special Economic
Zone Act of 1995.287 Republic Act No. 9728 then converted the Bataan Economic Zone into the
Freeport Area of Bataan.288chanRoblesvirtualLawlibrary

A port of entry, where imported goods are unloaded then introduced in the market for public
consumption, is considered property for public use. Thus, Article 420 of the Civil Code classifies a
port as property of public dominion. The Freeport Area of Bataan, where the government allows tax
and duty-free importation of goods,289 is considered property of public dominion. The Freeport Area
of Bataan is owned by the state and cannot be taxed under Section 234(a) of the Local Government
Code.

Properties of public dominion, even if titled in the name of an instrumentality as in this case, remain
owned by the Republic of the Philippines. If property registered in the name of an instrumentality is
conveyed to another person, the property is considered conveyed on behalf of the Republic of the
Philippines. Book I, Chapter 12, Section 48 of the Administrative Code of 1987 provides:
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:

....

(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 Manila International Airport Authority, this court explained:

[The exemption under Section 234(a) of the Local Government Code] should be read in relation with
Section 133(o) of the same Code, which prohibits local governments from imposing “[t]axes, fess 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 remained owned by the Republic of the Philippines and
continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of the
national government. This happens when title of the real property is transferred to an agency or
instrumentality even as the Republic remains the owner of the real property. Such arrangement does
not result in the loss of the tax exemption/ Section 234(a) of the Local Government Code states that
real property owned by the Republic loses its tax exemption only if the “beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person.” . . .290 (Emphasis in the original;
italics supplied)

Even the PEZA’s lands and buildings whose beneficial use have been granted to other persons may
not be taxed with real property taxes. The PEZA may only lease its lands and buildings to PEZA-
registered economic zone enterprises and entities.291 These PEZA-registered enterprises and
entities, which operate within economic zones, are not subject to real property taxes. Under Section
24 of the Special Economic Zone Act of 1995, no taxes, whether local or national, shall be imposed
on all business establishments operating within the economic zones:chanroblesvirtuallawlibrary
SEC. 24. Exemption from National and Local Taxes. – Except for real property on land owned by
developers, no taxes, local and national, shall be imposed on business establishments operating
within the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business
enterprises within the ECOZONE shall be paid and remitted as follows:

a. Three percent (3%) to the National Government;

b. Two percent (2%) which shall be directly remitted by the business establishments to the
treasurer’s office of the municipality or city where the enterprise is located.292 (Emphasis supplied)

In lieu of revenues from real property taxes, the City of Lapu-Lapu collects two-fifths of 5% final tax
on gross income paid by all business establishments operating within the Mactan Economic
Zone:chanroblesvirtuallawlibrary
SEC. 24. Exemption from National and Local Taxes. – Except for real property on land owned by
developers, no taxes, local and national, shall be imposed on business establishments operating
within the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business
enterprises within the ECOZONE shall be paid and remitted as follows:

a. Three percent (3%) to the National Government;

b. Two percent (2%) which shall be directly remitted by the business establishments to the
treasurer’s office of the municipality or city where the enterprise is located.293 (Emphasis supplied)

For its part, the Province of Bataan collects a fifth of the 5% final tax on gross income paid by all
business establishments operating within the Freeport Area of Bataan:
Section 6. Imposition of a Tax Rate of Five Percent (5%) on Gross Income Earned. - No taxes, local
and national, shall be imposed on business establishments operating within the FAB. In lieu thereof,
said business establishments shall pay a five percent (5%) final tax on their gross income earned in
the following percentages:

(a) One per centum (1%) to the National Government;

(b) One per centum (1%) to the Province of Bataan;

(c) One per centum (1%) to the treasurer's office of the Municipality of Mariveles; and

(d) Two per centum (2%) to the Authority of the Freeport of Area of Bataan.294 (Emphasis supplied)

Petitioners, therefore, are not deprived of revenues from the operations of economic zones within
their respective territorial jurisdictions. The national government ensured that local government units
comprising economic zones shall retain their basic autonomy and
identity.295chanRoblesvirtualLawlibrary

All told, the PEZA is an instrumentality of the national government. Furthermore, the lands owned
by the PEZA are real properties owned by the Republic of the Philippines. The City of Lapu-Lapu
and the Province of Bataan cannot collect real property taxes from the PEZA.

WHEREFORE, the consolidated petitions are DENIED.

SO ORDERED
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 179987 September 3, 2013
HEIRS OF MARIO MALABANAN, (Represented by Sally A. Malabanan), Petitioners,
vs.
REPUBLIC OF THE PHILIPPINES, Respondent.
RESOLUTION
BERSAMIN, J.:
For our consideration and resolution are the motions for reconsideration of the parties who both
assail the decision promulgated on April 29, 2009, whereby we upheld the ruling of the Court of
Appeals (CA) denying the application of the petitioners for the registration of a parcel of land situated
in Barangay Tibig, Silang, Cavite on the ground that they had not established by sufficient evidence
their right to the registration in accordance with either Section 14(1) or Section 14(2) of Presidential
Decree No. 1529 (Property Registration Decree).
Antecedents
The property subject of the application for registration is a parcel of land situated in Barangay Tibig,
Silang Cavite, more particularly identified as Lot 9864-A, Cad-452-D, with an area of 71,324-square
meters. On February 20, 1998, applicant Mario Malabanan, who had purchased the property from
Eduardo Velazco, filed an application for land registration covering the property in the Regional Trial
Court (RTC) in Tagaytay City, Cavite, claiming that the property formed part of the alienable and
disposable land of the public domain, and that he and his predecessors-in-interest had been in open,
continuous, uninterrupted, public and adverse possession and occupation of the land for more than
30 years, thereby entitling him to the judicial confirmation of his title.1
To prove that the property was an alienable and disposable land of the public domain, Malabanan
presented during trial a certification dated June 11, 2001 issued by the Community Environment and
Natural Resources Office (CENRO) of the Department of Environment and Natural Resources
(DENR), which reads:
This is to certify that the parcel of land designated as Lot No. 9864 Cad 452-D, Silang Cadastre as
surveyed for Mr. Virgilio Velasco located at Barangay Tibig, Silang, Cavite containing an area of
249,734 sq. meters as shown and described on the Plan Ap-04-00952 is verified to be within the
Alienable or Disposable land per Land Classification Map No. 3013 established under Project No.
20-A and approved as such under FAO 4-1656 on March 15, 1982.2
After trial, on December 3, 2002, the RTC rendered judgment granting Malabanan’s application for
land registration, disposing thusly:
WHEREFORE, this Court hereby approves this application for registration and thus places under the
operation of Act 141, Act 496 and/or P.D. 1529, otherwise known as Property Registration Law, the
lands described in Plan Csd-04-0173123-D, Lot 9864-A and containing an area of Seventy One
Thousand Three Hundred Twenty Four (71,324) Square Meters, as supported by its technical
description now forming part of the record of this case, in addition to other proofs adduced in the
name of MARIO MALABANAN, who is of legal age, Filipino, widower, and with residence at Munting
Ilog, Silang, Cavite.
Once this Decision becomes final and executory, the corresponding decree of registration shall
forthwith issue.
SO ORDERED.3
The Office of the Solicitor General (OSG) appealed the judgment to the CA, arguing that Malabanan
had failed to prove that the property belonged to the alienable and disposable land of the public
domain, and that the RTC erred in finding that he had been in possession of the property in the
manner and for the length of time required by law for confirmation of imperfect title.
On February 23, 2007, the CA promulgated its decision reversing the RTC and dismissing the
application for registration of Malabanan. Citing the ruling in Republic v. Herbieto (Herbieto),4 the CA
declared that under Section 14(1) of the Property Registration Decree, any period of possession
prior to the classification of the land as alienable and disposable was inconsequential and should be
excluded from the computation of the period of possession. Noting that the CENRO-DENR
certification stated that the property had been declared alienable and disposable only on March 15,
1982, Velazco’s possession prior to March 15, 1982 could not be tacked for purposes of computing
Malabanan’s period of possession.
Due to Malabanan’s intervening demise during the appeal in the CA, his heirs elevated the CA’s
decision of February 23, 2007 to this Court through a petition for review on certiorari.
The petitioners assert that the ruling in Republic v. Court of Appeals and Corazon Naguit5 (Naguit)
remains the controlling doctrine especially if the property involved is agricultural land. In this regard,
Naguit ruled that any possession of agricultural land prior to its declaration as alienable and
disposable could be counted in the reckoning of the period of possession to perfect title under the
Public Land Act (Commonwealth Act No. 141) and the Property Registration Decree. They point out
that the ruling in Herbieto, to the effect that the declaration of the land subject of the application for
registration as alienable and disposable should also date back to June 12, 1945 or earlier, was a
mere obiter dictum considering that the land registration proceedings therein were in fact found and
declared void ab initio for lack of publication of the notice of initial hearing.
The petitioners also rely on the ruling in Republic v. T.A.N. Properties, Inc.6 to support their
argument that the property had been ipso jure converted into private property by reason of the open,
continuous, exclusive and notorious possession by their predecessors-in-interest of an alienable
land of the public domain for more than 30 years. According to them, what was essential was that
the property had been "converted" into private property through prescription at the time of the
application without regard to whether the property sought to be registered was previously classified
as agricultural land of the public domain.
As earlier stated, we denied the petition for review on certiorari because Malabanan failed to
establish by sufficient evidence possession and occupation of the property on his part and on the
part of his predecessors-in interest since June 12, 1945, or earlier.
Petitioners’ Motion for Reconsideration
In their motion for reconsideration, the petitioners submit that the mere classification of the land as
alienable or disposable should be deemed sufficient to convert it into patrimonial property of the
State. Relying on the rulings in Spouses De Ocampo v. Arlos,7 Menguito v. Republic8 and Republic
v. T.A.N. Properties, Inc.,9 they argue that the reclassification of the land as alienable or disposable
opened it to acquisitive prescription under the Civil Code; that Malabanan had purchased the
property from Eduardo Velazco believing in good faith that Velazco and his predecessors-in-interest
had been the real owners of the land with the right to validly transmit title and ownership thereof; that
consequently, the ten-year period prescribed by Article 1134 of the Civil Code, in relation to Section
14(2) of the Property Registration Decree, applied in their favor; and that when Malabanan filed the
application for registration on February 20, 1998, he had already been in possession of the land for
almost 16 years reckoned from 1982, the time when the land was declared alienable and disposable
by the State.
The Republic’s Motion for Partial Reconsideration
The Republic seeks the partial reconsideration in order to obtain a clarification with reference to the
application of the rulings in Naguit and Herbieto.
Chiefly citing the dissents, the Republic contends that the decision has enlarged, by implication, the
interpretation of Section 14(1) of the Property Registration Decree through judicial legislation. It
reiterates its view that an applicant is entitled to registration only when the land subject of the
application had been declared alienable and disposable since June 12, 1945 or earlier.
Ruling
We deny the motions for reconsideration.
In reviewing the assailed decision, we consider to be imperative to discuss the different
classifications of land in relation to the existing applicable land registration laws of the Philippines.
Classifications of land according to ownership
Land, which is an immovable property,10 may be classified as either of public dominion or of private
ownership.11 Land is considered of public dominion if it either: (a) is intended for public use; or (b)
belongs to the State, without being for public use, and is intended for some public service or for the
development of the national wealth.12 Land belonging to the State that is not of such character, or
although of such character but no longer intended for public use or for public service forms part of
the patrimonial property of the State.13 Land that is other than part of the patrimonial property of the
State, provinces, cities and municipalities is of private ownership if it belongs to a private individual.
Pursuant to the Regalian Doctrine (Jura Regalia), a legal concept first introduced into the country
from the West by Spain through the Laws of the Indies and the Royal Cedulas,14 all lands of the
public domain belong to the State.15 This means that the State is the source of any asserted right to
ownership of land, and is charged with the conservation of such patrimony.16
All lands not appearing to be clearly under private ownership are presumed to belong to the State.
Also, public lands remain part of the inalienable land of the public domain unless the State is shown
to have reclassified or alienated them to private persons.17
Classifications of public lands
according to alienability
Whether or not land of the public domain is alienable and disposable primarily rests on the
classification of public lands made under the Constitution. Under the 1935 Constitution,18 lands of
the public domain were classified into three, namely, agricultural, timber and mineral.19 Section 10,
Article XIV of the 1973 Constitution classified lands of the public domain into seven, specifically,
agricultural, industrial or commercial, residential, resettlement, mineral, timber or forest, and grazing
land, with the reservation that the law might provide other classifications. The 1987 Constitution
adopted the classification under the 1935 Constitution into agricultural, forest or timber, and mineral,
but added national parks.20 Agricultural lands may be further classified by law according to the uses
to which they may be devoted.21 The identification of lands according to their legal classification is
done exclusively by and through a positive act of the Executive Department.22
Based on the foregoing, the Constitution places a limit on the type of public land that may be
alienated. Under Section 2, Article XII of the 1987 Constitution, only agricultural lands of the public
domain may be alienated; all other natural resources may not be.
Alienable and disposable lands of the State fall into two categories, to wit: (a) patrimonial lands of
the State, or those classified as lands of private ownership under Article 425 of the Civil
Code,23 without limitation; and (b) lands of the public domain, or the public lands as provided by the
Constitution, but with the limitation that the lands must only be agricultural. Consequently, lands
classified as forest or timber, mineral, or national parks are not susceptible of alienation or
disposition unless they are reclassified as agricultural.24 A positive act of the Government is
necessary to enable such reclassification,25 and the exclusive prerogative to classify public lands
under existing laws is vested in the Executive Department, not in the courts.26 If, however, public
land will be classified as neither agricultural, forest or timber, mineral or national park, or when public
land is no longer intended for public service or for the development of the national wealth, thereby
effectively removing the land from the ambit of public dominion, a declaration of such conversion
must be made in the form of a law duly enacted by Congress or by a Presidential proclamation in
cases where the President is duly authorized by law to that effect.27 Thus, until the Executive
Department exercises its prerogative to classify or reclassify lands, or until Congress or the
President declares that the State no longer intends the land to be used for public service or for the
development of national wealth, the Regalian Doctrine is applicable.
Disposition of alienable public lands
Section 11 of the Public Land Act (CA No. 141) provides the manner by which alienable and
disposable lands of the public domain, i.e., agricultural lands, can be disposed of, to wit:
Section 11. Public lands suitable for agricultural purposes can be disposed of only as follows, and
not otherwise:
(1) For homestead settlement;
(2) By sale;
(3) By lease; and
(4) By confirmation of imperfect or incomplete titles;
(a) By judicial legalization; or
(b) By administrative legalization (free patent).
The core of the controversy herein lies in the proper interpretation of Section 11(4), in relation to
Section 48(b) of the Public Land Act, which expressly requires possession by a Filipino citizen of the
land since June 12, 1945, or earlier, viz:
Section 48. The following-described citizens of the Philippines, occupying lands of the public domain
or claiming to own any such lands or an interest therein, but whose titles have not been perfected or
completed, may apply to the Court of First Instance of the province where the land is located for
confirmation of their claims and the issuance of a certificate of title thereafter, under the Land
Registration Act, to wit:
xxxx
(b) Those who by themselves or through their predecessors-in-interest have been in open,
continuous, exclusive, and notorious possession and occupation of alienable and disposable lands
of the public domain, under a bona fide claim of acquisition of ownership, since June 12, 1945, or
earlier, immediately preceding the filing of the applications for confirmation of title, except when
prevented by war or force majeure. These shall be conclusively presumed to have performed all the
conditions essential to a Government grant and shall be entitled to a certificate of title under the
provisions of this chapter. (Bold emphasis supplied)
Note that Section 48(b) of the Public Land Act used the words "lands of the public domain" or
"alienable and disposable lands of the public domain" to clearly signify that lands otherwise
classified, i.e., mineral, forest or timber, or national parks, and lands of patrimonial or private
ownership, are outside the coverage of the Public Land Act. What the law does not include, it
excludes. The use of the descriptive phrase "alienable and disposable" further limits the coverage of
Section 48(b) to only the agricultural lands of the public domain as set forth in Article XII, Section 2
of the 1987 Constitution. Bearing in mind such limitations under the Public Land Act, the applicant
must satisfy the following requirements in order for his application to come under Section 14(1) of
the Property Registration Decree,28 to wit:
1. The applicant, by himself or through his predecessor-in-interest, has been in possession and
occupation of the property subject of the application;
2. The possession and occupation must be open, continuous, exclusive, and notorious;
3. The possession and occupation must be under a bona fide claim of acquisition of ownership;
4. The possession and occupation must have taken place since June 12, 1945, or earlier; and
5. The property subject of the application must be an agricultural land of the public domain.
Taking into consideration that the Executive Department is vested with the authority to classify lands
of the public domain, Section 48(b) of the Public Land Act, in relation to Section 14(1) of the Property
Registration Decree, presupposes that the land subject of the application for registration must have
been already classified as agricultural land of the public domain in order for the provision to apply.
Thus, absent proof that the land is already classified as agricultural land of the public domain, the
Regalian Doctrine applies, and overcomes the presumption that the land is alienable and disposable
as laid down in Section 48(b) of the Public Land Act. However, emphasis is placed on the
requirement that the classification required by Section 48(b) of the Public Land Act is classification or
reclassification of a public land as agricultural.
The dissent stresses that the classification or reclassification of the land as alienable and disposable
agricultural land should likewise have been made on June 12, 1945 or earlier, because any
possession of the land prior to such classification or reclassification produced no legal effects. It
observes that the fixed date of June 12, 1945 could not be minimized or glossed over by mere
judicial interpretation or by judicial social policy concerns, and insisted that the full legislative intent
be respected.
We find, however, that the choice of June 12, 1945 as the reckoning point of the requisite
possession and occupation was the sole prerogative of Congress, the determination of which should
best be left to the wisdom of the lawmakers. Except that said date qualified the period of possession
and occupation, no other legislative intent appears to be associated with the fixing of the date of
June 12, 1945. Accordingly, the Court should interpret only the plain and literal meaning of the law
as written by the legislators.
Moreover, an examination of Section 48(b) of the Public Land Act indicates that Congress
prescribed no requirement that the land subject of the registration should have been classified as
agricultural since June 12, 1945, or earlier. As such, the applicant’s imperfect or incomplete title is
derived only from possession and occupation since June 12, 1945, or earlier. This means that the
character of the property subject of the application as alienable and disposable agricultural land of
the public domain determines its eligibility for land registration, not the ownership or title over it.
Alienable public land held by a possessor, either personally or through his predecessors-in-interest,
openly, continuously and exclusively during the prescribed statutory period is converted to private
property by the mere lapse or completion of the period.29 In fact, by virtue of this doctrine,
corporations may now acquire lands of the public domain for as long as the lands were already
converted to private ownership, by operation of law, as a result of satisfying the requisite period of
possession prescribed by the Public Land Act.30 It is for this reason that the property subject of the
application of Malabanan need not be classified as alienable and disposable agricultural land of the
public domain for the entire duration of the requisite period of possession.
To be clear, then, the requirement that the land should have been classified as alienable and
disposable agricultural land at the time of the application for registration is necessary only to dispute
the presumption that the land is inalienable.
The declaration that land is alienable and disposable also serves to determine the point at which
prescription may run against the State. The imperfect or incomplete title being confirmed under
Section 48(b) of the Public Land Act is title that is acquired by reason of the applicant’s possession
and occupation of the alienable and disposable agricultural land of the public domain. Where all the
necessary requirements for a grant by the Government are complied with through actual physical,
open, continuous, exclusive and public possession of an alienable and disposable land of the public
domain, the possessor is deemed to have acquired by operation of law not only a right to a grant,
but a grant by the Government, because it is not necessary that a certificate of title be issued in
order that such a grant be sanctioned by the courts.31
If one follows the dissent, the clear objective of the Public Land Act to adjudicate and quiet titles to
unregistered lands in favor of qualified Filipino citizens by reason of their occupation and cultivation
thereof for the number of years prescribed by law32 will be defeated. Indeed, we should always bear
in mind that such objective still prevails, as a fairly recent legislative development bears out, when
Congress enacted legislation (Republic Act No. 10023)33 in order to liberalize stringent requirements
and procedures in the adjudication of alienable public land to qualified applicants, particularly
residential lands, subject to area limitations.34
On the other hand, if a public land is classified as no longer intended for public use or for the
development of national wealth by declaration of Congress or the President, thereby converting such
land into patrimonial or private land of the State, the applicable provision concerning disposition and
registration is no longer Section 48(b) of the Public Land Act but the Civil Code, in conjunction with
Section 14(2) of the Property Registration Decree.35 As such, prescription can now run against the
State.
To sum up, we now observe the following rules relative to the disposition of public land or lands of
the public domain, namely:
(1) As a general rule and pursuant to the Regalian Doctrine, all lands of the public domain belong to
the State and are inalienable. Lands that are not clearly under private ownership are also presumed
to belong to the State and, therefore, may not be alienated or disposed;
(2) The following are excepted from the general rule, to wit:
(a) Agricultural lands of the public domain are rendered alienable and disposable through any of the
exclusive modes enumerated under Section 11 of the Public Land Act. If the mode is judicial
confirmation of imperfect title under Section 48(b) of the Public Land Act, the agricultural land
subject of the application needs only to be classified as alienable and disposable as of the time of
the application, provided the applicant’s possession and occupation of the land dated back to June
12, 1945, or earlier. Thereby, a conclusive presumption that the applicant has performed all the
conditions essential to a government grant arises,36 and the applicant becomes the owner of the
land by virtue of an imperfect or incomplete title. By legal fiction, the land has already ceased to be
part of the public domain and has become private property.37
(b) Lands of the public domain subsequently classified or declared as no longer intended for public
use or for the development of national wealth are removed from the sphere of public dominion and
are considered converted into patrimonial lands or lands of private ownership that may be alienated
or disposed through any of the modes of acquiring ownership under the Civil Code. If the mode of
acquisition is prescription, whether ordinary or extraordinary, proof that the land has been already
converted to private ownership prior to the requisite acquisitive prescriptive period is a condition sine
qua non in observance of the law (Article 1113, Civil Code) that property of the State not patrimonial
in character shall not be the object of prescription.
To reiterate, then, the petitioners failed to present sufficient evidence to establish that they and their
predecessors-in-interest had been in possession of the land since June 12, 1945. Without satisfying
the requisite character and period of possession - possession and occupation that is open,
continuous, exclusive, and notorious since June 12, 1945, or earlier - the land cannot be considered
ipso jure converted to private property even upon the subsequent declaration of it as alienable and
disposable. Prescription never began to run against the State, such that the land has remained
ineligible for registration under Section 14(1) of the Property Registration Decree. Likewise, the land
continues to be ineligible for land registration under Section 14(2) of the Property Registration
Decree unless Congress enacts a law or the President issues a proclamation declaring the land as
no longer intended for public service or for the development of the national wealth.1âwphi1
WHEREFORE, the Court DENIES the petitioners' Motion for Reconsideration and the respondent's
Partial Motion for Reconsideration for their lack of merit.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 182913 November 20, 2013

REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
ANTONIO, FELIZA, NEMESIO, ALBERTO, FELICIDAD, RICARDO, MILAGROS AND CIPRIANO,
ALL SURNAMED BACAS; EMILIANA CHABON, SATURNINO ABDON, ESTELA, CHABON,
LACSASA DEMON, PDERITA CHABON, FORTUNATA EMBALSADO, MINDA J. CASTILLO,
PABLO CASTILLO, ARTURO P. LEGASPI, and JESSIE I. LEGASPI, Respondents.

DECISION
MENDOZA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to review, reverse and
set aside the November 12, 2007 Decision1 and the May 15, 2008 Resolution2 of the Court of Appeals
(CA) in CA-G.R. CV No. 64142, upholding the decision of the Regional Trial Court, Branch 17,
Cagayan de Oro City (RTC) , which dismissed the consolidated cases of Civil Case No. 3494, entitled
Republic of the Philippines v. Antonio, et al. and Civil Case No. 5918, entitled Republic of the
Philippines v. Emiliana Chabon , et al. Said civil cases were filed by the Republic of the Philippines
(Republic) for the cancellation and annulment of Original Certificate of Title (OCT) No. 0-358 and OCT
No. O-669, covering certain parcels of land occupied and utilized as part of the Camp Evangelista
Military Reservation, Misamis Oriental, presently the home of the 4th Infantry Division of the Philippine
Army.
The Antecedents:
In 1938, Commonwealth President Manuel Luis Quezon (Pres. Quezon) issued Presidential
Proclamation No. 265, which took effect on March 31, 1938, reserving for the use of the Philippine
Army three (3) parcels of the public domain situated in the barrios of Bulua and Carmen, then
Municipality of Cagayan, Misamis Oriental. The parcels of land were withdrawn from sale or settlement
and reserved for military purposes, "subject to private rights, if any there be."
Land Registration Case No. N-275
[Antonio, Feliza, Nemesio, Roberto, and Felicidad, all surnamed Bacas, and the Heirs of Jesus Bacas,
Applicants (The Bacases)]
The Bacases filed their Application for Registration3 on November 12, 1964 covering a parcel of land,
together with all the improvements found thereon, located in Patag, Cagayan de Oro City, more
particularly described and bounded as follows:
A parcel of land, Lot No. 4354 of the Cadastral Survey of Cagayan, L.R.C. Record No. 1612, situated
at Barrio Carmen, Municipality of Cagayan, Province of Misamis Oriental. Bounded on the SE., along
lines 1-2-3-4, by Lot 4357; and alongline 4-5, by Lot 3862; on the S., along line 5-6, by Lot 3892; on
the W. and NW., along lines 6-7-8, by Lot 4318; on the NE., along line 8-9, by Lot 4319, along line 9-
10, by Lot 4353 and long line 10-11, by Lot 4359; and on the SE., along line 11-1, by Lot 4356, all of
Cagayan Cadastre; containing an area of THREE HUNDRED FIFTY FOUR THOUSAND THREE
HUNDRED SEVENTY SEVEN (354,377) square meters, more or less, under Tax Declaration No.
35436 and assessed at ₱3,540.00.4
They alleged ownership in fee simple of the property and indicated in their application the names and
addresses of the adjoining owners, as well as a statement that the Philippine Army (Fourth Military
Area) recently occupied a portion of the land by their mere tolerance.5
The Director of the Bureau of Lands, thru its Special Counsel, Benito S. Urcia (Urcia) , registered its
written Opposition6 against the application. Later, Urcia, assisted by the District Land Officer of
Cagayan de Oro City, thru the Third Assistant Provincial Fiscal of Misamis Oriental, Pedro R. Luspo
(Luspo) , filed an Amended Opposition.7
On April 10, 1968, based on the evidence presented by the Bacases, the Land Registration Court
(LRC) rendered a decision8 holding that the applicants had conclusively established their ownership
in fee simple over the subject land and that their possession, including that of their predecessor-in-
interest, had been open, adverse, peaceful, uninterrupted, and in concept of owners for more than
forty (40) years.
No appeal was interposed by the Republic from the decision of the LRC. Thus, the decision became
final and executory, resulting in the issuance of a decree and the corresponding certificate of title over
the subject property.
Land Registration Case No. N-521 [Emiliana Chabon, Estela Chabon and Pedrita Chabon, Applicants
(The Chabons)]
The Chabons filed their Application for Registration9 on May 8, 1974 covering a parcel of land located
in Carmen-District, Cagayan de Oro City, known as Lot 4357, Cagayan Cadastre, bounded and
described as:
A parcel of land (Lot 4357, Cagayan Cadastre, plan Ap-12445), situated in the District of Carmen, City
of Cagayan de Oro. Bounded on the NE. by property of Potenciano Abrogan vs. Republic of the
Philippines (Public Land); on the SE. by properties of Geronimo Wabe and Teofilo Batifona or Batipura;
on the SW. by property of Teofilo Batifona or Batipura; and on the NW. by property of Felipe Bacao or
Bacas vs. Republic of the Philippines (Public Land). Point "1" is N. 10 deg. 39’W., 379.88 M. from
B.L.L.M. 14, Cagayan Cadastre. Area SIXTY NINE THOUSAND SIX HUNDRED THIRTY TWO
(69,632) SQUARE METERS, more or less.10
They alleged ownership in fee simple over the property and indicated therein the names and
addresses of the adjoining owners, but no mention was made with respect to the occupation, if any,
by the Philippine Army. The Chabons likewise alleged that, to the best of their knowledge, no mortgage
or encumbrance of any kind affecting said land with the exception of 18,957 square meters sold to
Minda J. Castillo and 1,000 square meters sold and conveyed to Atty. Arturo R. Legaspi.11
On February 18, 1976, there being no opposition made, even from the government, hearing on the
application ensued. The LRC then rendered a decision12 holding that Chabons’ evidence established
their ownership in fee simple over the subject property and that their possession, including that of their
predecessor-in-interest, had been actual, open, public, peaceful, adverse, continuous, and in concept
of owners for more than thirty (30) years.
The decision then became final and executory. Thus, an order13 for the issuance of a decree and the
corresponding certificate of title was issued.
The present cases
As a consequence of the LRC decisions in both applications for registration, the Republic filed a
complaint for annulment of titles against the Bacases and the Chabons before the RTC. More
specifically, on September 7, 1970 or one (1) year and ten (10) months from the issuance of OCT No.
0-358, a civil case for annulment, cancellation of original certificate of title, reconveyance of lot or
damages was filed by the Republic against the Bacases, which was docketed as Civil Case No. 3494.
On the other hand, on April 21, 1978 or two (2) years and seven (7) months after issuance of OCT No.
0-669, the Republic filed a civil case for annulment of title and reversion against the Chabons,
docketed as Civil Case No. 5918.
Civil Case No. 3494 against the Bacases
The Republic claimed in its petition for annulment before the RTC14 that the certificate of title issued
in favor of the Bacases was null and void because they fraudulently omitted to name the military camp
as the actual occupant in their application for registration. Specifically, the Republic, through the Fourth
Military Area, was the actual occupant of Lot No. 4354 and also the owner and possessor of the
adjoining Lots Nos. 431815 and 4357. Further, the Bacases failed to likewise state that Lot No. 4354
was part of Camp Evangelista. These omissions constituted fraud which vitiated the decree and
certificate of title issued.
Also, the Republic averred that the subject land had long been reserved in 1938 for military purposes
at the time it was applied for and, so, it was no longer disposable and subject to registration.16
Civil Case No. 5918 against the Chabons
In this case, the Republic claimed that it was the absolute owner and possessor of Lot No. 4357. The
said lot, together with Lots 431817 and 4354, formed part of the military reservation known as Camp
Evangelista in Cagayan de Oro City, which was set aside and reserved under Presidential
Proclamation No. 265 issued by President Quezon on March 31, 1938.18
In its petition for annulment before the RTC,19 the Republic alleged that OCT No. 0-669 issued in favor
of the Chabons and all transfer certificates of titles, if any, proceeding therefrom, were null and void
for having been vitiated by fraud and/or lack of jurisdiction.20 The Chabons concealed that the fact that
Lot 4357 was part of Camp Evangelista and that the Republic, through the Armed Forces of the
Philippines, was its actual occupant and possessor.21 Further, Lot 4357 was a military reservation,
established as such as early as March 31, 1938 and, thus, could not be the subject of registration or
private appropriation.22 As a military reservation, it was beyond the commerce of man and the
registration court did not have any jurisdiction to adjudicate the same as private property.23
Decision of the Regional Trial Court
As the facts and issues in both cases were substantially the same and identical, and the pieces of
evidence adduced were applicable to both, the cases were consolidated and jointly tried. Thereafter,
a joint decision dismissing the two complaints of the Republic was rendered.
In dismissing the complaints, the RTC explained that the stated fact of occupancy by Camp
Evangelista over certain portions of the subject lands in the applications for registration by the
respondents was a substantial compliance with the requirements of the law.24 It would have been
absurd to state Camp Evangelista as an adjoining owner when it was alleged that it was an occupant
of the land.25 Thus, the RTC ruled that the respondents did not commit fraud in filing their applications
for registration.
Moreover, the RTC was of the view that the Republic was then given all the opportunity to be heard
as it filed its opposition to the applications, appeared and participated in the proceedings. It was, thus,
estopped from contesting the proceedings.
The RTC further reasoned out that assuming arguendo that respondents were guilty of fraud, the
Republic lost its right to a relief for its failure to file a petition for review on the ground of fraud within
one (1) year after the date of entry of the decree of registration.26 Consequently, it would now be barred
by prior judgment to contest the findings of the LRC.27
Finally, the RTC agreed with the respondents that the subject parcels of land were exempted from the
operation and effect of the Presidential Proclamation No. 265 pursuant to a proviso therein that the
same would not apply to lands with existing "private rights." The presidential proclamation did not, and
should not, apply to the respondents because they did not apply to acquire the parcels of land in
question from the government, but simply for confirmation and affirmation of their rights to the
properties so that the titles over them could be issued in their favor.28 What the proclamation prohibited
was the sale or disposal of the parcels of land involved to private persons as a means of acquiring
ownership of the same, through the modes provided by law for the acquisition of disposable public
lands.29
The Republic filed its Notice of Appeal before the RTC on July 5, 1991. On the other hand, the Bacases
and the Chabons filed an Ex-Parte Motion for the Issuance of the Writ of Execution and Possession
on July 16, 1991. An amended motion was filed on July 31, 1991. The RTC then issued the
Order,30 dated February 24, 1992, disapproving the Republic’s appeal for failure to perfect it as it failed
to notify the Bacases and granting the writ of execution.
Action of the Court of Appeals and the Court regarding the Republic’s Appeal
The Republic filed a Notice of Appeal on April 1, 1992 from the February 24, 1992 of the RTC. The
same was denied in the RTC Order,31 dated April 23, 1992. The Republic moved for its reconsideration
but the RTC was still denied it on July 8, 1992.32
Not satisfied, the Republic filed a petition before the CA, docketed as CA-G.R. SP No. 28647, entitled
Republic vs. Hon. Cesar M. Ybañez,33 questioning the February 24, 1992 Order of the RTC denying
its appeal in Civil Case No. 3494. The CA sustained the government and, accordingly, annulled the
said RTC order.
The respondents appealed to the Court, which later found no commission of a reversible error on the
part of the CA. Accordingly, the Court dismissed the appeal as well as the subsequent motions for
reconsideration. An entry of judgment was then issued on February 16, 1995.34
Ruling of the Court of Appeals
The appeal allowed, the CA docketed the case as CA G.R. CV No. 64142.
On November 12, 2007, the CA affirmed the ruling of the RTC. It explained that once a decree of
registration was issued under the Torrens system and the reglementary period had passed within
which the decree may be questioned, the title was perfected and could not be collaterally questioned
later on.35 Even assuming that an action for the nullification of the original certificate of title may still
be instituted, the review of a decree of registration under Section 38 of Act No. 496 [Section 32 of
Presidential Decree (P.D.) No. 1529] would only prosper upon proof that the registration was procured
through actual fraud,36 which proceeded from an intentional deception perpetrated through the
misrepresentation or the concealment of a material fact.37 The CA stressed that "[t]he fraud must be
actual and extrinsic, not merely constructive or intrinsic; the evidence thereof must be clear, convincing
and more than merely preponderant, because the proceedings which are assailed as having been
fraudulent are judicial proceedings which by law, are presumed to have been fair and regular."38
Citing the rule that "[t]he fraud is extrinsic if it is employed to deprive parties of their day in court and,
thus, prevent them from asserting their right to the property registered in the name of the
applicant,"39 the CA found that there was none. The CA agreed with the RTC that there was substantial
compliance with the requirement of the law. The allegation of the respondent that Camp Evangelista
occupied portions of their property negated the complaint that they committed misrepresentation or
concealment amounting to fraud.40
As regards the issue of exemption from the proclamation, the CA deemed that a discussion was
unnecessary because the LRC already resolved it. The CA stressed that the proceeding was one in
rem, thereby binding everyone to the legal effects of the same and that a decree of registration that
had become final should be deemed conclusive not only on the questions actually contested and
determined, but also upon all matters that might be litigated or decided in the land registration
proceeding.41
Not in conformity, the Republic filed a motion for reconsideration which was denied on May 15, 2008
for lack of merit.
Hence, this petition.

GROUNDS RELIED UPON WARRANTING REVIEW OF THE PETITION

1. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT THE
LAND REGISTRATION COURT HAD JURISDICTION OVER THE APPLICATION FOR
REGISTRATION FILED BY RESPONDENTS DESPITE THE LATTER’S FAILURE TO
COMPLY WITH THE MANDATORY REQUIREMENT OF INDICATING ALL THE
ADJOINING OWNERS OF THE PARCELS OF LAND SUBJECT OF THE APPLICATION.

2. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT

RESPONDENTS HAVE A REGISTRABLE RIGHT OVER THE SUBJECT PARCELS OF
LAND WHICH ARE WITHIN THE CAMP EVANGELISTA MILITARY RESERVATION.

3. IN G.R. NO. 157306 ENTITLED "REPUBLIC OF THE PHILIPPINES VS. ANATALIA ACTUB
TIU ESTONILO, ET AL.," WHICH INVOLVES PRIVATE INDIVIDUALS CLAIMING RIGHTS
OVER PORTIONS OF THE CAMP EVANGELISTA MILITARY RESERVATION, THIS
HONORABLE COURT HELD THAT THESE INDIVIDUALS COULD NOT HAVE VALIDLY
OCCUPIED THEIR CLAIMED LOTS BECAUSE THE SAME WERE CONSIDERED
INALIENABLE FROM THE TIME OF THEIR RESERVATION IN 1938. HERE, THE
CERTIFICATES OF TITLE BEING SUSTAINED BY THE COURT OF APPEALS WERE
ISSUED PURSUANT TO THE DECISIONS OF THE LAND REGISTRATION COURT IN
APPLICATIONS FOR REGISTRATION FILED IN 1964 AND 1974. VERILY, THE COURT
OF APPEALS, IN ISSUING THE HEREIN ASSAILED DECISION DATED NOVEMBER 15,
2007 AND RESOLUTION DATED MAY 15, 2008, HAS DECIDED THAT INSTANT
CONTROVERSY IN A MANNER THAT IS CONTRARY TO LAW AND JURISPRUDENCE.42

Position of the Republic

In advocacy of its position, the Republic principally argues that (1) the CA erred in holding that the
LRC acquired jurisdiction over the applications for registration of the reserved public lands filed by the
respondents; and (2) the respondents do not have a registrable right over the subject parcels of land
which are within the Camp Evangelista Military Reservation.
With respect to the first argument, the Republic cites Section 15 of P.D. No. 1529, which requires that
applicants for land registration must disclose the names of the occupants of the land and the names
and addresses of the owners of the adjoining properties. The respondents did not comply with that
requirement which was mandatory and jurisdictional. Citing Pinza v. Aldovino,43 it asserts that the LRC
had no jurisdiction to take cognizance of the case. Moreover, such omission constituted fraud or willful
misrepresentation. The respondents cannot invoke the indefeasibility of the titles issued since a "grant
tainted with fraud and secured through misrepresentation is null and void and of no effect
whatsoever."44
On the second argument, the Republic points out that Presidential Proclamation No. 265 reserved for
the use of the Philippine Army certain parcels of land which included Lot No. 4354 and Lot No. 4357.
Both lots were, however, allowed to be registered. Lot No. 4354 was registered as OCT No. 0-0358
and Lot No. 4357 as OCT No. O-669.
The Republic asserts that being part of the military reservation, these lots are inalienable and cannot
be the subject of private ownership. Being so, the respondents do not have registrable rights over
them. Their possession of the land, however long, could not ripen into ownership, and they have not
shown proof that they were entitled to the land before the proclamation or that the said lots were
segregated and withdrawn as part thereof.
Position of the Respondents
The Bacases
The Bacases anchor their opposition to the postures of the Republic on three principal arguments:
First, there was no extrinsic fraud committed by the Bacases in their failure to indicate Camp
Evangelista as an adjoining lot owner as their application for registration substantially complied with
the legal requirements. More importantly, the Republic was not prejudiced and deprived of its day in
court.
Second, the LRC had jurisdiction to adjudicate whether the Bacases had "private rights" over Lot No.
4354 in accordance with, and therefore exempt from the coverage of, Presidential Proclamation No.
265, as well as to determine whether such private rights constituted registrable title under the land
registration law.
Third, the issue of the registrability of the title of the Bacases over Lot No. 4354 is res judicata and
cannot now be subject to a re-litigation or reopening in the annulment proceedings.45
Regarding the first ground, the Bacases stress that there was no extrinsic fraud because their
application substantially complied with the requirements when they indicated that Camp Evangelista
was an occupant by mere tolerance of Lot No. 4354. Also, the Republic filed its opposition to the
respondents’ application and actively participated in the land registration proceedings by presenting
evidence, through the Director of Lands, who was represented by the Solicitor General. The Republic,
therefore, was not deprived of its day in court or prevented from presenting its case. Its insistence that
the non-compliance with the requirements of Section 15 of P.D. No. 1529 is an argument that is at
once both empty and dangerous.46
On jurisdiction, the Bacases assert that even in the case of Republic v. Estonilo,47 it was recognized
in Presidential Proclamation No. 265 that the reservation was subject to private rights. In other words,
the LRC had authority to hear and adjudicate their application for registration of title over Lot No. 4354
if they would be able to prove that their private rights under the presidential proclamation constituted
registrable title over the said lot. They claim that there is completely no basis for the Republic to argue
that the LRC had no jurisdiction to hear and adjudicate their application for registration of their title to
Lot No. 4354 just because the proclamation withdrew the subject land from sale and settlement and
reserved the same for military purposes. They cited the RTC statement that "the parcels of land they
applied for in those registration proceedings and for which certificates of title were issued in their favor
are precisely exempted from the operation and effect of said presidential proclamation when the very
same proclamation in itself made a proviso that the same will not apply to lands with existing ‘private
rights’ therein."48
The Bacases claim that the issue of registrability is no longer an issue as what is only to be resolved
is the question on whether there was extrinsic or collateral fraud during the land registration
proceedings. There would be no end to litigation on the registrability of their title if questions of facts
or law, such as, whether or not Lot No. 4354 was alienable and disposable land of the public domain
prior to its withdrawal from sale and settlement and reservation for military purposes under Presidential
Proclamation No. 265; whether or not their predecessors-in-interest had prior possession of the lot
long before the issuance of the proclamation or the establishment of Camp Evangelista in the late
1930’s; whether or not such possession was held in the concept of an owner to constitute recognizable
"private rights" under the presidential proclamation; and whether or not such private rights constitute
registrable title to the lot in accordance with the land registration law, which had all been settled and
duly adjudicated by the LRC in favor of the Bacases, would be re-examined under this annulment
case.49
The issue of registrability of the Bacases’ title had long been settled by the LRC and is
res judicata between the Republic and the respondents. The findings of the LRC became final when
the Republic did not appeal its decision within the period to appeal or file a petition to reopen or review
the decree of registration within one year from entry thereof.50
To question the findings of the court regarding the registrability of then title over the land would be an
attempt to reopen issues already barred by res judicata. As correctly held by the RTC, it is estopped
and barred by prior judgment to contest the findings of the LRC.51
The Chabons
In traversing the position of the Republic, the Chabons insist that the CA was correct when it stated
that there was substantial compliance52 with the requirements of the P.D. No. 1529 because they
expressly stated in their application that Camp Evangelista was occupying a portion of it. It is contrary
to reason or common sense to state that Camp Evangelista is an adjoining owner when it is occupying
a portion thereof.
And as to the decision, it was a consequence of a proceeding in rem and, therefore, the decree of
registration is binding and conclusive against all persons including the Republic who did not appeal
the same. It is now barred forever to question the validity of the title issued. Besides, res judicata has
set in because there is identity of parties, subject matter and cause of action.53
The Chabons also assailed the proclamation because when it was issued, they were already the
private owners of the subject parcels of land and entitled to protection under the Constitution. The
taking of their property in the guise of a presidential proclamation is not only oppressive and arbitrary
but downright confiscatory.54
The Issues
The ultimate issues to be resolved are: 1) whether or not the decisions of the LRC over the subject
lands can still be questioned; and 2) whether or not the applications for registration of the subject
parcels of land should be allowed.
The Court’s Ruling
The Republic can question even final and executory judgment when there was fraud.
The governing rule in the application for registration of lands at that time was Section 21 of Act
49655 which provided for the form and content of an application for registration, and it reads:
Section 21. The application shall be in writing, signed and sworn to by applicant, or by some person
duly authorized in his behalf. x x x It shall also state the name in full and the address of the applicant,
and also the names and addresses of all adjoining owners and occupants, if known; and, if not known,
it shall state what search has been made to find them. x x x
The reason behind the law was explained in the case of Fewkes vs. Vasquez,56 where it was written:
Under Section 21 of the Land Registration Act an application for registration of land is required to
contain, among others, a description of the land subject of the proceeding, the name, status and
address of the applicant, as well as the names and addresses of all occupants of the land and of all
adjoining owners, if known, or if unknown, of the steps taken to locate them. When the application is
set by the court for initial hearing, it is then that notice (of the hearing), addressed to all persons
appearing to have an interest in the lot being registered and the adjoining owners, and indicating the
location, boundaries and technical description of the land being registered, shall be published in the
Official Gazette for two consecutive times. It is this publication of the notice of hearing that is
considered one of the essential bases of the jurisdiction of the court in land registration cases, for the
proceedings being in rem, it is only when there is constructive seizure of the land, effected by the
publication and notice, that jurisdiction over the res is vested on the court. Furthermore, it is such
notice and publication of the hearing that would enable all persons concerned, who may have any
rights or interests in the property, to come forward and show to the court why the application for
registration thereof is not to be granted.
Here, the Chabons did not make any mention of the ownership or occupancy by the Philippine Army.
They also did not indicate any efforts or searches they had exerted in determining other occupants of
the land. Such omission constituted fraud and deprived the Republic of its day in court. Not being
notified, the Republic was not able to file its opposition to the application and, naturally, it was not able
to file an appeal either.
The Republic can also question a final and executory judgment when the LRC had no jurisdiction over
the land in question
With respect to the Bacases, although the lower courts might have been correct in ruling that there
was substantial compliance with the requirements of law when they alleged that Camp Evangelista
was an occupant, the Republic is not precluded and estopped from questioning the validity of the title.
The success of the annulment of title does not solely depend on the existence of actual and extrinsic
fraud, but also on the fact that a judgment decreeing registration is null and void. In Collado v. Court
of Appeals and the Republic,57 the Court declared that any title to an inalienable public land is void ab
initio. Any procedural infirmities attending the filing of the petition for annulment of judgment are
immaterial since the LRC never acquired jurisdiction over the property. All proceedings of the LRC
involving the property are null and void and, hence, did not create any legal effect. A judgment by a
court without jurisdiction can never attain finality.58 In Collado, the Court made the following citation:
The Land Registration Court has no jurisdiction over non-registrable properties, such as public
navigable rivers which are parts of the public domain, and cannot validly adjudge the registration of
title in favor of private applicant. Hence, the judgment of the Court of First Instance of Pampanga as
regards the Lot No. 2 of certificate of Title No. 15856 in the name of petitioners may be attacked at
any time, either directly or collaterally, by the State which is not bound by any prescriptive period
provided for by the Statute of Limitations.59
Prescription or estoppel cannot lie against the government
In denying the petition of the Republic, the CA reasoned out that 1) once a decree of registration is
issued under the Torrens system and the reglementary period has passed within which the decree
may be questioned, the title is perfected and cannot be collaterally questioned later on;60 2) there was
no commission of extrinsic fraud because the Bacases’ allegation of Camp Evangelista’s occupancy
of their property negated the argument that they committed misrepresentation or concealment
amounting to fraud;61 and 3) the Republic did not appeal the decision and because the proceeding
was one in rem, it was bound to the legal effects of the decision.
Granting that the persons representing the government was negligent, the doctrine of estoppel cannot
be taken against the Republic. It is a well-settled rule that the Republic or its government is not
estopped by mistake or error on the part of its officials or agents. In Republic v. Court of Appeals,62 it
was written:
In any case, even granting that the said official was negligent, the doctrine of estoppel cannot operate
against the State . "It is a well-settled rule in our jurisdiction that the Republic or its government is
usually not estopped by mistake or error on the part of its officials or agents (Manila Lodge No. 761
vs. CA, 73 SCRA 166, 186; Republic vs. Marcos, 52 SCRA 238, 244; Luciano vs. Estrella, 34 SCRA
769).
Consequently, the State may still seek the cancellation of the title issued to Perpetuo Alpuerto and his
successors-interest pursuant to Section 101 of the Public Land Act. Such title has not become
indefeasible, for prescription cannot be invoked against the State (Republic vs. Animas, supra).
The subject lands, being part of a military reservation, are inalienable and cannot be the subjects of
land registration proceedings
The application of the Bacases and the Chabons were filed on November 12, 1964 and May 8, 1974,
respectively. Accordingly, the law governing the applications was Commonwealth Act (C.A.) No.
141,63 as amended by RA 1942,64 particularly Sec. 48(b) which provided that:
Those who by themselves or through their predecessors in interest have been in open, continuous,
exclusive and notorious possession and occupation of agricultural lands of the public domain, under
a bona fide claim of acquisition of ownership, for at least thirty years immediately preceding the filing
of the application for confirmation of title except when prevented by war or force majeure. These shall
be conclusively presumed to have performed all the conditions essential to a Government grant and
shall be entitled to a certificate of title under the provisions of this chapter.
As can be gleaned therefrom, the necessary requirements for the grant of an application for land
registration are the following:
1. The applicant must, by himself or through his predecessors-in-interest, have been in possession
and occupation of the subject land;
2. The possession and occupation must be open, continuous, exclusive and notorious;
3. The possession and occupation must be under a bona fide claim of ownership for at least thirty
years immediately preceding the filing of the application; and
4. The subject land must be an agricultural land of the public domain. As earlier stated, in 1938,
President Quezon issued Presidential Proclamation No. 265, which took effect on March 31, 1938,
reserving for the use of the Philippine Army parcels of the public domain situated in the barrios of
Bulua and Carmen, then Municipality of Cagayan, Misamis Oriental. The subject parcels of land were
withdrawn from sale or settlement or reserved for military purposes, "subject to private rights, if any
there be."65
Such power of the President to segregate lands was provided for in Section 64(e) of the old Revised
Administrative Code and C.A. No. 141 or the Public Land Act. Later, the power of the President was
restated in Section 14, Chapter 4, Book III of the 1987 Administrative Code. When a property is
officially declared a military reservation, it becomes inalienable and outside the commerce of man.66 It
may not be the subject of a contract or of a compromise agreement.67 A property continues to be part
of the public domain, not available for private appropriation or ownership, until there is a formal
declaration on the part of the government to withdraw it from being such.68 In the case of Republic v.
Court of Appeals and De Jesus,69 it was even stated that
Lands covered by reservation are not subject to entry, and no lawful settlement on them can be
acquired.1âwphi1 The claims 0f persons who have settled on, occupied, and improved a parcel of
public land which is later included in a reservation are considered worthy of protection and are usually
respected, but where the President, as authorized by law, issues a proclamation reserving certain
lands and warning all persons to depart therefrom, this terminates any rights previously acquired in
such lands by a person who was settled thereon in order to obtain a preferential right of purchase.
And patents for lands which have been previously granted, reserved from sale, or appropriate, are
void.
Regarding the subject lots, there was a reservation respecting "private rights." In Republic v.
Estonilo,70 where the Court earlier declared that Lot No. 4318 was part of the Camp Evangelista
Military Reservation and, therefore, not registrable, it noted the proviso in Presidential Proclamation
No. 265 requiring the reservation to be subject to private rights as meaning that persons claiming
rights over the reserved land were not precluded from proving their claims. Stated differently, the said
proviso did not preclude the LRC from determining whether or not the respondents indeed had
registrable rights over the property.
As there has been no showing that the subject parcels of land had been segregated from the military
reservation, the respondents had to prove that the subject properties were alienable and disposable
land of the public domain prior to its withdrawal from sale and settlement and reservation for military
purposes under Presidential Proclamation No. 265. The question is of primordial importance because
it is determinative if the land can in fact be subject to acquisitive prescription and, thus, registrable
under the Torrens system. Without first determining the nature and character of the land, all the other
requirements such as the length and nature of possession and occupation over such land do not come
into play. The required length of possession does not operate when the land is part of the public
domain.
In this case, however, the respondents miserably failed to prove that, before the proclamation, the
subject lands were already private lands. They merely relied on such "recognition" of possible private
rights. In their application, they alleged that at the time of their application,71 they had been in open,
continuous, exclusive, and notorious possession of the subject parcels of land for at least thirty (30)
years and became its owners by prescription. There was, however, no allegation or showing that the
government had earlier declared it open for sale or settlement, or that it was already pronounced as
inalienable and disposable.
It is well-settled that land of the public domain is not ipso facto converted into a patrimonial or private
property by the mere possession and occupation by an individual over a long period of time. In the
case of Diaz v. Republic,72 it was written:
But even assuming that the land in question was alienable land before it was established as a military
reservation, there was nevertheless still a dearth of evidence with respect to its occupation by
petitioner and her predecessors-in-interest for more than 30 years. x x x.
x x x.
A mere casual cultivation of portions of the land by the claimant, and the raising thereon of cattle, do
not constitute possession under claim of ownership. In that sense, possession is not exclusive and
notorious as to give rise to a presumptive grant from the State. While grazing livestock over land is of
course to be considered with other acts of dominion to show possession, the mere occupancy of land
by grazing livestock upon it, without substantial enclosures, or other permanent improvements, is not
sufficient to support a claim of title thru acquisitive prescription. The possession of public land, however
long the period may have extended, never confers title thereto upon the possessor because the statute
of limitations with regard to public land does not operate against the State unless the occupant can
prove possession and occupation of the same under claim of ownership for the required number of
years to constitute a grant from the State. [Emphases supplied]
In the recent case of Heirs of Mario Malabanan vs. Republic of the Philippines,73 the Court emphasized
that fundamental is the rule that lands of the public domain, unless declared otherwise by virtue of a
statute or law, are inalienable and can never be acquired by prescription. No amount of time of
possession or occupation can ripen into ownership over lands of the public domain. All lands of the
public domain presumably belong to the State and are inalienable. Lands that are not clearly under
private ownership are also presumed to belong to the State and, therefore, may not be alienated or
disposed.74
Another recent case, Diaz v. Republic,75 also held that possession even for more than 30 years cannot
ripen into ownership.76 Possession is of no moment if applicants fail to sufficiently and satisfactorily
show that the subject lands over which an application was applied for was indeed an alienable and
disposable agricultural land of the public domain. It would not matter even if they declared it for tax
purposes. In Republic v. Heirs of Juan Fabio,77 the rule was reiterated. Thus:
Well-entrenched is the rule that unless a land is reclassified and declared alienable and disposable,
occupation in the concept of an owner, no matter how long, cannot ripen into ownership and be
registered as a title. Consequently, respondents could not have occupied the Lot in the concept of an
owner in 1947 and subsequent years when respondents declared the Lot for taxation purposes, or
even earlier when respondents' predecessors-in-interest possessed the Lot, because the Lot was
considered inalienable from the time of its declaration as a military reservation in 1904. Therefore,
respondents failed to prove, by clear and convincing evidence, that the Lot is alienable and disposable.
Public lands not shown to have been classified as alienable and disposable land remain part of the
inalienable public domain. In view of the lack of sufficient evidence showing that the Lot was already
classified as alienable and disposable, the Lot applied for by respondents is inalienable land of the
public domain, not subject to registration under Section 14(1) of PD 1529 and Section 48(b) of CA
141, as amended by PD 1073. Hence, there is no need to discuss the other requisites dealing with
respondents' occupation and possession of the Lot in the concept of an owner.
While it is an acknowledged policy of the State to promote the distribution of alienable public lands to
spur economic growth and in line with the ideal of social justice, the law imposes stringent safeguards
upon the grant of such resources lest they fall into the wrong hands to the prejudice of the national
patrimony. We must not, therefore, relax the stringent safeguards relative to the registration of
imperfect titles. [Emphases Supplied]
In Estonilo,78 where the Court ruled that persons claiming the protection of "private rights" in order to
exclude their lands from military reservations must show by clear and convincing evidence that the
properties in question had been acquired by a legal method of acquiring public lands, the respondents
therein failed to clearly prove that the lands over which they lay a claim were alienable and disposable
so that the same belonged and continued to belong to the State and could not be subject to the
commerce of man or registration. Specifically, the Court wrote:
Land that has not been acquired from the government, either by purchase or by grant, belongs to the
State as part of the public domain. For this reason, imperfect titles to agricultural lands are subjected
to rigorous scrutiny before judicial confirmation is granted. In the same manner, persons claiming the
protection of "private rights" in order to exclude their lands from military reservations must show by
clear and convincing evidence that the pieces of property in question have been acquired by a legal
method of acquiring public lands.
In granting respondents judicial confirmation of their imperfect title, the trial and the appellate courts
gave much weight to the tax declarations presented by the former. However, while the tax declarations
were issued under the names of respondents’ predecessors-in-interest, the earliest one presented
was issued only in 1954.19 The Director, Lands Management Bureau v. CA20 held thus:
"x x x. Tax receipts and tax declarations are not incontrovertible evidence of ownership.1âwphi1 They
are mere indicia of [a] claim of ownership. In Director of Lands vs. Santiago:
‘x x x [I]f it is true that the original owner and possessor, Generosa Santiago, had been in possession
since 1925, why were the subject lands declared for taxation purposes for the first time only in 1968,
and in the names of Garcia and Obdin? For although tax receipts and declarations of ownership for
taxation purposes are not incontrovertible evidence of ownership, they constitute at least proof that
the holder had a claim of title over the property.’"
In addition, the lower courts credited the alleged prior possession by Calixto and Rosendo Bacas, from
whom respondents’ predecessors had purportedly bought the property. This alleged prior possession,
though, was totally devoid of any supporting evidence on record. Respondents’ evidence hardly
supported the conclusion that their predecessors-in-interest had been in possession of the land since
"time immemorial."
Moreover, as correctly observed by the Office of the Solicitor General, the evidence on record merely
established the transfer of the property from Calixto Bacas to Nazaria Bombeo . The evidence did not
show the nature and the period of the alleged possession by Calixto and Rosendo Bacas. It is
important that applicants for judicial confirmation of imperfect titles must present specific acts of
ownership to substantiate their claims; they cannot simply offer general statements that are mere
conclusions of law rather than factual evidence of possession.
It must be stressed that respondents, as applicants, have the burden of proving that they have an
imperfect title to Lot 4318. Even the absence of opposition from the government does not relieve them
of this burden. Thus, it was erroneous for the trial and the appellate courts to hold that the failure of
the government to dislodge respondents, judicially or extrajudicially, from the subject land since 1954
already amounted to a title. [Emphases supplied]
The ruling reiterated the long standing rule in the case of Director Lands Management Bureau v. Court
of Appeals,79
x x x. The petitioner is not necessarily entitled to have the land registered under the Torrens system
simply because no one appears to oppose his title and to oppose the registration of his land. He must
show, even though there is no opposition to the satisfaction of the court, that he is the absolute owner,
in fee simple. Courts are not justified in registering property under the Torrens system, simply because
there is no opposition offered. Courts may, even in the absence of any opposition, deny the registration
of the land under the Torrens system, upon the ground that the facts presented did not show that the
petitioner is the owner, in fee simple, of the land which he is attempting to have registered.
The Court is not unmindful of the principle of immutability of judgments that nothing is more settled in
law than that once a judgment attains finality it thereby becomes immutable and unalterable.80 Such
principle, however, must yield to the basic rule that a decision which is null and void for want of
jurisdiction of the trial court is not a decision m contemplation of law and can never become final and
executory.81
Had the LRC given primary importance on the status of the land and not merely relied on the
testimonial evidence of the respondents without other proof of the alienability of the land, the litigation
would have already been ended and finally settled in accordance with law and jurisprudence a long
time ago.
WHEREFORE, the petition is GRANTED. The November 12, 2007 Decision and the May 15, 2008
Resolution of the Court of Appeals in CA G.R. CV No. 64142 are hereby REVERSED and SET
ASIDE. Judgment is rendered declaring the proceedings in the Land Registration Court as NULL and
VOID for lack of jurisdiction. Accordingly, Original Certificate of Title Nos. 0-358 and 0-669 issued by
the Registry of Deeds of Cagayan de Oro City are CANCELLED. Lot No. 4354 and Lot No. 4357 are
ordered reverted to the public domain.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. 97764 August 10, 1992

