G.R. No.

111097 July 20, 1994

MAYOR PABLO P. MAGTAJAS & THE CITY OF CAGAYAN DE ORO, petitioners,
vs.
PRYCE PROPERTIES CORPORATION, INC. & PHILIPPINE AMUSEMENT AND
GAMING CORPORATION,respondents.
Aquilino G. Pimentel, Jr. and Associates for petitioners.
R.R. Torralba & Associates for private respondent.

CRUZ, J.:
There was instant opposition when PAGCOR announced the opening of a casino in
Cagayan de Oro City. Civic organizations angrily denounced the project. The
religious elements echoed the objection and so did the women's groups and the
youth. Demonstrations were led by the mayor and the city legislators. The media
trumpeted the protest, describing the casino as an affront to the welfare of the city.
The trouble arose when in 1992, flush with its tremendous success in several cities,
PAGCOR decided to expand its operations to Cagayan de Oro City. To this end, it
leased a portion of a building belonging to Pryce Properties Corporation, Inc., one of
the herein private respondents, renovated and equipped the same, and prepared to
inaugurate its casino there during the Christmas season.
The reaction of the Sangguniang Panlungsod of Cagayan de Oro City was swift and
hostile. On December 7, 1992, it enacted Ordinance No. 3353 reading as follows:
ORDINANCE NO. 3353
AN ORDINANCE PROHIBITING THE ISSUANCE OF BUSINESS
PERMIT AND CANCELLING EXISTING BUSINESS PERMIT TO ANY
ESTABLISHMENT FOR THE USING AND ALLOWING TO BE USED
ITS PREMISES OR PORTION THEREOF FOR THE OPERATION OF
CASINO.
BE IT ORDAINED by the Sangguniang Panlungsod of the City of
Cagayan de Oro, in session assembled that:
Sec. 1. That pursuant to the policy of the city banning the operation
of casino within its territorial jurisdiction, no business permit shall be

issued to any person, partnership or corporation for the operation of

casino within the city limits.
Sec. 2. That it shall be a violation of existing business permit by any
persons, partnership or corporation to use its business establishment
or portion thereof, or allow the use thereof by others for casino
operation and other gambling activities.
Sec. 3. PENALTIES. Any violation of such existing business
permit as defined in the preceding section shall suffer the following
penalties, to wit:
a) Suspension of the business permit for
sixty (60) days for the first offense and a fine
of P1,000.00/day
b) Suspension of the business permit for Six
(6) months for the second offense, and a fine
of P3,000.00/day
c) Permanent revocation of the business
permit and imprisonment of One (1) year, for
the third and subsequent offenses.
Sec. 4. This Ordinance shall take effect ten (10) days from
publication thereof.
Nor was this all. On January 4, 1993, it adopted a sterner Ordinance No. 3375-93
reading as follows:
ORDINANCE NO. 3375-93
AN ORDINANCE PROHIBITING THE OPERATION OF CASINO AND
PROVIDING PENALTY FOR VIOLATION THEREFOR.
WHEREAS, the City Council established a policy as early as 1990
against CASINO under its Resolution No. 2295;
WHEREAS, on October 14, 1992, the City Council passed another
Resolution No. 2673, reiterating its policy against the establishment of
CASINO;
WHEREAS, subsequently, thereafter, it likewise passed Ordinance No.
3353, prohibiting the issuance of Business Permit and to cancel
existing Business Permit to any establishment for the using and

allowing to be used its premises or portion thereof for the operation of

CASINO;
WHEREAS, under Art. 3, section 458, No. (4), sub paragraph VI of the
Local Government Code of 1991 (Rep. Act 7160) and under Art. 99,
No. (4), Paragraph VI of the implementing rules of the Local
Government Code, the City Council as the Legislative Body shall enact
measure to suppress any activity inimical to public morals and general
welfare of the people and/or regulate or prohibit such activity pertaining
to amusement or entertainment in order to protect social and moral
welfare of the community;
NOW THEREFORE,
BE IT ORDAINED by the City Council in session duly assembled that:
Sec. 1. The operation of gambling CASINO in the City of Cagayan
de Oro is hereby prohibited.
Sec. 2. Any violation of this Ordinance shall be subject to the
following penalties:
a) Administrative fine of P5,000.00 shall be imposed against the
proprietor, partnership or corporation undertaking the operation,
conduct, maintenance of gambling CASINO in the City and closure
thereof;
b) Imprisonment of not less than six (6) months nor more than one (1)
year or a fine in the amount of P5,000.00 or both at the discretion of the
court against the manager, supervisor, and/or any person responsible
in the establishment, conduct and maintenance of gambling CASINO.
Sec. 3. This Ordinance shall take effect ten (10) days after its
publication in a local newspaper of general circulation.
Pryce assailed the ordinances before the Court of Appeals, where it was joined by
PAGCOR as intervenor and supplemental petitioner. Their challenge succeeded. On
March 31, 1993, the Court of Appeals declared the ordinances invalid and issued the
writ prayed for to prohibit their enforcement. 1 Reconsideration of this decision was denied on
July 13, 1993. 2

Cagayan de Oro City and its mayor are now before us in this petition for review
under Rule 45 of the Rules of Court. 3 They aver that the respondent Court of Appeals erred in
holding that:

1. Under existing laws, the Sangguniang Panlungsod of the City of

Cagayan de Oro does not have the power and authority to prohibit the
establishment and operation of a PAGCOR gambling casino within the
City's territorial limits.
2. The phrase "gambling and other prohibited games of chance" found
in Sec. 458, par. (a), sub-par. (1) (v) of R.A. 7160 could only mean
"illegal gambling."
3. The questioned Ordinances in effect annul P.D. 1869 and are
therefore invalid on that point.
4. The questioned Ordinances are discriminatory to casino and partial
to cockfighting and are therefore invalid on that point.
5. The questioned Ordinances are not reasonable, not consonant with
the general powers and purposes of the instrumentality concerned and
inconsistent with the laws or policy of the State.
6. It had no option but to follow the ruling in the case of Basco, et al. v.
PAGCOR, G.R. No. 91649, May 14, 1991, 197 SCRA 53 in disposing of
the issues presented in this present case.
PAGCOR is a corporation created directly by P.D. 1869 to help centralize and
regulate all games of chance, including casinos on land and sea within the territorial
jurisdiction of the Philippines. In Basco v. Philippine Amusements and Gaming
Corporation, 4 this Court sustained the constitutionality of the decree and even cited the benefits of the
entity to the national economy as the third highest revenue-earner in the government, next only to the BIR
and the Bureau of Customs.

