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Contents

FRANCISCO I. CHAVEZ, petitioner, vs. PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY DEVELOPMENT CORPORATION, respondents......................................... CEBU OXYGEN & ACETYLENE CO., INC. vs. HON. PASCUAL A. BERCILLES.................... Salas v. Jarencio........................................................................................................... THE PROVINCE OF ZAMBOANGA DEL NORTE, plaintiff-appellee, ZAMBOANGA, SECRETARY OF FINANCE and COMMISSIONER vs. CITY OF OF INTERNAL

REVENUE,defendants-appellants.................................................................................. PHILIPPINE REFINING CO., INC., plaintiff-appellant, vs. FRANCISCO JARQUE............... B.H. BERKENKOTTER, plaintiff-appellant, vs. CU UNJIENG........................................... MINDANAO BUS COMPANY, petitioner, vs. THE CITY ASSESSOR.................................. DAVAO SAW MILL CO., INC., plaintiff-appellant, vs. APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees...................................................................... CALTEX (PHILIPPINES) INC., petitioner, vs. CENTRAL BOARD OF ASSESSMENT

APPEALS and CITY ASSESSOR OF PASAY, respondents................................................. PRUDENTIAL BANK, petitioner, vs. HONORABLE DOMINGO D. PANIS,.................................. BENGUET CORPORATION, petitioner, vs. CENTRAL BOARD OF ASSESSMENT APPEALS,. SERGS PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs. PCI LEASING AND FINANCE, INC., respondent...................................................................................

G.R. No. 133250

July 9, 2002

FRANCISCO I. CHAVEZ, petitioner, vs. PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY DEVELOPMENT CORPORATION, respondents. CARPIO, J.:

This is an original Petition for Mandamus with prayer for a writ of preliminary injunction and a temporary restraining order. The petition seeks to compel the Public Estates Authority ("PEA" for brevity) to disclose all facts on PEA's then on-going renegotiations with Amari Coastal Bay and Development Corporation ("AMARI" for brevity) to reclaim portions of Manila Bay. The petition further seeks to enjoin PEA from signing a new agreement with AMARI involving such reclamation. The Facts On November 20, 1973, the government, through the Commissioner of Public Highways, signed a contract with the Construction and Development Corporation of the Philippines ("CDCP" for brevity) to reclaim certain foreshore and offshore areas of Manila Bay. The contract also included the construction of Phases I and II of the Manila-Cavite Coastal Road. CDCP obligated itself to carry out all the works in consideration of fifty percent of the total reclaimed land. On February 4, 1977, then President Ferdinand E. Marcos issued Presidential Decree No. 1084 creating PEA. PD No. 1084 tasked PEA "to reclaim land, including foreshore and submerged areas," and "to develop, improve, acquire, x x x lease and sell any and all kinds of lands."1 On the same date, then President Marcos issued Presidential Decree No. 1085 transferring to PEA the "lands reclaimed in the foreshore and offshore of the Manila Bay"2 under the Manila-Cavite Coastal Road and Reclamation Project (MCCRRP). On December 29, 1981, then President Marcos issued a memorandum directing PEA to amend its contract with CDCP, so that "[A]ll future works in MCCRRP x x x shall be funded and owned by PEA." Accordingly, PEA and CDCP executed a Memorandum of Agreement dated December 29, 1981, which stated: "(i) CDCP shall undertake all reclamation, construction, and such other works in the MCCRRP as may be agreed upon by the parties, to be paid according to progress of works on a unit price/lump sum basis for items of work to be agreed upon, subject to price escalation, retention and other terms and conditions provided for in Presidential Decree No. 1594. All the financing required for such works shall be provided by PEA. xxx (iii) x x x CDCP shall give up all its development rights and hereby agrees to cede and transfer in favor of PEA, all of the rights, title, interest and participation of CDCP in and to all the areas of land reclaimed by CDCP in the MCCRRP as of December 30, 1981 which have not yet been sold, transferred or otherwise disposed of by CDCP as of said date, which areas consist of approximately Ninety-Nine Thousand Four Hundred Seventy Three (99,473) square meters in the Financial Center Area covered by land pledge No. 5 and approximately Three Million Three Hundred Eighty Two Thousand Eight Hundred Eighty Eight (3,382,888) square meters of reclaimed areas at varying elevations above Mean Low Water Level located outside the Financial Center Area and the First Neighborhood Unit."3 On January 19, 1988, then President Corazon C. Aquino issued Special Patent No. 3517, granting and transferring to PEA "the parcels of land so reclaimed under the Manila-Cavite Coastal Road and Reclamation Project (MCCRRP) containing a total area of one million nine hundred fifteen thousand eight hundred ninety four (1,915,894) square meters." Subsequently, on April 9, 1988, the Register of Deeds of the Municipality of Paraaque issued Transfer Certificates of Title Nos. 7309, 7311, and 7312, in the name of PEA, covering the three reclaimed islands known as the "Freedom Islands" located at the southern portion of the Manila-Cavite Coastal Road, Paraaque City. The Freedom Islands have a total land area of One Million Five Hundred Seventy Eight Thousand Four Hundred and Forty One (1,578,441) square meters or 157.841 hectares. On April 25, 1995, PEA entered into a Joint Venture Agreement ("JVA" for brevity) with AMARI, a private corporation, to develop the Freedom Islands. The JVA also required the reclamation of an additional 250 hectares of submerged areas surrounding these islands to complete the configuration in the Master Development Plan of the Southern Reclamation Project-MCCRRP. PEA and AMARI entered into the JVA through negotiation without public bidding.4 On April 28, 1995, the Board of Directors of PEA, in its Resolution No. 1245, confirmed the JVA.5On June 8, 1995, then President Fidel V. Ramos, through then Executive Secretary Ruben Torres, approved the JVA.6 On November 29, 1996, then Senate President Ernesto Maceda delivered a privilege speech in the Senate and denounced the JVA as the "grandmother of all scams." As a result, the Senate Committee on Government Corporations and Public Enterprises, and the Committee on Accountability of Public Officers and Investigations, conducted a joint investigation. The Senate Committees reported the results of their investigation in Senate Committee Report No. 560 dated September 16, 1997.7 Among the conclusions of their report are: (1) the reclaimed lands PEA seeks to transfer to AMARI under the JVA are lands of the public domain which the government has not classified as alienable lands and therefore PEA cannot alienate these lands; (2) the certificates of title covering the Freedom Islands are thus void, and (3) the

JVA itself is illegal. On December 5, 1997, then President Fidel V. Ramos issued Presidential Administrative Order No. 365 creating a Legal Task Force to conduct a study on the legality of the JVA in view of Senate Committee Report No. 560. The members of the Legal Task Force were the Secretary of Justice,8 the Chief Presidential Legal Counsel,9 and the Government Corporate Counsel.10 The Legal Task Force upheld the legality of the JVA, contrary to the conclusions reached by the Senate Committees.11 On April 4 and 5, 1998, the Philippine Daily Inquirer and Today published reports that there were ongoing renegotiations between PEA and AMARI under an order issued by then President Fidel V. Ramos. According to these reports, PEA Director Nestor Kalaw, PEA Chairman Arsenio Yulo and retired Navy Officer Sergio Cruz composed the negotiating panel of PEA. On April 13, 1998, Antonio M. Zulueta filed before the Court a Petition for Prohibition with Application for the Issuance of a Temporary Restraining Order and Preliminary Injunction docketed as G.R. No. 132994 seeking to nullify the JVA. The Court dismissed the petition "for unwarranted disregard of judicial hierarchy, without prejudice to the refiling of the case before the proper court."12 On April 27, 1998, petitioner Frank I. Chavez ("Petitioner" for brevity) as a taxpayer, filed the instant Petition for Mandamus with Prayer for the Issuance of a Writ of Preliminary Injunction and Temporary Restraining Order. Petitioner contends the government stands to lose billions of pesos in the sale by PEA of the reclaimed lands to AMARI. Petitioner prays that PEA publicly disclose the terms of any renegotiation of the JVA, invoking Section 28, Article II, and Section 7, Article III, of the 1987 Constitution on the right of the people to information on matters of public concern. Petitioner assails the sale to AMARI of lands of the public domain as a blatant violation of Section 3, Article XII of the 1987 Constitution prohibiting the sale of alienable lands of the public domain to private corporations. Finally, petitioner asserts that he seeks to enjoin the loss of billions of pesos in properties of the State that are of public dominion. After several motions for extension of time,13 PEA and AMARI filed their Comments on October 19, 1998 and June 25, 1998, respectively. Meanwhile, on December 28, 1998, petitioner filed an Omnibus Motion: (a) to require PEA to submit the terms of the renegotiated PEA-AMARI contract; (b) for issuance of a temporary restraining order; and (c) to set the case for hearing on oral argument. Petitioner filed a Reiterative Motion for Issuance of a TRO dated May 26, 1999, which the Court denied in a Resolution dated June 22, 1999. In a Resolution dated March 23, 1999, the Court gave due course to the petition and required the parties to file their respective memoranda. On March 30, 1999, PEA and AMARI signed the Amended Joint Venture Agreement ("Amended JVA," for brevity). On May 28, 1999, the Office of the President under the administration of then President Joseph E. Estrada approved the Amended JVA. Due to the approval of the Amended JVA by the Office of the President, petitioner now prays that on "constitutional and statutory grounds the renegotiated contract be declared null and void."14 The Issues The issues raised by petitioner, PEA15 and AMARI16 are as follows: I. WHETHER THE PRINCIPAL RELIEFS PRAYED FOR IN THE PETITION ARE MOOT AND ACADEMIC BECAUSE OF SUBSEQUENT EVENTS; II. WHETHER THE PETITION MERITS DISMISSAL FOR FAILING TO OBSERVE THE PRINCIPLE GOVERNING THE HIERARCHY OF COURTS; III. WHETHER THE PETITION MERITS DISMISSAL FOR NON-EXHAUSTION OF ADMINISTRATIVE REMEDIES; IV. WHETHER PETITIONER HAS LOCUS STANDI TO BRING THIS SUIT; V. WHETHER THE CONSTITUTIONAL RIGHT TO INFORMATION INCLUDES OFFICIAL INFORMATION ON ON-GOING NEGOTIATIONS BEFORE A FINAL AGREEMENT; VI. WHETHER THE STIPULATIONS IN THE AMENDED JOINT VENTURE AGREEMENT FOR THE TRANSFER TO AMARI OF CERTAIN LANDS, RECLAIMED AND STILL TO BE RECLAIMED, VIOLATE THE 1987 CONSTITUTION; AND VII. WHETHER THE COURT IS THE PROPER FORUM FOR RAISING THE ISSUE OF WHETHER THE AMENDED JOINT VENTURE AGREEMENT IS GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT.

The Court's Ruling First issue: whether the principal reliefs prayed for in the petition are moot and academic because of subsequent events. The petition prays that PEA publicly disclose the "terms and conditions of the on-going negotiations for a new agreement." The petition also prays that the Court enjoin PEA from "privately entering into, perfecting and/or executing any new agreement with AMARI." PEA and AMARI claim the petition is now moot and academic because AMARI furnished petitioner on June 21, 1999 a copy of the signed Amended JVA containing the terms and conditions agreed upon in the renegotiations. Thus, PEA has satisfied petitioner's prayer for a public disclosure of the renegotiations. Likewise, petitioner's prayer to enjoin the signing of the Amended JVA is now moot because PEA and AMARI have already signed the Amended JVA on March 30, 1999. Moreover, the Office of the President has approved the Amended JVA on May 28, 1999. Petitioner counters that PEA and AMARI cannot avoid the constitutional issue by simply fast-tracking the signing and approval of the Amended JVA before the Court could act on the issue. Presidential approval does not resolve the constitutional issue or remove it from the ambit of judicial review. We rule that the signing of the Amended JVA by PEA and AMARI and its approval by the President cannot operate to moot the petition and divest the Court of its jurisdiction. PEA and AMARI have still to implement the Amended JVA. The prayer to enjoin the signing of the Amended JVA on constitutional grounds necessarily includes preventing its implementation if in the meantime PEA and AMARI have signed one in violation of the Constitution. Petitioner's principal basis in assailing the renegotiation of the JVA is its violation of Section 3, Article XII of the Constitution, which prohibits the government from alienating lands of the public domain to private corporations. If the Amended JVA indeed violates the Constitution, it is the duty of the Court to enjoin its implementation, and if already implemented, to annul the effects of such unconstitutional contract. The Amended JVA is not an ordinary commercial contract but one which seeks to transfer title and ownership to 367.5 hectares of reclaimed lands and submerged areas of Manila Bay to a single private corporation. It now becomes more compelling for the Court to resolve the issue to insure the government itself does not violate a provision of the Constitution intended to safeguard the national patrimony. Supervening events, whether intended or accidental, cannot prevent the Court from rendering a decision if there is a grave violation of the Constitution. In the instant case, if the Amended JVA runs counter to the Constitution, the Court can still prevent the transfer of title and ownership of alienable lands of the public domain in the name of AMARI. Even in cases where supervening events had made the cases moot, the Court did not hesitate to resolve the legal or constitutional issues raised to formulate controlling principles to guide the bench, bar, and the public.17 Also, the instant petition is a case of first impression. All previous decisions of the Court involving Section 3, Article XII of the 1987 Constitution, or its counterpart provision in the 1973 Constitution,18 covered agricultural landssold to private corporations which acquired the lands from private parties. The transferors of the private corporations claimed or could claim the right to judicial confirmation of their imperfect titles19 under Title II of Commonwealth Act. 141 ("CA No. 141" for brevity). In the instant case, AMARI seeks to acquire from PEA, a public corporation, reclaimed lands and submerged areas for non-agricultural purposes by purchase under PD No. 1084 (charter of PEA) and Title III of CA No. 141. Certain undertakings by AMARI under the Amended JVA constitute the consideration for the purchase. Neither AMARI nor PEA can claim judicial confirmation of their titles because the lands covered by the Amended JVA are newly reclaimed or still to be reclaimed. Judicial confirmation of imperfect title requires open, continuous, exclusive and notorious occupation of agricultural lands of the public domain for at least thirty years since June 12, 1945 or earlier. Besides, the deadline for filing applications for judicial confirmation of imperfect title expired on December 31, 1987.20 Lastly, there is a need to resolve immediately the constitutional issue raised in this petition because of the possible transfer at any time by PEA to AMARI of title and ownership to portions of the reclaimed lands. Under the Amended JVA, PEA is obligated to transfer to AMARI the latter's seventy percent proportionate share in the reclaimed areas as the reclamation progresses. The Amended JVA even allows AMARI to mortgage at any time the entirereclaimed area to raise financing for the reclamation project.21 Second issue: whether the petition merits dismissal for failing to observe the principle governing the hierarchy of courts. PEA and AMARI claim petitioner ignored the judicial hierarchy by seeking relief directly from the Court. The principle of hierarchy of courts applies generally to cases involving factual questions. As it is not a trier of facts, the Court cannot entertain cases involving factual issues. The instant case, however, raises constitutional issues of transcendental importance to the public.22 The Court can resolve this case without determining any factual issue related to the case. Also, the instant case is a petition for mandamus which falls under the original jurisdiction of the Court under Section 5, Article VIII of the Constitution. We resolve

to exercise primary jurisdiction over the instant case. Third issue: whether the petition merits dismissal for non-exhaustion of administrative remedies. PEA faults petitioner for seeking judicial intervention in compelling PEA to disclose publicly certain information without first asking PEA the needed information. PEA claims petitioner's direct resort to the Court violates the principle of exhaustion of administrative remedies. It also violates the rule that mandamus may issue only if there is no other plain, speedy and adequate remedy in the ordinary course of law. PEA distinguishes the instant case from Taada v. Tuvera23 where the Court granted the petition for mandamus even if the petitioners there did not initially demand from the Office of the President the publication of the presidential decrees. PEA points out that in Taada, the Executive Department had an affirmative statutory duty under Article 2 of the Civil Code24 and Section 1 of Commonwealth Act No. 63825 to publish the presidential decrees. There was, therefore, no need for the petitioners in Taada to make an initial demand from the Office of the President. In the instant case, PEA claims it has no affirmative statutory duty to disclose publicly information about its renegotiation of the JVA. Thus, PEA asserts that the Court must apply the principle of exhaustion of administrative remedies to the instant case in view of the failure of petitioner here to demand initially from PEA the needed information. The original JVA sought to dispose to AMARI public lands held by PEA, a government corporation. Under Section 79 of the Government Auditing Code,26 the disposition of government lands to private parties requires public bidding. PEA was under a positive legal duty to disclose to the public the terms and conditions for the sale of its lands. The law obligated PEA to make this public disclosure even without demand from petitioner or from anyone. PEA failed to make this public disclosure because the original JVA, like the Amended JVA, was the result of a negotiated contract, not of a public bidding. Considering that PEA had an affirmative statutory duty to make the public disclosure, and was even in breach of this legal duty, petitioner had the right to seek direct judicial intervention. Moreover, and this alone is determinative of this issue, the principle of exhaustion of administrative remedies does not apply when the issue involved is a purely legal or constitutional question.27 The principal issue in the instant case is the capacity of AMARI to acquire lands held by PEA in view of the constitutional ban prohibiting the alienation of lands of the public domain to private corporations. We rule that the principle of exhaustion of administrative remedies does not apply in the instant case. Fourth issue: whether petitioner has locus standi to bring this suit PEA argues that petitioner has no standing to institute mandamus proceedings to enforce his constitutional right to information without a showing that PEA refused to perform an affirmative duty imposed on PEA by the Constitution. PEA also claims that petitioner has not shown that he will suffer any concrete injury because of the signing or implementation of the Amended JVA. Thus, there is no actual controversy requiring the exercise of the power of judicial review. The petitioner has standing to bring this taxpayer's suit because the petition seeks to compel PEA to comply with its constitutional duties. There are two constitutional issues involved here. First is the right of citizens to information on matters of public concern. Second is the application of a constitutional provision intended to insure the equitable distribution of alienable lands of the public domain among Filipino citizens. The thrust of the first issue is to compel PEA to disclose publicly information on the sale of government lands worth billions of pesos, information which the Constitution and statutory law mandate PEA to disclose. The thrust of the second issue is to prevent PEA from alienating hundreds of hectares of alienable lands of the public domain in violation of the Constitution, compelling PEA to comply with a constitutional duty to the nation. Moreover, the petition raises matters of transcendental importance to the public. In Chavez v. PCGG,28 the Court upheld the right of a citizen to bring a taxpayer's suit on matters of transcendental importance to the public, thus "Besides, petitioner emphasizes, the matter of recovering the ill-gotten wealth of the Marcoses is an issue of 'transcendental importance to the public.' He asserts that ordinary taxpayers have a right to initiate and prosecute actions questioning the validity of acts or orders of government agencies or instrumentalities, if the issues raised are of 'paramount public interest,' and if they 'immediately affect the social, economic and moral well being of the people.' Moreover, the mere fact that he is a citizen satisfies the requirement of personal interest, when the proceeding involves the assertion of a public right, such as in this case. He invokes several decisions of this Court which have set aside the procedural matter of locus standi, when the subject of the case involved public interest. xxx

In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of mandamus is to obtain the enforcement of a public duty, the people are regarded as the real parties in interest; and because it is sufficient that petitioner is a citizen and as such is interested in the execution of the laws, he need not show that he has any legal or special interest in the result of the action. In the aforesaid case, the petitioners sought to enforce their right to be informed on matters of public concern, a right then recognized in Section 6, Article IV of the 1973 Constitution, in connection with the rule that laws in order to be valid and enforceable must be published in the Official Gazette or otherwise effectively promulgated. In ruling for the petitioners' legal standing, the Court declared that the right they sought to be enforced 'is a public right recognized by no less than the fundamental law of the land.' Legaspi v. Civil Service Commission, while reiterating Taada, further declared that 'when a mandamus proceeding involves the assertion of a public right, the requirement of personal interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the general 'public' which possesses the right.' Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved under the questioned contract for the development, management and operation of the Manila International Container Terminal, 'public interest [was] definitely involved considering the important role [of the subject contract] . . . in the economic development of the country and the magnitude of the financial consideration involved.' We concluded that, as a consequence, the disclosure provision in the Constitution would constitute sufficient authority for upholding the petitioner's standing. Similarly, the instant petition is anchored on the right of the people to information and access to official records, documents and papers a right guaranteed under Section 7, Article III of the 1987 Constitution. Petitioner, a former solicitor general, is a Filipino citizen. Because of the satisfaction of the two basic requisites laid down by decisional law to sustain petitioner's legal standing, i.e. (1) the enforcement of a public right (2) espoused by a Filipino citizen, we rule that the petition at bar should be allowed." We rule that since the instant petition, brought by a citizen, involves the enforcement of constitutional rights - to information and to the equitable diffusion of natural resources - matters of transcendental public importance, the petitioner has the requisite locus standi. Fifth issue: whether the constitutional right to information includes official information on ongoing negotiations before a final agreement. Section 7, Article III of the Constitution explains the people's right to information on matters of public concern in this manner: "Sec. 7. The right of the people to information on matters of public concern shall be recognized. Access to official records, and to documents, and papers pertaining to official acts, transactions, or decisions, as well as to government research data used as basis for policy development, shall be afforded the citizen, subject to such limitations as may be provided by law." (Emphasis supplied) The State policy of full transparency in all transactions involving public interest reinforces the people's right to information on matters of public concern. This State policy is expressed in Section 28, Article II of the Constitution, thus: "Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts and implements a policy of full public disclosure of all its transactions involving public interest." (Emphasis supplied) These twin provisions of the Constitution seek to promote transparency in policy-making and in the operations of the government, as well as provide the people sufficient information to exercise effectively other constitutional rights. These twin provisions are essential to the exercise of freedom of expression. If the government does not disclose its official acts, transactions and decisions to citizens, whatever citizens say, even if expressed without any restraint, will be speculative and amount to nothing. These twin provisions are also essential to hold public officials "at all times x x x accountable to the people,"29 for unless citizens have the proper information, they cannot hold public officials accountable for anything. Armed with the right information, citizens can participate in public discussions leading to the formulation of government policies and their effective implementation. An informed citizenry is essential to the existence and proper functioning of any democracy. As explained by the Court inValmonte v. Belmonte, Jr.30 "An essential element of these freedoms is to keep open a continuing dialogue or process of communication between the government and the people. It is in the interest of the State that the channels for free political discussion be maintained to the end that the government may perceive and be responsive to the people's will. Yet, this open dialogue can be effective only to the extent

that the citizenry is informed and thus able to formulate its will intelligently. Only when the participants in the discussion are aware of the issues and have access to information relating thereto can such bear fruit." PEA asserts, citing Chavez v. PCGG,31 that in cases of on-going negotiations the right to information is limited to "definite propositions of the government." PEA maintains the right does not include access to "intra-agency or inter-agency recommendations or communications during the stage when common assertions are still in the process of being formulated or are in the 'exploratory stage'." Also, AMARI contends that petitioner cannot invoke the right at the pre-decisional stage or before the closing of the transaction. To support its contention, AMARI cites the following discussion in the 1986 Constitutional Commission: "Mr. Suarez. And when we say 'transactions' which should be distinguished from contracts, agreements, or treaties or whatever, does the Gentleman refer to the steps leading to the consummation of the contract, or does he refer to the contract itself? Mr. Ople: The 'transactions' used here, I suppose is generic and therefore, it can cover both steps leading to a contract and already a consummated contract, Mr. Presiding Officer. Mr. Suarez: This contemplates inclusion of negotiations leading to the consummation of the transaction. Mr. Ople: Yes, subject only to reasonable safeguards on the national interest. Mr. Suarez: Thank you."32 (Emphasis supplied) AMARI argues there must first be a consummated contract before petitioner can invoke the right. Requiring government officials to reveal their deliberations at the pre-decisional stage will degrade the quality of decision-making in government agencies. Government officials will hesitate to express their real sentiments during deliberations if there is immediate public dissemination of their discussions, putting them under all kinds of pressure before they decide. We must first distinguish between information the law on public bidding requires PEA to disclose publicly, and information the constitutional right to information requires PEA to release to the public. Before the consummation of the contract, PEA must, on its own and without demand from anyone, disclose to the public matters relating to the disposition of its property. These include the size, location, technical description and nature of the property being disposed of, the terms and conditions of the disposition, the parties qualified to bid, the minimum price and similar information. PEA must prepare all these data and disclose them to the public at the start of the disposition process, long before the consummation of the contract, because the Government Auditing Code requires public bidding. If PEA fails to make this disclosure, any citizen can demand from PEA this information at any time during the bidding process. Information, however, on on-going evaluation or review of bids or proposals being undertaken by the bidding or review committee is not immediately accessible under the right to information. While the evaluation or review is still on-going, there are no "official acts, transactions, or decisions" on the bids or proposals. However, once the committee makes its official recommendation, there arises a "definite proposition" on the part of the government. From this moment, the public's right to information attaches, and any citizen can access all the non-proprietary information leading to such definite proposition. In Chavez v. PCGG,33 the Court ruled as follows: "Considering the intent of the framers of the Constitution, we believe that it is incumbent upon the PCGG and its officers, as well as other government representatives, to disclose sufficient public information on any proposed settlement they have decided to take up with the ostensible owners and holders of ill-gotten wealth. Such information, though, must pertain to definite propositions of the government, not necessarily to intra-agency or inter-agency recommendations or communications during the stage when common assertions are still in the process of being formulated or are in the "exploratory" stage. There is need, of course, to observe the same restrictions on disclosure of information in general, as discussed earlier such as on matters involving national security, diplomatic or foreign relations, intelligence and other classified information." (Emphasis supplied) Contrary to AMARI's contention, the commissioners of the 1986 Constitutional Commission understood that the right to information "contemplates inclusion of negotiations leading to the consummation of the transaction." Certainly, a consummated contract is not a requirement for the exercise of the right to information. Otherwise, the people can never exercise the right if no contract is consummated, and if one is consummated, it may be too late for the public to expose its defects.1wphi1.nt Requiring a consummated contract will keep the public in the dark until the contract, which may be

grossly disadvantageous to the government or even illegal, becomes a fait accompli. This negates the State policy of full transparency on matters of public concern, a situation which the framers of the Constitution could not have intended. Such a requirement will prevent the citizenry from participating in the public discussion of any proposedcontract, effectively truncating a basic right enshrined in the Bill of Rights. We can allow neither an emasculation of a constitutional right, nor a retreat by the State of its avowed "policy of full disclosure of all its transactions involving public interest." The right covers three categories of information which are "matters of public concern," namely: (1) official records; (2) documents and papers pertaining to official acts, transactions and decisions; and (3) government research data used in formulating policies. The first category refers to any document that is part of the public records in the custody of government agencies or officials. The second category refers to documents and papers recording, evidencing, establishing, confirming, supporting, justifying or explaining official acts, transactions or decisions of government agencies or officials. The third category refers to research data, whether raw, collated or processed, owned by the government and used in formulating government policies. The information that petitioner may access on the renegotiation of the JVA includes evaluation reports, recommendations, legal and expert opinions, minutes of meetings, terms of reference and other documents attached to such reports or minutes, all relating to the JVA. However, the right to information does not compel PEA to prepare lists, abstracts, summaries and the like relating to the renegotiation of the JVA.34 The right only affords access to records, documents and papers, which means the opportunity to inspect and copy them. One who exercises the right must copy the records, documents and papers at his expense. The exercise of the right is also subject to reasonable regulations to protect the integrity of the public records and to minimize disruption to government operations, like rules specifying when and how to conduct the inspection and copying.35 The right to information, however, does not extend to matters recognized as privileged information under the separation of powers.36 The right does not also apply to information on military and diplomatic secrets, information affecting national security, and information on investigations of crimes by law enforcement agencies before the prosecution of the accused, which courts have long recognized as confidential.37 The right may also be subject to other limitations that Congress may impose by law. There is no claim by PEA that the information demanded by petitioner is privileged information rooted in the separation of powers. The information does not cover Presidential conversations, correspondences, or discussions during closed-door Cabinet meetings which, like internal deliberations of the Supreme Court and other collegiate courts, or executive sessions of either house of Congress,38 are recognized as confidential. This kind of information cannot be pried open by a co-equal branch of government. A frank exchange of exploratory ideas and assessments, free from the glare of publicity and pressure by interested parties, is essential to protect the independence of decision-making of those tasked to exercise Presidential, Legislative and Judicial power.39 This is not the situation in the instant case. We rule, therefore, that the constitutional right to information includes official information on on-going negotiations before a final contract. The information, however, must constitute definite propositions by the government and should not cover recognized exceptions like privileged information, military and diplomatic secrets and similar matters affecting national security and public order.40 Congress has also prescribed other limitations on the right to information in several legislations.41 Sixth issue: whether stipulations in the Amended JVA for the transfer to AMARI of lands, reclaimed or to be reclaimed, violate the Constitution. The Regalian Doctrine The ownership of lands reclaimed from foreshore and submerged areas is rooted in the Regalian doctrine which holds that the State owns all lands and waters of the public domain. Upon the Spanish conquest of the Philippines, ownership of all "lands, territories and possessions" in the Philippines passed to the Spanish Crown.42 The King, as the sovereign ruler and representative of the people, acquired and owned all lands and territories in the Philippines except those he disposed of by grant or sale to private individuals. The 1935, 1973 and 1987 Constitutions adopted the Regalian doctrine substituting, however, the State, in lieu of the King, as the owner of all lands and waters of the public domain. The Regalian doctrine is the foundation of the time-honored principle of land ownership that "all lands that were not acquired from the Government, either by purchase or by grant, belong to the public domain."43 Article 339 of the Civil Code of 1889, which is now Article 420 of the Civil Code of 1950, incorporated the Regalian doctrine. Ownership and Disposition of Reclaimed Lands The Spanish Law of Waters of 1866 was the first statutory law governing the ownership and disposition of reclaimed lands in the Philippines. On May 18, 1907, the Philippine Commission enacted Act No. 1654 which provided for the lease, but not the sale, of reclaimed lands of the government to

corporations and individuals. Later, on November 29, 1919, the Philippine Legislature approved Act No. 2874, the Public Land Act, which authorized the lease, but not the sale, of reclaimed lands of the government to corporations and individuals. On November 7, 1936, the National Assembly passed Commonwealth Act No. 141, also known as the Public Land Act, which authorized the lease, but not the sale, of reclaimed lands of the government to corporations and individuals. CA No. 141 continues to this day as the general law governing the classification and disposition of lands of the public domain. The Spanish Law of Waters of 1866 and the Civil Code of 1889 Under the Spanish Law of Waters of 1866, the shores, bays, coves, inlets and all waters within the maritime zone of the Spanish territory belonged to the public domain for public use.44 The Spanish Law of Waters of 1866 allowed the reclamation of the sea under Article 5, which provided as follows: "Article 5. Lands reclaimed from the sea in consequence of works constructed by the State, or by the provinces, pueblos or private persons, with proper permission, shall become the property of the party constructing such works, unless otherwise provided by the terms of the grant of authority." Under the Spanish Law of Waters, land reclaimed from the sea belonged to the party undertaking the reclamation, provided the government issued the necessary permit and did not reserve ownership of the reclaimed land to the State. Article 339 of the Civil Code of 1889 defined property of public dominion as follows: "Art. 339. Property of public dominion is 1. That devoted to public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, riverbanks, shores, roadsteads, and that of a similar character; 2. That belonging exclusively to the State which, without being of general public use, is employed in some public service, or in the development of the national wealth, such as walls, fortresses, and other works for the defense of the territory, and mines, until granted to private individuals." Property devoted to public use referred to property open for use by the public. In contrast, property devoted to public service referred to property used for some specific public service and open only to those authorized to use the property. Property of public dominion referred not only to property devoted to public use, but also to property not so used but employed to develop the national wealth. This class of property constituted property of public dominion although employed for some economic or commercial activity to increase the national wealth. Article 341 of the Civil Code of 1889 governed the re-classification of property of public dominion into private property, to wit: "Art. 341. Property of public dominion, when no longer devoted to public use or to the defense of the territory, shall become a part of the private property of the State." This provision, however, was not self-executing. The legislature, or the executive department pursuant to law, must declare the property no longer needed for public use or territorial defense before the government could lease or alienate the property to private parties.45 Act No. 1654 of the Philippine Commission On May 8, 1907, the Philippine Commission enacted Act No. 1654 which regulated the lease of reclaimed and foreshore lands. The salient provisions of this law were as follows: "Section 1. The control and disposition of the foreshore as defined in existing law, and the title to all Government or public lands made or reclaimed by the Government by dredging or filling or otherwise throughout the Philippine Islands, shall be retained by the Government without prejudice to vested rights and without prejudice to rights conceded to the City of Manila in the Luneta Extension. Section 2. (a) The Secretary of the Interior shall cause all Government or public lands made or reclaimed by the Government by dredging or filling or otherwise to be divided into lots or blocks, with the necessary streets and alleyways located thereon, and shall cause plats and plans of such surveys to be prepared and filed with the Bureau of Lands. (b) Upon completion of such plats and plans the Governor-General shall give notice to the public that such parts of the lands so made or reclaimed as are not needed for public purposes will be leased for commercial and business purposes, x x x.