LEVY D. MACASIANO, Brigadier General/PNP Superintendent, Metropolitan Traffic
Command, petitioner,
vs.
HONORABLE ROBERTO C. DIOKNO, Presiding Judge, Branch 62, Regional Trial Court of
Makati, Metro Manila, MUNICIPALITY OF PARAÑAQUE, METRO MANILA, PALANYAG
KILUSANG BAYAN FOR SERVICE, respondents.
Ceferino, Padua Law Office for Palanyag Kilusang Bayan for service.
Manuel de Guia for Municipality of Parañaque.
MEDIALDEA, J.:
This is a petition for certiorari under Rule 65 of the Rules of Court seeking the annulment of the
decision of the Regional Trial Court of Makati, Branch 62, which granted the writ of preliminary
injunction applied for by respondents Municipality of Parañaque and Palanyag Kilusang Bayan for
Service (Palanyag for brevity) against petitioner herein.
The antecedent facts are as follows:
On June 13, 1990, the respondent municipality passed Ordinance No. 86, Series of 1990 which
authorized the closure of J. Gabriel, G.G. Cruz, Bayanihan, Lt. Garcia Extension and Opena Streets
located at Baclaran, Parañaque, Metro Manila and the establishment of a flea market thereon. The
said ordinance was approved by the municipal council pursuant to MMC Ordinance No. 2, Series of
1979, authorizing and regulating the use of certain city and/or municipal streets, roads and open
spaces within Metropolitan Manila as sites for flea market and/or vending areas, under certain terms
and conditions.
On July 20, 1990, the Metropolitan Manila Authority approved Ordinance No. 86, s. 1990 of the
municipal council of respondent municipality subject to the following conditions:
1. That the aforenamed streets are not used for vehicular traffic, and that the majority
of the residents do not oppose the establishment of the flea market/vending areas
thereon;
2. That the 2-meter middle road to be used as flea market/vending area shall be
marked distinctly, and that the 2 meters on both sides of the road shall be used by
pedestrians;
3. That the time during which the vending area is to be used shall be clearly
designated;
4. That the use of the vending areas shall be temporary and shall be closed once the
reclaimed areas are developed and donated by the Public Estate Authority.
On June 20, 1990, the municipal council of Parañaque issued a resolution authorizing Parañaque
Mayor Walfrido N. Ferrer to enter into contract with any service cooperative for the establishment,
operation, maintenance and management of flea markets and/or vending areas.
On August 8, 1990, respondent municipality and respondent Palanyag, a service cooperative, entered
into an agreement whereby the latter shall operate, maintain and manage the flea market in the
aforementioned streets with the obligation to remit dues to the treasury of the municipal government
of Parañaque. Consequently, market stalls were put up by respondent Palanyag on the said streets.
On September 13, 1990, petitioner Brig. Gen. Macasiano, PNP Superintendent of the Metropolitan
Traffic Command, ordered the destruction and confiscation of stalls along G.G. Cruz and J. Gabriel
St. in Baclaran. These stalls were later returned to respondent Palanyag.
On October 16, 1990, petitioner Brig. General Macasiano wrote a letter to respondent Palanyag giving
the latter ten (10) days to discontinue the flea market; otherwise, the market stalls shall be dismantled.
Hence, on October 23, 1990, respondents municipality and Palanyag filed with the trial court a joint
petition for prohibition and mandamus with damages and prayer for preliminary injunction, to which
the petitioner filed his memorandum/opposition to the issuance of the writ of preliminary injunction.
On October 24, 1990, the trial court issued a temporary restraining order to enjoin petitioner from
enforcing his letter-order of October 16, 1990 pending the hearing on the motion for writ of preliminary
injunction.
On December 17, 1990, the trial court issued an order upholding the validity of Ordinance No. 86 s.
1990 of the Municipality' of Parañaque and enjoining petitioner Brig. Gen. Macasiano from enforcing
his letter-order against respondent Palanyag.
Hence, this petition was filed by the petitioner thru the Office of the Solicitor General alleging grave
abuse of discretion tantamount to lack or excess of jurisdiction on the part of the trial judge in issuing
the assailed order.
The sole issue to be resolved in this case is whether or not an ordinance or resolution issued by the
municipal council of Parañaque authorizing the lease and use of public streets or thoroughfares as
sites for flea markets is valid.
The Solicitor General, in behalf of petitioner, contends that municipal roads are used for public service
and are therefore public properties; that as such, they cannot be subject to private appropriation or
private contract by any person, even by the respondent Municipality of Parañaque. Petitioner submits
that a property already dedicated to public use cannot be used for another public purpose and that
absent a clear showing that the Municipality of Parañaque has been granted by the legislature specific
authority to convert a property already in public use to another public use, respondent municipality is,
therefore, bereft of any authority to close municipal roads for the establishment of a flea market.
Petitioner also submits that assuming that the respondent municipality is authorized to close streets,
it failed to comply with the conditions set forth by the Metropolitan Manila Authority for the approval of
the ordinance providing for the establishment of flea markets on public streets. Lastly, petitioner
contends that by allowing the municipal streets to be used by market vendors the municipal council of
respondent municipality violated its duty under the Local Government Code to promote the general
welfare of the residents of the municipality.
In upholding the legality of the disputed ordinance, the trial court ruled:
. . . that Chanter II Section 10 of the Local Government Code is a statutory grant of
power given to local government units, the Municipality of Parañaque as such, is
empowered under that law to close its roads, streets or alley subject to limitations
stated therein (i.e., that it is in accordance with existing laws and the provisions of this
code).
xxx xxx xxx
The actuation of the respondent Brig. Gen. Levi Macasiano, though apparently within
its power is in fact an encroachment of power legally vested to the municipality,
precisely because when the municipality enacted the ordinance in question — the
authority of the respondent as Police Superintendent ceases to be operative on the
ground that the streets covered by the ordinance ceases to be a public thoroughfare.
(pp. 33-34, Rollo)
We find the petition meritorious. In resolving the question of whether the disputed municipal ordinance
authorizing the flea market on the public streets is valid, it is necessary to examine the laws in force
during the time the said ordinance was enacted, namely, Batas Pambansa Blg. 337, otherwise known
as Local Government Code, in connection with established principles embodied in the Civil Code an
property and settled jurisprudence on the matter.
The property of provinces, cities and municipalities is divided into property for public use and
patrimonial property (Art. 423, Civil Code). As to what consists of property for public use, Article 424
of Civil Code states:
Art. 424. Property for public use, in the provinces, cities and municipalities, consists of
the provincial roads, city streets, the squares, fountains, public waters, promenades,
and public works for public service paid for by said provinces, cities or municipalities.
All other property possessed by any of them is patrimonial and shall be governed by
this Code, without prejudice to the provisions of special laws.
Based on the foregoing, J. Gabriel G.G. Cruz, Bayanihan, Lt. Garcia Extension and Opena streets are
local roads used for public service and are therefore considered public properties of respondent
municipality. Properties of the local government which are devoted to public service are deemed public
and are under the absolute control of Congress (Province of Zamboanga del Norte v. City of
Zamboanga, L-24440, March 28, 1968, 22 SCRA 1334). Hence, local governments have no authority
whatsoever to control or regulate the use of public properties unless specific authority is vested upon
them by Congress. One such example of this authority given by Congress to the local governments is
the power to close roads as provided in Section 10, Chapter II of the Local Government Code, which
states:
Sec. 10. Closure of roads. — A local government unit may likewise, through its head
acting pursuant to a resolution of its sangguniang and in accordance with existing law
and the provisions of this Code, close any barangay, municipal, city or provincial road,
street, alley, park or square. No such way or place or any part of thereof shall be close
without indemnifying any person prejudiced thereby. A property thus withdrawn from
public use may be used or conveyed for any purpose for which other real property
belonging to the local unit concerned might be lawfully used or conveyed. (Emphasis
ours).
However, the aforestated legal provision which gives authority to local government units to close roads
and other similar public places should be read and interpreted in accordance with basic principles
already established by law. These basic principles have the effect of limiting such authority of the
province, city or municipality to close a public street or thoroughfare. Article 424 of the Civil Code lays
down the basic principle that properties of public dominion devoted to public use and made available
to the public in general are outside the commerce of man and cannot be disposed of or leased by the
local government unit to private persons. Aside from the requirement of due process which should be
complied with before closing a road, street or park, the closure should be for the sole purpose of
withdrawing the road or other public property from public use when circumstances show that such
property is no longer intended or necessary for public use or public service. When it is already
withdrawn from public use, the property then becomes patrimonial property of the local government
unit concerned (Article 422, Civil Code; Cebu Oxygen, etc. et al. v. Bercilles, et al., G.R. No. L-40474,
August 29, 1975, 66 SCRA 481). It is only then that the respondent municipality can "use or convey
them for any purpose for which other real property belonging to the local unit concerned might be
lawfully used or conveyed" in accordance with the last sentence of Section 10, Chapter II of Blg. 337,
known as Local Government Code. In one case, the City Council of Cebu, through a resolution,
declared the terminal road of M. Borces Street, Mabolo, Cebu City as an abandoned road, the same
not being included in the City Development Plan. Thereafter, the City Council passes another
resolution authorizing the sale of the said abandoned road through public bidding. We held therein
that the City of Cebu is empowered to close a city street and to vacate or withdraw the same from
public use. Such withdrawn portion becomes patrimonial property which can be the object of an
ordinary contract (Cebu Oxygen and Acetylene Co., Inc. v. Bercilles, et al., G.R. No.
L-40474, August 29, 1975, 66 SCRA 481). However, those roads and streets which are available to
the public in general and ordinarily used for vehicular traffic are still considered public property devoted
to public use. In such case, the local government has no power to use it for another purpose or to
dispose of or lease it to private persons. This limitation on the authority of the local government over
public properties has been discussed and settled by this Court en banc in "Francisco V. Dacanay,
petitioner v. Mayor Macaria Asistio, Jr., et al., respondents, G.R. No. 93654, May 6, 1992." This Court
ruled:
There is no doubt that the disputed areas from which the private respondents' market
stalls are sought to be evicted are public streets, as found by the trial court in Civil
Case No. C-12921. A public street is property for public use hence outside the
commerce of man (Arts. 420, 424, Civil Code). Being outside the commerce of man, it
may not be the subject of lease or others contract (Villanueva, et al. v. Castañeda and
Macalino, 15 SCRA 142 citing the Municipality of Cavite v. Rojas, 30 SCRA 602;
Espiritu v. Municipal Council of Pozorrubio, 102 Phil. 869; And Muyot v. De la Fuente,
48 O.G. 4860).
As the stallholders pay fees to the City Government for the right to occupy portions of
the public street, the City Government, contrary to law, has been leasing portions of
the streets to them. Such leases or licenses are null and void for being contrary to law.
The right of the public to use the city streets may not be bargained away through
contract. The interests of a few should not prevail over the good of the greater number
in the community whose health, peace, safety, good order and general welfare, the
respondent city officials are under legal obligation to protect.
The Executive Order issued by acting Mayor Robles authorizing the use of Heroes del
'96 Street as a vending area for stallholders who were granted licenses by the city
government contravenes the general law that reserves city streets and roads for public
use. Mayor Robles' Executive Order may not infringe upon the vested right of the public
to use city streets for the purpose they were intended to serve: i.e., as arteries of travel
for vehicles and pedestrians.
Even assuming, in gratia argumenti, that respondent municipality has the authority to pass the
disputed ordinance, the same cannot be validly implemented because it cannot be considered
approved by the Metropolitan Manila Authority due to non-compliance by respondent municipality of
the conditions imposed by the former for the approval of the ordinance, to wit:
1. That the aforenamed streets are not used for vehicular traffic, and that the majority
of the residents do(es) not oppose the establishment of the flea market/vending areas
thereon;
2. That the 2-meter middle road to be used as flea market/vending area shall be
marked distinctly, and that the 2 meters on both sides of the road shall be used by
pedestrians;
3. That the time during which the vending area is to be used shall be clearly
designated;
4. That the use of the vending areas shall be temporary and shall be closed once the
reclaimed areas are developed and donated by the Public Estate Authority. (p.
38, Rollo)
Respondent municipality has not shown any iota of proof that it has complied with the foregoing
conditions precedent to the approval of the ordinance. The allegations of respondent municipality that
the closed streets were not used for vehicular traffic and that the majority of the residents do not
oppose the establishment of a flea market on said streets are unsupported by any evidence that will
show that this first condition has been met. Likewise, the designation by respondents of a time
schedule during which the flea market shall operate is absent.
Further, it is of public notice that the streets along Baclaran area are congested with people, houses
and traffic brought about by the proliferation of vendors occupying the streets. To license and allow
the establishment of a flea market along J. Gabriel, G.G. Cruz, Bayanihan, Lt. Garcia Extension and
Opena streets in Baclaran would not help in solving the problem of congestion. We take note of the
other observations of the Solicitor General when he said:
. . . There have been many instances of emergencies and fires where ambulances and
fire engines, instead of using the roads for a more direct access to the fire area, have
to maneuver and look for other streets which are not occupied by stalls and vendors
thereby losing valuable time which could, otherwise, have been spent in saving
properties and lives.
Along G.G. Cruz Street is a hospital, the St. Rita Hospital. However, its ambulances
and the people rushing their patients to the hospital cannot pass through G.G. Cruz
because of the stalls and the vendors. One can only imagine the tragedy of losing a
life just because of a few seconds delay brought about by the inaccessibility of the
streets leading to the hospital.
The children, too, suffer. In view of the occupancy of the roads by stalls and vendors,
normal transportation flow is disrupted and school children have to get off at a distance
still far from their schools and walk, rain or shine.
Indeed one can only imagine the garbage and litter left by vendors on the streets at
the end of the day. Needless to say, these cause further pollution, sickness and
deterioration of health of the residents therein. (pp. 21-22, Rollo)
Respondents do not refute the truth of the foregoing findings and observations of petitioners. Instead,
respondents want this Court to focus its attention solely on the argument that the use of public spaces
for the establishment of a flea market is well within the powers granted by law to a local government
which should not be interfered with by the courts.
Verily, the powers of a local government unit are not absolute. They are subject to limitations laid down
by toe Constitution and the laws such as our Civil Code. Moreover, the exercise of such powers should
be subservient to paramount considerations of health and well-being of the members of the
community. Every local government unit has the sworn obligation to enact measures that will enhance
the public health, safety and convenience, maintain peace and order, and promote the general
prosperity of the inhabitants of the local units. Based on this objective, the local government should
refrain from acting towards that which might prejudice or adversely affect the general welfare.
As what we have said in the Dacanay case, the general public have a legal right to demand the
demolition of the illegally constructed stalls in public roads and streets and the officials of respondent
municipality have the corresponding duty arising from public office to clear the city streets and restore
them to their specific public purpose.
The instant case as well as the Dacanay case, involves an ordinance which is void and illegal for lack
of basis and authority in laws applicable during its time. However, at this point, We find it worthy to
note that Batas Pambansa Blg. 337, known as Local Government Lode, has already been repealed
by Republic Act No. 7160 known as Local Government Code of 1991 which took effect on January 1,
1992. Section 5(d) of the new Code provides that rights and obligations existing on the date of
effectivity of the new Code and arising out of contracts or any other source of prestation involving a
local government unit shall be governed by the original terms and conditions of the said contracts or
the law in force at the time such rights were vested.
ACCORDINGLY, the petition is GRANTED and the decision of the respondent Regional Trial Court
dated December 17, 1990 which granted the writ of preliminary injunction enjoining petitioner as PNP
Superintendent, Metropolitan Traffic Command from enforcing the demolition of market stalls along J.
Gabriel, G.G. Cruz, Bayanihan, Lt. Garcia Extension and Opena streets is hereby RESERVED and
SET ASIDE.
SO ORDERED.

EN BANC
G.R. No. 133250 July 9, 2002
FRANCISCO I. CHAVEZ, petitioner,
vs.
PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY DEVELOPMENT
CORPORATION, respondents.
CARPIO, J.:

This is an original Petition for Mandamus with prayer for a writ of preliminary injunction and a temporary
restraining order. The petition seeks to compel the Public Estates Authority ("PEA" for brevity) to
disclose all facts on PEA's then on-going renegotiations with Amari Coastal Bay and Development
Corporation ("AMARI" for brevity) to reclaim portions of Manila Bay. The petition further seeks to enjoin
PEA from signing a new agreement with AMARI involving such reclamation.
The Facts
On November 20, 1973, the government, through the Commissioner of Public Highways, signed a
contract with the Construction and Development Corporation of the Philippines ("CDCP" for brevity) to
reclaim certain foreshore and offshore areas of Manila Bay. The contract also included the construction
of Phases I and II of the Manila-Cavite Coastal Road. CDCP obligated itself to carry out all the works
in consideration of fifty percent of the total reclaimed land.
On February 4, 1977, then President Ferdinand E. Marcos issued Presidential Decree No. 1084
creating PEA. PD No. 1084 tasked PEA "to reclaim land, including foreshore and submerged areas,"
and "to develop, improve, acquire, x x x lease and sell any and all kinds of lands."1 On the same date,
then President Marcos issued Presidential Decree No. 1085 transferring to PEA the "lands reclaimed
in the foreshore and offshore of the Manila Bay"2 under the Manila-Cavite Coastal Road and
Reclamation Project (MCCRRP).
On December 29, 1981, then President Marcos issued a memorandum directing PEA to amend its
contract with CDCP, so that "[A]ll future works in MCCRRP x x x shall be funded and owned by PEA."
Accordingly, PEA and CDCP executed a Memorandum of Agreement dated December 29, 1981,
which stated:
"(i) CDCP shall undertake all reclamation, construction, and such other works in the MCCRRP
as may be agreed upon by the parties, to be paid according to progress of works on a unit
price/lump sum basis for items of work to be agreed upon, subject to price escalation, retention
and other terms and conditions provided for in Presidential Decree No. 1594. All the financing
required for such works shall be provided by PEA.
xxx
(iii) x x x CDCP shall give up all its development rights and hereby agrees to cede and transfer
in favor of PEA, all of the rights, title, interest and participation of CDCP in and to all the areas
of land reclaimed by CDCP in the MCCRRP as of December 30, 1981 which have not yet
been sold, transferred or otherwise disposed of by CDCP as of said date, which areas consist
of approximately Ninety-Nine Thousand Four Hundred Seventy Three (99,473) square meters
in the Financial Center Area covered by land pledge No. 5 and approximately Three Million
Three Hundred Eighty Two Thousand Eight Hundred Eighty Eight (3,382,888) square meters
of reclaimed areas at varying elevations above Mean Low Water Level located outside the
Financial Center Area and the First Neighborhood Unit."3
On January 19, 1988, then President Corazon C. Aquino issued Special Patent No. 3517, granting
and transferring to PEA "the parcels of land so reclaimed under the Manila-Cavite Coastal Road and
Reclamation Project (MCCRRP) containing a total area of one million nine hundred fifteen thousand
eight hundred ninety four (1,915,894) square meters." Subsequently, on April 9, 1988, the Register of
Deeds of the Municipality of Parañaque issued Transfer Certificates of Title Nos. 7309, 7311, and
7312, in the name of PEA, covering the three reclaimed islands known as the "Freedom Islands"
located at the southern portion of the Manila-Cavite Coastal Road, Parañaque City. The Freedom
Islands have a total land area of One Million Five Hundred Seventy Eight Thousand Four Hundred
and Forty One (1,578,441) square meters or 157.841 hectares.
On April 25, 1995, PEA entered into a Joint Venture Agreement ("JVA" for brevity) with AMARI, a
private corporation, to develop the Freedom Islands. The JVA also required the reclamation of an
additional 250 hectares of submerged areas surrounding these islands to complete the configuration
in the Master Development Plan of the Southern Reclamation Project-MCCRRP. PEA and AMARI
entered into the JVA through negotiation without public bidding.4 On April 28, 1995, the Board of
Directors of PEA, in its Resolution No. 1245, confirmed the JVA.5 On June 8, 1995, then President
Fidel V. Ramos, through then Executive Secretary Ruben Torres, approved the JVA.6
On November 29, 1996, then Senate President Ernesto Maceda delivered a privilege speech in the
Senate and denounced the JVA as the "grandmother of all scams." As a result, the Senate Committee
on Government Corporations and Public Enterprises, and the Committee on Accountability of Public
Officers and Investigations, conducted a joint investigation. The Senate Committees reported the
results of their investigation in Senate Committee Report No. 560 dated September 16, 1997.7 Among
the conclusions of their report are: (1) the reclaimed lands PEA seeks to transfer to AMARI under the
JVA are lands of the public domain which the government has not classified as alienable lands and
therefore PEA cannot alienate these lands; (2) the certificates of title covering the Freedom Islands
are thus void, and (3) the JVA itself is illegal.
On December 5, 1997, then President Fidel V. Ramos issued Presidential Administrative Order No.
365 creating a Legal Task Force to conduct a study on the legality of the JVA in view of Senate
Committee Report No. 560. The members of the Legal Task Force were the Secretary of Justice,8 the
Chief Presidential Legal Counsel,9 and the Government Corporate Counsel.10 The Legal Task Force
upheld the legality of the JVA, contrary to the conclusions reached by the Senate Committees.11
On April 4 and 5, 1998, the Philippine Daily Inquirer and Today published reports that there were on-
going renegotiations between PEA and AMARI under an order issued by then President Fidel V.
Ramos. According to these reports, PEA Director Nestor Kalaw, PEA Chairman Arsenio Yulo and
retired Navy Officer Sergio Cruz composed the negotiating panel of PEA.
On April 13, 1998, Antonio M. Zulueta filed before the Court a Petition for Prohibition with Application
for the Issuance of a Temporary Restraining Order and Preliminary Injunction docketed as G.R. No.
132994 seeking to nullify the JVA. The Court dismissed the petition "for unwarranted disregard of
judicial hierarchy, without prejudice to the refiling of the case before the proper court."12
On April 27, 1998, petitioner Frank I. Chavez ("Petitioner" for brevity) as a taxpayer, filed the
instant Petition for Mandamus with Prayer for the Issuance of a Writ of Preliminary Injunction and
Temporary Restraining Order. Petitioner contends the government stands to lose billions of pesos in
the sale by PEA of the reclaimed lands to AMARI. Petitioner prays that PEA publicly disclose the terms
of any renegotiation of the JVA, invoking Section 28, Article II, and Section 7, Article III, of the 1987
Constitution on the right of the people to information on matters of public concern. Petitioner assails
the sale to AMARI of lands of the public domain as a blatant violation of Section 3, Article XII of the
1987 Constitution prohibiting the sale of alienable lands of the public domain to private corporations.
Finally, petitioner asserts that he seeks to enjoin the loss of billions of pesos in properties of the State
that are of public dominion.
After several motions for extension of time,13 PEA and AMARI filed their Comments on October 19,
1998 and June 25, 1998, respectively. Meanwhile, on December 28, 1998, petitioner filed an Omnibus
Motion: (a) to require PEA to submit the terms of the renegotiated PEA-AMARI contract; (b) for
issuance of a temporary restraining order; and (c) to set the case for hearing on oral argument.
Petitioner filed a Reiterative Motion for Issuance of a TRO dated May 26, 1999, which the Court denied
in a Resolution dated June 22, 1999.
In a Resolution dated March 23, 1999, the Court gave due course to the petition and required the
parties to file their respective memoranda.
On March 30, 1999, PEA and AMARI signed the Amended Joint Venture Agreement ("Amended JVA,"
for brevity). On May 28, 1999, the Office of the President under the administration of then President
Joseph E. Estrada approved the Amended JVA.
Due to the approval of the Amended JVA by the Office of the President, petitioner now prays that on
"constitutional and statutory grounds the renegotiated contract be declared null and void."14
The Issues
The issues raised by petitioner, PEA15 and AMARI16 are as follows:
I. WHETHER THE PRINCIPAL RELIEFS PRAYED FOR IN THE PETITION ARE MOOT AND
ACADEMIC BECAUSE OF SUBSEQUENT EVENTS;
II. WHETHER THE PETITION MERITS DISMISSAL FOR FAILING TO OBSERVE THE
PRINCIPLE GOVERNING THE HIERARCHY OF COURTS;
III. WHETHER THE PETITION MERITS DISMISSAL FOR NON-EXHAUSTION OF
ADMINISTRATIVE REMEDIES;
IV. WHETHER PETITIONER HAS LOCUS STANDI TO BRING THIS SUIT;
V. WHETHER THE CONSTITUTIONAL RIGHT TO INFORMATION INCLUDES OFFICIAL
INFORMATION ON ON-GOING NEGOTIATIONS BEFORE A FINAL AGREEMENT;
VI. WHETHER THE STIPULATIONS IN THE AMENDED JOINT VENTURE AGREEMENT
FOR THE TRANSFER TO AMARI OF CERTAIN LANDS, RECLAIMED AND STILL TO BE
RECLAIMED, VIOLATE THE 1987 CONSTITUTION; AND
VII. WHETHER THE COURT IS THE PROPER FORUM FOR RAISING THE ISSUE OF
WHETHER THE AMENDED JOINT VENTURE AGREEMENT IS GROSSLY
DISADVANTAGEOUS TO THE GOVERNMENT.

The Court's Ruling

First issue: whether the principal reliefs prayed for in the petition are moot and academic
because of subsequent events.
The petition prays that PEA publicly disclose the "terms and conditions of the on-going negotiations
for a new agreement." The petition also prays that the Court enjoin PEA from "privately entering into,
perfecting and/or executing any new agreement with AMARI."
PEA and AMARI claim the petition is now moot and academic because AMARI furnished petitioner on
June 21, 1999 a copy of the signed Amended JVA containing the terms and conditions agreed upon
in the renegotiations. Thus, PEA has satisfied petitioner's prayer for a public disclosure of the
renegotiations. Likewise, petitioner's prayer to enjoin the signing of the Amended JVA is now moot
because PEA and AMARI have already signed the Amended JVA on March 30, 1999. Moreover, the
Office of the President has approved the Amended JVA on May 28, 1999.
Petitioner counters that PEA and AMARI cannot avoid the constitutional issue by simply fast-tracking
the signing and approval of the Amended JVA before the Court could act on the issue. Presidential
approval does not resolve the constitutional issue or remove it from the ambit of judicial review.
We rule that the signing of the Amended JVA by PEA and AMARI and its approval by the President
cannot operate to moot the petition and divest the Court of its jurisdiction. PEA and AMARI have still
to implement the Amended JVA. The prayer to enjoin the signing of the Amended JVA on constitutional
grounds necessarily includes preventing its implementation if in the meantime PEA and AMARI have
signed one in violation of the Constitution. Petitioner's principal basis in assailing the renegotiation of
the JVA is its violation of Section 3, Article XII of the Constitution, which prohibits the government from
alienating lands of the public domain to private corporations. If the Amended JVA indeed violates the
Constitution, it is the duty of the Court to enjoin its implementation, and if already implemented, to
annul the effects of such unconstitutional contract.
The Amended JVA is not an ordinary commercial contract but one which seeks to transfer title and
ownership to 367.5 hectares of reclaimed lands and submerged areas of Manila Bay to a single
private corporation. It now becomes more compelling for the Court to resolve the issue to insure the
government itself does not violate a provision of the Constitution intended to safeguard the national
patrimony. Supervening events, whether intended or accidental, cannot prevent the Court from
rendering a decision if there is a grave violation of the Constitution. In the instant case, if the Amended
JVA runs counter to the Constitution, the Court can still prevent the transfer of title and ownership of
alienable lands of the public domain in the name of AMARI. Even in cases where supervening events
had made the cases moot, the Court did not hesitate to resolve the legal or constitutional issues raised
to formulate controlling principles to guide the bench, bar, and the public.17
Also, the instant petition is a case of first impression. All previous decisions of the Court involving
Section 3, Article XII of the 1987 Constitution, or its counterpart provision in the 1973
Constitution,18 covered agricultural lands sold to private corporations which acquired the lands from
private parties. The transferors of the private corporations claimed or could claim the right to judicial
confirmation of their imperfect titles19 under Title II of Commonwealth Act. 141 ("CA No. 141" for
brevity). In the instant case, AMARI seeks to acquire from PEA, a public corporation, reclaimed lands
and submerged areas for non-agricultural purposes by purchase under PD No. 1084 (charter of
PEA) and Title III of CA No. 141. Certain undertakings by AMARI under the Amended JVA constitute
the consideration for the purchase. Neither AMARI nor PEA can claim judicial confirmation of their
titles because the lands covered by the Amended JVA are newly reclaimed or still to be reclaimed.
Judicial confirmation of imperfect title requires open, continuous, exclusive and notorious occupation
of agricultural lands of the public domain for at least thirty years since June 12, 1945 or earlier.
Besides, the deadline for filing applications for judicial confirmation of imperfect title expired on
December 31, 1987.20
Lastly, there is a need to resolve immediately the constitutional issue raised in this petition because
of the possible transfer at any time by PEA to AMARI of title and ownership to portions of the reclaimed
lands. Under the Amended JVA, PEA is obligated to transfer to AMARI the latter's seventy percent
proportionate share in the reclaimed areas as the reclamation progresses. The Amended JVA even
allows AMARI to mortgage at any time the entire reclaimed area to raise financing for the reclamation
project.21
Second issue: whether the petition merits dismissal for failing to observe the principle
governing the hierarchy of courts.
PEA and AMARI claim petitioner ignored the judicial hierarchy by seeking relief directly from the Court.
The principle of hierarchy of courts applies generally to cases involving factual questions. As it is not
a trier of facts, the Court cannot entertain cases involving factual issues. The instant case, however,
raises constitutional issues of transcendental importance to the public.22 The Court can resolve this
case without determining any factual issue related to the case. Also, the instant case is a petition for
mandamus which falls under the original jurisdiction of the Court under Section 5, Article VIII of the
Constitution. We resolve to exercise primary jurisdiction over the instant case.
Third issue: whether the petition merits dismissal for non-exhaustion of administrative
remedies.
PEA faults petitioner for seeking judicial intervention in compelling PEA to disclose publicly certain
information without first asking PEA the needed information. PEA claims petitioner's direct resort to
the Court violates the principle of exhaustion of administrative remedies. It also violates the rule that
mandamus may issue only if there is no other plain, speedy and adequate remedy in the ordinary
course of law.
PEA distinguishes the instant case from Tañada v. Tuvera23 where the Court granted the petition for
mandamus even if the petitioners there did not initially demand from the Office of the President the
publication of the presidential decrees. PEA points out that in Tañada, the Executive Department had
an affirmative statutory duty under Article 2 of the Civil Code24 and Section 1 of Commonwealth Act
No. 63825 to publish the presidential decrees. There was, therefore, no need for the petitioners in
Tañada to make an initial demand from the Office of the President. In the instant case, PEA claims it
has no affirmative statutory duty to disclose publicly information about its renegotiation of the JVA.
Thus, PEA asserts that the Court must apply the principle of exhaustion of administrative remedies to
the instant case in view of the failure of petitioner here to demand initially from PEA the needed
information.
The original JVA sought to dispose to AMARI public lands held by PEA, a government corporation.
Under Section 79 of the Government Auditing Code,26 the disposition of government lands to private
parties requires public bidding. PEA was under a positive legal duty to disclose to the public the
terms and conditions for the sale of its lands. The law obligated PEA to make this public disclosure
even without demand from petitioner or from anyone. PEA failed to make this public disclosure
because the original JVA, like the Amended JVA, was the result of a negotiated contract, not of a
public bidding. Considering that PEA had an affirmative statutory duty to make the public disclosure,
and was even in breach of this legal duty, petitioner had the right to seek direct judicial intervention.
Moreover, and this alone is determinative of this issue, the principle of exhaustion of administrative
remedies does not apply when the issue involved is a purely legal or constitutional question.27 The
principal issue in the instant case is the capacity of AMARI to acquire lands held by PEA in view of the
constitutional ban prohibiting the alienation of lands of the public domain to private corporations. We
rule that the principle of exhaustion of administrative remedies does not apply in the instant case.
Fourth issue: whether petitioner has locus standi to bring this suit
PEA argues that petitioner has no standing to institute mandamus proceedings to enforce his
constitutional right to information without a showing that PEA refused to perform an affirmative duty
imposed on PEA by the Constitution. PEA also claims that petitioner has not shown that he will suffer
any concrete injury because of the signing or implementation of the Amended JVA. Thus, there is no
actual controversy requiring the exercise of the power of judicial review.
The petitioner has standing to bring this taxpayer's suit because the petition seeks to compel PEA to
comply with its constitutional duties. There are two constitutional issues involved here. First is the right
of citizens to information on matters of public concern. Second is the application of a constitutional
provision intended to insure the equitable distribution of alienable lands of the public domain among
Filipino citizens. The thrust of the first issue is to compel PEA to disclose publicly information on the
sale of government lands worth billions of pesos, information which the Constitution and statutory law
mandate PEA to disclose. The thrust of the second issue is to prevent PEA from alienating hundreds
of hectares of alienable lands of the public domain in violation of the Constitution, compelling PEA to
comply with a constitutional duty to the nation.
Moreover, the petition raises matters of transcendental importance to the public. In Chavez v.
PCGG,28 the Court upheld the right of a citizen to bring a taxpayer's suit on matters of transcendental
importance to the public, thus -
"Besides, petitioner emphasizes, the matter of recovering the ill-gotten wealth of the Marcoses
is an issue of 'transcendental importance to the public.' He asserts that ordinary taxpayers
have a right to initiate and prosecute actions questioning the validity of acts or orders of
government agencies or instrumentalities, if the issues raised are of 'paramount public
interest,' and if they 'immediately affect the social, economic and moral well being of the
people.'
Moreover, the mere fact that he is a citizen satisfies the requirement of personal interest, when
the proceeding involves the assertion of a public right, such as in this case. He invokes several
decisions of this Court which have set aside the procedural matter of locus standi, when the
subject of the case involved public interest.
xxx
In Tañada v. Tuvera, the Court asserted that when the issue concerns a public right and the
object of mandamus is to obtain the enforcement of a public duty, the people are regarded as
the real parties in interest; and because it is sufficient that petitioner is a citizen and as such is
interested in the execution of the laws, he need not show that he has any legal or special
interest in the result of the action. In the aforesaid case, the petitioners sought to enforce their
right to be informed on matters of public concern, a right then recognized in Section 6, Article
IV of the 1973 Constitution, in connection with the rule that laws in order to be valid and
enforceable must be published in the Official Gazette or otherwise effectively promulgated. In
ruling for the petitioners' legal standing, the Court declared that the right they sought to be
enforced 'is a public right recognized by no less than the fundamental law of the land.'
Legaspi v. Civil Service Commission, while reiterating Tañada, further declared that 'when a
mandamus proceeding involves the assertion of a public right, the requirement of personal
interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the general
'public' which possesses the right.'
Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been
involved under the questioned contract for the development, management and operation of
the Manila International Container Terminal, 'public interest [was] definitely involved
considering the important role [of the subject contract] . . . in the economic development of the
country and the magnitude of the financial consideration involved.' We concluded that, as a
consequence, the disclosure provision in the Constitution would constitute sufficient authority
for upholding the petitioner's standing.
Similarly, the instant petition is anchored on the right of the people to information and access
to official records, documents and papers — a right guaranteed under Section 7, Article III of
the 1987 Constitution. Petitioner, a former solicitor general, is a Filipino citizen. Because of the
satisfaction of the two basic requisites laid down by decisional law to sustain petitioner's legal
standing, i.e. (1) the enforcement of a public right (2) espoused by a Filipino citizen, we rule
that the petition at bar should be allowed."
We rule that since the instant petition, brought by a citizen, involves the enforcement of constitutional
rights - to information and to the equitable diffusion of natural resources - matters of transcendental
public importance, the petitioner has the requisite locus standi.
Fifth issue: whether the constitutional right to information includes official information on on-
going negotiations before a final agreement.
Section 7, Article III of the Constitution explains the people's right to information on matters of public
concern in this manner:
"Sec. 7. The right of the people to information on matters of public concern shall be recognized.
Access to official records, and to documents, and papers pertaining to official acts,
transactions, or decisions, as well as to government research data used as basis for policy
development, shall be afforded the citizen, subject to such limitations as may be provided by
law." (Emphasis supplied)
The State policy of full transparency in all transactions involving public interest reinforces the people's
right to information on matters of public concern. This State policy is expressed in Section 28, Article
II of the Constitution, thus:
"Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts and implements
a policy of full public disclosure of all its transactions involving public interest."
(Emphasis supplied)
These twin provisions of the Constitution seek to promote transparency in policy-making and in the
operations of the government, as well as provide the people sufficient information to exercise
effectively other constitutional rights. These twin provisions are essential to the exercise of freedom of
expression. If the government does not disclose its official acts, transactions and decisions to citizens,
whatever citizens say, even if expressed without any restraint, will be speculative and amount to
nothing. These twin provisions are also essential to hold public officials "at all times x x x accountable
to the people,"29 for unless citizens have the proper information, they cannot hold public officials
accountable for anything. Armed with the right information, citizens can participate in public
discussions leading to the formulation of government policies and their effective implementation. An
informed citizenry is essential to the existence and proper functioning of any democracy. As explained
by the Court in Valmonte v. Belmonte, Jr.30 –
"An essential element of these freedoms is to keep open a continuing dialogue or process of
communication between the government and the people. It is in the interest of the State that
the channels for free political discussion be maintained to the end that the government may
perceive and be responsive to the people's will. Yet, this open dialogue can be effective only
to the extent that the citizenry is informed and thus able to formulate its will intelligently. Only
when the participants in the discussion are aware of the issues and have access to information
relating thereto can such bear fruit."
PEA asserts, citing Chavez v. PCGG,31 that in cases of on-going negotiations the right to information
is limited to "definite propositions of the government." PEA maintains the right does not include access
to "intra-agency or inter-agency recommendations or communications during the stage when common
assertions are still in the process of being formulated or are in the 'exploratory stage'."
Also, AMARI contends that petitioner cannot invoke the right at the pre-decisional stage or before the
closing of the transaction. To support its contention, AMARI cites the following discussion in the 1986
Constitutional Commission:
"Mr. Suarez. And when we say 'transactions' which should be distinguished from contracts,
agreements, or treaties or whatever, does the Gentleman refer to the steps leading to the
consummation of the contract, or does he refer to the contract itself?
Mr. Ople: The 'transactions' used here, I suppose is generic and therefore, it can cover
both steps leading to a contract and already a consummated contract, Mr. Presiding
Officer.
Mr. Suarez: This contemplates inclusion of negotiations leading to the consummation
of the transaction.
Mr. Ople: Yes, subject only to reasonable safeguards on the national interest.
Mr. Suarez: Thank you."32 (Emphasis supplied)
AMARI argues there must first be a consummated contract before petitioner can invoke the right.
Requiring government officials to reveal their deliberations at the pre-decisional stage will degrade the
quality of decision-making in government agencies. Government officials will hesitate to express their
real sentiments during deliberations if there is immediate public dissemination of their discussions,
putting them under all kinds of pressure before they decide.
We must first distinguish between information the law on public bidding requires PEA to disclose
publicly, and information the constitutional right to information requires PEA to release to the public.
Before the consummation of the contract, PEA must, on its own and without demand from anyone,
disclose to the public matters relating to the disposition of its property. These include the size, location,
technical description and nature of the property being disposed of, the terms and conditions of the
disposition, the parties qualified to bid, the minimum price and similar information. PEA must prepare
all these data and disclose them to the public at the start of the disposition process, long before the
consummation of the contract, because the Government Auditing Code requires public bidding. If
PEA fails to make this disclosure, any citizen can demand from PEA this information at any time during
the bidding process.
Information, however, on on-going evaluation or review of bids or proposals being undertaken by
the bidding or review committee is not immediately accessible under the right to information. While the
evaluation or review is still on-going, there are no "official acts, transactions, or decisions" on the bids
or proposals. However, once the committee makes its official recommendation, there arises
a "definite proposition" on the part of the government. From this moment, the public's right to
information attaches, and any citizen can access all the non-proprietary information leading to such
definite proposition. In Chavez v. PCGG,33 the Court ruled as follows:
"Considering the intent of the framers of the Constitution, we believe that it is incumbent upon
the PCGG and its officers, as well as other government representatives, to disclose sufficient
public information on any proposed settlement they have decided to take up with the ostensible
owners and holders of ill-gotten wealth. Such information, though, must pertain to definite
propositions of the government, not necessarily to intra-agency or inter-agency
recommendations or communications during the stage when common assertions are still in
the process of being formulated or are in the "exploratory" stage. There is need, of course, to
observe the same restrictions on disclosure of information in general, as discussed earlier –
such as on matters involving national security, diplomatic or foreign relations, intelligence and
other classified information." (Emphasis supplied)
Contrary to AMARI's contention, the commissioners of the 1986 Constitutional Commission
understood that the right to information "contemplates inclusion of negotiations leading to the
consummation of the transaction." Certainly, a consummated contract is not a requirement for the
exercise of the right to information. Otherwise, the people can never exercise the right if no contract is
consummated, and if one is consummated, it may be too late for the public to expose its defects. 1âw phi 1.nêt

