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Case #1

January 12, 2016

G.R. No. 212426

RENE A.V. SAGUISAG, WIGBERTO E. TAADA, FRANCISCO "DODONG" NEMENZO, JR., SR.
MARY JOHN MANANZAN, PACIFICO A. AGABIN, ESTEBAN "STEVE" SALONGA, H. HARRY L.
ROQUE, JR., EVALYN G. URSUA, EDRE U. OLALIA, DR. CAROL PAGADUAN-ARAULLO, DR.
ROLAND SIMBULAN, AND TEDDY CASIO, Petitioners,
vs.
EXECUTIVE SECRETARY PAQUITO N. OCHOA, JR., DEPARTMENT OF NATIONAL DEFENSE
SECRETARY VOLTAIRE GAZMIN, DEPARTMENT OF FOREIGN AFFAIRS SECRETARY ALBERT
DEL ROSARIO, JR., DEPARTMENT OF BUDGET AND MANAGEMENT SECRETARY FLORENCIO
ABAD, AND ARMED FORCES OF THE PHILIPPINES CHIEF OF STAFF GENERAL EMMANUEL T.
BAUTISTA, Respondents.

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

G.R. No. 212444

BAGONG ALYANSANG MAKABAYAN (BAYAN), REPRESENTED BY ITS SECRETARY GENERAL


RENATO M. REYES, JR., BAYAN MUNA PARTY-LIST REPRESENTATIVES NERI J. COLMENARES
AND CARLOS ZARATE, GABRIELA WOMEN'S PARTY-LIST REPRESENTATIVES LUZ ILAGAN
AND EMERENCIANA DE JESUS, ACT TEACHERS PARTY-LIST REPRESENTATIVE ANTONIO L.
TINIO, ANAKPAWIS PARTY-LIST REPRESENTATIVE FERNANDO HICAP, KABATAAN PARTY-LIST
REPRESENTATIVE TERRY RIDON, MAKABAYANG KOALISYON NG MAMAMAYAN
(MAKABAYAN), REPRESENTED BY SATURNINO OCAMPO AND LIZA MAZA, BIENVENIDO
LUMBERA, JOEL C. LAMANGAN, RAFAEL MARIANO, SALVADOR FRANCE, ROGELIO M.
SOLUTA, AND CLEMENTE G. BAUTISTA, Petitioners,
vs.
DEPARTMENT OF NATIONAL DEFENSE (DND) SECRETARY VOLTAIRE GAZMIN, DEPARTMENT
OF FOREIGN AFFAIRS SECRETARY ALBERT DEL ROSARIO, EXECUTIVE SECRETARY PAQUITO
N. OCHOA, JR., ARMED FORCES OF THE PHILIPPINES CHIEF OF STAFF GENERAL
EMMANUEL T. BAUTISTA, DEFENSE UNDERSECRETARY PIO LORENZO BATINO,
AMBASSADOR LOURDES YPARRAGUIRRE, AMBASSADOR J. EDUARDO MALAYA,
DEPARTMENT OF JUSTICE UNDERSECRETARY FRANCISCO BARAAN III, AND DND
ASSISTANT SECRETARY FOR STRATEGIC ASSESSMENTS RAYMUND JOSE QUILOP AS
CHAIRPERSON AND MEMBERS, RESPECTIVELY, OF THE NEGOTIATING PANEL FOR THE
PHILIPPINES ON EDCA, Respondents.

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

KILUSANG MAYO UNO, REPRESENTED BY ITS CHAIRPERSON, ELMER LABOG,


CONFEDERATION FOR UNITY, RECOGNITION AND ADVANCEMENT OF GOVERNMENT
EMPLOYEES (COURAGE), REPRESENTED BY ITS NATIONAL PRESIDENT FERDINAND GAITE,
NATIONAL FEDERATION OF LABOR UNIONS-KILUSANG MAYO UNO, REPRESENTED BY ITS
NATIONAL PRESIDENT JOSELITO USTAREZ, NENITA GONZAGA, VIOLETA ESPIRITU,
VIRGINIA FLORES, AND ARMANDO TEODORO, JR., Petitioners-in-Intervention,
RENE A.Q. SAGUISAG, JR., Petitioner-in-Intervention.
DECISION

SERENO, J.:

The petitions1 before this Court question the constitutionality of the Enhanced Defense
Cooperation Agreement (EDCA) between the Republic of the Philippines and the United
States of America (U.S.). Petitioners allege that respondents committed grave abuse of
discretion amounting to lack or excess of jurisdiction when they entered into EDCA with
the U.S.,2 claiming that the instrument violated multiple constitutional provisions.3 In
reply, respondents argue that petitioners lack standing to bring the suit. To support the
legality of their actions, respondents invoke the 1987 Constitution, treaties, and judicial
precedents.4

A proper analysis of the issues requires this Court to lay down at the outset the basic
parameters of the constitutional powers and roles of the President and the Senate in
respect of the above issues. A more detailed discussion of these powers and roles will be
made in the latter portions.

I. BROAD CONSTITUTIONAL CONTEXT OF THE POWERS OF THE PRESIDENT: DEFENSE,


FOREIGN RELATIONS, AND EDCA

A. The Prime Duty of the State and the Consolidation of Executive Power in the President

Mataimtim kong pinanunumpaan (o pinatotohanan) na tutuparin ko nang buong


katapatan at sigasig ang aking mga tungkulin bilang Pangulo (o Pangalawang Pangulo o
Nanunungkulang Pangulo) ng Pilipinas, pangangalagaan at ipagtatanggol ang kanyang
Konstitusyon, ipatutupad ang mga batas nito, magiging makatarungan sa bawat tao, at
itatalaga ang aking sarili sa paglilingkod sa Bansa. Kasihan nawa aka ng Diyos.

- Panunumpa sa Katungkulan ng Pangulo ng Pilipinas ayon sa Saligang Batas5

The 1987 Constitution has "vested the executive power in the President of the Republic
of the Philippines."6 While the vastness of the executive power that has been
consolidated in the person of the President cannot be expressed fully in one provision,
the Constitution has stated the prime duty of the government, of which the President is
the head:

The prime duty of the Government is to serve and protect the people. The Government
may call upon the people to defend the State and, in the fulfillment thereof, all citizens
may be required, under conditions provided by law, to render personal military or civil
service.7 (Emphases supplied)

B. The duty to protect the territory and the citizens of the Philippines, the power to call
upon the people to defend the State, and the President as Commander-in-Chief

The duty to protect the State and its people must be carried out earnestly and effectively
throughout the whole territory of the Philippines in accordance with the constitutional
provision on national territory. Hence, the President of the Philippines, as the sole
repository of executive power, is the guardian of the Philippine archipelago, including all
the islands and waters embraced therein and all other territories over which it has
sovereignty or jurisdiction. These territories consist of its terrestrial, fluvial, and aerial
domains; including its territorial sea, the seabed, the subsoil, the insular shelves, and
other submarine areas; and the waters around, between, and connecting the islands of
the archipelago, regardless of their breadth and dimensions.8

To carry out this important duty, the President is equipped with authority over the Armed
Forces of the Philippines (AFP),9 which is the protector of the people and the state. The
AFP's role is to secure the sovereignty of the State and the integrity of the national
territory.10 In addition, the Executive is constitutionally empowered to maintain peace
and order; protect life, liberty, and property; and promote the general welfare.11

In recognition of these powers, Congress has specified that the President must oversee,
ensure, and reinforce our defensive capabilities against external and internal threats12
and, in the same vein, ensure that the country is adequately prepared for all national
and local emergencies arising from natural and man-made disasters.13

To be sure, this power is limited by the Constitution itself. To illustrate, the President may
call out the AFP to prevent or suppress instances of lawless violence, invasion or
rebellion,14 but not suspend the privilege of the writ of habeas corpus for a period
exceeding 60 days, or place the Philippines or any part thereof under martial law
exceeding that same span. In the exercise of these powers, the President is also duty-
bound to submit a report to Congress, in person or in writing, within 48 hours from the
proclamation of martial law or the suspension of the privilege of the writ of habeas
corpus; and Congress may in turn revoke the proclamation or suspension. The same
provision provides for the Supreme Court's review of the factual basis for the
proclamation or suspension, as well as the promulgation of the decision within 30 days
from filing.

C. The power and duty to conduct foreign relations

The President also carries the mandate of being the sole organ in the conduct of foreign
relations.15 Since every state has the capacity to interact with and engage in relations
with other sovereign states,16 it is but logical that every state must vest in an agent the
authority to represent its interests to those other sovereign states.

The conduct of foreign relations is full of complexities and consequences, sometimes


with life and death significance to the nation especially in times of war. It can only be
entrusted to that department of government which can act on the basis of the best
available information and can decide with decisiveness. x x x It is also the President who
possesses the most comprehensive and the most confidential information about foreign
countries for our diplomatic and consular officials regularly brief him on meaningful
events all over the world. He has also unlimited access to ultra-sensitive military
intelligence data. In fine, the presidential role in foreign affairs is dominant and the
President is traditionally accorded a wider degree of discretion in the conduct of foreign
affairs. The regularity, nay, validity of his actions are adjudged under less stringent
standards, lest their judicial repudiation lead to breach of an international obligation,
rupture of state relations, forfeiture of confidence, national embarrassment and a
plethora of other problems with equally undesirable consequences.17

The role of the President in foreign affairs is qualified by the Constitution in that the Chief
Executive must give paramount importance to the sovereignty of the nation, the
integrity of its territory, its interest, and the right of the sovereign Filipino people to self-
determination.18 In specific provisions, the President's power is also limited, or at least
shared, as in Section 2 of Article II on the conduct of war; Sections 20 and 21 of Article
VII on foreign loans, treaties, and international agreements; Sections 4(2) and 5(2)(a) of
Article VIII on the judicial review of executive acts; Sections 4 and 25 of Article XVIII on
treaties and international agreements entered into prior to the Constitution and on the
presence of foreign military troops, bases, or facilities.

D. The relationship between the two major presidential functions and the role of the
Senate

Clearly, the power to defend the State and to act as its representative in the
international sphere inheres in the person of the President. This power, however, does
not crystallize into absolute discretion to craft whatever instrument the Chief Executive
so desires. As previously mentioned, the Senate has a role in ensuring that treaties or
international agreements the President enters into, as contemplated in Section 21 of
Article VII of the Constitution, obtain the approval of two-thirds of its members.

Previously, treaties under the 1973 Constitution required ratification by a majority of the
Batasang Pambansa,19 except in instances wherein the President "may enter into
international treaties or agreements as the national welfare and interest may require."20
This left a large margin of discretion that the President could use to bypass the
Legislature altogether. This was a departure from the 1935 Constitution, which explicitly
gave the President the power to enter into treaties only with the concurrence of two-
thirds of all the Members of the Senate.21 The 1987 Constitution returned the Senate's
power22 and, with it, the legislative's traditional role in foreign affairs.23

The responsibility of the President when it comes to treaties and international


agreements under the present Constitution is therefore shared with the Senate. This
shared role, petitioners claim, is bypassed by EDCA.

II. HISTORICAL ANTECEDENTS OF EDCA

A. U.S. takeover of Spanish colonization and its military bases, and the transition to
Philippine independence

The presence of the U.S. military forces in the country can be traced to their pivotal
victory in the 1898 Battle of Manila Bay during the Spanish-American War.24 Spain
relinquished its sovereignty over the Philippine Islands in favor of the U.S. upon its formal
surrender a few months later.25 By 1899, the Americans had consolidated a military
administration in the archipelago.26

When it became clear that the American forces intended to impose colonial control over
the Philippine Islands, General Emilio Aguinaldo immediately led the Filipinos into an all-
out war against the U.S.27 The Filipinos were ultimately defeated in the Philippine-
American War, which lasted until 1902 and led to the downfall of the first Philippine
Republic.28 The Americans henceforth began to strengthen their foothold in the
country.29 They took over and expanded the former Spanish Naval Base in Subic Bay,
Zambales, and put up a cavalry post called Fort Stotsenberg in Pampanga, now known as
Clark Air Base.30
When talks of the eventual independence of the Philippine Islands gained ground, the
U.S. manifested the desire to maintain military bases and armed forces in the country.31
The U.S. Congress later enacted the Hare-Hawes-Cutting Act of 1933, which required that
the proposed constitution of an independent Philippines recognize the right of the U.S. to
maintain the latter's armed forces and military bases.32 The Philippine Legislature
rejected that law, as it also gave the U.S. the power to unilaterally designate any part of
Philippine territory as a permanent military or naval base of the U.S. within two years
from complete independence.33

The U.S. Legislature subsequently crafted another law called the Tydings-McDuffie Act or
the Philippine Independence Act of 1934. Compared to the old Hare-Hawes-Cutting Act,
the new law provided for the surrender to the Commonwealth Government of "all military
and other reservations" of the U.S. government in the Philippines, except "naval
reservations and refueling stations."34 Furthermore, the law authorized the U.S.
President to enter into negotiations for the adjustment and settlement of all questions
relating to naval reservations and fueling stations within two years after the Philippines
would have gained independence.35 Under the Tydings-McDuffie Act, the U.S. President
would proclaim the American withdrawal and surrender of sovereignty over the islands
10 years after the inauguration of the new government in the Philippines.36 This law
eventually led to the promulgation of the 1935 Philippine Constitution.

The original plan to surrender the military bases changed.37 At the height of the Second
World War, the Philippine and the U.S. Legislatures each passed resolutions authorizing
their respective Presidents to negotiate the matter of retaining military bases in the
country after the planned withdrawal of the U.S.38 Subsequently, in 1946, the countries
entered into the Treaty of General Relations, in which the U.S. relinquished all control and
sovereignty over the Philippine Islands, except the areas that would be covered by the
American military bases in the country.39 This treaty eventually led to the creation of the
post-colonial legal regime on which would hinge the continued presence of U.S. military
forces until 1991: the Military Bases Agreement (MBA) of 1947, the Military Assistance
Agreement of 1947, and the Mutual Defense Treaty (MDT) of 1951.40

B. Former legal regime on the presence of U.S. armed forces in the territory of an
independent Philippines (1946-1991)

Soon after the Philippines was granted independence, the two countries entered into
their first military arrangement pursuant to the Treaty of General Relations - the 1947
MBA.41 The Senate concurred on the premise of "mutuality of security interest,"42 which
provided for the presence and operation of 23 U.S. military bases in the Philippines for 99
years or until the year 2046.43 The treaty also obliged the Philippines to negotiate with
the U.S. to allow the latter to expand the existing bases or to acquire new ones as
military necessity might require.44

A number of significant amendments to the 1947 MBA were made.45 With respect to its
duration, the parties entered into the Ramos-Rusk Agreement of 1966, which reduced
the term of the treaty from 99 years to a total of 44 years or until 1991.46 Concerning
the number of U.S. military bases in the country, the Bohlen-Serrano Memorandum of
Agreement provided for the return to the Philippines of 17 U.S. military bases covering a
total area of 117,075 hectares.47 Twelve years later, the U.S. returned Sangley Point in
Cavite City through an exchange of notes.48 Then, through the Romulo-Murphy
Exchange of Notes of 1979, the parties agreed to the recognition of Philippine
sovereignty over Clark and Subic Bases and the reduction of the areas that could be
used by the U.S. military.49 The agreement also provided for the mandatory review of
the treaty every five years.50 In 1983, the parties revised the 1947 MBA through the
Romualdez-Armacost Agreement.51 The revision pertained to the operational use of the
military bases by the U.S. government within the context of Philippine sovereignty,52
including the need for prior consultation with the Philippine government on the former' s
use of the bases for military combat operations or the establishment of long-range
missiles.53

Pursuant to the legislative authorization granted under Republic Act No. 9,54 the
President also entered into the 1947 Military Assistance Agreement55 with the U.S. This
executive agreement established the conditions under which U.S. military assistance
would be granted to the Philippines,56 particularly the provision of military arms,
ammunitions, supplies, equipment, vessels, services, and training for the latter's defense
forces.57 An exchange of notes in 1953 made it clear that the agreement would remain
in force until terminated by any of the parties.58

To further strengthen their defense and security relationship,59 the Philippines and the
U.S. next entered into the MDT in 1951. Concurred in by both the Philippine60 and the
U.S.61 Senates, the treaty has two main features: first, it allowed for mutual assistance
in maintaining and developing their individual and collective capacities to resist an
armed attack;62 and second, it provided for their mutual self-defense in the event of an
armed attack against the territory of either party.63 The treaty was premised on their
recognition that an armed attack on either of them would equally be a threat to the
security of the other.64

C. Current legal regime on the presence of U.S. armed forces in the country

In view of the impending expiration of the 1947 MBA in 1991, the Philippines and the U.S.
negotiated for a possible renewal of their defense and security relationship.65 Termed as
the Treaty of Friendship, Cooperation and Security, the countries sought to recast their
military ties by providing a new framework for their defense cooperation and the use of
Philippine installations.66 One of the proposed provisions included an arrangement in
which U.S. forces would be granted the use of certain installations within the Philippine
naval base in Subic.67 On 16 September 1991, the Senate rejected the proposed
treaty.68

The consequent expiration of the 1947 MBA and the resulting paucity of any formal
agreement dealing with the treatment of U.S. personnel in the Philippines led to the
suspension in 1995 of large-scale joint military exercises.69 In the meantime, the
respective governments of the two countries agreed70 to hold joint exercises at a
substantially reduced level.71 The military arrangements between them were revived in
1999 when they concluded the first Visiting Forces Agreement (VFA).72

As a "reaffirm[ation] [of the] obligations under the MDT,"73 the VFA has laid down the
regulatory mechanism for the treatment of U.S. military and civilian personnel visiting
the country.74 It contains provisions on the entry and departure of U.S. personnel; the
purpose, extent, and limitations of their activities; criminal and disciplinary jurisdiction;
the waiver of certain claims; the importation and exportation of equipment, materials,
supplies, and other pieces of property owned by the U.S. government; and the
movement of U.S. military vehicles, vessels, and aircraft into and within the country.75
The Philippines and the U.S. also entered into a second counterpart agreement (VFA II),
which in turn regulated the treatment of Philippine military and civilian personnel visiting
the U.S.76 The Philippine Senate concurred in the first VFA on 27 May 1999.77

Beginning in January 2002, U.S. military and civilian personnel started arriving in
Mindanao to take part in joint military exercises with their Filipino counterparts.78 Called
Balikatan, these exercises involved trainings aimed at simulating joint military
maneuvers pursuant to the MDT.79

In the same year, the Philippines and the U.S. entered into the Mutual Logistics Support
Agreement to "further the interoperability, readiness, and effectiveness of their
respective military forces"80 in accordance with the MDT, the Military Assistance
Agreement of 1953, and the VFA.81 The new agreement outlined the basic terms,
conditions, and procedures for facilitating the reciprocal provision of logistics support,
supplies, and services between the military forces of the two countries.82 The phrase
"logistics support and services" includes billeting, operations support, construction and
use of temporary structures, and storage services during an approved activity under the
existing military arrangements.83 Already extended twice, the agreement will last until
2017.84

D. The Enhanced Defense Cooperation Agreement

EDCA authorizes the U.S. military forces to have access to and conduct activities within
certain "Agreed Locations" in the country. It was not transmitted to the Senate on the
executive's understanding that to do so was no longer necessary.85 Accordingly, in June
2014, the Department of Foreign Affairs (DFA) and the U.S. Embassy exchanged
diplomatic notes confirming the completion of all necessary internal requirements for the
agreement to enter into force in the two countries.86

According to the Philippine government, the conclusion of EDCA was the result of
intensive and comprehensive negotiations in the course of almost two years.87 After
eight rounds of negotiations, the Secretary of National Defense and the U.S. Ambassador
to the Philippines signed the agreement on 28 April 2014.88 President Benigno S. Aquino
III ratified EDCA on 6 June 2014.89 The OSG clarified during the oral arguments90 that
the Philippine and the U.S. governments had yet to agree formally on the specific sites of
the Agreed Locations mentioned in the agreement.

Two petitions for certiorari were thereafter filed before us assailing the constitutionality
of EDCA. They primarily argue that it should have been in the form of a treaty concurred
in by the Senate, not an executive agreement.

On 10 November 2015, months after the oral arguments were concluded and the parties
ordered to file their respective memoranda, the Senators adopted Senate Resolution No.
(SR) 105.91 The resolution expresses the "strong sense"92 of the Senators that for EDCA
to become valid and effective, it must first be transmitted to the Senate for deliberation
and concurrence.

III. ISSUES
Petitioners mainly seek a declaration that the Executive Department committed grave
abuse of discretion in entering into EDCA in the form of an executive agreement. For this
reason, we cull the issues before us:

A. Whether the essential requisites for judicial review are present

B. Whether the President may enter into an executive agreement on foreign military
bases, troops, or facilities

C. Whether the provisions under EDCA are consistent with the Constitution, as well as
with existing laws and treaties

IV. DISCUSSION

A. Whether the essential requisites for judicial review have been satisfied

Petitioners are hailing this Court's power of judicial review in order to strike down EDCA
for violating the Constitution. They stress that our fundamental law is explicit in
prohibiting the presence of foreign military forces in the country, except under a treaty
concurred in by the Senate. Before this Court may begin to analyze the constitutionality
or validity of an official act of a coequal branch of government, however, petitioners
must show that they have satisfied all the essential requisites for judicial review.93

Distinguished from the general notion of judicial power, the power of judicial review
specially refers to both the authority and the duty of this Court to determine whether a
branch or an instrumentality of government has acted beyond the scope of the latter's
constitutional powers.94 As articulated in Section 1, Article VIII of the Constitution, the
power of judicial review involves the power to resolve cases in which the questions
concern the constitutionality or validity of any treaty, international or executive
agreement, law, presidential decree, proclamation, order, instruction, ordinance, or
regulation.95 In Angara v. Electoral Commission, this Court exhaustively discussed this
"moderating power" as part of the system of checks and balances under the
Constitution. In our fundamental law, the role of the Court is to determine whether a
branch of government has adhered to the specific restrictions and limitations of the
latter's power:96

The separation of powers is a fundamental principle in our system of government. It


obtains not through express provision but by actual division in our Constitution. Each
department of the government has exclusive cognizance of matters within its
jurisdiction, and is supreme within its own sphere. But it does not follow from the fact
that the three powers are to be kept separate and distinct that the Constitution intended
them to be absolutely unrestrained and independent of each other. The Constitution has
provided for an elaborate system of checks and balances to secure coordination in the
workings of the various departments of the government. x x x. And the judiciary in turn,
with the Supreme Court as the final arbiter, effectively checks the other departments in
the exercise of its power to determine the law, and hence to declare executive and
legislative acts void if violative of the Constitution.

xxxx
As any human production, our Constitution is of course lacking perfection and
perfectibility, but as much as it was within the power of our people, acting through their
delegates to so provide, that instrument which is the expression of their sovereignty
however limited, has established a republican government intended to operate and
function as a harmonious whole, under a system of checks and balances, and subject to
specific limitations and restrictions provided in the said instrument. The Constitution sets
forth in no uncertain language the restrictions and limitations upon governmental powers
and agencies. If these restrictions and limitations are transcended it would be
inconceivable if the Constitution had not provided for a mechanism by which to direct
the course of government along constitutional channels, for then the distribution of
powers would be mere verbiage, the bill of rights mere expressions of sentiment, and the
principles of good government mere political apothegms. Certainly, the limitations and
restrictions embodied in our Constitution are real as they should be in any living
constitution. x x x. In our case, this moderating power is granted, if not expressly, by
clear implication from section 2 of article VIII of [the 1935] Constitution.

The Constitution is a definition of the powers of government. Who is to determine the


nature, scope and extent of such powers? The Constitution itself has provided for the
instrumentality of the judiciary as the rational way. And when the judiciary mediates to
allocate constitutional boundaries, it does not assert any superiority over the other
departments; it does not in reality nullify or invalidate an act of the legislature, but only
asserts the solemn and sacred obligation assigned to it by the Constitution to determine
conflicting claims of authority under the Constitution and to establish for the parties in
an actual controversy the rights which that instrument secures and guarantees to them.
This is in truth all that is involved in what is termed "judicial supremacy" which properly
is the power of judicial review under the Constitution. x x x x. (Emphases supplied)

The power of judicial review has since been strengthened in the 1987 Constitution. The
scope of that power has been extended to the determination of whether in matters
traditionally considered to be within the sphere of appreciation of another branch of
government, an exercise of discretion has been attended with grave abuse.97 The
expansion of this power has made the political question doctrine "no longer the
insurmountable obstacle to the exercise of judicial power or the impenetrable shield that
protects executive and legislative actions from judicial inquiry or review."98

This moderating power, however, must be exercised carefully and only if it cannot be
completely avoided. We stress that our Constitution is so incisively designed that it
identifies the spheres of expertise within which the different branches of government
shall function and the questions of policy that they shall resolve.99 Since the power of
judicial review involves the delicate exercise of examining the validity or constitutionality
of an act of a coequal branch of government, this Court must continually exercise
restraint to avoid the risk of supplanting the wisdom of the constitutionally appointed
actor with that of its own.100

Even as we are left with no recourse but to bare our power to check an act of a coequal
branch of government - in this case the executive - we must abide by the stringent
requirements for the exercise of that power under the Constitution. Demetria v. Alba101
and Francisco v. House of Representatives102 cite the "pillars" of the limitations on the
power of judicial review as enunciated in the concurring opinion of U.S. Supreme Court
Justice Brandeis in Ashwander v. Tennessee Valley Authority.103 Francisco104 redressed
these "pillars" under the following categories:
1. That there be absolute necessity of deciding a case

2. That rules of constitutional law shall be formulated only as required by the facts of the
case

3. That judgment may not be sustained on some other ground

4. That there be actual injury sustained by the party by reason of the operation of the
statute

5. That the parties are not in estoppel

6. That the Court upholds the presumption of constitutionality

(Emphases supplied)

These are the specific safeguards laid down by the Court when it exercises its power of
judicial review.105 Guided by these pillars, it may invoke the power only when the
following four stringent requirements are satisfied: (a) there is an actual case or
controversy; (b) petitioners possess locus standi; (c) the question of constitutionality is
raised at the earliest opportunity; and (d) the issue of constitutionality is the lis mota of
the case.106 Of these four, the first two conditions will be the focus of our discussion.

1. Petitioners have shown the presence of an actual case or controversy.

The OSG maintains107 that there is no actual case or controversy that exists, since the
Senators have not been deprived of the opportunity to invoke the privileges of the
institution they are representing. It contends that the nonparticipation of the Senators in
the present petitions only confirms that even they believe that EDCA is a binding
executive agreement that does not require their concurrence.

It must be emphasized that the Senate has already expressed its position through SR
105.108 Through the Resolution, the Senate has taken a position contrary to that of the
OSG. As the body tasked to participate in foreign affairs by ratifying treaties, its belief
that EDCA infringes upon its constitutional role indicates that an actual controversy -
albeit brought to the Court by non-Senators, exists.

Moreover, we cannot consider the sheer abstention of the Senators from the present
proceedings as basis for finding that there is no actual case or controversy before us. We
point out that the focus of this requirement is the ripeness for adjudication of the matter
at hand, as opposed to its being merely conjectural or anticipatory.109 The case must
involve a definite and concrete issue involving real parties with conflicting legal rights
and legal claims admitting of specific relief through a decree conclusive in nature.110 It
should not equate with a mere request for an opinion or advice on what the law would be
upon an abstract, hypothetical, or contingent state of facts.111 As explained in Angara v.
Electoral Commission:112

[The] power of judicial review is limited to actual cases and controversies to be exercised
after full opportunity of argument by the parties, and limited further to the constitutional
question raised or the very lis mota presented. Any attempt at abstraction could only
lead to dialectics and barren legal questions and to sterile conclusions of wisdom, justice
or expediency of legislation. More than that, courts accord the presumption of
constitutionality to legislative enactments, not only because the legislature is presumed
to abide by the Constitution but also because the judiciary in the determination of actual
cases and controversies must reflect the wisdom and justice of the people as expressed
through their representatives in the executive and legislative departments of the
government. (Emphases supplied)

We find that the matter before us involves an actual case or controversy that is already
ripe for adjudication. The Executive Department has already sent an official confirmation
to the U.S. Embassy that "all internal requirements of the Philippines x x x have already
been complied with."113 By this exchange of diplomatic notes, the Executive
Department effectively performed the last act required under Article XII(l) of EDCA before
the agreement entered into force. Section 25, Article XVIII of the Constitution, is clear
that the presence of foreign military forces in the country shall only be allowed by virtue
of a treaty concurred in by the Senate. Hence, the performance of an official act by the
Executive Department that led to the entry into force of an executive agreement was
sufficient to satisfy the actual case or controversy requirement.

2. While petitioners Saguisag et. al., do not have legal standing, they nonetheless raise
issues involving matters of transcendental importance.

The question of locus standi or legal standing focuses on the determination of whether
those assailing the governmental act have the right of appearance to bring the matter to
the court for adjudication.114 They must show that they have a personal and substantial
interest in the case, such that they have sustained or are in immediate danger of
sustaining, some direct injury as a consequence of the enforcement of the challenged
governmental act.115 Here, "interest" in the question involved must be material - an
interest that is in issue and will be affected by the official act - as distinguished from
being merely incidental or general.116 Clearly, it would be insufficient to show that the
law or any governmental act is invalid, and that petitioners stand to suffer in some
indefinite way.117 They must show that they have a particular interest in bringing the
suit, and that they have been or are about to be denied some right or privilege to which
they are lawfully entitled, or that they are about to be subjected to some burden or
penalty by reason of the act complained of.118 The reason why those who challenge the
validity of a law or an international agreement are required to allege the existence of a
personal stake in the outcome of the controversy is "to assure the concrete adverseness
which sharpens the presentation of issues upon which the court so largely depends for
illumination of difficult constitutional questions."119

The present petitions cannot qualify as citizens', taxpayers', or legislators' suits; the
Senate as a body has the requisite standing, but considering that it has not formally filed
a pleading to join the suit, as it merely conveyed to the Supreme Court its sense that
EDCA needs the Senate's concurrence to be valid, petitioners continue to suffer from lack
of standing.

In assailing the constitutionality of a governmental act, petitioners suing as citizens may


dodge the requirement of having to establish a direct and personal interest if they show
that the act affects a public right.120 In arguing that they have legal standing, they
claim121 that the case they have filed is a concerned citizen's suit. But aside from
general statements that the petitions involve the protection of a public right, and that
their constitutional rights as citizens would be violated, they fail to make any specific
assertion of a particular public right that would be violated by the enforcement of EDCA.
For their failure to do so, the present petitions cannot be considered by the Court as
citizens' suits that would justify a disregard of the aforementioned requirements.

In claiming that they have legal standing as taxpayers, petitioners122 aver that the
implementation of EDCA would result in the unlawful use of public funds. They
emphasize that Article X(1) refers to an appropriation of funds; and that the agreement
entails a waiver of the payment of taxes, fees, and rentals. During the oral arguments,
however, they admitted that the government had not yet appropriated or actually
disbursed public funds for the purpose of implementing the agreement.123 The OSG, on
the other hand, maintains that petitioners cannot sue as taxpayers.124 Respondent
explains that EDCA is neither meant to be a tax measure, nor is it directed at the
disbursement of public funds.

A taxpayer's suit concerns a case in which the official act complained of directly involves
the illegal disbursement of public funds derived from taxation.125 Here, those
challenging the act must specifically show that they have sufficient interest in preventing
the illegal expenditure of public money, and that they will sustain a direct injury as a
result of the enforcement of the assailed act.126 Applying that principle to this case,
they must establish that EDCA involves the exercise by Congress of its taxing or
spending powers.127

We agree with the OSG that the petitions cannot qualify as taxpayers' suits. We
emphasize that a taxpayers' suit contemplates a situation in which there is already an
appropriation or a disbursement of public funds.128 A reading of Article X(l) of EDCA
would show that there has been neither an appropriation nor an authorization of
disbursement of funds. The cited provision reads:

All obligations under this Agreement are subject to the availability of appropriated funds
authorized for these purposes. (Emphases supplied)

This provision means that if the implementation of EDCA would require the disbursement
of public funds, the money must come from appropriated funds that are specifically
authorized for this purpose. Under the agreement, before there can even be a
disbursement of public funds, there must first be a legislative action. Until and unless the
Legislature appropriates funds for EDCA, or unless petitioners can pinpoint a specific
item in the current budget that allows expenditure under the agreement, we cannot at
this time rule that there is in fact an appropriation or a disbursement of funds that would
justify the filing of a taxpayers' suit.

Petitioners Bayan et al. also claim129 that their co-petitioners who are party-list
representatives have the standing to challenge the act of the Executive Department,
especially if it impairs the constitutional prerogatives, powers, and privileges of their
office. While they admit that there is no incumbent Senator who has taken part in the
present petition, they nonetheless assert that they also stand to sustain a derivative but
substantial injury as legislators. They argue that under the Constitution, legislative power
is vested in both the Senate and the House of Representatives; consequently, it is the
entire Legislative Department that has a voice in determining whether or not the
presence of foreign military should be allowed. They maintain that as members of the
Legislature, they have the requisite personality to bring a suit, especially when a
constitutional issue is raised.

The OSG counters130 that petitioners do not have any legal standing to file the suits
concerning the lack of Senate concurrence in EDCA. Respondent emphasizes that the
power to concur in treaties and international agreements is an "institutional prerogative"
granted by the Constitution to the Senate. Accordingly, the OSG argues that in case of an
allegation of impairment of that power, the injured party would be the Senate as an
institution or any of its incumbent members, as it is the Senate's constitutional function
that is allegedly being violated.

The legal standing of an institution of the Legislature or of any of its Members has
already been recognized by this Court in a number of cases.131 What is in question here
is the alleged impairment of the constitutional duties and powers granted to, or the
impermissible intrusion upon the domain of, the Legislature or an institution thereof.132
In the case of suits initiated by the legislators themselves, this Court has recognized
their standing to question the validity of any official action that they claim infringes the
prerogatives, powers, and privileges vested by the Constitution in their office.133 As
aptly explained by Justice Perfecto in Mabanag v. Lopez Vito:134

Being members of Congress, they are even duty bound to see that the latter act within
the bounds of the Constitution which, as representatives of the people, they should
uphold, unless they are to commit a flagrant betrayal of public trust. They are
representatives of the sovereign people and it is their sacred duty to see to it that the
fundamental law embodying the will of the sovereign people is not trampled upon.
(Emphases supplied)

We emphasize that in a legislators' suit, those Members of Congress who are challenging
the official act have standing only to the extent that the alleged violation impinges on
their right to participate in the exercise of the powers of the institution of which they are
members.135 Legislators have the standing "to maintain inviolate the prerogatives,
powers, and privileges vested by the Constitution in their office and are allowed to sue to
question the validity of any official action, which they claim infringes their prerogatives
as legislators."136 As legislators, they must clearly show that there was a direct injury to
their persons or the institution to which they belong.137

As correctly argued by respondent, the power to concur in a treaty or an international


agreement is an institutional prerogative granted by the Constitution to the Senate, not
to the entire Legislature. In Pimentel v. Office of the Executive Secretary, this Court did
not recognize the standing of one of the petitioners therein who was a member of the
House of Representatives. The petition in that case sought to compel the transmission to
the Senate for concurrence of the signed text of the Statute of the International Criminal
Court. Since that petition invoked the power of the Senate to grant or withhold its
concurrence in a treaty entered into by the Executive Department, only then incumbent
Senator Pimentel was allowed to assert that authority of the Senate of which he was a
member.

Therefore, none of the initial petitioners in the present controversy has the standing to
maintain the suits as legislators.
Nevertheless, this Court finds that there is basis for it to review the act of the Executive
for the following reasons.

In any case, petitioners raise issues involving matters of transcendental importance.

Petitioners138 argue that the Court may set aside procedural technicalities, as the
present petition tackles issues that are of transcendental importance. They point out that
the matter before us is about the proper exercise of the Executive Department's power
to enter into international agreements in relation to that of the Senate to concur in those
agreements. They also assert that EDCA would cause grave injustice, as well as
irreparable violation of the Constitution and of the Filipino people's rights.

The OSG, on the other hand, insists139 that petitioners cannot raise the mere fact that
the present petitions involve matters of transcendental importance in order to cure their
inability to comply with the constitutional requirement of standing. Respondent bewails
the overuse of "transcendental importance" as an exception to the traditional
requirements of constitutional litigation. It stresses that one of the purposes of these
requirements is to protect the Supreme Court from unnecessary litigation of
constitutional questions.

In a number of cases,140 this Court has indeed taken a liberal stance towards the
requirement of legal standing, especially when paramount interest is involved. Indeed,
when those who challenge the official act are able to craft an issue of transcendental
significance to the people, the Court may exercise its sound discretion and take
cognizance of the suit. It may do so in spite of the inability of the petitioners to show that
they have been personally injured by the operation of a law or any other government
act.

While this Court has yet to thoroughly delineate the outer limits of this doctrine, we
emphasize that not every other case, however strong public interest may be, can qualify
as an issue of transcendental importance. Before it can be impelled to brush aside the
essential requisites for exercising its power of judicial review, it must at the very least
consider a number of factors: (1) the character of the funds or other assets involved in
the case; (2) the presence of a clear case of disregard of a constitutional or statutory
prohibition by the public respondent agency or instrumentality of the government; and
(3) the lack of any other party that has a more direct and specific interest in raising the
present questions.141

An exhaustive evaluation of the memoranda of the parties, together with the oral
arguments, shows that petitioners have presented serious constitutional issues that
provide ample justification for the Court to set aside the rule on standing. The
transcendental importance of the issues presented here is rooted in the Constitution
itself. Section 25, Article XVIII thereof, cannot be any clearer: there is a much stricter
mechanism required before foreign military troops, facilities, or bases may be allowed in
the country. The DFA has already confirmed to the U.S. Embassy that "all internal
requirements of the Philippines x x x have already been complied with."142 It behooves
the Court in this instance to take a liberal stance towards the rule on standing and to
determine forthwith whether there was grave abuse of discretion on the part of the
Executive Department.

We therefore rule that this case is a proper subject for judicial review.
B. Whether the President may enter into an executive agreement on foreign military
bases, troops, or facilities

C. Whether the provisions under EDCA are consistent with the Constitution, as well as
with existing laws and treaties

Issues B and C shall be discussed together infra.

1. The role of the President as the executor of the law includes the duty to defend the
State, for which purpose he may use that power in the conduct of foreign relations

Historically, the Philippines has mirrored the division of powers in the U.S. government.
When the Philippine government was still an agency of the Congress of the U.S., it was
as an agent entrusted with powers categorized as executive, legislative, and judicial, and
divided among these three great branches.143 By this division, the law implied that the
divided powers cannot be exercised except by the department given the power.144

This divide continued throughout the different versions of the Philippine Constitution and
specifically vested the supreme executive power in the Governor-General of the
Philippines,145 a position inherited by the President of the Philippines when the country
attained independence. One of the principal functions of the supreme executive is the
responsibility for the faithful execution of the laws as embodied by the oath of office.146
The oath of the President prescribed by the 1987 Constitution reads thus:

I do solemnly swear (or affirm) that I will faithfully and conscientiously fulfill my duties as
President (or Vice-President or Acting President) of the Philippines, preserve and defend
its Constitution, execute its laws, do justice to every man, and consecrate myself to the
service of the Nation. So help me God. (In case of affirmation, last sentence will be
omitted.)147 (Emphases supplied)

This Court has interpreted the faithful execution clause as an obligation imposed on the
President, and not a separate grant of power.148 Section 1 7, Article VII of the
Constitution, expresses this duty in no uncertain terms and includes it in the provision
regarding the President's power of control over the executive department, viz:

The President shall have control of all the executive departments, bureaus, and offices.
He shall ensure that the laws be faithfully executed.

The equivalent provisions in the next preceding Constitution did not explicitly require this
oath from the President. In the 1973 Constitution, for instance, the provision simply gives
the President control over the ministries.149 A similar language, not in the form of the
President's oath, was present in the 1935 Constitution, particularly in the enumeration of
executive functions.150 By 1987, executive power was codified not only in the
Constitution, but also in the Administrative Code:151

SECTION 1. Power of Control. - The President shall have control of all the executive
departments, bureaus, and offices. He shall ensure that the laws be faithfully executed.
(Emphasis supplied)
Hence, the duty to faithfully execute the laws of the land is inherent in executive power
and is intimately related to the other executive functions. These functions include the
faithful execution of the law in autonomous regions;152 the right to prosecute
crimes;153 the implementation of transportation projects;154 the duty to ensure
compliance with treaties, executive agreements and executive orders;155 the authority
to deport undesirable aliens;156 the conferment of national awards under the President's
jurisdiction;157 and the overall administration and control of the executive
department.158

These obligations are as broad as they sound, for a President cannot function with
crippled hands, but must be capable of securing the rule of law within all territories of
the Philippine Islands and be empowered to do so within constitutional limits. Congress
cannot, for instance, limit or take over the President's power to adopt implementing rules
and regulations for a law it has enacted.159

More important, this mandate is self-executory by virtue of its being inherently executive
in nature.160 As Justice Antonio T. Carpio previously wrote,161

[i]f the rules are issued by the President in implementation or execution of self-executory
constitutional powers vested in the President, the rule-making power of the President is
not a delegated legislative power. The most important self-executory constitutional
power of the President is the President's constitutional duty and mandate to "ensure that
the laws be faithfully executed." The rule is that the President can execute the law
without any delegation of power from the legislature.

The import of this characteristic is that the manner of the President's execution of the
law, even if not expressly granted by the law, is justified by necessity and limited only by
law, since the President must "take necessary and proper steps to carry into execution
the law."162 Justice George Malcolm states this principle in a grand manner:163

The executive should be clothed with sufficient power to administer efficiently the affairs
of state. He should have complete control of the instrumentalities through whom his
responsibility is discharged. It is still true, as said by Hamilton, that "A feeble executive
implies a feeble execution of the government. A feeble execution is but another phrase
for a bad execution; and a government ill executed, whatever it may be in theory, must
be in practice a bad government." The mistakes of State governments need not be
repeated here.

xxxx

Every other consideration to one side, this remains certain - The Congress of the United
States clearly intended that the Governor-General's power should be commensurate with
his responsibility. The Congress never intended that the Governor-General should be
saddled with the responsibility of administering the government and of executing the
laws but shorn of the power to do so. The interests of the Philippines will be best served
by strict adherence to the basic principles of constitutional government.

In light of this constitutional duty, it is the President's prerogative to do whatever is legal


and necessary for Philippine defense interests. It is no coincidence that the constitutional
provision on the faithful execution clause was followed by that on the President's
commander-in-chief powers,164 which are specifically granted during extraordinary
events of lawless violence, invasion, or rebellion. And this duty of defending the country
is unceasing, even in times when there is no state of lawlesss violence, invasion, or
rebellion. At such times, the President has full powers to ensure the faithful execution of
the laws.

It would therefore be remiss for the President and repugnant to the faithful-execution
clause of the Constitution to do nothing when the call of the moment requires increasing
the military's defensive capabilities, which could include forging alliances with states that
hold a common interest with the Philippines or bringing an international suit against an
offending state.

The context drawn in the analysis above has been termed by Justice Arturo D. Brion's
Dissenting Opinion as the beginning of a "patent misconception."165 His dissent argues
that this approach taken in analyzing the President's role as executor of the laws is
preceded by the duty to preserve and defend the Constitution, which was allegedly
overlooked.166

In arguing against the approach, however, the dissent grossly failed to appreciate the
nuances of the analysis, if read holistically and in context. The concept that the President
cannot function with crippled hands and therefore can disregard the need for Senate
concurrence in treaties167 was never expressed or implied. Rather, the appropriate
reading of the preceding analysis shows that the point being elucidated is the reality that
the President's duty to execute the laws and protect the Philippines is inextricably
interwoven with his foreign affairs powers, such that he must resolve issues imbued with
both concerns to the full extent of his powers, subject only to the limits supplied by law.
In other words, apart from an expressly mandated limit, or an implied limit by virtue of
incompatibility, the manner of execution by the President must be given utmost
deference. This approach is not different from that taken by the Court in situations with
fairly similar contexts.

Thus, the analysis portrayed by the dissent does not give the President authority to
bypass constitutional safeguards and limits. In fact, it specifies what these limitations
are, how these limitations are triggered, how these limitations function, and what can be
done within the sphere of constitutional duties and limitations of the President.

Justice Brion's dissent likewise misinterprets the analysis proffered when it claims that
the foreign relations power of the President should not be interpreted in isolation.168
The analysis itself demonstrates how the foreign affairs function, while mostly the
President's, is shared in several instances, namely in Section 2 of Article II on the
conduct of war; Sections 20 and 21 of Article VII on foreign loans, treaties, and
international agreements; Sections 4(2) and 5(2)(a) of Article VIII on the judicial review of
executive acts; Sections 4 and 25 of Article XVIII on treaties and international
agreements entered into prior to the Constitution and on the presence of foreign military
troops, bases, or facilities.

In fact, the analysis devotes a whole subheading to the relationship between the two
major presidential functions and the role of the Senate in it.

This approach of giving utmost deference to presidential initiatives in respect of foreign


affairs is not novel to the Court. The President's act of treating EDCA as an executive
agreement is not the principal power being analyzed as the Dissenting Opinion seems to
suggest. Rather, the preliminary analysis is in reference to the expansive power of
foreign affairs. We have long treated this power as something the Courts must not
unduly restrict. As we stated recently in Vinuya v. Romulo:

To be sure, not all cases implicating foreign relations present political questions, and
courts certainly possess the authority to construe or invalidate treaties and executive
agreements. However, the question whether the Philippine government should espouse
claims of its nationals against a foreign government is a foreign relations matter, the
authority for which is demonstrably committed by our Constitution not to the courts but
to the political branches. In this case, the Executive Department has already decided
that it is to the best interest of the country to waive all claims of its nationals for
reparations against Japan in the Treaty of Peace of 1951. The wisdom of such decision is
not for the courts to question. Neither could petitioners herein assail the said
determination by the Executive Department via the instant petition for certiorari.

In the seminal case of US v. Curtiss-Wright Export Corp., the US Supreme Court held that
"[t]he President is the sole organ of the nation in its external relations, and its sole
representative with foreign relations."

It is quite apparent that if, in the maintenance of our international relations,


embarrassment - perhaps serious embarrassment - is to be avoided and success for our
aims achieved, congressional legislation which is to be made effective through
negotiation and inquiry within the international field must often accord to the President a
degree of discretion and freedom from statutory restriction which would not be
admissible where domestic affairs alone involved. Moreover, he, not Congress, has the
better opportunity of knowing the conditions which prevail in foreign countries, and
especially is this true in time of war. He has his confidential sources of information. He
has his agents in the form of diplomatic, consular and other officials ....

This ruling has been incorporated in our jurisprudence through Bavan v. Executive
Secretary and Pimentel v. Executive Secretary; its overreaching principle was, perhaps,
best articulated in (now Chief) Justice Puno's dissent in Secretary of Justice v. Lantion:

. . . The conduct of foreign relations is full of complexities and consequences, sometimes


with life and death significance to the nation especially in times of war. It can only be
entrusted to that department of government which can act on the basis of the best
available information and can decide with decisiveness .... It is also the President who
possesses the most comprehensive and the most confidential information about foreign
countries for our diplomatic and consular officials regularly brief him on meaningful
events all over the world. He has also unlimited access to ultra-sensitive military
intelligence data. In fine, the presidential role in foreign affairs is dominant and the
President is traditionally accorded a wider degree of discretion in the conduct of foreign
affairs. The regularity, nay, validity of his actions are adjudged under less stringent
standards, lest their judicial repudiation lead to breach of an international obligation,
rupture of state relations, forfeiture of confidence, national embarrassment and a
plethora of other problems with equally undesirable consequences.169 (Emphases
supplied)

Understandably, this Court must view the instant case with the same perspective and
understanding, knowing full well the constitutional and legal repercussions of any judicial
overreach.
2. The plain meaning of the Constitution prohibits the entry of foreign military bases,
troops or facilities, except by way of a treaty concurred in by the Senate - a clear
limitation on the President's dual role as defender of the State and as sole authority in
foreign relations.

Despite the President's roles as defender of the State and sole authority in foreign
relations, the 1987 Constitution expressly limits his ability in instances when it involves
the entry of foreign military bases, troops or facilities. The initial limitation is found in
Section 21 of the provisions on the Executive Department: "No treaty or international
agreement shall be valid and effective unless concurred in by at least two-thirds of all
the Members of the Senate." The specific limitation is given by Section 25 of the
Transitory Provisions, the full text of which reads as follows:

SECTION 25. After the expiration in 1991 of the Agreement between the Republic of the
Philippines and the United States of America concerning Military Bases, foreign military
bases, troops, or facilities shall not be allowed in the Philippines except under a treaty
duly concurred in by the Senate and, when the Congress so requires, ratified by a
majority of the votes cast by the people in a national referendum held for that purpose,
and recognized as a treaty by the other contracting State.

It is quite plain that the Transitory Provisions of the 1987 Constitution intended to add to
the basic requirements of a treaty under Section 21 of Article VII. This means that both
provisions must be read as additional limitations to the President's overarching executive
function in matters of defense and foreign relations.

3. The President, however, may enter into an executive agreement on foreign military
bases, troops, or facilities, if (a) it is not the instrument that allows the presence of
foreign military bases, troops, or facilities; or (b) it merely aims to implement an existing
law or treaty.

Again we refer to Section 25, Article XVIII of the Constitution:

SECTION 25. After the expiration in 1991 of the Agreement between the Republic of the
Philippines and the United States of America concerning Military Bases, foreign military
bases, troops, or facilities shall not be allowed in the Philippines except under a treaty
duly concurred in by the Senate and, when the Congress so requires, ratified by a
majority of the votes cast by the people in a national referendum held for that purpose,
and recognized as a treaty by the other contracting State. (Emphases supplied)

In view of this provision, petitioners argue170 that EDCA must be in the form of a
"treaty" duly concurred in by the Senate. They stress that the Constitution is unambigous
in mandating the transmission to the Senate of all international agreements concluded
after the expiration of the MBA in 1991 - agreements that concern the presence of
foreign military bases, troops, or facilities in the country. Accordingly, petitioners
maintain that the Executive Department is not given the choice to conclude agreements
like EDCA in the form of an executive agreement.

This is also the view of the Senate, which, through a majority vote of 15 of its members -
with 1 against and 2 abstaining - says in SR 105171 that EDCA must be submitted to the
Senate in the form of a treaty for concurrence by at least two-thirds of all its members.
The Senate cites two constitutional provisions (Article VI, Section 21 and Article XVIII,
Section 25) to support its position. Compared with the lone constitutional provision that
the Office of the Solicitor General (OSG) cites, which is Article XVIII, Section 4(2), which
includes the constitutionality of "executive agreement(s)" among the cases subject to
the Supreme Court's power of judicial review, the Constitution clearly requires
submission of EDCA to the Senate. Two specific provisions versus one general provision
means that the specific provisions prevail. The term "executive agreement" is "a term
wandering alone in the Constitution, bereft of provenance and an unidentified
constitutional mystery."

The author of SR 105, Senator Miriam Defensor Santiago, upon interpellation even added
that the MDT, which the Executive claims to be partly implemented through EDCA, is
already obsolete.

There are two insurmountable obstacles to this Court's agreement with SR 105, as well
as with the comment on interpellation made by Senator Santiago.

First, the concept of "executive agreement" is so well-entrenched in this Court's


pronouncements on the powers of the President. When the Court validated the concept
of "executive agreement," it did so with full knowledge of the Senate's role in concurring
in treaties. It was aware of the problematique of distinguishing when an international
agreement needed Senate concurrence for validity, and when it did not; and the Court
continued to validate the existence of "executive agreements" even after the 1987
Constitution.172 This follows a long line of similar decisions upholding the power of the
President to enter into an executive agreement.173

Second, the MDT has not been rendered obsolescent, considering that as late as
2009,174 this Court continued to recognize its validity.

Third, to this Court, a plain textual reading of Article XIII, Section 25, inevitably leads to
the conclusion that it applies only to a proposed agreement between our government
and a foreign government, whereby military bases, troops, or facilities of such foreign
government would be "allowed" or would "gain entry" Philippine territory.

Note that the provision "shall not be allowed" is a negative injunction. This wording
signifies that the President is not authorized by law to allow foreign military bases,
troops, or facilities to enter the Philippines, except under a treaty concurred in by the
Senate. Hence, the constitutionally restricted authority pertains to the entry of the
bases, troops, or facilities, and not to the activities to be done after entry.

Under the principles of constitutional construction, of paramount consideration is the


plain meaning of the language expressed in the Constitution, or the verba legis rule.175
It is presumed that the provisions have been carefully crafted in order to express the
objective it seeks to attain.176 It is incumbent upon the Court to refrain from going
beyond the plain meaning of the words used in the Constitution. It is presumed that the
framers and the people meant what they said when they said it, and that this
understanding was reflected in the Constitution and understood by the people in the way
it was meant to be understood when the fundamental law was ordained and
promulgated.177 As this Court has often said:
We look to the language of the document itself in our search for its meaning. We do not
of course stop there, but that is where we begin. It is to be assumed that the words in
which constitutional provisions are couched express the objective sought to be attained.
They are to be given their ordinary meaning except where technical terms are employed
in which case the significance thus attached to them prevails. As the Constitution is not
primarily a lawyer's document, it being essential for the rule of law to obtain that it
should ever be present in the people's consciousness, its language as much as possible
should be understood in the sense they have in common use. What it says according to
the text of the provision to be construed compels acceptance and negates the power of
the courts to alter it, based on the postulate that the framers and the people mean what
they say. Thus, these are the cases where the need for construction is reduced to a
minimum.178 (Emphases supplied)

It is only in those instances in which the constitutional provision is unclear, ambiguous,


or silent that further construction must be done to elicit its meaning.179 In Ang Bagong
Bayani-OFW v. Commission on Elections,180 we reiterated this guiding principle:

it [is] safer to construe the Constitution from what appears upon its face. The proper
interpretation therefore depends more on how it was understood by the people adopting
it than in the framers' understanding thereof. (Emphases supplied)

The effect of this statement is surprisingly profound, for, if taken literally, the phrase
"shall not be allowed in the Philippines" plainly refers to the entry of bases, troops, or
facilities in the country. The Oxford English Dictionary defines the word "allow" as a
transitive verb that means "to permit, enable"; "to give consent to the occurrence of or
relax restraint on (an action, event, or activity)"; "to consent to the presence or
attendance of (a person)"; and, when with an adverbial of place, "to permit (a person or
animal) to go, come, or be in, out, near, etc."181 Black's Law Dictionary defines the term
as one that means "[t]o grant, approve, or permit."182

The verb "allow" is followed by the word "in," which is a preposition used to indicate
"place or position in space or anything having material extension: Within the limits or
bounds of, within (any place or thing)."183 That something is the Philippines, which is
the noun that follows.

It is evident that the constitutional restriction refers solely to the initial entry of the
foreign military bases, troops, or facilities. Once entry is authorized, the subsequent acts
are thereafter subject only to the limitations provided by the rest of the Constitution and
Philippine law, and not to the Section 25 requirement of validity through a treaty.

The VFA has already allowed the entry of troops in the Philippines. This Court stated in
Lim v. Executive Secretary:

After studied reflection, it appeared farfetched that the ambiguity surrounding the
meaning of the word "activities" arose from accident. In our view, it was deliberately
made that way to give both parties a certain leeway in negotiation. In this manner,
visiting US forces may sojourn in Philippine territory for purposes other than military. As
conceived, the joint exercises may include training on new techniques of patrol and
surveillance to protect the nation's marine resources, sea search-and-rescue operations
to assist vessels in distress, disaster relief operations, civic action projects such as the
building of school houses, medical and humanitarian missions, and the like.
Under these auspices, the VFA gives legitimacy to the current Balikatan exercises. It is
only logical to assume that "Balikatan 02-1," a "mutual anti- terrorism advising, assisting
and training exercise," falls under the umbrella of sanctioned or allowable activities in
the context of the agreement. Both the history and intent of the Mutual Defense Treaty
and the VFA support the conclusion that combat-related activities -as opposed to combat
itself-such as the one subject of the instant petition, are indeed authorized.184
(Emphasis supplied)

Moreover, the Court indicated that the Constitution continues to govern the conduct of
foreign military troops in the Philippines,185 readily implying the legality of their initial
entry into the country.

The OSG emphasizes that EDCA can be in the form of an executive agreement, since it
merely involves "adjustments in detail" in the implementation of the MDT and the
VFA.186 It points out that there are existing treaties between the Philippines and the U.S.
that have already been concurred in by the Philippine Senate and have thereby met the
requirements of the Constitution under Section 25. Because of the status of these prior
agreements, respondent emphasizes that EDCA need not be transmitted to the Senate.

The aforecited Dissenting Opinion of Justice Brion disagrees with the ponencia's
application of verba legis construction to the words of Article XVIII, Section 25.187 It
claims that the provision is "neither plain, nor that simple."188 To buttress its
disagreement, the dissent states that the provision refers to a historical incident, which
is the expiration of the 1947 MBA.189 Accordingly, this position requires questioning the
circumstances that led to the historical event, and the meaning of the terms under
Article XVIII, Section 25.

This objection is quite strange. The construction technique of verba legis is not
inapplicable just because a provision has a specific historical context. In fact, every
provision of the Constitution has a specific historical context. The purpose of
constitutional and statutory construction is to set tiers of interpretation to guide the
Court as to how a particular provision functions. Verba legis is of paramount
consideration, but it is not the only consideration. As this Court has often said:

We look to the language of the document itself in our search for its meaning. We do not
of course stop there, but that is where we begin. It is to be assumed that the words in
which constitutional provisions are couched express the objective sought to be attained.
They are to be given their ordinary meaning except where technical terms are employed
in which case the significance thus attached to them prevails. As the Constitution is not
primarily a lawyer's document, it being essential for the rule of law to obtain that it
should ever be present in the people's consciousness, its language as much as possible
should be understood in the sense they have in common use. What it says according to
the text of the provision to be construed compels acceptance and negates the power of
the courts to alter it, based on the postulate that the framers and the people mean what
they say. Thus, these are the cases where the need for construction is reduced to a
minimum.190 (Emphases supplied)

As applied, verba legis aids in construing the ordinary meaning of terms. In this case, the
phrase being construed is "shall not be allowed in the Philippines" and not the preceding
one referring to "the expiration in 1991 of the Agreement between the Republic of the
Philippines and the United States of America concerning Military Bases, foreign military
bases, troops, or facilities." It is explicit in the wording of the provision itself that any
interpretation goes beyond the text itself and into the discussion of the framers, the
context of the Constitutional Commission's time of drafting, and the history of the 1947
MBA. Without reference to these factors, a reader would not understand those terms.
However, for the phrase "shall not be allowed in the Philippines," there is no need for
such reference. The law is clear. No less than the Senate understood this when it ratified
the VFA.

4. The President may generally enter into executive agreements subject to limitations
defined by the Constitution and may be in furtherance of a treaty already concurred in
by the Senate.

We discuss in this section why the President can enter into executive agreements.

It would be helpful to put into context the contested language found in Article XVIII,
Section 25. Its more exacting requirement was introduced because of the previous
experience of the country when its representatives felt compelled to consent to the old
MBA.191 They felt constrained to agree to the MBA in fulfilment of one of the major
conditions for the country to gain independence from the U.S.192 As a result of that
experience, a second layer of consent for agreements that allow military bases, troops
and facilities in the country is now articulated in Article XVIII of our present Constitution.

This second layer of consent, however, cannot be interpreted in such a way that we
completely ignore the intent of our constitutional framers when they provided for that
additional layer, nor the vigorous statements of this Court that affirm the continued
existence of that class of international agreements called "executive agreements."

The power of the President to enter into binding executive agreements without Senate
concurrence is already well-established in this jurisdiction.193 That power has been
alluded to in our present and past Constitutions,194 in various statutes,195 in Supreme
Court decisions,196 and during the deliberations of the Constitutional Commission.197
They cover a wide array of subjects with varying scopes and purposes,198 including
those that involve the presence of foreign military forces in the country.199

As the sole organ of our foreign relations200 and the constitutionally assigned chief
architect of our foreign policy,201 the President is vested with the exclusive power to
conduct and manage the country's interface with other states and governments. Being
the principal representative of the Philippines, the Chief Executive speaks and listens for
the nation; initiates, maintains, and develops diplomatic relations with other states and
governments; negotiates and enters into international agreements; promotes trade,
investments, tourism and other economic relations; and settles international disputes
with other states.202

As previously discussed, this constitutional mandate emanates from the inherent power
of the President to enter into agreements with other states, including the prerogative to
conclude binding executive agreements that do not require further Senate concurrence.
The existence of this presidential power203 is so well-entrenched that Section 5(2)(a),
Article VIII of the Constitution, even provides for a check on its exercise. As expressed
below, executive agreements are among those official governmental acts that can be the
subject of this Court's power of judicial review:
(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the
Rules of Court may provide, final judgments and orders of lower courts in:

(a) All cases in which the constitutionality or validity of any treaty, international or
executive agreement, law, presidential decree, proclamation, order, instruction,
ordinance, or regulation is in question. (Emphases supplied)

In Commissioner of Customs v. Eastern Sea Trading, executive agreements are defined


as "international agreements embodying adjustments of detail carrying out well-
established national policies and traditions and those involving arrangements of a more
or less temporary nature."204 In Bayan Muna v. Romulo, this Court further clarified that
executive agreements can cover a wide array of subjects that have various scopes and
purposes.205 They are no longer limited to the traditional subjects that are usually
covered by executive agreements as identified in Eastern Sea Trading. The Court
thoroughly discussed this matter in the following manner:

The categorization of subject matters that may be covered by international agreements


mentioned in Eastern Sea Trading is not cast in stone. x x x.

As may be noted, almost half a century has elapsed since the Court rendered its decision
in Eastern Sea Trading. Since then, the conduct of foreign affairs has become more
complex and the domain of international law wider, as to include such subjects as human
rights, the environment, and the sea. In fact, in the US alone, the executive agreements
executed by its President from 1980 to 2000 covered subjects such as defense, trade,
scientific cooperation, aviation, atomic energy, environmental cooperation, peace corps,
arms limitation, and nuclear safety, among others. Surely, the enumeration in Eastern
Sea Trading cannot circumscribe the option of each state on the matter of which the
international agreement format would be convenient to serve its best interest. As Francis
Sayre said in his work referred to earlier:

. . . It would be useless to undertake to discuss here the large variety of executive


agreements as such concluded from time to time. Hundreds of executive agreements,
other than those entered into under the trade-agreement act, have been negotiated with
foreign governments. . . . They cover such subjects as the inspection of vessels,
navigation dues, income tax on shipping profits, the admission of civil air craft, custom
matters and commercial relations generally, international claims, postal matters, the
registration of trademarks and copyrights, etc .... (Emphases Supplied)

One of the distinguishing features of executive agreements is that their validity and
effectivity are not affected by a lack of Senate concurrence.206 This distinctive feature
was recognized as early as in Eastern Sea Trading (1961), viz:

Treaties are formal documents which require ratification with the approval of two-thirds
of the Senate. Executive agreements become binding through executive action without
the need of a vote by the Senate or by Congress.

xxxx

[T]he right of the Executive to enter into binding agreements without the necessity of
subsequent Congressional approval has been confirmed by long usage. From the earliest
days of our history we have entered into executive agreements covering such subjects
as commercial and consular relations, most-favored-nation rights, patent rights,
trademark and copyright protection, postal and navigation arrangements and the
settlement of claims. The validity of these has never been seriously questioned by our
courts. (Emphases Supplied)

That notion was carried over to the present Constitution. In fact, the framers specifically
deliberated on whether the general term "international agreement" included executive
agreements, and whether it was necessary to include an express proviso that would
exclude executive agreements from the requirement of Senate concurrence. After noted
constitutionalist Fr. Joaquin Bernas quoted the Court's ruling in Eastern Sea Trading, the
Constitutional Commission members ultimately decided that the term "international
agreements" as contemplated in Section 21, Article VII, does not include executive
agreements, and that a proviso is no longer needed. Their discussion is reproduced
below:207

MS. AQUINO: Madam President, first I would like a clarification from the Committee. We
have retained the words "international agreement" which I think is the correct judgment
on the matter because an international agreement is different from a treaty. A treaty is a
contract between parties which is in the nature of international agreement and also a
municipal law in the sense that the people are bound. So there is a conceptual
difference. However, I would like to be clarified if the international agreements include
executive agreements.

MR. CONCEPCION: That depends upon the parties. All parties to these international
negotiations stipulate the conditions which are necessary for the agreement or whatever
it may be to become valid or effective as regards the parties.

MS. AQUINO: Would that depend on the parties or would that depend on the nature of
the executive agreement? According to common usage, there are two types of executive
agreement: one is purely proceeding from an executive act which affects external
relations independent of the legislative and the other is an executive act in pursuance of
legislative authorization. The first kind might take the form of just conventions or
exchanges of notes or protocol while the other, which would be pursuant to the
legislative authorization, may be in the nature of commercial agreements.

MR. CONCEPCION: Executive agreements are generally made to implement a treaty


already enforced or to determine the details for the implementation of the treaty. We are
speaking of executive agreements, not international agreements.

MS. AQUINO: I am in full agreement with that, except that it does not cover the first kind
of executive agreement which is just protocol or an exchange of notes and this would be
in the nature of reinforcement of claims of a citizen against a country, for example.

MR. CONCEPCION: The Commissioner is free to require ratification for validity insofar as
the Philippines is concerned.

MS. AQUINO: It is my humble submission that we should provide, unless the Committee
explains to us otherwise, an explicit proviso which would except executive agreements
from the requirement of concurrence of two-thirds of the Members of the Senate. Unless
I am enlightened by the Committee I propose that tentatively, the sentence should read.
"No treaty or international agreement EXCEPT EXECUTIVE AGREEMENTS shall be valid
and effective."

FR. BERNAS: I wonder if a quotation from the Supreme Court decision [in Eastern Sea
Trading] might help clarify this:

The right of the executive to enter into binding agreements without the necessity of
subsequent Congressional approval has been confirmed by long usage. From the earliest
days of our history, we have entered into executive agreements covering such subjects
as commercial and consular relations, most favored nation rights, patent rights,
trademark and copyright protection, postal and navigation arrangements and the
settlement of claims. The validity of this has never been seriously questioned by our
Courts.

Agreements with respect to the registration of trademarks have been concluded by the
executive of various countries under the Act of Congress of March 3, 1881 (21 Stat.
502) . . . International agreements involving political issues or changes of national policy
and those involving international agreements of a permanent character usually take the
form of treaties. But international agreements embodying adjustments of detail, carrying
out well established national policies and traditions and those involving arrangements of
a more or less temporary nature usually take the form of executive agreements.

MR. ROMULO: Is the Commissioner, therefore, excluding the executive agreements?

FR. BERNAS: What we are referring to, therefore, when we say international agreements
which need concurrence by at least two-thirds are those which are permanent in nature.

MS. AQUINO: And it may include commercial agreements which are executive
agreements essentially but which are proceeding from the authorization of Congress. If
that is our understanding, then I am willing to withdraw that amendment.

FR. BERNAS: If it is with prior authorization of Congress, then it does not need
subsequent concurrence by Congress.

MS. AQUINO: In that case, I am withdrawing my amendment.

MR. TINGSON: Madam President.

THE PRESIDENT: Is Commissioner Aquino satisfied?

MS. AQUINO: Yes. There is already an agreement among us on the definition of


"executive agreements" and that would make unnecessary any explicit proviso on the
matter.

xxx

MR. GUINGONA: I am not clear as to the meaning of "executive agreements" because I


heard that these executive agreements must rely on treaties. In other words, there must
first be treaties.
MR. CONCEPCION: No, I was speaking about the common use, as executive agreements
being the implementation of treaties, details of which do not affect the sovereignty of the
State.

MR. GUINGONA: But what about the matter of permanence, Madam President? Would 99
years be considered permanent? What would be the measure of permanency? I do not
conceive of a treaty that is going to be forever, so there must be some kind of a time
limit.

MR. CONCEPCION: I suppose the Commissioner's question is whether this type of


agreement should be included in a provision of the Constitution requiring the
concurrence of Congress.

MR. GUINGONA: It depends on the concept of the executive agreement of which I am not
clear. If the executive agreement partakes of the nature of a treaty, then it should also
be included.

MR. CONCEPCION: Whether it partakes or not of the nature of a treaty, it is within the
power of the Constitutional Commission to require that.

MR. GUINGONA: Yes. That is why I am trying to clarify whether the words "international
agreements" would include executive agreements.

MR. CONCEPCION: No, not necessarily; generally no.

xxx

MR. ROMULO: I wish to be recognized first. I have only one question. Do we take it,
therefore, that as far as the Committee is concerned, the term "international
agreements" does not include the term "executive agreements" as read by the
Commissioner in that text?

FR. BERNAS: Yes. (Emphases Supplied)

The inapplicability to executive agreements of the requirements under Section 21 was


again recognized in Bayan v. Zamora and in Bayan Muna v. Romulo. These cases, both
decided under the aegis of the present Constitution, quoted Eastern Sea Trading in
reiterating that executive agreements are valid and binding even without the
concurrence of the Senate.

Executive agreements may dispense with the requirement of Senate concurrence


because of the legal mandate with which they are concluded. As culled from the afore-
quoted deliberations of the Constitutional Commission, past Supreme Court Decisions,
and works of noted scholars,208 executive agreements merely involve arrangements on
the implementation of existing policies, rules, laws, or agreements. They are concluded
(1) to adjust the details of a treaty;209 (2) pursuant to or upon confirmation by an act of
the Legislature;210 or (3) in the exercise of the President's independent powers under
the Constitution.211 The raison d'etre of executive agreements hinges on prior
constitutional or legislative authorizations.
The special nature of an executive agreement is not just a domestic variation in
international agreements. International practice has accepted the use of various forms
and designations of international agreements, ranging from the traditional notion of a
treaty - which connotes a formal, solemn instrument - to engagements concluded in
modem, simplified forms that no longer necessitate ratification.212 An international
agreement may take different forms: treaty, act, protocol, agreement, concordat,
compromis d'arbitrage, convention, covenant, declaration, exchange of notes, statute,
pact, charter, agreed minute, memorandum of agreement, modus vivendi, or some other
form.213 Consequently, under international law, the distinction between a treaty and an
international agreement or even an executive agreement is irrelevant for purposes of
determining international rights and obligations.

However, this principle does not mean that the domestic law distinguishing treaties,
international agreements, and executive agreements is relegated to a mere variation in
form, or that the constitutional requirement of Senate concurrence is demoted to an
optional constitutional directive. There remain two very important features that
distinguish treaties from executive agreements and translate them into terms of art in
the domestic setting.

First, executive agreements must remain traceable to an express or implied authorization


under the Constitution, statutes, or treaties. The absence of these precedents puts the
validity and effectivity of executive agreements under serious question for the main
function of the Executive is to enforce the Constitution and the laws enacted by the
Legislature, not to defeat or interfere in the performance of these rules.214 In turn,
executive agreements cannot create new international obligations that are not expressly
allowed or reasonably implied in the law they purport to implement.

Second, treaties are, by their very nature, considered superior to executive agreements.
Treaties are products of the acts of the Executive and the Senate215 unlike executive
agreements, which are solely executive actions.216 Because of legislative participation
through the Senate, a treaty is regarded as being on the same level as a statute.217 If
there is an irreconcilable conflict, a later law or treaty takes precedence over one that is
prior.218 An executive agreement is treated differently. Executive agreements that are
inconsistent with either a law or a treaty are considered ineffective.219 Both types of
international agreement are nevertheless subject to the supremacy of the
Constitution.220

This rule does not imply, though, that the President is given carte blanche to exercise
this discretion. Although the Chief Executive wields the exclusive authority to conduct
our foreign relations, this power must still be exercised within the context and the
parameters set by the Constitution, as well as by existing domestic and international
laws. There are constitutional provisions that restrict or limit the President's prerogative
in concluding international agreements, such as those that involve the following:

a. The policy of freedom from nuclear weapons within Philippine territory221

b. The fixing of tariff rates, import and export quotas, tonnage and wharfage dues, and
other duties or imposts, which must be pursuant to the authority granted by
Congress222
c. The grant of any tax exemption, which must be pursuant to a law concurred in by a
majority of all the Members of Congress223

d. The contracting or guaranteeing, on behalf of the Philippines, of foreign loans that


must be previously concurred in by the Monetary Board224

e. The authorization of the presence of foreign military bases, troops, or facilities in the
country must be in the form of a treaty duly concurred in by the Senate.225

f. For agreements that do not fall under paragraph 5, the concurrence of the Senate is
required, should the form of the government chosen be a treaty.

5. The President had the choice to enter into EDCA by way of an executive agreement or
a treaty.

No court can tell the President to desist from choosing an executive agreement over a
treaty to embody an international agreement, unless the case falls squarely within Article
VIII, Section 25.

As can be gleaned from the debates among the members of the Constitutional
Commission, they were aware that legally binding international agreements were being
entered into by countries in forms other than a treaty. At the same time, it is clear that
they were also keen to preserve the concept of "executive agreements" and the right of
the President to enter into such agreements.

What we can glean from the discussions of the Constitutional Commissioners is that they
understood the following realities:

1. Treaties, international agreements, and executive agreements are all constitutional


manifestations of the conduct of foreign affairs with their distinct legal characteristics.

a. Treaties are formal contracts between the Philippines and other States-parties, which
are in the nature of international agreements, and also of municipal laws in the sense of
their binding nature.226

b. International agreements are similar instruments, the provisions of which may require
the ratification of a designated number of parties thereto. These agreements involving
political issues or changes in national policy, as well as those involving international
agreements of a permanent character, usually take the form of treaties. They may also
include commercial agreements, which are executive agreements essentially, but which
proceed from previous authorization by Congress, thus dispensing with the requirement
of concurrence by the Senate.227

c. Executive agreements are generally intended to implement a treaty already enforced


or to determine the details of the implementation thereof that do not affect the
sovereignty of the State.228

2. Treaties and international agreements that cannot be mere executive agreements


must, by constitutional decree, be concurred in by at least two-thirds of the Senate.
3. However, an agreement - the subject of which is the entry of foreign military troops,
bases, or facilities - is particularly restricted. The requirements are that it be in the form
of a treaty concurred in by the Senate; that when Congress so requires, it be ratified by a
majority of the votes cast by the people in a national referendum held for that purpose;
and that it be recognized as a treaty by the other contracting State.

4. Thus, executive agreements can continue to exist as a species of international


agreements.

That is why our Court has ruled the way it has in several cases.

In Bayan Muna v. Romulo, we ruled that the President acted within the scope of her
constitutional authority and discretion when she chose to enter into the RP-U.S. Non-
Surrender Agreement in the form of an executive agreement, instead of a treaty, and in
ratifying the agreement without Senate concurrence. The Court en banc discussed this
intrinsic presidential prerogative as follows:

Petitioner parlays the notion that the Agreement is of dubious validity, partaking as it
does of the nature of a treaty; hence, it must be duly concurred in by the Senate. x x x x.
Pressing its point, petitioner submits that the subject of the Agreement does not fall
under any of the subject-categories that xx x may be covered by an executive
agreement, such as commercial/consular relations, most-favored nation rights, patent
rights, trademark and copyright protection, postal and navigation arrangements and
settlement of claims.

The categorization of subject matters that may be covered by international agreements


mentioned in Eastern Sea Trading is not cast in stone. There are no hard and fast rules
on the propriety of entering, on a given subject, into a treaty or an executive agreement
as an instrument of international relations. The primary consideration in the choice of the
form of agreement is the parties' intent and desire to craft an international agreement in
the form they so wish to further their respective interests. Verily, the matter of form
takes a back seat when it comes to effectiveness and binding effect of the enforcement
of a treaty or an executive agreement, as the parties in either international agreement
each labor under the pacta sunt servanda principle.

xxxx

But over and above the foregoing considerations is the fact that - save for the situation
and matters contemplated in Sec. 25, Art. XVIII of the Constitution - when a treaty is
required, the Constitution does not classify any subject, like that involving political
issues, to be in the form of, and ratified as, a treaty. What the Constitution merely
prescribes is that treaties need the concurrence of the Senate by a vote defined therein
to complete the ratification process.

xxxx

x x x. As the President wields vast powers and influence, her conduct in the external
affairs of the nation is, as Bayan would put it, "executive altogether." The right of the
President to enter into or ratify binding executive agreements has been confirmed by
long practice.
In thus agreeing to conclude the Agreement thru E/N BF0-028-03, then President Gloria
Macapagal-Arroyo, represented by the Secretary of Foreign Affairs, acted within the
scope of the authority and discretion vested in her by the Constitution. At the end of the
day, the President - by ratifying, thru her deputies, the non-surrender agreement - did
nothing more than discharge a constitutional duty and exercise a prerogative that
pertains to her office. (Emphases supplied)

Indeed, in the field of external affairs, the President must be given a larger measure of
authority and wider discretion, subject only to the least amount of checks and
restrictions under the Constitution.229 The rationale behind this power and discretion
was recognized by the Court in Vinuya v. Executive Secretary, cited earlier.230

Section 9 of Executive Order No. 459, or the Guidelines in the Negotiation of International
Agreements and its Ratification, thus, correctly reflected the inherent powers of the
President when it stated that the DFA "shall determine whether an agreement is an
executive agreement or a treaty."

Accordingly, in the exercise of its power of judicial review, the Court does not look into
whether an international agreement should be in the form of a treaty or an executive
agreement, save in cases in which the Constitution or a statute requires otherwise.
Rather, in view of the vast constitutional powers and prerogatives granted to the
President in the field of foreign affairs, the task of the Court is to determine whether the
international agreement is consistent with the applicable limitations.

6. Executive agreements may cover the matter of foreign military forces if it merely
involves detail adjustments.

The practice of resorting to executive agreements in adjusting the details of a law or a


treaty that already deals with the presence of foreign military forces is not at all unusual
in this jurisdiction. In fact, the Court has already implicitly acknowledged this practice in
Lim v. Executive Secretary.231 In that case, the Court was asked to scrutinize the
constitutionality of the Terms of Reference of the Balikatan 02-1 joint military exercises,
which sought to implement the VFA. Concluded in the form of an executive agreement,
the Terms of Reference detailed the coverage of the term "activities" mentioned in the
treaty and settled the matters pertaining to the construction of temporary structures for
the U.S. troops during the activities; the duration and location of the exercises; the
number of participants; and the extent of and limitations on the activities of the U.S.
forces. The Court upheld the Terms of Reference as being consistent with the VFA. It no
longer took issue with the fact that the Balikatan Terms of Reference was not in the form
of a treaty concurred in by the Senate, even if it dealt with the regulation of the activities
of foreign military forces on Philippine territory.

In Nicolas v. Romulo,232 the Court again impliedly affirmed the use of an executive
agreement in an attempt to adjust the details of a provision of the VFA. The Philippines
and the U.S. entered into the Romulo-Kenney Agreement, which undertook to clarify the
detention of a U.S. Armed Forces member, whose case was pending appeal after his
conviction by a trial court for the crime of rape. In testing the validity of the latter
agreement, the Court precisely alluded to one of the inherent limitations of an executive
agreement: it cannot go beyond the terms of the treaty it purports to implement. It was
eventually ruled that the Romulo-Kenney Agreement was "not in accord" with the VFA,
since the former was squarely inconsistent with a provision in the treaty requiring that
the detention be "by Philippine authorities." Consequently, the Court ordered the
Secretary of Foreign Affairs to comply with the VFA and "forthwith negotiate with the
United States representatives for the appropriate agreement on detention facilities under
Philippine authorities as provided in Art. V, Sec. 10 of the VFA. "233

Culling from the foregoing discussions, we reiterate the following pronouncements to


guide us in resolving the present controversy:

1. Section 25, Article XVIII of the Constitution, contains stringent requirements that must
be fulfilled by the international agreement allowing the presence of foreign military
bases, troops, or facilities in the Philippines: (a) the agreement must be in the form of a
treaty, and (b) it must be duly concurred in by the Senate.

2. If the agreement is not covered by the above situation, then the President may choose
the form of the agreement (i.e., either an executive agreement or a treaty), provided
that the agreement dealing with foreign military bases, troops, or facilities is not the
principal agreement that first allows their entry or presence in the Philippines.

3. The executive agreement must not go beyond the parameters, limitations, and
standards set by the law and/or treaty that the former purports to implement; and must
not unduly expand the international obligation expressly mentioned or necessarily
implied in the law or treaty.

4. The executive agreement must be consistent with the Constitution, as well as with
existing laws and treaties.

In light of the President's choice to enter into EDCA in the form of an executive
agreement, respondents carry the burden of proving that it is a mere implementation of
existing laws and treaties concurred in by the Senate. EDCA must thus be carefully
dissected to ascertain if it remains within the legal parameters of a valid executive
agreement.

7. EDCA is consistent with the content, purpose, and framework of the MDT and the VFA

The starting point of our analysis is the rule that "an executive agreement xx x may not
be used to amend a treaty."234 In Lim v. Executive Secretary and in Nicolas v. Romulo,
the Court approached the question of the validity of executive agreements by comparing
them with the general framework and the specific provisions of the treaties they seek to
implement.

In Lim, the Terms of Reference of the joint military exercises was scrutinized by studying
"the framework of the treaty antecedents to which the Philippines bound itself,"235 i.e.,
the MDT and the VFA. The Court proceeded to examine the extent of the term "activities"
as contemplated in Articles 1236 and II237 of the VFA. It later on found that the term
"activities" was deliberately left undefined and ambiguous in order to permit "a wide
scope of undertakings subject only to the approval of the Philippine government"238 and
thereby allow the parties "a certain leeway in negotiation."239 The Court eventually
ruled that the Terms of Reference fell within the sanctioned or allowable activities,
especially in the context of the VFA and the MDT.
The Court applied the same approach to Nicolas v. Romulo. It studied the provisions of
the VFA on custody and detention to ascertain the validity of the Romulo-Kenney
Agreement.240 It eventually found that the two international agreements were not in
accord, since the Romulo-Kenney Agreement had stipulated that U.S. military personnel
shall be detained at the U.S. Embassy Compound and guarded by U.S. military
personnel, instead of by Philippine authorities. According to the Court, the parties
"recognized the difference between custody during the trial and detention after
conviction."241 Pursuant to Article V(6) of the VFA, the custody of a U.S. military
personnel resides with U.S. military authorities during trial. Once there is a finding of
guilt, Article V(l0) requires that the confinement or detention be "by Philippine
authorities."

Justice Marvic M.V.F. Leonen's Dissenting Opinion posits that EDCA "substantially
modifies or amends the VFA"242 and follows with an enumeration of the differences
between EDCA and the VFA. While these arguments will be rebutted more fully further
on, an initial answer can already be given to each of the concerns raised by his dissent.

The first difference emphasized is that EDCA does not only regulate visits as the VFA
does, but allows temporary stationing on a rotational basis of U.S. military personnel and
their contractors in physical locations with permanent facilities and pre-positioned
military materiel.

This argument does not take into account that these permanent facilities, while built by
U.S. forces, are to be owned by the Philippines once constructed.243 Even the VFA
allowed construction for the benefit of U.S. forces during their temporary visits.

The second difference stated by the dissent is that EDCA allows the prepositioning of
military materiel, which can include various types of warships, fighter planes, bombers,
and vessels, as well as land and amphibious vehicles and their corresponding
ammunition.244

However, the VFA clearly allows the same kind of equipment, vehicles, vessels, and
aircraft to be brought into the country. Articles VII and VIII of the VFA contemplates that
U.S. equipment, materials, supplies, and other property are imported into or acquired in
the Philippines by or on behalf of the U.S. Armed Forces; as are vehicles, vessels, and
aircraft operated by or for U.S. forces in connection with activities under the VFA. These
provisions likewise provide for the waiver of the specific duties, taxes, charges, and fees
that correspond to these equipment.

The third difference adverted to by the Justice Leonen's dissent is that the VFA
contemplates the entry of troops for training exercises, whereas EDCA allows the use of
territory for launching military and paramilitary operations conducted in other states.245
The dissent of Justice Teresita J. Leonardo-De Castro also notes that VFA was intended for
non-combat activides only, whereas the entry and activities of U.S. forces into Agreed
Locations were borne of military necessity or had a martial character, and were therefore
not contemplated by the VFA.246

This Court's jurisprudence however established in no uncertain terms that combat-


related activities, as opposed to actual combat, were allowed under the MDT and VFA,
viz:
Both the history and intent of the Mutual Defense Treaty and the VFA support the
conclusion that combat-related activities as opposed to combat itself such as the one
subject of the instant petition, are indeed authorized.247

Hence, even if EDCA was borne of military necessity, it cannot be said to have strayed
from the intent of the VFA since EDCA's combat-related components are allowed under
the treaty.

Moreover, both the VFA and EDCA are silent on what these activities actually are. Both
the VFA and EDCA deal with the presence of U.S. forces within the Philippines, but make
no mention of being platforms for activity beyond Philippine territory. While it may be
that, as applied, military operations under either the VFA or EDCA would be carried out in
the future the scope of judicial review does not cover potential breaches of discretion but
only actual occurrences or blatantly illegal provisions. Hence, we cannot invalidate EDCA
on the basis of the potentially abusive use of its provisions.

The fourth difference is that EDCA supposedly introduces a new concept not
contemplated in the VFA or the MDT: Agreed Locations, Contractors, Pre-positioning, and
Operational Control.248

As previously mentioned, these points shall be addressed fully and individually in the
latter analysis of EDCA's provisions. However, it must already be clarified that the terms
and details used by an implementing agreement need not be found in the mother treaty.
They must be sourced from the authority derived from the treaty, but are not necessarily
expressed word-for-word in the mother treaty. This concern shall be further elucidated in
this Decision.

The fifth difference highlighted by the Dissenting Opinion is that the VFA does not have
provisions that may be construed as a restriction on or modification of obligations found
in existing statues, including the jurisdiction of courts, local autonomy, and taxation.
Implied in this argument is that EDCA contains such restrictions or modifications.249

This last argument cannot be accepted in view of the clear provisions of EDCA. Both the
VFA and EDCA ensure Philippine jurisdiction in all instances contemplated by both
agreements, with the exception of those outlined by the VFA in Articles III-VI. In the VFA,
taxes are clearly waived whereas in EDCA, taxes are assumed by the government as will
be discussed later on. This fact does not, therefore, produce a diminution of jurisdiction
on the part of the Philippines, but rather a recognition of sovereignty and the rights that
attend it, some of which may be waived as in the cases under Articles III-VI of the VFA.

Taking off from these concerns, the provisions of EDCA must be compared with those of
the MDT and the VFA, which are the two treaties from which EDCA allegedly draws its
validity.