xxx (e) The leases above provided for shall be disposed of to the highest and best bidder therefore, subject to such regulations and safeguards as the Governor-General may by executive order prescribe." (Emphasis supplied) Act No. 1654 mandated that the government should retain title to all lands reclaimed by the government. The Act also vested in the government control and disposition of foreshore lands. Private parties could lease lands reclaimed by the government only if these lands were no longer needed for public purpose. Act No. 1654 mandated public bidding in the lease of government reclaimed lands. Act No. 1654 made government reclaimed lands sui generis in that unlike other public lands which the government could sell to private parties, these reclaimed lands were available only for lease to private parties. Act No. 1654, however, did not repeal Section 5 of the Spanish Law of Waters of 1866. Act No. 1654 did not prohibit private parties from reclaiming parts of the sea under Section 5 of the Spanish Law of Waters. Lands reclaimed from the sea by private parties with government permission remained private lands. Act No. 2874 of the Philippine Legislature On November 29, 1919, the Philippine Legislature enacted Act No. 2874, the Public Land Act.46 The salient provisions of Act No. 2874, on reclaimed lands, were as follows: "Sec. 6. The Governor-General, upon the recommendation of the Secretary of Agriculture and Natural Resources, shall from time to time classify the lands of the public domain into (a) Alienable or disposable, (b) Timber, and (c) Mineral lands, x x x. Sec. 7. For the purposes of the government and disposition of alienable or disposable public lands, the Governor-General, upon recommendation by the Secretary of Agriculture and Natural Resources, shall from time to time declare what lands are open to disposition or concession under this Act." Sec. 8. Only those lands shall be declared open to disposition or concession which have been officially delimited or classified x x x. xxx Sec. 55. Any tract of land of the public domain which, being neither timber nor mineral land, shall be classified as suitable for residential purposes or for commercial, industrial, or other productive purposes other than agricultural purposes, and shall be open to disposition or concession, shall be disposed of under the provisions of this chapter, and not otherwise. Sec. 56. The lands disposable under this title shall be classified as follows: (a) Lands reclaimed by the Government by dredging, filling, or other means; (b) Foreshore; (c) Marshy lands or lands covered with water bordering upon the shores or banks of navigable lakes or rivers; (d) Lands not included in any of the foregoing classes. x x x. Sec. 58. The lands comprised in classes (a), (b), and (c) of section fifty-six shall be disposed of to private parties by lease only and not otherwise, as soon as the GovernorGeneral, upon recommendation by the Secretary of Agriculture and Natural Resources, shall declare that the same are not necessary for the public service and are open to disposition under this chapter. The lands included in class (d) may be disposed of by sale or lease under the provisions of this Act." (Emphasis supplied) Section 6 of Act No. 2874 authorized the Governor-General to "classify lands of the public domain into x x x alienable or disposable"47 lands. Section 7 of the Act empowered the Governor-General to "declare what lands are open to disposition or concession." Section 8 of the Act limited alienable or disposable

lands only to those lands which have been "officially delimited and classified." Section 56 of Act No. 2874 stated that lands "disposable under this title48 shall be classified" as government reclaimed, foreshore and marshy lands, as well as other lands. All these lands, however, must be suitable for residential, commercial, industrial or other productive non-agricultural purposes. These provisions vested upon the Governor-General the power to classify inalienable lands of the public domain into disposable lands of the public domain. These provisions also empowered the GovernorGeneral to classify further such disposable lands of the public domain into government reclaimed, foreshore or marshy lands of the public domain, as well as other non-agricultural lands. Section 58 of Act No. 2874 categorically mandated that disposable lands of the public domain classified as government reclaimed, foreshore and marshy lands "shall be disposed of to private parties by lease only and not otherwise." The Governor-General, before allowing the lease of these lands to private parties, must formally declare that the lands were "not necessary for the public service." Act No. 2874 reiterated the State policy to lease and not to sell government reclaimed, foreshore and marshy lands of the public domain, a policy first enunciated in 1907 in Act No. 1654. Government reclaimed, foreshore and marshy lands remained sui generis, as the only alienable or disposable lands of the public domain that the government could not sell to private parties. The rationale behind this State policy is obvious. Government reclaimed, foreshore and marshy public lands for non-agricultural purposes retain their inherent potential as areas for public service. This is the reason the government prohibited the sale, and only allowed the lease, of these lands to private parties. The State always reserved these lands for some future public service. Act No. 2874 did not authorize the reclassification of government reclaimed, foreshore and marshy lands into other non-agricultural lands under Section 56 (d). Lands falling under Section 56 (d) were the only lands for non-agricultural purposes the government could sell to private parties. Thus, under Act No. 2874, the government could not sell government reclaimed, foreshore and marshy lands to private parties, unless the legislature passed a law allowing their sale.49 Act No. 2874 did not prohibit private parties from reclaiming parts of the sea pursuant to Section 5 of the Spanish Law of Waters of 1866. Lands reclaimed from the sea by private parties with government permission remained private lands. Dispositions under the 1935 Constitution On May 14, 1935, the 1935 Constitution took effect upon its ratification by the Filipino people. The 1935 Constitution, in adopting the Regalian doctrine, declared in Section 1, Article XIII, that "Section 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy and other natural resources of the Philippines belong to the State, and their disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines or to corporations or associations at least sixty per centum of the capital of which is owned by such citizens, subject to any existing right, grant, lease, or concession at the time of the inauguration of the Government established under this Constitution. Natural resources, with the exception of public agricultural land, shall not be alienated, and no license, concession, or lease for the exploitation, development, or utilization of any of the natural resources shall be granted for a period exceeding twenty-five years, renewable for another twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which cases beneficial use may be the measure and limit of the grant." (Emphasis supplied) The 1935 Constitution barred the alienation of all natural resources except public agricultural lands, which were the only natural resources the State could alienate. Thus, foreshore lands, considered part of the State's natural resources, became inalienable by constitutional fiat, available only for lease for 25 years, renewable for another 25 years. The government could alienate foreshore lands only after these lands were reclaimed and classified as alienable agricultural lands of the public domain. Government reclaimed and marshy lands of the public domain, being neither timber nor mineral lands, fell under the classification of public agricultural lands.50 However, government reclaimed and marshy lands, although subject to classification as disposable public agricultural lands, could only be leased and not sold to private parties because of Act No. 2874. The prohibition on private parties from acquiring ownership of government reclaimed and marshy lands of the public domain was only a statutory prohibition and the legislature could therefore remove such prohibition. The 1935 Constitution did not prohibit individuals and corporations from acquiring government reclaimed and marshy lands of the public domain that were classified as agricultural lands under existing public land laws. Section 2, Article XIII of the 1935 Constitution provided as follows: "Section 2. No private corporation or association may acquire, lease, or hold public agricultural lands in excess of one thousand and twenty four hectares, nor may any

individual acquire such lands by purchase in excess of one hundred and forty hectares, or by lease in excess of one thousand and twenty-four hectares, or by homestead in excess of twenty-four hectares. Lands adapted to grazing, not exceeding two thousand hectares, may be leased to an individual, private corporation, or association." (Emphasis supplied) Still, after the effectivity of the 1935 Constitution, the legislature did not repeal Section 58 of Act No. 2874 to open for sale to private parties government reclaimed and marshy lands of the public domain. On the contrary, the legislature continued the long established State policy of retaining for the government title and ownership of government reclaimed and marshy lands of the public domain. Commonwealth Act No. 141 of the Philippine National Assembly On November 7, 1936, the National Assembly approved Commonwealth Act No. 141, also known as the Public Land Act, which compiled the then existing laws on lands of the public domain. CA No. 141, as amended, remains to this day the existing general law governing the classification and disposition of lands of the public domain other than timber and mineral lands.51 Section 6 of CA No. 141 empowers the President to classify lands of the public domain into "alienable or disposable"52 lands of the public domain, which prior to such classification are inalienable and outside the commerce of man. Section 7 of CA No. 141 authorizes the President to "declare what lands are open to disposition or concession." Section 8 of CA No. 141 states that the government can declare open for disposition or concession only lands that are "officially delimited and classified." Sections 6, 7 and 8 of CA No. 141 read as follows: "Sec. 6. The President, upon the recommendation of the Secretary of Agriculture and Commerce, shall from time to time classify the lands of the public domain into (a) Alienable or disposable, (b) Timber, and (c) Mineral lands, and may at any time and in like manner transfer such lands from one class to another,53 for the purpose of their administration and disposition. Sec. 7. For the purposes of the administration and disposition of alienable or disposable public lands, the President, upon recommendation by the Secretary of Agriculture and Commerce, shall from time to time declare what lands are open to disposition or concession under this Act. Sec. 8. Only those lands shall be declared open to disposition or concession which have been officially delimited and classified and, when practicable, surveyed, and which have not been reserved for public or quasi-public uses, nor appropriated by the Government, nor in any manner become private property, nor those on which a private right authorized and recognized by this Act or any other valid law may be claimed, or which, having been reserved or appropriated, have ceased to be so. x x x." Thus, before the government could alienate or dispose of lands of the public domain, the President must first officially classify these lands as alienable or disposable, and then declare them open to disposition or concession. There must be no law reserving these lands for public or quasi-public uses. The salient provisions of CA No. 141, on government reclaimed, foreshore and marshy lands of the public domain, are as follows: "Sec. 58. Any tract of land of the public domain which, being neither timber nor mineral land, is intended to be used for residential purposes or for commercial, industrial, or other productive purposes other than agricultural, and is open to disposition or concession, shall be disposed of under the provisions of this chapter and not otherwise. Sec. 59. The lands disposable under this title shall be classified as follows: (a) Lands reclaimed by the Government by dredging, filling, or other means; (b) Foreshore; (c) Marshy lands or lands covered with water bordering upon the shores or banks of navigable lakes or rivers; (d) Lands not included in any of the foregoing classes.

Sec. 60. Any tract of land comprised under this title may be leased or sold, as the case may be, to any person, corporation, or association authorized to purchase or lease public lands for agricultural purposes. x x x. Sec. 61. The lands comprised in classes (a), (b), and (c) of section fifty-nine shall be disposed of to private parties by lease only and not otherwise, as soon as the President, upon recommendation by the Secretary of Agriculture, shall declare that the same are not necessary for the public service and are open to disposition under this chapter. The lands included in class (d) may be disposed of by sale or lease under the provisions of this Act." (Emphasis supplied) Section 61 of CA No. 141 readopted, after the effectivity of the 1935 Constitution, Section 58 of Act No. 2874 prohibiting the sale of government reclaimed, foreshore and marshy disposable lands of the public domain. All these lands are intended for residential, commercial, industrial or other non-agricultural purposes. As before, Section 61 allowed only the lease of such lands to private parties. The government could sell to private parties only lands falling under Section 59 (d) of CA No. 141, or those lands for nonagricultural purposes not classified as government reclaimed, foreshore and marshy disposable lands of the public domain. Foreshore lands, however, became inalienable under the 1935 Constitution which only allowed the lease of these lands to qualified private parties. Section 58 of CA No. 141 expressly states that disposable lands of the public domain intended for residential, commercial, industrial or other productive purposes other than agricultural "shall be disposed of under the provisions of this chapter and not otherwise." Under Section 10 of CA No. 141, the term "disposition" includes lease of the land. Any disposition of government reclaimed, foreshore and marshy disposable lands for non-agricultural purposes must comply with Chapter IX, Title III of CA No. 141,54 unless a subsequent law amended or repealed these provisions. In his concurring opinion in the landmark case of Republic Real Estate Corporation v. Court of Appeals,55Justice Reynato S. Puno summarized succinctly the law on this matter, as follows: "Foreshore lands are lands of public dominion intended for public use. So too are lands reclaimed by the government by dredging, filling, or other means. Act 1654 mandated that the control and disposition of the foreshore and lands under water remained in the national government. Said law allowed only the 'leasing' of reclaimed land. The Public Land Acts of 1919 and 1936 also declared that the foreshore and lands reclaimed by the government were to be "disposed of to private parties by lease only and not otherwise." Before leasing, however, the Governor-General, upon recommendation of the Secretary of Agriculture and Natural Resources, had first to determine that the land reclaimed was not necessary for the public service. This requisite must have been met before the land could be disposed of. But even then, the foreshore and lands under water were not to be alienated and sold to private parties. The disposition of the reclaimed land was only by lease. The land remained property of the State." (Emphasis supplied) As observed by Justice Puno in his concurring opinion, "Commonwealth Act No. 141 has remained in effect at present." The State policy prohibiting the sale to private parties of government reclaimed, foreshore and marshy alienable lands of the public domain, first implemented in 1907 was thus reaffirmed in CA No. 141 after the 1935 Constitution took effect. The prohibition on the sale of foreshore lands, however, became a constitutional edict under the 1935 Constitution. Foreshore lands became inalienable as natural resources of the State, unless reclaimed by the government and classified as agricultural lands of the public domain, in which case they would fall under the classification of government reclaimed lands. After the effectivity of the 1935 Constitution, government reclaimed and marshy disposable lands of the public domain continued to be only leased and not sold to private parties.56 These lands remained sui generis, as the only alienable or disposable lands of the public domain the government could not sell to private parties. Since then and until now, the only way the government can sell to private parties government reclaimed and marshy disposable lands of the public domain is for the legislature to pass a law authorizing such sale. CA No. 141 does not authorize the President to reclassify government reclaimed and marshy lands into other non-agricultural lands under Section 59 (d). Lands classified under Section 59 (d) are the only alienable or disposable lands for non-agricultural purposes that the government could sell to private parties. Moreover, Section 60 of CA No. 141 expressly requires congressional authority before lands under Section 59 that the government previously transferred to government units or entities could be sold to private parties. Section 60 of CA No. 141 declares that "Sec. 60. x x x The area so leased or sold shall be such as shall, in the judgment of the Secretary of Agriculture and Natural Resources, be reasonably necessary for the purposes for which such

sale or lease is requested, and shall not exceed one hundred and forty-four hectares: Provided, however, That this limitation shall not apply to grants, donations, or transfers made to a province, municipality or branch or subdivision of the Government for the purposes deemed by said entities conducive to the public interest;but the land so granted, donated, or transferred to a province, municipality or branch or subdivision of the Government shall not be alienated, encumbered, or otherwise disposed of in a manner affecting its title, except when authorized by Congress: x x x." (Emphasis supplied) The congressional authority required in Section 60 of CA No. 141 mirrors the legislative authority required in Section 56 of Act No. 2874. One reason for the congressional authority is that Section 60 of CA No. 141 exempted government units and entities from the maximum area of public lands that could be acquired from the State. These government units and entities should not just turn around and sell these lands to private parties in violation of constitutional or statutory limitations. Otherwise, the transfer of lands for non-agricultural purposes to government units and entities could be used to circumvent constitutional limitations on ownership of alienable or disposable lands of the public domain. In the same manner, such transfers could also be used to evade the statutory prohibition in CA No. 141 on the sale of government reclaimed and marshy lands of the public domain to private parties. Section 60 of CA No. 141 constitutes by operation of law a lien on these lands.57 In case of sale or lease of disposable lands of the public domain falling under Section 59 of CA No. 141, Sections 63 and 67 require a public bidding. Sections 63 and 67 of CA No. 141 provide as follows: "Sec. 63. Whenever it is decided that lands covered by this chapter are not needed for public purposes, the Director of Lands shall ask the Secretary of Agriculture and Commerce (now the Secretary of Natural Resources) for authority to dispose of the same. Upon receipt of such authority, the Director of Lands shall give notice by public advertisement in the same manner as in the case of leases or sales of agricultural public land, x x x. Sec. 67. The lease or sale shall be made by oral bidding; and adjudication shall be made to the highest bidder. x x x." (Emphasis supplied) Thus, CA No. 141 mandates the Government to put to public auction all leases or sales of alienable or disposable lands of the public domain.58 Like Act No. 1654 and Act No. 2874 before it, CA No. 141 did not repeal Section 5 of the Spanish Law of Waters of 1866. Private parties could still reclaim portions of the sea with government permission. However, the reclaimed land could become private land only if classified as alienable agricultural land of the public domain open to disposition under CA No. 141. The 1935 Constitution prohibited the alienation of all natural resources except public agricultural lands. The Civil Code of 1950 The Civil Code of 1950 readopted substantially the definition of property of public dominion found in the Civil Code of 1889. Articles 420 and 422 of the Civil Code of 1950 state that "Art. 420. The following things are property of public dominion: (1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character; (2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth. x x x. Art. 422. Property of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial property of the State." Again, the government must formally declare that the property of public dominion is no longer needed for public use or public service, before the same could be classified as patrimonial property of the State.59 In the case of government reclaimed and marshy lands of the public domain, the declaration of their being disposable, as well as the manner of their disposition, is governed by the applicable provisions of CA No. 141. Like the Civil Code of 1889, the Civil Code of 1950 included as property of public dominion those properties of the State which, without being for public use, are intended for public service or the "development of the national wealth." Thus, government reclaimed and marshy lands of the State, even if not employed for public use or public service, if developed to enhance the national wealth, are

classified as property of public dominion. Dispositions under the 1973 Constitution The 1973 Constitution, which took effect on January 17, 1973, likewise adopted the Regalian doctrine. Section 8, Article XIV of the 1973 Constitution stated that "Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, wildlife, and other natural resources of the Philippines belong to the State. With the exception of agricultural, industrial or commercial, residential, and resettlement lands of the public domain, natural resources shall not be alienated, and no license, concession, or lease for the exploration, development, exploitation, or utilization of any of the natural resources shall be granted for a period exceeding twenty-five years, renewable for not more than twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which cases, beneficial use may be the measure and the limit of the grant." (Emphasis supplied) The 1973 Constitution prohibited the alienation of all natural resources with the exception of "agricultural, industrial or commercial, residential, and resettlement lands of the public domain." In contrast, the 1935 Constitution barred the alienation of all natural resources except "public agricultural lands." However, the term "public agricultural lands" in the 1935 Constitution encompassed industrial, commercial, residential and resettlement lands of the public domain.60 If the land of public domain were neither timber nor mineral land, it would fall under the classification of agricultural land of the public domain. Both the 1935 and 1973 Constitutions, therefore, prohibited the alienation of all natural resources except agricultural lands of the public domain. The 1973 Constitution, however, limited the alienation of lands of the public domain to individuals who were citizens of the Philippines. Private corporations, even if wholly owned by Philippine citizens, were no longer allowed to acquire alienable lands of the public domain unlike in the 1935 Constitution. Section 11, Article XIV of the 1973 Constitution declared that "Sec. 11. The Batasang Pambansa, taking into account conservation, ecological, and development requirements of the natural resources, shall determine by law the size of land of the public domain which may be developed, held or acquired by, or leased to, any qualified individual, corporation, or association, and the conditions therefor. No private corporation or association may hold alienable lands of the public domain except by lease not to exceed one thousand hectares in area nor may any citizen hold such lands by lease in excess of five hundred hectares or acquire by purchase, homestead or grant, in excess of twenty-four hectares. No private corporation or association may hold by lease, concession, license or permit, timber or forest lands and other timber or forest resources in excess of one hundred thousand hectares. However, such area may be increased by the Batasang Pambansa upon recommendation of the National Economic and Development Authority." (Emphasis supplied) Thus, under the 1973 Constitution, private corporations could hold alienable lands of the public domain only through lease. Only individuals could now acquire alienable lands of the public domain, and private corporations became absolutely barred from acquiring any kind of alienable land of the public domain. The constitutional ban extended to all kinds of alienable lands of the public domain, while the statutory ban under CA No. 141 applied only to government reclaimed, foreshore and marshy alienable lands of the public domain. PD No. 1084 Creating the Public Estates Authority On February 4, 1977, then President Ferdinand Marcos issued Presidential Decree No. 1084 creating PEA, a wholly government owned and controlled corporation with a special charter. Sections 4 and 8 of PD No. 1084, vests PEA with the following purposes and powers: "Sec. 4. Purpose. The Authority is hereby created for the following purposes: (a) To reclaim land, including foreshore and submerged areas, by dredging, filling or other means, or to acquire reclaimed land; (b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and sell any and all kinds of lands, buildings, estates and other forms of real property, owned, managed, controlled and/or operated by the government; (c) To provide for, operate or administer such service as may be necessary for the efficient, economical and beneficial utilization of the above properties. Sec. 5. Powers and functions of the Authority. The Authority shall, in carrying out the purposes for which it is created, have the following powers and functions:

(a)To prescribe its by-laws. xxx (i) To hold lands of the public domain in excess of the area permitted to private corporations by statute. (j) To reclaim lands and to construct work across, or otherwise, any stream, watercourse, canal, ditch, flume x x x. xxx (o) To perform such acts and exercise such functions as may be necessary for the attainment of the purposes and objectives herein specified." (Emphasis supplied) PD No. 1084 authorizes PEA to reclaim both foreshore and submerged areas of the public domain. Foreshore areas are those covered and uncovered by the ebb and flow of the tide.61 Submerged areas are those permanently under water regardless of the ebb and flow of the tide.62 Foreshore and submerged areas indisputably belong to the public domain63 and are inalienable unless reclaimed, classified as alienable lands open to disposition, and further declared no longer needed for public service. The ban in the 1973 Constitution on private corporations from acquiring alienable lands of the public domain did not apply to PEA since it was then, and until today, a fully owned government corporation. The constitutional ban applied then, as it still applies now, only to "private corporations and associations." PD No. 1084 expressly empowers PEA "to hold lands of the public domain" even "in excess of the area permitted to private corporations by statute." Thus, PEA can hold title to private lands, as well as title to lands of the public domain. In order for PEA to sell its reclaimed foreshore and submerged alienable lands of the public domain, there must be legislative authority empowering PEA to sell these lands. This legislative authority is necessary in view of Section 60 of CA No.141, which states "Sec. 60. x x x; but the land so granted, donated or transferred to a province, municipality, or branch or subdivision of the Government shall not be alienated, encumbered or otherwise disposed of in a manner affecting its title, except when authorized by Congress; x x x." (Emphasis supplied) Without such legislative authority, PEA could not sell but only lease its reclaimed foreshore and submerged alienable lands of the public domain. Nevertheless, any legislative authority granted to PEA to sell its reclaimed alienable lands of the public domain would be subject to the constitutional ban on private corporations from acquiring alienable lands of the public domain. Hence, such legislative authority could only benefit private individuals. Dispositions under the 1987 Constitution The 1987 Constitution, like the 1935 and 1973 Constitutions before it, has adopted the Regalian doctrine. The 1987 Constitution declares that all natural resources are "owned by the State," and except for alienable agricultural lands of the public domain, natural resources cannot be alienated. Sections 2 and 3, Article XII of the 1987 Constitution state that "Section 2. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. x x x. Section 3. Lands of the public domain are classified into agricultural, forest or timber, mineral lands, and national parks. Agricultural lands of the public domain may be further classified by law according to the uses which they may be devoted. Alienable lands of the public domain shall be limited to agricultural lands. Private corporations or associations may not hold such alienable lands of the public domain except by lease, for a period not exceeding twentyfive years, renewable for not more than twenty-five years, and not to exceed one thousand hectares in area. Citizens of the Philippines may lease not more than five hundred hectares, or acquire not more than twelve hectares thereof by purchase, homestead, or grant. Taking into account the requirements of conservation, ecology, and development, and subject to the requirements of agrarian reform, the Congress shall determine, by law, the size of lands of the public domain which may be acquired, developed, held, or leased and the conditions therefor." (Emphasis supplied)

The 1987 Constitution continues the State policy in the 1973 Constitution banning private corporations fromacquiring any kind of alienable land of the public domain. Like the 1973 Constitution, the 1987 Constitution allows private corporations to hold alienable lands of the public domain only through lease. As in the 1935 and 1973 Constitutions, the general law governing the lease to private corporations of reclaimed, foreshore and marshy alienable lands of the public domain is still CA No. 141. The Rationale behind the Constitutional Ban The rationale behind the constitutional ban on corporations from acquiring, except through lease, alienable lands of the public domain is not well understood. During the deliberations of the 1986 Constitutional Commission, the commissioners probed the rationale behind this ban, thus: "FR. BERNAS: Mr. Vice-President, my questions have reference to page 3, line 5 which says: `No private corporation or association may hold alienable lands of the public domain except by lease, not to exceed one thousand hectares in area.' If we recall, this provision did not exist under the 1935 Constitution, but this was introduced in the 1973 Constitution. In effect, it prohibits private corporations from acquiring alienable public lands. But it has not been very clear in jurisprudence what the reason for this is. In some of the cases decided in 1982 and 1983, it was indicated that the purpose of this is to prevent large landholdings. Is that the intent of this provision? MR. VILLEGAS: I think that is the spirit of the provision. FR. BERNAS: In existing decisions involving the Iglesia ni Cristo, there were instances where the Iglesia ni Cristo was not allowed to acquire a mere 313-square meter land where a chapel stood because the Supreme Court said it would be in violation of this." (Emphasis supplied) In Ayog v. Cusi,64 the Court explained the rationale behind this constitutional ban in this way: "Indeed, one purpose of the constitutional prohibition against purchases of public agricultural lands by private corporations is to equitably diffuse land ownership or to encourage 'ownercultivatorship and the economic family-size farm' and to prevent a recurrence of cases like the instant case. Huge landholdings by corporations or private persons had spawned social unrest." However, if the constitutional intent is to prevent huge landholdings, the Constitution could have simply limited the size of alienable lands of the public domain that corporations could acquire. The Constitution could have followed the limitations on individuals, who could acquire not more than 24 hectares of alienable lands of the public domain under the 1973 Constitution, and not more than 12 hectares under the 1987 Constitution. If the constitutional intent is to encourage economic family-size farms, placing the land in the name of a corporation would be more effective in preventing the break-up of farmlands. If the farmland is registered in the name of a corporation, upon the death of the owner, his heirs would inherit shares in the corporation instead of subdivided parcels of the farmland. This would prevent the continuing break-up of farmlands into smaller and smaller plots from one generation to the next. In actual practice, the constitutional ban strengthens the constitutional limitation on individuals from acquiring more than the allowed area of alienable lands of the public domain. Without the constitutional ban, individuals who already acquired the maximum area of alienable lands of the public domain could easily set up corporations to acquire more alienable public lands. An individual could own as many corporations as his means would allow him. An individual could even hide his ownership of a corporation by putting his nominees as stockholders of the corporation. The corporation is a convenient vehicle to circumvent the constitutional limitation on acquisition by individuals of alienable lands of the public domain. The constitutional intent, under the 1973 and 1987 Constitutions, is to transfer ownership of only a limited area of alienable land of the public domain to a qualified individual. This constitutional intent is safeguarded by the provision prohibiting corporations from acquiring alienable lands of the public domain, since the vehicle to circumvent the constitutional intent is removed. The available alienable public lands are gradually decreasing in the face of an ever-growing population. The most effective way to insure faithful adherence to this constitutional intent is to grant or sell alienable lands of the public domain only to individuals. This, it would seem, is the practical benefit arising from the constitutional ban. The Amended Joint Venture Agreement The subject matter of the Amended JVA, as stated in its second Whereas clause, consists of three properties, namely:

1. "[T]hree partially reclaimed and substantially eroded islands along Emilio Aguinaldo Boulevard in Paranaque and Las Pinas, Metro Manila, with a combined titled area of 1,578,441 square meters;" 2. "[A]nother area of 2,421,559 square meters contiguous to the three islands;" and 3. "[A]t AMARI's option as approved by PEA, an additional 350 hectares more or less to regularize the configuration of the reclaimed area."65 PEA confirms that the Amended JVA involves "the development of the Freedom Islands and further reclamation of about 250 hectares x x x," plus an option "granted to AMARI to subsequently reclaim another 350 hectares x x x."66 In short, the Amended JVA covers a reclamation area of 750 hectares. Only 157.84 hectares of the 750hectare reclamation project have been reclaimed, and the rest of the 592.15 hectares are still submerged areas forming part of Manila Bay. Under the Amended JVA, AMARI will reimburse PEA the sum of P1,894,129,200.00 for PEA's "actual cost" in partially reclaiming the Freedom Islands. AMARI will also complete, at its own expense, the reclamation of the Freedom Islands. AMARI will further shoulder all the reclamation costs of all the other areas, totaling 592.15 hectares, still to be reclaimed. AMARI and PEA will share, in the proportion of 70 percent and 30 percent, respectively, the total net usable area which is defined in the Amended JVA as the total reclaimed area less 30 percent earmarked for common areas. Title to AMARI's share in the net usable area, totaling 367.5 hectares, will be issued in the name of AMARI. Section 5.2 (c) of the Amended JVA provides that "x x x, PEA shall have the duty to execute without delay the necessary deed of transfer or conveyance of the title pertaining to AMARI's Land share based on the Land Allocation Plan. PEA, when requested in writing by AMARI, shall then cause the issuance and delivery of the proper certificates of title covering AMARI's Land Share in the name of AMARI, x x x; provided, that if more than seventy percent (70%) of the titled area at any given time pertains to AMARI, PEA shall deliver to AMARI only seventy percent (70%) of the titles pertaining to AMARI, until such time when a corresponding proportionate area of additional land pertaining to PEA has been titled." (Emphasis supplied) Indisputably, under the Amended JVA AMARI will acquire and own a maximum of 367.5 hectares of reclaimed land which will be titled in its name. To implement the Amended JVA, PEA delegated to the unincorporated PEA-AMARI joint venture PEA's statutory authority, rights and privileges to reclaim foreshore and submerged areas in Manila Bay. Section 3.2.a of the Amended JVA states that "PEA hereby contributes to the joint venture its rights and privileges to perform Rawland Reclamation and Horizontal Development as well as own the Reclamation Area, thereby granting the Joint Venture the full and exclusive right, authority and privilege to undertake the Project in accordance with the Master Development Plan." The Amended JVA is the product of a renegotiation of the original JVA dated April 25, 1995 and its supplemental agreement dated August 9, 1995. The Threshold Issue The threshold issue is whether AMARI, a private corporation, can acquire and own under the Amended JVA 367.5 hectares of reclaimed foreshore and submerged areas in Manila Bay in view of Sections 2 and 3, Article XII of the 1987 Constitution which state that: "Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. x x x. xxx Section 3. x x x Alienable lands of the public domain shall be limited to agricultural lands. Private corporations or associations may not hold such alienable lands of the public domain except by lease, x x x."(Emphasis supplied) Classification of Reclaimed Foreshore and Submerged Areas PEA readily concedes that lands reclaimed from foreshore or submerged areas of Manila Bay are alienable or disposable lands of the public domain. In its Memorandum,67 PEA admits that

"Under the Public Land Act (CA 141, as amended), reclaimed lands are classified as alienable and disposable lands of the public domain: 'Sec. 59. The lands disposable under this title shall be classified as follows: (a) Lands reclaimed by the government by dredging, filling, or other means; x x x.'" (Emphasis supplied) Likewise, the Legal Task Force68 constituted under Presidential Administrative Order No. 365 admitted in its Report and Recommendation to then President Fidel V. Ramos, "[R]eclaimed lands are classified as alienable and disposable lands of the public domain."69 The Legal Task Force concluded that "D. Conclusion Reclaimed lands are lands of the public domain. However, by statutory authority, the rights of ownership and disposition over reclaimed lands have been transferred to PEA, by virtue of which PEA, as owner, may validly convey the same to any qualified person without violating the Constitution or any statute. The constitutional provision prohibiting private corporations from holding public land, except by lease (Sec. 3, Art. XVII,70 1987 Constitution), does not apply to reclaimed lands whose ownership has passed on to PEA by statutory grant." Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of Manila Bay are part of the "lands of the public domain, waters x x x and other natural resources" and consequently "owned by the State." As such, foreshore and submerged areas "shall not be alienated," unless they are classified as "agricultural lands" of the public domain. The mere reclamation of these areas by PEA does not convert these inalienable natural resources of the State into alienable or disposable lands of the public domain. There must be a law or presidential proclamation officially classifying these reclaimed lands as alienable or disposable and open to disposition or concession. Moreover, these reclaimed lands cannot be classified as alienable or disposable if the law has reserved them for some public or quasipublic use.71 Section 8 of CA No. 141 provides that "only those lands shall be declared open to disposition or concession which have been officially delimited and classified."72 The President has the authority to classify inalienable lands of the public domain into alienable or disposable lands of the public domain, pursuant to Section 6 of CA No. 141. In Laurel vs. Garcia,73 the Executive Department attempted to sell the Roppongi property in Tokyo, Japan, which was acquired by the Philippine Government for use as the Chancery of the Philippine Embassy. Although the Chancery had transferred to another location thirteen years earlier, the Court still ruled that, under Article 42274of the Civil Code, a property of public dominion retains such character until formally declared otherwise. The Court ruled that "The fact that the Roppongi site has not been used for a long time for actual Embassy service does not automatically convert it to patrimonial property. Any such conversion happens only if the property is withdrawn from public use (Cebu Oxygen and Acetylene Co. v. Bercilles, 66 SCRA 481 [1975]. A property continues to be part of the public domain, not available for private appropriation or ownership 'until there is a formal declaration on the part of the government to withdraw it from being such' (Ignacio v. Director of Lands, 108 Phil. 335 [1960]." (Emphasis supplied) PD No. 1085, issued on February 4, 1977, authorized the issuance of special land patents for lands reclaimed by PEA from the foreshore or submerged areas of Manila Bay. On January 19, 1988 then President Corazon C. Aquino issued Special Patent No. 3517 in the name of PEA for the 157.84 hectares comprising the partially reclaimed Freedom Islands. Subsequently, on April 9, 1999 the Register of Deeds of the Municipality of Paranaque issued TCT Nos. 7309, 7311 and 7312 in the name of PEA pursuant to Section 103 of PD No. 1529 authorizing the issuance of certificates of title corresponding to land patents. To this day, these certificates of title are still in the name of PEA. PD No. 1085, coupled with President Aquino's actual issuance of a special patent covering the Freedom Islands, is equivalent to an official proclamation classifying the Freedom Islands as alienable or disposable lands of the public domain. PD No. 1085 and President Aquino's issuance of a land patent also constitute a declaration that the Freedom Islands are no longer needed for public service. The Freedom Islands are thus alienable or disposable lands of the public domain, open to disposition or concession to qualified parties. At the time then President Aquino issued Special Patent No. 3517, PEA had already reclaimed the Freedom Islands although subsequently there were partial erosions on some areas. The government had also completed the necessary surveys on these islands. Thus, the Freedom Islands were no longer part of Manila Bay but part of the land mass. Section 3, Article XII of the 1987 Constitution classifies lands of

the public domain into "agricultural, forest or timber, mineral lands, and national parks." Being neither timber, mineral, nor national park lands, the reclaimed Freedom Islands necessarily fall under the classification of agricultural lands of the public domain. Under the 1987 Constitution, agricultural lands of the public domain are the only natural resources that the State may alienate to qualified private parties. All other natural resources, such as the seas or bays, are "waters x x x owned by the State" forming part of the public domain, and are inalienable pursuant to Section 2, Article XII of the 1987 Constitution. AMARI claims that the Freedom Islands are private lands because CDCP, then a private corporation, reclaimed the islands under a contract dated November 20, 1973 with the Commissioner of Public Highways. AMARI, citing Article 5 of the Spanish Law of Waters of 1866, argues that "if the ownership of reclaimed lands may be given to the party constructing the works, then it cannot be said that reclaimed lands are lands of the public domain which the State may not alienate."75 Article 5 of the Spanish Law of Waters reads as follows: "Article 5. Lands reclaimed from the sea in consequence of works constructed by the State, or by the provinces, pueblos or private persons, with proper permission, shall become the property of the party constructing such works, unless otherwise provided by the terms of the grant of authority." (Emphasis supplied) Under Article 5 of the Spanish Law of Waters of 1866, private parties could reclaim from the sea only with "proper permission" from the State. Private parties could own the reclaimed land only if not "otherwise provided by the terms of the grant of authority." This clearly meant that no one could reclaim from the sea without permission from the State because the sea is property of public dominion. It also meant that the State could grant or withhold ownership of the reclaimed land because any reclaimed land, like the sea from which it emerged, belonged to the State. Thus, a private person reclaiming from the sea without permission from the State could not acquire ownership of the reclaimed land which would remain property of public dominion like the sea it replaced.76 Article 5 of the Spanish Law of Waters of 1866 adopted the time-honored principle of land ownership that "all lands that were not acquired from the government, either by purchase or by grant, belong to the public domain."77 Article 5 of the Spanish Law of Waters must be read together with laws subsequently enacted on the disposition of public lands. In particular, CA No. 141 requires that lands of the public domain must first be classified as alienable or disposable before the government can alienate them. These lands must not be reserved for public or quasi-public purposes.78 Moreover, the contract between CDCP and the government was executed after the effectivity of the 1973 Constitution which barred private corporations from acquiring any kind of alienable land of the public domain. This contract could not have converted the Freedom Islands into private lands of a private corporation. Presidential Decree No. 3-A, issued on January 11, 1973, revoked all laws authorizing the reclamation of areas under water and revested solely in the National Government the power to reclaim lands. Section 1 of PD No. 3-A declared that "The provisions of any law to the contrary notwithstanding, the reclamation of areas under water, whether foreshore or inland, shall be limited to the National Government or any person authorized by it under a proper contract. (Emphasis supplied) x x x." PD No. 3-A repealed Section 5 of the Spanish Law of Waters of 1866 because reclamation of areas under water could now be undertaken only by the National Government or by a person contracted by the National Government. Private parties may reclaim from the sea only under a contract with the National Government, and no longer by grant or permission as provided in Section 5 of the Spanish Law of Waters of 1866. Executive Order No. 525, issued on February 14, 1979, designated PEA as the National Government's implementing arm to undertake "all reclamation projects of the government," which "shall be undertaken by the PEA or through a proper contract executed by it with any person or entity." Under such contract, a private party receives compensation for reclamation services rendered to PEA. Payment to the contractor may be in cash, or in kind consisting of portions of the reclaimed land, subject to the constitutional ban on private corporations from acquiring alienable lands of the public domain. The reclaimed land can be used as payment in kind only if the reclaimed land is first classified as alienable or disposable land open to disposition, and then declared no longer needed for public service. The Amended JVA covers not only the Freedom Islands, but also an additional 592.15 hectares which are still submerged and forming part of Manila Bay. There is no legislative or Presidential act classifying these submerged areas as alienable or disposable lands of the public domain open to disposition. These submerged areas are not covered by any patent or certificate of title. There can be no dispute that these submerged areas form part of the public domain, and in their present state are inalienable and outside the commerce of man. Until reclaimed from the sea, these submerged areas are, under the Constitution, "waters x x x owned by the State," forming part of the public domain and consequently

inalienable. Only when actually reclaimed from the sea can these submerged areas be classified as public agricultural lands, which under the Constitution are the only natural resources that the State may alienate. Once reclaimed and transformed into public agricultural lands, the government may then officially classify these lands as alienable or disposable lands open to disposition. Thereafter, the government may declare these lands no longer needed for public service. Only then can these reclaimed lands be considered alienable or disposable lands of the public domain and within the commerce of man. The classification of PEA's reclaimed foreshore and submerged lands into alienable or disposable lands open to disposition is necessary because PEA is tasked under its charter to undertake public services that require the use of lands of the public domain. Under Section 5 of PD No. 1084, the functions of PEA include the following: "[T]o own or operate railroads, tramways and other kinds of land transportation, x x x; [T]o construct, maintain and operate such systems of sanitary sewers as may be necessary; [T]o construct, maintain and operate such storm drains as may be necessary." PEA is empowered to issue "rules and regulations as may be necessary for the proper use by private parties of any or all of the highways, roads, utilities, buildings and/or any of its properties and to impose or collect fees or tolls for their use." Thus, part of the reclaimed foreshore and submerged lands held by the PEA would actually be needed for public use or service since many of the functions imposed on PEA by its charter constitute essential public services. Moreover, Section 1 of Executive Order No. 525 provides that PEA "shall be primarily responsible for integrating, directing, and coordinating all reclamation projects for and on behalf of the National Government." The same section also states that "[A]ll reclamation projects shall be approved by the President upon recommendation of the PEA, and shall be undertaken by the PEA or through a proper contract executed by it with any person or entity; x x x." Thus, under EO No. 525, in relation to PD No. 3A and PD No.1084, PEA became the primary implementing agency of the National Government to reclaim foreshore and submerged lands of the public domain. EO No. 525 recognized PEA as the government entity "to undertake the reclamation of lands and ensure their maximum utilization in promoting public welfare and interests."79 Since large portions of these reclaimed lands would obviously be needed for public service, there must be a formal declaration segregating reclaimed lands no longer needed for public service from those still needed for public service.1wphi1.nt Section 3 of EO No. 525, by declaring that all lands reclaimed by PEA "shall belong to or be owned by the PEA," could not automatically operate to classify inalienable lands into alienable or disposable lands of the public domain. Otherwise, reclaimed foreshore and submerged lands of the public domain would automatically become alienable once reclaimed by PEA, whether or not classified as alienable or disposable. The Revised Administrative Code of 1987, a later law than either PD No. 1084 or EO No. 525, vests in the Department of Environment and Natural Resources ("DENR" for brevity) the following powers and functions: "Sec. 4. Powers and Functions. The Department shall: (1) x x x xxx (4) Exercise supervision and control over forest lands, alienable and disposable public lands, mineral resources and, in the process of exercising such control, impose appropriate taxes, fees, charges, rentals and any such form of levy and collect such revenues for the exploration, development, utilization or gathering of such resources; xxx (14) Promulgate rules, regulations and guidelines on the issuance of licenses, permits, concessions, lease agreements and such other privileges concerning the development, exploration and utilization of the country's marine, freshwater, and brackish water and over all aquatic resources of the country and shall continue to oversee, supervise and police our natural resources; cancel or cause to cancel such privileges upon failure, noncompliance or violations of any regulation, order, and for all other causes which are in furtherance of the conservation of natural resources and supportive of the national interest; (15) Exercise exclusive jurisdiction on the management and disposition of all lands of the public domain and serve as the sole agency responsible for classification, subclassification, surveying and titling of lands in consultation with appropriate agencies."80 (Emphasis supplied) As manager, conservator and overseer of the natural resources of the State, DENR exercises "supervision and control over alienable and disposable public lands." DENR also exercises "exclusive jurisdiction on the management and disposition of all lands of the public domain." Thus, DENR decides

whether areas under water, like foreshore or submerged areas of Manila Bay, should be reclaimed or not. This means that PEA needs authorization from DENR before PEA can undertake reclamation projects in Manila Bay, or in any part of the country. DENR also exercises exclusive jurisdiction over the disposition of all lands of the public domain. Hence, DENR decides whether reclaimed lands of PEA should be classified as alienable under Sections 681 and 782 of CA No. 141. Once DENR decides that the reclaimed lands should be so classified, it then recommends to the President the issuance of a proclamation classifying the lands as alienable or disposable lands of the public domain open to disposition. We note that then DENR Secretary Fulgencio S. Factoran, Jr. countersigned Special Patent No. 3517 in compliance with the Revised Administrative Code and Sections 6 and 7 of CA No. 141. In short, DENR is vested with the power to authorize the reclamation of areas under water, while PEA is vested with the power to undertake the physical reclamation of areas under water, whether directly or through private contractors. DENR is also empowered to classify lands of the public domain into alienable or disposable lands subject to the approval of the President. On the other hand, PEA is tasked to develop, sell or lease the reclaimed alienable lands of the public domain. Clearly, the mere physical act of reclamation by PEA of foreshore or submerged areas does not make the reclaimed lands alienable or disposable lands of the public domain, much less patrimonial lands of PEA. Likewise, the mere transfer by the National Government of lands of the public domain to PEA does not make the lands alienable or disposable lands of the public domain, much less patrimonial lands of PEA. Absent two official acts a classification that these lands are alienable or disposable and open to disposition and a declaration that these lands are not needed for public service, lands reclaimed by PEA remain inalienable lands of the public domain. Only such an official classification and formal declaration can convert reclaimed lands into alienable or disposable lands of the public domain, open to disposition under the Constitution, Title I and Title III83of CA No. 141 and other applicable laws.84 PEA's Authority to Sell Reclaimed Lands PEA, like the Legal Task Force, argues that as alienable or disposable lands of the public domain, the reclaimed lands shall be disposed of in accordance with CA No. 141, the Public Land Act. PEA, citing Section 60 of CA No. 141, admits that reclaimed lands transferred to a branch or subdivision of the government "shall not be alienated, encumbered, or otherwise disposed of in a manner affecting its title, except when authorized by Congress: x x x."85 (Emphasis by PEA) In Laurel vs. Garcia,86 the Court cited Section 48 of the Revised Administrative Code of 1987, which states that "Sec. 48. Official Authorized to Convey Real Property. Whenever real property of the Government is authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following: x x x." Thus, the Court concluded that a law is needed to convey any real property belonging to the Government. The Court declared that "It is not for the President to convey real property of the government on his or her own sole will. Any such conveyance must be authorized and approved by a law enacted by the Congress. It requires executive and legislative concurrence." (Emphasis supplied) PEA contends that PD No. 1085 and EO No. 525 constitute the legislative authority allowing PEA to sell its reclaimed lands. PD No. 1085, issued on February 4, 1977, provides that "The land reclaimed in the foreshore and offshore area of Manila Bay pursuant to the contract for the reclamation and construction of the Manila-Cavite Coastal Road Project between the Republic of the Philippines and the Construction and Development Corporation of the Philippines dated November 20, 1973 and/or any other contract or reclamation covering the same area is hereby transferred, conveyed and assigned to the ownership and administration of the Public Estates Authority established pursuant to PD No. 1084; Provided, however, That the rights and interests of the Construction and Development Corporation of the Philippines pursuant to the aforesaid contract shall be recognized and respected. Henceforth, the Public Estates Authority shall exercise the rights and assume the obligations of the Republic of the Philippines (Department of Public Highways) arising from, or incident to, the aforesaid contract between the Republic of the Philippines and the Construction and Development Corporation of the Philippines. In consideration of the foregoing transfer and assignment, the Public Estates Authority shall issue in favor of the Republic of the Philippines the corresponding shares of stock in said entity with an

issued value of said shares of stock (which) shall be deemed fully paid and non-assessable. The Secretary of Public Highways and the General Manager of the Public Estates Authority shall execute such contracts or agreements, including appropriate agreements with the Construction and Development Corporation of the Philippines, as may be necessary to implement the above. Special land patent/patents shall be issued by the Secretary of Natural Resources in favor of the Public Estates Authority without prejudice to the subsequent transfer to the contractor or his assignees of such portion or portions of the land reclaimed or to be reclaimed as provided for in the above-mentioned contract. On the basis of such patents, the Land Registration Commission shall issue the corresponding certificate of title." (Emphasis supplied) On the other hand, Section 3 of EO No. 525, issued on February 14, 1979, provides that "Sec. 3. All lands reclaimed by PEA shall belong to or be owned by the PEA which shall be responsible for its administration, development, utilization or disposition in accordance with the provisions of Presidential Decree No. 1084. Any and all income that the PEA may derive from the sale, lease or use of reclaimed lands shall be used in accordance with the provisions of Presidential Decree No. 1084." There is no express authority under either PD No. 1085 or EO No. 525 for PEA to sell its reclaimed lands. PD No. 1085 merely transferred "ownership and administration" of lands reclaimed from Manila Bay to PEA, while EO No. 525 declared that lands reclaimed by PEA "shall belong to or be owned by PEA." EO No. 525 expressly states that PEA should dispose of its reclaimed lands "in accordance with the provisions of Presidential Decree No. 1084," the charter of PEA. PEA's charter, however, expressly tasks PEA "to develop, improve, acquire, administer, deal in, subdivide, dispose, lease and sell any and all kinds of lands x x x owned, managed, controlled and/or operated by the government."87 (Emphasis supplied) There is, therefore, legislative authority granted to PEA to sell its lands, whether patrimonial or alienable lands of the public domain. PEA may sell to private parties its patrimonial properties in accordance with the PEA charter free from constitutional limitations. The constitutional ban on private corporations from acquiring alienable lands of the public domain does not apply to the sale of PEA's patrimonial lands. PEA may also sell its alienable or disposable lands of the public domain to private individuals since, with the legislative authority, there is no longer any statutory prohibition against such sales and the constitutional ban does not apply to individuals. PEA, however, cannot sell any of its alienable or disposable lands of the public domain to private corporations since Section 3, Article XII of the 1987 Constitution expressly prohibits such sales. The legislative authority benefits only individuals. Private corporations remain barred from acquiring any kind of alienable land of the public domain, including government reclaimed lands. The provision in PD No. 1085 stating that portions of the reclaimed lands could be transferred by PEA to the "contractor or his assignees" (Emphasis supplied) would not apply to private corporations but only to individuals because of the constitutional ban. Otherwise, the provisions of PD No. 1085 would violate both the 1973 and 1987 Constitutions. The requirement of public auction in the sale of reclaimed lands Assuming the reclaimed lands of PEA are classified as alienable or disposable lands open to disposition, and further declared no longer needed for public service, PEA would have to conduct a public bidding in selling or leasing these lands. PEA must observe the provisions of Sections 63 and 67 of CA No. 141 requiring public auction, in the absence of a law exempting PEA from holding a public auction.88 Special Patent No. 3517 expressly states that the patent is issued by authority of the Constitution and PD No. 1084, "supplemented by Commonwealth Act No. 141, as amended." This is an acknowledgment that the provisions of CA No. 141 apply to the disposition of reclaimed alienable lands of the public domain unless otherwise provided by law. Executive Order No. 654,89 which authorizes PEA "to determine the kind and manner of payment for the transfer" of its assets and properties, does not exempt PEA from the requirement of public auction. EO No. 654 merely authorizes PEA to decide the mode of payment, whether in kind and in installment, but does not authorize PEA to dispense with public auction. Moreover, under Section 79 of PD No. 1445, otherwise known as the Government Auditing Code, the government is required to sell valuable government property through public bidding. Section 79 of PD No. 1445 mandates that "Section 79. When government property has become unserviceable for any cause, or is no longer needed, it shall, upon application of the officer accountable therefor, be inspected by the head of the agency or his duly authorized representative in the presence of the auditor concerned and, if found to be valueless or unsaleable, it may be destroyed in their presence. If found to be

valuable, it may be sold at public auction to the highest bidder under the supervision of the proper committee on award or similar body in the presence of the auditor concerned or other authorized representative of the Commission, after advertising by printed notice in the Official Gazette, or for not less than three consecutive days in any newspaper of general circulation, or where the value of the property does not warrant the expense of publication, by notices posted for a like period in at least three public places in the locality where the property is to be sold. In the event that the public auction fails, the property may be sold at a private sale at such price as may be fixed by the same committee or body concerned and approved by the Commission." It is only when the public auction fails that a negotiated sale is allowed, in which case the Commission on Audit must approve the selling price.90 The Commission on Audit implements Section 79 of the Government Auditing Code through Circular No. 89-29691 dated January 27, 1989. This circular emphasizes that government assets must be disposed of only through public auction, and a negotiated sale can be resorted to only in case of "failure of public auction." At the public auction sale, only Philippine citizens are qualified to bid for PEA's reclaimed foreshore and submerged alienable lands of the public domain. Private corporations are barred from bidding at the auction sale of any kind of alienable land of the public domain. PEA originally scheduled a public bidding for the Freedom Islands on December 10, 1991. PEA imposed a condition that the winning bidder should reclaim another 250 hectares of submerged areas to regularize the shape of the Freedom Islands, under a 60-40 sharing of the additional reclaimed areas in favor of the winning bidder.92No one, however, submitted a bid. On December 23, 1994, the Government Corporate Counsel advised PEA it could sell the Freedom Islands through negotiation, without need of another public bidding, because of the failure of the public bidding on December 10, 1991.93 However, the original JVA dated April 25, 1995 covered not only the Freedom Islands and the additional 250 hectares still to be reclaimed, it also granted an option to AMARI to reclaim another 350 hectares. The original JVA, a negotiated contract, enlarged the reclamation area to 750 hectares.94 The failure of public bidding on December 10, 1991, involving only 407.84 hectares,95 is not a valid justification for a negotiated sale of 750 hectares, almost double the area publicly auctioned. Besides, the failure of public bidding happened on December 10, 1991, more than three years before the signing of the original JVA on April 25, 1995. The economic situation in the country had greatly improved during the intervening period. Reclamation under the BOT Law and the Local Government Code The constitutional prohibition in Section 3, Article XII of the 1987 Constitution is absolute and clear: "Private corporations or associations may not hold such alienable lands of the public domain except by lease, x x x." Even Republic Act No. 6957 ("BOT Law," for brevity), cited by PEA and AMARI as legislative authority to sell reclaimed lands to private parties, recognizes the constitutional ban. Section 6 of RA No. 6957 states "Sec. 6. Repayment Scheme. - For the financing, construction, operation and maintenance of any infrastructure projects undertaken through the build-operate-and-transfer arrangement or any of its variations pursuant to the provisions of this Act, the project proponent x x x may likewise be repaid in the form of a share in the revenue of the project or other non-monetary payments, such as, but not limited to, the grant of a portion or percentage of the reclaimed land, subject to the constitutional requirements with respect to the ownership of the land: x x x." (Emphasis supplied) A private corporation, even one that undertakes the physical reclamation of a government BOT project, cannot acquire reclaimed alienable lands of the public domain in view of the constitutional ban. Section 302 of the Local Government Code, also mentioned by PEA and AMARI, authorizes local governments in land reclamation projects to pay the contractor or developer in kind consisting of a percentage of the reclaimed land, to wit: "Section 302. Financing, Construction, Maintenance, Operation, and Management of Infrastructure Projects by the Private Sector. x x x xxx In case of land reclamation or construction of industrial estates, the repayment plan may consist of the grant of a portion or percentage of the reclaimed land or the industrial estate constructed." Although Section 302 of the Local Government Code does not contain a proviso similar to that of the BOT Law, the constitutional restrictions on land ownership automatically apply even though not expressly mentioned in the Local Government Code.

