[ G.R. No. 180110, May 30, 2016 ] capacity of the said system.

capacity of the said system.[8] This property right is allegedly reported in its financial
CAPITOL WIRELESS, INC., PETITIONER, VS. THE PROVINCIAL
TREASURER OF BATANGAS, THE PROVINCIAL ASSESSOR OF BATANGAS,
THE MUNICIPAL TREASURER AND ASSESSOR OF NASUGBU, BATANGAS,
RESPONDENTS.
DECISION
books as "Indefeasible Rights in Cable Systems."[9]
However, for loan restructuring purposes, Capwire claims that "it was required to register
the value of its right," hence, it engaged an appraiser to "assess the market value of the
international submarine cable system and the cost to Capwire."[10] On May 15, 2000,
Capwire submitted a Sworn Statement of True Value of Real Properties at the Provincial
Treasurer's Office, Batangas City, Batangas Province, for the Wet Segment of the system,
stating:

PERALTA, J.:
System

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court Sound Value
seeking to annul and set aside the Court of Appeals' Decision[1] dated May 30, 2007 and APCN
Resolution[2] dated October 8, 2007 in CA-G.R. SP No. 82264, which both denied the
appeal of petitioner against the decision of the Regional Trial Court. P 203,300,000.00

BMP-CNS

Below are the facts of the case. P 65,662,000.00

SEA-ME-WE-3 CNS P

Petitioner Capitol Wireless Inc. (Capwire) is a Philippine corporation in the business of P 7,540,000.00
providing international telecommunications services.[3] As such provider, Capwire has
signed agreements with other local and foreign telecommunications companies covering GP-CNS
an international network of submarine cable systems such as the Asia Pacific Cable P1,789,000.00
Network System (APCN) (which connects Australia, Thailand, Malaysia, Singapore,
Hong Kong, Taiwan, Korea, Japan, Indonesia and the Philippines); the Brunei-Malaysia-
Philippines Cable Network System (BMP-CNS), the Philippines-Italy (SEA-ME-WE-3
Capwire claims that it also reported that the system "interconnects at the PLDT Landing
CNS), and the Guam Philippines (GP-CNS) systems.[4] The agreements provide for co-
Station in Nasugbu, Batangas," which is covered by a transfer certificate of title and tax
ownership and other rights among the parties over the network.[5]
declarations in the name of PLDT.[11]

Petitioner Capwire claims that it is co-owner only of the so-called "Wet Segment" of the
As a result, the respondent Provincial Assessor of Batangas (Provincial Assessor) issued
APCN, while the landing stations or terminals and Segment E of APCN located in
the following Assessments of Real Property (ARP) against Capwire:
Nasugbu, Batangas are allegedly owned by the Philippine Long Distance Telephone
Corporation (PLDT).[6] Moreover, it alleges that the Wet Segment is laid in international,
and not Philippine, waters.[7]
ARP

Cable System
Capwire claims that as co-owner, it does not own any particular physical part of the cable
system but, consistent with its financial contributions, it owns the right to use a certain Assessed Value
019-00967

BMP-CNS Capwire filed a Motion for Reconsideration, but the same was likewise dismissed by the
RTC in an Order[19] dated August 26, 2003. It then filed an appeal to the Court of
P 52,529,600.00 Appeals.[20]
019-00968

APCN On May 30, 2007, the Court of Appeals promulgated its Decision dismissing the appeal
P 162,640,000.00 filed by Capwire and affirming the order of the trial court. The dispositive portion of the
CA's decision states:
019-00969

SEA-ME-WE3-CNS
WHEREFORE, premises considered, the assailed Orders dated May 5, 2003 and August
P 6,032,000.00 26, 2003 of the Regional Trial Court, Branch 11 of Batangas City, are AFFIRMED.
019-00970

GP-CNS SO ORDERED.[21]
P 1,431,200.00

In essence, the Provincial Assessor had determined that the submarine cable systems
described in Capwire's Sworn Statement of True Value of Real Properties are taxable real
property, a determination that was contested by Capwire in an exchange of letters between
the company and the public respondent.[12] The reason cited by Capwire is that the cable
system lies outside of Philippine territory, i.e., on international waters.[13]
On February 7, 2003 and March 4, 2003, Capwire received a Warrant of Levy and a
Notice of Auction Sale, respectively, from the respondent Provincial Treasurer of
Batangas (Provincial Treasurer).[14]
The appellate court held that the trial court correctly dismissed Capwire's petition because
of the latter's failure to comply with the requirements set in Sections 226 and 229 of the
Local Government Code, that is, by not availing of remedies before administrative bodies
like the LBAA and the Central Board of Assessment Appeals (CBAA).[22] Although
Capwire claims that it saw no need to undergo administrative proceedings because its
petition raises purely legal questions, the appellate court did not share this view and noted
that the case raises questions of fact, such as the extent to which parts of the submarine
cable system lie within the territorial jurisdiction of the taxing authorities, the public
respondents.[23] Further, the CA noted that Capwire failed to pay the tax assessed against
it under protest, another strict requirement under Section 252 of the Local Government
Code.[24]

Hence, the instant petition for review of Capwire.

On March 10, 2003, Capwire filed a Petition for Prohibition and Declaration of Nullity of
Warrant of Levy, Notice of Auction Sale and/or Auction Sale with the Regional Trial
Court (RTC) of Batangas City.[15]
Alter the filing of the public respondents' Comment,[16] on May 5, 2003, the RTC issued
an Order dismissing the petition for failure of the petitioner Capwire to follow the
requisite of payment under protest as well as failure to appeal to the Local Board of
Assessment Appeals (LBAA), as provided for in Sections 206 and 226 of Republic Act
(R.A.) No. 7160, or the Local Government Code.[17]
Petitioner Capwire asserts that recourse to the Local Board of Assessment Appeals, or
payment of the tax under protest, is inapplicable to the case at bar since there is no question
of fact involved, or that the question involved is not the reasonableness of the amount
assessed but, rather, the authority and power of the assessor to impose the tax and of the
treasurer to collect it.[25] It contends that there is only a pure question of law since the
issue is whether its submarine cable system, which it claims lies in international waters,
is taxable.[26] Capwire holds the position that the cable system is not subject to tax.[27]

Respondents assessors and treasurers of the Province of Batangas ana Municipality of
Nasugbu, Batangas disagree with Capwire and insist that the case presents questions of
fact such as the extent and portion of the submarine cable system that lies within the
jurisdiction of the said local governments, as well as the nature of the so-called
indefeasible rights as property of Capwire.[28] Such questions are allegedly resolvable
only before administrative agencies like the Local Board of Assessment Appeals.[29]
The Court confronts the following issues: Is the case cognizable by the administrative
agencies and covered by the requirements in Sections 226 and 229 of the Local
Government Code which makes the dismissal of Capwire's petition by the RTC proper?
May submarine communications cables be classified as taxable real property by the local
governments?
The petition is denied. No error attended the ruling of the appellate court that the case
involves factual questions that should have been resolved before the appropriate
administrative bodies.
In disputes involving real property taxation, the general rule is to require the taxpayer to
first avail of administrative remedies and pay the tax under protest before allowing any
resort to a judicial action, except when the assessment itself is alleged to be illegal or is
made without legal authority.[30] For example, prior resort to administrative action is
required when among the issues raised is an allegedly erroneous assessment, like when
the reasonableness of the amount is challenged, while direct court action is permitted
when only the legality, power, validity or authority of the assessment itself is in
question.[31] Stated differently, the general rule of a prerequisite recourse to
administrative remedies applies when questions of fact are raised, but the exception of
direct court action is allowed when purely questions of law are involved.[32]
This Court has previously and rather succinctly discussed the difference between a
question of fact and a question of law. In Cosmos Bottling Corporation v. Nagrama,
Jr.,[33] it held:
The Court has made numerous dichotomies between questions of law and fact. A reading
of these dichotomies shows that labels attached to law and fact are descriptive rather than
definitive. We are not alone in Our difficult task of clearly distinguishing questions of feet
from questions of law. The United States Supreme Court has ruled that: "we [do not| yet
know of any other rule or principle that will unerringly distinguish a tactual finding from
a legal conclusion."
In Ramos v. Pepsi-Cola Bottling Co. of the P.I., the Court ruled:
There is a question of law in a given case when the doubt or difference arises as to what
the law is on a certain state of facts; there is a question of fact when the doubt or difference
arises as to the truth or the falsehood of alleged facts.
We shall label this the doubt dichotomy.
In Republic v. Sandiganbayan, the Court ruled:
x x x A question of law exists when the doubt or controversy concerns the correct
application of law or jurisprudence to a certain set of facts; or when the issue docs not call
for an examination of the probative value of the evidence presented, the truth or falsehood
of facts being admitted. In contrast, a question of fact exists when the doubt or difference
arises as to the truth or falsehood of facts or when the query invites calibration of the
whole evidence considering mainly the credibility of the witnesses, the existence and
relevancy of specific surrounding circumstances as well as their relation to each other and
to the whole, and the probability of the situation.
For the sake of brevity, We shall label this the law application and calibration dichotomy.
In contrast, the dynamic legal scholarship in the United States has birthed many
commentaries on the question of law and question of fact dichotomy. As early as 1944,
the law was described as growing downward toward "roots of fact" which grew upward
to meet it. In 1950, the late Professor Louis Jaffe saw fact and law as a spectrum, with one
shade blending imperceptibly into the other. Others have defined questions of law as those
that deal with the general body of legal principles; questions of fact deal with "all other
phenomena x x x." Kenneth Gulp Davis also weighed in and noted that the difference
between fact and law has been characterized as that between "ought" questions and "is"
questions.[34]
Guided by the quoted pronouncement, the Court sustains the CA's finding that petitioner's Nonetheless, We proceed to decide on whether submarine wires or cables used for
case is one replete with questions of fact instead of pure questions of law, which renders communications may be taxed like other real estate.
its filing in a judicial forum improper because it is instead cognizable by local
administrative bodies like the Board of Assessment Appeals, which are the proper venues
for trying these factual issues. Verily, what is alleged by Capwire in its petition as "the We hold in the affirmative.
crux of the controversy," that is, "whether or not an indefeasible right over a submarine
cable system that lies in international waters can be subject to real property tax in the
Philippines,"[35] is not the genuine issue that the case presents - as it is already obvious
Submarine or undersea communications cables are akin to electric transmission lines
and fundamental that real property that lies outside of Philippine territorial jurisdiction
which this Court has recently declared in Manila Electric Company v. City Assessor and
cannot be subjected to its domestic and sovereign power of real property taxation - but,
City Treasurer of Lucena City,[37] as "no longer exempted from real property tax" and
rather, such factual issues as the extent and status of Capwire's ownership of the system,
may qualify as "machinery" subject to real property tax under the Local Government
the actual length of the cable/s that lie in Philippine territory, and the corresponding
Code. To the extent that the equipment's location is determinable to be within the taxing
assessment and taxes due on the same, because the public respondents imposed and
authority's jurisdiction, the Court sees no reason to distinguish between submarine cables
collected the assailed real property tax on the finding that at least a portion or some
used for communications and aerial or underground wires or lines used for electric
portions of the submarine cable system that Capwire owns or co-owns lies inside
transmission, so that both pieces of property do not merit a different treatment in the
Philippine territory. Capwire's disagreement with such findings of the administrative
aspect of real property taxation. Both electric lines and communications cables, in the
bodies presents little to no legal question that only the courts may directly resolve.
strictest sense, are not directly adhered to the soil but pass through posts, relays or landing
stations, but both may be classified under the term "machinery" as real property under
Article 415(5)[38] of the Civil Code for the simple reason that such pieces of equipment
Instead, Capwire argues and makes claims on mere assumptions of certain facts as if they serve the owner's business or tend to meet the needs of his industry or works that are on
have been already admitted or established, when they have not, since no evidence of such real estate. Even objects in or on a body of water may be classified as such, as "waters" is
have yet been presented in the proper agencies and even in the current petition. As such, classified as an immovable under Article 415(8)[39] of the Code. A classic example is a
it remains unsettled whether Capwire is a mere co-owner, not full owner, of the subject boathouse which, by its nature, is a vessel and, therefore, a personal property but, if it is
submarine cable and, if the former, as to what extent; whether all or certain portions of tied to the shore and used as a residence, and since it floats on waters which is immovable,
the cable are indeed submerged in water; and whether the waters wherein the cable/s is/are is considered real property.[40] Besides, the Court has already held that "it is a familiar
laid are entirely outside of Philippine territorial or inland waters, i.e., in international phenomenon to see things classed as real property for purposes of taxation which on
waters. More simply, Capwire argues based on mere legal conclusions, culminating on its general principle might be considered personal property."[41]
claim of illegality of respondents' acts, but the conclusions are yet unsupported by facts
that should have been threshed out quasi-judicially before the administrative agencies. It
has been held that "a bare characterization in a petition of unlawfulness, is merely a legal
Thus, absent any showing from Capwire of any express grant of an exemption for its lines
conclusion and a wish of the pleader, and such a legal conclusion unsubstantiated by facts
and cables from real property taxation, then this interpretation applies and Capwire's
which could give it life, has no standing in any court where issues must be presented and
submarine cable may be held subject to real property tax.
determined by facts in ordinary and concise language."[36] Therefore, Capwire's resort to
judicial action, premised on its legal conclusion that its cables (the equipment being taxed)
lie entirely on international waters, without first administratively substantiating such a
factual premise, is improper and was rightly denied. Its proposition that the cables lie Having determined that Capwire is liable, and public respondents have the right to impose
entirely beyond Philippine territory, and therefore, outside of Philippine sovereignty, is a a real property tax on its submarine cable, the issue that is unresolved is how much of
fact that is not subject to judicial notice since, on the contrary, and as will be explained such cable is taxable based on the extent of Capwire's ownership or co-ownership of it
later, it is in fact certain that portions of the cable would definitely lie within Philippine and the length that is laid within respondents' taxing jurisdiction. The matter, however,
waters. Jurisprudence on the Local Government Code is clear that facts such as these must requires a factual determination that is best performed by the Local and Central Boards
be threshed out administratively, as the courts in these types of cases step in at the first of Assessment Appeals, a remedy which the petitioner did not avail of.
instance only when pure questions of law are involved.
At any rate, given the importance of the issue, it is proper to lay down the other legal bases
for the local taxing authorities' power to tax portions of the submarine cables of petitioner.
It is not in dispute that the submarine cable system's Landing Station in Nasugbu,
Batangas is owned by PLDT and not by Capwire. Obviously, Capwire is not liable for the
real property tax on this Landing Station. Nonetheless, Capwire admits that it co-owns
the submarine cable system that is subject of the tax assessed and being collected by public
respondents. As the Court takes judicial notice that Nasugbu is a coastal town and the
surrounding sea falls within what the United Nations Convention on the Law of the Sea
(UNCLOS) would define as the country's territorial sea (to the extent of 12 nautical miles
outward from the nearest baseline, under Part II, Sections 1 and 2) over which the country
has sovereignty, including the seabed and subsoil, it follows that indeed a portion of the
submarine cable system lies within Philippine territory and thus falls within the
jurisdiction of the said local taxing authorities.[42] It easily belies Capwire's contention
that the cable system is entirely in international waters. And even if such portion does not
lie in the 12-nautical-mile vicinity of the territorial sea but further inward, in Prof.
Magallona v. Hon. Ermita, et al.[43] this Court held that "whether referred to as Philippine
'internal waters' under Article I of the Constitution[44] or as 'archipelagic waters' under
UNCLOS Part III, Article 49(1, 2, 4),[45] the Philippines exercises sovereignty over the
body of water lying landward of (its) baselines, including the air space over it and the
submarine areas underneath." Further, under Part VI, Article 79[46] of the UNCLOS, the
Philippines clearly has jurisdiction with respect to cables laid in its territory that are
utilized in support of other installations and structures under its jurisdiction.
And as far as local government units are concerned, the areas described above are to be
considered subsumed under the term "municipal waters" which, under the Local
Government Code, includes "not only streams, lakes, and tidal waters within the
municipality, not being the subject of private ownership and not comprised within the
national parks, public forest, timber lands, forest reserves or fishery reserves, but also
marine waters included between two lines drawn perpendicularly to the general coastline
from points where the boundary lines of the municipality or city touch the sea at low tide
and a third line parallel with the general coastline and fifteen (15) kilometers from it."[47]
Although the term "municipal waters" appears in the Code in the context of the grant of
quarrying and fisheries privileges for a fee by local governments,[48] its inclusion in the
Code's Book II which covers local taxation means that it may also apply as guide in
determining the territorial extent of the local authorities' power to levy real property
taxation.
Thus, the jurisdiction or authority over such part of the subject submarine cable system
lying within Philippine jurisdiction includes the authority to tax the same, for taxation is
one of the three basic and necessary attributes of sovereignty,[49] and such authority has
been delegated by the national legislature to the local governments with respect to real
property taxation.[50]
As earlier stated, a way for Capwire to claim that its cable system is not covered by such
authority is by showing a domestic enactment or even contract, or an international
agreement or treaty exempting the same from real property taxation. It failed to do so,
however, despite the fact that the burden of proving exemption from local taxation is upon
whom the subject real property is declared.[51] Under the Local Government Code, every
person by or for whom real property is declared, who shall claim tax exemption for such
property from real property taxation "shall file with the provincial, city or municipal
assessor within thirty (30) days from the date of the declaration of real property sufficient
documentary evidence in support of such claim."[52] Capwire omitted to do so. And even
under Capwire's legislative franchise, RA 4387, which amended RA 2037, where it may
be derived that there was a grant of real property tax exemption for properties that are part
of its franchise, or directly meet the needs of its business,[53] such had been expressly
withdrawn by the Local Government Code, which took effect on January 1, 1992,
Sections 193 and 234 of which provide:[54]
Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in
this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock
and nonprofit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code.
xxxx
Section 234. Exemptions from Real Property Tax. - The following arc exempted from
payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration
of otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,
mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements
actually, directly, and exclusively used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local
water districts and government-owned or controlled corporations engaged in the supply
and distribution of water and/or generation and transmission of electric power;