"Authorized presence" under the VFA versus "authorized activities" under EDCA: (1) U.S.
personnel and (2) U.S. contractors

The OSG argues250 that EDCA merely details existing policies under the MDT and the
VFA. It explains that EDCA articulates the principle of defensive preparation embodied in
Article II of the MDT; and seeks to enhance the defensive, strategic, and technological
capabilities of both parties pursuant to the objective of the treaty to strengthen those
capabilities to prevent or resist a possible armed attack. Respondent also points out that
EDCA simply implements Article I of the VFA, which already allows the entry of U.S.
troops and personnel into the country. Respondent stresses this Court's recognition in
Lim v. Executive Secretary that U.S. troops and personnel are authorized to conduct
activities that promote the goal of maintaining and developing their defense capability.

Petitioners contest251 the assertion that the provisions of EDCA merely implement the
MDT. According to them, the treaty does not specifically authorize the entry of U.S.
troops in the country in order to maintain and develop the individual and collective
capacities of both the Philippines and the U.S. to resist an armed attack. They emphasize
that the treaty was concluded at a time when there was as yet no specific constitutional
prohibition on the presence of foreign military forces in the country.

Petitioners also challenge the argument that EDCA simply implements the VFA. They
assert that the agreement covers only short-term or temporary visits of U.S. troops "from
time to time" for the specific purpose of combined military exercises with their Filipino
counterparts. They stress that, in contrast, U.S. troops are allowed under EDCA to
perform activities beyond combined military exercises, such as those enumerated in
Articles 111(1) and IV(4) thereof. Furthermore, there is some degree of permanence in
the presence of U.S. troops in the country, since the effectivity of EDCA is continuous
until terminated. They proceed to argue that while troops have a "rotational" presence,
this scheme in fact fosters their permanent presence.

a. Admission of U.S. military and civilian personnel into Philippine territory is already
allowed under the VFA

We shall first deal with the recognition under EDCA of the presence in the country of
three distinct classes of individuals who will be conducting different types of activities
within the Agreed Locations: (1) U.S. military personnel; (2) U.S. civilian personnel; and
(3) U.S. contractors. The agreement refers to them as follows:

"United States personnel" means United States military and civilian personnel
temporarily in the territory of the Philippines in connection with activities approved by
the Philippines, as those terms are defined in the VFA.252

"United States forces" means the entity comprising United States personnel and all
property, equipment, and materiel of the United States Armed Forces present in the
territory of the Philippines.253

"United States contractors" means companies and firms, and their employees, under
contract or subcontract to or on behalf of the United States Department of Defense.
United States contractors are not included as part of the definition of United States
personnel in this Agreement, including within the context of the VFA.254

United States forces may contract for any materiel, supplies, equipment, and services
(including construction) to be furnished or undertaken in the territory of the Philippines
without restriction as to choice of contractor, supplier, or person who provides such
materiel, supplies, equipment, or services. Such contracts shall be solicited, awarded,
and administered in accordance with the laws and regulations of the United States.255
(Emphases Supplied)
A thorough evaluation of how EDCA is phrased clarities that the agreement does not deal
with the entry into the country of U.S. personnel and contractors per se. While Articles
I(l)(b)256 and II(4)257 speak of "the right to access and use" the Agreed Locations, their
wordings indicate the presumption that these groups have already been allowed entry
into Philippine territory, for which, unlike the VFA, EDCA has no specific provision.
Instead, Article II of the latter simply alludes to the VFA in describing U.S. personnel, a
term defined under Article I of the treaty as follows:

As used in this Agreement, "United States personnel" means United States military and
civilian personnel temporarily in the Philippines in connection with activities approved by
the Philippine Government. Within this definition:

1. The term "military personnel" refers to military members of the United States Army,
Navy, Marine Corps, Air Force, and Coast Guard.

2. The term "civilian personnel" refers to individuals who are neither nationals of nor
ordinarily resident in the Philippines and who are employed by the United States armed
forces or who are accompanying the United States armed forces, such as employees of
the American Red Cross and the United Services Organization.258

Article II of EDCA must then be read with Article III of the VFA, which provides for the
entry accommodations to be accorded to U.S. military and civilian personnel:

1. The Government of the Philippines shall facilitate the admission of United States
personnel and their departure from the Philippines in connection with activities covered
by this agreement.

2. United States military personnel shall be exempt from passport and visa regulations
upon entering and departing the Philippines.

3. The following documents only, which shall be required in respect of United States
military personnel who enter the Philippines; xx xx.

4. United States civilian personnel shall be exempt from visa requirements but shall
present, upon demand, valid passports upon entry and departure of the Philippines.
(Emphases Supplied)

By virtue of Articles I and III of the VFA, the Philippines already allows U.S. military and
civilian personnel to be "temporarily in the Philippines," so long as their presence is "in
connection with activities approved by the Philippine Government." The Philippines,
through Article III, even guarantees that it shall facilitate the admission of U.S. personnel
into the country and grant exemptions from passport and visa regulations. The VFA does
not even limit their temporary presence to specific locations.

Based on the above provisions, the admission and presence of U.S. military and civilian
personnel in Philippine territory are already allowed under the VFA, the treaty supposedly
being implemented by EDCA. What EDCA has effectively done, in fact, is merely provide
the mechanism to identify the locations in which U.S. personnel may perform allowed
activities pursuant to the VFA. As the implementing agreement, it regulates and limits
the presence of U.S. personnel in the country.
b. EDCA does not provide the legal basis for admission of U.S. contractors into Philippine
territory; their entry must be sourced from extraneous Philippine statutes and
regulations for the admission of alien employees or business persons.

Of the three aforementioned classes of individuals who will be conducting certain


activities within the Agreed Locations, we note that only U.S. contractors are not
explicitly mentioned in the VFA. This does not mean, though, that the recognition of their
presence under EDCA is ipso facto an amendment of the treaty, and that there must be
Senate concurrence before they are allowed to enter the country.

Nowhere in EDCA are U.S. contractors guaranteed immediate admission into the
Philippines. Articles III and IV, in fact, merely grant them the right of access to, and the
authority to conduct certain activities within the Agreed Locations. Since Article II(3) of
EDCA specifically leaves out U.S. contractors from the coverage of the VFA, they shall not
be granted the same entry accommodations and privileges as those enjoyed by U.S.
military and civilian personnel under the VFA.

Consequently, it is neither mandatory nor obligatory on the part of the Philippines to


admit U.S. contractors into the country.259 We emphasize that the admission of aliens
into Philippine territory is "a matter of pure permission and simple tolerance which
creates no obligation on the part of the government to permit them to stay."260 Unlike
U.S. personnel who are accorded entry accommodations, U.S. contractors are subject to
Philippine immigration laws.261 The latter must comply with our visa and passport
regulations262 and prove that they are not subject to exclusion under any provision of
Philippine immigration laws.263 The President may also deny them entry pursuant to his
absolute and unqualified power to prohibit or prevent the admission of aliens whose
presence in the country would be inimical to public interest.264

In the same vein, the President may exercise the plenary power to expel or deport U.S.
contractors265 as may be necessitated by national security, public safety, public health,
public morals, and national interest.266 They may also be deported if they are found to
be illegal or undesirable aliens pursuant to the Philippine Immigration Act267 and the
Data Privacy Act.268 In contrast, Article 111(5) of the VFA requires a request for removal
from the Philippine government before a member of the U.S. personnel may be
"dispos[ed] xx x outside of the Philippines."

c. Authorized activities of U.S. military and civilian personnel within Philippine territory
are in furtherance of the MDT and the VFA

We begin our analysis by quoting the relevant sections of the MDT and the VFA that
pertain to the activities in which U.S. military and civilian personnel may engage:

MUTUAL DEFENSE TREATY

Article II

In order more effectively to achieve the objective of this Treaty, the Parties separately
and jointly by self-help and mutual aid will maintain and develop their individual and
collective capacity to resist armed attack.

Article III
The Parties, through their Foreign Ministers or their deputies, will consult together from
time to time regarding the implementation of this Treaty and whenever in the opinion of
either of them the territorial integrity, political independence or security of either of the
Parties is threatened by external armed attack in the Pacific.

VISITING FORCES AGREEMENT

Preamble

xxx

Reaffirming their obligations under the Mutual Defense Treaty of August 30, 1951;

Noting that from time to time elements of the United States armed forces may visit the
Republic of the Philippines;

Considering that cooperation between the United States and the Republic of the
Philippines promotes their common security interests;

xxx

Article I - Definitions

As used in this Agreement, "United States personnel" means United States military and
civilian personnel temporarily in the Philippines in connection with activities approved by
the Philippine Government. Within this definition: xx x

Article II - Respect for Law

It is the duty of United States personnel to respect the laws of the Republic of the
Philippines and to abstain from any activity inconsistent with the spirit of this agreement,
and, in particular, from any political activity in the Philippines. The Government of the
United States shall take all measures within its authority to ensure that this is done.

Article VII - Importation and Exportation

1. United States Government equipment, materials, supplies, and other property


imported into or acquired in the Philippines by or on behalf of the United States armed
forces in connection with activities to which this agreement applies, shall be free of all
Philippine duties, taxes and other similar charges. Title to such property shall remain with
the United States, which may remove such property from the Philippines at any time,
free from export duties, taxes, and other similar charges. x x x.

Article VIII - Movement of Vessels and Aircraft

1. Aircraft operated by or for the United States armed forces may enter the Philippines
upon approval of the Government of the Philippines in accordance with procedures
stipulated in implementing arrangements.
2. Vessels operated by or for the United States armed forces may enter the Philippines
upon approval of the Government of the Philippines. The movement of vessels shall be in
accordance with international custom and practice governing such vessels, and such
agreed implementing arrangements as necessary. x x x (Emphases Supplied)

Manifest in these provisions is the abundance of references to the creation of further


"implementing arrangements" including the identification of "activities [to be] approved
by the Philippine Government." To determine the parameters of these implementing
arrangements and activities, we referred to the content, purpose, and framework of the
MDT and the VFA.

By its very language, the MDT contemplates a situation in which both countries shall
engage in joint activities, so that they can maintain and develop their defense
capabilities. The wording itself evidently invites a reasonable construction that the joint
activities shall involve joint military trainings, maneuvers, and exercises. Both the
interpretation269 and the subsequent practice270 of the parties show that the MDT
independently allows joint military exercises in the country. Lim v. Executive
Secretary271 and Nicolas v. Romulo272 recognized that Balikatan exercises, which are
activities that seek to enhance and develop the strategic and technological capabilities
of the parties to resist an armed attack, "fall squarely under the provisions of the RP-US
MDT."273 In Lim, the Court especially noted that the Philippines and the U.S. continued
to conduct joint military exercises even after the expiration of the MBA and even before
the conclusion of the VFA.274 These activities presumably related to the Status of Forces
Agreement, in which the parties agreed on the status to be accorded to U.S. military and
civilian personnel while conducting activities in the Philippines in relation to the MDT.275

Further, it can be logically inferred from Article V of the MDT that these joint activities
may be conducted on Philippine or on U.S. soil. The article expressly provides that the
term armed attack includes "an armed attack on the metropolitan territory of either of
the Parties, or on the island territories under its jurisdiction in the Pacific or on its armed
forces, public vessels or aircraft in the Pacific." Surely, in maintaining and developing our
defense capabilities, an assessment or training will need to be performed, separately
and jointly by self-help and mutual aid, in the territories of the contracting parties. It is
reasonable to conclude that the assessment of defense capabilities would entail
understanding the terrain, wind flow patterns, and other environmental factors unique to
the Philippines.

It would also be reasonable to conclude that a simulation of how to respond to attacks in


vulnerable areas would be part of the training of the parties to maintain and develop
their capacity to resist an actual armed attack and to test and validate the defense plan
of the Philippines. It is likewise reasonable to imagine that part of the training would
involve an analysis of the effect of the weapons that may be used and how to be
prepared for the eventuality. This Court recognizes that all of this may require training in
the area where an armed attack might be directed at the Philippine territory.

The provisions of the MDT must then be read in conjunction with those of the VFA.

Article I of the VFA indicates that the presence of U.S. military and civilian personnel in
the Philippines is "in connection with activities approved by the Philippine Government."
While the treaty does not expressly enumerate or detail the nature of activities of U.S.
troops in the country, its Preamble makes explicit references to the reaffirmation of the
obligations of both countries under the MDT. These obligations include the strengthening
of international and regional security in the Pacific area and the promotion of common
security interests.

The Court has already settled in Lim v. Executive Secretary that the phrase "activities
approved by the Philippine Government" under Article I of the VFA was intended to be
ambiguous in order to afford the parties flexibility to adjust the details of the purpose of
the visit of U.S. personnel.276 In ruling that the Terms of Reference for the Balikatan
Exercises in 2002 fell within the context of the treaty, this Court explained:

After studied reflection, it appeared farfetched that the ambiguity surrounding the
meaning of the word "activities" arose from accident. In our view, it was deliberately
made that way to give both parties a certain leeway in negotiation. In this manner,
visiting US forces may sojourn in Philippine territory for purposes other than military. As
conceived, the joint exercises may include training on new techniques of patrol and
surveillance to protect the nation's marine resources, sea search-and-rescue operations
to assist vessels in distress, disaster relief operations, civic action projects such as the
building of school houses, medical and humanitarian missions, and the like.

Under these auspices, the VFA gives legitimacy to the current Balikatan exercises. It is
only logical to assume that "Balikatan 02-1," a "mutual anti-terrorism advising, assisting
and training exercise," falls under the umbrella of sanctioned or allowable activities in
the context of the agreement. Both the history and intent of the Mutual Defense Treaty
and the VFA support the conclusion that combat-related activities - as opposed to
combat itself- such as the one subject of the instant petition, are indeed authorized.
(Emphases Supplied)

The joint report of the Senate committees on foreign relations and on national defense
and security further explains the wide range and variety of activities contemplated in the
VFA, and how these activities shall be identified:277

These joint exercises envisioned in the VFA are not limited to combat-related activities;
they have a wide range and variety. They include exercises that will reinforce the AFP's
ability to acquire new techniques of patrol and surveillance to protect the country's
maritime resources; sea-search and rescue operations to assist ships in distress; and
disaster-relief operations to aid the civilian victims of natural calamities, such as
earthquakes, typhoons and tidal waves.

xxxx

Joint activities under the VFA will include combat maneuvers; training in aircraft
maintenance and equipment repair; civic-action projects; and consultations and
meetings of the Philippine-U.S. Mutual Defense Board. It is at the level of the Mutual
Defense Board-which is headed jointly by the Chief of Staff of the AFP and the
Commander in Chief of the U.S. Pacific Command-that the VFA exercises are planned.
Final approval of any activity involving U.S. forces is, however, invariably given by the
Philippine Government.

xxxx
Siazon clarified that it is not the VFA by itself that determines what activities will be
conducted between the armed forces of the U.S. and the Philippines. The VFA regulates
and provides the legal framework for the presence, conduct and legal status of U.S.
personnel while they are in the country for visits, joint exercises and other related
activities. (Emphases Supplied)

What can be gleaned from the provisions of the VFA, the joint report of the Senate
committees on foreign relations and on national defense and security, and the ruling of
this Court in Lim is that the "activities" referred to in the treaty are meant to be specified
and identified infurther agreements. EDCA is one such agreement.

EDCA seeks to be an instrument that enumerates the Philippine-approved activities of


U.S. personnel referred to in the VFA. EDCA allows U.S. military and civilian personnel to
perform "activities approved by the Philippines, as those terms are defined in the
VFA"278 and clarifies that these activities include those conducted within the Agreed
Locations:

1. Security cooperation exercises; joint and combined training activities; humanitarian


assistance and disaster relief activities; and such other activities as may be agreed upon
by the Parties279

2. Training; transit; support and related activities; refueling of aircraft; bunkering of


vessels; temporary maintenance of vehicles, vessels, and aircraft; temporary
accommodation of personnel; communications; prepositioning of equipment, supplies,
and materiel; deployment of forces and materiel; and such other activities as the Parties
may agree280

3. Exercise of operational control over the Agreed Locations for construction activities
and other types of activity, including alterations and improvements thereof281

4. Exercise of all rights and authorities within the Agreed Locations that are necessary for
their operational control or defense, including the adoption of apfropriate measures to
protect U.S. forces and contractors282

5. Use of water, electricity, and other public utilities283

6. Operation of their own telecommunication systems, including the utilization of such


means and services as are required to ensure the full ability to operate
telecommunication systems, as well as the use of the necessary radio spectrum
allocated for this purpose284

According to Article I of EDCA, one of the purposes of these activities is to maintain and
develop, jointly and by mutual aid, the individual and collective capacities of both
countries to resist an armed attack. It further states that the activities are in furtherance
of the MDT and within the context of the VFA.

We note that these planned activities are very similar to those under the Terms of
Reference285 mentioned in Lim. Both EDCA and the Terms of Reference authorize the
U.S. to perform the following: (a) participate in training exercises; (b) retain command
over their forces; (c) establish temporary structures in the country; (d) share in the use
of their respective resources, equipment and other assets; and (e) exercise their right to
self-defense. We quote the relevant portion of the Terms and Conditions as follows:286

I. POLICY LEVEL

xxxx

No permanent US basing and support facilities shall be established. Temporary structures


such as those for troop billeting, classroom instruction and messing may be set up for
use by RP and US Forces during the Exercise.

The Exercise shall be implemented jointly by RP and US Exercise Co-Directors under the
authority of the Chief of Staff, AFP. In no instance will US Forces operate independently
during field training exercises (FTX). AFP and US Unit Commanders will retain command
over their respective forces under the overall authority of the Exercise Co-Directors. RP
and US participants shall comply with operational instructions of the AFP during the FTX.

The exercise shall be conducted and completed within a period of not more than six
months, with the projected participation of 660 US personnel and 3,800 RP Forces. The
Chief of Staff, AFP shall direct the Exercise Co-Directors to wind up and terminate the
Exercise and other activities within the six month Exercise period.

The Exercise is a mutual counter-terrorism advising, assisting and training Exercise


relative to Philippine efforts against the ASG, and will be conducted on the Island of
Basilan. Further advising, assisting and training exercises shall be conducted in
Malagutay and the Zamboanga area. Related activities in Cebu will be for support of the
Exercise.

xx xx.

US exercise participants shall not engage in combat, without prejudice to their right of
self-defense.

These terms of Reference are for purposes of this Exercise only and do not create
additional legal obligations between the US Government and the Republic of the
Philippines.

II. EXERCISE LEVEL

1. TRAINING

a. The Exercise shall involve the conduct of mutual military assisting, advising and
training of RP and US Forces with the primary objective of enhancing the operational
capabilities of both forces to combat terrorism.

b. At no time shall US Forces operate independently within RP territory.

c. Flight plans of all aircraft involved in the exercise will comply with the local air traffic
regulations.

2. ADMINISTRATION & LOGISTICS


xxxx

a. RP and US participating forces may share, in accordance with their respective laws
and regulations, in the use of their resources, equipment and other assets. They will use
their respective logistics channels. x x x. (Emphases Supplied)

After a thorough examination of the content, purpose, and framework of the MDT and the
VFA, we find that EDCA has remained within the parameters set in these two treaties.
Just like the Terms of Reference mentioned in Lim, mere adjustments in detail to
implement the MDT and the VFA can be in the form of executive agreements.

Petitioners assert287 that the duration of the activities mentioned in EDCA is no longer
consistent with the temporary nature of the visits as contemplated in the VFA. They point
out that Article XII(4) of EDCA has an initial term of 10 years, a term automatically
renewed unless the Philippines or the U.S. terminates the agreement. According to
petitioners, such length of time already has a badge of permanency.

In connection with this, Justice Teresita J. Leonardo-De Castro likewise argues in her
Concurring and Dissenting Opinion that the VFA contemplated mere temporary visits
from U.S. forces, whereas EDCA allows an unlimited period for U.S. forces to stay in the
Philippines.288

However, the provisions of EDCA directly contradict this argument by limiting itself to 10
years of effectivity. Although this term is automatically renewed, the process for
terminating the agreement is unilateral and the right to do so automatically accrues at
the end of the 10 year period. Clearly, this method does not create a permanent
obligation.

Drawing on the reasoning in Lim, we also believe that it could not have been by chance
that the VFA does not include a maximum time limit with respect to the presence of U.S.
personnel in the country. We construe this lack of specificity as a deliberate effort on the
part of the Philippine and the U.S. governments to leave out this aspect and reserve it for
the "adjustment in detail" stage of the implementation of the treaty. We interpret the
subsequent, unconditional concurrence of the Senate in the entire text of the VFA as an
implicit grant to the President of a margin of appreciation in determining the duration of
the "temporary" presence of U.S. personnel in the country.

Justice Brion's dissent argues that the presence of U.S. forces under EDCA is "more
permanent" in nature.289 However, this argument has not taken root by virtue of a
simple glance at its provisions on the effectivity period. EDCA does not grant permanent
bases, but rather temporary rotational access to facilities for efficiency. As Professor
Aileen S.P. Baviera notes:

The new EDCA would grant American troops, ships and planes rotational access to
facilities of the Armed Forces of the Philippines but not permanent bases which are
prohibited under the Philippine Constitution - with the result of reducing response time
should an external threat from a common adversary crystallize.290
EDCA is far from being permanent in nature compared to the practice of states as shown
in other defense cooperation agreements. For example, Article XIV(l) of the U.S.-Romania
defense agreement provides the following:

This Agreement is concluded for an indefinite period and shall enter into force in
accordance with the internal laws of each Party x x x. (emphasis supplied)

Likewise, Article 36(2) of the US-Poland Status of Forces Agreement reads:

This Agreement has been concluded for an indefinite period of time. It may be
terminated by written notification by either Party and in that event it terminates 2 years
after the receipt of the notification. (emphasis supplied)

Section VIII of US.-Denmark Mutual Support Agreement similarly provides:

8.1 This Agreement, which consists of a Preamble, SECTIONs I-VIII, and Annexes A and B,
shall become effective on the date of the last signature affixed below and shall remain in
force until terminated by the Parties, provided that it may be terminated by either Party
upon 180 days written notice of its intention to do so to the other Party. (emphasis
supplied)

On the other hand, Article XXI(3) of the US.-Australia Force Posture Agreement provides a
longer initial term:

3. This Agreement shall have an initial term of 25 years and thereafter shall continue in
force, but may be terminated by either Party at any time upon one year's written notice
to the other Party through diplomatic channels. (emphasis supplied)

The phrasing in EDCA is similar to that in the U.S.-Australia treaty but with a term less
than half of that is provided in the latter agreement. This means that EDCA merely
follows the practice of other states in not specifying a non-extendible maximum term.
This practice, however, does not automatically grant a badge of permanency to its
terms. Article XII(4) of EDCA provides very clearly, in fact, that its effectivity is for an
initial term of 10 years, which is far shorter than the terms of effectivity between the U.S.
and other states. It is simply illogical to conclude that the initial, extendible term of 10
years somehow gives EDCA provisions a permanent character.

The reasoning behind this interpretation is rooted in the constitutional role of the
President who, as Commander-in-Chief of our armed forces, is the principal strategist of
the nation and, as such, duty-bound to defend our national sovereignty and territorial
integrity;291 who, as chief architect of our foreign relations, is the head policymaker
tasked to assess, ensure, and protect our national security and interests;292 who holds
the most comprehensive and most confidential information about foreign countries293
that may affect how we conduct our external affairs; and who has unrestricted access to
highly classified military intelligence data294 that may threaten the life of the nation.
Thus, if after a geopolitical prognosis of situations affecting the country, a belief is
engendered that a much longer period of military training is needed, the President must
be given ample discretion to adopt necessary measures including the flexibility to set an
extended timetable.
Due to the sensitivity and often strict confidentiality of these concerns, we acknowledge
that the President may not always be able to candidly and openly discuss the complete
situation being faced by the nation. The Chief Executive's hands must not be unduly tied,
especially if the situation calls for crafting programs and setting timelines for approved
activities. These activities may be necessary for maintaining and developing our capacity
to resist an armed attack, ensuring our national sovereignty and territorial integrity, and
securing our national interests. If the Senate decides that the President is in the best
position to define in operational terms the meaning of temporary in relation to the visits,
considered individually or in their totality, the Court must respect that policy decision. If
the Senate feels that there is no need to set a time limit to these visits, neither should
we.

Evidently, the fact that the VFA does not provide specificity in regard to the extent of the
"temporary" nature of the visits of U.S. personnel does not suggest that the duration to
which the President may agree is unlimited. Instead, the boundaries of the meaning of
the term temporary in Article I of the treaty must be measured depending on the
purpose of each visit or activity.295 That purpose must be analyzed on a case-by-case
basis depending on the factual circumstances surrounding the conclusion of the
implementing agreement. While the validity of the President's actions will be judged
under less stringent standards, the power of this Court to determine whether there was
grave abuse of discretion remains unimpaired.

d. Authorized activities performed by US. contractors within Philippine territory - who


were legitimately permitted to enter the country independent of EDCA - are subject to
relevant Philippine statutes and regulations and must be consistent with the MDT and
the VFA

Petitioners also raise296 concerns about the U.S. government's purported practice of
hiring private security contractors in other countries. They claim that these contractors -
one of which has already been operating in Mindanao since 2004 - have been implicated
in incidents or scandals in other parts of the globe involving rendition, torture and other
human rights violations. They also assert that these contractors employ paramilitary
forces in other countries where they are operating.

Under Articles III and IV of EDCA, U.S. contractors are authorized to perform only the
following activities:

1. Training; transit; support and related activities; refueling of aircraft; bunkering of


vessels; temporary maintenance of vehicles, vessels, and aircraft; temporary
accommodation of personnel; communications; prepositioning of equipment, supplies,
and materiel; deployment of forces and materiel; and such other activities as the Parties
may agree297

2. Prepositioning and storage of defense equipment, supplies, and materiel, including


delivery, management, inspection, use, maintenance, and removal of such equipment,
supplies and materiel298

3. Carrying out of matters in accordance with, and to the extent permissible under, U.S.
laws, regulations, and policies299
EDCA requires that all activities within Philippine territory be in accordance with
Philippine law. This means that certain privileges denied to aliens are likewise denied to
foreign military contractors. Relevantly, providing security300 and carrying, owning, and
possessing firearms301 are illegal for foreign civilians.

The laws in place already address issues regarding the regulation of contractors. In the
2015 Foreign Investment Negative list,302 the Executive Department has already
identified corporations that have equity restrictions in Philippine jurisdiction. Of note is
No. 5 on the list - private security agencies that cannot have any foreign equity by virtue
of Section 4 of Republic Act No. 5487;303 and No. 15, which regulates contracts for the
construction of defense-related structures based on Commonwealth Act No. 541.

Hence, any other entity brought into the Philippines by virtue of EDCA must subscribe to
corporate and civil requirements imposed by the law, depending on the entity's
corporate structure and the nature of its business.

That Philippine laws extraneous to EDCA shall govern the regulation of the activities of
U.S. contractors has been clear even to some of the present members of the Senate.

For instance, in 2012, a U.S. Navy contractor, the Glenn Marine, was accused of spilling
fuel in the waters off Manila Bay.304 The Senate Committee on Foreign Relations and the
Senate Committee on Environment and Natural Resources chairperson claimed
environmental and procedural violations by the contractor.305 The U.S. Navy
investigated the contractor and promised stricter guidelines to be imposed upon its
contractors.306 The statement attributed to Commander Ron Steiner of the public affairs
office of the U.S. Navy's 7th Fleet - that U.S. Navy contractors are bound by Philippine
laws - is of particular relevance. The statement acknowledges not just the presence of
the contractors, but also the U.S. position that these contractors are bound by the local
laws of their host state. This stance was echoed by other U.S. Navy representatives.307

This incident simply shows that the Senate was well aware of the presence of U.S.
contractors for the purpose of fulfilling the terms of the VFA. That they are bound by
Philippine law is clear to all, even to the U.S.

As applied to EDCA, even when U.S. contractors are granted access to the Agreed
Locations, all their activities must be consistent with Philippine laws and regulations and
pursuant to the MDT and the VFA.

While we recognize the concerns of petitioners, they do not give the Court enough
justification to strike down EDCA. In Lim v. Executive Secretary, we have already
explained that we cannot take judicial notice of claims aired in news reports, "not
because of any issue as to their truth, accuracy, or impartiality, but for the simple reason
that facts must be established in accordance with the rules of evidence."308 What is
more, we cannot move one step ahead and speculate that the alleged illegal activities of
these contractors in other countries would take place in the Philippines with certainty. As
can be seen from the above discussion, making sure that U.S. contractors comply with
Philippine laws is a function of law enforcement. EDCA does not stand in the way of law
enforcement.

Nevertheless, we emphasize that U.S. contractors are explicitly excluded from the
coverage of the VFA. As visiting aliens, their entry, presence, and activities are subject to
all laws and treaties applicable within the Philippine territory. They may be refused entry
or expelled from the country if they engage in illegal or undesirable activities. There is
nothing that prevents them from being detained in the country or being subject to the
jurisdiction of our courts. Our penal laws,309 labor laws,310 and immigrations laws311
apply to them and therefore limit their activities here. Until and unless there is another
law or treaty that specifically deals with their entry and activities, their presence in the
country is subject to unqualified Philippine jurisdiction.

EDCA does not allow the presence of U.S.-owned or -controlled military facilities and
bases in the Philippines

Petitioners Saguisag et al. claim that EDCA permits the establishment of U.S. military
bases through the "euphemistically" termed "Agreed Locations. "312 Alluding to the
definition of this term in Article II(4) of EDCA, they point out that these locations are
actually military bases, as the definition refers to facilities and areas to which U.S.
military forces have access for a variety of purposes. Petitioners claim that there are
several badges of exclusivity in the use of the Agreed Locations by U.S. forces. First,
Article V(2) of EDCA alludes to a "return" of these areas once they are no longer needed
by U.S. forces, indicating that there would be some transfer of use. Second, Article IV(4)
ofEDCA talks about American forces' unimpeded access to the Agreed Locations for all
matters relating to the prepositioning and storage of U.S. military equipment, supplies,
and materiel. Third, Article VII of EDCA authorizes U.S. forces to use public utilities and to
operate their own telecommunications system.

a. Preliminary point on badges of exclusivity

As a preliminary observation, petitioners have cherry-picked provisions of EDCA by


presenting so-called "badges of exclusivity," despite the presence of contrary provisions
within the text of the agreement itself.

First, they clarify the word "return" in Article V(2) of EDCA. However, the use of the word
"return" is within the context of a lengthy provision. The provision as a whole reads as
follows:

The United States shall return to the Philippines any Agreed Locations, or any portion
thereof, including non-relocatable structures and assemblies constructed, modified, or
improved by the United States, once no longer required by United States forces for
activities under this Agreement. The Parties or the Designated Authorities shall consult
regarding the terms of return of any Agreed Locations, including possible compensation
for improvements or construction.

The context of use is "required by United States forces for activities under this
Agreement." Therefore, the return of an Agreed Location would be within the parameters
of an activity that the Mutual Defense Board (MDB) and the Security Engagement Board
(SEB) would authorize. Thus, possession by the U.S. prior to its return of the Agreed
Location would be based on the authority given to it by a joint body co-chaired by the
"AFP Chief of Staff and Commander, U.S. PACOM with representatives from the
Philippines' Department of National Defense and Department of Foreign Affairs sitting as
members."313 The terms shall be negotiated by both the Philippines and the U.S., or
through their Designated Authorities. This provision, seen as a whole, contradicts
petitioners' interpretation of the return as a "badge of exclusivity." In fact, it shows the
cooperation and partnership aspect of EDCA in full bloom.

Second, the term "unimpeded access" must likewise be viewed from a contextual
perspective. Article IV(4) states that U.S. forces and U.S. contractors shall have
"unimpeded access to Agreed Locations for all matters relating to the prepositioning and
storage of defense equipment, supplies, and materiel, including delivery, management,
inspection, use, maintenance, and removal of such equipment, supplies and materiel."

At the beginning of Article IV, EDCA states that the Philippines gives the U.S. the
authority to bring in these equipment, supplies, and materiel through the MDB and SEB
security mechanism. These items are owned by the U.S.,314 are exclusively for the use
of the U.S.315 and, after going through the joint consent mechanisms of the MDB and
the SEB, are within the control of the U.S.316 More importantly, before these items are
considered prepositioned, they must have gone through the process of prior
authorization by the MDB and the SEB and given proper notification to the AFP.317

Therefore, this "unimpeded access" to the Agreed Locations is a necessary adjunct to the
ownership, use, and control of the U.S. over its own equipment, supplies, and materiel
and must have first been allowed by the joint mechanisms in play between the two
states since the time of the MDT and the VFA. It is not the use of the Agreed Locations
that is exclusive per se; it is mere access to items in order to exercise the rights of
ownership granted by virtue of the Philippine Civil Code.318

As for the view that EDCA authorizes U.S. forces to use public utilities and to operate
their own telecommunications system, it will be met and answered in part D, infra.

Petitioners also point out319 that EDCA is strongly reminiscent of and in fact bears a
one-to-one correspondence with the provisions of the 1947 MBA. They assert that both
agreements (a) allow similar activities within the area; (b) provide for the same "species
of ownership" over facilities; and (c) grant operational control over the entire area.
Finally, they argue320 that EDCA is in fact an implementation of the new defense policy
of the U.S. According to them, this policy was not what was originally intended either by
the MDT or by the VFA.

On these points, the Court is not persuaded.

The similar activities cited by petitioners321 simply show that under the MBA, the U.S.
had the right to construct, operate, maintain, utilize, occupy, garrison, and control the
bases. The so-called parallel provisions of EDCA allow only operational control over the
Agreed Locations specifically for construction activities. They do not allow the
overarching power to operate, maintain, utilize, occupy, garrison, and control a base with
full discretion. EDCA in fact limits the rights of the U.S. in respect of every activity,
including construction, by giving the MDB and the SEB the power to determine the
details of all activities such as, but not limited to, operation, maintenance, utility,
occupancy, garrisoning, and control.322

The "species of ownership" on the other hand, is distinguished by the nature of the
property. For immovable property constructed or developed by the U.S., EDCA expresses
that ownership will automatically be vested to the Philippines.323 On the other hand, for
movable properties brought into the Philippines by the U.S., EDCA provides that
ownership is retained by the latter. In contrast, the MBA dictates that the U.S. retains
ownership over immovable and movable properties.

To our mind, both EDCA and the MBA simply incorporate what is already the law of the
land in the Philippines. The Civil Code's provisions on ownership, as applied, grant the
owner of a movable property full rights over that property, even if located in another
person's property.324

The parallelism, however, ends when the situation involves facilities that can be
considered immovable. Under the MBA, the U.S. retains ownership if it paid for the
facility.325 Under EDCA, an immovable is owned by the Philippines, even if built
completely on the back of U.S. funding.326 This is consistent with the constitutional
prohibition on foreign land ownership.327

Despite the apparent similarity, the ownership of property is but a part of a larger whole
that must be considered before the constitutional restriction is violated. Thus,
petitioners' points on operational control will be given more attention in the discussion
below. The arguments on policy are, however, outside the scope of judicial review and
will not be discussed

Moreover, a direct comparison of the MBA and EDCA will result in several important
distinctions that would allay suspicion that EDCA is but a disguised version of the MBA.

b. There are substantial matters that the US. cannot do under EDCA, but which it was
authorized to do under the 1947 MBA

The Philippine experience with U.S. military bases under the 1947 MBA is simply not
possible under EDCA for a number of important reasons.

First, in the 1947 MBA, the U.S. retained all rights of jurisdiction in and over Philippine
territory occupied by American bases. In contrast, the U.S. under EDCA does not enjoy
any such right over any part of the Philippines in which its forces or equipment may be
found. Below is a comparative table between the old treaty and EDCA:

1947 MBA/ 1946 Treaty of General Relations EDCA


1947 MBA, Art. I(1):

The Government of the Republic of the Philippines (hereinafter referred to as the


Philippines) grants to the Government of the United States of America (hereinafter
referred to as the United States) the right to retain the use of the bases in the Philippines
listed in Annex A attached hereto.

1947 MBA, Art. XVII(2):

All buildings and structures which are erected by the United States in the bases shall be
the property of the United States and may be removed by it before the expiration of this
Agreement or the earlier relinquishment of the base on which the structures are situated.
There shall be no obligation on the part of the Philippines or of the United States to
rebuild or repair any destruction or damage inflicted from any cause whatsoever on any
of the said buildings or structures owned or used by the United States in the bases. x x x
x.
1946 Treaty of Gen. Relations, Art. I:

The United States of America agrees to withdraw and surrender, and does hereby
withdraw and surrender, all rights of possession, supervision, jurisdiction, control or
sovereignty existing and exercised by the United States of America in and over the
territory and the people of the Philippine Islands, except the use of such bases,
necessary appurtenances to such bases, and the rights incident thereto, as the United
States of America, by agreement with the Republic of the Philippines may deem
necessary to retain for the mutual protection of the Republic of the Philippines and of the
United States of America. x x x.

EDCA, preamble:

Affirming that the Parties share an understanding for the United States not to establish a
permanent military presence or base in the territory of the Philippines;

xxxx

Recognizing that all United States access to and use of facilities and areas will be at the
invitation of the Philippines and with full respect for the Philippine Constitution and
Philippine laws;

xxxx

EDCA, Art. II(4):

"Agreed Locations" means facilities and areas that are provided by the Government of
the Philippines through the AFP and that United States forces, United States contractors,
and others as mutually agreed, shall have the right to access and use pursuant to this
Agreement. Such Agreed Locations may be listed in an annex to be appended to this
Agreement, and may be further described in implementing arrangements.

EDCA, Art. V:

1. The Philippines shall retain ownership of and title to Agreed Locations.

xxxx

4. All buildings, non-relocatable structures, and assemblies affixed to the land in the
Agreed Locations, including ones altered or improved by United States forces, remain the
property of the Philippines. Permanent buildings constructed by United States forces
become the property of the Philippines, once constructed, but shall be used by United
States forces until no longer required by United States forces.

Second, in the bases agreement, the U.S. and the Philippines were visibly not on equal
footing when it came to deciding whether to expand or to increase the number of bases,
as the Philippines may be compelled to negotiate with the U.S. the moment the latter
requested an expansion of the existing bases or to acquire additional bases. In EDCA,
U.S. access is purely at the invitation of the Philippines.

1947 MBA/ 1946 Treaty of General Relations EDCA


1947 MBA, Art.I(3):

The Philippines agree to enter into negotiations with the United States at the latter's
request, to permit the United States to expand such bases, to exchange such bases for
other bases, to acquire additional bases, or relinquish rights to bases, as any of such
exigencies may be required by military necessity.

1946 Treaty of Gen. Relations, Art. I:

The United States of America agrees to withdraw and surrender, and does hereby
withdraw and surrender, all rights of possession, supervision, jurisdiction, control or
sovereignty existing and exercised by the United States of America in and over the
territory and the people of the Philippine Islands, except the use of such bases,
necessary appurtenances to such bases, and the rights incident thereto, as the United
States of America, by agreement with the Republic of the Philippines may deem
necessary to retain for the mutual protection of the Republic of the Philippines and of the
United States of America. x x x.

EDCA, preamble:

Recognizing that all United States access to and use of facilities and areas will be at the
invitation of the Philippines and with full respect for the Philippine Constitution and
Philippine laws;

xxxx

EDCA. Art. II(4):

"Agreed Locations" means facilities and areas that are provided by the Government of
the Philippines through the AFP and that United States forces, United States contractors,
and others as mutually agreed, shall have the right to access and use pursuant to this
Agreement. Such Agreed Locations may be listed in an annex to be appended to this
Agreement, and may be further described in implementing arrangements.

Third, in EDCA, the Philippines is- guaranteed access over the entire area of the Agreed
Locations. On the other hand, given that the U.S. had complete control over its military
bases under the 1947 MBA, the treaty did not provide for any express recognition of the
right of access of Philippine authorities. Without that provision and in light of the
retention of U.S. sovereignty over the old military bases, the U.S. could effectively
prevent Philippine authorities from entering those bases.

1947 MBA EDCA


No equivalent provision.

EDCA, Art. III(5):


The Philippine Designated Authority and its authorized representative shall have access
to the entire area of the Agreed Locations. Such access shall be provided promptly
consistent with operational safety and security requirements in accordance with agreed
procedures developed by the Parties.

Fourth, in the bases agreement, the U.S. retained the right, power, and authority over
the establishment, use, operation, defense, and control of military bases, including the
limits of territorial waters and air space adjacent to or in the vicinity of those bases. The
only standard used in determining the extent of its control was military necessity. On the
other hand, there is no such grant of power or authority under EDCA. It merely allows the
U.S. to exercise operational control over the construction of Philippine-owned structures
and facilities:

1947 MBA EDCA


1947 MBA, Art.I(2):

The Philippines agrees to permit the United States, upon notice to the Philippines, to use
such of those bases listed in Annex B as the United States determines to be required by
military necessity.

1947 MBA, Art. III(1):

It is mutually agreed that the United States shall have the rights, power and authority
within the bases which are necessary for the establishment, use, operation and defense
thereof or appropriate for the control thereof and all the rights, power and authority
within the limits of territorial waters and air space adjacent to, or in the vicinity of, the
bases which are necessary to provide access to them, or appropriate for their control.

EDCA, Art. III(4):

The Philippines hereby grants to the United States, through bilateral security
mechanisms, such as the MDB and SEB, operational control of Agreed Locations for
construction activities and authority to undertake such activities on, and make
alterations and improvements to, Agreed Locations. United States forces shall consult on
issues regarding such construction, alterations, and improvements based on the Parties'
shared intent that the technical requirements and construction standards of any such
projects undertaken by or on behalf of United States forces should be consistent with the
requirements and standards of both Parties.

Fifth, the U.S. under the bases agreement was given the authority to use Philippine
territory for additional staging areas, bombing and gunnery ranges. No such right is
given under EDCA, as seen below:

1947 MBA EDCA


1947 MBA, Art. VI:

The United States shall, subject to previous agreement with the Philippines, have the
right to use land and coastal sea areas of appropriate size and location for periodic
maneuvers, for additional staging areas, bombing and gunnery ranges, and for such
intermediate airfields as may be required for safe and efficient air operations. Operations
in such areas shall be carried on with due regard and safeguards for the public safety.
1947 MBA, Art.I(2):

The Philippines agrees to permit the United States, upon notice to the Philippines, to use
such of those bases listed in Annex B as the United States determines to be required by
military necessity.

EDCA, Art. III(1):

With consideration of the views of the Parties, the Philippines hereby authorizes and
agrees that United States forces, United States contractors, and vehicles, vessels, and
aircraft operated by or for United States forces may conduct the following activities with
respect to Agreed Locations: training; transit; support and related activities; refueling of
aircraft; bunkering of vessels; temporary maintenance of vehicles, vessels, and aircraft;
temporary accommodation of personnel; communications; prepositioning of equipment,
supplies, and materiel; deploying forces and materiel; and such other activities as the
Parties may agree.

Sixth, under the MBA, the U.S. was given the right, power, and authority to control and
prohibit the movement and operation of all types of vehicles within the vicinity of the
bases. The U.S. does not have any right, power, or authority to do so under EDCA.

1947 MBA EDCA


1947 MBA, Art. 111(2)(c)

Such rights, power and authority shall include, inter alia, the right, power and authority:
x x x x to control (including the right to prohibit) in so far as may be required for the
efficient operation and safety of the bases, and within the limits of military necessity,
anchorages, moorings, landings, takeoffs, movements and operation of ships and water-
borne craft, aircraft and other vehicles on water, in the air or on land comprising

No equivalent provision.

Seventh, under EDCA, the U.S. is merely given temporary access to land and facilities
(including roads, ports, and airfields). On the other hand, the old treaty gave the U.S. the
right to improve and deepen the harbors, channels, entrances, and anchorages; and to
construct or maintain necessary roads and bridges that would afford it access to its
military bases.

1947 MBA EDCA


1947 MBA, Art. III(2)(b):

Such rights, power and authority shall include, inter alia, the right, power and authority:
x x x x to improve and deepen the harbors, channels, entrances and anchorages, and to
construct or maintain necessary roads and bridges affording access to the bases.

EDCA, Art. III(2):

When requested, the Designated Authority of the Philippines shall assist in facilitating
transit or temporary access by United States forces to public land and facilities (including
roads, ports, and airfields), including those owned or controlled by local governments,
and to other land and facilities (including roads, ports, and airfields).

Eighth, in the 1947 MBA, the U.S. was granted the automatic right to use any and all
public utilities, services and facilities, airfields, ports, harbors, roads, highways, railroads,
bridges, viaducts, canals, lakes, rivers, and streams in the Philippines in the same
manner that Philippine military forces enjoyed that right. No such arrangement appears
in EDCA. In fact, it merely extends to U.S. forces temporary access to public land and
facilities when requested:

1947 MBA EDCA


1947 MBA, Art. VII:

It is mutually agreed that the United States may employ and use for United States
military forces any and all public utilities, other services and facilities, airfields, ports,
harbors, roads, highways, railroads, bridges, viaducts, canals, lakes, rivers and streams
in the Philippines under conditions no less favorable than those that may be applicable
from time to time to the military forces of the Philippines.

EDCA, Art. III(2):

When requested, the Designated Authority of the Philippines shall assist in facilitating
transit or temporary access by United States forces to public land and facilities (including
roads, ports, and airfields), including those owned or controlled by local governments,
and to other land and facilities (including roads, ports, and airfields).

Ninth, under EDCA, the U.S. no longer has the right, power, and authority to construct,
install, maintain, and employ any type of facility, weapon, substance, device, vessel or
vehicle, or system unlike in the old treaty. EDCA merely grants the U.S., through bilateral
security mechanisms, the authority to undertake construction, alteration, or
improvements on the Philippine-owned Agreed Locations.

1947 MBA EDCA


1947 MBA, Art. III(2)(e):

Such rights, power and authority shall include, inter alia, the right, power and authority:
x x x x to construct, install, maintain, and employ on any base any type of facilities,
weapons, substance, device, vessel or vehicle on or under the ground, in the air or on or
under the water that may be requisite or appropriate, including meteorological systems,
aerial and water navigation lights, radio and radar apparatus and electronic devices, of
any desired power, type of emission and frequency.

EDCA, Art. III(4):

The Philippines hereby grants to the United States, through bilateral security
mechanisms, such as the MDB and SEB, operational control of Agreed Locations for
construction activities and authority to undertake such activities on, and make
alterations and improvements to, Agreed Locations. United States forces shall consult on
issues regarding such construction, alterations, and improvements based on the Parties'
shared intent that the technical requirements and construction standards of any such
projects undertaken by or on behalf of United States forces should be consistent with the
requirements and standards of both Parties.

Tenth, EDCA does not allow the U.S. to acquire, by condemnation or expropriation
proceedings, real property belonging to any private person. The old military bases
agreement gave this right to the U.S. as seen below:

1947 MBA EDCA


1947 MBA, Art. XXII(l):

Whenever it is necessary to acquire by

condemnation or expropriation proceedings real property belonging to any private


persons, associations or corporations located in bases named in Annex A and Annex B in
order to carry out the purposes of this Agreement, the Philippines will institute and
prosecute such condemnation or expropriation proceedings in accordance with the laws
of the Philippines. The United States agrees to reimburse the Philippines for all the
reasonable expenses, damages and costs therebv incurred, including the value of the
property as determined by the Court. In addition, subject to the mutual agreement of the
two Governments, the United States will reimburse the Philippines for the reasonable
costs of transportation and removal of any occupants displaced or ejected by reason of
the condemnation or expropriation.

No equivalent provision.

Eleventh, EDCA does not allow the U.S. to unilaterally bring into the country non-
Philippine nationals who are under its employ, together with their families, in connection
with the construction, maintenance, or operation of the bases. EDCA strictly adheres to
the limits under the VFA.

1947 MBA EDCA


1947 MBA, Art. XI(l):

It is mutually agreed that the United States shall have the right to bring into the
Philippines members of the United States military forces and the United States nationals
employed by or under a contract with the United States together with their families, and
technical personnel of other nationalities (not being persons excluded by the laws of the
Philippines) in connection with the construction, maintenance, or operation of the bases.
The United States shall make suitable arrangements so that such persons may be readily
identified and their status established when necessary by the Philippine authorities. Such
persons, other than members of the United States armed forces in uniform, shall present
their travel documents to the appropriate Philippine authorities for visas, it being
understood that no objection will be made to their travel to the Philippines as non-
immigrants.

EDCA, Art. II:

1. "United States personnel" means United States military and civilian personnel
temporarily in the territory of the Philippines in connection with activities approved by
the Philippines, as those terms are defined in the VFA.
x xx x

3. "United States contractors" means companies and firms, and their employees, under
contract or subcontract to or on behalf of the United States Department of Defense.
United States contractors are not included as part of the definition of United States
personnel in this Agreement, including within the context of the VFA.

Twelfth, EDCA does not allow the U.S. to exercise jurisdiction over any offense committed
by any person within the Agreed Locations, unlike in the former military bases:

1947 MBA EDCA


1947 MBA, Art. XIII(l)(a):

The Philippines consents that the United

States shall have the right to exercise jurisdiction over the following offenses: (a) Any
offense committed by any person within any base except where the offender and
offended parties are both Philippine citizens (not members of the armed forces of the
United States on active duty) or the offense is against the security of the Philippines.

No equivalent provision.

Thirteenth, EDCA does not allow the U.S. to operate military post exchange (PX) facilities,
which is free of customs duties and taxes, unlike what the expired MBA expressly
allowed. Parenthetically, the PX store has become the cultural icon of U.S. military
presence in the country.

1947 MBA EDCA


1947 MBA, Art. XVIII(l):

It is mutually agreed that the United States

shall have the right to establish on bases, free of all licenses; fees; sales, excise or other
taxes, or imposts; Government agencies, including concessions, such as sales
commissaries and post exchanges; messes and social clubs, for the exclusive use of the
United States military forces and authorized civilian personnel and their families. The
merchandise or services sold or dispensed by such agencies shall be free of all taxes,
duties and inspection by the Philippine authorities. Administrative measures shall be
taken by the appropriate authorities of the United States to prevent the resale of goods
which are sold under the provisions of this Article to persons not entitled to buy goods at
such agencies and, generally, to prevent abuse of the privileges granted under this
Article. There shall be cooperation between such authorities and the Philippines to this
end.

No equivalent provision.

In sum, EDCA is a far cry from a basing agreement as was understood by the people at
the time that the 1987 Constitution was adopted.
Nevertheless, a comprehensive review of what the Constitution means by "foreign
military bases" and "facilities" is required before EDCA can be deemed to have passed
judicial scrutiny.

c. The meaning of military facilities and bases

An appreciation of what a military base is, as understood by the Filipino people in 1987,
would be vital in determining whether EDCA breached the constitutional restriction.

Prior to the drafting of the 1987 Constitution, the last definition of "military base" was
provided under Presidential Decree No. (PD) 1227.328 Unlawful entry into a military base
is punishable under the decree as supported by Article 281 of the Revised Penal Code,
which itself prohibits the act of trespass.

Section 2 of the law defines the term in this manner: "'[M]ilitary base' as used in this
decree means any military, air, naval, or coast guard reservation, base, fort, camp,
arsenal, yard, station, or installation in the Philippines."

Commissioner Tadeo, in presenting his objections to U.S. presence in the Philippines


before the 1986 Constitutional Commission, listed the areas that he considered as
military bases:

1,000 hectares Camp O'Donnel

20,000 hectares Crow Valley Weapon's Range

55,000 hectares Clark Air Base

150 hectares Wallace Air Station

400 hectares John Hay Air Station

15,000 hectares Subic Naval Base

1,000 hectares San Miguel Naval Communication

750 hectares Radio Transmitter in Capas, Tarlac

900 hectares Radio Bigot Annex at Bamban, Tarlac329

The Bases Conversion and Development Act of 1992 described its coverage in its
Declaration of Policies:

Sec. 2. Declaration of Policies. - It is hereby declared the policy of the Government to


accelerate the sound and balanced conversion into alternative productive uses of the
Clark and Subic military reservations and their extensions (John Hay Station, Wallace Air
Station, O'Donnell Transmitter Station, San Miguel Naval Communications Station and
Capas Relay Station), to raise funds by the sale of portions of Metro Manila military
camps, and to apply said funds as provided herein for the development and conversion
to productive civilian use of the lands covered under the 194 7 Military Bases Agreement
between the Philippines and the United States of America, as amended.330
The result of the debates and subsequent voting is Section 25, Article XVIII of the
Constitution, which specifically restricts, among others, foreign military facilities or
bases. At the time of its crafting of the Constitution, the 1986 Constitutional Commission
had a clear idea of what exactly it was restricting. While the term "facilities and bases"
was left undefined, its point of reference was clearly those areas covered by the 1947
MBA as amended.

Notably, nearly 30 years have passed since then, and the ever-evolving world of military
technology and geopolitics has surpassed the understanding of the Philippine people in
1986. The last direct military action of the U.S. in the region was the use of Subic base as
the staging ground for Desert Shield and Desert Storm during the Gulf War.331 In 1991,
the Philippine Senate rejected the successor treaty of the 1947 MBA that would have
allowed the continuation of U.S. bases in the Philippines.

Henceforth, any proposed entry of U.S. forces into the Philippines had to evolve likewise,
taking into consideration the subsisting agreements between both parties, the rejection
of the 1991 proposal, and a concrete understanding of what was constitutionally
restricted. This trend birthed the VFA which, as discussed, has already been upheld by
this Court.

The latest agreement is EDCA, which proposes a novel concept termed "Agreed
Locations."

By definition, Agreed Locations are

facilities and areas that are provided by the Government of the Philippines through the
AFP and that United States forces, United States contractors, and others as mutually
agreed, shall have the right to access and use pursuant to this Agreement. Such Agreed
Locations may be listed in an annex to be appended to this Agreement, and may be
further described in implementing arrangements.332

Preliminarily, respondent already claims that the proviso that the Philippines shall retain
ownership of and title to the Agreed Locations means that EDCA is "consistent with
Article II of the VFA which recognizes Philippine sovereignty and jurisdiction over
locations within Philippine territory.333

By this interpretation, respondent acknowledges that the contention of petitioners


springs from an understanding that the Agreed Locations merely circumvent the
constitutional restrictions. Framed differently, the bone of contention is whether the
Agreed Locations are, from a legal perspective, foreign military facilities or bases. This
legal framework triggers Section 25, Article XVIII, and makes Senate concurrence a sine
qua non.

Article III of EDCA provides for Agreed Locations, in which the U.S. is authorized by the
Philippines to "conduct the following activities: "training; transit; support and related
activities; refueling of aircraft; bunkering of vessels; temporary maintenance of vehicles,
vessels and aircraft; temporary accommodation of personnel; communications;
prepositioning of equipment, supplies and materiel; deploying forces and materiel; and
such other activities as the Parties may agree."
This creation of EDCA must then be tested against a proper interpretation of the Section
25 restriction.

d. Reasons for the constitutional requirements and legal standards for constitutionally
compatible military bases and facilities

Section 25 does not define what is meant by a "foreign military facility or base." While it
specifically alludes to U.S. military facilities and bases that existed during the framing of
the Constitution, the provision was clearly meant to apply to those bases existing at the
time and to any future facility or base. The basis for the restriction must first be deduced
from the spirit of the law, in order to set a standard for the application of its text, given
the particular historical events preceding the agreement.

Once more, we must look to the 1986 Constitutional Commissioners to glean, from their
collective wisdom, the intent of Section 25. Their speeches are rich with history and
wisdom and present a clear picture of what they considered in the crafting the provision.

SPEECH OF COMMISSIONER REGALADO334

xxxx

We have been regaled here by those who favor the adoption of the anti-bases provisions
with what purports to be an objective presentation of the historical background of the
military bases in the Philippines. Care appears, however, to have been taken to
underscore the inequity in their inception as well as their implementation, as to seriously
reflect on the supposed objectivity of the report. Pronouncements of military and civilian
officials shortly after World War II are quoted in support of the proposition on neutrality;
regrettably, the implication is that the same remains valid today, as if the world and
international activity stood still for the last 40 years.

We have been given inspired lectures on the effect of the presence of the military bases
on our sovereignty - whether in its legal or political sense is not clear - and the theory
that any country with foreign bases in its territory cannot claim to be fully sovereign or
completely independent. I was not aware that the concepts of sovereignty and
independence have now assumed the totality principle, such that a willing assumption of
some delimitations in the exercise of some aspects thereof would put that State in a
lower bracket of nationhood.

xxxx

We have been receiving a continuous influx of materials on the pros and cons on the
advisability of having military bases within our shores. Most of us who, only about three
months ago, were just mulling the prospects of these varying contentions are now
expected, like armchair generals, to decide not only on the geopolitical aspects and
contingent implications of the military bases but also on their political, social, economic
and cultural impact on our national life. We are asked to answer a plethora of questions,
such as: 1) whether the bases are magnets of nuclear attack or are deterrents to such
attack; 2) whether an alliance or mutual defense treaty is a derogation of our national
sovereignty; 3) whether criticism of us by Russia, Vietnam and North Korea is outweighed
by the support for us of the ASEAN countries, the United States, South Korea, Taiwan,
Australia and New Zealand; and 4) whether the social, moral and legal problems
spawned by the military bases and their operations can be compensated by the
economic benefits outlined in papers which have been furnished recently to all of us.335

xxxx

Of course, one side of persuasion has submitted categorical, unequivocal and forceful
assertions of their positions. They are entitled to the luxury of the absolutes. We are
urged now to adopt the proposed declaration as a "golden," "unique" and "last"
opportunity for Filipinos to assert their sovereign rights. Unfortunately, I have never been
enchanted by superlatives, much less for the applause of the moment or the ovation of
the hour. Nor do I look forward to any glorious summer after a winter of political
discontent. Hence, if I may join Commissioner Laurel, I also invoke a caveat not only
against the tyranny of labels but also the tyranny of slogans.336

xxxx

SPEECH OF COMMISSIONER SUAREZ337

MR. SUAREZ: Thank you, Madam President.

I am quite satisfied that the crucial issues involved in the resolution of the problem of the
removal of foreign bases from the Philippines have been adequately treated by previous
speakers. Let me, therefore, just recapitulate the arguments adduced in favor of a
foreign bases-free Philippines:

1. That every nation should be free to shape its own destiny without outside
interference;

2. That no lasting peace and no true sovereignty would ever be achieved so long as
there are foreign military forces in our country;

3. That the presence of foreign military bases deprives us of the very substance of
national sovereignty and this is a constant source of national embarrassment and an
insult to our national dignity and selfrespect as a nation;

4. That these foreign military bases unnecessarily expose our country to devastating
nuclear attacks;

5. That these foreign military bases create social problems and are designed to
perpetuate the strangle-hold of United States interests in our national economy and
development;

6. That the extraterritorial rights enjoyed by these foreign bases operate to deprive our
country of jurisdiction over civil and criminal offenses committed within our own national
territory and against Filipinos;

7. That the bases agreements are colonial impositions and dictations upon our helpless
country; and
8. That on the legal viewpoint and in the ultimate analysis, all the bases agreements are
null and void ab initio, especially because they did not count the sovereign consent and
will of the Filipino people.338

xxxx

In the real sense, Madam President, if we in the Commission could accommodate the
provisions I have cited, what is our objection to include in our Constitution a matter as
priceless as the nationalist values we cherish? A matter of the gravest concern for the
safety and survival of this nation indeed deserves a place in our Constitution.

xxxx

x x x Why should we bargain away our dignity and our self-respect as a nation and the
future of generations to come with thirty pieces of silver?339

SPEECH OF COMMISSIONER BENNAGEN340

xxxx

The underlying principle of military bases and nuclear weapons wherever they are found
and whoever owns them is that those are for killing people or for terrorizing humanity.
This objective by itself at any point in history is morally repugnant. This alone is reason
enough for us to constitutionalize the ban on foreign military bases and on nuclear
weapons.341

SPEECH OF COMMISSIONER BACANI342

xxxx

x x x Hence, the remedy to prostitution does not seem to be primarily to remove the
bases because even if the bases are removed, the girls mired in poverty will look for
their clientele elsewhere. The remedy to the problem of prostitution lies primarily
elsewhere - in an alert and concerned citizenry, a healthy economy and a sound
education in values.343

SPEECH OF COMMISSIONER JAMIR344

xxxx

One of the reasons advanced against the maintenance of foreign military bases here is
that they impair portions of our sovereignty. While I agree that our country's sovereignty
should not be impaired, I also hold the view that there are times when it is necessary to
do so according to the imperatives of national interest. There are precedents to this
effect. Thus, during World War II, England leased its bases in the West Indies and in
Bermuda for 99 years to the United States for its use as naval and air bases. It was done
in consideration of 50 overaged destroyers which the United States gave to England for
its use in the Battle of the Atlantic.

A few years ago, England gave the Island of Diego Garcia to the United States for the
latter's use as a naval base in the Indian Ocean. About the same time, the United States
obtained bases in Spain, Egypt and Israel. In doing so, these countries, in effect,
contributed to the launching of a preventive defense posture against possible trouble in
the Middle East and in the Indian Ocean for their own protection.345

SPEECH OF COMMISSIONER TINGSON346

xxxx

In the case of the Philippines and the other Southeast Asian nations, the presence of
American troops in the country is a projection of America's security interest. Enrile said
that nonetheless, they also serve, although in an incidental and secondary way, the
security interest of the Republic of the Philippines and the region. Yes, of course, Mr.
Enrile also echoes the sentiments of most of us in this Commission, namely: It is ideal for
us as an independent and sovereign nation to ultimately abrogate the RP-US military
treaty and, at the right time, build our own air and naval might.347

xxxx

Allow me to say in summation that I am for the retention of American military bases in
the Philippines provided that such an extension from one period to another shall be
concluded upon concurrence of the parties, and such extension shall be based on justice,
the historical amity of the people of the Philippines and the United States and their
common defense interest.348

SPEECH OF COMMISSIONER ALONTO349

xxxx

Madam President, sometime ago after this Commission started with this task of framing
a constitution, I read a statement of President Aquino to the effect that she is for the
removal of the U.S. military bases in this country but that the removal of the U.S. military
bases should not be done just to give way to other foreign bases. Today, there are two
world superpowers, both vying to control any and all countries which have importance to
their strategy for world domination. The Philippines is one such country.

Madam President, I submit that I am one of those ready to completely remove any
vestiges of the days of enslavement, but not prepared to erase them if to do so would
merely leave a vacuum to be occupied by a far worse type.350

SPEECH OF COMMISSIONER GASCON351

xxxx

Let us consider the situation of peace in our world today. Consider our brethren in the
Middle East, in Indo-China, Central America, in South Africa - there has been escalation of
war in some of these areas because of foreign intervention which views these conflicts
through the narrow prism of the East-West conflict. The United States bases have been
used as springboards for intervention in some of these conflicts. We should not allow
ourselves to be party to the warlike mentality of these foreign interventionists. We must
always be on the side of peace this means that we should not always rely on military
solution.352
xxxx

x x x The United States bases, therefore, are springboards for intervention in our own
internal affairs and in the affairs of other nations in this region.

xxxx

Thus, I firmly believe that a self-respecting nation should safeguard its fundamental
freedoms which should logically be declared in black and white in our fundamental law of
the land - the Constitution. Let us express our desire for national sovereignty so we may
be able to achieve national self-determination. Let us express our desire for neutrality so
that we may be able to follow active nonaligned independent foreign policies. Let us
express our desire for peace and a nuclear-free zone so we may be able to pursue a
healthy and tranquil existence, to have peace that is autonomous and not imposed. 353

xxxx

SPEECH OF COMMISSIONER TADEO354

Para sa magbubukid, ano ha ang kahulugan ng U.S. military bases? Para sa magbubukid,
ang kahulugan nito ay pagkaalipin. Para sa magbubukid, ang pananatili ng U.S. military
bases ay tinik sa dibdib ng sambayanang Pilipinong patuloy na nakabaon. Para sa
sambayanang magbubukid, ang ibig sabihin ng U.S. military bases ay batong pabigat na
patuloy na pinapasan ng sambayanang Pilipino. Para sa sambayanang magbubukid, ang
pananatili ng U.S. military bases ay isang nagdudumilat na katotohanan ng patuloy na
paggahasa ng imperyalistang Estados Unidos sa ating Inang Bayan - economically,
politically and culturally. Para sa sambayanang magbubukid ang U.S. military bases ay
kasingkahulugan ng nuclear weapon - ang kahulugan ay magneto ng isang nuclear war.
Para sa sambayanang magbubukid, ang kahulugan ng U.S. military bases ay isang
salot.355

SPEECH OF COMMISSIONER QUESADA356

xxxx

The drift in the voting on issues related to freeing ourselves from the instruments of
domination and subservience has clearly been defined these past weeks.

xxxx

So for the record, Mr. Presiding Officer, I would like to declare my support for the
committee's position to enshrine in the Constitution a fundamental principle forbidding
foreign military bases, troops or facilities in any part of the Philippine territory as a clear
and concrete manifestation of our inherent right to national self-determination,
independence and sovereignty.

Mr. Presiding Officer, I would like to relate now these attributes of genuine nationhood to
the social cost of allowing foreign countries to maintain military bases in our country.
Previous speakers have dwelt on this subject, either to highlight its importance in
relation to the other issues or to gloss over its significance and !llake this a part of future
negotiations.357

xxxx

Mr. Presiding Officer, I feel that banning foreign military bases is one of the solutions and
is the response of the Filipino people against this condition and other conditions that
have already been clearly and emphatically discussed in past deliberations. The deletion,
therefore, of Section 3 in the Constitution we are drafting will have the following
implications:

First, the failure of the Constitutional Commission to decisively respond to the continuing
violation of our territorial integrity via the military bases agreement which permits the
retention of U.S. facilities within the Philippine soil over which our authorities have no
exclusive jurisdiction contrary to the accepted definition of the exercise of sovereignty.

Second, consent by this forum, this Constitutional Commission, to an exception in the


application of a provision in the Bill of Rights that we have just drafted regarding equal
application of the laws of the land to all inhabitants, permanent or otherwise, within its
territorial boundaries.

Third, the continued exercise by the United States of extraterritoriality despite the
condemnations of such practice by the world community of nations in the light of
overwhelming international approval of eradicating all vestiges of colonialism.358

xxxx

Sixth, the deification of a new concept called pragmatic sovereignty, in the hope that
such can be wielded to force the United States government to concede to better terms
and conditions concerning the military bases agreement, including the transfer of
complete control to the Philippine government of the U.S. facilities, while in the
meantime we have to suffer all existing indignities and disrespect towards our rights as a
sovereign nation.

xxxx

Eighth, the utter failure of this forum to view the issue of foreign military bases as
essentially a question of sovereignty which does not require in-depth studies or analyses
and which this forum has, as a constituent assembly drafting a constitution, the
expertise and capacity to decide on except that it lacks the political will that brought it to
existence and now engages in an elaborate scheme of buck-passing.

xxxx

Without any doubt we can establish a new social order in our country, if we reclaim,
restore, uphold and defend our national sovereignty. National sovereignty is what the
military bases issue is all about. It is only the sovereign people exercising their national
sovereignty who can design an independent course and take full control of their national
destiny.359

SPEECH OF COMMISSIONER P ADILLA360


xxxx

Mr. Presiding Officer, in advocating the majority committee report, specifically Sections 3
and 4 on neutrality, nuclear and bases-free country, some views stress sovereignty of
the Republic and even invoke survival of the Filipino nation and people.361

REBUTTAL OF COMMISSIONER NOLLEDO362

xxxx

The anachronistic and ephemeral arguments against the provisions of the committee
report to dismantle the American bases after 1991 only show the urgent need to free our
country from the entangling alliance with any power bloc.363

xxxx

xx x Mr. Presiding Officer, it is not necessary for us to possess expertise to know that the
so-called RP-US Bases Agreement will expire in 1991, that it infringes on our sovereignty
and jurisdiction as well as national dignity and honor, that it goes against the UN policy
of disarmament and that it constitutes unjust intervention in our internal affairs.364
(Emphases Supplied)

The Constitutional Commission eventually agreed to allow foreign military bases, troops,
or facilities, subject to the provisions of Section 25. It is thus important to read its
discussions carefully. From these discussions, we can deduce three legal standards that
were articulated by the Constitutional Commission Members. These are characteristics of
any agreement that the country, and by extension this Court, must ensure are observed.
We can thereby determine whether a military base or facility in the Philippines, which
houses or is accessed by foreign military troops, is foreign or remains a Philippine
military base or facility. The legal standards we find applicable are: independence from
foreign control, sovereignty and applicable law, and national security and territorial
integrity.

i. First standard: independence from foreign control

Very clearly, much of the opposition to the U.S. bases at the time of the Constitution's
drafting was aimed at asserting Philippine independence from the U.S., as well as control
over our country's territory and military.

Under the Civil Code, there are several aspects of control exercised over property.

Property is classified as private or public.365 It is public if "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[,]" or "[t]hose 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. "366

Quite clearly, the Agreed Locations are contained within a property for public use, be it
within a government military camp or property that belongs to the Philippines.1avvphi1
Once ownership is established, then the rights of ownership flow freely. Article 428 of the
Civil Code provides that "[t]he owner has the right to enjoy and dispose of a thing,
without other limitations than those established by law." Moreover, the owner "has also a
right of action against the holder and possessor of the thing in order to recover it."

Philippine civil law therefore accords very strong rights to the owner of property, even
against those who hold the property. Possession, after all, merely raises a disputable
presumption of ownership, which can be contested through normal judicial
processes.367

In this case, EDCA explicitly provides that ownership of the Agreed Locations remains
with the Philippine govemment.368 What U.S. personnel have a right to, pending mutual
agreement, is access to and use of these locations.369

The right of the owner of the property to allow access and use is consistent with the Civil
Code, since the owner may dispose of the property in whatever way deemed fit, subject
to the limits of the law. So long as the right of ownership itself is not transferred, then
whatever rights are transmitted by agreement does not completely divest the owner of
the rights over the property, but may only limit them in accordance with law.

Hence, even control over the property is something that an owner may transmit freely.
This act does not translate into the full transfer of ownership, but only of certain rights.
In Roman Catholic Apostolic Administrator of Davao, Inc. v. Land Registration
Commission, we stated that the constitutional proscription on property ownership is not
violated despite the foreign national's control over the property.370

EDCA, in respect of its provisions on Agreed Locations, is essentially a contract of use


and access. Under its pertinent provisions, it is the Designated Authority of the
Philippines that shall, when requested, assist in facilitating transit or access to public
land and facilities.371 The activities carried out within these locations are subject to
agreement as authorized by the Philippine govemment.372 Granting the U.S. operational
control over these locations is likewise subject to EDCA' s security mechanisms, which
are bilateral procedures involving Philippine consent and cooperation.373 Finally, the
Philippine Designated Authority or a duly designated representative is given access to
the Agreed Locations.374

To our mind, these provisions do not raise the spectre of U.S. control, which was so
feared by the Constitutional Commission. In fact, they seem to have been the product of
deliberate negotiation from the point of view of the Philippine government, which
balanced constitutional restrictions on foreign military bases and facilities against the
security needs of the country. In the 1947 MBA, the U.S. forces had "the right, power and
authority x x x to construct (including dredging and filling), operate, maintain, utilize,
occupy, garrison and control the bases."375 No similarly explicit provision is present in
EDCA.

Nevertheless, the threshold for allowing the presence of foreign military facilities and
bases has been raised by the present Constitution. Section 25 is explicit that foreign
military bases, troops, or facilities shall not be allowed in the Philippines, except under a
treaty duly concurred in by the Senate. Merely stating that the Philippines would retain
ownership would do violence to the constitutional requirement if the Agreed Locations
were simply to become a less obvious manifestation of the U.S. bases that were rejected
in 1991.

When debates took place over the military provisions of the Constitution, the committee
rejected a specific provision proposed by Commissioner Sarmiento. The discussion
illuminates and provides context to the 1986 Constitutional Commission's vision of
control and independence from the U.S., to wit:

MR. SARMIENTO: Madam President, my proposed amendment reads as follows: "THE


STATE SHALL ESTABLISH AND MAINTAIN AN INDEPENDENT AND SELF-RELIANT ARMED
FORCES OF THE PHILIPPINES." Allow me to briefly explain, Madam President. The Armed
Forces of the Philippines is a vital component of Philippine society depending upon its
training, orientation and support. It will either be the people's protector or a staunch
supporter of a usurper or tyrant, local and foreign interest. The Armed Forces of the
Philippines' past and recent experience shows it has never been independent and self-
reliant. Facts, data and statistics will show that it has been substantially dependent upon
a foreign power. In March 1968, Congressman Barbero, himself a member of the Armed
Forces of the Philippines, revealed top secret documents showing what he described as
U.S. dictation over the affairs of the Armed Forces of the Philippines. He showed that
under existing arrangements, the United States unilaterally determines not only the
types and quantity of arms and equipments that our armed forces would have, but also
the time when these items are to be made available to us. It is clear, as he pointed out,
that the composition, capability and schedule of development of the Armed Forces of the
Philippines is under the effective control of the U.S. government.376 (Emphases
supplied)

Commissioner Sarmiento proposed a motherhood statement in the 1987 Constitution


that would assert "independent" and "self-reliant" armed forces. This proposal was
rejected by the committee, however. As Commissioner De Castro asserted, the
involvement of the Philippine military with the U.S. did not, by itself, rob the Philippines
of its real independence. He made reference to the context of the times: that the limited
resources of the Philippines and the current insurgency at that time necessitated a
strong military relationship with the U.S. He said that the U.S. would not in any way
control the Philippine military despite this relationship and the fact that the former would
furnish military hardware or extend military assistance and training to our military.
Rather, he claimed that the proposal was in compliance with the treaties between the
two states.

MR. DE CASTRO: If the Commissioner will take note of my speech on U.S. military bases
on 12 September 1986, I spoke on the selfreliance policy of the armed forces. However,
due to very limited resources, the only thing we could do is manufacture small arms
ammunition. We cannot blame the armed forces. We have to blame the whole Republic
of the Philippines for failure to provide the necessary funds to make the Philippine Armed
Forces self-reliant. Indeed that is a beautiful dream. And I would like it that way. But as of
this time, fighting an insurgency case, a rebellion in our country - insurgency - and with
very limited funds and very limited number of men, it will be quite impossible for the
Philippines to appropriate the necessary funds therefor. However, if we say that the U.S.
government is furnishing us the military hardware, it is not control of our armed forces or
of our government. It is in compliance with the Mutual Defense Treaty. It is under the
military assistance program that it becomes the responsibility of the United States to
furnish us the necessary hardware in connection with the military bases agreement.
Please be informed that there are three (3) treaties connected with the military bases
agreement; namely: the RP-US Military Bases Agreement, the Mutual Defense Treaty and
the Military Assistance Program.

My dear Commissioner, when we enter into a treaty and we are furnished the military
hardware pursuant to that treaty, it is not in control of our armed forces nor control of
our government. True indeed, we have military officers trained in the U.S. armed forces
school. This is part of our Military Assistance Program, but it does not mean that the
minds of our military officers are for the U.S. government, no. I am one of those who took
four courses in the United States schools, but I assure you, my mind is for the Filipino
people. Also, while we are sending military officers to train or to study in U.S. military
schools, we are also sending our officers to study in other military schools such as in
Australia, England and in Paris. So, it does not mean that when we send military officers
to United States schools or to other military schools, we will be under the control of that
country. We also have foreign officers in our schools, we in the Command and General
Staff College in Fort Bonifacio and in our National Defense College, also in Fort
Bonifacio.377 (Emphases supplied)

This logic was accepted in Taada v. Angara, in which the Court ruled that independence
does not mean the absence of foreign participation:

Furthermore, the constitutional policy of a "self-reliant and independent national


economy" does not necessarily rule out the entry of foreign investments, goods and
services. It contemplates neither "economic seclusion" nor "mendicancy in the
international community." As explained by Constitutional Commissioner Bernardo
Villegas, sponsor of this constitutional policy:

Economic self reliance is a primary objective of a developing country that is keenly


aware of overdependence on external assistance for even its most basic needs. It does
not mean autarky or economic seclusion; rather, it means avoiding mendicancy in the
international community. Independence refers to the freedom from undue foreign control
of the national economy, especially in such strategic industries as in the development of
natural resources and public utilities.378 (Emphases supplied)

The heart of the constitutional restriction on foreign military facilities and bases is
therefore the assertion of independence from the U.S. and other foreign powers, as
independence is exhibited by the degree of foreign control exerted over these
areas.1wphi1 The essence of that independence is self-governance and self-control.379
Independence itself is "[t]he state or condition of being free from dependence,
subjection, or control. "380

Petitioners assert that EDCA provides the U.S. extensive control and authority over
Philippine facilities and locations, such that the agreement effectively violates Section 25
of the 1987 Constitution.381

Under Article VI(3) of EDCA, U.S. forces are authorized to act as necessary for
"operational control and defense." The term "operational control" has led petitioners to
regard U.S. control over the Agreed Locations as unqualified and, therefore, total.382
Petitioners contend that the word "their" refers to the subject "Agreed Locations."

This argument misreads the text, which is quoted below:


United States forces are authorized to exercise all rights and authorities within Agreed
Locations that are necessary for their operational control or defense, including taking
appropriate measure to protect United States forces and United States contractors. The
United States should coordinate such measures with appropriate authorities of the
Philippines.

A basic textual construction would show that the word "their," as understood above, is a
possessive pronoun for the subject "they," a third-person personal pronoun in plural
form. Thus, "their" cannot be used for a non-personal subject such as "Agreed
Locations." The simple grammatical conclusion is that "their" refers to the previous third-
person plural noun, which is "United States forces." This conclusion is in line with the
definition of operational control.

a. U.S. operational control as the exercise of authority over U.S. personnel, and not over
the Agreed Locations

Operational control, as cited by both petitioner and respondents, is a military term


referring to

[t]he authority to perform those functions of command over subordinate forces involving
organizing and employing commands and forces, assigning tasks, designating objective,
and giving authoritative direction necessary to accomplish the mission.383

At times, though, operational control can mean something slightly different. In JUSMAG
Philippines v. National Labor Relations Commission, the Memorandum of Agreement
between the AFP and JUSMAG Philippines defined the term as follows:384

The term "Operational Control" includes, but is not limited to, all personnel
administrative actions, such as: hiring recommendations; firing recommendations;
position classification; discipline; nomination and approval of incentive awards; and
payroll computation.

Clearly, traditional standards define "operational control" as personnel control. Philippine


law, for instance, deems operational control as one exercised by police officers and
civilian authorities over their subordinates and is distinct from the administrative control
that they also exercise over police subordinates.385 Similarly, a municipal mayor
exercises operational control over the police within the municipal government,386 just as
city mayor possesses the same power over the police within the city government.387

Thus, the legal concept of operational control involves authority over personnel in a
commander-subordinate relationship and does not include control over the Agreed
Locations in this particular case. Though not necessarily stated in EDCA provisions, this
interpretation is readily implied by the reference to the taking of "appropriate measures
to protect United States forces and United States contractors."

It is but logical, even necessary, for the U.S. to have operational control over its own
forces, in much the same way that the Philippines exercises operational control over its
own units.
For actual operations, EDCA is clear that any activity must be planned and pre-approved
by the MDB-SEB.388 This provision evinces the partnership aspect of EDCA, such that
both stakeholders have a say on how its provisions should be put into effect.

b. Operational control vis--vis effective command and control

Petitioners assert that beyond the concept of operational control over personnel,
qualifying access to the Agreed Locations by the Philippine Designated Authority with the
phrase "consistent with operational safety and security requirements in accordance with
agreed procedures developed by the Parties" leads to the conclusion that the U.S.
exercises effective control over the Agreed Locations.389 They claim that if the
Philippines exercises possession of and control over a given area, its representative
should not have to be authorized by a special provision.390

For these reasons, petitioners argue that the "operational control" in EDCA is the
"effective command and control" in the 1947 MBA.391 In their Memorandum, they
distinguish effective command and control from operational control in U.S. parlance.392
Citing the Doctrine for the Armed Forces of the United States, Joint Publication 1,
"command and control (C2)" is defined as "the exercise of authority and direction by a
properly designated commander over assigned and attached forces in the
accomplishment of the mission x x x."393 Operational control, on the other hand, refers
to "[t]hose functions of command over assigned forces involving the composition of
subordinate forces, the assignment of tasks, the designation of objectives, the overall
control of assigned resources, and the full authoritative direction necessary to
accomplish the mission."394

Two things demonstrate the errors in petitioners' line of argument.

Firstly, the phrase "consistent with operational safety and security requirements in
accordance with agreed procedures developed by the Parties" does not add any
qualification beyond that which is already imposed by existing treaties. To recall, EDCA is
based upon prior treaties, namely the VFA and the MDT.395 Treaties are in themselves
contracts from which rights and obligations may be claimed or waived.396 In this
particular case, the Philippines has already agreed to abide by the security mechanisms
that have long been in place between the U.S. and the Philippines based on the
implementation of their treaty relations.397

Secondly, the full document cited by petitioners contradicts the equation of "operational
control" with "effective command and control," since it defines the terms quite
differently, viz:398

Command and control encompasses the exercise of authority, responsibility, and


direction by a commander over assigned and attached forces to accomplish the mission.
Command at all levels is the art of motivating and directing people and organizations
into action to accomplish missions. Control is inherent in command. To control is to
manage and direct forces and functions consistent with a commander's command
authority. Control of forces and functions helps commanders and staffs compute
requirements, allocate means, and integrate efforts. Mission command is the preferred
method of exercising C2. A complete discussion of tenets, organization, and processes
for effective C2 is provided in Section B, "Command and Control of Joint Forces," of
Chapter V "Joint Command and Control."
Operational control is defined thus:399

OPCON is able to be delegated from a lesser authority than COCOM. It is the authority to
perform those functions of command over subordinate forces involving organizing and
employing commands and forces, assigning tasks, designating objectives, and giving
authoritative direction over all aspects of military operations and joint training necessary
to accomplish the mission. It should be delegated to and exercised by the commanders
of subordinate organizations; normally, this authority is exercised through subordinate
JFCs, Service, and/or functional component commanders. OPCON provides authority to
organize and employ commands and forces as the commander considers necessary to
accomplish assigned missions. It does not include authoritative direction for logistics or
matters of administration, discipline, internal organization, or unit training. These
elements of COCOM must be specifically delegated by the CCDR. OPCON does include
the authority to delineate functional responsibilities and operational areas of subordinate
JFCs.

Operational control is therefore the delegable aspect of combatant command, while


command and control is the overall power and responsibility exercised by the
commander with reference to a mission. Operational control is a narrower power and
must be given, while command and control is plenary and vested in a commander.
Operational control does not include the planning, programming, budgeting, and
execution process input; the assignment of subordinate commanders; the building of
relationships with Department of Defense agencies; or the directive authority for
logistics, whereas these factors are included in the concept of command and control.400

This distinction, found in the same document cited by petitioners, destroys the very
foundation of the arguments they have built: that EDCA is the same as the MBA.

c. Limited operational control over the Agreed Locations only for construction activitites

As petitioners assert, EDCA indeed contains a specific provision that gives to the U.S.
operational control within the Agreed Locations during construction activities.401 This
exercise of operational control is premised upon the approval by the MDB and the SEB of
the construction activity through consultation and mutual agreement on the
requirements and standards of the construction, alteration, or improvement.402

Despite this grant of operational control to the U.S., it must be emphasized that the
grant is only for construction activities. The narrow and limited instance wherein the U.S.
is given operational control within an Agreed Location cannot be equated with foreign
military control, which is so abhorred by the Constitution.

The clear import of the provision is that in the absence of construction activities,
operational control over the Agreed Location is vested in the Philippine authorities. This
meaning is implicit in the specific grant of operational control only during construction
activities. The principle of constitutional construction, "expressio unius est exclusio
alterius," means the failure to mention the thing becomes the ground for inferring that it
was deliberately excluded.403 Following this construction, since EDCA mentions the
existence of U.S. operational control over the Agreed Locations for construction
activities, then it is quite logical to conclude that it is not exercised over other activities.
Limited control does not violate the Constitution. The fear of the commissioners was total
control, to the point that the foreign military forces might dictate the terms of their acts
within the Philippines.404 More important, limited control does not mean an abdication
or derogation of Philippine sovereignty and legal jurisdiction over the Agreed Locations. It
is more akin to the extension of diplomatic courtesies and rights to diplomatic
agents,405 which is a waiver of control on a limited scale and subject to the terms of the
treaty.

This point leads us to the second standard envisioned by the framers of the Constitution:
that the Philippines must retain sovereignty and jurisdiction over its territory.

ii. Second standard: Philippine sovereignty and applicable law

EDCA states in its Preamble the "understanding for the United States not to establish a
permanent military presence or base in the territory of the Philippines." Further on, it
likewise states the recognition that "all United States access to and use of facilities and
areas will be at the invitation of the Philippines and with full respect for the Philippine
Constitution and Philippine laws."

The sensitivity of EDCA provisions to the laws of the Philippines must be seen in light of
Philippine sovereignty and jurisdiction over the Agreed Locations.

Sovereignty is the possession of sovereign power,406 while jurisdiction is the conferment


by law of power and authority to apply the law.407 Article I of the 1987 Constitution
states:

The national territory comprises the Philippine archipelago, with all the islands and
waters embraced therein, and all other territories over which the Philippines has
sovereignty or jurisdiction, consisting of its terrestrial, fluvial, and aerial domains,
including its territorial sea, the seabed, the subsoil, the insular shelves, and other
submarine areas. The waters around, between, and connecting the islands of the
archipelago, regardless of their breadth and dimensions, form part of the internal waters
of the Philippines. (Emphasis supplied)

From the text of EDCA itself, Agreed Locations are territories of the Philippines that the
U.S. forces are allowed to access and use.408 By withholding ownership of these areas
and retaining unrestricted access to them, the government asserts sovereignty over its
territory. That sovereignty exists so long as the Filipino people exist.409

Significantly, the Philippines retains primary responsibility for security with respect to the
Agreed Locations.410 Hence, Philippine law remains in force therein, and it cannot be
said that jurisdiction has been transferred to the U.S. Even the previously discussed
necessary measures for operational control and defense over U.S. forces must be
coordinated with Philippine authorities.411

Jurisprudence bears out the fact that even under the former legal regime of the MBA,
Philippine laws continue to be in force within the bases.412 The difference between then
and now is that EDCA retains the primary jurisdiction of the Philippines over the security
of the Agreed Locations, an important provision that gives it actual control over those
locations. Previously, it was the provost marshal of the U.S. who kept the peace and
enforced Philippine law in the bases. In this instance, Philippine forces act as peace
officers, in stark contrast to the 1947 MBA provisions on jurisdiction.413

iii. Third standard: must respect national security and territorial integrity

The last standard this Court must set is that the EDCA provisions on the Agreed
Locations must not impair or threaten the national security and territorial integrity of the
Philippines.