Thus, under either the BOT Law or the Local Government Code, the contractor or developer, if a corporate entity, can only be paid with leaseholds on portions of the reclaimed land. If the contractor or developer is an individual, portions of the reclaimed land, not exceeding 12 hectares96 of non-agricultural lands, may be conveyed to him in ownership in view of the legislative authority allowing such conveyance. This is the only way these provisions of the BOT Law and the Local Government Code can avoid a direct collision with Section 3, Article XII of the 1987 Constitution. Registration of lands of the public domain Finally, PEA theorizes that the "act of conveying the ownership of the reclaimed lands to public respondent PEA transformed such lands of the public domain to private lands." This theory is echoed by AMARI which maintains that the "issuance of the special patent leading to the eventual issuance of title takes the subject land away from the land of public domain and converts the property into patrimonial or private property." In short, PEA and AMARI contend that with the issuance of Special Patent No. 3517 and the corresponding certificates of titles, the 157.84 hectares comprising the Freedom Islands have become private lands of PEA. In support of their theory, PEA and AMARI cite the following rulings of the Court: 1. Sumail v. Judge of CFI of Cotabato,97 where the Court held "Once the patent was granted and the corresponding certificate of title was issued, the land ceased to be part of the public domain and became private property over which the Director of Lands has neither control nor jurisdiction." 2. Lee Hong Hok v. David,98 where the Court declared "After the registration and issuance of the certificate and duplicate certificate of title based on a public land patent, the land covered thereby automatically comes under the operation of Republic Act 496 subject to all the safeguards provided therein."3. Heirs of Gregorio Tengco v. Heirs of Jose Aliwalas,99 where the Court ruled "While the Director of Lands has the power to review homestead patents, he may do so only so long as the land remains part of the public domain and continues to be under his exclusive control; but once the patent is registered and a certificate of title is issued, the land ceases to be part of the public domain and becomes private property over which the Director of Lands has neither control nor jurisdiction." 4. Manalo v. Intermediate Appellate Court,100 where the Court held "When the lots in dispute were certified as disposable on May 19, 1971, and free patents were issued covering the same in favor of the private respondents, the said lots ceased to be part of the public domain and, therefore, the Director of Lands lost jurisdiction over the same." 5.Republic v. Court of Appeals,101 where the Court stated "Proclamation No. 350, dated October 9, 1956, of President Magsaysay legally effected a land grant to the Mindanao Medical Center, Bureau of Medical Services, Department of Health, of the whole lot, validly sufficient for initial registration under the Land Registration Act. Such land grant is constitutive of a 'fee simple' title or absolute title in favor of petitioner Mindanao Medical Center. Thus, Section 122 of the Act, which governs the registration of grants or patents involving public lands, provides that 'Whenever public lands in the Philippine Islands belonging to the Government of the United States or to the Government of the Philippines are alienated, granted or conveyed to persons or to public or private corporations, the same shall be brought forthwith under the operation of this Act (Land Registration Act, Act 496) and shall become registered lands.'" The first four cases cited involve petitions to cancel the land patents and the corresponding certificates of titlesissued to private parties. These four cases uniformly hold that the Director of Lands has no jurisdiction over private lands or that upon issuance of the certificate of title the land automatically comes under the Torrens System. The fifth case cited involves the registration under the Torrens System of a 12.8-hectare public land granted by the National Government to Mindanao Medical Center, a government unit under the Department of Health. The National Government transferred the 12.8-hectare public land to serve as the site for the hospital buildings and other facilities of Mindanao Medical Center, which performed a public service. The Court affirmed the registration of the 12.8-hectare public land in the name of Mindanao Medical Center under Section 122 of Act No. 496. This fifth case is an example of a public land being registered under Act No. 496 without the land losing its character as a property of public dominion. In the instant case, the only patent and certificates of title issued are those in the name of PEA, a wholly government owned corporation performing public as well as proprietary functions. No patent or certificate

of title has been issued to any private party. No one is asking the Director of Lands to cancel PEA's patent or certificates of title. In fact, the thrust of the instant petition is that PEA's certificates of title should remain with PEA, and the land covered by these certificates, being alienable lands of the public domain, should not be sold to a private corporation. Registration of land under Act No. 496 or PD No. 1529 does not vest in the registrant private or public ownership of the land. Registration is not a mode of acquiring ownership but is merely evidence of ownership previously conferred by any of the recognized modes of acquiring ownership. Registration does not give the registrant a better right than what the registrant had prior to the registration.102 The registration of lands of the public domain under the Torrens system, by itself, cannot convert public lands into private lands.103 Jurisprudence holding that upon the grant of the patent or issuance of the certificate of title the alienable land of the public domain automatically becomes private land cannot apply to government units and entities like PEA. The transfer of the Freedom Islands to PEA was made subject to the provisions of CA No. 141 as expressly stated in Special Patent No. 3517 issued by then President Aquino, to wit: "NOW, THEREFORE, KNOW YE, that by authority of the Constitution of the Philippines and in conformity with the provisions of Presidential Decree No. 1084, supplemented by Commonwealth Act No. 141, as amended, there are hereby granted and conveyed unto the Public Estates Authority the aforesaid tracts of land containing a total area of one million nine hundred fifteen thousand eight hundred ninety four (1,915,894) square meters; the technical description of which are hereto attached and made an integral part hereof." (Emphasis supplied) Thus, the provisions of CA No. 141 apply to the Freedom Islands on matters not covered by PD No. 1084. Section 60 of CA No. 141 prohibits, "except when authorized by Congress," the sale of alienable lands of the public domain that are transferred to government units or entities. Section 60 of CA No. 141 constitutes, under Section 44 of PD No. 1529, a "statutory lien affecting title" of the registered land even if not annotated on the certificate of title.104Alienable lands of the public domain held by government entities under Section 60 of CA No. 141 remain public lands because they cannot be alienated or encumbered unless Congress passes a law authorizing their disposition. Congress, however, cannot authorize the sale to private corporations of reclaimed alienable lands of the public domain because of the constitutional ban. Only individuals can benefit from such law. The grant of legislative authority to sell public lands in accordance with Section 60 of CA No. 141 does not automatically convert alienable lands of the public domain into private or patrimonial lands. The alienable lands of the public domain must be transferred to qualified private parties, or to government entities not tasked to dispose of public lands, before these lands can become private or patrimonial lands. Otherwise, the constitutional ban will become illusory if Congress can declare lands of the public domain as private or patrimonial lands in the hands of a government agency tasked to dispose of public lands. This will allow private corporations to acquire directly from government agencies limitless areas of lands which, prior to such law, are concededly public lands. Under EO No. 525, PEA became the central implementing agency of the National Government to reclaim foreshore and submerged areas of the public domain. Thus, EO No. 525 declares that "EXECUTIVE ORDER NO. 525 Designating the Public Estates Authority as the Agency Primarily Responsible for all Reclamation Projects Whereas, there are several reclamation projects which are ongoing or being proposed to be undertaken in various parts of the country which need to be evaluated for consistency with national programs; Whereas, there is a need to give further institutional support to the Government's declared policy to provide for a coordinated, economical and efficient reclamation of lands; Whereas, Presidential Decree No. 3-A requires that all reclamation of areas shall be limited to the National Government or any person authorized by it under proper contract; Whereas, a central authority is needed to act on behalf of the National Government which shall ensure a coordinated and integrated approach in the reclamation of lands; Whereas, Presidential Decree No. 1084 creates the Public Estates Authority as a government corporation to undertake reclamation of lands and ensure their maximum utilization in promoting public welfare and interests; and Whereas, Presidential Decree No. 1416 provides the President with continuing authority to reorganize the national government including the transfer, abolition, or merger of functions and

offices. NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution and pursuant to Presidential Decree No. 1416, do hereby order and direct the following: Section 1. The Public Estates Authority (PEA) shall be primarily responsible for integrating, directing, and coordinating all reclamation projects for and on behalf of the National Government. All reclamation projects shall be approved by the President upon recommendation of the PEA, and shall be undertaken by the PEA or through a proper contract executed by it with any person or entity; Provided, that, reclamation projects of any national government agency or entity authorized under its charter shall be undertaken in consultation with the PEA upon approval of the President. x x x ." As the central implementing agency tasked to undertake reclamation projects nationwide, with authority to sell reclaimed lands, PEA took the place of DENR as the government agency charged with leasing or selling reclaimed lands of the public domain. The reclaimed lands being leased or sold by PEA are not private lands, in the same manner that DENR, when it disposes of other alienable lands, does not dispose of private lands but alienable lands of the public domain. Only when qualified private parties acquire these lands will the lands become private lands. In the hands of the government agency tasked and authorized to dispose of alienable of disposable lands of the public domain, these lands are still public, not private lands. Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public domain" as well as "any and all kinds of lands." PEA can hold both lands of the public domain and private lands. Thus, the mere fact that alienable lands of the public domain like the Freedom Islands are transferred to PEA and issued land patents or certificates of title in PEA's name does not automatically make such lands private. To allow vast areas of reclaimed lands of the public domain to be transferred to PEA as private lands will sanction a gross violation of the constitutional ban on private corporations from acquiring any kind of alienable land of the public domain. PEA will simply turn around, as PEA has now done under the Amended JVA, and transfer several hundreds of hectares of these reclaimed and still to be reclaimed lands to a single private corporation in only one transaction. This scheme will effectively nullify the constitutional ban in Section 3, Article XII of the 1987 Constitution which was intended to diffuse equitably the ownership of alienable lands of the public domain among Filipinos, now numbering over 80 million strong. This scheme, if allowed, can even be applied to alienable agricultural lands of the public domain since PEA can "acquire x x x any and all kinds of lands." This will open the floodgates to corporations and even individuals acquiring hundreds of hectares of alienable lands of the public domain under the guise that in the hands of PEA these lands are private lands. This will result in corporations amassing huge landholdings never before seen in this country - creating the very evil that the constitutional ban was designed to prevent. This will completely reverse the clear direction of constitutional development in this country. The 1935 Constitution allowed private corporations to acquire not more than 1,024 hectares of public lands.105 The 1973 Constitution prohibited private corporations from acquiring any kind of public land, and the 1987 Constitution has unequivocally reiterated this prohibition. The contention of PEA and AMARI that public lands, once registered under Act No. 496 or PD No. 1529, automatically become private lands is contrary to existing laws. Several laws authorize lands of the public domain to be registered under the Torrens System or Act No. 496, now PD No. 1529, without losing their character as public lands. Section 122 of Act No. 496, and Section 103 of PD No. 1529, respectively, provide as follows: Act No. 496 "Sec. 122. Whenever public lands in the Philippine Islands belonging to the x x x Government of the Philippine Islands are alienated, granted, or conveyed to persons or the public or private corporations, the same shall be brought forthwith under the operation of this Act and shall become registered lands." PD No. 1529 "Sec. 103. Certificate of Title to Patents. Whenever public land is by the Government alienated, granted or conveyed to any person, the same shall be brought forthwith under the operation of this Decree." (Emphasis supplied) Based on its legislative history, the phrase "conveyed to any person" in Section 103 of PD No. 1529 includes conveyances of public lands to public corporations.

Alienable lands of the public domain "granted, donated, or transferred to a province, municipality, or branch or subdivision of the Government," as provided in Section 60 of CA No. 141, may be registered under the Torrens System pursuant to Section 103 of PD No. 1529. Such registration, however, is expressly subject to the condition in Section 60 of CA No. 141 that the land "shall not be alienated, encumbered or otherwise disposed of in a manner affecting its title, except when authorized by Congress." This provision refers to government reclaimed, foreshore and marshy lands of the public domain that have been titled but still cannot be alienated or encumbered unless expressly authorized by Congress. The need for legislative authority prevents the registered land of the public domain from becoming private land that can be disposed of to qualified private parties. The Revised Administrative Code of 1987 also recognizes that lands of the public domain may be registered under the Torrens System. Section 48, Chapter 12, Book I of the Code states "Sec. 48. Official Authorized to Convey Real Property. Whenever real property of the Government is authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following: (1) x x x (2) For property belonging to the Republic of the Philippines, but titled in the name of any political subdivision or of any corporate agency or instrumentality, by the executive head of the agency or instrumentality." (Emphasis supplied) Thus, private property purchased by the National Government for expansion of a public wharf may be titled in the name of a government corporation regulating port operations in the country. Private property purchased by the National Government for expansion of an airport may also be titled in the name of the government agency tasked to administer the airport. Private property donated to a municipality for use as a town plaza or public school site may likewise be titled in the name of the municipality.106 All these properties become properties of the public domain, and if already registered under Act No. 496 or PD No. 1529, remain registered land. There is no requirement or provision in any existing law for the deregistration of land from the Torrens System. Private lands taken by the Government for public use under its power of eminent domain become unquestionably part of the public domain. Nevertheless, Section 85 of PD No. 1529 authorizes the Register of Deeds to issue in the name of the National Government new certificates of title covering such expropriated lands. Section 85 of PD No. 1529 states "Sec. 85. Land taken by eminent domain. Whenever any registered land, or interest therein, is expropriated or taken by eminent domain, the National Government, province, city or municipality, or any other agency or instrumentality exercising such right shall file for registration in the proper Registry a certified copy of the judgment which shall state definitely by an adequate description, the particular property or interest expropriated, the number of the certificate of title, and the nature of the public use. A memorandum of the right or interest taken shall be made on each certificate of title by the Register of Deeds, and where the fee simple is taken, a new certificate shall be issued in favor of the National Government, province, city, municipality, or any other agency or instrumentality exercising such right for the land so taken. The legal expenses incident to the memorandum of registration or issuance of a new certificate of title shall be for the account of the authority taking the land or interest therein." (Emphasis supplied) Consequently, lands registered under Act No. 496 or PD No. 1529 are not exclusively private or patrimonial lands. Lands of the public domain may also be registered pursuant to existing laws. AMARI makes a parting shot that the Amended JVA is not a sale to AMARI of the Freedom Islands or of the lands to be reclaimed from submerged areas of Manila Bay. In the words of AMARI, the Amended JVA "is not a sale but a joint venture with a stipulation for reimbursement of the original cost incurred by PEA for the earlier reclamation and construction works performed by the CDCP under its 1973 contract with the Republic." Whether the Amended JVA is a sale or a joint venture, the fact remains that the Amended JVA requires PEA to "cause the issuance and delivery of the certificates of title conveying AMARI's Land Share in the name of AMARI."107 This stipulation still contravenes Section 3, Article XII of the 1987 Constitution which provides that private corporations "shall not hold such alienable lands of the public domain except by lease." The transfer of title and ownership to AMARI clearly means that AMARI will "hold" the reclaimed lands other than by lease. The transfer of title and ownership is a "disposition" of the reclaimed lands, a transaction considered a sale or alienation under CA No. 141,108 the Government Auditing Code,109 and Section 3, Article XII of the 1987 Constitution. The Regalian doctrine is deeply implanted in our legal system. Foreshore and submerged areas form part of the public domain and are inalienable. Lands reclaimed from foreshore and submerged areas also form part of the public domain and are also inalienable, unless converted pursuant to law into alienable or

disposable lands of the public domain. Historically, lands reclaimed by the government are sui generis, not available for sale to private parties unlike other alienable public lands. Reclaimed lands retain their inherent potential as areas for public use or public service. Alienable lands of the public domain, increasingly becoming scarce natural resources, are to be distributed equitably among our ever-growing population. To insure such equitable distribution, the 1973 and 1987 Constitutions have barred private corporations from acquiring any kind of alienable land of the public domain. Those who attempt to dispose of inalienable natural resources of the State, or seek to circumvent the constitutional ban on alienation of lands of the public domain to private corporations, do so at their own risk. We can now summarize our conclusions as follows: 1. The 157.84 hectares of reclaimed lands comprising the Freedom Islands, now covered by certificates of title in the name of PEA, are alienable lands of the public domain. PEA may lease these lands to private corporations but may not sell or transfer ownership of these lands to private corporations. PEA may only sell these lands to Philippine citizens, subject to the ownership limitations in the 1987 Constitution and existing laws. 2. The 592.15 hectares of submerged areas of Manila Bay remain inalienable natural resources of the public domain until classified as alienable or disposable lands open to disposition and declared no longer needed for public service. The government can make such classification and declaration only after PEA has reclaimed these submerged areas. Only then can these lands qualify as agricultural lands of the public domain, which are the only natural resources the government can alienate. In their present state, the 592.15 hectares of submerged areas are inalienable and outside the commerce of man. 3. Since the Amended JVA seeks to transfer to AMARI, a private corporation, ownership of 77.34 hectares110 of the Freedom Islands, such transfer is void for being contrary to Section 3, Article XII of the 1987 Constitution which prohibits private corporations from acquiring any kind of alienable land of the public domain. 4. Since the Amended JVA also seeks to transfer to AMARI ownership of 290.156 hectares111 of still submerged areas of Manila Bay, such transfer is void for being contrary to Section 2, Article XII of the 1987 Constitution which prohibits the alienation of natural resources other than agricultural lands of the public domain. PEA may reclaim these submerged areas. Thereafter, the government can classify the reclaimed lands as alienable or disposable, and further declare them no longer needed for public service. Still, the transfer of such reclaimed alienable lands of the public domain to AMARI will be void in view of Section 3, Article XII of the 1987 Constitution which prohibits private corporations from acquiring any kind of alienable land of the public domain. Clearly, the Amended JVA violates glaringly Sections 2 and 3, Article XII of the 1987 Constitution. Under Article 1409112 of the Civil Code, contracts whose "object or purpose is contrary to law," or whose "object is outside the commerce of men," are "inexistent and void from the beginning." The Court must perform its duty to defend and uphold the Constitution, and therefore declares the Amended JVA null and void ab initio. Seventh issue: whether the Court is the proper forum to raise the issue of whether the Amended JVA is grossly disadvantageous to the government. Considering that the Amended JVA is null and void ab initio, there is no necessity to rule on this last issue. Besides, the Court is not a trier of facts, and this last issue involves a determination of factual matters. WHEREFORE, the petition is GRANTED. The Public Estates Authority and Amari Coastal Bay Development Corporation are PERMANENTLY ENJOINED from implementing the Amended Joint Venture Agreement which is hereby declared NULL and VOID ab initio. SO ORDERED. Davide, Jr., C.J., Bellosillo, Puno, Vitug, Kapunan, Mendoza, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, and Corona, JJ., concur. Footnote
1

Section 4 of PD No. 1084. PEA's Memorandum dated August 4, 1999, p. 3. PEA's Memorandum, supra note 2 at 7. PEA's Memorandum quoted extensively, in its

Statement of Facts and the Case, the Statement of Facts in Senate Committee Report No. 560 dated September 16, 1997. In Opinion No. 330 dated December 23, 1994, the Government Corporate Counsel, citing COA Audit Circular No. 89-296, advised PEA that PEA could negotiate the sale of the 157.84-hectare Freedom Islands in view of the failure of the public bidding held on December 10, 1991 where there was not a single bidder. See also Senate Committee Report No. 560, p. 12.
4 5

PEA's Memorandum, supra note 2 at 9. Ibid.

The existence of this report is a matter of judicial notice pursuant to Section 1, Rule 129 of the Rules of Court which provides, "A court shall take judicial notice, without the introduction of evidence, of x x x the official acts of the legislature x x x."
7 8

Teofisto Guingona, Jr. Renato Cayetano. Virgilio C. Abejo.

10

Report and Recommendation of the Legal Task Force, Annex "C", AMARI's Memorandum dated June 19, 1999.
11 12

AMARI's Comment dated June 24, 1998, p. 3; Rollo, p. 68.

AMARI filed three motions for extension of time to file comment (Rollo, pp. 32, 38, 48), while PEA filed nine motions for extension of time (Rollo, pp. 127, 139).
13 14

Petitioner's Memorandum dated July 6, 1999, p. 42.

Represented by the Office of the Solicitor General, with Solicitor General Ricardo P. Galvez, Assistant Solicitor General Azucena R. Balanon-Corpuz, and Associate Solicitor Raymund I. Rigodon signing PEA's Memorandum.
15

Represented by Azcuna Yorac Arroyo & Chua Law Offices, and Romulo Mabanta Sayoc & De los Angeles Law Offices.
16

Salonga v. Pao, 134 SCRA 438 (1985); Gonzales v. Marcos, 65 SCRA 624 (1975 ); Aquino v. Enrile, 59 SCRA 183 (1974 ); Dela Camara v. Enage, 41 SCRA 1 (1971 ).
17 18

Section 11, Article XIV.

Manila Electric Co. v. Judge F. Castro-Bartolome, 114 SCRA 799 (1982); Republic v. CA and Iglesia, and Republic v. Cendana and Iglesia ni Cristo, 119 SCRA 449 (1982); Republic v. Villanueva and Iglesia ni Cristo, 114 SCRA 875 (1982); Director of Lands v. Lood, 124 SCRA 460 (1983); Republic v. Iglesia ni Cristo, 128 SCRA 44 (1984); Director of Lands v. Hermanos y Hermanas de Sta. Cruz de Mayo, Inc., 141 SCRA 21 (1986); Director of Lands v. IAC and Acme Plywood & Veneer Co., 146 SCRA 509 (1986); Republic v. IAC and Roman Catholic Bishop of Lucena, 168 SCRA 165 (1988); Natividad v. CA, 202 SCRA 493 (1991); Villaflor v. CA and Nasipit Lumber Co., 280 SCRA 297 (1997). In Ayog v. Cusi, 118 SCRA 492 (1982), the Court did not apply the constitutional ban in the 1973 Constitution because the applicant corporation, Bian Development Co., Inc., had fully complied with all its obligations and even paid the full purchase price before the effectivity of the 1973 Constitution, although the sales patent was issued after the 1973 Constitution took effect.
19 20

PD No. 1073.

Annex "B", AMARI's Memorandum dated June 19, 1999, Section 5.2 (c) and (e) of the Amended JVA, pp. 16-17.
21 22

Chavez v. PCGG, 299 SCRA 744 (1998). 136 SCRA 27 (1985).

23

Article 2 of the Civil Code (prior to its amendment by EO No. 200) provided as follows: "Laws shall take effect after fifteen days following the completion of their publication in the Official Gazette, unless it is provided otherwise, x x x."
24 25

Section 1 of CA No. 638 provides as follows: "There shall be published in the Official Gazette

all important legislative acts and resolutions of the Congress of the Philippines; all executive and administrative orders and proclamations, except such as have no general applicability; x x x." Section 79 of the Government Auditing Codes provides as follows: "When government property has become unserviceable for any cause, or is no longer needed, it shall, upon application of the officer accountable therefor, be inspected by the head of the agency or his duly authorized representative in the presence of the auditor concerned and, if found to be valueless or unsaleable, it may be destroyed in their presence. If found to be valuable, it may be sold at public auction to the highest bidder under the supervision of the proper committee on award or similar body in the presence of the auditor concerned or other authorized representative of the Commission, after advertising by printed notice in the Official Gazette, or for not less than three consecutive days in any newspaper of general circulation, or where the value of the property does not warrant the expense of publication, by notices posted for a like period in at least three public places in the locality where the property is to be sold. In the event that the public auction fails, the property may be sold at a private sale at such price as may be fixed by the same committee or body concerned and approved by the Commission."
26

Paat v. Court of Appeals, 266 SCRA 167 (1997); Quisumbing v. Judge Gumban, 193 SCRA 520 (1991); Valmonte v. Belmonte, Jr., 170 SCRA 256 (1989).
27 28

See note 22.

Section 1, Article XI of the 1987 Constitution states as follows: "Public office is a public trust. Public officers and employees must at all times be accountable to the people, serve them with utmost responsibility, integrity, loyalty, and efficiency, act with patriotism and justice, and lead modest lives."
29 30

170 SCRA 256 (1989). See note 22. Record of the Constitutional Commission, Vol. V, pp. 24-25, (1986). Supra, Note 22. Ibid. Legaspi v. Civil Service Commission, 150 SCRA 530 (1987). Almonte v. Vasquez, 244 SCRA 286 (1995). See Note 22. Chavez v. PCGG, see note 22; Aquino-Sarmiento v. Morato, 203 SCRA 515 (1991). Almonte v. Vasquez, see note 36.

31

32

33

34

35

36

37

38

39

People's Movement for Press Freedom, et al. v. Hon. Raul Manglapus, G.R. No. 84642, En Banc Resolution dated April 13, 1988; Chavez v. PCGG, see note 22.
40

Section 270 of the National Internal Revenue Code punishes any officer or employee of the Bureau of Internal Revenue who divulges to any person, except as allowed by law, information regarding the business, income, or estate of any taxpayer, the secrets, operation, style of work, or apparatus of any manufacturer or producer, or confidential information regarding the business of any taxpayer, knowledge of which was acquired by him in the discharge of his official duties. Section 14 of R.A. No. 8800 (Safeguard Measures Act) prohibits the release to the public of confidential information submitted in evidence to the Tariff Commission. Section 3 (n) of R.A. No. 8504 (Philippine AIDS Prevention and Control Act) classifies as confidential the medical records of HIV patients. Section 6 (j) of R.A. No. 8043 (Inter-Country Adoption Act) classifies as confidential the records of the adopted child, adopting parents, and natural parents. Section 94 (f) of R.A. No. 7942 (Philippine Mining Act) requires the Department of Environment and Natural Resources to maintain the confidentiality of confidential information supplied by contractors who are parties to mineral agreements or financial and technical assistance agreements.
41

The Recopilacion de Leyes de las Indias declared that: "We, having acquired full sovereignty over the Indies, and all lands, territories, and possessions not heretofore ceded away by our royal predecessors, or by us, or in our name, still pertaining to the royal crown and patrimony, it is our will that all lands which are held without proper and true deeds of grant be restored to us according as they belong to us, in order that after reserving before all what to us or to our viceroys, audiencias, and governors may seem necessary for public squares, ways, pastures, and commons in those places which are peopled, taking into consideration not only their present
42

condition, but also their future and their probable increase, and after distributing to the natives what may be necessary for tillage and pasturage, confirming them in what they now have and giving them more if necessary, all the rest of said lands may remain free and unencumbered for us to dispose of as we may wish." See concurring opinion of Justice Reynato S. Puno in Republic Real Estate Corporation v. Court of Appeals, 299 SCRA 199 (1998). Cario v. Insular Government, 41 Phil. 935 (1909). The exception mentioned in Cario, referring to lands in the possession of an occupant and of his predecessors-in-interest, since time immemorial, is actually a species of a grant by the State. The United States Supreme Court, speaking through Justice Oliver Wendell Holmes, Jr., declared in Cario: "Prescription is mentioned again in the royal cedula of October 15, 1754, cited in 3 Philippine, 546; 'Where such possessors shall not be able to produce title deeds, it shall be sufficient if they shall show that ancient possession, as a valid title by prescription.' It may be that this means possession from before 1700; but, at all events, the principle is admitted. As prescription, even against the Crown lands, was recognized by the laws of Spain, we see no sufficient reason for hesitating to admit that it was recognized in the Philippines in regard to lands over which Spain had only a paper sovereignty." Seealso Republic v. Lee, 197 SCRA 13 (1991).
43 44

Article 1 of the Spanish Law of Waters of 1866.

Ignacio v. Director of Lands, 108 Phil. 335 (1960); Joven v. Director of Lands, 93 Phil. 134 (1953); Laurel v. Garcia, 187 SCRA 797 (1990). See concurring opinion of Justice Reynato S. Puno in Republic Real Estate Corporation v. Court of Appeals, 299 SCRA 199 (1998).
45

Act No. 926, enacted on October 7, 1903, was also titled the Public Land Act. This Act, however, did not cover reclaimed lands. Nevertheless, Section 23 of this Act provided as follows: "x x x In no case may lands leased under the provisions of this chapter be taken so as to gain control of adjacent land, water, stream, shore line, way, roadstead, or other valuable right which in the opinion of the Chief of the Bureau of Public Lands would be prejudicial to the interests of the public."
46

Section 10 of Act No. 2874 provided as follows: "The words "alienation," "disposition," or "concession" as used in this Act, shall mean any of the methods authorized by this Act for the acquisition, lease, use, or benefit of the lands of the public domain other than timber or mineral lands."
47

Title II of Act No. 2874 governed alienable lands of the public domain for agricultural purposes, while Title III of the same Act governed alienable lands of the public domain for non-agricultural purposes.
48

Section 57 of Act No. 2874 provided as follows: "x x x; but the land so granted, donated, or transferred to a province, municipality, or branch or subdivision of the Government shall not be alienated, encumbered, or otherwise disposed of in a manner affecting its title, except when authorized by the legislature; x x x."
49 50

Krivenko v. Register of Deeds, 79 Phil. 461 (1947).

Section 2 of CA No. 141 states as follows: "The provisions of this Act shall apply to the lands of the public domain; but timber and mineral lands shall be governed by special laws and nothing in this Act provided shall be understood or construed to change or modify the administration and disposition of the lands commonly called "friar lands" and those which, being privately owned, have reverted to or become the property of the Commonwealth of the Philippines, which administration and disposition shall be governed by the laws at present in force or which may hereafter be enacted."
51

Like Act No. 2874, Section 10 of CA No. 141 defined the terms "alienation" and "disposition" as follows: "The words "alienation," "disposition," or "concession" as used in this Act, shall mean any of the methods authorized by this Act for the acquisition, lease, use, or benefit of the lands of the public domain other than timber or mineral lands."
52

R.A. No. 6657 has suspended the authority of the President to reclassify forest or mineral lands into agricultural lands. Section 4 (a) of RA No. 6657 (Comprehensive Agrarian Reform Law of 1988) states, "No reclassification of forest or mineral lands to agricultural lands shall be undertaken after the approval of this Act until Congress, taking into account ecological, developmental and equity considerations, shall have delimited by law, the specific limits of the public domain."
53 54

Covering Sections 58 to 68 of CA No. 141. 299 SCRA 199 (1998).

55

Section 1, Article XIII of the 1935 Constitution limited the disposition and utilization of public agricultural lands to Philippine citizens or to corporations at least sixty percent owned by Philippine citizens. This was, however, subject to the original Ordinance appended to the 1935 Constitution stating, among others, that until the withdrawal of United States sovereignty in the Philippines, "Citizens and corporations of the United States shall enjoy in the Commonwealth of the Philippines all the civil rights of the citizens and corporations, respectively, thereof."
56

Section 44 of PD No. 1529 (previously Section 39 of Act No. 496) provides that "liens, claims or rights arising or existing under the laws and the Constitution of the Philippines which are not by law required to appear of record in the Registry of Deeds in order to be valid against subsequent purchasers or encumbrancers of record" constitute statutory liens affecting the title.1wphi1.nt
57

RA No. 730, which took effect on June 18, 1952, authorized the private sale of home lots to actual occupants of public lands not needed for public service. Section 1 of RA No. 730 provided as follows: "Notwithstanding the provisions of Sections 61 and 67 of Commonwealth Act No. 141, as amended by RA No. 293, any Filipino citizen of legal age who is not the owner of a home lot in the municipality or city in which he resides and who had in good faith established his residence on a parcel of land of the Republic of the Philippines which is not needed for public service, shall be given preference to purchase at a private sale of which reasonable notice shall be given to him, not more than one thousand square meters at a price to be fixed by the Director of Lands with the approval of the Secretary of Agriculture and Natural Resources. x x x." In addition, on June 16, 1948, Congress enacted R.A. No. 293 allowing the private sale of marshy alienable or disposable lands of the public domain to lessees who have improved and utilized the same as farms, fishponds or other similar purposes for at least five years from the date of the lease contract with the government. R.A. No. 293, however, did not apply to marshy lands under Section 56 (c), Title III of CA No. 141 which refers to marshy lands leased for residential, commercial, industrial or other non-agricultural purposes.
58 59

See note 49. See note 60. Republic Real Estate Corporation v. Court of Appeals, see note 56. Ibid.

60

61

62

Insular Government v. Aldecoa, 19 Phil. 505 (1911); Government v. Cabangis, 53 Phil. 112 (1929).
63 64

118 SCRA 492 (1982). Annex "B", AMARI's Memorandum, see note 2 at 1 & 2. PEA's Memorandum, see note 6. Ibid., p. 44. See notes 9, 10 & 11. Annex "C", p. 3, AMARI's Memorandum, see note 12 at 3. This should read Article XII. Section 8 of CA No. 141. Emphasis supplied. 187 SCRA 797 (1990).