Cagayan de Oro City, like other local political subdivisions, is empowered to enact
ordinances for the purposes indicated in the Local Government Code. It is expressly
vested with the police power under what is known as the General Welfare Clause
now embodied in Section 16 as follows:
Sec. 16. General Welfare. Every local government unit shall
exercise the powers expressly granted, those necessarily implied
therefrom, as well as powers necessary, appropriate, or incidental for
its efficient and effective governance, and those which are essential to
the promotion of the general welfare. Within their respective territorial
jurisdictions, local government units shall ensure and support, among
other things, the preservation and enrichment of culture, promote
health and safety, enhance the right of the people to a balanced
ecology, encourage and support the development of appropriate and
self-reliant scientific and technological capabilities, improve public

morals, enhance economic prosperity and social justice, promote full

employment among their residents, maintain peace and order, and
preserve the comfort and convenience of their inhabitants.
In addition, Section 458 of the said Code specifically declares that:
Sec. 458. Powers, Duties, Functions and Compensation. (a) The
Sangguniang Panlungsod, as the legislative body of the city, shall enact
ordinances, approve resolutions and appropriate funds for the general
welfare of the city and its inhabitants pursuant to Section 16 of this
Code and in the proper exercise of the corporate powers of the city as
provided for under Section 22 of this Code, and shall:
(1) Approve ordinances and pass resolutions necessary for an efficient
and effective city government, and in this connection, shall:
xxx xxx xxx
(v) Enact ordinances intended to prevent,
suppress and impose appropriate penalties
for habitual drunkenness in public places,
vagrancy, mendicancy, prostitution,
establishment and maintenance of houses of
ill repute,gambling and other prohibited
games of chance, fraudulent devices and
ways to obtain money or property, drug
addiction, maintenance of drug dens, drug
pushing, juvenile delinquency, the printing,
distribution or exhibition of obscene or
pornographic materials or publications, and
such other activities inimical to the welfare
and morals of the inhabitants of the city;
This section also authorizes the local government units to regulate properties and
businesses within their territorial limits in the interest of the general welfare. 5
The petitioners argue that by virtue of these provisions, the Sangguniang
Panlungsod may prohibit the operation of casinos because they involve games of
chance, which are detrimental to the people. Gambling is not allowed by general law
and even by the Constitution itself. The legislative power conferred upon local
government units may be exercised over all kinds of gambling and not only over
"illegal gambling" as the respondents erroneously argue. Even if the operation of
casinos may have been permitted under P.D. 1869, the government of Cagayan de
Oro City has the authority to prohibit them within its territory pursuant to the authority
entrusted to it by the Local Government Code.

It is submitted that this interpretation is consonant with the policy of local autonomy
as mandated in Article II, Section 25, and Article X of the Constitution, as well as
various other provisions therein seeking to strengthen the character of the nation. In
giving the local government units the power to prevent or suppress gambling and
other social problems, the Local Government Code has recognized the competence
of such communities to determine and adopt the measures best expected to
promote the general welfare of their inhabitants in line with the policies of the State.
The petitioners also stress that when the Code expressly authorized the local
government units to prevent and suppress gambling and other prohibited games of
chance, like craps, baccarat, blackjack and roulette, it meant allforms of gambling
without distinction. Ubi lex non distinguit, nec nos distinguere debemos. 6 Otherwise, it
would have expressly excluded from the scope of their power casinos and other forms of gambling
authorized by special law, as it could have easily done. The fact that it did not do so simply means that
the local government units are permitted to prohibit all kinds of gambling within their territories, including
the operation of casinos.

The adoption of the Local Government Code, it is pointed out, had the effect of
modifying the charter of the PAGCOR. The Code is not only a later enactment than
P.D. 1869 and so is deemed to prevail in case of inconsistencies between them.
More than this, the powers of the PAGCOR under the decree are expressly
discontinued by the Code insofar as they do not conform to its philosophy and
provisions, pursuant to Par. (f) of its repealing clause reading as follows:
(f) All general and special laws, acts, city charters, decrees, executive
orders, proclamations and administrative regulations, or part or parts
thereof which are inconsistent with any of the provisions of this Code
are hereby repealed or modified accordingly.
It is also maintained that assuming there is doubt regarding the effect of the Local
Government Code on P.D. 1869, the doubt must be resolved in favor of the
petitioners, in accordance with the direction in the Code calling for its liberal
interpretation in favor of the local government units. Section 5 of the Code
specifically provides:
Sec. 5. Rules of Interpretation. In the interpretation of the provisions
of this Code, the following rules shall apply:
(a) Any provision on a power of a local government unit shall be
liberally interpreted in its favor, and in case of doubt, any question
thereon shall be resolved in favor of devolution of powers and of the
lower local government unit. Any fair and reasonable doubt as to the
existence of the power shall be interpreted in favor of the local
government unit concerned;
xxx xxx xxx

(c) The general welfare provisions in this Code shall be liberally

interpreted to give more powers to local government units in
accelerating economic development and upgrading the quality of life for
the people in the community; . . . (Emphasis supplied.)
Finally, the petitioners also attack gambling as intrinsically harmful and cite various
provisions of the Constitution and several decisions of this Court expressive of the
general and official disapprobation of the vice. They invoke the State policies on the
family and the proper upbringing of the youth and, as might be expected, call
attention to the old case of U.S. v. Salaveria, 7 which sustained a municipal ordinance
prohibiting the playing of panguingue. The petitioners decry the immorality of gambling. They also impugn
the wisdom of P.D. 1869 (which they describe as "a martial law instrument") in creating PAGCOR and
authorizing it to operate casinos "on land and sea within the territorial jurisdiction of the Philippines."

This is the opportune time to stress an important point.

The morality of gambling is not a justiciable issue. Gambling is not illegal per se.
While it is generally considered inimical to the interests of the people, there is
nothing in the Constitution categorically proscribing or penalizing gambling or, for
that matter, even mentioning it at all. It is left to Congress to deal with the activity as
it sees fit. In the exercise of its own discretion, the legislature may prohibit gambling
altogether or allow it without limitation or it may prohibit some forms of gambling and
allow others for whatever reasons it may consider sufficient. Thus, it has
prohibited jueteng and monte but permits lotteries, cockfighting and horse-racing. In
making such choices, Congress has consulted its own wisdom, which this Court has
no authority to review, much less reverse. Well has it been said that courts do not sit
to resolve the merits of conflicting theories. 8 That is the prerogative of the political
departments. It is settled that questions regarding the wisdom, morality, or practicibility of statutes are not
addressed to the judiciary but may be resolved only by the legislative and executive departments, to
which the function belongs in our scheme of government. That function is exclusive. Whichever way these
branches decide, they are answerable only to their own conscience and the constituents who will
ultimately judge their acts, and not to the courts of justice.

The only question we can and shall resolve in this petition is the validity of
Ordinance No. 3355 and Ordinance No. 3375-93 as enacted by the Sangguniang
Panlungsod of Cagayan de Oro City. And we shall do so only by the criteria laid
down by law and not by our own convictions on the propriety of gambling.
The tests of a valid ordinance are well established. A long line of decisions
that to be valid, an ordinance must conform to the following substantive requirements:

1) It must not contravene the constitution or any statute.

2) It must not be unfair or oppressive.
3) It must not be partial or discriminatory.

has held

4) It must not prohibit but may regulate trade.