Requiring a consummated contract will keep the public in the dark until the contract, which may be
grossly disadvantageous to the government or even illegal, becomes a fait accompli. This negates the
State policy of full transparency on matters of public concern, a situation which the framers of the
Constitution could not have intended. Such a requirement will prevent the citizenry from participating
in the public discussion of any proposed contract, effectively truncating a basic right enshrined in the
Bill of Rights. We can allow neither an emasculation of a constitutional right, nor a retreat by the State
of its avowed "policy of full disclosure of all its transactions involving public interest."
The right covers three categories of information which are "matters of public concern," namely: (1)
official records; (2) documents and papers pertaining to official acts, transactions and decisions; and
(3) government research data used in formulating policies. The first category refers to any document
that is part of the public records in the custody of government agencies or officials. The second
category refers to documents and papers recording, evidencing, establishing, confirming, supporting,
justifying or explaining official acts, transactions or decisions of government agencies or officials. The
third category refers to research data, whether raw, collated or processed, owned by the government
and used in formulating government policies.
The information that petitioner may access on the renegotiation of the JVA includes evaluation reports,
recommendations, legal and expert opinions, minutes of meetings, terms of reference and other
documents attached to such reports or minutes, all relating to the JVA. However, the right to
information does not compel PEA to prepare lists, abstracts, summaries and the like relating to the
renegotiation of the JVA.34 The right only affords access to records, documents and papers, which
means the opportunity to inspect and copy them. One who exercises the right must copy the records,
documents and papers at his expense. The exercise of the right is also subject to reasonable
regulations to protect the integrity of the public records and to minimize disruption to government
operations, like rules specifying when and how to conduct the inspection and copying.35
The right to information, however, does not extend to matters recognized as privileged information
under the separation of powers.36 The right does not also apply to information on military and
diplomatic secrets, information affecting national security, and information on investigations of crimes
by law enforcement agencies before the prosecution of the accused, which courts have long
recognized as confidential.37 The right may also be subject to other limitations that Congress may
impose by law.
There is no claim by PEA that the information demanded by petitioner is privileged information rooted
in the separation of powers. The information does not cover Presidential conversations,
correspondences, or discussions during closed-door Cabinet meetings which, like internal
deliberations of the Supreme Court and other collegiate courts, or executive sessions of either house
of Congress,38 are recognized as confidential. This kind of information cannot be pried open by a co-
equal branch of government. A frank exchange of exploratory ideas and assessments, free from the
glare of publicity and pressure by interested parties, is essential to protect the independence of
decision-making of those tasked to exercise Presidential, Legislative and Judicial power.39 This is not
the situation in the instant case.
We rule, therefore, that the constitutional right to information includes official information on on-going
negotiations before a final contract. The information, however, must constitute definite propositions
by the government and should not cover recognized exceptions like privileged information, military
and diplomatic secrets and similar matters affecting national security and public order.40 Congress has
also prescribed other limitations on the right to information in several legislations.41
Sixth issue: whether stipulations in the Amended JVA for the transfer to AMARI of lands,
reclaimed or to be reclaimed, violate the Constitution.
The Regalian Doctrine
The ownership of lands reclaimed from foreshore and submerged areas is rooted in the Regalian
doctrine which holds that the State owns all lands and waters of the public domain. Upon the Spanish
conquest of the Philippines, ownership of all "lands, territories and possessions" in the Philippines
passed to the Spanish Crown.42 The King, as the sovereign ruler and representative of the people,
acquired and owned all lands and territories in the Philippines except those he disposed of by grant or
sale to private individuals.
The 1935, 1973 and 1987 Constitutions adopted the Regalian doctrine substituting, however, the
State, in lieu of the King, as the owner of all lands and waters of the public domain. The Regalian
doctrine is the foundation of the time-honored principle of land ownership that "all lands that were not
acquired from the Government, either by purchase or by grant, belong to the public domain."43 Article
339 of the Civil Code of 1889, which is now Article 420 of the Civil Code of 1950, incorporated the
Regalian doctrine.
Ownership and Disposition of Reclaimed Lands
The Spanish Law of Waters of 1866 was the first statutory law governing the ownership and disposition
of reclaimed lands in the Philippines. On May 18, 1907, the Philippine Commission enacted Act No.
1654 which provided for the lease, but not the sale, of reclaimed lands of the government to
corporations and individuals. Later, on November 29, 1919, the Philippine Legislature approved Act
No. 2874, the Public Land Act, which authorized the lease, but not the sale, of reclaimed lands of
the government to corporations and individuals. On November 7, 1936, the National Assembly
passed Commonwealth Act No. 141, also known as the Public Land Act, which authorized the lease,
but not the sale, of reclaimed lands of the government to corporations and individuals. CA No.
141 continues to this day as the general law governing the classification and disposition of lands of
the public domain.
The Spanish Law of Waters of 1866 and the Civil Code of 1889
Under the Spanish Law of Waters of 1866, the shores, bays, coves, inlets and all waters within the
maritime zone of the Spanish territory belonged to the public domain for public use.44 The Spanish
Law of Waters of 1866 allowed the reclamation of the sea under Article 5, which provided as follows:
"Article 5. Lands reclaimed from the sea in consequence of works constructed by the State, or
by the provinces, pueblos or private persons, with proper permission, shall become the
property of the party constructing such works, unless otherwise provided by the terms of the
grant of authority."
Under the Spanish Law of Waters, land reclaimed from the sea belonged to the party undertaking the
reclamation, provided the government issued the necessary permit and did not reserve ownership of
the reclaimed land to the State.
Article 339 of the Civil Code of 1889 defined property of public dominion as follows:
"Art. 339. Property of public dominion is –
1. That devoted to public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, riverbanks, shores, roadsteads, and that of a similar character;
2. That belonging exclusively to the State which, without being of general public use, is
employed in some public service, or in the development of the national wealth, such as walls,
fortresses, and other works for the defense of the territory, and mines, until granted to private
individuals."
Property devoted to public use referred to property open for use by the public. In contrast, property
devoted to public service referred to property used for some specific public service and open only to
those authorized to use the property.
Property of public dominion referred not only to property devoted to public use, but also to property
not so used but employed to develop the national wealth. This class of property constituted property
of public dominion although employed for some economic or commercial activity to increase the
national wealth.
Article 341 of the Civil Code of 1889 governed the re-classification of property of public dominion into
private property, to wit:
"Art. 341. Property of public dominion, when no longer devoted to public use or to the defense
of the territory, shall become a part of the private property of the State."
This provision, however, was not self-executing. The legislature, or the executive department pursuant
to law, must declare the property no longer needed for public use or territorial defense before the
government could lease or alienate the property to private parties.45
Act No. 1654 of the Philippine Commission
On May 8, 1907, the Philippine Commission enacted Act No. 1654 which regulated the lease of
reclaimed and foreshore lands. The salient provisions of this law were as follows:
"Section 1. The control and disposition of the foreshore as defined in existing law, and
the title to all Government or public lands made or reclaimed by the Government by
dredging or filling or otherwise throughout the Philippine Islands, shall be retained by the
Government without prejudice to vested rights and without prejudice to rights conceded to the
City of Manila in the Luneta Extension.
Section 2. (a) The Secretary of the Interior shall cause all Government or public lands made
or reclaimed by the Government by dredging or filling or otherwise to be divided into lots or
blocks, with the necessary streets and alleyways located thereon, and shall cause plats and
plans of such surveys to be prepared and filed with the Bureau of Lands.
(b) Upon completion of such plats and plans the Governor-General shall give notice to the
public that such parts of the lands so made or reclaimed as are not needed for public
purposes will be leased for commercial and business purposes, x x x.
xxx
(e) The leases above provided for shall be disposed of to the highest and best
bidder therefore, subject to such regulations and safeguards as the Governor-General may
by executive order prescribe." (Emphasis supplied)
Act No. 1654 mandated that the government should retain title to all lands reclaimed by the
government. The Act also vested in the government control and disposition of foreshore lands. Private
parties could lease lands reclaimed by the government only if these lands were no longer needed for
public purpose. Act No. 1654 mandated public bidding in the lease of government reclaimed lands.
Act No. 1654 made government reclaimed lands sui generis in that unlike other public lands which
the government could sell to private parties, these reclaimed lands were available only for lease to
private parties.
Act No. 1654, however, did not repeal Section 5 of the Spanish Law of Waters of 1866. Act No. 1654
did not prohibit private parties from reclaiming parts of the sea under Section 5 of the Spanish Law of
Waters. Lands reclaimed from the sea by private parties with government permission remained private
lands.
Act No. 2874 of the Philippine Legislature
On November 29, 1919, the Philippine Legislature enacted Act No. 2874, the Public Land Act. 46 The
salient provisions of Act No. 2874, on reclaimed lands, were as follows:
"Sec. 6. The Governor-General, upon the recommendation of the Secretary of
Agriculture and Natural Resources, shall from time to time classify the lands of the
public domain into –
(a) Alienable or disposable,
(b) Timber, and
(c) Mineral lands, x x x.
Sec. 7. For the purposes of the government and disposition of alienable or disposable public
lands, the Governor-General, upon recommendation by the Secretary of Agriculture and
Natural Resources, shall from time to time declare what lands are open to disposition
or concession under this Act."
Sec. 8. Only those lands shall be declared open to disposition or concession which
have been officially delimited or classified x x x.
xxx
Sec. 55. Any tract of land of the public domain which, being neither timber nor mineral land,
shall be classified as suitable for residential purposes or for commercial, industrial, or
other productive purposes other than agricultural purposes, and shall be open to
disposition or concession, shall be disposed of under the provisions of this chapter, and not
otherwise.
Sec. 56. The lands disposable under this title shall be classified as follows:
(a) Lands reclaimed by the Government by dredging, filling, or other means;
(b) Foreshore;
(c) Marshy lands or lands covered with water bordering upon the shores or banks of
navigable lakes or rivers;
(d) Lands not included in any of the foregoing classes.
x x x.
Sec. 58. The lands comprised in classes (a), (b), and (c) of section fifty-six shall be
disposed of to private parties by lease only and not otherwise, as soon as the Governor-
General, upon recommendation by the Secretary of Agriculture and Natural Resources,
shall declare that the same are not necessary for the public service and are open to
disposition under this chapter. The lands included in class (d) may be disposed of by
sale or lease under the provisions of this Act." (Emphasis supplied)
Section 6 of Act No. 2874 authorized the Governor-General to "classify lands of the public domain into
x x x alienable or disposable"47 lands. Section 7 of the Act empowered the Governor-General to
"declare what lands are open to disposition or concession." Section 8 of the Act limited alienable or
disposable lands only to those lands which have been "officially delimited and classified."
Section 56 of Act No. 2874 stated that lands "disposable under this title48 shall be classified" as
government reclaimed, foreshore and marshy lands, as well as other lands. All these lands, however,
must be suitable for residential, commercial, industrial or other productive non-agricultural purposes.
These provisions vested upon the Governor-General the power to classify inalienable lands of the
public domain into disposable lands of the public domain. These provisions also empowered the
Governor-General to classify further such disposable lands of the public domain into government
reclaimed, foreshore or marshy lands of the public domain, as well as other non-agricultural lands.
Section 58 of Act No. 2874 categorically mandated that disposable lands of the public domain
classified as government reclaimed, foreshore and marshy lands "shall be disposed of to private
parties by lease only and not otherwise." The Governor-General, before allowing the lease of these
lands to private parties, must formally declare that the lands were "not necessary for the public
service." Act No. 2874 reiterated the State policy to lease and not to sell government reclaimed,
foreshore and marshy lands of the public domain, a policy first enunciated in 1907 in Act No. 1654.
Government reclaimed, foreshore and marshy lands remained sui generis, as the only alienable or
disposable lands of the public domain that the government could not sell to private parties.
The rationale behind this State policy is obvious. Government reclaimed, foreshore and marshy public
lands for non-agricultural purposes retain their inherent potential as areas for public service. This is
the reason the government prohibited the sale, and only allowed the lease, of these lands to private
parties. The State always reserved these lands for some future public service.
Act No. 2874 did not authorize the reclassification of government reclaimed, foreshore and marshy
lands into other non-agricultural lands under Section 56 (d). Lands falling under Section 56 (d) were
the only lands for non-agricultural purposes the government could sell to private parties. Thus, under
Act No. 2874, the government could not sell government reclaimed, foreshore and marshy lands to
private parties, unless the legislature passed a law allowing their sale.49
Act No. 2874 did not prohibit private parties from reclaiming parts of the sea pursuant to Section 5 of
the Spanish Law of Waters of 1866. Lands reclaimed from the sea by private parties with government
permission remained private lands.
Dispositions under the 1935 Constitution
On May 14, 1935, the 1935 Constitution took effect upon its ratification by the Filipino people. The
1935 Constitution, in adopting the Regalian doctrine, declared in Section 1, Article XIII, that –
"Section 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals,
coal, petroleum, and other mineral oils, all forces of potential energy and other natural
resources of the Philippines belong to the State, and their disposition, exploitation,
development, or utilization shall be limited to citizens of the Philippines or to corporations or
associations at least sixty per centum of the capital of which is owned by such citizens, subject
to any existing right, grant, lease, or concession at the time of the inauguration of the
Government established under this Constitution. Natural resources, with the exception of
public agricultural land, shall not be alienated, and no license, concession, or lease for the
exploitation, development, or utilization of any of the natural resources shall be granted for a
period exceeding twenty-five years, renewable for another twenty-five years, except as to
water rights for irrigation, water supply, fisheries, or industrial uses other than the development
of water power, in which cases beneficial use may be the measure and limit of the grant."
(Emphasis supplied)
The 1935 Constitution barred the alienation of all natural resources except public agricultural lands,
which were the only natural resources the State could alienate. Thus, foreshore lands, considered part
of the State's natural resources, became inalienable by constitutional fiat, available only for lease for
25 years, renewable for another 25 years. The government could alienate foreshore lands only after
these lands were reclaimed and classified as alienable agricultural lands of the public domain.
Government reclaimed and marshy lands of the public domain, being neither timber nor mineral lands,
fell under the classification of public agricultural lands.50 However, government reclaimed and marshy
lands, although subject to classification as disposable public agricultural lands, could only be leased
and not sold to private parties because of Act No. 2874.
The prohibition on private parties from acquiring ownership of government reclaimed and marshy lands
of the public domain was only a statutory prohibition and the legislature could therefore remove such
prohibition. The 1935 Constitution did not prohibit individuals and corporations from acquiring
government reclaimed and marshy lands of the public domain that were classified as agricultural lands
under existing public land laws. Section 2, Article XIII of the 1935 Constitution provided as follows:
"Section 2. No private corporation or association may acquire, lease, or hold public
agricultural lands in excess of one thousand and twenty four hectares, nor may any
individual acquire such lands by purchase in excess of one hundred and forty hectares,
or by lease in excess of one thousand and twenty-four hectares, or by homestead in
 excess of twenty-four hectares. Lands adapted to grazing, not exceeding two thousand
hectares, may be leased to an individual, private corporation, or association." (Emphasis
supplied)
Still, after the effectivity of the 1935 Constitution, the legislature did not repeal Section 58 of Act No.
2874 to open for sale to private parties government reclaimed and marshy lands of the public domain.
On the contrary, the legislature continued the long established State policy of retaining for the
government title and ownership of government reclaimed and marshy lands of the public domain.
Commonwealth Act No. 141 of the Philippine National Assembly
On November 7, 1936, the National Assembly approved Commonwealth Act No. 141, also known as
the Public Land Act, which compiled the then existing laws on lands of the public domain. CA No. 141,
as amended, remains to this day the existing general law governing the classification and disposition
of lands of the public domain other than timber and mineral lands.51
Section 6 of CA No. 141 empowers the President to classify lands of the public domain into "alienable
or disposable"52 lands of the public domain, which prior to such classification are inalienable and
outside the commerce of man. Section 7 of CA No. 141 authorizes the President to "declare what
lands are open to disposition or concession." Section 8 of CA No. 141 states that the government can
declare open for disposition or concession only lands that are "officially delimited and classified."
Sections 6, 7 and 8 of CA No. 141 read as follows:
"Sec. 6. The President, upon the recommendation of the Secretary of Agriculture and
Commerce, shall from time to time classify the lands of the public domain into –
(a) Alienable or disposable,
(b) Timber, and
(c) Mineral lands,
and may at any time and in like manner transfer such lands from one class to another,53 for
the purpose of their administration and disposition.
Sec. 7. For the purposes of the administration and disposition of alienable or disposable public
lands, the President, upon recommendation by the Secretary of Agriculture and
Commerce, shall from time to time declare what lands are open to disposition or
concession under this Act.
Sec. 8. Only those lands shall be declared open to disposition or concession which
have been officially delimited and classified and, when practicable, surveyed, and which
have not been reserved for public or quasi-public uses, nor appropriated by the
Government, nor in any manner become private property, nor those on which a private right
authorized and recognized by this Act or any other valid law may be claimed, or which, having
been reserved or appropriated, have ceased to be so. x x x."
Thus, before the government could alienate or dispose of lands of the public domain, the President
must first officially classify these lands as alienable or disposable, and then declare them open to
disposition or concession. There must be no law reserving these lands for public or quasi-public uses.
The salient provisions of CA No. 141, on government reclaimed, foreshore and marshy lands of the
public domain, are as follows:
"Sec. 58. Any tract of land of the public domain which, being neither timber nor mineral
land, is intended to be used for residential purposes or for commercial, industrial, or
other productive purposes other than agricultural, and is open to disposition or
concession, shall be disposed of under the provisions of this chapter and not
otherwise.
Sec. 59. The lands disposable under this title shall be classified as follows:
(a) Lands reclaimed by the Government by dredging, filling, or other means;
(b) Foreshore;
(c) Marshy lands or lands covered with water bordering upon the shores or banks of
navigable lakes or rivers;
(d) Lands not included in any of the foregoing classes.
Sec. 60. Any tract of land comprised under this title may be leased or sold, as the case may
be, to any person, corporation, or association authorized to purchase or lease public lands for
agricultural purposes. x x x.
Sec. 61. The lands comprised in classes (a), (b), and (c) of section fifty-nine shall be
disposed of to private parties by lease only and not otherwise, as soon as the President,
upon recommendation by the Secretary of Agriculture, shall declare that the same are not
necessary for the public service and are open to disposition under this chapter. The lands
included in class (d) may be disposed of by sale or lease under the provisions of this
Act." (Emphasis supplied)
Section 61 of CA No. 141 readopted, after the effectivity of the 1935 Constitution, Section 58 of Act
No. 2874 prohibiting the sale of government reclaimed, foreshore and marshy disposable lands of the
public domain. All these lands are intended for residential, commercial, industrial or other non-
agricultural purposes. As before, Section 61 allowed only the lease of such lands to private parties.
The government could sell to private parties only lands falling under Section 59 (d) of CA No. 141, or
those lands for non-agricultural purposes not classified as government reclaimed, foreshore and
marshy disposable lands of the public domain. Foreshore lands, however, became inalienable under
the 1935 Constitution which only allowed the lease of these lands to qualified private parties.
Section 58 of CA No. 141 expressly states that disposable lands of the public domain intended for
residential, commercial, industrial or other productive purposes other than agricultural "shall be
disposed of under the provisions of this chapter and not otherwise." Under Section 10 of CA No.
141, the term "disposition" includes lease of the land. Any disposition of government reclaimed,
foreshore and marshy disposable lands for non-agricultural purposes must comply with Chapter IX,
Title III of CA No. 141,54 unless a subsequent law amended or repealed these provisions.
In his concurring opinion in the landmark case of Republic Real Estate Corporation v. Court of
Appeals,55 Justice Reynato S. Puno summarized succinctly the law on this matter, as follows:
"Foreshore lands are lands of public dominion intended for public use. So too are lands
reclaimed by the government by dredging, filling, or other means. Act 1654 mandated that the
control and disposition of the foreshore and lands under water remained in the national
government. Said law allowed only the 'leasing' of reclaimed land. The Public Land Acts of
1919 and 1936 also declared that the foreshore and lands reclaimed by the government were
to be "disposed of to private parties by lease only and not otherwise." Before leasing, however,
the Governor-General, upon recommendation of the Secretary of Agriculture and Natural
Resources, had first to determine that the land reclaimed was not necessary for the public
service. This requisite must have been met before the land could be disposed of. But even
then, the foreshore and lands under water were not to be alienated and sold to private
parties. The disposition of the reclaimed land was only by lease. The land remained
property of the State." (Emphasis supplied)
As observed by Justice Puno in his concurring opinion, "Commonwealth Act No. 141 has remained in
effect at present."
The State policy prohibiting the sale to private parties of government reclaimed, foreshore and marshy
alienable lands of the public domain, first implemented in 1907 was thus reaffirmed in CA No. 141
after the 1935 Constitution took effect. The prohibition on the sale of foreshore lands, however,
became a constitutional edict under the 1935 Constitution. Foreshore lands became inalienable as
natural resources of the State, unless reclaimed by the government and classified as agricultural lands
of the public domain, in which case they would fall under the classification of government reclaimed
lands.
After the effectivity of the 1935 Constitution, government reclaimed and marshy disposable lands of
the public domain continued to be only leased and not sold to private parties.56 These lands
remained sui generis, as the only alienable or disposable lands of the public domain the government
could not sell to private parties.
Since then and until now, the only way the government can sell to private parties government
reclaimed and marshy disposable lands of the public domain is for the legislature to pass a law
authorizing such sale. CA No. 141 does not authorize the President to reclassify government reclaimed
and marshy lands into other non-agricultural lands under Section 59 (d). Lands classified under
Section 59 (d) are the only alienable or disposable lands for non-agricultural purposes that the
government could sell to private parties.
Moreover, Section 60 of CA No. 141 expressly requires congressional authority before lands under
Section 59 that the government previously transferred to government units or entities could be sold to
private parties. Section 60 of CA No. 141 declares that –
"Sec. 60. x x x The area so leased or sold shall be such as shall, in the judgment of the
Secretary of Agriculture and Natural Resources, be reasonably necessary for the purposes for
which such sale or lease is requested, and shall not exceed one hundred and forty-four
hectares: Provided, however, That this limitation shall not apply to grants, donations, or
transfers made to a province, municipality or branch or subdivision of the Government for the
purposes deemed by said entities conducive to the public interest; but the land so granted,
donated, or transferred to a province, municipality or branch or subdivision of the
Government shall not be alienated, encumbered, or otherwise disposed of in a manner
affecting its title, except when authorized by Congress: x x x." (Emphasis supplied)
The congressional authority required in Section 60 of CA No. 141 mirrors the legislative authority
required in Section 56 of Act No. 2874.
One reason for the congressional authority is that Section 60 of CA No. 141 exempted government
units and entities from the maximum area of public lands that could be acquired from the State. These
government units and entities should not just turn around and sell these lands to private parties in
violation of constitutional or statutory limitations. Otherwise, the transfer of lands for non-agricultural
purposes to government units and entities could be used to circumvent constitutional limitations on
ownership of alienable or disposable lands of the public domain. In the same manner, such transfers
could also be used to evade the statutory prohibition in CA No. 141 on the sale of government
reclaimed and marshy lands of the public domain to private parties. Section 60 of CA No. 141
constitutes by operation of law a lien on these lands.57
In case of sale or lease of disposable lands of the public domain falling under Section 59 of CA No.
141, Sections 63 and 67 require a public bidding. Sections 63 and 67 of CA No. 141 provide as follows:
"Sec. 63. Whenever it is decided that lands covered by this chapter are not needed for public
purposes, the Director of Lands shall ask the Secretary of Agriculture and Commerce (now
the Secretary of Natural Resources) for authority to dispose of the same. Upon receipt of such
authority, the Director of Lands shall give notice by public advertisement in the same manner
as in the case of leases or sales of agricultural public land, x x x.
Sec. 67. The lease or sale shall be made by oral bidding; and adjudication shall be made
to the highest bidder. x x x." (Emphasis supplied)
Thus, CA No. 141 mandates the Government to put to public auction all leases or sales of alienable
or disposable lands of the public domain.58
Like Act No. 1654 and Act No. 2874 before it, CA No. 141 did not repeal Section 5 of the Spanish Law
of Waters of 1866. Private parties could still reclaim portions of the sea with government permission.
However, the reclaimed land could become private land only if classified as alienable
agricultural land of the public domain open to disposition under CA No. 141. The 1935 Constitution
prohibited the alienation of all natural resources except public agricultural lands.
The Civil Code of 1950
The Civil Code of 1950 readopted substantially the definition of property of public dominion found in
the Civil Code of 1889. Articles 420 and 422 of the Civil Code of 1950 state that –
"Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth.
x x x.
Art. 422. Property of public dominion, when no longer intended for public use or for public
service, shall form part of the patrimonial property of the State."
Again, the government must formally declare that the property of public dominion is no longer needed
for public use or public service, before the same could be classified as patrimonial property of the
State.59 In the case of government reclaimed and marshy lands of the public domain, the declaration
of their being disposable, as well as the manner of their disposition, is governed by the applicable
provisions of CA No. 141.
Like the Civil Code of 1889, the Civil Code of 1950 included as property of public dominion those
properties of the State which, without being for public use, are intended for public service or the
"development of the national wealth." Thus, government reclaimed and marshy lands of the State,
even if not employed for public use or public service, if developed to enhance the national wealth, are
classified as property of public dominion.
Dispositions under the 1973 Constitution
The 1973 Constitution, which took effect on January 17, 1973, likewise adopted the Regalian doctrine.
Section 8, Article XIV of the 1973 Constitution stated that –
"Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and other mineral
oils, all forces of potential energy, fisheries, wildlife, and other natural resources of the
Philippines belong to the State. With the exception of agricultural, industrial or
commercial, residential, and resettlement lands of the public domain, natural resources
shall not be alienated, and no license, concession, or lease for the exploration, development,
exploitation, or utilization of any of the natural resources shall be granted for a period
exceeding twenty-five years, renewable for not more than twenty-five years, except as to water
rights for irrigation, water supply, fisheries, or industrial uses other than the development of
water power, in which cases, beneficial use may be the measure and the limit of the grant."
(Emphasis supplied)
The 1973 Constitution prohibited the alienation of all natural resources with the exception of
"agricultural, industrial or commercial, residential, and resettlement lands of the public domain." In
contrast, the 1935 Constitution barred the alienation of all natural resources except "public agricultural
lands." However, the term "public agricultural lands" in the 1935 Constitution encompassed industrial,
commercial, residential and resettlement lands of the public domain.60 If the land of public domain
were neither timber nor mineral land, it would fall under the classification of agricultural land of the
public domain. Both the 1935 and 1973 Constitutions, therefore, prohibited the alienation of all
natural resources except agricultural lands of the public domain.
The 1973 Constitution, however, limited the alienation of lands of the public domain to individuals who
were citizens of the Philippines. Private corporations, even if wholly owned by Philippine citizens, were
no longer allowed to acquire alienable lands of the public domain unlike in the 1935 Constitution.
Section 11, Article XIV of the 1973 Constitution declared that –
"Sec. 11. The Batasang Pambansa, taking into account conservation, ecological, and
development requirements of the natural resources, shall determine by law the size of land of
the public domain which may be developed, held or acquired by, or leased to, any qualified
 individual, corporation, or association, and the conditions therefor. No private corporation or
association may hold alienable lands of the public domain except by lease not to exceed
one thousand hectares in area nor may any citizen hold such lands by lease in excess of five
hundred hectares or acquire by purchase, homestead or grant, in excess of twenty-four
hectares. No private corporation or association may hold by lease, concession, license or
permit, timber or forest lands and other timber or forest resources in excess of one hundred
thousand hectares. However, such area may be increased by the Batasang Pambansa upon
recommendation of the National Economic and Development Authority." (Emphasis supplied)
Thus, under the 1973 Constitution, private corporations could hold alienable lands of the public domain
only through lease. Only individuals could now acquire alienable lands of the public domain,
and private corporations became absolutely barred from acquiring any kind of alienable land
of the public domain. The constitutional ban extended to all kinds of alienable lands of the public
domain, while the statutory ban under CA No. 141 applied only to government reclaimed, foreshore
and marshy alienable lands of the public domain.
PD No. 1084 Creating the Public Estates Authority
On February 4, 1977, then President Ferdinand Marcos issued Presidential Decree No. 1084 creating
PEA, a wholly government owned and controlled corporation with a special charter. Sections 4 and 8
of PD No. 1084, vests PEA with the following purposes and powers:
"Sec. 4. Purpose. The Authority is hereby created for the following purposes:
(a) To reclaim land, including foreshore and submerged areas, by dredging, filling or
other means, or to acquire reclaimed land;
(b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and sell any
and all kinds of lands, buildings, estates and other forms of real property, owned, managed,
controlled and/or operated by the government;
(c) To provide for, operate or administer such service as may be necessary for the efficient,
economical and beneficial utilization of the above properties.
Sec. 5. Powers and functions of the Authority. The Authority shall, in carrying out the purposes
for which it is created, have the following powers and functions:
(a)To prescribe its by-laws.
xxx
(i) To hold lands of the public domain in excess of the area permitted to private corporations
by statute.
(j) To reclaim lands and to construct work across, or otherwise, any stream, watercourse,
canal, ditch, flume x x x.
xxx
(o) To perform such acts and exercise such functions as may be necessary for the attainment
of the purposes and objectives herein specified." (Emphasis supplied)
PD No. 1084 authorizes PEA to reclaim both foreshore and submerged areas of the public domain.
Foreshore areas are those covered and uncovered by the ebb and flow of the tide.61 Submerged areas
are those permanently under water regardless of the ebb and flow of the tide.62 Foreshore and
submerged areas indisputably belong to the public domain63 and are inalienable unless reclaimed,
classified as alienable lands open to disposition, and further declared no longer needed for public
service.
The ban in the 1973 Constitution on private corporations from acquiring alienable lands of the public
domain did not apply to PEA since it was then, and until today, a fully owned government corporation.
The constitutional ban applied then, as it still applies now, only to "private corporations and
associations." PD No. 1084 expressly empowers PEA "to hold lands of the public domain" even
"in excess of the area permitted to private corporations by statute." Thus, PEA can hold title to
private lands, as well as title to lands of the public domain.
In order for PEA to sell its reclaimed foreshore and submerged alienable lands of the public domain,
there must be legislative authority empowering PEA to sell these lands. This legislative authority is
necessary in view of Section 60 of CA No.141, which states –
"Sec. 60. x x x; but the land so granted, donated or transferred to a province, municipality, or
branch or subdivision of the Government shall not be alienated, encumbered or otherwise
disposed of in a manner affecting its title, except when authorized by Congress; x x x."
(Emphasis supplied)
Without such legislative authority, PEA could not sell but only lease its reclaimed foreshore and
submerged alienable lands of the public domain. Nevertheless, any legislative authority granted to
PEA to sell its reclaimed alienable lands of the public domain would be subject to the constitutional
ban on private corporations from acquiring alienable lands of the public domain. Hence, such
legislative authority could only benefit private individuals.
Dispositions under the 1987 Constitution
The 1987 Constitution, like the 1935 and 1973 Constitutions before it, has adopted the Regalian
doctrine. The 1987 Constitution declares that all natural resources are "owned by the State," and
except for alienable agricultural lands of the public domain, natural resources cannot be alienated.
Sections 2 and 3, Article XII of the 1987 Constitution state that –
"Section 2. All lands of the public domain, waters, minerals, coal, petroleum and other mineral
oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and
other natural resources are owned by the State. With the exception of agricultural lands,
all other natural resources shall not be alienated. The exploration, development, and
utilization of natural resources shall be under the full control and supervision of the State. x x
x.
Section 3. Lands of the public domain are classified into agricultural, forest or timber, mineral
lands, and national parks. Agricultural lands of the public domain may be further classified by
law according to the uses which they may be devoted. Alienable lands of the public domain
shall be limited to agricultural lands. Private corporations or associations may not hold
such alienable lands of the public domain except by lease, for a period not exceeding
twenty-five years, renewable for not more than twenty-five years, and not to exceed one
thousand hectares in area. Citizens of the Philippines may lease not more than five hundred
hectares, or acquire not more than twelve hectares thereof by purchase, homestead, or grant.
Taking into account the requirements of conservation, ecology, and development, and subject
to the requirements of agrarian reform, the Congress shall determine, by law, the size of lands
of the public domain which may be acquired, developed, held, or leased and the conditions
therefor." (Emphasis supplied)
The 1987 Constitution continues the State policy in the 1973 Constitution banning private corporations
from acquiring any kind of alienable land of the public domain. Like the 1973 Constitution, the
1987 Constitution allows private corporations to hold alienable lands of the public domain only
through lease. As in the 1935 and 1973 Constitutions, the general law governing the lease to private
corporations of reclaimed, foreshore and marshy alienable lands of the public domain is still CA No.
141.
The Rationale behind the Constitutional Ban
The rationale behind the constitutional ban on corporations from acquiring, except through lease,
alienable lands of the public domain is not well understood. During the deliberations of the 1986
Constitutional Commission, the commissioners probed the rationale behind this ban, thus:
"FR. BERNAS: Mr. Vice-President, my questions have reference to page 3, line 5 which says:
`No private corporation or association may hold alienable lands of the public domain except
by lease, not to exceed one thousand hectares in area.'
If we recall, this provision did not exist under the 1935 Constitution, but this was introduced in
the 1973 Constitution. In effect, it prohibits private corporations from acquiring alienable public
lands. But it has not been very clear in jurisprudence what the reason for this is. In some
of the cases decided in 1982 and 1983, it was indicated that the purpose of this is to
prevent large landholdings. Is that the intent of this provision?
MR. VILLEGAS: I think that is the spirit of the provision.
FR. BERNAS: In existing decisions involving the Iglesia ni Cristo, there were instances where
the Iglesia ni Cristo was not allowed to acquire a mere 313-square meter land where a chapel
stood because the Supreme Court said it would be in violation of this." (Emphasis supplied)
In Ayog v. Cusi,64 the Court explained the rationale behind this constitutional ban in this way:
"Indeed, one purpose of the constitutional prohibition against purchases of public agricultural
lands by private corporations is to equitably diffuse land ownership or to encourage 'owner-
cultivatorship and the economic family-size farm' and to prevent a recurrence of cases like the
instant case. Huge landholdings by corporations or private persons had spawned social
unrest."
However, if the constitutional intent is to prevent huge landholdings, the Constitution could have simply
limited the size of alienable lands of the public domain that corporations could acquire. The
Constitution could have followed the limitations on individuals, who could acquire not more than 24
hectares of alienable lands of the public domain under the 1973 Constitution, and not more than 12
hectares under the 1987 Constitution.
If the constitutional intent is to encourage economic family-size farms, placing the land in the name of
a corporation would be more effective in preventing the break-up of farmlands. If the farmland is
registered in the name of a corporation, upon the death of the owner, his heirs would inherit shares in
the corporation instead of subdivided parcels of the farmland. This would prevent the continuing break-
up of farmlands into smaller and smaller plots from one generation to the next.
In actual practice, the constitutional ban strengthens the constitutional limitation on individuals from
acquiring more than the allowed area of alienable lands of the public domain. Without the constitutional
ban, individuals who already acquired the maximum area of alienable lands of the public domain could
easily set up corporations to acquire more alienable public lands. An individual could own as many
corporations as his means would allow him. An individual could even hide his ownership of a
corporation by putting his nominees as stockholders of the corporation. The corporation is a
convenient vehicle to circumvent the constitutional limitation on acquisition by individuals of alienable
lands of the public domain.
The constitutional intent, under the 1973 and 1987 Constitutions, is to transfer ownership of only a
limited area of alienable land of the public domain to a qualified individual. This constitutional intent is
safeguarded by the provision prohibiting corporations from acquiring alienable lands of the public
domain, since the vehicle to circumvent the constitutional intent is removed. The available alienable
public lands are gradually decreasing in the face of an ever-growing population. The most effective
way to insure faithful adherence to this constitutional intent is to grant or sell alienable lands of the
public domain only to individuals. This, it would seem, is the practical benefit arising from the
constitutional ban.
The Amended Joint Venture Agreement
The subject matter of the Amended JVA, as stated in its second Whereas clause, consists of three
properties, namely:
1. "[T]hree partially reclaimed and substantially eroded islands along Emilio Aguinaldo
Boulevard in Paranaque and Las Pinas, Metro Manila, with a combined titled area of 1,578,441
square meters;"
2. "[A]nother area of 2,421,559 square meters contiguous to the three islands;" and
3. "[A]t AMARI's option as approved by PEA, an additional 350 hectares more or less to
regularize the configuration of the reclaimed area."65
PEA confirms that the Amended JVA involves "the development of the Freedom Islands and further
reclamation of about 250 hectares x x x," plus an option "granted to AMARI to subsequently reclaim
another 350 hectares x x x."66
In short, the Amended JVA covers a reclamation area of 750 hectares. Only 157.84 hectares of the
750-hectare reclamation project have been reclaimed, and the rest of the 592.15 hectares are
still submerged areas forming part of Manila Bay.
Under the Amended JVA, AMARI will reimburse PEA the sum of P1,894,129,200.00 for PEA's "actual
cost" in partially reclaiming the Freedom Islands. AMARI will also complete, at its own expense, the
reclamation of the Freedom Islands. AMARI will further shoulder all the reclamation costs of all the
other areas, totaling 592.15 hectares, still to be reclaimed. AMARI and PEA will share, in the proportion
of 70 percent and 30 percent, respectively, the total net usable area which is defined in the Amended
JVA as the total reclaimed area less 30 percent earmarked for common areas. Title to AMARI's share
in the net usable area, totaling 367.5 hectares, will be issued in the name of AMARI. Section 5.2 (c)
of the Amended JVA provides that –
"x x x, PEA shall have the duty to execute without delay the necessary deed of transfer or
conveyance of the title pertaining to AMARI's Land share based on the Land Allocation
Plan. PEA, when requested in writing by AMARI, shall then cause the issuance and
delivery of the proper certificates of title covering AMARI's Land Share in the name of
AMARI, x x x; provided, that if more than seventy percent (70%) of the titled area at any given
time pertains to AMARI, PEA shall deliver to AMARI only seventy percent (70%) of the titles
pertaining to AMARI, until such time when a corresponding proportionate area of additional
land pertaining to PEA has been titled." (Emphasis supplied)
Indisputably, under the Amended JVA AMARI will acquire and own a maximum of 367.5
hectares of reclaimed land which will be titled in its name.
To implement the Amended JVA, PEA delegated to the unincorporated PEA-AMARI joint venture
PEA's statutory authority, rights and privileges to reclaim foreshore and submerged areas in Manila
Bay. Section 3.2.a of the Amended JVA states that –
"PEA hereby contributes to the joint venture its rights and privileges to perform Rawland
Reclamation and Horizontal Development as well as own the Reclamation Area, thereby
granting the Joint Venture the full and exclusive right, authority and privilege to undertake the
Project in accordance with the Master Development Plan."
The Amended JVA is the product of a renegotiation of the original JVA dated April 25, 1995 and its
supplemental agreement dated August 9, 1995.
The Threshold Issue
The threshold issue is whether AMARI, a private corporation, can acquire and own under the Amended
JVA 367.5 hectares of reclaimed foreshore and submerged areas in Manila Bay in view of Sections 2
and 3, Article XII of the 1987 Constitution which state that:
"Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and
other natural resources are owned by the State. With the exception of agricultural lands,
all other natural resources shall not be alienated. x x x.
xxx
Section 3. x x x Alienable lands of the public domain shall be limited to agricultural
lands. Private corporations or associations may not hold such alienable lands of the
public domain except by lease, x x x."(Emphasis supplied)
Classification of Reclaimed Foreshore and Submerged Areas
PEA readily concedes that lands reclaimed from foreshore or submerged areas of Manila Bay are
alienable or disposable lands of the public domain. In its Memorandum,67 PEA admits that –
"Under the Public Land Act (CA 141, as amended), reclaimed lands are classified as
alienable and disposable lands of the public domain:
'Sec. 59. The lands disposable under this title shall be classified as follows:
(a) Lands reclaimed by the government by dredging, filling, or other means;
x x x.'" (Emphasis supplied)
Likewise, the Legal Task Force68 constituted under Presidential Administrative Order No. 365 admitted
in its Report and Recommendation to then President Fidel V. Ramos, "[R]eclaimed lands are
classified as alienable and disposable lands of the public domain."69 The Legal Task Force
concluded that –
"D. Conclusion
Reclaimed lands are lands of the public domain. However, by statutory authority, the rights of
ownership and disposition over reclaimed lands have been transferred to PEA, by virtue of
which PEA, as owner, may validly convey the same to any qualified person without violating
the Constitution or any statute.
The constitutional provision prohibiting private corporations from holding public land, except
by lease (Sec. 3, Art. XVII,70 1987 Constitution), does not apply to reclaimed lands whose
ownership has passed on to PEA by statutory grant."
Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of Manila
Bay are part of the "lands of the public domain, waters x x x and other natural resources" and
consequently "owned by the State." As such, foreshore and submerged areas "shall not be alienated,"
unless they are classified as "agricultural lands" of the public domain. The mere reclamation of these
areas by PEA does not convert these inalienable natural resources of the State into alienable or
disposable lands of the public domain. There must be a law or presidential proclamation officially
classifying these reclaimed lands as alienable or disposable and open to disposition or concession.
Moreover, these reclaimed lands cannot be classified as alienable or disposable if the law has
reserved them for some public or quasi-public use.71
Section 8 of CA No. 141 provides that "only those lands shall be declared open to disposition or
concession which have been officially delimited and classified."72 The President has the authority
to classify inalienable lands of the public domain into alienable or disposable lands of the public
domain, pursuant to Section 6 of CA No. 141. In Laurel vs. Garcia,73 the Executive Department
attempted to sell the Roppongi property in Tokyo, Japan, which was acquired by the Philippine
Government for use as the Chancery of the Philippine Embassy. Although the Chancery had
transferred to another location thirteen years earlier, the Court still ruled that, under Article 42274 of the
Civil Code, a property of public dominion retains such character until formally declared otherwise. The
Court ruled that –
"The fact that the Roppongi site has not been used for a long time for actual Embassy service
does not automatically convert it to patrimonial property. Any such conversion happens only if
the property is withdrawn from public use (Cebu Oxygen and Acetylene Co. v. Bercilles, 66
SCRA 481 [1975]. A property continues to be part of the public domain, not available for
private appropriation or ownership 'until there is a formal declaration on the part of the
government to withdraw it from being such' (Ignacio v. Director of Lands, 108 Phil. 335
[1960]." (Emphasis supplied)
PD No. 1085, issued on February 4, 1977, authorized the issuance of special land patents for lands
reclaimed by PEA from the foreshore or submerged areas of Manila Bay. On January 19, 1988 then
President Corazon C. Aquino issued Special Patent No. 3517 in the name of PEA for the 157.84
hectares comprising the partially reclaimed Freedom Islands. Subsequently, on April 9, 1999 the
Register of Deeds of the Municipality of Paranaque issued TCT Nos. 7309, 7311 and 7312 in the name
of PEA pursuant to Section 103 of PD No. 1529 authorizing the issuance of certificates of title
corresponding to land patents. To this day, these certificates of title are still in the name of PEA.
PD No. 1085, coupled with President Aquino's actual issuance of a special patent covering the
Freedom Islands, is equivalent to an official proclamation classifying the Freedom Islands as alienable
or disposable lands of the public domain. PD No. 1085 and President Aquino's issuance of a land
patent also constitute a declaration that the Freedom Islands are no longer needed for public
service. The Freedom Islands are thus alienable or disposable lands of the public domain, open
to disposition or concession to qualified parties.
At the time then President Aquino issued Special Patent No. 3517, PEA had already reclaimed the
Freedom Islands although subsequently there were partial erosions on some areas. The government
had also completed the necessary surveys on these islands. Thus, the Freedom Islands were no
longer part of Manila Bay but part of the land mass. Section 3, Article XII of the 1987 Constitution
classifies lands of the public domain into "agricultural, forest or timber, mineral lands, and national
parks." Being neither timber, mineral, nor national park lands, the reclaimed Freedom Islands
necessarily fall under the classification of agricultural lands of the public domain. Under the 1987
Constitution, agricultural lands of the public domain are the only natural resources that the State may
alienate to qualified private parties. All other natural resources, such as the seas or bays, are "waters
x x x owned by the State" forming part of the public domain, and are inalienable pursuant to Section
2, Article XII of the 1987 Constitution.
AMARI claims that the Freedom Islands are private lands because CDCP, then a private corporation,
reclaimed the islands under a contract dated November 20, 1973 with the Commissioner of Public
Highways. AMARI, citing Article 5 of the Spanish Law of Waters of 1866, argues that "if the ownership
of reclaimed lands may be given to the party constructing the works, then it cannot be said that
reclaimed lands are lands of the public domain which the State may not alienate."75 Article 5 of the
Spanish Law of Waters reads as follows:
"Article 5. Lands reclaimed from the sea in consequence of works constructed by the State, or
by the provinces, pueblos or private persons, with proper permission, shall become the
property of the party constructing such works, unless otherwise provided by the terms of
the grant of authority." (Emphasis supplied)
Under Article 5 of the Spanish Law of Waters of 1866, private parties could reclaim from the sea only
with "proper permission" from the State. Private parties could own the reclaimed land only if not
"otherwise provided by the terms of the grant of authority." This clearly meant that no one could reclaim
from the sea without permission from the State because the sea is property of public dominion. It also
meant that the State could grant or withhold ownership of the reclaimed land because any reclaimed
land, like the sea from which it emerged, belonged to the State. Thus, a private person reclaiming from
the sea without permission from the State could not acquire ownership of the reclaimed land which
would remain property of public dominion like the sea it replaced.76 Article 5 of the Spanish Law of
Waters of 1866 adopted the time-honored principle of land ownership that "all lands that were not
acquired from the government, either by purchase or by grant, belong to the public domain."77
Article 5 of the Spanish Law of Waters must be read together with laws subsequently enacted on the
disposition of public lands. In particular, CA No. 141 requires that lands of the public domain must first
be classified as alienable or disposable before the government can alienate them. These lands must
not be reserved for public or quasi-public purposes.78 Moreover, the contract between CDCP and the
government was executed after the effectivity of the 1973 Constitution which barred private
corporations from acquiring any kind of alienable land of the public domain. This contract could not
have converted the Freedom Islands into private lands of a private corporation.
Presidential Decree No. 3-A, issued on January 11, 1973, revoked all laws authorizing the reclamation
of areas under water and revested solely in the National Government the power to reclaim lands.
Section 1 of PD No. 3-A declared that –
"The provisions of any law to the contrary notwithstanding, the reclamation of areas under
water, whether foreshore or inland, shall be limited to the National Government or any
person authorized by it under a proper contract. (Emphasis supplied)
x x x."
PD No. 3-A repealed Section 5 of the Spanish Law of Waters of 1866 because reclamation of areas
under water could now be undertaken only by the National Government or by a person contracted by
the National Government. Private parties may reclaim from the sea only under a contract with the
National Government, and no longer by grant or permission as provided in Section 5 of the Spanish
Law of Waters of 1866.
Executive Order No. 525, issued on February 14, 1979, designated PEA as the National Government's
implementing arm to undertake "all reclamation projects of the government," which "shall be
undertaken by the PEA or through a proper contract executed by it with any person or entity."
Under such contract, a private party receives compensation for reclamation services rendered to PEA.
Payment to the contractor may be in cash, or in kind consisting of portions of the reclaimed land,
subject to the constitutional ban on private corporations from acquiring alienable lands of the public
domain. The reclaimed land can be used as payment in kind only if the reclaimed land is first classified
as alienable or disposable land open to disposition, and then declared no longer needed for public
service.
The Amended JVA covers not only the Freedom Islands, but also an additional 592.15 hectares which
are still submerged and forming part of Manila Bay. There is no legislative or Presidential act
classifying these submerged areas as alienable or disposable lands of the public domain open
to disposition. These submerged areas are not covered by any patent or certificate of title. There can
be no dispute that these submerged areas form part of the public domain, and in their present state
are inalienable and outside the commerce of man. Until reclaimed from the sea, these submerged
areas are, under the Constitution, "waters x x x owned by the State," forming part of the public domain
and consequently inalienable. Only when actually reclaimed from the sea can these submerged areas
be classified as public agricultural lands, which under the Constitution are the only natural resources
that the State may alienate. Once reclaimed and transformed into public agricultural lands, the
government may then officially classify these lands as alienable or disposable lands open to
disposition. Thereafter, the government may declare these lands no longer needed for public service.
Only then can these reclaimed lands be considered alienable or disposable lands of the public domain
and within the commerce of man.
The classification of PEA's reclaimed foreshore and submerged lands into alienable or disposable
lands open to disposition is necessary because PEA is tasked under its charter to undertake public
services that require the use of lands of the public domain. Under Section 5 of PD No. 1084, the
functions of PEA include the following: "[T]o own or operate railroads, tramways and other kinds of
land transportation, x x x; [T]o construct, maintain and operate such systems of sanitary sewers as
may be necessary; [T]o construct, maintain and operate such storm drains as may be necessary."
PEA is empowered to issue "rules and regulations as may be necessary for the proper use by private
parties of any or all of the highways, roads, utilities, buildings and/or any of its properties and
to impose or collect fees or tolls for their use." Thus, part of the reclaimed foreshore and submerged
lands held by the PEA would actually be needed for public use or service since many of the functions
imposed on PEA by its charter constitute essential public services.
Moreover, Section 1 of Executive Order No. 525 provides that PEA "shall be primarily responsible for
integrating, directing, and coordinating all reclamation projects for and on behalf of the National
Government." The same section also states that "[A]ll reclamation projects shall be approved by the
President upon recommendation of the PEA, and shall be undertaken by the PEA or through a proper
contract executed by it with any person or entity; x x x." Thus, under EO No. 525, in relation to PD No.
3-A and PD No.1084, PEA became the primary implementing agency of the National Government to
reclaim foreshore and submerged lands of the public domain. EO No. 525 recognized PEA as the
government entity "to undertake the reclamation of lands and ensure their maximum utilization
in promoting public welfare and interests."79 Since large portions of these reclaimed lands would
obviously be needed for public service, there must be a formal declaration segregating reclaimed lands
no longer needed for public service from those still needed for public service.1âwphi 1.nêt