65

66

67

68

69

70

71

72

73

Article 422 of the Civil Code states as follows: "Property of public dominion, when no longer needed for public use or public service, shall form part of the patrimonial property of the State."
74 75

AMARI's Comment dated June 24, 1998, p. 20; Rollo, p. 85.

Dizon v. Rodriguez, 13 SCRA 705 (1965); Republic v. Lat Vda. de Castillo, 163 SCRA 286 (1988).
76 77

Cario v. Insular Government, 41 Phil. 935 (1909).

Proclamation No. 41, issued by President Ramon Magsaysay on July 5, 1954, reserved for "National Park purposes" 464.66 hectares of the public domain in Manila Bay "situated in the
78

cities of Manila and Pasay and the municipality of Paranaque, Province of Rizal, Island of Luzon," which area, as described in detail in the Proclamation, is "B]ounded on the North, by Manila Bay; on the East, by Dewey Boulevard; and on the south and west, by Manila Bay." See concurring opinion of Justice Reynato S. Puno in Republic Real Estate Corporation v. Court of Appeals, 299 SCRA 1999 (1998). Under Sections 2 and 3, Article XII of the 1987 Constitution, "national parks" are inalienable natural resources of the State.
79

Fifth Whereas clause of EO No. 525. Section 4, Chapter I, Title XIV, Book IV.

80

Section 6 of CA No 141 provides as follows: "The President, upon the recommendation of the Secretary of Agriculture and Commerce, shall from time to time classify the lands of the public domain into (a) Alienable or disposable, x x x."
81

Section 7 of CA No. 141 provides as follows: "For purposes of the administration and disposition of alienable or disposable public lands, the President, upon recommendation by the Secretary of Agriculture and Commerce, shall from time to time declare what lands are open to disposition or concession under this Act."
82 83

On "Lands for Residential, Commercial, or Industrial and other Similar Purposes."

RA No. 293, enacted on June 16, 1948, authorized the sale of marshy lands under certain conditions. Section 1 of RA No. 293 provided as follows: "The provisions of section sixty-one of Commonwealth Act Numbered One hundred and forty-one to the contrary notwithstanding, marshy lands and lands under water bordering on shores or banks or navigable lakes or rivers which are covered by subsisting leases or leases which may hereafter be duly granted under the provisions of the said Act and are already improved and have been utilized for farming, fishpond, or similar purposes for at least five years from the date of the contract of lease, may be sold to the lessees thereof under the provisions of Chapter Five of the said Act as soon as the President, upon recommendation of the Secretary of Agriculture and Natural Resources, shall declare that the same are not necessary for the public service."
84 85

PEA's Memorandum, see note 2 at 45. See note 73. Section 4 (b) of PD No. 1084

86

87

R.A. No. 730 allows the private sale of home lots to actual occupants of public lands. See note 63.
88 89

Issued on February 26, 1981.

While PEA claims there was a failure of public bidding on December 10, 1991, there is no showing that the Commission on Audit approved the price or consideration stipulated in the negotiated Amended JVA as required by Section 79 of the Government Auditing Code. Senate Committee Report No. 560 did not discuss this issue.
90

Paragraph 2 (a) of COA Circular No. 89-296, on "Sale Thru Negotiation," states that disposal through negotiated sale may be resorted to if "[T]here was a failure of public auction."
91

Senate Committee Report No. 560, Statement of Facts, p. 7, citing PEA Board Resolution No. 835, as appearing in the Minutes of the PEA Board of Directors Meeting held on May 30, 1991, per Certification of Jaime T. De Veyra, Corporate Secretary, dated June 11, 1991.
92 93

Opinion No. 330, citing COA Audit Circular No. 89-296. See note 5. PEA's Memorandum, see note 2.

94

Senate Committee Report No. 560, pp. 7-8, citing the Minutes of Meeting of the PEA Board of Directors held on December 19, 1991.
95

Section 3, Article XII of the 1987 Constitution provides as follows: "x x x Citizens of the Philippines may x x x acquire not more than twelve hectares thereof by purchase, homestead or grant." However, Section 6 of R.A. No. 6657 (Comprehensive Agrarian Reform Law) limits the ownership of "public or private agricultural land" to a maximum of five hectares per person.
96 97

96 Phil. 946 (1955). 48 SCRA 372 (1977).

98

99

168 SCRA 198 (1988). 172 SCRA 795 (1989). 73 SCRA 146 (1976). Avila v. Tapucar, 201 SCRA 148 (1991). Republic v. Ayala Cia, et al., 14 SCRA 259 (1965); Dizon v. Rodriguez, 13 SCRA 705 (1965).

100

101

102

103

Section 44 of PD No. 1529 states as follows: "Every registered owner receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land taking a certificate of title for value and in good faith, shall hold the same free from all encumbrances except those noted on said certificate and any of the following encumbrances which may be subsisting, namely: First.Liens, claims or rights arising or existing under the laws and Constitution of the Philippines which are not by law required to appear of record in the Registry of Deeds in order to be valid against subsequent purchasers or encumbrancers of record. x x x." Under Section 103 of PD No. 1529, Section 44 applies to certificates of title issued pursuant to a land patent granted by the government.
104 105

Section 2, Article XIII of the 1935 Constitution. Harty v. Municipality of Victoria, 13 Phil. 152 (1909). Annex "B", AMARI's Memorandum, see note 21 at 16, Section 5.2 (c) of the Amended JVA.

106

107

Section 10 of CA No. 141 provides as follows: "Sec. 10. The words "alienation," "disposition," or "concession" as used in this Act, shall mean any of the methods authorized by this Act for the acquisition, lease, use, or benefit of the lands of the public domain other than timber or mineral lands."
108

Section 79 of the Government Auditing Code, which requires public auction in the sale of government assets, includes all kinds of disposal or divestment of government assets. Thus, COA Audit Circular No. 86-264 dated October 16, 1986 speaks of "guidelines (which) shall govern the general procedures on thedivestment or disposal of assets of government-owned and/or controlled corporations and their subsidiaries." Likewise, COA Audit Circular No. 89296 dated January 27, speaks of "guidelines (which) shall be observed and adhered to in the divestment or disposal of property and other assets of all government entities/instrumentalities" and that "divestment shall refer to the manner or scheme of taking away, depriving, withdrawing of an authority, power or title." These COA Circulars implement Section 79 of the Government Auditing Code.
109

The share of AMARI in the Freedom Islands is 77.34 hectares, which is 70 percent of the net usable area of 110.49 hectares. The net usable area is the total land area of the Freedom Islands less 30 percent allocated for common areas.
110

The share of AMARI in the submerged areas for reclamation is 290.129 hectares, which is 70 percent of the net usable area of 414.47 hectares.
111

Article 1409 of the Civil Code provides as follows: "The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law; x x x; (4) Those whose object is outside the commerce of men; x x x."
112

G.R. No. L40474 August 29, 1975

CEBU OXYGEN & ACETYLENE CO., INC. vs. HON. PASCUAL A. BERCILLES Presiding Judge, Branch XV, 14th Judicial District, and JOSE L. ESPELETA, Assistant Provincial Fiscal, Province of Cebu, representing the Solicitor General's Office and the Bureau of Lands, respondents. Jose Antonio R Conde for petitioner. Office of the Acting Solicitor General Hugo E. Gutierrez, Jr., Assistant Solicitor General Octavio R.

Ramirez and Trial Attorney David R. Hilario for respondents. .

CONCEPCION, Jr., J.: This is a petition for the review of the order of the Court of First Instance of Cebu dismissing petitioner's application for registration of title over a parcel of land situated in the City of Cebu. The parcel of land sought to be registered was only a portion of M. Borces Street, Mabolo, Cebu City. On September 23, 1968, the City Council of Cebu, through Resolution No. 2193, approved on October 3, 1968, declared the terminal portion of M. Borces Street, Mabolo, Cebu City, as an abandoned road, the same not being included in the City Development Plan. 1 Subsequently, on December 19, 1968, the City Council of Cebu passed Resolution No. 2755, authorizing the Acting City Mayor to sell the land through a public bidding. 2 Pursuant thereto, the lot was awarded to the herein petitioner being the highest bidder and on March 3, 1969, the City of Cebu, through the Acting City Mayor, executed a deed of absolute sale to the herein petitioner for a total consideration of P10,800.00. 3 By virtue of the aforesaid deed of absolute sale, the petitioner filed an application with the Court of First instance of Cebu to have its title to the land registered. 4 On June 26, 1974, the Assistant Provincial Fiscal of Cebu filed a motion to dismiss the application on the ground that the property sought to be registered being a public road intended for public use is considered part of the public domain and therefore outside the commerce of man. Consequently, it cannot be subject to registration by any private individual. 5 After hearing the parties, on October 11, 1974 the trial court issued an order dismissing the petitioner's application for registration of title. 6 Hence, the instant petition for review. For the resolution of this case, the petitioner poses the following questions: (1) Does the City Charter of Cebu City (Republic Act No. 3857) under Section 31, paragraph 34, give the City of Cebu the valid right to declare a road as abandoned? and (2) Does the declaration of the road, as abandoned, make it the patrimonial property of the City of Cebu which may be the object of a common contract? (1) The pertinent portions of the Revised Charter of Cebu City provides: Section 31. Legislative Powers. Any provision of law and executive order to the contrary notwithstanding, the City Council shall have the following legislative powers: xxx xxx xxx (34) ...; to close any city road, street or alley, boulevard, avenue, park or square. Property thus withdrawn from public servitude may be used or conveyed for any purpose for which other real property belonging to the City may be lawfully used or conveyed. From the foregoing, it is undoubtedly clear that the City of Cebu is empowered to close a city road or street. In the case of Favis vs. City of Baguio, 7 where the power of the city Council of Baguio City to close city streets and to vacate or withdraw the same from public use was similarly assailed, this court said: 5. So it is, that appellant may not challenge the city council's act of withdrawing a strip of Lapu-Lapu Street at its dead end from public use and converting the remainder thereof into an alley. These are acts well within the ambit of the power to close a city street. The city council, it would seem to us, is the authority competent to determine whether or not a certain property is still necessary for public use. Such power to vacate a street or alley is discretionary. And the discretion will not ordinarily be controlled or interfered with by the courts, absent a plain case of abuse or fraud or collusion. Faithfulness to the public trust will be presumed. So the fact that some private interests may be served incidentally will not invalidate the vacation ordinance. (2) Since that portion of the city street subject of petitioner's application for registration of title was withdrawn from public use, it follows that such withdrawn portion becomes patrimonial property which can be the object of an ordinary contract. Article 422 of the Civil Code expressly provides that "Property of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial property of the State." Besides, the Revised Charter of the City of Cebu heretofore quoted, in very clear and unequivocal terms, states that: "Property thus withdrawn from public servitude may be used or conveyed for any purpose for

which other real property belonging to the City may be lawfully used or conveyed." Accordingly, the withdrawal of the property in question from public use and its subsequent sale to the petitioner is valid. Hence, the petitioner has a registerable title over the lot in question. WHEREFORE, the order dated October 11, 1974, rendered by the respondent court in Land Reg. Case No. N-948, LRC Rec. No. N-44531 is hereby set aside, and the respondent court is hereby ordered to proceed with the hearing of the petitioner's application for registration of title. SO ORDERED. Makalintal, C.J, Fernando, Barredo and Aquino, JJ., concur.

Footnotes 1 Annex A, p. 11, rollo. 2 Annex B, p. 12, rollo. 3 Annex C, p. 13, rollo. 4 Annex D, p. 15, rollo. 5 Annex E. p. 18, rollo. 6 Annex F. P. 20, rollo. 7 G.R. No. L-29910, April 25, 1969; SCRA 1060.

G.R. No. L-29788 August 30, 1972

Salas v. Jarencio RAFAEL S. SALAS, in his capacity as Executive Secretary; CONRADO F. ESTRELLA, in his capacity as Governor of the Land Authority; and LORENZO GELLA, in his capacity as Register of Deeds of Manila,petitioners-appellants, vs. HON. HILARION U. JARENCIO, as Presiding Judge of Branch XXIII, Court of First Instance of Manila; ANTONIO J. VILLEGAS, in his capacity as Mayor of the City of Manila; and the CITY OF MANILA,respondents-appellees. Office of the Solicitor General Felix V. Makasiar, Assistant Solicitor-General Antonio A. Torres, Solicitor Raul I. Goco and Magno B. Pablo & Cipriano A. Tan, Legal Staff, Land Authority for petitionersappellants. Gregorio A. Ejercito and Felix C. Chavez for respondents-appellees.

ESGUERRA, J.:p This is a petition for review of the decision of the Court of First Instance of Manila, Branch XXIII, in Civil Case No. 67946, dated September 23, 1968, the dispositive portion of which is as follows: WHEREFORE, the Court renders judgment declaring Republic Act No. 4118 unconstitutional and invalid in that it deprived the City of Manila of its property without due process and payment of just compensation. Respondent Executive Secretary and Governor of the Land Authority are hereby restrained and enjoined from implementing the provisions of said law. Respondent Register of Deeds of the City of Manila is ordered to cancel Transfer Certificate of Title No. 80876 which he had issued in the name of the Land Tenure Administration and reinstate Transfer Certificate of Title No. 22547 in the name of the City of Manila which he cancelled, if that is feasible, or issue a new certificate of title for the same parcel of land in the name of the City of Manila. 1 The facts necessary for a clear understanding of this case are as follows:

On February 24, 1919, the 4th Branch of the Court of First Instance of Manila, acting as a land registration court, rendered judgment in Case No. 18, G.L.R.O. Record No. 111, declaring the City of Manila the owner in fee simple of a parcel of land known as Lot No. 1, Block 557 of the Cadastral Survey of the City of Mani1a, containing an area of 9,689.8 square meters, more or less. Pursuant to said judgment the Register of Deeds of Manila on August 21, 1920, issued in favor of the City of Manila, Original Certificate of Title No. 4329 covering the aforementioned parcel of land. On various dates in 1924, the City of Manila sold portions of the aforementioned parcel of land in favor of Pura Villanueva. As a consequence of the transactions Original Certificate of Title No. 4329 was cancelled and transfer certificates of title were issued in favor of Pura Villanueva for the portions purchased by her. When the last sale to Pura Villanueva was effected on August 22, 1924, Transfer Certificate of Title No. 21974 in the name of the City of Manila was cancelled and in lieu thereof Transfer Certificate of Title (TCT) No. 22547 covering the residue thereof known as Lot 1-B-2-B of Block 557, with an area of 7,490.10 square meters, was issued in the name of the City of Manila. On September 21, 1960, the Municipal Board of Manila, presided by then Vice-Mayor Antono J. Villegas, adopted a resolution requesting His Excellency, the President of the Philippines to consider the feasibility of declaring the City property bounded by Florida, San Andres, and Nebraska Streets, under Transfer Certificate of Title Nos. 25545 and 22547, containing a total area of 7,450 square meters as a patrimonial property of the City of Manila for the purpose of reselling these lots to the actual occupants thereof. 2 The said resolution of the Municipil Board of the City of Manila was officially transmitted to the President of the Philippines by then Vice-Mayor Antonio J. Villegas on September 21, 1960, with the information that the same resolution was, on the same date, transmitted to the Senate and House of Representatives of the Congress of the Philippines. 3 During the First Session of the Fifth Congress of the Philippines, House Bill No. 191 was filed in the House of Representatives by then Congressman Bartolome Cabangbang seeking to declare the property in question as patrimonial property of the City of Manila, and for other purposes. The explanatory note of the Bill gave the grounds for its enactment, to wit: In the particular case of the property subject of this bill, the City of Manila does not seem to have use thereof as a public communal property. As a matter of fact, a resolution was adopted by the Municipal Board of Manila at its regular session held on September 21, 1960, to request the feasibility of declaring the city property bounded by Florida, San Andres and Nebraska Streets as a patrimonial property of the City of Manila for the purpose of reselling these lots to the actual occupants thereof. Therefore, it will be to the best interest of society that the said property be used in one way or another. Since this property has been occupied for a long time by the present occupants thereof and since said occupants have expressed their willingness to buy the said property, it is but proper that the same be sold to them. 4 Subsequently, a revised version of the Bill was introduced in the House of Representatives by Congressmen Manuel Cases, Antonio Raquiza and Nicanor Yiguez as House Bill No. 1453, with the following explanatory note: The accompanying bill seeks to convert one (1) parcel of land in the district of Malate, which is reserved as communal property into a disposable or alienable property of the State and to provide its subdivision and sale to bona fide occupants or tenants. This parcel of land in question was originally an aggregate part of a piece of land with an area of 9,689.8 square meters, more or less. ... On September 21, 1960, the Municipal Board of Manila in its regular session unanimously adopted a resolution requesting the President of the Philippines and Congress of the Philippines the feasibility of declaring this property into disposable or alienable property of the State. There is therefore a precedent that this parcel of land could be subdivided and sold to bona fide occupants. This parcel of land will not serve any useful public project because it is bounded on all sides by private properties which were formerly parts of this lot in question. Approval of this bill will implement the policy of the Administration of land for the landless and the Fifth Declaration of Principles of the Constitution, which states that the promotion of Social Justice to insure the well-being and economic security of all people should be the concern of the State. We are ready and willing to enact legislation promoting the social and economic well-being of the people whenever an opportunity for enacting such kind of legislation arises. In view of the foregoing consideration and to insure fairness and justice to the present bona fide occupants thereof, approval of this Bill is strongly urged. 5 The Bill having been passed by the House of Representatives, the same was thereafter sent to the Senate where it was thoroughly discussed, as evidenced by the Congressional Records for May 20,

1964, pertinent portion of which is as follows: SENATOR FERNANDEZ: Mr. President, it will be re called that when the late Mayor Lacson was still alive, we approved a similar bill. But afterwards, the late Mayor Lacson came here and protested against the approval, and the approval was reconsidered. May I know whether the defect in the bill which we approved, has already been eliminated in this present bill? SENATOR TOLENTINO: I understand Mr. President, that that has already been eliminated and that is why the City of Manila has no more objection to this bill. SENATOR FERNANDEZ: Mr. President, in view of that manifestation and considering that Mayor Villegas and Congressman Albert of the Fourth District of Manila are in favor of the bill. I would not want to pretend to know more what is good for the City of Manila. SENATOR TOLENTINO: Mr. President, there being no objection, I move that we approve this bill on second reading. PRESIDENT PRO-TEMPORE: The biII is approved on second reading after several Senetors said aye and nobody said nay. The bill was passed by the Senate, approved by the President on June 20, 1964, and became Republic Act No. 4118. It reads as follows: Lot I-B-2-B of Block 557 of the cadastral survey of the City of Manila, situated in the District of Malate, City of Manila, which is reserved as communal property, is hereby converted into disposal or alienable land of the State, to be placed under the disposal of the Land Tenure Administration. The Land Tenure Administration shall subdivide the property into small lots, none of which shall exceed one hundred and twenty square meters in area and sell the same on installment basis to the tenants or bona fide occupants thereof and to individuals, in the order mentioned: Provided, That no down payment shall be required of tenants or bona fide occupants who cannot afford to pay such down payment: Provided, further, That no person can purchase more than one lot: Provided, furthermore, That if the tenant or bona fide occupant of any given lot is not able to purchase the same, he shall be given a lease from month to month until such time that he is able to purchase the lot: Provided, still further, That in the event of lease the rentals which may be charged shall not exceed eight per cent per annum of the assessed value of the property leased: And provided, finally, That in fixing the price of each lot, which shall not exceed twenty pesos per square meter, the cost of subdivision and survey shall not be included. Sec. 2. Upon approval of this Act no ejectment proceedings against any tenant or bona fide occupant of the above lots shall be instituted and any ejectment proceedings pending in court against any such tenant or bona fide occupant shall be dismissed upon motion of the defendant: Provided, That any demolition order directed against any tenant or bona fide occupant shall be lifted. Sec. 3. Upon approval of this Act, if the tenant or bona fide occupant is in arrears in the payment of any rentals, the amount legally due shall be liquidated and shall be payable in twenty-four equal monthly installments from the date of liquidation. Sec. 4. No property acquired by virtue of this Act shall be transferred, sold, mortgaged, or otherwise disposed of within a period of five years from the date full ownership thereof has been vested in the purchaser without the consent of the Land Tenure Administration. Sec. 5. In the event of the death of the purchaser prior to the complete payment of the price of the lot purchased by him, his widow and children shall succeed in all his rights and obligations with respect to his lot. Sec. 6. The Chairman of the Land Tenure Administration shall implement and issue such rules and regulations as may be necessary to carry out the provisions of this Act. Sec. 7. The sum of one hundred fifty thousand pesos is appropriated out of any funds in the National Treasury not otherwise appropriated, to carry out the purposes of this Act. Sec. 8. All laws or parts of laws inconsistent with this Act are repealed or modified accordingly. Sec. 9. This Act shall take effect upon its approval.

Approved, June 20, 1964. To implement the provisions of Republic Act No. 4118, and pursuant to the request of the occupants of the property involved, then Deputy Governor Jose V. Yap of the Land Authority (which succeeded the Land Tenure Administration) addressed a letter, dated February 18, 1965, to Mayor Antonio Villegas, furnishing him with a copy of the proposed subdivision plan of said lot as prepared for the Republic of the Philippines for resale of the subdivision lots by the Land Authority to bona fide applicants. 6 On March 2, 1965, the City Mayor of Manila, through his Executive and Technical Adviser, acknowledged receipt of the proposed subdivision plan of the property in question and informed the Land Authority that his office would interpose no objection to the implementation of said law, provided that its provisions be strictly complied with. 7 With the above-mentioned written conformity of the City of Manila for the implementation of Republic Act No. 4118, the Land Authority, thru then Deputy Governor Jose V. Yap, requested the City Treasurer of Manila, thru the City Mayor, for the surrender and delivery to the former of the owner's duplicate of Transfer Certificate of Title No. 22547 in order to obtain title thereto in the name of the Land Authority. The request was duly granted with the knowledge and consent of the Office of the City Mayor. 8 With the presentation of Transfer Certificate of Title No. 22547, which had been yielded as above stated by the, City authorities to the Land Authority, Transfer Certificate of Title (T.C.T. No. 22547) was cancelled by the Register of Deeds of Manila and in lieu thereof Transfer Certificate of Title No. 80876 was issued in the name of the Land Tenure Administration (now Land Authority) pursuant to the provisions of Republic Act No. 4118. 9 But due to reasons which do not appear in the record, the City of Manila made a complete turn-about, for on December 20, 1966, Antonio J. Villegas, in his capacity as the City Mayor of Manila and the City of Manila as a duly organized public corporation, brought an action for injunction and/or prohibition with preliminary injunction to restrain, prohibit and enjoin the herein appellants, particularly the Governor of the Land Authority and the Register of Deeds of Manila, from further implementing Republic Act No. 4118, and praying for the declaration of Republic Act No. 4118 as unconstitutional. With the foregoing antecedent facts, which are all contained in the partial stipulation of facts submitted to the trial court and approved by respondent Judge, the parties waived the presentation of further evidence and submitted the case for decision. On September 23, 1968, judgment was rendered by the trial court declaring Republic Act No. 4118 unconstitutional and invalid on the ground that it deprived the City of Manila of its property without due process of law and payment of just compensation. The respondents were ordered to undo all that had been done to carry out the provisions of said Act and were restrained from further implementing the same. Two issues are presented for determination, on the resolution of which the decision in this case hinges, to wit: I. Is the property involved private or patrimonial property of the City of Manila? II. Is Republic Act No. 4118 valid and not repugnant to the Constitution? I. As regards the first issue, appellants maintain that the land involved is a communal land or "legua comunal" which is a portion of the public domain owned by the State; that it came into existence as such when the City of Manila, or any pueblo or town in the Philippines for that matter, was founded under the laws of Spain, the former sovereign; that upon the establishment of a pueblo, the administrative authority was required to allot and set aside portions of the public domain for a public plaza, a church site, a site for public buildings, lands to serve as common pastures and for streets and roads; that in assigning these lands some lots were earmarked for strictly public purposes, and ownership of these lots (for public purposes) immediately passed to the new municipality; that in the case of common lands or "legua comunal", there was no such immediate acquisition of ownership by the pueblo, and the land though administered thereby, did not automatically become its property in the absence of an express grant from the Central Government, and that the reason for this arrangement is that this class of land was not absolutely needed for the discharge of the municipality's governmental functions. It is argued that the parcel of land involved herein has not been used by the City of Manila for any public purpose and had not been officially earmarked as a site for the erection of some public buildings; that this circumstance confirms the fact that it was originally "communal" land alloted to the City of Manila by the Central Government not because it was needed in connection with its organization as a municipality but simply for the common use of its inhabitants; that the present City of Manila as successor of the Ayuntamiento de Manila under the former Spanish sovereign merely enjoys the usufruct over said land, and its exercise of acts of ownership by selling parts thereof did not necessarily convert the land into a

patrimonial property of the City of Manila nor divest the State of its paramount title. Appellants further argue that a municipal corporation, like a city is a governmental agent of the State with authority to govern a limited portion of its territory or to administer purely local affairs in a given political subdivision, and the extent of its authority is strictly delimited by the grant of power conferred by the State; that Congress has the exclusive power to create, change or destroy municipal corporations; that even if We admit that legislative control over municipal corporations is not absolute and even if it is true that the City of Manila has a registered title over the property in question, the mere transfer of such land by an act of the legislature from one class of public land to another, without compensation, does not invade the vested rights of the City. Appellants finally argue that Republic Act No. 4118 has treated the land involved as one reserved for communal use, and this classification is conclusive upon the courts; that if the City of Manila feels that this is wrong and its interests have been thereby prejudiced, the matter should be brought to the attention of Congress for correction; and that since Congress, in the exercise of its wide discretionary powers has seen fit to classify the land in question as communal, the Courts certainly owe it to a coordinate branch of the Government to respect such determination and should not interfere with the enforcement of the law. Upon the other hand, appellees argue by simply quoting portions of the appealed decision of the trial court, which read thus: The respondents (petitioners-appellants herein) contend, among other defenses, that the property in question is communal property. This contention is, however, disproved by Original Certificate of Title No. 4329 issued on August 21, 1920 in favor of the City of Manila after the land in question was registered in the City's favor. The Torrens Title expressly states that the City of Manila was the owner in 'fee simple' of the said land. Under Sec. 38 of the Land Registration Act, as amended, the decree of confirmation and registration in favor of the City of Manila ... shall be conclusive upon and against all persons including the Insular Government and all the branches there ... There is nothing in the said certificate of title indicating that the land was 'communal' land as contended by the respondents. The erroneous assumption by the Municipal Board of Manila that the land in question was communal land did not make it so. The Municipal Board had no authority to do that. The respondents, however, contend that Congress had the power and authority to declare that the land in question was 'communal' land and the courts have no power or authority to make a contrary finding. This contention is not entirely correct or accurate. Congress has the power to classify 'land of the public domain', transfer them from one classification to another and declare them disposable or not. Such power does not, however, extend to properties which are owned by cities, provinces and municipalities in their 'patrimonial' capacity. Art. 324 of the Civil Code provides that properties of provinces, cities and municipalities are divided into properties for public use and patrimonial property. Art. 424 of the same code provides that properties for public use consist of provincial roads, city streets, municipal streets, the squares, fountains, public waters, promenades and public works for public service paid for by said province, cities or municipalities. All other property possessed by any of them is patrimonial. Tested by this criterion the Court finds and holds that the land in question is patrimonial property of the City of Manila. Respondents contend that Congress has declared the land in question to be 'communal' and, therefore, such designation is conclusive upon the courts. The Courts holds otherwise. When a statute is assailed as unconstitutional the Courts have the power and authority to inquire into the question and pass upon it. This has long ago been settled in Marbury vs. Madison, 2 L. ed. 60, when the United States Supreme Court speaking thru Chief Justice Marshall held: ... If an act of the legislature, repugnant to the constitution, is void, does it, notwithstanding its validity, bind the courts, and oblige them to give effect? It is emphatically the province and duty of the judicial department to say what the law is ... So if a law be in opposition to the constitution; if both the law and the constitution apply to a particular case, so that the court must either decide that case conformable to the constitution, disregarding the law, the court must determine which of these conflicting rules governs the case. This is of the very essence of unconstitutional judicial duty. Appellees finally concluded that when the courts declare a law unconstitutional it does not mean that the judicial power is superior to the legislative power. It simply means that the power of the people is superior to both and that when the will of the legislature, declared in statutes, stands in opposition to that of the

people, declared in the Constitution, the judges ought to be governed by the Constitution rather than by the statutes. There is one outstanding factor that should be borne in mind in resolving the character of the land involved, and it is that the City of Manila, although declared by the Cadastral Court as owner in fee simple, has not shown by any shred of evidence in what manner it acquired said land as its private or patrimonial property. It is true that the City of Manila as well as its predecessor, the Ayuntamiento de Manila, could validly acquire property in its corporate or private capacity, following the accepted doctrine on the dual character public and private of a municipal corporation. And when it acquires property in its private capacity, it acts like an ordinary person capable of entering into contracts or making transactions for the transmission of title or other real rights. When it comes to acquisition of land, it must have done so under any of the modes established by law for the acquisition of ownership and other real rights. In the absence of a title deed to any land claimed by the City of Manila as its own, showing that it was acquired with its private or corporate funds, the presumption is that such land came from the State upon the creation of the municipality (Unson vs. Lacson, et al., 100 Phil. 695). Originally the municipality owned no patrimonial property except those that were granted by the State not for its public but for private use. Other properties it owns are acquired in the course of the exercise of its corporate powers as a juridical entity to which category a municipal corporation pertains. Communal lands or "legua comunal" came into existence when a town or pueblo was established in this country under the laws of Spain (Law VII, Title III, Book VI, Recopilacion de las Leyes de Indios). The municipalities of the Philippines were not entitled, as a matter of right, to any part of the public domain for use as communal lands. The Spanish law provided that the usufruct of a portion of the public domain adjoining municipal territory might be granted by the Government for communal purposes, upon proper petition, but, until granted, no rights therein passed to the municipalities, and, in any event, the ultimate title remained in the sovereign (City of Manila vs. Insular Government, 10 Phil. 327). For the establishment, then, of new pueblos the administrative authority of the province, in representation of the Governor General, designated the territory for their location and extension and the metes and bounds of the same; and before alloting the lands among the new settlers, a special demarcation was made of the places which were to serve as the public square of the pueblo, for the erection of the church, and as sites for the public buildings, among others, the municipal building or the casa real, as well as of the lands whick were to constitute the common pastures, and propios of the municipality and the streets and roads which were to intersect the new town were laid out, ... . (Municipality of Catbalogan vs. Director of Lands, 17 Phil. 216, 220) (Emphasis supplied) It may, therefore, be laid down as a general rule that regardless of the source or classification of land in the possession of a municipality, excepting those acquired with its own funds in its private or corporate capacity, such property is held in trust for the State for the benefit of its inhabitants, whether it be for governmental or proprietary purposes. It holds such lands subject to the paramount power of the legislature to dispose of the same, for after all it owes its creation to it as an agent for the performance of a part of its public work, the municipality being but a subdivision or instrumentality thereof for purposes of local administration. Accordingly, the legal situation is the same as if the State itself holds the property and puts it to a different use (2 McQuilin,Municipal Corporations, 3rd Ed., p. 197, citing Monagham vs. Armatage, 218 Minn. 27, 15 N. W. 2nd 241). True it is that the legislative control over a municipal corporation is not absolute even when it comes to its property devoted to public use, for such control must not be exercised to the extent of depriving persons of their property or rights without due process of law, or in a manner impairing the obligations of contracts. Nevertheless, when it comes to property of the municipality which it did not acquire in its private or corporate capacity with its own funds, the legislature can transfer its administration and disposition to an agency of the National Government to be disposed of according to its discretion. Here it did so in obedience to the constitutional mandate of promoting social justice to insure the well-being and economic security of the people. It has been held that a statute authorizing the transfer of a Municipal airport to an Airport Commission created by the legislature, even without compensation to the city, was not violative of the due process clause of the American Federal Constitution. The Supreme Court of Minnessota in Monagham vs. Armatage, supra, said: ... The case is controlled by the further rule that the legislature, having plenary control of the local municipality, of its creation and of all its affairs, has the right to authorize or direct the expenditures of money in its treasury, though raised, for a particular purpose, for any legitimate municipal purpose, or to order and direct a distribution thereof upon a division of the territory into separate municipalities ... . The local municipality has no such vested right in or to its public funds, like that which the Constitution protects in the individual as precludes legislative interferences. People vs. Power, 25 Ill. 187; State Board (of Education) vs. City, 56 Miss. 518. As remarked by the supreme court of