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

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

Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by, all persons, whether natural or juridical, including all
government-owned or controlled corporations arc hereby withdrawn upon the effectivity
of this Code.[55]

Such express withdrawal had been previously held effective upon exemptions bestowed
by legislative franchises granted prior to the effectivity of the Local Government
Code.[56] Capwire fails to allege or provide any other privilege or exemption that were
granted to it by the legislature after the enactment of the Local Government Code.
Therefore, the presumption stays that it enjoys no such privilege or exemption. Tax
exemptions are strictly construed against the taxpayer because taxes are considered the
lifeblood of the nation.[57]

WHEREFORE, the petition is DENIED. The Court of Appeals' Decision dated May 30,
2007 and Resolution dated October 8, 2007 are AFFIRMED.

SO ORDERED.
[ G.R. No. 137705, August 22, 2000 ]
SERG’S PRODUCTS, INC., AND SERGIO T. GOQUIOLAY, PETITIONERS, VS.
PCI LEASING AND FINANCE, INC., RESPONDENT.
DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or immovable property be considered
as personal or movable, a party is estopped from subsequently claiming otherwise. Hence,
such property is a proper subject of a writ of replevin obtained by the other contracting
party.
The Case
Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision[1]
of the Court of Appeals (CA)[2] in CA-GR SP No. 47332 and its February 26, 1999
Resolution[3] denying reconsideration. The decretal portion of the CA Decision reads as
follows:
“WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and
Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED.
The writ of preliminary injunction issued on June 15, 1998 is hereby LIFTED.”[4]
In its February 18, 1998 Order,[5] the Regional Trial Court (RTC) of Quezon City
(Branch 218)[6] issued a Writ of Seizure.[7] The March 18, 1998 Resolution[8] denied
petitioners’ Motion for Special Protective Order, praying that the deputy sheriff be
enjoined “from seizing immobilized or other real properties in (petitioners’) factory in
Cainta, Rizal and to return to their original place whatever immobilized machineries or
equipments he may have removed.”[9]
The Facts
The undisputed facts are summarized by the Court of Appeals as follows:[10]
“On February 13, 1998, respondent PCI Leasing and Finance, Inc. (“PCI Leasing” for
short) filed with the RTC-QC a complaint for [a] sum of money (Annex ‘E’), with an
application for a writ of replevin docketed as Civil Case No. Q-98-33500.
“On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued
a writ of replevin (Annex ‘B’) directing its sheriff to seize and deliver the machineries
and equipment to PCI Leasing after 5 days and upon the payment of the necessary
expenses.
“On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioner’s
factory, seized one machinery with [the] word that he [would] return for the other
machineries.
“On March 25, 1998, petitioners filed a motion for special protective order (Annex ‘C’),
invoking the power of the court to control the conduct of its officers and amend and
control its processes, praying for a directive for the sheriff to defer enforcement of the
writ of replevin.
“This motion was opposed by PCI Leasing (Annex ‘F’), on the ground that the properties
[were] still personal and therefore still subject to seizure and a writ of replevin.
“In their Reply, petitioners asserted that the properties sought to be seized [were]
immovable as defined in Article 415 of the Civil Code, the parties’ agreement to the
contrary notwithstanding. They argued that to give effect to the agreement would be
prejudicial to innocent third parties. They further stated that PCI Leasing [was] estopped
from treating these machineries as personal because the contracts in which the alleged
agreement [were] embodied [were] totally sham and farcical.
“On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take
possession of the remaining properties. He was able to take two more, but was prevented
by the workers from taking the rest.
“On April 7, 1998, they went to [the CA] via an original action for certiorari.”

Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject machines
were personal property, and that they had only been leased, not owned, by petitioners. It
also ruled that the “words of the contract are clear and leave no doubt upon the true
intention of the contracting parties.” Observing that Petitioner Goquiolay was an
experienced businessman who was “not unfamiliar with the ways of the trade,” it ruled
that he “should have realized the import of the document he signed.” The CA further held:
“Furthermore, to accord merit to this petition would be to preempt the trial court in ruling
upon the case below, since the merits of the whole matter are laid down before us via a
petition whose sole purpose is to inquire upon the existence of a grave abuse of discretion
on the part of the [RTC] in issuing the assailed Order and Resolution. The issues raised
herein are proper subjects of a full-blown trial, necessitating presentation of evidence by
both parties. The contract is being enforced by one, and [its] validity is attacked by the
other – a matter x x x which respondent court is in the best position to determine.”
Hence, this Petition.[11]
The Issues
In their Memorandum, petitioners submit the following issues for our consideration:
“A. Whether or not the machineries purchased and imported by SERG’S became real
property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease.”[12]
In the main, the Court will resolve whether the said machines are personal, not
immovable, property which may be a proper subject of a writ of replevin. As a preliminary
matter, the Court will also address briefly the procedural points raised by respondent.
The Court’s Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate expressly whether it was being
filed under Rule 45 or Rule 65 of the Rules of Court. It further alleges that the Petition
erroneously impleaded Judge Hilario Laqui as respondent.
There is no question that the present recourse is under Rule 45. This conclusion finds
support in the very title of the Petition, which is “Petition for Review on Certiorari.”[13]
While Judge Laqui should not have been impleaded as a respondent,[14] substantial
justice requires that such lapse by itself should not warrant the dismissal of the present
Petition. In this light, the Court deems it proper to remove, motu proprio, the name of
Judge Laqui from the caption of the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their factory were not proper subjects
of the Writ issued by the RTC, because they were in fact real property. Serious policy
considerations, they argue, militate against a contrary characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery
of personal property only.[15] Section 3 thereof reads:
“SEC. 3. Order. - Upon the filing of such affidavit and approval of the bond, the court
shall issue an order and the corresponding writ of replevin describing the personal
property alleged to be wrongfully detained and requiring the sheriff forthwith to take such
property into his custody.”
On the other hand, Article 415 of the Civil Code enumerates immovable or real property
as follows:
“ART. 415. The following are immovable property:
x x x....................................x x x....................................x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works;
x x x....................................x x x....................................x x x”
In the present case, the machines that were the subjects of the Writ of Seizure were placed
by petitioners in the factory built on their own land. Indisputably, they were essential and
principal elements of their chocolate-making industry. Hence, although each of them was
movable or personal property on its own, all of them have become “immobilized by
destination because they are essential and principal elements in the industry.”[16] In that
sense, petitioners are correct in arguing that the said machines are real, not personal,
property pursuant to Article 415 (5) of the Civil Code.[17]
Be that as it may, we disagree with the submission of the petitioners that the said machines
are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real property be
considered as personal.[18] After agreeing to such stipulation, they are consequently
estopped from claiming otherwise. Under the principle of estoppel, a party to a contract
is ordinarily precluded from denying the truth of any material fact found therein.
Hence, in Tumalad v. Vicencio,[19] the Court upheld the intention of the parties to treat
a house as a personal property because it had been made the subject of a chattel mortgage.
The Court ruled:
“x x x. Although there is no specific statement referring to the subject house as personal
property, yet by ceding, selling or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the house as chattel, or at least,
intended to treat the same as such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise.”
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever Textile
Mills[20] also held that the machinery used in a factory and essential to the industry, as
in the present case, was a proper subject of a writ of replevin because it was treated as
personal property in a contract. Pertinent portions of the Court’s ruling are reproduced
hereunder:
“x x x. If a house of strong materials, like what was involved in the above Tumalad case,
may be considered as personal property for purposes of executing a chattel mortgage
thereon as long as the parties to the contract so agree and no innocent third party will be
prejudiced thereby, there is absolutely no reason why a machinery, which is movable in
its nature and becomes immobilized only by destination or purpose, may not be likewise
treated as such. This is really because one who has so agreed is estopped from denying
the existence of the chattel mortgage.”
In the present case, the Lease Agreement clearly provides that the machines in question
are to be considered as personal property. Specifically, Section 12.1 of the Agreement
reads as follows:[21]
“12.1 The PROPERTY is, and shall at all times be and remain, personal property
notwithstanding that the PROPERTY or any part thereof may now be, or hereafter
become, in any manner affixed or attached to or embedded in, or permanently resting
upon, real property or any building thereon, or attached in any manner to what is
permanent.”
Clearly then, petitioners are estopped from denying the characterization of the subject
machines as personal property. Under the circumstances, they are proper subjects of the
Writ of Seizure.
It should be stressed, however, that our holding -- that the machines should be deemed
personal property pursuant to the Lease Agreement – is good only insofar as the
contracting parties are concerned.[22] Hence, while the parties are bound by the
Agreement, third persons acting in good faith are not affected by its stipulation
characterizing the subject machinery as personal.[23] In any event, there is no showing
that any specific third party would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement is a loan and not a
lease.[24] Submitting documents supposedly showing that they own the subject machines,
petitioners also argue in their Petition that the Agreement suffers from “intrinsic
ambiguity which places in serious doubt the intention of the parties and the validity of the
lease agreement itself.”[25] In their Reply to respondent’s Comment, they further allege
that the Agreement is invalid.[26]
These arguments are unconvincing. The validity and the nature of the contract are the lis
mota of the civil action pending before the RTC. A resolution of these questions,
therefore, is effectively a resolution of the merits of the case. Hence, they should be
threshed out in the trial, not in the proceedings involving the issuance of the Writ of
Seizure.
Indeed, in La Tondeña Distillers v. CA,[27] the Court explained that the policy under Rule
60 was that questions involving title to the subject property – questions which petitioners
are now raising -- should be determined in the trial. In that case, the Court noted that the
remedy of defendants under Rule 60 was either to post a counter-bond or to question the
sufficiency of the plaintiff’s bond. They were not allowed, however, to invoke the title to
the subject property. The Court ruled:
“In other words, the law does not allow the defendant to file a motion to dissolve or
discharge the writ of seizure (or delivery) on ground of insufficiency of the complaint or
of the grounds relied upon therefor, as in proceedings on preliminary attachment or
injunction, and thereby put at issue the matter of the title or right of possession over the
specific chattel being replevied, the policy apparently being that said matter should be
ventilated and determined only at the trial on the merits.”[28]
Besides, these questions require a determination of facts and a presentation of evidence,
both of which have no place in a petition for certiorari in the CA under Rule 65 or in a
petition for review in this Court under Rule 45.[29]
Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on the Lease Agreement, for
nothing on record shows that it has been nullified or annulled. In fact, petitioners assailed
it first only in the RTC proceedings, which had ironically been instituted by respondent.
Accordingly, it must be presumed valid and binding as the law between the parties.
Makati Leasing and Finance Corporation[30] is also instructive on this point. In that case,
the Deed of Chattel Mortgage, which characterized the subject machinery as personal
property, was also assailed because respondent had allegedly been required “to sign a
printed form of chattel mortgage which was in a blank form at the time of signing.” The
Court rejected the argument and relied on the Deed, ruling as follows:
“x x x. Moreover, even granting that the charge is true, such fact alone does not render a
contract void ab initio, but can only be a ground for rendering said contract voidable, or
annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court.
There is nothing on record to show that the mortgage has been annulled. Neither is it
disclosed that steps were taken to nullify the same. x x x”
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that “if the Court allows these machineries to be seized, then its
workers would be out of work and thrown into the streets.”[31] They also allege that the
seizure would nullify all efforts to rehabilitate the corporation.
Petitioners’ arguments do not preclude the implementation of the Writ. As earlier
discussed, law and jurisprudence support its propriety. Verily, the above-mentioned
consequences, if they come true, should not be blamed on this Court, but on the petitioners
for failing to avail themselves of the remedy under Section 5 of Rule 60, which allows the
filing of a counter-bond. The provision states:
“SEC. 5. Return of property. - If the adverse party objects to the sufficiency of the
applicant’s bond, or of the surety or sureties thereon, he cannot immediately require the
return of the property, but if he does not so object, he may, at any time before the delivery
of the property to the applicant, require the return thereof, by filing with the court where
the action is pending a bond executed to the applicant, in double the value of the property
as stated in the applicant’s affidavit for the delivery thereof to the applicant, if such
delivery be adjudged, and for the payment of such sum to him as may be recovered against
the adverse party, and by serving a copy bond on the applicant.”

WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals
AFFIRMED. Costs against petitioners.