This Court acknowledged in Bayan v. Zamora that the evolution of technology has
essentially rendered the prior notion of permanent military bases obsolete.

Moreover, military bases established within the territory of another state is no longer
viable because of the alternatives offered by new means and weapons of warfare such as
nuclear weapons, guided missiles as well as huge sea vessels that can stay afloat in the
sea even for months and years without returning to their home country. These military
warships are actually used as substitutes for a land-home base not only of military
aircraft but also of military personnel and facilities. Besides, vessels are mobile as
compared to a land-based military headquarters.414

The VFA serves as the basis for the entry of U.S. troops in a limited scope. It does not
allow, for instance, the re-establishment of the Subic military base or the Clark Air Field
as U.S. military reservations. In this context, therefore, this Court has interpreted the
restrictions on foreign bases, troops, or facilities as three independent restrictions. In
accord with this interpretation, each restriction must have its own qualification.

Petitioners quote from the website http://en.wikipedia.org to define what a military base
is.415 While the source is not authoritative, petitioners make the point that the Agreed
Locations, by granting access and use to U.S. forces and contractors, are U.S. bases
under a different name.416 More important, they claim that the Agreed Locations invite
instances of attack on the Philippines from enemies of the U.S.417

We believe that the raised fear of an attack on the Philippines is not in the realm of law,
but of politics and policy. At the very least, we can say that under international law, EDCA
does not provide a legal basis for a justified attack on the Philippines.

In the first place, international law disallows any attack on the Agreed Locations simply
because of the presence of U.S. personnel. Article 2(4) of the United Nations Charter
states that "All Members shall refrain in their international relations from the threat or
use of force against the territorial integrity or political independence of any state, or in
any other manner inconsistent with the Purposes of the United Nations."418 Any
unlawful attack on the Philippines breaches the treaty, and triggers Article 51 of the
same charter, which guarantees the inherent right of individual or collective self-defence.

Moreover, even if the lawfulness of the attack were not in question, international
humanitarian law standards prevent participants in an armed conflict from targeting non-
participants. International humanitarian law, which is the branch of international law
applicable to armed conflict, expressly limits allowable military conduct exhibited by
forces of a participant in an armed conflict.419 Under this legal regime, participants to
an armed conflict are held to specific standards of conduct that require them to
distinguish between combatants and non-combatants,420 as embodied by the Geneva
Conventions and their Additional Protocols.421

Corollary to this point, Professor John Woodcliffe, professor of international law at the
University of Leicester, noted that there is no legal consensus for what constitutes a
base, as opposed to other terms such as "facilities" or "installation."422 In strategic
literature, "base" is defined as an installation "over which the user State has a right to
exclusive control in an extraterritorial sense."423 Since this definition would exclude
most foreign military installations, a more important distinction must be made.

For Woodcliffe, a type of installation excluded from the definition of "base" is one that
does not fulfill a combat role. He cites an example of the use of the territory of a state for
training purposes, such as to obtain experience in local geography and climactic
conditions or to carry out joint exercises.424 Another example given is an advanced
communications technology installation for purposes of information gathering and
communication.425 Unsurprisingly, he deems these non-combat uses as borderline
situations that would be excluded from the functional understanding of military bases
and installations.426

By virtue of this ambiguity, the laws of war dictate that the status of a building or person
is presumed to be protected, unless proven otherwise.427 Moreover, the principle of
distinction requires combatants in an armed conflict to distinguish between lawful
targets428 and protected targets.429 In an actual armed conflict between the U.S. and a
third state, the Agreed Locations cannot be considered U.S. territory, since ownership of
territory even in times of armed conflict does not change.430

Hence, any armed attack by forces of a third state against an Agreed Location can only
be legitimate under international humanitarian law if it is against a bona fide U.S.
military base, facility, or installation that directly contributes to the military effort of the
U.S. Moreover, the third state's forces must take all measures to ensure that they have
complied with the principle of distinction (between combatants and non-combatants).

There is, then, ample legal protection for the Philippines under international law that
would ensure its territorial integrity and national security in the event an Agreed Location
is subjected to attack. As EDCA stands, it does not create the situation so feared by
petitioners - one in which the Philippines, while not participating in an armed conflict,
would be legitimately targeted by an enemy of the U.S.431

In the second place, this is a policy question about the wisdom of allowing the presence
of U.S. personnel within our territory and is therefore outside the scope of judicial review.

Evidently, the concept of giving foreign troops access to "agreed" locations, areas, or
facilities within the military base of another sovereign state is nothing new on the
international plane. In fact, this arrangement has been used as the framework for several
defense cooperation agreements, such as in the following:

1. 2006 U.S.-Bulgaria Defense Cooperation Agreement432

2. 2009 U.S.-Colombia Defense Cooperation Agreement433

3. 2009 U.S.-Poland Status of Forces Agreement434


4. 2014 U.S.-Australia Force Posture Agreement435

5. 2014 U.S.-Afghanistan Security and Defense Cooperation Agreement436

In all of these arrangements, the host state grants U.S. forces access to their military
bases.437 That access is without rental or similar costs to the U.S.438 Further, U.S.
forces are allowed to undertake construction activities in, and make alterations and
improvements to, the agreed locations, facilities, or areas.439 As in EDCA, the host
states retain ownership and jurisdiction over the said bases.440

In fact, some of the host states in these agreements give specific military-related rights
to the U.S. For example, under Article IV(l) of the US.-Bulgaria Defense Cooperation
Agreement, "the United States forces x x x are authorized access to and may use agreed
facilities and areas x x x for staging and deploying of forces and materiel, with the
purpose of conducting x x x contingency operations and other missions, including those
undertaken in the framework of the North Atlantic Treaty." In some of these agreements,
host countries allow U.S. forces to construct facilities for the latters exclusive use.441

Troop billeting, including construction of temporary structures, is nothing new. In Lim v.


Executive Secretary, the Court already upheld the Terms of Reference of Balikatan 02-1,
which authorized U.S. forces to set up "[t]emporary structures such as those for troop
billeting, classroom instruction and messing x x x during the Exercise." Similar provisions
are also in the Mutual Logistics Support Agreement of 2002 and 2007, which are
essentially executive agreements that implement the VFA, the MDT, and the 1953
Military Assistance Agreement. These executive agreements similarly tackle the
"reciprocal provision of logistic support, supplies, and services,"442 which include "[b ]
illeting, x x x operations support (and construction and use of temporary structures
incident to operations support), training services, x x x storage services, x x x during an
approved activity."443 These logistic supplies, support, and services include temporary
use of "nonlethal items of military equipment which are not designated as significant
military equipment on the U.S. Munitions List, during an approved activity."444 The first
Mutual Logistics Support Agreement has lapsed, while the second one has been
extended until 2017 without any formal objection before this Court from the Senate or
any of its members.

The provisions in EDCA dealing with Agreed Locations are analogous to those in the
aforementioned executive agreements. Instead of authorizing the building of temporary
structures as previous agreements have done, EDCA authorizes the U.S. to build
permanent structures or alter or improve existing ones for, and to be owned by, the
Philippines.445 EDCA is clear that the Philippines retains ownership of altered or
improved facilities and newly constructed permanent or non-relocatable structures.446
Under EDCA, U.S. forces will also be allowed to use facilities and areas for "training; x x
x; support and related activities; x x x; temporary accommodation of personnel;
communications" and agreed activities.447

Concerns on national security problems that arise from foreign military equipment being
present in the Philippines must likewise be contextualized. Most significantly, the VFA
already authorizes the presence of U.S. military equipment in the country. Article VII of
the VFA already authorizes the U.S. to import into or acquire in the Philippines
"equipment, materials, supplies, and other property" that will be used "in connection
with activities" contemplated therein. The same section also recognizes that "[t]itle to
such property shall remain" with the US and that they have the discretion to "remove
such property from the Philippines at any time."

There is nothing novel, either, in the EDCA provision on the prepositioning and storing of
"defense equipment, supplies, and materiel,"448 since these are sanctioned in the VFA.
In fact, the two countries have already entered into various implementing agreements in
the past that are comparable to the present one. The Balikatan 02-1 Terms of Reference
mentioned in Lim v. Executive Secretary specifically recognizes that Philippine and U.S.
forces "may share x x x in the use of their resources, equipment and other assets." Both
the 2002 and 2007 Mutual Logistics Support Agreements speak of the provision of
support and services, including the "construction and use of temporary structures
incident to operations support" and "storage services" during approved activities.449
These logistic supplies, support, and services include the "temporary use of x x x
nonlethal items of military equipment which are not designated as significant military
equipment on the U.S. Munitions List, during an approved activity."450 Those activities
include "combined exercises and training, operations and other deployments" and
"cooperative efforts, such as humanitarian assistance, disaster relief and rescue
operations, and maritime anti-pollution operations" within or outside Philippine
territory.451 Under EDCA, the equipment, supplies, and materiel that will be
prepositioned at Agreed Locations include "humanitarian assistance and disaster relief
equipment, supplies, and materiel. "452 Nuclear weapons are specifically excluded from
the materiel that will be prepositioned.

Therefore, there is no basis to invalidate EDCA on fears that it increases the threat to our
national security. If anything, EDCA increases the likelihood that, in an event requiring a
defensive response, the Philippines will be prepared alongside the U.S. to defend its
islands and insure its territorial integrity pursuant to a relationship built on the MDT and
VFA.

8. Others issues and concerns raised

A point was raised during the oral arguments that the language of the MDT only refers to
mutual help and defense in the Pacific area.453 We believe that any discussion of the
activities to be undertaken under EDCA vis-a-vis the defense of areas beyond the Pacific
is premature. We note that a proper petition on that issue must be filed before we rule
thereon. We also note that none of the petitions or memoranda has attempted to discuss
this issue, except only to theorize that the U.S. will not come to our aid in the event of an
attack outside of the Pacific. This is a matter of policy and is beyond the scope of this
judicial review.

In reference to the issue on telecommunications, suffice it to say that the initial


impression of the facility adverted to does appear to be one of those that require a public
franchise by way of congressional action under Section 11, Article XII of the Constitution.
As respondents submit, however, the system referred to in the agreement does not
provide telecommunications services to the public for compensation.454 It is clear from
Article VIl(2) of EDCA that the telecommunication system is solely for the use of the U.S.
and not the public in general, and that this system will not interfere with that which local
operators use. Consequently, a public franchise is no longer necessary.
Additionally, the charge that EDCA allows nuclear weapons within Philippine territory is
entirely speculative. It is noteworthy that the agreement in fact specifies that the
prepositioned materiel shall not include nuclear weapons.455 Petitioners argue that only
prepositioned nuclear weapons are prohibited by EDCA; and that, therefore, the U.S.
would insidiously bring nuclear weapons to Philippine territory.456 The general
prohibition on nuclear weapons, whether prepositioned or not, is already expressed in
the 1987 Constitution.457 It would be unnecessary or superfluous to include all
prohibitions already in the Constitution or in the law through a document like EDCA.

Finally, petitioners allege that EDCA creates a tax exemption, which under the law must
originate from Congress. This allegation ignores jurisprudence on the government's
assumption of tax liability. EDCA simply states that the taxes on the use of water,
electricity, and public utilities are for the account of the Philippine Government.458 This
provision creates a situation in which a contracting party assumes the tax liability of the
other.459 In National Power Corporation v. Province of Quezon, we distinguished between
enforceable and unenforceable stipulations on the assumption of tax liability. Afterwards,
we concluded that an enforceable assumption of tax liability requires the party assuming
the liability to have actual interest in the property taxed.460 This rule applies to EDCA,
since the Philippine Government stands to benefit not only from the structures to be built
thereon or improved, but also from the joint training with U.S. forces, disaster
preparation, and the preferential use of Philippine suppliers.461 Hence, the provision on
the assumption of tax liability does not constitute a tax exemption as petitioners have
posited.

Additional issues were raised by petitioners, all relating principally to provisions already
sufficiently addressed above. This Court takes this occasion to emphasize that the
agreement has been construed herein as to absolutely disauthorize the violation of the
Constitution or any applicable statute. On the contrary, the applicability of Philippine law
is explicit in EDCA.

EPILOGUE

The fear that EDCA is a reincarnation of the U.S. bases so zealously protested by noted
personalities in Philippine history arises not so much from xenophobia, but from a
genuine desire for self-determination, nationalism, and above all a commitment to
ensure the independence of the Philippine Republic from any foreign domination.

Mere fears, however, cannot curtail the exercise by the President of the Philippines of his
Constitutional prerogatives in respect of foreign affairs. They cannot cripple him when he
deems that additional security measures are made necessary by the times. As it stands,
the Philippines through the Department of Foreign Affairs has filed several diplomatic
protests against the actions of the People's Republic of China in the West Philippine
Sea;462 initiated arbitration against that country under the United Nations Convention
on the Law of the Sea;463 is in the process of negotiations with the Moro Islamic
Liberation Front for peace in Southern Philippines,464 which is the subject of a current
case before this Court; and faces increasing incidents of kidnappings of Filipinos and
foreigners allegedly by the Abu Sayyaf or the New People's Army.465 The Philippine
military is conducting reforms that seek to ensure the security and safety of the nation in
the years to come.466 In the future, the Philippines must navigate a world in which
armed forces fight with increasing sophistication in both strategy and technology, while
employing asymmetric warfare and remote weapons.
Additionally, our country is fighting a most terrifying enemy: the backlash of Mother
Nature. The Philippines is one of the countries most directly affected and damaged by
climate change. It is no coincidence that the record-setting tropical cyclone Yolanda
(internationally named Haiyan), one of the most devastating forces of nature the world
has ever seen hit the Philippines on 8 November 2013 and killed at least 6,000
people.467 This necessitated a massive rehabilitation project.468 In the aftermath, the
U.S. military was among the first to extend help and support to the Philippines.

That calamity brought out the best in the Filipinos as thousands upon thousands
volunteered their help, their wealth, and their prayers to those affected. It also brought
to the fore the value of having friends in the international community.

In order to keep the peace in its archipelago in this region of the world, and to sustain
itself at the same time against the destructive forces of nature, the Philippines will need
friends. Who they are, and what form the friendships will take, are for the President to
decide. The only restriction is what the Constitution itself expressly prohibits. It appears
that this overarching concern for balancing constitutional requirements against the
dictates of necessity was what led to EDCA.

As it is, EDCA is not constitutionally infirm. As an executive agreement, it remains


consistent with existing laws and treaties that it purports to implement.

WHEREFORE, we hereby DISMISS the petitions.

Case #2

G.R. No. 204105, October 14, 2015

GERONIMO S. ROSAS, Petitioner, v. DILAUSAN MONTOR AND IMRA-ALI M. SABDULLAH,


Respondents.

DECISION

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari 1 assailing the March 9, 2012 Decision2
and October 16, 2012 Resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 05497
which affirmed the Office of the Ombudsman's (OMB's) March 2, 2007 Decision4 and July
4, 2008 Order5 in OMB-V-A-05-0036-A finding petitioner Geronimo S. Rosas, Regional
Director of the Bureau of Immigration Mactan International Airport Station, guilty of
grave misconduct.

The facts follow:


On December 7, 2004, Jafar Saketi Taromsari (Taromsari) and Jalal Shokr Pour Ziveh
(Ziveh), both Iranian nationals, arrived in the Philippines at the Mactan-Cebu
International Airport (MCIA). After staying in a hotel in Cebu City for a few days, they left
for Narita, Japan on December 14, 2004.

On December 16, 2004, Japanese immigration authorities discovered that Taromsari and
Ziveh had counterfeit or tampered Mexican and Italian passports and used falsified
names: "Jaime Humberto Nenciares Garcia" for Ziveh and "Marco Rabitti" for Taromsari.
For using these fraudulent passports and lack of entry visa, the Japanese immigration
authorities denied entry to Taromsari and Ziveh and sent them back to the Philippines.
Taromsari and Ziveh arrived at MCIA on the same day at 6:45 p.m. and admitted at the
detention cell of the Bureau of Immigration (BI) Cebu Detention Center.6

In a Memorandum7 dated December 15, 2004 addressed to BI Commissioner Alipio F.


Fernandez, petitioner Geronimo S. Rosas, Senior Immigration Officer and Alien Control
Officer of Cebu Immigration District Office, who was then also designated as Regional
Director, gave the following report:

On flight PR 433 from Narita International Airport, Japan on Thursday, 16th of December
2004 at 18:45 Hours, passengers JAFAR SAKETI TAROMSARI @ Marco Rabitti (Italian) and
JALAL SHOKR POUR ZIVEH @ Jaime Humberto Nenciares Garcia (Mexican), both Iranian
nationals, were boarded back to Mactan-Cebu International Airport after caught by the
Japanese Immigration authorities thereat for using fake and fraudulent Italian and
Mexican passports, respectively.

During the investigation conducted by Atty. Serafin A. Abellon, Special Prosecutor in the
presence of Regional Director Geronimo S. Rosas, subjects admitted that they bought the
Italian and Mexican passports from a certain "KURAM" in Tehran, Iran, whom they
allegedly attached their respective pictures substituting the pictures of the real owners
and paid US$3,000 at US$1,500.00 each, for the purpose of traveling in comfort without
the requirement of entry visa to Japan and finally, to work thereat, considering that JAFAR
SAKETI TAROMSARI had worked there before for three (3) years from 1999 to 2002 and
earned a lot of money until he was caught and deported by Japanese Immigration
authorities, that they both arrived in the Philippines for the first time at MCIA on
December 07, 2004 on board MI 566 from Singapore using Italian and Mexican passports
under the names of MARCO RABITTI and JAIME HUMBERTO NECIARES GARCIA,
respectively. Subsequently, they left for Narita, Japan on December 14, 2004 and were
sent back to MCAI on December 16, 2004.

That the acts committed by the subjects are plain violations of our PIA of 1940 as
amended under Section 29 (a) (14) and therefore, they are excludable. Recommend
inclusion of their names in the Blacklist.

Thereupon, an Exclusion Order8 was issued against Taromsari and Ziveh on grounds of
"Not Properly Documented" and "No Entry Visa."

On December 17, 2004, security guards Elmer Napilot (Napilot) and Jose Ramon Ugarte
(Ugarte) received a written order from petitioner directing them to escort Taromsari and
Ziveh from Bi Detention, Mandaue City to MCIA pursuant to the aforementioned
exclusion order for violation of Sec. 29 (a) (17) of Commonwealth No. 613 or the
Philippine Immigration Act(PIA)of 1940.9

On December 19, 2004, Taromsari and Ziveh were released from detention and brought
by Napilot and Ugarte to the MCIA for deportation.10 They were allowed to leave for
Tehran, Iran via Kuala Lumpur, Malaysia on board Malaysian Air Lines.11

On January 18, 2005, respondents Imra-Ali Sabdullah and Dilausan S. Montor, employees
of the Bureau of Immigration (BI), Cebu, filed a Complaint-Affidavit12 before the OMB
against petitioner, Napilot and Ugarte for grave misconduct, violation of Section 3(e)13
of Republic Act (RA) No. 3019 and conduct prejudicial to the interest of public service.
Respondents alleged that petitioner irregularly and anomalously handled and disposed of
the case involving two restricted Iranian nationals by allowing them to leave the country
without initiating any proceeding for violation of immigration laws considering that said
aliens were potential threats to the country's national interest and security. It was further
contended that the Iranian nationals should have been charged for deportation because
they violated Section 37(a)(9), in relation to Sections 45 and 46 of PI A.

In his Counter-Affidavit,14 petitioner denied the allegations against him and asserted
that he should not be made liable for acts that do not fall within his area of responsibility.
He pointed out that it is the immigration officers who are incharge of primary inspection
of incoming and outgoing passengers as well as the determination of whether a
passenger should be excluded, and the management, control and supervision of such
duties pertain to the Head Supervisor, Mr. Casimiro P. Madarang III. He also averred that
he did not have prior knowledge of the two Iranian nationals' previous entry to the
country as he was, in fact, not at the MCIA on that particular date and time of their first
arrival in the Philippines.

Petitioner, nonetheless, contended that the two Iranian nationals were proper subjects
for exclusion under Section 29(a)(17)15 since they used Iranian passports without the
requisite Philippine entry visas when they arrived on December 16, 2004. He explained
that the counterfeit Italian and Mexican passports were confiscated by the Japanese
Immigration authorities when Japan excluded the Iranian nationals. Such use of Iranian
passports without entry visas served as the basis for their exclusion from our country. He
likewise denied giving preferential treatment to the detained Iranian nationals, citing his
Memorandum dated December 17, 2004 where he reported to the BI Commissioner that
two Iranian nationals violated Section 29(a)(17) of the PIA of 1940 and recommended
placing them both in the Blacklist.

On March 2, 2007, the OMB rendered its Decision finding substantial evidence of
petitioner's grave misconduct. It held that in unduly releasing the two Iranian nationals,
petitioner showed manifest partiality, evident bad faith and gross inexcusable
negligence. It also stated that petitioner's claim that he had no prior knowledge of the
unlawful entry was belied by his December 17, 2004 Memorandum. Napilot and Ugarte
were acquitted from the charges as they merely acted on petitioner's orders and no
evidence was presented to suggest that they were in conspiracy with the petitioner.

The OMB thus ruled:

In view of the foregoing, this Office finds [petitioner] Rosas guilty of Grave Misconduct.
Considering the gravity of the offense and the fact that this is not the first time
[petitioner] Rosas is administratively sanctioned, the penalty of DISMISSAL is hereby
imposed pursuant to Rule XIV, Section 23 of the Omnibus Rules Implementing Book V of
Executive Order No. 292.

However, finding no conspiracy between [petitioner] Rosas and respondents Elmer


Napilot and Ramon Ugarte, the case against Napilot and Ugarte is hereby dismissed for
want of substantial evidence.

SO DECIDED.16ChanRoblesVirtualawlibrary

On December 27, 2007, the OMB issued an Order17 for the immediate implementation
of the March 2, 2007 Decision. Petitioner's motion for reconsideration was likewise
denied.18

Via a petition for review,19 petitioner assailed the OMB's ruling in the CA, arguing that he
should not be held administratively liable for the release of the two Iranian nationals
pursuant to a validly issued exclusion order.

In its March 9, 2012 decision, the CA affirmed the OMB's ruling. The CA held that there
was sufficient evidence on record for the OMB's conclusion that the release of the two
Iranian nationals was irregular and not in accord with existing immigration laws. It
stressed that the matter was not one that merely involved the lack of entry visas but
that petitioner had knowledge that the two Iranian nationals were excluded from Japan
for using fraudulent passports. Plainly, the results of the investigation provide sufficient
basis for deportation proceedings. The CA concurred with the OMB that petitioner had
the duty to initiate deportation and criminal proceedings against the Iranian nationals for
violation of Section 37(a)(9) of the PIA in relation to Sections 45 and 46. Thus:

WHEREFORE, in view of the foregoing premises, the Petition for Review dated November
2, 2010 is hereby DISMISSED.

SO ORDERED.20ChanRoblesVirtualawlibrary

Petitioner moved for reconsideration but it was denied.21

Hence, this petition.

Petitioner reiterates that he cannot be held administratively liable for a validly issued
exclusion order which is an examining immigration officer's function under the PIA of
1940. He asserts that there was lack of substantial evidence to hold him liable for giving
unwarranted benefit to the Iranian nationals.

On his part, the Solicitor General argues that Section 37 of the PIA of 1940 mandates the
BI to arrest aliens who enter the Philippines by false means and misleading statements.
He explains that the two Iranian nationals were held in detention not for the lack of entry
visas but for using falsified documents when they entered the Philippines on December
7, 2004 and when they left for Japan on December 14, 2004. Such was evident from the
investigation conducted by the BI on the two Iranian nationals.

Petitioner submits the following assignment of errors:


WHETHER PETITIONER ROSAS CAN BE VALIDLY SANCTIONED WITH THE SEVEREST
ADMINISTRATIVE PENALTY OF DISMISSAL FOR THE PURELY DISCRETIONARY ACTS OF THE
ASSIGNED IMMIGRATION OFFICERS IN ORDERING THE EXCLUSION OF THE IRANIAN
NATIONALS NOTWITHSTANDING THE OVERWHELMING EVIDENCES THAT WOULD SHOW
THAT PETITIONER ROSAS HAS NO INVOLVEMENT AND PARTICIPATION IN RENDERING THE
SAID EXCLUSION ORDER AND NOTWITHSTANDING THAT THE SAID EXCLUSION ORDER
WAS VALIDLY AND PROPERLY ISSUED BY THE IMMIGRATION OFFICERS UNDER THE
PREVAILING CIRCUMSTANCES;
WHETHER OR NOT PETITIONER ROSAS CAN BE VALIDLY SANCTIONED WITH THE
SEVEREST ADMINISTRATIVE PENALTY OF DISMISSAL SANS ANY SPECK OF EVIDENCE THAT
HE GAVE UNWARRANTED BENEFIT TO THE IRANIAN NATIONALS AND THAT HE WAS
MOTIVATED BY CORRUPT MOTIVES WHEN HE SUBMITTED AN
INCIDENT/RECOMMENDATORY REPORT TO THE COMMISSIONER OF IMMIGRATION
AFFIRMING THE EXCLUSION ORDER OF THE ASSIGNED IMMIGRATION OFFICERS AGAINST
THE IRANIAN NATIONALS;
WHETHER OR NOT PETITIONER ROSAS CAN BE VALIDLY SANCTIONED WITH THE
SEVEREST ADMINISTRATIVE PENALTY OF DISMISSAL FOR NOT INITIATING THE
DEPORTATION AND CRIMINAL PROCEEDINGS AGAINST THE IRANIAN NATIONALS WHICH
UNDER THE LAW CAN ONLY BE EXERCISED BY THE IMMIGRATION COMMISSIONER WHO
WAS FULLY INFORMED OF THE CIRCUMSTANCES PERTAINING TO THE INCIDENT
INVOLVING THE IRANIAN NATIONALS;
WHETHER THE COURT OF APPEALS HAS SUBSTANTIAL BASIS TO CONCLUDE THAT THE
DELAY IN THE EXCLUSION OF THE IRANIAN NATIONALS APPEARED TO BE IRREGULAR AND
DEVIATED FROM THE NORM NOTWITHSTANDING THE OVERWHELMING EVIDENCES ON
RECORD THAT WOULD SHOW THAT THE SAME HAS FACTUAL AND LEGAL BASIS; AND
WHETHER OR NOT THE, COURT OF APPEALS GRAVELY ERRED IN DISREGARDING THE
SETTLED FACTS AND EVIDENCES THAT WOULD SHOW THAT PETITIONER ROSAS HAS NOT
DONE ANY MISCONDUCT IN RELATION TO THE INCIDENT INVOLVING THE IRANIAN
NATIONALS.22ChanRoblesVirtualawlibrary

Essentially, the issue before us is whether there is substantial evidence to sustain the
finding of gross misconduct warranting petitioner's removal from the service. Otherwise
stated, does petitioner's act of releasing the two Iranian nationals without initiating any
case for violation of immigration laws despite the results of the investigation undertaken
constitute gross misconduct?

We rule in the affirmative.

It is well-settled that findings of fact and conclusions by the Office of the Ombudsman
are conclusive when supported by substantial evidence.23 Substantial evidence is more
than a mere scintilla; it means such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion, even if other minds equally reasonable
might conceivably opine otherwise.24 The factual findings of the Office of the
Ombudsman are generally accorded great weight and respect, if not finality by the
courts, by reason of their special knowledge and expertise over matters falling under
their jurisdiction.25cralawred

We agree with the CA that there was sufficient basis to initiate deportation proceedings
under Section 37(a)(9) in relation to Section 45 of the PIA of 1940. We find no cogent
reason to overturn the CA's findings the question of whether substantial evidence being
a question of fact which is beyond this Court's power of review for it is not a trier of
facts.26

PETITIONER HAD TOE DUTY TO


INITIATE CRIMINAL PROCEEDINGS
AND DEPORTATION PROCEEDINGS
UNDER SECTION 45 OF THE PIA OF
1940

Every sovereign power has the inherent power to exclude aliens from its territory upon
such grounds as it may deem proper for its self-preservation or public interest. In the
Philippines, aliens may be expelled or deported from the Philippines on grounds and in
the manner provided for by the Constitution, the PIA of 1940, as amended, and
administrative issuances pursuant thereto.27

Section 1028 of the PIA of 1940 requires non-immigrants to present their unexpired
passports and valid passport visas to immigration officers. Pursuant to their powers as
outlined in Section 629 of the PIA of 1940, the examining immigration officer determines
whether the non-immigrant is qualified to enter the Philippines based on Section
29(a).30 If the alien holds none of the disqualifications as stated in Section 29, he may
be admitted entry barring other circumstances that might affect his entry. If, however,
the immigration officer determines that an alien possesses any of the disqualifications
under Section 29, the immigration officer is authorized to issue an exclusion order.

Exclusion and deportation are formal removal procedures which ultimately results to an
alien's removal from the territory provided for separately under Section 29 and 37 of the
PIA, respectively. The United States in Ex Parte Domingo Corypus,31 the Washington
District Court in 1925 differentiated exclusion from deportation in the following manner:

x x x Deporting a person who is already in the country, and therefore enlarged, is


depriving him of a privilege which he, at least at the time, is enjoying in the United
States; whereas a person being denied the privilege to enter is not deprived of any
liberties which he had theretofore enjoyed. The gate is simply closed and he may not
enter.

Under Philippine immigration laws, exclusion is the authorized removal of an alien by


immigration officers, performing primary inspection, or by the immigration boards of
special inquiry, by secondary inspection, of any foreigner arriving in the Philippines who,
upon inspection and prior to entry or admission, is barred by immigration laws, rules and
regulations from entering or being admitted to the Philippines.32 When an alien is
excluded he is immediately sent back to the country where he came from on the same
vessel which transported him, unless in the opinion of the Commissioner of Immigration
such immediate return is not practicable or proper.33 Under certain circumstances, when
an alien is excluded, Section 2534 of the PIA of 1940 authorizes the alien's detention
until such time it is determined that he is qualified for entry and/or admission.

Deportation proceedings, on the other hand, are governed by Sections 3735 to 39 of the
PIA. We have stated that the power to deport aliens is an act of State, an act done by or
under the authority of the sovereign power.36 It is a police measure against undesirable
aliens whose continued presence in the country is found to be injurious to the public
good and the domestic tranquility of the people.37
Pertinently, Section 37(a)(9) provides:

Sec. 37. (a) The following aliens shall be arrested upon the warrant of the Commissioner
of Immigration or of any other officer designated by him for the purpose and deported
upon the warrant of the Commissioner of Immigration after a determination by the Board
of Commissioners of the existence of the "round for deportation as charged against the
alien:

xxxx

9. Any alien who commits any of the acts described in sections forty-five and forty-six of
this Act, independent of criminal action which may be brought against him: Provided,
That in the case of an alien who, for any reason, is convicted and sentenced to suffer
both imprisonment and deportation, said alien shall first serve the entire period of his
imprisonment before he is actually deported: Provided however, That the imprisonment
may be waived by the Commissioner of Immigration with the consent of the Department
Head, and upon payment by the alien concerned of such amount as the Commissioner
may fix and approved by the Department Head;cralawlawlibrary

x x x x (Emphasis supplied)ChanRoblesVirtualawlibrary

The relevant provisions of Sections 45 and 46 state:

Sec. 45. Any individual who:

xxxx

(c) Obtains, accepts or uses any immigration document, knowing it to be false; or

xxxx

Sec. 46. Any individual who shall bring into or land in the Philippines or conceal, harbor,
employ, or give comfort to any alien not duly admitted by any immigration officer or not
lawfully entitled to enter or reside within the Philippines under the terms of the
immigration laws, or attempts, conspire with, or aids another to commit any such act,
and any alien who enters the Philippines without inspection and admission by the
immigration officials, or obtains entry into the Philippines by willful, false, or misleading
representation or willful concealment of a material fact, shall be guilty of an offense, and
upon conviction thereof, shall be fined not less than five thousand pesos but not more
than ten thousand pesos, imprisoned for not less than five years but not more than ten
years, and deported if he is an alien. Dismissal by the employer before or after
apprehension does not relieve the employer of the offense.

x x x x (Emphasis supplied)ChanRoblesVirtualawlibrary

The two Iranian nationals, Taromsari and Ziveh, confessed to have knowingly used
falsified passports and obtained entry into the Philippines by using the said fraudulent
immigration documents, both of which are grounds for deportation proceedings. Upon
being questioned why they were sent back from Japan, they admitted that they entered
the Philippines previously using fraudulent passports, to wit:
Q
Do you understand why you were sent back to [MCIA] from Narita, Japan?
A.
Yes sir, we were caught using fake Italian and Mexican passports by Japanese
Immigration officers at Narita International Airport, Japan.
Q.
What fake passports are you referring to?
A.
We were using fake Italian and Mexican passports in entering the Philippines at [MCIA].
xxxx
Q.
Where are these Italian and Mexican passports, you mentioned?
A.
The Japanese Immigration authorities confiscated them.
Q.
What was your purpose in going to Japan with fake passports?
A.
Our only purpose is to find jobs there, so that we can support financially our family in
Tehran, Iran but Iranians are required to secure entry visas and it is very difficult to get
entry visas from their embassy. Italians and Mexicans are not required entry visas to
Japan.
Q.
Can you narrate to us how did you and your friend able to reach our country?
A.
First, we applied entry visas at the Thailand Embassy in Tehran, Iran using our Iranian
passports, which visa application was granted to us on October 26, 2004. W[e] went to
Bangkok, Thailand via Dubai and stayed there for one (1) month and came back to Iran.
The last time we left Tehran, Iran again via Dubai on December 02, 2004 to Bangkok,
Thailand. Our destination this time [was] to reach Japan via Malaysia & Cebu, Philippines.
We arrived Malaysia in December 06, 2004.
Q.
What travel documents were you using from Bangkok to Malaysia?
A.
We were using our Iranian passports, sir.
Q.
From Malaysia to Mactan-Cebu, what travel documents were you using?
A.
From Malaysia, we left on December 06, 2004 and passed by Singapore where we spent
about ten (10) hours at the airport, we were using our Iranian passports, we finally
boarded Silk Air to [MCIA] and upon arrival in [MCIA], we were using Italian and Mexican
passports.
xxxx
Q.
Are you aware that you are violating our Immigration laws in the country?
A.
Yes, sir, but we have to use fake travel documents because of our desire to work and
earn a living.
xxxx
Q.
Have you been to Japan?
A.
Yes, sir. I was there for three (3) years, 1999 to 2002 and I earned a lot of money but I
was caught and departed back to Iran.38

Having admitted that they knowingly entered the country with the use of fraudulent
passports and false representations when they arrived on December 7 , 2004, Taromsari
and Ziveh should have been ordered arrested and formally charged with violation of
Section 37(a)(9) in relation to Section 45(c) and (d). Deportation proceedings should
have been initiated forthwith against these aliens.

While the two Iranian nationals were initially held due to lack of entry visas, after their
admission that they used fraudulent passports in entering the country, the filing of a
criminal action pursuant to Section 45 is proper, together with the initiation of
deportation proceedings. While both exclusion and deportation ultimately removes a
person from our territory, Section 45 imposes an additional penalty - deportation has an
additional penalty in that it imposes a fine. Indeed, that these aliens were released
without undergoing deportation proceedings as required by law is highly irregular.

Misconduct is defined as "a transgression of some established and definite rule of action,
more particularly, unlawful behavior or gross negligence by a public officer."39 It
becomes grave misconduct when it "involves any of the additional elements of
corruption, willful intent to violate the law or to disregard established rules, which must
be established by substantial evidence."40 A person charged with grave misconduct may
be held liable for simple misconduct if the misconduct does not involve any of the
additional elements to qualify the misconduct as grave.41 The charge of gross
misconduct is a serious charge that warrants the removal or dismissal of a public officer
or employee from service together with the accessory penalties, such as cancellation of
eligibility, forfeiture of retirement benefits, and perpetual disqualification from
reemployment in government service.42

In this case, petitioner had the duty under the law to oversee the filing of criminal
actions and deportation proceedings against Taromsari and Ziveh and not merely
excluding them. The facts on record established that at the time petitioner
recommended their exclusion on December 17, 2004, he was already aware that said
Iranian nationals used the falsified Mexican and Italian passports in entering and leaving
the Philippines on December 7 and 14, 2004. Such use of counterfeit passports by aliens
entering our country is a criminal offense under Sec. 45 of the PIA, as amended.

Instead of filing the appropriate criminal charge as mandated by law, petitioner allowed
Taromsari and Ziveh to depart and return to Tehran via Malaysia. While claiming that it
was only on December 17, 2004 that he came to know of the Iranian nationals' detention
for illegal entry into the Philippines, official log book records43 show that petitioner,
along with security guards Napilot and Ugarte, brought the two Iranian nationals to their
detention cell on the same night of their arrival from Japan on December 16, 2004 and
detained them there for three days. Custody over the two Iranian nationals caught
violating our immigration laws was simply handed over by petitioner to the two security
guards whom he later instructed to escort the said offenders to the airport to depart for
Malaysia. In failing to initiate the proper proceedings against the Iranian nationals and
allowing them to escape criminal charges and thorough investigation for possible
terrorist activities or human trafficking, petitioner displayed a blatant disregard of
established immigration rules making him liable for grave misconduct that warrants his
removal from the service.

WHEREFORE, the appeal is DENIED for lack of merit and AFFIRM the March 9, 2012
Decision and October 16, 2012 Resolution of the Court of Appeals in CA-G.R. SP No.
05497.

With costs against the petitioner.

Case #3

G.R. No. 202651 August 28, 2013

LUCENA B. RALLOS, PETITIONER,


vs.
CITY OF CEBU, HONORABLE MICHAEL RAMA, HONORABLE JOY AUGUSTUS YOUNG,
HONORABLE SISINIO ANDALES, HONORABLE RODRIGO ABELLANOSA, HONORABLE ALVIN
ARCILLA, HONORABLE RAUL ALCOSEBA, HONORABLE MA. NIDA CABRERA, HONORABLE
ROBERTO CABARRUBIAS, HONORABLE ALVIN DIZON, HONORABLE RONALD CUENCO,
HONORABLE LEA JAPSON, HONORABLE JOSE DALUZ III, HONORABLE EDGARDO LABELLA,
HONORABLE MARGARITA OSMEA, HONORABLE AUGUSTUS PE, HONORABLE RICHARD
OSMEA, HONORABLE NOEL WENCESLAO, HONORABLE EDUARDO RAMA, JR.,
HONORABLE MICHAEL RALOTA, HONORABLE JOHN PHILIP ECHAVEZ-PO, ATTY. JOSEPH
BERNALDEZ, ATTY. JUNE MARATAS, ATTY. JERONE CASTILLO, ATTY. MARY ANN SUSON,
ATTY. LESLIE ANN REYES, ATTY. CARLO VINCENT GIMENA, ATTY. FERDINAND CAETE,
ATTY. ISMAEL GARAYGAY III, ATTY. LECEL LLAMEDO AND ATTY. MARIE VELLE ABELLA,
RESPONDENTS.

RESOLUTION
REYES, J.:

One of the Heirs of Reverend Father Vicente Rallos (Heirs of Fr. Rallos), Lucena B. Rallos1
(Lucena), is now before this Court with a petition2 praying for the citation for indirect
contempt of the City of Cebu, Mayor Michael Rama (Mayor Rama), the presiding officer
and members of the Sangguniang Panlungsod, and lawyers from the Office of the City
Attorney (respondents). The instant petition is anchored on Lucena's allegation that the
respondents impede the execution of final and executory judgments rendered by this
Court in G.R. Nos. 1796623 and 1941114. G.R. Nos. 179662 and 194111 were among a
string of suits which originated from a Complaint for Forfeiture of Improvements or
Payment of Fair Market Value with Moral and Exemplary Damages5 filed in 1997 by the
Heirs of Fr. Rallos before the Regional Trial Court (RTC) of Cebu City, Branch 9, against the
City of Cebu relative to two parcels of land6 with a total area of 4,654 square meters
located in Barangay Sambag I which were expropriated in 1963 for road construction
purposes.

Antecedent Facts

At the root of the controversy are Lots 485-D and 485-E of the Banilad Estate, Sambag I,
Cebu City, which were expropriated to be used as a public road in 1963. The Heirs of Fr.
Rallos alleged that the City of Cebu occupied the lots in bad faith sans the authority of
the former's predecessors-in-interest, who were the registered owners of the subject
parcels of land.

On June 11, 1997, the Heirs of Fr. Rallos filed before the RTC a Complaint for Forfeiture of
Improvements or Payment of Fair Market Value with Moral and Exemplary Damages
against the City of Cebu.

In its Answer filed on October 6, 1997, the City of Cebu contended that the subject
parcels of land are road lots and are not residential in character. They have been
withdrawn from the commerce of men and were occupied by the City of Cebu without
expropriation proceedings pursuant to Ordinance No. 416 which was enacted in 1963 or
more than 35 years before the Heirs of Fr. Rallos instituted their complaint.

On January 14, 2000, the RTC rendered a Decision,7 which found the City of Cebu liable
to pay the Heirs of Fr. Rallos just compensation in the amount still to be determined by a
board of three commissioners, one each to be designated by the contending parties and
the court.

To assail the Decision rendered on January 14, 2000, the City of Cebu filed a Motion for
Reconsideration, which was however denied by the RTC on February 5, 2001.8

The members of the Board of Commissioners thereafter submitted their respective


appraisal reports. On July 24, 2001, the RTC rendered a Decision,9 the dispositive portion
of which, in part, reads:

WHEREFORE, the [RTC] hereby renders judgment, ordering [the City of Cebu] to pay [the
Heirs of Fr. Rallos] as just compensation for Lots 485-D and 485-E the amount of
Php34,905,000.00 plus interest at 12% per annum to start 40 days from [the] date of this
decision and to continue until the whole amount shall have been fully paid. [The City of
Cebu] is further ordered to pay [the Heirs of Fr. Rallos] the following amounts:

1. Php50,000.00 as reimbursement for attorney's fees;

2. Php50,000.00 as reimbursement for litigation expenses.10

The contending parties both moved for the reconsideration of the Decision rendered on
July 24, 2001. The City of Cebu argued that the reckoning period for the computation of
just compensation should be at least not later than 1963 when the said lots were initially
occupied. On the other hand, the Heirs of Fr. Rallos insisted that the amount of just
compensation payable by the City of Cebu should be increased from Php 7,500.00 to Php
12,500.00 per sq m, the latter being the fair market value of the subject lots. They also
prayed for the award of damages in the amount of Php 16,186,520.00, which was
allegedly the value of the loss of usage of the properties involved from 1963 to 1997 as
computed by Atty. Fidel Kwan, the commissioner appointed by the RTC.

On March 21, 2002, the RTC issued a Consolidated Order11 denying the Motion for
Reconsideration filed by the City of Cebu, but modifying the Decision rendered on July
24, 2001. Through the said order, the RTC increased the amount of just compensation
payable to the Heirs of Fr. Rallos from Php 7,500.00 to Php 9,500.00 per sq m.

The City of Cebu filed with the RTC a Notice of Appeal, which was opposed by the Heirs of
Fr. Rallos.

In the Decision12 rendered on May 29, 2007, which resolved the appeal13 filed by the
City of Cebu, the CA opined that the RTC erred in holding that the reckoning point for the
determination of the amount of just compensation should be from 1997, the time the
complaint for just compensation was filed by the Heirs of Fr. Rallos. Notwithstanding the
foregoing, the CA still dismissed on procedural grounds the appeal filed by the City of
Cebu. The CA pointed out that pursuant to Sections 214 and 9,15 Rule 41 and Section
1,16 Rule 50 of the Rules of Court, a record on appeal and not a notice of appeal should
have been filed before it by the City of Cebu to assail the RTC's Decisions rendered on
January 14, 2000 and July 24, 2001 and the Orders issued on February 5, 2001 and
March 21, 2002.

The City of Cebu filed before this Court a Petition for Review on Certiorari17 to assail the
Decision rendered by the CA on May 29, 2007. This Court denied the same through a
Minute Resolution18 issued on December 5, 2007. The said Minute Resolution was
recorded in the Book of Entries of Judgments on April 21, 2008.19

The Heirs of Fr. Rallos thereafter filed before the RTC a Motion for Execution relative to
the Decision rendered on July 24, 2001. They claimed that in 2001, the City of Cebu paid
them Php 34,905,000.00, but there remained a balance of Php 46,546,920.00 left to be
paid, computed as of September 2, 2008. On its part, the City of Cebu admitted still
owing the Heirs of Fr. Rallos but only in the amount of Php 16,893,162.08.20

On December 4, 2008, the RTC issued a writ of execution in favor of the Heirs of Fr.
Rallos, which in part, reads:
NOW, THEREFORE, you are hereby commanded to serve a copy hereof to judgment
obligor City of Cebu and demand for the immediate payment of Php 44,213,000.00, less
the partial payment of Php 34,905,000.00 plus interest at 12% per annum to start 40
days from date of the July 24, 2001 Decision and to continue until the whole amount has
been fully paid; Php 50,000.00 as attorney's fees; and Php 50,000.00 as litigation
expenses. x x x.21

Sheriff Antonio Bellones (Sheriff Bellones) then served upon the City of Cebu a demand
letter, dated December 4, 2008, and which was amended on January 26, 2009, indicating
that:

DEMAND is hereby made for the judgment obligor City of Cebu x x x to facilitate the
prompt payment of the following: (a) just compensation of Lots 485-D and 485-E in the
amount of Php 44,213,000.00 plus interest of 12% per annum starting 40 days from the
July 24, 2001 Decision and to continue until the whole amount has been duly paid less
partial payment of Php 34,905,000.00 x x x.22

The City of Cebu sought the reiteration of the directives stated in the Writ of Execution
issued on December 4, 2008 and the setting aside of the amended demand letter served
upon it by Sheriff Bellones.

On March 16, 2009, the RTC issued an Order23 denying the City of Cebu's motion for the
reiteration of the writ of execution. The RTC, however, set aside the demand letter
served upon the City of Cebu by Sheriff Bellones and interpreted the directives of the
writ of execution issued on December 4, 2008 as:

[T]he entire amount of Php 44,213,000.00 shall be subjected to a 12% interest per
annum to start 40 days from the date the decision on July 24, 2001 [was rendered] until
the amount of Php 34,905,000.00 was partially paid by the City of Cebu. After the
payment by the City of Cebu of a partial amount, the balance shall again be subjected to
12% interest until the same shall have been fully paid.24

The Heirs of Fr. Rallos assailed the abovementioned order on the ground that it
effectively modified the final and executory Decision rendered on July 24, 2001. They
likewise sought the application of Article 221225 of the New Civil Code and jurisprudence
so as to entitle them to legal interest on the interest due to them pursuant to the
Decision rendered on July 24, 2001. In the Order issued on May 20, 2009, the RTC did not
favorably consider the preceding claims.

A Petition for Certiorari and Mandamus26 was then filed by the Heirs of Fr. Rallos before
the CA to challenge the Orders issued by the RTC on March 16, 2009 and May 20, 2009.
The CA granted the petition after finding that the two assailed orders effectively modified
the final and executory disposition made by the RTC on March 21, 2002. The CA likewise
ruled that the case calls for the application of Article 2212 of the New Civil Code, hence,
it directed the City of Cebu to pay interest at the rate of 12% per annum upon the
interest due, to be computed from the date of the filing of the complaint until full
satisfaction of the obligation. The CA stated:

Note that the final and executory consolidated decision of July 24, 2001 as modified by
the final and executory order of March 21, 2002, clearly directed herein respondent Cebu
City to pay interest at the rate of 12% per annum based on the amount of [Php]9,500.00
per square meter starting 40 days from the date of the decision and to continue until the
entire amount shall have been fully paid. Yet, the assailed orders x x x, now directed that
the 12% interest per annum be paid on the declining balance contrary to the directive in
the final and executory judgment x x x.

xxxx

x x x [The Heirs of Fr. Rallos] are without a doubt entitled to 12% interest per annum on
the interest due from finality until its satisfaction x x x. The same is proper even if not
expressly stated in the final and executory judgment x x x.27

The City of Cebu assailed the Decision in CA-G.R. SP No. 04418 by way of a Petition for
Review on Certiorari28 filed before this Court. The same was denied through a Minute
Resolution29 issued on December 6, 2010. The said resolution was recorded in this
Court's Book of Entries of Judgments on June 16, 2011.30

The Heirs of Fr. Rallos then moved for execution relative to Civil Case No. CEB-20388. The
RTC granted the motion through the Order31 issued on September 23, 2011.

The City of Cebu thereafter filed the following: (1) Urgent Omnibus Motions to Quash the
Writ of Execution, and to Set Aside the Notice of Garnishment; (2) Supplemental Urgent
Omnibus Motions to Quash the Writ of Execution, and to Set Aside the Notice of
Garnishment; (3) Motion for Issuance of Status Quo Order Pending Resolution of [the City
of Cebu's] Urgent Omnibus Motions to Quash the Writ of Execution and to Set Aside the
Notice of Garnishment;32 and (4) Motion to Strike out or Expunge Urgent Omnibus
Motion and Supplemental Urgent Omnibus Motion with Manifestation and Reservation.
The RTC denied the four motions in the Order33 issued on October 26, 2011. The RTC's
Order34 issued on January 26, 2012 likewise did not favorably consider the motion for
reconsideration filed by the City of Cebu. The RTC emphasized that the Convenio35
already existed way back in 1940, hence, it cannot be considered as a supervening event
which transpired after the judgment in Civil Case No. CEB-20388 had become final and
executory. The City of Cebu no longer filed any motion or action to assail the RTC Orders
issued on October 26, 2011 and January 26, 2012.

Meanwhile, in response to Mayor Rama's query, the Commission on Audit's (COA)


Regional Director Delfin P. Aguilar wrote the former a letter36 dated October 27, 2011
opining that:

Under Administrative Circular No. 10-200037 issued by the Supreme Court, it was clearly
stated that the prosecution, enforcement or satisfaction of state liability must be pursued
in accordance with the rules and procedures laid down in Presidential Decree No. 1445,
otherwise known as the Government Auditing Code of the Philippines, wherein it is
provided that all money claims against the government must first be filed with the
[COA]. x x x.

Clearly, based on the aforementioned Supreme Court issuance and in the line with the
rulings of the Supreme Court in various cases against garnishment of public funds or
property to satisfy money judgment against the government, we are of the view that the
issuance of the writ of execution for the satisfaction of the money judgment against the
City of Cebu may be considered beyond the powers of the court.
On the other hand, Section 1, Rule VIII of the 2009 Revised Rules of Procedure of the COA
provides that a money judgment is considered as a money claim which is within the
original jurisdiction of the Commission Proper (CP) of the COA and which shall be filed
directly with the Commission Secretary x x x.38

On February 27, 2012, the RTC issued another Order39 directing under pain of contempt
the Cebu branches of Philippine Veterans Bank and Postal Savings Bank to release to the
concerned RTC sheriff certifications indicating the correct account names and numbers
maintained by the City of Cebu in the said banks. The Order also directed the
Sangguniang Panlungsod to enact an appropriation ordinance relative to the money
judgment. Upon presentment of the ordinance, the above-mentioned banks were
expected to release the amounts stated therein to satisfy the judgment rendered in favor
of the Heirs of Fr. Rallos. The City of Cebu filed a Motion for Reconsideration40 against
the Order dated February 27, 2012.

Even before the Motion for Reconsideration to the Order dated February 27, 2012 can be
resolved by the RTC, the City of Cebu filed before the CA a Petition for Annulment of Final
Decision/s and Order/s with prayer for the issuance of injunctive reliefs.41 The City of
Cebu claimed that the act of the Heirs of Fr. Rallos of suppressing the existence of the
Convenio amounted to extrinsic fraud which would justify the annulment of the RTC's
decisions and orders relative to Civil Case No. CEB-20388. In praying for the issuance of
injunctive reliefs, the City of Cebu stressed that it had already paid the Heirs of Fr. Rallos
Php 56,196,369.42 for a 4,654 sq m property or at a price of Php 12,074.85 per sq m.
Further, the procedures prescribed in Presidential Decree (P.D.) No. 1445, this Court's
Administrative Circular (Admin. Circular) No. 10-2000 and Rule VIII of the COA's Revised
Rules of Procedure were not yet complied with, hence, public funds cannot be released
notwithstanding the rendition of the decisions and issuance of the orders by the RTC
relative to Civil Case No. CEB-20388.

On April 13, 2012, the CA, through a Resolution,42 granted the City of Cebu's application
for the issuance of a temporary restraining order (TRO) relative to CA-G.R. SP No. 06676.
Subsequently, a writ of preliminary injunction was likewise issued through the
Resolution43 dated June 26, 2012.

Lucena then filed the following petitions for indirect contempt, all of which in relation
with Civil Case No. CEB-20388:

Title Docket Number Date Filed Forum

Lucina C. Rallos v. SCA No. CEB-38121 October 3, 2011 RTC of Cebu City
Mayor Michael Branch 10
Rama, Eileen
Mangubat and Doris
Bongac44

Lucina B. Rallos v. SCA No. CEB-38196 October 25, 2011 RTC of Cebu City,
Nicanor Valles, Branch 14
Ricardo Balbido, Jr.,
and Mayor Michael
Rama45
Lucina B. Rallos v. SCA No. CEB-3812 November 4, 2011 RTC of Cebu City,
Philippine Veterans Branch 7
Bank, et al.

Lucina B. Rallos v. SCA No. CEB-38292 December 6, 2011 RTC of Cebu City,
City of Cebu, Branch 14
Michael Rama, et
al.46

Lucena B. Rallos v. G.R. No. 202515 July 19, 2012 This Court
Honorable Justices
Gabriel T. Ingles,
Pamela Ann Abella
Maximo and
Carmelita
Salandanan
Manahan47

The instant petition G.R. No. 202651 August 1, 2012 This Court

Lucena anchors the instant petition on the sole issue of whether or not the City of Cebu,
Mayor Rama, the presiding officer and members of the Sangguniang Panlungsod and the
lawyers from the Office of the City Attorney committed several acts of indirect contempt
all geared towards preventing the execution of final and executory judgments rendered
by this Court in G.R. Nos. 179662 and 194111.

Lucena enumerates the allegedly contumacious acts of the respondents as the filing: (a)
with the CA of a Petition for Annulment of Final Decision/s and Order/s48 again on the
basis of the Convenio, which was already presented and considered in the proceedings
before the RTC, and despite the finality of the decisions and orders rendered or issued
relative to Civil Case No. CEB-20388; and (b) of several motions49 before the RTC in Civil
Case No. CEB-20388 for the purpose of preventing or delaying the execution of decisions
and orders which had already attained finality.

The respondents, on the other hand, seek the dismissal of the instant action contending
that: (a) the rules on litis pendentia and forum shopping bar this Court from giving due
course to Lucena's petition since there are five other contempt proceedings filed
involving the same issues and parties; (b) the injunctive writs granted to the City of Cebu
by the CA in CA-G-R. SP No. 06676 relative to the execution of the decisions and orders
in Civil Case No. CEB-20388 rendered the instant action as moot and academic; (c) the
legal remedies they availed of were all pursued to protect public funds; (d) the RTC
sheriff, in attempting to execute the decisions and orders in Civil Case No. CEB-20388,
miserably failed to comply with the requirements provided for by law, to wit, Section
305(a)50 of the Local Government Code, this Court's Admin. Circular No. 10-2000,51 P.D.
No. 1445 and Rule VIII of COA's Revised Rules of Procedure; (e) in Parel v. Heirs of Simeon
Prudencio,52 this Court declared that a writ of execution may be assailed when it varies
the judgment, where there has been a change in the situation of parties making
execution unjust or inequitable, or when the judgment debt has been paid or satisfied; (f)
it would unduly overburden the City of Cebu to pay Php 133,469,962.55 for the subject
lots the huge portions of which are now occupied by settlers and establishments claiming
to be owners, practically leaving a very small and insignificant area for use; (g) in the
case of City of Caloocan v. Hon. Allarde,53 this Court ruled that government funds
maintained in any official depository may not be garnished in the absence of a
corresponding appropriation as required by law; and (h) the Sangguniang Panlungsod
cannot be compelled to pass an appropriations ordinance to satisfy the claims of the
Heirs of Fr. Rallos for to do otherwise would be to intrude into the exercise of a
discretionary authority to decide a political question.

This Court's Disquisition

The instant petition lacks merit.

Lucena engaged in forum shopping.

"Forum shopping is the act of litigants who repetitively avail themselves of multiple
judicial remedies in different fora, simultaneously or successively, all substantially
founded on the same transactions and the same essential facts and circumstances; and
raising substantially similar issues either pending in or already resolved adversely by
some other court; or for the purpose of increasing their chances of obtaining a favorable
decision, if not in one court, then in another."54

"Forum shopping exists when the elements of litis pendentia are present or where a final
judgment in one case will amount to res judicata in another. Litis pendentia requires the
concurrence of the following requisites: (1) identity of parties, or at least such parties as
those representing the same interests in both actions; (2) identity of rights asserted and
reliefs prayed for, the reliefs being founded on the same facts; and (3) identity with
respect to the two preceding particulars in the two cases, such that any judgment that
may be rendered in the pending case, regardless of which party is successful, would
amount to res judicata in the other case."55

In the Verification and Non-Forum Shopping Certification56 attached to the instant


petition and executed by Lucena, she admitted that there are five other pending actions
for indirect contempt which she filed relative to Civil Case No. CEB-20388. She, however,
claims that the issues in the other five petitions are different from that raised before this
Court now.

Lucena's claim cannot be sustained.

A comparison of the instant petition with SCA No. CEB-3829257 filed before the RTC of
Cebu City, Branch 14 follows:

Instant Petition SCA No. CEB-38292

Nature of Action Petition for Indirect Petition for Indirect Contempt


Contempt of Court

Petitioner Lucena B. Rallos Lucina B. Rallos

Respondents City of Cebu City of Cebu


Mayor Michael Rama Mayor Michael Rama
City Councilors City Councilors
Joy Augustus Young Joy Augustus Young
Sisinio Andales Sisinio Andales
Rodrigo Abellanosa Rodrigo Abellanosa
Alvin Arcilla Alvin Arcilla
Raul Alcoseba Raul Alcoseba
Ma. Nida Cabrera Ma. Nida Cabrera
Roberto Cabarrubias Roberto Cabarrubias
Alvin Dizon Alvin Dizon
Ronald Cuenco Ronald Cuenco
Lea Japson Lea Japson
Jose Daluz III Jose Daluz III
Edgardo Labella Edgardo Labella
Margarita Osmena Margarita Osmena
Augustus Pe Augustus Pe
Richard Osmena Richard Osmena
Noel Wenceslao Noel Wenceslao
Eduardo Rama, Jr. Eduardo Rama, Jr.
Michael Ralota Michael Ralota
John Philip Echavez-Po John Philip Echavez-Po
City Attorney
Atty. Joseph Bernaldez
Atty. Jun Maratas
Atty. Jerone Castillo
Atty. Mary Ann Suson
Atty. Leslie Ann Reyes
Atty. Carlo Vincent Gimena
Atty. Ferdinand Canete
Atty. Ismael Garaygay III
Atty. Lecel Llamedo
Atty. Marie Velle Abella

Prayer Prayer Respondents be Respondents, except the City


declared guilty of indirect of Cebu, be imprisoned until
contempt in relation to their they perform the said act of
non-compliance with the complying or causing the
directives contained in the compliance with the specific
dispositive portion of the directives contained in the
Consolidated Order issued dispositive portion of the final
on March 21, 2002 by the and executory Consolidated
RTC in Civil Case No. CEB- Order dated March 21, 2002.59
20388.58
Prayer Prayer Respondents be declared guilty of indirect contempt in relation to
their non-compliance with the directives contained in the dispositive portion of the
Consolidated Order issued on March 21, 2002 by the RTC in Civil Case No. CEB-20388.58
Respondents, except the City of Cebu, be imprisoned until they perform the said
act of complying or causing the compliance with the specific directives contained in the
dispositive portion of the final and executory Consolidated Order dated March 21,
2002.59
In Arevalo,60 this Court enumerated the three requisites of litis pendentia. There is a
confluence of these requisites relative to the instant petition and SCA No. CEB-38292.
Litis pendentia does not require the exact identity of parties involved in the actions.
Although the lawyers from the Office of the City Attorney are parties herein but are not
made respondents in SCA No. CEB-38292, they do not in any way represent any interest
distinct or separate from that of the City of Cebu and the public officers involved.
Further, the instant petition superficially makes reference to the Minute Resolutions
rendered by this Court in G.R. Nos. 179662 and 194111 which Lucena claims had lapsed
into finality and should thus be executed. However, stripped of the unnecessary details,
the reliefs saliently sought in both the instant petition and SCA No. CEB-38292 are
founded on the same set of facts, to wit, the alleged non compliance by the respondents
with the directives contained in the dispositive portion of the Consolidated Order issued
by the RTC on March 21, 2002 relative to Civil Case No. CEB-20388. Finally, citation for
indirect contempt in either the instant petition or SCA No. CEB-38292 would amount to
res judicata in the other considering the identities of the parties and issues involved.

Since the elements of litis pendentia concur in the instant petition and SCA No. CEB-
38292, this Court so holds Lucena guilty of forum shopping.

"[T]he grave evil sought to be avoided by the rule against forum shopping is the
rendition by two competent tribunals of two separate and contradictory decisions. To
avoid any confusion, this Court adheres strictly to the rules against forum shopping, and
any violation of these rules results in the dismissal of a case."61

Further, "once there is a finding of forum shopping, the penalty is summary dismissal not
only of the petition pending before this Court, but also of the other case that is pending
in a lower court. This is so because twin dismissal is a punitive measure to those who
trifle with the orderly administration of justice."62

Even if in the higher interest of justice, this Court were to be exceptionally liberal and
gloss over Lucena's act of forum shopping, the instant petition would still be susceptible
to dismissal.

While this Court does not intend to downplay the rights accruing to the owners of
properties expropriated by the government, it bears stressing that the exercise and
enforcement of those rights are subject to compliance with the requirements provided
for by law to protect public funds.

Lucena avers that the respondents willfully and maliciously defy the execution of final
and executory decisions and orders rendered or issued relative to Civil Case No. CEB-
20388.

Such averment is untenable.

The respondents allege and Lucena does not refute, that the City of Cebu had already
paid the Heirs of Fr. Rallos Php 56,196,369.42 for a 4,654 sq m property or at a price of
Php 12,074.85 per sq m. The controversy remains and the parties resort to all legal
maneuverings because the Heirs of Fr. Rallos obdurately insist that they are still entitled
to collect from the City of Cebu a balance of Php 133,469,962.55.

The Heirs of Fr. Rallos are bent on collecting the amount allegedly still unpaid by the City
of Cebu in accordance with the computations stated in the decisions and orders in Civil
Case No. CEB-20388. However, the Heirs of Fr. Rallos are impervious to the requisites laid
down by law in enforcing their claims. The requisites are two-fold as discussed below.

An appropriation ordinance should be passed prior to the disbursement of public funds.

"Even though the rule as to immunity of a state from suit is relaxed, the power of the
courts ends when the judgment is rendered. Although the liability of the state has been
judicially ascertained, the state is at liberty to determine for itself whether to pay the
judgment or not, and execution cannot issue on a judgment against the state. Such
statutes do not authorize a seizure of state property to satisfy judgments recovered, and
only convey an implication that the legislature will recognize such judgment as final and
make provision for the satisfaction thereof."63

Section 4(1) of P.D. No. 1445 and Section 305(a) of the Local Government Code both
categorically state that no money shall be paid out of any public treasury or depository
except in pursuance of an appropriation law or other specific statutory authority. Based
on considerations of public policy, government funds and properties may not be seized
under writs of execution or garnishment to satisfy judgments rendered by the courts and
disbursements of public funds must be covered by the corresponding appropriation as
required by law.64

In the case at bar, no appropriation ordinance had yet been passed relative to the claims
of the Heirs of Fr. Rallos. Such being the case, the respondents, as public officers, are
acting within lawful bounds in refusing the execution of the decisions and orders in Civil
Case No. CEB-20388.

Despite the rendition of a final and executory judgment validating a money claim against
an agency or instrumentality of the Government, its filing with the COA is a sine qua non
condition before payment can be effected.

Section 26 of P.D. No. 1445 states that the COA has jurisdiction to examine, audit and
settle all debts and claims of any sort due from or owing to the Government or any of its
subdivisions, agencies and instrumentalities. Under Section 5(b), Rule II of COA's Revised
Rules of Procedure, local government units are expressly included as among the entities
within the COA's jurisdiction. Section 2,65 Rule VIII lays down the procedure in filing
money claims against the Government. Section 4, Rule X provides that any case brought
to the COA shall be decided within 60 days from the date it is submitted for decision or
resolution. Section 1, Rule XII allows the aggrieved party to file a petition for certiorari
before this Court to assail any decision, order or resolution of the COA within 30 days
from receipt of a copy thereof.

This Court, in the case of University of the Philippines v. Dizon,66 thus held that despite
the existence of a final and executory judgment validating the claim against an agency
or instrumentality of the Government, the settlement of the said claim is still subject to
the primary jurisdiction of the COA. Ineluctably, the claimant has to first seek the COA's
approval of the monetary claim.67

Without compliance by Lucena and the Heirs of Fr. Rallos with the provisions of P.D. No.
1445 and the COA's Revised Rules of Procedure, their lamentations that the respondents
are unjustly refusing the execution of the decisions and orders in Civil Case No. CEB-
20388 do not hold any water.
IN VIEW OF THE FOREGOING, the instant petition is DISMISSED. Further, on account of
Lucena Rallos' act of forum shopping, the Regional Trial Court of Cebu City, Branch 14, is
likewise directed to dismiss her petition for contempt, docketed as SCA No. CEB-38292,
which she filed against the respondents.

Case #4

G.R. No. 206510 September 16, 2014


MOST REV. PEDRO D. ARIGO, Vicar Apostolic of Puerto Princesa D.D.; MOST REV.
DEOGRACIAS S. INIGUEZ, JR., Bishop-Emeritus of Caloocan, FRANCES Q. QUIMPO,
CLEMENTE G. BAUTISTA, JR., Kalikasan-PNE, MARIA CAROLINA P. ARAULLO, RENATO M.
REYES, JR., Bagong Alyansang Makabayan, HON. NERI JAVIER COLMENARES, Bayan Muna
Partylist, ROLAND G. SIMBULAN, PH.D., Junk VF A Movement, TERESITA R. PEREZ, PH.D.,
HON. RAYMOND V. PALATINO, Kabataan Party-list, PETER SJ. GONZALES, Pamalakaya,
GIOVANNI A. TAPANG, PH. D., Agham, ELMER C. LABOG, Kilusang Mayo Uno, JOAN MAY E.
SALVADOR, Gabriela, JOSE ENRIQUE A. AFRICA, THERESA A. CONCEPCION, MARY JOAN A.
GUAN, NESTOR T. BAGUINON, PH.D., A. EDSEL F. TUPAZ, Petitioners,
vs.
SCOTT H. SWIFT in his capacity as Commander of the US. 7th Fleet, MARK A. RICE in his
capacity as Commanding Officer of the USS Guardian, PRESIDENT BENIGNO S. AQUINO III
in his capacity as Commander-in-Chief of the Armed Forces of the Philippines, HON.
ALBERT F. DEL ROSARIO, Secretary, pepartment of Foreign Affair.s, HON. PAQUITO
OCHOA, JR., Executiv~.:Secretary, Office of the President, . HON. VOLTAIRE T. GAZMIN,
Secretary, Department of National Defense, HON. RAMON JESUS P. P AJE, Secretary,
Department of Environment and Natural Resoz!rces, VICE ADMIRAL JOSE LUIS M. ALANO,
Philippine Navy Flag Officer in Command, Armed Forces of the Philippines, ADMIRAL
RODOLFO D. ISO RENA, Commandant, Philippine Coast Guard, COMMODORE ENRICO
EFREN EVANGELISTA, Philippine Coast Guard Palawan, MAJOR GEN. VIRGILIO 0.
DOMINGO, Commandant of Armed Forces of the Philippines Command and LT. GEN.
TERRY G. ROBLING, US Marine Corps Forces. Pacific and Balikatan 2013 Exercise Co-
Director, Respondents.

DECISION

VILLARAMA, JR, J.:

Before us is a petition for the issuance of a Writ of Kalikasan with prayer for the issuance
of a Temporary Environmental Protection Order (TEPO) under Rule 7 of A.M. No. 09-6-8-
SC, otherwise known as the Rules of Procedure for Environmental Cases (Rules),
involving violations of environmental laws and regulations in relation to the grounding of
the US military ship USS Guardian over the Tubbataha Reefs.

Factual Background

The name "Tubbataha" came from the Samal (seafaring people of southern Philippines)
language which means "long reef exposed at low tide." Tubbataha is composed of two
huge coral atolls - the north atoll and the south atoll - and the Jessie Beazley Reef, a
smaller coral structure about 20 kilometers north of the atolls. The reefs of Tubbataha
and Jessie Beazley are considered part of Cagayancillo, a remote island municipality of
Palawan.1

In 1988, Tubbataha was declared a National Marine Park by virtue of Proclamation No.
306 issued by President Corazon C. Aquino on August 11, 1988. Located in the middle of
Central Sulu Sea, 150 kilometers southeast of Puerto Princesa City, Tubbataha lies at the
heart of the Coral Triangle, the global center of marine biodiversity.

In 1993, Tubbataha was inscribed by the United Nations Educational Scientific and
Cultural Organization (UNESCO) as a World Heritage Site. It was recognized as one of the
Philippines' oldest ecosystems, containing excellent examples of pristine reefs and a high
diversity of marine life. The 97,030-hectare protected marine park is also an important
habitat for internationally threatened and endangered marine species. UNESCO cited
Tubbataha's outstanding universal value as an important and significant natural habitat
for in situ conservation of biological diversity; an example representing significant on-
going ecological and biological processes; and an area of exceptional natural beauty and
aesthetic importance.2

On April 6, 2010, Congress passed Republic Act (R.A.) No. 10067,3 otherwise known as
the "Tubbataha Reefs Natural Park (TRNP) Act of 2009" "to ensure the protection and
conservation of the globally significant economic, biological, sociocultural, educational
and scientific values of the Tubbataha Reefs into perpetuity for the enjoyment of present
and future generations." Under the "no-take" policy, entry into the waters of TRNP is
strictly regulated and many human activities are prohibited and penalized or fined,
including fishing, gathering, destroying and disturbing the resources within the TRNP. The
law likewise created the Tubbataha Protected Area Management Board (TPAMB) which
shall be the sole policy-making and permit-granting body of the TRNP.

The USS Guardian is an Avenger-class mine countermeasures ship of the US Navy. In


December 2012, the US Embassy in the Philippines requested diplomatic clearance for
the said vessel "to enter and exit the territorial waters of the Philippines and to arrive at
the port of Subic Bay for the purpose of routine ship replenishment, maintenance, and
crew liberty."4 On January 6, 2013, the ship left Sasebo, Japan for Subic Bay, arriving on
January 13, 2013 after a brief stop for fuel in Okinawa, Japan.1wphi1

On January 15, 2013, the USS Guardian departed Subic Bay for its next port of call in
Makassar, Indonesia. On January 17, 2013 at 2:20 a.m. while transiting the Sulu Sea, the
ship ran aground on the northwest side of South Shoal of the Tubbataha Reefs, about 80
miles east-southeast of Palawan. No cine was injured in the incident, and there have
been no reports of leaking fuel or oil.

On January 20, 2013, U.S. 7th Fleet Commander, Vice Admiral Scott Swift, expressed
regret for the incident in a press statement.5 Likewise, US Ambassador to the Philippines
Harry K. Thomas, Jr., in a meeting at the Department of Foreign Affairs (DFA) on February
4, "reiterated his regrets over the grounding incident and assured Foreign Affairs
Secretazy Albert F. del Rosario that the United States will provide appropriate
compensation for damage to the reef caused by the ship."6 By March 30, 2013, the US
Navy-led salvage team had finished removing the last piece of the grounded ship from
the coral reef.

On April 1 7, 2013, the above-named petitioners on their behalf and in representation of


their respective sector/organization and others, including minors or generations yet
unborn, filed the present petition agairtst Scott H. Swift in his capacity as Commander of
the US 7th Fleet, Mark A. Rice in his capacity as Commanding Officer of the USS
Guardian and Lt. Gen. Terry G. Robling, US Marine Corps Forces, Pacific and Balikatan
2013 Exercises Co-Director ("US respondents"); President Benigno S. Aquino III in his
capacity as Commander-in-Chief of the Armed Forces of the Philippines (AFP), DF A
Secretary Albert F. Del Rosario, Executive Secretary Paquito Ochoa, Jr., Secretary Voltaire
T. Gazmin (Department of National Defense), Secretary Jesus P. Paje (Department of
Environment and Natural Resources), Vice-Admiral Jose Luis M. Alano (Philippine Navy
Flag Officer in Command, AFP), Admiral Rodolfo D. Isorena (Philippine Coast Guard
Commandant), Commodore Enrico Efren Evangelista (Philippine Coast Guard-Palawan),
and Major General Virgilio 0. Domingo (AFP Commandant), collectively the "Philippine
respondents."

The Petition

Petitioners claim that the grounding, salvaging and post-salvaging operations of the USS
Guardian cause and continue to cause environmental damage of such magnitude as to
affect the provinces of Palawan, Antique, Aklan, Guimaras, Iloilo, Negros Occidental,
Negros Oriental, Zamboanga del Norte, Basilan, Sulu, and Tawi-Tawi, which events violate
their constitutional rights to a balanced and healthful ecology. They also seek a directive
from this Court for the institution of civil, administrative and criminal suits for acts
committed in violation of environmental laws and regulations in connection with the
grounding incident.

Specifically, petitioners cite the following violations committed by US respondents under


R.A. No. 10067: unauthorized entry (Section 19); non-payment of conservation fees
(Section 21 ); obstruction of law enforcement officer (Section 30); damages to the reef
(Section 20); and destroying and disturbing resources (Section 26[g]). Furthermore,
petitioners assail certain provisions of the Visiting Forces Agreement (VFA) which they
want this Court to nullify for being unconstitutional.

The numerous reliefs sought in this case are set forth in the final prayer of the petition,
to wit: WHEREFORE, in view of the foregoing, Petitioners respectfully pray that the
Honorable Court: 1. Immediately issue upon the filing of this petition a Temporary
Environmental Protection Order (TEPO) and/or a Writ of Kalikasan, which shall, in
particular,

a. Order Respondents and any person acting on their behalf, to cease and desist all
operations over the Guardian grounding incident;

b. Initially demarcating the metes and bounds of the damaged area as well as an
additional buffer zone;

c. Order Respondents to stop all port calls and war games under 'Balikatan' because of
the absence of clear guidelines, duties, and liability schemes for breaches of those
duties, and require Respondents to assume responsibility for prior and future
environmental damage in general, and environmental damage under the Visiting Forces
Agreement in particular.

d. Temporarily define and describe allowable activities of ecotourism, diving, recreation,


and limited commercial activities by fisherfolk and indigenous communities near or
around the TRNP but away from the damaged site and an additional buffer zone;

2. After summary hearing, issue a Resolution extending the TEPO until further orders of
the Court;

3. After due proceedings, render a Decision which shall include, without limitation:

a. Order Respondents Secretary of Foreign Affairs, following the dispositive portion of


Nicolas v. Romulo, "to forthwith negotiate with the United States representatives for the
appropriate agreement on [environmental guidelines and environmental accountability]
under Philippine authorities as provided in Art. V[] of the VFA ... "

b. Direct Respondents and appropriate agencies to commence administrative, civil, and


criminal proceedings against erring officers and individuals to the full extent of the law,
and to make such proceedings public;

c. Declare that Philippine authorities may exercise primary and exclusive criminal
jurisdiction over erring U.S. personnel under the circumstances of this case;

d. Require Respondents to pay just and reasonable compensation in the settlement of all
meritorious claims for damages caused to the Tubbataha Reef on terms and conditions
no less severe than those applicable to other States, and damages for personal injury or
death, if such had been the case;

e. Direct Respondents to cooperate in providing for the attendance of witnesses and in


the collection and production of evidence, including seizure and delivery of objects
connected with the offenses related to the grounding of the Guardian;

f. Require the authorities of the Philippines and the United States to notify each other of
the disposition of all cases, wherever heard, related to the grounding of the Guardian;

g. Restrain Respondents from proceeding with any purported restoration, repair, salvage
or post salvage plan or plans, including cleanup plans covering the damaged area of the
Tubbataha Reef absent a just settlement approved by the Honorable Court;

h. Require Respondents to engage in stakeholder and LOU consultations in accordance


with the Local Government Code and R.A. 10067;

i. Require Respondent US officials and their representatives to place a deposit to the


TRNP Trust Fund defined under Section 17 of RA 10067 as a bona .fide gesture towards
full reparations;

j. Direct Respondents to undertake measures to rehabilitate the areas affected by the


grounding of the Guardian in light of Respondents' experience in the Port Royale
grounding in 2009, among other similar grounding incidents;

k. Require Respondents to regularly publish on a quarterly basis and in the name of


transparency and accountability such environmental damage assessment, valuation, and
valuation methods, in all stages of negotiation;

l. Convene a multisectoral technical working group to provide scientific and technical


support to the TPAMB;

m. Order the Department of Foreign Affairs, Department of National Defense, and the
Department of Environment and Natural Resources to review the Visiting Forces
Agreement and the Mutual Defense Treaty to consider whether their provisions allow for
the exercise of erga omnes rights to a balanced and healthful ecology and for damages
which follow from any violation of those rights;
n. Narrowly tailor the provisions of the Visiting Forces Agreement for purposes of
protecting the damaged areas of TRNP;

o. Declare the grant of immunity found in Article V ("Criminal Jurisdiction") and Article VI
of the Visiting Forces Agreement unconstitutional for violating equal protection and/or for
violating the preemptory norm of nondiscrimination incorporated as part of the law of
the land under Section 2, Article II, of the Philippine Constitution;

p. Allow for continuing discovery measures;

q. Supervise marine wildlife rehabilitation in the Tubbataha Reefs in all other respects;
and

4. Provide just and equitable environmental rehabilitation measures and such other
reliefs as are just and equitable under the premises.7 (Underscoring supplied.)

Since only the Philippine respondents filed their comment8 to the petition, petitioners
also filed a motion for early resolution and motion to proceed ex parte against the US
respondents.9

Respondents' Consolidated Comment

In their consolidated comment with opposition to the application for a TEPO and ocular
inspection and production orders, respondents assert that: ( 1) the grounds relied upon
for the issuance of a TEPO or writ of Kalikasan have become fait accompli as the salvage
operations on the USS Guardian were already completed; (2) the petition is defective in
form and substance; (3) the petition improperly raises issues involving the VFA between
the Republic of the Philippines and the United States of America; and ( 4) the
determination of the extent of responsibility of the US Government as regards the
damage to the Tubbataha Reefs rests exdusively with the executive branch.

The Court's Ruling

As a preliminary matter, there is no dispute on the legal standing of petitioners to file the
present petition.

Locus standi is "a right of appearance in a court of justice on a given question."10


Specifically, it is "a party's personal and substantial interest in a case where he has
sustained or will sustain direct injury as a result" of the act being challenged, and "calls
for more than just a generalized grievance."11 However, the rule on standing is a
procedural matter which this Court has relaxed for non-traditional plaintiffs like ordinary
citizens, taxpayers and legislators when the public interest so requires, such as when the
subject matter of the controversy is of transcendental importance, of overreaching
significance to society, or of paramount public interest.12

In the landmark case of Oposa v. Factoran, Jr.,13 we recognized the "public right" of
citizens to "a balanced and healthful ecology which, for the first time in our constitutional
history, is solemnly incorporated in the fundamental law." We declared that the right to a
balanced and healthful ecology need not be written in the Constitution for it is assumed,
like other civil and polittcal rights guaranteed in the Bill of Rights, to exist from the
inception of mankind and it is an issue of transcendental importance with
intergenerational implications.1wphi1 Such right carries with it the correlative duty to
refrain from impairing the environment.14

On the novel element in the class suit filed by the petitioners minors in Oposa, this Court
ruled that not only do ordinary citizens have legal standing to sue for the enforcement of
environmental rights, they can do so in representation of their own and future
generations. Thus:

Petitioners minors assert that they represent their generation as well as generations yet
unborn. We find no difficulty in ruling that they can, for themselves, for others of their
generation and for the succeeding generations, file a class suit. Their personality to sue
in behalf of the succeeding generations can only be based on the concept of
intergenerational responsibility insofar as the right to a balanced and healthful ecology is
concerned. Such a right, as hereinafter expounded, considers the "rhythm and harmony
of nature." Nature means the created world in its entirety. Such rhythm and harmony
indispensably include, inter alia, the judicious disposition, utilization, management,
renewal and conservation of the country's forest, mineral, land, waters, fisheries, wildlife,
off-shore areas and other natural resources to the end that their exploration,
development and utilization be equitably accessible to the present a:: well as future
generations. Needless to say, every generation has a responsibility to the next to
preserve that rhythm and harmony for the full 1:njoyment of a balanced and healthful
ecology. Put a little differently, the minors' assertion of their right to a sound
environment constitutes, at the same time, the performance of their obligation to ensure
the protection of that right for the generations to come.15 (Emphasis supplied.)

The liberalization of standing first enunciated in Oposa, insofar as it refers to minors and
generations yet unborn, is now enshrined in the Rules which allows the filing of a citizen
suit in environmental cases. The provision on citizen suits in the Rules "collapses the
traditional rule on personal and direct interest, on the principle that humans are
stewards of nature."16

Having settled the issue of locus standi, we shall address the more fundamental question
of whether this Court has jurisdiction over the US respondents who did not submit any
pleading or manifestation in this case.

The immunity of the State from suit, known also as the doctrine of sovereign immunity or
non-suability of the State,17 is expressly provided in Article XVI of the 1987 Constitution
which states:

Section 3. The State may not be sued without its consent.

In United States of America v. Judge Guinto,18 we discussed the principle of state


immunity from suit, as follows:

The rule that a state may not be sued without its consent, now expressed in Article XVI,
Section 3, of the 1987 Constitution, is one of the generally accepted principles of
international law that we have adopted as part of the law of our land under Article II,
Section 2. x x x.

Even without such affirmation, we would still be bound by the generally accepted
principles of international law under the doctrine of incorporation. Under this doctrine, as
accepted by the majority of states, such principles are deemed incorporated in the law of
every civilized state as a condition and consequence of its membership in the society of
nations. Upon its admission to such society, the state is automatically obligated to
comply with these principles in its relations with other states.

As applied to the local state, the doctrine of state immunity is based on the justification
given by Justice Holmes that ''there can be no legal right against the authority which
makes the law on which the right depends." [Kawanakoa v. Polybank, 205 U.S. 349]
There are other practical reasons for the enforcement of the doctrine. In the case of the
foreign state sought to be impleaded in the local jurisdiction, the added inhibition is
expressed in the maxim par in parem, non habet imperium. All states are sovereign
equals and cannot assert jurisdiction over one another. A contrary disposition would, in
the language of a celebrated case, "unduly vex the peace of nations." [De Haber v.
Queen of Portugal, 17 Q. B. 171]

While the doctrine appears to prohibit only suits against the state without its consent, it
is also applicable to complaints filed against officials of the state for acts allegedly
performed by them in the discharge of their duties. The rule is that if the judgment
against such officials will require the state itself to perform an affirmative act to satisfy
the same,. such as the appropriation of the amount needed to pay the damages awarded
against them, the suit must be regarded as against the state itself although it has not
been formally impleaded. [Garcia v. Chief of Staff, 16 SCRA 120] In such a situation, the
state may move to dismiss the comp.taint on the ground that it has been filed without its
consent.19 (Emphasis supplied.)

Under the American Constitution, the doctrine is expressed in the Eleventh Amendment
which reads:

The Judicial power of the United States shall not be construed to extend to any suit in law
or equity, commenced or prosecuted against one of the United States by Citizens of
another State, or by Citizens or Subjects of any Foreign State.

In the case of Minucher v. Court of Appeals,20 we further expounded on the immunity of


foreign states from the jurisdiction of local courts, as follows:

The precept that a State cannot be sued in the courts of a foreign state is a long-
standing rule of customary international law then closely identified with the personal
immunity of a foreign sovereign from suit and, with the emergence of democratic states,
made to attach not just to the person of the head of state, or his representative, but also
distinctly to the state itself in its sovereign capacity. If the acts giving rise to a suit arc
those of a foreign government done by its foreign agent, although not necessarily a
diplomatic personage, but acting in his official capacity, the complaint could be barred
by the immunity of the foreign sovereign from suit without its consent. Suing a
representative of a state is believed to be, in effect, suing the state itself. The
proscription is not accorded for the benefit of an individual but for the State, in whose
service he is, under the maxim -par in parem, non habet imperium -that all states are
soverr~ign equals and cannot assert jurisdiction over one another. The implication, in
broad terms, is that if the judgment against an official would rec 1uire the state itself to
perform an affirmative act to satisfy the award, such as the appropriation of the amount
needed to pay the damages decreed against him, the suit must be regarded as being
against the state itself, although it has not been formally impleaded.21 (Emphasis
supplied.)

In the same case we also mentioned that in the case of diplomatic immunity, the
privilege is not an immunity from the observance of the law of the territorial sovereign or
from ensuing legal liability; it is, rather, an immunity from the exercise of territorial
jurisdiction.22

In United States of America v. Judge Guinto,23 one of the consolidated cases therein
involved a Filipino employed at Clark Air Base who was arrested following a buy-bust
operation conducted by two officers of the US Air Force, and was eventually dismissed
from his employment when he was charged in court for violation of R.A. No. 6425. In a
complaint for damages filed by the said employee against the military officers, the latter
moved to dismiss the case on the ground that the suit was against the US Government
which had not given its consent. The RTC denied the motion but on a petition for
certiorari and prohibition filed before this Court, we reversed the RTC and dismissed the
complaint. We held that petitioners US military officers were acting in the exercise of
their official functions when they conducted the buy-bust operation against the
complainant and thereafter testified against him at his trial. It follows that for discharging
their duties as agents of the United States, they cannot be directly impleaded for acts
imputable to their principal, which has not given its consent to be sued.