Section 3 of EO No. 525, by declaring that all lands reclaimed by PEA "shall belong to or be owned
by the PEA," could not automatically operate to classify inalienable lands into alienable or disposable
lands of the public domain. Otherwise, reclaimed foreshore and submerged lands of the public domain
would automatically become alienable once reclaimed by PEA, whether or not classified as alienable
or disposable.
The Revised Administrative Code of 1987, a later law than either PD No. 1084 or EO No. 525, vests
in the Department of Environment and Natural Resources ("DENR" for brevity) the following powers
and functions:
"Sec. 4. Powers and Functions. The Department shall:
(1) x x x
xxx
(4) Exercise supervision and control over forest lands, alienable and disposable public
lands, mineral resources and, in the process of exercising such control, impose appropriate
taxes, fees, charges, rentals and any such form of levy and collect such revenues for the
exploration, development, utilization or gathering of such resources;
xxx
(14) Promulgate rules, regulations and guidelines on the issuance of licenses, permits,
concessions, lease agreements and such other privileges concerning the development,
exploration and utilization of the country's marine, freshwater, and brackish water and
over all aquatic resources of the country and shall continue to oversee, supervise and
police our natural resources; cancel or cause to cancel such privileges upon failure, non-
compliance or violations of any regulation, order, and for all other causes which are in
furtherance of the conservation of natural resources and supportive of the national interest;
(15) Exercise exclusive jurisdiction on the management and disposition of all lands of
the public domain and serve as the sole agency responsible for classification, sub-
classification, surveying and titling of lands in consultation with appropriate
agencies."80 (Emphasis supplied)
As manager, conservator and overseer of the natural resources of the State, DENR exercises
"supervision and control over alienable and disposable public lands." DENR also exercises "exclusive
jurisdiction on the management and disposition of all lands of the public domain." Thus, DENR decides
whether areas under water, like foreshore or submerged areas of Manila Bay, should be reclaimed or
not. This means that PEA needs authorization from DENR before PEA can undertake reclamation
projects in Manila Bay, or in any part of the country.
DENR also exercises exclusive jurisdiction over the disposition of all lands of the public domain.
Hence, DENR decides whether reclaimed lands of PEA should be classified as alienable under
Sections 681 and 782 of CA No. 141. Once DENR decides that the reclaimed lands should be so
classified, it then recommends to the President the issuance of a proclamation classifying the lands
as alienable or disposable lands of the public domain open to disposition. We note that then DENR
Secretary Fulgencio S. Factoran, Jr. countersigned Special Patent No. 3517 in compliance with the
Revised Administrative Code and Sections 6 and 7 of CA No. 141.
In short, DENR is vested with the power to authorize the reclamation of areas under water, while PEA
is vested with the power to undertake the physical reclamation of areas under water, whether directly
or through private contractors. DENR is also empowered to classify lands of the public domain into
alienable or disposable lands subject to the approval of the President. On the other hand, PEA is
tasked to develop, sell or lease the reclaimed alienable lands of the public domain.
Clearly, the mere physical act of reclamation by PEA of foreshore or submerged areas does not make
the reclaimed lands alienable or disposable lands of the public domain, much less patrimonial lands
of PEA. Likewise, the mere transfer by the National Government of lands of the public domain to PEA
does not make the lands alienable or disposable lands of the public domain, much less patrimonial
lands of PEA.
Absent two official acts – a classification that these lands are alienable or disposable and open to
disposition and a declaration that these lands are not needed for public service, lands reclaimed by
PEA remain inalienable lands of the public domain. Only such an official classification and formal
declaration can convert reclaimed lands into alienable or disposable lands of the public domain, open
to disposition under the Constitution, Title I and Title III83 of CA No. 141 and other applicable laws.84
PEA's Authority to Sell Reclaimed Lands
PEA, like the Legal Task Force, argues that as alienable or disposable lands of the public domain, the
reclaimed lands shall be disposed of in accordance with CA No. 141, the Public Land Act. PEA, citing
Section 60 of CA No. 141, admits that reclaimed lands transferred to a branch or subdivision of the
government "shall not be alienated, encumbered, or otherwise disposed of in a manner affecting its
title, except when authorized by Congress: x x x."85 (Emphasis by PEA)
In Laurel vs. Garcia,86 the Court cited Section 48 of the Revised Administrative Code of 1987, which
states that –
"Sec. 48. Official Authorized to Convey Real Property. Whenever real property of the
Government is authorized by law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following: x x x."
Thus, the Court concluded that a law is needed to convey any real property belonging to the
Government. The Court declared that -
"It is not for the President to convey real property of the government on his or her own sole
will. Any such conveyance must be authorized and approved by a law enacted by the
Congress. It requires executive and legislative concurrence." (Emphasis supplied)
PEA contends that PD No. 1085 and EO No. 525 constitute the legislative authority allowing PEA to
sell its reclaimed lands. PD No. 1085, issued on February 4, 1977, provides that –
"The land reclaimed in the foreshore and offshore area of Manila Bay pursuant to the
contract for the reclamation and construction of the Manila-Cavite Coastal Road Project
between the Republic of the Philippines and the Construction and Development Corporation
of the Philippines dated November 20, 1973 and/or any other contract or reclamation covering
the same area is hereby transferred, conveyed and assigned to the ownership and
administration of the Public Estates Authority established pursuant to PD No. 1084;
Provided, however, That the rights and interests of the Construction and Development
Corporation of the Philippines pursuant to the aforesaid contract shall be recognized and
respected.
Henceforth, the Public Estates Authority shall exercise the rights and assume the obligations
of the Republic of the Philippines (Department of Public Highways) arising from, or incident to,
the aforesaid contract between the Republic of the Philippines and the Construction and
Development Corporation of the Philippines.
In consideration of the foregoing transfer and assignment, the Public Estates Authority shall
issue in favor of the Republic of the Philippines the corresponding shares of stock in said entity
with an issued value of said shares of stock (which) shall be deemed fully paid and non-
assessable.
The Secretary of Public Highways and the General Manager of the Public Estates Authority
shall execute such contracts or agreements, including appropriate agreements with the
Construction and Development Corporation of the Philippines, as may be necessary to
implement the above.
Special land patent/patents shall be issued by the Secretary of Natural Resources in
favor of the Public Estates Authority without prejudice to the subsequent transfer to the
contractor or his assignees of such portion or portions of the land reclaimed or to be
reclaimed as provided for in the above-mentioned contract. On the basis of such
patents, the Land Registration Commission shall issue the corresponding certificate of
title." (Emphasis supplied)
On the other hand, Section 3 of EO No. 525, issued on February 14, 1979, provides that -
"Sec. 3. All lands reclaimed by PEA shall belong to or be owned by the PEA which shall
be responsible for its administration, development, utilization or disposition in accordance with
the provisions of Presidential Decree No. 1084. Any and all income that the PEA may derive
 from the sale, lease or use of reclaimed lands shall be used in accordance with the provisions
of Presidential Decree No. 1084."
There is no express authority under either PD No. 1085 or EO No. 525 for PEA to sell its reclaimed
lands. PD No. 1085 merely transferred "ownership and administration" of lands reclaimed from Manila
Bay to PEA, while EO No. 525 declared that lands reclaimed by PEA "shall belong to or be owned by
PEA." EO No. 525 expressly states that PEA should dispose of its reclaimed lands "in accordance
with the provisions of Presidential Decree No. 1084," the charter of PEA.
PEA's charter, however, expressly tasks PEA "to develop, improve, acquire, administer, deal in,
subdivide, dispose, lease and sell any and all kinds of lands x x x owned, managed, controlled
and/or operated by the government."87 (Emphasis supplied) There is, therefore, legislative authority
granted to PEA to sell its lands, whether patrimonial or alienable lands of the public domain.
PEA may sell to private parties its patrimonial properties in accordance with the PEA charter free
from constitutional limitations. The constitutional ban on private corporations from acquiring alienable
lands of the public domain does not apply to the sale of PEA's patrimonial lands.
PEA may also sell its alienable or disposable lands of the public domain to private individuals
since, with the legislative authority, there is no longer any statutory prohibition against such sales and
the constitutional ban does not apply to individuals. PEA, however, cannot sell any of its alienable or
disposable lands of the public domain to private corporations since Section 3, Article XII of the 1987
Constitution expressly prohibits such sales. The legislative authority benefits only individuals. Private
corporations remain barred from acquiring any kind of alienable land of the public domain, including
government reclaimed lands.
The provision in PD No. 1085 stating that portions of the reclaimed lands could be transferred by PEA
to the "contractor or his assignees" (Emphasis supplied) would not apply to private corporations but
only to individuals because of the constitutional ban. Otherwise, the provisions of PD No. 1085 would
violate both the 1973 and 1987 Constitutions.
The requirement of public auction in the sale of reclaimed lands
Assuming the reclaimed lands of PEA are classified as alienable or disposable lands open to
disposition, and further declared no longer needed for public service, PEA would have to conduct a
public bidding in selling or leasing these lands. PEA must observe the provisions of Sections 63 and
67 of CA No. 141 requiring public auction, in the absence of a law exempting PEA from holding a
public auction.88 Special Patent No. 3517 expressly states that the patent is issued by authority of the
Constitution and PD No. 1084, "supplemented by Commonwealth Act No. 141, as amended." This is
an acknowledgment that the provisions of CA No. 141 apply to the disposition of reclaimed alienable
lands of the public domain unless otherwise provided by law. Executive Order No. 654, 89 which
authorizes PEA "to determine the kind and manner of payment for the transfer" of its assets and
properties, does not exempt PEA from the requirement of public auction. EO No. 654 merely
authorizes PEA to decide the mode of payment, whether in kind and in installment, but does not
authorize PEA to dispense with public auction.
Moreover, under Section 79 of PD No. 1445, otherwise known as the Government Auditing Code, the
government is required to sell valuable government property through public bidding. Section 79 of PD
No. 1445 mandates that –
"Section 79. When government property has become unserviceable for any cause, or is no
longer needed, it shall, upon application of the officer accountable therefor, be inspected by
the head of the agency or his duly authorized representative in the presence of the auditor
concerned and, if found to be valueless or unsaleable, it may be destroyed in their presence. If
found to be valuable, it may be sold at public auction to the highest bidder under the
supervision of the proper committee on award or similar body in the presence of the auditor
concerned or other authorized representative of the Commission, after advertising by
printed notice in the Official Gazette, or for not less than three consecutive days in any
newspaper of general circulation, or where the value of the property does not warrant the
expense of publication, by notices posted for a like period in at least three public places in the
locality where the property is to be sold. In the event that the public auction fails, the
property may be sold at a private sale at such price as may be fixed by the same
committee or body concerned and approved by the Commission."
It is only when the public auction fails that a negotiated sale is allowed, in which case the Commission
on Audit must approve the selling price.90 The Commission on Audit implements Section 79 of the
Government Auditing Code through Circular No. 89-29691 dated January 27, 1989. This circular
emphasizes that government assets must be disposed of only through public auction, and a negotiated
sale can be resorted to only in case of "failure of public auction."
At the public auction sale, only Philippine citizens are qualified to bid for PEA's reclaimed foreshore
and submerged alienable lands of the public domain. Private corporations are barred from bidding at
the auction sale of any kind of alienable land of the public domain.
PEA originally scheduled a public bidding for the Freedom Islands on December 10, 1991. PEA
imposed a condition that the winning bidder should reclaim another 250 hectares of submerged areas
to regularize the shape of the Freedom Islands, under a 60-40 sharing of the additional reclaimed
areas in favor of the winning bidder.92 No one, however, submitted a bid. On December 23, 1994, the
Government Corporate Counsel advised PEA it could sell the Freedom Islands through negotiation,
without need of another public bidding, because of the failure of the public bidding on December 10,
1991.93
However, the original JVA dated April 25, 1995 covered not only the Freedom Islands and the
additional 250 hectares still to be reclaimed, it also granted an option to AMARI to reclaim another 350
hectares. The original JVA, a negotiated contract, enlarged the reclamation area to 750
hectares.94 The failure of public bidding on December 10, 1991, involving only 407.84 hectares,95 is
not a valid justification for a negotiated sale of 750 hectares, almost double the area publicly auctioned.
Besides, the failure of public bidding happened on December 10, 1991, more than three years before
the signing of the original JVA on April 25, 1995. The economic situation in the country had greatly
improved during the intervening period.
Reclamation under the BOT Law and the Local Government Code
The constitutional prohibition in Section 3, Article XII of the 1987 Constitution is absolute and clear:
"Private corporations or associations may not hold such alienable lands of the public domain except
by lease, x x x." Even Republic Act No. 6957 ("BOT Law," for brevity), cited by PEA and AMARI as
legislative authority to sell reclaimed lands to private parties, recognizes the constitutional ban. Section
6 of RA No. 6957 states –
"Sec. 6. Repayment Scheme. - For the financing, construction, operation and maintenance of
any infrastructure projects undertaken through the build-operate-and-transfer arrangement or
any of its variations pursuant to the provisions of this Act, the project proponent x x x may
likewise be repaid in the form of a share in the revenue of the project or other non-monetary
payments, such as, but not limited to, the grant of a portion or percentage of the reclaimed
land, subject to the constitutional requirements with respect to the ownership of the
land: x x x." (Emphasis supplied)
A private corporation, even one that undertakes the physical reclamation of a government BOT project,
cannot acquire reclaimed alienable lands of the public domain in view of the constitutional ban.
Section 302 of the Local Government Code, also mentioned by PEA and AMARI, authorizes local
governments in land reclamation projects to pay the contractor or developer in kind consisting of a
percentage of the reclaimed land, to wit:
"Section 302. Financing, Construction, Maintenance, Operation, and Management of
Infrastructure Projects by the Private Sector. x x x
xxx
In case of land reclamation or construction of industrial estates, the repayment plan may
consist of the grant of a portion or percentage of the reclaimed land or the industrial estate
constructed."
Although Section 302 of the Local Government Code does not contain a proviso similar to that of the
BOT Law, the constitutional restrictions on land ownership automatically apply even though not
expressly mentioned in the Local Government Code.
Thus, under either the BOT Law or the Local Government Code, the contractor or developer, if a
corporate entity, can only be paid with leaseholds on portions of the reclaimed land. If the contractor
or developer is an individual, portions of the reclaimed land, not exceeding 12 hectares96 of non-
agricultural lands, may be conveyed to him in ownership in view of the legislative authority allowing
such conveyance. This is the only way these provisions of the BOT Law and the Local Government
Code can avoid a direct collision with Section 3, Article XII of the 1987 Constitution.
Registration of lands of the public domain
Finally, PEA theorizes that the "act of conveying the ownership of the reclaimed lands to public
respondent PEA transformed such lands of the public domain to private lands." This theory is echoed
by AMARI which maintains that the "issuance of the special patent leading to the eventual issuance
of title takes the subject land away from the land of public domain and converts the property into
patrimonial or private property." In short, PEA and AMARI contend that with the issuance of Special
Patent No. 3517 and the corresponding certificates of titles, the 157.84 hectares comprising the
Freedom Islands have become private lands of PEA. In support of their theory, PEA and AMARI cite
the following rulings of the Court:
1. Sumail v. Judge of CFI of Cotabato,97 where the Court held –
"Once the patent was granted and the corresponding certificate of title was issued, the land
ceased to be part of the public domain and became private property over which the Director
of Lands has neither control nor jurisdiction."
2. Lee Hong Hok v. David,98 where the Court declared -
"After the registration and issuance of the certificate and duplicate certificate of title based on
a public land patent, the land covered thereby automatically comes under the operation of
Republic Act 496 subject to all the safeguards provided therein."3. Heirs of Gregorio Tengco
v. Heirs of Jose Aliwalas,99 where the Court ruled -
"While the Director of Lands has the power to review homestead patents, he may do so only
so long as the land remains part of the public domain and continues to be under his exclusive
 control; but once the patent is registered and a certificate of title is issued, the land ceases to
be part of the public domain and becomes private property over which the Director of Lands
has neither control nor jurisdiction."
4. Manalo v. Intermediate Appellate Court,100 where the Court held –
"When the lots in dispute were certified as disposable on May 19, 1971, and free patents were
issued covering the same in favor of the private respondents, the said lots ceased to be part
of the public domain and, therefore, the Director of Lands lost jurisdiction over the same."
5.Republic v. Court of Appeals,101 where the Court stated –
"Proclamation No. 350, dated October 9, 1956, of President Magsaysay legally effected a land
grant to the Mindanao Medical Center, Bureau of Medical Services, Department of Health, of
the whole lot, validly sufficient for initial registration under the Land Registration Act. Such land
grant is constitutive of a 'fee simple' title or absolute title in favor of petitioner Mindanao Medical
Center. Thus, Section 122 of the Act, which governs the registration of grants or patents
involving public lands, provides that 'Whenever public lands in the Philippine Islands belonging
to the Government of the United States or to the Government of the Philippines are alienated,
granted or conveyed to persons or to public or private corporations, the same shall be brought
forthwith under the operation of this Act (Land Registration Act, Act 496) and shall become
registered lands.'"
The first four cases cited involve petitions to cancel the land patents and the corresponding certificates
of titles issued to private parties. These four cases uniformly hold that the Director of Lands has no
jurisdiction over private lands or that upon issuance of the certificate of title the land automatically
comes under the Torrens System. The fifth case cited involves the registration under the Torrens
System of a 12.8-hectare public land granted by the National Government to Mindanao Medical
Center, a government unit under the Department of Health. The National Government transferred the
12.8-hectare public land to serve as the site for the hospital buildings and other facilities of Mindanao
Medical Center, which performed a public service. The Court affirmed the registration of the 12.8-
hectare public land in the name of Mindanao Medical Center under Section 122 of Act No. 496. This
fifth case is an example of a public land being registered under Act No. 496 without the land losing its
character as a property of public dominion.
In the instant case, the only patent and certificates of title issued are those in the name of PEA, a
wholly government owned corporation performing public as well as proprietary functions. No patent or
certificate of title has been issued to any private party. No one is asking the Director of Lands to cancel
PEA's patent or certificates of title. In fact, the thrust of the instant petition is that PEA's certificates of
title should remain with PEA, and the land covered by these certificates, being alienable lands of the
public domain, should not be sold to a private corporation.
Registration of land under Act No. 496 or PD No. 1529 does not vest in the registrant private or public
ownership of the land. Registration is not a mode of acquiring ownership but is merely evidence of
ownership previously conferred by any of the recognized modes of acquiring ownership. Registration
does not give the registrant a better right than what the registrant had prior to the registration.102 The
registration of lands of the public domain under the Torrens system, by itself, cannot convert public
lands into private lands.103
Jurisprudence holding that upon the grant of the patent or issuance of the certificate of title the
alienable land of the public domain automatically becomes private land cannot apply to government
units and entities like PEA. The transfer of the Freedom Islands to PEA was made subject to the
provisions of CA No. 141 as expressly stated in Special Patent No. 3517 issued by then President
Aquino, to wit:
"NOW, THEREFORE, KNOW YE, that by authority of the Constitution of the Philippines and
in conformity with the provisions of Presidential Decree No. 1084, supplemented by
Commonwealth Act No. 141, as amended, there are hereby granted and conveyed unto the
Public Estates Authority the aforesaid tracts of land containing a total area of one million nine
hundred fifteen thousand eight hundred ninety four (1,915,894) square meters; the technical
description of which are hereto attached and made an integral part hereof." (Emphasis
supplied)
Thus, the provisions of CA No. 141 apply to the Freedom Islands on matters not covered by PD No.
1084. Section 60 of CA No. 141 prohibits, "except when authorized by Congress," the sale of alienable
lands of the public domain that are transferred to government units or entities. Section 60 of CA No.
141 constitutes, under Section 44 of PD No. 1529, a "statutory lien affecting title" of the registered land
even if not annotated on the certificate of title.104 Alienable lands of the public domain held by
government entities under Section 60 of CA No. 141 remain public lands because they cannot be
alienated or encumbered unless Congress passes a law authorizing their disposition. Congress,
however, cannot authorize the sale to private corporations of reclaimed alienable lands of the public
domain because of the constitutional ban. Only individuals can benefit from such law.
The grant of legislative authority to sell public lands in accordance with Section 60 of CA No. 141 does
not automatically convert alienable lands of the public domain into private or patrimonial lands. The
alienable lands of the public domain must be transferred to qualified private parties, or to government
entities not tasked to dispose of public lands, before these lands can become private or patrimonial
lands. Otherwise, the constitutional ban will become illusory if Congress can declare lands of the public
domain as private or patrimonial lands in the hands of a government agency tasked to dispose of
public lands. This will allow private corporations to acquire directly from government agencies limitless
areas of lands which, prior to such law, are concededly public lands.
Under EO No. 525, PEA became the central implementing agency of the National Government to
reclaim foreshore and submerged areas of the public domain. Thus, EO No. 525 declares that –
"EXECUTIVE ORDER NO. 525
Designating the Public Estates Authority as the Agency Primarily Responsible for all
Reclamation Projects
Whereas, there are several reclamation projects which are ongoing or being proposed to be
undertaken in various parts of the country which need to be evaluated for consistency with
national programs;
Whereas, there is a need to give further institutional support to the Government's declared
policy to provide for a coordinated, economical and efficient reclamation of lands;
Whereas, Presidential Decree No. 3-A requires that all reclamation of areas shall be limited to
the National Government or any person authorized by it under proper contract;
Whereas, a central authority is needed to act on behalf of the National Government
which shall ensure a coordinated and integrated approach in the reclamation of lands;
Whereas, Presidential Decree No. 1084 creates the Public Estates Authority as a
government corporation to undertake reclamation of lands and ensure their maximum
utilization in promoting public welfare and interests; and
Whereas, Presidential Decree No. 1416 provides the President with continuing authority to
reorganize the national government including the transfer, abolition, or merger of functions and
offices.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of
the powers vested in me by the Constitution and pursuant to Presidential Decree No. 1416,
do hereby order and direct the following:
Section 1. The Public Estates Authority (PEA) shall be primarily responsible for
integrating, directing, and coordinating all reclamation projects for and on behalf of the
National Government. All reclamation projects shall be approved by the President upon
recommendation of the PEA, and shall be undertaken by the PEA or through a proper contract
executed by it with any person or entity; Provided, that, reclamation projects of any national
government agency or entity authorized under its charter shall be undertaken in consultation
with the PEA upon approval of the President.
x x x ."
As the central implementing agency tasked to undertake reclamation projects nationwide, with
authority to sell reclaimed lands, PEA took the place of DENR as the government agency charged
with leasing or selling reclaimed lands of the public domain. The reclaimed lands being leased or sold
by PEA are not private lands, in the same manner that DENR, when it disposes of other alienable
lands, does not dispose of private lands but alienable lands of the public domain. Only when qualified
private parties acquire these lands will the lands become private lands. In the hands of the
government agency tasked and authorized to dispose of alienable of disposable lands of the
public domain, these lands are still public, not private lands.
Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public domain" as
well as "any and all kinds of lands." PEA can hold both lands of the public domain and private lands.
Thus, the mere fact that alienable lands of the public domain like the Freedom Islands are transferred
to PEA and issued land patents or certificates of title in PEA's name does not automatically make such
lands private.
To allow vast areas of reclaimed lands of the public domain to be transferred to PEA as private lands
will sanction a gross violation of the constitutional ban on private corporations from acquiring any kind
of alienable land of the public domain. PEA will simply turn around, as PEA has now done under the
Amended JVA, and transfer several hundreds of hectares of these reclaimed and still to be reclaimed
lands to a single private corporation in only one transaction. This scheme will effectively nullify the
constitutional ban in Section 3, Article XII of the 1987 Constitution which was intended to diffuse
equitably the ownership of alienable lands of the public domain among Filipinos, now numbering over
80 million strong.
This scheme, if allowed, can even be applied to alienable agricultural lands of the public domain since
PEA can "acquire x x x any and all kinds of lands." This will open the floodgates to corporations and
even individuals acquiring hundreds of hectares of alienable lands of the public domain under the
guise that in the hands of PEA these lands are private lands. This will result in corporations amassing
huge landholdings never before seen in this country - creating the very evil that the constitutional ban
was designed to prevent. This will completely reverse the clear direction of constitutional development
in this country. The 1935 Constitution allowed private corporations to acquire not more than 1,024
hectares of public lands.105 The 1973 Constitution prohibited private corporations from acquiring any
kind of public land, and the 1987 Constitution has unequivocally reiterated this prohibition.
The contention of PEA and AMARI that public lands, once registered under Act No. 496 or PD No.
1529, automatically become private lands is contrary to existing laws. Several laws authorize lands of
the public domain to be registered under the Torrens System or Act No. 496, now PD No. 1529, without
losing their character as public lands. Section 122 of Act No. 496, and Section 103 of PD No. 1529,
respectively, provide as follows:
Act No. 496
"Sec. 122. Whenever public lands in the Philippine Islands belonging to the x x x Government
of the Philippine Islands are alienated, granted, or conveyed to persons or the public or
private corporations, the same shall be brought forthwith under the operation of this Act and
shall become registered lands."
PD No. 1529
"Sec. 103. Certificate of Title to Patents. Whenever public land is by the Government alienated,
granted or conveyed to any person, the same shall be brought forthwith under the operation
of this Decree." (Emphasis supplied)
Based on its legislative history, the phrase "conveyed to any person" in Section 103 of PD No. 1529
includes conveyances of public lands to public corporations.
Alienable lands of the public domain "granted, donated, or transferred to a province, municipality, or
branch or subdivision of the Government," as provided in Section 60 of CA No. 141, may be registered
under the Torrens System pursuant to Section 103 of PD No. 1529. Such registration, however, is
expressly subject to the condition in Section 60 of CA No. 141 that the land "shall not be alienated,
encumbered or otherwise disposed of in a manner affecting its title, except when authorized by
Congress." This provision refers to government reclaimed, foreshore and marshy lands of the public
domain that have been titled but still cannot be alienated or encumbered unless expressly authorized
by Congress. The need for legislative authority prevents the registered land of the public domain from
becoming private land that can be disposed of to qualified private parties.
The Revised Administrative Code of 1987 also recognizes that lands of the public domain may be
registered under the Torrens System. Section 48, Chapter 12, Book I of the Code states –
"Sec. 48. Official Authorized to Convey Real Property. Whenever real property of the
Government is authorized by law to be conveyed, the deed of conveyance shall be executed
in behalf of the government by the following:
(1) x x x
(2) For property belonging to the Republic of the Philippines, but titled in the name of
any political subdivision or of any corporate agency or instrumentality, by the executive
head of the agency or instrumentality." (Emphasis supplied)
Thus, private property purchased by the National Government for expansion of a public wharf may be
titled in the name of a government corporation regulating port operations in the country. Private
property purchased by the National Government for expansion of an airport may also be titled in the
name of the government agency tasked to administer the airport. Private property donated to a
municipality for use as a town plaza or public school site may likewise be titled in the name of the
municipality.106 All these properties become properties of the public domain, and if already registered
under Act No. 496 or PD No. 1529, remain registered land. There is no requirement or provision in
any existing law for the de-registration of land from the Torrens System.
Private lands taken by the Government for public use under its power of eminent domain become
unquestionably part of the public domain. Nevertheless, Section 85 of PD No. 1529 authorizes the
Register of Deeds to issue in the name of the National Government new certificates of title covering
such expropriated lands. Section 85 of PD No. 1529 states –
"Sec. 85. Land taken by eminent domain. Whenever any registered land, or interest therein, is
expropriated or taken by eminent domain, the National Government, province, city or
municipality, or any other agency or instrumentality exercising such right shall file for
registration in the proper Registry a certified copy of the judgment which shall state definitely
by an adequate description, the particular property or interest expropriated, the number of the
certificate of title, and the nature of the public use. A memorandum of the right or interest taken
shall be made on each certificate of title by the Register of Deeds, and where the fee simple
is taken, a new certificate shall be issued in favor of the National Government, province,
city, municipality, or any other agency or instrumentality exercising such right for the land so
taken. The legal expenses incident to the memorandum of registration or issuance of a new
certificate of title shall be for the account of the authority taking the land or interest therein."
(Emphasis supplied)
Consequently, lands registered under Act No. 496 or PD No. 1529 are not exclusively private or
patrimonial lands. Lands of the public domain may also be registered pursuant to existing laws.
AMARI makes a parting shot that the Amended JVA is not a sale to AMARI of the Freedom Islands or
of the lands to be reclaimed from submerged areas of Manila Bay. In the words of AMARI, the
Amended JVA "is not a sale but a joint venture with a stipulation for reimbursement of the original cost
incurred by PEA for the earlier reclamation and construction works performed by the CDCP under its
1973 contract with the Republic." Whether the Amended JVA is a sale or a joint venture, the fact
remains that the Amended JVA requires PEA to "cause the issuance and delivery of the certificates of
title conveying AMARI's Land Share in the name of AMARI."107
This stipulation still contravenes Section 3, Article XII of the 1987 Constitution which provides that
private corporations "shall not hold such alienable lands of the public domain except by lease." The
transfer of title and ownership to AMARI clearly means that AMARI will "hold" the reclaimed lands
other than by lease. The transfer of title and ownership is a "disposition" of the reclaimed lands, a
transaction considered a sale or alienation under CA No. 141,108 the Government Auditing
Code,109 and Section 3, Article XII of the 1987 Constitution.
The Regalian doctrine is deeply implanted in our legal system. Foreshore and submerged areas form
part of the public domain and are inalienable. Lands reclaimed from foreshore and submerged areas
also form part of the public domain and are also inalienable, unless converted pursuant to law into
alienable or disposable lands of the public domain. Historically, lands reclaimed by the government
are sui generis, not available for sale to private parties unlike other alienable public lands. Reclaimed
lands retain their inherent potential as areas for public use or public service. Alienable lands of the
public domain, increasingly becoming scarce natural resources, are to be distributed equitably among
our ever-growing population. To insure such equitable distribution, the 1973 and 1987 Constitutions
have barred private corporations from acquiring any kind of alienable land of the public domain. Those
who attempt to dispose of inalienable natural resources of the State, or seek to circumvent the
constitutional ban on alienation of lands of the public domain to private corporations, do so at their
own risk.
We can now summarize our conclusions as follows:
1. The 157.84 hectares of reclaimed lands comprising the Freedom Islands, now covered by
certificates of title in the name of PEA, are alienable lands of the public domain. PEA may
lease these lands to private corporations but may not sell or transfer ownership of these lands
to private corporations. PEA may only sell these lands to Philippine citizens, subject to the
ownership limitations in the 1987 Constitution and existing laws.
2. The 592.15 hectares of submerged areas of Manila Bay remain inalienable natural
resources of the public domain until classified as alienable or disposable lands open to
disposition and declared no longer needed for public service. The government can make such
classification and declaration only after PEA has reclaimed these submerged areas. Only then
can these lands qualify as agricultural lands of the public domain, which are the only natural
resources the government can alienate. In their present state, the 592.15 hectares of
submerged areas are inalienable and outside the commerce of man.
3. Since the Amended JVA seeks to transfer to AMARI, a private corporation, ownership of
77.34 hectares110 of the Freedom Islands, such transfer is void for being contrary to Section 3,
Article XII of the 1987 Constitution which prohibits private corporations from acquiring any kind
of alienable land of the public domain.
4. Since the Amended JVA also seeks to transfer to AMARI ownership of 290.156
hectares111 of still submerged areas of Manila Bay, such transfer is void for being contrary to
Section 2, Article XII of the 1987 Constitution which prohibits the alienation of natural resources
other than agricultural lands of the public domain. PEA may reclaim these submerged areas.
Thereafter, the government can classify the reclaimed lands as alienable or disposable, and
further declare them no longer needed for public service. Still, the transfer of such reclaimed
alienable lands of the public domain to AMARI will be void in view of Section 3, Article XII of
the 1987 Constitution which prohibits private corporations from acquiring any kind of alienable
land of the public domain.
Clearly, the Amended JVA violates glaringly Sections 2 and 3, Article XII of the 1987 Constitution.
Under Article 1409112 of the Civil Code, contracts whose "object or purpose is contrary to law," or
whose "object is outside the commerce of men," are "inexistent and void from the beginning." The
Court must perform its duty to defend and uphold the Constitution, and therefore declares the
Amended JVA null and void ab initio.
Seventh issue: whether the Court is the proper forum to raise the issue of whether the
Amended JVA is grossly disadvantageous to the government.
Considering that the Amended JVA is null and void ab initio, there is no necessity to rule on this last
issue. Besides, the Court is not a trier of facts, and this last issue involves a determination of factual
matters.
WHEREFORE, the petition is GRANTED. The Public Estates Authority and Amari Coastal Bay
Development Corporation are PERMANENTLY ENJOINED from implementing the Amended Joint
Venture Agreement which is hereby declared NULL and VOID ab initio.
SO ORDERED.
 EN BANC
G.R. No. L-5543 December 9, 1910
THE MUNICIPALITY OF TACLOBAN, petitioner-appellee, vs. THE DIRECTOR OF
LANDS, opponent-appellant.
Attorney-General Villamor, for appellant.
TORRES, J.:

On April 6, 1908, the municipal president of Tacloban, in behalf of his municipality, presented a written
application in the court of Land Registration, soliciting the registration of a parcel of land, of which the
said municipality is the absolute owner according to the Land Registration Act, situated in the town
proper of Tacloban and bounded on the north by Calle Gran Capitan, on the south by Calle San Roque,
on the east by Calle San Juan, and on the west by the lands of Juliana Daylo and Norberto Romualdez,
containing 4,055.91 square meters and whose description, meters, and bounds are set forth in the
plan accompanying the application. It was represented that the said property was appraised at the last
assessment, levied for the purpose of the payment of the land tax, at $811 United States currency,
and the buildings at $11,250 United States currency; that the said land was acquired at a very remote
date as a gift from various landowners who were then residents of the pueblo of Tacloban; that there
was no encumbrance of any kind on the property, and no person other than the applicants who had
any right or interest therein; that the land was occupied by three buildings of strong materials: two
primary public schools and the municipal building now occupied by the provincial high school of Leyte;
and that, in the improbable event of the said application not being in accordance with the Land
Registration Act, the benefits provided in chapter 6 of Act no. 926 would be invoked, inasmuch as the
municipality had been in possession of the land since time immemorial, and for seventy years past,
more or less, had used it for building purposes, the property being inclosed on all sides by a board
and bamboo fence.
In consequence of the summons and publications made by the Court of Land Registration, the
Attorney-General, in behalf of the Director of Lands, opposed the registration applied for' and alleged
that the land in question belonged to the Government of the United States and was under the control
of the Government of the Philippine Islands, and asked that the said application be denied.
The case was heard on January 18, 1909, and testimony having been produced by both parties, the
court, in view of the findings reached thereby and on the same date, rendered judgment by decreeing
the adjudication and registration of the land described in the application and plan presented, which
were attached to the record, a general default first having been ordered to be recorded in accordance
with the provisions of Act No. 496. The Solicitor-General excepted to this judgment and moved for a
new hearing on the grounds that findings of fact of the court were contrary to the weight of the
evidence, that the evidence did not sufficiently warrant the judgment, and that the latter was contrary
to law; and the proper bill of exceptions being presented, it was certified and forwarded to the clerk of
this court.
As the decision rendered by this court in case No. 5631, 1 originating in the Court of Land Registration
and brought before us on appeal by the Attorney-General in representation of the Director of Lands,
refers to the inscription in the Court of Land Registration of a parcel of land situated within the town of
Catbalogan, the capital of the Province and Island of Samar, which land had been and was occupied
by the court-house or municipal building of the said pueblo, so likewise the present decision concerns
the inscription in the Court of Land Registration of a parcel of land situated within the town of Tacloban,
the capital of the adjoining Province and Island of Leyte, which land is at present occupied by three
buildings of strong materials and serve, two of them, as primary schools for both sexes, and the other
as the courthouse or municipal building of the said pueblo and a part of which is devoted to the use of
the provincial high school.
The question submitted to this court for decision, through the appeal by the Attorney-General in
representation of the Director of Lands, is whether the lot, at present occupied by two public school
buildings and the municipal building of Tacloban and also used as quarters for the provincial high
school, belongs to the municipality, or is public Government land under the control of the Government
of these Islands.
Whereas the land in litigation is now occupied by the court-house or municipal building of Tacloban,
the capital of Leyte, and in order to avoid annoying repetitious, the relevant part of the decision
rendered in case No. 5631, concerning the registration of land occupied by the municipal building or
court-house of the pueblo of Catbalogan, the capital of Samar, is herein reproduced and is of the
following purport (219-221):
In order to obtain a better understanding of the final conclusion to established this decision, it is meet
to state: That for the purpose of the establishment of new pueblos in this archipelago, at the beginning
of its occupation by the Spaniards, an endeavor was always made to find, in favorable places, a certain
number of inhabitants and, later, near the pueblos already established, barrios, which ordinarily served
as a basis for the formation of other new pueblos that became as populated as the centers on which
they were defendant.
The executive authorities and other officials who then represented the Spanish Government in these
Islands were obliged to adjust their procedure, in the fulfillment of their duties, with regard to the
establishment and laying out of new towns, to the Laws of the Indies which determined the course that
they were to pursue for such purposes, as may be seen by the following:
Law 6, title 5, book 4, of the Recompilation of the Laws of the Indies, provides, among other things:
"That within the boundaries which may be assigned to it, there must be at least thirty residents and
each one of them must have a house, etc."
Law 7 of the same title and book contains this provision:
"Whoever wishes to undertake to establish a new town in the manner provided for, of not more than
thirty nor less than ten residents, shall be granted the time and territory necessary for the purpose and
under the same conditions."
It may be affirmed that years afterwards all the modern pueblos of the archipelago were formed by
taking as a basis for their establishment the barrios already populated by a large number of residents
who, under the agreement to build the church of the new pueblo, the court-house and afterwards the
schoolhouse, obtained from the General Government the administrative separation of their barrio from
the pueblo on which it depended, in whose territory it was previously comprised. In such cases a
procedure analogous to that prescribed by the Laws of the Indies was observed.
For the establishment, then, of new pueblos, the administrative authority of the province, in
representation of the Governor-General, designated the territory for their location and extension and
the metes and bounds of the same; and before alloting the lands among the new settlers, a special
demarcation was made of the places which were to serve as the public square of the pueblo, for the
erection of the church and as sites for the public buildings, among others, the municipal buildings or
the casa real, as well as of the lands which were to constitute the commons, pastures, and propios of
the municipality, and the streets and roads which were to intersect the new town were laid out as may
be seen by the following laws:
Law 7, title 7, book 4, of the Recompilation of the Laws of the Indies, provides:
"The district of territory to be given for settlement by composition shall be alloted in the following
manner: There shall first be set apart the portion required for the lots of the pueblo, the exido or public
lands, and pastures amply sufficient for the stock which the resident may have, and as much more as
propios del lugar, or common lands of the locality; the rest of the territory and district shall be divided
into four parts - one of them, of his choice, shall be for him who takes upon himself the obligation to
found the pueblo, and the other three parts shall be apportioned equally among the settlers."
Law 8, of the same title and book, prescribes, among other things:
"That between the main square and the church there shall be constructed the casa reales or municipal
buildings, the cabildo, concejo, customs buildings, etc."
Law 14 of the said title and book also directs among other things:
"That the viceroys shall have set aside such lands as to them appear suitable as the common
lands (propios) of the pueblos that have none, therewith to assist in the payment of the salaries of
the corregidores and sufficient public lands (exidos) and pasture lands as provided for and prescribed
by law."
Law 1, title 13 of the aforesaid book, provides the following:
"Such viceroys and governors as have due authority shall designate to each villa and lugar newly
founded and settled the lands and lots which they may need and may be given to them, without
detriment to a third party, as propios, and a statement shall be sent to us of what was designated and
given to each, in order that we may have such action approved."
The pueblo and municipality of Tacloban, as the capital of the Island and Province of Leyte, must have
been one of the first of the pueblos established and of which the said province is composed and there
being no record that its casa real or municipal court-house was erected on any other or different land,
it is to be presumed that, on founding that pueblo and on the competent authority proceeding to
designate and demarcate the area of land to be occupied as a site and for the future extension of the
town of Tacloban, with its square, streets, and lots of the temple and other public buildings, the lot in
question was also designated for the court-house, in accordance with the laws hereinbefore
mentioned, and in fact the municipal building was erected thereon very long ago, more than thirty
years, according to the witnesses examined, and the municipal president, the applicant, averred that
the pueblo of Tacloban had acquired the said lot by donation and had possessed it since time
immemorial. It is also to be presumed that the adjudication of the said land in favor of the municipality
to enable it to build its court-house thereon, was duly confirmed by the Spanish Government, as must
be inferred, without proof to the contrary, in view of its continuos and peaceable possession for so
long a period extending to the present time; nor does the record show that any other lot or different
parcel of land was adjudicated to it, inasmuch as it was necessary and absolutely indispensable that
every pueblo established should have its own casa real or court-house, the seat to its local authority,
and also a church where its in- habitants might worship God.
For the reason, other paragraphs of the said decision are quoted here below and are as follows (pp.
22-224):
It is to be noted that, in former times, the court-house buildings of the pueblos were called casas
reales (royal buildings), indoubtedly for the purpose of giving greater dignity to the principle of authority
represented in them and inculcating respect among the inhabitants of the pueblo toward the building
where the first local authority exercised his governmental duties and at the same time administered
justice, for the old pedaneos or petty mayors, later called capitanes or gobernadorcillos, while they
had governmental powers, at the same time administered justice as local judges.
In paragraph 92 of the royal ordinances of February 26, 1768, the following appears, among other
things:
"And because, while there is a notable excess of pomp in the buildings of the doctrinary ministers and
parish priests, there is, on the other hand, great abandonment of the casas reales which, as a general
rule, are not habitable on account of their inconvenient and ruinous condition, etc., . . . it is ordered
that in all the pueblos, and specially in those of the seats of government, the native inhabitants thereof
shall erect decent and convenient municipal buildings modeled after the plans to be furnished by the
Central Government, and that therein the gobernadorcillos shall have their court rooms and their jails
for the security of prisoners, and all leaks and other damages shall be repaired in time in order that,
through omission, they may not cause greater detriment and expense."
If the inhabitants of a pueblo, at the time of its foundation, were obliged to erect their casa real or
municipal building, it is to be supposed that they built it on their own ground after a designation of the
site had been made by the government authority of the province - a designation which had to be made,
according to the Laws of the Indies, at the same time with that of the main plaza and of the site to be
occupied by the temple or church, which latter building is so necessary and indispensable for every
pueblo, as well as the casa real or court-house, since in them, respectively, divine worship is had and
the local authorities perform their duties. The land designated for the church is considered to belong
thereto, and likewise the land intended for the court-house should be deemed to be the property of the
pueblo awarded to it for the purposes of the public service of the municipality, since no pueblo was
able to exist administratively without having a church of its own and a court-house which should be
the seat of its local authority and its municipal government.
It should be remembered that the court-house and the church of every pueblo were always built, in
accordance with the provisions of the Laws of the Indies, on one of the sides of the plaza mayor or
main square of the town, when not on the lateral line it self, each building on an opposite side; but the
said square occupies nearly always a central site within the territory of the pueblo, with the exception
of the frequent case where the town has extended toward only one end or side of the territory, in which
event its main square ceased to be in the center of the town. However, the said square was never
located outside of the inhabited place, as were the common and pasturages. (Law 13, title 7, book 4,
Recompilation of the Laws of the Indies.)
In the document Exhibit B, which is a certified copy of the minutes of the session held by the municipal
council and the principal elders of the pueblo of Tacloban on September 23, 1910, it appears to have
been recorded, among other things, that the lands belonging to the municipality are the lots where the
municipal building and the school-houses for both sexes are built and, in front of these constructions,
the public square, on one side of which stands the parochial church. From this description it is inferred
that the said municipal building and shoolhouses are situated, together with the square and the church,
in a central part of the town of Tacloban, where, in accordance with the express provisions of the Laws
of the Indies, they should have been established, and the said buildings could not have been erected
and the plaza mayor or main square located outside the town; therefore it can neither be presumed
nor concluded that the land converted into a public square and the lots on which the parochial church
and the schoolhouses now stand formed a part of the terreno comunal, exido or public pasturage land
of the pueblo before mentioned.
The land in controversy belongs to the municipality of Tacloban.
Taking into account that neither the court-house of a pueblo not is schoolhouses were constructed
outside the town proper, at a distance from its inhabitants, the existence on the said land of two public
schoolhouses, erected a great may years ago and used for purposes of instruction of children of both
sexes residing in Tacloban, supports the characterization of the property as being private ( bien
propio), or part of the municipal assets, which is the status of the aforementioned land, and therefore
the lot on which the said municipal building and schoolhouses are built is not a part of an exido,
dehesa (public pasturage), or terreno comunal (common), because such lands could only be situated
outside of a town, in accordance with the provisions contained in laws 13 and 14, title 7, and 12 and
14, title 12, book 4, and law 8, title 3, book 6, of the Recompilation of the Laws of the Indies, an din
No. 53 of the royal ordinances of February 26, 1768.
Notwithstanding the circumstances, not very favorable to instruction, which prevailed at that epoch,
1550, it was provided withal, by the sovereign of Spain, in law 18, title 1, book 6 of the Recompilation
before cited, that instruction should be given to the natives by teachers who should teach them the
Spanish language. Later, in No. 93 of the royal ordinances before referred to, a reminder was given
as to compliance with the said Law of the Indies and other old ordinances relative to the establishment
in the pueblos of schools under the direction of teachers well versed in the Spanish language, a
provision confirmed by royal cedulas of June 11, 1815, and October 20, 1817, which emphasized the
need of the establishment of schools for the instruction and education of the boys and girls.
By royal cedula of November 14, 1816, especially addressed to the "Governor, Captain-General of
the Philippines," the king of Spain prescribed that -
For this purpose it is ordered, by the laws and ordinances of the Indies and by various royal cedulas
issued for their execution, especially those of January 28, 1778, November 5, 1782, and June 7, 1815,
that the construction of the said schoolhouses be proceeded with in such pueblos of the Indies where
there are none. . . . And having again taken this matter into consideration, and desiring to remove the
causes which may tend to delay the execution of the orders given, and to facilitate in so far as possible
the remedying of the damages complained of by the said delegates, in agreement with the statements
made to me by my council of the Indies in the consultation had on January 16 of this year, I hereby
authorize you, after obtaining the required and indispensable reports, immediately to provide for the
erection and establishment of primary schools in all the pueblos were they may be deemed necessary
and proper for the civilization of the Indians. You shall endow these institutions with the revenues and
excises specified in the said royal cedulas, and in default thereof, with such others as you may deem
more opportune and less onerous, acting on the advice of my royal court, which you shall first consult,
and you shall report the action taken to my supreme council for its approval, without prejudice,
however, to your carrying it into effect. It is my will that you so. Dated at the palace, November 14,
1816. I, the King.
Finally, the royal decree of December 20, 1863, in its article 7, provides as follows:
ART. 7. The teachers shall enjoy the salary and other advantages provided for by the regulations. The
said salary, as well as the establishment of the school, acquisition and preservation of school material
and supplies, and the rent of the building where there be no public one for the purpose, shall constitute
and obligatory expenditure to be paid out of the respective local appropriation.
So that the existence of schools of learning in the pueblos of these Islands really was a need felt and
recognized in those remote times by the sovereign and the governing authorities of this country; and
if the schools were, and are, necessary and indispensable for the progress and prosperity of the
pueblos, and likewise the temples for divine worship, and the court-house - the seat of the authorities
- for the government and proper administration of a town, it is imperative to recognize that the church,
the courthouse and the schoolhouse must have been built on lands comprised within the territory of
each pueblo and expressly set aside for the purpose by the superior authority, with whose permission
the church, municipal building, and school were erected. No one to this date has doubted that the land
on which a church is built belongs to the followers of the faith to which it is dedicated, for the reason
that if the government of this country had not, in the name of the sovereign, granted the land required
for its construction, churches or temples could not have been built at the time of the foundation of the
pueblos. For the same reason, it is of course to be presumed that a lot for the court-house and another
for a schoolhouse were granted and awarded to the pueblo while in period of establishment,
as propios. A proof that the grant was so made is in the very fact that the said buildings were erected
on those lots without opposition or contradiction on the part of the state, or of the superior authorities,
under whose permission the buildings in question were constructed for use as schools and a court-
house.
There are, in fact, pueblos which are without buildings for a court-house and schools, owing either to
their absolute lack of means, negligence on the part of their principal residents or of their municipal
councils, or to the central government's having provided that the said buildings should be devoted to
other uses more suitable to the state, in which latter case the government paid the rental of the urban
properties that were used and served as a schoolhouse and as municipal offices.
It having been provided in article 3 of the said royal decree of December 20, 1863, that there should
be at least one school for males and another for females in each pueblo of these Islands, it was
prescribed in article 7, preinserted herein, that the salary of the teachers, the establishment of the
school, the acquisition and preservation of school material and supplies, and the rental of the building,
where there was no public one for the purpose, should constitute an obligatory expenditure to be paid
out of the respective local appropriation. By this legal, administrative provision it is recognized that in
some pueblos there are public-school buildings, as in the case of the pueblo of Tacloban, due to the
zeal and patriotism of their principal residents; and it must be concluded that the court-house and the
two schoolhouses aforementioned, together with the land on which they are erected, are, for lack of
proof to the contrary, the private property of and belong to the said municipality and form a part of its
municipal funds or assets.
In technical administrative terms, bienes propios are cultivated real properties, pasturages, houses or
any other property which a city, village, or hamlet has for the payment of the public expenses. The
administration of this class of property pertained to the municipalities. It could be alienated after proper
procedure and authorization of the competent superior authorities, in accordance with the
administrative laws.
It is therefore unquestionable that the assets of each pueblo comprised its bienes propios and the
revenues or products derived therefrom, and this fact is recognized in the "ordenanza de intendentes"
of 1786, the forty-seventh article of which reads:
The funds which any pueblo may have left over as an annual surplus from the products of
its propios and its arbitrios, after meeting the expenses specified in its own particular ordinance, shall
be invested in the purchase of real estate and revenue-bearing investments, so that, having a sufficient
income for the payment of its obligations and to aid in defraying its ordinary needs, the excise taxes,
which are always a burden to the public, may be abolished; and in case it should have no such taxes,
nor annuities to redeem on its propios or common properties, the said surplus shall be applied to
promote establishments useful to the pueblo and to this province, any such investment to be previously
proposed by the intendentes and approved by the junta superior.
Many years afterwards the royal decree of May 19, 1893, confirmed the old legislation by defining, in
its twenty-fourth article, the property and revenues which constitute the assets of the pueblos, and
which are, among others: 4 The revenues and products of urban and rustic properties belonging to
the pueblo. From this, the conclusion is drawn that the pueblos may have and hold revenue-bearing
property of their own, and with all the more reason if the property had by a municipality is dedicated
to the public service, as are the buildings and lot possessed under title of ownership by the municipality
of Tacloban and which, without any doubt whatever, from a part of its municipal estate or assets, in
accordance with the provisions of the said royal decree of May 19, 1893.
From the aforementioned decision rendered in case No. 5631, relative to the registration of certain
real property belonging to the municipality of Catbalogan, the following quotations are also taken (pp.
225, 226):
The said municipality is to-day in possession of the land in litigation, as the owner thereof, under the
protection of the civil and administrative laws which guarantee the right of ownership of the
corporations that are capable of contracting, acquiring, and possessing real and personal property.
Article 343 of the Civil Code reads:
"The property of provinces of towns is divided into property for public use and patrimonial property."
Article 344 of the same code prescribes:
"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 the said towns or provinces.
"All other property possessed by either is patrimonial, and shall be governed by the provisions of this
code, unless otherwise prescribed in special laws."
Section 2 of Act No. 82, entitled "A General Act for the organization of municipal governments in the
Philippine Islands," is as follows:
"Pueblos incorporated under this Act shall be designated as municipalities ( municipios), and shall be
known respectively by the names heretofore adopted. Under such names they may sue and be sued,
contract and be contracted with, acquire and hold real and personal property for the general interests
of the municipality, and exercise all the powers hereinafter conferred upon them.
"All property and property rights vested in any pueblo under its former organization shall continue to
be vested in the same municipality after its incorporation under this Act."
By this last-cited Act, of an administrative character, the rights of the old municipalities to acquire real
and personal property, in accordance with their former organization, are recognized, and it is declared
that the said property and rights shall continue to pertain to the municipalities created in harmony with
the provisions of the Municipal Code, on account of such property being the patrimonial property of
the municipalities.
In accordance with these principle, which harmonize perfectly with both the old and the modern
legislation of this country, and taking into consideration the spirit underlying the Laws of the Indies,
and the purposes and tendencies of their provisions, ever favorable to the original holders of the land
where, under the Spanish sovereignty, new towns were organized, the municipality of Tacloban ought
to be considered as the owner of the land on which the municipal building and two schoolhouses, of
a building character, were erected, on account of having been awarded to it as its exclusive property,
on the founding of the said pueblo, for the record of the case offers no proof nor data whatever contrary
to such award or grant. As the said municipality, the applicant has been occupying the property by its
own buildings during such a long space of time, much longer than that required for extraordinary
prescription (art. 1959, Civil Code), it can not be denied that the presumption exists, in its favor, that it
has been holding the land in its character of owner, since the trial record exhibits no proof that any
other parcel of land, distinct from that in controversy, was awarded to the said municipality of the
erection thereon of its court-house and schools, a church, school, and a municipal building being
necessary and indispensable for the normal existence of a regularly constituted pueblo.
The title under which the municipality of Tacloban holds and enjoys the land, the registration of which
is in question, is the same as that now recognized to exist in favor of the said pueblo in support of its
occupancy of the territory within which the town is established with its streets and squares, a title
identical with that held at the present time by the church, as a religious institution, to the land now
occupied by the temple that exists in the said pueblo. The grant and demarcation of the land to be
occupied by the town, as well as the distribution and allotment of the parcels thereof which were to
constitute its squares and streets and of those to be occupied by the church, the municipal and other
public buildings, and also of the parcels to be apportioned among its first settlers, must all have been
set forth in a record made at least in the archives of the provincial government, since it is improbable
that it could have been kept in those of the municipal building, considering the changes wrought by
time; wherefore it is not at all strange that the first settlers of a town in information should lack their
respective titles to accredit their ownership to the parcels of land which fell to each of them in the
partition made of the lots, for in those remote times fewer records were kept, the archipelago was
sparsely populated and there were abundant lands for distribution, for which reasons the mere fact of
the erection of a church, the municipal building, and school, carries with it the presumption that the
land on which they are built was alloted to the Church and to the municipality for the public service.
No proof whatever was offered at trial against such a presumption, and therefore there exists no legal
ground nor equitable reason why the right of the municipality of Tacloban to the land in question ought
no to be respective, a right of ownership consecrated by the laws of every civilized country for the
benefit of society, of public order, and of civilization itself.
In view of the facts logically and justly supposed and of the legal grounds above noted, it is of course
shown that the municipality of Tacloban, as an administrative entity susceptible of rights and duties,
has no need to rely upon the right that is derived from prescription in order that it may be held and
reputed to be the owner of the land or lot on which buildings belonging to it are erected, for the
construction of which the said land was assigned and adjudicated to it when the pueblo was founded,
as has been amply proven in the preceding paragraphs.
For the purpose of proving that the said land occupied by the court-house and schools of the pueblo
of Tacloban, the capital of Leyte, is not comprised within an exido, dehesa, or terreno comunal, it
behooves us to state that in the initial foundation of a pueblo in these Islands, in accordance with the
provisions of the Recompilation of the Laws of the Indies, lands were marked out for it which had an
area such as would be inclosed by a perimeter 4 leguas in length, in the figure permitted by the
conditions and circumstances of the place. This measure of area was that adopted also when the
undertaking of founding a town in a given place, with the authorization of the Government, was
intrusted to a private part by virtue of a contract, as when the legitimate representatives of the
sovereign motu propio proceeded with the organization of a pueblo in the manner an under the
conditions required by the laws in force in that epoch.
In either case, on the demarcation of the land to the occupied by the new pueblo and before proceeding
to distribute the lots among its settlers, they decided upon the sites for the location of the public square
and the streets of the town and the lots on which the temple, the municipal and other public buildings
should be constructed, and afterwards they set aside, without the perimeter within which the pueblo
was to situated, a certain area of land which was to constitute the exido, dehesa, or terreno comunal,
and all in accordance with the Laws of the Indies. So that the square and streets, and the lots to be
occupied by the temple, the municipal building, and the schools, could be in no manner situated nor
comprised within the terreno comunal, dehesa, or exido of a pueblo, inasmuch as the said lots were
necessarily within the town, and the latter lands without it.
Subsequent provisions of law confirm the foregoing statements, and in this connection the royal decree
of February 28, 1883, provides:
ARTICLE 1. The legua comunal for the Philippine Islands, under the provisions of Law 8, Title 3, Book
6 of the Recopilacion de Indias, so far as the pueblos already established and those which may be
established hereafter are concerned, shall be of an area of 20,000 feet, equivalent to a league of 20
degrees, without regard to the geometrical figure resulting from the topography of the locality, or to
conditions relating to property rights over the land itself or over land adjoining the same.
ART. 2. The pueblos not having said land alloted to them may apply and obtain the same by means
of the corresponding proceedings.chanroblesvirtualawlibrary chanrobles virtual law library
ART. 3. When the conditions so required, the pueblos may institute proceedings to obtain an extension
of said comunal land, in order that the latter may be in keeping with the number of inhabitants, the
number of heads of cattle owned by them, and the topographical conditions of each pueblo.
In order to comply with and carry out the said royal decree, the General Government, on the
recommendation of the Direccion General de Administracion Civil, promulgated among other
regulations the following:
For the legua comunal uncultivated land shall be selected, whenever possible, which may be in proper
condition for the pasture of cattle and cultivation of building timber and the necessary industries to
meet the requirements of the inhabitants.
The area of the land, having been determined by the General Government, the Bureau of Forestry
shall proceed with the designation and the setting of boundary marks of the new comunal land, and a
certificate shall be executed in the same form as previously stated.
And in order to clear up any doubts with respect to the fulfillment of the said royal decree of February
28, 1883, it was provided by royal order of January 17, 1885, that -
The legua or dehesa comunal shall be situated on uncultivated lands within the territorial limits of the
pueblo for whose benefit it was intended and shall not comprise lands belonging to the district of
another pueblo.
It having been proved in a conclusive manner that the land in litigation is situated within the town of
Tacloban and on the side of its public square, it is unquestionable that under no consideration could it
be comprised within the pasturage land known as dehesa comunal which, if the pueblo of Tacloban
had any, would be outside the perimetrical limits of the town, though within its territorial district, among
its uncultivated lands; and therefore the said law 8, title 3, book 6, article 53 of the Ordinances on
Good Government, of February 26, 1768, which treats of the comunal lands of the pueblos, and the
royal decrees, order, and superior decree before referred to, have no application in the present case,
neither does the doctrine established in The City of Manila vs. The Insular Government (10 Phil. Rep.,
327) apply, inasmuch as the present case does not concern comunal land, but a lot owned by the
municipality of Tacloban, situated in the town, together with the buildings thereon erected, all held by
its as property of its own of a patrimonial character, without contradiction or proof of any kind to the
contrary. It must not be forgotten that the concession and adjudication of lands or lots for the
construction of the temple, the municipal building, and the schoolhouses, were made in obedience to
a need at the time of the foundation of the pueblo, while the demarcation and concession
of comunal land or dehesa comunal were effected for the convenience of its settlers.
We have endeavored to find among the precedents of reported American cases a doctrine opposed
to the conclusions herein established, but have found no well-defined one in an analogous case. The
decision rendered in the suit of The United States vs. Santa Fe (165 U.S., 675), involves the right
acquired through operation of the law by the city of Santa Fe, to 4 square leagues of land in the
immediate vicinity thereof, by virtue of a grant made in fact by the laws of the Recopilacion de Indias,
a right which was not recognized as legitimate by the Supreme Court and it therefore reversed the
judgment of the lower court with instructions to dismiss the application looking to the establishment of
that claim. The case at bar is entirely distinct from that in case just cited, and therefore the doctrine
laid down in the decision of the Supreme Court of the United States is not applicable to this litigation,
for the reason that the four leagues of land specified in the Laws of the Indies were those usually
assigned to a pueblo, in the demarcation of the site at the beginning of its foundation, as the territory
which it might occupy in its subsequent development, but, after the said four leagues had been
populated, any unappropriated or uncultivated portion of territory which it should succeeded in
annexing to its original territory had to be so annexed by virtue of an express grant from the sovereign
power as an exido, dehesa, or terreno comunal. This theory, based entirely on the legal provisions
above cited, bears no relation whatever to the case of the segragation of a populated barrio, with its
lots and lands or private ownership, from the original pueblo of which it formed a part, and its
annexation to another adjoining pueblo, which could only be accomplished through action and decision
taken by the General Government, with the approval of the Government of Spain.
Moreover, it is likewise to be noted that the municipality of Tacloban, in the exercise of the right of
ownership over bienes propios exclusively belonging to it, has an independent personality of its own,
recognized by law, and does not act, with respect to its patrimonial property, as a mere delegated
agent of the central power, without prejudice to the right of inspection established by the administrative
laws for the benefit of the pueblo itself and the country in general; wherefore the doctrine established
in the case of Aguado vs. The City of Manila (9 Phil. Rep., 513) is likewise inapplicable to this litigation,
inasmuch as the present case does not concern any contract entered into by the said municipality and
a private party, nor administrative acts or proceedings whereby the municipality might be considered
as a delegate of the Government.
For the foregoing reasons, and holding that the municipality of Tacloban is the legitimate owner of the
land now occupied by its court-house and two public schoolhouses and has a perfect right to have the
said land registered in its name in the registry of property, in accordance with law, it is competent, in
our opinion, to affirm, as we hereby do, the judgment appealed from, exactly as pronounced by the
Court of Land Registration.