SO ORDERED.
[ G.R. NO. 155650, July 20, 2006 ] On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the
City of Parañaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency
MANILA INTERNATIONAL AIRPORT AUTHORITY, PETITIONER, VS. is broken down as follows:
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF
PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY
ASSESSOR OF PARAÑAQUE, AND CITY TREASURER OF PARAÑAQUE,
RESPONDENTS. TAX DECLARATION TAXABLE YEAR TAX DUE PENALTY
TOTAL

DECISION

CARPIO, J.:

The Antecedents
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20

E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Parañaque City under Executive Order No. 903, E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
otherwise known as the Revised Charter of the Manila International Airport Authority E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President
Ferdinand E. Marcos. Subsequently, Executive Order Nos. 909[1] and 298[2] amended E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
the MIAA Charter.
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99

E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00

As operator of the international airport, MIAA administers the land, improvements and
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
equipment within the NAIA Complex. The MIAA Charter transferred to MIAA
approximately 600 hectares of land,[3] including the runways and buildings ("Airport *E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
Lands and Buildings") then under the Bureau of Air Transportation.[4] The MIAA
Charter further provides that no portion of the land transferred to MIAA shall be disposed *E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
of through sale or any other mode unless specifically approved by the President of the
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
Philippines.[5]
GRAND TOTAL

P392,435,861.95 P232,070,863.47 P624,506,725.42

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued
Opinion No. 061. The OGCC opined that the Local Government Code of 1991 withdrew 1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
the exemption from real estate tax granted to MIAA under Section 21 of the MIAA
Charter. Thus, MIAA negotiated with respondent City of Parañaque to pay the real estate #9476101 for P28,676,480.00
tax imposed by the City. MIAA then paid some of the real estate tax already due.
#9476103 for P49,115.00[6]
On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy
and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of
Parañaque threatened to sell at public auction the Airport Lands and Buildings should
MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of
OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No.
061. The OGCC pointed out that Section 206 of the Local Government Code requires
persons exempt from real estate tax to show proof of exemption. The OGCC opined that
Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for
prohibition and injunction, with prayer for preliminary injunction or temporary restraining
order. The petition sought to restrain the City of Parañaque from imposing real estate tax
on, levying against, and auctioning for public sale the Airport Lands and Buildings. The
petition was docketed as CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it
beyond the 60-day reglementary period. The Court of Appeals also denied on 27
September 2002 MIAA's motion for reconsideration and supplemental motion for
reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for
review.[7]
Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the
Barangay Halls of Barangays Vitalez, Sto. Niño, and Tambo, Parañaque City; in the
public market of Barangay La Huerta; and in the main lobby of the Parañaque City Hall.
The City of Parañaque published the notices in the 3 and 10 January 2003 issues of the
Philippine Daily Inquirer, a newspaper of general circulation in the Philippines. The
notices announced the public auction sale of the Airport Lands and Buildings to the
highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building
of Parañaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before
this Court an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary
Restraining Order. The motion sought to restrain respondents - the City of Parañaque,
City Mayor of Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of
Parañaque, and the City Assessor of Parañaque ("respondents") - from auctioning the
Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary restraining order (TRO) effective
immediately. The Court ordered respondents to cease and desist from selling at public
auction the Airport Lands and Buildings. Respondents received the TRO on the same day
that the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three
hours after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the
directive issued during the hearing, MIAA, respondent City of Parañaque, and the
Solicitor General subsequently submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and
Buildings in the name of MIAA. However, MIAA points out that it cannot claim
ownership over these properties since the real owner of the Airport Lands and Buildings
is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the
Airport Lands and Buildings for the benefit of the general public. Since the Airport Lands
and Buildings are devoted to public use and public service, the ownership of these
properties remains with the State. The Airport Lands and Buildings are thus inalienable
and are not subject to real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA
from the payment of real estate tax. MIAA insists that it is also exempt from real estate
tax under Section 234 of the Local Government Code because the Airport Lands and
Buildings are owned by the Republic. To justify the exemption, MIAA invokes the
principle that the government cannot tax itself. MIAA points out that the reason for tax
exemption of public property is that its taxation would not inure to any public advantage,
since in such a case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly
withdrew the tax exemption privileges of "government-owned and-controlled
corporations" upon the effectivity of the Local Government Code. Respondents also argue
that a basic rule of statutory construction is that the express mention of one person, thing,
or act excludes all others. An international airport is not among the exceptions mentioned
in Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot
claim that the Airport Lands and Buildings are exempt from real estate tax.

Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos[8]
where we held that the Local Government Code has withdrawn the exemption from real
estate tax granted to international airports. Respondents further argue that since MIAA
has already paid some of the real estate tax assessments, it is now estopped from claiming
that the Airport Lands and Buildings are exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of
MIAA are exempt from real estate tax under existing laws. If so exempt, then the real
estate tax assessments issued by the City of Parañaque, and all proceedings taken pursuant
to such assessments, are void. In such event, the other issues raised in this petition become
moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed
by local governments.
First, MIAA is not a government-owned or controlled corporation but an instrumentality
of the National Government and thus exempt from local taxation. Second, the real
properties of MIAA are owned by the Republic of the Philippines and thus exempt from
real estate tax.
MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation, is
not exempt from real estate tax. Respondents claim that the deletion of the phrase "any
government-owned or controlled so exempt by its charter" in Section 234(e) of the Local
Government Code withdrew the real estate tax exemption of government-owned or
controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real
Property Tax Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from
real estate tax. However, MIAA is not a government-owned or controlled corporation.
Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines
a government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. - x x x x
(13) Government-owned or controlled corporation refers to any agency organized as a
stock or non-stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government directly or through
its instrumentalities either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x.
(Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock or non-
stock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is
not a stock corporation because it has no capital stock divided into shares. MIAA has no
stockholders or voting shares. Section 10 of the MIAA Charter[9] provides:
SECTION 10. Capital. - The capital of the Authority to be contributed by the National
Government shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos
to Ten Billion (P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and equipment and such
other properties, movable and immovable[,] which may be contributed by the National
Government or transferred by it from any of its agencies, the valuation of which shall be
determined jointly with the Department of Budget and Management and the Commission
on Audit on the date of such contribution or transfer after making due allowances for
depreciation and other deductions taking into account the loans and other liabilities of the
Authority at the time of the takeover of the assets and other properties;
(b) That the amount of P605 million as of December 31, 1986 representing about seventy
percentum (70%) of the unremitted share of the National Government from 1983 to 1986
to be remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 as
amended, shall be converted into the equity of the National Government in the Authority.
Thereafter, the Government contribution to the capital of the Authority shall be provided
in the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code[10] defines a stock corporation as one whose "capital
stock is divided into shares and x x x authorized to distribute to the holders of such shares
dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has
no stockholders or voting shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or officers." A non-stock corporation
must have members. Even if we assume that the Government is considered as the sole
member of MIAA, this will not make MIAA a non-stock corporation. Non-stock
corporations cannot distribute any part of their income to their members. Section 11 of
the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to
the National Treasury.[11] This prevents MIAA from qualifying as a non-stock
corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized
for charitable, religious, educational, professional, cultural, recreational, fraternal,
literary, scientific, social, civil service, or similar purposes, like trade, industry,
agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA,
a public utility, is organized to operate an international and domestic airport for public
use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation. What then is the legal status of MIAA
within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform
efficiently its governmental functions. MIAA is like any other government
instrumentality, the only difference is that MIAA is vested with corporate powers. Section
2(10) of the Introductory Provisions of the Administrative Code defines a government
"instrumentality" as follows:
SEC. 2. General Terms Defined. - x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated
within the department framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the instrumentality
does not become a corporation. Unless the government instrumentality is organized as a
stock or non-stock corporation, it remains a government instrumentality exercising not
only governmental but also corporate powers. Thus, MIAA exercises the governmental
powers of eminent domain,[12] police authority[13] and the levying of fees and
charges.[14] At the same time, MIAA exercises "all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the provisions of this
Executive Order."[15]
Likewise, when the law makes a government instrumentality operationally autonomous,
the instrumentality remains part of the National Government machinery although not
integrated with the department framework. The MIAA Charter expressly states that
transforming MIAA into a "separate and autonomous body"[16] will make its operation
more "financially viable."[17]
Many government instrumentalities are vested with corporate powers but they do not
become stock or non-stock corporations, which is a necessary condition before an agency
or instrumentality is deemed a government-owned or controlled corporation. Examples
are the Mactan International Airport Authority, the Philippine Ports Authority, the
University of the Philippines and Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are not organized as stock or non-
stock corporations as required by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are sometimes loosely called
government corporate entities. However, they are not government-owned or controlled
corporations in the strict sense as understood under the Administrative Code, which is the
governing law defining the legal relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local
Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. -
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units. (Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the
national government, which historically merely delegated to local governments the power
to tax. While the 1987 Constitution now includes taxation as one of the powers of local
governments, local governments may only exercise such power "subject to such
guidelines and limitations as the Congress may provide."[18]
The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (MC Culloch v. Maryland, 4
Wheat 316, 4 L Ed. 579)

When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments. The rule is
that a tax is never presumed and there must be clear language in the law imposing the tax.
Any doubt whether a person, article or activity is taxable is resolved against taxation. This
rule applies with greater force when local governments seek to tax national government
instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the
national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:
This doctrine emanates from the "supremacy" of the National Government over local
governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of
power on the part of the States to touch, in that way (taxation) at least, the instrumentalities
of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state
or political subdivision can regulate a federal instrumentality in such a way as to prevent
it from consummating its federal responsibilities, or even to seriously burden it in the
accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis
supplied)

The reason for the rule does not apply in the case of exemptions running to the benefit of
the government itself or its agencies. In such case the practical effect of an exemption is
merely to reduce the amount of money that has to be handled by government in the course
of its operations. For these reasons, provisions granting exemptions to government
agencies may be construed liberally, in favor of non tax-liability of such agencies.[19]
There is, moreover, no point in national and local governments taxing each other, unless
a sound and compelling policy requires such transfer of public funds from one government
pocket to another.
Otherwise, mere creatures of theState can defeat National policies thru extermination of
what local authorities may perceive to be undesirable activities or enterprise using the
power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to destroy" (Mc
Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of
the very entity which has the inherent power to wield it. [20]
Airport Lands and Buildings of MIAA are Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

There is also no reason for local governments to tax national government instrumentalities
for rendering essential public services to inhabitants of local governments. The only
exception is when the legislature clearly intended to tax government instrumentalities for
The Airport Lands and Buildings of MIAA are property of public dominion and therefore
the delivery of essential public services for sound and compelling policy considerations.
owned by the State or the Republic of the Philippines. The Civil Code provides:
There must be express language in the law empowering local governments to tax national
government instrumentalities. Any doubt whether such power exists is resolved against ARTICLE 419. Property is either of public dominion or of private ownership.
local governments.

ARTICLE 420. The following things are property of public dominion:

Thus, Section 133 of the Local Government Code states that "unless otherwise provided"
in the Code, local governments cannot tax national government instrumentalities. As this
Court held in Basco v. Philippine Amusements and Gaming Corporation:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for
some public service or for the development of the national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character stated in the
preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for public use or
for public service, shall form part of the patrimonial property of the State.
No one can dispute that properties of public dominion mentioned in Article 420 of the
Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the
State," are owned by the State. The term "ports" includes seaports and airports. The MIAA
Airport Lands and Buildings constitute a "port" constructed by the State. Under Article
420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public
dominion and thus owned by the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the
public for international and domestic travel and transportation. The fact that the MIAA
collects terminal fees and other charges from the public does not remove the character of
the Airport Lands and Buildings as properties for public use. The operation by the
government of a tollway does not change the character of the road as one for public use.
Someone must pay for the maintenance of the road, either the public indirectly through
the taxes they pay the government, or only those among the public who actually use the
road through the toll fees they pay upon using the road. The tollway system is even a more
efficient and equitable manner of taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether
it is of public dominion or not. Article 420 of the Civil Code defines property of public
dominion as one "intended for public use." Even if the government collects toll fees, the
road is still "intended for public use" if anyone can use the road under the same terms and
conditions as the rest of the public. The charging of fees, the limitation on the kind of
vehicles that can use the road, the speed restrictions and other conditions for the use of
the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges
to airlines, constitute the bulk of the income that maintains the operations of MIAA. The
collection of such fees does not change the character of MIAA as an airport for public
use. Such fees are often termed user's tax. This means taxing those among the public who
actually use a public facility instead of taxing all the public including those who never use
the particular public facility. A user's tax is more equitable " a principle of taxation
mandated in the 1987 Constitution.[21]
The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport
of the Philippines for both international and domestic air traffic,"[22] are properties of
public dominion because they are intended for public use. As properties of public
dominion, they indisputably belong to the State or the Republic of the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are
properties of public dominion. As properties of public dominion, the Airport Lands and
Buildings are outside the commerce of man. The Court has ruled repeatedly that properties
of public dominion are outside the commerce of man. As early as 1915, this Court already
ruled in Municipality of Cavite v. Rojas that properties devoted to public use are outside
the commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in provinces and in
towns comprises the provincial and town roads, the squares, streets, fountains, and public
waters, the promenades, and public works of general service supported by said towns or
provinces."
The said Plaza Soledad being a promenade for public use, the municipal council of Cavite
could not in 1907 withdraw or exclude from public use a portion thereof in order to lease
it for the sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or
public place to the defendant for private use the plaintiff municipality exceeded its
authority in the exercise of its powers by executing a contract over a thing of which it
could not dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not outside the
commerce of man may be the object of a contract, and plazas and streets are outside of
this commerce, as was decided by the supreme court of Spain in its decision of February
12, 1895, which says: "Communal things that cannot be sold because they are by their
very nature outside of commerce are those for public use, such as the plazas, streets,
common lands, rivers, fountains, etc." (Emphasis supplied) [23]
Again in Espiritu v. Municipal Council, the Court declared that properties of public
dominion are outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to public use and to be
made available to the public in general. They are outside the commerce of man and cannot
be disposed of or even leased by the municipality to private parties. While in case of war
or during an emergency, town plazas may be occupied temporarily by private individuals,
as was done and as was tolerated by the Municipality of Pozorrubio, when the emergency
has ceased, said temporary occupation or use must also cease, and the town officials
should see to it that the town plazas should ever be kept open to the public and free from
encumbrances or illegal private constructions.[24] (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce
of man, cannot be the subject of an auction sale.[25]
Properties of public dominion, being for public use, are not subject to levy, encumbrance
or disposition through public or private sale. Any encumbrance, levy on execution or
auction sale of any property of public dominion is void for being contrary to public policy.
Essential public services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen if the City of Parañaque
can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for
non-payment of real estate tax.
Before MIAA can encumber[26] the Airport Lands and Buildings, the President must first
withdraw from public use the Airport Lands and Buildings. Sections 83 and 88 of the
Public Land Law or Commonwealth Act No. 141, which "remains to this day the existing
general law governing the classification and disposition of lands of the public domain
other than timber and mineral lands,"[27] provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural
Resources, the President may designate by proclamation any tract or tracts of land of the
public domain as reservations for the use of the Republic of the Philippines or of any of
its branches, or of the inhabitants thereof, in accordance with regulations prescribed for
this purposes, or for quasi-public uses or purposes when the public interest requires it,
including reservations for highways, rights of way for railroads, hydraulic power sites,
irrigation systems, communal pastures or lequas communales, public parks, public
quarries, public fishponds, working men's village and other improvements for the public
benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-
three shall be non-alienable and shall not be subject to occupation, entry, sale, lease, or
other disposition until again declared alienable under the provisions of this Act or by
proclamation of the President. (Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and
Buildings from public use, these properties remain properties of public dominion and are
inalienable. Since the Airport Lands and Buildings are inalienable in their present status
as properties of public dominion, they are not subject to levy on execution or foreclosure
sale. As long as the Airport Lands and Buildings are reserved for public use, their
ownership remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for public use, and to
withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government.
- (1) The President shall have the power to reserve for settlement or public use, and for
specific public purposes, any of the lands of the public domain, the use of which is not
otherwise directed by law. The reserved land shall thereafter remain subject to the specific
public purpose indicated until otherwise provided by law or proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn
by law or presidential proclamation from public use, they are properties of public
dominion, owned by the Republic and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic.
Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like
MIAA to hold title to real properties owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. - Whenever real property of the
Government is authorized by law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following:
(1) For property belonging to and titled in the name of the Republic of the Philippines, by
the President, unless the authority therefor is expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled in the name of any
political subdivision or of any corporate agency or instrumentality, by the executive head
of the agency or instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer
because even its executive head cannot sign the deed of conveyance on behalf of the
Republic. Only the President of the Republic can sign such deed of conveyance.[28]
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and
Buildings from the Bureau of Air Transportation of the Department of Transportation and
Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. - x x x x
The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to the
ownership and administration of the Authority, subject to existing rights, if any. The
Bureau of Lands and other appropriate government agencies shall undertake an actual
survey of the area transferred within one year from the promulgation of this Executive
Order and the corresponding title to be issued in the name of the Authority. Any portion
thereof shall not be disposed through sale or through any other mode unless specifically
approved by the President of the Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. - All existing public
airport facilities, runways, lands, buildings and other property, movable or immovable,
belonging to the Airport, and all assets, powers, rights, interests and privileges belonging
to the Bureau of Air Transportation relating to airport works or air operations, including
all equipment which are necessary for the operation of crash fire and rescue facilities, are
hereby transferred to the Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau
of Air Transportation and Transitory Provisions. - The Manila International Airport
including the Manila Domestic Airport as a division under the Bureau of Air
Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the
Republic receiving cash, promissory notes or even stock since MIAA is not a stock
corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the
Airport Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of the Philippines
for both international and domestic air traffic, is required to provide standards of airport
accommodation and service comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have to
be upgraded to meet the current and future air traffic and other demands of aviation in
Metro Manila;
WHEREAS, a management and organization study has indicated that the objectives of
providing high standards of accommodation and service within the context of a financially
viable operation, will best be achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No.
1772, the President of the Philippines is given continuing authority to reorganize the
National Government, which authority includes the creation of new entities, agencies and
instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to
MIAA was not meant to transfer beneficial ownership of these assets from the Republic
to MIAA. The purpose was merely to reorganize a division in the Bureau of Air
Transportation into a separate and autonomous body. The Republic remains the beneficial
owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic.
No party claims any ownership rights over MIAA's assets adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be
disposed through sale or through any other mode unless specifically approved by the
President of the Philippines." This only means that the Republic retained the beneficial
ownership of the Airport Lands and Buildings because under Article 428 of the Civil
Code, only the "owner has the right to x x x dispose of a thing." Since MIAA cannot
dispose of the Airport Lands and Buildings, MIAA does not own the Airport Lands and
Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands and
Buildings without the Republic paying MIAA any consideration. Under Section 3 of the
MIAA Charter, the President is the only one who can authorize the sale or disposition of
the Airport Lands and Buildings. This only confirms that the Airport Lands and Buildings
belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal
property owned by the Republic of the Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. - The following are exempted from
payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code, which
prohibits local governments from imposing "[t]axes, fees or charges of any kind on the
National Government, its agencies and instrumentalities x x x." The real properties owned
by the Republic are titled either in the name of the Republic itself or in the name of
agencies or instrumentalities of the National Government. The Administrative Code
allows real property owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain owned by the
Republic and continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when title of the real property
is transferred to an agency or instrumentality even as the Republic remains the owner of
the real property. Such arrangement does not result in the loss of the tax exemption.
Section 234(a) of the Local Government Code states that real property owned by the
Republic loses its tax exemption only if the "beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person." MIAA, as a government instrumentality,
is not a taxable person under Section 133(o) of the Local Government Code. Thus, even
if we assume that the Republic has granted to MIAA the beneficial use of the Airport
Lands and Buildings, such fact does not make these real properties subject to real estate
tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities
are not exempt from real estate tax. For example, the land area occupied by hangars that
MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA
has granted the beneficial use of such land area for a consideration to a taxable person and
therefore such land area is subject to real estate tax. In Lung Center of the Philippines v.
Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as well as
those parts of the hospital leased to private individuals are not exempt from such taxes.
On the other hand, the portions of the land occupied by the hospital and portions of the
hospital used for its patients, whether paying or non-paying, are exempt from real property
taxes.[29]
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because Section
193 of the Local Government Code of 1991 withdrew the tax exemption of "all persons,
whether natural or juridical" upon the effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges - Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions are hereby withdrawn upon
effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority argues that
since the Local Government Code withdrew the tax exemption of all juridical persons,
then MIAA is not exempt from real estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government Code that the withdrawn
exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the
provisions lay down the explicit proposition that the withdrawal of realty tax exemption
applies to all persons. The reference to or the inclusion of GOCCs is only clarificatory or
illustrative of the explicit provision.
The term "All persons" encompasses the two classes of persons recognized under our
laws, natural and juridical persons. Obviously, MIAA is not a natural person. Thus, the
determinative test is not just whether MIAA is a GOCC, but whether MIAA is a juridical
person at all. (Emphasis and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt from local
taxation is its status - whether MIAA is a juridical person or not. The minority also insists
that "Sections 193 and 234 may be examined in isolation from Section 133(o) to ascertain
MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government
Code expressly withdrew the tax exemption of all juridical persons "[u]nless otherwise
provided in this Code." Now, Section 133(o) of the Local Government Code expressly
provides otherwise, specifically prohibiting local governments from imposing any kind
of tax on national government instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. -
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. (Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local governments cannot impose
any kind of tax on national government instrumentalities like the MIAA. Local
governments are devoid of power to tax the national government, its agencies and
instrumentalities. The taxing powers of local governments do not extend to the national
government, its agencies and instrumentalities, "[u]nless otherwise provided in this Code"
as stated in the saving clause of Section 133. The saving clause refers to Section 234(a)
on the exception to the exemption from real estate tax of real property owned by the
Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all juridical
persons are subject to tax by local governments. The minority insists that the juridical
persons exempt from local taxation are limited to the three classes of entities specifically
enumerated as exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts; (b)
cooperatives duly registered under Republic Act No. 6938; and (c) non-stock and non-
profit hospitals and educational institutions. It would be belaboring the obvious why the
MIAA does not fall within any of the exempt entities under Section 193. (Emphasis
supplied)
The minority's theory directly contradicts and completely negates Section 133(o) of the
Local Government Code. This theory will result in gross absurdities. It will make the
national government, which itself is a juridical person, subject to tax by local governments
since the national government is not included in the enumeration of exempt entities in
Section 193. Under this theory, local governments can impose any kind of local tax, and
not only real estate tax, on the national government.
Under the minority's theory, many national government instrumentalities with juridical
personalities will also be subject to any kind of local tax, and not only real estate tax.
Some of the national government instrumentalities vested by law with juridical
personalities are: Bangko Sentral ng Pilipinas,[30] Philippine Rice Research Institute,[31]
Laguna Lake
Development Authority,[32] Fisheries Development Authority,[33] Bases Conversion
Development Authority,[34] Philippine Ports Authority,[35] Cagayan de Oro Port
Authority,[36] San Fernando Port Authority,[37] Cebu Port Authority,[38] and Philippine
National Railways.[39]
The minority's theory violates Section 133(o) of the Local Government Code which
expressly prohibits local governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) does not distinguish between national
government instrumentalities with or without juridical personalities. Where the law does
not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all national
government instrumentalities, with or without juridical personalities. The determinative
test whether MIAA is exempt from local taxation is not whether MIAA is a juridical
person, but whether it is a national government instrumentality under Section 133(o) of
the Local Government Code. Section 133(o) is the specific provision of law prohibiting
local governments from imposing any kind of tax on the national government, its agencies
and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless
otherwise provided in this Code." This means that unless the Local Government Code
grants an express authorization, local governments have no power to tax the national
government, its agencies and instrumentalities. Clearly, the rule is local governments have
no power to tax the national government, its agencies and instrumentalities. As an
exception to this rule, local governments may tax the national government, its agencies
and instrumentalities only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a)
of the Code, which makes the national government subject to real estate tax when it gives
the beneficial use of its real properties to a taxable entity. Section 234(a) of the Local
Government Code provides:
SEC. 234. Exemptions from Real Property Tax - The following are exempted from
payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate tax.
The exception to this exemption is when the government gives the beneficial use of the
real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the national
government, its agencies and instrumentalities are subject to any kind of tax by local
governments. The exception to the exemption applies only to real estate tax and not to
any other tax. The justification for the exception to the exemption is that the real property,
although owned by the Republic, is not devoted to public use or public service but devoted
to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and 234 of the Local
Government Code, the later provisions prevail over Section 133. Thus, the minority
asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an
accepted rule of construction, in case of conflict the subsequent provisions should prevail.
Therefore, MIAA, as a juridical person, is subject to real property taxes, the general
exemptions attaching to instrumentalities under Section 133(o) of the Local Government
Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between Section 133 on one
hand, and Sections 193 and 234 on the other. No one has urged that there is such a conflict,
much less has any one presented a persuasive argument that there is such a conflict. The
minority's assumption of an irreconcilable conflict in the statutory provisions is an
egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section 193
expressly admits its subordination to other provisions of the Code when Section 193 states
"[u]nless otherwise provided in this Code." By its own words, Section 193 admits the
superiority of other provisions of the Local Government Code that limit the exercise of
the taxing power in Section 193. When a provision of law grants a power but withholds
such power on certain matters, there is no conflict between the grant of power and the
withholding of power. The grantee of the power simply cannot exercise the power on
matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local
Government Units." Section 133 limits the grant to local governments of the power to tax,
and not merely the exercise of a delegated power to tax. Section 133 states that the taxing
powers of local governments "shall not extend to the levy" of any kind of tax on the
national government, its agencies and instrumentalities. There is no clearer limitation on
the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing powers of local
governments, Section 133 logically prevails over Section 193 which grants local
governments such taxing powers. By their very meaning and purpose, the "common
limitations" on the taxing power prevail over the grant or exercise of the taxing power. If
the taxing power of local governments in Section 193 prevails over the limitations on such
taxing power in Section 133, then local governments can impose any kind of tax on the
national government, its agencies and instrumentalities - a gross absurdity.
Local governments have no power to tax the national government, its agencies and
instrumentalities, except as otherwise provided in the Local Government Code pursuant
to the saving clause in Section 133 stating "[u]nless otherwise provided in this Code."
This exception " which is an exception to the exemption of the Republic from real estate
tax imposed by local governments - refers to Section 234(a) of the Code. The exception
to the exemption in Section 234(a) subjects real property owned by the Republic, whether
titled in the name of the national government, its agencies or instrumentalities, to real
estate tax if the beneficial use of such property is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase
"government-owned or controlled corporation" is not controlling. The minority points out
that Section 2 of the Introductory Provisions of the Administrative Code admits that its
definitions are not controlling when it provides:
SEC. 2. General Terms Defined. - Unless the specific words of the text, or the context as
a whole, or a particular statute, shall require a different meaning:
xxxx
The minority then concludes that reliance on the Administrative Code definition is
"flawed."
The minority's argument is a non sequitur. True, Section 2 of the Administrative Code
recognizes that a statute may require a different meaning than that defined in the
Administrative Code. However, this does not automatically mean that the definition in the
Administrative Code does not apply to the Local Government Code. Section 2 of the
Administrative Code clearly states that "unless the specific words x x x of a particular
statute shall require a different meaning," the definition in Section 2 of the Administrative
Code shall apply. Thus, unless there is specific language in the Local Government Code
defining the phrase "government-owned or controlled corporation" differently from the
definition in the Administrative Code, the definition in the Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining the
phrase "government-owned or controlled corporation" differently from the definition in
the Administrative Code. Indeed, there is none. The Local Government Code is silent on
the definition of the phrase "government-owned or controlled corporation." The
Administrative Code, however, expressly defines the phrase "government-owned or
controlled corporation." The inescapable conclusion is that the Administrative Code
definition of the phrase "government-owned or controlled corporation" applies to the
Local Government Code.
The third whereas clause of the Administrative Code states that the Code "incorporates in
a unified document the major structural, functional and procedural principles and rules of
governance." Thus, the Administrative Code is the governing law defining the status and
relationship of government departments, bureaus, offices, agencies and instrumentalities.
Unless a statute expressly provides for a different status and relationship for a specific
government unit or entity, the provisions of the Administrative Code prevail.
The minority also contends that the phrase "government-owned or controlled corporation"
should apply only to corporations organized under the Corporation Code, the general
incorporation law, and not to corporations created by special charters. The minority sees
no reason why government corporations with special charters should have a capital stock.
Thus, the minority declares:
I submit that the definition of "government-owned or controlled corporations" under the
Administrative Code refer to those corporations owned by the government or its
instrumentalities which are created not by legislative enactment, but formed and
organized under the Corporation Code through registration with the Securities and
Exchange Commission. In short, these are GOCCs without original charters.
xxxx
It might as well be worth pointing out that there is no point in requiring a capital structure
for GOCCs whose full ownership is limited by its charter to the State or Republic. Such
GOCCs are not empowered to declare dividends or alienate their capital shares.
The contention of the minority is seriously flawed. It is not in accord with the Constitution
and existing legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or controlled
corporation" does not distinguish between one incorporated under the Corporation Code
or under a special charter. Where the law does not distinguish, courts should not
distinguish.
Second, Congress has created through special charters several government-owned
corporations organized as stock corporations. Prime examples are the Land Bank of the
Philippines and the Development Bank of the Philippines. The special charter[40] of the
Land Bank of the Philippines provides:
SECTION 81. Capital. - The authorized capital stock of the Bank shall be nine billion
pesos, divided into seven hundred and eighty million common shares with a par value of
ten pesos each, which shall be fully subscribed by the Government, and one hundred and
twenty million preferred shares with a par value of ten pesos each, which shall be issued
in accordance with the provisions of Sections seventy-seven and eighty-three of this Code.
(Emphasis supplied)
Likewise, the special charter[41] of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock " Par value. " The capital stock of the Bank shall
be Five Billion Pesos to be divided into Fifty Million common shares with par value of
P100 per share. These shares are available for subscription by the National Government.
Upon the effectivity of this Charter, the National Government shall subscribe to Twenty-
Five Million common shares of stock worth Two Billion Five Hundred Million which
shall be deemed paid for by the Government with the net asset values of the Bank
remaining after the transfer of assets and liabilities as provided in Section 30 hereof.
(Emphasis supplied)
Other government-owned corporations organized as stock corporations under their special
charters are the Philippine Crop Insurance Corporation,[42] Philippine International
Trading Corporation,[43] and the Philippine National Bank[44] before it was reorganized
as a stock corporation under the Corporation Code. All these government-owned
corporations organized under special charters as stock corporations are subject to real
estate tax on real properties owned by them. To rule that they are not government-owned
or controlled corporations because they are not registered with the Securities and
Exchange Commission would remove them from the reach of Section 234 of the Local
Government Code, thus exempting them from real estate tax.
Third, the government-owned or controlled corporations created through special charters
are those that meet the two conditions prescribed in Section 16, Article XII of the
Constitution. The first condition is that the government-owned or controlled corporation
must be established for the common good. The second condition is that the government-
owned or controlled corporation must meet the test of economic viability. Section 16,
Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the
common good and subject to the test of economic viability. (Emphasis and underscoring
supplied)
The Constitution expressly authorizes the legislature to create "government-owned or
controlled corporations" through special charters only if these entities are required to meet
the twin conditions of common good and economic viability. In other words, Congress
has no power to create government-owned or controlled corporations with special charters
unless they are made to comply with the two conditions of common good and economic
viability. The test of economic viability applies only to government-owned or controlled
corporations that perform economic or commercial activities and need to compete in the
market place. Being essentially economic vehicles of the State for the common good "
meaning for economic development purposes " these government-owned or controlled
corporations with special charters are usually organized as stock corporations just like
ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and performing
governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that
every modern State must provide its citizens. These instrumentalities need not be
economically viable since the government may even subsidize their entire operations.
These instrumentalities are not the "government-owned or controlled corporations"
referred to in Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or
public functions. Congress has plenary authority to create government instrumentalities
vested with corporate powers provided these instrumentalities perform essential
government functions or public services. However, when the legislature creates through
special charters corporations that perform economic or commercial activities, such
entities " known as "government-owned or controlled corporations" " must meet the test
of economic viability because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of
the Philippines and similar government-owned or controlled corporations, which derive
their income to meet operating expenses solely from commercial transactions in
competition with the private sector. The intent of the Constitution is to prevent the creation
of government-owned or controlled corporations that cannot survive on their own in the
market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the
government creates a corporation, there is a sense in which this corporation becomes
exempt from the test of economic performance. We know what happened in the past. If a
government corporation loses, then it makes its claim upon the taxpayers" money through
new equity infusions from the government and what is always invoked is the common
good. That is the reason why this year, out of a budget of P115 billion for the entire
government, about P28 billion of this will go into equity infusions to support a few
government financial institutions. And this is all taxpayers" money which could have been because there is no competing international airport operated by the private sector. MIAA
relocated to agrarian reform, to social services like health and education, to augment the performs an essential public service as the primary domestic and international airport of
salaries of grossly underpaid public employees. And yet this is all going down the drain. the Philippines. The operation of an international airport requires the presence of
personnel from the following government agencies:

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the
"common good," this becomes a restraint on future enthusiasts for state capitalism to
excuse themselves from the responsibility of meeting the market test so that they become
viable. And so, Madam President, I reiterate, for the committee's consideration and I am
glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard
of "ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common
good.[45]
The Bureau of Immigration and Deportation, to document the arrival and departure of
passengers, screening out those without visas or travel documents, or those with hold
departure orders;
The Bureau of Customs, to collect import duties or enforce the ban on prohibited
importations;

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains

in his textbook The 1987 Constitution of the Republic of the Philippines: A Commentary: The quarantine office of the Department of Health, to enforce health measures against the
The second sentence was added by the 1986 Constitutional Commission. The significant spread of infectious diseases into the country;
addition, however, is the phrase "in the interest of the common good and subject to the
test of economic viability." The addition includes the ideas that they must show capacity
to function efficiently in business and that they should not go into activities which the The Department of Agriculture, to enforce measures against the spread of plant and
private sector can do better. Moreover, economic viability is more than financial viability animal diseases into the country;
but also includes capability to make profit and generate benefits not quantifiable in
financial terms.[46] (Emphasis supplied)
The Aviation Security Command of the Philippine National Police, to prevent the entry
Clearly, the test of economic viability does not apply to government entities vested with
of terrorists and the escape of criminals, as well as to secure the airport premises from
corporate powers and performing essential public services. The State is obligated to render
terrorist attack or seizure;
essential public services regardless of the economic viability of providing such service.
The non-economic viability of rendering such essential public service does not excuse the
State from withholding such essential services from the public.
The Air Traffic Office of the Department of Transportation and Communications, to
authorize aircraft to enter or leave Philippine airspace, as well as to land on, or take off
from, the airport; and
However, government-owned or controlled corporations with special charters, organized
essentially for economic or commercial objectives, must meet the test of economic
viability. These are the government-owned or controlled corporations that are usually
organized under their special charters as stock corporations, like the Land Bank of the The MIAA, to provide the proper premises - such as runway and buildings - for the
Philippines and the Development Bank of the Philippines. These are the government- government personnel, passengers, and airlines, and to manage the airport operations.
owned or controlled corporations, along with government-owned or controlled
All these agencies of government perform government functions essential to the operation
corporations organized under the Corporation Code, that fall under the definition of
of an international airport.
"government-owned or controlled corporations" in Section 2(10) of the Administrative
Code.

MIAA performs an essential public service that every modern State must provide its
citizens. MIAA derives its revenues principally from the mandatory fees and charges
The MIAA need not meet the test of economic viability because the legislature did not
MIAA imposes on passengers and airlines. The terminal fees that MIAA charges every
create MIAA to compete in the market place. MIAA does not compete in the market place
passenger are regulatory or administrative fees[47] and not income from commercial
transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10) of
the Introductory Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined. - x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated
within the department framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a
government-owned or controlled corporation. Without a change in its capital structure,
MIAA remains a government instrumentality under Section 2(10) of the Introductory
Provisions of the Administrative Code. More importantly, as long as MIAA renders
essential public services, it need not comply with the test of economic viability. Thus,
MIAA is outside the scope of the phrase "government-owned or controlled corporations"
under Section 16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase "government-
owned or controlled corporation" as merely "clarificatory or illustrative." This is fatal.
The 1987 Constitution prescribes explicit conditions for the creation of "government-
owned or controlled corporations." The Administrative Code defines what constitutes a
"government-owned or controlled corporation." To belittle this phrase as "clarificatory or
illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled corporation under Section
2(13) of the Introductory Provisions of the Administrative Code because it is not
organized as a stock or non-stock corporation. Neither is MIAA a government-owned or
controlled corporation under Section 16, Article XII of the 1987 Constitution because
MIAA is not required to meet the test of economic viability. MIAA is a government
instrumentality vested with corporate powers and performing essential public services
pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As
a government instrumentality, MIAA is not subject to any kind of tax by local
governments under Section 133(o) of the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable
entity under the Local Government Code. Such exception applies only if the beneficial
use of real property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use
and thus are properties of public dominion. Properties of public dominion are owned by
the State or the Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for
some public service or for the development of the national wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and seaports. The Airport
Lands and Buildings of MIAA are intended for public use, and at the very least intended
for public service. Whether intended for public use or public service, the Airport Lands
and Buildings are properties of public dominion. As properties of public dominion, the
Airport Lands and Buildings are owned by the Republic and thus exempt from real estate
tax under Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code,
which governs the legal relation and status of government units, agencies and offices
within the entire government machinery, MIAA is a government instrumentality and not
a government-owned or controlled corporation. Under Section 133(o) of the Local
Government Code, MIAA as a government instrumentality is not a taxable person because
it is not subject to "[t]axes, fees or charges of any kind" by local governments. The only
exception is when MIAA leases its real property to a "taxable person" as provided in
Section 234(a) of the Local Government Code, in which case the specific real property
leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and
Buildings leased to taxable persons like private parties are subject to real estate tax by the
City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being
devoted to public use, are properties of public dominion and thus owned by the State or
the Republic of the Philippines. Article 420 specifically mentions "ports x x x constructed
by the State," which includes public airports and seaports, as properties of public
dominion and owned by the Republic. As properties of public dominion owned by the
Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly
exempt from real estate tax under Section 234(a) of the Local Government Code. This
Court has also repeatedly ruled that properties of public dominion are not subject to
execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the
Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878.
We DECLARE the Airport Lands and Buildings of the Manila International Airport
Authority EXEMPT from the real estate tax imposed by the City of Parañaque. We declare
VOID all the real estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Parañaque on the Airport Lands and Buildings of the
Manila International Airport Authority, except for the portions that the Manila
International Airport Authority has leased to private parties. We also declare VOID the
assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila
International Airport Authority.

No costs.

SO ORDERED.
[ G.R. No. 181502, February 02, 2010 ]
FLORENCIA G. DIAZ, PETITIONER, VS. REPUBLIC OF THE PHILIPPINES,
RESPONDENT.
RESOLUTION
CORONA, J.:
This is a letter-motion praying for reconsideration (for the third time) of the June 16, 2008
resolution of this Court denying the petition for review filed by petitioner Florencia G.
Diaz.
Petitioner's late mother, Flora Garcia (Garcia), filed an application for registration of a
vast tract of land[1] located in Laur, Nueva Ecija and Palayan City in the then Court of
First Instance (CFI), Branch 1, Nueva Ecija on August 12, 1976.[2] She alleged that she
possessed the land as owner and worked, developed and harvested the agricultural
products and benefits of the same continuously, publicly and adversely for more or less
26 years.
The Republic of the Philippines, represented by the Office of the Solicitor General (OSG),
opposed the application because the land in question was within the Fort Magsaysay
Military Reservation (FMMR), established by virtue of Proclamation No. 237
(Proclamation 237)[3] in 1955. Thus, it was inalienable as it formed part of the public
domain.
Significantly, on November 28, 1975, this Court already ruled in Director of Lands v.
Reyes[4] that the property subject of Garcia's application was inalienable as it formed part
of a military reservation. Moreover, the existence of Possessory Information Title No. 216
(allegedly registered in the name of a certain Melecio Padilla on March 5, 1895), on which
therein respondent Parañaque Investment and Development Corporation anchored its
claim on the land, was not proven. Accordingly, the decree of registration issued in its
favor was declared null and void.
Reyes notwithstanding, the CFI ruled in Garcia's favor in a decision[5] dated July 1, 1981.
The Republic eventually appealed the decision of the CFI to the Court of Appeals (CA).
In its decision[6] dated February 26, 1992, penned by Justice Vicente V. Mendoza
(Mendoza decision),[7] the appellate court reversed and set aside the decision of the CFI.
The CA found that Reyes was applicable to petitioner's case as it involved the same
property.
The CA observed that Garcia also traced her ownership of the land in question to
Possessory Information Title No. 216. As Garcia's right to the property was largely
dependent on the existence and validity of the possessory information title the probative
value of which had already been passed upon by this Court in Reyes, and inasmuch as the
land was situated inside a military reservation, the CA concluded that she did not validly
acquire title thereto.
During the pendency of the case in the CA, Garcia passed away and was substituted by
her heirs, one of whom was petitioner Florencia G. Diaz.[8]
Petitioner filed a motion for reconsideration of the Mendoza decision. While the motion
was pending in the CA, petitioner also filed a motion for recall of the records from the
former CFI. Without acting on the motion for reconsideration, the appellate court, with
Justice Mendoza as ponente, issued a resolution[9] upholding petitioner's right to recall
the records of the case.
Subsequently, however, the CA encouraged the parties to reach an amicable settlement
on the matter and even gave the parties sufficient time to draft and finalize the same.
The parties ultimately entered into a compromise agreement with the Republic
withdrawing its claim on the more or less 4,689 hectares supposedly outside the FMMR.
For her part, petitioner withdrew her application for the portion of the property inside the
military reservation. They filed a motion for approval of the amicable settlement in the
CA.[10]
On June 30, 1999, the appellate court approved the compromise agreement.[11] On
January 12, 2000, it directed the Land Registration Administration to issue the
corresponding decree of registration in petitioner's favor.[12]