Maryland in Mayor vs. Sehner, 37 Md. 180: "It is of the essence of such a corporation, that the government has the sole right as trustee of the public interest, at its own good will and pleasure, to inspect, regulate, control, and direct the corporation, its funds, and franchises." We therefore hold that c.500, in authorizing the transfer of the use and possession of the municipal airport to the commission without compensation to the city or to the park board, does not violate the Fourteenth Amendment to the Constitution of the United States. The Congress has dealt with the land involved as one reserved for communal use (terreno comunal). The act of classifying State property calls for the exercise of wide discretionary legislative power and it should not be interfered with by the courts. This brings Us to the second question as regards the validity of Republic Act No. 4118, viewed in the light of Article III, Sections 1, subsection (1) and (2) of the Constitution which ordain that no person shall be deprived of his property without due process of law and that no private property shall be taken for public use without just compensation. II . The trial court declared Republic Act No. 4118 unconstitutional for allegedly depriving the City of Manila of its property without due process of law and without payment of just compensation. It is now well established that the presumption is always in favor of the constitutionality of a law (U S. vs. Ten Yu, 24 Phil. 1; Go Ching, et al. vs. Dinglasan, et al., 45 O.G. No. 2, pp. 703, 705). To declare a law unconstitutional, the repugnancy of that law to the Constitution must be clear and unequivocal, for even if a law is aimed at the attainment of some public good, no infringement of constitutional rights is allowed. To strike down a law there must be a clear showing that what the fundamental law condemns or prohibits, the statute allows it to be done (Morfe vs. Mutuc, et al., G.R. No. L-20387, Jan. 31, 1968; 22 SCRA 424). That situation does not obtain in this case as the law assailed does not in any manner trench upon the constitution as will hereafter be shown. Republic Act No. 4118 was intended to implement the social justice policy of the Constitution and the Government program of "Land for the Landless". The explanatory note of House Bill No. 1453 which became Republic Act No. 4118, reads in part as follows: Approval of this bill will implement the policy of the administration of "land for the landless" and the Fifth Declaration of Principles of the Constitution which states that "the promotion of social justice to insure the well-being and economic security of all people should be the concern of the State." We are ready and willing to enact legislation promoting the social and economic well-being of the people whenever an opportunity for enacting such kind of legislation arises. The respondent Court held that Republic Act No. 4118, "by converting the land in question which is the patrimonial property of the City of Manila into disposable alienable land of the State and placing it under the disposal of the Land Tenure Administration violates the provisions of Article III (Secs. 1 and 2) of the Constitution which ordain that "private property shall not be taken for public use without just compensation, and that no person shall be deprived of life, liberty or property without due process of law". In support thereof reliance is placed on the ruling in Province of Zamboanga del Norte vs. City of Zamboanga, G.R. No. 2440, March 28, 1968; 22 SCRA 1334, which holds that Congress cannot deprive a municipality of its private or patrimonial property without due process of law and without payment of just compensation since it has no absolute control thereof. There is no quarrel over this rule if it is undisputed that the property sought to be taken is in reality a private or patrimonial property of the municipality or city. But it would be simply begging the question to classify the land in question as such. The property, as has been previously shown, was not acquired by the City of Manila with its own funds in its private or proprietary capacity. That it has in its name a registered title is not questioned, but this title should be deemed to be held in trust for the State as the land covered thereby was part of the territory of the City of Manila granted by the sovereign upon its creation. That the National Government, through the Director of Lands, represented by the Solicitor General, in the cadastral proceedings did not contest the claim of the City of Manila that the land is its property, does not detract from its character as State property and in no way divests the legislature of its power to deal with it as such, the state not being bound by the mistakes and/or negligence of its officers. One decisive fact that should be noted is that the City of Manila expressly recognized the paramount title of the State over said land when by its resolution of September 20, 1960, the Municipal Board, presided by then Vice-Mayor Antonio Villegas, requested "His Excellency the President of the Philippines to consider the feasibility of declaring the city property bounded by Florida, San Andres and Nebraska Streets, under Transfer Certificate of Title Nos. 25545 and 25547, containing an area of 7,450 square meters, as patrimonial property of the City of Manila for the purpose of reselling these lots to the actual occupants thereof." (See Annex E, Partial Stipulation of Facts, Civil Case No. 67945, CFI, Manila, p. 121, Record of the Case) [Emphasis Supplied] The alleged patrimonial character of the land under the ownership of the City of Manila is totally belied by

the City's own official act, which is fatal to its claim since the Congress did not do as bidden. If it were its patrimonial property why should the City of Manila be requesting the President to make representation to the legislature to declare it as such so it can be disposed of in favor of the actual occupants? There could be no more blatant recognition of the fact that said land belongs to the State and was simply granted in usufruct to the City of Manila for municipal purposes. But since the City did not actually use said land for any recognized public purpose and allowed it to remain idle and unoccupied for a long time until it was overrun by squatters, no presumption of State grant of ownership in favor of the City of Manila may be acquiesced in to justify the claim that it is its own private or patrimonial property (Municipality of Tigbauan vs. Director of Lands, 35 Phil. 798; City of Manila vs. Insular Government, 10 Phil. 327; Municipality of Luzuriaga vs. Director of Lands, 24 Phil. 193). The conclusion of the respondent court that Republic Act No. 4118 converted a patrimonial property of the City of Manila into a parcel of disposable land of the State and took it away from the City without compensation is, therefore, unfounded. In the last analysis the land in question pertains to the State and the City of Manila merely acted as trustee for the benefit of the people therein for whom the State can legislate in the exercise of its legitimate powers. Republic Act No. 4118 was never intended to expropriate the property involved but merely to confirm its character as communal land of the State and to make it available for disposition by the National Government: And this was done at the instance or upon the request of the City of Manila itself. The subdivision of the land and conveyance of the resulting subdivision lots to the occupants by Congressional authorization does not operate as an exercise of the power of eminent domain without just compensation in violation of Section 1, subsection (2), Article III of the Constitution, but simply as a manifestation of its right and power to deal with state property. It should be emphasized that the law assailed was enacted upon formal written petition of the Municipal Board of Manila in the form of a legally approved resolution. The certificate of title over the property in the name of the City of Manila was accordingly cancelled and another issued to the Land Tenure Administration after the voluntary surrender of the City's duplicate certificate of title by the City Treasurer with the knowledge and consent of the City Mayor. To implement the provisions of Republic Act No. 4118, the then Deputy Governor of the Land Authority sent a letter, dated February 18, 1965, to the City Mayor furnishing him with a copy of the "proposed subdivision plan of the said lot as prepared for the Republic of the Philippines for subdivision and resale by the Land Authority to bona fide applicants." On March 2, 1965, the Mayor of Manila, through his Executive and Technical Adviser, acknowledged receipt of the subdivision plan and informed the Land Authority that his Office "will interpose no objection to the implementation of said law provided that its provisions are strictly complied with." The foregoing sequence of events, clearly indicate a pattern of regularity and observance of due process in the reversion of the property to the National Government. All such acts were done in recognition by the City of Manila of the right and power of the Congress to dispose of the land involved. Consequently, the City of Manila was not deprived of anything it owns, either under the due process clause or under the eminent domain provisions of the Constitution. If it failed to get from the Congress the concession it sought of having the land involved given to it as its patrimonial property, the Courts possess no power to grant that relief. Republic Act No. 4118 does not, therefore, suffer from any constitutional infirmity. WHEREFORE, the appealed decision is hereby reversed, and petitioners shall proceed with the free and untrammeled implementation of Republic Act No. 4118 without any obstacle from the respondents. Without costs. Concepcion, C.J., Makalintal, Zaldivar, Castro, Fernando, Teehankee and Antonio, JJ., concur. Barredo and Makasiar, JJ., took no part.

Footnotes 1 Pages 79-80, Rollo. 2 Annex "E" to the Partial Stipulation of Facts, page 121, Records. 3 Annex "E-1" to the Partial Stipulation of Facts, page 122, Records. 4 Annex "F" to the Partial Stipulation of Facts, page l23, Records. 5 Annex "F-1", page 128, Records. 6 Annex "J", page 142, Records.

7 Annex "K", page 145, Records. 8 Annexes "L" and "L-1", pages 145-147, Records. 9 Annexes "A" and "N", pages 148-150, Records.

G.R. No. L-24440

March 28, 1968

THE PROVINCE OF ZAMBOANGA DEL NORTE, plaintiff-appellee, vs. CITY OF ZAMBOANGA, SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE,defendants-appellants. Fortugaleza, Lood, Sarmiento, M. T. Yap & Associates for plaintiff-appellee. Office of the Solicitor General for defendants-appellants. BENGZON, J.P., J.: Prior to its incorporation as a chartered city, the Municipality of Zamboanga used to be the provincial capital of the then Zamboanga Province. On October 12, 1936, Commonwealth Act 39 was approved converting the Municipality of Zamboanga into Zamboanga City. Sec. 50 of the Act also provided that Buildings and properties which the province shall abandon upon the transfer of the capital to another place will be acquired and paid for by the City of Zamboanga at a price to be fixed by the Auditor General. The properties and buildings referred to consisted of 50 lots and some buildings constructed thereon, located in the City of Zamboanga and covered individually by Torrens certificates of title in the name of Zamboanga Province. As far as can be gleaned from the records, 1 said properties were being utilized as follows No. of Lots Use 1 ................................................ Capitol Site 3 ................................................ School Site 3 ................................................ Hospital Site 3 ................................................ Leprosarium 1 ................................................ Curuan School 1 ................................................ Trade School 2 ................................................ Burleigh School 2 ................................................ High School Playground 9 ................................................ Burleighs 1 ................................................ Hydro-Electric Site (Magay) 1 ................................................ San Roque 23 ................................................ vacant It appears that in 1945, the capital of Zamboanga Province was transferred to Dipolog. 2 Subsequently, or on June 16, 1948, Republic Act 286 was approved creating the municipality of Molave and making it the capital of Zamboanga Province. On May 26, 1949, the Appraisal Committee formed by the Auditor General, pursuant to Commonwealth Act 39, fixed the value of the properties and buildings in question left by Zamboanga Province in Zamboanga City at P1,294,244.00. 3 On June 6, 1952, Republic Act 711 was approved dividing the province of Zamboanga into two (2): Zamboanga del Norte and Zamboanga del Sur. As to how the assets and obligations of the old province were to be divided between the two new ones, Sec. 6 of that law provided: Upon the approval of this Act, the funds, assets and other properties and the obligations of the province of Zamboanga shall be divided equitably between the Province of Zamboanga del Norte and the Province of Zamboanga del Sur by the President of the Philippines, upon the recommendation of the Auditor General.

Pursuant thereto, the Auditor General, on January 11, 1955, apportioned the assets and obligations of the defunct Province of Zamboanga as follows: 54.39% for Zamboanga del Norte and 45.61% for Zamboanga del Sur. Zamboanga del Norte therefore became entitled to 54.39% of P1,294,244.00, the total value of the lots and buildings in question, or P704,220.05 payable by Zamboanga City. On March 17, 1959, the Executive Secretary, by order of the President, issued a ruling 4 holding that Zamboanga del Norte had a vested right as owner (should be co-owner pro-indiviso) of the properties mentioned in Sec. 50 of Commonwealth Act 39, and is entitled to the price thereof, payable by Zamboanga City. This ruling revoked the previous Cabinet Resolution of July 13, 1951 conveying all the said 50 lots and buildings thereon to Zamboanga City for P1.00, effective as of 1945, when the provincial capital of the then Zamboanga Province was transferred to Dipolog. The Secretary of Finance then authorized the Commissioner of Internal Revenue to deduct an amount equal to 25% of the regular internal revenue allotment for the City of Zamboanga for the quarter ending March 31, 1960, then for the quarter ending June 30, 1960, and again for the first quarter of the fiscal year 1960-1961. The deductions, all aggregating P57,373.46, was credited to the province of Zamboanga del Norte, in partial payment of the P764,220.05 due it. However, on June 17, 1961, Republic Act 3039 was approved amending Sec. 50 of Commonwealth Act 39 by providing that All buildings, properties and assets belonging to the former province of Zamboanga and located within the City of Zamboanga are hereby transferred, free of charge, in favor of the said City of Zamboanga. (Stressed for emphasis). Consequently, the Secretary of Finance, on July 12, 1961, ordered the Commissioner of Internal Revenue to stop from effecting further payments to Zamboanga del Norte and to return to Zamboanga City the sum of P57,373.46 taken from it out of the internal revenue allotment of Zamboanga del Norte. Zamboanga City admits that since the enactment of Republic Act 3039, P43,030.11 of the P57,373.46 has already been returned to it. This constrained plaintiff-appellee Zamboanga del Norte to file on March 5, 1962, a complaint entitled "Declaratory Relief with Preliminary Mandatory Injunction" in the Court of First Instance of Zamboanga del Norte against defendants-appellants Zamboanga City, the Secretary of Finance and the Commissioner of Internal Revenue. It was prayed that: (a) Republic Act 3039 be declared unconstitutional for depriving plaintiff province of property without due process and just compensation; (b) Plaintiff's rights and obligations under said law be declared; (c) The Secretary of Finance and the Internal Revenue Commissioner be enjoined from reimbursing the sum of P57,373.46 to defendant City; and (d) The latter be ordered to continue paying the balance of P704,220.05 in quarterly installments of 25% of its internal revenue allotments. On June 4, 1962, the lower court ordered the issuance of preliminary injunction as prayed for. After defendants filed their respective answers, trial was held. On August 12, 1963, judgment was rendered, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered declaring Republic Act No. 3039 unconstitutional insofar as it deprives plaintiff Zamboanga del Norte of its private properties, consisting of 50 parcels of land and the improvements thereon under certificates of title (Exhibits "A" to "A-49") in the name of the defunct province of Zamboanga; ordering defendant City of Zamboanga to pay to the plaintiff the sum of P704,220.05 payment thereof to be deducted from its regular quarterly internal revenue allotment equivalent to 25% thereof every quarter until said amount shall have been fully paid; ordering defendant Secretary of Finance to direct defendant Commissioner of Internal Revenue to deduct 25% from the regular quarterly internal revenue allotment for defendant City of Zamboanga and to remit the same to plaintiff Zamboanga del Norte until said sum of P704,220.05 shall have been fully paid; ordering plaintiff Zamboanga del Norte to execute through its proper officials the corresponding public instrument deeding to defendant City of Zamboanga the 50 parcels of land and the improvements thereon under the certificates of title (Exhibits "A" to "A-49") upon payment by the latter of the aforesaid sum of P704,220.05 in full; dismissing the counterclaim of defendant City of Zamboanga; and declaring permanent the preliminary mandatory injunction issued on June 8, 1962, pursuant to the order of the Court dated June 4, 1962. No costs are assessed against the defendants. It is SO ORDERED. Subsequently, but prior to the perfection of defendants' appeal, plaintiff province filed a motion to reconsider praying that Zamboanga City be ordered instead to pay the P704,220.05 in lump sum with 6% interest per annum. Over defendants' opposition, the lower court granted plaintiff province's motion. The defendants then brought the case before Us on appeal.

Brushing aside the procedural point concerning the property of declaratory relief filed in the lower court on the assertion that the law had already been violated and that plaintiff sought to give it coercive effect, since assuming the same to be true, the Rules anyway authorize the conversion of the proceedings to an ordinary action, 5 We proceed to the more important and principal question of the validity of Republic Act 3039. The validity of the law ultimately depends on the nature of the 50 lots and buildings thereon in question. For, the matter involved here is the extent of legislative control over the properties of a municipal corporation, of which a province is one. The principle itself is simple: If the property is owned by the municipality (meaning municipal corporation) in its public and governmental capacity, the property is public and Congress has absolute control over it. But if the property is owned in its private or proprietary capacity, then it is patrimonial and Congress has no absolute control. The municipality cannot be deprived of it without due process and payment of just compensation. 6 The capacity in which the property is held is, however, dependent on the use to which it is intended and devoted. Now, which of two norms, i.e., that of the Civil Code or that obtaining under the law of Municipal Corporations, must be used in classifying the properties in question? The Civil Code classification is embodied in its Arts. 423 and 424 which provide:1wph1.t ART. 423. The property of provinces, cities, and municipalities is divided into property for public use and patrimonial property. ART. 424. Property for public use, in the provinces, cities, and municipalities, consists of the provincial roads, city streets, municipal streets, the squares, fountains, public waters, promenades, and public works for public service paid for by said provinces, cities, or municipalities. All other property possessed by any of them is patrimonial and shall be governed by this Code, without prejudice to the provisions of special laws. (Stressed for emphasis). Applying the above cited norm, all the properties in question, except the two (2) lots used as High School playgrounds, could be considered as patrimonial properties of the former Zamboanga province. Even the capital site, the hospital and leprosarium sites, and the school sites will be considered patrimonial for they are not for public use. They would fall under the phrase "public works for public service" for it has been held that under theejusdem generis rule, such public works must be for free and indiscriminate use by anyone, just like the preceding enumerated properties in the first paragraph of Art 424. 7 The playgrounds, however, would fit into this category. This was the norm applied by the lower court. And it cannot be said that its actuation was without jurisprudential precedent for in Municipality of Catbalogan v. Director of Lands, 8 and in Municipality of Tacloban v. Director of Lands, 9 it was held that the capitol site and the school sites in municipalities constitute their patrimonial properties. This result is understandable because, unlike in the classification regarding State properties, properties for public service in the municipalities are not classified as public. Assuming then the Civil Code classification to be the chosen norm, the lower court must be affirmed except with regard to the two (2) lots used as playgrounds. On the other hand, applying the norm obtaining under the principles constituting the law of Municipal Corporations, all those of the 50 properties in question which are devoted to public service are deemed public; the rest remain patrimonial. Under this norm, to be considered public, it is enough that the property be held and, devoted for governmental purposes like local administration, public education, public health, etc. 10 Supporting jurisprudence are found in the following cases: (1) HINUNANGAN V. DIRECTOR OF LANDS, 11where it was stated that "... where the municipality has occupied lands distinctly for public purposes, such as for the municipal court house, the public school, the public market, or other necessary municipal building, we will, in the absence of proof to the contrary, presume a grant from the States in favor of the municipality; but, as indicated by the wording, that rule may be invoked only as to property which is used distinctly for public purposes...." (2) VIUDA DE TANTOCO V. MUNICIPAL COUNCIL OF ILOILO 12 held that municipal properties necessary for governmental purposes are public in nature. Thus, the auto trucks used by the municipality for street sprinkling, the police patrol automobile, police stations and concrete structures with the corresponding lots used as markets were declared exempt from execution and attachment since they were not patrimonial properties. (3) MUNICIPALITY OF BATANGAS VS. CANTOS 13 held squarely that a municipal lot which had always been devoted to school purposes is one dedicated to public use and is not patrimonial property of a municipality. Following this classification, Republic Act 3039 is valid insofar as it affects the lots used as capitol site, school sites and its grounds, hospital and leprosarium sites and the high school playground sites a total of 24 lots since these were held by the former Zamboanga province in its governmental capacity and therefore are subject to the absolute control of Congress. Said lots considered as public property are

the following: TCT Number 2200 2816 3281 3282 3283 3748 5406 5564 5567 5583 6181 11942 11943 11944 5557 5562 5565 5570 5571 5572 5573 5585 5586 5587 Lot Number ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... 4-B 149 1224 1226 1225 434-A-1 171 Use ...................................... Capitol Site ...................................... School Site ...................................... Hospital Site ...................................... Hospital Site ...................................... Hospital Site ...................................... School Site ...................................... School Site High School 168 ...................................... Play-ground 157 & 158 ...................................... Trade School High School 167 ...................................... Play-ground (O.C.T.) ...................................... Curuan School 926 ...................................... Leprosarium 927 ...................................... Leprosarium 925 ...................................... Leprosarium 170 ...................................... Burleigh School 180 ...................................... Burleigh School 172-B ...................................... Burleigh 171-A ...................................... Burleigh 172-C ...................................... Burleigh 174 ...................................... Burleigh 178 ...................................... Burleigh 171-B ...................................... Burleigh 173 ...................................... Burleigh 172-A ...................................... Burleigh

We noticed that the eight Burleigh lots above described are adjoining each other and in turn are between the two lots wherein the Burleigh schools are built, as per records appearing herein and in the Bureau of Lands. Hence, there is sufficient basis for holding that said eight lots constitute the appurtenant grounds of the Burleigh schools, and partake of the nature of the same. Regarding the several buildings existing on the lots above-mentioned, the records do not disclose whether they were constructed at the expense of the former Province of Zamboanga. Considering however the fact that said buildings must have been erected even before 1936 when Commonwealth Act 39 was enacted and the further fact that provinces then had no power to authorize construction of buildings such as those in the case at bar at their own expense, 14 it can be assumed that said buildings were erected by the National Government, using national funds. Hence, Congress could very well dispose of said buildings in the same manner that it did with the lots in question. But even assuming that provincial funds were used, still the buildings constitute mere accessories to the lands, which are public in nature, and so, they follow the nature of said lands, i.e., public. Moreover, said buildings, though located in the city, will not be for the exclusive use and benefit of city residents for they could be availed of also by the provincial residents. The province then and its successors-ininterest are not really deprived of the benefits thereof. But Republic Act 3039 cannot be applied to deprive Zamboanga del Norte of its share in the value of the rest of the 26 remaining lots which are patrimonial properties since they are not being utilized for distinctly, governmental purposes. Said lots are: 5577 13198 5569 5558 5559 5560 5561 5563 TCT Number ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... Lot Number 177 ...................................... 127-0 ...................................... 169 ...................................... 175 ...................................... 188 ...................................... 183 ...................................... 186 ...................................... 191 ...................................... Use Mydro, Magay San Roque Burleigh 15 Vacant " " " "

5566 5568 5574 5575 5576 5578 5579 5580 5581 5582 5584 5588 5589 5590 5591 5592 5593 7379

...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ......................................

176 179 196 181-A 181-B 182 197 195 159-B 194 190 184 187 189 192 193 185 4147

...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ...................................... ......................................

" " " " " " " " " " " " " " " " " "

Moreover, the fact that these 26 lots are registered strengthens the proposition that they are truly private in nature. On the other hand, that the 24 lots used for governmental purposes are also registered is of no significance since registration cannot convert public property to private. 16 We are more inclined to uphold this latter view. The controversy here is more along the domains of the Law of Municipal Corporations State vs. Province than along that of Civil Law. Moreover, this Court is not inclined to hold that municipal property held and devoted to public service is in the same category as ordinary private property. The consequences are dire. As ordinary private properties, they can be levied upon and attached. They can even be acquired thru adverse possession all these to the detriment of the local community. Lastly, the classification of properties other than those for public use in the municipalities as patrimonial under Art. 424 of the Civil Code is "... without prejudice to the provisions of special laws." For purpose of this article, the principles, obtaining under the Law of Municipal Corporations can be considered as "special laws". Hence, the classification of municipal property devoted for distinctly governmental purposes as public should prevail over the Civil Code classification in this particular case. Defendants' claim that plaintiff and its predecessor-in-interest are "guilty of laches is without merit. Under Commonwealth Act 39, Sec. 50, the cause of action in favor of the defunct Zamboanga Province arose only in 1949 after the Auditor General fixed the value of the properties in question. While in 1951, the Cabinet resolved transfer said properties practically for free to Zamboanga City, a reconsideration thereof was seasonably sought. In 1952, the old province was dissolved. As successor-in-interest to more than half of the properties involved, Zamboanga del Norte was able to get a reconsideration of the Cabinet Resolution in 1959. In fact, partial payments were effected subsequently and it was only after the passage of Republic Act 3039 in 1961 that the present controversy arose. Plaintiff brought suit in 1962. All the foregoing, negative laches. It results then that Zamboanga del Norte is still entitled to collect from the City of Zamboanga the former's 54.39% share in the 26 properties which are patrimonial in nature, said share to computed on the basis of the valuation of said 26 properties as contained in Resolution No. 7, dated March 26, 1949, of the Appraisal Committee formed by the Auditor General. Plaintiff's share, however, cannot be paid in lump sum, except as to the P43,030.11 already returned to defendant City. The return of said amount to defendant was without legal basis. Republic Act 3039 took effect only on June 17, 1961 after a partial payment of P57,373.46 had already been made. Since the law did not provide for retroactivity, it could not have validly affected a completed act. Hence, the amount of P43,030.11 should be immediately returned by defendant City to plaintiff province. The remaining balance, if any, in the amount of plaintiff's 54.39% share in the 26 lots should then be paid by defendant City in the same manner originally adopted by the Secretary of Finance and the Commissioner of Internal Revenue, and not in lump sum. Plaintiff's prayer, particularly pars. 5 and 6, read together with pars. 10 and 11 of the first cause of action recited in the complaint 17 clearly shows that the relief sought was merely the continuance of the quarterly payments from the internal revenue allotments of defendant City. Art. 1169 of the Civil Code on reciprocal obligations invoked by plaintiff to justify lump sum payment is inapplicable since there has been so far in legal contemplation no complete delivery of the lots in question. The titles to the registered lots are not yet in the name of defendant Zamboanga City. WHEREFORE, the decision appealed from is hereby set aside and another judgment is hereby

entered as follows:. (1) Defendant Zamboanga City is hereby ordered to return to plaintiff Zamboanga del Norte in lump sum the amount of P43,030.11 which the former took back from the latter out of the sum of P57,373.46 previously paid to the latter; and (2) Defendants are hereby ordered to effect payments in favor of plaintiff of whatever balance remains of plaintiff's 54.39% share in the 26 patrimonial properties, after deducting therefrom the sum of P57,373.46, on the basis of Resolution No. 7 dated March 26, 1949 of the Appraisal Committee formed by the Auditor General, by way of quarterly payments from the allotments of defendant City, in the manner originally adopted by the Secretary of Finance and the Commissioner of Internal Revenue. No costs. So ordered. Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. Concepcion, C.J., is on leave. Footnotes
1

See Record on Appeal, pp. 4-6. See Exhibit C. The Committee report itself was not submitted as evidence Exhibit C. Rule 64, Sec. 6, Rules of Court.

2 McQuillin, Municipal Corporations, 3rd ed., 191-196; Martin Public Corporation, 5th ed., 31-32; Gonzales, Law on Public Corporations, 1962 ed., 29-30; Municipality of Naguilian v. NWSA, L18452, Nov. 29, 1963.
6 7

Cebu City v. NWSA, L-12892, Apr. 30, 1962. 17 Phil. 216. 17 Phil. 426. Martin, op. cit., supra.; Gonzales, op cit., supra.; 62 C.J. 8. 437-439. 24 Phil. 124. 49 Phil. 52. 91 Phil. 514.

10

11

12

13

It was only in Republic Act 2264, Sec. 3, last paragraph, that provinces, cities and municipalities were "... authorized to undertake and carry out any public works projects, financed by the provincial city and municipal funds or any other fund borrowed from or advanced by private third parties .. without the intervention of the Department of Public Works and Communications." (Stressed for emphasis) This law was approved and took effect on June 19, 1959.
14

This could not be considered as forming part of the appurtenant grounds of the Burleigh school sites since the records here and in the Bureau of Lands show that this lot is set apart from the other Burleigh lots.
15 16

Republic v. Sioson, L-13687, Nov. 29, 1963; Hodges V. City of Iloilo, L-17573, June 30, 1962. Record on Appeal, pp. 8-9, 13.