5) It must be general and consistent with public policy.
6) It must not be unreasonable.
We begin by observing that under Sec. 458 of the Local Government Code, local
government units are authorized to prevent or suppress, among others, "gambling
and other prohibited games of chance." Obviously, this provision excludes games of
chance which are not prohibited but are in fact permitted by law. The petitioners are
less than accurate in claiming that the Code could have excluded such games of
chance but did not. In fact it does. The language of the section is clear and
unmistakable. Under the rule of noscitur a sociis, a word or phrase should be
interpreted in relation to, or given the same meaning of, words with which it is
associated. Accordingly, we conclude that since the word "gambling" is associated
with "and other prohibited games of chance," the word should be read as referring to
only illegal gambling which, like the other prohibited games of chance, must be
prevented or suppressed.
We could stop here as this interpretation should settle the problem quite
conclusively. But we will not. The vigorous efforts of the petitioners on behalf of the
inhabitants of Cagayan de Oro City, and the earnestness of their advocacy, deserve
more than short shrift from this Court.
The apparent flaw in the ordinances in question is that they contravene P.D. 1869
and the public policy embodied therein insofar as they prevent PAGCOR from
exercising the power conferred on it to operate a casino in Cagayan de Oro City.
The petitioners have an ingenious answer to this misgiving. They deny that it is the
ordinances that have changed P.D. 1869 for an ordinance admittedly cannot prevail
against a statute. Their theory is that the change has been made by the Local
Government Code itself, which was also enacted by the national lawmaking
authority. In their view, the decree has been, not really repealed by the Code, but
merely "modified pro tanto" in the sense that PAGCOR cannot now operate a casino
over the objection of the local government unit concerned. This modification of P.D.
1869 by the Local Government Code is permissible because one law can change or
repeal another law.
It seems to us that the petitioners are playing with words. While insisting that the
decree has only been "modifiedpro tanto," they are actually arguing that it is already
dead, repealed and useless for all intents and purposes because the Code has
shorn PAGCOR of all power to centralize and regulate casinos. Strictly speaking, its
operations may now be not only prohibited by the local government unit; in fact, the
prohibition is not only discretionary but mandated by Section 458 of the Code if the
word "shall" as used therein is to be given its accepted meaning. Local government
units have now no choice but to prevent and suppress gambling, which in the

petitioners' view includes both legal and illegal gambling. Under this construction,
PAGCOR will have no more games of chance to regulate or centralize as they must
all be prohibited by the local government units pursuant to the mandatory duty
imposed upon them by the Code. In this situation, PAGCOR cannot continue to exist
except only as a toothless tiger or a white elephant and will no longer be able to
exercise its powers as a prime source of government revenue through the operation
of casinos.
It is noteworthy that the petitioners have cited only Par. (f) of the repealing clause,
conveniently discarding the rest of the provision which painstakingly mentions the
specific laws or the parts thereof which are repealed (or modified) by the Code.
Significantly, P.D. 1869 is not one of them. A reading of the entire repealing clause,
which is reproduced below, will disclose the omission:
Sec. 534. Repealing Clause. (a) Batas Pambansa Blg. 337,
otherwise known as the "Local Government Code," Executive Order
No. 112 (1987), and Executive Order No. 319 (1988) are hereby
repealed.
(b) Presidential Decree Nos. 684, 1191, 1508 and such other decrees,
orders, instructions, memoranda and issuances related to or
concerning the barangay are hereby repealed.
(c) The provisions of Sections 2, 3, and 4 of Republic Act No. 1939
regarding hospital fund; Section 3, a (3) and b (2) of Republic Act. No.
5447 regarding the Special Education Fund; Presidential Decree No.
144 as amended by Presidential Decree Nos. 559 and 1741;
Presidential Decree No. 231 as amended; Presidential Decree No. 436
as amended by Presidential Decree No. 558; and Presidential Decree
Nos. 381, 436, 464, 477, 526, 632, 752, and 1136 are hereby repealed
and rendered of no force and effect.
(d) Presidential Decree No. 1594 is hereby repealed insofar as it
governs locally-funded projects.
(e) The following provisions are hereby repealed or amended insofar as
they are inconsistent with the provisions of this Code: Sections 2, 16,
and 29 of Presidential Decree No. 704; Sections 12 of Presidential
Decree No. 87, as amended; Sections 52, 53, 66, 67, 68, 69, 70, 71,
72, 73, and 74 of Presidential Decree No. 463, as amended; and
Section 16 of Presidential Decree No. 972, as amended, and
(f) All general and special laws, acts, city charters, decrees, executive
orders, proclamations and administrative regulations, or part or parts

thereof which are inconsistent with any of the provisions of this Code
are hereby repealed or modified accordingly.
Furthermore, it is a familiar rule that implied repeals are not lightly presumed in the
absence of a clear and unmistakable showing of such intention. In Lichauco & Co. v.
Apostol, 10 this Court explained:
The cases relating to the subject of repeal by implication all proceed on
the assumption that if the act of later date clearly reveals an intention
on the part of the lawmaking power to abrogate the prior law, this
intention must be given effect; but there must always be a sufficient
revelation of this intention, and it has become an unbending rule of
statutory construction that the intention to repeal a former law will not
be imputed to the Legislature when it appears that the two statutes, or
provisions, with reference to which the question arises bear to each
other the relation of general to special.
There is no sufficient indication of an implied repeal of P.D. 1869. On the contrary, as
the private respondent points out, PAGCOR is mentioned as the source of funding in
two later enactments of Congress, to wit, R.A. 7309, creating a Board of Claims
under the Department of Justice for the benefit of victims of unjust punishment or
detention or of violent crimes, and R.A. 7648, providing for measures for the solution
of the power crisis. PAGCOR revenues are tapped by these two statutes. This would
show that the PAGCOR charter has not been repealed by the Local Government
Code but has in fact been improved as it were to make the entity more responsive to
the fiscal problems of the government.
It is a canon of legal hermeneutics that instead of pitting one statute against another
in an inevitably destructive confrontation, courts must exert every effort to reconcile
them, remembering that both laws deserve a becoming respect as the handiwork of
a coordinate branch of the government. On the assumption of a conflict between
P.D. 1869 and the Code, the proper action is not to uphold one and annul the other
but to give effect to both by harmonizing them if possible. This is possible in the case
before us. The proper resolution of the problem at hand is to hold that under the
Local Government Code, local government units may (and indeed must) prevent
and suppress all kinds of gambling within their territories except only those allowed
by statutes like P.D. 1869. The exception reserved in such laws must be read into
the Code, to make both the Code and such laws equally effective and mutually
complementary.
This approach would also affirm that there are indeed two kinds of gambling, to wit,
the illegal and those authorized by law. Legalized gambling is not a modern concept;
it is probably as old as illegal gambling, if not indeed more so. The petitioners'
suggestion that the Code authorizes them to prohibit all kinds of gambling would
erase the distinction between these two forms of gambling without a clear indication