However, acting on a letter written by a certain Atty. Restituto S. Lazaro, the OSG filed
a motion for reconsideration of the CA resolution ordering the issuance of the decree of
registration. The OSG informed the appellate court that the tract of land subject of the
amicable settlement was still within the military reservation.
On April 16, 2007, the CA issued an amended resolution (amended resolution)[13]
annulling the compromise agreement entered into between the parties. The relevant part
of the dispositive portion of the resolution read:
ACCORDINGLY, the Court resolves to:
(1) x x x x x x
(2) x x x x x x
(3) x x x x x x
(4) x x x x x x
(5) x x x x x x
(6) REVERSE the Resolution dated June 30, 1999 of this Court approving the Amicable
Settlement dated May 18, 1999 executed between the Office of the Solicitor General and
Florencia Garcia Diaz[;]
(7) ANNUL and SET ASIDE the Amicable Settlement dated May 18, 1999 executed
between the Office of the Solicitor General and Florencia Garcia Diaz; the said Amicable
Settlement is hereby DECLARED to be without force and effect;
(8) GRANT the Motion for Reconsideration filed by the Office of the Solicitor General
and, consequently, SET ASIDE the Resolution dated January 12, 2000 which ordered,
among other matters, that a certificate of title be issued in the name of plaintiff-appellee
Florencia Garcia Diaz over the portion of the subject property in consonance with the
Amicable Settlement dated May 18, 1999 approved by the Court in its Resolution dated
June 30, 1999;
(9) SET ASIDE the Resolution dated June 30, 1999 approving the May 18, 1999
Amicable Settlement and the Resolution dated September 20, 1999 amending the
aforesaid June 30, 1999 Resolution; and
(10) REINSTATE the Decision dated February 26, 1992 dismissing applicant-appellee
Diaz' registration herein.
SO ORDERED.
(Emphasis supplied)
Petitioner moved for reconsideration. For the first time, she assailed the validity of the
Mendoza decision - the February 26, 1992 decision adverted to in the CA's amended
resolution. She alleged that Justice Mendoza was the assistant solicitor general during the
initial stages of the land registration proceedings in the trial court and therefore should
have inhibited himself when the case reached the CA. His failure to do so, she laments,
worked an injustice against her constitutional right to due process. Thus, the Mendoza
decision should be declared null and void. The motion was denied.[14]
Thereafter, petitioner filed a petition for review on certiorari[15] in this Court. It was
denied for raising factual issues.[16] She moved for reconsideration.[17] This motion was
denied with finality on the ground that there was no substantial argument warranting a
modification of the Court's resolution. The Court then ordered that no further pleadings
would be entertained. Accordingly, we ordered entry of judgment to be made in due
course.[18]
Petitioner, however, insisted on filing a motion to lift entry of judgment and motion for
leave to file a second motion for reconsideration and to refer the case to the Supreme
Court en banc.[19] The Court denied[20] it considering that a second motion for
reconsideration is a prohibited pleading.[21] Furthermore, the motion to refer the case to
the banc was likewise denied as the banc is not an appellate court to which decisions or
resolutions of the divisions may be appealed.[22] We reiterated our directive that no
further pleadings would be entertained and that entry of judgment be made in due course.
Not one to be easily deterred, petitioner wrote identical letters, first addressed to Justice
Leonardo A. Quisumbing (then Acting Chief Justice) and then to Chief Justice Reynato
S. Puno himself.[23] The body of the letter, undoubtedly in the nature of a third motion
for reconsideration, is hereby reproduced in its entirety:
This is in response to your call for "Moral Forces" in order to "redirect the destiny of our
country which is suffering from moral decadence," that to your mind, is the problem
which confronts us. (Inquirer, January 15, 2009, page 1)[.]
I recently lost my case with the Supreme Court, G.R. N[o]. 181502, and my lawyer has
done all that is humanly possible to convince the court to take a second look at the
miscarriage of justice that will result from the implementation of the DISMISSAL in a
MINUTE RESOLUTION of our Petition for Review.
Pending before your Division (First Division) is a last plea for justice so that the case may
be elevated to the Supreme Court en banc. I hope the Court exercises utmost prudence in
resolving the last plea. For ready reference, a copy of the Motion is hereto attached as
Annex "A".
The issue that was brought before the Honorable Supreme Court involves the Decision of
then Justice Vicente Mendoza of the Court of Appeals, which is NULL and VOID, ab
initio.
It is null and void because destiny placed Hon. Justice Vicente Mendoza in a position in
which it became possible for him to discharge the minimum requirement of due process,
[i.e.] the ability of the court to render "impartial justice," because Mr. Justice Mendoza
became the ponente of the Court of Appeals Decision, reversing the findings of the trial
court, notwithstanding the fact that he, as Assistant Solicitor General, was the very person
who appeared on behalf of the Republic, as the oppositor in the very same land registration
proceedings in which he lost.
In other words, he discharged the duties of prosecutor and judge in the very same case.
In the case of the "Alabang Boys[,]" the public was outraged by the actions of Atty.
Verano who admitted having prepared a simple resolution to be signed by the Secretary
of Justice.
In my case, the act complained of is the worst kind of violation of my constitutional right.
It is simply immoral, illegal and unconstitutional, for the prosecutor to eventually act as
the judge, and reverse the very decision in which he had lost.
If leaked to the tri-media[,] my case will certainly evoke even greater spite from the
public, and put the Supreme Court in bad light. I must confess that I was tempted to pursue
such course of action. I however believe that such an action will do more harm than good,
and even destroy the good name of Hon. Justice Mendoza.
I fully support your call for "moral force" that will slowly and eventually lead our country
to redirect its destiny and escape from this moral decadence, in which we all find
ourselves.
I am content with the fact that at least, the Chief Justice continues to fight the dark forces
that surround us everyday.
I only ask that the Supreme Court endeavor to ensure that cases such as mine do not
happen again, so that the next person who seeks justice will not experience the pain and
frustration that I suffered under our judicial system.
Thank you, and more power to you, SIR. (Emphasis in the original).
The language of petitioner's letter/motion is unmistakable. It is a thinly veiled threat
precisely worded and calculated to intimidate this Court into giving in to her demands to
honor an otherwise legally infirm compromise agreement, at the risk of being vilified in
the media and by the public.
This Court will not be cowed into submission. We deny petitioner's letter/third motion for
reconsideration.
APPLICABILITY
OF REYES
The Court agrees with the Republic's position that Reyes is applicable to this case.
To constitute res judicata, the following elements must concur:
(1) the former judgment or order must be final;
(2) the judgment or order must be on the merits;
(3) it must have been rendered by a court having jurisdiction over the subject matter and
parties; and
(4) there must be between the first and second actions, identity of parties, of subject
matter, and of causes of action. [24]
The first three requisites have undoubtedly been complied with. However, petitioner takes
exception to the fourth requisite, particularly on the issue of identity of parties. In her
petition for review filed in this Court, she contends that since the applicants in the two
cases are different, the merits of the two cases should, accordingly, be determined
independently of each other.[25]
This contention is erroneous.
The facts obtaining in this case closely resemble those in Aquino v. Director of Lands.[26]
In that case, Quintin Tañedo endeavored to secure title to a considerable tract of land by
virtue of his possession thereof under CA 141. When the case eventually reached this
Court, we affirmed the trial court's decision to dismiss the proceedings as the property in
question was part of the public domain. Quintin's successor-in-interest, Florencia Tañedo,
who despite knowledge of the proceedings did not participate therein, thereafter sold the
same property to Benigno S. Aquino. The latter sought to have it registered in his name.
The question in that case, as well as in this one, was whether our decision in the case in
which another person was the applicant constituted res judicata as against his successors-
in-interest.
We ruled there, and we so rule now, that in registration cases filed under the provisions
of the Public Land Act for the judicial confirmation of an incomplete and imperfect title,
an order dismissing an application for registration and declaring the land as part of the
public domain constitutes res judicata, not only against the adverse claimant, but also
against all persons.[27]
We also declared in Aquino that:
From another point of view, the decision in the first action has become the "law of the
case" or at least falls within the rule of stare decisis. That adjudication should be followed
unless manifestly erroneous. It was taken and should be taken as the authoritative view of
the highest tribunal in the Philippines. It is indispensable to the due administration of
justice especially by a court of last resort that a question once deliberately examined and
decided should be considered as settled and closed to further argument. x x x[28]
Be that as it may, the fact is that, even before the CFI came out with its decision in favor
of petitioner on July 1, 1981, this Court, in Reyes, already made an earlier ruling on
November 28, 1975 that the disputed realty was inalienable as it formed part of a military
reservation. Thus, petitioner's argument that the findings of fact of the trial court on her
registrable title are binding on us - on the principle that findings of fact of lower courts
are accorded great respect and bind even this Court - is untenable. Rather, it was
incumbent upon the court a quo to respect this Court's ruling in Reyes, and not the other
way around.
However, despite having been apprised of the Court's findings in Reyes (which should
have been a matter of judicial notice in the first place), the trial court still insisted on its
divergent finding and disregarded the Court's decision in Reyes, declaring the subject land
as forming part of a military reservation, and thus outside the commerce of man.
By not applying our ruling in Reyes, the trial judge virtually nullified the decision of this
Court and therefore acted with grave abuse of discretion.[29] Notably, a judgment
rendered with grave abuse of discretion is void and does not exist in legal
contemplation.[30]
All lower courts, especially the trial court concerned in this case, ought to be reminded
that it is their duty to obey the decisions of the Supreme Court. A conduct becoming of
inferior courts demands a conscious awareness of the position they occupy in the
interrelation and operation of our judicial system. As eloquently declared by Justice J.B.
L. Reyes, "There is only one Supreme Court from whose decision all other courts should
take their bearings."[31]
ACQUISITION OF
PRIVATE RIGHTS
Petitioner, however, argues that Proclamation 237 itself recognizes that its effectivity is
"subject to private rights, if any there be."
By way of a background, we recognized in Reyes that the property where the military
reservation is situated is forest land. Thus:
Before the military reservation was established, the evidence is inconclusive as to
possession, for it is shown by the evidence that the land involved is largely mountainous
and forested. As a matter of fact, at the time of the hearing, it was conceded that
approximately 13,957 hectares of said land consist of public forest. x x x (Emphasis
supplied)[32]
Concomitantly, we stated therein, and we remind petitioner now, that forest lands are not
registrable under CA 141.
[E]ven more important, Section 48[b] of CA No. 141, as amended, applies exclusively to
public agricultural land. Forest lands or area covered with forest are excluded. It is well-
settled that forest land is incapable of registration; and its inclusion in a title, whether such
title be one issued using the Spanish sovereignty or under the present Torrens system of
registration, nullifies the title. (Emphasis supplied).[33]
However, it is true that forest lands may be registered when they have been reclassified
as alienable by the President in a clear and categorical manner (upon the recommendation
of the proper department head who has the authority to classify the lands of the public
domain into alienable or disposable, timber and mineral lands)[34] coupled with
possession by the claimant as well as that of her predecessors-in-interest. Unfortunately
for petitioner, she was not able to produce such evidence. Accordingly, her occupation
thereof, and that of her predecessors-in-interest, could not have ripened into ownership of
the subject land. This is because prior to the conversion of forest land as alienable land,
any occupation or possession thereof cannot be counted in reckoning compliance with the
thirty-year possession requirement under Commonwealth Act 141 (CA 141) or the Public
Land Act.[35] This was our ruling in Almeda v. CA.[36] The rules on the confirmation
of imperfect titles do not apply unless and until the land classified as forest land is released
through an official proclamation to that effect. Then and only then will it form part of the
disposable agricultural lands of the public domain.[37]
Coming now to petitioner's contention that her "private rights" to the property, meaning
her and her predecessors' possession thereof prior to the establishment of the FMMR,
must be respected, the same is untenable. As earlier stated, we had already recognized the
same land to be public forest even before the FMMR was established. To reiterate:
Before the military reservation was established, the evidence is inconclusive as to
possession, for it is shown by the evidence that the land involved is largely mountainous
and forested. As a matter of fact, at the time of the hearing, it was conceded that
approximately 13,957 hectares of said land consist of public forest. x x x
Therefore, even if possession was for more than 30 years, it could never ripen to
ownership.
But even assuming that the land in question was alienable land before it was established
as a military reservation, there was nevertheless still a dearth of evidence with respect to
its occupation by petitioner and her predecessors-in-interest for more than 30 years. In
Reyes, we noted:
Evidently, Melecio Padilla, having died on February 9, 1900, barely five (5) years after
the inscription of the informacion possessoria, could not have converted the same into a
record of ownership twenty (20) years after such inscription, pursuant to Article 393 of
the Spanish Mortgage Law.
xxx
During the lifetime of Melecio Padilla, only a small portion thereof was cleared and
cultivated under the `kaingin' system, while some portions were used as grazing land.
After his death, his daughter, Maria Padilla, caused the planting of vegetables and had
about forty (40) tenants for the purpose. During the Japanese occupation, Maria Padilla
died. x x x
xxx
A mere casual cultivation of portions of the land by the claimant, and the raising thereon
of cattle, do not constitute possession under claim of ownership. In that sense, possession
is not exclusive and notorious as to give rise to a presumptive grant from the State. While
grazing livestock over land is of course to be considered with other acts of dominion to
show possession, the mere occupancy of land by grazing livestock upon it, without
substantial inclosures, or other permanent improvements, is not sufficient to support a
claim of title thru acquisitive prescription. The possession of public land, however long
the period may have extended, never confers title thereto upon the possessor because the
statute of limitations with regard to public land does not operate against the State unless
the occupant can prove possession and occupation of the same under claim of ownership
for the required number of years to constitute a grant from the State.[38]
xxx
Furthermore, the fact that the possessory information title on which petitioner also bases
her claim of ownership was found to be inexistent in Reyes,[39] thus rendering its
probative value suspect, further militates against granting her application for registration.
NULLITY OF COMPROMISE
AGREEMENT
On the compromise agreement between the parties, we agree with the CA that the same
was null and void.
An amicable settlement or a compromise agreement is in the nature of a contract and must
necessarily comply with the provisions of Article 1318 of the New Civil Code which
provides:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Petitioner was not able to provide any proof that the consent of the Republic, through the
appropriate government agencies, i.e. the Department of Environment and Natural
Resources, Land Management Bureau, Land Registration Authority, and the Office of the
President, was secured by the OSG when it executed the agreement with her.[40] The lack
of authority on the part of the OSG rendered the compromise agreement between the
parties null and void because although it is the duty of the OSG to represent the State in
cases involving land registration proceedings, it must do so only within the scope of the
authority granted to it by its principal, the Republic of the Philippines.[41]
In this case, although the OSG was authorized to appear as counsel for respondent, it was
never given the specific or special authority to enter into a compromise agreement with
petitioner. This is in violation of the provisions of Rule 138 Section 23, of the Rules of
Court which requires "special authority" for attorneys to bind their clients.
Section 23. Authority of attorneys to bind clients. - Attorneys have authority to bind their
clients in any case by any agreement in relation thereto made in writing, and in taking
appeals, and in all matters of ordinary judicial procedure. But they cannot, without special
authority, compromise their client's litigation, or receive anything in discharge of a client's
claim but the full amount in cash. (Emphasis supplied).
Moreover, the land in question could not have been a valid subject matter of a contract
because, being forest land, it was inalienable. Article 1347 of the Civil Code provides:
Art. 1347. All things which are not outside the commerce of men, including future things,
may be the object of a contract. All rights which are not intransmissible may also be the
object of contracts.
No contract may be entered into upon future inheritance except in cases expressly
authorized by law.
All services which are not contrary to law, morals, good customs, public order or public
policy may likewise be the object of a contract. (Emphasis supplied)
Finally, the Court finds the cause or consideration of the obligation contrary to law and
against public policy. The agreement provided that, in consideration of petitioner's
withdrawal of her application for registration of title from that portion of the property
located within the military reservation, respondent was withdrawing its claim on that part
of the land situated outside said reservation. The Republic could not validly enter into
such undertaking as the subject matter of the agreement was outside the commerce of
man.
PETITIONER'S CONTEMPT
OF COURT
This Court, being the very institution that dispenses justice, cannot reasonably be expected
to just sit by and do nothing when it comes under attack.
That petitioner's letter-motion constitutes an attack against the integrity of this Court
cannot be denied. Petitioner started her letter innocently enough by stating:
This is in response to your call for "Moral Forces" in order to "redirect the destiny of our
country which is suffering from moral decadence," that to your mind, is the problem
which confronts us. (Inquirer, January 15, 2009, page 1)[.]
It, however, quickly progressed into a barely concealed resentment for what she perceived
as this Court's failure to exercise "utmost prudence" in rendering "impartial justice" in
deciding her case. Petitioner recounted:
I recently lost my case with the Supreme Court, G.R. N[o]. 181502, and my lawyer has
done all that is humanly possible to convince the court to take a second look at the
miscarriage of justice that will result from the implementation of the DISMISSAL in a
MINUTE RESOLUTION of our Petition for Review.
Pending before your Division (First Division) is a last plea for justice so that the case may
be elevated to the Supreme Court en banc. I hope the Court exercises utmost prudence in
resolving the last plea. For ready reference, a copy of the Motion is hereto attached as
Annex "A".
The issue that was brought before the Honorable Supreme Court involves the Decision of
then Justice Vicente Mendoza of the Court of Appeals, which is NULL and VOID, ab
initio.
It is null and void because destiny placed Hon. Justice Vicente Mendoza in a position in
which it became possible for him to discharge the minimum requirement of due process,
[i.e.] the ability of the court to render "impartial justice," because Mr. Justice Mendoza
became the ponente of the Court of Appeals Decision, reversing the findings of the trial
court, notwithstanding the fact that he, as Assistant Solicitor General, was the very person
who appeared on behalf of the Republic, as the oppositor in the very same land registration
proceedings in which he lost. (Emphasis supplied).
Petitioner then indirectly hints that, when push comes to shove, she has no choice but to
expose the irregularity concerning the Mendoza decision to the media. This is evident in
her arrogant declaration that:
If leaked to the tri-media[,] my case will certainly evoke even greater spite from the
public, and put the Supreme Court in bad light.
But she hastens to add in the same breath that:
I must confess that I was tempted to pursue such course of action. I however believe that
such an action will do more harm than good, and even destroy the good name of Hon.
Justice Mendoza.
Petitioner ends her letter by taking this Court to task:
. . . endeavor to ensure that cases such as mine do not happen again, so that the next person
who seeks justice will not experience the pain and frustration that I suffered under our
judicial system.
When required to show cause why she should not be cited for contempt for her baseless
charges and veiled threats, petitioner answered:
xxx
The Letter of January 26, 2009 is not a "veiled threat[.] It was written in response to the
call of the Chief Justice for a moral revolution. Juxtaposed against the factual backdrop
of the "Alabang Boys" case and the Meralco [c]ase, involving Mr. Justice Jose L. Sabio
which also enjoyed wide publicity over the tri-media, petitioner felt that the facts of the
said cases pale in comparison to the facts of her case where the lawyer of her opponent
eventually became justice of the appellate court and ended up reversing the very decision
in which he lost, in clear violation of her [c]onstitutional [r]ight to fundamental fair play
- for no contestant in any litigation can ever serve as a judge without transgression of the
due process clause. This is basic.
Petitioner confesses that she may have been emotional in the delivery of her piece,
because correctly or incorrectly[,] she believes they are irrefutable. If in the course of that
emotional delivery, she has offended your honors' sensibilities, she is ready for the
punishment, and only prays that his Court temper its strike with compassion - as her letter
to the Chief Justice was never written with a view of threatening the Court.
xxx
Petitioner wrote the Chief Justice in order to obtain redress and correction of the inequity
bestowed upon her by destiny. It was never meant as a threat.
The Court now puts an end to petitioner's irresponsible insinuations and threats of "going
public" with this case. We are not blind to petitioner's clever and foxy interplay of threats
alternating with false concern for the reputation of this Court.
It is well to remind petitioner that the Court has consistently rendered justice with neither
fear nor favor. The disposition in this case was arrived at after a careful and thorough
deliberation of the facts of this case and all the matters pertaining thereto. The records of
the case, in fact, show that all the pertinent issues raised by petitioner were passed upon
and sufficiently addressed by the appellate court and this Court in their respective
resolutions.
As to petitioner's complaint regarding this Court's denial of her petition through a mere
minute resolution (which allegedly deprived her of due process as the Court did not issue
a full-blown decision stating the facts and applicable jurisprudence), suffice it to say that
the Court is not duty-bound to issue decisions or resolutions signed by the justices all the
time. It has ample discretion to formulate ponencias, extended resolutions or even minute
resolutions issued by or upon its authority, depending on its evaluation of a case, as long
as a legal basis exists. When a minute resolution (signed by the Clerk of Court upon orders
of the Court) denies or dismisses a petition or motion for reconsideration for lack of merit,
it is understood that the assailed decision or order, together with all its findings of fact and
legal conclusions, are deemed sustained.[42]
Furthermore, petitioner has doggedly pursued her case in this Court by filing three
successive motions for reconsideration, including the letter-motion subject of this
resolution. This, despite our repeated warnings that "no further pleadings shall be
entertained in this case." Her unreasonable persistence constitutes utter defiance of this
Court's orders and an abuse of the rules of procedure. This, alongside her thinly veiled
threats to leak her case to the media to gain public sympathy - although the tone of
petitioner's compliance with our show-cause resolution was decidedly subdued compared
to her earlier letters - constitutes contempt of court.
In Republic v. Unimex,[43] we held:
A statement of this Court that no further pleadings would be entertained is a declaration
that the Court has already considered all issues presented by the parties and that it has
adjudicated the case with finality. It is a directive to the parties to desist from filing any
further pleadings or motions. Like all orders of this Court, it must be strictly observed by
the parties. It should not be circumvented by filing motions ill-disguised as requests for
clarification.
A FEW OBSERVATIONS

If petitioner was, as she adamantly insists, only guarding her constitutional right to due
process, then why did she question the validity of the Mendoza decision late in the
proceedings, that is, only after her motion for reconsideration in the CA (for its subsequent
annulment of the compromise agreement) was denied? It is obvious that it was only when
her case became hopeless that her present counsel frantically searched for some ground,
any ground to resuscitate his client's lost cause, subsequently raising the issue. This is
evident from a statement in her petition to this Court that:

It is this fresh discovery by the undersigned counsel of the nullity of the proceedings of
the Court of Appeals that places in doubt the entire proceedings it previously conducted,
which led to the rendition of the February 26, 1992 Decision, a fact that escaped the
scrutiny of applicant for registration Flora L. Garcia, as well as her lawyer, Atty. Cayetano
Dante Diaz, who died in 1993, and the late Justice Fernando A. Santiago, who stood as
counsel for Flora L. Garcia's successor-in-interest, herein petitioner, Florencia G.
Garcia.[44] (Emphasis supplied).