SECOND DIVISION
G.R. No. 177168, August 03, 2015
NAVY OFFICERS' VILLAGE ASSOCIATION, INC. (NOVAI), Petitioner, vs.
REPUBLIC OF THE PHILIPPINES, Respondent.
DECISION
BRION, J.:
We resolve the present petition for review on certiorari1 assailing the December 28, 2006
decision2 and March 28, 2007 resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 85179.

The CA reversed and set aside the August 20, 2004 decision4 of the Regional Trial Court (RTC)
Branch 67, Pasig City, that dismissed the complaint filed by the Republic of the Philippines
(respondent or the Republic) for the cancellation of Transfer Certificate of Title (TCT) No. T-15387
issued in the name of Navy Officers' Village Association, Inc. or NOVAI (petitioner).

The Factual Antecedents

TCT No. T-15387,5 issued in NOVAI's name, covers a 475,009 square-meter parcel of land (the
property)6 situated inside the former Fort Andres Bonifacio Military Reservation (FBMR) in Taguig,
Metro Manila.

The property previously formed part of a larger 15,812,684 square-meter parcel of land situated at
the former Fort William McKinley, Rizal, which was covered by TCT No. 61524 issued in the name of
the Republic of the Philippines.

On July 12, 1957, then President Carlos P. Garcia issued Proclamation No. 4237 "reserving for
military purposes certain parcels of the public domain situated in the municipalities of Pasig, Taguig,
Parañaque, province of Rizal, and Pasay City," which included the 15,812,684 square-meter parcel
of land covered by TCT No. 61524.

On September 29, 1965, then Pres. Diosdado Macapagal issued Proclamation No. 4618 which
excluded from Fort McKinley "a certain portion of land embraced therein, situated in the
municipalities of Taguig and Parañaque, Province of Rizal, and Pasay City," with an area of
2,455,310 square meters, and declared the excluded area as "AFP Officers' Village" to be disposed
of under the provisions of Republic Act Nos. 2749 and 730.10

Barely a month after, or on October 25, 1965, Pres. Macapagal issued Proclamation No.
47811 "reserving for the veterans rehabilitation, medicare and training center site purposes" an area
of 537,520 square meters of the land previously declared as AFP Officers' Village under
Proclamation No. 461, and placed the reserved area under the administration of the Veterans
Federation of the Philippines (VFP).

The property is within the 537,520 square-meter parcel of land reserved in VFP's favor.

On November 15, 1991, the property was the subject of a Deed of Sale12between the Republic
of the Philippines, through former Land Management Bureau (LMB) Director Abelardo G. Palad,
Jr., (Dir. Palad) and petitioner NOVAI. The deed of sale was subsequently registered and from
which TCT No. T-15387 was issued in NOVAI's name.

The Republic's Complaint for Cancellation of Title

In its complaint13 filed with the RTC on December 23, 1993, the Republic sought to cancel NOVAFs
title based on the following grounds: (a) the land covered by NOVAFs title is part of a military
reservation; (b) the deed of sale conveying the property to NOVAI, which became the basis for the
issuance of TCT No. 15387, is fictitious; (c) the LMB has no records of any application made by
NOVAI for the purchase of the property, and of the NOVAFs alleged payment of P14,250,270.00 for
the property; and (d) the presidential proclamation, i.e., Proclamation No. 2487, claimed to have
been issued by then President Corazon C. Aquino in 1991 that authorized the transfer and titling of
the property to NOVAI, is fictitious.

NOVAI's Answer to the Complaint

In its answer (which was later amended) to the Republic's complaint, NOVAI counter-argued that the
property was no longer part of the public dominion, as the land had long been segregated from the
military reservation pursuant to Proclamation No. 461.

NOVAI claimed that, contrary to the Republic's contention that there were no records of the sale, it
had actually filed a letter-application for a sales patent over the property with the LMB which
prepared, verified and approved the property's plan and technical description; and that the LMB
delivered to it a copy of the deed of sale, signed and executed by Dir. Palad, after it had paid a
portion of the P14,250,270.00 purchase price, corresponding taxes, and other charges, with the
balance to be paid in installments.

Also, NOVAI contended that, since any alleged irregularities that may have attended the sale
pertained only to formalities, the proper remedy for the Republic was to file an action for reformation
of instrument, not for cancellation of title. In any event, it added that the Republic's cause of action
had prescribed because its title to the property had already become indefeasible.
The RTC's decision
The RTC narrowed down the issues to: (a) the character of the property in question, i.e., whether the
property in question was part of the FBMR, and hence, inalienable; and (b) the validity of the deed of
sale conveying the property to NOVAI, i.e., whether the title over the property was acquired by
NOVAI through fraud. The RTC resolved both issues in NOVAI's favor.

In its decision, the RTC ruled that: (a) the property is alienable and disposable in character, as the
land falls within the area segregated from the FBMR pursuant to Proclamation No. 461; (b) the
subject deed of sale should be presumed valid on its face, as it was executed with all the formalities
of a notarial certification; (c) notwithstanding the claims of forgery, the signature of Dir. Palad on the
deed of sale appeared genuine and authentic; and (d) NOVAI's title to the property had attained
indefeasibility since the Republic's action for cancellation of title was filed close to two (2) years from
the issuance of the title.

The CA's decision

The CA reversed and set aside the RTC's decision. It ruled that the property is inalienable land of
the public domain; thus, it cannot be disposed of or be the subject of a sale. It pointed out that, since
NOVAI failed to discharge its burden of proving the existence of Proclamation No. 2487 - the positive
governmental act that would have removed the property from the public domain — the property
remained reserved for veterans rehabilitation purposes under Proclamation No. 478, the latest
executive issuance affecting the property.

Since the property is inalienable, the CA held that the incontestability and indefeasibility generally
accorded to a Torrens title cannot apply because the property, as in this case, is unregistrable land;
that a title issued by reason or on account of any sale, alienation, or transfer of an inalienable
property is void and a patent nullity; and that, consequently, the Republic's action for the cancellation
of NOVAI's title cannot be barred by prescription.

Also, the CA held that there can be no presumption of regularity in the execution of the subject deed
of sale given the questionable circumstances that surrounded the alleged sale of the property to
NOVAI,14e.g., NOVAI's failure to go through the regular process in the Department of Environment
and Natural Resources (DENR) or the LMB Offices in the filing of an application for sales patent and
in the conduct of survey and investigation; the execution of the deed of sale without payment of the
full purchase price as required by policy; and the appearances of forgery and falsification of Dir.
Palad's signature on the deed of sale and on the receipts issued to NOVAI for its installment
payments on the property, among others.

Lastly, the CA held that the Court's observations and ruling in Republic of the Philippines v.
Southside Homeowners Association, Inc (Southside)15 is applicable to the present case. In
Southside, the Republic similarly sought the cancellation of title - TCT No. 15084 - issued in favor of
Southside Homeowners Association, Inc. (SHAI) over a 39.99 hectare area of land situated in what
was known as the Joint U.S. Military Assistance Group (JUSMAG) housing area in Fort Bonifacio.
The Court cancelled the certificate of title issued to SHAI, as the latter failed to prove that the
JUSMAG area had been withdrawn from the military reservation and had been declared open for
disposition. The Court therein ruled that, since the JUSMAG area was still part of the FBMR, its
alleged sale to SHAI is necessarily void and of no effect.

NOVAI sought reconsideration of the CA's decision, which the CA denied in its March 28, 2007
resolution;16 hence, this petition.
The Petition

NOVAI alleges that the CA erred in declaring that: (a) the property is inalienable land of the public
domain, (b) the deed of sale and Proclamation No. 2487 were void and nonexistent, respectively, (c)
the Republic's action for cancellation of title was not barred by prescription, and (d) the ruling
in Southside was applicable to the present case.

In support of its petition, NOVAI raises the following arguments.

(a)The property is no longer part of the public domain because, by virtue of Proclamation No. 461, s.
of 1965, the property was excluded from the FBMR and made available for disposition to qualified
persons, subject to the provisions of R.A. Nos. 274 and 720 in relation to the Public Land Act;

(b)The deed of sale was, in all respects, valid and enforceable, as it was shown to have been
officially executed by an authorized public officer under the provisions of the Public Land Act, and
celebrated with all the formalities of a notarial certification;
(c) Proclamation No. 2487 is to be presumed valid until proven otherwise; that the Republic carried
the burden of proving that Proclamation No. 2487 was a forgery, and that it failed to discharge this
burden;

(d)The CA should not have considered as evidence the testimony of Senator Franklin Drilon on the
nonexistence of Proclamation No. 2487 because such testimony was given by Senator Drilon in
another case17 and was not formally offered in evidence by the Republic during the trial of the
present case before the RTC;

(e)The action for cancellation of title filed by the Republic is already barred by prescription because it
was filed only on December 23, 1993, or close to two (2) years from the issuance of NOVAI's title
on January 9, 1992; and

(f) The case of Southside is not a cognate or companion case to the present case because the two
cases involve completely dissimilar factual and doctrinal bases; thus, the Court's observations
and ruling in Southside should not be applied to the present case.

The Republic's Comment to the Petition

Procedurally, the Republic assails the propriety of the issues raised by NOVAI, such as "whether
Proclamation No. 2487 and the signature of LMB Director Palad on the assailed deed of sale are
forged or fictitious," and "whether the Republic had presented adequate evidence to establish the
spuriousness of the subject proclamation," which are factual in nature and not allowed in a Rule 45
petition.

On the petition's substance, the Republic counters that:

(a)The property is inalienable public land incapable of private appropriation because, while the
property formed part of the area segregated from the FBMR under Proclamation No. 461, it was
subsequently reserved for a specific public use or purpose under Proclamation No. 478;

(b)Proclamation No. 2487, which purportedly revoked Proclamation No. 478, does not legally exist
and thus cannot be presumed valid and constitutional unless proven otherwise; the presumption
of validity and constitutionality of a law applies only where there is no dispute as to the
authenticity and due execution of the law in issue;

(c) The deed of sale executed by NOVAI and by Dir. Palad was undeniably forged, as Dir. Palad
categorically denied having signed the deed of sale, and a handwriting expert from the National
Bureau of Investigation (NBI) confirmed that Dir. Palad's signature was indeed a forgery;18

(d)NOVAI, a private corporation, is disqualified from purchasing the property because R.A. Nos. 274
and 730, and the Public Land Act only allow the sale of alienable and disposable public lands to
natural persons, not juridical persons; and

(e)The Court's decision in Southside applies to the present case because of the strong factual and
evidentiary relationship between the two cases.

BCDA's Comment-in-Intervention

On December 28, 2007, and while the case was pending before this Court, the Bases Conversion
Development Authority (BCDA) filed a motion for leave to file comment-in-intervention and to admit
the attached comment-in-intervention.19

In a resolution dated February 18, 2008,20 the Court allowed the BCDA's intervention.

As the Republic has done, the BCDA contends that NOVAI is disqualified from acquiring the
property given the constitutional and statutory provisions that prohibit the acquisition of lands of the
public domain by a corporation or association; that any sale of land in violation of the Constitution or
of the provisions of R.A. Nos. 274 and 730, and the Public Land Act are null and void; and that any
title which may have been issued by mistake or error on the part of a public official can be cancelled
at any time by the State.

The BCDA further contends that NOVAI miserably failed to comply with the legal requirements for
the release of the property from the military reservation. More specifically, (1) the Director of Lands
did not cause the property's subdivision, including the determination of the number of prospective
applicants and the area of each subdivision lot which should not exceed one thousand (1,000)
square meters for residential purposes; (2) the purchase price for the property was not fixed by the
Director of Lands as approved by the DENR Secretary; (3) NOVAI did not pay the purchase price or
a portion of it to the LMB; and (4) the Deed of Sale was not signed by the President of the Republic
of the Philippines or by the Executive Secretary, but was signed only by the LMB Director.

Also, the BCDA observed that NOVAI was incorporated only on December 11, 1991, while the deed
of sale was purportedly executed on November 15, 1991, which shows that NOVAI did not yet
legally exist at the time of the property's purported sale.

OUR RULING
We resolve to DENY NOVAI's petition for review on certiorari as we find no reversible
error committed by the CA in issuing its December 28, 2006 decision and March 28, 2007
resolution.

I. Procedural Objections
A. In the filing of the present petition before this Court

Under Section 1, Rule 45 of the Rules of Court, a party desiring to appeal from a judgment or final
order of the CA shall raise only questions of law which must be distinctly set forth.

A question of law exists when the doubt or controversy concerns the correct application of law or
jurisprudence on a certain state of facts.21 The issue does not call for an examination of the
probative value of the evidence presented, the truth or falsehood of the facts being admitted.22 In
contrast, a question of fact exists when a doubt or difference arises as to the truth or falsehood of
facts or when the query invites the calibration of the whole evidence considering mainly the
credibility of the witnesses; the existence and relevancy of specific surrounding circumstances, as
well as their relation to each other and to the whole; and the probability of the situation.23

The rule that only questions of law may be the subject of a Rule 45 Petition before this Court,
however, has exceptions.24 Among these exceptions is when there is conflict between the factual
findings of the RTC and that of the CA.

In this case, the CA totally reversed the RTC on the nature and character of the land, in question,
and on the,validity of the deed of sale between the parties. Due to the conflicting findings of the RTC
and the CA on these issues, we are allowed to reexamine the facts and the parties' evidence in
order to finally resolve the present controversy.

B. On BCD A's Intervention

In its reply25cralawred to the BCDA's comment-in-intervention, NOVAI primarily objects to the

BCDA's intervention because it was made too late.

Intervention is a proceeding in a suit or action by which a third person is permitted by the court to
make himself a party, either joining the plaintiff or defendant, or demanding something adverse to
both of them.26 Its purpose is to enable such third party to protect or preserve a right or interest
which may be affected by the proceeding,27 such interest being actual, material, direct and
immediate, not simply contingent and expectant.28

As a general rule, intervention cannot be made at the appeal stage. Section 2, Rule 19 of the Rules
of Court, governing interventions, provides that "the motion to intervene may be filed at any time
before rendition of judgment by the trial court." This rule notwithstanding, intervention may be
allowed after judgment where it is necessary to protect some interest which cannot otherwise be
protected, and may be allowed for the purpose of preserving the intervenor's right to appeal.29 "The
rule on intervention, like all other rules of procedure, is intended to make the powers of the Court
fully and completely available for justice x x x and aimed to facilitate a comprehensive adjudication of
rival claims overriding technicalities on the timeliness of the filing thereof."30

Thus, in exceptional cases, the Court may allow intervention although the trial court has already
rendered judgment. In fact, the Court had allowed intervention in one case even when the petition for
review was already submitted for decision before it.31

In the present case, the BCDA is indisputably the agency specifically created under R.A. No.
722732 to own, hold and/or administer military reservations including, among others, those located
inside the FBMR. If we are to affirm the CA's decision, the BCDA stands to benefit as a favorable
ruling will enable it to pursue its mandate under R.A. No. 7227. On the other hand, if we reverse the
CA's decision, it stands to suffer as the contrary ruling will greatly affect the BCDA's performance of
its legal mandate as it will lose the property without the opportunity to defend its right in court.

Indeed, the BCDA has such substantial and material interest both in the outcome of the case and in
the disputed property that a final adjudication cannot be made in its absence without affecting such
interest. Clearly, the BCDA's intervention is necessary; hence, we allow the BCDA's intervention
although made beyond the period prescribed under Section 2, Rule 19 of the Rules of Court.
II. Substantive Issues

A. The property is non-disposable land of the public domain reserved for public or quasi-
public use or purpose

We agree with the CA that the property remains a part of the public domain that could not have been
validly disposed of in NOVAI's favor. NOVAI failed to discharge its burden of proving that the
property was withdrawn from the intended public or quasi-public use or purpose.

While the parties disagree on the character and nature of the property at the time of the questioned
sale, they agree, however, that the property formed part of the FBMR - a military reservation
belonging to the public domain. We note that the FBMR has been the subject of several presidential
proclamations and statues issued subsequent to Proclamation No. 423, which either removed or
reserved for specific public or quasi-public use or purpose certain of its portions.

On the one hand, NOVAI argues that Proclamation No. 461 had already transferred the property
from the State's "public domain" to its "private domain." On the other hand, the respondents argue
that Proclamation No. 478, in relation with RA 7227 and EO No. 40, had reverted the property to the
inalienable property of the "public domain."

The classification and disposition of lands of the public domain are governed by Commonwealth Act
(C.A.) No. 141 or the Public Land Act, the country's primary law on the matter.

Under Section 6 of C.A. No. 141, the President of the Republic of the Philippines, upon the
recommendation of the Secretary of Agriculture and Natural Resources, may, from time to
time, classify lands of the public domain into alienable or disposable, timber and mineral lands,
and transfer these lands from one class to another for purposes of their administration and
disposition.

Under Section 7 of C.A. No. 141, the President may, from time to time, upon recommendation of the
Secretary of Agriculture and Natural Resources and for purposes of the administration and
disposition of alienable and disposable public lands, declare what lands are open to disposition or
concession under the Acts' provisions.33cralawrednad

Section 8 of C.A. No. 141 sets out the public lands open to disposition or concession and the
requirement that they have been officially delimited and classified, and when practicable, surveyed.
Section 8 excludes (by implication) from disposition or concession, public lands which have been
reserved for public or quasi-public uses; appropriated by the Government; or in any manner have
become private property, or those on which a private right authorized and recognized by the Act or
any other valid law may be claimed. Further, Section 8 authorizes the President to suspend the
concession or disposition of lands previously declared open to disposition, until again declared open
to disposition by his proclamation or by act of Congress.

Lands of the public domain classified as alienable and disposable are further classified, under
Section 9 of C.A. No. 141, according to their use or purpose into: (1) agricultural; (2) residential,
commercial, industrial, or for similar productive purposes; (3) educational, charitable, or other similar
purposes; and (4) reservations for townsites and for public and quasi-public uses. Section 9 also
authorizes the President to make the classifications and, at any time, transfer lands from one class
to another.

Section 83 of C.A. No. 141 defines public domain lands classified as reservations for public
and quasi-public uses as "any tract or tracts of land of the public domain" which the President,
by proclamation and upon recommendation of the Secretary of Agriculture and Natural Resources,
may designate "as reservations for the use of the Republic of the Philippines or any of its branches,
or of the inhabitants thereof or "for quasi-public uses or purposes when the public interest requires
it."34 Under Section 88 of the same Act, these "reserved tract or tracts of lands 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 [CA No. 141] or by proclamation of the
President."35

As these provisions operate, the President may classify lands of the public domain as alienable and
disposable, mineral or timber land, and transfer such lands from one class to another at any time.

Within the class of alienable and disposable lands of the public domain, the President may further
classify public domain lands, according to the use or purpose to which they are destined, as
agricultural: residential, commercial, industrial, etc.; educational, charitable, etc.; and reservations for
townsites and for public and quasi-public uses; and, he may transfer such lands from one class to
the other at any time.

Thus, the President may, for example, transfer a certain parcel of land from its classification as
agricultural (under Section 9 [a]), to residential, commercial, industrial, or for similar purposes (under
Section 9 [b]) and declare it available for disposition under any of the modes of disposition of
alienable and disposable public lands available under C.A. No. 141, as amended.

The modes of disposition of alienable and disposable lands available under C.A. No. 141 include: (1)
by homestead settlement (Chapter IV), by sale (Chapter V), by lease (Chapter VI) and by
confirmation of imperfect or incomplete titles (Chapters VII and VIII) for agricultural lands under Title
II of C.A. No. 141 as amended; (2) by sale or by lease for residential, commercial, or industrial lands
under Title III of C.A. No. 141, as amended; (3) by donation, sale, lease, exchange or any other form
for educational and charitable lands under Title IV of C.A. No. 141, as amended; and (4) by sale by
public auction for townsite reservations under Chapter XI, Title V of C.A. No. 141, as amended.

Once these parcels of lands are actually acquired by private persons, either by sale, grant, or other
modes of disposition, they are removed from the mass of land of the public domain and become, by
operation of law, their private property.

With particular regard, however, to parcels of land classified as reservations for public and quasi-
public uses (under Section 9 [d]), when the President transfers them to the class of .alienable and
disposable public domain lands destined for residential, commercial, industrial, or for similar
purposes (under Section 9 [b]), or some other class under Section 9, these reserved public domain
lands become available for disposition under any of the available modes of disposition under C.A.
No. 141, as provided above. Once these re-classified lands (to residential purposes from reservation
for public and quasi-public uses) are actually acquired by private persons, they become private
property.

In the meantime, however, and until the parcels of land are actually granted to, acquired, or
purchased by private persons, they remain lands of the public domain which the President, under
Section 9 of C.A. No. 141, may classify again as reservations for public and quasi-public uses. The
President may also, under Section 8 of C.A. No. 141, suspend their concession or disposition.

If these parcels of land are re-classified as reservations before they are actually acquired by private
persons, or if the President suspends their concession or disposition, they shall not be subject to
occupation, entry, sale, lease, or other disposition until again declared open for disposition by
proclamation of the President pursuant to Section 88 in relation with Section 8 of C.A. No. 141.

Thus, in a limited sense, parcels of land classified as reservations for public or quasi-public uses
under Section 9 (d) of C.A. No. 141 are still non-alienable and non-disposable, even though they
are, by the general classification under Section 6, alienable and disposable lands of the public
domain. By specific declaration under Section 88, in relation with Section 8, these lands classified as
reservations are non-alienable and non-disposable.

In short, parcels of land classified as reservations for public or quasi-public uses: (1) are non-
alienable and non-disposable in view of Section 88 (in relation with Section 8) of CA No. 141
specifically declaring them as non-alienable and not subject to disposition; and (2) they remain
public domain lands until they are actually disposed of in favor of private persons.

Complementing and reinforcing this interpretation - that lands designated as reservations for public
and quasi-public uses are non-alienable and non-disposable and retain their character as land of the
public domain is the Civil Code with its provisions on Property that deal with lands in general. We
find these provisions significant to our discussion and interpretation as lands are property, whether
they are public lands or private lands.36

In this regard, Article 419 of the Civil Code classifies property as either of public dominion or of
private ownership. Article 42037 defines property of the public dominion as those which are intended
for public use or, while not intended for public use, belong to the State and are intended for some
public service. Article 421, on the other hand, defines patrimonial property as all other property of the
State which is not of the character stated in Article 420. While Article 422 states that public dominion
property which is no longer intended for public use or service shall form part of the State's
patrimonial property.

Thus, from the perspective of the general Civil Code provisions on Property, lands which are
intended for public use or public service such as reservations for public or quasi-public uses are
property of the public dominion and remain to be so as long as they remain reserved.

As property of the public dominion, public lands reserved for public or quasi-public uses are outside
the commerce of man.38 They cannot be subject to sale, disposition or encumbrance; any sale,
disposition or encumbrance of such property of the public dominion is void for being contrary to law
and public policy.39

To be subject to sale, occupation or other disposition, lands of the public domain designated as
reservations must first be withdrawn, by act of Congress or by proclamation of the President, from
the public or quasi-public use for which it has been reserved or otherwise positively declared to have
been converted to patrimonial property, pursuant to Sections 8 and 88 of C.A. No. 141 and Article
422 of the Civil Code.40 Without such express declaration or positive governmental act, the reserved
public domain lands remain to be public dominion property of the State.41

To summarize our discussion:

(1) Lands of the public domain classified as reservations for public or quasi-public uses are non-
alienable and shall not be subject to disposition, although they are, by the general classification
under Section 6 of C.A. No. 141, alienable and disposable lands of the public domain, until declared
open for disposition by proclamation of the President; and

(2) Lands of the public domain classified as reservations are property of the public dominion; they
remain to be property of the public dominion until withdrawn from the public or quasi-public use for
which they have been reserved, by act of Congress or by proclamation of the President, or otherwise
positively declared to have been converted to patrimonial property.

Based on these principles, we now examine the various issuances affecting the property in order to
determine the property's character and nature, i.e., whether the property remains public domain
property of the State or has become its private property.

For easier reference, we reiterate the various presidential proclamations and statutes affecting the
property:
(1)Proclamation No. 423, series of 1957 - established the FBMR, a military reservation; the property
falls within the FBMR;

(2)Proclamation No. 461, series of (September) 1965 - segregated, from the FBMR, a portion of
Parcel 3, plan Psd-2031, which includes the property, for disposition in favor of the AFPOVAI;

(3)Proclamation No. 478, series of (October) 1965 — reserved the property in favor of the Veterans
Rehabilitation and Medical Training Center (VRMTC); and

(4)RA No. 7227 (1992), as implemented by EO No. 40, series of 1992 - subject to certain specified
exemptions, transferred the military camps within Metro Manila, among others, to the BCDA.
1. Proclamation No. 461 was not the legal basis for the property's sale in favor of NOVAI

We agree with the respondents that while Proclamation No. 461, issued in September 1965,
removed from the FBMR a certain parcel of land that includes the property, Proclamation No. 478,
issued in October 1965, in turn segregated the property from the area made available for disposition
under Proclamation No. 461, and reserved it for the use of the VRMTC.

We find it clear that Proclamation No. 478 was issued after, not before, Proclamation No. 461.
Hence, while Proclamation No. 461 withdrew a certain area or parcel of land from the FBMR and
made the covered area available for disposition in favor of the AFPOVAI, Proclamation No. 478
subsequently withdrew the property from the total disposable portion and reserved it for the use of
the VRMTC. With the issuance of Proclamation No. 478, the property was transferred back to that
class of public domain land reserved for public or quasi-public use or purpose which, consistent with
Article 420 of the Civil Code, is property of the public dominion, not patrimonial property of the State.

Even under the parties' deed of sale, Proclamation No. 2487, not Proclamation No. 461, was used
as the authority for the transfer and sale of the property to NOVAI. The subject deed of sale
pertinently reads:
"This DEED OF SALE, made and executed in Manila, Philippines, by the Director of Lands, Pursuant
to Batas Pambansa Blg. 878 and in representation of the Republic of the Philippines, hereinafter
referred to as the Vendor, in favor of THE NAVY OFFICERS VILLAGE ASSOCIATION (NOVA) and
residing in Fort Bonifacio, Metro Manila, referred to as the Vendee, WITNESSETH:
xxxx

WHEREAS, pursuant to Presidential proclamation No. 478 as amended by proclamation No.

2487 in relation to the provision of Act No. 3038 and similar Acts supplemented thereto, the Vendee
applied for the purchase of a portion of the above-described Property which portion is identical to Lot
3, Swo-000183 and more particularly described on page two hereof;
xxxx

WHEREAS, the Vendee has complied with all other conditions required by Act No. 3038 in relation
to Commonwealth Act No. 141, as amended, and the rules and regulation promulgated thereunder.
x x x x. (Emphasis supplied)
Clearly, the legal basis of the property's sale could not have been Proclamation No. 461.

2. Proclamation No. 2487 which purportedly revoked Proclamation No. 478 does not legally exist;
hence, it did not withdraw the property from the reservation or from the public dominion

Neither can Proclamation No. 2487 serve as legal basis for the property's sale in NOVAI's favor.
Proclamation No. 2487 purportedly revoked Proclamation No. 478 and declared the property open
for disposition in favor of NOVAI.

The Republic and the BCD A (now respondents) argue that Proclamation No. 2487 does not legally
exist; it could not have served to release the property from the mass of the non-alienable property of
the State.

Hence, even if NOVAI relies on Proclamation No. 2487 - on which it did not as it relied on
Proclamation No. 4.61 - the sale and NOVAI's title are still void. NOVAI, on the other hand, claims in
defense that Proclamation No. 2487 is presumed valid and constitutional, and the burden of proving
otherwise rests on the respondents.

In insisting on the presumptive validity of law, NOVAI obviously failed to grasp and appreciate the
thrust of the respondents' arguments, including the impact of the evidence which they presented to
support the question they raised regarding the authenticity of Proclamation No. 2487.

Rather than the validity or constitutionality of Proclamation No. 2487, what the respondents assailed
was its legal existence, not whether it was constitutional or not. Put differently, they claimed that
Proclamation No. 2487 was never issued by former Pres. Aquino; hence, the presumptive validity
and constitutionality of laws cannot apply.

Accordingly, after the respondents presented their evidence, it was NOVAI's turn to present its own
evidence sufficient to rebut that of the respondents. On this point, we find the Republic's evidence
sufficiently convincing to show that Proclamation No. 2487 does not legally exist. These pieces of
evidence include:

First, the October 26, 1993 letter of the Solicitor General to the Office of the President inquiring
about the existence of Proclamation No. 2487.42

Second, the November 12, 1993 letter-reply of the Office of the President informing the Solicitor
General that Proclamation No. 2487 "is not among the alleged documents on file with [its] Office."43

Third, the testimony of the Assistant Director of the Records Office in Malacañang confirming that
indeed, after verifying their records or of the different implementing agencies, "[t]here is no existing
document(s) in [their] possession regarding that alleged Proclamation No. 2487;"44 and

Fourth and last, the October 11, 1993 Memorandum of then Department of Justice Secretary
Frahklin M. Drilon (DOJ Secretary Drilon) to the NBI to investigate, among others, the circumstances
surrounding the issuance of Proclamation No. 2487.45 Notably, this October 11, 1993 Memorandum
of DOJ Secretary Drilon stated that: "Proclamation No. 2487 is null and void x x x. [It] does not exist
in the official records of the Office of the President x x x [and] could riot have been issued by the
former President since the last Proclamation issued during her term was proclamation No. 932 dated
19 June 1992."46

In this regard, we quote with approval the CA's observations in its December 28, 2006 decision:
Cast against this backdrop, it stands to reason enough that the defendant-appellee NOVAI was
inevitably duty bound to prove and establish the very existence, as well as the genuineness or
authenticity, of this Presidential Proclamation No. 2487. For certain inexplicable reasons, however,
the defendant-appellee did not do so, but opted to build up and erect its case upon Presidential
Proclamation No. 461.

To be sure, the existence of Presidential Proclamation No. 2487 could be easily proved, and
established, by its publication in the Official Gazette. But the defendant-appellee could not,
as it did not, submit or present any copy or issue of the Official Gazette mentioning or
referring to this Presidential Proclamation No. 2487, this even in the face of the Government's
determined and unrelenting claim that it does not exist at all.47 (Emphasis supplied)
A final point, we did not fail to notice the all too obvious and significant difference between the
proclamation number of Proclamation No. 2487 and the numbers of the proclamations actually
issued by then President Corazon C. Aquino on or about that time.

We take judicial notice that on September 25, 1991 - the very day when Proclamation No. 2487 was
supposedly issued - former Pres. Aquino issued Proclamation No. 80048 and Proclamation No.
801.49 Previously, on September 20, 1991, Pres. Aquino issued Proclamation No. 799;50 and
thereafter, on September 27, 1991, she issued Proclamation No. 802.51cralawrednad

Other proclamations issued around or close to September 25, 1991, included the following:
1. Proclamation No. 750 issued on July 1, 1991;52

2. Proclamation No. 760 issued on July 18, 1991;53

3. Proclamation No. 770 issued on August 12, 1991;54

4. Proclamation No. 780 issued on August 26, 1991;55

5. Proclamation No. 790 issued on September 3, 1991;56

6. Proclamation No. 792 issued on September 5, 1991;57

7. Proclamation No. 797 issued on September 11, 1991;58

8. Proclamation No. 798 issued on September 12, 1991;59

9. Proclamation No. 804 issued on September 30, 1991;60

10. Proclamation No. 805 issued on September 30, 1991;61

11. Proclamation No. 806 issued on October 2, 1991;62

12. Proclamation No. 810 issued on October 7, 1991;63

13. Proclamation No. 820 issued on October 25, 1991;64

14. Proclamation No. 834 issued on November 13, 1991;65 and

15. Proclamation No. 840 issued on November 26, 1991.66

This list shows that the proclamations issued by former Pres. Aquino followed a series or sequential
pattern with each succeeding issuance bearing a proclamation number one count higher than the
proclamation number of the preceding Presidential Proclamation. It also shows that on or about the
time Proclamation No. 2487 was purportedly issued, the proclamation numbers of the proclamations
issued by President Aquino did not go beyond the hundreds series.

It is highly implausible that Proclamation No. 2487 was issued on September 25, 1991, or on any
day close to September 25, 1991, when the proclamations issued for the same period were
sequentially numbered and bore three-digit proclamation numbers.
As Proclamation No. 2487 does not legally exist and therefore could not have validly revoked
Proclamation No. 478, we find, as the CA also correctly did, that Proclamation No. 478 stands as the
most recent manifestation of the State's intention to reserve the property anew for some public or
quasi-public use or purpose. Thus, consistent with Sections 88, in relation with Section 8, of C.A. No.
141 and Article 420 of the Civil Code, as discussed above, the property which was classified again
as reservation for public or quasi-public use or purpose is non-alienable and not subject to
disposition; it also remains property of the public dominion; hence, non-alienable and non-disposable
land of the public domain.

As a consequence, when R.A. No. 7227 took effect in 1992, the property subject of this case, which
does not fall among the areas specifically designated as exempt from the law's operation67 was, by
legal fiat, transferred to the BCDA's authority.

B. As the property remains a reserved public domain land, its sale and the title issued
pursuant to the sale are void

As the property remains a reserved public domain land, it is outside the commerce of man. Property
which are intended for public or quasi- public use or for some public purpose are public dominion
property of the State68 and are outside the commerce of man. NOVAI, therefore, could not have
validly purchased the property in 1991.

We reiterate and emphasize that property which has been reserved for public or quasi-public use or
purpose are non-alienable and shall not be subject to sale or other disposition until again declared
alienable by law or by proclamation of the President.69 Any sale or disposition of property of the
public dominion is void for being contrary to law and public policy.70

Since the sale of the property, in this case, is void, the title issued to NOVAI is similarly void ab initio.
It is a well-settled doctrine that registration under the Torrens System does not, by itself, vest title as
it is not a mode of acquiring ownership;71 that registration under the Torrens System merely confirms
the registrant's already existing title.72

Accordingly, the indefeasibility of a Torrens title does not apply in this case and does not attach to
NOVAI's title. The principle of indefeasibility does not apply when the sale of the property and the
title based thereon are null and void. Hence, the Republic's action to declare the nullity of NOVAI's
void title has not prescribed.

NOVAI insists that the deed of sale carries the presumption of regularity in the performance of
official duties as it bears all the earmarks of a valid deed of sale and is duly notarized.

While we agree that duly notarized deeds of sale carry the legal presumption of regularity in the
performance of official duties,73 the presumption of regularity in the performance of official duties,
like all other disputable legal presumptions, applies only in the absence of clear and convincing
evidence establishing the contrary.74

When, as in this case, the evidence on record shows not only that the property was reserved for
public use or purpose, and thus, non-disposable - a fact that on its own defeats all the evidence
which the petitioner may have had to support the validity of the sale - but also shows that the sale
and the circumstances leading to it are void in form and in substance, the disputable presumption of
regularity in the performance of official duties certainly cannot apply.

C. Even assuming that Proclamation No. 2487 legally exists, the sale of the property to NOVAI
is illegal.

1. Dir. Palad did not have the authority to sell and convey the property.

The subject deed of sale points to Proclamation No. 2487, purportedly amending Proclamation No.
478, in relation with Act No. 3038,75 as legal basis for authorizing the sale.

Section 176 of Act No. 3038 authorizes the sale or lease only: (i) of land of the private domain, not
land of the public domain; and (ii) by the Secretary of Agriculture and Natural Resources, not by the
LMB Director. Section 277 of the said Act, in fact, specifically exempts from its coverage "land
necessary for the public service." As the sale was executed by the LMB Director covering the
property that was reserved for the use of the VRMTC, it, therefore, clearly violated the provisions of
Act No. 3038.
2. The area subject of the sale far exceeded the area that the Director of Lands is authorized to
convey.
Batas Pambansa (B.P.) Blg. 87878 which, per the Deed of Sale, purportedly authorized the Director
of Lands, representing the Republic, to sell the property in favor of NOVAI, limits the authority of the
Director of Lands to sign patents or certificates covering lands to ten (10) hectares.

In this case, the subject deed of sale covers a total area of 475,009 square meters or 47.5009
hectares. Obviously, the area covered by the deed of sale and which NOVAI purportedly purchased,
far exceeds the area that the Director of Lands is authorized to convey under B.P. Blg. 878.

3. The evidence on record and the highly suspect circumstances surrounding the sale fully supports
the conclusion that the property's sale to NOVAI is fictitious, thus, void.
We note the following irregularities that attended the sale of the property to NOVAI:
a. The absence, on file with the LMB, of any request for approval of any survey plan or of an
approved survey plan in NOVAI's name covering the property.79 The approved survey plan
relating to Lot 3, SWO-13-000183 subject of NOVAI's TCT No. 15387 pertains to the
AFPOVAI under Proclamation No. 461;80
b. The technical description, which the DENR prepared for the property as covered by TCT No.
T-15387, was issued upon NOVAI's request only for purposes of reference, not for
registration of title, and was based on the approved survey plan of the
AFPOVAI;81cralawrednad
c. There is no record of any public land application filed by NOVAI with the LMB or with the
DENR Office for the purchase of the property or of any parcel of land in Metro
Manila;82cralawrednad
d. LMB Dir. Palad categorically denied signing and executing the deed of sale;83cralawrednad
e. The findings of the NBI handwriting; expert, detailed in the Questioned Documents Report
No. 815-1093 dated October 29, 1993,84 revealed that the, signature of LMB Director Palad
as it appeared on the Deed of Sale and his standard/sample signature as they appeared on
the submitted comparison documents "were not written by one and the same person,"85 and
concluded that "[t]he questioned signature of 'ABELARDG G. PALAD, JR.' xxx is a TRACED
FORGERY by carbon process;"86 and
f. Lastly, the LMB Cashier's Office did not receive the amount of P14,250,270.00 allegedly paid
by NOVAI as consideration for the property. The receipts87 - O.R. No. 8282851 dated
November 28, 1991, for P160,000.00 and O.R. No. 317024 dated December 23, 1992, for
P200,000.00 - which NOVAI presented as evidence of its alleged payment bore official
receipt numbers which were not among the series of official receipts issued by the National
Printing Office to the LMB, and in fact, were not among the series used by the LMB on the
pertinent dates.88
In sum, we find - based on the facts, the law, and jurisprudence - that the property, at the time of the
sale, was a reserved public domain land. Its sale, therefore, and the corresponding title issued in
favor of petitioner NOVAI, is void.
WHEREFORE, we hereby DENY the present petition for review on certiorari. No reversible error
attended the decision dated December 28, 2006, and the resolution dated March 28, 2007, of the
Court of Appeals in CA-G.R. CV No. 85179.
SO ORDERED.

EN BANC

G.R. No. 135385 December 6, 2000

ISAGANI CRUZ and CESAR EUROPA, petitioners,
vs.
SECRETARY OF ENVIRONMENT AND NATURAL RESOURCES, SECRETARY OF BUDGET
AND MANAGEMENT and CHAIRMAN and COMMISSIONERS OF THE NATIONAL
COMMISSION ON INDIGENOUS PEOPLES, respondents.
HON. JUAN M .FLAVIER, HON. PONCIANO BENNAGEN, BAYANI ASCARRAGA, EDTAMI
MANSAYANGAN, BASILIO WANDAG, EVELYN DUNUAN, YAOM TUGAS, ALFREMO
CARPIANO, LIBERATO A. GABIN, MATERNIDAD M. COLAS, NARCISA M. DALUPINES, BAI
KIRAM-CONNIE SATURNO, BAE MLOMO-BEATRIZ T. ABASALA, DATU BALITUNGTUNG-
ANTONIO D. LUMANDONG, DATU MANTUMUKAW TEOFISTO SABASALES, DATU
EDUAARDO BANDA, DATU JOEL UNAD, DATU RAMON BAYAAN, TIMUAY JOSE ANOY,
TIMUAY MACARIO D. SALACAO, TIMUAY EDWIN B. ENDING, DATU SAHAMPONG
MALANAW VI, DATU BEN PENDAO CABIGON, BAI NANAPNAY-LIZA SAWAY, BAY INAY
DAYA-MELINDA S. REYMUNDO, BAI TINANGHAGA HELINITA T. PANGAN, DATU
MAKAPUKAW ADOLINO L. SAWAY, DATU MAUDAYAW-CRISPEN SAWAY, VICKY MAKAY,
LOURDES D. AMOS, GILBERT P. HOGGANG, TERESA GASPAR, MANUEL S. ONALAN, MIA
GRACE L. GIRON, ROSEMARIE G. PE, BENITO CARINO, JOSEPH JUDE CARANTES,
LYNETTE CARANTES-VIVAL, LANGLEY SEGUNDO, SATUR S. BUGNAY, CARLING
DOMULOT, ANDRES MENDIOGRIN, LEOPOLDO ABUGAN, VIRGILIO CAYETANO, CONCHITA
G. DESCAGA, LEVY ESTEVES, ODETTE G. ESTEVEZ, RODOLFO C. AGUILAR, MAURO
VALONES, PEPE H. ATONG, OFELIA T. DAVI, PERFECTO B. GUINOSAO, WALTER N. TIMOL,
MANUEL T. SELEN, OSCAR DALUNHAY, RICO O. SULATAN, RAFFY MALINDA, ALFREDO
ABILLANOS, JESSIE ANDILAB, MIRLANDO H. MANGKULINTAS, SAMIE SATURNO, ROMEO
A. LINDAHAY, ROEL S. MANSANG-CAGAN, PAQUITO S. LIESES, FILIPE G. SAWAY,
HERMINIA S. SAWAY, JULIUS S. SAWAY, LEONARDA SAWAY, JIMMY UGYUB, SALVADOR
TIONGSON, VENANCIO APANG, MADION MALID, SUKIM MALID, NENENG MALID,
MANGKATADONG AUGUSTO DIANO, JOSEPHINE M. ALBESO, MORENO MALID, MARIO
MANGCAL, FELAY DIAMILING, SALOME P. SARZA, FELIPE P. BAGON, SAMMY
SALNUNGAN, ANTONIO D. EMBA, NORMA MAPANSAGONOS, ROMEO SALIGA, SR.,
JERSON P. GERADA, RENATO T. BAGON, JR., SARING MASALONG, SOLEDAD M.
GERARDA, ELIZABETH L. MENDI, MORANTE S. TIWAN, DANILO M. MALUDAO, MINORS
MARICEL MALID, represented by her father CORNELIO MALID, MARCELINO M. LADRA,
represented by her father MONICO D. LADRA, JENNYLYN MALID, represented by her father
TONY MALID, ARIEL M. EVANGELISTA, represented by her mother LINAY BALBUENA,
EDWARD M. EMUY, SR., SUSAN BOLANIO, OND, PULA BATO B'LAAN TRIBAL FARMER'S
ASSOCIATION, INTER-PEOPLE'S EXCHANGE, INC. and GREEN FORUM-WESTERN
VISAYAS, intervenors.
COMMISSION ON HUMAN RIGHTS, intervenor.
IKALAHAN INDIGENOUS PEOPLE and HARIBON FOUNDATION FOR THE CONSERVATION
OF NATURAL RESOURCES, INC., intervenor.