that this is the will of the legislature. Plausibly, following this theory, the City of
Manila could, by mere ordinance, prohibit the Philippine Charity Sweepstakes Office
from conducting a lottery as authorized by R.A. 1169 and B.P. 42 or stop the races at
the San Lazaro Hippodrome as authorized by R.A. 309 and R.A. 983.
In light of all the above considerations, we see no way of arriving at the conclusion
urged on us by the petitioners that the ordinances in question are valid. On the
contrary, we find that the ordinances violate P.D. 1869, which has the character and
force of a statute, as well as the public policy expressed in the decree allowing the
playing of certain games of chance despite the prohibition of gambling in general.
The rationale of the requirement that the ordinances should not contravene a statute
is obvious. Municipal governments are only agents of the national government.
Local councils exercise only delegated legislative powers conferred on them by
Congress as the national lawmaking body. The delegate cannot be superior to the
principal or exercise powers higher than those of the latter. It is a heresy to suggest
that the local government units can undo the acts of Congress, from which they
have derived their power in the first place, and negate by mere ordinance the
mandate of the statute.
Municipal corporations owe their origin to, and derive their powers and
rights wholly from the legislature. It breathes into them the breath of
life, without which they cannot exist. As it creates, so it may destroy. As
it may destroy, it may abridge and control. Unless there is some
constitutional limitation on the right, the legislature might, by a single
act, and if we can suppose it capable of so great a folly and so great a
wrong, sweep from existence all of the municipal corporations in the
State, and the corporation could not prevent it. We know of no limitation
on the right so far as to the corporation themselves are concerned.
They are, so to phrase it, the mere tenants at will of the legislature. 11
This basic relationship between the national legislature and the local government
units has not been enfeebled by the new provisions in the Constitution strengthening
the policy of local autonomy. Without meaning to detract from that policy, we here
confirm that Congress retains control of the local government units although in
significantly reduced degree now than under our previous Constitutions. The power
to create still includes the power to destroy. The power to grant still includes the
power to withhold or recall. True, there are certain notable innovations in the
Constitution, like the direct conferment on the local government units of the power to
tax, 12which cannot now be withdrawn by mere statute. By and large, however, the national legislature is
still the principal of the local government units, which cannot defy its will or modify or violate it.

The Court understands and admires the concern of the petitioners for the welfare of
their constituents and their apprehensions that the welfare of Cagayan de Oro City
will be endangered by the opening of the casino. We share the view that "the hope

of large or easy gain, obtained without special effort, turns the head of the
workman" 13 and that "habitual gambling is a cause of laziness and ruin." 14 In People v.
Gorostiza, 15 we declared: "The social scourge of gambling must be stamped out. The laws against
gambling must be enforced to the limit." George Washington called gambling "the child of avarice, the
brother of iniquity and the father of mischief." Nevertheless, we must recognize the power of the
legislature to decide, in its own wisdom, to legalize certain forms of gambling, as was done in P.D. 1869
and impliedly affirmed in the Local Government Code. That decision can be revoked by this Court only if it
contravenes the Constitution as the touchstone of all official acts. We do not find such contravention here.

We hold that the power of PAGCOR to centralize and regulate all games of chance,
including casinos on land and sea within the territorial jurisdiction of the Philippines,
remains unimpaired. P.D. 1869 has not been modified by the Local Government
Code, which empowers the local government units to prevent or suppress only those
forms of gambling prohibited by law.
Casino gambling is authorized by P.D. 1869. This decree has the status of a statute
that cannot be amended or nullified by a mere ordinance. Hence, it was not
competent for the Sangguniang Panlungsod of Cagayan de Oro City to enact
Ordinance No. 3353 prohibiting the use of buildings for the operation of a casino and
Ordinance No. 3375-93 prohibiting the operation of casinos. For all their
praiseworthy motives, these ordinances are contrary to P.D. 1869 and the public
policy announced therein and are therefore ultra vires and void.
WHEREFORE, the petition is DENIED and the challenged decision of the
respondent Court of Appeals is AFFIRMED, with costs against the petitioners. It is
so ordered.
[G.R. No. L-23794. February 17, 1968.]
ORMOC SUGAR COMPANY, INC., Plaintiff-Appellant, v. THE TREASURER OF ORMOC
CITY, THE MUNICIPAL BOARD OF ORMOC CITY, HON. ESTEBAN C. CONEJOS, as
Mayor of Ormoc City and ORMOC CITY, Defendants-Appellees.
Ponce Enrile, Siguion Reyna, Montecillo & Belo and Teehankee, Carreon & Taada,
forPlaintiff-Appellant.
Ramon O. de Veyra for Defendants-Appellees.
SYLLABUS
1. MUNICIPAL CORPORATIONS; POWER TO IMPOSE EXPORT OR IMPORT TAX; REP. ACT
2264, SEC. 2; EFFECT ON SEC. 2287 OF REVISED ADMINISTRATIVE CODE. Section 2 of
Rep. Act 2264 which became effective on June 19, 1959, gave chartered cities,
municipalities and municipal districts authority to levy for public purposes just and uniform
taxes, licenses or fees. This provision of law has repealed Sec. 2287 of the Revised
Administrative Code (Nin Bay Mining Co. v. Municipality of Roxas, L-20125, July 20, 1965),
which withheld from municipalities the power to impose an import or export tax upon such

goods in the guise of an unreasonable charge for wharfage.

2. CONSTITUTIONAL LAW; EQUAL PROTECTION OF LAW; REASONABLE CLASSIFICATION;
REQUISITES. The equal protection clause applies only to persons or things identically
situated and does not bar a reasonable classification of the subject of legislation. A
classification is reasonable where (1) it is based on substantial distinctions which make real
differences; (2) these are germane to the purpose of the law; (3) the classification applies
not only to present conditions but also to future conditions which are substantially identical
to those of the present; (4) the classification applies only to those who belong to the same
class.
3. ID.; ID.; ID.; TAX ORDINANCE SHOULD NOT BE SINGULAR AND EXCLUSIVE. When the
taxing ordinance was enacted, Ormoc Sugar Co,, Inc. was the only sugar central in the City.
A reasonable classification should be in terms applicable to future conditions as well. The
taxing ordinance should not be singular and exclusive as to exclude any subsequently
established sugar central.
4. TAXATION; TAX, REFUND OF; NO INTEREST CAN BE CLAIMED; REASONS. Appellant is
not entitled to interest on the refund because the taxes were not arbitrarily collected. There
is sufficient basis to preclude arbitrariness. The constitutionality of the statute is presumed
until declared otherwise.
DECISION
BENGZON, J.P., J.:
On January 29, 1964, the Municipal Board of Ormoc City passed 1 Ordinance No. 4, Series
of 1964, imposing "on any and all productions of centrifugal sugar milled at the Ormoc
Sugar Company, Inc., in Ormoc City a municipal tax equivalent to one per centum (1%) per
export sale to the United States of America and other foreign countries." 2
Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc. on March
20, 1964 for P7,087.50 and on April 20, 1964 for P5,000.00, or a total of P12,087.50.
On June 1, 1964, Ormoc Sugar Company, Inc. filed before the Court of First Instance of
Leyte, with service of a copy upon the Solicitor General, a complaint 3 against the City of
Ormoc as well as its Treasurer, Municipal Board and Mayor, alleging that the afore-stated
ordinance is unconstitutional for being violative of the equal protection clause (Sec. 1[1],
Art. III, Constitution) and the rule of uniformity of taxation (Sec. 22[1], Art. VI,
Constitution), aside from being an export tax forbidden under Section 2287 of the Revised
Administrative Code. It further alleged that the tax is neither a production nor a license tax
which Ormoc City under Section 15-kk of its charter and under Section 2 of Republic Act
2264, otherwise known as the Local Autonomy Act, is authorized to impose; and that the
tax amounts to a customs duty, fee or charge in violation of paragraph 1 of Section 2 of
Republic Act 2264 because the tax is on both the sale and export of sugar.
Answering, the defendants asserted that the tax ordinance was within defendant citys
power to enact under the Local Autonomy Act and that the same did not violate the aforecited constitutional limitations. After pre-trial and submission of the case on memoranda,
the Court of First Instance, on August 6, 1964, rendered a decision that upheld the