This traditional rule of State immunity which exempts a State from being sued in the
courts of another State without the former's consent or waiver has evolved into a
restrictive doctrine which distinguishes sovereign and governmental acts (Jure imperil")
from private, commercial and proprietary acts (Jure gestionis). Under the restrictive rule
of State immunity, State immunity extends only to acts Jure imperii. The restrictive
application of State immunity is proper only when the proceedings arise out of
commercial transactions of the foreign sovereign, its commercial activities or economic
affairs.24

In Shauf v. Court of Appeals,25 we discussed the limitations of the State immunity


principle, thus:

It is a different matter where the public official is made to account in his capacity as such
for acts contrary to law and injurious to the rights of plaintiff. As was clearly set forth by
JustiGe Zaldivar in Director of the Bureau of Telecommunications, et al. vs. Aligaen, etc.,
et al. : "Inasmuch as the State authorizes only legal acts by its officers, unauthorized
acts of government officials or officers are not acts of the State, and an action against
the officials or officers by one whose rights have been invaded or violated by such acts,
for the protection of his rights, is not a suit against the State within the rule of immunity
of the State from suit. In the same tenor, it has been said that an action at law or suit in
equity against a State officer or the director of a State department on the ground that,
while claiming to act for the State, he violates or invades the personal and property
rights of the plaintiff, under an unconstitutional act or under an assumption of authority
which he does not have, is not a suit against the State within the constitutional provision
that the State may not be sued without its consent." The rationale for this ruling is that
the doctrine of state immunity cannot be used as an instrument for perpetrating an
injustice.

xxxx
The aforecited authorities are clear on the matter. They state that the doctrine of
immunity from suit will not apply and may not be invoked where the public official is
being sued in his private and personal capacity as an ordinary citizen. The cloak of
protection afforded the officers and agents of the government is removed the moment
they are sued in their individual capacity. This situation usually arises where the public
official acts without authority or in excess of the powers vested in him. It is a well-settled
principle of law that a public official may be liable in his personal private capacity for
whatever damage he may have caused by his act done with malice and in bad faith, or
beyond the scope of his authority or jurisdiction.26 (Emphasis supplied.) In this case, the
US respondents were sued in their official capacity as commanding officers of the US
Navy who had control and supervision over the USS Guardian and its crew. The alleged
act or omission resulting in the unfortunate grounding of the USS Guardian on the TRNP
was committed while they we:re performing official military duties. Considering that the
satisfaction of a judgment against said officials will require remedial actions and
appropriation of funds by the US government, the suit is deemed to be one against the
US itself. The principle of State immunity therefore bars the exercise of jurisdiction by
this Court over the persons of respondents Swift, Rice and Robling.

During the deliberations, Senior Associate Justice Antonio T. Carpio took the position that
the conduct of the US in this case, when its warship entered a restricted area in violation
of R.A. No. 10067 and caused damage to the TRNP reef system, brings the matter within
the ambit of Article 31 of the United Nations Convention on the Law of the Sea
(UNCLOS). He explained that while historically, warships enjoy sovereign immunity from
suit as extensions of their flag State, Art. 31 of the UNCLOS creates an exception to this
rule in cases where they fail to comply with the rules and regulations of the coastal State
regarding passage through the latter's internal waters and the territorial sea.

According to Justice Carpio, although the US to date has not ratified the UNCLOS, as a
matter of long-standing policy the US considers itself bound by customary international
rules on the "traditional uses of the oceans" as codified in UNCLOS, as can be gleaned
from previous declarations by former Presidents Reagan and Clinton, and the US judiciary
in the case of United States v. Royal Caribbean Cruise Lines, Ltd.27

The international law of the sea is generally defined as "a body of treaty rules arid
customary norms governing the uses of the sea, the exploitation of its resources, and the
exercise of jurisdiction over maritime regimes. It is a branch of public international law,
regulating the relations of states with respect to the uses of the oceans."28 The UNCLOS
is a multilateral treaty which was opened for signature on December 10, 1982 at
Montego Bay, Jamaica. It was ratified by the Philippines in 1984 but came into force on
November 16, 1994 upon the submission of the 60th ratification.

The UNCLOS is a product of international negotiation that seeks to balance State


sovereignty (mare clausum) and the principle of freedom of the high seas (mare
liberum).29 The freedom to use the world's marine waters is one of the oldest customary
principles of international law.30 The UNCLOS gives to the coastal State sovereign rights
in varying degrees over the different zones of the sea which are: 1) internal waters, 2)
territorial sea, 3) contiguous zone, 4) exclusive economic zone, and 5) the high seas. It
also gives coastal States more or less jurisdiction over foreign vessels depending on
where the vessel is located.31
Insofar as the internal waters and territorial sea is concerned, the Coastal State exercises
sovereignty, subject to the UNCLOS and other rules of international law. Such sovereignty
extends to the air space over the territorial sea as well as to its bed and subsoil.32

In the case of warships,33 as pointed out by Justice Carpio, they continue to enjoy
sovereign immunity subject to the following exceptions:

Article 30
Non-compliance by warships with the laws and regulations of the coastal State

If any warship does not comply with the laws and regulations of the coastal State
concerning passage through the territorial sea and disregards any request for
compliance therewith which is made to it, the coastal State may require it to leave the
territorial sea immediately.

Article 31
Responsibility of the flag State for damage caused by a warship

or other government ship operated for non-commercial purposes

The flag State shall bear international responsibility for any loss or damage to the coastal
State resulting from the non-compliance by a warship or other government ship operated
for non-commercial purposes with the laws and regulations of the coastal State
concerning passage through the territorial sea or with the provisions of this Convention
or other rules of international law.

Article 32
Immunities of warships and other government ships operated for non-commercial
purposes

With such exceptions as are contained in subsection A and in articles 30 and 31, nothing
in this Convention affects the immunities of warships and other government ships
operated for non-commercial purposes. (Emphasis supplied.) A foreign warship's
unauthorized entry into our internal waters with resulting damage to marine resources is
one situation in which the above provisions may apply. But what if the offending warship
is a non-party to the UNCLOS, as in this case, the US?

An overwhelming majority - over 80% -- of nation states are now members of UNCLOS,
but despite this the US, the world's leading maritime power, has not ratified it.

While the Reagan administration was instrumental in UNCLOS' negotiation and drafting,
the U.S. delegation ultimately voted against and refrained from signing it due to
concerns over deep seabed mining technology transfer provisions contained in Part XI. In
a remarkable, multilateral effort to induce U.S. membership, the bulk of UNCLOS member
states cooperated over the succeeding decade to revise the objection.able provisions.
The revisions satisfied the Clinton administration, which signed the revised Part XI
implementing agreement in 1994. In the fall of 1994, President Clinton transmitted
UNCLOS and the Part XI implementing agreement to the Senate requesting its advice
and consent. Despite consistent support from President Clinton, each of his successors,
and an ideologically diverse array of stakeholders, the Senate has since withheld the
consent required for the President to internationally bind the United States to UNCLOS.
While UNCLOS cleared the Senate Foreign Relations Committee (SFRC) during the 108th
and 110th Congresses, its progress continues to be hamstrung by significant pockets of
political ambivalence over U.S. participation in international institutions. Most recently,
111 th Congress SFRC Chairman Senator John Kerry included "voting out" UNCLOS for full
Senate consideration among his highest priorities. This did not occur, and no Senate
action has been taken on UNCLOS by the 112th Congress.34

Justice Carpio invited our attention to the policy statement given by President Reagan on
March 10, 1983 that the US will "recognize the rights of the other , states in the waters
off their coasts, as reflected in the convention [UNCLOS], so long as the rights and
freedom of the United States and others under international law are recognized by such
coastal states", and President Clinton's reiteration of the US policy "to act in a manner
consistent with its [UNCLOS] provisions relating to traditional uses of the oceans and to
encourage other countries to do likewise." Since Article 31 relates to the "traditional uses
of the oceans," and "if under its policy, the US 'recognize[s] the rights of the other states
in the waters off their coasts,"' Justice Carpio postulates that "there is more reason to
expect it to recognize the rights of other states in their internal waters, such as the Sulu
Sea in this case."

As to the non-ratification by the US, Justice Carpio emphasizes that "the US' refusal to
join the UN CLOS was centered on its disagreement with UN CLOS' regime of deep
seabed mining (Part XI) which considers the oceans and deep seabed commonly owned
by mankind," pointing out that such "has nothing to do with its [the US'] acceptance of
customary international rules on navigation."

It may be mentioned that even the US Navy Judge Advocate General's Corps publicly
endorses the ratification of the UNCLOS, as shown by the following statement posted on
its official website:

The Convention is in the national interest of the United States because it establishes
stable maritime zones, including a maximum outer limit for territorial seas; codifies
innocent passage, transit passage, and archipelagic sea lanes passage rights; works
against "jurisdictiomtl creep" by preventing coastal nations from expanding their own
maritime zones; and reaffirms sovereign immunity of warships, auxiliaries anJ
government aircraft.

xxxx

Economically, accession to the Convention would support our national interests by


enhancing the ability of the US to assert its sovereign rights over the resources of one of
the largest continental shelves in the world. Further, it is the Law of the Sea Convention
that first established the concept of a maritime Exclusive Economic Zone out to 200
nautical miles, and recognized the rights of coastal states to conserve and manage the
natural resources in this Zone.35

We fully concur with Justice Carpio's view that non-membership in the UNCLOS does not
mean that the US will disregard the rights of the Philippines as a Coastal State over its
internal waters and territorial sea. We thus expect the US to bear "international
responsibility" under Art. 31 in connection with the USS Guardian grounding which
adversely affected the Tubbataha reefs. Indeed, it is difficult to imagine that our long-
time ally and trading partner, which has been actively supporting the country's efforts to
preserve our vital marine resources, would shirk from its obligation to compensate the
damage caused by its warship while transiting our internal waters. Much less can we
comprehend a Government exercising leadership in international affairs, unwilling to
comply with the UNCLOS directive for all nations to cooperate in the global task to
protect and preserve the marine environment as provided in Article 197, viz:

Article 197
Cooperation on a global or regional basis

States shall cooperate on a global basis and, as appropriate, on a regional basis, directly
or through competent international organizations, in formulating and elaborating
international rules, standards and recommended practices and procedures consistent
with this Convention, for the protection and preservation of the marine environment,
taking into account characteristic regional features.

In fine, the relevance of UNCLOS provisions to the present controversy is beyond dispute.
Although the said treaty upholds the immunity of warships from the jurisdiction of
Coastal States while navigating the.latter's territorial sea, the flag States shall be
required to leave the territorial '::;ea immediately if they flout the laws and regulations of
the Coastal State, and they will be liable for damages caused by their warships or any
other government vessel operated for non-commercial purposes under Article 31.

Petitioners argue that there is a waiver of immunity from suit found in the VFA. Likewise,
they invoke federal statutes in the US under which agencies of the US have statutorily
waived their immunity to any action. Even under the common law tort claims, petitioners
asseverate that the US respondents are liable for negligence, trespass and nuisance.

We are not persuaded.

The VFA is an agreement which defines the treatment of United States troops and
personnel visiting the Philippines to promote "common security interests" between the
US and the Philippines in the region. It provides for the guidelines to govern such visits of
military personnel, and further defines the rights of the United States and the Philippine
government in the matter of criminal jurisdiction, movement of vessel and aircraft,
importation and exportation of equipment, materials and supplies.36 The invocation of
US federal tort laws and even common law is thus improper considering that it is the VF
A which governs disputes involving US military ships and crew navigating Philippine
waters in pursuance of the objectives of the agreement.

As it is, the waiver of State immunity under the VF A pertains only to criminal jurisdiction
and not to special civil actions such as the present petition for issuance of a writ of
Kalikasan. In fact, it can be inferred from Section 17, Rule 7 of the Rules that a criminal
case against a person charged with a violation of an environmental law is to be filed
separately:

SEC. 17. Institution of separate actions.-The filing of a petition for the issuance of the writ
of kalikasan shall not preclude the filing of separate civil, criminal or administrative
actions.
In any case, it is our considered view that a ruling on the application or non-application
of criminal jurisdiction provisions of the VF A to US personnel who may be found
responsible for the grounding of the USS Guardian, would be premature and beyond the
province of a petition for a writ of Kalikasan. We also find it unnecessary at this point to
determine whether such waiver of State immunity is indeed absolute. In the same vein,
we cannot grant damages which have resulted from the violation of environmental laws.
The Rules allows the recovery of damages, including the collection of administrative fines
under R.A. No. 10067, in a separate civil suit or that deemed instituted with the criminal
action charging the same violation of an environmental law.37

Section 15, Rule 7 enumerates the reliefs which may be granted in a petition for issuance
of a writ of Kalikasan, to wit:

SEC. 15. Judgment.-Within sixty (60) days from the time the petition is submitted for
decision, the court shall render judgment granting or denying the privilege of the writ of
kalikasan.

The reliefs that may be granted under the writ are the following:

(a) Directing respondent to permanently cease and desist from committing acts or
neglecting the performance of a duty in violation of environmental laws resulting in
environmental destruction or damage;

(b) Directing the respondent public official, govemment agency, private person or entity
to protect, preserve, rehabilitate or restore the environment;

(c) Directing the respondent public official, government agency, private person or entity
to monitor strict compliance with the decision and orders of the court;

(d) Directing the respondent public official, government agency, or private person or
entity to make periodic reports on the execution of the final judgment; and

(e) Such other reliefs which relate to the right of the people to a balanced and healthful
ecology or to the protection, preservation, rehabilitation or restoration of the
environment, except the award of damages to individual petitioners. (Emphasis
supplied.)

We agree with respondents (Philippine officials) in asserting that this petition has
become moot in the sense that the salvage operation sought to be enjoined or restrained
had already been accomplished when petitioners sought recourse from this Court. But
insofar as the directives to Philippine respondents to protect and rehabilitate the coral
reef stn icture and marine habitat adversely affected by the grounding incident are
concerned, petitioners are entitled to these reliefs notwithstanding the completion of the
removal of the USS Guardian from the coral reef. However, we are mindful of the fact
that the US and Philippine governments both expressed readiness to negotiate and
discuss the matter of compensation for the damage caused by the USS Guardian. The US
Embassy has also declared it is closely coordinating with local scientists and experts in
assessing the extent of the damage and appropriate methods of rehabilitation.

Exploring avenues for settlement of environmental cases is not proscribed by the Rules.
As can be gleaned from the following provisions, mediation and settlement are available
for the consideration of the parties, and which dispute resolution methods are
encouraged by the court, to wit:

RULE3

xxxx

SEC. 3. Referral to mediation.-At the start of the pre-trial conference, the court shall
inquire from the parties if they have settled the dispute; otherwise, the court shall
immediately refer the parties or their counsel, if authorized by their clients, to the
Philippine Mediation Center (PMC) unit for purposes of mediation. If not available, the
court shall refer the case to the clerk of court or legal researcher for mediation.

Mediation must be conducted within a non-extendible period of thirty (30) days from
receipt of notice of referral to mediation.

The mediation report must be submitted within ten (10) days from the expiration of the
30-day period.

SEC. 4. Preliminary conference.-If mediation fails, the court will schedule the continuance
of the pre-trial. Before the scheduled date of continuance, the court may refer the case
to the branch clerk of court for a preliminary conference for the following purposes:

(a) To assist the parties in reaching a settlement;

xxxx

SEC. 5. Pre-trial conference; consent decree.-The judge shall put the parties and their
counsels under oath, and they shall remain under oath in all pre-trial conferences.

The judge shall exert best efforts to persuade the parties to arrive at a settlement of the
dispute. The judge may issue a consent decree approving the agreement between the
parties in accordance with law, morals, public order and public policy to protect the right
of the people to a balanced and healthful ecology.

xxxx

SEC. 10. Efforts to settle.- The court shall endeavor to make the parties to agree to
compromise or settle in accordance with law at any stage of the proceedings before
rendition of judgment. (Underscoring supplied.)

The Court takes judicial notice of a similar incident in 2009 when a guided-missile
cruiser, the USS Port Royal, ran aground about half a mile off the Honolulu Airport Reef
Runway and remained stuck for four days. After spending $6.5 million restoring the coral
reef, the US government was reported to have paid the State of Hawaii $8.5 million in
settlement over coral reef damage caused by the grounding.38

To underscore that the US government is prepared to pay appropriate compensation for


the damage caused by the USS Guardian grounding, the US Embassy in the Philippines
has announced the formation of a US interdisciplinary scientific team which will "initiate
discussions with the Government of the Philippines to review coral reef rehabilitation
options in Tubbataha, based on assessments by Philippine-based marine scientists." The
US team intends to "help assess damage and remediation options, in coordination with
the Tubbataha Management Office, appropriate Philippine government entities, non-
governmental organizations, and scientific experts from Philippine universities."39

A rehabilitation or restoration program to be implemented at the cost of the violator is


also a major relief that may be obtained under a judgment rendered in a citizens' suit
under the Rules, viz:

RULES

SECTION 1. Reliefs in a citizen suit.-If warranted, the court may grant to the plaintiff
proper reliefs which shall include the protection, preservation or rehabilitation of the
environment and the payment of attorney's fees, costs of suit and other litigation
expenses. It may also require the violator to submit a program of rehabilitation or
restoration of the environment, the costs of which shall be borne by the violator, or to
contribute to a special trust fund for that purpose subject to the control of the
court.1wphi1

In the light of the foregoing, the Court defers to the Executive Branch on the matter of
compensation and rehabilitation measures through diplomatic channels. Resolution of
these issues impinges on our relations with another State in the context of common
security interests under the VFA. It is settled that "[t]he conduct of the foreign relations
of our government is committed by the Constitution to the executive and legislative-"the
political" --departments of the government, and the propriety of what may be done in the
exercise of this political power is not subject to judicial inquiry or decision."40

On the other hand, we cannot grant the additional reliefs prayed for in the petition to
order a review of the VFA and to nullify certain immunity provisions thereof.

As held in BAYAN (Bagong Alyansang Makabayan) v. Exec. Sec. Zamora,41 the VFA was
duly concurred in by the Philippine Senate and has been recognized as a treaty by the
United States as attested and certified by the duly authorized representative of the
United States government. The VF A being a valid and binding agreement, the parties
are required as a matter of international law to abide by its terms and provisions.42 The
present petition under the Rules is not the proper remedy to assail the constitutionality
of its provisions. WHEREFORE, the petition for the issuance of the privilege of the Writ of
Kalikasan is hereby DENIED.

No pronouncement as to costs.
Case #5

March 18, 2015

G.R. No. 203655

SM LAND, INC., Petitioner,


vs.
BASES CONVERSION AND DEVELOPMENT AUTHORITY and ARNEL PACIANO D. CASANOVA,
ESQ., in his official capacity as President and CEO of BCDA, Respondents.

RESOLUTION

VELASCO, JR., J.:


For reconsideration is the Decision of this Court dat.ed August 13, 2014, which granted
the petition for certiorari filed by SM Land, Inc. (SMLI) and directed respondent Bases
Conversion Development Authority (BCDA) and its president to, among other things,
subject SMLI's duly accepted unsolicited proposal for the development of the Bonifacio
South Property to a competitive challenge.

The gravamen of respondents' motion is that BCDA and SMLI do not have a contract that
would bestow upon the latter the right to demand that its unsolicited proposal be
subjected to a competitive challenge. Assuming arguendo the existence of such an
agreement between the parties, respondents contend that the same may be terminated
by reasons of public interest.

We are not convinced.

There exists a valid agreement


between SMLI and BCDA

Article 1305 of the New Civil Code defines a contract as "a meeting of minds between
two persons whereby one binds himself, with respect to the other, to give something or
to render some service." It is a "juridical convention manifested in legal form, by virtue of
which one or more persons bind themselves in favor of another or others, or reciprocally,
to the fulfilment of a prestation to give, to do, or not to do."1 The succeeding Article
1318 of the Code lays down the essential requisites of a valid contract, to wit:

(1)Consent of the contracting parties;

(2)Object certain which is the subject matter of the contract; and

(3)Cause of the obligation which is established.

In the case at bar, there is, between BCDA and SMLI, a perfected contracta source of
rights and reciprocal obligations on the part of both parties. Consequently, a breach
thereof may give rise to a cause of action against the erring party.

The first requisite, consent, is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract.2 In the case at bar,
when SMLI submitted the first Unsolicited Proposal to BCDA on December 14, 2009, the
submission constituted an offer to undertake the development of the subject property.
BCDA then entered into negotiations with SMLI until the BCDA finally accepted the terms
of the final unsolicited proposal.3 Their agreement was thereafter reduced into writing
through the issuance of the Certification of Successful Negotiations where the meeting of
the parties minds was reflected in this wise:

NOW, THEREFORE, for and in consideration of the foregoing, BCDA and SMLI have, after
successful negotiations pursuant to Stage II of Annex C x x x, reached an agreement on
the purpose, terms and conditions on the JV development of the subject property, which
shall become the terms for the Competitive Challenge pursuant to Annex C of the JV
Guidelines x x x.4 (emphasis ours)

Then, to manifest their assent to the terms thereof and their respective obligations, both
partiesBCDA and SMLI, represented by Gen. Narciso L. Abaya and Ms. Ana Bess Pingol,
respectivelyaffixed their signatures on the Certification of Successful Negotiations and
had it notarized on August 6, 2010.

Cause, on the other hand, is the essential reason which moves the parties to enter into
the contract. It is the immediate, direct and proximate reason which justifies the creation
of an obligation through the will of the contracting parties.5 Complementing this is
Article 1350 of the New Civil Code which provides that "[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." As such, the cause of the agreement in the case at hand is their
interest in the sale or acquisition and development of the property and their undertaking
to perform their respective obligations, among others, as reflected in the Certificate of
Successful Negotiations and in the Terms of Reference (TOR) issued by BCDA.

Lastly, object certain refers to the subject matter of the contract. It is the thing to be
delivered or the service to be performed.6 Here, when the BCDA Board issued, on August
6, 2010, the Certification of Successful Negotiations,7 it not only accepted SMLIs
Unsolicited Proposal and declared SMLI eligible to enter into the proposed JV activity. It
also "agreed to subject [SMLI]s Original Proposal to Competitive Challenge pursuant to
Annex C [of the NEDA JV Guidelines], which competitive challenge process shall be
immediately implemented following the [TOR] Volumes 1 and 2."8 Moreover, said
Certification provides that "the BCDA shall, thus, commence the activities for the
solicitation for comparative proposals x x x starting on August 10, 2010, on which date
[SMLI] shall post the required Proposal Security x x x."9

The elements of a valid contract being present, there thus exists between SMLI and
BCDA a perfected contract, embodied in the Certification of Successful Negotiations,
upon which certain rights and obligations spring forth, including the commencement of
activities for the solicitation for comparative proposals. Thus, as evinced in the
Certification of Successful Negotiation:

BCDA and SMLI have agreed to subject SMLIs Original Proposal to Competitive Challenge
pursuant to Annex C Detailed Guidelines for Competitive Challenge Procedure for
Public-Private Joint Ventures of the NEDA JV guidelines, which competitive challenge
process shall be immediately implemented following the Terms of Reference (TOR)
Volumes 1 and 2.10 x x x

This agreement is the law between the contracting parties with which they are required
to comply in good faith.11 Verily, it is BCDAs subsequent unilateral cancellation of this
perfected contract which this Court deemed to have been tainted with grave abuse of
discretion. BCDA could not validly renege on its obligation to subject the unsolicited
proposal to a competitive challenge in view of this perfected contract, and especially so
after BCDA gave its assurance that it would respect the rights that accrued in SMLIs
favor arising from the same.12

The NEDA JV Guidelines has


the force and effect of law

Aside from the agreement between the parties, the ruling in favor of SMLI is likewise
based on the NEDA JV Guidelines. As mandated by the rules, the Joint Venture activity,
upon the successful completion of the detailed negotiation phase, shall be subjected to a
competitive challenge.13 While it is not disputed that respondents failed to comply with
the pertinent provisions of the NEDA JV Guidelines, the dissent postulates that it is
justifiable since it is a mere guideline and not law.14

We regretfully disagree.

Under the Administrative Code of 1987,15 acts of the President providing for rules of a
general or permanent character in implementation or execution of constitutional or
statutory powers shall be promulgated in Executive Orders (EOs).16 In other words, it is
through these orders that the President ensures that laws are faithfully executed, by
handing out instructions to subordinate executive officials and the public, in the form of
implementing rules and regulations, on how the law should be executed by subordinate
officials and complied with by the public.17

For government contracts and procurement in the Philippines, then President Gloria
Macapagal-Arroyo, adopting the recommendation of the NEDA, issued EO 10918 on May
27, 2002. As its title indicates, EO 109 streamlined the rules and procedures on the
review and approval of all contracts of departments, bureaus, offices and agencies of the
government, including government-owned and controlled corporations and their
subsidiaries. This executive issuance was, however, later amended by EO 109-A,19 to
conform to RA 9184 which was enacted barely two months after the issuance of EO
109.20 Two years later, or on April 30, 2005, EO 42321 was issued, repealing EO 109-A
and simplifying the procurement process. Section 4 of EO 423 was later amended by EO
645.22

Amidst the changes effected on procurement rules, the NEDAs duty to issue a JV
Guidelines under the said executive orders remained unaffected.23 Through Section 5 of
EO 109, Section 8 of EO 109-A and now Section 8 of EO 423, the President effectively
delegated her inherent executive power to issue rules and regulations on procurement to
her subordinate executive officials,24 her alter egos, the most recent of which reads in
this wise:

Section 8. Joint Venture Agreements. The NEDA, in consultation with the GPPB, shall issue
guidelines regarding joint venture agreements with private entities with the objective of
promoting transparency, competitiveness, and accountability in government
transactions, and, where applicable, complying with the requirements of an open and
competitive public bidding.

Pursuant to said repeated directives from no less than the Chief Executive, the NEDA
issued the JV Guidelines providing the procedures for the coagulation of joint ventures
between the government and a private entity. In this regard, attention must be drawn to
the well-established rule that administrative issuances, such as the NEDA JV Guidelines,
duly promulgated pursuant to the rule-making power granted by statute, have the force
and effect of law.25 As elucidated in the August 13, 2014 Decision:

x x x Being an issuance in compliance with an executive edict, the NEDA JV Guidelines,


therefore, has the same binding effect as if it were issued by the President himself, who
parenthetically is a member of NEDA. As such, no agency or instrumentality covered by
the JV Guidelines can validly deviate from the mandatory procedures set forth therein,
even if the other party acquiesced therewith or not.26

Articles III (4) and VIII (3) only refer to


Private Sector Entities (PSEs), effectively
excluding the Original Proponent

The dissent would next draw our attention to Article III (on General Information) and VIII
(on Qualifications and Waivers) of the TOR Volume 1, which read:

III. GENERAL INFORMATION

xxxx

4. Amendment of these TOR. The information and/or procedures contained in these TOR
may be amended or replaced at any time, at the discretion of the BCDA Board, without
giving prior notice or providing for any reason. Should any of the information and/or
procedures contained in these TOR be amended or replaced, the JV-SC shall inform and
send Supplemental Notices to all PSEs x x x.27

xxxx

VIII. QUALIFICATIONS AND WAIVERS

3. BCDA further reserves the right to call off this disposition prior to acceptance of the
proposal(s) and call for a new disposition process under amended rules, and without any
liability whatsoever to any or all of the PSEs, except the obligation to return the Proposal
Security.28 (emphasis added)

On this point, it is well to emphasize that the TOR containing the said provisions details
the requirements for eligibility to qualify as a PSE that may submit its technical and
financial proposals for the JV, and does not encompass the entire Swiss Challenge
procedure. This is bolstered by the provisions perfect consonance with the procedure for
Stage Three per Annex C of the Guidelines, thus:

3.The Private Sector Entity shall post the proposal security at the date of the first day of
the publication of the invitation for comparative proposals in the amount and form stated
in the tender documents.

4.The procedure for the determination of eligibility of comparative proponents/private


sector participants, issuance of supplemental competitive selection bulletins and pre-
selection conferences, submission and receipt of proposals, opening and evaluation of
proposals shall follow the procedure stipulated under Annex A hereof. In the evaluation of
proposals, the best offer shall be determined to include the original proposal of the
Private Sector Entity. If the Government Entity determines that an offer made by a
comparative private sector participant other than the Original Proponent is superior or
more advantageous to the government than the original proposal, the Private Sector
Entity who submitted the original proposal shall be given the right to match such
superior or more advantageous offer within thirty (30) calendar days from receipt of
notification from the Government Entity of the results of the competitive selection.
Should no matching offer be received within the stated period, the JV activity shall be
awarded to the comparative private sector participant submitting the most
advantageous proposal. If a matching offer is received within the prescribed period, the
JV activity shall be awarded to the Original Proponent. If no comparative proposal is
received by the Government Entity, the JV activity shall be immediately awarded to the
original private sector proponent.

Pursuant to the above-quoted provisions from the NEDA JV Guidelines, the interested
PSEs, in order to be able to participate in the competitive challenge, must first post their
respective proposal securities before submitting their comparative proposals for
evaluation and consideration. Consequently, per the reservation clause, should the
government entity (GE) decide to make material changes in the TORs issued, it must do
so before it accepts the comparative proposals from the interested PSEs. This deadline is
intended to protect the participating PSEs from alterations in the benchmarks set forth in
the TOR after their proposals have already been seen and reviewed by the GE.
Furthermore, should modifications be validly made, such may affect the computation for
the amount of the proposal security to be posted by the comparative proponents,29
hence the need for the GE to return the PSEs proposal securities should it decide to pre-
terminate the competitive challenge.

As to SMLIs proposal security, suffice it to state that it is not covered by the clauses
hence will not be returned even if the competitive challenge is terminatedbecause
SMLI cannot be considered as a PSE within the context of the TOR and the JV Guidelines.

It must be emphasized that while an Original Proponent necessarily comes from the
private sector, the term "Private Sector Entity" has a definite meaning in the Swiss
Challenge procedure. Under the TOR, a "Private Sector Entity" means "the party/ies that
shall have submitted proposals in compliance with the requirements specified in Article
V, Volume 1 of these TOR for the privatization and development of the property."30 On
the other hand, under the same document, an "Original Proponent" means "SMLI, whose
unsolicited proposal for the development and privatization of [the] subject Property
through JV with BCDA has been accepted by the latter, subject to certain conditions, and
is now being subjected to a competitive challenge."31

To be sure, the Original Proponent, as duly noted in the assailed Decision herein, is
bestowed several rights under the JV Guidelines, including the right to the conduct and
completion of a competitive challenge and the right to match a superior or more
advantageous offer, among others. As such, it is clear that SMLI, being the Original
Proponent, cannot be considered as a Private Sector Entity to which the reservation
clause applies.

Moreover, pertinent to our reading of the above-cited provisions in the TOR is Article
1373 of the Civil Code, which provides that "[i]f some stipulation of any contract should
admit of several meanings, it shall be understood as bearing that import which is most
adequate to render it effectual." For this purpose, an interpretation which renders every
word operative is preferred over that which makes some words idle and nugatory.

Applying the doctrine in the case at bar, a contrary readingthat the adverted provisions
in the TOR entitle BCDA to cancel the entire Swiss Challengewould violate the NEDA JV
Guidelines, which, as earlier explained, has the force and effect of law. As elucidated in
the main Decision:

A review of the outlined three-stage framework reveals that there are only two occasions
where pre-termination of the Swiss Challenge process is allowed: at Stage One, prior to
acceptance of the unsolicited proposal; and at Stage Two, should the detailed
negotiations prove unsuccessful. In the Third Stage, the BCDA can no longer withdraw
with impunity from conducting the Competitive Challenge as it became ministerial for
the agency to commence and complete the same. Thus, acceding to the interpretation of
the TOR offered by BCDA will, in effect, result not only in the alteration of the agreement
between the parties but also of the NEDA JV Guidelines itself, both of which has the force
and effect of law.

The interpretation offered by BCDA is, therefore, unacceptable. Between procedural


guidelines promulgated by an agency pursuant to its rule-making power and a condition
unilaterally designed and imposed for the implementation of the same, the former must
prevail. BCDA does not wield any rule-making power such that it can validly alter or
abandon a clear and definite provision in the NEDA JV Guidelines under the guise of a
condition under the TOR. As We have time and again harped, the ones duty-bound to
ensure observance with laws and rules should not be the ones to depart therefrom. A
contrary rule would open the floodgates to abuses and anomalies more detrimental to
public interest. For how can others be expected to respect the rule of law if the very
persons or entities tasked to administer laws and their implementing rules and
regulations are the first to violate them, blatantly or surreptitiously?

Estoppel can be invoked


against herein respondents

Respondents cannot plausibly shift the blame on what it perceived to be a bad bargain
on the previous administration by arguing that the latter was negligent in its actions or
that it entered into questionable transactions, for as can be gleaned, the negotiations
and agreement between BCDA and SMLI was authorized by the BCDAs Board through
Resolution No. 2010- 05-100. Acting as a collegial body, the BCDAs Board could still
validly authorize its president to enter into transactions over the protestation of some of
its members through a democratic vote.

Respondents cannot also find solace in the general rule that the State is not barred by
estoppel by the mistakes or errors of its officials or agents. As jurisprudence elucidates,
the doctrine is subject to exceptions, viz:

Estoppels against the public are little favored. They should not be invoked except [in
rare] and unusual circumstances, and may not be invoked where they would operate to
defeat the effective operation of a policy adopted to protect the public. They must be
applied with circumspection and should be applied only in those special cases where the
interests of justice clearly require it. Nevertheless, the government must not be allowed
to deal dishonorably or capriciously with its citizens, and must not play an ignoble part or
do a shabby thing; and subject to limitations . . ., the doctrine of equitable estoppel may
be invoked against public authorities as well as against private individuals.32 (emphasis
added)

Clearly, estoppel against the government can be invoked in this case. This is in view of
the fact that despite BCDAs repeated assurances that it would respect SMLIs rights as
an original proponent, and after putting the latter to considerable trouble and expense,
BCDA went back on its word to comply with its obligations under their agreement and
instead ultimately cancelled the same. BCDAs capriciousness becomes all the more
evident in its conflicting statements as regards whether or not SMLIs proposal would be
advantageous to the government. As enunciated in the assailed Decision:
Noticeably, in its November 8, 2010 Memorandum, the BCDA posited that competitive
challenge is more advantageous to the government than straight bidding, to wit:

The price of the Bonifacio South properties has already been set by the winning price in
the bidding for the joint venture development of the JUSMAG property
(P31,111/sq.m.).1wphi1 Thus, BCDA has established the benchmark for the price of the
remaining Bonifacio South properties, of which the JUSMAG property is the most prime.
Logically the minimum bid price under straight bidding for the BNS/PMC/ASCOM/SSU
property, which is a far less inferior property, would be P31,111/sq.m. However, with
SMs submission of a revised unsolicited proposal at P31,732/sq.m. and later further
revised to P32,500/sq.m., BCDA saw the opportunity to negotiate for better terms and
eventually arrived at a higher price of P36,900/sq.m. In this case, BCDA deemed that
going into Competitive Challenge was more advantageous to the government than
Competitive Selection (straight bidding) because of the opportunity to increase the price.

Furthermore, subjecting the price to subsequent price challenge will possibly drive up the
price even higher than P38,900/sq.m. These opportunities cannot be taken advantage of
under a straight bidding where failure of bidding would likely ensue if in case BCDA
immediately sets the price of the property too high. The competition in the real estate
industry and as experienced by BCDA is such that the other developers will usually
challenge the original proposal to "up the ante" as they cannot allow the original
proponent to get the property easily.

Despite this testament, the BCDA, over a year later, made a complete turnaround stating
that straight bidding will be best for the Government. As can be gleaned from the BCDAs
Memorandum to the President dated February 13, 2012, respondents themselves
recommended to the President that the selection proceedings be terminated. To
reiterate:

In view of the foregoing, may we respectfully recommend the Presidents approval for
BCDA to terminate the proceedings for the privatization and development of the
BNS/PMC/ASCOM/SSU Properties in Bonifacio South through Competitive Challenge and
proceed with the bidding of the property.

The BCDA offered no explanation to reconcile its opposing positions. It also neglected to
inform SMLI of the provisions in its proposal that it deemed disadvantageous to the
government. x x x

Respondents harp on the alleged dubiousness of the proceeding that led to the
perfection of the agreement, but to rule now that irregularities marred the actions of
BCDAs board and officers, as respondents would have us believe, would be tantamount
to prematurely exposing its former officers to potential administrative liability without
due process of law. If respondent would insist on such argument, it could have at least
shown that the proper disciplinary cases have been initiated as evidence that BCDA
reasonably believed that its previous officers indeed deviated from lawful procedure.

The perceived government


losses remain speculative
The alleged adverse economic impact on the government, in finding for SMLI, does not
constitute, under the premises, a valid cause for the reversal of the assailed Decision. To
clarify, Our ruling did not award the project in petitioners favor but merely ordered that
SMLIs proposal be subjected to a competitive challenge. Consequently, any alleged
disadvantage the government would suffer is speculative at most as there is no final
award for the project as of yet.

Lest it be misunderstood, the perceived low floor price for the project, based on SMLIs
proposal, remains just thata floor price. There is, thus, an opportunity to increase the
price, the government share as it were, through competitive challenge, as respondents
themselves previously observed. Such offers can even surpass the propertys current
market value and, in which case, constitute sufficient consideration for the project.
Without first subjecting SMLIs proposal to a competitive challenge, no bid can yet be
obtained from PSEs and, corollarily, no determination can be made at present as to
whether or not the final bid price for the project is, indeed, below the propertys fair
market value.

Public bidding may generally be more preferred than a competitive challenge for reasons
explained in the dissent. However, there must be a careful balance between what is best
for the government and what is fair to the persons it deals with. Otherwise, any and all
unsolicited proposal can be cancellable, despite its acceptance, by the mere allegation
that straight bidding is what public interest so requires. Worse, the government can very
well ignore, at will, its contractual obligations by invoking that familiar mantrapublic
interest.

To be sure, the government has not strayed from accepting suo moto proposals from
private entities and subjecting said proposals to a Swiss Challenge. In fact, the recent
"Price Challenge" as regards Metro Pacific Investment Corporations (MPICs) proposal for
the expansion of the North Luzon Expressway as well as its integration with the Subic-
Clark-Tarlac Expressway was undertaken by none other than BCDA itself.33 Thereafter,
the BCDA board, in its February 4, 2015 meeting, adopted the result of the concluded
Price Challenge, wherein no firm has tried to match MPICs proposal, and, consequently,
approved the notice of award in the companys favor.34 Curiously enough, if straight
bidding is, indeed, more beneficial, more transparent, and would yield a better offer for
the government, then there is no reason for respondents not to have cancelled the
process instead of awarding the project to MPIC. Otherwise stated, if public interest
requires the conduct of a straight bidding instead of a Swiss Challenge, then MPIC can
never rest easy, thinking the contract it entered into with the government can be
terminated at any time.

It is, thus, recognized that there are instances whereinthe agreement stemming from
faithful negotiations of the parties should be upheld, especially so when, as in this case,
the alleged adverse effects on the

remain government speculative at best. Respondents should, therefore, honor its


commitment with petitioner, not as a message conveying the coddling of PSEs, and not
only pursuant to its contractual and legal obligations under the TOR and the NEDA JV
Guidelines, but also as a balancing mechanism between the tangible benefits the
government stands to reap in terms of contract consideration, and its intangible benefits
including improved public confidence in the government in terms of ease of doing
business with. Moreover, and guilty of reiteration, it is worth emphasizing that SMLI's
offer, which was duly accepted by the BCDA, only serves as the floor price and does not
foreclose better offers that can even surpass the property's current market value. This
being said, the government is not without protection for it is not precluded from availing
of safeguards and remedies it is entitled to after soliciting comparative proposals, as
provided under the TOR and the NEDA JV Guidelines.

WHEREFORE, in view of the foregoing, the Court's August 13, 2014 Decision is hereby
AFFIRMED. Respondents' Motion for Reconsideration is accordingly DENIED with FINALITY.

No further pleadings, motions, letters or other communications shall be entertained in


this case. Let entry of judgment be issued.

Case #6

G.R. No. 203655, September 07, 2015


SM LAND, INC., Petitioner, v. BASES CONVERSION AND DEVELOPMENT
AUTHORITY AND ARNEL PACIANO D. CASANOVA, ESQ., IN HIS OFFICIAL
CAPACITY AS PRESIDENT AND CEO OF BCDA, Respondents.
RESOLUTION
VELASCO JR., J.:
Once again, respondent-movants Bases Conversion Development Authority (BCDA) and
Arnel Paciano D. Casanova, Esq. (Casanova) urge this Court to reconsider its August 13,
2014 Decision1 in the case at bar. In their Motion for Leave to file Second Motion for
Reconsideration and to Admit the Attached Second Motion for Reconsideration (With
Motion for the Court en banc to Take Cognizance of this Case and/to Set the Case for Oral
Argument Before the Court en banc),2 respondent-movants remain adamant in claiming
that the assailed rulings of the Court would cause unwarranted and irremediable injury to
the government, specifically to its major beneficiaries, the Department of National
Defense (DND) and the Armed Forces of the Philippines (AFP).3

The motion fails to persuade.

The instant recourse partakes the nature of a second motion for reconsideration, a
prohibited pleading under Section 2, Rule 56,4 in relation to Sec. 2, Rule 52 of the
Rules of Court. The rule categorically states: "no second motion for reconsideration of a
judgment or final resolution by the same party shall be entertained." The rationale
behind the rule is explained in Manila Electric Company v. Barlis, thusly:

The propriety or acceptability of such a second motion for reconsideration is not


contingent upon the averment of "new" grounds to assail the judgment, i.e.. grounds
other than those theretofore presented and rejected. Otherwise, attainment of finality of
a judgment might be staved off indefinitely, depending on the party's ingeniousness or
cleverness in conceiving and formulating "additional flaws" or "newly discovered errors'"
therein, or thinking up some injury or prejudice to the rights of the movant for
reconsideration. "Piece-meal1" impugnation of a judgment by successive motions for
reconsideration is anathema, being precluded by the salutary axiom that a party seeking
the setting aside of a judgment, act or proceeding must set out in his motion all the
grounds therefor, and those not so included are deemed waived and cease to be
available for subsequent motions.

For all litigation must come to an end at some point, in accordance with established rules
of procedure and jurisprudence. As a matter of practice and policy, courts must dispose
of every case as promptly as possible; and in fulfillment of their role in the administration
of justice, they should brook no delay in the termination of cases by stratagems or
maneuverings of parties or their lawyers...5

Indeed, all cases are to eventually reach a binding conclusion and must not remain
indefinitely afloat in limbo. Otherwise, the exercise of judicial power would be for naught
if court decisions can effectively be thwarted at every turn by dilatory tactics that
prevent the said rulings from attaining finality. Hence, the Court has taken a conservative
stance when entertaining second motions for reconsideration, allowing only those
grounded on extraordinarily persuasive reasons and, even then, only upon express leave
first obtained.6 As proscribed under Sec. 3, Rule 15 of the Internal Rules of the Supreme
Court:

SEC. 3. Second motion for reconsideration. - The Court shall not entertain a second
motion for reconsideration, and any exception to this rule can only be granted in
the higher interest of justice by the Court en banc upon a vote of at least two-thirds
of its actual membership. There is reconsideration "in the higher interest of justice" when
the assailed decision is not only legally erroneous, but is likewise patently unjust and
potentially capable of causing unwarranted and irremediable injury or damage to the
parties. A second motion for reconsideration can only be entertained before the ruling
sought to be considered becomes final by operation of law or by the Court's declaration.

In the Division, a vote of three Members shall be required to elevate a second


motion for reconsideration to the Court En Banc.7
(emphasis added)ChanRoblesVirtualawlibrary
Succinctly put, the concurrence of the following elements are required for a second
motion for reconsideration to be entertained:chanRoblesvirtualLawlibrary
1 The motion should satisfactorily explain why granting the same would be in the higher
interest of justice;cralawlawlibrary
2 The motion must be made before the ruling sought to be reconsidered attains
finality;cralawlawlibrary
3 If the ruling sought to be reconsidered was rendered by the Court through one of its
Divisions, at least three (3) members of the said Division should vote to elevate the case
to the Court En Banc; and
4 The favorable vote of at least two-thirds of the Court En Banc's actual membership must
be mustered for the second motion for reconsideration to be granted.

Unfortunately for respondent-movants, the foregoing requirements do not obtain in the


case at bench. To begin with, there are no extraordinarily persuasive reasons "in the
higher interest of justice" on which the instant second motion for reconsideration is
anchored on. The enumerated grounds for the second motion for reconsideration say as
much:

GROUNDS8

THE AGREEMENT BETWEEN SMLI AND BCDA WAS NEVER PERFECTED TO COMPEL BCDA
TO COMPLETE THE COMPETITIVE CHALLENGE AS THERE WAS NO MEETING OF THE
MINDS.

II

THE GOVERNMENT RESERVATION TO CANCEL THE COMPETITIVE CHALLENGE IS A POLICY


DECISION AND REMAINS ELECTIVE IN THE ENTIRE PROCEEDINGS AND BINDING TO ALL
PRIVATE SECTOR ENTITIES INCLUDING SMLI.

III

THE DECISION TO TERMINATE THE COMPETITIVE CHALLENGE IS A POLICY AND


ECONOMIC DECISION. MANDAMUS WILL THEREFORE NOT LIE.

IV

ESTOPPEL CANNOT OPERATE TO PREJUDICE THE GOVERNMENT.

THE PERCEIVED GOVERNMENT LOSSES IS NOT IMAGINED BUT REAL.

Based on the records, the second motion for reconsideration is a mere rehash, if not a
reiteration, of respondent-movants' previous arguments and submissions, which have
amply been addressed by the Court in its August 13, 2014 Decision, and effectively
affirmed at length in its March 18, 2015 Resolution.9
To recapitulate, there exists between SMLI and BCDA a perfected agreement, embodied
in the Certification of Successful Negotiations, upon which certain rights and obligations
spring forth, including the commencement of activities for the solicitation for
comparative proposals.10 As evinced in the Certification of Successful Negotiation:

NOW, THEREFORE, for and in consideration of the foregoing, BCDA and SMLI have,
after successful negotiations pursuant to Stage II of Annex C x x x. reached an
agreement on the purpose, terms and conditions on the JV development of the subject
property, which shall become the terms for the Competitive Challenge pursuant to Annex
C of the Guidelines, x x x.11

xxxx

BCDA and SMLI have agreed to subject SMLI's Original Proposal to Competitive
Challenge pursuant to Annex C - Detailed Guidelines for Competitive Challenge
Procedure for Public-Private Joint Ventures of the NEDA .TV guidelines, which competitive
challenge process shall be immediately implemented following the Terms of Reference
(TOR) Volumes 1 and 2.12 (emphasis added)

Under the agreement and the National Economic Development Authority Joint Venture
Guidelines (NEDA JV Guidelines), the BCDA is duty-bound to proceed with and complete
the competitive challenge after the detailed negotiations proved successful. Thus, the
Court found that BCDA gravely abused its discretion for having acted arbitrarily and
contrary to its contractual commitment to SMLI, to the damage and prejudice of the
latter, when it cancelled the competitive challenge prior to its completion. 13

Respondent-movants' reliance on the Terms of Reference (TOR) provision on


Qualifications and Waivers14 to cancel the Swiss Challenge is misplaced for the provision,
as couched, focuses only on the eligibility requirements for Private Sector Entities (PSEs)
who wish to challenge SMLI's proposal, and not to the Swiss Challenge in its entirety. 15 To
rule otherwise - that the TOR allows the BCDA to cancel the competitive challenge at any
time - would contravene the NEDA JV Guidelines, which has the force and effect of law. 16

Respondent-movants cannot also find solace in the dictum that the State is never be
barred by estoppel by the perceived mistakes or errors of its officials or agents. 17 As
jurisprudence elucidates, the doctrine is subject to exceptions, viz:

Estoppels against the public are little favored. They should not be invoked except in a
rare and unusual circumstances, and may not be invoked where they would operate to
defeat the effective operation of a policy adopted to protect the public. They must be
applied with circumspection and should be applied only in those special cases where the
interests of justice clearly require it. Nevertheless, the government must not be allowed
to deal dishonorably or capriciously with its citizens, and must not play an ignoble part or
do a shabby thing; and subject to limitations x x x, the doctrine of equitable estoppel
may be invoked against public authorities as well as against private individuals.18

Here, despite BCDA's repeated assurances that it would respect SMLFs rights as an
original proponent, and after putting the latter to considerable trouble and expense,
BCDA went back on its word and instead ultimately cancelled its agreement with SMLI. 19
BCDA's capriciousness became all the more evident in its conflicting statements as
regards whether or not SMLI's proposal would be advantageous to the government. 20 The
alleged dubiousness of the proceeding that led to the perfection of the agreement
cannot also be invoked as a ground to cancel the contract for to rule that irregularities
marred the actions of BCDA's former board and officers, as respondent-movant would
have us to believe, would be tantamount to prematurely exposing them, who are non-
parties to this case, to potential administrative liability without due process of law.21

Respondent-movants would then asseverate that to proceed with the competitive


challenge starting at the floor price of P38,500.00 per square meter is patently unjust
and grossly disadvantageous to the government since the property in issue is allegedly
appraised at P78,000.00 per square meter.22 However, this alleged adverse economic
impact on the government, in finding for SMLI, remains speculative. To clarify, Our ruling
did not award the project in petitioner's favor but merely ordered that SMLI's proposal be
subjected to a competitive challenge. And lest it be misunderstood, the perceived low
floor price for the project, based on SMLI's proposal, remains just that - a floor price.
Without first subjecting SMLI's proposal to a competitive challenge, no bid can yet be
obtained from private sector entities and, corollarily, no determination can be made at
present as to whether or not the final bid price for the project is indeed below the
property's fair market value.23

Overall, the foregoing goes to show that the BCDA failed to establish a justifiable reason
for its refusal to proceed with the competitive challenge. 24 We are left to believe that the
cancellation of the competitive challenge, in violation not only of the agreement between
the parties but also of the NEDA JV Guidelines, was only due to BCDA's whims and
caprices, and is correctible by the extraordinary writ of certiorari .

With the foregoing disquisitions, respondent-movants' second motion for reconsideration,


as its first, is totally bereft of merit. There exists no argument "in the higher interest of
justice" that would convincingly compel this Court to even admit the prohibited pleading.
It also then goes without saying that this Division does not find cogent reason to elevate
the matter to the Court en banc.

Furthermore, it is well to note that the Court's ruling in this case has already attained
finality and an Entry of Judgment25 has correspondingly been issued. The Court,
therefore, no longer has jurisdiction to modify the Decision granting SMLI's petition for its
finality and executoriness consequently rendered it immutable and unalterable. 26 As
elucidated in Mocorro, Jr. v. Ramirez:

This quality of immutability precludes the modification of a final judgment, even if the
modification is meant to correct erroneous conclusions of fact and law. And this postulate
holds true whether the modification is made by the court that rendered it or by the
highest court in the land. The orderly administration of justice requires that, at the risk of
occasional errors, the judgments/resolutions of a court must reach a point of finality set
by the law. The noble purpose is to write finis to dispute once and for all. This is a
fundamental principle in our justice system, without which there would be no end to
litigations. Utmost respect and adherence to this principle must always be maintained by
those who exercise the power of adjudication. Any act, which violates such principle,
must immediately be struck down. Indeed, the principle of conclusiveness of prior
adjudications is not confined in its operation to the judgments of what are ordinarily
known as courts, but extends to all bodies upon which judicial powers had been
conferred.27
The only exceptions to the rule on the immutability of final judgments are (1) the
correction of clerical errors, (2) the so-called nunc pro tunc entries which cause no
prejudice to any party, and (3) void judgments. 28 Respondent-movants, therefore,
question the validity of the Court's Third Division's rulings and postulate that a
deliberation of the case by the Court en banc is warranted under Sec. 4(2), Article VIII, of
the 1987 Constitution, which reads:

SECTION 4. x x x x

(2) All cases involving the constitutionality of a treaty, international or executive


agreement, or law, which shall be heard by the Supreme Court en banc, and all other
cases which under the Rules of Court are required to be heard en banc, including
those involving the constitutionality, application, or operation of presidential
decrees, proclamations, orders, instructions, ordinances, and other regulations, shall
be decided with the concurrence of a majority of the Members who actually took part in
the deliberations on the issues in the case and voted thereon, (emphasis added)

In support of their contention, respondent-movants cite the 1953 case of Ykalina v.


Oricio, which held that a presidential order may either be in a written memorandum or
merely verbal.29 They then argue that the issuance of Supplemental Notice No. 5,
effectively cancelling the Swiss Challenge of petitioner's duly accepted suo moto
proposal, was pursuant to a verbal presidential order or instruction. And pursuant to the
constitutional provision, the challenge against this presidential directive, so respondent-
movants insist, is within the jurisdiction of Court en banc, not with its divisions.30

We disagree.

Respondent-movants' interpretation of the antiquated 1953 doctrine in Ykalina is highly


distorted. In the said case, the Court, finding for respondent Ananias Oricio (Oricio),
sustained his appointment in spite of having been merely verbally made. As held:

While the appointment of an officer is usually evidenced by a Commission, as a general


rule it is not essential to the validity of an appointment that a commission issue, and an
appointment may be made by an oral announcement of his determination by
the appointing power.31 (emphasis added, citation omitted)

Based on the Court's reasoning, the presidential order that "may either be in a written
memorandum or merely verbal " adverted to in Ykalina should therefore be understood
as limited specifically to those pertaining to appointments. Current jurisprudence,
however, no longer recognizes the validity of oral appointments and, in fact, requires the
transmission and receipt of the necessary appointment papers for their completion.32

To further distinguish Ykalina with the extant case, it was observed in the former that
Oricio's verbal appointment was established in evidence by a communication duly signed
by the then Acting Executive Secretary "by order of the President." 33 Applied in modern
day scenarios, the limited application of the Ykalina doctrine should only govern those
that were similarly verbally given by the president but were, nevertheless, attested to by
the Executive Secretary. This is in hew with Section 27 (10) of Book III, Title III, Chapter 9-
B of Executive Order No. 292 (EO 292), 34 otherwise known as the Administrative Code of
1987, which empowers the Executive Secretary to attest executive orders and other
presidential issuances "by authority of the President." These "executive orders and
presidential issuances," in turn, relate to the enumeration under Book III, Title I, Chapter
2 of EO 292.35

Here, it is well to recall that the President did not issue any said executive order or
presidential issuance in intimating to the BCDA that he wishes for the competitive
challenge to be cancelled. There was no document offered that was signed by either the
Chief Executive or the Executive Secretary, for the President, to that effect. The situation,
therefore, does not involve a presidential order or instruction within the contemplation of
Sec. 4(2), Article VIII of the Constitution, and, consequently, does not fall within the
jurisdiction of the Court en banc. Given the glaring differences in context, the doctrine in
Ykalina cannot find application herein, and cannot operate to divest the Court's division
of its jurisdiction over the instant case.

Anent the joint motion for intervention 36 filed by the DND and AFP, both agencies
claimed therein that they are the statutory beneficiaries of the proceeds from the
conversion, development, and disposal of the camps transferred to BCDA, which include
the subject property. These expected proceeds that would redound to their benefit are to
be applied in funding the AFP Modernization Program as per Republic Act No. (RA) 7227, 37
as amended by RA 10349.38 As such, so the applicants claim, they have legal and
financial interests and stakes in the outcome of the subject matter, and should,
therefore, be allowed to intervene.

The argument does not hold merit.

Intervention is not a matter of absolute right but may be permitted by the Court when
the applicant shows facts which satisfy the requirements of the statute authorizing
intervention."39 Under the Rules of Court,40 what qualifies a person to intervene is his
possession of a legal interest in the case - be it in the subject matter of litigation itself, in
the success of the parties, or in the resultant distribution of property in custodia legis.
The Court has further expounded on this concept of legal interest and set the parameters
for granting intervention as follows:41

xxx As regards the legal interest as qualifying factor, this Court has ruled that such
interest must be of a direct and immediate character so that the intervenor will either
gain or lose by the direct legal operation of the judgment. The interest must be actual
and material, a concern which is more than mere curiosity, or academic or sentimental
desire; it must not be indirect and contingent, indirect and remote, conjectural,
consequential or collateral. However, notwithstanding the presence of a legal
interest, permission to intervene is subject to the sound discretion of the court, the
exercise of which is limited by considering "whether or not the intervention will unduly
delay or prejudice the adjudication of the rights of the original parties and whether or not
the intervenor's rights may be fully protected in a separate proceeding, (emphasis
added)ChanRoblesVirtualawlibrary

In the case at bar, the DND and AFP moved for intervention on the ground that they are
the beneficiaries of the proceeds from the project to be undertaken by the BCDA.
Obviously, this "right to the proceeds" is far from actual as it veritably rests on the
success of the bidding process, such that there will be no proceeds that will accrue to
their benefit to speak of if the project does not push through. All the applicants have
then, at best, is an inchoate right to the proceeds of the development of the property in
litigation. Said inchoate right, contradistinguished with vested rights that have become
fixed and established, are still expectant and contingent and, thus, open to doubt or
controversy.42 Consequently, the said right does not constitute sufficient legal interest
that would qualify the DND and AFP, in this case, to intervene. And in any event,
regardless of the presence or absence of sufficient legal interest, the Comment in
Intervention43 filed does not contain any new issue that has not yet been resolved by the
Court in its Decision and Resolution. Hence, there is no cogent reason to grant the
motion for intervention and to admit DND and AFP's comment.

As a final note, the Rule of Law allows the citizenry to reasonably assume that future
conduct will be in observance of government regulations, and to conceivably expect that
any deviation therefrom will not be countenanced. 44 The Judiciary, therefore, undertakes
to strengthen the Rule of Law by embedding a sense of predictability in the
jurisprudence it builds.

To allow the government to trample on the very rules it itself issued and to renege on its
contractual and legal obligations by invoking the all too familiar mantra of public
interest, at any time it pleases, will only result in uncertainty in the application of laws, a
trait inimical to the Rule of Law. The Court, therefore, steps in to send a strong signal
that the government will be honorable in its dealings and that it can be trusted in the
partnerships it forges with the private sector. In holding respondent-movants
accountable for the representations they made during the long drawn-out negotiation
process and during the times the competitive challenge repeatedly encountered
roadblocks in the form of constant delays and postponements, the Court endeavors to
concretize into a norm the government's strict adherence to its statutory enactments,
and its fulfilment in good faith of the commitments it made and of the covenants it
entered into. By granting SMLI's petition, We ruled that this is the conduct the public
should reasonably expect of the government. This is what strengthening the Rule of Law
exacts.

Nevertheless, We underscore Our finding that "the government is not without


protection for it is not precluded from availing of safeguards and remedies it is
entitled to after soliciting comparative proposals, as provided under the TOR
and the NEDA JV Guidelines".45 Indeed, there are sufficient safeguards installed in the
guidelines to ensure that the government will not be in the losing end of the agreement;
enough, in fact, to avoid the dreaded "unwarranted, irreparable injury" that it will
allegedly sustain. If only respondent-movants devoted sufficient time in perusing and
reviewing the NEDA JV guidelines, they would have identified the remedies BCDA, and
ultimately the Philippine government, is entitled to that would have dispelled any
apprehension towards conducting the competitive challenge, and any fear of the
government ending up with a low price for the lot.

WHEREFORE, in view of the foregoing, the instant Motion for Leave to file Second
Motion for Reconsideration and to Admit the Attached Second Motion for Reconsideration
(With Motion for the Court en banc to Take Cognizance of this Case and/to Set the Case
for Oral Argument Before the Court en banc), filed by the respondent-movants Bases
Conversion Development Authority and Arnel Paciano D. Casanova, is hereby DENIED
for lack of merit. Likewise, the Motion for Leave to File Comment-in-Intervention and to
Admit Attached Comment-in-Intervention, jointly filed by the Department of National
Defense and the Armed Forces of the Philippines, is hereby DENIED.
No further pleadings, motions, letters, or other communications shall be entertained in
this case.

Case #7

G.R. No. 188550 August 19, 2013

DEUTSCHE BANK AG MANILA BRANCH, PETITIONER,


vs.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

DECISION

SERENO, CJ.:

This is a Petition for Review1 filed by Deutsche Bank AG Manila Branch (petitioner) under
Rule 45 of the 1997 Rules of Civil Procedure assailing the Court of Tax Appeals En Banc
(CTA En Banc) Decision2 dated 29 May 2009 and Resolution3 dated 1 July 2009 in C.T.A.
EB No. 456.

THE FACTS
In accordance with Section 28(A)(5)4 of the National Internal Revenue Code (NIRC) of
1997, petitioner withheld and remitted to respondent on 21 October 2003 the amount of
PHP 67,688,553.51, which represented the fifteen percent (15%) branch profit
remittance tax (BPRT) on its regular banking unit (RBU) net income remitted to Deutsche
Bank Germany (DB Germany) for 2002 and prior taxable years.5

Believing that it made an overpayment of the BPRT, petitioner filed with the BIR Large
Taxpayers Assessment and Investigation Division on 4 October 2005 an administrative
claim for refund or issuance of its tax credit certificate in the total amount of PHP
22,562,851.17. On the same date, petitioner requested from the International Tax Affairs
Division (ITAD) a confirmation of its entitlement to the preferential tax rate of 10% under
the RP-Germany Tax Treaty.6

Alleging the inaction of the BIR on its administrative claim, petitioner filed a Petition for
Review7 with the CTA on 18 October 2005. Petitioner reiterated its claim for the refund or
issuance of its tax credit certificate for the amount of PHP 22,562,851.17 representing
the alleged excess BPRT paid on branch profits remittance to DB Germany.

THE CTA SECOND DIVISION RULING8

After trial on the merits, the CTA Second Division found that petitioner indeed paid the
total amount of PHP 67,688,553.51 representing the 15% BPRT on its RBU profits
amounting to PHP 451,257,023.29 for 2002 and prior taxable years. Records also
disclose that for the year 2003, petitioner remitted to DB Germany the amount of EURO
5,174,847.38 (or PHP 330,175,961.88 at the exchange rate of PHP 63.804:1 EURO),
which is net of the 15% BPRT.

However, the claim of petitioner for a refund was denied on the ground that the
application for a tax treaty relief was not filed with ITAD prior to the payment by the
former of its BPRT and actual remittance of its branch profits to DB Germany, or prior to
its availment of the preferential rate of ten percent (10%) under the RP-Germany Tax
Treaty provision. The court a quo held that petitioner violated the fifteen (15) day period
mandated under Section III paragraph (2) of Revenue Memorandum Order (RMO) No. 1-
2000.

Further, the CTA Second Division relied on Mirant (Philippines) Operations Corporation
(formerly Southern Energy Asia-Pacific Operations [Phils.], Inc.) v. Commissioner of
Internal Revenue9 (Mirant) where the CTA En Banc ruled that before the benefits of the
tax treaty may be extended to a foreign corporation wishing to avail itself thereof, the
latter should first invoke the provisions of the tax treaty and prove that they indeed
apply to the corporation.

THE CTA EN BANC RULING10

The CTA En Banc affirmed the CTA Second Divisions Decision dated 29 August 2008 and
Resolution dated 14 January 2009. Citing Mirant, the CTA En Banc held that a ruling from
the ITAD of the BIR must be secured prior to the availment of a preferential tax rate
under a tax treaty. Applying the principle of stare decisis et non quieta movere, the CTA
En Banc took into consideration that this Court had denied the Petition in G.R. No.
168531 filed by Mirant for failure to sufficiently show any reversible error in the assailed
judgment.11 The CTA En Banc ruled that once a case has been decided in one way, any
other case involving exactly the same point at issue should be decided in the same
manner.

The court likewise ruled that the 15-day rule for tax treaty relief application under RMO
No. 1-2000 cannot be relaxed for petitioner, unlike in CBK Power Company Limited v.
Commissioner of Internal Revenue.12 In that case, the rule was relaxed and the claim for
refund of excess final withholding taxes was partially granted. While it issued a ruling to
CBK Power Company Limited after the payment of withholding taxes, the ITAD did not
issue any ruling to petitioner even if it filed a request for confirmation on 4 October 2005
that the remittance of branch profits to DB Germany is subject to a preferential tax rate
of 10% pursuant to Article 10 of the RP-Germany Tax Treaty.

ISSUE

This Court is now confronted with the issue of whether the failure to strictly comply with
RMO No. 1-2000 will deprive persons or corporations of the benefit of a tax treaty.

THE COURTS RULING

The Petition is meritorious.

Under Section 28(A)(5) of the NIRC, any profit remitted to its head office shall be subject
to a tax of 15% based on the total profits applied for or earmarked for remittance without
any deduction of the tax component. However, petitioner invokes paragraph 6, Article 10
of the RP-Germany Tax Treaty, which provides that where a resident of the Federal
Republic of Germany has a branch in the Republic of the Philippines, this branch may be
subjected to the branch profits remittance tax withheld at source in accordance with
Philippine law but shall not exceed 10% of the gross amount of the profits remitted by
that branch to the head office.

By virtue of the RP-Germany Tax Treaty, we are bound to extend to a branch in the
Philippines, remitting to its head office in Germany, the benefit of a preferential rate
equivalent to 10% BPRT.

On the other hand, the BIR issued RMO No. 1-2000, which requires that any availment of
the tax treaty relief must be preceded by an application with ITAD at least 15 days before
the transaction. The Order was issued to streamline the processing of the application of
tax treaty relief in order to improve efficiency and service to the taxpayers. Further, it
also aims to prevent the consequences of an erroneous interpretation and/or application
of the treaty provisions (i.e., filing a claim for a tax refund/credit for the overpayment of
taxes or for deficiency tax liabilities for underpayment).13

The crux of the controversy lies in the implementation of RMO No. 1-2000.

Petitioner argues that, considering that it has met all the conditions under Article 10 of
the RP-Germany Tax Treaty, the CTA erred in denying its claim solely on the basis of RMO
No. 1-2000. The filing of a tax treaty relief application is not a condition precedent to the
availment of a preferential tax rate. Further, petitioner posits that, contrary to the ruling
of the CTA, Mirant is not a binding judicial precedent to deny a claim for refund solely on
the basis of noncompliance with RMO No. 1-2000.
Respondent counters that the requirement of prior application under RMO No. 1-2000 is
mandatory in character. RMO No. 1-2000 was issued pursuant to the unquestioned
authority of the Secretary of Finance to promulgate rules and regulations for the effective
implementation of the NIRC. Thus, courts cannot ignore administrative issuances which
partakes the nature of a statute and have in their favor a presumption of legality.

The CTA ruled that prior application for a tax treaty relief is mandatory, and
noncompliance with this prerequisite is fatal to the taxpayers availment of the
preferential tax rate.

We disagree.

A minute resolution is not a binding precedent

At the outset, this Courts minute resolution on Mirant is not a binding precedent. The
Court has clarified this matter in Philippine Health Care Providers, Inc. v. Commissioner of
Internal Revenue14 as follows:

It is true that, although contained in a minute resolution, our dismissal of the petition
was a disposition of the merits of the case. When we dismissed the petition, we
effectively affirmed the CA ruling being questioned. As a result, our ruling in that case
has already become final. When a minute resolution denies or dismisses a petition for
failure to comply with formal and substantive requirements, the challenged decision,
together with its findings of fact and legal conclusions, are deemed sustained. But what
is its effect on other cases?

With respect to the same subject matter and the same issues concerning the same
parties, it constitutes res judicata. However, if other parties or another subject matter
(even with the same parties and issues) is involved, the minute resolution is not binding
precedent. Thus, in CIR v. Baier-Nickel, the Court noted that a previous case, CIR v. Baier-
Nickel involving the same parties and the same issues, was previously disposed of by the
Court thru a minute resolution dated February 17, 2003 sustaining the ruling of the CA.
Nonetheless, the Court ruled that the previous case "ha(d) no bearing" on the latter case
because the two cases involved different subject matters as they were concerned with
the taxable income of different taxable years.

Besides, there are substantial, not simply formal, distinctions between a minute
resolution and a decision. The constitutional requirement under the first paragraph of
Section 14, Article VIII of the Constitution that the facts and the law on which the
judgment is based must be expressed clearly and distinctly applies only to decisions, not
to minute resolutions. A minute resolution is signed only by the clerk of court by
authority of the justices, unlike a decision. It does not require the certification of the
Chief Justice. Moreover, unlike decisions, minute resolutions are not published in the
Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a decision.
Indeed, as a rule, this Court lays down doctrines or principles of law which constitute
binding precedent in a decision duly signed by the members of the Court and certified by
the Chief Justice. (Emphasis supplied)

Even if we had affirmed the CTA in Mirant, the doctrine laid down in that Decision cannot
bind this Court in cases of a similar nature. There are differences in parties, taxes,
taxable periods, and treaties involved; more importantly, the disposition of that case was
made only through a minute resolution.

Tax Treaty vs. RMO No. 1-2000

Our Constitution provides for adherence to the general principles of international law as
part of the law of the land.15 The time-honored international principle of pacta sunt
servanda demands the performance in good faith of treaty obligations on the part of the
states that enter into the agreement. Every treaty in force is binding upon the parties,
and obligations under the treaty must be performed by them in good faith.16 More
importantly, treaties have the force and effect of law in this jurisdiction.17

Tax treaties are entered into "to reconcile the national fiscal legislations of the
contracting parties and, in turn, help the taxpayer avoid simultaneous taxations in two
different jurisdictions."18 CIR v. S.C. Johnson and Son, Inc. further clarifies that "tax
conventions are drafted with a view towards the elimination of international juridical
double taxation, which is defined as the imposition of comparable taxes in two or more
states on the same taxpayer in respect of the same subject matter and for identical
periods. The apparent rationale for doing away with double taxation is to encourage the
free flow of goods and services and the movement of capital, technology and persons
between countries, conditions deemed vital in creating robust and dynamic economies.
Foreign investments will only thrive in a fairly predictable and reasonable international
investment climate and the protection against double taxation is crucial in creating such
a climate."19

Simply put, tax treaties are entered into to minimize, if not eliminate the harshness of
international juridical double taxation, which is why they are also known as double tax
treaty or double tax agreements.

"A state that has contracted valid international obligations is bound to make in its
legislations those modifications that may be necessary to ensure the fulfillment of the
obligations undertaken."20 Thus, laws and issuances must ensure that the reliefs
granted under tax treaties are accorded to the parties entitled thereto. The BIR must not
impose additional requirements that would negate the availment of the reliefs provided
for under international agreements. More so, when the RP-Germany Tax Treaty does not
provide for any pre-requisite for the availment of the benefits under said agreement.

Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which would
indicate a deprivation of entitlement to a tax treaty relief for failure to comply with the
15-day period. We recognize the clear intention of the BIR in implementing RMO No. 1-
2000, but the CTAs outright denial of a tax treaty relief for failure to strictly comply with
the prescribed period is not in harmony with the objectives of the contracting state to
ensure that the benefits granted under tax treaties are enjoyed by duly entitled persons
or corporations.

Bearing in mind the rationale of tax treaties, the period of application for the availment
of tax treaty relief as required by RMO No. 1-2000 should not operate to divest
entitlement to the relief as it would constitute a violation of the duty required by good
faith in complying with a tax treaty. The denial of the availment of tax relief for the
failure of a taxpayer to apply within the prescribed period under the administrative
issuance would impair the value of the tax treaty. At most, the application for a tax treaty
relief from the BIR should merely operate to confirm the entitlement of the taxpayer to
the relief.

The obligation to comply with a tax treaty must take precedence over the objective of
RMO No. 1-2000.1wphi1 Logically, noncompliance with tax treaties has negative
implications on international relations, and unduly discourages foreign investors. While
the consequences sought to be prevented by RMO No. 1-2000 involve an administrative
procedure, these may be remedied through other system management processes, e.g.,
the imposition of a fine or penalty. But we cannot totally deprive those who are entitled
to the benefit of a treaty for failure to strictly comply with an administrative issuance
requiring prior application for tax treaty relief.

Prior Application vs. Claim for Refund

Again, RMO No. 1-2000 was implemented to obviate any erroneous interpretation and/or
application of the treaty provisions. The objective of the BIR is to forestall assessments
against corporations who erroneously availed themselves of the benefits of the tax treaty
but are not legally entitled thereto, as well as to save such investors from the tedious
process of claims for a refund due to an inaccurate application of the tax treaty
provisions. However, as earlier discussed, noncompliance with the 15-day period for prior
application should not operate to automatically divest entitlement to the tax treaty relief
especially in claims for refund.

The underlying principle of prior application with the BIR becomes moot in refund cases,
such as the present case, where the very basis of the claim is erroneous or there is
excessive payment arising from non-availment of a tax treaty relief at the first instance.
In this case, petitioner should not be faulted for not complying with RMO No. 1-2000 prior
to the transaction. It could not have applied for a tax treaty relief within the period
prescribed, or 15 days prior to the payment of its BPRT, precisely because it erroneously
paid the BPRT not on the basis of the preferential tax rate under

the RP-Germany Tax Treaty, but on the regular rate as prescribed by the NIRC. Hence, the
prior application requirement becomes illogical. Therefore, the fact that petitioner
invoked the provisions of the RP-Germany Tax Treaty when it requested for a
confirmation from the ITAD before filing an administrative claim for a refund should be
deemed substantial compliance with RMO No. 1-2000.

Corollary thereto, Section 22921 of the NIRC provides the taxpayer a remedy for tax
recovery when there has been an erroneous payment of tax.1wphi1 The outright denial
of petitioners claim for a refund, on the sole ground of failure to apply for a tax treaty
relief prior to the payment of the BPRT, would defeat the purpose of Section 229.

Petitioner is entitled to a refund

It is significant to emphasize that petitioner applied though belatedly for a tax treaty
relief, in substantial compliance with RMO No. 1-2000. A ruling by the BIR would have
confirmed whether petitioner was entitled to the lower rate of 10% BPRT pursuant to the
RP-Germany Tax Treaty.

Nevertheless, even without the BIR ruling, the CTA Second Division found as follows:
Based on the evidence presented, both documentary and testimonial, petitioner was
able to establish the following facts:

a. That petitioner is a branch office in the Philippines of Deutsche Bank AG, a corporation
organized and existing under the laws of the Federal Republic of Germany;

b. That on October 21, 2003, it filed its Monthly Remittance Return of Final Income Taxes
Withheld under BIR Form No. 1601-F and remitted the amount of P67,688,553.51 as
branch profits remittance tax with the BIR; and

c. That on October 29, 2003, the Bangko Sentral ng Pilipinas having issued a clearance,
petitioner remitted to Frankfurt Head Office the amount of EUR5,174,847.38 (or
P330,175,961.88 at 63.804 Peso/Euro) representing its 2002 profits remittance.22

The amount of PHP 67,688,553.51 paid by petitioner represented the 15% BPRT on its
RBU net income, due for remittance to DB Germany amounting to PHP 451,257,023.29
for 2002 and prior taxable years.23

Likewise, both the administrative and the judicial actions were filed within the two-year
prescriptive period pursuant to Section 229 of the NIRC.24

Clearly, there is no reason to deprive petitioner of the benefit of a preferential tax rate of
10% BPRT in accordance with the RP-Germany Tax Treaty.

Petitioner is liable to pay only the amount of PHP 45,125,702.34 on its RBU net income
amounting to PHP 451,257,023.29 for 2002 and prior taxable years, applying the 10%
BPRT. Thus, it is proper to grant petitioner a refund ofthe difference between the PHP
67,688,553.51 (15% BPRT) and PHP 45,125,702.34 (10% BPRT) or a total of PHP
22,562,851.17.

WHEREFORE, premises considered, the instant Petition is GRANTED. Accordingly, the


Court of Tax Appeals En Banc Decision dated 29 May 2009 and Resolution dated 1 July
2009 are REVERSED and SET ASIDE. A new one is hereby entered ordering respondent
Commissioner of Internal Revenue to refund or issue a tax credit certificate in favor of
petitioner Deutsche Bank AG Manila Branch the amount of TWENTY TWO MILLION FIVE
HUNDRED SIXTY TWO THOUSAND EIGHT HUNDRED FIFTY ONE PESOS AND SEVENTEEN
CENTAVOS (PHP 22,562,851.17), Philippine currency, representing the erroneously paid
BPRT for 2002 and prior taxable years.
Case #8

G.R. No. 206510 September 16, 2014

MOST REV. PEDRO D. ARIGO, Vicar Apostolic of Puerto Princesa D.D.; MOST REV.
DEOGRACIAS S. INIGUEZ, JR., Bishop-Emeritus of Caloocan, FRANCES Q. QUIMPO,
CLEMENTE G. BAUTISTA, JR., Kalikasan-PNE, MARIA CAROLINA P. ARAULLO, RENATO M.
REYES, JR., Bagong Alyansang Makabayan, HON. NERI JAVIER COLMENARES, Bayan Muna
Partylist, ROLAND G. SIMBULAN, PH.D., Junk VF A Movement, TERESITA R. PEREZ, PH.D.,
HON. RAYMOND V. PALATINO, Kabataan Party-list, PETER SJ. GONZALES, Pamalakaya,
GIOVANNI A. TAPANG, PH. D., Agham, ELMER C. LABOG, Kilusang Mayo Uno, JOAN MAY E.
SALVADOR, Gabriela, JOSE ENRIQUE A. AFRICA, THERESA A. CONCEPCION, MARY JOAN A.
GUAN, NESTOR T. BAGUINON, PH.D., A. EDSEL F. TUPAZ, Petitioners,
vs.
SCOTT H. SWIFT in his capacity as Commander of the US. 7th Fleet, MARK A. RICE in his
capacity as Commanding Officer of the USS Guardian, PRESIDENT BENIGNO S. AQUINO III
in his capacity as Commander-in-Chief of the Armed Forces of the Philippines, HON.
ALBERT F. DEL ROSARIO, Secretary, pepartment of Foreign Affair.s, HON. PAQUITO
OCHOA, JR., Executiv~.:Secretary, Office of the President, . HON. VOLTAIRE T. GAZMIN,
Secretary, Department of National Defense, HON. RAMON JESUS P. P AJE, Secretary,
Department of Environment and Natural Resoz!rces, VICE ADMIRAL JOSE LUIS M. ALANO,
Philippine Navy Flag Officer in Command, Armed Forces of the Philippines, ADMIRAL
RODOLFO D. ISO RENA, Commandant, Philippine Coast Guard, COMMODORE ENRICO
EFREN EVANGELISTA, Philippine Coast Guard Palawan, MAJOR GEN. VIRGILIO 0.
DOMINGO, Commandant of Armed Forces of the Philippines Command and LT. GEN.
TERRY G. ROBLING, US Marine Corps Forces. Pacific and Balikatan 2013 Exercise Co-
Director, Respondents.

DECISION

VILLARAMA, JR, J.:

Before us is a petition for the issuance of a Writ of Kalikasan with prayer for the issuance
of a Temporary Environmental Protection Order (TEPO) under Rule 7 of A.M. No. 09-6-8-
SC, otherwise known as the Rules of Procedure for Environmental Cases (Rules),
involving violations of environmental laws and regulations in relation to the grounding of
the US military ship USS Guardian over the Tubbataha Reefs.

Factual Background

The name "Tubbataha" came from the Samal (seafaring people of southern Philippines)
language which means "long reef exposed at low tide." Tubbataha is composed of two
huge coral atolls - the north atoll and the south atoll - and the Jessie Beazley Reef, a
smaller coral structure about 20 kilometers north of the atolls. The reefs of Tubbataha
and Jessie Beazley are considered part of Cagayancillo, a remote island municipality of
Palawan.1

In 1988, Tubbataha was declared a National Marine Park by virtue of Proclamation No.
306 issued by President Corazon C. Aquino on August 11, 1988. Located in the middle of
Central Sulu Sea, 150 kilometers southeast of Puerto Princesa City, Tubbataha lies at the
heart of the Coral Triangle, the global center of marine biodiversity.

In 1993, Tubbataha was inscribed by the United Nations Educational Scientific and
Cultural Organization (UNESCO) as a World Heritage Site. It was recognized as one of the
Philippines' oldest ecosystems, containing excellent examples of pristine reefs and a high
diversity of marine life. The 97,030-hectare protected marine park is also an important
habitat for internationally threatened and endangered marine species. UNESCO cited
Tubbataha's outstanding universal value as an important and significant natural habitat
for in situ conservation of biological diversity; an example representing significant on-
going ecological and biological processes; and an area of exceptional natural beauty and
aesthetic importance.2

On April 6, 2010, Congress passed Republic Act (R.A.) No. 10067,3 otherwise known as
the "Tubbataha Reefs Natural Park (TRNP) Act of 2009" "to ensure the protection and
conservation of the globally significant economic, biological, sociocultural, educational
and scientific values of the Tubbataha Reefs into perpetuity for the enjoyment of present
and future generations." Under the "no-take" policy, entry into the waters of TRNP is
strictly regulated and many human activities are prohibited and penalized or fined,
including fishing, gathering, destroying and disturbing the resources within the TRNP. The
law likewise created the Tubbataha Protected Area Management Board (TPAMB) which
shall be the sole policy-making and permit-granting body of the TRNP.

The USS Guardian is an Avenger-class mine countermeasures ship of the US Navy. In


December 2012, the US Embassy in the Philippines requested diplomatic clearance for
the said vessel "to enter and exit the territorial waters of the Philippines and to arrive at
the port of Subic Bay for the purpose of routine ship replenishment, maintenance, and
crew liberty."4 On January 6, 2013, the ship left Sasebo, Japan for Subic Bay, arriving on
January 13, 2013 after a brief stop for fuel in Okinawa, Japan.1wphi1

On January 15, 2013, the USS Guardian departed Subic Bay for its next port of call in
Makassar, Indonesia. On January 17, 2013 at 2:20 a.m. while transiting the Sulu Sea, the
ship ran aground on the northwest side of South Shoal of the Tubbataha Reefs, about 80
miles east-southeast of Palawan. No cine was injured in the incident, and there have
been no reports of leaking fuel or oil.
On January 20, 2013, U.S. 7th Fleet Commander, Vice Admiral Scott Swift, expressed
regret for the incident in a press statement.5 Likewise, US Ambassador to the Philippines
Harry K. Thomas, Jr., in a meeting at the Department of Foreign Affairs (DFA) on February
4, "reiterated his regrets over the grounding incident and assured Foreign Affairs
Secretazy Albert F. del Rosario that the United States will provide appropriate
compensation for damage to the reef caused by the ship."6 By March 30, 2013, the US
Navy-led salvage team had finished removing the last piece of the grounded ship from
the coral reef.

On April 1 7, 2013, the above-named petitioners on their behalf and in representation of


their respective sector/organization and others, including minors or generations yet
unborn, filed the present petition agairtst Scott H. Swift in his capacity as Commander of
the US 7th Fleet, Mark A. Rice in his capacity as Commanding Officer of the USS
Guardian and Lt. Gen. Terry G. Robling, US Marine Corps Forces, Pacific and Balikatan
2013 Exercises Co-Director ("US respondents"); President Benigno S. Aquino III in his
capacity as Commander-in-Chief of the Armed Forces of the Philippines (AFP), DF A
Secretary Albert F. Del Rosario, Executive Secretary Paquito Ochoa, Jr., Secretary Voltaire
T. Gazmin (Department of National Defense), Secretary Jesus P. Paje (Department of
Environment and Natural Resources), Vice-Admiral Jose Luis M. Alano (Philippine Navy
Flag Officer in Command, AFP), Admiral Rodolfo D. Isorena (Philippine Coast Guard
Commandant), Commodore Enrico Efren Evangelista (Philippine Coast Guard-Palawan),
and Major General Virgilio 0. Domingo (AFP Commandant), collectively the "Philippine
respondents."

The Petition

Petitioners claim that the grounding, salvaging and post-salvaging operations of the USS
Guardian cause and continue to cause environmental damage of such magnitude as to
affect the provinces of Palawan, Antique, Aklan, Guimaras, Iloilo, Negros Occidental,
Negros Oriental, Zamboanga del Norte, Basilan, Sulu, and Tawi-Tawi, which events violate
their constitutional rights to a balanced and healthful ecology. They also seek a directive
from this Court for the institution of civil, administrative and criminal suits for acts
committed in violation of environmental laws and regulations in connection with the
grounding incident.

Specifically, petitioners cite the following violations committed by US respondents under


R.A. No. 10067: unauthorized entry (Section 19); non-payment of conservation fees
(Section 21 ); obstruction of law enforcement officer (Section 30); damages to the reef
(Section 20); and destroying and disturbing resources (Section 26[g]). Furthermore,
petitioners assail certain provisions of the Visiting Forces Agreement (VFA) which they
want this Court to nullify for being unconstitutional.

The numerous reliefs sought in this case are set forth in the final prayer of the petition,
to wit: WHEREFORE, in view of the foregoing, Petitioners respectfully pray that the
Honorable Court: 1. Immediately issue upon the filing of this petition a Temporary
Environmental Protection Order (TEPO) and/or a Writ of Kalikasan, which shall, in
particular,

a. Order Respondents and any person acting on their behalf, to cease and desist all
operations over the Guardian grounding incident;
b. Initially demarcating the metes and bounds of the damaged area as well as an
additional buffer zone;

c. Order Respondents to stop all port calls and war games under 'Balikatan' because of
the absence of clear guidelines, duties, and liability schemes for breaches of those
duties, and require Respondents to assume responsibility for prior and future
environmental damage in general, and environmental damage under the Visiting Forces
Agreement in particular.

d. Temporarily define and describe allowable activities of ecotourism, diving, recreation,


and limited commercial activities by fisherfolk and indigenous communities near or
around the TRNP but away from the damaged site and an additional buffer zone;

2. After summary hearing, issue a Resolution extending the TEPO until further orders of
the Court;

3. After due proceedings, render a Decision which shall include, without limitation:

a. Order Respondents Secretary of Foreign Affairs, following the dispositive portion of


Nicolas v. Romulo, "to forthwith negotiate with the United States representatives for the
appropriate agreement on [environmental guidelines and environmental accountability]
under Philippine authorities as provided in Art. V[] of the VFA ... "

b. Direct Respondents and appropriate agencies to commence administrative, civil, and


criminal proceedings against erring officers and individuals to the full extent of the law,
and to make such proceedings public;

c. Declare that Philippine authorities may exercise primary and exclusive criminal
jurisdiction over erring U.S. personnel under the circumstances of this case;

d. Require Respondents to pay just and reasonable compensation in the settlement of all
meritorious claims for damages caused to the Tubbataha Reef on terms and conditions
no less severe than those applicable to other States, and damages for personal injury or
death, if such had been the case;

e. Direct Respondents to cooperate in providing for the attendance of witnesses and in


the collection and production of evidence, including seizure and delivery of objects
connected with the offenses related to the grounding of the Guardian;

f. Require the authorities of the Philippines and the United States to notify each other of
the disposition of all cases, wherever heard, related to the grounding of the Guardian;

g. Restrain Respondents from proceeding with any purported restoration, repair, salvage
or post salvage plan or plans, including cleanup plans covering the damaged area of the
Tubbataha Reef absent a just settlement approved by the Honorable Court;

h. Require Respondents to engage in stakeholder and LOU consultations in accordance


with the Local Government Code and R.A. 10067;
i. Require Respondent US officials and their representatives to place a deposit to the
TRNP Trust Fund defined under Section 17 of RA 10067 as a bona .fide gesture towards
full reparations;

j. Direct Respondents to undertake measures to rehabilitate the areas affected by the


grounding of the Guardian in light of Respondents' experience in the Port Royale
grounding in 2009, among other similar grounding incidents;

k. Require Respondents to regularly publish on a quarterly basis and in the name of


transparency and accountability such environmental damage assessment, valuation, and
valuation methods, in all stages of negotiation;

l. Convene a multisectoral technical working group to provide scientific and technical


support to the TPAMB;

m. Order the Department of Foreign Affairs, Department of National Defense, and the
Department of Environment and Natural Resources to review the Visiting Forces
Agreement and the Mutual Defense Treaty to consider whether their provisions allow for
the exercise of erga omnes rights to a balanced and healthful ecology and for damages
which follow from any violation of those rights;

n. Narrowly tailor the provisions of the Visiting Forces Agreement for purposes of
protecting the damaged areas of TRNP;

o. Declare the grant of immunity found in Article V ("Criminal Jurisdiction") and Article VI
of the Visiting Forces Agreement unconstitutional for violating equal protection and/or for
violating the preemptory norm of nondiscrimination incorporated as part of the law of
the land under Section 2, Article II, of the Philippine Constitution;

p. Allow for continuing discovery measures;

q. Supervise marine wildlife rehabilitation in the Tubbataha Reefs in all other respects;
and

4. Provide just and equitable environmental rehabilitation measures and such other
reliefs as are just and equitable under the premises.7 (Underscoring supplied.)