RESOLUTION
PER CURIAM:
Petitioners Isagani Cruz and Cesar Europa brought this suit for prohibition and mandamus as citizens
and taxpayers, assailing the constitutionality of certain provisions of Republic Act No. 8371 (R.A.
8371), otherwise known as the Indigenous Peoples Rights Act of 1997 (IPRA), and its Implementing
Rules and Regulations (Implementing Rules).
In its resolution of September 29, 1998, the Court required respondents to comment.1 In compliance,
respondents Chairperson and Commissioners of the National Commission on Indigenous Peoples
(NCIP), the government agency created under the IPRA to implement its provisions, filed on October
13, 1998 their Comment to the Petition, in which they defend the constitutionality of the IPRA and pray
that the petition be dismissed for lack of merit.
On October 19, 1998, respondents Secretary of the Department of Environment and Natural
Resources (DENR) and Secretary of the Department of Budget and Management (DBM) filed through
the Solicitor General a consolidated Comment. The Solicitor General is of the view that the IPRA is
partly unconstitutional on the ground that it grants ownership over natural resources to indigenous
peoples and prays that the petition be granted in part.
On November 10, 1998, a group of intervenors, composed of Sen. Juan Flavier, one of the authors of
the IPRA, Mr. Ponciano Bennagen, a member of the 1986 Constitutional Commission, and the leaders
and members of 112 groups of indigenous peoples (Flavier, et. al), filed their Motion for Leave to
Intervene. They join the NCIP in defending the constitutionality of IPRA and praying for the dismissal
of the petition.
On March 22, 1999, the Commission on Human Rights (CHR) likewise filed a Motion to Intervene
and/or to Appear as Amicus Curiae. The CHR asserts that IPRA is an expression of the principle of
parens patriae and that the State has the responsibility to protect and guarantee the rights of those
who are at a serious disadvantage like indigenous peoples. For this reason it prays that the petition
be dismissed.
On March 23, 1999, another group, composed of the Ikalahan Indigenous People and the Haribon
Foundation for the Conservation of Natural Resources, Inc. (Haribon, et al.), filed a motion to Intervene
with attached Comment-in-Intervention. They agree with the NCIP and Flavier, et al. that IPRA is
consistent with the Constitution and pray that the petition for prohibition and mandamus be dismissed.
The motions for intervention of the aforesaid groups and organizations were granted.
Oral arguments were heard on April 13, 1999. Thereafter, the parties and intervenors filed their
respective memoranda in which they reiterate the arguments adduced in their earlier pleadings and
during the hearing.
Petitioners assail the constitutionality of the following provisions of the IPRA and its Implementing
Rules on the ground that they amount to an unlawful deprivation of the State’s ownership over lands
of the public domain as well as minerals and other natural resources therein, in violation of the regalian
doctrine embodied in Section 2, Article XII of the Constitution:
"(1) Section 3(a) which defines the extent and coverage of ancestral domains, and Section 3(b) which,
in turn, defines ancestral lands;
"(2) Section 5, in relation to section 3(a), which provides that ancestral domains including inalienable
public lands, bodies of water, mineral and other resources found within ancestral domains are private
but community property of the indigenous peoples;
"(3) Section 6 in relation to section 3(a) and 3(b) which defines the composition of ancestral domains
and ancestral lands;
"(4) Section 7 which recognizes and enumerates the rights of the indigenous peoples over the
ancestral domains;
(5) Section 8 which recognizes and enumerates the rights of the indigenous peoples over the ancestral
lands;
"(6) Section 57 which provides for priority rights of the indigenous peoples in the harvesting, extraction,
development or exploration of minerals and other natural resources within the areas claimed to be
their ancestral domains, and the right to enter into agreements with nonindigenous peoples for the
development and utilization of natural resources therein for a period not exceeding 25 years,
renewable for not more than 25 years; and
"(7) Section 58 which gives the indigenous peoples the responsibility to maintain, develop, protect and
conserve the ancestral domains and portions thereof which are found to be necessary for critical
watersheds, mangroves, wildlife sanctuaries, wilderness, protected areas, forest cover or
reforestation."2
Petitioners also content that, by providing for an all-encompassing definition of "ancestral domains"
and "ancestral lands" which might even include private lands found within said areas, Sections 3(a)
and 3(b) violate the rights of private landowners.3
In addition, petitioners question the provisions of the IPRA defining the powers and jurisdiction of the
NCIP and making customary law applicable to the settlement of disputes involving ancestral domains
and ancestral lands on the ground that these provisions violate the due process clause of the
Constitution.4
These provisions are:
"(1) sections 51 to 53 and 59 which detail the process of delineation and recognition of
ancestral domains and which vest on the NCIP the sole authority to delineate ancestral
domains and ancestral lands;
"(2) Section 52[i] which provides that upon certification by the NCIP that a particular area is an
ancestral domain and upon notification to the following officials, namely, the Secretary of
Environment and Natural Resources, Secretary of Interior and Local Governments, Secretary
of Justice and Commissioner of the National Development Corporation, the jurisdiction of said
officials over said area terminates;
"(3) Section 63 which provides the customary law, traditions and practices of indigenous
peoples shall be applied first with respect to property rights, claims of ownership, hereditary
succession and settlement of land disputes, and that any doubt or ambiguity in the
interpretation thereof shall be resolved in favor of the indigenous peoples;
"(4) Section 65 which states that customary laws and practices shall be used to resolve
disputes involving indigenous peoples; and
"(5) Section 66 which vests on the NCIP the jurisdiction over all claims and disputes involving
rights of the indigenous peoples."5
Finally, petitioners assail the validity of Rule VII, Part II, Section 1 of the NCIP Administrative Order
No. 1, series of 1998, which provides that "the administrative relationship of the NCIP to the Office of
the President is characterized as a lateral but autonomous relationship for purposes of policy and
program coordination." They contend that said Rule infringes upon the President’s power of control
over executive departments under Section 17, Article VII of the Constitution.6
Petitioners pray for the following:
"(1) A declaration that Sections 3, 5, 6, 7, 8, 52[I], 57, 58, 59, 63, 65 and 66 and other related
provisions of R.A. 8371 are unconstitutional and invalid;
"(2) The issuance of a writ of prohibition directing the Chairperson and Commissioners of the
NCIP to cease and desist from implementing the assailed provisions of R.A. 8371 and its
Implementing Rules;
"(3) The issuance of a writ of prohibition directing the Secretary of the Department of
Environment and Natural Resources to cease and desist from implementing Department of
Environment and Natural Resources Circular No. 2, series of 1998;
"(4) The issuance of a writ of prohibition directing the Secretary of Budget and Management
to cease and desist from disbursing public funds for the implementation of the assailed
provisions of R.A. 8371; and
"(5) The issuance of a writ of mandamus commanding the Secretary of Environment and
Natural Resources to comply with his duty of carrying out the State’s constitutional mandate
 to control and supervise the exploration, development, utilization and conservation of
Philippine natural resources."7
After due deliberation on the petition, the members of the Court voted as follows:
Seven (7) voted to dismiss the petition. Justice Kapunan filed an opinion, which the Chief Justice and
Justices Bellosillo, Quisumbing, and Santiago join, sustaining the validity of the challenged provisions
of R.A. 8371. Justice Puno also filed a separate opinion sustaining all challenged provisions of the law
with the exception of Section 1, Part II, Rule III of NCIP Administrative Order No. 1, series of 1998, the
Rules and Regulations Implementing the IPRA, and Section 57 of the IPRA which he contends should
be interpreted as dealing with the large-scale exploitation of natural resources and should be read in
conjunction with Section 2, Article XII of the 1987 Constitution. On the other hand, Justice Mendoza
voted to dismiss the petition solely on the ground that it does not raise a justiciable controversy and
petitioners do not have standing to question the constitutionality of R.A. 8371.
Seven (7) other members of the Court voted to grant the petition. Justice Panganiban filed a separate
opinion expressing the view that Sections 3 (a)(b), 5, 6, 7 (a)(b), 8, and related provisions of R.A. 8371
are unconstitutional. He reserves judgment on the constitutionality of Sections 58, 59, 65, and 66 of
the law, which he believes must await the filing of specific cases by those whose rights may have been
violated by the IPRA. Justice Vitug also filed a separate opinion expressing the view that Sections
3(a), 7, and 57 of R.A. 8371 are unconstitutional. Justices Melo, Pardo, Buena, Gonzaga-Reyes, and
De Leon join in the separate opinions of Justices Panganiban and Vitug.
As the votes were equally divided (7 to 7) and the necessary majority was not obtained, the case was
redeliberated upon. However, after re-deliberation, the voting remained the same. Accordingly,
pursuant to Rule 56, Section 7 of the Rules of Civil Procedure, the petition is DISMISSED.
Attached hereto and made integral parts thereof are the separate opinions of Justices Puno, Vitug,
Kapunan, Mendoza, and Panganiban.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 162243 December 3, 2009
HON. HEHERSON ALVAREZ substituted by HON. ELISEA G. GOZUN, in her capacity as
Secretary of the Department of Environment and Natural Resources, Petitioner,
vs.
PICOP RESOURCES, INC., Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 164516
PICOP RESOURCES, INC., Petitioner,
vs.
HON. HEHERSON ALVAREZ substituted by HON. ELISEA G. GOZUN, in her capacity as
Secretary of the Department of Environment and Natural Resources Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 171875
THE HON. ANGELO T. REYES (formerly Hon. Elisea G. Gozun), in his capacity as Secretary of
the Department of Environment and Natural Resources (DENR), Petitioner,
vs.
PAPER INDUSTRIES CORP. OF THE PHILIPPINES (PICOP), Respondent.
RESOLUTION
CHICO-NAZARIO, J.:
The cause of action of PICOP Resources, Inc. (PICOP) in its Petition for Mandamus with the trial
court is clear: the government is bound by contract, a 1969 Document signed by then President
Ferdinand Marcos, to enter into an Integrated Forest Management Agreement (IFMA) with PICOP.
Since the remedy of mandamus lies only to compel an officer to perform a ministerial duty, and since
the 1969 Document itself has a proviso requiring compliance with the laws and the Constitution, the
issues in this Motion for Reconsideration are the following: (1) firstly, is the 1969 Document a
contract enforceable under the Non-Impairment Clause of the Constitution, so as to make the
signing of the IFMA a ministerial duty? (2) secondly, did PICOP comply with all the legal and
constitutional requirements for the issuance of an IFMA?
To recall, PICOP filed with the Department of Environment and Natural Resources (DENR) an
application to have its Timber License Agreement (TLA) No. 43 converted into an IFMA. In the
middle of the processing of PICOP’s application, however, PICOP refused to attend further meetings
with the DENR. Instead, on 2 September 2002, PICOP filed before the Regional Trial Court (RTC) of
Quezon City a Petition for Mandamus1 against then DENR Secretary Heherson T. Alvarez. PICOP
seeks the issuance of a privileged writ of mandamus to compel the DENR Secretary to sign, execute
and deliver an IFMA to PICOP, as well as to –
[I]ssue the corresponding IFMA assignment number on the area covered by the IFMA, formerly TLA
No. 43, as amended; b) to issue the necessary permit allowing petitioner to act and harvest timber
from the said area of TLA No. 43, sufficient to meet the raw material requirements of petitioner’s pulp
and paper mills in accordance with the warranty and agreement of July 29, 1969 between the
government and PICOP’s predecessor-in-interest; and c) to honor and respect the Government
Warranties and contractual obligations to PICOP strictly in accordance with the warranty and
agreement dated July 29, [1969] between the government and PICOP’s predecessor-in-interest. x x
x.2
On 11 October 2002, the RTC rendered a Decision granting PICOP’s Petition for Mandamus, thus:
WHEREFORE, premises considered, the Petition for Mandamus is hereby GRANTED.
The Respondent DENR Secretary Hon. Heherson Alvarez is hereby ordered:
1. to sign, execute and deliver the IFMA contract and/or documents to PICOP and issue the
corresponding IFMA assignment number on the area covered by the IFMA, formerly TLA No.
43, as amended;
2. to issue the necessary permit allowing petitioner to act and harvest timber from the said
area of TLA No. 43, sufficient to meet the raw material requirements of petitioner’s pulp and
paper mills in accordance with the warranty and agreement of July 29, 1969 between the
government and PICOP’s predecessor-in-interest; and
3. to honor and respect the Government Warranties and contractual obligations to PICOP
strictly in accordance with the warranty and agreement dated July 29, 1999 (sic) between the
government and PICOP’s predecessor-in-interest (Exhibits "H", "H-1" to "H-5", particularly
the following:
a) the area coverage of TLA No. 43, which forms part and parcel of the government
warranties;
b) PICOP tenure over the said area of TLA No. 43 and exclusive right to cut, collect
and remove sawtimber and pulpwood for the period ending on April 26, 1977; and
said period to be renewable for [an]other 25 years subject to compliance with
constitutional and statutory requirements as well as with existing policy on timber
concessions; and
c) The peaceful and adequate enjoyment by PICOP of the area as described and
specified in the aforesaid amended Timber License Agreement No. 43.
The Respondent Secretary Alvarez is likewise ordered to pay petitioner the sum of ₱10 million a
month beginning May 2002 until the conversion of TLA No. 43, as amended, to IFMA is formally
effected and the harvesting from the said area is granted.3
On 25 October 2002, the DENR Secretary filed a Motion for Reconsideration.4 In a 10 February 2003
Order, the RTC denied the DENR Secretary’s Motion for Reconsideration and granted PICOP’s
Motion for the Issuance of Writ of Mandamus and/or Writ of Mandatory Injunction.5 The fallo of the
11 October 2002 Decision was practically copied in the 10 February 2003 Order, although there was
no mention of the damages imposed against then DENR Secretary Alvarez.6 The DENR Secretary
filed a Notice of Appeal7 from the 11 October 2002 Decision and the 10 February 2003 Order.
On 19 February 2004, the Seventh Division of the Court of Appeals affirmed8 the Decision of the
RTC, to wit:
WHEREFORE, the appealed Decision is hereby AFFIRMED with modification that the order
directing then DENR Secretary Alvarez "to pay petitioner-appellee the sum of P10 million a month
beginning May, 2002 until the conversion to IFMA of TLA No. 43, as amended, is formally effected
and the harvesting from the said area is granted" is hereby deleted. 9
Challenging the deletion of the damages awarded to it, PICOP filed a Motion for Partial
Reconsideration10 of this Decision, which was denied by the Court of Appeals in a 20 July 2004
Resolution.11
The DENR Secretary and PICOP filed with this Court separate Petitions for Review of the 19
February 2004 Court of Appeals Decision. These Petitions were docketed as G.R. No. 162243 and
No. 164516, respectively. These cases were consolidated with G.R. No. 171875, which relates to
the lifting of a Writ of Preliminary Injunction enjoining the execution pending appeal of the foregoing
Decision.
On 29 November 2006, this Court rendered the assailed Decision on the Consolidated Petitions:
WHEREFORE, the Petition in G.R. No. 162243 is GRANTED. The Decision of the Court of Appeals
insofar as it affirmed the RTC Decision granting the Petition for Mandamus filed by Paper Industries
Corp. of the Philippines (PICOP) is hereby REVERSED and SET ASIDE. The Petition in G.R. No.
164516 seeking the reversal of the same Decision insofar as it nullified the award of damages in
favor of PICOP is DENIED for lack of merit. The Petition in G.R. No. 171875, assailing the lifting of
the Preliminary Mandatory Injunction in favor of the Secretary of Environment and Natural
Resources is DISMISSED on the ground of mootness.12
On 18 January 2006, PICOP filed the instant Motion for Reconsideration, based on the following
grounds:
I.
THE HONORABLE COURT ERRED IN HOLDING THAT THE CONTRACT WITH PRESIDENTIAL
WARRANTY SIGNED BY THE PRESIDENT OF THE REPUBLIC ON 29 JUNE 1969 ISSUED TO
PICOP IS A MERE PERMIT OR LICENSE AND IS NOT A CONTRACT, PROPERTY OR
PROPERTY RIGHT PROTECTED BY THE DUE PROCESS CLAUSE OF THE CONSTITUTION
II.
THE EVALUATION OF PICOP’S MANAGEMENT OF THE TLA 43 NATURAL FOREST CLEARLY
SHOWED SATISFACTORY PERFORMANCE FOR KEEPING THE NATURAL FOREST
GENERALLY INTACT AFTER 50 YEARS OF FOREST OPERATIONS. THIS COMPLETES THE
REQUIREMENT FOR AUTOMATIC CONVERSION UNDER SECTION 9 OF DAO 99-53.
III.
WITH DUE RESPECT, THE HONORABLE COURT, IN REVERSING THE FINDINGS OF FACTS
OF THE TRIAL COURT AND THE COURT OF APPEALS, MISAPPRECIATED THE EVIDENCE,
TESTIMONIAL AND DOCUMENTARY, WHEN IT RULED THAT:
i.
PICOP FAILED TO SUBMIT A FIVE-YEAR FOREST PROTECTION PLAN AND A SEVEN-YEAR
REFORESTATION PLAN FOR THE YEARS UNDER REVIEW.
ii.
PICOP FAILED TO COMPLY WITH THE PAYMENT OF FOREST CHARGES.
iii.
PICOP DID NOT COMPLY WITH THE REQUIREMENT FOR A CERTIFICATION FROM THE NCIP
THAT THE AREA OF TLA 43 DOES NOT OVERLAP WITH ANY ANCESTRAL DOMAIN.
iv.
PICOP FAILED TO HAVE PRIOR CONSULTATION WITH AND APPROVAL FROM THE
SANGUNIAN CONCERNED, AS REQUIRED BY SECTION 27 OF THE REPUBLIC ACT NO. 7160,
OTHERWISE KNOWN AS THE LOCAL GOVERNMENT CODE OF 1991.
v.
PCIOP FAILED TO SECURE SOCIAL ACCEPTABILITY UNDER PRESIDENTIAL DECREE NO.
1586.
IV
THE MOTIVATION OF ALVAREZ IN RECALLING THE CLEARANCE FOR AUTOMATIC
CONVERSION HE ISSUED ON 25 OCTOBER 2001 WAS NOT DUE TO ANY SHORTCOMING
FROM PICOP BUT DUE TO HIS DETERMINATION TO EXCLUDE 28,125 HECTARES FROM THE
CONVERSION AND OTHER THINGS.
On 15 December 2008, on Motion by PICOP, the Third Division of this Court resolved to refer the
consolidated cases at bar to the Court en banc. On 16 December 2008, this Court sitting en banc
resolved to accept the said cases and set them for oral arguments. Oral arguments were conducted
on 10 February 2009.
PICOP’s Cause of Action: Matters PICOP Should Have Proven to Be Entitled to a Writ of Mandamus
In seeking a writ of mandamus to compel the issuance of an IFMA in its favor, PICOP relied on a 29
July 1969 Document, the so-called Presidential Warranty approved by then President Ferdinand E.
Marcos in favor of PICOP’s predecessor-in-interest, Bislig Bay Lumber Company, Inc. (BBLCI).
PICOP’s cause of action is summarized in paragraphs 1.6 and 4.19 of its Petition for Mandamus:
1.6 Respondent Secretary impaired the obligation of contract under the said Warranty and
Agreement of 29 July 1969 by refusing to respect the tenure; and its renewal for another twenty five
(25) years, of PICOP over the area covered by the said Agreement which consists of permanent
forest lands with an aggregate area of 121,587 hectares and alienable and disposable lands with an
aggregate area of approximately 21,580 hectares, and petitioner’s exclusive right to cut, collect and
remove sawtimber and pulpwood therein and the peaceful and adequate enjoyment of the said area
as described and specified in petitioner’s Timber License Agreement (TLA) No. 43 guaranteed by
the Government, under the Warranty and Agreement of 29 July 1969.13
4.19 Respondent is in violation of the Constitution and has impaired the obligation of contract by his
refusal to respect: a) the tenurial rights of PICOP over the forest area covered by TLA No. 43, as
amended and its renewal for another twenty five (25) years; b) the exclusive right of PICOP to cut,
collect and remove sawtimber and pulpwood therein; and c) PICOP’s peaceful and adequate
enjoyment of the said area which the government guaranteed under the Warranty and Agreement of
29 July 1969.14
The grounds submitted by PICOP in its Petition for Mandamus are as follows:
I
Respondent secretary has unlawfully refused and/or neglected to sign and execute the IFMA
contract of PICOP even as the latter has complied with all the legal requirements for the automatic
conversion of TLA No. 43, as amended, into an IFMA.
II
Respondent Secretary acted with grave abuse of discretion and/or in excess of jurisdiction in
refusing to sign and execute PICOP’s IFMA contract, notwithstanding that PICOP had complied with
all the requirements for Automatic Conversion under DAO 99-53, as in fact Automatic Conversion
was already cleared in October, 2001, and was a completed process.
III
Respondent Secretary has impaired the obligation of contract under a valid and binding warranty
and agreement of 29 July 1969 between the government and PICOP’s predecessor-in-interest, by
refusing to respect: a) the tenure of PICOP, and its renewal for another twenty five (25) years, over
the TLA No.43 area covered by said agreement; b) the exclusive right to cut, collect and remove
sawtimber and pulpwood timber; and c) the peaceful and adequate enjoyment of the said area.
IV
As a result of respondent Secretary’s unlawful refusal and/or neglect to sign and deliver the IFMA
contract, and violation of the constitutional rights of PICOP against non-impairment of the obligation
of contract (Sec. 10, Art. III, 1997 [sic] Constitution), PICOP suffered grave and irreparable
damages.15
Petitions for Mandamus are governed by Rule 65 of the Rules of Court, Section 3 of which provides:
SEC. 3. Petition for mandamus.—When any tribunal, corporation, board, officer or person unlawfully
neglects the performance of an act which the law specifically enjoins as a duty resulting from an
office, trust, or station, or unlawfully excludes another from the use and enjoyment of a right or office
to which such other is entitled, and there is no other plain, speedy and adequate remedy in the
ordinary course of law, the person aggrieved thereby may file a verified petition in the proper court,
alleging the facts with certainty and praying that judgment be rendered commanding the respondent,
immediately or at some other time to be specified by the court, to do the act required to be done to
protect the rights of the petitioner, and to pay the damages sustained by the petitioner by reason of
the wrongful acts of the respondent. (Emphasis supplied.)
PICOP is thus asking this Court to conclude that the DENR Secretary is specifically enjoined by law
to issue an IFMA in its favor. An IFMA, as defined by DENR Administrative Order (DAO) No. 99-
53,16 is -
[A] production-sharing contract entered into by and between the DENR and a qualified applicant
wherein the DENR grants to the latter the exclusive right to develop, manage, protect and utilize a
specified area of forestland and forest resource therein for a period of 25 years and may be renewed
for another 25-year period, consistent with the principle of sustainable development and in
accordance with an approved CDMP, and under which both parties share in its produce.17
PICOP stresses the word "automatic" in Section 9 of this DAO No. 99-53:
Sec. 9. Qualifications of Applicants. – The applicants for IFMA shall be:
(a) A Filipino citizen of legal age; or,
(b) Partnership, cooperative or corporation whether public or private, duly registered under
Philippine laws.
However, in the case of application for conversion of TLA into IFMA, an automatic conversion after
proper evaluation shall be allowed, provided the TLA holder shall have signified such intention prior
to the expiry of the TLA, PROVIDED further, that the TLA holder has showed satisfactory
performance and have complied in the terms of condition of the TLA and pertinent rules and
regulations. (Emphasis supplied.)18
This administrative regulation provision allowing automatic conversion after proper evaluation can
hardly qualify as a law, much less a law specifically enjoining the execution of a contract. To enjoin
is "to order or direct with urgency; to instruct with authority; to command."19 "‘Enjoin’ is a mandatory
word, in legal parlance, always; in common parlance, usually."20 The word "allow," on the other hand,
is not equivalent to the word "must," and is in no sense a command.21
As an extraordinary writ, the remedy of mandamus lies only to compel an officer to perform a
ministerial duty, not a discretionary one; mandamus will not issue to control the exercise of discretion
of a public officer where the law imposes upon him the duty to exercise his judgment in reference to
any manner in which he is required to act, because it is his judgment that is to be exercised and not
that of the court.22
The execution of agreements, in itself, involves the exercise of discretion. Agreements are products
of negotiations and mutual concessions, necessitating evaluation of their provisions on the part of
both parties. In the case of the IFMA, the evaluation on the part of the government is specifically
mandated in the afore-quoted Section 3 of DAO No. 99-53. This evaluation necessarily involves the
exercise of discretion and judgment on the part of the DENR Secretary, who is tasked not only to
negotiate the sharing of the profit arising from the IFMA, but also to evaluate the compliance with the
requirements on the part of the applicant.
Furthermore, as shall be discussed later, the period of an IFMA that was merely automatically
converted from a TLA in accordance with Section 9, paragraph 2 of DAO No. 99-53 would only be
for the remaining period of the TLA. Since the TLA of PICOP expired on 26 April 2002, the IFMA that
could have been granted to PICOP via the automatic conversion provision in DAO No. 99-53 would
have expired on the same date, 26 April 2002, and the PICOP’s Petition for Mandamus would have
become moot.
This is where the 1969 Document, the purported Presidential Warranty, comes into play. When
PICOP’s application was brought to a standstill upon the evaluation that PICOP had yet to comply
with the requirements for such conversion, PICOP refused to attend further meetings with the DENR
and instead filed a Petition for Mandamus, insisting that the DENR Secretary had impaired the
obligation of contract by his refusal to respect: a) the tenurial rights of PICOP over the forest area
covered by TLA No. 43, as amended, and its renewal for another twenty-five (25) years; b) the
exclusive right of PICOP to cut, collect and remove sawtimber and pulpwood therein; and c)
PICOP’s peaceful and adequate enjoyment of the said area which the government guaranteed
under the Warranty and Agreement of 29 July 1969. 23
PICOP is, thus, insisting that the government is obligated by contract to issue an IFMA in its favor
because of the 1969 Document.
A contract, being the law between the parties, can indeed, with respect to the State when it is a party
to such contract, qualify as a law specifically enjoining the performance of an act. Hence, it is
possible that a writ of mandamus may be issued to PICOP, but only if it proves both of the following:
1) That the 1969 Document is a contract recognized under the non-impairment clause; and
2) That the 1969 Document specifically enjoins the government to issue the IFMA.
If PICOP fails to prove any of these two matters, the grant of a privileged writ of mandamus is not
warranted. This was why we pronounced in the assailed Decision that the overriding controversy
involved in the Petition was one of law.24 If PICOP fails to prove any of these two matters, more
significantly its assertion that the 1969 Document is a contract, PICOP fails to prove its cause of
action.25 Not even the satisfactory compliance with all legal and administrative requirements for an
IFMA would save PICOP’s Petition for Mandamus.
The reverse, however, is not true. The 1969 Document expressly states that the warranty as to the
tenure of PICOP is "subject to compliance with constitutional and statutory requirements as well as
with existing policy on timber concessions." Thus, if PICOP proves the two above-mentioned
matters, it still has to prove compliance with statutory and administrative requirements for the
conversion of its TLA into an IFMA.
Exhaustion of Administrative Remedies
PICOP uses the same argument –– that the government is bound by contract to issue the IFMA ––
in its refusal to exhaust all administrative remedies by not appealing the alleged illegal non-issuance
of the IFMA to the Office of the President. PICOP claimed in its Petition for Mandamus with the trial
court that:
1.10 This petition falls as an exception to the exhaustion of administrative remedies. The acts of
respondent DENR Secretary complained of in this petition are patently illegal; in derogation of the
constitutional rights of petitioner against non-impairment of the obligation of contracts; without
jurisdiction, or in excess of jurisdiction or so capriciously as to constitute an abuse of discretion
amounting to excess or lack of jurisdiction; and moreover, the failure or refusal of a high government
official such as a Department head from whom relief is brought to act on the matter was considered
equivalent to exhaustion of administrative remedies (Sanoy v. Tantuico, 50 SCRA 455 [1973]), and
there are compelling and urgent reasons for judicial intervention (Bagatsing v. Ramirez, 74 SCRA
306 [1976]).
Thus, if there has been no impairment of the obligation of contracts in the DENR Secretary’s non-
issuance of the IFMA, the proper remedy of PICOP in claiming that it has complied with all statutory
and administrative requirements for the issuance of the IFMA should have been with the Office of
the President. This makes the issue of the enforceability of the 1969 Document as a contract even
more significant.
The Nature and Effects of the Purported 29 July 1969 Presidential Warranty
Base Metals Case
PICOP challenges our ruling that the 1969 Document is not a contract. Before we review this finding,
however, it must be pointed out that one week after the assailed Decision, another division of this
Court promulgated a Decision concerning the very same 1969 Document. Thus, in PICOP
Resources, Inc. v. Base Metals Mineral Resources Corporation,26 five other Justices who were still
unaware of this Division’s Decision,27 came up with the same conclusion as regards the same issue
of whether former President Marcos’s Presidential Warranty is a contract:
Finally, we do not subscribe to PICOP’s argument that the Presidential Warranty dated September
25, 1968 is a contract protected by the non-impairment clause of the 1987 Constitution.
An examination of the Presidential Warranty at once reveals that it simply reassures PICOP of the
government’s commitment to uphold the terms and conditions of its timber license and guarantees
PICOP’s peaceful and adequate possession and enjoyment of the areas which are the basic
sources of raw materials for its wood processing complex. The warranty covers only the right to cut,
collect, and remove timber in its concession area, and does not extend to the utilization of other
resources, such as mineral resources, occurring within the concession.
The Presidential Warranty cannot be considered a contract distinct from PTLA No. 47 and FMA No.
35. We agree with the OSG’s position that it is merely a collateral undertaking which cannot amplify
PICOP’s rights under its timber license. Our definitive ruling in Oposa v. Factoran that a timber
license is not a contract within the purview of the non-impairment clause is edifying. We declared:
Needless to say, all licenses may thus be revoked or rescinded by executive action. It is not a
contract, property or a property right protected by the due process clause of the Constitution. In Tan
vs. Director of Forestry, this Court held:
"x x x A timber license is an instrument by which the State regulates the utilization and disposition of
forest resources to the end that public welfare is promoted. A timber license is not a contract within
the purview of the due process clause; it is only a license or a privilege, which can be validly
withdrawn whenever dictated by public interest or public welfare as in this case.
‘A license is merely a permit or privilege to do what otherwise would be unlawful, and is not a
contract between the authority, federal, state, or municipal, granting it and the person to whom it is
granted; neither is it a property or a property right, nor does it create a vested right; nor is it taxation'
(C.J. 168). Thus, this Court held that the granting of license does not create irrevocable rights,
neither is it property or property rights (People vs. Ong Tin, 54 O.G. 7576). x x x"
We reiterated this pronouncement in Felipe Ysmael, Jr. & Co., Inc. vs. Deputy Executive Secretary:
"x x x Timber licenses, permits and license agreements are the principal instruments by which the
State regulates the utilization and disposition of forest resources to the end that public welfare is
promoted. And it can hardly be gainsaid that they merely evidence a privilege granted by the State to
qualified entities, and do not vest in the latter a permanent or irrevocable right to the particular
concession area and the forest products therein. They may be validly amended, modified, replaced
or rescinded by the Chief Executive when national interests so require. Thus, they are not deemed
contracts within the purview of the due process of law clause [See Sections 3(ee) and 20 of Pres.
Decree No. 705, as amended. Also, Tan v. Director of Forestry, G.R. No. L-24548, October 27,
1983, 125 SCRA 302]."
Since timber licenses are not contracts, the non-impairment clause, which reads:
"SEC. 10. No law impairing the obligation of contracts shall be passed."
cannot be invoked.
The Presidential Warranty cannot, in any manner, be construed as a contractual undertaking
assuring PICOP of exclusive possession and enjoyment of its concession areas. Such an
interpretation would result in the complete abdication by the State in favor of PICOP of the sovereign
power to control and supervise the exploration, development and utilization of the natural resources
in the area.28
The Motion for Reconsideration was denied with finality on 14 February 2007. A Second Motion for
Reconsideration filed by PICOP was denied on 23 May 2007.
PICOP insists that the pronouncement in Base Metals is a mere obiter dictum, which would not bind
this Court in resolving this Motion for Reconsideration. In the oral arguments, however, upon
questioning from the ponente himself of Base Metals, it was agreed that the issue of whether the
1969 Document is a contract was necessary in the resolution of Base Metals:
JUSTICE TINGA:
And do you confirm that one of the very issues raised by PICOP in that case [PICOP Resources Inc.
v. Base Metal Mineral Resources Corporation] revolves around its claim that a Presidential Warranty
is protected by the non-impairment c[l]ause of the Constitution.
ATTY. AGABIN:
Yes, I believe that statement was made by the Court, your Honor.
JUSTICE TINGA:
Yes. And that claim on the part of PICOP necessarily implies that the Presidential Warranty
according to PICOP is a contract protected by the non-impairment clause.
ATTY. AGABIN:
Yes, Your Honor.
JUSTICE TINGA:
Essentially, the PICOP raised the issue of whether the Presidential Warranty is a contract or not.
ATTY. AGABIN:
Yes, Your Honor.
JUSTICE TINGA:
And therefore any ruling on the part of the Court on that issue could not be an obiter dictum.
ATTY. AGABIN:
Your Honor, actually we believe that the basic issue in that case was whether or not Base Metals
could conduct mining activities underneath the forest reserve allotted to PICOP and the Honorable
Court ruled that the Mining Act of 1995 as well as the Department Order of DENR does not disallow
mining activity under a forest reserve.
JUSTICE TINGA:
But it was PICOP itself which raised the claim that a Presidential Warranty is a contract. And
therefore be, should be protected on the under the non-impairment clause of the Constitution.
ATTY. AGABIN:
Yes, Your Honor. Except that…
JUSTICE TINGA:
So, how can you say now that the Court merely uttered, declared, laid down an obiter dictum in
saying that the Presidential Warranty is not a contract, and it is not being a contract, it is not
prohibited by the non-impairment clause.
ATTY. AGABIN:
This Honorable Court could have just ruled, held that the mining law allows mining activities under a
forest reserve without deciding on that issue that was raised by PICOP, your Honor, and therefore
we believe….
JUSTICE TINGA:
It could have been better if PICOP has not raised that issue and had not claimed that the
Presidential Warranty is not a contract.
ATTY. AGABIN:
Well, that is correct, your Honor except that the Court could have just avoided that question.
Because…
JUSTICE TINGA:
Why[?]
ATTY. AGABIN:
It already settled the issue, the basic issue.
JUSTICE TINGA:
Yes, because the Court in saying that merely reiterated a number of rulings to the effect that the
Presidential Warranty, a Timber License for that matter is not a contract protected by the non-
impairment laws.
ATTY. AGABIN:
Well, it is our submission, your Honor, that it is obiter because, that issue even a phrase by PICOP
was not really fully argued by the parties for the Honorable Court and it seems from my reading at
least it was just an aside given by the Honorable Court to decide on that issue raised by PICOP but
it was not necessary to the decision of the court.
JUSTICE TINGA:
It was not necessary[?]
ATTY. AGABIN:
To the decision of the Court.
JUSTICE TINGA:
It was.
ATTY. AGABIN:
It was not necessary.
JUSTICE TINGA:
It was.
ATTY. AGABIN:
Yes.
JUSTICE TINGA:
And PICOP devoted quite a number of pages in [its] memorandum to that issue and so did the Court
[in its Decision].
ATTY. AGABIN:
Anyway, your Honor, we beg the Court to revisit, not to…29
Interpretation of the 1969 Document That Would Be in Harmony with the Constitution
To remove any doubts as to the contents of the 1969 Document, the purported Presidential
Warranty, below is a complete text thereof:
Republic of the Philippines
Department of Agriculture and Natural Resources
OFFICE OF THE SECRETARY
Diliman, Quezon City
D-53, Licenses (T.L.A. No. 43)
Bislig Bay Lumber Co., Inc.
(Bislig, Surigao)
July 29, 1969
Bislig Bay Lumber Co., Inc.
[unreadable word] Bldg.
Makati, Rizal
S i r s:
This has reference to the request of the Board of Investments through its Chairman in a letter dated
July 16, 1969 for a warranty on the boundaries of your concession area under Timber License
Agreement No. 43, as amended.
We are made to understand that your company is committed to support the first large scale
integrated wood processing complex hereinafter called: "The Project") and that such support will be
provided not only in the form of the supply of pulpwood and other wood materials from your
concession but also by making available funds generated out of your own operations, to supplement
PICOP’s operational sources of funds and other financial arrangements made by him. In order that
your company may provide such support effectively, it is understood that you will call upon your
stockholders to take such steps as may be necessary to effect a unification of managerial, technical,
economic and manpower resources between your company and PICOP.
It is in the public interest to promote industries that will enhance the proper conservation of our forest
resources as well as insure the maximum utilization thereof to the benefit of the national economy.
The administration feels that the PICOP project is one such industry which should enjoy priority over
the usual logging operations hitherto practiced by ordinary timber licensees: For this reason, we are
pleased to consider favorably the request.
We confirm that your Timber License Agreement No. 43, as amended (copy of which is attached as
Annex "A" hereof which shall form part and parcel of this warranty) definitely establishes the
boundary lines of your concession area which consists of permanent forest lands with an aggregate
area of 121,587 hectares and alienable or disposable lands with an aggregate area of approximately
21,580 hectares.
We further confirm that your tenure over the area and exclusive right to cut, collect and remove
sawtimber and pulpwood shall be for the period ending on April 26, 1977; said period to be
renewable for other 25 years subject to compliance with constitutional and statutory requirements as
well as with existing policy on timber concessions.
The peaceful and adequate enjoyment by you of your area as described and specified in your
aforesaid amended Timber License Agreement No. 43 is hereby warranted provided that pertinent
laws, regulations and the terms and conditions of your license agreement are observed.
Very truly yours,
(Sgd.) FERNANDO LOPEZ
Secretary of Agriculture
and Natural Resources
Encl.:
RECOMMENDED BY:
(Sgd.) JOSE VIADO
Acting Director of Forestry
APPROVED:
(Sgd.) FERDINAND E. MARCOS
President of the Philippines
ACCEPTED:
BISLIG BAY LBR. CO., INC.
By:
(Sgd.) JOSE E. SORIANO
President
PICOP interprets this document in the following manner:
6.1 It is clear that the thrust of the government warranty is to establish a particular area defined by
boundary lines of TLA No. 43 for the PICOP Project. In consideration for PICOP’s commitment to
pursue and establish the project requiring huge investment/funding from stockholders and lending
institutions, the government provided a warranty that ensures the continued and exclusive right of
PICOP to source its raw materials needs from the forest and renewable trees within the areas
established.
6.2 As a long-term support, the warranty covers the initial twenty five (25) year period and
is renewable for periods of twenty five (25) years provided the project continues to exist and
operate. Very notably, the wording of the Presidential Warranty connotes that for as long as the
holder complies with all the legal requirements, the term of the warranty is not limited to fifty (50)
years but other twenty five (25) years.
6.3 Note must be made that the government warranted that PICOP’s tenure over the area and
exclusive right to cut, collect and remove saw timber and pulpwood shall be for the period ending on
26 April 1977 and said period to be renewable for other 25 years subject to "compliance with
constitutional and statutory requirements as well as existing policy on timber requirements". It is
clear that the renewal for other 25 years, not necessarily for another 25 years is guaranteed. This
explains why on 07 October 1977, TLA No. 43, as amended, was automatically renewed for another
period of twenty five (25) years to expire on 26 April 2002.30
PICOP’s interpretation of the 1969 Document cannot be sustained. PICOP’s claim that the term of
the warranty is not limited to fifty years, but that it extends to other fifty years, perpetually, violates
Section 2, Article XII of the Constitution which provides:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils,
all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and utilization of natural resources
shall be under the full control and supervision of the State. The State may directly undertake such
activities, or it may enter into co-production, joint venture, or production-sharing agreements with
Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned
by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable
for not more than twenty-five years, and under such terms and conditions as may be provided by
law. In cases of water rights for irrigation, water supply fisheries, or industrial uses other than the
development of water power, beneficial use may be the measure and limit of the grant.
Mr. Justice Dante O. Tinga’s interpretation of the 1969 Document is much more in accord with the
laws and the Constitution. What one cannot do directly, he cannot do indirectly. Forest lands cannot
be alienated in favor of private entities. Granting to private entities, via a contract, a permanent,
irrevocable, and exclusive possession of and right over forest lands is tantamount to granting
ownership thereof. PICOP, it should be noted, claims nothing less than having exclusive, continuous
and uninterrupted possession of its concession areas,31 where all other entrants are illegal,32 and
where so-called "illegal settlers and squatters" are apprehended.33
IFMAs are production-sharing agreements concerning the development and utilization of natural
resources. As such, these agreements "may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and conditions as may be
provided by law." Any superior "contract" requiring the State to issue TLAs and IFMAs whenever
they expire clearly circumvents Section 2, Article XII of the Constitution, which provides for the only
permissible schemes wherein the full control and supervision of the State are not derogated: co-
production, joint venture, or production-sharing agreements within the time limit of twenty-five years,
renewable for another twenty-five years.
On its face, the 1969 Document was meant to expire on 26 April 2002, upon the expiration of the
expected extension of the original TLA period ending on 26 April 1977:
We further confirm that your tenure over the area and exclusive right to cut, collect and remove
sawtimber and pulpwood shall be for the period ending on April 26, 1977; said period to be
renewable for other 25 years subject to compliance with constitutional and statutory requirements as
well as with existing policy on timber concessions.1avvphi 1

Any interpretation extending the application of the 1969 Document beyond 26 April 2002 and any
concession that may be granted to PICOP beyond the said date would violate the Constitution, and
no amount of legal hermeneutics can change that. Attempts of PICOP to explain its way out of this
Constitutional provision only led to absurdities, as exemplified in the following excerpt from the oral
arguments:
JUSTICE CARPIO:
The maximum trend of agreement to develop and utilize natural resources like forest products is 25
years plus another 25 years or a total of 50 years correct?
ATTY. AGABIN
Yes, Your Honor.
JUSTICE CARPIO:
That is true for the 1987, 1973, 1935 Constitution, correct?
ATTY. AGABIN:
Yes, Your Honor.
JUSTICE CARPIO:
The TLA here, TLA 43, expired, the first 25 years expired in 1977, correct?
ATTY. AGABIN:
Yes, Your Honor.
JUSTICE CARPIO:
And it was renewed for another 25 years until 2002, the 50th year?
ATTY. AGABIN:
Yes, Your Honor.
JUSTICE CARPIO:
Now, could PICOP before the end of the 50th year let’s say in 2001, one year before the expiration,
could it have asked for an extension of another 25 years of its TLA agreement[?]
ATTY. AGABIN:
I believe so, Your Honor.
JUSTICE CARPIO:
But the Constitution says, maximum of fifty years. How could you ask for another 25 years of its
TLA.
ATTY. AGABIN:
Well, your Honor, we believe on a question like this, this Honorable Court should balance the
interest.
JUSTICE CARPIO:
The Constitution is very clear, you have only a maximum of 50 years, 25 plus another 25. PICOP
could never have applied for an extension, for a third 25-year term whether under the 1935
Constitution, the 1973 Constitution and the 1987 Constitution, correct?
ATTY. AGABIN:
Your Honor, except that we are invoking the warranty, the terms of the warranty….
JUSTICE CARPIO:
Can the warranty prevail over the Constitution?
ATTY. AGABIN:
Well, it is a vested right, your Honor.
JUSTICE CARPIO:
Yes, but whatever it is, can it prevail over the Constitution?
ATTY. AGABIN:
The Constitution itself provides that vested rights should be ….
JUSTICE CARPIO:
If it is not in violation of specific provision of the Constitution. The Constitution says, 25 years plus
another 25 years, that’s the end of it. You mean to say that a President of the Philippines can give
somebody 1,000 years license?
ATTY. AGABIN:
Well, that is not our position, Your Honor. Because our position is that ….
JUSTICE CARPIO:
My question is, what is the maximum term, you said 50 years. So, my next question is, can PICOP
apply for an extension of another 25 years after 2002, the 50th year?
ATTY. AGABIN:
Yes, based on the contract of warranty, Your Honor, because the contract of warranty….
JUSTICE CARPIO:
But in the PICOP license it is very clear, it says here, provision 28, it says the license agreement is
for a total of 50 years. I mean it is very simple, the President or even Congress cannot pass a law
extending the license, whatever kind of license to utilize natural resources for more than fifty year[s].
I mean even the law cannot do that. It cannot prevail over the Constitution. Is that correct, Counsel?
ATTY. AGABIN:
It is correct, Your Honor, except that in this case, what is actually our application is that the law
provides for the conversion of existing TLA into IFMA.
JUSTICE CARPIO:
So, they file the petition for conversion before the end of the 50th year for IFMA.
ATTY. AGABIN:
Yes, Your Honor.
JUSTICE CARPIO:
But IFMA is the same, it is based on Section 2, Article 12 of the Constitution, develop and utilize
natural resources because as you said when the new constitution took effect we did away with the
old licensing regime, we have now co-production, a production sharing, joint venture, direct
undertaking but still the same developing and utilizing the natural resources, still comes from section
2, Art. 12 of the Constitution. It is still a license but different format now.
ATTY. AGABIN:
It is correct, Your Honor, except that the regimes of joint venture, co-production and production
sharing are what is referred to in the constitution, Your Honor, and still covered…
JUSTICE CARPIO:
Yes, but it is covered by same 25 year[s], you mean to say people now can circumvent the 50 year
maximum term by calling their TLA as IFMA and after fifty years calling it ISMA, after another 50
years call it MAMA.
ATTY. AGABIN:
Yes, Your Honor. Because…
JUSTICE CARPIO:
It can be done.
ATTY. AGABIN:
That is provided for by the department itself.34
PICOP is, in effect, arguing that the DENR issued DAO No. 99-53 in order to provide a way to
circumvent the provisions of the Constitution limiting agreements for the utilization of natural
resources to a maximum period of fifty years. Official duties are, however, disputably considered to
be regularly performed,35 and good faith is always presumed.
DAO No. 99-53 was issued to change the means by which the government enters into an agreement
with private entities for the utilization of forest products. DAO No. 99-53 is a late response to the
change in the constitutional provisions on natural resources from the 1973 Constitution, which
allowed the granting of licenses to private entities,36 to the present Constitution, which provides for
co-production, joint venture, or production-sharing agreements as the permissible schemes wherein
private entities may participate in the utilization of forest products. Since the granting of timber
licenses ceased to be a permissible scheme for the participation of private entities under the present
Constitution, their operations should have ceased upon the issuance of DAO No. 99-53, the rule
regulating the schemes under the present Constitution. This would be iniquitous to those with
existing TLAs that would not have expired yet as of the issuance of DAO No. 99-53, especially those
with new TLAs that were originally set to expire after 10 or even 20 or more years. The DENR thus
inserted a provision in DAO No. 99-53 allowing these TLA holders to finish the period of their TLAs,
but this time as IFMAs, without the rigors of going through a new application, which they have
probably just gone through a few years ago.
Such an interpretation would not only make DAO No. 99-53 consistent with the provisions of the
Constitution, but would also prevent possible discrimination against new IFMA applicants:
ASSOCIATE JUSTICE DE CASTRO:
I ask this question because of your interpretation that the period of the IFMA, if your TLA is
converted into IFMA, would cover a new a fresh period of twenty-five years renewable by another
period of twenty-five years.
DEAN AGABIN:
Yes, Your Honor.
ASSOCIATE JUSTICE DE CASTRO:
Don’t you think that will, in effect, be invidious discrimination with respect to other applicants if you
are granted a fresh period of twenty-five years extendible to another twenty-five years?
DEAN AGABIN:
I don’t think it would be, Your Honor, considering that the IFMA is different regime from the TLA. And
not only that, there are considerations of public health and ecology which should come into play in
this case, and which we had explained in our opening statement and, therefore the provision of the
Constitution on the twenty-five limits for renewal of co-production, joint venture and production
sharing agreements, should be balanced with other values stated in the Constitution, like the value
of balanced ecology, which should be in harmony with the rhythm of nature, or the policy of forest
preservation in Article XII, Section 14 of the Constitution. These are all important policy
considerations which should be balanced against the term limits in Article II of the Constitution.
ASSOCIATE JUSTICE DE CASTRO:
The provision of this Administrative Order regarding automatic conversion may be reasonable, if, I
want to know if you agree with me, if we limit this automatic conversion to the remaining period of
the TLA, because in that case there will be a valid ground to make a distinction between those with
existing TLA and those who are applying for the first time for IFMA?
DEAN AGABIN:
Well, Your Honor, we beg to disagree, because as I said TLA’s are completely different from IFMA.
The TLA has no production sharing or co-production agreement or condition. All that the licensee
has to do is, to pay forest charges, taxes and other impositions from the local and national
government. On the other hand, the IFMAs contained terms and conditions which are completely
different, and that they either impose co-production, production sharing or joint venture terms. So it’s
a completely different regime, Your Honor.
ASSOCIATE JUSTICE DE CASTRO:
Precisely, that is the reason why there should be an evaluation of what you mentioned earlier of the
development plan.
DEAN AGABIN:
Yes, Your Honor.
ASSOCIATE JUSTICE DE CASTRO:
So it will be reasonable to convert a TLA into an IFMA without considering the development plan
submitted by other applicants or the development plan itself of one seeking conversion into IFMA if it
will only be limited to the period, the original period of the TLA. But once you go beyond the period of
the TLA, then you will be, the DENR is I think should evaluate the different proposals of the
applicants if we are thinking of a fresh period of twenty-five years, and which is renewable under the
Constitution by another twenty-five years. So the development plan will be important in this case, the
submission of the development plan of the different applicants must be considered. So I don’t
understand why you mentioned earlier that the development plan will later on be a subject matter of
negotiation between the IFMA grantee and the government. So it seems that it will be too late in the
day to discuss that if you have already converted the TLA into IFMA or if the government has
already granted the IFMA, and then it will later on study the development plan, whether it is viable or
not, or it is sustainable or not, and whether the development plan of the different applicants are, are,
which of the development plan of the different applicants is better or more advantageous to the
government.37
PICOP insists that the alleged Presidential Warranty, having been signed on 29 July 1969, could not
have possibly considered the limitations yet to be imposed by future issuances, such as the 1987
Constitution. However, Section 3, Article XVIII of said Constitution, provides:
Section 3. All existing laws, decrees, executive orders, proclamations, letters of instructions, and
other executive issuances not inconsistent with this Constitution shall remain operative until
amended, repealed, or revoked.
In the recent case Sabio v. Gordon,38 we ruled that "(t)he clear import of this provision is that all
existing laws, executive orders, proclamations, letters of instructions and other executive issuances
inconsistent or repugnant to the Constitution are repealed."
When a provision is susceptible of two interpretations, "the one that will render them operative and
effective and harmonious with other provisions of law"39 should be adopted. As the interpretations in
the assailed Decision and in Mr. Justice Tinga’s ponencia are the ones that would not make the
subject Presidential Warranty unconstitutional, these are what we shall adopt.
Purpose of the 1969 Document: Assurance That the Boundaries of Its Concession Area Would Not
Be Altered Despite the Provision in the TLA that the DENR Secretary Can Amend Said Boundaries
In the assailed Decision, we ruled that the 1969 Document cannot be considered a contract that
would bind the government regardless of changes in policy and the demands of public interest and
social welfare. PICOP claims this conclusion "did not take into consideration that PICOP already had
a valid and current TLA before the contract with warranty was signed in 1969."40 PICOP goes on:
"The TLA is a license that equips any TLA holder in the country for harvesting of timber. A TLA is
signed by the Secretary of the DANR now DENR. The Court ignored the significance of the need for
another contract with the Secretary of the DANR but this time with the approval of the President of
the Republic."41 PICOP then asks us: "If PICOP/BBLCI was only an ordinary TLA holder, why will it
go through the extra step of securing another contract just to harvest timber when the same can be
served by the TLA signed only by the Secretary and not requiring the approval of the President of
the Republic(?)"42
The answer to this query is found in TLA No. 43 itself wherein, immediately after the boundary lines
of TLA No. 43 were established, the following conditions were given:
This license is granted to the said party of the second part upon the following express conditions:
I. That authority is granted hereunder to the party of the second part43 to cut, collect or
remove firewood or other minor forest products from the area embraced in this license
agreement except as hereinafter provided.
II. That the party of the first part44 may amend or alter the description of the boundaries of the
area covered by this license agreement to conform with official surveys and that the decision
of the party of the first part as to the exact location of the said boundaries shall be final.
III. That if the party of the first part deems it necessary to establish on the ground the
boundary lines of the area granted under this license agreement, the party of the second part
shall furnish to the party of the first part or its representatives as many laborers as it needs
and all the expenses to be incurred on the work including the wages of such laborers shall
be paid by the party of the second part.45
Thus, BBLCI needed an assurance that the boundaries of its concession area, as established in TLA
No. 43, as amended, would not be altered despite this provision. Hence, BBLCI endeavored to
obtain the 1969 Document, which provides:
We confirm that your Timber License Agreement No. 43, as amended (copy of which is attached as
Annex "A" hereof which shall form part and parcel of this warranty) definitely establishes the
boundary lines of your concession area which consists of permanent forest lands with an aggregate
area of 121,587 hectares and alienable or disposable lands with an aggregate area of approximately
21,580 hectares.
We further confirm that your tenure over the area and exclusive right to cut, collect and remove
sawtimber and pulpwood shall be for the period ending on April 26, 1977; said period to be
renewable for other 25 years subject to compliance with constitutional and statutory requirements as
well as with existing policy on timber concessions.
The peaceful and adequate enjoyment by you of your area as described and specified in your
aforesaid amended Timber License Agreement No. 43 is hereby warranted provided that pertinent
laws, regulations and the terms and conditions of your license agreement are observed.46
In Koa v. Court of Appeals,47 we ruled that a warranty is a collateral undertaking and is merely part of
a contract. As a collateral undertaking, it follows the principal wherever it goes. When this was
pointed out by the Solicitor General, PICOP changed its designation of the 1969 Document from
"Presidential Warranty" or "government warranty" in all its pleadings prior to our Decision, to
"contract with warranty" in its Motion for Reconsideration. This, however, is belied by the statements
in the 29 July 1969 Document, which refers to itself as "this warranty."
Re: Allegation That There Were Mutual Contract Considerations
Had the 29 July 1969 Document been intended as a contract, it could have easily said so. More
importantly, it could have clearly defined the mutual considerations of the parties thereto. It could
have also easily provided for the sanctions for the breach of the mutual considerations specified
therein. PICOP had vigorously argued that the 1969 Document was a contract because of these
mutual considerations, apparently referring to the following paragraph of the 1969 Document:
We are made to understand that your company is committed to support the first large scale
integrated wood processing complex hereinafter called: "The Project") and that such support will be
provided not only in the form of the supply of pulpwood and other wood materials from your
concession but also by making available funds generated out of your own operations, to supplement
PICOP’s operational surces (sic) of funds and other financial arrangements made by him. In order
that your company may provide such support effectively, it is understood that you will call upon your
stockholders to take such steps as may be necessary to effect a unification of managerial, technical,
economic and manpower resources between your company and PICOP. 1avv phi 1