constitutionality of the ordinance and declared the taxing power of defendant chartered city
broadened by the Local Autonomy Act to include all other forms of taxes, licenses or fees
not excluded in its charter.
Appeal therefrom was directly taken to Us by plaintiff Ormoc Sugar Company, Inc. Appellant
alleges the same statutory and constitutional violations in the aforesaid taxing ordinance
mentioned earlier.
Section 1 of the ordinance states: "There shall be paid to the City Treasurer on any and all
productions of centrifugal sugar milled at the Ormoc Sugar Company Incorporated, in
Ormoc City a municipal tax equivalent to one per centum (1%) per export sale to the United
States of America and other foreign countries." Though referred to as a "production tax",
the imposition actually amounts to a tax on the export of centrifugal sugar produced at
Ormoc Sugar Company, Inc. For production of sugar alone is not taxable; the only time the
tax applies is when the sugar produced is exported.
Appellant questions the authority of the defendant Municipal Board to levy such an export
tax, in view of Section 2287 of the Revised Administrative Code which denies from municipal
councils the power to impose an export tax. Section 2287 in part states: "It shall not be in
the power of the municipal council to impose a tax in any form whatever, upon goods and
merchandise carried into the municipality, or out of the same, and any attempt to impose an
import or export tax upon such goods in the guise of an unreasonable charge for wharfage,
use of bridges or otherwise, shall be void."
cralaw virtua1aw library

Subsequently, however, Section 2 of Republic Act 2264, effective June 19, 1959, gave
chartered cities, municipalities and municipal districts authority to levy for public purposes
just and uniform taxes, licenses or fees. Anent the inconsistency between Section 2287 of
the Revised Administrative Code and Section 2 of Republic Act 2264, this Court, in Nin Bay
Mining Co. v. Municipality of Roxas, 4 held the former to have been repealed by the latter.
And expressing Our awareness of the transcendental effects that municipal export or import
taxes or licenses will have on the national economy, due to Section 2 of Republic Act 2264,
We stated that there was no other alternative until Congress acts to provide remedial
measures to forestall any unfavorable results.
The point remains to be determined, however, whether constitutional limits on the power of
taxation, specifically the equal protection clause and rule of uniformity of taxation, were
infringed.
The Constitution in the bill of rights provides: ". . . nor shall any person be denied the equal
protection of the laws." (Sec. 1[1], Art. 111) In Felwa v. Salas 5 We ruled that the equal
protection clause applies only to persons or things identically situated and does not bar a
reasonable classification of the subject of legislation, and a classification is reasonable where
(1) it is based on substantial distinctions which make real differences; (2) these are
germane to the purpose of the law; (3) the classification applies not only to present
conditions but also to future conditions which are substantially identical to those of the
present; (4) the classification applies only to those who belong to the same class.
A perusal of the requisites instantly shows that the questioned ordinance does not meet
them, for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar
Company, Inc. and none other. At the time of the taxing ordinances enactment, Ormoc
Sugar Company, Inc., it is true, was the only sugar central in the city of Ormoc. Still, the
classification, to be reasonable, should be in terms applicable to future conditions as well.
The taxing ordinance should not be singular and exclusive as to exclude any subsequently

established sugar central, of the same class as plaintiff, from the coverage of the tax. As it
is now, even if later a similar company is set up, it cannot be subject to the tax because the
ordinance expressly points only to Ormoc Sugar Company, Inc. as the entity to be levied
upon.
Appellant, however, is not entitled to interest on the refund because the taxes were not
arbitrarily collected (Collector of Internal Revenue v. Binalbagan).6 At the time of collection,
the ordinance provided a sufficient basis to preclude arbitrariness, the same being then
presumed constitutional until declared otherwise.
WHEREFORE, the decision appealed from is hereby reversed, the challenged ordinance is
declared unconstitutional and the defendants- appellees are hereby ordered to refund the
P12,087.50 plaintiff- appellant paid under protest. No. costs. So ordered.

EN BANC
HACIENDA LUISITA,
INCORPORATED,
Petitioner,

G.R. No. 171101

LUISITA INDUSTRIAL PARK

CORPORATION and RIZAL
COMMERCIAL BANKING
CORPORATION,
Petitioners-in-Intervention,

CORONA, C.J.,
CARPIO,
VELASCO, JR.,
LEONARDO-DE CASTRO,
BRION,
PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
MENDOZA,
SERENO,
REYES, and
PERLAS-BERNABE, JJ.

- versus PRESIDENTIAL AGRARIAN

REFORM COUNCIL; SECRETARY
NASSER PANGANDAMAN OF THE
DEPARTMENT OF AGRARIAN
REFORM; ALYANSA NG MGA
MANGGAGAWANG BUKID NG
HACIENDA LUISITA, RENE
GALANG, NOEL MALLARI, and
JULIO SUNIGA[1] and his
SUPERVISORY GROUP OF THE
HACIENDA LUISITA, INC. and
WINDSOR ANDAYA,
Respondents.

Present:

Promulgated:
April 24, 2012

x-----------------------------------------------------------------------------------------x
R E S O LUTIO N
VELASCO, JR., J.:

Before the Court are the Motion to Clarify and Reconsider Resolution of
November 22, 2011 dated December 16, 2011 filed by petitioner Hacienda Luisita,
Inc. (HLI) and the Motion for Reconsideration/Clarification dated December 9,
2011 filed by private respondents Noel Mallari, Julio Suniga, Supervisory Group
of Hacienda Luisita, Inc. and Windsor Andaya (collectively referred to as
Mallari, et al.).
In Our July 5, 2011 Decision[2] in the above-captioned case, this Court
denied the petition for review filed by HLI and affirmed the assailed Presidential
Agrarian Reform Council (PARC) Resolution No. 2005-32-01 dated December 22,
2005 and PARC Resolution No. 2006-34-01 dated May 3, 2006 with the
modification that the original 6,296 qualified farmworker-beneficiaries of
Hacienda Luisita (FWBs) shall have the option to remain as stockholders of HLI.
Upon separate motions of the parties for reconsideration, the Court, by
Resolution[3] of November 22, 2011, recalled and set aside the option thus granted
to the original FWBs to remain as stockholders of HLI, while maintaining that all
the benefits and homelots received by all the FWBs shall be respected with no
obligation to refund or return them.
HLI invokes the following grounds in support of its instant Motion to
Clarify and Reconsider Resolution of November 22, 2011 dated December 16,
2011:
A