The above cited statement does not help petitioner's cause at all. If anything, it only proves
how desperate the case has become for petitioner and her counsel.

WHEREFORE, the letter-motion dated January 26, 2009 of petitioner is NOTED and is
hereby treated as a third motion for reconsideration. The motion is DENIED considering
that a third motion for reconsideration is a prohibited pleading and the plea utterly lacks
merit.

Petitioner is found GUILTY of contempt of court. Accordingly, a FINE of Five Thousand

Pesos is hereby imposed on her, payable within ten days from receipt of this resolution.
She is hereby WARNED that any repetition hereof shall be dealt with more severely.

Treble costs against petitioner.

SO ORDERED.
[ G.R. No. 199810, March 15, 2017 ]
BEVERLY ANNE C. YAP, PETITIONER, VS. REPUBLIC OF THE
PHILIPPINES, REPRESENTED BY THE REGIONAL EXECUTIVE
DIRECTOR, DEPARTMENT OF ENVIRONMENT AND NATURAL
RESOURCES (DENR), RESPONDENT.
DECISION
REYES, J.:
This is a petition for review on certiorari[1] seeking to annul and set aside the Decision[2]
dated June 30, 2011 and Resolution[3] dated November 14, 2011 of the Court of Appeals
(CA) in CA-G.R. CV No. 01753-MIN which reversed and set aside the Decision[4] dated
October 24, 2008 of the Regional Trial Court (RTC) of Davao City, Branch 16, in Civil
Case No. 29,705-03, dismissing the complaint for revers ion of a parcel of land.
Antecedent Facts
Consuelo Vda. de dela Cruz applied for free patent over a parcel of land constituting about
1,292 square meters, designated as Lot No. 9087, Cad. 102, located in Daliao, Toril,
Davao City. As she could not wait for the approval of her application, she executed a
Deed of Waiver/Quitclaim[5] on November 25, 1981 in favor of Rollie Pagarigan
(Pagarigan).[6]
Pagarigan filed his own Free Patent Application (FPA)[7] and subsequently, Free Patent
No. (XI-1)5133 was issued to him over said lot. Original Certificate of Title (OCT) No.
P-11182[8] was thereby issued in his name on November 25, 1982.[9]
On September 5, 1989, Pagarigan mortgaged the lot to Banco Davao-Davao City
Development Bank (the Bank). For failure to pay his loan, the property was foreclosed,
and was eventually sold to the Bank at public auction on October 26, 1990. These
proceedings were duly annotated in the title.[10]
However, the land covered by OCT No. P-11182 was allegedly occupied by Teodoro
Valparaiso and Pedro Malalis (protestants). On October 24, 1990, the protestants filed a
formal protest with the Bureau of Lands (Bureau). They prayed for the recall of the free
patent issued to Pagarigan, and for the institution of a corresponding action for reversion
considering that they have been in adverse, exclusive, and continuous occupation of the
subject property since 1945, cultivating it, and planting various crops, nipa palms and
coconut trees on said land.[11]
On January 27, 1992, the protestants caused the annotation of a notice of lis pendens in
OCT No. P-11182. Assigned as Entry No. 647677, said notice of lis pendens pertained to
Civil Case No. 20-435-9[12] instituted by the protestants against Pagarigan, Menardo
Metran and Rene Galope to enjoin them from demolishing the former's houses pending
the determination of the Department of Environment and Natural Resources (DENR) on
the propriety of cancelling the title obtained by Pagarigan.[13]
The administrative protest of the protestants reached the Office of the Secretary of the
DENR. On May 15, 1995, Secretary Angel C. Alcala rendered a Decision[14] against
Pagarigan, the salient portion and the fallo of which read as follows:
From the Investigation Reports submitted by both the Department's Regional Office
involved and this Office as well as from the other pieces of evidence available, both
documentary and testimonial, it is obvious that actual fraud and bad faith have been
committed by [Pagarigan] in his subject public land application which led to the issuance
of the title. The following facts and circumstances are uncontroverted, to wit; that the
[protestants] have been in actual occupation of the land in dispute since 1945 and have
introduced improvements thereon; that [Pagarigan] never occupied the same nor his
predecessor-in-interest, Consuelo dela Cruz, that [Pagarigan] misrepresented in his
application that he was the actual occupant and that there were no others who occupied
the lot in dispute; that the title was issued sans an actual ground survey; and that
[Pagarigan] did not post a copy of his Notice for [FPA] on both the Bulletin Boards of
Daliao and Lizardo as required by law.
xxxx
WHEREFORE, the instant appeal is hereby given DUE COURSE and the subject
Decision appealed from SET ASIDE and REVOKED. Consequently, the Regional
Executive Director (RED), DENR Region XI, Davao City, is hereby ordered to institute
an action for cancellation of Original Certificate of Title (OCT) No. V-11182 of the
Registry of Deeds of Davao City covering Lot No. 9087, Cad-102, and for the reversion
of the property covered thereby to the government.
After the cancellation of the subject title and the land already reverted to the government,
Regional Executive Director (RED) concerned shall then order the ground survey of the
land in dispute and give due course to the public land applications of the [protestants].
SO ORDERED.[15]
Meanwhile, on November 5, 1992, without consolidating title over the land in its name,
the Bank sold the subject property to herein petitioner Beverly Anne C. Yap (Yap) and
Rosanna F. Villamor (Villamor). Upon the execution of the deed of sale, OCT No. P-
11182 was delivered to them and Transfer Certificate of Title No. 366983[16] was
eventually issued in the name of Yap and Villamor on December 16, 2003.[17]
On February 28, 1997, the Department of Transportation and Communication filed a
complaint for expropriation of a portion of the subject lot before the RTC of Davao City,
Branch 13, docketed as Civil Case No. 25,084-97.[18]
On February 19, 2003, the RTC Branch 13 rendered its Decision.[19] Confronted with
the issue of who among the claimants shall be entitled to just compensation, the trial court
ruled in this wise:
WHEREFORE, it is the judgment of this court that[:]
The plaintiff is entitled to expropriate the land subject of this case for the purpose of road
right of way to the Davao Fish Port, which is for public use;
The just compensation for the land is P278,[000].00;
[Villamor and Yap] are the ones entitled to the payment of just compensation for the
property subject of this case, and plaintiff is directed to pay the said amount to the said
defendants;
The Commissioner's Fee of P3,850.00 shall be paid by plaintiff to Asian Appraisal
Company, Inc., and may be deducted from the just compensation for the land being
expropriated.
This case is now considered closed.
SO ORDERED.[20]
Ruling of the RTC
On May 22, 2003, the respondent, through the Office of the Solicitor General (OSG), filed
the Complaint for Cancellation of Patent, Nullification of Title and Reversion with the
RTC of Davao City.[21] The case was raffled to Branch 16 thereof.
On October 24, 2008, the RTC Branch 16 rendered a Decision[22] dismissing the
respondent's complaint. The court ruled that since the subject land has already been sold
to third persons, it must be shown that the latter were part of the fraud and/or
misrepresentation committed by the original grantee, or at least were aware of it.
However, since the RTC Branch 13 already declared in its decision in Civil Case No.
25,084-97 that Yap and Villamor were purchasers in good faith and for value of the land
in question, RTC Branch 16 maintained that, as a court of co-equal jurisdiction, it is bound
by the said finding under the principle of conclusiveness of judgment. Moreover, the fact
that it took the respondent 26 years, from the issuance of the free patent before it instituted
an action for reversion, militates against its cause. The fallo of the trial court's decision
reads:
IN VIEW of the foregoing, judgment is hereby rendered dismissing the instant complaint.
Defendants' [sic] [Bank] and Pagarigan compulsory counterclaim[s] are likewise
dismissed in the absence of proof that there was malice or bad faith on [the respondent's]
part when it sought the reversion of the property.
The dismissal of the action necessarily carries with it the dismissal of defendant's [sic]
[Bank] cross-claim against [Pagarigan].
SO ORD[E]RED.[23]
Ruling of the CA
The respondent elevated its case to the CA. On June 30, 2011, the CA rendered the
assailed Decision[24] reversing that of the trial court. In so ruling, the CA adopted the
findings of the DENR as to the commission of fraud by Pagarigan in his FPA, and held
that neither the Bank nor Yap and Villamor were innocent purchasers for value. Further,
the CA maintained that the decision of the RTC Branch 13 did not constitute res judicata
insofar as the same has not yet attained finality. The fallo of the CA decision reads:
WHEREFORE, We GRANT the appeal and REVERSE the decision of the [RTC]. We
declare Free Patent No. (XI-1)5133 and [OCT] No. P-11182 issued in the name of
[Pagarigan], and [TCT] No. T-366983 in the name of [Yap] and [Villamor], and all
subsequent [TCTs] derived therefrom, as null and void. We order the reversion of Lot
9087, Cad. 102, [l]ocated in Daliao, Toril, Davao City, to the mass of public domain.
SO ORDERED.[25]
The Bank,[26] Yap,[27] and Villamor[28] sought reconsideration of the CA decision, but
their motion was evenly denied in the Resolution[29] dated November 14, 2011.
Hence this petition filed solely by Yap.
Yap propounds the following assignments of errors:
Whether or not the decision of the CA is not in accord with the applicable decision
enunciated by the Court in the case of Spouses Macadangdang v. Spouses Martinez;[30]
Whether or not the CA departed from the rule declared by the Court in the case of Saad
Agro-Industries, Inc. v. Republic of the Philippines,[31] that in reversion proceedings the
same must be proved by clear and convincing evidence, mere preponderance of evidence
not even being adequate; and
Whether or not the decision of the CA runs counter to the rule on res judicata.[32]
Yap asserts that she and Villamor purchased the subject property in good faith and for
value. She maintains that on its face, nothing appears in OCT No. P-11182 indicating that
some other person has a right to, or interest over the property covered thereby. As such,
there was no obligation on their part to look beyond the certificate of title to determine
the legal condition of the concerned property.
Granting that a notice of lis pendens was annotated in OCT No. P-11182 filed before the
Register of Deeds of Davao City, the same, however, was not offered in evidence and
should not have been considered. Accordingly, the presumption that Yap and Villamor
were purchasers in good faith and for value was not effectively rebutted.
Moreover, in the case for expropriation heard before the RTC Branch 13, they were
already adjudged as innocent purchasers for value. Under the principle of res judicata, it
was but proper for RTC Branch 16 to uphold said pronouncement. Accordingly, it was an
error on the part of the CA to reverse the same.
Invoking the Court's ruling in Saad Agro-Industries,[33] Yap asserts that the respondent
failed to discharge the burden of proving the alleged fraud and misrepresentation which
attended Pagarigan's FPA.
Ruling of the Court
Yap's contentions are untenable.
The decision of the CA does not run
counter to the rule on
conclusiveness of judgment.
Yap asserts that the CA erred in setting aside the decision of RTC Branch 16 in violation
of the rule on res judicata. It was a finding already made by the RTC Branch 13, a co-
equal branch that the land is now in the hands of innocent purchasers for value. Thus, the
respondent's complaint for reversion must be dismissed on the basis of the principle of
conclusiveness of judgment.
The Court does not agree.
In a catena of cases, the Court discussed the doctrine of conclusiveness of judgment, as a
concept of res judicata as follows:
The second concept — conclusiveness of judgment — states that a fact or question which
was in issue in a former suit and was there judicially passed upon and determined by a
court of competent jurisdiction, is conclusively settled by the judgment therein as far as
the parties to that action and persons in privity with them are concerned and cannot be
again litigated in any future action between such parties or their privies, in the same court
or any other court of concurrent jurisdiction on either the same or different cause of action,
while the judgment remains unreversed by proper authority. It has been held that in order
that a judgment in one action can be conclusive as to a particular matter in another action
between the same parties or their privies, it is essential that the issue be identical. If a
particular point or question is in issue in the second action, and the judgment will depend
on the determination of that particular point or question, a former judgment between the
same parties or their privies will be final and conclusive in the second if that same point
or question was in issue and adjudicated in the first suit x x x. Identity of cause of action
is not required but merely identity of issue.
Justice Feliciano, in Smith Bell & Company (Phils.), Inc. v. Court of Appeals x x x,
reiterated Lopez v. Reyes x x x in regard to the distinction between bar by former
judgment which bars the prosecution of a second action upon the same claim, demand, or
cause of action, and conclusiveness of judgment which bars the relitigation of particular
facts or issues in another litigation between the same parties on a different claim or cause
of action.
The general rule precluding the re-litigation of material facts or questions which were in
issue and adjudicated in former action are commonly applied to all matters essentially
connected with the subject matter of the litigation. Thus, it extends to questions
necessarily implied in the final judgment, although no specific finding may have been
made in reference thereto and although such matters were directly referred to in the
pleadings and were not actually or formally presented. Under this rule, if the record of the
former trial shows that the judgment could not have been rendered without deciding the
particular matter, it will be considered as having settled that matter as to all future actions
between the parties and if a judgment necessarily presupposes certain premises, they are
as conclusive as the judgment itself.[34] (Emphasis and underlining ours, and emphasis
in the original deleted)
In Nabus v. CA,[35] the Court stressed that when a party seeks relief upon a cause of
action different from the one asserted by him in a previous one, the judgment in the former
suit is conclusive only as to such points or questions as were actually in issue or
adjudicated therein.[36] However, in Calalang v. Register of Deeds of Quezon City,[37]
the Court clarified that the bar on re-litigation of a matter or question extends to those
questions necessarily implied in the final judgment, although no specific finding may have
been made in reference thereto, and although those matters were directly referred to in the
pleadings and were not actually or formally presented.[38] "If the record of the former
trial shows that the judgment could not have been rendered without deciding a particular
matter, it will be considered as having settled that matter as to all future actions between
the parties."[39] Verily, as developed, these principles now embody paragraph (c) of
Section 47, Rule 39 of the Rules of Court, which reads:
(c) In any other litigation between the same parties or their successors in interest, that only
is deemed to have been adjudged in a former judgment or final order which appears upon
its face to have been so adjudged, or which was actually and necessarily included therein
or necessary thereto.
Guided by the foregoing, the Court finds that RTC Branch 16 falsely appreciated the
decision of RTC Branch 13. The Court quotes the pertinent portions of the Decision dated
February 19, 2003 of the RTC Branch 13:
THE COURT'S RULING:
CLAIMS OF [THE PROTESTANTS]:
[The protestants] claim that the decision of the Secretary of the DENR in effect conferred
ownership of the land to them, so that they should be paid the compensation and not
defendants Yap and Villamor. In fact, defendant Malalis had declared the property for
taxation purposes, and had paid the taxes thereon from the time they had occupied the
land.
[The protestants] alleged that the land subject of this case is still in the name of
[Pagarigan], and OCT No. P-11182 has not yet been cancelled and transferred in the
names of defendants Yap and Villamor, who never even set foot on the land, nor declared
the land for taxation purposes. The alleged sale of [the Bank] of the land to Yap and
Villamor did not confer ownership of the land to them, because the land had not been
delivered to them by the owner, and they have not exercised ownership over the same. In
short their claim of ownership is based on a technicality, and no amount of technicality
may serve as a solid foundation for the enjoyment of the fruits of fraud, [the protestants]
alleged.
CLAIMS OF DEFENDANTS YAP AND VILLAMOR:
Defendants Yap and Villamor for their part, dispute the claim of [the protestants]. They
alleged that they were buyers in good faith of the property, and in fact, the owner 's copy
of OCT No. P-11182 has been delivered to them by [the Bank]. They alleged that the title
which was issued to [Pagarigan] cannot be attacked collaterally as in this case. There
should be a case filed in court to annul the title if indeed the same was fraudulently issued.
For as long as the title is not yet declared null and void, the same remains valid, and
whoever succeeds to the same is the owner of the land, they alleged. Moreover, since they
are purchasers in good faith, and for value, they have a right to be protected, defendants
Yap and Villamor alleged.
THE COURT'S RULING:
The Decision of the Secretary of the DENR, in the case cited by [the protestants] cannot
justify the court to declare that the title issued to [Pagarigan] is void, and that (the
protestants] are the owners of the property in question.
As correctly stated by defendants Yap and Villamor in their Memorandum, a Torrens title
cannot be collaterally at tacked. The title must be attacked directly in a case filed in court
specifically to annul the said title. The alleged fraud in the issuance of OCT No. P-11182
therefore cannot be raised in this case, and the court will not consider the decision of the
DENR Secretary to say that the title of [Pagarigan] is void, and that the [protestants] are
the owners of the land subject of this case.
Moreover, a Torrens title has the presumption of having been validly issued and the
defendants Yap and Villarnor are not expected to look beyond the title to determine its
validity. They are purchasers in good faith and for value, and are therefore entitled to the
protection of the court.
Contrary to the allegation of [the protestants], there was in fact a valid delivery of the land
to defendants Yap and Villarnor. The execution of a Deed of Sale in their favor by
defendant [Bank], and delivery to them of the owner's copy of OCT No. P-11182 is a
constructive delivery of the property sold to them.
Although defendants Yap and Villamor had not taken actual physical possession of the
property covered by OCT No. P-11182, the same did not divest them of the ownership of
the land covered by the said title. The occupation and possession of [the protestants] of
the land in question did not ripen into ownership because their occupation (even in the
concept of an owner) cannot defeat a Torrens title. OCT No. P-11182 is presumed to be
valid until declared void by the courts.[40]