This provision hardly evinces a contract consideration (which, in PICOP’s interpretation, is in

exchange for the exclusive and perpetual tenure over 121,587 hectares of forest land and 21,580
hectares of alienable and disposable lands). As elucidated by PICOP itself in bringing up the
Investment Incentives Act which we shall discuss later, and as shown by the tenor of the 1969
Document, the latter document was more of a conferment of an incentive for BBLCI’s investment
rather than a contract creating mutual obligations on the part of the government, on one hand, and
BBLCI, on the other. There was no stipulation providing for sanctions for breach if BBLCI’s being
"committed to support the first large scale integrated wood processing complex" remains a
commitment. Neither did the 1969 Document give BBLCI a period within which to pursue this
commitment.
According to Article 1350 of the Civil Code, "(i)n onerous contracts the cause is understood to be, for
each contracting party, the prestation or promise of a thing or service by the other."48 Private
investments for one’s businesses, while indeed eventually beneficial to the country and deserving to
be given incentives, are still principally and predominantly for the benefit of the investors. Thus, the
"mutual" contract considerations by both parties to this alleged contract would be both for the benefit
of one of the parties thereto, BBLCI, which is not obligated by the 1969 Document to surrender a
share in its proceeds any more than it is already required by its TLA and by the tax laws.
PICOP’s argument that its investments can be considered as contract consideration derogates the
rule that "a license or a permit is not a contract between the sovereignty and the licensee or
permittee, and is not a property in the constitutional sense, as to which the constitutional proscription
against the impairment of contracts may extend." All licensees obviously put up investments,
whether they are as small as a tricycle unit or as big as those put up by multi-billion-peso
corporations. To construe these investments as contract considerations would be to abandon the
foregoing rule, which would mean that the State would be bound to all licensees, and lose its power
to revoke or amend these licenses when public interest so dictates.
The power to issue licenses springs from the State’s police power, known as "the most essential,
insistent and least limitable of powers, extending as it does to all the great public
needs."49 Businesses affecting the public interest, such as the operation of public utilities and those
involving the exploitation of natural resources, are mandated by law to acquire licenses. This is so in
order that the State can regulate their operations and thereby protect the public interest. Thus, while
these licenses come in the form of "agreements," e.g., "Timber License Agreements," they cannot be
considered contracts under the non-impairment clause.50
PICOP found this argument "lame," arguing, thus:
43. It is respectfully submitted that the aforesaid pronouncement in the Decision is an egregious and
monumental error.
44. The Decision could not dismiss as "preposterous" the mutual covenants in the Presidential
Warranty which calls for a huge investment of Php500 million at that time in 1969 out of which
Php268,440,000 raised from domestic foreign lending institution to establish the first large scale
integrated wood processing complex in the Philippines.
45. The Decision puts up a lame explanation that "all licensees put up investments in pursuing their
business"
46. Now there are about a hundred timber licenses issued by the Government thru the DENR, but
these are ordinary timber licenses which involve the mere cutting of timber in the concession area,
and nothing else. Records in the DENR shows that no timber licensee has put up an integrated large
wood processing complex in the Philippines except PICOP.51
PICOP thus argues on the basis of quantity, and wants us to distinguish between the investment of
the tricycle driver and that of the multi-billion corporation. However, not even billions of pesos in
investment can change the fact that natural resources and, therefore, public interest are involved in
PICOP’s venture, consequently necessitating the full control and supervision by the State as
mandated by the Constitution. Not even billions of pesos in investment can buy forest lands, which is
practically what PICOP is asking for by interpreting the 1969 Document as a contract giving it
perpetual and exclusive possession over such lands. Among all TLA holders in the Philippines,
PICOP has, by far, the largest concession area at 143,167 hectares, a land area more than the size
of two Metro Manilas.52 How can it not expect to also have the largest investment?
Investment Incentives Act
PICOP then claims that the contractual nature of the 1969 Document was brought about by its
issuance in accordance with and pursuant to the Investment Incentives Act. According to PICOP:
The conclusion in the Decision that to construe PICOP’s investments as a consideration in a
contract would be to stealthily render ineffective the principle that a license is not a contract between
the sovereignty and the licensee is so flawed since the contract with the warranty dated 29 July 1969
was issued by the Government in accordance with and pursuant to Republic Act No. 5186,
otherwise known as "The Investment Incentives Act."53
PICOP then proceeds to cite Sections 2 and 4(d) and (e) of said act:
Section 2. Declaration of Policy – To accelerate the sound development of the national economy in
consonance with the principles and objectives of economic nationalism, and in pursuance of a
planned, economically feasible and practicable dispersal of industries, under conditions which will
encourage competition and discharge monopolies, it is hereby declared to be the policy of the state
to encourage Filipino and foreign investments, as hereinafter set out, in projects to develop
agricultural, mining and manufacturing industries which increase national income most at the least
cost, increase exports, bring about greater economic stability, provide more opportunities for
employment, raise the standards of living of the people, and provide for an equitable distribution of
wealth. It is further declared to be the policy of the state to welcome and encourage foreign capital to
establish pioneer enterprises that are capital intensive and would utilize a substantial amount of
domestic raw materials, in joint venture with substantial Filipino capital, whenever available.
Section 4. Basic Rights and Guarantees. – All investors and enterprises are entitled to the basic
rights and guarantees provided in the constitution. Among other rights recognized by the
Government of the Philippines are the following:
xxxx
d) Freedom from Expropriation. – There shall be no expropriation by the government of the property
represented by investments or of the property of enterprises except for public use or in the interest of
national welfare and defense and upon payment of just compensation. x x x.
e) Requisition of Investment. – There shall be no requisition of the property represented by the
investment or of the property of enterprises, except in the event of war or national emergency and
only for the duration thereof. Just compensation shall be determined and paid either at the time of
requisition or immediately after cessation of the state of war or national emergency. Payments
received as compensation for the requisitioned property may be remitted in the currency in which the
investment was originally made and at the exchange rate prevailing at the time of remittance, subject
to the provisions of Section seventy-four of republic Act Numbered Two hundred sixty-five.
Section 2 speaks of the policy of the State to encourage Filipino and foreign investments. It does not
speak of how this policy can be implemented. Implementation of this policy is tackled in Sections 5
to 12 of the same law,54 which PICOP failed to mention, and for a good reason. None of the 24
incentives enumerated therein relates to, or even remotely suggests that, PICOP’s proposition that
the 1969 Document is a contract.
PICOP could indeed argue that the enumeration is not exclusive. Certainly, granting incentives to
investors, whether included in the enumeration or not, would be an implementation of this policy.
However, it is presumed that whatever incentives may be given to investors should be within the
bounds of the laws and the Constitution. The declaration of policy in Section 2 cannot, by any stretch
of the imagination, be read to provide an exception to either the laws or, heaven forbid, the
Constitution. Exceptions are never presumed and should be convincingly proven. Section 2 of the
Investment Incentives Act cannot be read as exempting investors from the Constitutional provisions
(1) prohibiting private ownership of forest lands; (2) providing for the complete control and
supervision by the State of exploitation activities; or (3) limiting exploitation agreements to twenty-
five years, renewable for another twenty-five years.
Section 4(d) and (e), on the other hand, is a recognition of rights already guaranteed under the
Constitution. Freedom from expropriation is granted under Section 9 of Article III55 of the
Constitution, while the provision on requisition is a negative restatement of Section 6, Article XII.56
Refusal to grant perpetual and exclusive possession to PICOP of its concession area would not
result in the expropriation or requisition of PICOP’s property, as these forest lands belong to the
State, and not to PICOP. This is not changed by PICOP’s allegation that:
Since it takes 35 years before the company can go back and harvest their residuals in a logged-over
area, it must be assured of tenure in order to provide an inducement for the company to manage and
preserve the residuals during their growth period. This is a commitment of resources over a span of
35 years for each plot for each cycle. No company will undertake the responsibility and cost involved
in policing, preserving and managing residual forest areas until it were sure that it had firm title to the
timber.57
The requirement for logging companies to preserve and maintain forest areas, including the
reforestation thereof, is one of the prices a logging company must pay for the exploitation thereof.
Forest lands are meant to be enjoyed by countless future generations of Filipinos, and not just by
one logging company. The requirements of reforestation and preservation of the concession areas
are meant to protect them, the future generations, and not PICOP. Reforestation and preservation of
the concession areas are not required of logging companies so that they would have something to
cut again, but so that the forest would remain intact after their operations. That PICOP would not
accept the responsibility to preserve its concession area if it is not assured of tenure thereto does
not speak well of its corporate policies.
Conclusion
In sum, PICOP was not able to prove either of the two things it needed to prove to be entitled to a
Writ of Mandamus against the DENR Secretary. The 1969 Document is not a contract recognized
under the non-impairment clause and, even if we assume for the sake of argument that it is, it did
not enjoin the government to issue an IFMA in 2002 either. These are the essential elements in
PICOP’s cause of action, and the failure to prove the same warrants a dismissal of PICOP’s Petition
for Mandamus, as not even PICOP’s compliance with all the administrative and statutory
requirements can save its Petition now.
Whether PICOP Has Complied with the Statutory and Administrative Requirements for the
Conversion of the TLA to an IFMA
In the assailed Decision, our ruling was based on two distinct grounds, each one being sufficient in
itself for us to rule that PICOP was not entitled to a Writ of Mandamus: (1) the 1969 Document, on
which PICOP hinges its right to compel the issuance of an IFMA, is not a contract; and (2) PICOP
has not complied with all administrative and statutory requirements for the issuance of an IFMA.
When a court bases its decision on two or more grounds, each is as authoritative as the other and
neither is obiter dictum.58 Thus, both grounds on which we based our ruling in the assailed Decision
would become judicial dictum, and would affect the rights and interests of the parties to this case
unless corrected in this Resolution on PICOP’s Motion for Reconsideration. Therefore, although
PICOP would not be entitled to a Writ of Mandamus even if the second issue is resolved in its favor,
we should nonetheless resolve the same and determine whether PICOP has indeed complied with
all administrative and statutory requirements for the issuance of an IFMA.
While the first issue (on the nature of the 1969 Document) is entirely legal, this second issue (on
PICOP’s compliance with administrative and statutory requirements for the issuance of an IFMA)
has both legal and factual sub-issues. Legal sub-issues include whether PICOP is legally required to
(1) consult with and acquire an approval from the Sanggunian concerned under Sections 26 and 27
of the Local Government Code; and (2) acquire a Certification from the National Commission on
Indigenous Peoples (NCIP) that the concession area does not overlap with any ancestral domain.
Factual sub-issues include whether, at the time it filed its Petition for Mandamus, PICOP had
submitted the required Five-Year Forest Protection Plan and Seven-Year Reforestation Plan and
whether PICOP had paid all forest charges.
For the factual sub-issues, PICOP invokes the doctrine that factual findings of the trial court,
especially when upheld by the Court of Appeals, deserve great weight. However, deserving of even
greater weight are the factual findings of administrative agencies that have the expertise in the area
of concern. The contentious facts in this case relate to the licensing, regulation and management of
forest resources, the determination of which belongs exclusively to the DENR:
SECTION 4. Mandate. – The Department shall be the primary government agency responsible for
the conservation, management, development and proper use of the country’s environment and
natural resources, specifically forest and grazing lands, mineral resources, including those in
reservation and watershed areas, and lands of the public domain, as well as the licensing and
regulation of all natural resources as may be provided for by law in order to ensure equitable sharing
of the benefits derived therefrom for the welfare of the present and future generations of Filipinos.59
When parties file a Petition for Certiorari against judgments of administrative agencies tasked with
overseeing the implementation of laws, the findings of such administrative agencies are entitled to
great weight. In the case at bar, PICOP could not have filed a Petition for Certiorari, as the DENR
Secretary had not yet even determined whether PICOP should be issued an IFMA. As previously
mentioned, when PICOP’s application was brought to a standstill upon the evaluation that PICOP
had yet to comply with the requirements for the issuance of an IFMA, PICOP refused to attend
further meetings with the DENR and instead filed a Petition for Mandamus against the latter. By
jumping the gun, PICOP did not diminish the weight of the DENR Secretary’s initial determination.
Forest Protection and Reforestation Plans
The Performance Evaluation Team tasked to appraise PICOP’s performance on its TLA No. 43
found that PICOP had not submitted its Five-Year Forest Protection Plan and its Seven-Year
Reforestation Plan.60
In its Motion for Reconsideration, PICOP asserts that, in its Letter of Intent dated 28 August 2000
and marked as Exhibit L in the trial court, there was a reference to a Ten-Year Sustainable Forest
Management Plan (SFMP), in which a Five-Year Forest Protection Plan and a Seven-Year
Reforestation Plan were allegedly incorporated. PICOP submitted a machine copy of a certified
photocopy of pages 50-67 and 104-110 of this SFMP in its Motion for Reconsideration. PICOP
claims that the existence of this SFMP was repeatedly asserted during the IFMA application
process.61
Upon examination of the portions of the SFMP submitted to us, we cannot help but notice that
PICOP’s concept of forest protection is the security of the area against "illegal" entrants and settlers.
There is no mention of the protection of the wildlife therein, as the focus of the discussion of the
silvicultural treatments and the SFMP itself is on the protection and generation of future timber
harvests. We are particularly disturbed by the portions stating that trees of undesirable quality shall
be removed.
However, when we required the DENR Secretary to comment on PICOP’s Motion for
Reconsideration, the DENR Secretary did not dispute the existence of this SFMP, or question
PICOP’s assertion that a Ten-Year Forest Protection Plan and a Ten-Year Reforestation Plan are
already incorporated therein. Hence, since the agency tasked to determine compliance with IFMA
administrative requirements chose to remain silent in the face of allegations of compliance, we are
constrained to withdraw our pronouncement in the assailed Decision that PICOP had not submitted
a Five-Year Forest Protection Plan and a Seven-Year Reforestation Plan for its TLA No. 43. As
previously mentioned, the licensing, regulation and management of forest resources are the primary
responsibilities of the DENR.62
The compliance discussed above is, of course, only for the purpose of determining PICOP’s
satisfactory performance as a TLA holder, and covers a period within the subsistence of PICOP’s
TLA No. 43. This determination, therefore, cannot prohibit the DENR from requiring PICOP, in the
future, to submit proper forest protection and reforestation plans covering the period of the proposed
IFMA.
Forest Charges
In determining that PICOP did not have unpaid forest charges, the Court of Appeals relied on the
assumption that if it were true that PICOP had unpaid forest charges, it should not have been issued
an approved Integrated Annual Operation Plan (IAOP) for the year 2001-2002 by Secretary Alvarez
himself.63
In the assailed Decision, we held that the Court of Appeals had been selective in its evaluation of the
IAOP, as it disregarded the part thereof that shows that the IAOP was approved subject to several
conditions, not the least of which was the submission of proof of the updated payment of forest
charges from April 2001 to June 2001.64 We also held that even if we considered for the sake of
argument that the IAOP should not have been issued if PICOP had existing forestry accounts, the
issuance of the IAOP could not be considered proof that PICOP had paid the same. Firstly, the best
evidence of payment is the receipt thereof. PICOP has not presented any evidence that such
receipts were lost or destroyed or could not be produced in court.65 Secondly, the government
cannot be estopped by the acts of its officers. If PICOP has been issued an IAOP in violation of the
law, allegedly because it may not be issued if PICOP had existing forestry accounts, the government
cannot be estopped from collecting such amounts and providing the necessary sanctions therefor,
including the withholding of the IFMA until such amounts are paid.
We therefore found that, as opposed to the Court of Appeals’ findings, which were based merely on
estoppel of government officers, the positive and categorical evidence presented by the DENR
Secretary was more convincing with respect to the issue of payment of forestry charges:
1. Forest Management Bureau (FMB) Senior Forest Management Specialist (SFMS) Ignacio
M. Evangelista testified that PICOP had failed to pay its regular forest charges covering the
period from 22 September 2001 to 26 April 2002 in the total amount of
₱15,056,054.0566 PICOP also allegedly paid late most of its forest charges from 1996
onwards, by reason of which, PICOP is liable for a surcharge of 25% per annum on the tax
due and interest of 20% per annum which now amounts to ₱150,169,485.02.67 Likewise,
PICOP allegedly had overdue and unpaid silvicultural fees in the amount of ₱2,366,901.00
as of 30 August 2002.68 Summing up the testimony, therefore, it was alleged that PICOP had
unpaid and overdue forest charges in the sum of ₱167,592,440.90 as of 10 August 2002.69
2. Collection letters were sent to PICOP, but no official receipts are extant in the DENR
record in Bislig City evidencing payment of the overdue amount stated in the said collection
letters.70 There were no official receipts for the period covering 22 September 2001 to 26
April 2002.
We also considered these pieces of evidence more convincing than the other ones presented by
PICOP:
1. PICOP presented the certification of Community Environment and Natural Resources
Office (CENRO) Officer Philip A. Calunsag, which refers only to PICOP’s alleged payment of
regular forest charges covering the period from 14 September 2001 to 15 May 2002.71 We
noted that it does not mention similar payment of the penalties, surcharges and interests that
PICOP incurred in paying late several forest charges, which fact was not rebutted by PICOP.
2. The 27 May 2002 Certification by CENRO Calunsag specified only the period covering 14
September 2001 to 15 May 2002 and the amount of P53,603,719.85 paid by PICOP without
indicating the corresponding volume and date of production of the logs. This is in contrast to
the findings of SFMS Evangelista, which cover the period from CY 1996 to 30 August 2002
and includes penalties, interests, and surcharges for late payment pursuant to DAO 80,
series of 1987.
3. The 21 August 2002 PICOP-requested certification issued by Bill Collector Amelia D.
Arayan, and attested to by CENRO Calunsag himself, shows that PICOP paid only regular
 forest charges for its log production covering 1 July 2001 to 21 September 2001. However,
there were log productions after 21 September 2001, the regular forest charges for which
have not been paid, amounting to ₱15,056,054.05.72 The same certification shows delayed
payment of forest charges, thereby corroborating the testimony of SFMS Evangelista and
substantiating the imposition of penalties and surcharges.
In its Motion for Reconsideration, PICOP claims that SFMS Evangelista is assigned to an office that
has nothing to do with the collection of forest charges, and that he based his testimony on the
Memoranda of Forest Management Specialist II (FMS II) Teofila Orlanes and DENR, Bislig City Bill
Collector Amelia D. Arayan, neither of whom was presented to testify on his or her Memorandum.
PICOP also submitted an Addendum to Motion for Reconsideration, wherein it appended certified
true copies of CENRO Summaries with attached Official Receipts tending to show that PICOP had
paid a total of ₱81,184,747.70 in forest charges for 10 January 2001 to 20 December 2002,
including the period during which SFMS Evangelista claims PICOP did not pay forest charges (22
September 2001 to 26 April 2002).
Before proceeding any further, it is necessary for us to point out that, as with our ruling on the forest
protection and reforestation plans, this determination of compliance with the payment of forest
charges is exclusively for the purpose of determining PICOP’s satisfactory performance on its TLA
No. 43. This cannot bind either party in a possible collection case that may ensue.
An evaluation of the DENR Secretary’s position on this matter shows a heavy reliance on the
testimony of SFMS Evangelista, making it imperative for us to strictly scrutinize the same with
respect to its contents and admissibility.
PICOP claims that SFMS Evangelista’s office has nothing to do with the collection of forest charges.
According to PICOP, the entity having administrative jurisdiction over it is CENRO, Bislig City by
virtue of DENR Administrative Order No. 96-36, dated 20 November 1996, which states:
1. In order for the DENR to be able to exercise closer and more effective supervision, management
and control over the forest resources within the areas covered by TLA No. 43, PTLA No. 47 and
IFMA No. 35 of the PICOP Resources, Inc., (PRI) and, at the same time, provide greater facility in
the delivery of DENR services to various publics, the aforesaid forest holdings of PRI are hereby
placed under the exclusive jurisdiction of DENR Region No. XIII with the CENR Office at Bislig,
Surigao del Sur, as directly responsible thereto. x x x.
We disagree. Evangelista is an SFMS assigned at the Natural Forest Management Division of the
FMB, DENR. In Evangelista’s aforementioned affidavit submitted as part of his direct examination,
Evangelista enumerated his duties and functions as SFMS:
1. As SFMS, I have the following duties and functions:
a) To evaluate and act on cases pertaining to forest management referred to in the
Natural forest Management Division;
b) To monitor, verify and validate forest management and related activities by timber
licences as to their compliance to approved plans and programs;
c) To conduct investigation and verification of compliance by timber
licenses/permittees to existing DENR rules and regulations;
d) To gather field data and information to be used in the formulation of forest policies
and regulations; and
e) To perform other duties and responsibilities as may be directed by superiors.73
PICOP also alleges that the testimony of SFMS Evangelista was based on the
aforementioned Memoranda of Orlanes and Arayan and that, since neither Orlanes nor
Arayan was presented as a witness, SFMS Evangelista’s testimony should be deemed
hearsay. SFMS Evangelista’s 1 October 2002 Affidavit,74 which was offered as part of his
testimony, provides:
2. Sometime in September, 2001 the DENR Secretary was furnished a copy of forest
Management Specialist II (FMS II) Teofila L. Orlanes’ Memorandum dated September 24,
2001 concerning unopaid forest charges of PICOP. Attached to the said Memorandum was a
Memorandum dated September 19, 2001 of Amelia D. Arayan, Bill collector of the DENR
R13-14, Bislig City. Copies of the said Memoranda are attached as Annexes 1 and 2,
respectively.
3. The said Memoranda were referred to the FMB Director for appropriate action.
4. Thus, on August 5, 2002, I was directed by the FMB Director to proceed to Region 13 to
gather forestry-related data and validate the report contained in the Memoranda of Ms.
Orlanes and Arayan.
5. On August 6, 2002, I proceeded to DENR Region 13 in Bislig City. A copy of my Travel
Order is attached as Annex 3.
6. Upon my arrival at CENRO, Bislig, surigao del Sur, I coordinated with CENRO Officer
Philip A. Calunsag and requested him to make available to me the records regarding the
forest products assessments of PICOP.
7. After I was provided with the requested records, I evaluated and collected the data.
 8. After the evaluation, I found that the unpaid forest charges adverted to in the Memoranda
of Mr. Orlanes and Arayan covering the period from May 8, 2001 to July 7, 2001 had already
been paid but late. I further found out that PICOP had not paid its forest charges covering the
period from September 22, 2001 to April 26, 2002 in the total amount of ₱15,056,054.05.
9. I also discovered that from 1996 up to august 30, 2002, PICOP paid late some of its forest
charges in 1996 and consistently failed to pay late its forest charges from 1997 up to the
present time.
10. Under Section 7.4 of DAO No. 80 Series of 197\87 and Paragraph (4a), Section 10 of
BIR revenue Regulations No. 2-81 dated November 18, 1980, PICOP is mandated to pay a
surcharge of 25% per annum of the tax due and interest of 20% per annum for late payment
of forest charges.
11. The overdue unpaid forest charges of PICOP as shown in the attached tabulation
marked as Annex 4 hereof is ₱150,169,485.02. Likewise, PICOP has overdue and unpaid
silvicultural fees in the amount of ₱2,366,901.00 from 1996 to the present.
12. In all, PICOP has an outstanding and overdue total obligation of ₱167,592,440.90 as of
August 30, 2002 based on the attached tabulation which is marked as Annex 5 hereof.75
Clearly, SFMS Evangelista had not relied on the Memoranda of Orlanes and Arayan. On the
contrary, he traveled to Surigao del Sur in order to verify the contents of these Memoranda. SFMS
Evangelista, in fact, revised the findings therein, as he discovered that certain forest charges
adverted to as unpaid had already been paid.
This does not mean, however, that SFMS Evangelista’s testimony was not hearsay. A witness may
testify only on facts of which he has personal knowledge; that is, those derived from his perception,
except in certain circumstances allowed by the Rules.76 Otherwise, such testimony is considered
hearsay and, hence, inadmissible in evidence.77
SFMS Evangelista, while not relying on the Memoranda of Orlanes and Arayan, nevertheless relied
on records, the preparation of which he did not participate in.78 These records and the persons who
prepared them were not presented in court, either. As such, SFMS Evangelista’s testimony, insofar
as he relied on these records, was on matters not derived from his own perception, and was,
therefore, hearsay.
Section 44, Rule 130 of the Rules of Court, which speaks of entries in official records as an
exception to the hearsay rule, cannot excuse the testimony of SFMS Evangelista. Section 44
provides:
SEC. 44. Entries in official records. – Entries in official records made in the performance of his duty
by a public officer of the Philippines, or by a person in the performance of a duty specially enjoined
by law, are prima facie evidence of the facts therein stated.
In Africa v. Caltex,79 we enumerated the following requisites for the admission of entries in official
records as an exception to the hearsay rule: (1) the entries were made by a public officer or a private
person in the performance of a duty; (2) the performance of the duty is especially enjoined by law;
(3) the public officer or the private person had sufficient knowledge of the facts stated by him, which
must have been acquired by him personally or through official information.
The presentation of the records themselves would, therefore, have been admissible as an exception
to the hearsay rule even if the public officer/s who prepared them was/were not presented in court,
provided the above requisites could be adequately proven. In the case at bar, however, neither the
records nor the persons who prepared them were presented in court. Thus, the above requisites
cannot be sufficiently proven. Also, since SFMS Evangelista merely testified based on what those
records contained, his testimony was hearsay evidence twice removed, which was one step too
many to be covered by the official-records exception to the hearsay rule.
SFMS Evangelista’s testimony of nonpayment of forest charges was, furthermore, based on his
failure to find official receipts corresponding to billings sent to PICOP. As stated above, PICOP
attached official receipts in its Addendum to Motion for Reconsideration to this Court. While this
course of action is normally irregular in judicial proceedings, we merely stated in the assailed
Decision that "the DENR Secretary has adequately proven that PICOP has, at this time, failed to
comply with administrative and statutory requirements for the conversion of TLA No. 43 into an
IFMA,"80 and that "this disposition confers another chance to comply with the foregoing
requirements."81
In view of the foregoing, we withdraw our pronouncement that PICOP has unpaid forestry charges,
at least for the purpose of determining compliance with the IFMA requirements.
NCIP Certification
The Court of Appeals held that PICOP need not comply with Section 59 of Republic Act No. 8371,
which requires prior certification from the NCIP that the areas affected do not overlap with any
ancestral domain before any IFMA can be entered into by the government. According to the Court of
Appeals, Section 59 should be interpreted to refer to ancestral domains that have been duly
established as such by the continuous possession and occupation of the area concerned by
indigenous peoples since time immemorial up to the present. The Court of Appeals held that PICOP
had acquired property rights over TLA No. 43 areas, being in exclusive, continuous and
uninterrupted possession and occupation of these areas since 1952 up to the present.
In the assailed Decision, we reversed the findings of the Court of Appeals. Firstly, the Court of
Appeals ruling defies the settled jurisprudence we have mentioned earlier, that a TLA is neither a
property nor a property right, and that it does not create a vested right.82
Secondly, the Court of Appeals’ resort to statutory construction is misplaced, as Section 59 of
Republic Act No. 8379 is clear and unambiguous:
SEC. 59. Certification Precondition. – All departments and other governmental agencies shall
henceforth be strictly enjoined from issuing, renewing or granting any concession, license or lease,
or entering into any production-sharing agreement, without prior certification from the NCIP that the
area affected does not overlap with any ancestral domain. Such certification shall only be issued
after a field-based investigation is conducted by the Ancestral Domains Office of the area
concerned: Provided, That no certification shall be issued by the NCIP without the free and prior
informed and written consent of the ICCs/IPs concerned: Provided, further, That no department,
government agency or government-owned or controlled corporation may issue new concession,
license, lease, or production sharing agreement while there is a pending application for a CADT:
Provided, finally, That the ICCs/IPs shall have the right to stop or suspend, in accordance with this
Act, any project that has not satisfied the requirement of this consultation process.
PICOP had tried to put a cloud of ambiguity over Section 59 of Republic Act No. 8371 by invoking
the definition of Ancestral Domains in Section 3(a) thereof, wherein the possesssion by Indigenous
Cultural Communities/Indigenous Peoples (ICCs/IPs) must have been continuous to the present.
However, we noted the exception found in the very same sentence invoked by PICOP:
a) Ancestral domains – Subject to Section 56 hereof, refers to all areas generally belonging to
ICCs/IPs comprising lands, inland waters, coastal areas, and natural resources therein, held under a
claim of ownership, occupied or possessed by ICCs/IPs, by themselves or through their ancestors,
communally or individually since time immemorial, continuously to the present except when
interrupted by war, force majeure or displacement by force, deceit, stealth or as a consequence of
government projects or any other voluntary dealings entered into by government and private
individuals/corporations, and which are necessary to ensure their economic, social and cultural
welfare. It shall include ancestral lands, forests, pasture, residential, agricultural, and other lands
individually owned whether alienable and disposable or otherwise, hunting grounds, burial grounds,
worship areas, bodies of water, mineral and other natural resources, and lands which may no longer
be exclusively occupied by ICCs/IPs but from which they traditionally had access to for their
subsistence and traditional activities, particularly the home ranges of ICCs/IPs who are still nomadic
and/or shifting cultivators;
Ancestral domains, therefore, remain as such even when possession or occupation of these areas
has been interrupted by causes provided under the law, such as voluntary dealings entered into by
the government and private individuals/corporations. Consequently, the issuance of TLA No. 43 in
1952 did not cause the ICCs/IPs to lose their possession or occupation over the area covered by
TLA No. 43.
Thirdly, we held that it was manifestly absurd to claim that the subject lands must first be proven to
be part of ancestral domains before a certification that the lands are not part of ancestral domains
can be required, and invoked the separate opinion of now Chief Justice Reynato Puno in Cruz v.
Secretary of DENR83:
As its subtitle suggests, [Section 59 of R.A. No. 8371] requires as a precondition for the issuance of
any concession, license or agreement over natural resources, that a certification be issued by the
NCIP that the area subject of the agreement does not lie within any ancestral domain. The provision
does not vest the NCIP with power over the other agencies of the State as to determine whether to
grant or deny any concession or license or agreement. It merely gives the NCIP the authority to
ensure that the ICCs/IPs have been informed of the agreement and that their consent thereto has
been obtained. Note that the certification applies to agreements over natural resources that do not
necessarily lie within the ancestral domains. For those that are found within the said domains,
Sections 7(b) and 57 of the IPRA apply.
PICOP rejects the entire disposition of this Court on the matter, relying on the following theory:
84. It is quite clear that Section 59 of R.A. 8371 does not apply to the automatic conversion of TLA
43 to IFMA.
First, the automatic conversion of TLA 43 to an IFMA is not a new project. It is a mere continuation
of the harvesting process in an area that PICOP had been managing, conserving and reforesting for
the last 50 years since 1952. Hence any pending application for a CADT within the area, cannot
affect much less hold back the automatic conversion. That the government now wishes to change
the tenurial system to an IFMA could not change the PICOP project, in existence and operating for
the last 30 (sic) years, into a new one.84
PICOP’s position is anything but clear. What is clearly provided for in Section 59 is that it covers
"issuing, renewing or granting (of) any concession, license or lease, or entering into any production
sharing agreement." PICOP is implying that, when the government changed the tenurial system to
an IFMA, PICOP’s existing TLA would just be upgraded or modified, but would be the very same
agreement, hence, dodging the inclusion in the word "renewing." However, PICOP is conveniently
leaving out the fact that its TLA expired in 2002. If PICOP really intends to pursue the argument that
the conversion of the TLA into an IFMA would not create a new agreement, but would only be a
modification of the old one, then it should be willing to concede that the IFMA expired as well in
2002. An automatic modification would not alter the terms and conditions of the TLA except when
they are inconsistent with the terms and conditions of an IFMA. Consequently, PICOP’s concession
period under the renewed TLA No. 43, which is from the year 1977 to 2002, would remain the same.
PICOP cannot rely on a theory of the case whenever such theory is beneficial to it, but refute the
same whenever the theory is damaging to it. In the same way, PICOP cannot claim that the alleged
Presidential Warranty is "renewable for other 25 years" and later on claim that what it is asking for is
not a renewal. Extensions of agreements must necessarily be included in the term renewal.
Otherwise, the inclusion of "renewing" in Section 59 would be rendered inoperative.
PICOP further claims:
85. Verily, in interpreting the term "held under claim of ownership," the Supreme Court could not
have meant to include claims that had just been filed and not yet recognized under the provisions of
DENR Administrative Order No. 2 Series of 1993, nor to any other community / ancestral domain
program prior to R.A. 8371.
xxxx
87. One can not imagine the terrible damage and chaos to the country, its economy, its people and
its future if a mere claim filed for the issuance of a CADC or CADT will already provide those who
filed the application, the authority or right to stop the renewal or issuance of any concession, license
or lease or any production-sharing agreement. The same interpretation will give such applicants
through a mere application the right to stop or suspend any project that they can cite for not
satisfying the requirements of the consultation process of R.A. 8371. If such interpretation gets
enshrined in the statures of the land, the unscrupulous and the extortionists can put any ongoing or
future project or activity to a stop in any part of the country citing their right from having filed an
application for issuance of a CADC or CADT claim and the legal doctrine established by the
Supreme Court in this PICOP case.85
We are not sure whether PICOP’s counsels are deliberately trying to mislead us, or are just plainly
ignorant of basic precepts of law. The term "claim" in the phrase "claim of ownership" is not a
document of any sort. It is an attitude towards something. The phrase "claim of ownership" means
"the possession of a piece of property with the intention of claiming it in hostility to the true
owner."86 It is also defined as "a party’s manifest intention to take over land, regardless of title or
right."87 Other than in Republic Act No. 8371, the phrase "claim of ownership" is thoroughly
discussed in issues relating to acquisitive prescription in Civil Law.
Before PICOP’s counsels could attribute to us an assertion that a mere attitude or intention would
stop the renewal or issuance of any concession, license or lease or any production-sharing
agreement, we should stress beforehand that this attitude or intention must be clearly shown by
overt acts and, as required by Section 3(a), should have been in existence "since time immemorial,
continuously to the present except when interrupted by war, force majeure or displacement by force,
deceit, stealth or as a consequence of government projects or any other voluntary dealings entered
into by government and private individuals/corporations."
Another argument of PICOP involves the claim itself that there was no overlapping:
Second, there could be no overlapping with any Ancestral Domain as proven by the evidence
presented and testimonies rendered during the hearings in the Regional Trial Court. x x x.
x x x x.
88. The DENR issued a total of 73 CADCs as of December 11, 1996. The DENR Undersecretary for
Field Operations had recommended another 11 applications for issuance of CADCs. None of the
CADCs overlap the TLA 43 area.
89. However former DENR Secretary Alvarez, in a memorandum dated 13 September, 2002
addressed to PGMA, insisted that PICOP had to comply with the requirement to secure a Free and
Prior Informed Concent because CADC 095 was issued covering 17,112 hectares of TLA 43.
90. This CADC 095 is a fake CADC and was not validly released by the DENR. While the Legal
Department of the DENR was still in the process of receiving the filings for applicants and the
oppositors to the CADC application, PICOP came across filed copies of a CADC 095 with the
PENRO of Davao Oriental as part of their application for a Community Based Forest Management
Agreement (CBFMA). Further research came across the same group filing copies of the alleged
CADC 095 with the Mines and Geosciences Bureau in Davao City for a mining agreement
application. The two applications had two different versions of the CADCs second page. One had
Mr. Romeo T. Acosta signing as the Social reform Agenda Technical Action Officer, while the other
had him signing as the Head, Community-Based Forest Management Office. One had the word
"Eight" crossed out and "Seven" written to make it appear that the CADC was issued on September
25, 1997, the other made it appear that there were no alterations and the date was supposed to be
originally 25 September 1997.
What is required in Section 59 of Republic Act No. 8379 is a Certification from the NCIP that there
was no overlapping with any Ancestral Domain. PICOP cannot claim that the DENR gravely abused
its discretion for requiring this Certification, on the ground that there was no overlapping. We
reiterate that it is manifestly absurd to claim that the subject lands must first be proven to be part of
ancestral domains before a certification that they are not can be required. As discussed in the
assailed Decision, PICOP did not even seek any certification from the NCIP that the area covered by
TLA No. 43, subject of its IFMA conversion, did not overlap with any ancestral domain.88
Sanggunian Consultation and Approval
While PICOP did not seek any certification from the NCIP that the former’s concession area did not
overlap with any ancestral domain, PICOP initially sought to comply with the requirement under
Sections 26 and 27 of the Local Government Code to procure prior approval of the Sanggunians
concerned. However, only one of the many provinces affected approved the issuance of an IFMA to
PICOP. Undaunted, PICOP nevertheless submitted to the DENR the purported resolution89 of the
Province of Surigao del Sur indorsing the approval of PICOP’s application for IFMA conversion,
apparently hoping either that the disapproval of the other provinces would go unnoticed, or that the
Surigao del Sur approval would be treated as sufficient compliance.
Surprisingly, the disapproval by the other provinces did go unnoticed before the RTC and the Court
of Appeals, despite the repeated assertions thereof by the Solicitor General. When we pointed out in
the assailed Decision that the approval must be by all the Sanggunians concerned and not by only
one of them, PICOP changed its theory of the case in its Motion for Reconsideration, this time
claiming that they are not required at all to procure Sanggunian approval.
Sections 2(c), 26 and 27 of the Local Government Code provide:
SEC. 2. x x x.
xxxx
(c) It is likewise the policy of the State to require all national agencies and offices to conduct periodic
consultations with appropriate local government units, nongovernmental and people’s organizations,
and other concerned sectors of the community before any project or program is implemented in their
respective jurisdictions.
SEC. 26. Duty of National Government Agencies in the Maintenance of Ecological Balance. – It shall
be the duty of every national agency or government-owned or controlled corporation authorizing or
involved in the planning and implementation of any project or program that may cause pollution,
climatic change, depletion of non-renewable resources, loss of crop land, rangeland, or forest cover,
and extinction of animal or plant species, to consult with the local government units,
nongovernmental organizations, and other sectors concerned and explain the goals and objectives
of the project or program, its impact upon the people and the community in terms of environmental
or ecological balance, and the measures that will be undertaken to prevent or minimize the adverse
effects thereof.
SEC. 27. Prior Consultations Required. – No project or program shall be implemented by
government authorities unless the consultations mentioned in Sections 2(c) and 26 hereof are
complied with, and prior approval of the sanggunian concerned is obtained: Provided, That
occupants in areas where such projects are to be implemented shall not be evicted unless
appropriate relocation sites have been provided, in accordance with the provisions of the
Constitution.
As stated in the assailed Decision, the common evidence of the DENR Secretary and PICOP,
namely, the 31 July 2001 Memorandum of Regional Executive Director (RED) Elias D. Seraspi, Jr.,
enumerated the local government units and other groups which had expressed their opposition to
PICOP’s application for IFMA conversion:
7. During the conduct of the performance evaluation of TLA No. 43 issues complaints against PRI
were submitted thru Resolutions and letters. It is important that these are included in this report for
assessment of what are their worth, viz:
xxxx
7.2 Joint Resolution (unnumbered), dated March 19, 2001 of the Barangay Council and Barangay
Tribal Council of Simulao, Boston, Davao Oriental (ANNEX F) opposing the conversion of TLA No.
43 into IFMA over the 17,112 hectares allegedly covered with CADC No. 095.
7.3 Resolution Nos. 10, s-2001 and 05, s-2001 (ANNEXES G & H) of the Bunawan Tribal Council of
Elders (BBMTCE) strongly demanding none renewal of PICOP TLA. They claim to be the rightful
owner of the area it being their alleged ancestral land.
7.4 Resolution No. 4, S-2001 of Sitio Linao, San Jose, Bislig City (ANNEX I) requesting not to renew
TLA 43 over the 900 hectares occupied by them.
7.5 Resolution No. 22, S-2001 (ANNEX J) of the Sanguniang Bayan, Lingig, Surigao del Sur not to
grant the conversion of TLA 43 citing the plight of former employees of PRI who were forced to enter
and farm portion of TLA No. 43, after they were laid off.
7.6 SP Resolution No. 2001-113 and CDC Resolution Nos. 09-2001 of the Sanguniang Panglungsod
of Bislig City (ANNEXES K & L) requesting to exclude the area of TLA No. 43 for watershed
purposes.
7.7 Resolution No. 2001-164, dated June 01, 2001 (ANNEX M) Sanguniang Panglungsod of Bislig
City opposing the conversion of TLA 43 to IFMA for the reason that IFMA do not give revenue
benefits to the City.90
PICOP had claimed that it complied with the Local Government Code requirement of obtaining prior
approval of the Sanggunian concerned by submitting a purported resolution91 of the Province of
Surigao del Sur indorsing the approval of PICOP’s application for IFMA conversion. We ruled that
this cannot be deemed sufficient compliance with the foregoing provision. Surigao del Sur is not the
only province affected by the area covered by the proposed IFMA. As even the Court of Appeals
found, PICOP’s TLA No. 43 traverses the length and breadth not only of Surigao del Sur but also of
Agusan del Sur, Compostela Valley and Davao Oriental.92
On Motion for Reconsideration, PICOP now argues that the requirement under Sections 26 and 27
does not apply to it:
97. PICOP is not a national agency. Neither is PICOP government owned or controlled. Thus
Section 26 does not apply to PICOP.
98. It is very clear that Section 27 refers to projects or programs to be implemented by government
authorities or government-owned and controlled corporations. PICOP’s project or the automatic
conversion is a purely private endevour. First the PICOP project has been implemented since 1969.
Second, the project was being implemented by private investors and financial institutions.
99. The primary government participation is to warrant and ensure that the PICOP project shall have
peaceful tenure in the permanent forest allocated to provide raw materials for the project. To rule
now that a project whose foundations were commenced as early as 1969 shall now be subjected to
a 1991 law is to apply the law retrospectively in violation of Article 4 of the Civil Code that laws shall
not be applied retroactively.
100. In addition, under DAO 30, Series of 1992, TLA and IFMA operations were not among those
devolved function from the National Government / DENR to the local government unit. Under its
Section 03, the devolved function cover only:
a) Community Based forestry projects.
b) Communal forests of less than 5000 hectares
c) Small watershed areas which are sources of local water supply.93
We have to remind PICOP again of the contents of Section 2, Article XII of the Constitution:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils,
all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and utilization of natural resources
shall be under the full control and supervision of the State. The State may directly undertake such
activities, or it may enter into co-production, joint venture, or production-sharing agreements with
Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned
by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable
for not more than twenty-five years, and under such terms and conditions as may be provided by
law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, beneficial use may be the measure and limit of the grant.
All projects relating to the exploration, development and utilization of natural resources are projects
of the State. While the State may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose
capital is owned by these citizens, such as PICOP, the projects nevertheless remain as State
projects and can never be purely private endeavors.
Also, despite entering into co-production, joint venture, or production-sharing agreements, the State
remains in full control and supervision over such projects. PICOP, thus, cannot limit government
participation in the project to being merely its bouncer, whose primary participation is only to
"warrant and ensure that the PICOP project shall have peaceful tenure in the permanent forest
allocated to provide raw materials for the project."
PICOP is indeed neither a national agency nor a government-owned or controlled corporation. The
DENR, however, is a national agency and is the national agency prohibited by Section 27 from
issuing an IFMA without the prior approval of the Sanggunian concerned. As previously discussed,
PICOP’s Petition for Mandamus can only be granted if the DENR Secretary is required by law to
issue an IFMA. We, however, see here the exact opposite: the DENR Secretary was actually
prohibited by law from issuing an IFMA, as there had been no prior approval by all the other
Sanggunians concerned.
As regards PICOP’s assertion that the application to them of a 1991 law is in violation of the
prohibition against the non-retroactivity provision in Article 4 of the Civil Code, we have to remind
PICOP that it is applying for an IFMA with a term of 2002 to 2027. Section 2, Article XII of the
Constitution allows exploitation agreements to last only "for a period not exceeding twenty-five years,
renewable for not more than twenty-five years." PICOP, thus, cannot legally claim that the project’s
term started in 1952 and extends all the way to the present.
Finally, the devolution of the project to local government units is not required before Sections 26 and
27 would be applicable. Neither Section 26 nor 27 mentions such a requirement. Moreover, it is not
only the letter, but more importantly the spirit of Sections 26 and 27, that shows that the devolution
of the project is not required. The approval of the Sanggunian concerned is required by law, not
because the local government has control over such project, but because the local government has
the duty to protect its constituents and their stake in the implementation of the project. Again,
Section 26 states that it applies to projects that "may cause pollution, climatic change, depletion of
non-renewable resources, loss of crop land, rangeland, or forest cover, and extinction of animal or
plant species." The local government should thus represent the communities in such area, the very
people who will be affected by flooding, landslides or even climatic change if the project is not
properly regulated, and who likewise have a stake in the resources in the area, and deserve to be
adequately compensated when these resources are exploited.
Indeed, it would be absurd to claim that the project must first be devolved to the local government
before the requirement of the national government seeking approval from the local government can
be applied. If a project has been devolved to the local government, the local government itself would
be implementing the project. That the local government would need its own approval before
implementing its own project is patently silly.
EPILOGUE AND DISPOSITION
PICOP’c cause of action consists in the allegation that the DENR Secretary, in not issuing an IFMA,
violated its constitutional right against non-impairment of contracts. We have ruled, however, that the
1969 Document is not a contract recognized under the non-impairment clause, much less a contract
specifically enjoining the DENR Secretary to issue the IFMA. The conclusion that the 1969
Document is not a contract recognized under the non-impairment clause has even been disposed of
in another case decided by another division of this Court, PICOP Resources, Inc. v. Base Metals
Mineral Resources Corporation,94 the Decision in which case has become final and executory.
PICOP’s Petition for Mandamus should, therefore, fail.
Furthermore, even if we assume for the sake of argument that the 1969 Document is a contract
recognized under the non-impairment clause, and even if we assume for the sake of argument that
the same is a contract specifically enjoining the DENR Secretary to issue an IFMA, PICOP’s Petition
for Mandamus must still fail. The 1969 Document expressly states that the warranty as to the tenure
of PICOP is "subject to compliance with constitutional and statutory requirements as well as with
existing policy on timber concessions." Thus, if PICOP proves the two above-mentioned matters, it
still has to prove compliance with statutory and administrative requirements for the conversion of its
TLA into an IFMA.
While we have withdrawn our pronouncements in the assailed Decision that (1) PICOP had not
submitted the required forest protection and reforestation plans, and that (2) PICOP had unpaid
forestry charges, thus effectively ruling in favor of PICOP on all factual issues in this case, PICOP
still insists that the requirements of an NCIP certification and Sanggunian consultation and approval
do not apply to it. To affirm PICOP’s position on these matters would entail nothing less than
rewriting the Indigenous Peoples’ Rights Act and the Local Government Code, an act simply beyond
our jurisdiction.
WHEREFORE, the Motion for Reconsideration of PICOP Resources, Inc. is DENIED.
SO ORDERED.