WITH DUE RESPECT, THE HONORABLE COURT ERRED IN

RULING THAT IN DETERMINING THE JUST COMPENSATION,
THE DATE OF TAKING IS NOVEMBER 21, 1989, WHEN PARC
APPROVED HLIs SDP [STOCK DISPTRIBUTION PLAN] IN
VIEW OF THE FACT THAT THIS IS THE TIME THAT THE FWBs
WERE CONSIDERED TO OWN AND POSSESS THE
AGRICULTURAL LANDS IN HACIENDA LUISITA BECAUSE:
(1) THE SDP IS PRECISELY A MODALITY WHICH THE
AGRARIAN LAW GIVES THE LANDOWNER AS ALTERNATIVE
TO COMPULSORY COVERAGE IN WHICH CASE, THEREFORE,
THE FWBs CANNOT BE CONSIDERED AS OWNERS AND
POSSESSORS OF THE AGRICULTURAL LANDS AT THE TIME
THE SDP WAS APPROVED BY PARC;
(2) THE APPROVAL OF THE SDP CANNOT BE AKIN TO A
NOTICE OF COVERAGE IN COMPULSORY COVERAGE OR
ACQUISITION BECAUSE SDP AND COMPULSORY COVERAGE
ARE TWO DIFFERENT MODALITIES WITH INDEPENDENT AND
SEPARATE RULES AND MECHANISMS;
(3) THE NOTICE OF COVERAGE OF JANUARY 02, 2006 MAY, AT
THE VERY LEAST, BE CONSIDERED AS THE TIME WHEN THE
FWBs CAN BE CONSIDERED TO OWN AND POSSESS THE
AGRICULTURAL LANDS OF HACIENDA LUISITA BECAUSE
THAT IS THE ONLY TIME WHEN HACIENDA LUISITA WAS
PLACED UNDER COMPULSORY ACQUISITION IN VIEW OF
FAILURE OF HLI TO PERFORM CERTAIN OBLIGATIONS OF THE
SDP, OR SDOA [STOCK DISTRIBUTION OPTION AGREEMENT];
(4) INDEED, THE IMMUTABLE RULE AND THE UNBENDING
JURISPRUDENCE IS THAT TAKING TAKES PLACE WHEN
THE OWNER IS ACTUALLY DEPRIVED OR DISPOSSESSED OF
HIS PROPERTY;
(5) TO INSIST THAT THE TAKING IS WHEN THE SDP WAS
APPROVED BY PARC ON NOVEMBER 21, 1989 AND THAT THE
SAME BE CONSIDERED AS THE RECKONING PERIOD TO
DETERMINE THE JUST COMPENSATION IS DEPRIVATION OF
LANDOWNERS PROPERTY WITHOUT DUE PROCESS OF LAW;

(6) HLI SHOULD BE ENTITLED TO PAYMENT OF INTEREST ON

THE JUST COMPENSATION.
B
WITH DUE RESPECT, THE HONORABLE COURT ERRED WHEN
IT REVERSED ITS DECISION GIVING THE FWBs THE OPTION
TO REMAIN AS HLI STOCKHOLDERS OR NOT, BECAUSE:
(1) IT IS AN EXERCISE OF A RIGHT OF THE FWB WHICH THE
HONORABLE COURT HAS DECLARED IN ITS DECISION AND
EVEN IN ITS RESOLUTION AND THAT HAS TO BE RESPECTED
AND IMPLEMENTED;
(2) NEITHER THE CONSTITUTION NOR THE CARL
[COMPREHENSIVE AGRARIAN REFORM LAW] REQUIRES THAT
THE FWBs SHOULD HAVE CONTROL OVER THE
AGRICULTURAL LANDS;
(3) THE OPTION HAS NOT BEEN SHOWN TO BE DETRIMENTAL
BUT INSTEAD BENEFICIAL TO THE FWBs AS FOUND BY THE
HONORABLE COURT.
C
WITH DUE RESPECT, THE HONORABLE COURT ERRED IN
RULING THAT THE PROCEEDS FROM THE SALES OF THE 500HECTARE CONVERTED LOT AND THE 80.51-HECTARE SCTEX
CANNOT BE RETAINED BY HLI BUT RETURNED TO THE FWBs
AS BY SUCH MANNER; HLI IS USING THE CORPORATION
CODE TO AVOID ITS LIABILITY TO THE FWBs FOR THE PRICE
IT RECEIVED FROM THE SALES, BECAUSE:
(1) THE PROCEEDS OF THE SALES BELONG TO THE
CORPORATION AND NOT TO EITHER HLI/TADECO OR THE
FWBs, BOTH OF WHICH ARE STOCKHOLDERS ENTITLED TO
THE EARNINGS OF THE CORPORATION AND TO THE NET
ASSETS UPON LIQUIDATION;

(2) TO ALLOW THE RETURN OF THE PROCEEDS OF THE SALES

TO FWBs IS TO IMPOSE ALL LIABILITIES OF THE
CORPORATION ON HLI/TADECO WHICH IS UNFAIR AND
VIOLATIVE OF THE CORPORATION CODE.

Mallari, et al. similarly put forth the following issues in its Motion for
Reconsideration/Clarification dated December 9, 2011:
I
REPUBLIC ACT NO. 6657 [RA 6657] OR THE COMPREHENSIVE
AGRARIAN REFORM LAW [CARL] DOES NOT PROVIDE THAT
THE FWBs WHO OPT FOR STOCK DISTRIBUTION OPTION
SHOULD RETAIN MAJORITY SHAREHOLDING OF THE
COMPANY TO WHICH THE AGRICULTURAL LAND WAS GIVEN.
II
IF THE NOVEMBER 22, 2011 DECISION OF THIS HONORABLE
COURT ORDERING LAND DISTRIBUTION WOULD BE
FOLLOWED, THIS WOULD CAUSE MORE HARM THAN GOOD
TO THE LIVES OF THOSE PEOPLE LIVING IN THE HACIENDA,
AND MORE PARTICULARLY TO THE WELFARE OF THE FWBs.
III
ON THE CONCLUSION BY THIS HONORABLE COURT THAT THE
OPERATIVE FACT DOCTRINE IS APPLICABLE TO THE CASE AT
BAR, THEN FWBs WHO MERELY RELIED ON THE PARC
APPROVAL SHOULD NOT BE PREJUDICED BY ITS
SUBSEQUENT NULLIFICATION.
IV
THOSE WHO CHOOSE LAND SHOULD RETURN WHATEVER
THEY GOT FROM THE SDOA [STOCK DISTRIBUTION OPTION
AGREEMENT] AND TURN OVER THE SAME TO HLI FOR USE IN
THE OPERATIONS OF THE COMPANY, WHICH IN TURN WILL
REDOUND TO THE BENEFIT OF THOSE WHO WILL OPT TO
STAY WITH THE SDO.
V
FOR THOSE WHO CHOOSE LAND, THE TIME OF TAKING FOR
PURPOSES OF JUST COMPENSATION SHOULD BE AT THE TIME

HLI WAS DISPOSSESSED OF CONTROL OVER THE PROPERTY,

AND THAT PAYMENT BY [THE GOVERNMENT] OF THE LAND
SHOULD BE TURNED OVER TO HLI FOR THE BENEFIT AND
USE OF THE COMPANYS OPERATIONS THAT WILL, IN TURN,
REDOUND TO THE BENEFIT OF FWBs WHO WILL OPT TO STAY
WITH THE COMPANY.