Since only the Philippine respondents filed their comment8 to the petition, petitioners
also filed a motion for early resolution and motion to proceed ex parte against the US
respondents.9

Respondents' Consolidated Comment

In their consolidated comment with opposition to the application for a TEPO and ocular
inspection and production orders, respondents assert that: ( 1) the grounds relied upon
for the issuance of a TEPO or writ of Kalikasan have become fait accompli as the salvage
operations on the USS Guardian were already completed; (2) the petition is defective in
form and substance; (3) the petition improperly raises issues involving the VFA between
the Republic of the Philippines and the United States of America; and ( 4) the
determination of the extent of responsibility of the US Government as regards the
damage to the Tubbataha Reefs rests exdusively with the executive branch.
The Court's Ruling

As a preliminary matter, there is no dispute on the legal standing of petitioners to file the
present petition.

Locus standi is "a right of appearance in a court of justice on a given question."10


Specifically, it is "a party's personal and substantial interest in a case where he has
sustained or will sustain direct injury as a result" of the act being challenged, and "calls
for more than just a generalized grievance."11 However, the rule on standing is a
procedural matter which this Court has relaxed for non-traditional plaintiffs like ordinary
citizens, taxpayers and legislators when the public interest so requires, such as when the
subject matter of the controversy is of transcendental importance, of overreaching
significance to society, or of paramount public interest.12

In the landmark case of Oposa v. Factoran, Jr.,13 we recognized the "public right" of
citizens to "a balanced and healthful ecology which, for the first time in our constitutional
history, is solemnly incorporated in the fundamental law." We declared that the right to a
balanced and healthful ecology need not be written in the Constitution for it is assumed,
like other civil and polittcal rights guaranteed in the Bill of Rights, to exist from the
inception of mankind and it is an issue of transcendental importance with
intergenerational implications.1wphi1 Such right carries with it the correlative duty to
refrain from impairing the environment.14

On the novel element in the class suit filed by the petitioners minors in Oposa, this Court
ruled that not only do ordinary citizens have legal standing to sue for the enforcement of
environmental rights, they can do so in representation of their own and future
generations. Thus:

Petitioners minors assert that they represent their generation as well as generations yet
unborn. We find no difficulty in ruling that they can, for themselves, for others of their
generation and for the succeeding generations, file a class suit. Their personality to sue
in behalf of the succeeding generations can only be based on the concept of
intergenerational responsibility insofar as the right to a balanced and healthful ecology is
concerned. Such a right, as hereinafter expounded, considers the "rhythm and harmony
of nature." Nature means the created world in its entirety. Such rhythm and harmony
indispensably include, inter alia, the judicious disposition, utilization, management,
renewal and conservation of the country's forest, mineral, land, waters, fisheries, wildlife,
off-shore areas and other natural resources to the end that their exploration,
development and utilization be equitably accessible to the present a:: well as future
generations. Needless to say, every generation has a responsibility to the next to
preserve that rhythm and harmony for the full 1:njoyment of a balanced and healthful
ecology. Put a little differently, the minors' assertion of their right to a sound
environment constitutes, at the same time, the performance of their obligation to ensure
the protection of that right for the generations to come.15 (Emphasis supplied.)

The liberalization of standing first enunciated in Oposa, insofar as it refers to minors and
generations yet unborn, is now enshrined in the Rules which allows the filing of a citizen
suit in environmental cases. The provision on citizen suits in the Rules "collapses the
traditional rule on personal and direct interest, on the principle that humans are
stewards of nature."16
Having settled the issue of locus standi, we shall address the more fundamental question
of whether this Court has jurisdiction over the US respondents who did not submit any
pleading or manifestation in this case.

The immunity of the State from suit, known also as the doctrine of sovereign immunity or
non-suability of the State,17 is expressly provided in Article XVI of the 1987 Constitution
which states:

Section 3. The State may not be sued without its consent.

In United States of America v. Judge Guinto,18 we discussed the principle of state


immunity from suit, as follows:

The rule that a state may not be sued without its consent, now expressed in Article XVI,
Section 3, of the 1987 Constitution, is one of the generally accepted principles of
international law that we have adopted as part of the law of our land under Article II,
Section 2. x x x.

Even without such affirmation, we would still be bound by the generally accepted
principles of international law under the doctrine of incorporation. Under this doctrine, as
accepted by the majority of states, such principles are deemed incorporated in the law of
every civilized state as a condition and consequence of its membership in the society of
nations. Upon its admission to such society, the state is automatically obligated to
comply with these principles in its relations with other states.

As applied to the local state, the doctrine of state immunity is based on the justification
given by Justice Holmes that ''there can be no legal right against the authority which
makes the law on which the right depends." [Kawanakoa v. Polybank, 205 U.S. 349]
There are other practical reasons for the enforcement of the doctrine. In the case of the
foreign state sought to be impleaded in the local jurisdiction, the added inhibition is
expressed in the maxim par in parem, non habet imperium. All states are sovereign
equals and cannot assert jurisdiction over one another. A contrary disposition would, in
the language of a celebrated case, "unduly vex the peace of nations." [De Haber v.
Queen of Portugal, 17 Q. B. 171]

While the doctrine appears to prohibit only suits against the state without its consent, it
is also applicable to complaints filed against officials of the state for acts allegedly
performed by them in the discharge of their duties. The rule is that if the judgment
against such officials will require the state itself to perform an affirmative act to satisfy
the same,. such as the appropriation of the amount needed to pay the damages awarded
against them, the suit must be regarded as against the state itself although it has not
been formally impleaded. [Garcia v. Chief of Staff, 16 SCRA 120] In such a situation, the
state may move to dismiss the comp.taint on the ground that it has been filed without its
consent.19 (Emphasis supplied.)

Under the American Constitution, the doctrine is expressed in the Eleventh Amendment
which reads:
The Judicial power of the United States shall not be construed to extend to any suit in law
or equity, commenced or prosecuted against one of the United States by Citizens of
another State, or by Citizens or Subjects of any Foreign State.

In the case of Minucher v. Court of Appeals,20 we further expounded on the immunity of


foreign states from the jurisdiction of local courts, as follows:

The precept that a State cannot be sued in the courts of a foreign state is a long-
standing rule of customary international law then closely identified with the personal
immunity of a foreign sovereign from suit and, with the emergence of democratic states,
made to attach not just to the person of the head of state, or his representative, but also
distinctly to the state itself in its sovereign capacity. If the acts giving rise to a suit arc
those of a foreign government done by its foreign agent, although not necessarily a
diplomatic personage, but acting in his official capacity, the complaint could be barred
by the immunity of the foreign sovereign from suit without its consent. Suing a
representative of a state is believed to be, in effect, suing the state itself. The
proscription is not accorded for the benefit of an individual but for the State, in whose
service he is, under the maxim -par in parem, non habet imperium -that all states are
soverr~ign equals and cannot assert jurisdiction over one another. The implication, in
broad terms, is that if the judgment against an official would rec 1uire the state itself to
perform an affirmative act to satisfy the award, such as the appropriation of the amount
needed to pay the damages decreed against him, the suit must be regarded as being
against the state itself, although it has not been formally impleaded.21 (Emphasis
supplied.)

In the same case we also mentioned that in the case of diplomatic immunity, the
privilege is not an immunity from the observance of the law of the territorial sovereign or
from ensuing legal liability; it is, rather, an immunity from the exercise of territorial
jurisdiction.22

In United States of America v. Judge Guinto,23 one of the consolidated cases therein
involved a Filipino employed at Clark Air Base who was arrested following a buy-bust
operation conducted by two officers of the US Air Force, and was eventually dismissed
from his employment when he was charged in court for violation of R.A. No. 6425. In a
complaint for damages filed by the said employee against the military officers, the latter
moved to dismiss the case on the ground that the suit was against the US Government
which had not given its consent. The RTC denied the motion but on a petition for
certiorari and prohibition filed before this Court, we reversed the RTC and dismissed the
complaint. We held that petitioners US military officers were acting in the exercise of
their official functions when they conducted the buy-bust operation against the
complainant and thereafter testified against him at his trial. It follows that for discharging
their duties as agents of the United States, they cannot be directly impleaded for acts
imputable to their principal, which has not given its consent to be sued.

This traditional rule of State immunity which exempts a State from being sued in the
courts of another State without the former's consent or waiver has evolved into a
restrictive doctrine which distinguishes sovereign and governmental acts (Jure imperil")
from private, commercial and proprietary acts (Jure gestionis). Under the restrictive rule
of State immunity, State immunity extends only to acts Jure imperii. The restrictive
application of State immunity is proper only when the proceedings arise out of
commercial transactions of the foreign sovereign, its commercial activities or economic
affairs.24

In Shauf v. Court of Appeals,25 we discussed the limitations of the State immunity


principle, thus:

It is a different matter where the public official is made to account in his capacity as such
for acts contrary to law and injurious to the rights of plaintiff. As was clearly set forth by
JustiGe Zaldivar in Director of the Bureau of Telecommunications, et al. vs. Aligaen, etc.,
et al. : "Inasmuch as the State authorizes only legal acts by its officers, unauthorized
acts of government officials or officers are not acts of the State, and an action against
the officials or officers by one whose rights have been invaded or violated by such acts,
for the protection of his rights, is not a suit against the State within the rule of immunity
of the State from suit. In the same tenor, it has been said that an action at law or suit in
equity against a State officer or the director of a State department on the ground that,
while claiming to act for the State, he violates or invades the personal and property
rights of the plaintiff, under an unconstitutional act or under an assumption of authority
which he does not have, is not a suit against the State within the constitutional provision
that the State may not be sued without its consent." The rationale for this ruling is that
the doctrine of state immunity cannot be used as an instrument for perpetrating an
injustice.

xxxx

The aforecited authorities are clear on the matter. They state that the doctrine of
immunity from suit will not apply and may not be invoked where the public official is
being sued in his private and personal capacity as an ordinary citizen. The cloak of
protection afforded the officers and agents of the government is removed the moment
they are sued in their individual capacity. This situation usually arises where the public
official acts without authority or in excess of the powers vested in him. It is a well-settled
principle of law that a public official may be liable in his personal private capacity for
whatever damage he may have caused by his act done with malice and in bad faith, or
beyond the scope of his authority or jurisdiction.26 (Emphasis supplied.) In this case, the
US respondents were sued in their official capacity as commanding officers of the US
Navy who had control and supervision over the USS Guardian and its crew. The alleged
act or omission resulting in the unfortunate grounding of the USS Guardian on the TRNP
was committed while they we:re performing official military duties. Considering that the
satisfaction of a judgment against said officials will require remedial actions and
appropriation of funds by the US government, the suit is deemed to be one against the
US itself. The principle of State immunity therefore bars the exercise of jurisdiction by
this Court over the persons of respondents Swift, Rice and Robling.

During the deliberations, Senior Associate Justice Antonio T. Carpio took the position that
the conduct of the US in this case, when its warship entered a restricted area in violation
of R.A. No. 10067 and caused damage to the TRNP reef system, brings the matter within
the ambit of Article 31 of the United Nations Convention on the Law of the Sea
(UNCLOS). He explained that while historically, warships enjoy sovereign immunity from
suit as extensions of their flag State, Art. 31 of the UNCLOS creates an exception to this
rule in cases where they fail to comply with the rules and regulations of the coastal State
regarding passage through the latter's internal waters and the territorial sea.
According to Justice Carpio, although the US to date has not ratified the UNCLOS, as a
matter of long-standing policy the US considers itself bound by customary international
rules on the "traditional uses of the oceans" as codified in UNCLOS, as can be gleaned
from previous declarations by former Presidents Reagan and Clinton, and the US judiciary
in the case of United States v. Royal Caribbean Cruise Lines, Ltd.27

The international law of the sea is generally defined as "a body of treaty rules arid
customary norms governing the uses of the sea, the exploitation of its resources, and the
exercise of jurisdiction over maritime regimes. It is a branch of public international law,
regulating the relations of states with respect to the uses of the oceans."28 The UNCLOS
is a multilateral treaty which was opened for signature on December 10, 1982 at
Montego Bay, Jamaica. It was ratified by the Philippines in 1984 but came into force on
November 16, 1994 upon the submission of the 60th ratification.

The UNCLOS is a product of international negotiation that seeks to balance State


sovereignty (mare clausum) and the principle of freedom of the high seas (mare
liberum).29 The freedom to use the world's marine waters is one of the oldest customary
principles of international law.30 The UNCLOS gives to the coastal State sovereign rights
in varying degrees over the different zones of the sea which are: 1) internal waters, 2)
territorial sea, 3) contiguous zone, 4) exclusive economic zone, and 5) the high seas. It
also gives coastal States more or less jurisdiction over foreign vessels depending on
where the vessel is located.31

Insofar as the internal waters and territorial sea is concerned, the Coastal State exercises
sovereignty, subject to the UNCLOS and other rules of international law. Such sovereignty
extends to the air space over the territorial sea as well as to its bed and subsoil.32

In the case of warships,33 as pointed out by Justice Carpio, they continue to enjoy
sovereign immunity subject to the following exceptions:

Article 30
Non-compliance by warships with the laws and regulations of the coastal State

If any warship does not comply with the laws and regulations of the coastal State
concerning passage through the territorial sea and disregards any request for
compliance therewith which is made to it, the coastal State may require it to leave the
territorial sea immediately.

Article 31
Responsibility of the flag State for damage caused by a warship

or other government ship operated for non-commercial purposes

The flag State shall bear international responsibility for any loss or damage to the coastal
State resulting from the non-compliance by a warship or other government ship operated
for non-commercial purposes with the laws and regulations of the coastal State
concerning passage through the territorial sea or with the provisions of this Convention
or other rules of international law.

Article 32
Immunities of warships and other government ships operated for non-commercial
purposes

With such exceptions as are contained in subsection A and in articles 30 and 31, nothing
in this Convention affects the immunities of warships and other government ships
operated for non-commercial purposes. (Emphasis supplied.) A foreign warship's
unauthorized entry into our internal waters with resulting damage to marine resources is
one situation in which the above provisions may apply. But what if the offending warship
is a non-party to the UNCLOS, as in this case, the US?

An overwhelming majority - over 80% -- of nation states are now members of UNCLOS,
but despite this the US, the world's leading maritime power, has not ratified it.

While the Reagan administration was instrumental in UNCLOS' negotiation and drafting,
the U.S. delegation ultimately voted against and refrained from signing it due to
concerns over deep seabed mining technology transfer provisions contained in Part XI. In
a remarkable, multilateral effort to induce U.S. membership, the bulk of UNCLOS member
states cooperated over the succeeding decade to revise the objection.able provisions.
The revisions satisfied the Clinton administration, which signed the revised Part XI
implementing agreement in 1994. In the fall of 1994, President Clinton transmitted
UNCLOS and the Part XI implementing agreement to the Senate requesting its advice
and consent. Despite consistent support from President Clinton, each of his successors,
and an ideologically diverse array of stakeholders, the Senate has since withheld the
consent required for the President to internationally bind the United States to UNCLOS.

While UNCLOS cleared the Senate Foreign Relations Committee (SFRC) during the 108th
and 110th Congresses, its progress continues to be hamstrung by significant pockets of
political ambivalence over U.S. participation in international institutions. Most recently,
111 th Congress SFRC Chairman Senator John Kerry included "voting out" UNCLOS for full
Senate consideration among his highest priorities. This did not occur, and no Senate
action has been taken on UNCLOS by the 112th Congress.34

Justice Carpio invited our attention to the policy statement given by President Reagan on
March 10, 1983 that the US will "recognize the rights of the other , states in the waters
off their coasts, as reflected in the convention [UNCLOS], so long as the rights and
freedom of the United States and others under international law are recognized by such
coastal states", and President Clinton's reiteration of the US policy "to act in a manner
consistent with its [UNCLOS] provisions relating to traditional uses of the oceans and to
encourage other countries to do likewise." Since Article 31 relates to the "traditional uses
of the oceans," and "if under its policy, the US 'recognize[s] the rights of the other states
in the waters off their coasts,"' Justice Carpio postulates that "there is more reason to
expect it to recognize the rights of other states in their internal waters, such as the Sulu
Sea in this case."

As to the non-ratification by the US, Justice Carpio emphasizes that "the US' refusal to
join the UN CLOS was centered on its disagreement with UN CLOS' regime of deep
seabed mining (Part XI) which considers the oceans and deep seabed commonly owned
by mankind," pointing out that such "has nothing to do with its [the US'] acceptance of
customary international rules on navigation."
It may be mentioned that even the US Navy Judge Advocate General's Corps publicly
endorses the ratification of the UNCLOS, as shown by the following statement posted on
its official website:

The Convention is in the national interest of the United States because it establishes
stable maritime zones, including a maximum outer limit for territorial seas; codifies
innocent passage, transit passage, and archipelagic sea lanes passage rights; works
against "jurisdictiomtl creep" by preventing coastal nations from expanding their own
maritime zones; and reaffirms sovereign immunity of warships, auxiliaries anJ
government aircraft.

xxxx

Economically, accession to the Convention would support our national interests by


enhancing the ability of the US to assert its sovereign rights over the resources of one of
the largest continental shelves in the world. Further, it is the Law of the Sea Convention
that first established the concept of a maritime Exclusive Economic Zone out to 200
nautical miles, and recognized the rights of coastal states to conserve and manage the
natural resources in this Zone.35

We fully concur with Justice Carpio's view that non-membership in the UNCLOS does not
mean that the US will disregard the rights of the Philippines as a Coastal State over its
internal waters and territorial sea. We thus expect the US to bear "international
responsibility" under Art. 31 in connection with the USS Guardian grounding which
adversely affected the Tubbataha reefs. Indeed, it is difficult to imagine that our long-
time ally and trading partner, which has been actively supporting the country's efforts to
preserve our vital marine resources, would shirk from its obligation to compensate the
damage caused by its warship while transiting our internal waters. Much less can we
comprehend a Government exercising leadership in international affairs, unwilling to
comply with the UNCLOS directive for all nations to cooperate in the global task to
protect and preserve the marine environment as provided in Article 197, viz:

Article 197
Cooperation on a global or regional basis

States shall cooperate on a global basis and, as appropriate, on a regional basis, directly
or through competent international organizations, in formulating and elaborating
international rules, standards and recommended practices and procedures consistent
with this Convention, for the protection and preservation of the marine environment,
taking into account characteristic regional features.

In fine, the relevance of UNCLOS provisions to the present controversy is beyond dispute.
Although the said treaty upholds the immunity of warships from the jurisdiction of
Coastal States while navigating the.latter's territorial sea, the flag States shall be
required to leave the territorial '::;ea immediately if they flout the laws and regulations of
the Coastal State, and they will be liable for damages caused by their warships or any
other government vessel operated for non-commercial purposes under Article 31.

Petitioners argue that there is a waiver of immunity from suit found in the VFA. Likewise,
they invoke federal statutes in the US under which agencies of the US have statutorily
waived their immunity to any action. Even under the common law tort claims, petitioners
asseverate that the US respondents are liable for negligence, trespass and nuisance.

We are not persuaded.

The VFA is an agreement which defines the treatment of United States troops and
personnel visiting the Philippines to promote "common security interests" between the
US and the Philippines in the region. It provides for the guidelines to govern such visits of
military personnel, and further defines the rights of the United States and the Philippine
government in the matter of criminal jurisdiction, movement of vessel and aircraft,
importation and exportation of equipment, materials and supplies.36 The invocation of
US federal tort laws and even common law is thus improper considering that it is the VF
A which governs disputes involving US military ships and crew navigating Philippine
waters in pursuance of the objectives of the agreement.

As it is, the waiver of State immunity under the VF A pertains only to criminal jurisdiction
and not to special civil actions such as the present petition for issuance of a writ of
Kalikasan. In fact, it can be inferred from Section 17, Rule 7 of the Rules that a criminal
case against a person charged with a violation of an environmental law is to be filed
separately:

SEC. 17. Institution of separate actions.-The filing of a petition for the issuance of the writ
of kalikasan shall not preclude the filing of separate civil, criminal or administrative
actions.

In any case, it is our considered view that a ruling on the application or non-application
of criminal jurisdiction provisions of the VF A to US personnel who may be found
responsible for the grounding of the USS Guardian, would be premature and beyond the
province of a petition for a writ of Kalikasan. We also find it unnecessary at this point to
determine whether such waiver of State immunity is indeed absolute. In the same vein,
we cannot grant damages which have resulted from the violation of environmental laws.
The Rules allows the recovery of damages, including the collection of administrative fines
under R.A. No. 10067, in a separate civil suit or that deemed instituted with the criminal
action charging the same violation of an environmental law.37

Section 15, Rule 7 enumerates the reliefs which may be granted in a petition for issuance
of a writ of Kalikasan, to wit:

SEC. 15. Judgment.-Within sixty (60) days from the time the petition is submitted for
decision, the court shall render judgment granting or denying the privilege of the writ of
kalikasan.

The reliefs that may be granted under the writ are the following:

(a) Directing respondent to permanently cease and desist from committing acts or
neglecting the performance of a duty in violation of environmental laws resulting in
environmental destruction or damage;

(b) Directing the respondent public official, govemment agency, private person or entity
to protect, preserve, rehabilitate or restore the environment;
(c) Directing the respondent public official, government agency, private person or entity
to monitor strict compliance with the decision and orders of the court;

(d) Directing the respondent public official, government agency, or private person or
entity to make periodic reports on the execution of the final judgment; and

(e) Such other reliefs which relate to the right of the people to a balanced and healthful
ecology or to the protection, preservation, rehabilitation or restoration of the
environment, except the award of damages to individual petitioners. (Emphasis
supplied.)

We agree with respondents (Philippine officials) in asserting that this petition has
become moot in the sense that the salvage operation sought to be enjoined or restrained
had already been accomplished when petitioners sought recourse from this Court. But
insofar as the directives to Philippine respondents to protect and rehabilitate the coral
reef stn icture and marine habitat adversely affected by the grounding incident are
concerned, petitioners are entitled to these reliefs notwithstanding the completion of the
removal of the USS Guardian from the coral reef. However, we are mindful of the fact
that the US and Philippine governments both expressed readiness to negotiate and
discuss the matter of compensation for the damage caused by the USS Guardian. The US
Embassy has also declared it is closely coordinating with local scientists and experts in
assessing the extent of the damage and appropriate methods of rehabilitation.

Exploring avenues for settlement of environmental cases is not proscribed by the Rules.
As can be gleaned from the following provisions, mediation and settlement are available
for the consideration of the parties, and which dispute resolution methods are
encouraged by the court, to wit:

RULE3

xxxx

SEC. 3. Referral to mediation.-At the start of the pre-trial conference, the court shall
inquire from the parties if they have settled the dispute; otherwise, the court shall
immediately refer the parties or their counsel, if authorized by their clients, to the
Philippine Mediation Center (PMC) unit for purposes of mediation. If not available, the
court shall refer the case to the clerk of court or legal researcher for mediation.

Mediation must be conducted within a non-extendible period of thirty (30) days from
receipt of notice of referral to mediation.

The mediation report must be submitted within ten (10) days from the expiration of the
30-day period.

SEC. 4. Preliminary conference.-If mediation fails, the court will schedule the continuance
of the pre-trial. Before the scheduled date of continuance, the court may refer the case
to the branch clerk of court for a preliminary conference for the following purposes:

(a) To assist the parties in reaching a settlement;

xxxx
SEC. 5. Pre-trial conference; consent decree.-The judge shall put the parties and their
counsels under oath, and they shall remain under oath in all pre-trial conferences.

The judge shall exert best efforts to persuade the parties to arrive at a settlement of the
dispute. The judge may issue a consent decree approving the agreement between the
parties in accordance with law, morals, public order and public policy to protect the right
of the people to a balanced and healthful ecology.

xxxx

SEC. 10. Efforts to settle.- The court shall endeavor to make the parties to agree to
compromise or settle in accordance with law at any stage of the proceedings before
rendition of judgment. (Underscoring supplied.)

The Court takes judicial notice of a similar incident in 2009 when a guided-missile
cruiser, the USS Port Royal, ran aground about half a mile off the Honolulu Airport Reef
Runway and remained stuck for four days. After spending $6.5 million restoring the coral
reef, the US government was reported to have paid the State of Hawaii $8.5 million in
settlement over coral reef damage caused by the grounding.38

To underscore that the US government is prepared to pay appropriate compensation for


the damage caused by the USS Guardian grounding, the US Embassy in the Philippines
has announced the formation of a US interdisciplinary scientific team which will "initiate
discussions with the Government of the Philippines to review coral reef rehabilitation
options in Tubbataha, based on assessments by Philippine-based marine scientists." The
US team intends to "help assess damage and remediation options, in coordination with
the Tubbataha Management Office, appropriate Philippine government entities, non-
governmental organizations, and scientific experts from Philippine universities."39

A rehabilitation or restoration program to be implemented at the cost of the violator is


also a major relief that may be obtained under a judgment rendered in a citizens' suit
under the Rules, viz:

RULES

SECTION 1. Reliefs in a citizen suit.-If warranted, the court may grant to the plaintiff
proper reliefs which shall include the protection, preservation or rehabilitation of the
environment and the payment of attorney's fees, costs of suit and other litigation
expenses. It may also require the violator to submit a program of rehabilitation or
restoration of the environment, the costs of which shall be borne by the violator, or to
contribute to a special trust fund for that purpose subject to the control of the
court.1wphi1

In the light of the foregoing, the Court defers to the Executive Branch on the matter of
compensation and rehabilitation measures through diplomatic channels. Resolution of
these issues impinges on our relations with another State in the context of common
security interests under the VFA. It is settled that "[t]he conduct of the foreign relations
of our government is committed by the Constitution to the executive and legislative-"the
political" --departments of the government, and the propriety of what may be done in the
exercise of this political power is not subject to judicial inquiry or decision."40
On the other hand, we cannot grant the additional reliefs prayed for in the petition to
order a review of the VFA and to nullify certain immunity provisions thereof.

As held in BAYAN (Bagong Alyansang Makabayan) v. Exec. Sec. Zamora,41 the VFA was
duly concurred in by the Philippine Senate and has been recognized as a treaty by the
United States as attested and certified by the duly authorized representative of the
United States government. The VF A being a valid and binding agreement, the parties
are required as a matter of international law to abide by its terms and provisions.42 The
present petition under the Rules is not the proper remedy to assail the constitutionality
of its provisions. WHEREFORE, the petition for the issuance of the privilege of the Writ of
Kalikasan is hereby DENIED.

No pronouncement as to costs.
Case #9

G.R. No. 167052

BANK OF THE PHILIPPINE ISLANDS SECURITIES CORPORATION, Petitioner,


vs.
EDGARDO V. GUEVARA, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Review under Rule 45 of the Rules of Court seeking the
reversal and setting aside of the Decision1 dated December 19, 2003 and Resolution2
dated February 9, 2005 of the Court Appeals in CA-G.R. CV No. 69348, affirming the
Decision3 dated September 11, 2000 of the Regional Trial Court (RTC) of Makati City,
Branch 57 in Civil Case No. 92-1445. The RTC acted favorably on the action instituted by
respondent Edgardo V. Guevara for the enforcement of a foreign judgment, particularly,
the Order4 dated March 13, 1990 of the United States (U.S.) District Court for the
Southern District of Tex.as, Houston Division (U.S. District Court), in Civil Action No. H-86-
440, and ordered petitioner Bank of the Philippine Islands (BPI) Securities Corporation to
pay respondent (a) the sum of US$49,500.00 with legal interest; (b) P250,000.00
attorney's fees and litigation ex.penses; and (c) costs of suit.

The facts are culled from the records of the case.

Ayala Corporation, a holding company, and its subsidiaries are engaged in a wide array
of businesses including real estate, financial services, telecommunications, water and
used water, electronics manufacturing services, automotive dealership and
distributorship, business process outsourcing, power, renewable energy, and transport
infrastructure.5

In the 1980s, Ayala Corporation was the majority stockholder of Ayala Investment and
Development Corporation (AIDC). AIDC, in turn, wholly owned Philsec Investment
Corporation (PHILSEC), a domestic stock brokerage firm, which was subsequently bought
by petitioner; and Ayala International Finance Limited (AIFL), a Hong Kong deposit-taking
corporation, which eventually became BPI International Finance Limited (BPI-IFL).
PHILSEC was a member of the Makati Stock Exchange and the rules of the said
organization required that a stockbroker maintain an amount of security equal to at least
50% of a client's outstanding debt.
Respondent was hired by Ayala Corporation in 1958. Respondent later became the Head
of the Legal Department of Ayala Corporation and then the President of PHILSEC from
September 1, 1980 to December 31, 1983. Thereafter, respondent served as Vice-
President of Ayala Corporation until his retirement on August 31, 1997.

While PHILSEC President, one of respondent's obligations was to resolve the outstanding
loans of Ventura O. Ducat (Ducat), which the latter obtained separately from PHILSEC
and AIFL. Although Ducat constituted a pledge of his stock portfolio valued at
approximately US$1.4 million, Ducat's loans already amounted to US$3.1 million.
Because the security for Ducat's debts fell below the 50% requirement of the Makati
Stock Exchange, the trading privileges of PHILSEC was in peril of being suspended.

Ducat proposed to settle his debts by an exchange of assets. Ducat owned several
pieces of real estate in Houston, Texas, in partnership with Drago Daic (Daic), President
of 1488, Inc., a U.S.-based corporation. Respondent relayed Ducat's proposal to Enrique
Zobel (Zobel), the Chief Executive Officer of Ayala Corporation. Zobel was amenable to
Ducat's proposal but advised respondent to send Thomas Gomez (Gomez), an AIFL
employee who traveled often to the U.S., to evaluate Ducat's properties.

In December of 1982, Gomez examined several parcels of real estate that were being
offered by Ducat and 1488, Inc. for the exchange. Gomez, in a telex to respondent,
recommended the acceptance of a parcel of land in Harris County, Texas (Harris County
property), which was believed to be worth around US$2.9 million. Gomez further opined
that the "swap would be fair and reasonable" and that it would be better to take this
opportunity rather than pursue a prolonged legal battle with Ducat. Gomez's
recommendation was brought to Zobel's attention. The property-for-debt exchange was
subsequently approved by the AIFL Board of Directors even without a prior appraisal of
the Harris County property. However, before the exchange actually closed, an AIFL
director asked respondent to obtain such an appraisal.

William Craig (Craig), a former owner of the Harris County property, conducted the
appraisal of the market value of the said property. In his January 1983 appraisal, Craig
estimated the fair market value of the Harris County property at US$3,365,000.

Negotiations finally culminated in an Agreement,6 executed on January 27, 1983 in


Makati City, Philippines, among 1488, Inc., represented by Daic; Ducat, represented by
Precioso Perlas (Perlas); AIFL, represented by Joselito Gallardo (Gallardo); and PHILSEC
and Athona Holdings, N. V. (ATHONA), both represented by respondent. Under the
Agreement, the total amount of Ducat's debts was reduced from US$3.1 million to
US$2.5 million; ATHONA, a company wholly owned by PHILSEC and AIFL, would buy the
Harris County property from 1488, Inc. for the price of US$2,807,209.02; PHILSEC and
AIFL would grant ATHONA a loan of US$2.5 million, which ATHONA would entirely use as
initial payment for the purchase price of the Harris County property; ATHONA would
execute a promissory note in favor of 1488, Inc. in the sum of US$307,209.02 to cover
the balance of the purchase price for the Harris County property; upon its receipt of the
initial payment of US$2.5 million from ATHONA, 1488, Inc. would then fully pay Ducat's
debts to PHILSEC and AIFL in the same amount; for their part, PHILSEC and AIFL would
release and transfer possession of Ducat's pledged stock portfolio to 1488, Inc.; and
1488, Inc. would become the new creditor of Ducat, subject to such other terms as they
might agree upon.
The series of transactions per the Agreement was eventually executed. However, after
acquiring the Harris County property, ATHONA had difficulty selling the same. Despite
repeated demands by 1488, Inc., ATHONA failed to pay its promissory note for the
balance of the purchase price for the Harris County property, and PHILSEC and AIFL
refused to release the remainder of Ducat's stock portfolio, claiming that they were
defrauded into believing that the said property had a fair market value higher than it
actually had.

Civil Action No. H-86-440 before the


U.S. District Court of Southern
District of Texas, Houston Division

On October 17, 1985, 1488, Inc. instituted a suit against PHILSEC, AIFL, and ATHONA for
(a) misrepresenting that an active market existed for two shares of stock included in
Ducat's portfolio when, in fact, said shares were to be withdrawn from the trading list; (b)
conversion of the stock portfolio; (c) fraud, as ATHONA had never intended to abide by
the provisions of its promissory note when they signed it; and (d) acting in concert as a
common enterprise or in the alternative, that ATHONA was the alter ego of PHILSEC and
AIFL. The suit was docketed as Civil Action No. H-86-440 before the U.S. District Court.

PHILSEC, AIFL, and ATHONA filed counterclaims against 1488, Inc., Daic, Craig, Ducat,
and respondent, for the recovery of damages and excess payment or, in the alternative,
the rescission of the sale of the Harris County property, alleging fraud, negligence, and
conspiracy on the part of counter-defendants who knew or should have known that the
value of said property was less than the appraisal value assigned to it by Craig.

Before the referral of the case to the jury for verdict, the U.S. District Court dropped
respondent as counter-defendant for lack of evidence to support the allegations against
him. Respondent then moved in open court to sanction petitioner (formerly PHILSEC),
AIFL, and ATHONA based on Rule 11 of the U.S. Federal Rules of Civil Procedure.7

In its Order dated March 13, 1990, the U.S. District Court stated that on February 14,
1990, after trial, the jury returned a verdict for 1488, Inc. In the same Order, the U.S.
District Court ruled favorably on respondent's pending motion for sanction, thus:

During the course of the trial, the Court was required to review plaintiff's Exhibit No. 91
to determine whether the exhibit should be admitted. After reviewing the exhibit and
hearing the evidence, the Court concluded that the defendants' counterclaims against
Edgardo V. Guevara are frivolous and brought against him simply to humiliate and
embarrass him. It is the opinion of the Court that the defendants, Philsec Investment
Corporation, A/K/A BPI Securities, Inc., and Ayala International Finance Limited, should be
sanctioned appropriately based on Fed. R. Civ. P. 11 and the Court's inherent powers to
punish unconscionable conduct. Based upon the motion and affidavit of Edgardo V.
Guevara, the Court finds that $49,450 is reasonable punishment.

ORDERED that defendants, Philsec Investment Corporation A/K/A BPI Securities, Inc., and
Ayala International Finance Limited, jointly and severally, shall pay to Edgardo V.
Guevara $49,450 within 30 days of the entry of this order.8

Petitioner, AIFL, and ATHONA appealed the jury verdict, as well as the aforementioned
order of the U.S. District Court for them to pay respondent US$49,450.00; while 1488,
Inc. appealed a post-judgment decision of the U.S. District Court to amend the amount of
attorney's fees awarded. The appeals were docketed as Case No. 90-2370 before the U.S.
Court of Appeals, Fifth Circuit.

The U.S. Court of Appeals rendered its Decision on September 3, 1991 affirming the
verdict in favor of 1488, Inc. The U.S. Court of Appeals found no basis for the allegations
of fraud made by petitioner, AIFL, and ATHONA against 1488, Inc., Daic, Craig, and
Ducat:

[2] To state a cause of action for fraud under Texas law, a plaintiff must allege sufficient
facts to show:

(1)that a material representation was made;

(2)that it was false;

(3)that when the speaker made it he knew that it was false or made it recklessly without
any knowledge of the truth and as a positive assertion;

(4)that he made it with the intention that it should be acted on by the party;

(5)that the party acted in reliance upon it;

(6)that he thereby suffered injury.

Stone v. Lawyers Title Ins. Corp., 554 S.W.2d 183, 185 (Tex.1977). We agree with the
district court's decision to grant a directed verdict against the defendants. The
defendants failed to allege sufficient facts to establish the elements necessary to
demonstrate fraud. In particular, the defendants have failed to allege any facts that
would tend to show that the plaintiff or any of the third party defendants made a false
representation or a representation with reckless disregard as to its truth.

The Houston real estate market was extremely volatile during the late 1970's and the
early 1980's. Like a stream of hot air, property values rose rapidly as the heat and fury
generated by speculation and construction plans mounted, but, just as rapidly, the
climate cooled and the high-flying market came crashing to an all time low. The real
estate transaction involved in this case was certainly affected by this environment of
capriciousness. Moreover, a number of additional variables may have contributed to the
uncertainty of its value. For instance, the land abutted a two-lane asphalt road that had
been targeted by the state for conversion into a major multi-lane divided highway. Water
and sewage treatment facilities were located near the boundary lines of the property. In
addition, Houston's lack of conventional zoning ordinances meant that the value of the
property could fluctuate depending upon the use (commercial or residential) for which
the property would ultimately be used.

[3]The fact that the defendants were unable to sell the property at the price for which it
had been appraised does not demonstrate that the plaintiff or the third party defendants
knew that the value of the property was less than the appraised value, nor does it
establish that the opposing parties were guilty of negligent misrepresentation or
negligence.
[4]In support of their allegation of fraud, the defendants rely heavily on a loan
application completed by 1488 shortly before the subject property was transferred to
Athona. See Defendant's Exhibit 29. At the time, 1488 still owed approximately $300,000
to Republic of Texas Savings Association on its original loan for the subject property. The
debt had matured and 1488 was planning to move the loan to Home Savings Association
of Houston, that is, take out a loan from Home Savings to pay off the debt to Republic.
1488 had planned to borrow $350,000 for that purpose. A line item on the Home Savings
loan application form asked for the amount of the loan as a percentage of the appraised
value of the land. A figure of thirty-nine percent was typed into that space, and the
defendants suggest that this proves that the plaintiff knew Craig's appraisal was
erroneous. The defendants reason that if the $350,000 loan amount was only thirty-nine
percent of the land's appraised value, then the real estate must have been worth
approximately $897,436.

Although their analysis is sound, the conclusion reached by the defendants cannot
withstand additional scrutiny. At the time that the loan application was completed, 1488
did not request to have a new appraisal done for the property. Instead, 1488 planned to
use the numbers that had been generated for a quasi-appraisal done in 1977. The 1977
report purported only to "supplement" an earlier appraisal that had been conducted in
1974, and the supplement described its function as estimating market value "for
mortgage loan purposes" only. See Defendant's Trial Exhibit 4. The two page supplement
was based on such old information that even the Home Savings Association would not
accept it without additional collateral as security for the loan. See Record on Appeal, Vol.
17 at 5-29 to 5-30. The loan, however, was never made because the property was
transferred to Athona, and the outstanding loan to Republic was paid off as part of that
transaction. In addition, the loan application itself was never signed by anyone affiliated
with 1488. The district court was correct in dismissing this argument in support of the
defendant's fraud allegations.

[5] The defendants also allege that the plaintiff and counter defendants knew that
Craig's appraisal was fraudulent because the purchaser's statement signed by their own
representative, and the seller's statement, signed by the plaintiff, as well as the title
insurance policy all recited a purchase price of $643,416.12. Robert Higgs, general
counsel for 1488, explained that because of the nature of the transaction, 1488, for tax
purposes, wanted the purchase price on the closing statement to reflect only that
amount of cash actually exchanged at the closing as well as the promissory note given at
the closing. See Record on Appeal, Vol. 17 at 5- 127. Although the closing documents
recite a purchase price well under the actual sales price, nothing indicates that any of
the parties actually believed the property to be worth less than the sales amount.

The defendants also assert that it was error for the district court to deny them
permission to designate O. Frank McPherson, a Houston appraiser, as an expert witness
after the cutoff date established by a pretrial order for such designations. The
defendants contend that the error prevented them from presenting facts that would
support their fraud allegations. Although the defendants were allowed to present the
testimony of another expert witness on the subject of valuation, they argue that
McPherson's testimony was critical because he had performed an appraisal of the
property for the Texas Highway Department close to the time period during which Craig
had made his appraisal. McPherson's appraisal was performed as part of the State's
condemnation proceedings that preceded the planned highway expansion next to the
subject property.
xxxx

[9] In their briefs, the defendants fail to provide an adequate explanation for their failure
to identify their expert witness in accordance with the district court's pretrial order. This
law suit was initiated in 1985, and the defendants had until November of 1988 to
designate their expert witnesses. The defendants were aware of the condemnation
proceedings, and they, therefore, had approximately three years to determine the
identity of any appraiser used by the state. The defendants simply failed to make this
inquiry.

Enforcement of the district court's pretrial order did not leave the defendants without an
expert witness on the issue of valuation, and the available expert had also conducted
appraisals for the Texas Highway Department in the area surrounding the subject
property. x x x

Although the degree of prejudice suffered by the plaintiff due to the late designation of
an expert would not have been great, a district court still has the discretion to control
pretrial discovery and sanction a party's failure to follow a scheduling order. See id. at
791. Such action is particularly appropriate here, where the defendants have failed to
provide an adequate explanation for their failure to identify their expert within the
designated timetable.

xxxx

The defendants failed to produce enough evidence from which fraud could be inferred to
justify the submission of the issue to a jury. Conclusional allegations or speculation
regarding what the plaintiff knew or did not know concerning the value of the subject
property are insufficient to withstand a motion for a directed verdict. The district court
committed no error in granting the motion.

xxxx

Since the defendants failed to present the district court with any facts that would tend to
show that the plaintiffs committed a fraud against them, their claim of a conspiracy to
commit fraud must also fail.9

The U.S. Court of Appeals likewise adjudged that petitioner, AIFL, and ATHONA failed to
prove negligence on the part of 1488, Inc., Daic, Craig, and Ducat in the appraisal of the
market value of the said property:

[10, 11] The defendants have likewise failed to present any facts that would tend to
support their claim of negligent misrepresentation or negligence. The defendants rely on
assumptions and unsupportable conclusions of law in establishing their case for
negligence: "Assuming the Property's true value is less than $800,000, it is reasonable to
assume that the counter defendants failed to exercise reasonable care or
competence . . ." Brief for Athona at 45-46 x x x. A party may not rely on assumptions of
fact to carry their case forward. The defendants have presented no facts to suggest that
the plaintiff was negligent in acquiring its appraisal. The plaintiff hired Craig, a real
estate broker, to perform the appraisal after the defendants had already given their
initial approval for the transaction. Craig had performed real estate appraisals in the
past, and Texas law permits real estate brokers to conduct such appraisals, see
Tex.Rev.Civ.Stat.Ann. art. 6573a, 2(2)(E) (Vernon Supp. 1988) (Original version at
Tex.Rev.Civ.Stat.Ann. art. 6573a, 4(1)(e) (Vernon 1969). These facts do not support a
claim of negligence.

For the foregoing reasons the district court committed no error in granting a directed
verdict against the counterclaims advanced by the defendants.10

The U.S. Court of Appeals, however, vacated the award of exemplary damages in favor of
1488, Inc. for the fraudulent misrepresentation regarding the marketability of the two
shares of stock in Ducat's portfolio. Under Texas law, a jury may not award damages
unless it was determined that the plaintiff had also sustained actual damages. The U.S.
Court of Appeals agreed with petitioner, AIFL, and ATHONA that 1488, Inc. brought its
suit alleging fraudulent misrepresentation after the two-year statute of limitation had
expired. The misrepresentation issue should never have gone to the jury. Therefore, the
jury's finding of actual damages is nullified; and since the jury verdict is left without a
specific finding of actual damages, the award of exemplary damages must be vacated.

The U.S. Court of Appeals also vacated the award of Rule 11 sanctions in favor of
respondent and against petitioner, AIFL, and ATHONA for being rendered without due
process, and remanded the issue to the U.S. District Court:

[18-20] The Rule 11 motion was first made by Guevara on February 14, 1990, and the
court immediately ruled on the issue without giving the defendants an opportunity to
prepare a written response. See Record on Appeal, Vol. 22 at 10-25 to 10-37. Although,
the defendants were given an opportunity to speak, we conclude that the hearing failed
to comport with the requirements of due process, which demand that the defendants be
provided with adequate notice and an opportunity to prepare a response. See Henderson
v. Department of Public Safety and Corrections, 901 F.2d 1288, 1293-94 (5th Cir.1990).
Providing specific notice and an opportunity to respond is particularly important in cases,
such as the one before us, in which the sanctions have been imposed on the clients and
not the attorneys. See Donaldson v. Clark, 819 F.2d 1551, 1560 (11th Cir.1987) ("If
sanctions are proposed to be imposed on the client, due process will demand more
specific notice because the client is likely unaware of the existence of Rule 11 and should
be given the opportunity to prepare a defense."). A separate hearing is not a prerequisite
to the imposition of Rule 11 sanctions, see Donaldson, 819 F.2d at 1560 n. 12, but the
defendants in this case, should have been given more of an opportunity to respond to
the motion than that provided at the hearing in which the motion was first raised.
Providing the defendant with an opportunity to mount a defense "on the spot" does not
comport with due process. Given that the defendants were not provided with adequate
notice or an opportunity to be heard, we vacate the award of sanctions and remand so
that the district court can provide the defendants with an adequate opportunity to be
heard.11

Finally, the U.S. Court of Appeals similarly vacated the award of attorney's fees and
remanded the matter to the U.S. District Court for recalculation to conform with the
requirements provided in the promissory note.

In accordance with the Decision dated September 3, 1991 of the U.S. Court of Appeals,
the U.S. District Court issued an Order12 dated October 28, 1991 giving petitioner, AIFL,
and ATHONA 20 days to formally respond to respondent's motion for Rule 11 sanctions.
Petitioner, AIFL, and ATHONA jointly filed before the U.S. District Court their opposition to
respondent's motion for Rule 11 sanctions.13 Respondent filed his reply to the
opposition, to which petitioner, AIFL, and ATHONA, in turn, filed a reply-brief.14

In an Order15 dated December 31, 1991, the U.S. District Court still found respondent's
motion for Rule 11 sanctions meritorious and reinstated its Order dated March 13, 1990:

The basis of the Court's prior decision as well as now is the fact that the defendants filed
suit against Guevara with knowledge that the basis of the suit was unfounded. In the
defendants' file was an appraisal from an international appraisal firm, which the
defendants refused to disclose during discovery and was only discovered at a bench
conference during a discussion about appraisers. Based on the defendants' own
appraisers, no basis existed for a suit by the defendants against their employee.

The previous judgment entered by this Court is REINSTATED.

The above-quoted Order of the U.S. District Court attained finality as it was no longer
appealed by petitioner, AIFL, and ATHONA.

Through a letter dated February 18, 1992, respondent demanded that petitioner pay the
amount of US$49,450.00 awarded by the U.S. District Court in its Order dated March 13,
1990. Given the continuous failure and/or refusal of petitioner to comply with the said
Order of the U.S. District Court, respondent instituted an action for the enforcement of
the same, which was docketed as Civil Case No. 92-1445 and raffled to the RTC of Makati
City, Branch 57.

Civil Case No. 92-1445 before


Branch 57 of the RTC of Makati City

In his Complaint for the enforcement of the Order dated March 13, 1990 of the U.S.
District Court in Civil Action No. H-86-440, respondent prayed that petitioner be ordered
to pay:

1.The sum of US$49,450.00 or its equivalent in Philippine Pesos x x x with interest from
date of demand;

2.Attorney's fees and litigation expenses in the sum of P250,000.00;

3.Exemplary damages of P200,000.00; and

4.Costs of the suit.16

In its Amended Answer Ad Cautelam,17 petitioner opposed the enforcement of the Order
dated March 13, 1990 of the U.S. District Court on the grounds that it was rendered upon
a clear mistake of law or fact and/or in violation of its right to due process.

In the course of the pre-trial and scheduled trial proceedings, the parties respectively
manifested before the court that they were dispensing with the presentation of their
witnesses since the subject matter of their testimonies had already been stipulated
upon.18
Thereafter, the parties formally offered their respective evidence which entirely
consisted of documentary exhibits. Respondent submitted authenticated and certified
true copies of Rule 11 of the U.S. Federal Rules of Civil Procedure;19 the Orders dated
March 13, 1990, October 28, 1991, and December 31, 1991 of the U.S. District Court in
Civil Action No. H-86- 440;20 the Decision dated September 3, 1991 of the U.S. Court of
Appeals in Case No. 90-2370;21 and the opposition to respondent's motion for Rule 11
sanctions and reply-brief filed by PHILSEC, AIFL, and ATHONA before the U.S. District
Court.22 Petitioner presented photocopies of pleadings, documents, and transcripts of
stenographic notes in Civil Action No. H-86- 440 before the U.S. District Court;23 the
pleadings filed in other cases related to Civil Case No. 92-1440;24 and a summary of
lawyer's fees incurred by petitioner in the U.S.25 The RTC admitted in evidence the
documentary exhibits of the parties in its Orders dated September 21, 1998 and
February 8, 1999,26 and then deemed the case submitted for decision.

The RTC rendered a Decision on September 11, 2000 with the following dispositive
portion:

WHEREFORE, judgment is hereby rendered in favor of [respondent] Edgardo V. Guevara


ordering [petitioner] BPI Securities Corporation to pay [respondent] the following:

1.the sum of US$49,500.00 with legal interest from the filing of this case until fully paid;

2.the sum of P250,000.00 as attorney's fees and litigation expenses; and

3.the costs of suit.

An award of exemplary damages for P200,000.00 is denied for being speculative.27

Petitioner appealed to the Court of Appeals, assigning the following errors on the part of
the RTC:

A.The trial court erred in not passing upon the merit or validity of [petitioner's] defenses
against the enforcement of the foreign judgment in the Philippines. Had the trial court
considered [petitioner's] defenses, it would have concluded that the foreign judgment
was not enforceable because it was made upon a clear mistake of law or fact and/or was
made in violation of the [petitioner's] right to due process.

B.The trial court erred in not utilizing the standard for determining the enforceability of
the foreign award that was agreed upon by the parties to this case during the pre-trial,
namely, did the defendants in the Houston case (PHILSEC, AIFL, AND ATHONA) have
reasonable grounds to implead [respondent] in the Houston case based upon the body of
the evidence submitted therein. Thus, whether or not PHILSEC, AIFL and ATHONA
ultimately prevailed against [respondent] was immaterial or irrelevant; the question only
was whether they had reasonable grounds to proceed against him, for if they had, then
there was admittedly no basis for the Rule 11 award against them by the Houston Court.

xxxx

C.In the light of its ruling, the trial court failed to pass upon and resolve the other issues
and/or defenses expressly raised by [petitioner], including the defense that PHILSEC,
AIFL, and ATHONA were deprived of their right to defend themselves against the Rule 11
sanction and the main decision because of the prohibitive cost of legal representation in
the us and also because of the gross negligence of its US counsel. x x x.28

In its Decision dated December 19, 2003, the Fifth Division of the Court of Appeals
decreed:

WHEREFORE, the Decision dated 11 September 2000 in Civil Case No. 92-1445 of the
Regional Trial Court of Makati, Branch 57, is hereby AFFIRMED in all respect with costs
against [petitioner].29

In its Motion for Reconsideration,30 petitioner lamented that the Fifth Division of the
Court of Appeals failed to resolve on its own petitioner's appeal as the Decision dated
December 19, 2003 of the said Division was copied almost verbatim from respondent's
brief. Thus, petitioner prayed that the Fifth Division of the Court of Appeals recuse itself
from deciding petitioner's Motion for Reconsideration and that the case be re-raffled to
another division.

The Fifth Division of the Court of Appeals maintained in its Resolution dated May 25,
2004 that the issues and contentions of the parties were all duly passed upon and that
the case was decided according to its merits. The said Division, nonetheless, abstained
from resolving petitioner's Motion for Reconsideration and directed the re-raffle of the
case.31

Petitioner's Motion for Reconsideration was re-raffled to and subsequently resolved by


the Tenth Division of the Court of Appeals. In its Resolution dated February 9, 2005, the
Tenth Division of the appellate court denied the said Motion for lack of merit.32

Hence, petitioner seeks recourse from this Court via the instant Petition for Review,
insisting that the Court of Appeals erred in affirming the RTC judgment which enforced
the Order dated March 13, 1990 of the U.S. District Court in Civil Action No. H-86-440.

Petitioner contends that it was not accorded by the Court of Appeals the right to refute
the foreign judgment pursuant to Rule 39, Section 48 of the Rules of Court because the
appellate court gave the effect of res judicata to the said foreign judgment. The Court of
Appeals copied wholesale or verbatim the respondent's brief without addressing the
body of evidence adduced by petitioner showing that it had reasonable grounds to
implead respondent in Civil Action No. H-86-440.

Petitioner asserts that the U.S. District Court committed a clear mistake of law and fact in
its issuance of the Order dated March 13, 1990, thus, said Order is unenforceable in this
jurisdiction. Petitioner discusses in detail its evidence proving that respondent, together
with 1488, Inc., Ducat, Craig, and Daic, induced petitioner to agree to a fraudulent deal.
Petitioner points out that respondent had the duty of looking for an independent and
competent appraiser of the market value of the Harris County property; that instead of
choosing an unbiased and skilled appraiser, respondent connived with 1488, Inc., Ducat,
and Daic in selecting Craig, who turned out to be the former owner of the Harris County
property and a close associate of 1488, Inc. and Daic; and that respondent endorsed to
petitioner Craig's appraisal of the market value of the Harris County property, which was
overvalued by more than 400%.
According to petitioner, it had reasonable grounds to implead respondent in Civil Action
No. H-86-440 so the sanction imposed upon it under Rule 11 of the U.S. Federal Rules of
Civil Procedure was unjustified. Petitioner additionally argues that there is no basis for
the U.S. District Court to impose upon it the Rule 11 sanction as there is nothing in the
said provision which allows "the imposition of sanctions for simply bringing a meritless
lawsuit." If the Rule 11 sanction was imposed upon petitioner as punishment for
impleading a party (when it had reasonable basis for doing so) and not prevailing against
said party, then, petitioner claims that such a sanction is against Philippine public policy
and should not be enforced in this jurisdiction. Settled in this jurisdiction that there
should be no premium attached to the right to litigate, otherwise parties would be very
hesitant to assert a claim in court.

Petitioner further alleges that it was denied due process in Civil Action No H-86-440
because: (1) the U.S. District Court imposed the Rule 11 sanction on the basis of a single
document, i.e., the letter dated September 26, 1983 of Bruce C. Bossom, a partner at
Jones Lang Wooton, a firm of chartered surveyors and international real estate
consultants, addressed to a Mr. Senen L. Matoto of AIFL (marked as Exhibit 91 before the
U.S. District Court), which was never admitted into evidence; (2) in said letter, Jones
Lang Wooton was "soliciting a listing agreement" and in which the "said firm unilaterally,
without being asked as to the value of the [Harris County] property, indicated a value for
the [same] which approximate[d] with the value given in the Craig appraisal," hence, it
cannot be used as basis to conclude that petitioner, AIFL, and ATHONA assented to
Craig's appraisal of the Harris County property; (3) the counsel who represented
petitioner, AIFL, and ATHONA in Civil Action No. H-86-440 before the U.S. District Court
was grossly ignorant and/or negligent in the prosecution of their counterclaims and/or in
proving their defenses, such as when said counsel failed to present an expert witness
who could have testified as to the actual market value of the Harris County property or
when said counsel failed to discredit respondent's credibility despite the availability of
evidence that respondent had been previously fined by the Philippine Securities and
Exchange Commission for "stock manipulation;" and (4) the excessive and
unconscionable legal fees charged by their U.S. counsel effectively prevented them from
making further appeal.

The Court finds the Petition bereft of merit.

In Mijares v. Raada,33 the Court extensively discussed the underlying principles for the
recognition and enforcement of foreign judgments in Philippine jurisdiction:

There is no obligatory rule derived from treaties or conventions that requires the
Philippines to recognize foreign judgments, or allow a procedure for the enforcement
thereof.1wphi1 However, generally accepted principles of international law, by virtue of
the incorporation clause of the Constitution, form part of the laws of the land even if they
do not derive from treaty obligations. The classical formulation in international law sees
those customary rules accepted as binding result from the combination two elements:
the established, widespread, and consistent practice on the part of States; and a
psychological element known as the opinion juris sive necessitates (opinion as to law or
necessity). Implicit in the latter element is a belief that the practice in question is
rendered obligatory by the existence of a rule of law requiring it.

While the definite conceptual parameters of the recognition and enforcement of foreign
judgments have not been authoritatively established, the Court can assert with certainty
that such an undertaking is among those generally accepted principles of international
law. As earlier demonstrated, there is a widespread practice among states accepting in
principle the need for such recognition and enforcement, albeit subject to limitations of
varying degrees. The fact that there is no binding universal treaty governing the practice
is not indicative of a widespread rejection of the principle, but only a disagreement as to
the imposable specific rules governing the procedure for recognition and enforcement.

Aside from the widespread practice, it is indubitable that the procedure for recognition
and enforcement is embodied in the rules of law, whether statutory or jurisprudential,
adopted in various foreign jurisdictions. In the Philippines, this is evidenced primarily by
Section 48, Rule 39 of the Rules of Court which has existed in its current form since the
early 1900s. Certainly, the Philippine legal system has long ago accepted into its
jurisprudence and procedural rules the viability of an action for enforcement of foreign
judgment, as well as the requisites for such valid enforcement, as derived from
internationally accepted doctrines. Again, there may be distinctions as to the rules
adopted by each particular state, but they all prescind from the premise that there is a
rule of law obliging states to allow for, however generally, the recognition and
enforcement of a foreign judgment. The bare principle, to our mind, has attained the
status of opinio juris in international practice.

This is a significant proposition, as it acknowledges that the procedure and requisites


outlined in Section 48, Rule 39 derive their efficacy not merely from the procedural rule,
but by virtue of the incorporation clause of the Constitution. Rules of procedure are
promulgated by the Supreme Court, and could very well be abrogated or revised by the
high court itself. Yet the Supreme Court is obliged, as are all State components, to obey
the laws of the land, including generally accepted principles of international law which
form part thereof, such as those ensuring the qualified recognition and enforcement of
foreign judgments. (Citations omitted.)

It is an established international legal principle that final judgments of foreign courts of


competent jurisdiction are reciprocally respected and rendered efficacious subject to
certain conditions that vary in different countries.34 In the Philippines, a judgment or
final order of a foreign tribunal cannot be enforced simply by execution. Such judgment
or order merely creates a right of action, and its non-satisfaction is the cause of action by
which a suit can be brought upon for its enforcement.35 An action for the enforcement of
a foreign judgment or final order in this jurisdiction is governed by Rule 39, Section 48 of
the Rules of Court, which provides:

SEC. 48. Effect of foreign judgments or final orders. - The effect of a judgment or final
order of a tribunal of a foreign country, having jurisdiction to render the judgment or final
order is as follows:

(a) In case of a judgment or final order upon a specific thing, the judgment or final order
is conclusive upon the title to the thing; and

(b) In case of a judgment or final order against a person, the judgment or final order is
presumptive evidence of a right as between the parties and their successors in interest
by a subsequent title.

In either case, the judgment or final order may be repelled by evidence of a want of
jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact.
The Court expounded in Mijares on the application of the aforequoted provision:

There is an evident distinction between a foreign judgment in an action in rem and one in
personam. For an action in rem, the foreign judgment is deemed conclusive upon the
title to the thing, while in an action in personam, the foreign judgment is presumptive,
and not conclusive, of a right as between the parties and their successors in interest by a
subsequent title. However, in both cases, the foreign judgment is susceptible to
impeachment in our local courts on the grounds of want of jurisdiction or notice to the
party, collusion, fraud, or clear mistake of law or fact. Thus, the party aggrieved by the
foreign judgment is entitled to defend against the enforcement of such decision in the
local forum. It is essential that there should be an opportunity to challenge the foreign
judgment, in order for the court in this jurisdiction to properly determine its efficacy.

It is clear then that it is usually necessary for an action to be filed in order to enforce a
foreign judgment, even if such judgment has conclusive effect as in the case of in rem
actions, if only for the purpose of allowing the losing party an opportunity to challenge
the foreign judgment, and in order for the court to properly determine its efficacy.
Consequently, the party attacking a foreign judgment has the burden of overcoming the
presumption of its validity.

The rules are silent as to what initiatory procedure must be undertaken in order to
enforce a foreign judgment in the Philippines. But there is no question that the filing of a
civil complaint is an appropriate measure for such purpose. A civil action is one by which
a party sues another for the enforcement or protection of a right, and clearly an action to
enforce a foreign judgment is in essence a vindication of a right prescinding either from a
"conclusive judgment upon title" or the "presumptive evidence of a right." Absent
perhaps a statutory grant of jurisdiction to a quasi-judicial body, the claim for
enforcement of judgment must be brought before the regular courts.

There are distinctions, nuanced but discernible, between the cause of action arising from
the enforcement of a foreign judgment, and that arising from the facts or allegations that
occasioned the foreign judgment. They may pertain to the same set of facts, but there is
an essential difference in the right-duty correlatives that are sought to be vindicated. For
example, in a complaint for damages against a tortfeasor, the cause of action emanates
from the violation of the right of the complainant through the act or omission of the
respondent. On the other hand, in a complaint for the enforcement of a foreign judgment
awarding damages from the same tortfeasor, for the violation of the same right through
the same manner of action, the cause of action derives not from the tortious act but from
the foreign judgment itself.

More importantly, the matters for proof are different. Using the above example, the
complainant will have to establish before the court the tortious act or omission
committed by the tortfeasor, who in turn is allowed to rebut these factual allegations or
prove extenuating circumstances. Extensive litigation is thus conducted on the facts, and
from there the right to and amount of damages are assessed. On the other hand, in an
action to enforce a foreign judgment, the matter left for proof is the foreign judgment
itself, and not the facts from which it prescinds.

As stated in Section 48, Rule 39, the actionable issues are generally restricted to a
review of jurisdiction of the foreign court, the service of personal notice, collusion, fraud,
or mistake of fact or law. The limitations on review [are] in consonance with a strong and
pervasive policy in all legal systems to limit repetitive litigation on claims and issues.
Otherwise known as the policy of preclusion, it seeks to protect party expectations
resulting from previous litigation, to safeguard against the harassment of defendants, to
insure that the task of courts not be increased by never-ending litigation of the same
disputes, and - in a larger sense - to promote what Lord Coke in the Ferrer's Case of 1599
stated to be the goal of all law: "rest and quietness." If every judgment of a foreign court
were reviewable on the merits, the plaintiff would be forced back on his/her original
cause of action, rendering immaterial the previously concluded litigation.36

(Emphases supplied, citations omitted.)

Also relevant herein are the following pronouncements of the Court in

Minoru Fujiki v. Marinay37:

A petition to recognize a foreign judgment declaring a marriage void does not require
relitigation under a Philippine court of the case as if it were a new petition for declaration
of nullity of marriage. Philippine courts cannot presume to know the foreign laws under
which the foreign judgment was rendered. They cannot substitute their judgment on the
status, condition and legal capacity of the foreign citizen who is under the jurisdiction of
another state. Thus, Philippine courts can only recognize the foreign judgment as a fact
according to the rules of evidence.

Section 48(b), Rule 39 of the Rules of Court provides that a foreign judgment or final
order against a person creates a "presumptive evidence of a right as between the parties
and their successors in interest by a subsequent title." Moreover, Section 48 of the Rules
of Court states that "the judgment or final order may be repelled by evidence of a want
of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or
fact." Thus, Philippine courts exercise limited review on foreign judgments. Courts are
not allowed to delve into the merits of a foreign judgment. Once a foreign judgment is
admitted and proven in a Philippine court, it can only be repelled on grounds external to
its merits, i.e., "want of jurisdiction, want of notice to the party, collusion, fraud, or clear
mistake of law or fact." The rule on limited review embodies the policy of efficiency and
the protection of party expectations, as well as respecting the jurisdiction of other states.
(Emphases supplied, citations omitted.)

As the foregoing jurisprudence had established, recognition and enforcement of a foreign


judgment or final order requires only proof of fact of the said judgment or final order. In
an action in personam, as in the case at bar, the foreign judgment or final order enjoys
the disputable presumption of validity. It is the party attacking the foreign judgment or
final order that is tasked with the burden of overcoming its presumptive validity.38 A
foreign judgment or final order may only be repelled on grounds external to its merits,
particularly, want of jurisdiction, want of notice to the party, collusion, fraud, or clear
mistake of law or fact.

The fact of a foreign final order in this case is not disputed. It was duly established by
evidence submitted to the RTC that the U.S. District Court issued an Order on March 13,
1990 in Civil Action No. H-86-440 ordering petitioner, AIFL, and ATHONA, to pay
respondent the sum of US$49,450.00 as sanction for filing a frivolous suit against
respondent, in violation of Rule 11 of the U.S. Federal Rules of Civil Procedure. The said
Order became final when its reinstatement in the Order dated December 31, 1991 of the
U.S. District Court was no longer appealed by petitioner, AIFL, and/or ATHONA.

The Order dated March 13, 1990 of the U.S. District Court in Civil Action No. H-86-440 is
presumptive evidence of the right of respondent to demand from petitioner the payment
of US$49,450.00 even in this jurisdiction. The next question then is whether petitioner
was able to discharge the burden of overcoming the presumptive validity of said Order.

The Court rules in the negative.

In complete disregard of the limited review by Philippine courts of foreign judgments or


final orders, petitioner opposes the enforcement of the Order dated March 13, 1990 of
the U.S. District Court on the very same allegations, arguments, and evidence presented
before and considered by the U.S. District Court when it rendered its verdict imposing the
Rule 11 sanction against petitioner. Petitioner attempts to convince the Court that it is
necessary to look into the merits of the Order dated March 13, 1990 because the U.S.
District Court committed clear mistake of law and fact in issuing the same. The Court,
however, is not convinced. A Philippine court will not substitute its own interpretation of
any provision of the law or rules of procedure of another country, nor review and
pronounce its own judgment on the sufficiency of evidence presented before a
competent court of another jurisdiction. Any purported mistake petitioner attributes to
the U.S. District Court in the latter's issuance of the Order dated March 13,1990 would
merely constitute an error of judgment in the exercise of its legitimate jurisdiction, which
could have been corrected by a timely appeal before the U.S. Court of Appeals.

Petitioner cannot insist that the RTC and the Court of Appeals resolve the issue of
whether or not petitioner, AIFL, and ATHONA had reasonable grounds to implead
respondent as a counter-defendant in Civil Action No. H-86-440. Although petitioner
submitted such an issue for resolution by the RTC in its Pre-Trial Brief, the RTC did not
issue any pre-trial order actually adopting the same. In addition, petitioner was also
unable to lay the basis, whether in U.S. or Philippine jurisdiction, for the use of the
"reasonable grounds standard" for determining a party's liability for or exemption from
the sanctions imposed for violations of Rule 11 of the U.S. Federal Rules of Civil
Procedure. Equally baseless is petitioner's assertion that the Rule 11 sanction is contrary
to public policy and in effect, puts a premium on the right to litigate. It bears to stress
that the U.S. District Court imposed the Rule 11 sanction upon petitioner, AIFL, and
ATHONA for their frivolous counterclaims against respondent intended to simply
humiliate and embarrass respondent; and not because petitioner, AIFL, and ATHONA
impleaded but lost to respondent.

Contrary to the claims of petitioner, both the RTC and the Court of Appeals carefully
considered the allegations, arguments, and evidence presented by petitioner to repel the
Order dated March 13, 1990 of the U.S. District Court in Civil Action No. H-86-440.
Worthy of reproducing herein are the following portions of the RTC judgment:

[Petitioner's] contention that the judgment sought to be enforced herein is violative of its
right to due process and contrary to public policy because the Houston Court relied upon
Exhibit 91 (which is [petitioner BPI Securities'] Exh. "1" in this case) and the US Court
disregarded the evidence on record in the Houston Action is unavailing. Whether or not
said Exhibit 91 (petitioner's Exh. "1") is inadmissible or is not entitled to any weight is a
question which should have been addressed to the US of Court of Appeals by [petitioner].
To ask a Philippine court to pass upon the admissibility or weight of Exh. 91 is violative of
our public policy not to substitute our judgment for that of a competent court of another
jurisdiction.

[Petitioner] does not deny the fact that the judgment awarding sanctions based on [Rule
11 of the U.S.] Federal Rules of Civil Procedure was elevated to the United States Court of
Appeals for the Fifth Circuit which remanded the case to the District Court precisely to
give [petitioner] a reasonable opportunity to be heard. After remand, the District Court
ordered [petitioner] to file its response to the motion of [respondent] for sanctions and
after the filing of their respective briefs, the District Court reinstated the former
judgment.

Certainly, under these circumstances, the claim of violation of due process cannot be
sustained since [petitioner] was given reasonable opportunity to present its side before
the imposition of sanctions.

xxxx

[Petitioner] likewise argued that the US District Court committed a clear mistake of law
or fact and in support thereof presented Exhibits "10" to "18" to establish that the fair
market value of the Houston property in January 1983 was no longer US$800,000.00 by
the admissions against interest of 1488 itself, of Craig who submitted the fraudulent
appraisal, and by the previous owners of the said property and to "show that
[respondent] Guevara was either directly involved in the conspiracy against the Houston
defendants in submitting to the latter a fraudulent appraisal of W. Craig (or was at least
responsible to the Houston defendants for the injury that they suffered) and that the
Houston defendants had reasonable basis to implead him as a defendant in the Houston
Case on account of his participation in the conspiracy or his fault of responsibility for the
injury suffered by them."

However, none of these documents show that [respondent] had any participation nor
knowledge in the execution, custody or other intervention with respect to the said. Thus,
said Exhibits "10" to "18" are irrelevant and immaterial to the issue of the enforceability
of a foreign judgment. It must be emphasized that the imposition of the sanctions under
[Rule 11 of the U.S.] Federal Rules of Civil Procedure did not flow from the merits of the
civil case in the US District Court but from the lack of even an iota of evidence against
[respondent] Guevara. To quote the US District Court:

THE COURT

xxxx

I am disturbed about that. I don't see any evidence at all in this case, after listening to all
of this evidence, that there ever was a lawsuit that could have been brought against
Guevara, and even after all of the discovery was done, there was still no evidence of a
conspiracy. There is no evidence of any conspiracy to this good day that he could have
been, but there is no proof of it, and that's what we base these lawsuits on. That's what
the Rule 11 is designed to do, to deal with the circumstance.

So, I brought it up to Mr. Guevara because I know the frustration, and irrespective as to
whether or not he brought it up, it would have been my position, my own position as an
officer of this Court to sanction the defendants in this case. That is my opinion, that they
are to be sanctioned because they have brought all of the power that they have in the
Philippines to bear and put pressure on this man so that he would have to come over
10,000 miles to defend himself or to hire lawyers to defend himself against a totally
frivolous claim.39 (Emphases supplied.)

As for petitioner's contention that the Fifth Division of the Court of Appeals, in its
Decision dated December 19, 2003, copied verbatim or wholesale from respondent's
brief, the Court refers to its ruling in Halley v. Printwell, Inc.,40 thus:

It is noted that the petition for review merely generally alleges that starting from its page
5, the decision of the RTC "copied verbatim the allegations of herein Respondents in its
Memorandum before the said court," as if "the Memorandum was the draft of the
Decision of the Regional Trial Court of Pasig," but fails to specify either the portions
allegedly lifted verbatim from the memorandum, or why she regards the decision as
copied. The omission renders the petition for review insufficient to support her
contention, considering that the mere similarity in language or thought between
Printwell's memorandum and the trial court's decision did not necessarily justify the
conclusion that the RTC simply lifted verbatim or copied from the memorandum.

It is to be observed in this connection that a trial or appellate judge may occasionally


view a party's memorandum or brief as worthy of due consideration either entirely or
partly. When he does so, the judge may adopt and incorporate in his adjudication the
memorandum or the parts of it he deems suitable, and yet not be guilty of the
accusation of lifting or copying from the memorandum. This is because of the avowed
objective of the memorandum to contribute in the proper illumination and correct
determination of the controversy. Nor is there anything untoward in the congruence of
ideas and views about the legal issues between himself and the party drafting the
memorandum. The frequency of similarities in argumentation, phraseology, expression,
and citation of authorities between the decisions of the courts and the memoranda of the
parties, which may be great or small, can be fairly attributable to the adherence by our
courts of law and the legal profession to widely know nor universally accepted
precedents set in earlier judicial actions with identical factual milieus or posing related
judicial dilemmas. (Citations omitted.)

The Court is unmoved by petitioner's allegations of denial of due process because of its
U.S. counsel's exorbitant fees and negligence.1wphi1 As aptly pointed out by
respondent in his Memorandum:

On the specific claim that petitioner has been denied legal representation in the United
States in view of the exorbitant legal fees of US counsel, petitioner is now estopped from
asserting that the costs of litigation resulted in a denial of due process because it was
petitioner which impleaded Guevara. If petitioner cannot prosecute a case to its final
stages, then it should not have filed a counterclaim against Guevara in the first place.
Moreover, there is no showing that petitioner could not find a less expensive counsel.
Surely, petitioner could have secured the services of another counsel whose fees were
more "affordable."41

Moreover, petitioner is bound by the negligence of its counsel. The declarations of the
Court in Gotesco Properties, Inc. v. Moral42 is applicable to petitioner:
The general rule is that a client is bound by the acts, even mistakes, of his counsel in the
realm of procedural technique.1wphi1 The basis is the tenet that an act performed by
counsel within the scope of a "general or implied authority" is regarded as an act of the
client. While the application of this general rule certainly depends upon the surrounding
circumstances of a given case, there are exceptions recognized by this Court: "(1) where
reckless or gross negligence of counsel deprives the client of due process of law; (2)
when its application will result in outright deprivation of the client's liberty or property; or
(3) where the interests of justice so require."

The present case does not fall under the said exceptions. In Amil v. Court of Appeals, the
Court held that "to fall within the exceptional circumstance relied upon x x x, it must be
shown that the negligence of counsel must be so gross that the client is deprived of his
day in court. Thus, "where a party was given the opportunity to defend [its] interests in
due course, [it] cannot be said to have been denied due process of law, for this
opportunity to be heard is the very essence of due process." To properly claim gross
negligence on the part of the counsel, the petitioner must show that the counsel was
guilty of nothing short of a clear abandonment of the client's cause. (Citations omitted.)

Finally, it is without question that the U.S. District Court, in its Order dated March 13,
1990 in Civil Action No. H-86-440, ordered petitioner, AIFL, and ATHONA to pay
respondent US$49,450.00 as sanction for violating Rule 11 of the U.S. Federal Rules of
Civil Procedure. The Court noticed that throughout its Decision dated September 11,
2000 in Civil Case No. 92-1445, the RTC variably mentioned the amount of Rule 11
sanction imposed by the U.S. District Court as US$49,450.00 and US$49,500.00, the
latter obviously being a typographical error. In the dispositive portion, though, the RTC
ordered petitioner to pay respondent US$49,500.00, which the Court hereby corrects
motu proprio to US$49,450.00 in conformity with the U.S. District Court Order being
enforced.

The Court notes that during the pendency of the instant Petition before this Court,
respondent passed away on August 17, 2007, and is survived and substituted by his
heirs, namely: Ofelia B. Guevara, Ma. Leticia G. Allado, Jose Edgardo B. Guevara, Jose
Emmanuel B. Guevara, and Ma. Joselina G. Gepuela.

WHEREFORE, the instant Petition is hereby DENIED for lack of merit. The Decision dated
December 19, 2003 and Resolution dated February 9, 2005 of the Court Appeals in CA-
G.R. CV No. 69348, affirming the Decision dated September 11, 2000 of the Regional Trial
Court of Makati City, Branch 57 in Civil Case No. 92-1445, is hereby AFFIRMED with
MODIFICATION that petitioner BPI Securities Corporation is ordered to pay respondent
Edgardo V. Guevara the sum of US$49,450.00 or its equivalent in Philippine Peso, with
interest at six percent (6%) per annum from the filing of the case before the trial court on
May 28, 1992 until fully paid.43

SO ORDERED.
Case #10

G.R. No. 181892 September 8, 2015

REPUBLIC OF THE PHILIPPINES, represented by Executive Secretary Eduardo R. Ermita,


the DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, AND MANILA
INTERNATIONAL AIRPORT AUTHORITY, Petitioners,
vs.
HON. JESUS M. MUPAS, in his capacity as Acting Presiding Judge of the Regional Trial
Court, National Capital Judicial Region, Branch 117, Pasay City, AND PHILIPPINE
INTERNATIONAL AIR TERMINALS CO., INC., Respondents.

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

G.R. No. 209917

REPUBLIC OF THE PHILIPPINES, represented by Executive Secretary Eduardo Ermita,


DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, AND MANILA
INTERNATIONAL AIRPORT AUTHORITY, Petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS COMPANY, INC., TAKENAKA CORPORATION
AND ASAHIKOSAN CORPORATION, Respondents.

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

G.R. No. 209696

TAKENAKA CORPORATION AND ASAHIKOSAN CORPORATION, Petitioners,


vs.
REPUBLIC OF THE PHILIPPINES, represented by Executive Secretary Eduardo Ermita,
DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, MANILA INTERNATIONAL
AIRPORT AUTHORITY, AND PHILIPPINE INTERNATIONAL AIR TERMINALS COMPANY, INC.
Respondents.

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

G.R. No. 209731


PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC. Petitioner,
vs.
REPUBLIC OF THE PHILIPPINES, as represented by EXECUTIVE SECRETARY EDUARDO
ERMITA, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, MANILA
INTERNATIONAL AIRPORT AUTHORITY, TAKENAKA CORPORATION, AND ASAHIKOSAN
CORPORATION, Respondents.

DECISION

BRION, J.:

Before the Court are the consolidated petitions for review on certiorari assailing the
Decision dated August 22, 2013, and the Resolution dated October 29, 2013, of the Court
of Appeals (CA) in CA-G.R. CV No. 98029; and the petition for certiorari assailing the May
3, 2007; May 18, 2008; and January 7, 2008 Decision of the Regional Trial Court (RTC) of
Pasay City, Branch 117, in Civil Case No. 04-0876.1

In CA-G.R. CV No. 98029, the CA ordered petitioners Republic of the Philippines,


Department of Transportation and Communications, and Manila International Airport
Authority (Government for brevity) to pay the Philippine International Airport Terminals
Co., Inc. (PIATCO) the amount of $371,426,688.24 with interest at 6%per annum as just
compensation for the expropriation of the Ninoy Aquino International Airport Passenger
Terminal III (NAIA-IPT III).2

In Civil Case No. 04-0876, the RTC appointed DG Jones and Partners as an independent
appraiser of the NAIA-IPT III, and ordered the Government to submit a Certificate of
Availability of Funds to cover DG Jones and Partners' appraisal fee of $1,900,000.00.

For ease of presentation, the Court's discussion shall be under the following structure:

I. The Factual Antecedents

A. The NAIA-IPT IIII Contract and PIATCO

1. The NAIA-IPT III Contract

2. PIATCO

3. PIATCO and the Services of Takenaka and Asahikosan

B. The Agan v. PIATCO Case, G.R. No. 155001

1. The Case and the Decision dated May 5, 2003

2. The Motion for Reconsideration and the Resolution dated January 21, 2004

C. The Expropriation Case, Civil Case No. 04-0876

D. The Republic v. Gingoyon Case, G.R. No. 166429


1. The Case and the Decision dated December 19, 2005

2. The Motion for Reconsideration and the Resolution dated February 1, 2006

E. Proceedings in Civil Case No. 04-0876 after the Finality of the Gingoyon Case

1. The Appointment of DG Jones and Partners as an Independent Appraiser

2. The BOC's Expenses

F. The Parties and the BOC's Appraisal of the NAIA-IPT III

1. The Government's Appraisal

2. PIATCO's Appraisal

3. Takenaka and Asahikosan's Appraisal

4. The BOC's Appraisal

II. The RTC Rulings in Civil Case No. 04-0876

A. The Main Decision

B. The RTC's Interlocutory Order on the Validity of the Escrow Account

1. The Government and the Creation of an Escrow Account for the Payment of Just
Compensation

2. The Omnibus Order dated October 11, 2011

III. The CA Rulings

A. CA-G.R. CV No. 98029

B. CA-G.R. SP. No. 123221

IV. The Action to Enforce the London Awards, Civil Case No. 06-171

V. The Parties' Positions

A. The Government's Position

B. PIATCO's Position

C. Takenaka and Asahikosan's Position

VI. The Issues

VII. The Court's Rulings


A. G.R. Nos. 209917, 209696, and 209731

1. The parties were afforded procedural due process despite their non-receipt of the BOC
Final Report prior to the promulgation of the May 23, 2011 Decision in Civil Case No. 04-
0876.

2. Framework: Eminent domain is an inherent power of the State

2.a. The power of eminent domain is a fundamental state power that is inseparable from
sovereignty

2.b. Just compensation is the full and fair equivalent of the property taken from the
owner by the condemn or

2.b.1. Fair market value is the general standard of value in determining just
compensation

2.b.2 Replacement cost is a different standard of value from fair market value

2.b.3. Replacement cost is only one of the standards that the Court should consider in
appraising the NAIA-IPT III

2.b.4. The use of depreciated replacement cost method is consistent with the principle
that the property owner should be compensated for his actual loss

3. Construction cost of the NAIA-IPT III

3.a. The base valuation of the NAIA-IPT III

3.b. Structural defects on the NAIA-IPT III

3.b.1. The Court cannot consider the additional evidence submitted by Takenaka and
Asahikosan before the Court of Appeals

3.b.2. Equiponderance of evidence on the alleged structural defects of the NAIA-IPT III
favors PIATCO, Takenaka, and Asahikosan

3.c. The unnecessary areas

4. Attendant cost of the NAIA-IPT III

4.a. PIATCO's attendant cost

4.b. The BOC and the RTC's attendant cost

4.c. The Government's attendant cost

5. Deductions to the Replacement Cost of the NAIA-IPT III

5.a. Depreciation should be deducted from the replacement cost


5.b. Rectification for contract compliance should not be deducted from the replacement
cost

6. Adjustments to the Replacement Cost

6.a. The replacement cost should be adjusted to December 2004 values

7. Interests, Fruits, and Income

7.a. Computation of Interests

7.b. PIATCO is not entitled to the fruits and income of the NAIA-IPT III

8. The BOC's Expenses

8.a. Takenaka and Asahikosan should not share in the BOC's expenses

9. PIATCO as the Proper Recipient of Just Compensation

9.a. Takenaka and Asahikosan's intervention in the case as unpaid subcontractors is


proper

9.b. The property owner is entitled to just compensation

9.c. A final disposition in the eminent domain case with respect to the order of payment
to a particular person shall be final and executory

9.d. The determination of whether the NAIA-IPT III shall be burdened by liens and
mortgages even after the full payment of just compensation is premature

10. The exercise of eminent domain from the perspective of "taking."

10.a. The Government may take the property for public purpose or public use upon the
issuance and effectivity of the writ of possession

B. G.R. No. 181892

1. The issue on the appointment of an independent appraiser is already moot and


academic

I. The Factual Antecedents

A. The NAIA-IPT III Contract and PIATCO

1. The NAIA-IPT III Contract

On October 5, 1994, Asia's Emerging Dragon Corp. (AEDC) submitted an unsolicited


proposal to the Government - through the Department of Transportation and
Communications (DOTC)and the Manila International Airport Authority (MIAA)- for the
construction and development of the NAIA-IPT III under a build-operate-and-transfer
(BOT) arrangement. The DOTC and the MIAA invited the public to submit competitive and
comparative proposals to AEDC's unsolicited proposal in accordance with the BOT Law3
and its implementing rules.4

2. PIATCO

On September 20, 1996, Paircargo Consortium - composed of People's Air Cargo and
Warehousing Co., Inc. (Paircargo), Philippine Air and Grounds Services, Inc.(PAGS), and
Security Bank Corporation (Security Bank)- submitted its competitive proposal to the
Prequalification Bids and Awards Committee (PBAC).5

Both AEDC and Paircargo Consortium offered to build the NAIA-IPT III for at least $350
million at no cost to the Government and to pay the Government: 5% share in gross
revenues for the first five years of operation, 7.5% share in gross revenues for the next
ten years of operation, and 10% share in gross revenues for the last ten years of
operation. However, Paircargo Consortium offered to pay the Government a total of
P17.75 billion as guaranteed payment for 27 years while AEDC offered to pay the
Government a total of P135 million for the same period.6

After finding that Paircargo Consortium submitted a bid superior to the AEDC's
unsolicited proposal and after the AEDC's failure to match the competitive bid, the DOTC
awarded, through a notice of award, the NAIA-IPT III project to the Paircargo Consortium
(that later organized itself as PIATCO).7

On July 12, 1997, the Government executed a Concession Agreement with PIATCO for the
construction, development, and operation of the NAIA-IPT III under a build-operate-
transfer scheme. On November 26, 1998, the Amended and Restated Concession
Agreement (ARCA) superseded the 1997 Concession Agreement. The Government and
PIATCO likewise entered into a series of supplemental agreements, namely: the First
Supplement signed on August 27, 1999; the Second Supplement signed on September 4,
2000; and the Third Supplement signed on June 22, 2001.8

Under the 1997 Concession Agreement, the ARCA and the Supplemental Agreement (for
brevity, PIATCO contracts), the Government authorized PIATCO to build, operate, and
maintain the NAIA-IPT III during the concession period of twenty-five (25) years.9

3. PIATCO and the Services of Takenaka and Asahikosan

On March 31, 2000, PIATCO engaged the services of Takenaka, a local branch of a foreign
corporation duly organized under the laws of Japan and doing business in the Philippines,
for the construction of the NAIA-IPT III under an Onshore Construction Contract.10

On the same date, PIATCO, through an Offshore Procurement Contract,11 likewise


contracted the services of Asahikosan, a foreign corporation duly organized under the
laws of Japan, for the design, manufacture, purchase, test and delivery of the Plant12 in
the NAIA-IPT III.