The foregoing shows that the question of whether or not Yap and Villamor are innocent
purchasers was not an actual issue of fact in the case before the RTC Branch 13, and
which called for said court's adjudication. "An issue of fact is a point supported by one
party's evidence and controverted by another's."[41] That Yap and Villamor were buyers
in good faith is merely an allegation which was not proven in court. The RTC Branch 13
did not actually make any clear pronouncement on the matter.
The expropriation proceeding was filed on February 28, 1997. The protestants caused the
annotation of a notice of lis pendens on the original copy of OCT No. P-11182 on January
27, 1992. Accordingly, if indeed the question on whether Yap and Villamor are buyers in
good faith was an actual issue of fact before the expropriation proceeding, the protestants
could have easily controverted such claim by the mere expedience of presenting a certified
original copy of OCT No. P-11182. Forsooth, the notice at the back of a Torrens title
serves as notice to the whole world of the pending controversy over the land so
registered.[42]
The RTC Branch 13 basically anchored its judgment on the indefeasibility of a Torrens
title. Pursuant to the well-settled rule that a certificate of title cannot be subject to
collateral attack and can only be altered, modified, or cancelled in a direct proceeding in
accordance with law,[43] it was clear that the trial court was without jurisdiction in an
expropriation proceeding, to rule whether the title issued to Pagarigan is void –
notwithstanding the decision of the DENR Secretary. Thereupon, since the position of the
protestants rests mainly on the validity of Pagarigan's title which cannot be considered in
the action, RTC Branch 13, in effect, posited that there was no legal way for it to rule
otherwise.
Accordingly, and as similarly advanced by the OSG in its Comment, the RTC Branch 13's
pronouncement that Yap and Villamor were buyers in good faith was, at best, a mere
obiter dictum. Contrary to Yap's claim, there was nothing final or conclusive with the
decision of the RTC Branch 13 which the CA should be bound.
Neither the Bank, nor Yap and
Villamor were purchasers in good
faith and for value. Reversion of
subject lot is in order.
"[F]actual findings of administrative or quasi-judicial bodies, which are deemed to have
acquired expertise in matters within their respective jurisdictions, are generally accorded
not only respect but even finality, and bind the Court when supported by substantial
evidence."[44]
The fact that Pagarigan fraudulently secured his free patent was duly established by the
investigation conducted by the DENR through Senior Special Investigator Domingo
Mendez. The decision of the DENR is very clear in this regard, thus:
From the Investigation Reports submitted by both the Department's Regional Office
involved and this Office as well as from the other pieces of evidence available, both
documentary and testimonial, it is obvious that actual fraud and bad faith have been
committed by [Pagarigan] in his subject public land application which led to the issuance
of the title. The following facts and circumstances are uncontroverted, to wit; that the
[protestants] have been in actual occupation of the land in dispute since 1945 and have
introduced improvements thereon; that [Pagarigan] never occupied the same nor his
predecessor-in-interest, Consuela de1a Cruz; that [Pagarigan] misrepresented in his
application that he was the actual occupant and that there were no others who occupied
the lot in dispute; that the title was issued sans an actual ground survey; and that
[Pagarigan] did not post a copy of his Notice for [FPA] on both the Bulletin Board s of
Daliao and Lizardo as required by law.[45] (Emphasis ours)
Thus, the DENR ordered for the institution of the present action seeking the cancellation
of the certificate of title issued in the name of Pagarigan, and for the reversion of the land
covered thereby to the government.
However, as adverted to above, Section 32 of Presidential Decree No. 1529 mandates that
for a reversion case to prosper, it is not enough to prove that the original grantee of a
patent has obtained the same through fraud; it must also be proven that the subject
property has not yet been acquired by an innocent purchaser for value, because fraudulent
acquisition cannot affect the titles of the latter.
Henceforth, the ultimate resolution of this case boils down to the determination on
whether the subsequent conveyances of the subject lot from Pagarigan were made to
innocent purchasers for value. Specifically, based on the records, can we regard the Bank,
and thereafter, Yap and Villamor as innocent purchasers for value?
The Court answers in the negative.
Verily, the Court is in full accord with the following disquisitions of the CA on the matter,
thus:
It cannot be overemphasized that [the Bank], being in the business of extending loans
secured by real estate mortgage, is familiar with rules on land registration. As such, it was,
as here, expected to exercise more care and prudence than private individuals in its
dealings with registered lands. Accordingly, given inter alia the suspicion-provoking
presence of occupants other than the owner on the land to be mortgaged, it behooved them
to conduct a more exhaustive investigation on the history of the mortgagor's title. That
appellee Bank accepted in mortgage the property in question notwithstanding the
existence of structures on the property and which were in actual, visible, and public
possession of persons other than the mortgagor, constitutes gross negligence amounting
to bad faith.[46] (Citation omitted)
Yap and Villamor are not innocent
purchasers for value.
As pointed out by the CA, the respondent argued that at the time Yap and Villamor
purchased the said lot from the Bank, a notice of lis pendens was already annotated on
OCT No. P-11182; hence, they cannot be considered as innocent purchasers for value.
Yap and Villamor, on the other hand, contended that the owner's duplicate copy they
received from the Bank did not contain any annotations of encumbrance or liens; hence,
they cannot be bound by such annotation.[47]
In the present petition, Yap maintains that the presumption that she and Villamor are
buyers in good faith and for value has not been rebutted. She adds that even if it is
assumed, for the sake of argument, that their predecessor-in-interest committed fraud and
misrepresentation, their title as innocent purchasers and for value will not in any way be
affected.[48]
This Court cannot sanction Yap's assertion. Time and again, the Court has ruled that the
burden of proof to establish the status of a purchaser and registrant in good faith lies upon
the one who asserts it. This onus probandi cannot be discharged by mere invocation of the
legal presumption of good faith.[49]
It must be emphasized that aside from the fact that a notice of lis pendens was already
annotated on OCT No. P-11182 even before Yap and Villamor purchased the subject
property, it was also established that when they did so, the said property was still
registered in the name of Pagarigan since the Bank did not consolidate its title thereto.[50]
Stated simply, Yap and Villamor purchased the subject property not from the registered
owner.
In Trifonia D. Gabutan, et al. v. Dante D. Nacalaban, et al.,[51] the Court held that:
A buyer for value in good Faith is one who buys property of another, without notice that
some other person has a right to, or interest in, such property and pays full and fair price
for the same, at the time of such purchase, or before he has notice of the claim or interest
of some other persons in the property. He buys the property with the well-founded belief
that the person from whom he receives the thing had title to the property and capacity to
convey it.
To prove good faith, a buyer of registered and titled land need only show that he relied on
the face of the title to the property. He need not prove that he made further inquiry for he
is not obliged to explore beyond the four corners of the title. Such degree of proof of good
faith, however, is sufficient only when the following conditions concur: first, the seller is
the registered owner of the land; second, the latter is in possession thereof; and third, at
the time of the sale, the buyer was not aware of any claim or interest of some other person
in the property, or of any defect or restriction in the title of the seller or in his capacity to
convey title to the property.
Absent one or two of the foregoing conditions, then the law itself puts the buyer on notice
and obliges the latter to exercise a higher degree of diligence by scrutinizing the certificate
of title and examining all factual circumstances in order to determine the seller's title and
capacity to transfer any inter est in the property. Under such circumstance, it is no longer
sufficient for said buyer to merely show that he relied on the face of the title; he must now
also show that he exercised reasonable precaution by inquiring beyond the title. Failure
to exercise such degree of precaution makes him a buyer in bad faith.[52] (Emphasis and
italics in the original)
Verily, as the Court held in a catena of cases:
[T]he law protects to a greater degree a purchaser who buys from the registered owner
himself. Corollarily, it requires a higher degree of prudence from one who buys from a
person who is not the registered owner, although the land object of the transaction is
registered. While one who buys from the registered owner does not need to look behind
the certificate of title, one who buys from one who is not the registered owner is expected
to examine not only the certificate of title but all factual circumstances necessary for him
to determine if there are any flaws in the title of the transferor, or in his capacity to transfer
the land.
This Court ha s consistently applied the stricter rule when it comes to deciding the issue
of good faith of one who buys from one who is not the registered owner, but who exhibits
a certificate of title.[53] (Emphasis in the original)
Neither estoppel nor laches lies
against the respondent in the
present case
Citing the cases of Saad Agro-!ndustries[54] and Republic of the Philippines v. CA,[55]
the RTC Branch 16 opined that in an action for reversion, the defenses of equitable
estoppel, laches and Torrens System in land titles are available – without, however, stating
that the foregoing also applies in this case, and how.
In any event, neither of said cases is on all fours with the present case. Said cases did not
dwell on whether an FPA was granted through the employment of fraud and/or
misrepresentation, nor the question of whether the concerned properties were conveyed
to innocent purchasers.
In Saad Agro-Industries, free patent was alleged to have been mistakenly issued over a
property that was claimed by therein respondent as inalienable for being part of a track of
land classified as forest land. However, it was established that government has not yet
classified the lot in question as forest reserve prior to the issuance of the concerned free
patent. Moreover, it was also established that therein subject property was already
conveyed to an innocent purchaser for value, Saad Agro-Industries, Inc. before the action
for reversion was instituted.
In Republic of the Philippines v. CA,[56] therein petitioner instituted an action to annul
the certificates of title that were issued on the basis of a null and void subdivision plan.
While therein petitioner sufficiently proved that the actual area of the disputed property
was unduly enlarged in the said subdivision plan, it, however, presented no proof that
therein respondent committed fraud when it submitted the subdivision plan to the Land
Registration Commission for approval. Since the plan was presumed to have been
subjected to investigation, study and verification by said commission, there was no one to
be blamed except therein petitioner, acting through said body, itself. Thus, for having
allowed and approved the subdivision plan, the government was held to be in estoppel to
question the same, and seek the annulment of titles issued pursuant thereto. Moreover,
when the action was instituted, the subdivided properties were already sold to innocent
purchasers for value. Additionally, although therein petitioner asserted that the action was
instituted to protect the integrity of the Torrens System, it was, however, unjustifiable that
it took nearly 20 years before therein petitioner acted on the matter. Verily, therein
petitioner's prolonged inaction was held as tantamount to laches.
In the instant case, it was established that Pagarigan's FPA was secured on the basis of his
fraudulent representations. The respondent cannot be faulted for having been misled into
believing that an applicant is legally qualified to be granted free patent as to render it
estopped from asserting its right to recover its own property. While the action for
reversion was instituted only in 2003, the circumstances leading to the institution of the
case hardly spells inaction or neglect on the part of the respondent as to be considered
guilty of laches.
Forsooth, there was no prolonged inaction on the part of the respondent in this case. This
can be gleaned in the decision[57] of the DENR Secretary. Shortly after the protestants
filed a formal protest with the Bureau on October 24, 1990, the Officer-in-Charge,
Regional Executive Director (RED) of the DENR Region XI, Davao City immediately
ordered an investigation on November 15, 1990,[58] and the same commenced on
November 19, 1990. On February 14, 1994, the RED issued a decision dismissing the
protestants' protest.[59] Undaunted, the protestants elevated their case to the Office of the
DENR Secretary. On May 15, 1995, the DENR Secretary set-aside the RED's decision A fraudulently acquired free patent
and ordered the institution of appropriate action for the cancellation of OCT No. P-11182,
and for the reversion of the property covered thereby to the government. may only be assailed by the

government in an action for

The instant action does not reversion

undermine the indefeasibility of

Torrens title
In the case of Lorzano v. Tabayag, Jr.,[60] the Court reiterated that a Torrens title
emanating from a free patent which was secured through fraud does not become
indefeasible because the patent from whence the title sprung is itself void and of no effect
whatsoever. Thus:
Once a patent is registered and the corresponding certificate of title is issued, the land
covered thereby ceases to be part of public domain and becomes private property, and the
Torrens Title issued pursuant to the patent becomes indefeasible upon the expiration of
one year from the date of such issuance. However, a title emanating from a free patent
which was secured through fraud does not become indefeasible, precisely because the
patent from whence the title sprung is itself void and of no effect whatsoever.[61]
Nonetheless, a free patent that was fraudulently acquired, and the certificate of title issued
pursuant to the same, may only be assailed by the government in an action for reversion,
pursuant to Section 101 of the Public Land Act. In Sherwill Development Corporation v.
Sitio Sto. Niño Residents Association, Inc.,[64] the Court pointed out that:
It is also to the public interest that one who succeeds in fraudulently acquiring title to a
public land should not be allowed to benefit therefrom, and the State should, therefore,
have an even existing authority, thru its duly-authorized officers, to in quire into the
circumstances surrounding the issuance of any such title, to the end that the Republic, thru
the Solicitor General or any other officer who may be authorized by law, may file the
corresponding action for the reversion of the land involved to the public domain, subject
thereafter to disposal to other qualified persons in accordance with law. In other words,
the indefeasibility of a title over land previously public is not a bar to an investigation by
the Director of Lands as to how such title has been acquired, if the purpose of such
investigation is to determine whether or not fraud had been committed in securing such
title in order that the appropriate action for reversion may be filed by the Government.[65]

On this point, the Court's ruling m Republic v. Heirs of Felipe Alejaga, Sr.[62] is
instructive:
WHEREFORE, the petition is hereby DENIED. The Decision dated June 30, 2011 and
Resolution dated November 14, 2011 of the Court of Appeals in CA-G.R. CV No. 01753-
MIN are AFFIRMED.
True, once a patent is registered and the corresponding certificate of title [is] issued, the
land covered by them ceases to be part of the public domain and becomes private property.
Further, the Torrens Title issued pursuant to the patent becomes indefeasible a year after
the issuance of the latter. However, this in defeasibility of a title does not attach to titles SO ORDERED.
secured by fraud and misrepresentation. Well-settled is the doctrine that the registration
of a patent under the Torrens System does not by itself vest title; it merely confirms the
registrant's already existing one. Verily, registration under the Torrens System is not a
mode of acquiring ownership.[63] (Citations omitted)