Basically, the issues raised by HLI and Mallari, et al. boil down to the
following: (1) determination of the date of taking; (2) propriety of the
revocation of the option on the part of the original FWBs to remain as stockholders
of HLI; (3) propriety of distributing to the qualified FWBs the proceeds from the
sale of the converted land and of the 80.51-hectare Subic-Clark-Tarlac Expressway
(SCTEX ) land; and (4) just compensation for the homelots given to the FWBs.
Payment of just compensation
HLI contends that since the SDP is a modality which the agrarian reform law
gives the landowner as alternative to compulsory coverage, then the FWBs cannot
be considered as owners and possessors of the agricultural lands of Hacienda
Luisita at the time the SDP was approved by PARC. [4] It further claims that the
approval of the SDP is not akin to a Notice of Coverage in compulsory coverage
situations because stock distribution option and compulsory acquisition are two (2)
different

modalities

with

independent

and

separate

rules

and

mechanisms. Concomitantly, HLI maintains that the Notice of Coverage issued on

January 2, 2006 may, at the very least, be considered as the date of taking as
this was the only time that the agricultural lands of Hacienda Luisita were placed
under compulsory acquisition in view of its failure to perform certain obligations
under the SDP.[5]
Mallari, et al. are of a similar view. They contend that Tarlac Development
Corporation (Tadeco), having as it were majority control over HLI, was never

deprived of the use and benefit of the agricultural lands of Hacienda Luisita. Upon
this premise, Mallari, et al. claim the date of taking could not be at the time of
the approval of the SDP.[6]
A view has also been advanced that the date of the taking should be left
to the determination of the Department of Agrarian Reform (DAR) in conjunction
with its authority to preliminarily determine the just compensation for the land
made subject of CARP.
Alyansa ng mga Manggagawang Bukid sa Hacienda Luisita (AMBALA), in
its Comment/Opposition (to the Motion to Clarify and Reconsider Resolution of
November 22, 2011) dated January 30, 2012, on the other hand, alleges that HLI
should not be paid just compensation altogether.[7] It argues that when the Court of
Appeals (CA) dismissed the case[8] the government of then President Ferdinand E.
Marcos initially instituted and won against Tadeco, the CA allegedly imposed as a
condition for its dismissal of the action that should the stock distribution program
fail, the lands should be distributed to the FWBs, with Tadeco receiving by way of
compensation only the amount of PhP 3,988,000.[9]
AMBALA further contends that if HLI or Tadeco is, at all, entitled to just
compensation, the taking should be reckoned as of November 21, 1989, the
date when the SDP was approved, and the amount of compensation should be PhP
40,000 per hectare as this was the same value declared in 1989 by Tadeco to ensure
that the FWBs will not control the majority stockholdings in HLI.[10]
At the outset, it should be noted that Section 2, Rule 52 of the Rules of
Court states, No second motion for reconsideration of a judgment or final
resolution by the same party shall be entertained. A second motion for
reconsideration, as a rule, is prohibited for being a mere reiteration of the issues
assigned and the arguments raised by the parties.[11]

In the instant case, the issue on just compensation and the grounds HLI and
Mallari, et al. rely upon in support of their respective stance on the matter had been
previously raised by them in their first motion for reconsideration and fully passed
upon by the Court in its November 22, 2011 Resolution. The similarities in the
issues then and now presented and the grounds invoked are at once easily
discernible from a perusal of the November 22, 2011 Resolution, the pertinent
portions of which read:
In Our July 5, 2011 Decision, We stated that HLI shall be paid
just compensation for the remaining agricultural land that will be
transferred to DAR for land distribution to the FWBs. We also ruled
that the date of the taking is November 21, 1989, when PARC
approved HLIs SDP per PARC Resolution No. 89-12-2.
In its Motion for Clarification and Partial Reconsideration, HLI
disagrees with the foregoing ruling and contends that the taking
should be reckoned from finality of the Decision of this Court, or at the
very least, the reckoning period may be tacked to January 2, 2006, the
date when the Notice of Coverage was issued by the DAR pursuant to
PARC Resolution No. 2006-34-01 recalling/revoking the approval of the
SDP.
For their part, Mallari, et al. argue that the valuation of the land
cannot be based on November 21, 1989, the date of approval of the SDP.
Instead, they aver that the date of taking for valuation purposes is a
factual issue best left to the determination of the trial courts.
At the other end of the spectrum, AMBALA alleges that HLI
should no longer be paid just compensation for the agricultural land that
will be distributed to the FWBs, since the Manila Regional Trial Court
(RTC) already rendered a decision ordering the Cojuangcos to transfer
the control of Hacienda Luisita to the Ministry of Agrarian Reform,
which will distribute the land to small farmers after compensating the
landowners P3.988 million. In the event, however, that this Court will
rule that HLI is indeed entitled to compensation, AMBALA contends
that it should be pegged at forty thousand pesos (PhP 40,000) per
hectare, since this was the same value that Tadeco declared in 1989 to
make sure that the farmers will not own the majority of its stocks.

Despite the above propositions, We maintain that the date of

taking is November 21, 1989, the date when PARC approved HLIs
SDP per PARC Resolution No. 89-12-2, in view of the fact that this is
the time that the FWBs were considered to own and possess the
agricultural lands in Hacienda Luisita. To be precise, these lands became
subject of the agrarian reform coverage through the stock distribution
scheme only upon the approval of the SDP, that is, November 21, 1989.
Thus, such approval is akin to a notice of coverage ordinarily issued
under compulsory acquisition. Further, any doubt should be resolved in
favor of the FWBs. As this Court held in Perez-Rosario v. CA:
It is an established social and economic fact that the
escalation of poverty is the driving force behind the political
disturbances that have in the past compromised the peace and
security of the people as well as the continuity of the national
order. To subdue these acute disturbances, the legislature over the
course of the history of the nation passed a series of laws
calculated to accelerate agrarian reform, ultimately to raise the
material standards of living and eliminate discontent. Agrarian
reform is a perceived solution to social instability. The edicts of
social justice found in the Constitution and the public policies that
underwrite them, the extraordinary national experience, and the
prevailing national consciousness, all command the great
departments of government to tilt the balance in favor of the poor
and underprivileged whenever reasonable doubt arises in the
interpretation of the law. But annexed to the great and sacred
charge of protecting the weak is the diametric function to put
every effort to arrive at an equitable solution for all parties
concerned: the jural postulates of social justice cannot shield
illegal acts, nor do they sanction false sympathy towards a certain
class, nor yet should they deny justice to the landowner whenever
truth and justice happen to be on her side. In the occupation of the
legal questions in all agrarian disputes whose outcomes can
significantly affect societal harmony, the considerations of social
advantage must be weighed, an inquiry into the prevailing social
interests is necessary in the adjustment of conflicting demands
and expectations of the people, and the social interdependence of
these interests, recognized. (Emphasis and citations omitted.)