In May 2002, PIATCO defaulted on its obligation to pay Takenaka and Asahikosan
pursuant to their respective contracts. To settle the problem, Takenaka and Asahikosan
agreed to defer PIATCO's payments until June 2003, conditioned on their receipt of
adequate security from PIATCO as stipulated in the Fourth Supplemental Agreement
(relating to the Onshore Construction Contract)13 and the Fourth Supplement Agreement
(relating to the Offshore Procurement Contract), respectively.14

On November 29, 2002, President Gloria Macapagal Arroyo declared in her speech that
the Government would not honor the PIATCO contracts. On the same day, Takenaka and
Asahikosan notified PIATCO that they were suspending the construction of the NAIA-IPT III
for PIATCO's failure to provide adequate security.15

B. The Agan v. PIATCO Case, G.R. No. 155001

1. The Case and the Decision dated May 5, 2003

On September 17, 2002, petitioners Demosthenes Agan, et al., asked the Court to nullify
the PIATCO contracts, and to prohibit the DOTC and the MIAA from implementing these
contracts for being contrary to law. The case, entitled Agan v. PIATCO, was docketed as
G.R. No. 155001.16

On May 5, 2003, the Court nullified the PIATCO contracts after finding that Paircargo
Consortium (that later incorporated into PIATCO) was not a duly pre-qualified bidder for
failure to meet the minimum equity requirements for the NAIA-IPT III project, as required
under the BOT Law and the Bid Documents. The Court also ruled that Security
Bank(member of the Paircargo Consortium) invested its entire net worth in a single
undertaking or enterprise in gross violation of Section 21-B of the General Banking
Act(which limits a commercial bank's equity investment, whether allied or non-allied, to
fifteen percent (15%) of its net worth).17 The Court further found that the PIATCO
contracts contained provisions that substantially departed from the draft Concession
Agreement. These substantial modification of the PIATCO contracts violated the public
policy for being repugnant to the principle that all bidders must be on equal footing
during the public bidding.18

2. The Motion for Reconsideration and the Resolution dated January 21, 2004

We denied PIATCO, et al.'s motion for reconsideration in our January 21, 2004
resolution.19 Significantly, we stated in the resolution that the Government should first
pay PIATCO as a prerequisite before taking over the NAIA-IPT III, to wit:

This Court, however, is not unmindful of the reality that the structures comprising the
NAIA-IPT III facility are almost complete and that funds have been spent by PIATCO in
their construction. For the Government to take over the said facility, it has to
compensate respondent PIATCO as builder of the said structures. The compensation must
be just and in accordance with law and equity for the Government cannot unjustly enrich
itself at the expense of PIATCO and its investors.20 (Underlines and emphases ours)

C. The Expropriation Case, Civil Case No. 04-087621

On December 21, 2004, the Government filed a complaint for expropriation of the NAIA-
IPT III before the RTC of Pasay, Branch 117. The Government informed the RTC that it had
deposited with the Land Bank of the Philippines (Land Bank)the amount of
P3,002,125,000.00, representing the NAIA-IPT III's assessed value.22
On the same day, the RTC issued a writ of possession in favor of the Government. Citing
City of Manila v. Serrano,23 the RTC held that that it had the ministerial duty to issue a
writ of possession upon: (1) the filing of the complaint for expropriation sufficient in form
and substance, and (2) the Government's deposit of the amount equivalent to the
property's assessed value, pursuant to Rule 67 of the Rules of Court.24

On January 4, 2005, the RTC modified its December 21, 2004 order and directed: (1) the
Land Bank to immediately release to PIATCO the amount of US$62,343,175.7725 that
would be deducted from the just compensation; (2) the Government to submit to the RTC
a Certificate of Availability of Funds for the payment of just compensation; and (3) the
Government to maintain and preserve the NAIA-IPT III pending the expropriation
proceedings and the full payment of just compensation. The RTC likewise prohibited the
Government from performing acts of ownership over the NAIA-IPT III such as awarding
concessions or leasing any part of the NAIA-IPT III to other parties.26

The Government sought reconsideration of the January 4, 2005 Order, arguing that Rule
67 of the Rules of Court, and not RA 8974,applied to the case since the NAIA-IPT III was
not a national government infrastructure project.27

RA 8974 is otherwise known as "An Act To Facilitate The Acquisition Of Right-Of-Way, Site
Or Location For National Government Infrastructure Projects And For Other Purposes."

The Government argued that under Section 2, Rule 67 of the Rules of Court, it shall have
the right to a writ of possession upon deposit with the authorized government depositary
of an amount equivalent to the assessed value of the property for purposes of taxation,
which amount shall be held by the depositary subject to the orders of the court. In
contrast, Section 4 of RA 8974, as a rule, requires the Government to immediately pay
the property owner the amount equivalent to100% of the value of the property based on
the BIR's relevant zonal valuation and the value of the improvements/and or structures,
upon the filing of the complaint and after due notice to the defendant.

On January 7, 2005, the RTC appointed three Commissioners28 to determine just


compensation without consulting the Government and PIATCO.29 Due to these
successive adverse rulings, the Government sought to inhibit Judge Henrick F. Gingoyon,
the RTC's presiding judge, from hearing the case.30 (The judge was ambushed and killed
on December 31, 2005.)31

On January 10, 2005, the RTC denied the Government's urgent motion for
reconsideration and motion for inhibition.32

On December 14, 2005, Asahikosan filed a motion for leave to intervene in Civil Case No.
04-0876 (the expropriation case).33 On the other hand, Takenaka filed a Manifestation
dated December 15, 2005,34 with the attached Manifestation and Motion dated
December 14, 2005.35 Takenaka alleged that the Government impleaded it as an
additional defendant in an amended complaint for expropriation of the NAIA-IPT III, but
was not served summons. Takenaka thus manifested its voluntary appearance before the
RTC.36

Takenaka and Asahikosan informed the RTC that they had previously filed two collection
cases against PIATCO, docketed as Claim Nos. HT-04-248 and HT-05-269, before the High
Court of Justice, Queen's Bench Division, Technology and Construction Court in London,
England, (London Court) on August 9, 2004.

In both instances, the London Court ruled in their favor. The dispositive part of the
judgment award in Claim No. HT-04-248 provides:

IT IS ORDERED THAT:

1. Judgment be entered for the First Claimant37 in the sum of 6,602,971.00 United
States dollars, together with interest in the sum of 116,825,365.34 Philippine pesos up to
and including 18 February 2005.

2. Judgment be entered for the Second Claimant38 in the sum of 8,224,236.00 United
States dollars, together with interest in the sum of 2,947,564.87 United States dollars up
to and including 18 February 2005, being a total of 11,171,800.87 United States dollars.

3. Save for the costs of and caused by the amendment of the particulars of claim, which
will be the subject of a separate Order, the Defendant do pay the First Claimant's and the
Second Claimant's costs in the action, to be subject to detailed assessment if not agreed.

DATED this 18th day of February 2005.39

On the other hand, the dispositive part of the judgment award in Claim No. HT-05-269
states:

IT IS ORDERED THAT:

1. Judgment be entered for the First Claimant in the sum of 21,688,012.18 United States
dollars, together with interest in the sum of 6,052,805.83 United States dollars.

2. Judgment be entered for the Second Claimant in the sum of 30,319,284.36 United
States dollars, together with interest in the sum of 5,442,628.26 United States dollars.

3. The defendant to pay the Claimants' costs in the action, to be subject to detailed
assessment if not agreed.

DATED this 2 (sic) day of December 2005.40

Takenaka and Asahikosan asked the RTC to: (a) hold in abeyance the release of just
compensation to PIATCO until the London awards are recognized and enforced in the
Philippines; and (b) order that the just compensation be deposited with the RTC for the
benefit of PIATCO's creditors.41

During the hearing of the motions, the Government clarified that it neither filed an
amended complaint for expropriation nor impleaded Takenaka as a necessary party in
the case.42

The RTC initially denied Takenaka and Asahikosan's respective Motions43 in the August 8,
2006 Order, but subsequently reconsidered its ruling.44 In a March 12, 2007 Order, the
RTC treated Takenaka's Manifestation with the attached Manifestation and Motion as a
motion to intervene and allowed Takenaka and Asahikosan to intervene in the case as
PIATCO's creditors.45

Pending the RTC's resolution of Takenaka and Asahikosan's motions for leave to intervene
in the expropriation case, the Government went directly to the Court seeking Judge
Gingoyon's inhibition from the case; the nullification of the order of release of the sum of
$62.3 million to PIATCO; and the nullification as well of the appointment of the
commissioners.

D. The Republic v. Gingoyon Case, G.R. No. 166429

1. The Case and the Decision dated December 19, 2005

On January 12, 2005, the Government, et al., filed a petition for certiorari with the Court
assailing the validity of the January 4, 7, and 10, 2005 orders of the RTC in the
expropriation case.46 The case, entitled Republic v. Gingoyon, was docketed as G.R. No.
166429.

The Government argued that the RTC should not have ordered the release of $62.3
Million since the NAIA-IPT III's assessed value was only P3 billion. Moreover, the RTC's
prohibition against the Government to perform acts of ownership on the NAIA-IPT III was
contrary to the essence of a writ of possession. It47 asserted that Rule 67 of the Rules of
Court governed the expropriation of the NAIA-IPT III since it was not a national
government infrastructure project. The Government likewise contended that the
commissioners' appointment was void. It claimed that it had been deprived of due
process since it was not given the opportunity to contest the appointment of the
commissioners. The Government likewise sought Judge Gingoyon's inhibition from the
case due to his alleged manifest partiality to PIATCO.48

The Court partly granted the petition and rendered the following rulings:

First, under the 2004 Resolution in Agan: (a) PIATCO must receive payment of just
compensation determined in accordance with law and equity; and (b) the Government is
barred from taking over the NAIA-IPT III until just compensation is paid.

Second, RA 8974 applies in the expropriation case insofar as the law: (a) requires the
Government to immediately pay PIATCO at least the proffered value of the NAIA-IPT III;
and (b) provides valuation standards in determining the amount of just compensation.

RA 8974 is the governing law in cases where the national government expropriates
property for the purpose of commencing national government infrastructure projects
such as the construction of the NAIA-IPT III. However, Rule 67 of the Rules of Court
applies in determining the assessed value and the mode of deposit of just compensation
if the national government initiates the expropriation complaint for purposes other than
national infrastructure projects.

Under both Rule 67 of the Rules of Court and RA 8974, the Government initiates the
expropriation by filing an expropriation complaint. However, the rules on the mode of
deposit differ because Rule 67 of the Rules of Court merely requires the Government to
deposit the assessed value of the property sought to be expropriated with an authorized
government depositary before the issuance of a writ of possession.
In contrast, RA 8974 commands the Government to make a direct payment to the
property owner prior to the issuance of a writ of possession. Under RA 8974, the
payment shall be based on: (a) the BIR's zonal valuation in case of land; and (b)the value
of the improvements or structures under the replacement cost method. If the completion
of a government infrastructure project is of utmost urgency and importance and if there
is no existing valuation of the property, the implementing agency shall immediately pay
the proffered value of the property.49

We thus observed that Section 2, Rule 67 of the Rules of Court is contrary to our January
21, 2004 Resolution which required the Government to make prior payment of just
compensation to PIATCO before it could take over the NAIA-IPT III.

The Court at the same time qualified the applicability of RA 8974 to the expropriation of
the NAIA-IPT III. We held that the Congress may legislate on the valuation standards of
just compensation and the manner of its payment since these are substantive matters.
We made clear, however, that the Congress cannot legislate on the procedural aspects of
expropriation since this power lies with the Court. In fact, Section 14 of RA 8974 IRR
provides that Rule 67 of the Rules of Court shall apply to "all matters regarding defenses
and objections to the complaint, issues on uncertain ownership and conflicting claims,
effects of appeal on the rights of the parties, and such other incidents affecting the
complaint."

Third, we held in abeyance the implementation of the writ of possession until the
Government directly pays to PIATCO the proffered value of P3 billion. The zonal valuation
method under Section 4 of RA 8974 shall not apply since the Government owns the land
on which the NAIA-IPT III stands. Consequently, PIATCO should only be paid the value of
the improvements and/or structures using the replacement cost method.50 Pending the
determination of just compensation, the Government shall pay the sum of P3 billion as
the provisional amount of just compensation because there was no expedited means by
which the Government could immediately take possession of the NAIA-IPT III.

We also stated that the replacement cost method is only one of the factors to be
considered in determining just compensation. Equity should likewise be considered in
determining just compensation.

Fourth, we authorized the Government to perform acts essential to the operation of the
NAIA-IPT III as an international airport terminal once the writ of possession becomes
effective. This authority covers the repair, reconditioning, and improvement of the
complex; maintenance of the existing facilities and equipment; installation of new
facilities and equipment; provision of services and facilities pertaining to the facilitation
of air traffic and transport; and other services that are integral to a modern-day
international airport. This is consistent with Section 4 of RA 8974 which provides that
"the court shall immediately issue to the implementing agency an order to take
possession of the property and start the implementation of the project" upon fulfillment
of certain conditions.

This ruling qualified the Court's statement in its January 21, 2004 Resolution that "[f]or
the Government to take over the said facility, it has to compensate respondent PIATCO
as builder of the said structures." Nonetheless, we clarified that the title to the NAIA-IPT
III shall pass to the Government only upon full payment of the just compensation since
the proffered value is merely a provisional determination of just compensation.

Fifth, we ordered the RTC to complete its determination of just compensation within sixty
(60) days from finality of our decision since it was no longer possible for the RTC to
determine just compensation within sixty (60) days from the filing of the complaint under
Section 4 of RA 8974. Sixth, the RTC did not gravely abuse its discretion in appointing the
commissioners. Neither Rule 67 of the Rules of Court nor RA 8974 requires the RTC to
consult the parties in the expropriation case prior to the appointment of commissioners.
We also stated that Rule 67 of the Rules of Court shall apply insofar as it is consistent
with RA 8974, the IRR, and the Court's rulings in Agan.

Considering that the expropriation proceedings were effectively suspended seven days
after the appointment of the commissioners, the parties may file their objections with
the RTC within five days from finality of the decision in accordance with Section 5, Rule
67 of the Rules of Court. Seventh, there was no ground to order Judge Gingoyon's
inhibition since the Government failed to show his alleged partiality.51

The dispositive portion of the Decision states:

WHEREFORE, the Petition is GRANTED in PART with respect to the orders dated 4 January
2005 and 10 January 2005 of the lower court. Said orders are AFFIRMED with the
following MODIFICATIONS:

1) The implementation of the Writ of Possession dated 21 December 2005 is HELD IN


ABEYANCE, pending payment by petitioners to PIATCO of the amount of Three Billion Two
Million One Hundred Twenty Five Thousand Pesos (P3,002,125,000.00), representing the
proffered value of the NAIA-IPT III facilities;

2) Petitioners, upon the effectivity of the Writ of Possession, are authorized [to] start the
implementation of the Ninoy Aquino International Airport Pasenger Terminal III project by
performing the acts that are essential to the operation of the said International Airport
Passenger Terminal project;

3) RTC Branch 117 is hereby directed, within sixty (60) days from finality of this Decision,
to determine the just compensation to be paid to PIATCO by the Government.

The Order dated 7 January 2005 is AFFIRMED in all respects subject to the qualification
that the parties are given ten (10) days from finality of this Decision to file, if they so
choose, objections to the appointment of the commissioners decreed therein.

The Temporary Restraining Order dated 14 January 2005 is hereby LIFTED.

No pronouncement as to costs.52

2. The Motion for Reconsideration and the Resolution dated February 1, 2006

On January 2, 2006, the Government, et al., filed a motion for partial reconsideration of
the Court's December 19, 2005 Decision.53 Asahikosan, Takenaka, and Rep. Salacnib F.
Baterina also filed a motion for leave to intervene and asked the Court's reconsideration
of its December 19, 2005 Decision.54
The Government raised the question of who between PIATCO, on the one hand, and
Takenaka and Asahikosan, on the other was the NAIAIPT III's builder. The Government
informed the Court that Takenaka and Asahikosan, as the unpaid contractors in the NAIA-
IPT III project, claimed significant liens on the NAIA-IPT III. The Government opined that it
would end up expropriating the NAIA-IPT III with liens and claims in excess of its actual
value if the proffered value would be directly released to PIATCO.

As PIATCO's unpaid creditors, Takenaka and Asahikosan intervened in the case. They
relied on Mago v. Court of Appeals55 as basis for their intervention. In that case, the
Court took the extraordinary step of allowing the motion for intervention even after the
challenged order of the trial court had already become final. On the other hand, Rep.
Baterina invoked his prerogative as legislator and taxpayer to curtail the payment of just
compensation without any appropriation in PIATCO's favor.

The Court denied the motions and held that the alleged liens over the NAIA-IPT III have
not been judicially established.Takenaka and Asahikosan were not parties to Gingoyon
and did not present their claims before the Court. The Court did not make any
declaration regarding Takenaka and Asahikosan's rights to any form of compensation for
the construction of the NAIA-IPT III.

Moreover, the Court did not recognize the London awards in favor of Takenaka and
Asahikosan. Under Section 48, Rule 39 of the Rules of Court, a foreign judgment would
not bind Philippine courts unless the judgment is recognized and enforced in this
jurisdiction. Philippine courts may annul a foreign judgment for lack of jurisdiction, lack of
notice to the party, collusion, fraud, clear mistake of law or fact, or when the foreign
judgment is contrary to public policy. Even assuming that PIATCO is indeed liable to other
parties, the creditors have other judicial avenues to ventilate and prove their claims
against PIATCO.

The Court also categorically stated that PIATCO, as builder of the NAIA-IPT III, must first
receive just compensation in accordance with law and equity before the Government
may take over the NAIA-IPT III.

The Court likewise denied the motions for intervention for serious procedural errors.
Under Section 2, Rule 19 of the Rules of Court, the motion to intervene should be filed
before the court's rendition of judgment, and not after the resolution of the case.
Moreover, Takenaka and Asahikosan failed to establish their legal interest in the case
since their claims against PIATCO have not been conclusively established in this
jurisdiction.56

E. Proceedings in Civil Case No. 04-0876 after the Finality of the Gingoyon Case

1. The Appointment of DG Jones and Partners as an Independent Appraiser

On April 11, 2006, the RTC ordered the BOC to resume its duties. In compliance, the BOC
submitted its Inception Report and Inception Framework to the RTC. On April 24, 2007,
the parties and the BOC conferred to set the ground rules and procedure in determining
the just compensation due to the NAIA-IPT III.
On April 26, 2006, the Government asked the RTC to stop the payment of P3 billion
proffered value in view of an alleged supervening event - the collapse of the ceiling of
the arrival lobby section of the north side of the NAIA-IPT III on March 27, 2006. The
Government claimed that the collapse created a 100-square foot hole in the ceiling and
caused heavy asbestos pipes to fall on the floor of the NAIA-IPT III. The Government
likewise informed the Court that the MIAA requested the Association of Structural
Engineers of the Philippines (ASEP)to investigate the cause of the collapse.57 In its Final
Report dated June2006, the ASEP identified the following factors that contributed to the
collapse:

a. Incomplete design coordination as shown by the absence of detailed shop drawings


during the construction, an absence described as "unusual" for a BOT project of this size

b. Wrong choice of ceiling and wall components and fixing materials, e.g., use of rivets
instead of clips, screws or wire; use of furring channels instead of stronger C channels;
use of wall angles thinner than required; and

c. Poor workmanship, e.g., uneven distribution and improper attachment of rivets, lack of
ceiling supports in the presence of mechanical fixtures.58

The ASEP concluded that the likely cause of the collapse was the "syncretic effect of all
these factors working over time since the construction of the ceiling."59

Upon the BOC's request,60 on May 5, 2006, the RTC ordered the engagement of the
services of an internationally accepted independent appraiser who shall conduct the
valuation of the NAIA-IPT III.61

On May 23, 2006, the Government manifested that it engaged the services of: (a) TCGI
Engineer to determine the structural integrity of NAIA-IPT III; (b) Ove Arup & Partners
Massachusetts, Inc. (Ove Arup)to conduct a design and technical review of the NAIA-IPT
III and to conduct a peer review of TCGI Engineer's methodology and test results; and (c)
Gleeds International to determine the value of the NAIA-IPT III.62

On June 20, 2006, the RTC ordered Land Bank to immediately release the amount of P3
billion to PIATCO. The RTC ruled that the collapse of a portion of the NAIA-IPT III was not a
supervening event that would hinder the payment of the proffered value to PIATCO. In
compliance with this order, the Government tendered to PIATCO a P3 billion check on
September 11, 2006. On the same day, the RTC reinstated the writ of possession in favor
of the Government.63

Thereafter, the Government and PIATCO submitted their list of nominees for the
appointment of an independent appraiser.64 On May 3, 2007,the RTC appointed DG
Jones and Partners as independent appraiser.65

On May 18, 2007, the RTC directed the Government to submit a Certificate of Availability
of Funds to cover DG Jones and Partners' $1.9 Million appraisal fee.66

The Government sought the reconsideration of the May 3 and 18, 2007 orders. The
Government complained that the appointment of an appraiser apart from those hired by
the Government would result in the unnecessary depletion of its funds since it would be
compelled to pay two appraisers.67
In response, PIATCO argued that the RTC has the inherent power to appoint an
independent appraiser pursuant to Section 5 (g), Rule 135 of the Rules of Court. The RTC
has wide discretion on how it shall carry its mandate under RA 8974 and Rule67 of the
Rules of Court.68

In an order dated January 7, 2008, the RTC sustained the appointment of DG Jones and
Partners. The RTC ruled that its power to appoint the members of the BOC under Section
5, Rule 67 of the Rules of Court includes the power to appoint an independent
appraiser.69

The Government directly challenged before the Court the May 3, May 18, and January 7,
2008 orders in a petition for certiorari with prayer for the issuance of a temporary
restraining order and/or a writ of preliminary injunction. The case was docketed as G.R.
No. 181892.70

On January 9, 2008, the Court issued a temporary restraining order against the
implementation of the May 3 and 18, 2007 Orders as well as the January 7, 2008
Order.71

2. The BOC's Expenses

On June 15, 2006, the BOC filed a request for the release of a mobilization fund of
P1,600,000.00 to support the discharge of its functions.72 The RTC approved the request
and directed the Government and PIATCO to equally share the BOC's expenses.73 The
Government and PIATCO complied with this order and tendered the sum of
P1,600,000.00 to the BOC.74

On November 24, 2009, the BOC requested additional funds in the amount of
P5,250,000.00.75 On December 7, 2010, the RTC directed the Government and PIATCO
to equally defray the BOC's expenses.76 The Government contested this order and
insisted that Takenaka and Asahikosan should likewise shoulder the BOC's expenses as
intervenors in the case.77

In an order dated March 11, 2011,the RTC ordered Takenaka and Asahikosan to share in
the BOC's expenses. The RTC thus ordered each party to pay P1,750,000.00. PIATCO
complied with this order and paid the amount of P1,750,000.00 to the BOC.78

Takenaka and Asahikosan sought the partial reconsideration of this order.1wphi1 They
argued that they should not be made to pay the BOC's expenses since "their prayer to
defer the release of a portion of the just compensation pending the conclusion of the
enforcement proceedings was addressed to the RTC [,] and not to the BOC."79

F. The Parties and the BOC's Appraisal of the NAIA-IPT III

After the Court issued the January 9, 2008 temporary restraining order, the parties and
the BOC conducted a preliminary conference on April 22, 2010, to adopt an alternative
course of action to avoid further delay in the determination of just compensation.80
The Government manifested that it was ready to present its own valuation of the NAIA-
IPT III and other supporting evidence. PIATCO, Takenaka, and Asahikosan did not object to
this manifestation.81

On August 5, 2010, the RTC ordered the parties to submit their appraisal reports of NAIA-
IPT III with supporting documents and affidavits.82 The Government appraised the NAIA-
IPT III at $149,448,037.00while PIATCO concluded that its replacement cost was
$905,867,549.47. On the other hand, Takenaka and Asahikosan claimed that the NAIA-
IPT III's construction cost amounted to $360,969,790.82.

1. The Government's Appraisal

Based on the Gleeds Report dated November 15, 2010, the Government computed the
valuation of the NAIA-IPT III as follows:83

December 2002
CCV December 2004
CCV
Base valuation $USD @3Q01 $300,206,693 $300,206,693
Deterioration $USD @2Q09 $0 $1,738,318
Depreciation $USD 3Q01 $0 $35,076,295
Total Base CCVs $USD
$300,206,693
$263,392,081
Rectification for Contract Compliance
$USD@2Q09
Not compliant with bid documents -$30,670,894 -$30,670,894
Inferior quality -$7,702,640 -$7,702,640
Additional areas to be built (63,490m2) -$75,570,510 -$75,570,510
Total Contract Compliance -$113,944,044 -$113,944,044
Deductions $USD
Total CCVs $USD
$186,262,649
$149,448,037
$300,206,693.00 as base current cost valuation(CCV). Based on the Gleeds report, the
construction cost of the NAIA-IPT III as of December 2002 was $300,206,693.00,
consisting of the cost of constructing the terminal building, aprons, car park, elevated
roadways, and other related items.

Gleeds appraised the NAIA-IPT III by "multiplying the structure's dimensions (i.e.,
quantities) by a price (i.e., rate) for constructing the works at a designated time and
specific location, adding the cost of works in, on, and around the structure, and then
accounting for inferior and nonperforming works, and rectification of those works."84

Gleeds arrived at the CCV by considering the rates and prices for the third quarter of
2001, which represented the midpoint of the construction period from June 2000 (the
commencement of construction) to December2002 (the suspension of construction). It
claimed that calculating the cost of construction based on its midpoint was a recognized
standard practice in the construction industry. The base CCV excluded the following
items:
1. Failed structural elements of the Terminal, as identified in the Arup Seismic Evaluation
Report and Gravity Loading and Element Capacity Assessment;

2. The inferior quality of material used and works, including floor tiling, plasterboard wall
finishes and ceilings, internal and external metal paneling;

3. Constructed areas that are unnecessary to the functioning of an international aiport


terminal and therefore of no benefit to the Republic. These areas identified in the Arup
Site Observation Report include areas where the requirements stated in the Bid
Documents have been grossly overprovided. They also include the multilevel retail mall
that, with its own internal circulation, is functionally separate from the Terminal and
accessible only through the multi-storey car park (20,465 m2), and excess retail
concession space (1,727 m2);

4. The cost of seismic and gravity load structural retrofits for the failed elements in the
terminal buildings and multi-storey car park structures, as those retrofits are described in
Arup's Drawings listed in Appendix 'B' Drawing List 2 and other rectification works
required to bring the terminal to compliance with applicable building and airport codes
(as indicated in the Appendices of Arup's Site Observation Report);

5. The cost of completing the items listed in the JAC project status summary report of 28
February 2003;85 and

6. The cost of seismic and gravity load structural retrofits for the failed elements in the
elevated roadway structures as those retrofits were described in Arup's Drawings listed
in Appendix 'B' Drawing List 3, Arup Review on 'TCGI Report of Civil Design Review and
Evaluation' - Elevated Roadway, dated March 2009, and other rectification works
required to bring the elevated roadways to compliance with applicable building and
airport codes (as indicated in the Appendices of Arup's Site Observation Report).86

$263,392,081 as total base CCV as of December 2004. The Government asserted that
the NAIA-IPT III suffered from depreciation and deterioration in the sum of
US$36,814,612.00 from December 2002 until December2004. The base value CCV at the
time of expropriation should be US$263,392,081.00 after deducting depreciation and
deterioration.

$113,944,044 as total contract compliance deductions. The Government further


deducted items which were non-compliant with bid documents, including, among others:

a. FIDS monitors not flat screen

b. Moving walkways under provision

c. Sun shading to external glazing d. Lack of 400hz PC air to loading bridges

e. Completion of testing, commissioning, and operation of the facility

f. Provision of as-built documentation


The Government likewise deducted the replacement cost of inferior quality items and
additional areas that the Government had to build to finish the NAIA-IPT III project.87

2. PIATCO's Appraisal

PIATCO claimed that the total replacement value of the NAIAIPT III as of December 31,
2010 amounted to $905,867,550.00.

Actual
Costs @
2002 Inflation
Rate Base
Valuation
@ 2004
I. Materials, Equipment and Labor Engineering & Procurement 360,969,791
1.0971 396,019,958
II. Attendant Costs
Engineering and Architecture 19,372,539 1.0971 21,253,613
Quality Assurance 6,923,720 1.0971 7,596,013
Construction Supervision 4,302,227 1.0971 4,719,973
Construction Insurance 4,329,272 1.0971 4,749,644
Site Development8,358,169 1.0971 9,169,747
Other Costs 308,985 1.0971 338,987
Attendant Costs exclusive of
Financing Costs 43,594,911 1.0971 47,827,977
Financing Costs 26,602,890 26,602,890
Total Attendant Costs 70,197,802 74,430,868
TOTAL 431,167,593 470,450,825
In US Dollars

REPLACEMENT COST 470,450,825


Add:
Interest from 21 Dec 2004 to11 Sept 2006 104,014,531
Interest from 12 Sept 2006 to 31 Dec 2010 331,402,193
Total Interests 435,416,724
Total Replacement Value 905,867,550
Less: Payment on 11 Sept 2006 59,438,604
Amount Still Due 846,428,946
Computation of Interest in US Dollars

Period Interest
Rates No. of Days Amount in
USD
Replacement
Cost (a) 470,450,825
Interests
From takeover
of NAIA T3 on
21 Dec 2004 December 21
to December
31, 2004 12% 11 1,724,986

January 1 to December 31,


2005 12% 365 57,448,057

January 1 to September 11,


2006 12% 254 44,881,488
Total Interest from 21 December 2004 to
11 September 2006 (1) 104,014,531
TOTAL AMOUNT DUE AS OF 11
SEPTEMBER 2006 (a) + (1) 574,465,356
Less: Amount Paid on 11 September 2006 (Php 3,002,125,000/50.508) 59,438,604
NET AMOUNT STILL DUE AS OF 11 SEPTEMBER 2006 (b) 515,026,752
Additional
Interests September 12 to
December 31,
2006 12% 112 19,227,665

January 1 to December 31,


2007 12% 365 65,000,954

January 1 to December 31,


2008 12% 366 73,109,155

January 1 to December 31,


2009 12% 366 82,028,472

January 1 to December 31,


2010 12% 366 92,035,946
Additional Interests up to 31 December 2010 (2) 331,402,193
AMOUNT STILL DUE AS REPLACEMENT VALUE (b) + (2) 846,428,946
Replacement
Cost 470,450,825
Total Interests
(1+2) 435,416,724
TOTAL
AMOUNT OF
REPLACEMENT
VALUE 905,867,550
$360,969,791 as base value. PIATCO adopted Takenaka and Asahikosan's actual
construction cost of $360,969,791 which is supported by As-Built Drawings and Bills of
Quantities. PIATCO stated that the Japanese Airport Consultants (JAC), the quality
assurance inspector for the NAIA-IPT III project, validated the works of Takenaka and
Asahikosan. PIATCO alleged that the Government and PIATCO entered into a Quality
Assurance Agreement with JAC.88

Attendant costs. Under RA 6957 IRR, the replacement cost includes the "overhead and
all other attendant costs associated with the acquisition and installation in place of the
affected improvements/structures." The items under the attendant costs correspond to
these "overhead and other attendant costs" which are necessary to construct an airport
project.89
It is necessary to hire quality assurance surveyors to check and monitor the work of
Takenaka. PIATCO hired Pacific Consultants, Inc. as construction supervisor in the NAIA-
IPT III project. PIATCO claimed that the planning and design consultancy fees are even
below the international norms which are in the range of 8.5% to 11.5% of the
Construction Contract cost.90 Financing costs are also "attendant costs" because loans
and guarantees were obtained to finance the NAIA-IPT III project.91

Conversion to 2004 values. Since the NAIA-IPT III shall be appraised at the time of
taking, the total construction cost shall be converted to December 21, 2004 values by
considering the inflation rate of 1.0971.92 Inflation was computed using the Consumer
Price Index (CPI) from 2002 to 2005. The reckoning period was from November 29, 2002,
when Takenaka and Asahikosan suspended their works in the NAIA-IPT III project, until
December 21, 2004, when the Government filed a complaint for expropriation.93

Interests on replacement cost. The twelve (12%) interest rate shall be added to the
replacement cost pursuant to the principles of law and equity.94 In Benguet Consolidated
v. Republic of the Philippines,95 the Court ruled that the property owner is entitled to the
payment of interest where the payment of compensation does not accompany the taking
of property for public use but is postponed to a later date. The interest shall compensate
for the Government's delay in the payment of just compensation.96

3. Takenaka and Asahikosan's Appraisal

On the other hand, Takenaka and Asahikosan, computed the NAIAIPT III's replacement
cost as follows:

In US dollars
Total payments of PIATCO
Add: Awards by the London Court
Award by the Makati Court
Total Construction Cost 275,119,807.88
84,035,974.44
1,814,008.50
360,969,790.82
$360,969,790.82 as total construction cost. Takenaka and Asahikosan claimed that the
initial contract price for the construction of the NAIA-IPT III was $323,753,238.11.

Thereafter, changes were made in the course of the construction that increased its
construction contract price. Pursuant to the Onshore Construction and Offshore
Procurement Contracts, PIATCO paid Takenaka and Asahikosan the amounts of
$231,312,441.28 and P1,796,102,030.84 (a total of $275,119,807.88).

After PIATCO defaulted on its payments, Takenaka and Asahikosan instituted Claim Nos.
HT-04-248 and HT-05-269 in England. The London court ruled in their favor and awarded
them the amounts of $81,277,502.50, P116,825,365.34 and 65,000.00 or a total of $
84,035,974.44. Thereafter, they filed an action to enforce Claim Nos. HT-04-248 and HT-
05-269 before the RTC of Makati which awarded them the sum of $1,814,008.50.97

4. The BOC's Appraisal


On March 31, 2011, the BOC submitted its Final Report recommending the payment of
just compensation of $376,149,742.56 with interest at the rate of 12% per annum
computed from the time of the taking of the property until the amount is fully paid, plus
commissioner's fees equivalent to 1% of the amount fixed as part of the costs of the
proceedings.

In arriving at the replacement cost of the NAIA-IPT III, the BOC proposed the following
computation:

Formula In US dollars
Amount paid by PIATCO to Takenaka and Asahikosan
Add:
Award in Claim No. HT-04-248 Relating to the
Construction Cost of NAIA-IPT III
Award in Claim No. HT-05-269 Relating to the
Construction Cost of NAIA-IPT III
Construction Cost of NAIA-IPT III
Add:
Attendant Cost (10% of the Construction Cost)
Replacement Cost of NAIA-IPT III 275,119,807.88

14,827,207.0098

52,007,296.5499
341,954,311.42

34,195,431.14
376,149,742.56
$341,954,311.42. In computing the construction cost, all actual, relevant and attendant
costs for the construction of the NAIA-IPT III, including its market price, shall be
considered. The BOC divided the construction cost into: (a) the amount paid by PIATCO to
Takenaka and Asahikosan for the construction of NAIA-IPT III; and (b) the awards by the
London Court in Claim Nos. HT-04-248 and HT-05-269 relating solely to construction cost,
excluding interest, attorney's fees, and costs of the suit. The BOC relied on Takenaka and
Asahikosan's construction cost since these corporations shouldered the actual cost of
constructing the NAIA-IPT III.

$34,195,431.14. According to the BOC, PIATCO failed to substantiate its attendant


costs. In pegging the attendant cost at 10% of the construction cost, the BOC relied on
the Scott Wilson Report, which states that the accepted industry range for architecture,
civil and structural, electrical and mechanical, quantity surveyor and project
management cost is 8.5% to 11.5% of the construction cost.

Depreciation shall not be deducted from the construction cost. The BOC explained that
the inventory of materials comprising the NAIA-IPT III does not reflect its replacement
cost. Rather, it is the actual cost of replacing an existing structure with an identical
structure that is considered in the replacement cost method. For this reason,
depreciation shall not be deducted from the construction cost; otherwise, the NAIAIPT III
would have been fully depreciated since the Government estimated that the NAIA-IPT III's
useful life was only ten years.
The replacement cost shall earn interest at 12% per annum from December 21, 2004,
until full payment. The BOC stated that legal interests shall accrue from the time of
taking of the property until actual payment of just compensation. The delay in the
payment of just compensation is equivalent to a forbearance of money.

The commissioner's fees shall be equivalent to 1% of just compensation. According to


the BOC, the commissioner's fees shall be equivalent to 1% of just compensation, similar
to the arbitrators' fees. Commissioners and arbitrators perform similar responsibilities
since both act as independent and uninterested third parties in resolving difficult factual
issues.100

II. The RTC Rulings in Civil Case No. 04-0876

A. The Main Decision

In a decision dated May 23, 2011, the RTC directed the Government, Takenaka, and
Asahikosan to pay the commissioners' fees in the amount of P1,750,000.00 each; and
ordered the Government to pay PIATCO just compensation in the amount of
$116,348,641.10. In determining the amount of just compensation, the RTC adopted the
following computation:

Formula In US dollars
Just compensation as determined by the Republic
Add: Attendant cost (10% of $263,992,081.00, CCV as of
December 21, 2004)
Just Compensation
Less: Proffered value paid to PIATCO
Net Just Compensation 149,448,037.00

26,339,208.10
175,787,245.10
(59,438,604.00)
116,348,641.10
$149,448,037.00. The RTC adopted the Government's computed just compensation of
$149,448,037.00, and ruled that the Government should not pay for the portions of the
NAIAIPT III that were defective. The RTC thus excluded the following from the
computation of the CCV:

(a) failed structural elements in the NAIA-IPT III;

(b) inferior quality of material works;

(c) constructed areas that are unnecessary to the use of an international airport
terminal;

(d) cost of seismic and gravity load structural retrofits for the failed elements;

(e) cost of completing the items listed in the JAC project status summary report of
February 28, 2003; and
(f) cost of seismic and gravity load structural retrofits for the failed elements in the
elevated roadway structures.

The RTC rejected PIATCO, Takenaka, Asahikosan, and the BOC's computation for lack of
factual and legal basis. The court criticized the BOC's computation of construction cost
and stated that the BOC erroneously relied on the amounts allegedly paid by PIATCO to
Takenaka and Asahikosan. The RTC pointed out that PIATCO failed to present proof that it
had indeed paid Takenaka and Asahikosan the sum of $275,119,807.88. The RTC further
posited that the BOC did not take into account the actual cost of the NAIA-IPT III at the
time of taking which was in a state of collapse and deterioration.

The RTC stated that just compensation is limited to the value of the improvement at the
time of the filing of the expropriation complaint. The payment of just compensation does
not include the right to be compensated of the franchise to operate the airport, and the
increased value of improvements due to inflation rate.

$26,339,208.10. Similar to the BOC, the RTC pegged the attendant cost at 10% of the
CCV at the time of the filing of the expropriation complaint. The RTC agreed with the BOC
that the computation of the attendant cost based on the 10% of the CCV was an
accepted industry practice.

$59,438,604.00. After deducting the proffered value of $59,438,604.00, the RTC fixed
the net compensation at $116,348,641.10, without interest. The RTC stated that no
interest shall accrue on the net just compensation since the Concession Agreement was
nullified by the Court in Agan.

The dispositive portion of the decision states:

IN THE LIGHT OF THE FOREGOING, Plaintiffs are hereby ordered to pay respondent
PIATCO the amount of US$175,787,245.10 less the proffered value (P3,002,125,000.00)
actually paid to and received by defendant, as the just compensation for the
improvements of NAIA-IPT III. Moreover, both plaintiff Republic and intervenors Takenaka
and Asahikosan Corporations are directed to pay their proportionate shares of the
Commissioners' Fees in the amount of P1,750,000.00 each with dispatch.

Finally, insofar as both intervenors Takenaka and Asahikosan Corporations are concerned,
resolution of their claim before this Court is held in abeyance owing to the pendency of
the outcome of the appeal on certiorari before the CA, and in any of their claims, as
contractors are solely as against defendant PIATCO.

SO ORDERED.101

PIATCO, Takenaka, and Asahikosan immediately appealed the RTC's decision before the
CA while the Government opted to seek partial reconsideration of the attendant costs
awarded to PIATCO.102

PIATCO, Takenaka, and Asahikosan sought to nullify the RTC decision for alleged violation
of their right to due process. They complained that they were only furnished copies of
the BOC Final Report only after the promulgation of the May 23, 2011 decision.103 They
averred that the RTC violated Sections 7 and 8, Rule 67 of the Rules of Court which
provide that the clerk of court shall serve copies of the commissioners' report on all
interested parties, with notice that they be allowed ten days within which to file
objections to the findings of the report, if they so desire.104

The Government subsequently partially appealed the case to the CA after the RTC denied
its motion for partial reconsideration.105

B. The RTC's Interlocutory Order on the Validity of the Escrow Accounts

1. The Government and the Creation of an Escrow Account for the Payment of Just
Compensation

On July 8, 2011, the Government filed a Manifestation and Motion106 with the RTC
stating that it was ready and willing to pay PIATCO, through an escrow account, the
amount of $175,787,245.10less the proffered value of P3 billion.

The Government expressed its desire to exercise full ownership rights over the NAIA-IPT
III. However, it could not directly pay PIATCO who had various creditors - Takenaka,
Asahikosan, and Fraport, among them. The Government asserted that just compensation
should only be paid to claimants who are legally entitled to receive just compensation.

The Government thus asked the RTC's leave to deposit the just compensation due in an
escrow account that shall be subject to the following conditions:

8.1. The claimant(s) shall have been held to be entitled to receive the sum claimed from
the "Just Compensation (NAIA Terminal 3) Fund" in accordance with Philippine law and
regulation, by a final, binding and executory order or award of the expropriation court;

8.2. The claimant(s) shall have been held to have accepted or otherwise become subject
to the jurisdiction of the expropriation court and other relevant courts of the Republic of
the Philippines, by reason of or in connection with the expropriation of NAIA Terminal 3
by the ROP, directly or indirectly;

8.3. The claimant(s) shall have executed a valid and effective quitclaim in favor of the
Republic of the Philippines acknowledging that claimant(s) against the ROP or any
agency or instrumentality or corporation of the ROP, by reason of, or in connection with,
the expropriation of NAIA Terminal 3 by the ROP, directly or indirectly, in any capacity
whatsoever;

8.4. The claimant(s) has complied within good faith any condition or undertaking
required from it/him/her by the expropriation court by reason of or in connection with the
expropriation of NAIA Terminal 3 by the ROP, directly or indirectly, in any capacity
whatsoever.107

The Government thus prayed:

1. Pending determination of the entitled claimants, to allow the Government to deposit


just compensation less the proffered value in an escrow account with a reputable bank
whose senior unsecured obligations are rated at least 'BBB' by Standard and Poor's
Investors Service, Inc.or 'Baa2' by Moody's Service Investors Service, Inc. to be
designated by the RTC;
2. After depositing the amount in an escrow account, to confirm the Government's right
to fully exercise any and all acts of ownership over the NAIA-IPT III; and

3. To order the release of just compensation, or of any portion thereof from the escrow
account to the entitled claimants provided that the entitled claimants have fully
complied with all the conditions and requirements set forth under paragraphs 8.1 to 8.4
of the Manifestation and Motion.108

PIATCO opposed the Manifestation and Motion and argued that the Government could not
vary the terms of the May 23, 2011 Decision as well as the Court's rulings in Agan and
Gingoyon commanding the Government to make a direct payment of just compensation
to PIATCO. It insisted that the offer to pay through an escrow account is not equivalent to
direct payment. PIATCO further denied the Government's allegations that there were
several claimants on the just compensation.109

On the other hand, Takenaka and Asahikosan agreed with the Government that just
compensation should only be paid to entitled claimants. They posited that the Court's
directive in Agan (with respect to the direct payment to PIATCO) was premised on the
erroneous assumption that PIATCO was the builder of the NAIA-IPT III. Takenaka and
Asahikosan insisted that they were the actual builders of the NAIA-IPT III. Nonetheless,
they contended that the RTC had no jurisdiction over the Manifestation and Motion
because the parties already filed their respective Notices of Appeal before the CA.110

2. The Omnibus Order dated October 11, 2011

In an Omnibus Order dated October 11, 2011, the RTC granted the Manifestation and
Motion. The RTC ruled that it has residual jurisdiction to adjudicate the Government's
Manifestation and Motion considering that the motion was filed prior to the parties' filing
of the Notice of Appeal. The RTC opined that the Manifestation and Motion was akin to a
motion for execution pending appeal. The Manifestation and Motion showed the
Government's intent to voluntarily comply with the May 23, 2011 decision which was
pending appeal before the CA. Under Section 9,Rule 41 of the Rules of Court, the RTC has
the residual power to issue orders for the protection and preservation of the parties'
rights, and to order the execution of a decision pending appeal. Furthermore, Section 6,
Rule 136 of the Rules of Court provides that courts have incidental power to issue orders
that are necessary to effectuate their judgments.

The RTC held that the creation of an escrow account conforms with the Court's rulings in
Gingoyon that just compensation shall be paid in accordance with law and equity. Since
the Government had no legal obligation to create an escrow account, it could impose
conditions for the release of just compensation in the escrow account, including: (a)
PIATCO's submission of a warranty that the NAIA-IPT III shall not be burdened by liens
and encumbrances and an undertaking that PIATCO shall be solely liable for any claims
from third persons involving the NAIA-IPT III; and (b) PIATCO's execution of a Deed of
Conveyance of the NAIA-IPT III in favor of the Government. Equity dictated that the
Government's payment of just compensation should free the NAIA-IPTIII from liens and
encumbrances. The Deed of Conveyance should be without prejudice to the appellate
court's determination of just compensation.

Conversely, PIATCO had likewise no legal obligation to accept or reject the Government's
offer of payment.
The RTC clarified that PIATCO is the sole entity entitled to receive the payment from the
Government. The RTC pointed out that the Court has remanded the Gingoyon case for
the sole purpose of determining the amount of just compensation to be paid to PIATCO.

Moreover, the Government did not raise the alleged dispute in the ownership of the
NAIA-IPT III during the expropriation proceedings. The RTC stated that it could not take
judicial notice of the allegation that PIATCO was indebted to various creditors, apart from
Takenaka and Asahikosan, since these alleged creditors were not impleaded in the
expropriation complaint.

The RTC likewise observed that compliance with the Government's conditions under 8.1
and 8.3 for the release of just compensation from the escrow account pending appeal
was legally impossible. For this reason, the payment through an escrow account was not
the payment that would transfer the title of the NAIA-IPT III to the Government.

The RTC lastly ruled that the payment of just compensation through an escrow account
shall be payment of just compensation within a reasonable time. Consequently, the
Government may exercise full rights of ownership over the NAIA-IPT III upon the creation
of an escrow account.111

The dispositive portion of this order provides:

IN THE LIGHT OF THE FOREGOING, plaintiffs' Manifestation and Motion is GRANTED in


part:

1. Plaintiffs' prayer for the court to determine who is/are legally entitled to receive just
compensation is DENIED for lack of merit.

2. Plaintiffs' prayer that they be allowed to deposit the payment of just compensation
(less the proffered value) to an escrow account is hereby GRANTED, provided that only
the following conditions may be imposed for the release of the money deposited:

a. PIATCO must submit a Warranty that the structures and facilities of NAIA IPT III are free
from all liens and encumbrances;

b. PIATCO must submit an Undertaking that it is assuming sole responsibility for any
claims from third persons arising from or relating to the design or construction of any
structure or facility of NAIA IPT III structures, if any; and

c. PIATCO must submit a duly executed Deed transferring the title of the NAIA IPT III
structures and facilities to the Republic of the Philippines, without however, prejudice to
the amount which will finally be awarded to PIATCO by the appellate court;

The Land Bank of the Philippines and the Development Bank of the Philippines are
hereby jointly appointed [a]s the Escrow Agents for the above purpose.

Upon payment of the plaintiffs of the said just compensation in an escrow account, this
court recognizes the Republic of the Philippines' right to exercise full rights of ownership
over the NAIA IPT III structures and facilities in accordance [with] 2 (c).
3. Plaintiffs' Formal Offer of Evidence and defendant PIATCO's Comment and Opposition
thereto are NOTED.

4. Defendant PIATCO's motion for reconsideration with plaintiffs' comment/opposition of


the order of this court denying the motion for inhibition is hereby denied.

SO ORDERED.112

The RTC subsequently denied PIATCO's as well as Takenaka and Asahikosan's respective
motions for partial reconsideration of the above-quoted order,113 opening the way for
PIATCO's petition for certiorari with prayer for the issuance of a temporary restraining
order and/or a writ of preliminary injunction, filed with the CA.114 This petition was
docketed as CA-G.R. SP. No. 123221.

III. The CA Rulings

A. CA-G.R. CV No. 98029

In a decision dated August 7, 2013,115 the CA upheld the validity of the RTC's May 23,
2011 decision. The CA ruled that the parties did not need to be furnished the BOC Final
Report since RA 8974 is silent on the appointment of the BOC, as held in Gingoyon.

However, the CA modified the RTC rulings and arrived at its own formula of the NAIA-IPT
III's replacement cost, to wit:

Construction Cost
Add:Attendant Cost
= Replacement Cost
Add: Equity
Just Compensation

Substituting:

Replacement Cost = $300,206,693.00 + 0 (because


attendant cost already imputed in
construction cost)
= $300,206,693.00 + 6% interest from
December 21, 2004 to September 11,
2006 less $59,438,604.00 + 6%
interest from September 12, 2006
until finality of judgment

In US dollars
Replacement Cost
Less: Proffered value paid to PIATCO
Just Compensation as of September 11, 2006
Add: Interest Due as of July 31, 2013
Just Compensation as of July 31, 2013 300,206,693.00
(59,438,604.00)
240,768,035.00
130,658,653.24
371,426,742.24
The CA justified its computation as follows:

$300,206,693.00 as Replacement Cost. Under Section 10 of RA 8974 IRR, replacement


cost shall consist of the construction and attendant costs.

$300,206,693.00 as construction cost. The CA relied on the Gleeds Report which it


characterized as more "particularized, calculable and precise."116 The Government's
construction cost did not vastly differ from the BOC and PIATCO's computed construction
costs of $341,954,311.42 and $360,969,791.00, respectively. But the BOC and PIATCO's
computed construction costs were unreliable since they lacked detailed proof that the
quoted amounts were directly related to the construction of NAIA-IPT III.

$0 as attendant cost. The CA stated that there was no need to award additional
attendant costs since these costs had already been included in the Government's
computations under the heading "General Requirements and Conditions." The inclusion
of attendant cost in the construction cost was justified since the attendant cost becomes
part of the total construction cost once the construction of a project is completed. Based
on the Bills of Quantities, the Government provided the following detailed list of
attendant costs in the construction of the NAIA-IPT III:

Attendant Cost In US Dollars


Design
Staff and labour
Insurance
PI Insurance
Consequential Loss
Setting out
Health and safety
Enviro Management
Design
Staff and labour
Insurance 6,439,680
10,491,139.54
925,210.78
2,200,000.00
800,000.00
364,647.00
403,224.00
176,490.00
2,631,100.00
2,590,774.19
71,109.77
total 25,293,376.28117
The CA likewise observed that PIATCO's summarized computation of attendant costs was
self-serving and unsubstantiated by relevant evidence. On the other hand, the BOC and
the RTC's computation of attendant costs at 10% of the construction cost lacked factual
and legal support. Pegging attendant costs at 10% of the construction cost was only
relevant during the pre-construction stage since the costs of the construction at that
time could only be estimated. This estimate carried no relevance at the post-construction
stage since the total construction costs, including the attendant costs, could already be
determined.

Depreciation, costs for noncompliance with contract specifications, and unnecessary


areas of NAIA-IPT III shall not be deducted from the replacement cost. The CA reversed
the RTC's finding that the NAIA-IPT III suffered from massive structural defect. The CA
opined that the collapse of the portion of the NAIA-IPT III merely relates to "finishing"
rather than to "structural" defects. In construction lingo, "finishing" pertains to
aesthetics, convenience, and functionality of a built structure while "structural" refers to
the very integrity and stability of the built structure. The CA disagreed with the RTC's
conclusion that depreciation, costs for non-compliance with contract specifications, and
unnecessary areas of the NAIA-IPTIII, shall be excluded from the computation of
construction cost. Depreciation should not be deducted since it merely measures the
book value of the property or the extent of use of the property. Depreciation is
inconsistent with the replacement cost method since the replacement cost merely
measures the cost of replacing the structure at current market price at the time of
taking.

Furthermore, the market price of a building increases over time; thus, if the construction
cost of NAIA-IPT III in 2002 was $300,206,693.00, its replacement cost in 2004 should be
equal to or higher than $300,206,693.00.

Interest. The CA further held that interest shall be added to just compensation as of
September 11, 2006. Citing Gingoyon, the CA explained that law and equity dictated that
the Government shall be liable for legal interests as a result of the delay in the payment
of just compensation to PIATCO. Since there was no stipulation on interests, the CA fixed
the interest rate at 6%.

Upon finality of the judgment, the interest shall be 6% until fully paid. As of July 31,
2013, the CA computed the interest as follows:

In US Dollars
Interest from December 21, 2004
to December 21, 2005
$300,206,693*6% 18,012,401.58
Interest from December 22, 2005
to September 11, 2006
$300,206,693*6%*268 days/365
days 13,225,544.17
Interest from September 12, 2006
to September 12, 2012
$240,768,035*6%*6 years 86,676,492.60
Interest from September 13, 2012
to July 31, 2013
$240,768,035*6%*322 days/365
days 12,744,214.89
Total Interest as of July 31,
2013 130,658,653.24
The CA further ordered Takenaka and Asahikosan to share in the expenses of the BOC.
Since Takenaka and Asahikosan's inputs on the construction costs of the NAIA-IPT III were
heard by the RTC, they should share in the expenses of the BOC.

The CA likewise denied Takenaka and Asahikosan's prayer to set aside in an escrow
account a portion ofthe just compensation corresponding to the amounts owed them by
PIATCO. RA 8974 expressly provides that the Government shall directly pay the property
owner upon the filing of the complaint as a prerequisite to the issuance of a writ of
possession.

The dispositive portion of the CA decision provides:

WHEREFORE, the decision appealed from is MODIFIED. Just compensation is fixed at


US$300,206,639.00 less US $59,438,604.00 paid in September 2006 or the net sum of
US$240,768,035.00 with legal interest at 6% computed as above. The Republic is thus
ordered to pay PIATCO just compensation as herein determined and which sum has
reached the total of US $371,426,688.24 as of 31 July 2014.

Upon finality of judgment, interest on the sum due by then shall be at 12% until fully
paid.

IT IS SO ORDERED.118

On August 22, 2013, the CA amended its decision in view of the BSP's recent issuance,
BSP Circular No. 799, series of 2013, which took effect on July 1, 2013. BSP Circular No.
799 lowered the legal interest rate on loan or forbearance of money, goods or credit to
6% per annum.119 The CA amended decision provides:

WHEREFORE, the decision appealed from is MODIFIED. Just compensation is fixed at US


$300,206,639.00 less US $ 59,438,604.00 paid in September 2006 or the net sum of
US$240,768,035.00with legal interest at 6% computed as above. The Republic is thus
ordered to pay PIATCO just compensation as herein determined and which sum has
reached the total of $371,426,688.24 as of 31 July 2013.

Upon finality of judgment, interest on the sum due by then shall be at 6% per annum
until fully paid pursuant to BSP Circular No. 799, series of 2013 which took effect on 01
July 2013, and which effectively modified the interest rate rulings in Eastern Shipping
Lines, Inc. v. Court of Appeals.1awp++i1 Eastern Shipping was the basis of the Court's
earlier imposition of a 12% interest from finality of judgment.

IT IS SO ORDERED.120 [Emphasis supplied]

The CA likewise denied the Government's, PIATCO's, Takenaka's, and Asahikosan's


motions for partial reconsideration in a resolution dated October 29, 2013.121

The CA's denial of their motions cleared the way for the elevation of CA-G.R. CV No.
98029 to this Court through a petition for review on certiorari. The Government, PIATCO,
and Takenaka and Asahikosan's consolidated petitions are docketed as G.R. Nos. 209917,
209731, and 209696, respectively.

B. CA-G.R. SP No. 123221


In a decision dated October 18, 2014,the CA reversed the Omnibus Order dated October
11, 2011, for having been issued with grave abuse of discretion. The dispositive portion
of the decision states:

WHEREFORE, in view of the foregoing, the instant Petition is Hereby GRANTED.


Parenthetically, the Omnibus Order dated 11 October 2011 and Order dated 5 December
2011 of the Pasay City RTC, Branch 117, in Civil Case No. 04-0876-CFM for Expropriation,
are hereby NULLIFIED and SET ASIDE for having been issued with grave abuse of
discretion amounting to lack or excess of jurisdiction.

SO ORDERED.122

IV. The Action to Enforce the London Awards, Civil Case No. 06-171

On February 27, 2006, Takenaka and Asahikosan filed an action to enforce the London
awards in Claim Nos. HT-04-248 and HT-05-269 before the RTC of Makati, Branch143. The
case was docketed as Civil Case No. 06-171.123

In a decision dated September 6, 2010, the RTC recognized the validity of the London
awards in Claim Nos. HT-04-248 and HT-05-269 and declared these awards as
enforceable in the Philippine jurisdiction. The RTC thus ordered PIATCO to pay Takenaka
and Asahikosan the sum of $85.7 million.124

PIATCO appealed the case to the CA125 which affirmed the RTC rulings in a decision
dated March 13, 2012.126 The CA likewise denied PIATCO's motion for reconsideration in
a resolution dated May 31, 2012.127

PIATCO responded by filing a petition for review on certiorari with this Court assailing the
CA's ruling. The case was docketed as G.R. No. 202166and is still pending before the
Court separately from the present petitions.

To summarize, the cases pending before the Court are the consolidated cases: G.R. Nos.
209917, 209696, 209731,and 181892, and G.R. No. 202166 as a separate case.

G.R. No. 209917 is the Government's petition for review on Certiorari128 to partially
reverse the CA's August 22, 2013 Amended Decision129 and its October 29, 2013
Resolution130 in CA-G.R. CV No. 98029.

G.R. No. 209696 is a petition for review on certiorari filed by Takenaka and Asahikosan to
partially reverse the CA's August 22, 2013 Amended Decision and its October 29, 2013
Resolution in CA-G.R. CV No. 98029.131

G.R. No. 209731 is PIATCO's petition for review on certiorari to reverse the CA's August
22, 2013 Amended Decision, and October 29, 2013 Resolution in CA-G.R. CV No.
98029.132 G.R. Nos. 209917, 209696 & 209731 originally arose from the Government's
complaint for expropriation of the NAIA-IPT III filed with the RTC of Pasay, Branch117 in
Civil Case No. 04-0876. The main issue before the Court in these petitions is the
valuation of the just compensation due for the Government's expropriation of the NAIA-
IPT III.
G.R. No. 181892 is the Government's petition for certiorari with prayer for the issuance of
a temporary restraining order,133 assailing the May 3, 2007, May 18, 2008;and January
7, 2008 orders of the RTC of Pasay City, Branch 117 in Civil Case No. 04-0876.134

This petition likewise arose from the Government's complaint for expropriation of the
NAIA-IPT III. The main issue in this petition is the propriety of the appointment of DG
Jones and Partners as an independent appraiser of the NAIA-IPT III.1wphi1

G.R. No. 202166 is PIATCO's petition for review on certiorari135 to assail the CA's March
13, 2012 decision136 and May 31, 2012 Resolution137 in CA-G.R. CV No. 96502. The
petition arose from Takenaka and Asahikosan's action to enforce the London awards
before the RTC of Makati, Branch 143 in Civil Case No. 06-171. As previously mentioned,
this case was not consolidated with the four(4) cases above and shall thus be separately
ruled upon by the Court.

V. The Parties' Positions

A. The Government's Position (G.R. Nos. 209917, 209731, and 209696)

G.R. No. 209917

In G.R. No. 209917, the Government asks the Court to partially reverse the CA rulings
and to deduct from the replacement cost of US$300,206,693.00the following items: (a)
depreciation in the amount of US$36,814,612.00; and (b) PIATCO's non-compliance with
contract specifications in the amount of US$113,944,044.00. The Government also
refutes the CA's imposition of a legal interest on just compensation.

The Government asserts that the CA did not consider equity in computing the
replacement cost of the NAIA-IPT III. Contrary to the Court's pronouncement in Gingoyon,
the CA computed just compensation based solely on RA 8974 and its IRR. The CCV of
$300,206,639.00 only reflects the valuation of the NAIA-IPTIII as of November 2002 when
PIATCO stopped the construction of the terminal, and did not take into account other
factors that lowered its valuation as of December 2004.

The Government posits that there are two standards in measuring the replacement cost.
The implementing rules of RA 8974 failed to provide a complete formula to arrive at the
replacement cost of an expropriated property.

The first and common standard is the depreciated replacement cost method which
measures the cost of replacing an asset at current prices but in its actual condition, i.e.,
adjusted for age, wear and tear. The Chartered Institute of Public Finance and Accounting
defines depreciated replacement cost as "a method of valuation which provides the
current cost of replacing an asset with its modern equivalent asset less deductions for all
physical deterioration and all relevant forms of obsolescence and optimization" and as
"the replacement value of property minus physical depreciation and obsolescence;
insurance adjusters estimate the actual cash value of property based on its depreciated
replacement cost."138

In other words, depreciated replacement cost adjusts the cost of replacing the actual
asset in accordance with the asset's age in order to take into account the lower
economic utility of an asset that is not brand new. As an asset ages, higher economic
cost is required to maintain that asset to the level of utility of a brand new one.

The second and less common standard is the new replacement cost method which
measures the cost of replacing an asset at current prices with no adjustment for age,
wear, and tear. It refers to "the cost to replace damaged property with like property of
the same functional utility without regard to depreciation (physical wear and tear) and
obsolescence."139

The Government asks the Court to adopt the depreciated replacement cost method
where depreciation is deducted from the replacement cost. The Government asserts that
it is an internationally accepted practice to consider depreciation and other forms of
obsolescence and optimization in measuring the replacement cost of an asset.

The Government argues that the new replacement cost method usually applies in cases
where the property must be rebuilt. For example, an insurance policy for a house would
usually use the new replacement cost method because a house, which was destroyed by
fire or other natural disaster, must be rebuilt. On the other hand, an insurance policy for
an automobile would use the depreciated replacement cost because it presupposes that
a new automobile must be purchased to replace the old automobile that suffered from
wear and tear.

The Government disputes the CA's opinion that the replacement cost cannot be lower
than the actual construction because market prices tend to move upward over time. The
Government contends that the replacement cost may be lower than the construction
cost if the price of the materials such as steel, cement, and copper used during the
construction stage decreases after the construction of the improvement. Moreover, labor
productivity and technological advancements affect the replacement cost since these
counterbalance inflation. The depreciated replacement cost method is utilized "in setting
user rates for public utilities precisely because this standard of value will tend to result in
lower prices over time, not higher prices."140

The Government likewise disagrees with the CA that the depreciation adjustment "would
irrationally result in[a] book value which continues to be lower and lower over time."
Since an asset must be maintained, the cost of performing maintenance and repairs
increases the asset's replacement cost. Consequently, repairs and maintenance cost
counter-balance depreciation. The recognition that an asset depreciates impliedly
acknowledges that the owner will spend more costs in maintaining the asset's utility than
on a brand new asset.

The Government agrees with the CA that depreciation is a cost allocation method and
not a valuation method. However, the Government stresses that depreciation is also an
economic cost; depreciation thus recognizes that an asset suffers from wear and tear
and would require higher cost to maintain an asset's economic utility. Depreciation, as
both economic and accounting concepts, represents cost adjustments to reflect the fair
value of the asset due to age, wear, and tear.

The Government adds that the premise of the replacement cost method is "to measure
the cost of replacing an asset at current prices with an asset that has the same economic
utility."141 Thus, the CA erred when it held that the depreciation adjustment was
inconsistent with the replacement cost method for the reason that this method factors in
the current market price to measure the cost of replacing an asset.

For instance, if the Government would expropriate a ten-year-old automobile, the new
replacement cost method would compensate the owner the amount of an asset that has
more economic utility than the ten-year-old automobile. On the other hand, if the
Government would use the depreciated replacement cost method, it would only pay the
value of an asset that has economic utility of a ten-year-old automobile.

The Government likewise insists that the CA erred in not deducting from the replacement
cost the construction costs for deviations from the original contract, the inappropriate
and defective structures, and structures that were built in violation of international
standards. It asserts that the

NAIA-IPT III suffers from structural defects, as evidenced by the following:

(a) In the August 2007 Site Observation Report, Ove Arup found that the NAIA-IPT III
suffered from structural defects.

(b) In its Scott Wilson Report, PIATCO admitted that the NAIAIPT III suffered from
structural defects. The relevant portions of the Report provide:

Section 3.3.23. The cracking noted in the 2004 report at the upper storey beam/column
interface appears to have worsened particularly in the outer faces of a number of
columns at high level adjacent to the internal ramps.

Section 3.3.37. As far as the building structure is concerned the outstanding issues are
the Taking Over Inspection Defects List, outstanding Quality Observation Report issues
and the Non-Compliance Schedule x x x.142

(c) The ASEP made the following observation in its June 23, 2006 Report:

Results of material tests carried out identified that the materials used were adequate
and meet or exceed the ER specification. However, the thickness of the wall angle used
(0.4 mm) does not meet the minimum plate thickness for metals to be fastened by
power-actuated anchors, which requires a minimum of 0.6 mm (Hilti Catalogue). ASEP
recommended further tests.

ASEP considered that the quality of workmanship of the installation is not considered
to be within minimum acceptable practice.

Structural design of the ceiling system provided by Takenaka and independently


assessed by ASEP concluded that the factor of safety of individual components is high.
However, ASEP stated that the overall factor of safety of the total ceiling system is
expected to be lower due to poor workmanship of the connections. The positioning of the
air-conditioning ducts, fire protection system pipes, and other systems above the ceiling
has affected the standard spacing of the ceiling hangers and may have contributed to
the uneven distribution of loads to the various ceiling components, although without
some of the riveted joints failing, the ceiling hangers are still adequate.
ASEP concluded that a combination of poor workmanship and wrong choice of system
in some areas particularly if repeated access is required for inspection and
maintenance.143

(d) In its June 23, 2006 Report, the ASEP opined that the NAIA-IPT III may be partially
opened provided that retrofitting works are done prior to its full operation. Thus, the
MIAA initiated the structural remediation program of the NAIA-IPT III.144

(e) TCGI documented the "heaving of homogenous tiles and cracks underneath the slabs
in the head house airline lounges (Level 3, Sector 4),"145 attributable to the 5.4
magnitude earthquake that hit Lingayen, Pangasinan, on November 27, 2008. The
earthquake was felt in Pasay with a 3.0 magnitude. PIATCO failed to refute TCGI's
findings.146

The Government insists that the operation of the NAIA-IPT III is not an implied admission
of the nonexistence of structural defects. The Government clarifies that the structurally
defective sectors of the NAIA-IPT III remain unoccupied. Out of the 10 Sectors of the
NAIA-IPT III, the MIAA fully occupies Sectors 1, 3, 5, and 6, and partially occupies Sectors
2 and 4. The MIAA did not occupy Sections7, 8, 9, and the car park due to structural
issues.

That the Court declared the PIATCO contracts as null and void should not impede the
deductibility of construction costs for deviations from the original contract, the
inappropriate and defective structures, and structures that were built in violation of
international standards. The Government emphasizes that when the Court nullified the
PIATCO contracts, the NAIAIPT III was almost complete. Consequently, the Government
had every reason to expect that PIATCO would build the NAIA-IPT III according to the
agreed specifications. PIATCO, however, acted in bad faith in not complying with the
nullified PIATCO contracts. PIATCO should not benefit from its violation of the concession
agreements and the gross deviations from the original design of the NAIA-IPT III.

The Government maintains that the imposition of legal interest on just compensation is
erroneous.

First, the present expropriation case is sui generis. The Government was forced to
expropriate the NAIA-IPT III due to PIATCO's violation of the Constitution and the law. To
award legal interest to PIATCO is to condone its illegal acts. In Hulst v. PR Builders,
Inc.,147 the Court held that the illegality should not be rewarded. In Valderama v.
Macalde,148 the Court deleted the payment of interest on the ground that a person
should not be allowed to profit from an illegal act. As between two parties, he who, by his
acts, caused the loss shall bear the same. He, who comes to court for equity must do so
with clean hands.

Second, PIATCO itself caused the delay of the expropriation proceedings before the RTC.
PIATCO did not produce the vouchers, purchase orders, and as-built documents which
were in its possession despite the Government's filing of a Motion for Production and
Inspection of Documents dated May 25,2006, before the RTC.149

Third, in Eastern Shipping Lines v. CA,150 the Court pronounced that unliquidated claims
are not subject to legal interest, such as the present case.
Fourth, the law and jurisprudence on the imposition of interest does not address the
peculiar situation where the NAIA-IPT III is being expropriated as a direct result of the
nullification of the PIATCO contracts. The application of the law and jurisprudence on the
imposition of interest would not result in a fair and equitable judgment for the
Government. The Court must apply equity in the absence of a specific law applicable in a
particular case or when the remedy afforded by the law would be inadequate to address
the injury suffered by a party.

The Government additionally complains that, since November 2002, "long before the
institution of the expropriation [complaint] in December 2004," Takenaka and Asahikosan
prevented it from entering the NAIA-IPT III.151

G.R. No. 209696

The Government alleges that it is willing to pay just compensation to the lawful claimant.
However, just compensation should not be set aside in favor of Takenaka and Asahikosan
since their claim against PIATCO has not yet been resolved with finality.

The Government disputes the applicability of Calvo v. Zandueta152 in the present case.
In that case, the Court allowed Juana Ordoez to be subrogated to Aquilino Calvo as
defendant because Ordoez obtained a final judgment in her favor which entitled her to
levy the land sought to be expropriated. Furthermore, Ordoez was not a party to the
expropriation case.

The Government asserts that Takenaka and Asahikosan should share in the BOC's
expenses. Under Section 12, Rule 67 of the Rules of Court, the rival claimants should
shoulder their costs in litigating their claim while the property owner should shoulder the
costs of the appeal if he appeals the case and the appellate court affirms the lower
court's judgment.

To divide the BOC's expenses between the Government and PIATCO would result in unjust
enrichment. Under Section 1, Rule 142 of the Rules of Court, the court shall have the
power to divide the costs of an action as may be equitable.

Furthermore, Takenaka and Asahikosan actively participated in and benefited from the
proceedings before the BOC, which included the London awards in the computation of
just compensation. Takenaka and Asahikosan likewise relied on the Final Report in their
Appellant's Brief dated October 3, 2012, and in their Reply Brief dated January 20, 2013.

The Government contends that Takenaka and Asahikosan's computations of actual


construction cost of the NAIA-IPT III are conflicting.

In their Manifestation dated December 9, 2010, Takenaka and Asahikosan stated that the
actual construction cost amounted to $360,969,790.82. However, in his report, Mr. Gary
Taylor appraised the actual construction cost at US$323 million, "plus other costs that
were incurred by various parties during its conception and construction plus any property
appreciation."153 Mr. Gary Taylor further stated that the "true value of the NAIA-IPT III
facility is nearer to US$408 million, given the fact that the Republic's expert, Gleeds,
failed to recognize or include any values for [the] design and other consultants (10%) or
property inflation based on GRP schedules (15%)."154 However, Mr. Taylor did not
explain how he arrived at the amount of $408 million.
The Government adds that Takenaka and Asahikosan's actual construction cost of
$360,969,790.82 is erroneous as the London and Makati awards include interests,
attorney's fees and costs of litigation. Furthermore, Takenaka and Asahikosan's "as-built"
drawings are not truly "as-built." The drawings do not reflect the quality and exact detail
of the built portions of the NAIA-IPT III.155

G.R. No. 209731

The Government disputes PIATCO's claim that it was denied due process when it was not
furnished a copy of the Final Report. The Government points out that all the parties in the
case were not given a copy of the Final Report. Furthermore, PIATCO belatedly raised this
issue; it was brought for the first time on appeal before this Court.

The Government also emphasizes that PIATCO immediately filed a notice of appeal a day
after its receipt of the RTC decision. This is contrary to PIATCO's claim that it wanted to
secure a copy of the Final Report and subject it to clarificatory hearing.

Even assuming that the RTC erred in not furnishing the parties copies of the Final Report,
the lapse is merely an "innocuous" technicality that should not nullify the RTC rulings.

The Government claims that PIATCO failed to substantiate the attendant costs. The
documents attached to the Compliance dated December 14, 2010, are mostly summary
of payments that PIATCO allegedly paid to the consultants. However, PIATCO failed to
prove that the alleged consultants rendered actual service related to the construction of
the NAIAIPT III. Reyes Tacandong & Co. merely verified the mathematical accuracy of the
schedules, including the computation of the inflation rate. Furthermore, the receipts that
PIATCO submitted are not enough to cover its claimed just compensation.156

G.R. No. 181892

The Government disputes the RTC's appointment of an independent appraiser of the


NAIA-IPT III. It claims that Section 11 of RA 8974 IRR solely authorizes the implementing
agency to engage the services of an appraiser in the valuation of the expropriated
property, while under Section 10 of RA 8974 IRR, it is the implementing agency that shall
determine the valuation of the improvements and/or structures on the land to be
acquired using the replacement cost method. Pursuant to these provisions, the
Government engaged the services of Gleeds, Ove Arup and Gensler for purposes of
appraising the NAIA-IPT III.

The Government also argues that the appointment of an independent appraiser would
only duplicate the efforts of the existing appraisers. A court appointed appraiser and the
existing appraisers would perform the same task of determining the just compensation
for the NAIA-IPT III. Thus, the RTC should have relied instead on the opinion of the
internationally-renowned appraisers that the Government hired.

The Government likewise avers that the appointment of an independent appraiser would
only render the expropriation proceedings more costly. The Government would be forced
to pay for the services of two appraisers, which is not the intention of RA 8974. The
court-appointed appraiser, too, would render the BOC's functions useless. Under Rule 67
of the Rules of Court, it is the BOC that is required to receive evidence in the
determination of just compensation. Rule 67 of the Rules of Court does not require the
appointment of an appraiser in eminent domain cases.

Lastly, the Government complains that the RTC order requiring it to submit a Certificate
of Availability of Funds is vague because the RTC did not specify the costs of the
expropriation proceeding.157

B. PIATCO's Position

G.R. No. 209731

PIATCO argues that the RTC rulings are null and void for the failure of the RTC clerk of
court to furnish them copies of the BOC Final Report. Sections 7 and 8, Rule 67 of the
Rules of Court require that the parties be given ten days within which to file their
objections to the findings of the commissioners.

On its base value of $360,969,790.82, PIATCO insists that its valuation is supported by a
preponderance of evidence, particularly by the As-Built Drawings and the Bills of
Quantities submitted by Takenaka and Asahikosan. The CA should not have relied on the
Government's self-serving evidence in computing the base value of the NAIA-IPT III.

PIATCO also cites the CA's failure to include the attendant costs in the valuation of the
NAIA-IPT III as an omission; the CA merely recognized the construction cost valuation of
the terminal pursuant to the Gleeds Report. PIATCO alleges that it incurred attendant
costs of $70,197,802.00 apart from the construction cost of $360,969,790.82. It also
emphasizes that its consultancy fees are even below the international norms, as shown
in the Scott Wilson Report. It also claims that site preparation costs, legal costs in
planning and constructing the development, and financing costs form part of attendant
costs since these costs are indispensable in completing a complex infrastructure project.

PIATCO further alleges that its attendant costs are supported by the attachments in its
Compliance dated December 14, 2010, including the summary of payments for incurred
attendant costs, official receipts, statements of account, sales invoices, endorsements,
insurance policies and other related documents, acknowledgement receipts,
agreements, invoices, and bonds. It claims that Reyes Tacandong & Co examined these
documents and confirmed that the attendant costs amount to $70,197,802.00 in its
Report of Factual Findings dated December 14, 2010.

PIATCO asserts that its submission of the summary computation is justified under Section
3 (c), Rule 130 of the Rules of Court which allows the party to submit non-original copies
if the original consist of numerous accounts or other documents that the court cannot
examine without great loss of time; the fact sought to be established from these, after
all, is only the general result of the whole.

PIATCO likewise argues that the total construction cost of $431,167,593.00 - which is the
sum of $360,969,791.00 and $70,197,802.00 - should be converted to 2004 values since
the reckoning period of just compensation is the date of taking or the date when the
complaint was filed, whichever is earlier. It posits that the amount of $431,167,593.00
should thus be multiplied by 1.0971 - the prevailing inflation rate from November 29,
2002, to December 21, 2004 - for a total amount of $470,450,825.00.
The sum of $470,450,825.00 should further earn an interest rate of 12% per annum
beginning December 21,2004, until full payment. PIATCO maintains that the
Government's deposit in an escrow account of a portion of just compensation is not
equivalent to payment; hence, interest on the full amount of just compensation shall
continue to apply.

PIATCO contends that the CA's reduction of interest rate to 6% is erroneous because the
Court, in numerous cases, has consistently imposed 12% interest per annum on just
compensation. PIATCO emphasizes that the imposition of interest on just compensation is
not based on contract, but on the owner's right to be immediately paid just
compensation.

Finally, PIATCO prays that it be paid all income generated from the operations of the
NAIA-IPT III, from the date of taking up to the present.158

G.R. No. 209917

PIATCO asserts that the NAIA-IPTIII does not suffer from massive structural defects; that
the Government's reliance on the Ove Arup Report is self-serving. The Government would
not have expropriated the NAIA-IPT III if it truly believed that the terminal suffered from
massive structural defects. Furthermore, the MIAA's Project Management Office oversaw
the construction of the NAIA-IPT III to ensure that the terminal complied with the agreed
specifications under the relevant contracts between PIATCO and the Government.

PIATCO contends that the depreciation, deterioration, and costs for non-compliance with
contract specifications should not be deducted from the base value of the NAIA-IPT III.
The base value of $300,206,693.00 should be the least amount that the Government
should pay. The measure of just compensation is the fair and full equivalent for the loss
sustained by the property owner, not the gain that would accrue to the condemnor.

PIATCO also asks this Court to strike from the record the affidavit of Kaczmarek and other
attachments in the Government's motion for partial reconsideration dated August 22,
2013. The Government should not be allowed to present new evidence on the valuation
of the NAIA-IPT III before the CA. PIATCO points out that Kaczmarek was not cross-
examined and his identity, knowledge, and credibility were not established before the
trial court. The Government is estopped from introducing new evidence before the
appellate court since it objected to Takenaka and Asahikosan's introduction of new and
additional evidence before the CA.

As its last point, PIATCO posits that Section 10 of RA 8974 IRR does not allow the
deduction of depreciation, deterioration, and costs for non-compliance with contract
specifications from the replacement cost.

Depreciation is merely an accounting concept that facilitates the standard of decreasing


asset values in the books of accounts. It is not a method of valuation, but of cost
allocation; an asset may still be valuable and yet appear fully depreciated in the financial
statements. If at all, depreciation was only relevant after the Government took
possession and operated the NAIA-IPT III.159

G.R. No. 209696


PIATCO agrees with the CA that just compensation must be directly paid to it as the
owner of the NAIA-IPTIII. It stresses that RA 8974 and its implementing rules clearly
provide that the owner of the expropriated property shall receive the entire amount of
just compensation.

PIATCO insists that it would be erroneous to create an escrow account in favor of


Takenaka and Asahikosan since the enforceability of Claim Nos. HT-04-248 and HT-05-269
in Philippine jurisdiction has yet to be decided by the Court in G.R. No. 202166. It points
out that the main issue in G.R. Nos. 209731, 209917, and 209696 is the amount of just
compensation, not the determination of Takenaka and Asahikosan's money claims
against PIATCO. Takenaka and Asahikosan's insistence to enforce their money claims
against PIATCO in G.R. Nos. 209731, 209917 & 209696 constitutes forum shopping and is
still premature.

PIATCO contends that Takenaka and Asahikosan have no standing to demand the
creation of an escrow account in their favor. Section 9, Rule 67 of the Rules of Court does
not apply in this case because there are no conflicting claims regarding the ownership of
the NAIA-IPT III. Furthermore, the Court categorically stated in Gingoyon that PIATCO
owns the NAIA-IPT III. PIATCO further argues that the rules on preliminary attachment do
not apply to this case. Mere apprehension that PIATCO would abscond from its financial
liabilities is not a ground for the attachment of the creditor's assets. Moreover, an
artificial entity cannot abscond. PIATCO likewise denies that it refuses to pay Takenaka
and Asahikosan's money claims. PIATCO posits that the eminent domain case is not the
proper venue for the adjudication of Takenaka and Asahikosan's money claims.160

G.R. No. 181892

PIATCO agrees with the RTC's appointment of DG Jones and Partners as an independent
appraiser. The determination of just compensation is essentially a judicial function. The
trial court's power to appoint commissioners is broad enough to include the power to
appoint an appraiser who shall assist the commissioners in ascertaining the amount of
just compensation. The latter power is inherent in the court's task to receive evidence
and to arrive at a fair valuation of the expropriated property.

Section 5 (g), Rule 135 of the Rules of Court allows the court to amend and control its
processes and orders so as to make them consistent with law and justice. Furthermore,
nothing in RA 8974 IRR that prohibits the trial court from appointing an independent
appraiser.

Section 6, Rule 67 of the Rules of Court provides that all parties may introduce evidence
on the valuation of the property sought to be expropriated. The trial court is not bound
by the report of the commissioners and of the independent appraisers, much less of the
findings of the Government-hired appraisers.

PIATCO asserts that the Government is estopped from assailing the appointment of an
independent appraiser. The Government voluntarily participated in the nomination of an
independent appraiser, and in fact, submitted its own nominees before the trial court.

Contrary to the Government's claim, the RTC did not arbitrarily appoint DG Jones and
Partners as an independent appraiser. The RTC in fact required the nominees to submit
their written proposals and invited them to personally appear before the commissioners
and the trial court prior to the issuance of the May 3, May 18,and January 7, 2008 orders.

PIATCO argues that the Government should solely bear the expenses of DG Jones and
Partners. Section 12, Rule 67 of the Rules of Court provides that all costs, except those of
rival claimants litigating their claims, shall be paid by the plaintiff, unless an appeal is
taken by the owner of the property and the judgment is affirmed, in which event the
costs of the appeal shall be paid by the owner.161

C. Takenaka and Asahikosan's Positions

G.R. No. 209696 and G.R. No. 209731

Takenaka and Asahikosan argue that law and equity dictate that just compensation of at
least $85,700,000.00 should be set aside to answer for their money claims against
PIATCO.RA 8974 does not prohibit the creation of an escrow account pending the
determination of the parties' conflicting claims on the property and on the just
compensation.

Takenaka and Asahikosan allege that PIATCO is a shell corporation with no significant
assets, that has repeatedly defaulted on its monetary obligations. They emphasize that
PIATCO did not pay Takenaka and Asahikosan despite its receipt of the P3 billion proffered
value from the Government. Takenaka and Asahikosan seek the creation of an escrow
account to preserve their property rights against PIATCO. They posit that PIATCO may
abscond after its receipt of the remaining just compensation from the Government.

PIATCO would profit by at least $155,000,000.00 if it solely receives the entire amount of
$431,167,593,000.00 (PIATCO's claimed just compensation as of December 2002).
PIATCO has judicially admitted that it has paid Takenakaand Asahikosan only
$275,000,000.00.

Takenaka and Asahikosan assert that the interest of justice will be served if the Court
allows the creation of an escrow account in their favor. They point out that the lower
courts already ruled on the enforceability of Claim Nos. HT-04-248 and HT-05-
269.Furthermore, the Court, in Gingoyon, merely ordered the direct payment of just
compensation to PIATCO in order to ensure that the builder of the NAIA-IPT III is
compensated by the Government as a matter of justice and equity. Takenaka and
Asahikosan underscore that they are the real builders of the NAIA-IPT III as PIATCO's
subcontractors.

Takenaka and Asahikosan maintain that Section 9, Rule 67 of the Rules of Court apply
with respect to the adjudication of the parties' conflicting just compensation claims. The
Court did not declare in Gingoyon that Rule 67 of the Rules of Court shall not apply to the
payment of final just compensation. The Court merely applied RA 8974 in Gingoyon
insofar as the law prescribes direct payment as a prerequisite for the issuance of a writ
of possession in eminent domain cases.

Under Section 9, Rule 67 of the Rules of Court, if there are conflicting claims on the
property, the court may order the just compensation to be paid to the court for the
benefit of the person adjudged in the same proceeding to be entitled thereto. Takenaka
and Asahikosan argue that they are the lawful recipients of just compensation as the real
builders of the NAIA-IPT III and as the prevailing parties in Claim Nos. HT-04-248 and HT-
05-269.

Even assuming that PIATCO is the owner of the NAIA-IPT III, the owner of the expropriated
property is not solely entitled to the full amount of just compensation.

In Republic v. Mangotara,162 citing de Knecht v. CA,163 the Court held that just
compensation is not due to the property owner alone; the term "owner" likewise includes
those who have lawful interest in the property such as a mortgagee, a lessee, and a
vendee in possession under an executory contract. In Philippine Veterans Bank v. Bases
Conversion Development Authority,164 the Court held that just compensation may be
deposited with the court when there are questions regarding the ownership of the
expropriated property. In Calvo v. Zandueta,165 the Court deferred the release of just
compensation pending the determination of the ownership of the expropriated property,
despite the finality of the order allowing the release of just compensation.