FIRST DIVISION
G.R. No. 143993 August 18, 2004
MCDONALD'S CORPORATION and MCGEORGE FOOD INDUSTRIES, INC., petitioners,
vs.
L.C. BIG MAK BURGER, INC., FRANCIS B. DY, EDNA A. DY, RENE B. DY, WILLIAM B. DY, JESUS AYCARDO,
ARACELI AYCARDO, and GRACE HUERTO, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review1 of the Decision dated 26 November 1999 of the Court of Appeals2 finding
respondent L.C. Big Mak Burger, Inc. not liable for trademark infringement and unfair competition and
ordering petitioners to pay respondents P1,900,000 in damages, and of its Resolution dated 11 July 2000
denying reconsideration. The Court of Appeals' Decision reversed the 5 September 1994 Decision3 of the
Regional Trial Court of Makati, Branch 137, finding respondent L.C. Big Mak Burger, Inc. liable for
trademark infringement and unfair competition.
The Facts
Petitioner McDonald's Corporation ("McDonald's") is a corporation organized under the laws of Delaware,
United States. McDonald's operates, by itself or through its franchisees, a global chain of fast-food
restaurants. McDonald's4 owns a family of marks5 including the "Big Mac" mark for its "double-decker
hamburger sandwich."6 McDonald's registered this trademark with the United States Trademark Registry
on 16 October 1979.7 Based on this Home Registration, McDonald's applied for the registration of the
same mark in the Principal Register of the then Philippine Bureau of Patents, Trademarks and Technology
("PBPTT"), now the Intellectual Property Office ("IPO"). Pending approval of its application, McDonald's
introduced its "Big Mac" hamburger sandwiches in the Philippine market in September 1981. On 18 July
1985, the PBPTT allowed registration of the "Big Mac" mark in the Principal Register based on its Home
Registration in the United States.
Like its other marks, McDonald's displays the "Big Mac" mark in items8 and paraphernalia9 in its
restaurants, and in its outdoor and indoor signages. From 1982 to 1990, McDonald's spent P10.5 million
in advertisement for "Big Mac" hamburger sandwiches alone.10
Petitioner McGeorge Food Industries ("petitioner McGeorge"), a domestic corporation, is McDonald's
Philippine franchisee.11
Respondent L.C. Big Mak Burger, Inc. ("respondent corporation") is a domestic corporation which
operates fast-food outlets and snack vans in Metro Manila and nearby provinces.12 Respondent
corporation's menu includes hamburger sandwiches and other food items.13 Respondents Francis B. Dy,
Edna A. Dy, Rene B. Dy, William B. Dy, Jesus Aycardo, Araceli Aycardo, and Grace Huerto ("private
respondents") are the incorporators, stockholders and directors of respondent corporation.14
On 21 October 1988, respondent corporation applied with the PBPTT for the registration of the "Big Mak"
mark for its hamburger sandwiches. McDonald's opposed respondent corporation's application on the
ground that "Big Mak" was a colorable imitation of its registered "Big Mac" mark for the same food
products. McDonald's also informed respondent Francis Dy ("respondent Dy"), the chairman of the Board
of Directors of respondent corporation, of its exclusive right to the "Big Mac" mark and requested him
to desist from using the "Big Mac" mark or any similar mark.
Having received no reply from respondent Dy, petitioners on 6 June 1990 sued respondents in the
Regional Trial Court of Makati, Branch 137 ("RTC"), for trademark infringement and unfair competition. In
its Order of 11 July 1990, the RTC issued a temporary restraining order ("TRO") against respondents
enjoining them from using the "Big Mak" mark in the operation of their business in the National Capital
Region.15 On 16 August 1990, the RTC issued a writ of preliminary injunction replacing the TRO.16
In their Answer, respondents admitted that they have been using the name "Big Mak Burger" for their
fast-food business. Respondents claimed, however, that McDonald's does not have an exclusive right to
the "Big Mac" mark or to any other similar mark. Respondents point out that the Isaiyas Group of
Corporations ("Isaiyas Group") registered the same mark for hamburger sandwiches with the PBPTT on
31 March 1979. One Rodolfo Topacio ("Topacio") similarly registered the same mark on 24 June
1983, prior to McDonald's registration on 18 July 1985. Alternatively, respondents claimed that they are
not liable for trademark infringement or for unfair competition, as the "Big Mak" mark they sought to
register does not constitute a colorable imitation of the "Big Mac" mark. Respondents asserted that they
did not fraudulently pass off their hamburger sandwiches as those of petitioners' Big Mac
hamburgers.17 Respondents sought damages in their counterclaim.
In their Reply, petitioners denied respondents' claim that McDonald's is not the exclusive owner of the
"Big Mac" mark. Petitioners asserted that while the Isaiyas Group and Topacio did register the "Big Mac"
mark ahead of McDonald's, the Isaiyas Group did so only in the Supplemental Register of the PBPTT and
such registration does not provide any protection. McDonald's disclosed that it had acquired Topacio's
rights to his registration in a Deed of Assignment dated 18 May 1981.18
The Trial Court's Ruling
On 5 September 1994, the RTC rendered judgment ("RTC Decision") finding respondent corporation liable
for trademark infringement and unfair competition. However, the RTC dismissed the complaint against
private respondents and the counterclaim against petitioners for lack of merit and insufficiency of
evidence. The RTC held:
Undeniably, the mark "B[ig] M[ac]" is a registered trademark for plaintiff McDonald's, and as such, it is
entitled [to] protection against infringement.
xxxx
There exist some distinctions between the names "B[ig] M[ac]" and "B[ig] M[ak]" as appearing in the
respective signages, wrappers and containers of the food products of the parties. But infringement goes
beyond the physical features of the questioned name and the original name. There are still other factors
to be considered.
xxxx
Significantly, the contending parties are both in the business of fast-food chains and restaurants. An
average person who is hungry and wants to eat a hamburger sandwich may not be discriminating enough
to look for a McDonald's restaurant and buy a "B[ig] M[ac]" hamburger. Once he sees a stall selling
hamburger sandwich, in all likelihood, he will dip into his pocket and order a "B[ig] M[ak]" hamburger
sandwich. Plaintiff McDonald's fast-food chain has attained wide popularity and acceptance by the
consuming public so much so that its air-conditioned food outlets and restaurants will perhaps not be
mistaken by many to be the same as defendant corporation's mobile snack vans located along busy streets
or highways. But the thing is that what is being sold by both contending parties is a food item – a
hamburger sandwich which is for immediate consumption, so that a buyer may easily be confused or
deceived into thinking that the "B[ig] M[ak]" hamburger sandwich he bought is a food-product of plaintiff
McDonald's, or a subsidiary or allied outlet thereof. Surely, defendant corporation has its own secret
ingredients to make its hamburger sandwiches as palatable and as tasty as the other brands in the market,
considering the keen competition among mushrooming hamburger stands and multinational fast-food
chains and restaurants. Hence, the trademark "B[ig] M[ac]" has been infringed by defendant corporation
when it used the name "B[ig] M[ak]" in its signages, wrappers, and containers in connection with its food
business. xxxx
Did the same acts of defendants in using the name "B[ig] M[ak]" as a trademark or tradename in their
signages, or in causing the name "B[ig] M[ak]" to be printed on the wrappers and containers of their food
products also constitute an act of unfair competition under Section 29 of the Trademark Law?
The answer is in the affirmative. xxxx
The xxx provision of the law concerning unfair competition is broader and more inclusive than the
law concerning the infringement of trademark, which is of more limited range, but within its narrower
range recognizes a more exclusive right derived by the adoption and registration of the trademark by the
person whose goods or services are first associated therewith. xxx Notwithstanding the distinction
between an action for trademark infringement and an action for unfair competition, however, the law
extends substantially the same relief to the injured party for both cases. (See Sections 23 and 29 of
Republic Act No. 166)
Any conduct may be said to constitute unfair competition if the effect is to pass off on the public the goods
of one man as the goods of another. The choice of "B[ig] M[ak]" as tradename by defendant corporation
is not merely for sentimental reasons but was clearly made to take advantage of the reputation, popularity
and the established goodwill of plaintiff McDonald's. For, as stated in Section 29, a person is guilty of
unfair competition who in selling his goods shall give them the general appearance, of goods of another
manufacturer or dealer, either as to the goods themselves or in the wrapping of the packages in which
they are contained, or the devices or words thereon, or in any other feature of their appearance, which
would likely influence purchasers to believe that the goods offered are those of a manufacturer or
dealer other than the actual manufacturer or dealer. Thus, plaintiffs have established their valid cause of
action against the defendants for trademark infringement and unfair competition and for damages.19
The dispositive portion of the RTC Decision provides:
WHEREFORE, judgment is rendered in favor of plaintiffs McDonald's Corporation and McGeorge Food
Industries, Inc. and against defendant L.C. Big Mak Burger, Inc., as follows:
1. The writ of preliminary injunction issued in this case on [16 August 1990] is made permanent;
2. Defendant L.C. Big Mak Burger, Inc. is ordered to pay plaintiffs actual damages in the amount
of P400,000.00, exemplary damages in the amount of P100,000.00, and attorney's fees and expenses of
litigation in the amount of P100,000.00;
3. The complaint against defendants Francis B. Dy, Edna A. Dy, Rene B. Dy, Wiliam B. Dy, Jesus Aycardo,
Araceli Aycardo and Grace Huerto, as well as all counter-claims, are dismissed for lack of merit as well
as for insufficiency of evidence.20
Respondents appealed to the Court of Appeals.
The Ruling of the Court of Appeals
On 26 November 1999, the Court of Appeals rendered judgment ("Court of Appeals' Decision") reversing
the RTC Decision and ordering McDonald's to pay respondents P1,600,000 as actual and compensatory
damages and P300,000 as moral damages. The Court of Appeals held:
Plaintiffs-appellees in the instant case would like to impress on this Court that the use of defendants-
appellants of its corporate name – the whole "L.C. B[ig] M[ak] B[urger], I[nc]." which appears on their food
packages, signages and advertisements is an infringement of their trademark "B[ig] M[ac]" which they use
to identify [their] double decker sandwich, sold in a Styrofoam box packaging material with the
McDonald's logo of umbrella "M" stamped thereon, together with the printed mark in red bl[o]ck capital
letters, the words being separated by a single space. Specifically, plaintiffs-appellees argue that
defendants-appellants' use of their corporate name is a colorable imitation of their trademark "Big Mac".
xxxx
To Our mind, however, this Court is fully convinced that no colorable imitation exists. As the definition
dictates, it is not sufficient that a similarity exists in both names, but that more importantly, the over-all
presentation, or in their essential, substantive and distinctive parts is such as would likely MISLEAD or
CONFUSE persons in the ordinary course of purchasing the genuine article. A careful comparison of the
way the trademark "B[ig] M[ac]" is being used by plaintiffs-appellees and corporate name L.C. Big Mak
Burger, Inc. by defendants-appellants, would readily reveal that no confusion could take place, or that the
ordinary purchasers would be misled by it. As pointed out by defendants-appellants, the plaintiffs-
appellees' trademark is used to designate only one product, a double decker sandwich sold in a Styrofoam
box with the "McDonalds" logo. On the other hand, what the defendants-appellants corporation is using
is not a trademark for its food product but a business or corporate name. They use the business name
"L.C. Big Mak Burger, Inc." in their restaurant business which serves diversified food items such as siopao,
noodles, pizza, and sandwiches such as hotdog, ham, fish burger and hamburger. Secondly, defendants-
appellants' corporate or business name appearing in the food packages and signages are written in
silhouette red-orange letters with the "b" and "m" in upper case letters. Above the words "Big Mak" are
the upper case letter "L.C.". Below the words "Big Mak" are the words "Burger, Inc." spelled out in upper
case letters. Furthermore, said corporate or business name appearing in such food packages and signages
is always accompanied by the company mascot, a young chubby boy named Maky who wears a red T-shirt
with the upper case "m" appearing therein and a blue lower garment. Finally, the defendants-appellants'
food packages are made of plastic material.
xxxx
xxx [I]t is readily apparent to the naked eye that there appears a vast difference in the appearance of the
product and the manner that the tradename "Big Mak" is being used and presented to the public. As
earlier noted, there are glaring dissimilarities between plaintiffs-appellees' trademark and defendants-
appellants' corporate name. Plaintiffs-appellees' product carrying the trademark "B[ig] M[ac]" is a double
decker sandwich (depicted in the tray mat containing photographs of the various food products xxx sold
in a Styrofoam box with the "McDonald's" logo and trademark in red, bl[o]ck capital letters printed
thereon xxx at a price which is more expensive than the defendants-appellants' comparable food
products. In order to buy a "Big Mac", a customer needs to visit an air-conditioned "McDonald's"
restaurant usually located in a nearby commercial center, advertised and identified by its logo - the
umbrella "M", and its mascot – "Ronald McDonald". A typical McDonald's restaurant boasts of a
playground for kids, a second floor to accommodate additional customers, a drive-thru to allow
customers with cars to make orders without alighting from their vehicles, the interiors of the building are
well-lighted, distinctly decorated and painted with pastel colors xxx. In buying a "B[ig] M[ac]", it
is necessary to specify it by its trademark. Thus, a customer needs to look for a "McDonald's" and enter it
first before he can find a hamburger sandwich which carry the mark "Big Mac". On the other
hand, defendants-appellants sell their goods through snack vans xxxx
Anent the allegation that defendants-appellants are guilty of unfair competition, We likewise find the
same untenable.
Unfair competition is defined as "the employment of deception or any other means contrary to good faith
by which a person shall pass off the goods manufactured by him or in which he deals, or his business, or
service, for those of another who has already established good will for his similar good, business or
services, or any acts calculated to produce the same result" (Sec. 29, Rep. Act No. 166, as amended).
To constitute unfair competition therefore it must necessarily follow that there was malice and that the
entity concerned was in bad faith.
In the case at bar, We find no sufficient evidence adduced by plaintiffs-appellees that defendants-
appellants deliberately tried to pass off the goods manufactured by them for those of plaintiffs-appellees.
The mere suspected similarity in the sound of the defendants-appellants' corporate name with the
plaintiffs-appellees' trademark is not sufficient evidence to conclude unfair competition. Defendants-
appellants explained that the name "M[ak]" in their corporate name was derived from both the first
names of the mother and father of defendant Francis Dy, whose names are Maxima and Kimsoy. With this
explanation, it is up to the plaintiffs-appellees to prove bad faith on the part of defendants-appellants. It
is a settled rule that the law always presumes good faith such that any person who seeks to be awarded
damages due to acts of another has the burden of proving that the latter acted in bad faith or with ill
motive. 21
Petitioners sought reconsideration of the Court of Appeals' Decision but the appellate court denied their
motion in its Resolution of 11 July 2000.
Hence, this petition for review.
Petitioners raise the following grounds for their petition:
I. THE COURT OF APPEALS ERRED IN FINDING THAT RESPONDENTS' CORPORATE NAME "L.C. BIG MAK
BURGER, INC." IS NOT A COLORABLE IMITATION OF THE MCDONALD'S TRADEMARK "BIG MAC", SUCH
COLORABLE IMITATION BEING AN ELEMENT OF TRADEMARK INFRINGEMENT.
A. Respondents use the words "Big Mak" as trademark for their products and not merely as their business
or corporate name.
B. As a trademark, respondents' "Big Mak" is undeniably and unquestionably similar to petitioners' "Big
Mac" trademark based on the dominancy test and the idem sonans test resulting inexorably in confusion
on the part of the consuming public.
II. THE COURT OF APPEALS ERRED IN REFUSING TO CONSIDER THE INHERENT SIMILARITY BETWEEN THE
MARK "BIG MAK" AND THE WORD MARK "BIG MAC" AS AN INDICATION OF RESPONDENTS' INTENT TO
DECEIVE OR DEFRAUD FOR PURPOSES OF ESTABLISHING UNFAIR COMPETITION.22
Petitioners pray that we set aside the Court of Appeals' Decision and reinstate the RTC Decision.
In their Comment to the petition, respondents question the propriety of this petition as it allegedly raises
only questions of fact. On the merits, respondents contend that the Court of Appeals committed no
reversible error in finding them not liable for trademark infringement and unfair competition and in
ordering petitioners to pay damages.
The Issues
The issues are:
1. Procedurally, whether the questions raised in this petition are proper for a petition for review under
Rule 45.
2. On the merits, (a) whether respondents used the words "Big Mak" not only as part of the corporate
name "L.C. Big Mak Burger, Inc." but also as a trademark for their hamburger products, and (b) whether
respondent corporation is liable for trademark infringement and unfair competition.23
The Court's Ruling
The petition has merit.
On Whether the Questions Raised in the Petition are Proper for a Petition for Review
A party intending to appeal from a judgment of the Court of Appeals may file with this Court a petition for
review under Section 1 of Rule 45 ("Section 1")24 raising only questions of law. A question of law exists
when the doubt or difference arises on what the law is on a certain state of facts. There is a question of
fact when the doubt or difference arises on the truth or falsity of the alleged facts. 25
Here, petitioners raise questions of fact and law in assailing the Court of Appeals' findings on respondent
corporation's non-liability for trademark infringement and unfair competition. Ordinarily, the Court can
deny due course to such a petition. In view, however, of the contradictory findings of fact of the RTC and
Court of Appeals, the Court opts to accept the petition, this being one of the recognized exceptions to
Section 1.26 We took a similar course of action in Asia Brewery, Inc. v. Court of Appeals27 which also
involved a suit for trademark infringement and unfair competition in which the trial court and the Court
of Appeals arrived at conflicting findings.
On the Manner Respondents Used
"Big Mak" in their Business
Petitioners contend that the Court of Appeals erred in ruling that the corporate name "L.C. Big Mak
Burger, Inc." appears in the packaging for respondents' hamburger products and not the words "Big Mak"
only.
The contention has merit.
The evidence presented during the hearings on petitioners' motion for the issuance of a writ of
preliminary injunction shows that the plastic wrappings and plastic bags used by respondents for their
hamburger sandwiches bore the words "Big Mak." The other descriptive words "burger" and "100% pure
beef" were set in smaller type, along with the locations of branches.28 Respondents' cash invoices simply
refer to their hamburger sandwiches as "Big Mak."29 It is respondents' snack vans that carry the words
"L.C. Big Mak Burger, Inc."30
It was only during the trial that respondents presented in evidence the plastic wrappers and bags for their
hamburger sandwiches relied on by the Court of Appeals.31 Respondents' plastic wrappers and bags were
identical with those petitioners presented during the hearings for the injunctive writ except that the
letters "L.C." and the words "Burger, Inc." in respondents' evidence were added above and below the
words "Big Mak," respectively. Since petitioners' complaint was based on facts existing before and during
the hearings on the injunctive writ, the facts established during those hearings are the proper factual
bases for the disposition of the issues raised in this petition.
On the Issue of Trademark Infringement
Section 22 ("Section 22) of Republic Act No. 166, as amended ("RA 166"), the law applicable to this
case,32 defines trademark infringement as follows:
Infringement, what constitutes. — Any person who [1] shall use, without the consent of the
registrant, any reproduction, counterfeit, copy or colorable imitation of any registered mark or trade-
name in connection with the sale, offering for sale, or advertising of any goods, business or services on
or in connection with which such use is likely to cause confusion or mistake or to deceive purchasers or
others as to the source or origin of such goods or services, or identity of such business; or [2] reproduce,
counterfeit, copy, or colorably imitate any such mark or trade-name and apply such reproduction,
counterfeit, copy, or colorable imitation to labels, signs, prints, packages, wrappers, receptacles or
advertisements intended to be used upon or in connection with such goods, business or
services, shall be liable to a civil action by the registrant for any or all of the remedies herein provided.33
Petitioners base their cause of action under the first part of Section 22, i.e. respondents allegedly used,
without petitioners' consent, a colorable imitation of the "Big Mac" mark in advertising and selling
respondents' hamburger sandwiches. This likely caused confusion in the mind of the purchasing public on
the source of the hamburgers or the identity of the business.
To establish trademark infringement, the following elements must be shown: (1) the validity of plaintiff's
mark; (2) the plaintiff's ownership of the mark; and (3) the use of the mark or its colorable imitation by
the alleged infringer results in "likelihood of confusion."34 Of these, it is the element of likelihood of
confusion that is the gravamen of trademark infringement.35
On the Validity of the "Big Mac"Mark
and McDonald's Ownership of such Mark
A mark is valid if it is "distinctive" and thus not barred from registration under Section 4 36 of RA 166
("Section 4"). However, once registered, not only the mark's validity but also the registrant's ownership
of the mark is prima facie presumed.37
Respondents contend that of the two words in the "Big Mac" mark, it is only the word "Mac" that is valid
because the word "Big" is generic and descriptive (proscribed under Section 4[e]), and thus "incapable of
exclusive appropriation."38
The contention has no merit. The "Big Mac" mark, which should be treated in its entirety and not dissected
word for word,39 is neither generic nor descriptive. Generic marks are commonly used as the name or
description of a kind of goods,40 such as "Lite" for beer41 or "Chocolate Fudge" for chocolate soda
drink.42 Descriptive marks, on the other hand, convey the characteristics, functions, qualities or
ingredients of a product to one who has never seen it or does not know it exists,43 such as "Arthriticare"
for arthritis medication.44 On the contrary, "Big Mac" falls under the class of fanciful or arbitrary marks as
it bears no logical relation to the actual characteristics of the product it represents.45 As such, it is highly
distinctive and thus valid. Significantly, the trademark "Little Debbie" for snack cakes was found arbitrary
or fanciful.46
The Court also finds that petitioners have duly established McDonald's exclusive ownership of the "Big
Mac" mark. Although Topacio and the Isaiyas Group registered the "Big Mac" mark ahead of McDonald's,
Topacio, as petitioners disclosed, had already assigned his rights to McDonald's. The Isaiyas Group, on the
other hand, registered its trademark only in the Supplemental Register. A mark which is not registered in
the Principal Register, and thus not distinctive, has no real protection.47 Indeed, we have held that
registration in the Supplemental Register is not even a prima facie evidence of the validity of the
registrant's exclusive right to use the mark on the goods specified in the certificate.48
On Types of Confusion
Section 22 covers two types of confusion arising from the use of similar or colorable imitation
marks, namely, confusion of goods (product confusion) and confusion of business (source or origin
confusion). In Sterling Products International, Incorporated v. Farbenfabriken Bayer Aktiengesellschaft, et
al.,49 the Court distinguished these two types of confusion, thus:
[Rudolf] Callman notes two types of confusion. The first is the confusion of goods "in which event the
ordinarily prudent purchaser would be induced to purchase one product in the belief that he was
purchasing the other." xxx The other is the confusion of business: "Here though the goods of the parties
are different, the defendant's product is such as might reasonably be assumed to originate with the
plaintiff, and the public would then be deceived either into that belief or into the belief that there is some
connection between the plaintiff and defendant which, in fact, does not exist."
Under Act No. 666,50 the first trademark law, infringement was limited to confusion of goods only, when
the infringing mark is used on "goods of a similar kind."51 Thus, no relief was afforded to the party whose
registered mark or its colorable imitation is used on different although related goods. To remedy this
situation, Congress enacted RA 166 on 20 June 1947. In defining trademark infringement, Section 22 of
RA 166 deleted the requirement in question and expanded its scope to include such use of the mark or its
colorable imitation that is likely to result in confusion on "the source or origin of such goods or services,
or identity of such business."52 Thus, while there is confusion of goods when the products are competing,
confusion of business exists when the products are non-competing but related enough to produce
confusion of affiliation.53
On Whether Confusion of Goods and
Confusion of Business are Applicable
Petitioners claim that respondents' use of the "Big Mak" mark on respondents' hamburgers results in
confusion of goods, particularly with respect to petitioners' hamburgers labeled "Big Mac." Thus,
petitioners alleged in their complaint:
1.15. Defendants have unduly prejudiced and clearly infringed upon the property rights of plaintiffs in the
McDonald's Marks, particularly the mark "B[ig] M[ac]". Defendants' unauthorized acts are likely, and
calculated, to confuse, mislead or deceive the public into believing that the products and services offered
by defendant Big Mak Burger, and the business it is engaged in, are approved and sponsored by, or
affiliated with, plaintiffs.54 (Emphasis supplied)
Since respondents used the "Big Mak" mark on the same goods, i.e. hamburger sandwiches, that
petitioners' "Big Mac" mark is used, trademark infringement through confusion of goods is a proper issue
in this case.
Petitioners also claim that respondents' use of the "Big Mak" mark in the sale of hamburgers, the same
business that petitioners are engaged in, results in confusion of business. Petitioners alleged in their
complaint:
1.10. For some period of time, and without the consent of plaintiff McDonald's nor its licensee/franchisee,
plaintiff McGeorge, and in clear violation of plaintiffs' exclusive right to use and/or appropriate the
McDonald's marks, defendant Big Mak Burger acting through individual defendants, has been operating
"Big Mak Burger", a fast food restaurant business dealing in the sale of hamburger and cheeseburger
sandwiches, french fries and other food products, and has caused to be printed on the wrapper of
defendant's food products and incorporated in its signages the name "Big Mak Burger", which is
confusingly similar to and/or is a colorable imitation of the plaintiff McDonald's mark "B[ig] M[ac]",
xxx. Defendant Big Mak Burger has thus unjustly created the impression that its business is approved
and sponsored by, or affiliated with, plaintiffs. xxxx
2.2 As a consequence of the acts committed by defendants, which unduly prejudice and infringe upon the
property rights of plaintiffs McDonald's and McGeorge as the real owner and rightful proprietor, and the
licensee/franchisee, respectively, of the McDonald's marks, and which are likely to have caused confusion
or deceived the public as to the true source, sponsorship or affiliation of defendants' food products and
restaurant business, plaintiffs have suffered and continue to suffer actual damages in the form of injury
to their business reputation and goodwill, and of the dilution of the distinctive quality of the McDonald's
marks, in particular, the mark "B[ig] M[ac]".55 (Emphasis supplied)
Respondents admit that their business includes selling hamburger sandwiches, the same food product that
petitioners sell using the "Big Mac" mark. Thus, trademark infringement through confusion of business is
also a proper issue in this case.
Respondents assert that their "Big Mak" hamburgers cater mainly to the low-income group while
petitioners' "Big Mac" hamburgers cater to the middle and upper income groups. Even if this is true, the
likelihood of confusion of business remains, since the low-income group might be led to believe that the
"Big Mak" hamburgers are the low-end hamburgers marketed by petitioners. After all, petitioners have
the exclusive right to use the "Big Mac" mark. On the other hand, respondents would benefit by
associating their low-end hamburgers, through the use of the "Big Mak" mark, with petitioners' high-end
"Big Mac" hamburgers, leading to likelihood of confusion in the identity of business.
Respondents further claim that petitioners use the "Big Mac" mark only on petitioners' double-decker
hamburgers, while respondents use the "Big Mak" mark on hamburgers and other products like siopao,
noodles and pizza. Respondents also point out that petitioners sell their Big Mac double-deckers in a
styrofoam box with the "McDonald's" logo and trademark in red, block letters at a price more expensive
than the hamburgers of respondents. In contrast, respondents sell their Big Mak hamburgers in plastic
wrappers and plastic bags. Respondents further point out that petitioners' restaurants are air-conditioned
buildings with drive-thru service, compared to respondents' mobile vans.
These and other factors respondents cite cannot negate the undisputed fact that respondents use their
"Big Mak" mark on hamburgers, the same food product that petitioners' sell with the use of their
registered mark "Big Mac." Whether a hamburger is single, double or triple-decker, and whether wrapped
in plastic or styrofoam, it remains the same hamburger food product. Even respondents' use of the "Big
Mak" mark on non-hamburger food products cannot excuse their infringement of petitioners' registered
mark, otherwise registered marks will lose their protection under the law.
The registered trademark owner may use his mark on the same or similar products, in different segments
of the market, and at different price levels depending on variations of the products for specific segments
of the market. The Court has recognized that the registered trademark owner enjoys protection in product
and market areas that are the normal potential expansion of his business. Thus, the Court has declared:
Modern law recognizes that the protection to which the owner of a trademark is entitled is not limited to
guarding his goods or business from actual market competition with identical or similar products of the
parties, but extends to all cases in which the use by a junior appropriator of a trade-mark or trade-name
is likely to lead to a confusion of source, as where prospective purchasers would be misled into thinking
that the complaining party has extended his business into the field (see 148 ALR 56 et seq; 53 Am Jur. 576)
or is in any way connected with the activities of the infringer; or when it forestalls the normal potential
expansion of his business (v. 148 ALR, 77, 84; 52 Am. Jur. 576, 577).56 (Emphasis supplied)
On Whether Respondents' Use of the "Big Mak"
Mark Results in Likelihood of Confusion
In determining likelihood of confusion, jurisprudence has developed two tests, the dominancy test and
the holistic test.57 The dominancy test focuses on the similarity of the prevalent features of the competing
trademarks that might cause confusion. In contrast, the holistic test requires the court to consider the
entirety of the marks as applied to the products, including the labels and packaging,
in determining confusing similarity.
The Court of Appeals, in finding that there is no likelihood of confusion that could arise in the use
of respondents' "Big Mak" mark on hamburgers, relied on the holistic test. Thus, the Court of Appeals
ruled that "it is not sufficient that a similarity exists in both name(s), but that more importantly,
the overall presentation, or in their essential, substantive and distinctive parts is such as would likely
MISLEAD or CONFUSE persons in the ordinary course of purchasing the genuine article." The holistic test
considers the two marks in their entirety, as they appear on the goods with their labels and packaging. It
is not enough to consider their words and compare the spelling and pronunciation of the words.58
Respondents now vigorously argue that the Court of Appeals' application of the holistic test to this case is
correct and in accord with prevailing jurisprudence.
This Court, however, has relied on the dominancy test rather than the holistic test. The dominancy test
considers the dominant features in the competing marks in determining whether they are confusingly
similar. Under the dominancy test, courts give greater weight to the similarity of the appearance of the
product arising from the adoption of the dominant features of the registered mark,
disregarding minor differences.59 Courts will consider more the aural and visual impressions created by
the marks in the public mind, giving little weight to factors like prices, quality, sales outlets and market
segments.
Thus, in the 1954 case of Co Tiong Sa v. Director of Patents,60 the Court ruled:
xxx It has been consistently held that the question of infringement of a trademark is to be determined by
the test of dominancy. Similarity in size, form and color, while relevant, is not conclusive. If the competing
trademark contains the main or essential or dominant features of another, and confusion and deception
is likely to result, infringement takes place. Duplication or imitation is not necessary; nor is
it necessary that the infringing label should suggest an effort to imitate. (G. Heilman Brewing Co. vs.
Independent Brewing Co., 191 F., 489, 495, citing Eagle White Lead Co. vs. Pflugh (CC) 180 Fed. 579). The
question at issue in cases of infringement of trademarks is whether the use of the marks involved would
be likely to cause confusion or mistakes in the mind of the public or deceive purchasers. (Auburn Rubber
Corporation vs. Honover Rubber Co., 107 F. 2d 588; xxx) (Emphasis supplied.)
The Court reiterated the dominancy test in Lim Hoa v. Director of Patents,61 Phil. Nut Industry, Inc. v.
Standard Brands Inc.,62 Converse Rubber Corporation v. Universal Rubber Products, Inc.,63 and Asia
Brewery, Inc. v. Court of Appeals.64 In the 2001 case of Societe Des Produits Nestlé, S.A. v. Court of
Appeals,65 the Court explicitly rejected the holistic test in this wise:
[T]he totality or holistic test is contrary to the elementary postulate of the law on trademarks and unfair
competition that confusing similarity is to be determined on the basis of visual, aural, connotative
comparisons and overall impressions engendered by the marks in controversy as they are encountered in
the realities of the marketplace. (Emphasis supplied)
The test of dominancy is now explicitly incorporated into law in Section 155.1 of the Intellectual Property
Code which defines infringement as the "colorable imitation of a registered mark xxx or a dominant
feature thereof."
Applying the dominancy test, the Court finds that respondents' use of the "Big Mak" mark results in
likelihood of confusion. First, "Big Mak" sounds exactly the same as "Big Mac." Second, the first word in
"Big Mak" is exactly the same as the first word in "Big Mac." Third, the first two letters in "Mak" are the
same as the first two letters in "Mac." Fourth, the last letter in "Mak" while a "k" sounds the same as "c"
when the word "Mak" is pronounced. Fifth, in Filipino, the letter "k" replaces "c" in spelling, thus
"Caloocan" is spelled "Kalookan."
In short, aurally the two marks are the same, with the first word of both marks phonetically the same, and
the second word of both marks also phonetically the same. Visually, the two marks have both two words
and six letters, with the first word of both marks having the same letters and the second word having the
same first two letters. In spelling, considering the Filipino language, even the last letters of both marks are
the same.
Clearly, respondents have adopted in "Big Mak" not only the dominant but also almost all the features
of "Big Mac." Applied to the same food product of hamburgers, the two marks will likely result in
confusion in the public mind.
The Court has taken into account the aural effects of the words and letters contained in the marks
in determining the issue of confusing similarity. Thus, in Marvex Commercial Co., Inc. v. Petra Hawpia &
Co., et al.,66 the Court held:
The following random list of confusingly similar sounds in the matter of trademarks, culled from Nims,
Unfair Competition and Trade Marks, 1947, Vol. 1, will reinforce our view that "SALONPAS" and "LIONPAS"
are confusingly similar in sound: "Gold Dust" and "Gold Drop"; "Jantzen" and "Jass-Sea"; "Silver Flash" and
"Supper Flash"; "Cascarete" and "Celborite"; "Celluloid" and "Cellonite"; "Chartreuse" and "Charseurs";
"Cutex" and "Cuticlean"; "Hebe" and "Meje"; "Kotex" and "Femetex"; "Zuso" and "Hoo Hoo". Leon Amdur,
in his book "Trade-Mark Law and Practice", pp. 419-421, cities, as coming within the purview of the idem
sonans rule, "Yusea" and "U-C-A", "Steinway Pianos" and "Steinberg Pianos", and "Seven-Up" and
"Lemon-Up". In Co Tiong vs. Director of Patents, this Court unequivocally said that "Celdura" and
"Cordura" are confusingly similar in sound; this Court held in Sapolin Co. vs. Balmaceda, 67 Phil. 795 that
the name "Lusolin" is an infringement of the trademark "Sapolin", as the sound of the two names is almost
the same. (Emphasis supplied)
Certainly, "Big Mac" and "Big Mak" for hamburgers create even greater confusion, not only aurally but
also visually.
Indeed, a person cannot distinguish "Big Mac" from "Big Mak" by their sound. When one hears a "Big
Mac" or "Big Mak" hamburger advertisement over the radio, one would not know whether the "Mac" or
"Mak" ends with a "c" or a "k."
Petitioners' aggressive promotion of the "Big Mac" mark, as borne by their advertisement expenses, has
built goodwill and reputation for such mark making it one of the easily recognizable marks in the market
today. This increases the likelihood that consumers will mistakenly associate petitioners' hamburgers and
business with those of respondents'.
Respondents' inability to explain sufficiently how and why they came to choose "Big Mak" for their
hamburger sandwiches indicates their intent to imitate petitioners' "Big Mac" mark. Contrary to the Court
of Appeals' finding, respondents' claim that their "Big Mak" mark was inspired by the first names of
respondent Dy's mother (Maxima) and father (Kimsoy) is not credible. As petitioners well noted:
[R]espondents, particularly Respondent Mr. Francis Dy, could have arrived at a more creative choice for a
corporate name by using the names of his parents, especially since he was allegedly driven by sentimental
reasons. For one, he could have put his father's name ahead of his mother's, as is usually done in this
patriarchal society, and derived letters from said names in that order. Or, he could have taken an
equal number of letters (i.e., two) from each name, as is the more usual thing done. Surely, the more
plausible reason behind Respondents' choice of the word "M[ak]", especially when taken in conjunction
with the word "B[ig]", was their intent to take advantage of Petitioners' xxx "B[ig] M[ac]" trademark, with
their alleged sentiment-focused "explanation" merely thought of as a convenient, albeit unavailing,
excuse or defense for such an unfair choice of name.67
Absent proof that respondents' adoption of the "Big Mak" mark was due to honest mistake or was
fortuitous,68 the inescapable conclusion is that respondents adopted the "Big Mak" mark to "ride on the
coattails" of the more established "Big Mac" mark.69 This saves respondents much of the expense in
advertising to create market recognition of their mark and hamburgers.70
Thus, we hold that confusion is likely to result in the public mind. We sustain petitioners' claim of
trademark infringement.
On the Lack of Proof of
Actual Confusion
Petitioners' failure to present proof of actual confusion does not negate their claim of trademark
infringement. As noted in American Wire & Cable Co. v. Director of Patents,71 Section 22 requires the less
stringent standard of "likelihood of confusion" only. While proof of actual confusion is the best evidence
of infringement, its absence is inconsequential.72
On the Issue of Unfair Competition
Section 29 ("Section 29")73 of RA 166 defines unfair competition, thus:
xxxx
Any person who will employ deception or any other means contrary to good faith by which he shall pass
off the goods manufactured by him or in which he deals, or his business, or services for those of the one
having established such goodwill, or who shall commit any acts calculated to produce said result, shall be
guilty of unfair competition, and shall be subject to an action therefor.
In particular, and without in any way limiting the scope of unfair competition, the following shall be
deemed guilty of unfair competition:
(a) Any person, who in selling his goods shall give them the general appearance of goods of another
manufacturer or dealer, either as to the goods themselves or in the wrapping of the packages in which
they are contained, or the devices or words thereon, or in any feature of their appearance, which would
be likely to influence purchasers to believe that the goods offered are those of a manufacturer or
dealer, other than the actual manufacturer or dealer, or who otherwise clothes the goods with such
appearance as shall deceive the public and defraud another of his legitimate trade, or any subsequent
vendor of such goods or any agent of any vendor engaged in selling such goods with a like purpose;
(b) Any person who by any artifice, or device, or who employs any other means calculated to induce the
false belief that such person is offering the services of another who has identified such services in the
mind of the public; or
(c) Any person who shall make any false statement in the course of trade or who shall commit any other
act contrary to good faith of a nature calculated to discredit the goods, business or services of another.
(Emphasis supplied)
The essential elements of an action for unfair competition are (1) confusing similarity in the general
appearance of the goods, and (2) intent to deceive the public and defraud a competitor.74 The confusing
similarity may or may not result from similarity in the marks, but may result from other external factors
in the packaging or presentation of the goods. The intent to deceive and defraud may be inferred from
the similarity of the appearance of the goods as offered for sale to the public.75 Actual fraudulent intent
need not be shown.76
Unfair competition is broader than trademark infringement and includes passing off goods with or without
trademark infringement. Trademark infringement is a form of unfair competition.77 Trademark
infringement constitutes unfair competition when there is not merely likelihood of confusion, but
also actual or probable deception on the public because of the general appearance of the goods. There
can be trademark infringement without unfair competition as when the infringer discloses on the labels
containing the mark that he manufactures the goods, thus preventing the public from being deceived that
the goods originate from the trademark owner.78
To support their claim of unfair competition, petitioners allege that respondents fraudulently passed off
their hamburgers as "Big Mac" hamburgers. Petitioners add that respondents' fraudulent intent can be
inferred from the similarity of the marks in question.79
Passing off (or palming off) takes place where the defendant, by imitative devices on the general
appearance of the goods, misleads prospective purchasers into buying his merchandise under the
impression that they are buying that of his competitors.80 Thus, the defendant gives his goods the general
appearance of the goods of his competitor with the intention of deceiving the public that the goods are
those of his competitor.
The RTC described the respective marks and the goods of petitioners and respondents in this wise:
The mark "B[ig] M[ac]" is used by plaintiff McDonald's to identify its double decker hamburger sandwich.
The packaging material is a styrofoam box with the McDonald's logo and trademark in red with block
capital letters printed on it. All letters of the "B[ig] M[ac]" mark are also in red and block capital letters. On
the other hand, defendants' "B[ig] M[ak]" script print is in orange with only the letter "B" and "M" being
capitalized and the packaging material is plastic wrapper. xxxx Further, plaintiffs' logo and mascot are the
umbrella "M" and "Ronald McDonald's", respectively, compared to the mascot of defendant Corporation
which is a chubby boy called "Macky" displayed or printed between the words "Big" and
"Mak."81 (Emphasis supplied)
Respondents point to these dissimilarities as proof that they did not give their hamburgers the general
appearance of petitioners' "Big Mac" hamburgers.
The dissimilarities in the packaging are minor compared to the stark similarities in the words that give
respondents' "Big Mak" hamburgers the general appearance of petitioners' "Big Mac" hamburgers.
Section 29(a) expressly provides that the similarity in the general appearance of the goods may be in the
"devices or words" used on the wrappings. Respondents have applied on their plastic wrappers and bags
almost the same words that petitioners use on their styrofoam box. What attracts the attention of the
buying public are the words "Big Mak" which are almost the same, aurally and visually, as the words "Big
Mac." The dissimilarities in the material and other devices are insignificant compared to the glaring
similarity in the words used in the wrappings.
Section 29(a) also provides that the defendant gives "his goods the general appearance of goods of
another manufacturer." Respondents' goods are hamburgers which are also the goods of petitioners. If
respondents sold egg sandwiches only instead of hamburger sandwiches, their use of the "Big Mak" mark
would not give their goods the general appearance of petitioners' "Big Mac" hamburgers. In such case,
there is only trademark infringement but no unfair competition. However, since respondents chose to
apply the "Big Mak" mark on hamburgers, just like petitioner's use of the "Big Mac" mark on hamburgers,
respondents have obviously clothed their goods with the general appearance of petitioners' goods.
Moreover, there is no notice to the public that the "Big Mak" hamburgers are products of "L.C. Big Mak
Burger, Inc." Respondents introduced during the trial plastic wrappers and bags with the words "L.C. Big
Mak Burger, Inc." to inform the public of the name of the seller of the hamburgers. However, petitioners
introduced during the injunctive hearings plastic wrappers and bags with the "Big Mak" mark without the
name "L.C. Big Mak Burger, Inc." Respondents' belated presentation of plastic wrappers and bags bearing
the name of "L.C. Big Mak Burger, Inc." as the seller of the hamburgers is an after-thought designed to
exculpate them from their unfair business conduct. As earlier stated, we cannot consider respondents'
evidence since petitioners' complaint was based on facts existing before and during the injunctive
hearings.
Thus, there is actually no notice to the public that the "Big Mak" hamburgers are products of "L.C. Big Mak
Burger, Inc." and not those of petitioners who have the exclusive right to the "Big Mac" mark. This clearly
shows respondents' intent to deceive the public. Had respondents' placed a notice on their plastic
wrappers and bags that the hamburgers are sold by "L.C. Big Mak Burger, Inc.", then they could validly
claim that they did not intend to deceive the public. In such case, there is only trademark infringement
but no unfair competition.82 Respondents, however, did not give such notice. We hold that as found by
the RTC, respondent corporation is liable for unfair competition.
The Remedies Available to Petitioners
Under Section 2383 ("Section 23") in relation to Section 29 of RA 166, a plaintiff who successfully maintains
trademark infringement and unfair competition claims is entitled to injunctive and monetary reliefs. Here,
the RTC did not err in issuing the injunctive writ of 16 August 1990 (made permanent in its Decision of 5
September 1994) and in ordering the payment of P400,000 actual damages in favor of petitioners. The
injunctive writ is indispensable to prevent further acts of infringement by respondent corporation.
Also, the amount of actual damages is a reasonable percentage (11.9%) of respondent corporation's gross
sales for three (1988-1989 and 1991) of the six years (1984-1990) respondents have used the "Big Mak"
mark.84
The RTC also did not err in awarding exemplary damages by way of correction for the public good85 in view
of the finding of unfair competition where intent to deceive the public is essential. The award of attorney's
fees and expenses of litigation is also in order.86
WHEREFORE, we GRANT the instant petition. We SET ASIDE the Decision dated 26 November 1999 of the
Court of Appeals and its Resolution dated 11 July 2000 and REINSTATE the Decision dated 5 September
1994 of the Regional Trial Court of Makati, Branch 137, finding respondent L.C. Big Mak Burger, Inc. liable
for trademark infringement and unfair competition.
SO ORDERED.

SECOND DIVISION
[G.R. No. 115758. March 19, 2002.]
ELIDAD C. KHO, doing business under the name and style of KEC COSMETICS LABORATORY, Petitioner,
v. HON. COURT OF APPEALS, SUMMERVILLE GENERAL MERCHANDISING and COMPANY, and ANG
TIAM CRAY, Respondents.

DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision 1 dated May 24, 1993 of the Court of
Appeals setting aside and declaring as null and void the Orders 2 dated February 10, 1992 and March 19,
1992 of the Regional Trial Court, Branch 90, of Quezon City granting the issuance of a writ of preliminary
injunction.chanrob1es virtua1 1aw 1ibrary
The facts of the case are as follows:
On December 20, 1991, petitioner Elidad C. Kho filed a complaint for injunction and damages with a
prayer for the issuance of a writ of preliminary injunction, docketed as Civil Case No. Q-91-10926,
against the respondents Summerville General Merchandising and Company (Summerville, for brevity)
and Ang Tiam Chay.
The petitioner’s complaint alleges that petitioner, doing business under the name and style of KEC
Cosmetics Laboratory, is the registered owner of the copyrights Chin Chun Su and Oval Facial Cream
Container/Case, as shown by Certificates of Copyright Registration No. 0-1358 and No. 0-3678; that she
also has patent rights on Chin Chun Su & Device and Chin Chun Su for medicated cream after purchasing
the same from Quintin Cheng, the registered owner thereof in the Supplemental Register of the
Philippine Patent Office on February 7, 1980 under Registration Certificate No. 4529; that respondent
Summerville advertised and sold petitioner’s cream products under the brand name Chin Chun Su, in
similar containers that petitioner uses, thereby misleading the public, and resulting in the decline in the
petitioner’s business sales and income; and, that the respondents should be enjoined from allegedly
infringing on the copyrights and patents of the petitioner.

The respondents, on the other hand, alleged as their defense that Summerville is the exclusive and
authorized importer, re-packer and distributor of Chin Chun Su products manufactured by Shun Yi
Factory of Taiwan; that the said Taiwanese manufacturing company authorized Summerville to register
its trade name Chin Chun Su Medicated Cream with the Philippine Patent Office and other appropriate
governmental agencies; that KEC Cosmetics Laboratory of the petitioner obtained the copyrights
through misrepresentation and falsification; and, that the authority of Quintin Cheng, assignee of the
patent registration certificate, to distribute and market Chin Chun Su products in the Philippines had
already been terminated by the said Taiwanese Manufacturing Company.
After due hearing on the application for preliminary injunction, the trial court granted the same in an
Order dated February 10, 1992, the dispositive portion of which reads:

ACCORDINGLY, the application of plaintiff Elidad C. Kho, doing business under the style of KEC Cosmetic
Laboratory, for preliminary injunction, is hereby granted. Consequentially, plaintiff is required to file
with the Court a bond executed to defendants in the amount of five hundred thousand pesos
(P500,000.00) to the effect that plaintiff will pay to defendants all damages which defendants may
sustain by reason of the injunction if the Court should finally decide that plaintiff is not entitled thereto.
SO ORDERED. 3
The respondents moved for reconsideration but their motion for reconsideration was denied by the trial
court in an Order dated March 19, 1992. 4
On April 24, 1992, the respondents filed a petition for certiorari with the Court of Appeals, docketed as
CA-G.R. SP No. 27803, praying for the nullification of the said writ of preliminary injunction issued by the
trial court. After the respondents filed their reply and almost a month after petitioner submitted her
comment, or on August 14 1992, the latter moved to dismiss the petition for violation of Supreme Court
Circular No. 28-91, a circular prohibiting forum shopping. According to the petitioner, the respondents
did not state the docket number of the civil case in the caption of their petition and, more significantly,
they did not include therein a certificate of non-forum shopping. The respondents opposed the petition
and submitted to the appellate court a certificate of non-forum shopping for their petition.

On May 24, 1993, the appellate court rendered a Decision in CA-G.R. SP No. 27803 ruling in favor of the
respondents, the dispositive portion of which reads:chanrob1es virtual 1aw library

WHEREFORE, the petition is hereby given due course and the orders of respondent court dated February
10, 1992 and March 19, 1992 granting the writ of preliminary injunction and denying petitioners’ motion
for reconsideration are hereby set aside and declared null and void. Respondent court is directed to
forthwith proceed with the trial of Civil Case No. Q-91-10926 and resolve the issue raised by the parties
on the merits.

SO ORDERED. 5
In granting the petition, the appellate court ruled that:chanrob1es virtual 1aw library
The registration of the trademark or brandname "Chin Chun Su" by KEC with the supplemental register
of the Bureau of Patents, Trademarks and Technology Transfer cannot be equated with registration in
the principal register, which is duly protected by the Trademark Law.
As ratiocinated in La Chemise Lacoste, S.S. v. Fernandez, 129 SCRA 373, 393:jgc:
"Registration in the Supplemental Register, therefore, serves as notice that the registrant is using or has
appropriated the trademark. By the very fact that the trademark cannot as yet he on guard and there
are certain defects, some obstacles which the use must still overcome before he can claim legal
ownership of the mark or ask the courts to vindicate his claims of an exclusive right to the use of the
same. It would be deceptive for a party with nothing more than a registration in the Supplemental
Register to posture before courts of justice as if the registration is in the Principal Register.

The reliance of the private respondent on the last sentence of the Patent office action on application
Serial No. 30954 that ‘registrants is presumed to be the owner of the mark until after the registration is
declared cancelled’ is, therefore, misplaced and grounded on shaky foundation. The supposed
presumption not only runs counter to the precept embodied in Rule 124 of the Revised Rules of Practice
before the Philippine Patent Office in Trademark Cases but considering all the facts ventilated before us
in the four interrelated petitions involving the petitioner and the respondent, it is devoid of factual
basis. As even in cases where presumption and precept may factually be reconciled, we have held that
the presumption is rebuttable, not conclusive, (People v. Lim Hoa, G.R. No. L-10612, May 30, 1958,
Unreported). One may be declared an unfair competitor even if his competing trademark is registered
(Parke, Davis & Co. v. Kiu Foo & Co., Et Al., 60 Phil 928; La Yebana Co. v. chua Seco & Co., 14 Phil 534)." 6

The petitioner filed a motion for reconsideration. This she followed with several motions to declare
respondents in contempt of court for publishing advertisements notifying the public of the promulgation
of the assailed decision of the appellate court and stating that genuine Chin Chun Su products could be
obtained only from Summerville General Merchandising and Co.

In the meantime, the trial court went on to hear petitioner’s complaint for final injunction and damages.
On October 22, 1993, the trial court rendered a Decision 7 barring the petitioner from using the
trademark Chin Chun Su and upholding the right of the respondents to use the same, but recognizing
the copyright of the petitioner over the oval shaped container of her beauty cream. The trial court did
not award damages and costs to any of the parties but to their respective counsels were awarded
Seventy-Five Thousand Pesos (P75,000.00) each as attorney’s fees. The petitioner duly appealed the said
decision to the Court of Appeals.

On June 3, 1994, the Court of Appeals promulgated a Resolution 8 denying the petitioner’s motions for
reconsideration and for contempt of court in CA-G.R. SP No. 27803.

Hence, this petition anchored on the following assignment of errors:

I
RESPONDENT HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF JURISDICTION IN FAILING TO RULE ON PETITIONER’S MOTION TO DISMISS.
II
RESPONDENT HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF JURISDICTION IN REFUSING TO PROMPTLY RESOLVE PETITIONER’S MOTION
FOR RECONSIDERATION.
III
IN DELAYING THE RESOLUTION OF PETITIONER’S MOTION FOR RECONSIDERATION, THE HONORABLE
COURT OF APPEALS DENIED PETITIONER’S RIGHT TO SEEK TIMELY APPELLATE RELIEF AND VIOLATED
PETITIONER’S RIGHT TO DUE PROCESS.
IV
RESPONDENT HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF JURISDICTION IN FAILING TO CITE THE PRIVATE RESPONDENTS IN CONTEMPT.

The petitioner faults the appellate court for not dismissing the petition on the ground of violation of
Supreme Court Circular No. 28-91. Also, the petitioner contends that the appellate court violated
Section 6, Rule 9 of the Revised Internal Rules of the Court of Appeals when it failed to rule on her
motion for reconsideration within ninety (90) days from the time it is submitted for resolution. The
appellate court ruled only after the lapse of three hundred fifty-four (354) days, or on June 3, 1994. In
delaying the resolution thereof, the appellate court denied the petitioner’s right to seek the timely
appellate relief. Finally, petitioner describes as arbitrary the denial of her motions for contempt of court
against the respondents.
We rule in favor of the respondents.
Pursuant to Section 1, Rule 58 of the Revised Rules of Civil Procedure, one of the grounds for the
issuance of a writ of preliminary injunction is a proof that the applicant is entitled to the relief
demanded, and the whole or part of such relief consists in restraining the commission or continuance of
the act or acts complained of, either for a limited period or perpetually. Thus, a preliminary injunction
order may be granted only when the application for the issuance of the same shows facts entitling the
applicant to the relief demanded. 10 This is the reason why we have ruled that it must be shown that
the invasion of the right sought to be protected is material and substantial, that the right of complainant
is clear and unmistakable, and, that there is an urgent and paramount necessity for the writ to prevent
serious damage. 11
In the case at bar, the petitioner applied for the issuance of a preliminary injunctive order on the ground
that she is entitled to the use of the trademark on Chin Chun Su and its container based on her copyright
and patent over the same. We first find it appropriate to rule on whether the copyright and patent over
the name and container of a beauty cream product would entitle the registrant to the use and
ownership over the same to the exclusion of others.
Trademark, copyright and patents are different intellectual property rights that cannot be interchanged
with one another. A trademark is any visible sign capable of distinguishing the goods (trademark) or
services (service mark) of an enterprise and shall include a stamped or marked container of goods. 12 In
relation thereto, a trade name means the name or designation identifying or distinguishing an
enterprise. 13 Meanwhile, the scope of a copyright is confined to literary and artistic works which are
original intellectual creations in the literary and artistic domain protected from the moment of their
creation. 14 Patentable inventions, on the other hand, refer to any technical solution of a problem in
any field of human activity which is new, involves an inventive step and is industrially applicable. 15
Petitioner has no right to support her claim for the exclusive use of the subject trade name and its
container. The name and container of a beauty cream product are proper subjects of a trademark
inasmuch as the same falls squarely within its definition. In order to be entitled to exclusively use the
same in the sale of the beauty cream product, the user must sufficiently prove that she registered or
used it before anybody else did. The petitioner’s copyright and patent registration of the name and
container would not guarantee her the right to the exclusive use of the same for the reason that they
are not appropriate subjects of the said intellectual rights. Consequently, a preliminary injunction order
cannot be issued for the reason that the petitioner has not proven that she has a clear right over the
said name and container to the exclusion of others, not having proven that she has registered a
trademark thereto or used the same before anyone did.

We cannot likewise overlook the decision of the trial court in the case for final injunction and damages.
The dispositive portion of said decision held that the petitioner does not have trademark rights on the
name and container of the beauty cream product. The said decision on the merits of the trial court
rendered the issuance of the writ of a preliminary injunction moot and academic notwithstanding the
fact that the Same has been appealed in the Court of Appeals. This is supported by our ruling in La Vista
Association, Inc. v. Court of Appeals 16 , to wit:chanrob1es virtual 1aw library

Considering the preliminary injunction is a provisional remedy which may be granted at any time after
the commencement of the action and before judgment when it is established that the plaintiff is
entitled to the relief demanded and only when his complaint shows facts entitling such reliefs . . . and it
appearing that the trial court had already granted the issuance of a final injunction in favor of petitioner
in its decision rendered after trial on the merits . . . the Court resolved to Dismiss the instant petition
having been rendered moot and academic. An injunction issued by the trial court after it has already
made a clear pronouncement as to the plaintiff’s right thereto, that is, after the same issue has been
decided on the merits, the trial court having appreciated the evidence presented, is proper,
notwithstanding the fact that the decision rendered is not yet final . . . Being an ancillary remedy, the
proceedings for preliminary injunction cannot stand separately or proceed independently of the
decision rendered on the merit of the main case for injunction. The merit of the main case having been
already determined in favor of the applicant, the preliminary determination of its non-existence ceases
to have any force and effect. (Emphasis supplied)

La Vista categorically pronounced that the issuance of a final injunction renders any question on the
preliminary injunctive order moot and academic despite the fact that the decision granting a final
injunction is pending appeal. Conversely, a decision denying the applicant-plaintiff’s right to a final
injunction, although appealed, renders moot and academic any objection to the prior dissolution of a
writ of preliminary injunction.
The petitioner argues that the appellate court erred in not dismissing the petition for certiorari for non-
compliance with the rule on forum shopping. We disagree. First, the petitioner improperly raised the
technical objection of non compliance with Supreme Court Circular No. 28-91 by filing a motion to
dismiss the petition for certiorari filed in the appellate court. This is prohibited by Section 6, Rule 66 of
the Revised Rules of Civil Procedure which provides that" (I)n petitions for certiorari before the Supreme
Court and the Court of Appeals, the provisions of Section 2, Rule 56, shall be observed. Before giving due
course thereto, the court may require the respondents to file their comment to, and not a motion to
dismiss, the petition . . . (Emphasis supplied)." Secondly, the issue was raised one month after petitioner
had filed her answer/comment and after private respondent had replied thereto. Under Section 1, Rule
16 of the Revised Rules of Civil Procedure, a motion to dismiss shall be filed within the time for but
before filing the answer to the complaint or pleading asserting a claim. She therefore could no longer
submit a motion to dismiss nor raise defenses and objections not included in the answer/comment she
had earlier tendered. Thirdly, substantial justice and equity require this Court not to revive a dissolved
writ of injunction in favor of a party without any legal right thereto merely on a technical infirmity. The
granting of an injunctive writ based on a technical ground rather than compliance with the requisites for
the issuance of the same is contrary to the primary objective of legal procedure which is to serve as a
means to dispense justice to the deserving party.
The petitioner likewise contends that the appellate court unduly delayed the resolution of her motion
for reconsideration. But we find that petitioner contributed to this delay when she filed successive
contentious motions in the same proceeding, the last of which was on October 27, 1993, necessitating
counter-manifestations from private respondents with the last one being filed on November 9, 1993.
Nonetheless, it is well-settled that non-observance of the period for deciding cases or their incidents
does not render such judgments ineffective or void. 17 With respect to the purported damages she
suffered due to the alleged delay in resolving her motion for reconsideration, we find that the said issue
has likewise been rendered moot and academic by our ruling that she has no right over the trademark
and, consequently, to the issuance of a writ of preliminary injunction.
Finally, we rule that the Court of Appeals correctly denied the petitioner’s several motions for contempt
of court. There is nothing contemptuous about the advertisements complained of which, as regards the
proceedings in CA-G.R. SP No. 27803 merely announced in plain and straightforward language the
promulgation of the assailed Decision of the appellate court. Moreover, pursuant to Section 4 of Rule 39
of the Revised Rules of Civil Procedure, the said decision nullifying the injunctive writ was immediately
executory.
WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals dated May 24,
1993 and June 3, 1994, respectively, are hereby AFFIRMED. With costs against the petitioner
SO ORDERED.