17

G.R. No. L-41506

March 25, 1935 PHILIPPINE REFINING CO., INC., plaintiff-appellant, vs. FRANCISCO JARQUE

,JOSE COROMINAS, and ABOITIZ & CO., defendants. JOSE COROMINAS, in his capacity as assignee of the estate of the insolvent Francisco Jarque,appellee. Thos. G. Ingalls, Vicente Pelaez and DeWitt, Perkins and Brady for appellant. D.G. McVean and Vicente L. Faelnar for appellee. MALCOLM, J.: First of all the reason why the case has been decided by the court in banc needs explanation. A motion was presented by counsel for the appellant in which it was asked that the case be heard and determined by the court sitting in banc because the admiralty jurisdiction of the court was involved, and this motion was granted in regular course. On further investigation it appears that this was error. The mere mortgage of a ship is a contract entered into by the parties to it without reference to navigation or perils of the sea, and does not, therefore, confer admiralty jurisdiction. (Bogart vs. Steamboat John Jay [1854], 17 How., 399.) Coming now to the merits, it appears that on varying dates the Philippine Refining Co., Inc., and Francisco Jarque executed three mortgages on the motor vessels Pandan and Zaragoza. These documents were recorded in the record of transfers and incumbrances of vessels for the port of Cebu and each was therein denominated a "chattel mortgage". Neither of the first two mortgages had appended an affidavit of good faith. The third mortgage contained such an affidavit, but this mortgage was not registered in the customs house until May 17, 1932, or within the period of thirty days prior to the commencement of insolvency proceedings against Francisco Jarque; also, while the last mentioned mortgage was subscribed by Francisco Jarque and M. N. Brink, there was nothing to disclose in what capacity the said M. N. Brink signed. A fourth mortgage was executed by Francisco Jarque and Ramon Aboitiz on the motorship Zaragoza and was entered in the chattel mortgage registry of the register of deeds on May 12, 1932, or again within the thirty-day period before the institution of insolvency proceedings. These proceedings were begun on June 2, 1932, when a petition was filed with the Court of First Instance of Cebu in which it was prayed that Francisco Jarque be declared an insolvent debtor, which soon thereafter was granted, with the result that an assignment of all the properties of the insolvent was executed in favor of Jose Corominas. On these facts, Judge Jose M. Hontiveros declined to order the foreclosure of the mortgages, but on the contrary sustained the special defenses of fatal defectiveness of the mortgages. In so doing we believe that the trial judge acted advisedly. Vessels are considered personal property under the civil law. (Code of Commerce, article 585.) Similarly under the common law, vessels are personal property although occasionally referred to as a peculiar kind of personal property. (Reynolds vs. Nielson [1903], 96 Am. Rep., 1000; Atlantic Maritime Co vs. City of Gloucester [1917], 117 N. E., 924.) Since the term "personal property" includes vessels, they are subject to mortgage agreeably to the provisions of the Chattel Mortgage Law. (Act No. 1508, section 2.) Indeed, it has heretofore been accepted without discussion that a mortgage on a vessel is in nature a chattel mortgage. (McMicking vs. Banco Espaol-Filipino [1909], 13 Phil., 429; Arroyo vs. Yu de Sane [1930], 54 Phil., 511.) The only difference between a chattel mortgage of a vessel and a chattel mortgage of other personalty is that it is not now necessary for a chattel mortgage of a vessel to be noted n the registry of the register of deeds, but it is essential that a record of documents affecting the title to a vessel be entered in the record of the Collector of Customs at the port of entry. (Rubiso and Gelito vs. Rivera [1917], 37 Phil., 72; Arroyo vs. Yu de Sane, supra.) Otherwise a mortgage on a vessel is generally like other chattel mortgages as to its requisites and validity. (58 C.J., 92.) The Chattell Mortgage Law in its section 5, in describing what shall be deemed sufficient to constitute a good chattel mortgage, includes the requirement of an affidavit of good faith appended to the mortgage and recorded therewith. The absence of the affidavit vitiates a mortgage as against creditors and subsequent encumbrancers. (Giberson vs. A. N. Jureidini Bros. [1922], 44 Phil., 216; Benedicto de Tarrosa vs. F. M. Yap Tico & Co. and Provincial Sheriff of Occidental Negros [1923], 46 Phil., 753.) As a consequence a chattel mortgage of a vessel wherein the affidavit of good faith required by the Chattel Mortgage Law is lacking, is unenforceable against third persons. In effect appellant asks us to find that the documents appearing in the record do not constitute chattel mortgages or at least to gloss over the failure to include the affidavit of good faith made a requisite for a good chattel mortgage by the Chattel Mortgage Law. Counsel would further have us disregard article 585 of the Code of Commerce, but no reason is shown for holding this article not in force. Counsel would further have us revise doctrines heretofore announced in a series of cases, which it is not desirable to do since those principles were confirmed after due liberation and constitute a part of the commercial law of the Philippines. And finally counsel would have us make rulings on points entirely foreign to the issues of the case. As neither the facts nor the law remains in doubt, the seven assigned errors will be overruled. Judgment affirmed, the costs of this instance to be paid by the appellant.

Avancea, C.J., Street, Villa-Real, Abad Santos, Hull, Vickers, Imperial, Butte, and Goddard, JJ., concur.

G.R. No. L-41643

July 31, 1935 B.H. BERKENKOTTER, plaintiff-appellant, vs. CU UNJIENG

E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE COMPANY, MABALACAT SUGAR COMPANY and THE PROVINCE SHERIFF OF PAMPANGA, defendants-appellees. Briones and Martinez for appellant. Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos. No appearance for the other appellees. VILLA-REAL, J.: This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the judgment of the Court of First Instance of Manila, dismissing said plaintiff's complaint against Cu Unjiengs e Hijos et al., with costs. In support of his appeal, the appellant assigns six alleged errors as committed by the trial court in its decision in question which will be discussed in the course of this decision. The first question to be decided in this appeal, which is raised in the first assignment of alleged error, is whether or not the lower court erred in declaring that the additional machinery and equipment, as improvement incorporated with the central are subject to the mortgage deed executed in favor of the defendants Cu Unjieng e Hijos. It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc., owner of the sugar central situated in Mabalacat, Pampanga, obtained from the defendants, Cu Unjieng e Hijos, a loan secured by a first mortgage constituted on two parcels and land "with all its buildings, improvements, sugar-cane mill, steel railway, telephone line, apparatus, utensils and whatever forms part or is necessary complement of said sugar-cane mill, steel railway, telephone line, now existing or that may in the future exist is said lots." On October 5, 1926, shortly after said mortgage had been constituted, the Mabalacat Sugar Co., Inc., decided to increase the capacity of its sugar central by buying additional machinery and equipment, so that instead of milling 150 tons daily, it could produce 250. The estimated cost of said additional machinery and equipment was approximately P100,000. In order to carry out this plan, B.A. Green, president of said corporation, proposed to the plaintiff, B.H. Berkenkotter, to advance the necessary amount for the purchase of said machinery and equipment, promising to reimburse him as soon as he could obtain an additional loan from the mortgagees, the herein defendants Cu Unjieng e Hijos. Having agreed to said proposition made in a letter dated October 5, 1926 (Exhibit E), B.H. Berkenkotter, on October 9th of the same year, delivered the sum of P1,710 to B.A. Green, president of the Mabalacat Sugar Co., Inc., the total amount supplied by him to said B.A. Green having been P25,750. Furthermore, B.H. Berkenkotter had a credit of P22,000 against said corporation for unpaid salary. With the loan of P25,750 and said credit of P22,000, the Mabalacat Sugar Co., Inc., purchased the additional machinery and equipment now in litigation. On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu Unjieng e Hijos for an additional loan of P75,000 offering as security the additional machinery and equipment acquired by said B.A. Green and installed in the sugar central after the execution of the original mortgage deed, on April 27, 1927, together with whatever additional equipment acquired with said loan. B.A. Green failed to obtain said loan. Article 1877 of the Civil Code provides as follows. ART. 1877. A mortgage includes all natural accessions, improvements, growing fruits, and rents not collected when the obligation falls due, and the amount of any indemnities paid or due the owner by the insurers of the mortgaged property or by virtue of the exercise of the power of eminent domain, with the declarations, amplifications, and limitations established by law, whether the estate continues in the possession of the person who mortgaged it or whether it passes into the hands of a third person. In the case of Bischoff vs. Pomar and Compaia General de Tabacos (12 Phil., 690), cited with approval in the case of Cea vs. Villanueva (18 Phil., 538), this court laid shown the following doctrine: 1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES IMPROVEMENTS AND FIXTURES.

It is a rule, established by the Civil Code and also by the Mortgage Law, with which the decisions of the courts of the United States are in accord, that in a mortgage of real estate, the improvements on the same are included; therefore, all objects permanently attached to a mortgaged building or land, although they may have been placed there after the mortgage was constituted, are also included. (Arts. 110 and 111 of the Mortgage Law, and 1877 of the Civil Code; decision of U.S. Supreme Court in the matter of Royal Insurance Co. vs. R. Miller, liquidator, and Amadeo [26 Sup. Ct. Rep., 46; 199 U.S., 353].) 2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. In order that it may be understood that the machinery and other objects placed upon and used in connection with a mortgaged estate are excluded from the mortgage, when it was stated in the mortgage that the improvements, buildings, and machinery that existed thereon were also comprehended, it is indispensable that the exclusion thereof be stipulated between the contracting parties. The appellant contends that the installation of the machinery and equipment claimed by him in the sugar central of the Mabalacat Sugar Company, Inc., was not permanent in character inasmuch as B.A. Green, in proposing to him to advance the money for the purchase thereof, made it appear in the letter, Exhibit E, that in case B.A. Green should fail to obtain an additional loan from the defendants Cu Unjieng e Hijos, said machinery and equipment would become security therefor, said B.A. Green binding himself not to mortgage nor encumber them to anybody until said plaintiff be fully reimbursed for the corporation's indebtedness to him. Upon acquiring the machinery and equipment in question with money obtained as loan from the plaintiffappellant by B.A. Green, as president of the Mabalacat Sugar Co., Inc., the latter became owner of said machinery and equipment, otherwise B.A. Green, as such president, could not have offered them to the plaintiff as security for the payment of his credit. Article 334, paragraph 5, of the Civil Code gives the character of real property to "machinery, liquid containers, instruments or implements intended by the owner of any building or land for use in connection with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade or industry. If the installation of the machinery and equipment in question in the central of the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar industry, converted them into real property by reason of their purpose, it cannot be said that their incorporation therewith was not permanent in character because, as essential and principal elements of a sugar central, without them the sugar central would be unable to function or carry on the industrial purpose for which it was established. Inasmuch as the central is permanent in character, the necessary machinery and equipment installed for carrying on the sugar industry for which it has been established must necessarily be permanent. Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H. Berkenkotter to hold said machinery and equipment as security for the payment of the latter's credit and to refrain from mortgaging or otherwise encumbering them until Berkenkotter has been fully reimbursed therefor, is not incompatible with the permanent character of the incorporation of said machinery and equipment with the sugar central of the Mabalacat Sugar Co., Inc., as nothing could prevent B.A. Green from giving them as security at least under a second mortgage. As to the alleged sale of said machinery and equipment to the plaintiff and appellant after they had been permanently incorporated with sugar central of the Mabalacat Sugar Co., Inc., and while the mortgage constituted on said sugar central to Cu Unjieng e Hijos remained in force, only the right of redemption of the vendor Mabalacat Sugar Co., Inc., in the sugar central with which said machinery and equipment had been incorporated, was transferred thereby, subject to the right of the defendants Cu Unjieng e Hijos under the first mortgage. For the foregoing considerations, we are of the opinion and so hold: (1) That the installation of a machinery and equipment in a mortgaged sugar central, in lieu of another of less capacity, for the purpose of carrying out the industrial functions of the latter and increasing production, constitutes a permanent improvement on said sugar central and subjects said machinery and equipment to the mortgage constituted thereon (article 1877, Civil Code); (2) that the fact that the purchaser of the new machinery and equipment has bound himself to the person supplying him the purchase money to hold them as security for the payment of the latter's credit, and to refrain from mortgaging or otherwise encumbering them does not alter the permanent character of the incorporation of said machinery and equipment with the central; and (3) that the sale of the machinery and equipment in question by the purchaser who was supplied the purchase money, as a loan, to the person who supplied the money, after the incorporation thereof with the mortgaged sugar central, does not vest the creditor with ownership of said machinery and equipment but simply with the right of redemption. Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with costs to the appellant. So ordered.

Malcolm, Imperial, Butte, and Goddard, JJ., concur.

G.R. No. L-17870

September 29, 1962 MINDANAO BUS COMPANY, petitioner, vs. THE CITY ASSESSOR

& TREASURER and the BOARD OF TAX APPEALS of Cagayan de Oro City,respondents. Binamira, Barria and Irabagon for petitioner. Vicente E. Sabellina for respondents. LABRADOR, J.: This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No. 710 holding that the petitioner Mindanao Bus Company is liable to the payment of the realty tax on its maintenance and repair equipment hereunder referred to. Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's abovementioned equipment. Petitioner appealed the assessment to the respondent Board of Tax Appeals on the ground that the same are not realty. The Board of Tax Appeals of the City sustained the city assessor, so petitioner herein filed with the Court of Tax Appeals a petition for the review of the assessment. In the Court of Tax Appeals the parties submitted the following stipulation of facts: Petitioner and respondents, thru their respective counsels agreed to the following stipulation of facts: 1. That petitioner is a public utility solely engaged in transporting passengers and cargoes by motor trucks, over its authorized lines in the Island of Mindanao, collecting rates approved by the Public Service Commission; 2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains Branch Offices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur; Davao City and Kibawe, Bukidnon Province; 3. That the machineries sought to be assessed by the respondent as real properties are the following: (a) Hobart Electric Welder Machine, appearing in the attached photograph, marked Annex "A"; (b) Storm Boring Machine, appearing in the attached photograph, marked Annex "B"; (c) Lathe machine with motor, appearing in the attached photograph, marked Annex "C"; (d) Black and Decker Grinder, appearing in the attached photograph, marked Annex "D"; (e) PEMCO Hydraulic Press, appearing in the attached photograph, marked Annex "E"; (f) Battery charger (Tungar charge machine) appearing in the attached photograph, marked Annex "F"; and (g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked Annex "G". 4. That these machineries are sitting on cement or wooden platforms as may be seen in the attached photographs which form part of this agreed stipulation of facts; 5. That petitioner is the owner of the land where it maintains and operates a garage for its TPU motor trucks; a repair shop; blacksmith and carpentry shops, and with these machineries which are placed therein, its TPU trucks are made; body constructed; and same are repaired in a condition to be serviceable in the TPU land transportation business it operates;

6. That these machineries have never been or were never used as industrial equipments to produce finished products for sale, nor to repair machineries, parts and the like offered to the general public indiscriminately for business or commercial purposes for which petitioner has never engaged in, to date.1awphl.nt The Court of Tax Appeals having sustained the respondent city assessor's ruling, and having denied a motion for reconsideration, petitioner brought the case to this Court assigning the following errors: 1. The Honorable Court of Tax Appeals erred in upholding respondents' contention that the questioned assessments are valid; and that said tools, equipments or machineries are immovable taxable real properties. 2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New Civil Code, and holding that pursuant thereto the movable equipments are taxable realties, by reason of their being intended or destined for use in an industry. 3. The Court of Tax Appeals erred in denying petitioner's contention that the respondent City Assessor's power to assess and levy real estate taxes on machineries is further restricted by section 31, paragraph (c) of Republic Act No. 521; and 4. The Tax Court erred in denying petitioner's motion for reconsideration. Respondents contend that said equipments, tho movable, are immobilized by destination, in accordance with paragraph 5 of Article 415 of the New Civil Code which provides: Art. 415. The following are immovable properties: xxx xxx xxx

(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. (Emphasis ours.) Note that the stipulation expressly states that the equipment are placed on wooden or cement platforms. They can be moved around and about in petitioner's repair shop. In the case of B. H. Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said: Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of real property to "machinery, liquid containers, instruments or implements intended by the owner of any building or land for use in connection with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade or industry." If the installation of the machinery and equipment in question in the central of the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar and industry, converted them into real property by reason of their purpose, it cannot be said that their incorporation therewith was not permanent in character because, as essential and principle elements of a sugar central, without them the sugar central would be unable to function or carry on the industrial purpose for which it was established. Inasmuch as the central is permanent in character, the necessary machinery and equipment installed for carrying on the sugar industry for which it has been established must necessarily be permanent. (Emphasis ours.) So that movable equipments to be immobilized in contemplation of the law must first be "essential and principal elements" of an industry or works without which such industry or works would be "unable to function or carry on the industrial purpose for which it was established." We may here distinguish, therefore, those movable which become immobilized by destination because they are essential and principal elements in the industry for those which may not be so considered immobilized because they are merely incidental, not essential and principal. Thus, cash registers, typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. are merely incidentals and are not and should not be considered immobilized by destination, for these businesses can continue or carry on their functions without these equity comments. Airline companies use forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are incidentals, not essentials, and thus retain their movable nature. On the other hand, machineries of breweries used in the manufacture of liquor and soft drinks, though movable in nature, are immobilized because they are essential to said industries; but the delivery trucks and adding machines which they usually own and use and are found within their industrial compounds are merely incidental and retain their movable nature. Similarly, the tools and equipments in question in this instant case are, by their nature, not essential and principle municipal elements of petitioner's business of transporting passengers and cargoes by motor trucks. They are merely incidentals acquired as movables and used only for expediency to

facilitate and/or improve its service. Even without such tools and equipments, its business may be carried on, as petitioner has carried on, without such equipments, before the war. The transportation business could be carried on without the repair or service shop if its rolling equipment is repaired or serviced in another shop belonging to another. The law that governs the determination of the question at issue is as follows: Art. 415. The following are immovable property: xxx xxx xxx

(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; (Civil Code of the Phil.) Aside from the element of essentiality the above-quoted provision also requires that the industry or works be carried on in a building or on a piece of land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra, the "machinery, liquid containers, and instruments or implements" are found in a building constructed on the land. A sawmill would also be installed in a building on land more or less permanently, and the sawing is conducted in the land or building. But in the case at bar the equipments in question are destined only to repair or service the transportation business, which is not carried on in a building or permanently on a piece of land, as demanded by the law. Said equipments may not, therefore, be deemed real property. Resuming what we have set forth above, we hold that the equipments in question are not absolutely essential to the petitioner's transportation business, and petitioner's business is not carried on in a building, tenement or on a specified land, so said equipment may not be considered real estate within the meaning of Article 415 (c) of the Civil Code. WHEREFORE, the decision subject of the petition for review is hereby set aside and the equipment in question declared not subject to assessment as real estate for the purposes of the real estate tax. Without costs. So ordered. Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ., concur. Regala, Concepcion and Barrera JJ., took no part.

G.R. No. L-40411

August 7, 1935

DAVAO SAW MILL CO., INC., plaintiff-appellant, vs. APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendantsappellees. Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant. J.W. Ferrier for appellees. MALCOLM, J.: The issue in this case, as announced in the opening sentence of the decision in the trial court and as set forth by counsel for the parties on appeal, involves the determination of the nature of the properties described in the complaint. The trial judge found that those properties were personal in nature, and as a consequence absolved the defendants from the complaint, with costs against the plaintiff. The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu, municipality of Davao, Province of Davao. However, the land upon which the business was conducted belonged to another person. On the land the sawmill company erected a building which housed the machinery used by it. Some of the implements thus used were clearly personal property, the conflict concerning machines which were placed and mounted on foundations of cement. In the contract of lease between the sawmill company and the owner of the land there appeared the following provision:

That on the expiration of the period agreed upon, all the improvements and buildings introduced and erected by the party of the second part shall pass to the exclusive ownership of the party of the first part without any obligation on its part to pay any amount for said improvements and buildings; also, in the event the party of the second part should leave or abandon the land leased before the time herein stipulated, the improvements and buildings shall likewise pass to the ownership of the party of the first part as though the time agreed upon had expired: Provided, however, That the machineries and accessories are not included in the improvements which will pass to the party of the first part on the expiration or abandonment of the land leased. In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao, Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that action against the defendant in that action; a writ of execution issued thereon, and the properties now in question were levied upon as personalty by the sheriff. No third party claim was filed for such properties at the time of the sales thereof as is borne out by the record made by the plaintiff herein. Indeed the bidder, which was the plaintiff in that action, and the defendant herein having consummated the sale, proceeded to take possession of the machinery and other properties described in the corresponding certificates of sale executed in its favor by the sheriff of Davao. As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc., has on a number of occasions treated the machinery as personal property by executing chattel mortgages in favor of third persons. One of such persons is the appellee by assignment from the original mortgages. Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property consists of 1. Land, buildings, roads and constructions of all kinds adhering to the soil; xxx xxx xxx

5. Machinery, liquid containers, instruments or implements intended by the owner of any building or land for use in connection with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade of industry. Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We entertain no doubt that the trial judge and appellees are right in their appreciation of the legal doctrines flowing from the facts. In the first place, it must again be pointed out that the appellant should have registered its protest before or at the time of the sale of this property. It must further be pointed out that while not conclusive, the characterization of the property as chattels by the appellant is indicative of intention and impresses upon the property the character determined by the parties. In this connection the decision of this court in the case of Standard Oil Co. of New Yorkvs. Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to such a situation. It is, however not necessary to spend overly must time in the resolution of this appeal on side issues. It is machinery which is involved; moreover, machinery not intended by the owner of any building or land for use in connection therewith, but intended by a lessee for use in a building erected on the land by the latter to be returned to the lessee on the expiration or abandonment of the lease. A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme Court, it was held that machinery which is movable in its nature only becomes immobilized when placed in a plant by the owner of the property or plant, but not when so placed by a tenant, a usufructuary, or any person having only a temporary right, unless such person acted as the agent of the owner. In the opinion written by Chief Justice White, whose knowledge of the Civil Law is well known, it was in part said: To determine this question involves fixing the nature and character of the property from the point of view of the rights of Valdes and its nature and character from the point of view of Nevers & Callaghan as a judgment creditor of the Altagracia Company and the rights derived by them from the execution levied on the machinery placed by the corporation in the plant. Following the Code Napoleon, the Porto Rican Code treats as immovable (real) property, not only land and buildings, but also attributes immovability in some cases to property of a movable nature, that is, personal property, because of the destination to which it is applied. "Things," says section 334 of the Porto Rican Code, "may be immovable either by their own nature or by their destination or the object to which they are applicable." Numerous illustrations are given in the fifth subdivision of section 335, which is as follows: "Machinery, vessels, instruments or implements intended by the owner of the tenements for the industrial or works that they may carry on in any building or upon any land and which tend directly to meet the needs of the said industry or works." (See also Code Nap., articles 516, 518 et seq. to and inclusive of article 534, recapitulating the things which, though in themselves movable, may be immobilized.) So far as the subject-matter with which we are dealing machinery placed in the plant it is plain, both under the provisions of the Porto

Rican Law and of the Code Napoleon, that machinery which is movable in its nature only becomes immobilized when placed in a plant by the owner of the property or plant. Such result would not be accomplished, therefore, by the placing of machinery in a plant by a tenant or a usufructuary or any person having only a temporary right. (Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier-Herman ed. Code Napoleon under articles 522 et seq.) The distinction rests, as pointed out by Demolombe, upon the fact that one only having a temporary right to the possession or enjoyment of property is not presumed by the law to have applied movable property belonging to him so as to deprive him of it by causing it by an act of immobilization to become the property of another. It follows that abstractly speaking the machinery put by the Altagracia Company in the plant belonging to Sanchez did not lose its character of movable property and become immovable by destination. But in the concrete immobilization took place because of the express provisions of the lease under which the Altagracia held, since the lease in substance required the putting in of improved machinery, deprived the tenant of any right to charge against the lessor the cost such machinery, and it was expressly stipulated that the machinery so put in should become a part of the plant belonging to the owner without compensation to the lessee. Under such conditions the tenant in putting in the machinery was acting but as the agent of the owner in compliance with the obligations resting upon him, and the immobilization of the machinery which resulted arose in legal effect from the act of the owner in giving by contract a permanent destination to the machinery. xxx xxx xxx

The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the plant by the Altagracia Company, being, as regards Nevers & Callaghan, movable property, it follows that they had the right to levy on it under the execution upon the judgment in their favor, and the exercise of that right did not in a legal sense conflict with the claim of Valdes, since as to him the property was a part of the realty which, as the result of his obligations under the lease, he could not, for the purpose of collecting his debt, proceed separately against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.) Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of this instance to be paid by the appellant. Villa-Real, Imperial, Butte, and Goddard, JJ., concur. G.R. No. L-50466 May 31, 1982

CALTEX (PHILIPPINES) INC., petitioner, vs. CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF PASAY, respondents.

AQUINO, J.: This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc. in its gas stations located on leased land. The machines and equipment consists of underground tanks, elevated tank, elevated water tanks, water tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoists, truck hoists, air compressors and tireflators. The city assessor described the said equipment and machinery in this manner: A gasoline service station is a piece of lot where a building or shed is erected, a water tank if there is any is placed in one corner of the lot, car hoists are placed in an adjacent shed, an air compressor is attached in the wall of the shed or at the concrete wall fence. The controversial underground tank, depository of gasoline or crude oil, is dug deep about six feet more or less, a few meters away from the shed. This is done to prevent conflagration because gasoline and other combustible oil are very inflammable. This underground tank is connected with a steel pipe to the gasoline pump and the gasoline pump is commonly placed or constructed under the shed. The footing of the

pump is a cement pad and this cement pad is imbedded in the pavement under the shed, and evidence that the gasoline underground tank is attached and connected to the shed or building through the pipe to the pump and the pump is attached and affixed to the cement pad and pavement covered by the roof of the building or shed. The building or shed, the elevated water tank, the car hoist under a separate shed, the air compressor, the underground gasoline tank, neon lights signboard, concrete fence and pavement and the lot where they are all placed or erected, all of them used in the pursuance of the gasoline service station business formed the entire gasoline servicestation. As to whether the subject properties are attached and affixed to the tenement, it is clear they are, for the tenement we consider in this particular case are (is) the pavement covering the entire lot which was constructed by the owner of the gasoline station and the improvement which holds all the properties under question, they are attached and affixed to the pavement and to the improvement. The pavement covering the entire lot of the gasoline service station, as well as all the improvements, machines, equipments and apparatus are allowed by Caltex (Philippines) Inc. ... The underground gasoline tank is attached to the shed by the steel pipe to the pump, so with the water tank it is connected also by a steel pipe to the pavement, then to the electric motor which electric motor is placed under the shed. So to say that the gasoline pumps, water pumps and underground tanks are outside of the service station, and to consider only the building as the service station is grossly erroneous. (pp. 58-60, Rollo). The said machines and equipment are loaned by Caltex to gas station operators under an appropriate lease agreement or receipt. It is stipulated in the lease contract that the operators, upon demand, shall return to Caltex the machines and equipment in good condition as when received, ordinary wear and tear excepted. The lessor of the land, where the gas station is located, does not become the owner of the machines and equipment installed therein. Caltex retains the ownership thereof during the term of the lease. The city assessor of Pasay City characterized the said items of gas station equipment and machinery as taxable realty. The realty tax on said equipment amounts to P4,541.10 annually (p. 52, Rollo). The city board of tax appeals ruled that they are personalty. The assessor appealed to the Central Board of Assessment Appeals. The Board, which was composed of Secretary of Finance Cesar Virata as chairman, Acting Secretary of Justice Catalino Macaraig, Jr. and Secretary of Local Government and Community Development Jose Roo, held in its decision of June 3, 1977 that the said machines and equipment are real property within the meaning of sections 3(k) & (m) and 38 of the Real Property Tax Code, Presidential Decree No. 464, which took effect on June 1, 1974, and that the definitions of real property and personal property in articles 415 and 416 of the Civil Code are not applicable to this case. The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's place) in its resolution of January 12, 1978, denying Caltex's motion for reconsideration, a copy of which was received by its lawyer on April 2, 1979. On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the Board's decision and for a declaration that t he said machines and equipment are personal property not subject to realty tax (p. 16, Rollo). The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate jurisdiction over this case is not correct. When Republic act No. 1125 created the Tax Court in 1954, there was as yet no Central Board of Assessment Appeals. Section 7(3) of that law in providing that the Tax Court had jurisdiction to review by appeal decisions of provincial or city boards of assessment appeals had in mind the local boards of assessment appeals but not the Central Board of Assessment Appeals which under the Real Property Tax Code has appellate jurisdiction over decisions of the said local boards of assessment appeals and is, therefore, in the same category as the Tax Court. Section 36 of the Real Property Tax Code provides that the decision of the Central Board of Assessment Appeals shall become final and executory after the lapse of fifteen days from the receipt of its decision by the appellant. Within that fifteen-day period, a petition for reconsideration may be filed. The Code does not provide for the review of the Board's decision by this Court. Consequently, the only remedy available for seeking a review by this Court of the decision of the Central Board of Assessment Appeals is the special civil action of certiorari, the recourse resorted to herein by

Caltex (Philippines), Inc. The issue is whether the pieces of gas station equipment and machinery already enumerated are subject to realty tax. This issue has to be resolved primarily under the provisions of the Assessment Law and the Real Property Tax Code. Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land, buildings, machinery, and other improvements" not specifically exempted in section 3 thereof. This provision is reproduced with some modification in the Real Property Tax Code which provides: SEC. 38. Incidence of Real Property Tax. There shall be levied, assessed and collected in all provinces, cities and municipalities an annual ad valorem tax on real property, such as land, buildings, machinery and other improvements affixed or attached to real property not hereinafter specifically exempted. The Code contains the following definitions in its section 3: k) Improvements is a valuable addition made to property or an amelioration in its condition, amounting to more than mere repairs or replacement of waste, costing labor or capital and intended to enhance its value, beauty or utility or to adapt it for new or further purposes. m) Machinery shall embrace machines, mechanical contrivances, instruments, appliances and apparatus attached to the real estate. It includes the physical facilities available for production, as well as the installations and appurtenant service facilities, together with all other equipment designed for or essential to its manufacturing, industrial or agricultural purposes (See sec. 3[f], Assessment Law). We hold that the said equipment and machinery, as appurtenances to the gas station building or shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the operation of the gas station, for without them the gas station would be useless, and which have been attached or affixed permanently to the gas station site or embedded therein, are taxable improvements and machinery within the meaning of the Assessment Law and the Real Property Tax Code. Caltex invokes the rule that machinery which is movable in its nature only becomes immobilized when placed in a plant by the owner of the property or plant but not when so placed by a tenant, a usufructuary, or any person having only a temporary right, unless such person acted as the agent of the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil 709). That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding machinery that becomes real property by destination. In the Davao Saw Mills case the question was whether the machinery mounted on foundations of cement and installed by the lessee on leased land should be regarded as real property forpurposes of execution of a judgment against the lessee. The sheriff treated the machinery as personal property. This Court sustained the sheriff's action. (Compare with Machinery & Engineering Supplies, Inc. vs. Court of Appeals, 96 Phil. 70, where in a replevin case machinery was treated as realty). Here, the question is whether the gas station equipment and machinery permanently affixed by Caltex to its gas station and pavement (which are indubitably taxable realty) should be subject to the realty tax. This question is different from the issue raised in the Davao Saw Mill case. Improvements on land are commonly taxed as realty even though for some purposes they might be considered personalty (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be considered personal property" (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633). This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric Co., 119 Phil. 328, where Meralco's steel towers were considered poles within the meaning of paragraph 9 of its franchise which exempts its poles from taxation. The steel towers were considered personalty because they were attached to square metal frames by means of bolts and could be moved from place to place when unscrewed and dismantled. Nor are Caltex's gas station equipment and machinery the same as tools and equipment in the repair shop of a bus company which were held to be personal property not subject to realty tax (Mindanao Bus Co. vs. City Assessor, 116 Phil. 501). The Central Board of Assessment Appeals did not commit a grave abuse of discretion in upholding the city assessor's is imposition of the realty tax on Caltex's gas station and equipment. WHEREFORE, the questioned decision and resolution of the Central Board of Assessment Appeals are

affirmed. The petition for certiorari is dismissed for lack of merit. No costs. SO ORDERED. Barredo (Chairman), Guerrero, De Castro and Escolin, JJ., concur. Concepcion, Jr. and Abad Santos, JJ., took no part.