Takenaka and Asahikosan refuse to share in the expenses of the BOC. Under Section 12,
Rule 67 of the Rules of Court, the costs of the expropriation suit shall be shouldered by
the Government. The Government would be unjustly enriched if other parties are
required to shoulder the costs of the suit. It would also be unfair to require Takenaka and
Asahikosan to share in the expenses of the BOC since they were not furnished copies of
the BOC Final Report, in violation of their right to due process.166

G.R. No. 209917

Takenaka and Asahikosan argue that deductions for depreciation and deterioration are
inconsistent with the concept of replacement cost as a measure of appraising the actual
value of the NAIA-IPT III. In exercising the power of eminent domain, the Government
takes the property on "as is, where is" basis. Takenaka and Asahikosan point out that the
Government has the option not to expropriate the terminal. Consequently, the
Government cannot base the value of the building on whether or not the building caters
to the Government's needs.

Furthermore, RA 8974 IRR provides that only the costs necessary to replace the
expropriated property should be considered in appraising the terminal. Statutes
authorizing the deprivation of private property, as in expropriation cases, must be strictly
complied with because these are in derogation of private rights. The Court's intent in
Agan when it declared that equity should likewise be considered in appraising the NAIA-
IPT III is to prevent the Government from undervaluing the property and enriching itself
at the expense of private parties.

Takenaka and Asahikosan also insist that a multi-level retail mall is not an unnecessary
area. They point out that modern airports are subsidized by income from retail malls and
cannot operate profitably without this additional income.

Takenaka and Asahikosan agree with the CA's finding that the NAIAIPT III is structurally
sound. There is no clear evidence that the collapse of the ceiling of the NAIA-IPT III was
caused by the terminal's structural defects. The CA correctly concluded that the ceiling's
collapse is merely a finishing and aesthetic issue.
They emphasize that Mr. Gary Taylor, their hired appraiser, assailed the qualifications,
the methodology, and the findings of Ove Arup in its August 2007 Site Observation
Report. Furthermore, Ove Arup made several conflicting findings on the structural
soundness of the NAIA-IPT III. Ove Arup concluded that the number of structural
members failing the Demand Capacity Rate (DCR)/m.1.10 criteria was more than those
used for the retrofit design. The DCR measures the capacity of a portion of the NAIANAIA-
IPT III to carry the load it was designed to bear, with an optimal rate being less than 1.0.
It likewise opined that the distance of the gap between the NAIA-IPT III's bridge and
building structure had a potential for seismic pounding.

Takenaka and Asahikosan posit that all the structural members of the NAIA-IPT III have a
DCR of less than 1.0based on the 1992 National Structural Code of the Philippines
(NSCP), the code applicable when the NAIA-IPT III was designed and constructed.
Takenaka and Asahikosan opine that Ove Arup did not use the 1992 NSCP in the August
2007 Site Observation Report. Ove Arup's finding that the NAIA-IPT III has a potential for
seismic pounding is baseless. The terminal is designed and built to address the
possibility of seismic pounding, taking into consideration that the NAIA-IPT III is built on
Type I soil. Takenaka and Asahikosan claim that Ove Arup's finding was not based on the
AASHTO Standard Specification for Highway Bridges (16th Ed., 1996), the code
applicable at the time the NAIA-IPT III was designed and built. Takenaka and Asahikosan
likewise argue that Scott Wilson did not admit that the NAIA-IPT III suffered from
structural defects. They clarify that the statements in the Scott Wilson report "were
merely intended to accommodate [the] changes that the client wished to effect."167
They also point out that the Government stated in its petition (in G.R. No. 209917) that
"additional work is required to complete the terminal structure to make it compliant with
the standards of Takenaka and Asahikosan."168

To lay the structural issue to rest, Takenaka and Asahikosan consulted Meinhardst
(Singapore) Pte Ltd., their Structural Design Consultant, to rebut TCGI's findings. They
also hired disinterested American experts in the construction industry - Mr. S.K. Ghosh of
S.K. Ghosh Associates, Inc.; Mr. Robert F. Mast, PE, SE of Berger/Abram Engineers, Inc.;
and Mr. Mete A. Sozen - to validate Meinhardst's conclusions. These experts unanimously
concluded that the NAIA-IPT III's design is structurally sound because it complied with the
1992 NSCP, thus, effectively negating the Government's claim that the NAIA-IPT III
suffers from structural defects. Takenaka and Asahikosan impugn the ASEP Report. They
reiterate that they constructed the NAIA-IPT III in accordance with the Onshore
Construction and Offshore Procurement Contracts and the prevailing building code at the
time of the design and construction of the NAIA-IPT III. The statement in the ASEP Report
that "the NAIA-IPT III may be partially opened provided that retrofitting works are done
prior to its full operation" does not mean that the terminal is defective. The remediation
works were solely to ensure that the NAIA-IPT III structures are compliant with the current
standards, which were not yet in effect when the construction of the NAIA-IPT III took
place.

Messrs. Meinhardt opined that the scope of the proposed retrofitting works shows that
the structural design of the NAIA-IPT III is not defective because the proposed retrofitting
works are not related to the alleged structural defects of the NAIA-IPT III vis--vis the
1992 NSCP. He also stated that the proposed retrofitting works are meant to reinforce the
NAIA-IPT III which is already compliant with the 1992 NSCP.
Takenaka and Asahikosan likewise engaged the services of AECOM Australia Pty. Ltd. to
conduct a technical review of the Review on TCGI Report of Civil Design Review and
Evaluation (Elevated Roadway prepared by Ove Arup & Partners HK Ltd. Philippines
Branch). AECOM criticized the Ove Arup's review as follows:

a. Ove Arup valuated the NAIA-IPT's Elevated Roadway using the AASHTO Manual of
Bridge Evaluation and the FHA Bridge Inspectors Reference Manual, which are irrelevant
to any discussion of its design;

b. Ove Arup evaluated the NAIA-IPT III's Elevated Roadway using the Seismic Retrofitting
Manual for Highway Structures, which is irrelevant because there is no need for a seismic
retrofit of the NAIA-IPT III's Elevated Roadway;

c. Ove Arup's suggestion that an in-situ measurement of the geometry data of key
structural components be undertaken is unnecessary and irrelevant to a peer review of
the design of the NAIA-IPT III's Elevated Roadway;

d. Ove Arup made an incorrect assessment of the type of foundation material with
respect to soil bearing capacity;

e. Ove Arup used inappropriate codes for the assessment of the bearings of the NAIA-IPT
III's Elevated Roadway;

f. Ove Arup's analysis suggests that 36 pier columns of the NAIA-IPT III's Elevated
Roadway are allegedly under strength, but fails to quantify the ratio of the column effect
to the corresponding capacity;

g. AECOM objects to Ove Arup's criticism that the value of the soil-bearing capacity used
for the length of the bridge of the NAIA-IPT III's Elevated Roadway needs to be justified,
since the design of the NAIA-IPT III's Elevated Roadway must be judged on the
geotechnical information available to AECOM at the time the bridge was made. No
foundation could have been built without the foundation bearing capacity results having
been submitted to the relevant overseeing authority and approved thereby;

h. Ove Arup used an incorrect site coefficient for the site's soil type, which resulted in
seriously erroneous input data, thus, any conclusions or recommendations derived from
these data are rendered invalid;

i. Ove Arup's claim that there are "failures" in the elastomeric bearings/bearing pads is
based on an Australian design code which did not exist at the time the NAIA-IPT III's
Elevated Roadway was designed;

j. Takenaka and Asahikosan were never provided a copy of the TCGI Report that was used
as basis for the ARUP Report;

k. There are serious discrepancies between the Ove Arup Report and the referenced, yet
unseen TCGI Report;

l. The NAIA-IPT III's Elevated Roadway complies with the project design codes in force at
the time it was designed; and
m. AECOM refutes Ove Arup and TCGI's suggestion that the NAIA-IPT III's Elevated
Roadway requires retrofitting or any remedial work.

Takenaka and Asahikosan aver that the Government would be able to lessen its
expenses, operate the NAIA-IPT III, and earn revenues sooner as there is, in fact, no need
to perform retrofitting works on the terminal.

Takenaka and Asahikosan point out that the design of the NAIA-IPT III is bilaterally
symmetrical which means the structural system of one area is virtually identical to
others. Since the Government opened certain areas of the NAIA-IPT III to the public, it
follows that the unused areas are also structurally sound considering that majority of the
terminal building share the same structural design.

They also deny that they employed armed guards to prevent the MIAA and DOTC officials
from entering the premises of the NAIA-IPT III. They point out that the Government did
not raise this issue before the lower courts. They also state that they have provided the
parties all documentary evidence necessary in appraising the NAIA-IPT III, such as the
Bills of Quantities.169

VI. The Issues

In G.R. Nos. 209917, 209696, and 209731, we resolve the following issues:

(1) Whether the RTC's May 23, 2011 decision in Civil Case No. 04-0876 is null and void
for violation of PIATCO, Takenaka and Asahikosan's right to procedural due process;

(2) Whether the CA legally erred in computing just compensation in the expropriation of
the NAIA-IPT III;

(a) Whether "fair market value" and "replacement cost" are similar eminent domain
standards of property valuation;

(b) Whether the depreciated replacement cost approach or the new replacement cost
approach shall be used in the appraisal of the NAIA-IPT III;

(c) With respect to the computation of construction costs, the issues are:

1. Whether the Government's computation of construction cost is supported by a


preponderance of evidence;

2. Whether the NAIA-IPT III suffered/suffers from massive structural defects;

3. Whether the alleged unnecessary areas should be excluded from the computation of
construction cost;

(d) With respect to the computation of attendant costs, the issues are:

1. Whether PIATCO's claimed attendant cost is supported by a preponderance of


evidence;
a) Whether the Court may accord probative value to photocopied voluminous documents
allegedly proving PIATCO's attendant costs;

b) Whether the Court may accord probative value to the summary report prepared by
Reyes Tacandong & Co., which validated PIATCO's computation of attendant costs;

2. Whether attendant cost may be pegged at 10% of the construction cost;

3. Whether the Government included the attendant cost in its valuation of the NAIA-IPT
III;

(e) Whether depreciation may be deducted from the replacement cost of the NAIA-IPT III;

(f) Whether rectification for contract compliance (for failure to comply with bid
documents; for inferior quality; and for the additional areas to be built)may be deducted
from the replacement cost of the NAIA-IPT III;

(g) Whether the replacement cost of the NAIA-IPT III shall be adjusted to December 2004
values based on inflation;

(h) Whether the CA erred in imposing an interest rate of 6% per annum on the
replacement cost of the NAIA-IPT III;

(i) Whether PIATCO shall be entitled to the fruits and income of the NAIA-IPT III;

(3) Whether Takenaka and Asahikosan shall share in the expenses of the BOC;

(4) Whether the owner of the property sought to be expropriated shall solely receive the
just compensation due; and

(5) Whether the Government may take property for public purpose or public use upon
the issuance and the effectivity of the writ of possession;

In G.R. No. 181892, the following issues are relevant:

(1) Whether the appointment of an independent appraiser issue has been rendered moot
and academic by the RTC's promulgation of its rulings in Civil Case No. 04-0876; and

(2) Whether the issue of who shall pay the independent appraiser's fees has been
rendered moot and academic by the RTC's promulgation of its rulings in Civil Case No.
04-0876.

VII. Our Ruling

A. G.R. Nos. 209917, 209696 & 209731

1. The parties were afforded procedural


due process despite their non-receipt
of the BOC Final Report prior to the
promulgation of the RTC's May 23,
2011 Decision.
Before ruling on the substantive issues posed, we first resolve the issue of whether the
CA erred in ruling that the RTC's May 23, 2011 decision is valid.

PIATCO, Takenaka and Asahikosan challenge the validity of the RTC's decision for alleged
violation of their right to due process. They point out that the RTC promulgated its
decision in Civil Case No. 04-0876 on May 23, 2011, immediately after the release of the
BOC's Final Report

on March 31, 2011. They complain that since the RTC's clerk of court did not furnish the
parties copies of the Final Report, the trial court violated Sections 7 and 8, Rule 67 of the
Rules of Court as they failed to object to the Final Report's contents.

Rule 67 of the Rules of Court provides that the clerk of court shall serve copies of the
commissioners' final report on all interested parties upon the filing of the report. Each
party shall have ten days within which to file their objections to the report's findings.170

Upon the expiration of the ten-day period or after all the parties have filed their
objections and after hearing, the trial court may: (a) accept the report and render
judgment in accordance therewith; (b) for cause shown, recommit the report to the
commissioners for further report of facts; (c) set aside the report and appoint new
commissioners; (d) partially accept the report; and (e) make such order or render such
judgment as shall secure to the plaintiff the property essential to the exercise of his right
of expropriation; and to the defendant, the just compensation for the property so
taken.171

We rule that the parties' failure to receive the Final Report did not render the May 23,
2011 Decision null and void.

The essence of procedural due process is the right to be heard.172 The procedural due
process requirements in an eminent domain case are satisfied if the parties are given the
opportunity to present their evidence before the commissioners whose findings (together
with the pleadings, evidence of the parties, and the entire record of the case) are
reviewed and considered by the expropriation court. It is the parties' total failure to
present evidence on just compensation that renders the trial court's ruling void. The
opportunity to present evidence during the trial remains to be the vital requirement in
the observance of due process.173

The record will show that the parties exhaustively discussed their positions in this case
before the BOC, the trial court, the appellate court, and this Court.

They had ample opportunity to refute and respond to each other's positions with the aid
of their own appraisers and experts. Each party, in fact, submitted countervailing
evidence on the valuation of the NAIA-IPT III. They also filed numerous and voluminous
pleadings and motions before the lower courts and before this Court. The mere failure of
the RTC's clerk of court to send the parties copies of the BOC Final Report is not
substantial enough under the attendant circumstances to affect and nullify the whole
proceedings. Litigation is not a game of technicalities. Strong public interests require that
this Court judiciously and decisively settle the amount of just compensation in the
expropriation of the NAIA-IPT III. We cannot further delay this more-than a-decade case
and let interests accrue on just compensation by remanding the case once more to the
trial court.

2. Framework: Eminent domain is an


inherent power of the State

2.a. The power of eminent domain is a fundamental state power that is inseparable from
sovereignty.

Eminent domain is a fundamental state power that is inseparable from sovereignty. It is


the power of a sovereign state to appropriate private property within its territorial
sovereignty to promote public welfare. The exercise of this power is based on the State's
primary duty to serve the common need and advance the general welfare.174 It is an
inherent power and is not conferred by the Constitution.175 It is inalienable and no
legislative act or agreement can serve to abrogate the power of eminent domain when
public necessity and convenience require its exercise.176

The decision to exercise the power of eminent domain rests with the legislature which
has the exclusive power to prescribe how and by whom the power of eminent domain is
to be exercised. Thus, the Executive Department cannot condemn properties for its own
use without direct authority from the Congress.177

The exercise of eminent domain necessarily derogates against private rights which must
yield to demand of the public good and the common welfare.178 However, it does not
confer on the State the authority to wantonly disregard and violate the individual's
fundamental rights.

2.b. Just compensation is the full and fair equivalent of the property taken from the
owner by the condemnor.

The 1987 Constitution embodies two constitutional safeguards against the arbitrary
exercise of eminent domain: first, private property shall not be taken for public use
without just compensation;179 and second, no person shall be deprived of life, liberty, or
property without due process of law.180

Just compensation is defined as "the full and fair equivalent of the property taken from
its owner by the expropriator." The word "just" is used to qualify the meaning of the word
"compensation" and to convey the idea that the amount to be tendered for the property
to be taken shall be real, substantial, full and ample.181 On the other hand, the word
"compensation" means "a full indemnity or remuneration for the loss or damage
sustained by the owner of property taken or injured for public use."182

Simply stated, just compensation means that the former owner must be returned to the
monetary equivalent of the position that the owner had when the taking occurred.183 To
achieve this monetary equivalent, we use the standard value of "fair market value" of
the property at the time of the filing of the complaint for expropriation or at the time of
the taking of property, whichever is earlier.

2.b.1. Fair market value is the general standard of value in determining just
compensation.
Jurisprudence broadly defines "fair market value" as the sum of money that a person
desirous but not compelled to buy, and an owner willing but not compelled to sell, would
agree on as a price to be given and received for a property.184

Fair market value is not limited to the assessed value of the property or to the schedule
of market values determined by the provincial or city appraisal committee. However,
these values may serve as factors to be considered in the judicial valuation of the
property.185

Among the factors to be considered in arriving at the fair market value of the property
are the cost of acquisition, the current value of like properties, its actual or potential
uses, and in the particular case of lands, their size, shape, location, and the tax
declarations. The measure is not the taker's gain but the owner's loss.186 To be just, the
compensation must be fair not only to the owner but also to the taker.187

While jurisprudence requires the "fair market value" to be the measure of recovery in
expropriation cases, it is not an absolute and exclusive standard or method of
valuation.188 There are exceptional cases where the property has no fair market value
or where the fair market value of the property is difficult to determine.

Examples of properties with no or with scant data of their fair market values are
specialized properties or buildings designed for unique purposes.189 These specialized
properties bear these characteristics because they are "rarely x x x sold in the market,
except by way of sale of the business or entity of which it is part, due to the uniqueness
arising from its specialized nature and design, its configuration, size, location, or
otherwise."190

Examples of specialized properties are churches, colleges, cemeteries, and


clubhouses.191 These also include airport terminals that are specifically built as "a place
where aircrafts land and take off and where there are buildings for passengers to wait in
and for aircraft to be sheltered."192 They are all specialized properties because they are
not usually sold in the ordinary course of trade or business.

In the Tengson Report dated December 1, 2010, Gary Taylor characterized the NAIA-IPT III
as a specialized asset.193 Tim Lunt also stated in the Reply to Tengson International Ltd.
Report and Response from Takenaka & Asahikosan dated December 7, 2010 that the
market value of an airport will not be the same as the market value of other commercial,
industrial, and residential buildings within the Metro Manila region.194

In cases where the fair market value of the property is difficult to ascertain, the court
may use other just and equitable market methods of valuation in order to estimate the
fair market value of a property.

In the United States, the methods employed include: (1) the cost of replacing the
condemned property, less depreciation; (2) capitalization of the income the property
might reasonably have produced; (3) the fair rental value of the property during a
temporary taking; (4) the gross rental value of an item over its depreciable lifetime; (5)
the value which the owner's equity could have returned, had the owner invested in
monetary instruments; (6) the cost of repair or the capitalized cost of inconvenience,
whichever is less; and (7) the loss of investment expenses actually incurred.195 The
primary consideration, however, remains the same - to determine the compensation that
is just, both to the owner whose property is taken and to the public that will shoulder the
cost of expropriation.

2.b.2. Replacement cost is a different standard of value from fair market value.

In Gingoyon, we held that the construction of the NAIA-IPT III involves the
implementation of a national infrastructure project. Thus, for purposes of determining
the just compensation of the NAIA-IPT III, RA 8974 and its implementing rules shall be the
governing law.

Under Section 10 of the RA 8974 IRR, the improvements and/or structures on the land to
be acquired for the purpose of implementing national infrastructure projects shall be
appraised using the replacement cost method.

Replacement cost is a different standard of valuation from the fair market value. As we
previously stated, fair market value is the price at which a property may be sold by a
seller who is not compelled to sell and bought by a buyer who is not compelled to buy. In
contrast, replacement cost is "the amount necessary to replace the
improvements/structures, based on the current market prices for materials, equipment,
labor, contractor's profit and overhead, and all other attendant costs associated with the
acquisition and installation in place of the affected improvements/structures."196 We use
the replacement cost method to determine just compensation if the expropriated
property has no market based evidence of its value.

2.b.3. Replacement cost is only one of the standards that the Court shall consider in
appraising the NAIA-IPT III.

In using the replacement cost method to ascertain the value of improvements that shall
be expropriated for purposes of implementing national infrastructure projects, Section 10
of RA 8974 IRR requires the implementing agency to consider the kinds and quantities of
materials/equipment used, the location, configuration and other physical features of the
properties, and the prevailing construction prices, among other things.

Section 5 of RA 8974 in this regard provides that the court may consider the following
relevant standards in eminent domain cases:

(a) The classification and use for which the property is suited;

(b) The developmental costs for improving the land;

(c) The value declared by the owners;

(d) The current selling price of similar lands in the vicinity;

(e) The reasonable disturbance compensation for the removal and/or demolition of
certain improvement on the land and for the value of improvements thereon;

(f) The size, shape or location, tax declaration and zonal valuation of the land;

(g) The price of the land as manifested in the ocular findings, oral as well as
documentary evidence presented; and
(h) Such facts and events as to enable the affected property owners to have sufficient
funds to acquire similarly situated lands of approximate areas as those required from
them by the government, and thereby rehabilitate themselves as early as possible.

The Court explained in Agan and Gingoyon that the replacement cost method is only one
of the factors to be considered in determining the just compensation of the NAIA-IPT III.
The Court added that the payment of just compensation should be in accordance with
equity as well.

In Agan, we stated:

This Court, however, is not unmindful of the reality that the structures comprising the
NAIA IPT III facility are almost complete and that funds have been spent by PIATCO in
their construction. For the government to take over the said facility, it has to compensate
respondent PIATCO as builder of the said structures. The compensation must be just and
in accordance with law and equity for the government cannot unjustly enrich itself at the
expense of PIATCO and its investors.(emphasis supplied)197

We also declared in Gingoyon that:

Under RA 8974, the Government is required to "immediately pay" the owner of the
property the amount equivalent to the sum of (1) one hundred percent (100%) of the
value of the property based on the current relevant zonal valuation of the [BIR]; and (2)
the value of the improvements and/or structures as determined under Section 7. As
stated above, the BIR zonal valuation cannot apply in this case, thus the amount subject
to immediate payment should be limited to "the value of the improvements and/or
structures as determined under Section 7," with Section 7 referring to the "implementing
rules and regulations for the equitable valuation of the improvements and/or structures
on the land." Under the present implementing rules in place, the valuation of the
improvements/structures are to be based using "the replacement cost method."
However, the replacement cost is only one of the factors to be considered in determining
the just compensation.

In addition to RA 8974, the 2004 Resolution in Agan also mandated that the payment of
just compensation should be in accordance with equity as well. Thus, in ascertaining the
ultimate amount of just compensation, the duty of the trial court is to ensure that such
amount conforms not only to the law, such as RA 8974, but to principles of equity as
well.(Emphasis supplied)198

The Court's pronouncements in Agan and Gingoyon are consistent with the principle that
"eminent domain is a concept of equity and fairness that attempts to make the
landowner whole. It is not the amount of the owner's investment, but the 'value of the
interest' in land taken by eminent domain, that is guaranteed to the owner."199

In sum, in estimating the fair market value of the NAIA-IPT III, the Court shall use(1) the
replacement cost method and(2) the standards laid down in Section 5 of RA 8974 and
Section 10 of RA 8974 IRR. Furthermore, we shall likewise consider(3) equity in the
appraisal of NAIA-IPT III based on the Agan and Gingoyon cases.
2.b.4. The use of depreciated replacement cost method is consistent with the principle
that the property owner shall be compensated for his actual loss.

The present case confronts us with the question of the specific replacement cost method
that we should use in appraising the NAIA-IPT III. The Government advocates the
depreciated replacement cost method formula while PIATCO argues for the new
replacement cost method formula.

The replacement cost method is a cost approach in appraising real estate for purposes of
expropriation. This approach is premised on the principle of substitution which means
that "all things being equal, a rational, informed purchaser would pay no more for a
property than the cost of building an acceptable substitute with like utility."200

The cost approach considers the principles of substitution, supply and demand,
contribution and externalities.201 "The value of the land and the value of improvements
are determined separately according to their highest and best use."202 "Buyers assess
the value of a piece of property not only based on the existing condition of the property,
but also in terms of the cost to alter or improve the property to make it functional
specifically for the purposes of the buyer's use. This may include building new structures,
renovating existing structures, or changing the components of an existing structure to
maximize its utility."203

There are various methods of appraising a property using the cost approach: among
them are the reproduction cost, the replacement cost new, and the depreciated
replacement cost. Reproduction cost is the "estimated current cost to construct an exact
replica of the subject building, using the same materials, construction standards, design,
layout, and quality of workmanship; and incorporating all the deficiencies,
superadequacies, and obsolescence of the subject building."204 It is the cost of
duplicating the subject property at current prices205 or the current cost of reproducing a
new replica of the property being appraised using the same, or closely similar,
materials.206

In the United States, the recognized and used method in eminent domain cases in
appraising specialized properties is the reproduction cost less depreciation approach.

According to AmJur, this valuation method requires the inclusion of all expenditures that
reasonably and necessarily are to be expected in the recreation of the structure,
including not only the construction itself but also collateral costs, such as the costs of
financing the reproduction. "Historical associations and architectural values may
enhance the market worth of a property by rendering it a specialty property; if so, the
property may fairly be worth the market price for similar properties, plus a premium for
its unique aspects. The premium value in such a case may also be determined by the
cost of reproduction, minus depreciation. The value assigned has also been described as
the total of the land value, plus the specialized value of the improvements, minus
depreciation."207

Alfred Jahr explains the procedure in appraising a specialized property using this method:

In the valuation of the improvement or plant, however, market value is no criterion


because they have no market value. It is specialty property. The improvements are
therefore valued on several properties. First, consideration is given tothe original book
cost of the improvements, that is, the original cash expenditure paid by the company for
making the physical structures and appurtenances. Its purpose is to act as some guide; it
is not value, however, and the courts recognize the fact that it is not a value of the
physical structures. Second, evidence of reproduction cost new is then considered, for it
is an element of value of specialty property. In figuring this cost, all overhead expenses
are included. These expenses include engineering, construction, management fees,
insurance, legal expenses, office overhead, and interest during construction period.
Third, from the reproduction cost new an allowance for depreciation of the improvements
must be made. This depreciation is a matter of opinion, formed after a physical
examination of the improvements as a whole and is generally not based on a straight-
line depreciation according to age. Some authorities, however, have not accepted such
an item of depreciation and prefer the straight-line method, at so much per year.
Obsolescence and functional depreciation are sometimes deducted in addition to
physical depreciation depending on the type of utility involved.208

Replacement cost new is "the estimated cost to construct a building with utility
equivalent to the appraised building using modern materials and current standards,
design, and layout"209 or "the current cost of a similar new property having the nearest
equivalent utility as the property being valued."210 It is the cost of acquiring a modern,
functional equivalent of the subject property and "views the building as if reconstructed
with modern methods, design and materials that would most closely replace the use of
the appraised building but provide the same utility."211 Replacement cost does not
consider the most common forms of functional obsolescence.212

Depreciated replacement cost approach is the "method of valuation which provides the
current cost of replacing an asset with its modern equivalent asset less deductions for all
physical deterioration and all relevant forms of obsolescence and optimisation."213
Depreciated replacement cost is a method of appraising assets that are usually not
exposed to the open market.214 A general formula of this method is as follows:

Cost of constructing the building (s) (including fees)


Plus: Cost of the land (including fees)
= Total Costs
Less: Allowance for age and depreciation
= Depreciated Replacement Cost215

Under this method, the appraiser assesses the current gross replacement of the assets,
usually comprised of the land and the building. If the asset is an improvement, the
appraiser assesses the cost of its replacement with a modern equivalent and deducts
depreciation to reflect the differences between the hypothetical modern equivalent and
the actual asset. The appraiser has to "establish the size and specification that the
hypothetical buyer ideally requires at the date of valuation in order to provide the same
level of productive output or an equivalent service."216 In appraising the improvement
using the cost approach, the appraiser considers the construction cost, and attendant
cost.

Construction costs are "the costs that are normally and directly incurred in the purchase
and installation of an asset, or group of assets, into functional use." On the other hand,
attendant costs are "the costs that are normally required to purchase and install a
property but that are not usually included in the vendor invoice."217
Under Section 10 of the RA 8974 IRR, construction cost is the current market price of
materials, equipment, labor, the contractor's profit and overhead, while the attendant
cost is the cost associated with the acquisition and installation in place of the affected
improvement.

Once the gross replacement cost or the sum of construction and attendant costs is
derived, depreciation shall be deducted.218 Depreciation is classified into three
categories: physical depreciation, functional obsolescence, and external obsolescence.

Physical obsolescence refers to the "wear and tear over the years, which might be
combined with a lack of maintenance."219

Physical depreciation is curable if "capital investment can bring the building to a state in
which the degree of obsolescence is mitigated (e.g., standards of finishes and
services)."220 It is incurable if "no amount of capital investment can rectify the
[depreciation] (for example, building structural flexibility)."221 Curable physical
depreciation is measured by the cost to cure or retrofitting which could extend the life of
the building.222 Incurable depreciation or deterioration is estimated by a variety of age-
life or economic-age calculation methods.223 Functional obsolescence "reflects the
advances in technology which allow for a more efficient delivery of services and goods
from a building of different designs and specifications."224 "Functional obsolescence
arises where the design or specification of the asset no longer fulfills the function for
which it was originally designed."225

It is "usually related to operational inefficiencies that typically involve either


inadequacies or superadequacies. An inadequacy occurs when the asset is not enough
(e.g., the asset is too small) for it to operate efficiently. A superadequacy occurs when
there is too much of an asset (e.g., the asset is too large) for it to operate efficiently."226
"To be feasible, the cost of replacing the obsolete item or design fault must be equal to
or less than the anticipated increase in value due to its cure. Curable functional
obsolescence may require abatement by adding or remodelling or by removing a
superadequacy."227

Economic obsolescence results from "the impact of changing external macro- and micro-
economic conditions on the property and should not include internal factors which affect
the profitability of the occupying business, the writing down of such factors to reflect the
profitability of the business being a matter for the occupier. Within economic
obsolescence, the prospect of extending the life of the building by capital investment
should be considered, as well as the fact that lack of maintenance can accelerate the
rate of depreciation."228

In these consolidated cases, we rule that the depreciated replacement cost method,
rather than the new replacement cost method, is the more appropriate method to use in
appraising NAIA-IPT III.

Injustice would result if we award PIATCO just compensation based on the new
replacement cost of the NAIA-IPT III, and disregard the fact that the Government
expropriated a terminal that is not brand new; the NAIAIPT III simply does not have the
full economic and functional utility of a brand new airport.
Adjustments for depreciation should be made to reflect the differences between the
modern equivalent asset and the actual asset or the NAIA-IPT III. The reason is that
depreciation involves the loss of value caused by the property's reduced utility as a
result of damage, advancement of technology, current trends and tastes, or
environmental changes.229

This conclusion is consistent with Section 10 of RA 8974 IRR which allows us - and under
the NAIA-IPT-III's circumstances effectively direct us - to consider the kinds and quantities
of materials/equipments used, configuration and other physical features of the
properties, among other things, in determining the replacement cost of a building. To
quote Section 10:

Section 10. Valuation of Improvements and/or Structures - Pursuant to Section 7 of the


Act, the Implementing Agency shall determine the valuation of the improvements and/or
structures on the land to be acquired using the replacement cost method. The
replacement cost of the improvements/structures is defined as the amount necessary to
replacement improvements/structures, based on the current market prices for materials,
equipment, labor, contractor's profit and overhead, and all other attendant costs
associated with the acquisition and installation in place of the affected
improvements/structures. In the valuation of the affected improvements/structures, the
Implementing Agency shall consider, among other things, the kinds and quantities of
materials/equipment used, the location, configuration and other physical features of the
properties, and prevailing construction prices. (Emphasis supplied)

Depreciation should be deducted because modern materials and design are assumed in
the replacement cost method. In using the depreciated replacement cost method, "[t]he
intent is to provide a functionally similar improvement in order to apply a meaningful
level of depreciation."230

If we adopt the new replacement cost method, PIATCO would be compensated for more
than what it had actually lost. We must remember that the concept of just compensation
does not imply fairness to the property owner alone. In an eminent domain situation,
compensation must likewise be just to the public which ultimately bears the cost of
expropriation. The property owner is entitled to compensation only for what he actually
loses; what he loses is only the actual value of the property at the time of the taking.231

Just compensation must not extend beyond the property owner's loss or injury. This is the
only way for the compensation paid to be truly just, not only to the individual whose
property is taken, but also to the public who will shoulder the cost of expropriation. Even
as under valuation would deprive the owner of his property without due process, so too
would its overvaluation unduly favor him to the prejudice of the public.232

In using the depreciated replacement cost method of valuation, we do not rely on


Kaczmarek's affidavit and other documents not presented before the trial court, and
which were belatedly attached to the Government's motion for partial reconsideration
dated August 22, 2013.

This Court exercises its judicial function to fix just compensation in eminent domain
cases on the basis of the law, the rules, and the evidence - including the appraisal
reports and the embedded formula on how the parties arrived at the amounts of just
compensation - presented by the parties before the trial court and the entire record of
the consolidated cases.

The determination of just compensation in eminent domain cases is essentially and


exclusively a judicial function. Fixing the formula with definitiveness and particularity in
just compensation is not the function of the executive nor of the legislative branches,
much less of the parties in this case. Any valuation for just compensation laid down in
the statutes may not replace the court's own judgment as to what amount should be
awarded and how this amount should be arrived at. Legislative enactments, as well as
executive issuances, providing the method of computing just compensation are treated
as mere guidelines in ascertaining the amount of just compensation. When acting within
the parameters set by the law itself, courts are not strictly bound to apply the formula to
its minutest detail, particularly when faced with situations that do not warrant the
formula's strict application. The courts may, in the exercise of their discretion, relax the
formula's application to fit the factual situations before them.233

We clarify, however, that this Court is not confined to the use of the depreciated
replacement cost method in determining the just compensation in these cases. Valuation
is not exclusively a technical matter used in arriving at a numerical measure of
compensation. Rather, valuation in eminent domain is a judicial question based on
equitable principles. Thus, this Court shall likewise endeavor to weigh the justness and
fairness of compensation between the condemnor and the condemnee, considering the
factual circumstances of this case.234

3. Construction cost of the NAIA-IPT III

3.a. The base valuation of the NAIA-IPT III

The Government claims that the construction cost or the base valuation of the NAIA-IPT
III amounts to $300,206,693.00, itemized as follows:235

Total $USD in Manila


@3Q01
General Requirements and Conditions $ 36,279,033
Site Development$ 3,293,967
Terminal North Concourse $ 6,847,663
Terminal South Concourse $ 11,169,979
Terminal Head House $ 60,763,798
Terminal Building Services $ 54,982,628
Multi Storey Car Park $ 8,791,857
Special Systems $ 69,321,503
Airside Infrastructure Works $ 31,065,288
Landside Infrastructure Works $ 11,496,552
Terminal Support Facilities $ 6,194,425
Office Fit-out $0
Builder's Work in Connection with
Services

Included
Total $ USD $ 300,206,693
On the other hand, PIATCO, Takenaka, and Asahikosan argue that the construction cost
amounts to $360,969,791.00, viz:

In US dollars
total payments of piaTCO
Add: Awards by the London Court
Award by the Makati Court
Total Construction Cost 275,119,807.88
84,035,974.44
1,814,008.50
360,969,790.82
As we had earlier explained, construction cost is the amount necessary to replace the
improvements/structures, based on the current market prices for materials, equipment,
labor, contractor's profit and overhead. Construction or direct costs is also defined as the
costs that are "normally and directly incurred in the purchase and installation of an asset
or group of assets into functional use." Construction costs generally take into account the
labor used to construct buildings; materials, products, and equipment; contractor's profit
and overhead, including job supervision, workers' compensation, fire and liability
insurance, and unemployment insurance; performance bonds, surveys, and permits; use
of equipment; watchmen; contractor's shack and temporary fencing; materials storage
facilities; and power-line installation and utility costs.236 We find the Government's
computation of construction cost to be more realistic and appropriate. As the CA aptly
observed, the Gleeds Report is more "particularized, calculable and precise." Tim Lunt
sufficiently explained how he arrived at the value of $300,206,693.00:

2.2 Methodology

2.2.1 Stated simply, valuation of any given structure is derived by multiplying the
structure's dimensions, i.e., quantities by a price (i.e., rate) for constructing the works at
a designated time and specific location, adding the cost of works in, on, and around the
structure, and then accounting for inferior and non-performing works, and rectification of
those works.

2.2.2 I have arrived at the CCVs by carrying out the following sequence of tasks:

1) Understanding the project as bid and as eventually constructed.

2) Preparing measured quantities for the major elements of the completed works.

3) Establishing appropriate rates and prices for carrying out the works at that time in
Manila, Philippines.

4) Adjusting the quantities and/or rates and prices to take into account the extent of non-
performing and/or inferior quality works, the extent of rectification and remediation of
the Terminal to bring it to Code and making it structurally safe, and 22,193 m2 of
'Unnecessary Areas' that was built in the Terminal.

5) Making provision for the cost of remediation on items which deteriorated between
December 2002 and December 2004.
6) Making provision for the value of depreciation of Terminal 3 between December 2002
and December 2004.

7) Deducting the cost of rectification to otherwise bring the Terminal to the standards in
the Bid Documents, including the cost of building some 63,490 m2 of 'Necessary
Operational Areas' that was not built in the Terminal.237

2.3 Understanding the Project

2.3.1 I visited the Terminal 3 site between May 9, 2006 and May 12, 2006; May 30, 2006
and June 2, 2006; and June 20 and June 25, 2006, when I held meetings with the Office of
the Solicitor General, White & Case, MIAA, Arup, TCGI, and Gensler. I based myself at the
Terminal 3 complex during my visits in May and June 2006 and made a number of visits
to various areas both internal and external to Terminal 3 to gain a full understanding of
the scope of the works performed.

2.3.2 Members of my staff visited the Terminal 3 site between May 30, 2006 and June 25,
2006, and based themselves in the Terminal 3 complex to prepare quantities from
construction drawings made available by Takenaka, which, as noted, are not properly
designated 'As-built' drawings. To safeguard against error or outdated dimensional
information in the drawings, my staff checked certain major dimensions against the
structures as constructed and found the dimensions to be substantially accurate. We did
not check the drawings for detailed accuracy of the contents in the drawings (i.e., what
is within the dimensions).

2.3.3 Members of my staff also visited the Terminal 3 site between February 26, 2008
and March 11, 2007. During that time, they gathered pricing information from local
construction contractors to assist with the pricing of the CCVs.

2.3.4 I have examined all of the documents listed in Appendix 'B' and had discussions
with each of the Republic's airport architectural and engineering experts on the content
of their reports to gain a full understanding of the main issues affecting Terminal 3 and
the CCVs.238

2.4. Preparing the Quantities

Bills of Quantities

2.4.1 Construction projects are generally priced by construction contractors for the
purpose of competitive tendering using a Bill (or Bills) of quantities. Bills of Quantities are
defined as:

A list of numbered items, each of which describes the work to be done in a civil
engineering or building contract. Each item shows the quantity or work involved. When
the procedure of tendering is adopted (as is usual), the Bill is sent out to contractors.
Those contractors who wish to do the work return the bill, with an extended price
opposite each item. This priced bill constitutes the contractors' offer (or tender to bid) to
do the work.239

2.4.5 As noted, it was apparent from commencement of preparation of the CCVs that it
was doubtful that the set of drawings listed in Appendix "B" that Takenaka provided were
"As-built" or approved. Accordingly, because of uncertainty over the accuracy of the "As-
built" drawings, and to avoid preparing Bills of Quantities based on potentially inaccurate
information, I opted not to produce full Bills of Quantities to form the basis of the CCVs.
Instead, I relied on a "Principle Quantities" type approach.240

Principle Quantities

2.4.6 The "Principle Quantities" type approach is common in the cost planning and cost
estimating of construction projects. CESMM3 describes Principle Quantities as "a list of
principle components of the works with their approximated estimated quantities x x x
given solely to assist surveyors and estimators in making rapid assessment of the
general scale and character of the proposed works prior to the examination of the
remainder of the bills of quantities and other contract documents on which construction
estimates or tenders will be based." This methodology involves the preparation of
quantities for the major elements of the construction works where the costs cannot be
estimated accurately from historical data, or for those areas which are known to vary in
cost due to the quality or nature of the works. The quantities produced by adopting this
approach are what I term "Principle Quantities."241

2.4.7 Given the serious concerns over the accuracy of the so called "As-built" drawings,
and in order to make some assessment of the dimensional accuracy of the Takenaka
drawings, we carried out a number of checks of the plan dimensions against our
measurement of the physical dimensions of the structures. Overall dimensions (length
and width) were checked for a single floor plate in each of the Terminal North Concourse,
the Terminal South Concourse and the Terminal Head House buildings. Our checks
revealed no major discrepancies in respect of the physical plan dimensions of the
drawings against the actual dimensions of the overall building floor plans. We therefore
decided to use the drawings provided by Takenaka to produce the "Principle Quantities"
dimensions required for us to prepare the CCVs.

2.4.8 The 'Principle Quantities' dimensions produced by Gleeds from the drawings made
available by Takenaka (listed in Appendix 'B' Drawing List 1) are included in Appendix
"G."

2.4.9 It is standard good practice for quantities produced as part of the measurement
process to be checked by another member of the team who is not connected to the
particular project. The quantities we produced were technically checked by another
member of Gleeds for consistency among inter-related items, e.g., consistency between
floors and ceilings, and to identify any major items not measured. Another member of
Gleeds also checked the accuracy of the gross floor area, or "GFA," calculations for each
of the buildings and no significant errors were identified.242

2.5. Arriving at the Rates and Prices

2.5.1 In order to derive the rates by which the quantities are produced to arrive at the
CCV figures for this project, it is necessary to establish:

The period of construction;

The geographical location of the works;


Access to the site;

Any physical restrictions that might impede construction of the works;

The duration for carrying out construction;

Database of costs;

The specification of the works;

The quality of the works as constructed; and

The extent of works requiring remediation and rectification

2.5.2 All of the above factors have an effect on the CCVs and it is necessary to consider
the implications of each to arrive at the CCV figures. General guidance including a
number of the above items are referred to in the document titled "Guide to Carrying Out
Reinstatement Cost Assessments' published by the Royal Institution of Chartered
Surveyors in September 1999.243

3. CCV CALCULATIONS

3.1 Calculation of Rates and Prices

3.1.1 The CCVs have been calculated in UK costs converted to $USD in Manila. x x x

3.1.2 The basic approach to producing the CCV figures entails the following steps:

1) Establish UK pricing levels at 2nd Quarter 2006 (UK @ 2Q06) (the date when the
pricing exercise was initially carried out);

2) Convert the UK @ 2Q06 prices into UK at 3rd Quarter 2001 prices (UK @ 3Q01)
(the mid point of construction) using published and recognized indices;

3) Convert the UK @3Q01 prices into US dollars at 3rd Quarter ($USD @3Q01) (the
currency of the Termianl 3 Concession Contract) using published currency exchange
rates;

4) Convert the $USD @3Q01 prices to reflect local levels of pricing by applying a
Location Adjustment using various methods and sources of information to check the
accuracy of the conversion.

Each of these steps is described below.

3.1.3 First, the quantities produced for Terminal 3 were priced using a mixture of current
data in Gleeds' Database of costs and published cost data, including Spons, and are
priced at 2Q06 prices. These costs are shown in the CCVs as UK @ 2Q06. The rates
used are included in Appendix "D." Support in respect of the reference to the source
derivation of each of the rates and prices included in the CCVs are also included in
Appendix 'D' in the column headed "Rate Source."244
3.1.4 Second, it was necessary to adjust the prices to the midpoint of construction. As
such the "UK @ 3Q01" levels to align them with required base costs for inclusion in both
CCVs. This conversion is made by using the BCIS All-in Tender Price Indices published by
the Royal Institution of Chartered surveyors. These costs are shown in the CCV as "UK
@ 3Q01."

3.1.5 Third, the "UK @ 3Q01" costs were converted from UK pounds to US dollars using
an exchange rate of UK1 = ISD$1.4540. This exchange rate is obtained by averaging
the exchange rates recorded for October 1, November 1 and December 3, 2001 (i.e.,
3Q01) using historical data from the xrates.com website. These particular dates
represent the midpoint of construction which I refer to earlier in this report. The result of
this conversion is shown in the column marked "UK @ 3Q01" in Appendix "D."

3.1.6 Fourth, a "Location Adjustment" of the "$USD @ 3Q01" cost is necessary to account
for the local cost of constructing in Manila. Local cost data gathered in Manila by
members of my team in February and March 2007 was compared directly with UK prices
to establish a ratio between the UK and the Philippines. The cost data gathered in Manila
was compared on a like for like basis with 1st Quarter 2007 UK prices. The results of this
comparison of rates result in the "Location Adjustment." The Location Adjustments
resulting from this calculation which are applied to the CCV are UK1=$USD0.7576 for
the mechanical, electrical and plant elements. The average conversion rate across the
CCVs is UK1=$USD0.5370 or 53.70%.245

3.1.7 I double-checked my calculations of the Philippine prices by considering what the


conditions in the Philippines construction market were at the time the project would have
been bid, and how these conditions changed through to the end of 2002 when works
stopped on site. During the period of 1995 to 2002 the "Construction Materials
Wholesale Price Index" ("CMWPI") published by the 'Economic Indices and Indicators
Division, Industry and Trade Statistics Department, Philippine National Statistics Office,
Manila, Philippines' showed an average increase of 2.8% per annum.

During the periods 2000 to 2001 and 2001 to 2002 the increases where 2.1% and 3.4%
respectively. The increases are seen to be at similar levels both in the period during
which the works were priced, contracts executed and during construction and in my
opinion this would have resulted in no material difference to the pricing level of the
onshore works submitted at tender stage when compared with the actual cost incurred.

3.1.8 I also have gathered information from other Chartered Surveyors' published data
which also indicate that the Location Adjustment for the Philippines is in the region of
45%. This percentage is in line with the more detailed results obtained as part of my own
calculations.246

We thus rule in favor of the Government's position and reject PIATCO's claimed
construction cost. For one, PIATCO made inconsistent statements with respect to the
construction cost of the NAIA-IPT III. The Scott Wilson report states that the construction
cost of the NAIA-IPT III amounted to US$338.83 million, exclusive of attorney's fees, cost
of the suit, interest rates, etc. This amount is inconsistent with PIATCO's claimed
construction cost of $360,969,790.82 in its pleadings. The relevant portion of the Scott
Wilson report states:
2.1.4 When Scott Wilson was providing Lenders Technical Advice to the Asian
Development Bank in September 2002, the total value of the construction contracts,
estimated by PCI at that time, was as follows:

On-Shore Contract: US$132.35 million

Off-Shore Contract: US$190.08 million

Total US$322.43 million, excluding VAT

2.1.5 The contract priceS under the EPC Contracts are as follows:

On-Shore Contract. US$133,715,911

Off-Shore Contract. US$190,037,328

Total US$323,753,239 excluding VAT

2.1.6 The amounts certified for the costs of construction up to 23 June 2004 in payment
certificate no 35 which is the last payment certificate that has been certified by PIATCO,
are as follows:

On-Shore US$133.64 Million

Off-Shore US$189.83 Million

VAT US$11.43 Million

ER Changes US $3.93 Million

TOTAL US$338.83 Million

2.2.13 Based on the certified IPC no. 35 for both Takenaka and Asahikosan, the cost of
the completed and certified works (as of IPC No. 35) are as follows:

On-Shore US$133.64 Million

Off-Shore US$189.83 Million

VAT US$11.43 Million

ER Changes US $3.93 Million

TOTAL US$338.83 Million

2.2.14 The construction cost stated above x x x is at 2002 prices (no adjustments for
inflation/escalation) and are exclusive for all other attendant costs, such as the
engineering and architectural service fees, quality assurance service fees, construction
supervision service fees, construction insurance, site development costs, financing costs
and other associated costs. 2.2.15 We would conclude that the certified cost of
construction of US$338 million and the other attendant costs are fair and reasonable. We
note that the Gleeds' estimate is close to the figure in 2.2.13 above.

2.2.16 It is noted that in the Gleeds Report entitled Construction Cost Valuation for NAIA
IPT3 dated 15th November 2010 the project Base Case CCV is valued at a gross amount
of US$334.61 million (US$300.21 million + US$34.6 million deductions).247

Furthermore, PIATCO did not present detailed supporting information on how the certified
construction cost of US$338.83 million was arrived at.248

PIATCO's statement that the total sum of $360,969,791.00 is evidenced by the As-Built
Drawings is misleading. Takenaka and Asahikosan's computation of construction cost
includes items which do not pertain to the construction of the NAIA-IPT III. PIATCO,
Takenaka, and Asahikosan erroneously included in the construction cost the costs of the
action, interest rates on the judgment award of $14,827,207.00 and $52,008,296.54,
attorney's fees, and litigation expenses.

These items were not directly incurred in the construction of the NAIA-IPT III. In Claim No.
HT-04-248, only $6,602,971.00 and $8,224,236.00 or the sum of $14,827,207.00 can
possibly relate to the construction cost of the NAIA-IPT III. On the other hand, in Claim
No. HT-05-269, only the amounts of $21, 688,012.18 and $30,319,284.36 or the total
sum of $52,008,296.54 can be possibly imputed to the construction cost of the terminal.

In any case, we cannot consider the London awards as evidence of the construction cost
of the NAIA-IPT III. Todo so in this case is to recognize Claim No. HT-04-248 and Claim No.
HT-05-269 when their recognition and enforcement have yet to be decided by this Court
in G.R. No. 202166. It is a basic rule that Philippine courts cannot take judicial notice of a
foreign judgment or order.249

We can only recognize and/or enforce a foreign judgment or order after a conclusive and
a final finding by Philippine courts that: (1) the foreign court or tribunal has jurisdiction
over the case, (2) the parties were properly notified, and (3) there was no collusion,
fraud, or clear mistake of law or fact.250

PIATCO, Takenaka, and Asahikosan alleged that PIATCO paid Takenaka and Asahikosan
the sum of $275,119,807.88 pursuant to the Onshore Construction and Offshore
Procurement Contracts. According to the RTC (whose ruling the CA did not reverse),
these parties failed to prove the fact of payment of $275,119,807.88.

We add that the alleged payment of $275,119,807.88 does not support their allegations
that this amount pertains to the construction cost of the NAIA-IPT III. Takenaka and
Asahikosan's admission that the sum of $275,119,807.88 were paid by PIATCO does not
bind the Government who is not a party to the Onshore Construction and Offshore
Procurement Contracts. If at all, the Court can only recognize the sum of $66,834,503.54
from PIATCO, Takenaka, and Asahikosan's computation of construction cost, which is
much lower than the Government's computed construction cost of $300,206,693.00.

Lastly, we note that Takenaka and Asahikosan's claimed construction cost is different
from the amount reflected in the Tengson Report. In this Report, Gary Taylor stated the
"true value of the NAIA-IPT III facility is nearer to US$408 million, given the fact that
Gleeds failed to recognize or include any values for design & other consultants (10%) or
property inflation based on GRP schedules (15%)."251

3.b. Structural defects on the NAIA-IPT III

The Government contends that that the NAIA-IPT III suffers from structural defects, as
follows:

1. Failed structural elements of the NAIA-IPT III, as identified in the Arup Seismic
Evaluation Report and Gravity Loading and Element Capacity Assessment;

2. The inferior quality of material used and works, including, for example, floor tiling,
plasterboard wall finishes and ceilings, and the internal and external metal paneling;

3. The cost of seismic and gravity load structural retrofits for the failed elements in the
terminal buildings and multi-storey car park structures, as described in Arup's Drawings
listed in Appendix "B" Drawing List 2 and other rectification works required to bring the
Terminal to compliance with applicable building and airport codes as indicated in the
Appendices of Arup's Site Observation Report; and

4. The cost of seismic and gravity load structural retrofits for the failed elements in the
elevated roadway structures, as described in Arup's Drawings listed in Appendix "B"
Drawing List 3, Arup Review on "TCGI Report of Civil Design Review and Evaluation" -
Elevated Roadway, dated March 2009; and other rectification works required to bring the
elevated roadways to compliance with applicable building and airport codes, as indicated
in the Appendices of Arup's Site Observation Report.252

Scott Wilson argued that no structural elements of the NAIA-IPT III actually failed.253 He
emphasized that there were varying opinions regarding the integrity of the NAIA-IPT III:

3.3.7 The adequacy of the structural frame, individual load bearing elements and
foundations under "normal" gravity loads should be able to be readily evaluated.
However, there are clearly differences of opinion between all 3 parties who have carried
out design and assessments in this regard in terms of the extent of 'apparent failed
elements' under the design appraisal which ranges from:

Meinhardt - zero failures

Arup reports under gravity loading - 4% of superstructure elements and less than 1%
of all substructure elements

Arup reports under seismic loading - less than 1% of all primary RC and composite
columns, around 3% of all primary RC beams, around 6% of all shear walls, around 8% of
piles (mostly at shearwalls) and around 1% of mat footing locations. Differential
settlements are considered insignificant to cause any additional distress in the buildings.
Pounding between floors of adjacent sectors is not an issue.

TCGI - extent not readily identifiable from documents reviewed although within Section
2.0 of the TCGI July 2008 report it states that the evaluation did not yield results pointing
to foundation instability as a cause for concern.
3.3.8 On the basis of discussion in 3.3.6 above it would be reasonable to follow the
assessment of the original designer (Meinhardt) who also provided a Letter of Guarantee
confirming the adequacy of their design, (ref para 3.3.30).

He also disputed the Government's allegations that some portions of the NAIA-IPT III
would not be able to sustain strong earthquakes and that some areas of the NAIA-IPT III
were built using materials with inferior quality:

c. Seismic Activity (Terminal and Multi-Storey Carpark)

3.3.12 It is understood from press reports that, since substantial completion of the
airport in 2002, Manila has been subjected to a number of earthquakes. It has been
reported that on25 March 2010 a strong earthquake measuring 6.2 on the Richter scale
hit Metro Manila according to the government seismology institute. It was further
reported that in July 2010 "intense seismic activity persists in the Philippines and Manila
continues to be struck by moderate to strong earthquakes of 6.5 to 7.6 magnitude." We
can find no record relating to any damage being reported in terms of the structure,
finishes or services associated with NAIA Terminal 3 as a result of these occurrences.

xxxx

3.3.14 Inferior quality of materials used, for example internal finishes.

3.3.15 Gleeds do (sic) not define exactly what areas they mean by this. There is a
number of finished items where deductions in excess of US$800,000 have been made
but the rational for the quantification of the deduction is not explained. If the works were
inferior to that specified then this would be reflected in the payments made to Takenaka
under the EPC contract.

Scott Wilson likewise supported Takenaka and Asahikosan position that the Government's
experts examined the structural integrity of the NAIA-IPT III using the recent building
codes, which were not yet in place at the time the NAIA-IPT III was designed and built.

3.3.18 Seismic and gravity load retrofit and other rectification works required to bring the
building to compliance with applicable building and airport codes.

3.3.22 TCGI also provided an option titled "A Government Prerogative" which states:

Research in earthquake engineering has rapidly progressed to the extent that seismic
design provisions for the design of new buildings and procedures for the evaluation of
existing ones have drastically evolved. The current edition of the National Structural
Code of the Philippines (NSCP) is dated 2001, whereas Meinhardt used the 1992 edition
which was applicable at the time the Terminal was designed.

There are new published guidelines for the structural safety assessment of existing
buildings from such organizations as the Federal Emergency Management Agency
(FEMA) which have evolved into published documents for the structural rehabilitation of
existing buildings. TCGI have therefore suggested that MIAA and the Philippine
Government may wish to use the more recent published documents to enhance/upgrade
the facility.
3.3.23 It would appear from the Arup documents reviewed that they have taken this
approach in their assessment of design i.e., consideration of updated documents (NSCP
2001 and UBC 1997) whilst Meinhardt used the relevant codes at the time of design
which was NSCP 1992. Consequently any results from assessments carried out to later
published codes has no direct bearing on the design of the facility which was carried out
prior to the issue of these later standards. As such any assessment and proposed
strengthening/retrofit works in this regard is considered to be an enhancement of the
design and has no relevance on the value of the NAIA Terminal 3 facility as constructed
under the original contract.

On the other hand, the relevant portions of the Tengson Report dated December
2010254 states:

In addition, we should note herein that Takenaka's structural designer, Messrs.


Meinhardt, concluded that its check on the structural ductility requirements (as
questioned by TCGI & Ove Arup) on elements which do not resist lateral forces, is in full
compliance of the Philippine Code NSCP 1992 and its originating design code ACI-318
(1989), and this is supported by several members of the American Concrete Institute
(ACI). Both Takenaka and other parties (including Meinhardt and members of the ACI),
have concluded that TCGI & Ove Arup reports use several conflicting and misunderstood
mathematical models. These include but are not limited to the following:

(i) TCGI used larger loadings than those specified in the "Design & Load Schedule Plan."

(ii) Their modeling for "sector 3" uses incorrect storey elevations and the slab thickness
did not match those on the "as built" plans.

(iii) Beam section sizes do not match those shown on the "as built" plans.

(iv) TCGI used "Dynamic Analysis" in their modeling, whereas there is no requirement for
such an analysis in the Philippine Structural Code - NSCP 1992.

(v) TCGI & Ove Arup used the updated NSCP 2001 (and UBC1997) Philipine Codes, yet
Takenaka's design was based upon the NSCP 1992 code because the 2001 updated was
not available when the NAIA 3 designs were completed in 2000.

(vi) TCGI & Ove Arup reports were based upon a system which incorporates frame beams
and columns as primary structural element, whereas the Takenaka design used a
building frame system (Sheer Wall System). Two differing design methods will lead to
different results.255

PIATCO also argued that it is not the sole entity responsible for the completion of and/or
compliance with the outstanding items in the JAC project status summary report dated
February 28, 2003. The summary report shows that some outstanding items should be
performed by the Government.256

While Scott Wilson stated that only retrofit works actually undertaken should be taken
into consideration in the valuation of the NAIA-IPT III,257 Takenaka and Asahikosan
insisted that subsequent rectification works in the NAIA-IPT III were only intended to
ensure that the terminal would be compliant with the current building laws and
standards.258 They reiterated that the design of the NAIA-IPT III was compliant with the
NSCP 1992, the effective building code when the terminal was designed and built.259

3.b.1. The Court cannot consider


the additional evidence submitted
by Takenaka and Asahikosan
before the Court of Appeals

At the outset, we rule that we cannot consider Takenaka and Asahikosan's attachments
in their (1) Motion for Submission of Additional Documents dated July 30, 2013;260 (2)
Supplemental Motion for Submission of Additional Documents dated October 3, 2012;261
and (3) Second Supplemental Motion for Submission of Additional Documents dated April
11, 2013 in CA G.R. No. CV-98029.262 These attachments sought to refute the
Government's position that the NAIA-IPT III suffered from massive structural defects.

Takenaka and Asahikosan posit that they could have submitted reports before the trial
court to show that the design of the NAIA-IPT III was structurally sound if the RTC had
only furnished the parties copies of the BOC Final Report and afforded them the
opportunity to file a Comment on

the Final Report.

Under Section 3, Rule 6 of the Internal Rules of the CA, the CA may receive evidence in
the following cases:

(a) In actions falling within its original jurisdiction, such as (1) certiorari, prohibition and
mandamus, (2) annulment of judgment or final order, (3) quo warranto, (4) habeas
corpus, (5) amparo, (6) habeas data, (7) anti-money laundering, and (8) application for
judicial authorization under the Human Security Act of 2007;

(b) In appeals in civil cases where the Court grants a new trial on the ground of newly
discovered evidence, pursuant to Sec. 12, Rule 53 of the Rules of Court;

(c) In appeals in criminal cases where the Court grants a new trial on the ground of newly
discovered evidence, pursuant to Sec. 12, Rule 124 of the rules of Court; and

(d) In appeals involving claims for damages arising from provisional remedies. (Emphasis
supplied)

This provision qualifies the CA's power to receive evidence in the exercise of its original
and appellate jurisdiction under Section 9 of BP 129, as amended:

Sec. 9. Jurisdiction. - The Court of Appeals shall exercise:

xxxx

The Court of Appeals shall have the power to try cases and conduct hearings, receive
evidence, and perform any and all acts necessary to resolve factual issues raised in
cases falling within its original and appellate jurisdiction, including the power to grant
and conduct new trials or further proceedings. Trials or hearings in the Court of Appeals
must be continuous and must be completed within three (3) months, unless extended by
the Chief Justice.

Since Takenaka and Asahikosan filed an ordinary appeal pursuant to Rule 41 in relation to
Rule 44 of the Rules of Court, the CA could only have admitted newly discovered
evidence. Contrary to Takenaka and Asahikosan's claim, the attachments to the motions
are not newly discovered evidence. Newly discovered evidence is evidence that could
not, with reasonable diligence, have been discovered and produced at the trial, and
which, if presented, would probably alter the result.263

We find it hard to believe that Takenaka and Asahikosan could only have possibly secured
the attachments after the trial court had rendered its decision. With the exercise of
reasonable diligence, Takenaka and Asahikosan could have produced these documents
before the BOC since they were fully aware that the Government presented evidence on
the alleged structural defects of the NAIA-IPT III.

In fact, in their Manifestation/Submission dated November 3, 2009, Takenaka and


Asahikosan attached the "Report and Response from Takenaka & Asahikosan, Contactors
for the NAIA 3 Facility and Intervenors in the Expropriation case between the GRP and
PIATCO - October 2009" to refute the allegations of structural defects. Moreover,
Takenaka and Asahikosan manifested that they were reserving their right to submit
additional reports, comments, and memoranda with respect to this issue. The relevant
portions of the Manifestation/Submission dated November 3, 2009 provides:

1. The record[s] of this case will show that to date, plaintiffs have submitted various
reports prepared by TCGI Engineers, Ove Arup & Partners Massachusetts, Inc. and Gleeds
(Bristol) Partnership to this Honorable Court. The TCGI and Ove Arup Reports point out
alleged defects on the IPT 3, while Gleeds made an attempt to establish the value of the
IPT 3, taking into account the findings of the TCGI and Ove Arup. Intervenors have not
given their comments on these reports since they have not been required to do so by
this Court.

2. With the RTC's permission, intervenors respectfully submit the attached "Report and
Response from Takenaka & Asahikosan, Contactors for the NAIA 3 Facility and Intervenors
in the Expropriation case between the GRP and PIATCO - October 2009" prepared by Mr.
Gary Taylor, in response to the above mentioned reports. Intervenors respectfully
manifest that they are reserving their right to submit additional reports, comments and
memoranda in support of this submission and to aid this Honorable Court in determining
the true value of the IPT 3.264 (Emphasis supplied)

3.b.2. Equiponderance of evidence on the alleged structural defects of the NAIA-IPT III
favors PIATCO, Takenaka and Asahikosan. Nonetheless, even without considering and/or
giving probative value to the additional evidence presented by Takenaka and Asahikosan
before the CA, this Court finds that the Government failed to establish by preponderance
of evidence that the NAIA-IPT III suffered from structural defects.

Under Section 3, Rule 131 of the Rules of Court, it is presumed that a person is innocent
of wrong;265 that a person takes ordinary care of his concerns;266 that private
transactions have been fair and regular;267 and that the ordinary course of business has
been followed.268
Based on these presumptions, we presume that Takenaka and Asahikosan built the NAIA-
IPT III in accordance with the specifications required under the Onshore Construction
Contract and Offshore Procurement Contract. We also presume that the NAIA-IPT III is
structurally sound and compliant with the applicable building codes and other laws at the
time it was designed and built. However, these presumptions are merely disputable
presumptions and may be overcome by contradicting evidence. The burden of proof lies
with the Government to prove by preponderance of evidence that the NAIAIPT III suffered
from structural defects. "Preponderance of evidence" is the weight, credit, and value of
the aggregate evidence on either side and is usually considered to be synonymous with
the term "greater weight of evidence" or "greater weight of credible evidence."269

In determining where the preponderance of evidence or superior weight of evidence on


the issues involved lies, the court may consider all the facts and circumstances of the
case, the witness' manner of testifying, their intelligence, their means and opportunity of
knowing the facts to which they are testifying, the nature of the facts to which they
testify, the probability of their testimony, their interest or want of interest, and also their
personal credibility in so far as the same may legitimately appear during trial. The court
may also consider the number of witnesses, although preponderance does not
necessarily lie with the greater number.270

The Government's burden of proof to show that the NAIA-IPT III is indeed defective does
not shift to its adverse parties. The burden of proof remains throughout the trial with the
party upon whom it is imposed.

It is the burden of evidence that shifts from party to party during trial.271 This means
that the burden of going forward with the evidence is met by the countervailing evidence
of PIATCO, Takenaka and Asahikosan which, in turn, balances the evidence introduced by
the Government. Thereafter, the burden of evidence shifts back to the Government.

In the present case, the experts and consultants of the Government, PIATCO, Takenaka
and Asahikosa arrived at conflicting findings regarding the structural integrity of the
NAIA-IPT III. The Government's experts detailed with particularity the alleged defects of
the NAIA-IPT III, which allegations the experts of PIATCO, Takenaka and Asahikosan
refuted with particularity.

Under the equiponderance of evidence rule, when the scale of justice shall stand on
equipoise and nothing in the evidence inclines a conclusion to one side or the other, the
court will find for the defendant.272

If the facts and circumstances are capable of two or more explanations, one of which is
consistent with the allegations of the plaintiff and the other consistent with the defense
of the defendant, the evidence does not fulfill the requirement of preponderance of
evidence. When the evidence of the parties is in equipoise, or when there is a doubt as
to where the preponderance of evidence lies, the party with the burden of proof fails.273

The reason for this rule is that the plaintiff must rely on the strength of his evidence and
not on the weakness of the defendant's claim. Thus, even if the evidence of the plaintiff
may be stronger than that of the defendant, there is no preponderance of evidence on
his side when this evidence is insufficient in itself to establish his cause of action.274
In the present case, PIATCO, Takenaka and Asahikosan, met the Government's allegations
regarding the structural integrity of the NAIA-IPT III.

A reading of the reports of the parties' respective experts shows that each party
presented an equally persuasive case regarding the structural soundness or defect of the
NAIA-IPTIII. The Government's case on the alleged structural defect of the NAIA-IPT III has
been met by equally persuasive refutations by the experts of PIATCO, Takenaka and
Asahikosan.

As a matter of law and evidence, the Government's case regarding this matter must fail.
Since PIATCO, Takenaka and Asahikosan presented equally relevant and sufficient
countervailing evidence on the structural soundness of the NAIA-IPT III, the scales of
justice tilt in their favor. Neither party successfully established a case by preponderance
of evidence in its favor; neither side was able to establish its cause of action and prevail
with the evidence it had. As a consequence, we can only leave them as they are.275

We thus add to the construction cost the sum of $20,713,901, itemized below:276

Item In Dollars
Surface demolition 1,971,500
Structural retrofit 6,860,660
Elevated road 2,443,276
Miscellaneous
Alarms 154,460
Defective Ceiling 479,626
CUTE not working2,774,563
Inferior FIDS 22,020
BHS Inferior Screening Software 957,881
Fire Protection Inferior coverage 924,851
Civil and HV
Apron Civil 829,619
Taxiway Civil 439,280
Storm Water 2,604,081
HV 252,084
Total 20,713,901
Admittedly, the Government did not open to the public certain areas of the NAIA-IPT III
because of uncertainties on their structural integrity.277 The Scott Wilson Report also
recognized that some retrofit works should also be undertaken in some of the areas of
the NAIA-IPT III. It stated that only retrofit works actually undertaken in the building
should be taken into consideration in appraising the NAIA-IPT III.278

On August 14, 2012, the DOTC invited construction firms to participate in the P212.3
million NAIA-IPT III structural retrofit project. The structural retrofit of the NAIA-IPT III that
was offered for bidding had eleven components: shear wall thickening; slab thickening;
application of FRPs to columns, beams and slabs; thickening of flat slab drop; enlarging
of column size; enlarging pile cap and footings; steel jacketing; providing shear blocks to
pier headstock (elevated access roadway); enlarging of pier footings (elevated access
roadway); application of FRP to piers (elevated access roadway); and increasing seismic
gap between the elevated access roadway and adjacent structures (sector 1, 2, car
park).279 The Official Gazette further stated:
Shear wall thickening is meant to fortify the reinforced concrete wall to increase its
capacity against horizontal structure movement. At the same time, thickened slabs will
increase their bending capacity and resistance against heavy superimposed loadings.

Applying fiber-reinforced polymer (FRP) to columns, beams, and slabs will increase their
strength and resistance against excess loads and combined forces of elements. A thicker
flat slab drop is meant to strengthen the slab-column connection.

Bigger -sized columns will also increase their capacity against combined stresses, while
enlarged pile cap and footings will increase foundation capacity under compression. They
also prevent movement of the foundation during earthquakes.

Steel jacketing is meant to resist the additional loads. Shear blocks to pier headstock will
provide a bridge interlock is meant to distribute excess load along the carriage way.

Enlarged pier footings will prevent foundation overturning during earthquake events.

Application of FRP to piers will also increase the column capacity and ductility against
combined stresses due to earthquake forces.

Increased seismic gap between the elevated access roadway and adjacent structures will
reduce the risk of pounding between the bridge and building structure.280

However, no documents regarding the retrofit project exist as part of the record of the
case. The retrofit bid took place in 2012, or after the promulgation of the trial court's
ruling. Hence, we have to disregard Government claims pertaining to the retrofit project.

3.c. The unnecessary areas

Gleeds excluded "unnecessary areas" from the computation of the base value. These
unnecessary areas are the multi-level retail mall that is accessible only through the
multi-storey car park (20,465 m2), and the excess retail concession space(1,727 m2).281

We find the exclusion of the unnecessary areas from the base value unjustified. Since the
Government would expropriate the entire NAIA-IPT III, the Government should pay for the
replacement cost of the retail mall and the excess retail concession space. The
Government cannot avoid payment simply because it deems the retail mall and the retail
concession space as unnecessary in its operation of the NAIA-IPT III. To reiterate, the
measure of just compensation is not the taker's gain, but the owner's loss.282

Consequently, we include in the computation of construction costs the excess concession


space in the amount of $1,081,272.00, and the four-level retail complex in the sum of
$12,809,485.00.283

4. Attendant costs of the NAIA-IPT III

Scott Wilson criticized the Gleeds Report for excluding the attendant costs in the
construction cost valuation. He stated:
3.1.13 Gleeds do (sic) not show any costs for planning and design consultancy fees
preconstruction. In our experience the following percentage ranges of the construction
cost would typically be the international norms for these fees.

Attendant Costs Percentage Range

Architecture 3.0 to 4.0 %

Civil and Structural 1.0 to 4.0 %

Electrical and Mechanical 2.5 to 3.5 %

Quantity Surveyor 1.0 %

Project Management 1.0 %

Total 8.5 to 11.5 %

3.1.14 On the basis of a construction cost valuation of the order of US$322 million we
would expect planning and design consultancy fees preconstruction to be a minimum of
US$27 million, based on typical international norms.

3.1.15 Some preliminary design was carried out by Takenaka prior to the EPC tender
design so slight lower planning and design consultancy fees could be expected. It is
understood that PIATCO have paid US$19.3 million to the designers PCI, SOM, PACICON
and JGC (architect of record) and this therefore appears a fair and reasonable fee.

3.1.16. In addition there is also the cost of site supervision. In this case there was the
independent QA role undertaken by Japan Airport Consultants and construction
supervision by PCI. It is noted that the Bid Document suggested that up to 3% of the
construction cost should be allowed for the independent QA role. In our experience we
would expect QA and construction supervision to cost between 3% and 5% of the
construction cost.

3.1.17 On the basis of a construction cost valuation of the order of US$322 million we
would expect the cost of construction supervision to be a minimum of US$9.5 million. It
is understood that PIATCO have paid US$7.9 million to the QA Inspectors (JAC) and
US$4.2 million to PCI, SOM, PACICON and JGC and this therefore appears not reasonable.

3.1.18 In summary, PIATCO have paid the following consultancy fees:

Planning and design consultancy fees


preconstruction US$19.3 million
QA Inspectors US$7.9 Million
Construction supervision US$4.2 Million
Total US$31.4 million
3.1.19 In our opinion these fees are in reasonable range.

Site Preparation Costs


3.1.20 We understand that PIATCO has incurred costs of US$10.3 million for relocation of
PAF existing facilities, removal of subterranean structures and site preparation which the
Gleeds Base Case CCV has not included.

Legal Costs

3.1.21 We assume that in addition to the above fees PIATCO has incurred legal costs in
planning and constructing the development and this is quite normal on BOT concession
contracts where contract agreements and responsibilities have to be agreed between a
number of different parties.

Overall Summary

3.1.21 PIATCO has incurred consultancy fees and site preparation costs of US$41.7
million (US$31.4 plusUS$10.3 million) not included by Gleeds in the Base Case CCV.284

In response, Tim Lunt asserted that its CCV of US$300,206,693.00 already includes the
attendant costs of US$36,279,033 under the heading "General Requirements and
Conditions." The sum of US$36,279,033 represents the General Requirements Section of
the Takenaka Bill of Quantities. The "General Requirements and Conditions" is composed
of engineering and architectural services fees, quality assurance services fees,
construction supervision services fees, construction insurance, and site. Tim Lunt,
however, admitted that the "General Requirements and Conditions" exclude financing
costs, and other associated costs. He likewise stated that PIATCO's attendant costs have
no evidentiary support.

On December 14, 2010, PIATCO attached to its Compliance documentary evidence of its
claimed attendant costs of US$70,197,802.00. These include photocopies of summary of
payments for architecture & engineering, quality assurance, construction supervision,
construction insurance, site development, other costs and financing costs, official
receipts, statements of account, sales invoices, endorsements, insurance policies and
other related documents, acknowledgement receipts, agreements, invoices, and bonds.

PIATCO claims that the following entities rendered services in the construction of the
NAIA-IPT III:

Services Rendered Entities that Rendered the


Services
Engineering and Architecture Pacific Consultants International Asia, Inc. Pacicon
Philippines, Inc. Architect J. G. Cheng RMJM Philippines, Inc.
Quality Assurance Japan Airport Consultants I.A. Campbell & Associates
Construction Supervision Pacific Consultants International Asia, Inc.
Construction Insurance Gotuaco del Rosario
Site DevelopmentBases Conversion Development Corporation Skidmore, Owings &
Merrill Pacific Consultants International Asia, Inc. Natural Resource Development
Corporation Serclan Enterprises Geodesy Services, Inc. Geotechnics Philippines, Inc.
Revalu Constructions & Supply N.O. Mercado Construction, Inc. Lopez Drilling Enterprises
Monark Constructions Illustrious Security and Investigation Agency, Inc. Core Watchmen,
Security and Detective Agency Corp.
Other Services Laguna Lake Development Authority National Telecommunications
Commission Prudential Guarantee and Assurance, Inc. Manila Electric Company, Inc.
Maynilad Philippine Long Distance Telecommunications, Inc. Myrtle Intergen Exchange
Corp.
Financing Services Dresdner / Kfw / Helaba Banks Fraport AG/FAG Deutsche Bank
Reyes Tacandong & Co. checked the mathematical accuracy of the attendant costs.
PIATCO asserts that it engaged the services of various consultants in the construction of
the NAIA-IPT III and incurred the following attendant costs:

Attendant Costs Amount


Engineering and Architecture US$19,372,539
Quality Assurance US$6,923,720
Construction Supervision US$4,302,227
Construction Insurance US$4,329,272
Site DevelopmentUS$8,358,169
Other Costs US$ 308,985
Financing Costs US$26,602,890
Total US$70,197,802
The BOC, the RTC, and the CA uniformly found that PIATCO failed to substantiate its
attendant costs. The CA observed that PIATCO's summarized computation of attendant
costs was self-serving and unsupported by relevant evidence.

Unlike the BOC and the RTC which pegged the attendant cost at 10% of the construction
cost as an accepted industry practice, the CA made a finding that the "General
Requirements and Conditions" in the Gleeds' Appraisal Report constitutes the attendant
costs. The CA stated that there is no need to further recognize and award separate
attendant costs because these were already included in the construction cost valuation
of US$300,206,693.00. The CA explained that the attendant cost becomes part of the
total construction cost once the construction is completed.285

4.a. PIATCO's attendant costs

Under the best evidence rule, when the subject of inquiry relates to the contents of a
document, no evidence shall be admissible other than the original document itself. In
proving the terms of a written document, the original of the document must be produced
in court.

The best evidence rule ensures that the exact contents of a document are brought
before the court. In deeds, wills, and contracts, a slight variation in words may mean a
great difference in the rights and obligations of the parties. A substantial hazard of
inaccuracy exists in the human process of making a copy by handwriting or typewriting.
Moreover, with respect to oral testimony purporting to give the terms of a document
from memory, a special risk of error is present, greater than in the case of attempts at
describing other situations generally.286

The best evidence rule likewise acts as an insurance against fraud. If a party is in the
possession of the best evidence and withholds it, and seeks to substitute inferior
evidence in its place, the presumption naturally arises that the better evidence is
withheld for fraudulent purposes that its production would expose and defeat. The rule
likewise protects against misleading inferences resulting from the intentional or
unintentional introduction of selected portions of a larger set of writings.287
As exceptions to the best evidence rule, Section 3, Rule 130 of the Rules of Court
provides that non-original documents may be produced in court in the following cases:

(a) When the original has been lost or destroyed, or cannot be produced in court, without
bad faith on the part of the offeror;

(b) When the original is in the custody or under control of the party against whom the
evidence is offered, and the latter fails to produce it after reasonable notice;

(c) When the original consists of numerous accounts or other documents which cannot
be examined in court without great loss of time and the fact sought to be established
from them is only the general result of the whole; and

(d) When the original is a public record in the custody of a public officer or is recorded in
a public office. (Emphasis supplied)

Secondary evidence of the contents of writings is admitted on the theory that the
original cannot be produced by the party who offers the evidence within a reasonable
time by the exercise of reasonable diligence.288

PIATCO argues that its non-submission of original documents before the trial court is
justified under Section 3 (c), Rule 130 of the Rules of Court. It points out that a party
need not submit the original when it consists of numerous accounts or other documents
which cannot be examined in court without great loss of time and the fact sought to be
established from them is only the general result of the whole. PIATCO insists that the
lower courts erred in not giving probative value to the report prepared by Reyes
Tacandong & Co., an auditing firm, validating PIATCO's computation of attendant costs.
Significantly, Reyes Tacandong & Co. failed to state that it examined the original
documents in validating PIATCO's computation of attendant costs.

We agree with PIATCO that it need not submit numerous and voluminous invoices, official
receipts, and other relevant documents before the trial court to prove the attendant
costs that it incurred in the construction of the NAIA-IPT III. The trial court may admit a
summary of voluminous original documents, in lieu of original documents, if the party
has shown that the underlying writings are numerous and that an in-court examination of
these documents would be inconvenient. In other words, Section 3 (c), Rule 130 of the
Rules of Court does away with the item-by-item court identification and authentication of
voluminous exhibits which would only be burdensome and tedious for the parties and the
court.

However, as a condition precedent to the admission of a summary of numerous


documents, the proponent must lay a proper foundation for the admission of the original
documents on which the summary is based. The proponent must prove that the source
documents being summarized are also admissible if presented in court.289

In concrete terms, the source documents must be shown to be original, and not
secondary. Furthermore, the source documents must likewise be accessible to the
opposing party so that the correctness of the summary of the voluminous records may
be tested on cross-examination and/or may be refuted in pleadings. In ordinary trial-type
proceedings, a proper foundation for the introduction of a summary may be established
through the "testimony of the person who is responsible for the summary's preparation,
or the person who supervised the preparation of the summary."290

The primary reason for these procedural foundations is that the summary of numerous
documents is, in strict terms, hearsay evidence. The trial court should not haphazardly
allow a party to present a summary of numerous documents and immediately admit and
give probative value to such summary without sufficiently laying these foundations. If
the source documents of the summary are non-original, the trial court would commit a
grave error in admitting and/or giving probative value to the summary of non-original
documents; the evidence admitted would be double hearsay.291

Furthermore, when a party invokes Section 3 (c), Rule 130 of the Rules of Court, he does
not similarly invoke Section 3 (a), (b), and/or (d), Rule 130 of the Rules of Court. He does
not likewise claim that the original documents have been lost or destroyed. The party
merely asserts that the numerous documents cannot be examined in court without great
loss of time and that the fact sought to be established from these documents is only the
general result of the whole. Whenever a party seeks an exemption under the best
evidence rule pursuant to Section 3 (c), Rule 130 of the Rules of Court, he asks
permission from the trial court to produce a summary of numerous documents, whose
originals are available to the adverse party for inspection. He does not ask permission
from the trial court to present in evidence the numerous non-original documents.
Otherwise, the very purpose of Section 3 (c), Rule 130 of the Rules of Court would be
defeated. In that case, every exhibit of non-original documents would be identified,
authenticated, and cross-examined, leading to a tedious and protracted litigation.

Thus, if a party desires to present photocopies of the original documents, he must first
establish that the presentation of photocopies is justified under Section 3 (a), (b), and/or
(d), Rule 130 of the Rules of Court. He must establish the presence of all the elements
under these provisions. In the case of lost or destroyed documents, the offeror of non-
original documents must first prove the following elements before secondary evidence is
admitted before the court: (a) the existence or due execution of the original; (b) the loss
and destruction of the original, or the reason for its non-production in court; and (c) the
absence of bad faith on the part of the offeror to which the unavailability of the original
can be attributed. To conclude otherwise is to allow the party to circumvent the best
evidence rule and the requirements under Section 3 (a), (b), and (d), Rule 130 of the
Rules of Court by merely invoking Section 3 (c), Rule 130 of the Rules of Court.

In the present case, PIATCO attached to its Compliance dated December 14, 2010, the
photocopies of numerous documents, and the validation of PIATCO's computation of
attendant costs prepared by Reyes Tacandong & Co., among others. PIATCO justifies the
non-presentment of original documents pursuant to Section 3 (c), Rule 130 of the Rules
of Court.

We affirm the lower courts' uniform findings that PIATCO failed to establish its attendant
costs. PIATCO failed to establish that the photocopied documents fall under Section 3 (a),
(b), and/or (d), Rule 130 of the Rules of Court. These photocopied documents are hearsay
evidence. They are mere scraps of paper and have no weight as basis for the attendant
costs of the NAIA-IPT III. We likewise cannot give weight to the summary prepared by
Reyes Tacandong & Co. for being double hearsay. Reyes Tacandong & Co., whose letter
was addressed to PIATCO and not to the trial court, did not state in its report that it
examined the original documents allegedly proving attendant costs. Moreover, in a letter
dated December 14, 2010, Reyes Tacandong & Co stated it does not "express any
assurance on the attendant costs:"

We have performed the procedures agreed with Philippine International Air Terminals,
Co., ("the Company") with respect to the Company's attendant costs incurred in building
NAIA Terminal 3 from 1997 to 2004. Our engagement was undertaken in accordance with
the Philippine Standard on Related Services applicable to agreed-upon procedures
engagements.

xxxx

The sufficiency of the procedures is solely the responsibility of the specified users of the
report. Consequently, we make no representation regarding the sufficiency of the
procedures either for the purpose for which this report has been requested or for any
other purpose.

Because the procedures do not constitute either an audit or a review of financial


statements made in accordance with Philippine Standards on Auditing, we do not express
any assurance on the attendant costs. (Emphasis supplied)

4.b. The BOC and the RTC's


attendant cost

The CA correctly disregarded the BOC and the RTC's computation of attendant costs,
which both pegged the attendant cost at 10% of the construction cost. The BOC and the
RTC relied on the mean percentage range of attendant cost which appears in the Scott
Wilson Report as follows:292

Attendant Costs Percentage Range


Architecture 3.0 to 4.0 %
Civil and Structural 1.0 to 4.0 %
Electrical and Mechanical 2.5 to 3.5 %
Quantity Surveyor 1.0 %
Project Management 1.0 %
Total 8.5 to 11.5 %
The BOC and the RTC computed the mean percentage range by adding 8.5% and 11.5%
and dividing the result by 2, thus:

(8.5 + 11.5)/2 = 10%

The mean percentage range is highly speculative and devoid of any factual basis. As a
court of law, we should only measure just compensation using relevant and actual
evidence as basis in fixing the value of the condemned property. Just compensation must
be duly proven by preponderance of evidence or greater weight of credible evidence.293
Bare allegations, unsubstantiated by evidence, are not equivalent to proof.294

In a case for damages, we allow the party to receive temperate damages in the absence
of competent proof on the amount of actual damages. Temperate or moderate damages,
which are more than nominal but less than compensatory damages, may be recovered
when the court finds that some pecuniary loss has been suffered but its amount cannot,
from the nature of the case, be proved with certainty.295
We cannot adopt the same liberal attitude in an eminent domain case and merely
estimate the attendant cost in the total absence of evidence of construction costs. The
amount of just compensation must be substantiated by a preponderance of evidence.

An eminent domain case is different from a complaint for damages. A complaint for
damages is based on tort and emanates from the transgression of a right. A complaint
for damages seeks to vindicate a legal wrong through damages, which may be actual,
moral, nominal, temperate, liquidated, or exemplary. When a right is exercised in a
manner not conformable with Article 19 of the Civil Code and other provisions on human
relations in the Civil Code, and the exercise results in the damage of another, a legal
wrong is committed and the wrongdoer is held responsible.296

In contrast, an eminent domain case arises from the State's exercise of its power to
expropriate private property for public use. The Constitution mandates that the property
owner shall only receive just compensation which, of course, should be based on
preponderance of evidence. Moreover, the determination of eminent domain being a
judicial function, there is no constitutional or statutory provision giving the courts
unfettered discretion to determine just compensation based on estimates and
conjectures.

4.c. The Government's attendant cost

We affirm the CA's factual finding that the Government's computation of construction
cost valuation already includes the attendant costs. In the Gleeds Report dated
December 22, 2010, Tim Lunt sufficiently explained:

9. I consider that Engineering and Architecture, Quality Assurance, Construction


Supervision, Construction Insurance and Site Development are clearly costs which are
included for in the CCV. The CCV includes costs associated with the General
Requirements (see Appendix D - Summary). The costs of Site Development are also
included (see CCV Appendix D - Part 2, page 5 of 38).

xxxx

25. Scott Wilson states at paragraph 2.2.14 that the constructions costs "are exclusive of
all other attendant costs, such as the engineering and architectural services fees, quality
assurance services fees, construction supervision services fees, construction insurance,
site development costs, financing costs and other associated costs." This statement is
incorrect. It is clear on the inspection of the General Requirements sections of the
Takenaka Bills of Quantities that some if not all of these items are included in the
assessment of the construction costs made by PIATCO with the exception of 1) financing
costs and 2) other associated costs, for which there is no definition. Scott Wilson makes
no reference to the Takenaka Bills of Quantities nor do they use them as documents
which they have reviewed in paragraph 1.4.1 of their report. I do not understand how
Scott Wilson can ignore the items which are included in the Bills of Quantities under the
heading General Requirements and make the suggestion that they are additional costs
which should be considered.

xxxx
36. In respect of the Engineering Consultancy Fees set out by Scott Wilson, it is clear to
me on inspection of the General Requirements section of the On shore and Off shore Bills
of Quantities that an element of design fees included as Costs has also been included in
the CCVs and should not therefore be included as an addition. Scott Wilson has not
provided any specific information on the actual cost or extent of service provided in
respect of engineering consultancy.

xxxx

39. The cost associated with the Independent QA role referred to by Scott Wilson is
included in the General Requirements section of the CCV.(Emphasis supplied)

The Government's CCV already includes attendant costs which are incorporated in the
"General Requirements and Conditions." On the basis of the Bills of Quantities, Gleeds
took into account indirect costs in constructing the NAIA-IPT III, summarized below:

Attendant Costs under General Requirements and Conditions


Design $6,439,680.00297
Staff and labour $10,491,139.54298
Insurance $925,210.78299
Professional Indemnity Insurance $2,200,000.00300
Consequential Loss Insurance $800,000.00301
Setting out $364,647.00302
Health and Safety $403,224.00303
Environmental management $176,490.00304
Design $2,631,100.00305
Staff and labour $2,590,774.19306
Insurance $71,109.77307
Total $27,093,375.28
5. Deductions from the replacement cost of the NAIA-IPT III

5.a. Depreciation should be


deducted from the replacement
cost.