G.R. No. L-50008 August 31, 1987

PRUDENTIAL BANK, petitioner, vs. HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of First Instance of Zambales and Olongapo City; FERNANDO MAGCALE & TEODULA BALUYUT-MAGCALE, respondents.

PARAS, J.: This is a petition for review on certiorari of the November 13, 1978 Decision * of the then Court of First Instance of Zambales and Olongapo City in Civil Case No. 2443-0 entitled "Spouses Fernando A. Magcale and Teodula Baluyut-Magcale vs. Hon. Ramon Y. Pardo and Prudential Bank" declaring that the deeds of real estate mortgage executed by respondent spouses in favor of petitioner bank are null and void. The undisputed facts of this case by stipulation of the parties are as follows: ... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula Baluyut Magcale secured a loan in the sum of P70,000.00 from the defendant Prudential Bank. To secure payment of this loan, plaintiffs executed in favor of defendant on the aforesaid date a deed of Real Estate Mortgage over the following described properties: l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spaces containing a total floor area of 263 sq. meters, more or less, generally constructed of mixed hard wood and concrete materials, under a roofing of cor. g. i. sheets; declared and assessed in the name of FERNANDO MAGCALE under Tax Declaration No. 21109, issued by the Assessor of Olongapo City with an assessed value of P35,290.00. This building is the only improvement of the lot. 2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right of occupancy on the lot where the above property is erected, and more particularly described and bounded, as follows: A first class residential land Identffied as Lot No. 720, (Ts-308, Olongapo Townsite Subdivision) Ardoin Street, East Bajac-Bajac, Olongapo City, containing an area of 465 sq. m. more or less, declared and assessed in the name of FERNANDO MAGCALE under Tax Duration No. 19595 issued by the Assessor of Olongapo City with an assessed value of P1,860.00; bounded on the NORTH: By No. 6, Ardoin Street SOUTH: By No. 2, Ardoin Street EAST: By 37 Canda Street, and WEST: By Ardoin Street. All corners of the lot marked by conc. cylindrical monuments of the Bureau of Lands as visible limits. ( Exhibit "A, " also Exhibit "1" for defendant).

Apart from the stipulations in the printed portion of the aforestated deed of mortgage, there appears a rider typed at the bottom of the reverse side of the document under the lists of the properties mortgaged which reads, as follows: AND IT IS FURTHER AGREED that in the event the Sales Patent on the lot applied for by the Mortgagors as herein stated is released or issued by the Bureau of Lands, the Mortgagors hereby authorize the Register of Deeds to hold the Registration of same until this Mortgage is cancelled, or to annotate this encumbrance on the Title upon authority from the Secretary of Agriculture and Natural Resources, which title with annotation, shall be released in favor of the herein Mortgage. From the aforequoted stipulation, it is obvious that the mortgagee (defendant Prudential Bank) was at the outset aware of the fact that the mortgagors (plaintiffs) have already filed a Miscellaneous Sales Application over the lot, possessory rights over which, were mortgaged to it. Exhibit "A" (Real Estate Mortgage) was registered under the Provisions of Act 3344 with the Registry of Deeds of Zambales on November 23, 1971. On May 2, 1973, plaintiffs secured an additional loan from defendant Prudential Bank in the sum of P20,000.00. To secure payment of this additional loan, plaintiffs executed in favor of the said defendant another deed of Real Estate Mortgage over the same properties previously mortgaged in Exhibit "A." (Exhibit "B;" also Exhibit "2" for defendant). This second deed of Real Estate Mortgage was likewise registered with the Registry of Deeds, this time in Olongapo City, on May 2,1973. On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent No. 4776 over the parcel of land, possessory rights over which were mortgaged to defendant Prudential Bank, in favor of plaintiffs. On the basis of the aforesaid Patent, and upon its transcription in the Registration Book of the Province of Zambales, Original Certificate of Title No. P-2554 was issued in the name of Plaintiff Fernando Magcale, by the Ex-Oficio Register of Deeds of Zambales, on May 15, 1972. For failure of plaintiffs to pay their obligation to defendant Bank after it became due, and upon application of said defendant, the deeds of Real Estate Mortgage (Exhibits "A" and "B") were extrajudicially foreclosed. Consequent to the foreclosure was the sale of the properties therein mortgaged to defendant as the highest bidder in a public auction sale conducted by the defendant City Sheriff on April 12, 1978 (Exhibit "E"). The auction sale aforesaid was held despite written request from plaintiffs through counsel dated March 29, 1978, for the defendant City Sheriff to desist from going with the scheduled public auction sale (Exhibit "D")." (Decision, Civil Case No. 2443-0, Rollo, pp. 29-31). Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real Estate Mortgage as null and void (Ibid., p. 35). On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53), opposed by private respondents on January 5, 1979 (Ibid., pp. 54-62), and in an Order dated January 10, 1979 (Ibid., p. 63), the Motion for Reconsideration was denied for lack of merit. Hence, the instant petition (Ibid., pp. 5-28). The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require the respondents to comment (Ibid., p. 65), which order was complied with the Resolution dated May 18,1979, (Ibid., p. 100), petitioner filed its Reply on June 2,1979 (Ibid., pp. 101-112). Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and the parties were required to submit simultaneously their respective memoranda. (Ibid., p. 114). On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private respondents filed their Memorandum on August 1, 1979 (Ibid., pp. 146-155). In a Resolution dated August 10, 1979, this case was considered submitted for decision (Ibid., P. 158).

In its Memorandum, petitioner raised the following issues: 1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID; AND 2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE RESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972 UNDER ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-2554 ON MAY 15,1972 HAVE THE EFFECT OF INVALIDATING THE DEEDS OF REAL ESTATE MORTGAGE. (Memorandum for Petitioner, Rollo, p. 122). This petition is impressed with merit. The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted on the building erected on the land belonging to another. The answer is in the affirmative. In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Court ruled that, "it is obvious that the inclusion of "building" separate and distinct from the land, in said provision of law can only mean that a building is by itself an immovable property." (Lopez vs. Orosa, Jr., et al., L10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38, May 30,1958). Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of the improvements thereon, buildings, still a building by itself may be mortgaged apart from the land on which it has been built. Such a mortgage would be still a real estate mortgage for the building would still be considered immovable property even if dealt with separately and apart from the land (Leung Yee vs. Strong Machinery Co., 37 Phil. 644). In the same manner, this Court has also established that possessory rights over said properties before title is vested on the grantee, may be validly transferred or conveyed as in a deed of mortgage (Vda. de Bautista vs. Marcos, 3 SCRA 438 [1961]). Coming back to the case at bar, the records show, as aforestated that the original mortgage deed on the 2-storey semi-concrete residential building with warehouse and on the right of occupancy on the lot where the building was erected, was executed on November 19, 1971 and registered under the provisions of Act 3344 with the Register of Deeds of Zambales on November 23, 1971. Miscellaneous Sales Patent No. 4776 on the land was issued on April 24, 1972, on the basis of which OCT No. 2554 was issued in the name of private respondent Fernando Magcale on May 15, 1972. It is therefore without question that the original mortgage was executed before the issuance of the final patent and before the government was divested of its title to the land, an event which takes effect only on the issuance of the sales patent and its subsequent registration in the Office of the Register of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil. 515; Director of Lands vs. De Leon, 110 Phil. 28; Director of Lands vs. Jurado, L-14702, May 23, 1961; Pena "Law on Natural Resources", p. 49). Under the foregoing considerations, it is evident that the mortgage executed by private respondent on his own building which was erected on the land belonging to the government is to all intents and purposes a valid mortgage. As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be noted that Sections 121, 122 and 124 of the Public Land Act, refer to land already acquired under the Public Land Act, or any improvement thereon and therefore have no application to the assailed mortgage in the case at bar which was executed before such eventuality. Likewise, Section 2 of Republic Act No. 730, also a restriction appearing on the face of private respondent's title has likewise no application in the instant case, despite its reference to encumbrance or alienation before the patent is issued because it refers specifically to encumbrance or alienation on the land itself and does not mention anything regarding the improvements existing thereon. But it is a different matter, as regards the second mortgage executed over the same properties on May 2, 1973 for an additional loan of P20,000.00 which was registered with the Registry of Deeds of Olongapo City on the same date. Relative thereto, it is evident that such mortgage executed after the issuance of the sales patent and of the Original Certificate of Title, falls squarely under the prohibitions stated in Sections 121, 122 and 124 of the Public Land Act and Section 2 of Republic Act 730, and is therefore null and void. Petitioner points out that private respondents, after physically possessing the title for five years, voluntarily surrendered the same to the bank in 1977 in order that the mortgaged may be annotated, without requiring the bank to get the prior approval of the Ministry of Natural Resources beforehand, thereby implicitly authorizing Prudential Bank to cause the annotation of said mortgage on their title. However, the Court, in recently ruling on violations of Section 124 which refers to Sections 118, 120, 122 and 123 of Commonwealth Act 141, has held: ... Nonetheless, we apply our earlier rulings because we believe that as in pari delicto may not be invoked to defeat the policy of the State neither may the doctrine of

estoppel give a validating effect to a void contract. Indeed, it is generally considered that as between parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against public policy (19 Am. Jur. 802). It is not within the competence of any citizen to barter away what public policy by law was to preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino supra). ... (Arsenal vs. IAC, 143 SCRA 54 [1986]). This pronouncement covers only the previous transaction already alluded to and does not pass upon any new contract between the parties (Ibid), as in the case at bar. It should not preclude new contracts that may be entered into between petitioner bank and private respondents that are in accordance with the requirements of the law. After all, private respondents themselves declare that they are not denying the legitimacy of their debts and appear to be open to new negotiations under the law (Comment; Rollo, pp. 95-96). Any new transaction, however, would be subject to whatever steps the Government may take for the reversion of the land in its favor. PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo City is hereby MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is valid but ruling that the Deed of Real Estate Mortgage for an additional loan of P20,000.00 is null and void, without prejudice to any appropriate action the Government may take against private respondents. SO ORDERED. Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur.

Footnotes * Penned by Judge Domingo D. Panis.

G.R. No. 106041 January 29, 1993

BENGUET CORPORATION, petitioner, vs. CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF ZAMBALES, PROVINCIAL ASSESSOR OF ZAMBALES, PROVINCE OF ZAMBALES, and MUNICIPALITY OF SAN MARCELINO, respondents. Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.

CRUZ, J.: The realty tax assessment involved in this case amounts to P11,319,304.00. It has been imposed on the petitioner's tailings dam and the land thereunder over its protest. The controversy arose in 1985 when the Provincial Assessor of Zambales assessed the said properties as taxable improvements. The assessment was appealed to the Board of Assessment Appeals of the Province of Zambales. On August 24, 1988, the appeal was dismissed mainly on the ground of the petitioner's "failure to pay the realty taxes that fell due during the pendency of the appeal." The petitioner seasonably elevated the matter to the Central Board of Assessment Appeals, 1 one of the herein respondents. In its decision dated March 22, 1990, the Board reversed the dismissal of the appeal but, on the merits, agreed that "the tailings dam and the lands submerged thereunder (were) subject to realty tax." For purposes of taxation the dam is considered as real property as it comes within the object mentioned in paragraphs (a) and (b) of Article 415 of the New Civil Code. It is a construction adhered to the soil which cannot be separated or detached without breaking the material or causing destruction on the land upon which it is attached. The immovable nature of the dam as an improvement determines its character as real property, hence taxable under Section 38 of the Real Property Tax Code. (P.D. 464).

Although the dam is partly used as an anti-pollution device, this Board cannot accede to the request for tax exemption in the absence of a law authorizing the same. xxx xxx xxx We find the appraisal on the land submerged as a result of the construction of the tailings dam, covered by Tax Declaration Nos. 002-0260 and 002-0266, to be in accordance with the Schedule of Market Values for Zambales which was reviewed and allowed for use by the Ministry (Department) of Finance in the 1981-1982 general revision. No serious attempt was made by PetitionerAppellant Benguet Corporation to impugn its reasonableness, i.e., that the P50.00 per square meter applied by Respondent-Appellee Provincial Assessor is indeed excessive and unconscionable. Hence, we find no cause to disturb the market value applied by Respondent Appellee Provincial Assessor of Zambales on the properties of PetitionerAppellant Benguet Corporation covered by Tax Declaration Nos. 002-0260 and 0020266. This petition for certiorari now seeks to reverse the above ruling. The principal contention of the petitioner is that the tailings dam is not subject to realty tax because it is not an "improvement" upon the land within the meaning of the Real Property Tax Code. More particularly, it is claimed (1) as regards the tailings dam as an "improvement": (a) that the tailings dam has no value separate from and independent of the mine; hence, by itself it cannot be considered an improvement separately assessable; (b) that it is an integral part of the mine; (c) that at the end of the mining operation of the petitioner corporation in the area, the tailings dam will benefit the local community by serving as an irrigation facility; (d) that the building of the dam has stripped the property of any commercial value as the property is submerged under water wastes from the mine; (e) that the tailings dam is an environmental pollution control device for which petitioner must be commended rather than penalized with a realty tax assessment; (f) that the installation and utilization of the tailings dam as a pollution control device is a requirement imposed by law; (2) as regards the valuation of the tailings dam and the submerged lands: (a) that the subject properties have no market value as they cannot be sold independently of the mine; (b) that the valuation of the tailings dam should be based on its incidental use by petitioner as a water reservoir and not on the alleged cost of construction of the dam and the annual build-up expense; (c) that the "residual value formula" used by the Provincial Assessor and adopted by respondent CBAA is arbitrary and erroneous; and (3) as regards the petitioner's liability for penalties for non-declaration of the tailings dam and the submerged lands for realty tax purposes: (a) that where a tax is not paid in an honest belief that it is not due, no penalty shall be collected in addition to the basic tax; (b) that no other mining companies in the Philippines operating a tailings dam have been made to declare the dam for realty tax purposes. The petitioner does not dispute that the tailings dam may be considered realty within the meaning of Article 415. It insists, however, that the dam cannot be subjected to realty tax as a separate and independent property because it does not constitute an "assessable improvement" on the mine although a considerable sum may have been spent in constructing and maintaining it.

To support its theory, the petitioner cites the following cases: 1. Municipality of Cotabato v. Santos (105 Phil. 963), where this Court considered the dikes and gates constructed by the taxpayer in connection with a fishpond operation as integral parts of the fishpond. 2. Bislig Bay Lumber Co. v. Provincial Government of Surigao (100 Phil. 303), involving a road constructed by the timber concessionaire in the area, where this Court did not impose a realty tax on the road primarily for two reasons: In the first place, it cannot be disputed that the ownership of the road that was constructed by appellee belongs to the government by right of accession not only because it is inherently incorporated or attached to the timber land . . . but also because upon the expiration of the concession said road would ultimately pass to the national government. . . . In the second place, while the road was constructed by appellee primarily for its use and benefit, the privilege is not exclusive, for . . . appellee cannot prevent the use of portions of the concession for homesteading purposes. It is also duty bound to allow the free use of forest products within the concession for the personal use of individuals residing in or within the vicinity of the land. . . . In other words, the government has practically reserved the rights to use the road to promote its varied activities. Since, as above shown, the road in question cannot be considered as an improvement which belongs to appellee, although in part is for its benefit, it is clear that the same cannot be the subject of assessment within the meaning of Section 2 of C.A. No. 470. Apparently, the realty tax was not imposed not because the road was an integral part of the lumber concession but because the government had the right to use the road to promote its varied activities. 3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an American case, where it was declared that the reservoir dam went with and formed part of the reservoir and that the dam would be "worthless and useless except in connection with the outlet canal, and the water rights in the reservoir represent and include whatever utility or value there is in the dam and headgates." 4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the United States. This case involved drain tunnels constructed by plaintiff when it expanded its mining operations downward, resulting in a constantly increasing flow of water in the said mine. It was held that: Whatever value they have is connected with and in fact is an integral part of the mine itself. Just as much so as any shaft which descends into the earth or an underground incline, tunnel, or drift would be which was used in connection with the mine. On the other hand, the Solicitor General argues that the dam is an assessable improvement because it enhances the value and utility of the mine. The primary function of the dam is to receive, retain and hold the water coming from the operations of the mine, and it also enables the petitioner to impound water, which is then recycled for use in the plant. There is also ample jurisprudence to support this view, thus: . . . The said equipment and machinery, as appurtenances to the gas station building or shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the operation of the gas station, for without them the gas station would be useless and which have been attached or affixed permanently to the gas station site or embedded therein, are taxable improvements and machinery within the meaning of the Assessment Law and the Real Property Tax Code. (Caltex [Phil.] Inc. v. CBAA, 114 SCRA 296). We hold that while the two storage tanks are not embedded in the land, they may, nevertheless, be considered as improvements on the land, enhancing its utility and rendering it useful to the oil industry. It is undeniable that the two tanks have been installed with some degree of permanence as receptacles for the considerable quantities of oil needed by MERALCO for its operations. (Manila Electric Co. v. CBAA, 114 SCRA 273). The pipeline system in question is indubitably a construction adhering to the soil. It is attached to the land in such a way that it cannot be separated therefrom without dismantling the steel pipes which were welded to form the pipeline. (MERALCO Securities Industrial Corp. v. CBAA, 114 SCRA 261). The tax upon the dam was properly assessed to the plaintiff as a tax upon real estate. (Flax-Pond Water Co. v. City of Lynn, 16 N.E. 742).

The oil tanks are structures within the statute, that they are designed and used by the owner as permanent improvement of the free hold, and that for such reasons they were properly assessed by the respondent taxing district as improvements. (Standard Oil Co. of New Jersey v. Atlantic City, 15 A 2d. 271) The Real Property Tax Code does not carry a definition of "real property" and simply says that the realty tax is imposed on "real property, such as lands, buildings, machinery and other improvements affixed or attached to real property." In the absence of such a definition, we apply Article 415 of the Civil Code, the pertinent portions of which state: Art. 415. The following are immovable property. (1) Lands, buildings and constructions of all kinds adhered to the soil; xxx xxx xxx (3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object. Section 2 of C.A. No. 470, otherwise known as the Assessment Law, provides that the realty tax is due "on the real property, including land, buildings, machinery and other improvements" not specifically exempted in Section 3 thereof. A reading of that section shows that the tailings dam of the petitioner does not fall under any of the classes of exempt real properties therein enumerated. Is the tailings dam an improvement on the mine? Section 3(k) of the Real Property Tax Code defines improvement as follows: (k) Improvements is a valuable addition made to property or an amelioration in its condition, amounting to more than mere repairs or replacement of waste, costing labor or capital and intended to enhance its value, beauty or utility or to adopt it for new or further purposes. The term has also been interpreted as "artificial alterations of the physical condition of the ground that arereasonably permanent in character." 2 The Court notes that in the Ontario case the plaintiff admitted that the mine involved therein could not be operated without the aid of the drain tunnels, which were indispensable to the successful development and extraction of the minerals therein. This is not true in the present case. Even without the tailings dam, the petitioner's mining operation can still be carried out because the primary function of the dam is merely to receive and retain the wastes and water coming from the mine. There is no allegation that the water coming from the dam is the sole source of water for the mining operation so as to make the dam an integral part of the mine. In fact, as a result of the construction of the dam, the petitioner can now impound and recycle water without having to spend for the building of a water reservoir. And as the petitioner itself points out, even if the petitioner's mine is shut down or ceases operation, the dam may still be used for irrigation of the surrounding areas, again unlike in the Ontario case. As correctly observed by the CBAA, the Kendrick case is also not applicable because it involved water reservoir dams used for different purposes and for the benefit of the surrounding areas. By contrast, the tailings dam in question is being used exclusively for the benefit of the petitioner. Curiously, the petitioner, while vigorously arguing that the tailings dam has no separate existence, just as vigorously contends that at the end of the mining operation the tailings dam will serve the local community as an irrigation facility, thereby implying that it can exist independently of the mine. From the definitions and the cases cited above, it would appear that whether a structure constitutes an improvement so as to partake of the status of realty would depend upon the degree of permanence intended in its construction and use. The expression "permanent" as applied to an improvement does not imply that the improvement must be used perpetually but only until the purpose to which the principal realty is devoted has been accomplished. It is sufficient that the improvement is intended to remain as long as the land to which it is annexed is still used for the said purpose. The Court is convinced that the subject dam falls within the definition of an "improvement" because it is permanent in character and it enhances both the value and utility of petitioner's mine. Moreover, the immovable nature of the dam defines its character as real property under Article 415 of the Civil Code and thus makes it taxable under Section 38 of the Real Property Tax Code. The Court will also reject the contention that the appraisal at P50.00 per square meter made by the Provincial Assessor is excessive and that his use of the "residual value formula" is arbitrary and

erroneous. Respondent Provincial Assessor explained the use of the "residual value formula" as follows: A 50% residual value is applied in the computation because, while it is true that when slime fills the dike, it will then be covered by another dike or stage, the stage covered is still there and still exists and since only one face of the dike is filled, 50% or the other face is unutilized. In sustaining this formula, the CBAA gave the following justification: We find the appraisal on the land submerged as a result of the construction of the tailings dam, covered by Tax Declaration Nos. 002-0260 and 002-0266, to be in accordance with the Schedule of Market Values for San Marcelino, Zambales, which is fifty (50.00) pesos per square meter for third class industrial land (TSN, page 17, July 5, 1989) and Schedule of Market Values for Zambales which was reviewed and allowed for use by the Ministry (Department) of Finance in the 1981-1982 general revision. No serious attempt was made by Petitioner-Appellant Benguet Corporation to impugn its reasonableness, i.e, that the P50.00 per square meter applied by Respondent-Appellee Provincial Assessor is indeed excessive and unconscionable. Hence, we find no cause to disturb the market value applied by Respondent-Appellee Provincial Assessor of Zambales on the properties of PetitionerAppellant Benguet Corporation covered by Tax Declaration Nos. 002-0260 and 0020266. It has been the long-standing policy of this Court to respect the conclusions of quasi-judicial agencies like the CBAA, which, because of the nature of its functions and its frequent exercise thereof, has developed expertise in the resolution of assessment problems. The only exception to this rule is where it is clearly shown that the administrative body has committed grave abuse of discretion calling for the intervention of this Court in the exercise of its own powers of review. There is no such showing in the case at bar. We disagree, however, with the ruling of respondent CBAA that it cannot take cognizance of the issue of the propriety of the penalties imposed upon it, which was raised by the petitioner for the first time only on appeal. The CBAA held that this "is an entirely new matter that petitioner can take up with the Provincial Assessor (and) can be the subject of another protest before the Local Board or a negotiation with the local sanggunian . . ., and in case of an adverse decision by either the Local Board or the local sanggunian, (it can) elevate the same to this Board for appropriate action." There is no need for this time-wasting procedure. The Court may resolve the issue in this petition instead of referring it back to the local authorities. We have studied the facts and circumstances of this case as above discussed and find that the petitioner has acted in good faith in questioning the assessment on the tailings dam and the land submerged thereunder. It is clear that it has not done so for the purpose of evading or delaying the payment of the questioned tax. Hence, we hold that the petitioner is not subject to penalty for its non-declaration of the tailings dam and the submerged lands for realty tax purposes. WHEREFORE, the petition is DISMISSED for failure to show that the questioned decision of respondent Central Board of Assessment Appeals is tainted with grave abuse of discretion except as to the imposition of penalties upon the petitioner which is hereby SET ASIDE. Costs against the petitioner. It is so ordered. Narvasa, C.J., Gutierrez, Jr., Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo, Melo and Campos, Jr., JJ., concur. Feliciano, J., took no part.

# Footnotes 1 Secretary of Finance Jesus Estanislao as chairman with Secretary of Justice Franklin M. Drilon and Secretary of Local Government Luis T. Santos as members. 2 Francisco, Philippine Mining Law, Vol. 1, 2nd Ed., p. 274.

G.R. No. 137705. August 22, 2000

SERGS PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs. PCI LEASING AND FINANCE, INC., respondent. 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 petitioners 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 SERGS 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 Courts 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 Courts 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 respondents 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 Tondea 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 plaintiffs 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 applicants 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 applicants 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. Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

Rollo, pp. 177-180. Penned by Justice Romeo A. Brawner (Division acting chairman), with the concurrence of Justices Eloy R. Bello Jr. and Martin S. Villarama Jr. [3] Rollo, p. 189. [4] CA Decision, p. 3; rollo, p. 179. [5] Rollo, p. 356. [6] Presided by Judge Hilario L. Laqui. [7] Rollo, pp. 23-24. [8] Rollo, pp. 78-79. [9] Motion for Special Protective Order, pp. 3-4; rollo, pp. 76-77. [10] CA Decision, pp. 1-2; rollo, pp. 177-178. [11] The case was deemed submitted for resolution on October 21, 1999, upon receipt by this Court of the petitioners Memorandum signed by Atty. Victor Basilio N. De Leon of Antonio R. Bautista & Partners. Respondents Memorandum, which was signed by Atty. Amador F. Brioso Jr. of Perez & Calima Law Offices, had been filed earlier on September 29, 1999.
[1] [2]

[12] [13] [14]

Petitioners Memorandum, p. 3; rollo, p. 376.

Section 1, Rule 45 of the Rules of Court. Section 4 (a) of Rule 45 provides that the petition shall state the full name of the parties, without impleading the lower courts or judges thereof either as petitioners or respondents. [15] BA Finance v. CA, 258 SCRA 102, July 5, 1996; Filinvest Credit v. CA, 248 SCRA 549, September 27, 1995; Machinery Engineering Supply v. CA, 96 Phil. 70, October 29, 1954. [16] Mindanao Bus Co. v. City Assessor and Treasurer, 6 SCRA 197, September 29, 1962, per Labrador, J. See also Vitug, Compendium of Civil Law and Jurisprudence, 1986 ed., pp. 99-100. [17] Peoples Bank & Trust Co. v. Dahican Lumber, 20 SCRA 84, May 16, 1967; Burgos v. Chief of Staff, 133 SCRA 800, December 26, 1984; Davao Sawmill Co. v. Castillo, 61 Phil. 709, August 7, 1935. [18] Chua Peng Hian v. CA, 133 SCRA 572, December 19, 1984; Standard Oil Co. v. Jaranillo, 44 Phil. 630, March 16, 1923; Luna v. Encarnacion, 91 Phil. 531, June 30, 1952; Manarang v. Ofilada, 99 Phil. 109, May 18, 1956; Peoples Bank & Trust Co. v. Dahican Lumber, supra. [19] 41 SCRA 143, 153, September 30, 1971, per Reyes, JBL, J. [20] 122 SCRA 296, 300, May 16, 1983, per De Castro, J. [21] Rollo, p. 262. [22] Evangelista v. Alto Surety and Insurance Co., 103 Phil. 401, April 23, 1958; Navarro v. Pineda, 9 SCRA 631, November 30, 1963. [23] Vitug, supra, pp. 100-101. [24] Petitioners Memorandum, p. 8; rollo, p. 381. [25] Petition, p. 10; rollo, p. 12. [26] Reply, p. 7; rollo, p. 301. [27] 209 SCRA 553, 567, June 8, 1992, per Narvasa, CJ. [28] Ibid. [29] See Fuentes v. Court of Appeals, 268 SCRA 703, February 26, 1997. [30] Supra, p. 301. [31] Petition, p. 16; rollo, p. 18.