In eminent domain cases, it is acceptable that a "deduction should be made to the


extent to which the improvement or fixture has depreciated. The cost of the buildings
and fixtures, minus depreciation, is a reasonable test of the amount by which they
enhance the market value of the land even where the market value of the land itself is
not readily quantifiable."308

In order for this Court to arrive at a valid indication of the market value of the NAIA-IPT
III, we must consider accrued depreciation, which is the loss in value of the terminal.

Contrary to the CA's position, "depreciation" is used in different contexts in valuation and
financial accounting. As earlier discussed, in appraisal, depreciation "refers to the
reduction or writing down of the cost of a modern equivalent asset to reflect the
obsolescence and relative disabilities affecting the actual asset"309 or "loss in value
from any cause."310 It is further defined as "the reduction or writing down of the cost of
a modern equivalent asset to reflect the obsolescence and relative disabilities affecting
the actual asset."311
In contrast, depreciation in accounting refers to "a charge made against an entity's
income to reflect the consumption of an asset over a particular accounting period."312 It
is the "process of allocating to expense the cost of a plant asset over its useful (service)
life in a rational and systematic manner."313 Accumulated depreciation is reported as a
deduction from plant assets and affects the income statement through depreciation
expenses. Thus, the cost allocation is designed to match expenses with revenues.

In financial accounting, "depreciation is a process of cost allocation, not a process of


asset valuation. No attempt is made to measure the change in an asset's market value
during ownership because" it is assumed that plant assets are not held for resale.314
Book depreciation refers to "the amount of capital recapture written off an owner's
books"; it is not market derived.315 Thus, the book value - original cost less accumulated
depreciation - of an asset may be different from the market value.

Consequently, an asset can have zero book value but still have a significant market
value.316

Simply put, book depreciation is measured against the book value or original cost of the
property and is the amount of capital recapture written off an owner's books.317 Accrued
depreciation is measured against the current market value of the property.318

Under the depreciated replacement cost method, accrued depreciation is the difference
between the "replacement cost of the improvements on the effective date of the
appraisal and the market value of the improvements on the same date."319

In the Gleeds Report, Tim Lunt stated:

Deterioration

3.2.7 The Arup Site Observation Report identifies a number of items which have
deteriorated since suspension of the construction of Terminal 3 in December 2002.

3.2.8 A provisional value has been assessed against the items identified in the Arup
report at $1,738,318.

The deterioration items have been costed with a base date of 2Q09. Calculation of this
amount is contained in Appendix 'E.' Further examination and costing of each of the
identified items are required and, therefore, the costs of these items will require
adjustment based on the actual date when the rectification works are carried out.

Depreciation

3.2.0 An Assessment has been made of the depreciated value of the assets from
December 2002 when construction was suspended to December 2004 when Terminal 3
was expropriated by the Republic.

3.2.10 A depreciation value has been assessed at $USD35,076,294 in 3Q01 Manila


prices. Calculation of this amount showing the various asset lives assumed is included in
Appendix "J."
3.2.11 Based on the deductions for deterioration and depreciation between December
2002 and December 2004, the Base Value CCV at the time of expropriation is
$USD263,392,081.320

In the Scott Wilson report, he stated:

3.7.1 We consider the question of depreciation in this instance to be a financial and legal
issue which has to be dealt with in accordance with Philippine law.

3.7.2 We therefore do not feel qualified to comment on the legal issue except that we do
not understand how deterioration in section 3.6 and depreciation can both be applied as
surely this means that Gleeds (sic) have double counted the effect of any deterioration.
(emphasis supplied)321

In response, Tim Lunt argued:

14. With respect to PIATCO's hypothetical inclusion of inflation, I do not consider that
inflation should be applied to the base value as the replacement cost method establishes
the cost of construction when completed in December 2002.

15. The base values included in the CCVs are the same for the December 2002 and
December 2004. The December 2004 base value is not adjusted to account for inflation
because the items which make up the construction of NAIA3, i.e., the labour, plant,
materials, systems and equipment installed should not be paid for at a higher rate (that
takes into account inflation) than the rate which would have been paid when they were
purchased at the earlier date. Put simply, it makes no sense to apply December 2004
prices to items bought and used in the construction of NAIA3 sometime between June
2000 and December 2002.

16. PIATCO do (sic) not consider depreciation. Having explained above why inflation
should not be included, it is the application of a similar logic which demonstrates why
depreciation should be included. In the case of NAIA3 the materials, systems and
equipment installed are at least two years older as at December 2004 than at the time
they were incorporated into the construction of NAIA3. Their value should therefore be
less. The method used for assessing this reduced value is that of depreciation.322

66. Scott Wilson provide a "Summary of Conclusions on deductions at section 3.11 and
my responses to each of the items contained in their "comment" column are as follows:

xxxx

Deterioration - "Major deduction for baggage system not justified" - The deterioration
in the baggage systems is clearly set out in the Arup (and Gensler) Site Observation
Report dated August 2007, at section 9.2. The cost deduction is set out in Appendix to
the previous CCV report which Scott Wilson do (sic) not appear to have reviewed.

Depreciation - Scott Wilson states" This issue appears to be a legal issue and should
be commented on by legal expert" and offers no technical or cost related comments
relevant to the CCV.

On the other hand, Gary Taylor commented:


Gleeds have (sic) assessed a depreciation value of US$35,076,294 (11.68%) to conclude
its 4Q04 value. This concept of depreciation is contrary to the GRP's own statistics which
shows a Consumer Price Index for Manila ("CPI") increase from107.8 (Aug 01) to 125.1
(Nov. 04), a 16% increase over the period. The CPI is a conglomerate of all consumer
prices in the Manila region and includes property values and is published by the GRP on a
monthly basis. In assessing such a depreciation value, Gleeds have (sic) taken an
arbitrary life cycle of the building and assumed a write off of asset over that period, then
assessed the two (2) year depreciation over the period 3Q01 to 4Q04. Whilst we
acknowledge that an airport terminal building is something of a specialized asset and
appreciation of value is not always in line with the area's general value assessments, it is
still a major structure and appreciation before depreciation (which should be limited to
equipment and fittings within the building) should not be discounted. The concept of long
term value of an asset on a similar concept is proven out by NAIA Terminal 1, which since
its construction more than 30 years ago has maintained a value to this date.323

We uphold the Government's computed extent of deterioration and depreciation. In the


Reply to Tengson International Ltd. Report and Response from Takenaka and Asahikosan
dated December 7, 2010, Tim Lunt explained that "[t]he asset lives are taken specifically
from experience in preparing Asset Revaluations for Airport properties which are used as
an input for annual published accounts, which are in turn audited by appointed
Accountants."324 Takenaka and Asahikosan should have provided for contrary
assumptions with respect to the useful lives of the subject assets if they did not agree
with the Government's assumptions. Instead, Gary Taylor merely referred to the
valuation of the NAIA Terminal I without any factual basis to support his claim. Moreover,
Scott Wilson did not question the assumed useful life of the NAIA-IPT III, but agreed that
the question of whether depreciation should be deducted is a legal issue.

Since PIATCO, Takenaka, and Asahikosan failed to present contrary assumptions or


estimates with respect to the NAIA-IPT III's useful life, we adopt Tim Lunt's computations
with respect to deterioration and depreciation.

5.b. Rectification for contract


compliance should not be
deducted from the replacement
cost.

However, we hold that the cost for "rectification for contract compliance" should not be
deducted from the base value, as the contract, being void, cannot be ratified.325

In the present case, the Court already nullified the PIATCO contracts for being contrary to
public policy in Agan. A substantial amendment to a contract awarded through public
bidding, when such subsequent amendment was made without a new public bidding, is
null and void. The PIATCO contracts contain material and substantial amendments that
substantially departed from the bidded contract. If at all, the declaration of nullity of a
contract only operates to restore things to their state and condition before the contract's
execution.326

Moreover, Takenaka and Asahikosan, as subcontractors in the NAIA- IPT III project, were
not bound by the nullified PIATCO contracts. Takenaka and Asahikosan were only bound
to perform their contractual obligations under the Onshore Construction Contract and
Offshore Procurement Contract, respectively. They were not bound by the nullified
PIATCO contracts.

If there had indeed been variations from the Onshore Construction Contract and Offshore
Procurement Contract, the cause of action for breach of contract and damages lies with
PIATCO. For purposes of determining just compensation, the Government cannot rely on
the specifications in the Bid Documents precisely because the concession agreement
between PIATCO and the Government had already been nullified. The Government
cannot complain of contract noncompliance in an eminent domain case, whose cause of
action is not based on a breach of contract, but on the peremptory power of the State to
take private property for public use.

Consequently, deductions from the base value of the cost of noncompliance with bid
documents as well as inferior quality items have no legal basis. Gleeds' reliance on the
NAIA-IPT III bid documents is misplaced.

As Scott Wilson correctly pointed out, the decisive factor of the deductibility of items
under "noncompliance with bid documents" is whether they are functional. The Scott
Wilson report shows that, except for the nonprovision of moving walkway, the alleged
noncompliant items are functional.327 Also, the nonprovision of a moving walkway
should not be deducted from the base value. The only consequence of the failure to
provide a moving walkway is the need to construct one, which would only increase the
construction cost.328 The increase in the construction cost, however, should not be
included as part of just compensation as this Court is

only tasked to determine the construction cost of the NAIA-IPT III as of December 21,
2004.

For these same reasons, we cannot allow the deduction in the amount of $75,570,510.00
"additional areas to be built." These are "areas where the minimum requirements stated
in the Bid Documents have not been met and are necessary for the operation" of the
NAIA-IPT III. These areas include:

Departure hall 22,462 m2

Meeter/greeter hall 14,696 m2

Ramp operations 13,640 m2

Offices 4,370 m2

Hold rooms 3,729 m2

Public toilets 2,351 m2

Hardstand hold rooms 1,442 m2

Delayed flight restaurant 620 m2329

6. Adjustments to the Replacement Cost


6.a. The replacement cost
should be adjusted to
December 2004 values.

Gleeds used the Principle Quantities approach in determining the gross replacement cost
of the NAIA-IPT III.330 Gleeds calculated the cost of construction based on the midpoint
between June 2000 and December 2002 to arrive at the December 2002 CCV. According
to Gleeds, the cost of construction based on its midpoint or the third quarter of 2001 is a
recognized standard practice in the construction industry.331

Gleeds did not adjust the base valuation of $300,206,693.00 as of December 2002 to
reflect the current gross replacement cost as of December 2004. It merely assumed that
the gross replacement cost as of December 2002 is the same as the gross replacement
cost as of December 2004. It stated that it did not consider inflation in determining the
base valuation of the NAIA-IPT III as of December 2004:

14. With respect to PIATCO's hypothetical inclusion of inflation, I do not consider that
inflation should be applied to the base value as the replacement cost method establishes
the cost of construction when completed in December 2002.

15. The base values included in the CCVs are the same for December 2002 and
December 2004. The December 2004 is not adjusted to account for inflation because the
items which make up the construction of NAIA3, i.e., the labour, plant, materials,
systems and equipment installed should not be paid for at a higher rate (that takes into
account inflation) than the rate which would have been paid when they were purchased
at the earlier date. Put simply, it makes no sense to apply December 2004 prices to
items bought and used in the construction of NAIA3 sometime between June 2000 and
December 2002.332 (Emphasis supplied)

Section 10 of RA 8974 IRR provides that the replacement cost shall be based on the
current market prices of construction and attendant costs. Under the depreciated
replacement cost method, the replacement cost shall be based on the current gross
replacement cost of the asset. In its pleadings, the Government itself explained that the
cost of replacing an asset under both depreciated replacement cost and new
replacement cost methods should be measured at its current prices.

In our jurisdiction, the word "current" should be equated with the date of the taking of
the property or the filing of the complaint, whichever came first. In the present case, the
word "current" should necessarily refer to December 21, 2004, the filing of the complaint
for expropriation.

In National Power Corporation v. Co,333 the Court suppletorily applied Section 4, Rule 67
of the Rules of Court in determining the value of the property sought to be expropriated
for purposes of implementing national infrastructure projects. Under the Rules of Court,
just compensation shall be determined from the date of the taking of the property or the
filing of the complaint, whichever came first. Thus, where the filing of an action precedes
the taking of the property, just compensation shall be computed as of the time of the
filing of the complaint.334 The relevant valuation date when we shall reckon the current
gross replacement cost is December 21, 2004, or the date of filing of the complaint for
expropriation.
The Government's base valuation of $300,206,693.00 is only a measurement of the
current gross replacement cost as of December 2002. We agree with PIATCO that the
gross replacement cost of the NAIA-IPT III as of December 2002 should be adjusted to its
cost as of December 2004 for the plain reason that the Government's computed gross
replacement cost is not current, as required by the Rules of Court and jurisprudence.

Equity dictates that we should adjust the replacement cost at December 2004 values
using the Consumer Price Index (CPI).335 This Court should not be confined and
restricted by the use of the depreciated replacement cost method, especially in this case
where the calculated base valuation as of December 2004 appears to be not truly
reflective of the current gross replacement cost of the NAIA-IPT III at the time of the filing
of the complaint for expropriation.

In adjusting the gross replacement cost to December 2004 values, this Court takes
cognizance of the fact that the cost of goods and services in the Philippines increased
from 2002 until 2004. This is shown by the CPI which is used in calculating the inflation
rate and the purchasing power of the peso.336 PIATCO correctly arrived at the inflation
rate of 1.0971 using the prevailing CPI from November 29, 2002, or the date of the
suspension of works in the NAIA-IPT III until December 21, 2004, or the date when the
Government filed the expropriation complaint.337

7. Interests, Fruits and Income

7.a. Computation of Interests

To avoid confusion in computing interests, we first distinguish three interrelated concepts


in just compensation: (1) the valuation period of just compensation under Rule 67 of the
Rules of Court; (2) the reckoning period of interest in eminent domain cases pursuant to
Section 9, Article 3 of the 1987 Constitution; and (3) the initial and final payments of just
compensation under RA 8974.

Under Section 4, Rule 67 of the Rules of Court, the property sought to be expropriated
shall be appraised as of the date of taking of the property or the filing of the complaint
for expropriation, whichever is earlier, thus:

Section 4. Order of expropriation. - If the objections to and the defenses against the right
of the plaintiff to expropriate the property are overruled, or when no party appears to
defend as required by this Rule, the court may issue an order of expropriation declaring
that the plaintiff has a lawful right to take the property sought to be expropriated, for the
public use or purpose described in the complaint, upon the payment of just
compensation to be determined as of the date of the taking of the property or the filing
of the complaint, whichever came first.

A final order sustaining the right to expropriate the property may be appealed by any
party aggrieved thereby. Such appeal, however, shall not prevent the court from
determining the just compensation to be paid.

After the rendition of such an order, the plaintiff shall not be permitted to dismiss or
discontinue the proceeding except on such terms as the court deems just and equitable.
(4a) (Emphasis supplied)
On the other hand, Section 9, Article 3 of the 1987 Constitution provides that "[n]o
private property shall be taken for public use without just compensation." The 1987
Constitution thus commands the condemnor to pay the property owner the full and fair
equivalent of the property from the date of taking. This provision likewise presupposes
that the condemnor incurs delay if it does not pay the property owner the full amount of
just compensation on the date of taking.338

The reason is that just compensation would not be "just" if the State does not pay the
property owner interest on the just compensation from the date of the taking of the
property. Without prompt payment, the property owner suffers the immediate
deprivation of both his land and its fruits or income. The owner's loss, of course, is not
only his property but also its income-generating potential.339

Ideally, just compensation should be immediately made available to the property owner
so that he may derive income from this compensation, in the same manner that he
would have derived income from his expropriated property.

However, if full compensation is not paid for the property taken, then the State must pay
for the shortfall in the earning potential immediately lost due to the taking, and the
absence of replacement property from which income can be derived. Interest on the
unpaid compensation becomes due as compliance with the constitutional mandate on
eminent domain and as a basic measure of fairness.340

Thus, interest in eminent domain cases "runs as a matter of law and follows as a matter
of course from the right of the landowner to be placed in as good a position as money
can accomplish, as of the date of taking."341

Lastly, RA 8974 requires the Government to pay just compensation twice: (1)
immediately upon the filing of the complaint, when the amount to be paid is 100% of the
value of the property based on the current relevant zonal valuation of the BIR, and the
value of the improvements and/or structures sought to be expropriated (initial payment);
and (2) when the decision of the court in the determination of just compensation
becomes final and executory, in which case the implementing agency shall pay the
owner the difference between the amount already paid and the just compensation as
determined by the court (final payment).

In case the completion of a government infrastructure project is of utmost urgency and


importance, and there is no existing valuation of the area concerned, the initial payment
shall be the proffered value of the property. Section 4 of RA 8974 also states that the
initial payment of just compensation is a prerequisite for the trial court's issuance of a
writ of possession, to wit: Section 4. Guidelines for Expropriation Proceedings. -
Whenever it is necessary to acquire real property for the right-of-way or location for any
national government infrastructure project through expropriation, the appropriate
implementing agency shall initiate the expropriation proceedings before the proper court
under the following guidelines:

(a) Upon the filing of the complaint, and after due notice to the defendant, the
implementing agency shall immediately pay the owner of the property the amount
equivalent to the sum of (1) one hundred percent (100%) of the value of the property
based on the current relevant zonal valuation of the Bureau of Internal Revenue (BIR);
and (2) the value of the improvements and/or structures as determined under Section 7
hereof;

(b) In provinces, cities, municipalities and other areas where there is no zonal valuation,
the BIR is hereby mandated within the period of sixty (60) days from the date of the
expropriation case, to come up with a zonal valuation for said area; and

(c) In case the completion of a government infrastructure project is of utmost urgency


and importance, and there is no existing valuation of the area concerned, the
implementing agency shall immediately pay the owner of the property its proffered value
taking into consideration the standards prescribed in Section 5 hereof.

Upon compliance with the guidelines abovementioned, the court shall immediately issue
to the implementing agency an order to take possession of the property and start the
implementation of the project.

Before the court can issue a Writ of Possession, the implementing agency shall present to
the court a certificate of availability of funds from the proper official concerned.

In the event that the owner of the property contests the implementing agency's
proffered value, the court shall determine the just compensation to be paid the owner
within sixty (60)days from the date of filing of the expropriation case. When the decision
of the court becomes final and executory, the implementing agency shall pay the owner
the difference between the amount already paid and the just compensation as
determined by the court. (Emphasis supplied)

The Government's initial payment of just compensation does not excuse it from avoiding
payment of interest on the difference between the adjudged amount of just
compensation and the initial payment.

The initial payment scheme as a prerequisite for the issuance of the writ of possession
under RA 8974 only provides the Government flexibility to immediately take the property
for public purpose or public use pending the court's final determination of just
compensation. Section 4 (a) of RA 8974 only addresses the Government's need to
immediately enter the privately owned property in order to avoid delay in the
implementation of national infrastructure projects.

Otherwise, Section 4 of RA 8974 would be repugnant to Section 9, Article 3 of the 1987


Constitution which mandates that private property shall not be taken for public use
without just compensation. To reiterate, the Constitution commands the Government to
pay the property owner no less than the full and fair equivalent of the property from the
date of taking.

In the present case, the Government avers that PIATCO is not entitled to recover interest.
According to the Government, PIATCO should not be allowed to profit from the void
contracts. This contention, however, stems from a mistaken understanding of interest in
expropriation cases.

Contrary to the Government's opinion, the interest award is not anchored either on the
law of contracts or damages; it is based on the owner's constitutional right to just
compensation. The difference in the amount between the final payment and the initial
payment - in the interim or before the judgment on just compensation becomes final and
executory - is not unliquidated damages which do not earn interest until the amount of
damages is established with reasonable certainty. The difference between final and initial
payments forms part of the just compensation that the property owner is entitled from
the date of taking of the property.

Thus, when the taking of the property precedes the filing of the complaint for
expropriation, the Court orders the condemnor to pay the full amount of just
compensation from the date of taking whose interest shall likewise commence on the
same date. The Court does not rule that the interest on just compensation shall
commence the date when the amount of just compensation becomes certain, e.g., from
the promulgation of the Court's decision or the finality of the eminent domain case.

With respect to the amount of interest on just compensation, we decisively ruled in


Republic v. Court of Appeals342 that the just compensation due to the property owner is
effectively a forbearance of money, and not indemnity for damages.343 Citing Eastern
Shipping Lines, Inc. v. Court of Appeals,344 we awarded a legal interest of 12% per
annum on just compensation. The Court upheld the imposition of the 12% interest rate in
just compensation cases, as ruled in Republic, in Reyes v. National Housing Authority,345
Land Bank of the Philippines v. Wycoco,346 Republic v. Court of Appeals,347 Land Bank
of the Philippines v. Imperial,348 Philippine Ports Authority v. Rosales-Bondoc,349 and
Curata v. Philippine Ports Authority.350 The Court reiterated the Republic ruling in Apo
Fruits Corporation and Hijo Plantation, Inc. v. Land Bank of the Philippines,351 Land Bank
of the Philippines v. Rivera,352 Department of Agrarian Reform v. Goduco,353 and Land
Bank of the Philippines v. Santiago, Jr.354

On June 21, 2013, the BSP issued Circular No. 799,355 pursuant to MB Resolution No.
796 dated May 16,2013, reducing the legal interest on loans and forbearance of money
from 12% to 6% per annum. BSP Circular No. 799 took effect on July 1, 2013.

In the present case, the Government filed a complaint for expropriation of the NAIA-IPT III
on December 21, 2004. On the same day, the RTC issued a writ of possession in favor of
the Government upon the deposit of P3,002,125,000.00 with the Land Bank. In
Gingoyon, the Court held in abeyance the implementation of the writ of possession
pending the direct payment of the proffered value of P3,002,125,000.00 to PIATCO.

On September 11, 2006, the RTC reinstated the writ of possession after the Government
tendered PIATCO a check in this amount.

On April 11, 2012, the MIAA and the Land Bank entered into an escrow agreement in the
amount of $82,157,716.73. On the same date, the MIAA and the DBP likewise executed
an escrow agreement in the amount of $34,190,924.59.

Based on these factual circumstances, interest shall accrue as follows:

1. The principal amount of just compensation shall be appraised on the date of the filing
of the complaint for expropriation or on December 21, 2004. The just compensation shall
not earn interest from December 21, 2004, until September 10, 2006, since the
Government did not take possession of the NAIA-IPT III during this period.
2. The difference between the principal amount of just compensation and the proffered
value of P3,002,125,000.00 shall earn legal interest of 12% per annum from the date of
taking or September 11, 2006 until June 30, 2013.

3. The difference between the principal amount of just compensation and the proffered
value of P3,002,125,000.00 shall earn legal interest of 6% per annum from July 1, 2013,
until the finality of the Court's ruling.

4. The total amount of just compensation shall earn legal interest of 6% per annum from
the finality of the Court's ruling until full payment.

The execution of the escrow agreements shall not affect the accrual of interest in this
case. In its Manifestation and Motion dated July 8, 2011, the Government stated that the
escrow accounts shall be subject to the condition that "[t]he claimant(s) shall have been
held to be entitled to receive the sum claimed from the 'Just Compensation (NAIA
Terminal 3) Fund' in accordance with Philippine law and regulation, by a final, binding and
executory order or award of the expropriation court."356

Clearly, the Government does not intend to pay the just compensation due to either
PIATCO or Takenaka and Asahikosan during the pendency of the expropriation case or
until the finality of the Court's rulings in G.R. Nos. 209917, 209696 & 209731.

7.b. PIATCO is not entitled to


the fruits and income of the
NAIA-IPT III.

PIATCO insists that aside from the interest on just compensation, it is also entitled to all
income generated from the operations of the NAIA-IPT III, from the date of taking up to
the present.

PIATCO's claim is unmeritorious. The State, by way of interest, makes up for the shortfall
in the owners' earning potential and the absence of replacement property from which
income can be derived. This is because the interest awarded by the expropriation court
is, in reality, the equivalent of the fruits or income of the seized property.357 In fact,
PIATCO itself admitted in its petition in G.R. No. 209731 that the interest on just
compensation already answers for the loss of income that the owner suffered as a result
of the State's deprivation of the ordinary use of his property.358

Thus, we cannot allow PIATCO to profit from the operation of the NAIA-IPT III whose funds
are sourced from the public coffers. Otherwise, PIATCO would be doubly compensated
and unjustly enriched to the detriment of the taxpayers.

8. The BOC's Expenses

8.a. Takenaka and


Asahikosan should not
share in the BOC's
expenses.
Takenaka and Asahikosan refuse to share in the expenses of the BOC. They argue that
pursuant to Section 12,Rule 6 of the Rules of Court, the Government should solely
shoulder the costs incurred in the expropriation case.

The Government, on the other hand, asserts that Section 1, Rule 142 of the Rules of
Court explicitly authorizes the expropriation court to order the parties to equally share
the costs of an action. Hence, the court can require third-party intervenors, i.e., Takenaka
and Asahikosan, to share in the expenses of the BOC. It points out that PIATCO already
shared in the expenses of the BOC and tendered the sum of P2,550,000.00 to the RTC.

We find no merit in the Government's assertion.

The relevant rule is found in Section 12, Rule 67 of the Rules of Court which provides:

SEC. 12. Costs, by whom paid. - The fees of the commissioners shall be taxed as a part of
the costs of the proceedings. All costs, except those of rival claimants litigating their
claims, shall be paid by the plaintiff, unless an appeal is taken by the owner of the
property and the judgment is affirmed, in which event the costs of the appeal shall be
paid by the owner. [Emphasis supplied] This provision specifically deals with the costs of
eminent domain cases. Hence, we find that Section 1, Rule 142 of the Rules of Court,
more specifically, the statement allowing the court to divide the costs of an action to
either party to the case, is inapplicable to the present case.

Based on the clear terms of Section 12, Rule 67, it is the plaintiff - in this case, the
Government - not the property owner or third-party intervenors, i.e., Takenaka and
Asahikosan, who shall shoulder the costs of the expropriation before the court of origin.
Since the expenses of the BOC form part of the costs of the suit - as these are expenses
necessary in prosecuting or defending an action or a distinct proceeding within an action
- the Government solely bears the expenses of the BOC. The property owner shall only
bear the costs of the appeal if he loses in his appeal.

PIATCO, in its pleading, has not questioned its share in the expenses of the BOC before
the Court. PIATCO's voluntary sharing in the expenses of the BOC and its non-objection to
its payment amount to a waiver of its right not to share in the expenses of the BOC.

In sum, just compensation shall be computed as shown below:

Base Current Cost Valuation (Inclusive of Attendant Cost) $ 300,206,693.00


ADD:
Excess Concession Space $ 1,081,272.00
Four-Level Retail Complex $ 12,809,485.00
Exclusions due to Structural Issues

$ 20,713,901.00
LESS:
Depreciation $ 1,738,318.00
Deterioration $ 35,076,295.00
REPLACEMENT COST AS OF DECEMBER 2002 $ 297,996,738.00
MULTIPLY:
Inflation Rate of 1.0971
REPLACEMENT COST AS OF DECEMBER 21, 2004 $ 326,932,221.26
ADD:
Interests from September 11, 2006 to December 2014 $ 242,810,918.54
LESS:
Proffered Value $ 59,438,604.00
JUST COMPENSATION AS OF DECEMBER 31, 2014 $ 510,304,535.80

Period Formula Number of Days Interest


Rate Principal Amount Straight Interest
September 11, 2006
to December 31, 2006 principal*rate
*(113/365) 113 days 12% $267,493,617.26 $9,937,571.10
January 1, 2007 to
December 31, 2007 principal*rate 365 days 12% $267,493,617.26
$32,099,234.07
January 1, 2008 to
December 31, 2008 principal*rate 365 days 12% $267,493,617.26
$32,099,234.07
January 1, 2009 to
December 31, 2009 principal*rate 365 days 12% $267,493,617.26
$32,099,234.07
January 1, 2010 to
December 31, 2010 principal*rate 365 days 12% $267,493,617.26
$32,099,234.07
January 1, 2011 to December 31, 2011 principal*rate 365 days 12%
$267,493,617.26 $32,099,234.07
January 1, 2012 to
December 31, 2012 principal*rate 365 days 12% $267,493,617.26
$32,099,234.07
January 1, 2013 to
June 30, 2013 principal *
rate *
(181/365) 181 days 12% $267,493,617.2 $15,917,702.38
July 1, 2013 to
December 31, 2013 principal*rate
*(189/365) 189 days 6% $267,493,617.26 $8,310,623.62
January 1, 2014 to
December 31, 2014 principal*rate 365 days 6% $267,493,617.26
$16,049,617.04
Total $242,810,918.54

Formula Principal Amount Total Interest from September 11, 2006 to December 31,
2014 Just Compensation as of December 31, 2014
Principal
Amount +
Interest $267,493,617.26 $ 242,810,918.54 $510,304,535.80
9. PIATCO as the Lawful Recipient of Just Compensation.

After determining the amount of just compensation, we next resolve the question of who
shall receive the full amount of just compensation.
Takenaka and Asahikosan contend that as actual builders of the NAIA-IPT III, they are
lawfully entitled to receive just compensation. They pray that just compensation of at
least $85,700,000.00 be set aside through an escrow account or other means, in their
favor, to answer for their pending money claims against PIATCO in G.R. No. 202166.

PIATCO, on the other hand, bases its claim for just compensation on its ownership of the
NAIA-IPT III and on the ruling in Agan and Gingoyon that PIATCO should be fully
compensated as the builder and owner of the NAIA-IPT III.

For its part, the Government refuses to make further payments to PIATCO. Instead, it
created an escrow account in favor of the "entitled claimants" of just compensation. The
Government fears that the NAIA-IPT III would still be burdened with liens and mortgages -
as a result of PIATCO's indebtedness to other entities - even after it pays PIATCO the full
amount of just compensation.

9.a. Takenaka and Asahikosan's


intervention in the case as
unpaid subcontractors is proper.

The defendants in an expropriation case are not limited to the owners of the property
condemned. They include all other persons owning, occupying, or claiming to own the
property. Under Sections 8 and 14 of RA 8974 IRR, in relation with Section 9, Rule 67 of
the Rules of Court, all persons who claim to have lawful interest in the property to be
condemned should be included as defendants in the complaint for expropriation:

Section 8 of RA 8974 IRR. Expropriation. - If the owner of a private property needed by


the government implementing agency does not agree to convey his property to the
government by any of the foregoing modes of acquiring and/or transferring ownership of
the property, then the government shall exercise its right of eminent domain by filing a
complaint with the proper Court for the expropriation for the private property.

The verified complaint shall state with certainty the right and purpose of expropriation,
describe the real or personal property sought to be expropriated, and join as defendants
all persons owning or claiming to own, or occupying, any part thereof or interest therein,
showing as far as practicable, the interest of each defendant separately. If the title to any
property sought to be condemned appears to be in the name of the Republic of the
Philippines, although occupied by private individuals, or if the title is otherwise obscure
or doubtful so that the plaintiff cannot with accuracy or certainty specify the real owners,
averment to that effect may be made in the complaint.

Section 14 of RA 8974 IRR. Trial Proceedings. - Within sixty (60)-day period prescribed by
the Act, all matters regarding defences and objections to the complaint, issues on
uncertain ownership and conflicting claims, effects of appeal on the rights of the parties,
and such other incidents affecting the complaint shall be resolved under the provisions
on expropriation of Rule 67 of the Rules of Court.

Section 9, Rule 67 of the Rules of Court. Uncertain ownership; conflicting claims. - If the
ownership of the property taken is uncertain, or there are conflicting claims to any part
thereof, the court may order any sum or sums awarded as compensation for the property
to be paid to the court for the benefit of the person adjudged in the same proceeding to
be entitled thereto. But the judgment shall require the payment of the sum or sums
awarded to either the defendant or the court before the plaintiff can enter upon the
property, or retain it for the public use or purpose if entry has already been made. (9a)
(Emphasis supplied)

All persons who have lawful interest in the property sought to be expropriated should be
impleaded in the complaint for purposes of determining who shall be entitled to just
compensation. If a known owner is not joined as defendant, he may intervene in the
proceeding. If the owner is joined but not served with process and the proceeding is
already closed before he came to know of the condemnation, he may maintain an
independent suit for damages. Consequently, Takenaka and Asahikosan are correct in
invoking Section 9, Rule 67 of the Rules of Court for purposes of determining who shall
be entitled to just compensation in this case. This rule is likewise their proper basis of
intervention in the RTC's March 12, 2007 order in Civil Case No. 04-0876.

Our ruling on this point does not contradict Section 4 (a) of RA 8974 which provides for a
scheme of direct and immediate initial payment to the property owner in cases involving
national government infrastructure projects.

Section 4 (a) of RA 8974 applies only to cases where the issue of ownership of the
expropriated property is not disputed. In cases where the ownership is contested; where
conflicting claims or interests over the expropriated property exist; or where there are
other incidents affecting the complaint for expropriation, the governing rule is Section 9,
Rule 67 of the Rules of Court. By creating a separate provision applicable only to the
latter cases, Section 14 of RA 8974 IRR359 necessarily acknowledged that the scheme of
immediate and direct initial payment is not an absolute and all-encompassing rule
applicable in all circumstances.

We are aware of our pronouncement in the December 19, 2005 Gingoyon decision
directing the Government to directly and immediately pay PIATCO the proffered value of
P3billion. We rendered the December 19, 2005 Decision based on the fact that Takenaka
and Asahikosan were not yet parties to G.R. No. 166429 and Civil Case No. 04-0876 at
that time. The Court denied Takenaka and Asahikosan's motions for leave to intervene in
our February 1, 2006 Resolution in Gingoyon for palpable violation of Section 2, Rule 19
of the Rules of Court which only allows intervention before the rendition of judgment by
the court. Moreover, Takenaka and Asahikosan had not yet instituted Civil Case No. 06-
171 (the enforcement case) when we promulgated our rulings in Gingoyon.

The RTC's issuance of the March 12, 2007 order, which is binding on the parties and
which allows Takenaka and Asahikosan to intervene in the case, changed the factual
circumstances of this case. As an incident in our determination of the just compensation,
we necessarily should resolve the issue of NAIA-IPT III's ownership and the question of
who the recipient of the just compensation should be.

9.b. The property owner is


entitled to just compensation.

Citing Agan, Takenaka and Asahikosan argue that the Court intended that the real
builders of the NAIA-IPT III should be paid just compensation. Takenaka and Asahikosan
assert that they are the entities who actually built the NAIA-IPT III pursuant to the
Onshore Construction and Offshore Procurement Contracts. In Agan, the Court declared
that PIATCO is the builder of the NAIA-IPT III. The Court stated:

This Court, however, is not unmindful of the reality that the structures comprising the
NAIA IPT III facility are almost complete and that funds have been spent by PIATCO in
their construction. For the government to take over the said facility, it has to compensate
respondent PIATCO as builder of the said structures. The compensation must be just and
in accordance with law and equity for the government cannot unjustly enrich itself at the
expense of PIATCO and its investors.360

This finding is likewise affirmed in our February 1, 2006 Resolution in Gingoyon where we
declared:

The Court is not wont to reverse its previous rulings based on factual premises that are
not yet conclusive or judicially established. Certainly, whatever claims or purported liens
Takenaka and Asahikosan against PIATCO or over the NAIA 3 have not been judicially
established. Neither Takenaka nor Asahikosan are parties to the present action, and thus
have not presented any claim which could be acted upon by this Court. The earlier
adjudications in Agan v. PIATCO made no mention of either Takenaka or Asahikosan, and
certainly made no declaration as to their rights to any form of compensation. If there is
indeed any right to remuneration due to these two entities arising from NAIA 3, they
have not yet been established by the courts of the land.

It must be emphasized that the conclusive ruling in the Resolution dated 21 January
2004 in Agan v. PIATCO (Agan 2004) is that PIATCO, as builder of the facilities, must first
be justly compensated in accordance with law and equity for the Government to take
over the facilities. It is on that premise that the Court adjudicated this case in its 19
December 2005 Decision.

While the Government refers to a judgment rendered by a London court in favor of


Takenaka and Asahikosan against PIATCO in the amount of US$82 Million, it should be
noted that this foreign judgment is not yet binding on Philippine courts. It is entrenched
in Section 48, Rule 39 of the Rules of Civil Procedure that a foreign judgment on the mere
strength of its promulgation is not yet conclusive, as it can be annulled on the grounds of
want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law
or fact. It is likewise recognized in Philippine jurisprudence and international law that a
foreign judgment may be barred from recognition if it runs counter to public policy.

Assuming that PIATCO indeed has corresponding obligations to other parties relating to
NAIA 3, the Court does not see how such obligations, yet unproven, could serve to
overturn the Decision mandating that the Government first pay PIATCO the amount of
3.02 Million Pesos before it may acquire physical possession over the facilities. This
directive enjoining payment is in accordance with Republic Act No. 8974, and under the
mechanism established by the law the amount to be initially paid is that which is
provisionally determined as just compensation. The provisional character of this payment
means that it is not yet final, yet sufficient under the law to entitle the Government to
the writ of possession over the expropriated property.

There are other judicial avenues outside of this Motion for Reconsideration wherein all
other claims relating to the airport facilities may be ventilated, proved and determined.
Since such claims involve factual issues, they must first be established by the
appropriate trier of facts before they can be accorded any respect by or binding force on
this Court.361 [Emphasis supplied]

Contrary to Takenaka and Asahikosan's position, in the Philippine jurisdiction, the person
who is solely entitled to just compensation is the owner of the property at the time of the
taking.362 As shown below, the test of who shall receive just compensation is not who
built the terminal, but rather who its true owner is.

From the express provision of Section 4 of RA 8974, just compensation shall only be paid
to the property owner. We implead persons with lawful interests in the property in order
to determine the person who shall receive just compensation. Note that the last
paragraph, Section 4 of RA 8974 states: "When the decision of the court becomes final
and executory, the implementing agency shall pay the owner the difference between the
amount already paid and the just compensation as determined by the court." This
provision thus envisions a situation where the court determines with finality, for purposes
of payment of just compensation, the conflicting claims of the defendants and
intervenors.

The cases cited by Takenaka and Asahikosan are inapplicable to justify their right to
receive just compensation. The Court did not award just compensation to a non-owner in
De Knecht v. Court of Appeals.363 The Court held in that case that a person who had no
legal interest in the property at the time of the filing of a complaint for expropriation had
no right to intervene in the case. The Court ruled that only persons who have lawful
interests in the property may be impleaded as defendants or may intervene in the
expropriation case under Section 1, Rule 67 of the Rules of Court. This case thus, at
most, support their right to intervene.

In Calvo v. Zandueta,364 the Court stayed the execution of the trial court's judgment
ordering the provincial treasurer of Pangasinan to pay Aquilino Calvo just compensation
due to the pendency of the interpleader that Juana Ordoez brought based on her own
claim of ownership of the expropriated land. Ordoez asserted that she acquired all
rights and interests on the subject land when she purchased it during the execution sale
while the expropriation proceedings were still pending.

Philippine Veterans Bank v. Bases Conversion Development Authority365 further affirms


the rule that just compensation shall only be paid to the owner of the expropriated
property at the time of taking. In that case, the Court held that the trial court may order
the payment of just compensation to itself pending the adjudication of the issue of
ownership in other proceedings pursuant to Section 9, Rule 67 of the Rules of Court.

The Court likewise did not award just compensation to a non-owner in Republic v.
Mangotara.366 The Court held that the filing of a supplemental complaint for
expropriation impleading private parties does not necessarily amount to an admission
that the parcels of land sought to be expropriated are privately owned. The Republic
merely acknowledged that there are private persons also claiming ownership of the
parcels of land. The Republic can still consistently assert, in both actions for
expropriation and reversion, that the subject parcels of land are part of the public
domain.

The record of the present case show that PIATCO has been the original contracting party
commissioned by the Government to construct the NAIA-IPT III based on a build-operate-
transfer arrangement and who, in this capacity, contracted out the actual construction to
Takenaka and Asahikosan. Thus, when the NAIA-IPT III was built, it was in PIATCO's name
and account, although it subsequently owed sums to subcontractors, incurred in the
course of the construction. From this perspective, PIATCO has been the owner recognized
as such by the Government although the basis of its contractual relationship with the
Government was later on nullified. Takenaka and Asahikosan, on the other hand, had
always been subcontractors with whom the Government did not have any formal link.
These facts indubitably show that PIATCO has been the owner of the NAIA-IPT III entitled
to receive the just compensation due. Takenaka and Asahikosan for their part, have not
shown that they possess legal title or colorable title to the NAIA-IPT III that would defeat
PIATCO's ownership.

To recap and expound on the matter:

First, Takenaka and Asahikosan were mere subcontractors in the nullified NAIA-IPT III
project. That Takenaka and Asahikosan actually built the NAIA-IPT III does not make them
the owner of the terminal building.

We carefully point out that our finding in this case that Takenaka and Asahikosan are the
actual builders of the NAIA-IPT III does not contravene our rulings in Agan and Gingoyon
that PIATCO is the builder of the NAIAIPT III. The word "builder" is broad enough to
include the contractor, PIATCO, and the subcontractors, Takenaka and Asahikosan, in the
nullified NAIA-IPT III project. Republic Act No. 4566367 defines a "builder" as follows:

Section 9 (b) of RA 4566. "Contractor" is deemed synonymous with the term "builder"
and, hence, any person who undertakes or offers to undertake or purports to have the
capacity to undertake or submits a bid to, or does himself or by or through others,
construct, alter, repair, add to, subtract from, improve, move, wreckor demolish any
building, highway, road, railroad, excavation or other structure, project, development or
improvement, or to do any part thereof, including the erection of scaffolding or other
structures or works in connection therewith. The term contractor includes subcontractor
and specialty contractor.

In Gingoyon, the Court loosely used the word "builder" and "owner" interchangeably. We
clarify, however, that a builder is different from the owner of the property. As we stated
above, a builder includes the contractor and the subcontractor. On the other hand, the
"owner" who is constitutionally entitled to just compensation is the person who has legal
title to the property. Logically, a builder is not necessarily the owner of the property and
vice-versa.

Second, we cannot recognize Takenaka and Asahikosan's claimed liens over the NAIA-IPT
III in this just compensation case. Since G.R. No. 202166 is still pending before the Court,
we cannot conclusively rule that Takenaka and Asahikosan are unpaid creditors of PIATCO
without preempting the Court's ruling in the enforcement case.

Even assuming that Takenaka and Asahikosan - as unpaid contractors in the botched
NAIA-IPT III construction contract - indeed have liens over the NAIA-IPT III, PIATCO is still
the property owner who, as such, should directly receive just compensation from the
Government.
We clarify that the expropriation court's determination of the lawful property owner is
merely provisional. By filing an action for expropriation, the condemnor merely serves
notice that it is taking title to and possession of the property, and that the defendant is
asserting title to or interest in the property, not to prove a right to possession, but to
prove a right to compensation for the taking. The Court's disposition with respect to the
ownership of the property is not conclusive, and it remains open to challenge through
proper actions. The court's resolution of the title to the land at the time of taking has no
legal consequences beyond the eminent domain proceedings. The court's decision
cannot be pleaded as a defense of res judicataor collateral estoppel in any action to
determine title to the property.

As we explained in Republic of the Philippines v. Samson-Tatad:368

However, the authority to resolve ownership should be taken in the proper context. The
discussion in Republic was anchored on the question of who among the respondents
claiming ownership of the property must be indemnified by the Government:

Now, to determine the person who is to be indemnified for the expropriation of Lot 6,
Block 6, Psd-2017, the court taking cognizance of the expropriation must necessarily
determine if the sale to the Punzalan spouses by Antonio Feliciano is valid or not. For if
valid, said spouses must be the ones to be paid by the condemnor; but if invalid, the
money will be paid to someone else. x x x

Thus, such findings of ownership in an expropriation proceeding should not be construed


as final and binding on the parties. By filing an action for expropriation, the condemnor
(petitioner), merely serves notice that it is taking title to and possession of the property,
and that the defendant is asserting title to or interest in the property, not to prove a right
to possession, but to prove a right to compensation for the taking.

If at all, this situation is akin to ejectment cases in which a court is temporarily


authorized to determine ownership, if only to determine who is entitled to possession.
This is not conclusive, and it remains open to challenge through proper actions. The
consequences of Sec. 9, Rule 67 cannot be avoided, as they are due to the intimate
relationship of the issue of ownership with the claim for the expropriation payment.
(Emphasis supplied)

9.c. A final disposition in the eminent


domain case with respect to the order
of payment to a particular person shall
be final and executory.

To avoid future litigation, we emphasize that a final disposition in the eminent domain
case with respect to the order to pay a particular person shall be final and executory
upon the lapse of relevant periods under Rule 39 of the Rules of Court. The recourse of
the person claiming ownership over the expropriated property in any subsequent case is
against the adjudged property owner in the expropriation case.

The principle of res judicata applies in this particular matter because the issues on the
amount of just compensation and the person to be paid just compensation are the
central issues in the second phase of expropriation. Based on this principle, a final
judgment or decree on the merits by a court of competent jurisdiction is conclusive of
the rights of the parties or their privies in all later suits on points and matters determined
in the former suit.369

There would be no end to litigation in an eminent domain case if we rule otherwise; we


would only foment mockery of the judicial proceedings as the order of payment in the
eminent domain case would never be truly final and executory. Furthermore, to the
detriment of the public, interest would continue to accrue on just compensation if we
rule that the order of payment to a particular recipient can be reversed in the
subsequent judicial proceedings and is, indeed, reversed in the subsequent case. This
would be unfair to the State (and the public) that merely

exercised its immutable right to exercise the power of eminent domain.

Contrary to Takenaka and Asahikosan's claim, in Calvo v. Zandueta,370 the Court did not
stay the execution of a final and executory ruling in the eminent domain case during the
pendency of the interpleader case.

A close reading of Calvo shows that the order of payment of just compensation in that
case was not yet final and executory.

In November 1924, the municipality of San Quintin, Pangasinan filed an action for
expropriation of a parcel of land owned by Aquilino Calvo and with a Certificate of Title
No. 25100.

On November 25, 1925, the Court of First Instance (CFI) approved the commissioners'
valuation of the subject land in the sum of P6,943.25. The municipality of San Quintin
appealed the case but subsequently withdrew the appeal on June 23, 1926. The CFI
approved the withdrawal of appeal on July 20, 1926.

In the meantime, Juana Ordoez levied on the subject land after she obtained a favorable
judgment against Calvo. The levy was recorded on the certificate of title on December
23, 1925. Thereafter, the sheriff sold the subject land to Ordoez inan execution sale. On
January 23, 1926, the sale was duly entered by memorandum on the certificate of title.
On the same date, Ordoez filed a motion for substitution as a defendant in the
expropriation case on the ground that she acquired all the rights and interests of Calvo
on the subject land.

On June 29, 1926, the CFI declared the November 25, 1925 decision final and ordered
the provincial treasurer of Pangasinan to pay Calvo a part of just compensation. The
following day, Ordoez filed a motion praying for the revocation of the June 29, 1926
order and for the provincial treasurer of Pangasinan to retain the award of just
compensation.

On July 20, 1926, the CFI revoked the June 29, 1926 order and ordered the provincial
treasurer of Pangasinan to retain the money until further orders of the court. After the
CFI denied Calvo et al.'s motion for reconsideration, they filed a petition for certiorari
before the Court.

The Court denied the petition. The Court ruled that "assuming that the judgment of
November 25, 1925, constituted a final determination of the petitioners' right to receive
the award," Ordoez was not a party to the expropriation case and, therefore, could not
be bound by the judgment. Ordoez' claim that she stands subrogated to Calvo's right to
just compensation has the appearance of validity. The judicial determination of her claim
may be adjudicated in an action for interpleader which was then pending when the
motion for substitution was filed. Consequently, the trial court correctly stayed the
execution of the judgment in the expropriation case. Whenever necessary to promote the
ends of justice, courts have the power to temporarily stay executions of judgments
rendered by them."

Clearly, the November 25, 1925 decision in Calvo was not yet final and executory when
the Court suspended the execution of that ruling. The July 29, 1926 order revoked the
June 29, 1926 order which in turn declared the finality of the November 25, 1925
decision of the CFI. Ordoez filed a motion for the reversal of the June 29, 1926 order
prior to the CFI's withdrawal of appeal on July 20, 1926. Significantly, the CFI approved
the withdrawal of appeal on the same date that the CFI revoked the June 29, 1926 order
and ordered the provincial treasurer of Pangasinan to withhold the just compensation.
There is thus no basis to Takenaka and Asahikosan's claim that the execution of a final
and executory judgment on just compensation may be suspended if there is still a
subsisting case regarding the disputed ownership of the expropriated property.

9.d. The determination of whether the


NAIA-IPT III shall be burdened by liens
and mortgages even after the full
payment of just compensation is still
premature.

The determination of whether the NAIA-IPT III shall be burdened by liens and mortgages
even after the full payment of just compensation is still premature. The enforceability of
Claim Nos. HT-04-248 and HT-05-269 in this jurisdiction has yet to be decided by the
Court in G.R. No. 202166. Furthermore, the application of Article 2242 of the Civil
Code371 presupposes that PIATCO declared insolvency or has been declared insolvent.
This, of course, should be litigated in insolvency proceedings, not in the present eminent
domain case.

The Court cannot pass upon the validity and enforceability of civil claims against PIATCO
by creditor/s in an expropriation case or the existence of liens on the NAIA-IPT III. Section
114 of Republic Act No. 10142372 provides:

Section 114. Rights of Secured Creditors. - The Liquidation Order shall not affect the right
of a secured creditor to enforce his lien in accordance with the applicable contract or law.
A secured creditor may:

(a) waive his right under the security or lien, prove his claim in the liquidation
proceedings and share in the distribution of the assets of the debtor; or

(b) maintain his rights under the security or lien:

If the secured creditor maintains his rights under the security or lien:

(1) the value of the property may be fixed in a manner agreed upon by the creditor and
the liquidator. When the value of the property is less than the claim it secures, the
liquidator may convey the property to the secured creditor and the latter will be
admitted in the liquidation proceedings as a creditor for the balance. If its value exceeds
the claim secured, the liquidator may convey the property to the creditor and waive the
debtor's right of redemption upon receiving the excess from the creditor;

(2) the liquidator may sell the property and satisfy the secured creditor's entire claim
from the proceeds of the sale; or

(3) the secure creditor may enforce the lien or foreclose on the property pursuant to
applicable laws.

10. The exercise of eminent


domain from the perspective of
"taking."

10.a. The Government may take


the property for public
purpose or public use upon
the issuance and effectivity
of the writ of possession.

To clarify and to avoid confusion in the implementation of our judgment, the full payment
of just compensation is not a prerequisite for the Government's effective taking of the
property. As discussed above, RA 8974 allows the Government to enter the property and
implement national infrastructure projects upon the issuance of the writ of possession.
When the taking of the property precedes the payment of just compensation, the
Government shall indemnify the property owner by way of interest.

"Taking" under the power of eminent domain means entering upon private property for
more than a momentary period, and under the warrant or color of legal authority,
devoting it to public use, or otherwise informally appropriating or injuriously affecting it
in such a way as substantially to oust the owner and deprive him of all beneficial
enjoyment thereof.373

"Taking" of property takes place when: (1) the owner is actually deprived or dispossessed
of his property;(2) there is a practical destruction or a material impairment of the value
of his property; (3) the owner is deprived of the ordinary use of the property, or (4) when
he is deprived of the jurisdiction, supervision and control of his property.374

The taking of property is different from the transfer of the property title from the private
owner to the Government. Under Rule 67 of the Rules of Court, there are two phases of
expropriation: (a) the condemnation of the property after it is determined that its
acquisition will be for a public purpose or public use; and (b) the determination of just
compensation to be paid for the taking of private property to be made by the court with
the assistance of not more than three commissioners.

The first phase is concerned with the determination of the Government's authority to
exercise the power of eminent domain and the propriety of its exercise in the context of
the facts involved in the suit. The court declares that the Government has a lawful right
to take the property sought to be condemned, for the public use or purpose described in
the complaint.375
The second phase relates to the just amount that the Government shall compensate the
property owner.376

Whenever the court affirms the condemnation of private property in the first phase of
the proceedings, it merely confirms the Government's lawful right to take the private
property for public purpose or public use. The court does not necessarily rule that the
title to the private property likewise vests on the Government.

The transfer of property title from the property owner to the Government is not a
condition precedent to the taking of property. The State may take private property prior
to the eventual transfer of title of the expropriated property to the State.

In fact, there are instances when the State takes the property prior to the filing of the
complaint for expropriation or without involving the transfer of title.377 In People v.
Fajardo,378 the Court ruled that the municipal mayor's refusal to give the property
owner the permission to build a house on his own land on the ground that the structure
would destroy the beauty of the public plaza amounts to the taking of the property
requiring just compensation.

In National Power Corporation (NPC) v. Spouses Malit,379 the NPC's transmission lines
had to pass the Spouses Malit's property. The Court ruled that the NPC's easement of
right-of-wayon the land was equivalent to the taking of property. The limitation imposed
by the NPC against the use of the land for an indefinite period deprived the Spouses
Malit of the lot's ordinary use. Consequently, the NPC shall give the Spouses Malit just
compensation.

The reckoning period, however, of the valuation of just compensation is the date of
taking or the filing of the complaint for expropriation, whichever is earlier. In either case,
it is only after the finality of the second stage and after the payment of just
compensation that the title shall pass to the Government. As we have ruled in Gingoyon,
the title to the property does not pass to the condemnor until just compensation is paid.

Under Section 4 of RA 8974, the Government is only entitled to a writ of possession upon
initial payment of just compensation to the defendant, and upon presentment to the
court of a certificate of availability of funds.

A writ of possession does not transfer title to the Government; it is "a writ of execution
employed to enforce a judgment to recover the possession of land. It commands the
sheriff to enter the land and give its possession to the person entitled under the
judgment."380 Section 4 of RA 8974 further states that the writ of possession is an order
to take possession of the property and to start the implementation of the project, to wit:

Section 4. Guidelines for Expropriation Proceedings. - Whenever it is necessary to acquire


real property for the right-of-way or location for any national government infrastructure
project through expropriation, the appropriate implementing agency shall initiate the
expropriation proceedings before the proper court under the following guidelines:

(a) Upon the filing of the complaint, and after due notice to the defendant, the
implementing agency shall immediately pay the owner of the property the amount
equivalent to the sum of (1) one hundred percent (100%) of the value of the property
based on the current relevant zonal valuation of the Bureau of Internal Revenue (BIR);
and (2) the value of the improvements and/or structures as determined under Section 7
hereof;

(b) In provinces, cities, municipalities and other areas where there is no zonal valuation,
the BIR is hereby mandated within the period of sixty (60) days from the date of the
expropriation case, to come up with a zonal valuation for said area; and

(c) In case the completion of a government infrastructure project is of utmost urgency


and importance, and there is no existing valuation of the area concerned, the
implementing agency shall immediately pay the owner of the property its proffered value
taking into consideration the standards prescribed in Section 5 hereof.

Upon compliance with the guidelines abovementioned, the court shall immediately issue
to the implementing agency an order to take possession of the property and start the
implementation of the project.

Before the court can issue a Writ of Possession, the implementing agency shall present to
the court a certificate of availability of funds from the proper official concerned.

In the event that the owner of the property contests the implementing agency's
proffered value, the court shall determine the just compensation to be paid the owner
within sixty (60)days from the date of filing of the expropriation case. When the decision
of the court becomes final and executory, the implementing agency shall pay the owner
the difference between the amount already paid and the just compensation as
determined by the court. (Emphasis supplied)

The Government is provisionally authorized to take the property for public purpose or
public use whenever the court issues a writ of possession in favor of the Government. It
may take possession of the property or effectively deprive the property owner of the
ordinary use of the property. If the court, however, later on determines that the State has
no right of expropriation, then the State shall immediately restore the defendant of the
possession of the property and pay the property owner damages that he sustained.
Section 11, Rule 67 of the Rules of Court: Section 11. Entry not delayed by appeal; effect
of reversal. - The right of the plaintiff to enter upon the property of the defendant and
appropriate the same for public use or purpose shall not be delayed by an appeal from
the judgment. But if the appellate court determines that plaintiff has no right of
expropriation, judgment shall be rendered ordering the Regional Trial Court to forthwith
enforce the restoration to the defendant of the possession of the property, and to
determine the damages which the defendant sustained and may recover by reason of
the possession taken by the plaintiff. (11a)

The State's taking of the property is not based on trust or contract, but is founded on its
inherent power to appropriate private property for public use. It is also for this reason - to
compensate the property owner for the deprivation of his right to enjoy the ordinary use
of his property until the naked title to the property passed to the State - that the State
pays interest from the time of the taking of the property until full payment of just
compensation.

This conclusion is consistent with the dispositive portion of our ruling in Gingoyon where
we authorized the Government to perform acts that are essential to the operation of the
NAIA-IPT III as an international airport terminal upon the effectivity of the writ of
possession. The authority granted to the Government encompasses "the repair,
reconditioning and improvement of the complex, maintenance of the existing facilities
and equipment, installation of new facilities and equipment, provision of services and
facilities pertaining to the facilitation of air traffic and transport, and other services that
are integral to a modern-day international airport."

The present case involves the second stage of expropriation or the determination of
replacement cost of the NAIA-IPT III. The first stage has become final after the
promulgation of the December 19, 2005 decision and the February 1, 2006 resolution in
Gingoyon where we affirmed the Government's power to expropriate the NAIA-IPT III and
where we ordered the issuance of a writ of possession upon the Government's direct
payment of the proffered value of P3 billion to PIATCO. Thus, the reinstatement of the
writ of possession on September 11, 2006, empowered the Government to take the
property for public use, and to effectively deprive PIATCO of the ordinary use of the NAIA-
IPT III.

B. G.R. No. 181892

1. The issue on the appointment of


an independent appraiser is
already moot and academic.

In G.R. No. 181892, the RTC, in its order dated May 5,2006, ordered the appointment of
an independent appraiser to conduct the valuation of the NAIA-IPT III upon the BOC's
request. Thereafter, the Government and PIATCO submitted their lists of nominees to this
position. On May 3, 2007, the RTC engaged the services of DG Jones and Partners as an
independent appraiser. On May 18, 2007, the RTC directed the Government to submit a
Certificate of Availability of Funds to cover DG Jones and Partners' $1.9 Million appraisal
fee.

The Government disputed the May 3 and 18, 2007 orders and argued that the RTC had
no power to appoint an independent appraiser. The Government insisted that the RTC
should exclusively choose among its nominees pursuant to Section 7 of RA 8974 as well
as Sections 10 and 11 of RA 8974 IRR.

The RTC sustained the appointment of DG Jones and Partners in an order dated January
7, 2008.The RTC ruled that its power to appoint the members of the BOC under Section
5, Rule 67 of the Rules of Court was broad enough as to include the appointment of an
independent appraiser.

On February 6, 2008, the Government filed a petition for certiorari with prayer for the
issuance of a temporary restraining order and/or a writ of preliminary injunction before
the Court assailing the May 3, 2007; May 18, 2007; and January 7, 2008 orders (G.R. No.
181892).

On January 9, 2008, the Court issued a temporary restraining order against the
implementation of the May 3, May 18, and January 7, 2008 orders.

On August 5, 2010, the RTC ordered the parties to submit their appraisal reports of the
NAIA-IPTIII. The Government, PIATCO, Takenaka and Asahikosan separately hired their
own appraisers who came up with their different valuations of the NAIA-IPT III.
On March 31, 2011, the BOC submitted its Final Report recommending the payment of
just compensation in the amount of $376,149,742.56. On May 23, 2011, the RTC
rendered a decision ordering the Government to pay PIATCO just compensation in the
amount of $116,348,641.10. The CA modified the RTC ruling and held that the just
compensation as of July 31, 2013, amounts to $371,426,742.24.

These developments render the appointment of DG Jones and Partners as an


independent appraiser of the NAIA-IPT III ineffective. An appraiser is a person selected or
appointed by competent authority to ascertain and state the true value of goods or real
estate.381 The purpose of appointing DG Jones and Partners as an independent
appraiser was to assist the BOC in appraising the NAIA-IPT III. In fact, the BOC requested
the RTC to engage the services of an independent appraiser because the BOC had no
technical expertise to conduct the valuation of the NAIA-IPT III. In turn, the BOC was to
recommend to the RTC the replacement cost of the NAIA-IPT III. Under Section 8, Rule 67
of the Rules of Court, the RTC may accept or reject, whether in whole or in part, the
BOC's report which is merely advisory and recommendatory in character.

We find, under the given circumstances, that the propriety of the appointment of DG
Jones and Partners and the corollary issue of who should shoulder the independent
appraiser's fees moot and academic.

An actual case or controversy exists when there is a conflict of legal rights or an


assertion of opposite legal claims between the parties that is susceptible or ripe for
judicial resolution.382 A justiciable controversy must not be moot and academic or have
no practical use or value. In other words, there must be a definite and concrete dispute
touching on the legal relations of the parties who have adverse legal interests.
Otherwise, the Court would simply render an advisory opinion on what the law would be
on a hypothetical state of facts. The disposition of the case would not have any practical
use or value as there is no actual substantial relief to which the applicant would be
entitled to and which would be negated by the dismissal or denial of the petition.383

After the BOC submitted its Final Report on the replacement cost of the NAIA-IPT III based
on the appraisal reports and other evidence submitted by the parties, the appointment
of DG Jones and Partners ceased to serve any purpose. Any subsequent findings of DG
Jones and Partners regarding the appraisal of the NAIA-IPT III would cease to have any
practical materiality since the RTC proceedings on the amount of just compensation had
already been terminated. As with the BOC, the independent appraiser's valuation of the
NAIAIPT III was advisory and recommendatory in character. DG Jones and Partners'
valuation was only preliminary and was not by any means meant to be final and
conclusive on the parties. In the exercise of its judicial functions, it is the expropriation
court who has the final say on the amount of just compensation. Since the RTC has
already made a factual finding on the valuation of the NAIA-IPT III, there is no point in
appointing DG Jones and Partners as an independent appraiser. To reiterate, valuation
involves a factual question that is within the province of the expropriation court, and not
the BOC or the independent appraiser. DG Jones and Partners' rule has simply been
overtaken by events.

As a final note, while we stated in Gingoyon that the RTC may validly appoint
commissioners in the appraisal of the NAIA-IPT III, the trial court should have appointed
commission members who possessed technical expertise in the appraisal of a complex
terminal building. Under Section 5, Rule 67 of the Rules of Court, the BOC's main
functions are to ascertain and report to the court the just compensation for the property
sought to be taken. The appointment of technical experts as commissioners would have
avoided the DG Jones aspect of the controversy as there would have been no need for
the trial court to hire an independent appraiser. This would have avoided the duplication
of tasks and delay in the proceedings.

To summarize, we rule that:

(1) The May 23, 2011 decision of the RTC in Civil Case No. 04-0876 is valid. The parties
were afforded procedural due process since their respective positions, counter-positions,
and evidence were considered by the trial court in rendering the decision.

(2) Replacement cost is a different standard of valuation from fair market value. Fair
market value is the price at which a property may be sold by a seller who is not
compelled to sell and bought by a buyer who is not compelled to buy. In contrast,
replacement cost is the amount necessary to replace the improvements/structures,
based on the current market prices for materials, equipment, labor, contractor's profit
and overhead, and all other attendant costs associated with the acquisition and
installation in place of the affected improvements/structures. (3) In computing just
compensation, the Court shall use the replacement cost method and the standards laid
down in Section 5 of RA 8974 as well as Section 10 of RA 8974. The Court shall likewise
consider equity in the determination of the just compensation due for NAIA-IPT III.

(4) The use of depreciated replacement cost method is consistent with the principle that
the property owner shall be compensated for his actual loss. It is consistent as well with
Section 10 of RA 8974 IRR which provides that the courts shall consider the kinds and
quantities of materials/equipment used and the configuration and other physical features
of the property, among other things, in the valuation of the NAIAIPT III. The Government
should not compensate PIATCO based on the value of a modern equivalent asset that has
the full functional utility of a brand new asset.

(5) The amount of just compensation as of the filing of the complaint for expropriation on
December 21, 2004, is $326,932,221.26. From this sum shall be deducted the proffered
value of $59,438,604.00. The resulting difference of $267,493,617.26 shall earn a
straight interest of 12% per annum from September 11, 2006 until June 30, 2013, and a
straight interest of 6% per annum from July 1, 2013, until full payment.

(6) PIATCO, as the owner of the NAIA-IPT III, shall solely receive the just compensation.
Based on the last paragraph, Section 4 of RA 8974 and the prevailing jurisprudence, it is
the owner of the expropriated property who is constitutionally entitled to just
compensation. Other claimants should be impleaded or may intervene in the eminent
domain case if the ownership of the property is uncertain or there are conflicting claims
on the property pursuant to Section 9, Rule 67 of the Rules of Court.

(7) The Government may deprive PIATCO of the ordinary use of the NAIA-IPT III upon the
issuance and effectivity of the writ of possession on September 11, 2006. However, the
Government shall only have ownership of the NAIA-IPT III after it fully pays PIATCO the
just compensation due.
(8) The expenses of the BOC, which are part of the costs, shall be shouldered by the
Government as the condemn or of the property pursuant to Section 12,Rule 67 of the
Rules of Court. Consequently, Takenaka and Asahikosan shall not share in the expenses
of the BOC. PIATCO is deemed to have waived its right not to share in the expenses of
the BOC since it voluntarily shared in the expenses of the BOC.

(9) The issues of the propriety of the appointment of DG Jones and Partners as an
independent appraiser in the valuation of the NAIA-IPT III and who should shoulder DG
Jones and Partners' appraisal fee are already moot and academic. The purpose of
appointing DG Jones and Partners as an independent appraiser was to assist the BOC in
the appraisal of NAIA-IPT III. As with the BOC, the independent appraiser's
recommendation to the RTC was merely recommendatory and advisory in character.
Since the RTC has already ruled on the just compensation in Civil Case No. 04-0876, the
appointment of an independent appraiser no longer serves any practical purpose.

WHEREFORE, premises considered, we PARTIALLY REVERSE the August 22, 2013


amended Decision and the October 19, 2013 Resolution of the Court of Appeals.

1) The principal amount of just compensation is fixed at $326,932,221.26 as of


December 21, 2004. Thereafter, the amount of $267,493,617.26, which is the difference
between $326,932,221.26 and the proffered value of $59,438,604.00, shall earn a
straight interest of 12% per annum from September 11, 2006 until June 30, 2013, and a
straight interest of 6% per annum from July 1, 2013 until full payment;

2) The Government is hereby ordered to make direct payment of the just compensation
due to PIATCO; and

3) The Government is hereby ordered to defray the expenses of the BOC in the sum of
P3,500,000.00.

We DECLARE the issue of the appointment of DG Jones and Partners as an independent


appraiser of the Ninoy Aquino International Airport Passenger Terminal III MOOT AND
ACADEMIC. The temporary restraining order issued on January 9,2008, against the
implementation of the May 3, 2007; May 18, 2007; and January 7, 2008 orders of the
Regional Trial Court of Pasay City, Branch 117 is hereby made PERMANENT.
Case #11 (Same as Case #1)

Case #12

G.R. No. 173988 October 8, 2014

FELINA ROSALDES, Petitioner,


vs.
PEOPLE OF THE PHILIPPINES, Respondent.

DECISION

BERSAMIN, J.:

The petitioner, a public schoolteacher, was charged with and found guilty of child abuse,
a violation of Republic Act No. 7610.1 The victim was her own Grade 1 pupil whom she
physically maltreated for having accidentally bumped her knee while she was drowsing
off on a bamboo sofa as he entered the classroom. Her maltreatment left him with
physical injuries, as duly certified by a physician.

Whether or not the petitioner thereby committed child abuse is the question that this
appeal must determine, in light of the Court's pronouncement in Bongalon v. People of
the Philippines2 that:

Not every instance of the laying of hands on a child constitutes the crime of child abuse
under Section 10 (a) of Republic Act No. 7610. Only when the laying of hands is shown
beyond reasonable doubt to be intended by the accused to debase, degrade or demean
the intrinsic worth and dignity of the child as a human being should it be punished as
child abuse. Otherwise, it is punished under the Revised Penal Code.

Antecedents

The State, through the Office ofthe Solicitor General, summed up the factual antecedents
in its comment,3 as follows:

On February 13, 1996, seven yearold Michael Ryan Gonzales, then a Grade 1 pupil at
Pughanan Elementary School located in the Municipality of Lambunao, Iloilo, was
hurriedly entering his classroom when he accidentally bumped the knee of his teacher,
petitioner Felina Rosaldes, who was then asleep on a bamboo sofa (TSN, March 14, 1997,
pp. 5-6). Roused from sleep, petitioner asked Michael Ryan to apologize to her. When
Michael did not obey but instead proceeded to his seat (TSN, March 14, 1997, p. 6),
petitioner went to Michael and pinched him on his thigh. Then, she held him up by his
armpits and pushed him to the floor. As he fell, Michael Ryans body hit a desk. As a
result, he lost consciousness. Petitioner proceeded topick Michael Ryan up by his ears
and repeatedly slammed him down on the floor. Michael Ryan cried (TSN, March 14,
1997, p. 6; TSN, November 13, 1997, p. 7).

After the incident, petitioner proceeded to teach her class. During lunch break, Michael
Ryan, accompanied by two of his classmates, Louella Loredo and Jonalyn Gonzales, went
home crying and told his mother about the incident (TSN, March 14, 1997, p. 7). His
mother and his Aunt Evangeline Gonzales reported the incident to their Barangay
Captain, Gonzalo Larroza (TSN, February 1, 1999, p. 4) who advised them to have
Michael Ryan examined by a doctor. Michael Ryans aunt and Barangay Councilman
Ernesto Ligante brought him to the Dr. Ricardo Y. Ladrido Hospital where he was
examined by Dr. Teresita Castigador. They, likewise, reported the incident to the Police
Station (TSN, July 27, 1997, p. 6; TSN, February 1, 1999, p. 4).

The medical certificate issued by Dr. Teresita Castigador reads, in part:

1. Petechiae and tenderness of both external ears 1x2 cm. and 1x1 cm.;

2. Lumbar pains and tenderness at area of L3-L4;

3. Contusions at left inner thigh 1x1 and 1x1 cm.;

4. Tenderness and painful on walking especially at the area of femoral head.

The petitioner was criminally charged with child abusein the Regional Trial Court in Iloilo
City (RTC), and the case was assigned to Branch 27 of that court. The information alleged
as follows: The Provincial Prosecutor of Iloilo, upon approval and Directive of the Deputy
OMBUDSMAN for the Visayas accuses FELINA ROSALDES of the crime of VIOLATION OF
CHILD ABUSE LAW

(Section 10 (a) of R.A. 7610), committed as follows:

That on or about the 13th day of February 1996, in the Municipality of Lambunao,
Province of Iloilo, Philippines and within the jurisdiction of this Honorable Court, the
above-named accused, being a public school teacher in Grade 1 of Pughanan Elementary
School, with a Salary Grade below 26, under the DECS, did then and there willfully,
unlawfully and feloniously maltreat her pupil Michael Ryan Gonzales, a seven year old
child, by pinching him on different parts of his body, and thereafter slumping him to the
ground, thereby causing Michael Ryan Gonzales to lose his consciousness and has
suffered injuries on different parts of his body.

CONTRARY TO LAW.4

On June 26, 2003, the RTC rendered judgment convicting the petitioner of child abuse,5
disposing as follows:

WHEREFORE, finding the accused guilty beyond reasonable doubt of Violation of Section
10 (a), Article VI of R.A. 7610, the Court sentences her to an indeterminate prison term
ranging from four (4) years, two (2) months and one (1) day of prision correccional, as
minimum, to six (6) years and one (1) day of prision mayor, as maximum, and to pay the
costs.

No pronouncement as to civil liability, the same not having been proved.

SO ORDERED.6

On appeal, the CA affirmed the conviction of the petitioner through its assailed decision
promulgated on May 11, 2005,7 with a modification of the penalty, viz: WHEREFORE,
premises considered, judgment is hereby rendered by us DISMISSING the appeal filed in
this case and AFFIRMING the decision rendered on June 26, 2003 by the court a quo in
Criminal Case No. 46893 with the MODIFICATION that the accusedappellant is sentenced
to suffer the indeterminate penalty of four (4) years, two (2) months and one (1) day of
prision correccional, as the minimum of it, to ten (10) years and one (1) day of prision
mayor, as the maximum thereof.

IT IS SO ORDERED.8

In her petition for review on certiorari,9 the petitioner submits that:

The Court of Appeals erred in convicting the petitioner by holding that the acts of the
petitioner constitute child abuse penalized under Section 10 (a) of Republic Act No.
7610[,] and notunder the Revised Penal Code.

II

The Court of Appeals erred in convicting the petitioner by holding that petitioners
constitutional right to due process and her right to be informed of the nature and cause
of the accusation against her was not violated when the essential elements of the crime
charged were not properly recited in the information.10

Countering, the State, through the OSG, insists that the issues the petitioner is raising
are mainly factual and, therefore, not reviewable under the mode of appeal chosen; that
the affirmance of her conviction by the CA was in accord with the pertinent law and
jurisprudence, and supported by the overwhelming evidence of the trial; and that the
information charging her with child abuse was sufficient in form and substance.11

Ruling of the Court

The appeal lacks merit.

First of all, the State correctly contends that the petitioner could raise only questions of
law in her present recourse. Under Rule 45 of the Rules of Court, the appeal is limited to
questionsof law. The immediate implication of the limitation is to have the findings of
fact by the CA, which affirmed the findings of fact by the trial court, conclude the Court
by virtue of its not being a trier of fact. As such, the Court cannot analyze or weigh the
evidence all over again.

It is true that the limitation of the review to errors of law admits of exceptions. Under
Section 4, Rule 3 of the Internal Rules of the Supreme Court, the following situations are
the exceptions in which the Court may review findings of fact by the lower courts, to wit:
(a) the conclusion is a finding grounded entirely on speculation, surmise and conjecture;
(b) the inference made is manifestly mistaken; (c) there is grave abuse of discretion; (d)
the judgment is based on a misapprehension of facts; (e) the findings of fact are
conflicting; (f) the collegial appellate courts went beyond the issues of the case, and
their findings are contrary to the admissions of both appellant and appellee; (g) the
findings of fact of the collegial appellate courts are contrary to those of the trial court; (h)
said findings of fact are conclusions without citation of specific evidence on which they
are based; (i) the facts set forth in the petition aswell as in the petitioners main and
reply briefs are not disputed by the respondents; (j) the findings of fact of the collegial
appellate courts are premised on the supposed evidence, but are contradicted by the
evidence on record; and (k) all other similar and exceptional cases warranting a review of
the lower courts findings of fact. A further exception is recognized when the CA
manifestly overlooked certain relevant facts not disputed bythe parties, which, if properly
considered, would justify a different conclusion.12 Yet, none of the exceptions applies
herein.

Secondly, the petitioner contends that she did not deliberately inflict the physical injuries
suffered by MichaelRyan to maltreat or malign him in a manner that would debase,
demean or degrade his dignity. She characterizes her maltreatment as anact of discipline
that she as a school teacher could reasonably do towards the development of the child.
She insists that her act further came under the doctrine of in loco parentis.

The contention of the petitioner is utterly bereft of merit.

Although the petitioner, as a school teacher, could duly discipline Michael Ryan as her
pupil, her infliction of the physical injuries on him was unnecessary, violent and
excessive. The boy even fainted from the violence suffered at her hands.13 She could
not justifiably claim that she acted only for the sake of disciplining him. Her physical
maltreatment of him was precisely prohibited by no less than the Family Code, which has
expressly banned the infliction of corporal punishmentby a school administrator, teacher
or individual engaged in child care exercising special parental authority (i.e., in loco
parentis), viz:

Article 233. The person exercising substitute parental authority shall have the same
authority over the person of the child as the parents.

In no case shall the school administrator, teacher or individual engaged in child care
exercising special parental authority inflict corporal punishment upon the child. (n)

Proof of the severe results of the petitioners physical maltreatment of Michael Ryan was
provided by Dr. Teresita Castigador, the Medico-Legal Officer of the Dr. Ricardo Y. Ladrido
Memorial Hospital in Iloilo who examined the victim at about 1:00 oclock in the
afternoon of February 13, 1996, barely three hours from the timethe boy had sustained
his injuries. Her Medical Report stated as follows:

1. Petechiae and tenderness of both external ears 1x2 cm. and 1x1 cm.;

2. Lumbar pains and tenderness at area of L3-L4;

3. Contusions at left inner thigh 1x1 and 1x1 cm.;

4. Tenderness and painful on walking especially at the area of femoral head.

Reflecting her impressions of the physical injuries based on the testimonial explanations
of Dr. Castigador, the trial judge observed in the decision of June 26, 2003:

A petechiae (wound no. 1), according to Dr. Castigador is a discoloration of the skin
caused by the extravasation of blood beneath it. She opined that the petechiae and
tenderness of the ears of the victim could have been caused by pinching. As to the
lumbar pain and tenderness at the third and fourth level of the vertebrae (wound no. 2),
the doctor testified that during her examination of the victim the latter felt pain when
she put pressure on the said area. She stated that this could be caused by pressure or
contact with a hard object. Wound No. 3 is located on the victimsleft inner thigh.
According to her this could not have been caused by ordinary pinching with pressure.
Wound No. 4 is located on the upper part of the left thigh. Dr. Castigador testified that
she noticed that the boy was limping as he walked.14

Section 3 of RepublicAct No. 7610 defines child abusethusly:

xxxx

(b) "Child abuse" refers to the maltreatment, whether habitual or not, of the child which
includes any of the following:

(1) Psychological and physical abuse, neglect, cruelty, sexual abuse and emotional
maltreatment;

(2) Any act by deeds or words which debases, degrades or demeans the intrinsic worth
and dignity of a child as a human being;

(3) Unreasonable deprivation of his basic needs for survival, such as food and shelter; or

(4) Failure to immediately give medical treatment to an injured child resulting in serious
impairment of his growth and development or in his permanent incapacity or death.

xxxx

In the crime charged against the petitioner, therefore, the maltreatment may consist of
an act by deedsor by wordsthat debases, degrades or demeans the intrinsic worth and
dignity of a child as a human being. The act need not be habitual. The CA concluded that
the petitioner "went overboard in disciplining Michael Ryan, a helpless and weak 7-year
old boy, when she pinched hard Michael Ryan on the left thigh and when she held him in
the armpits and threw him on the floor[; and as] the boy fell down, his body hit the desk
causing him to lose consciousness [but instead] of feeling a sense of remorse, the
accused-appellant further held the boy up by his ears and pushed him down on the
floor."15 On her part, the trial judge said that the physical pain experienced by the victim
had been aggravated by an emotional trauma that caused him to stop going to school
altogether out of fear of the petitioner, compelling his parents to transfer him to another
school where he had to adjust again.16 Such established circumstances proved beyond
reasonable doubt thatthe petitioner was guilty of child abuse by deeds that degraded
and demeaned the intrinsic worth and dignity of Michael Ryan as a human being.

It was also shown that Michael Ryans physical maltreatment by the petitioner was
neither her first or only maltreatment of a child. Prosecution witness Louella Loredo
revealed on cross examination that she had also experienced the petitioners cruelty.17
The petitioner was also convicted by the RTC in Iloilo City (Branch 39) in Criminal Case
No. 348921 for maltreatment of another childnamed Dariel Legayada.18 Such previous
incidents manifested that the petitioner had "a propensity for violence," as the trial judge
stated in her decision of June 26, 2003.19
Thirdly, the petitioner submits that the information charging her with child abuse was
insufficient in form and substance, in that the essential elements of the crime charged
were not properly alleged therein; and that her constitutional and statutory right to due
process of law was consequently violated.

The petitioners submission deserves scant consideration.

Under Section 6, Rule 110 of the Rules of Court, the information is sufficient if it states
the name of the accused; the designation of the offense given by the statute; the acts or
omissions complained of as constituting the offense; the name of the offended party; the
proximate date of the commission of the offense; and the place where the offense was
committed.

The information explicitly averred the offense of child abusecharged against the
petitioner in the context of the statutory definition of child abuse found in Section 3 (b)
of Republic Act No. 7610, supra, and thus complied with the requirements of Section 6,
Rule 110 of the Rules of Court. Moreover, the Court should no longer entertain the
petitioners challenge against the sufficiency of the information in form and substance.
Her last chance to pose the challenge was prior to the time she pleaded to the
information through a motion to quash on the ground that the information did not
conform substantially to the prescribed form, or did not charge an offense. She did not
do so, resulting in her waiver of the challenge.

Fourthly, the RTC did not grant civil damages as civil liability ex delictobecause no
evidence had been adduced thereon.20 The CA saw nothing wrong with the omission by
the trial court. The explanation tendered by the trial judge for the omission was
misplaced, however, because even without proof of the actual expenses, or testimony on
the victims feelings, the lower courts still had the authority to define and allow civil
liability arising from the offense and the means to fix their extent. The child abuse surely
inflicted on Michael Ryan physical and emotional trauma as well as moral injury. It cannot
also be denied that his parents necessarily spent for his treatment. We hold that both
lower courts committed a plain error that demands correction by the Court. Indeed, as
the Court pointed out in Bacolod v. People,21 it was "imperative that the courts prescribe
the proper penalties when convicting the accused, and determine the civil liability to be
imposed on the accused, unless there has been a reservation of the action to recover
civil liability or a waiver of its recovery," explaining the reason for doing so in the
following manner:

It is not amiss to stress that both the RTC and the CA disregarded their express mandate
under Section 2, Rule 120 of the Rules of Courtto have the judgment, if it was of
conviction, state: "(1) the legal qualification of the offense constituted by the acts
committed by the accused and the aggravating or mitigating circumstances which
attended its commission; (2) the participation ofthe accused in the offense, whether as
principal, accomplice, or accessory after the fact; (3) the penalty imposed upon the
accused; and (4) the civil liability or damages caused by his wrongful act or omission to
be recovered from the accused by the offended party, if there is any, unless the
enforcement of the civil liability by a separate civil action has been reserved or waived."
Their disregard compels us to actas we now do lest the Court be unreasonably seen as
tolerant of their omission. That the Spouses Cogtas did not themselves seek the
correction of the omission by an appeal is no hindrance to this action because the Court,
as the final reviewing tribunal, has not only the authority but also the duty to correct at
any time a matter of law and justice.1wphi1

We also pointedly remind all trial and appellate courts to avoid omitting reliefs that the
parties are properly entitled to by law or in equity under the established facts. Their
judgments will not be worthy of the name unless they thereby fully determine the rights
and obligations of the litigants. It cannot be otherwise, for only by a full determination of
such rights and obligations would they betrue to the judicial office of administering
justice and equity for all. Courts should then be alert and cautious in their rendition of
judgments of conviction in criminal cases. They should prescribe the legal penalties,
which is what the Constitution and the law require and expect them to do. Their
prescription of the wrong penalties will be invalid and ineffectual for being done without
jurisdiction or in manifest grave abuse of discretion amounting to lack of jurisdiction.
They should also determine and set the civil liability ex delictoof the accused, in order to
do justice to the complaining victims who are always entitled to them. The Rules of Court
mandates them to do so unless the enforcement of the civil liability by separate actions
has been reserved or waived.22

Moral damages should be awarded to assuage the moral and emotional sufferings of the
victim, and in that respect the Court believes and holds that P20,000.00 is reasonable.
The victim was likewise entitled to exemplary damages, considering that Article 2230 of
the Civil Code authorizes such damages if at least one aggravating circumstance
attended the commission of the crime. The child abuse committed by the petitioner was
aggravated her being a public school teacher, a factor in raising the penalty to its
maximum period pursuantto Section 31(e) of Republic Act No. 7610. The amount of
P20,000.00 as exemplary damages is imposed on in order to set an example for the
public good and as a deterrent to other public school teachers who violate the ban
imposed by Article 233 of the Family Code, supra, against the infliction of corporal
punishment on children under their substitute parental authority. The lack of proof of the
actual expenses for the victims treatmentshould not hinder the granting of a measure of
compensation in the formof temperate damages, which, according to Article 2224 of the
Civil Code, may be recovered when some pecuniary loss has been suffered butits amount
cannot be proved with certainty. There being no question aboutthe injuries sustained
requiring medical treatment, temperate damages ofat least P20,000.00 are warranted,
for it would be inequitable not to recognize the need for the treatment. Lastly, interest of
6% per annum shall be charged on all the items of civil liability, to be reckoned from the
finality of this decision until full payment.

The penalty for the child abusecommitted by the petitioner is that prescribed in Section
10(a) of Republic Act No. 7610, viz:

Section 10. Other Acts of Neglect, Abuse, Cruelty or Exploitation and Other Conditions
Prejudicial to the Child's Development.

(a) Any person who shall commit any other acts of child abuse, cruelty or exploitation or
to be responsible for other conditions prejudicial to the child's development including
those covered by Atiicle 59 of Presidential Decree No. 603, as amended, but not covered
by the Revised Penal Code, as amended, shall suffer the penalty of prision mayor in its
minimum period.

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The CA revised the penalty fixed by the R TC by imposing the indeterminate penalty of
four years, two months and one day of prision correccional, as minimum, to 10 years and
one day of prision mayor, as the maximum, on the ground that the offense was
aggravated by the petitioner being a public schoolteacher.23 It cited Section 3 l(e) of
Republic Act No. 7610, which commands that the penalty provided in the Act "shall be
imposed in its maximum period if the offender is a public officer or employee." Her being
a public schoolteacher was alleged in the information and established by evidence as
well as admitted by her. The revised penalty was erroneous, however, because Section
10 (a) of Republic Act No. 7610 punishes the crime committed by the petitioner with
prision mayor in its minimum period, whose three periods are six years and one day to