Considering that the issue on just compensation has already been passed
upon and denied by the Court in its November 22, 2011 Resolution, a subsequent
motion touching on the same issue undeniably partakes of a second motion for
reconsideration, hence, a prohibited pleading, and as such, the motion or plea must
be denied. Sec. 3 of Rule 15 of the Internal Rules of the Supreme Court is clear:
SEC. 3. Second motion for reconsideration. The Court shall not
entertain a second motion for reconsideration, and any exception to this
rule can only be granted in the higher interest of justice by the Court en
banc upon a vote of at least two-thirds of its actual membership. There is
reconsideration in the higher interest of justice when the assailed
decision is not only legally erroneous, but is likewise patently unjust and
potentially capable of causing unwarranted and irremediable injury or
damage to the parties. A second motion for reconsideration can only be
entertained before the ruling sought to be reconsidered becomes final by
operation of law or by the Courts declaration.
In the Division, a vote of three Members shall be required to
elevate a second motion for reconsideration to the Court En Banc.

Nonetheless, even if we entertain said motion and examine the arguments

raised by HLI and Mallari, et al. one last time, the result will be the same.
Sec. 4, Article XIII of the 1987 Constitution expressly provides that the
taking of land for use in the agrarian reform program of the government is
conditioned on the payment of just compensation. As stated:
Section 4.
The State shall, by law, undertake an agrarian
reform program founded on the right of farmers and regular farm
workers, who are landless, to own directly or collectively the lands they
till or, in the case of other farm workers, to receive a just share of the
fruits thereof. To this end, the State shall encourage and undertake the
just distribution of all agricultural lands, subject to such priorities and
reasonable retention limits as the Congress may prescribe, taking into
account ecological, developmental, or equity considerations, and subject
to the payment of just compensation. (Emphasis supplied.)

Just compensation has been defined as the full and fair equivalent of the
property taken from its owner by the expropriator. [12] The measure is not the
takers gain, but the owners loss.[13] In determining just compensation, the price
or value of the property at the time it was taken from the owner and appropriated
by the government shall be the basis. If the government takes possession of the
land before the institution of expropriation proceedings, the value should be fixed
as of the time of the taking of said possession, not of the filing of the complaint.[14]
In Land Bank of the Philippines v. Livioco, the Court held that the time
of taking is the time when the landowner was deprived of the use and benefit of
his property, such as when title is transferred to the Republic. [15] It should be
noted, however, that taking does not only take place upon the issuance of title
either in the name of the Republic or the beneficiaries of the Comprehensive
Agrarian Reform Program (CARP). Taking also occurs when agricultural lands
are voluntarily offered by a landowner and approved by PARC for CARP coverage
through the stock distribution scheme, as in the instant case. Thus, HLIs
submitting its SDP for approval is an acknowledgment on its part that the
agricultural lands of Hacienda Luisita are covered by CARP. However, it was the
PARC approval which should be considered as the effective date of taking as it
was only during this time that the government officially confirmed the CARP
coverage of these lands.
Indeed, stock distribution option and compulsory land acquisition are two
(2) different modalities under the agrarian reform program. Nonetheless, both share
the same end goal, that is, to have a more equitable distribution and ownership of
land, with due regard to the rights of landowners to just compensation.[16]

The fact that Sec. 31 of Republic Act No. 6657 (RA 6657) gives corporate
landowners the option to give qualified beneficiaries the right to avail of a stock
distribution or, in the phraseology of the law, the right to purchase such
proportion of the capital stock of the corporation that the agricultural land, actually
devoted to agricultural activities, bears in relation to the companys total assets,
does not detract from the avowed policy of the agrarian reform law of equitably
distributing ownership of land. The difference lies in the fact that instead of
actually distributing the agricultural lands to the farmer-beneficiaries, these lands
are held by the corporation as part of the capital contribution of the farmerbeneficiaries, not of the landowners, under the stock distribution scheme. The end
goal of equitably distributing ownership of land is, therefore, undeniable. And
since it is only upon the approval of the SDP that the agricultural lands actually
came under CARP coverage, such approval operates and takes the place of a notice
of coverage ordinarily issued under compulsory acquisition.
Moreover, precisely because due regard is given to the rights of landowners
to just compensation, the law on stock distribution option acknowledges that
landowners can require payment for the shares of stock corresponding to the value
of the agricultural lands in relation to the outstanding capital stock of the
corporation.
Although Tadeco did not require compensation for the shares of stock
corresponding to the value of the agricultural lands in relation to the outstanding
capital stock of HLI, its inability to receive compensation cannot be attributed to
the government. The second paragraph of Sec. 31 of RA 6657 explicitly states that
[u]pon certification by DAR, corporations owning agricultural lands may give
their qualified beneficiaries the right to purchase such proportion of the capital
stock of the corporation that the agricultural land, actually devoted to agricultural
activities, bears in relation to the companys total assets, under such terms and
conditions as may be agreed upon by them. x x x [17] On the basis of this statutory

provision, Tadeco could have exacted payment for such shares of stock
corresponding to the value of the agricultural lands of Hacienda Luisita in relation
to the outstanding capital stock of HLI, but it did not do so.
What is notable, however, is that the divestment by Tadeco of the
agricultural lands of Hacienda Luisita and the giving of the shares of stock for free
is nothing but an enticement or incentive for the FWBs to agree with the stock
distribution option scheme and not further push for land distribution. And the
stubborn fact is that the man days scheme of HLI impelled the FWBs to work
in the hacienda in exchange for such shares of stock.
Notwithstanding the foregoing considerations, the suggestion that there is
taking only when the landowner is deprived of the use and benefit of his
property is not incompatible with Our conclusion that taking took place on
November 21, 1989. As mentioned in Our July 5, 2011 Decision, even from the
start, the stock distribution scheme appeared to be Tadecos preferred option in
complying with the CARP when it organized HLI as its spin-off corporation in
order to facilitate stock acquisition by the FWBs. For this purpose, Tadeco
assigned and conveyed to HLI the agricultural lands of Hacienda Luisita, set at
4,915.75 hectares, among others. These agricultural lands constituted as the capital
contribution of the FWBs in HLI. In effect, Tadeco deprived itself of the ownership
over these lands when it transferred the same to HLI.
While it is true that Tadeco has majority control over HLI, the Court cannot
subscribe to the view Mallari, et al. espouse that, on the basis of such majority
stockholding, Tadeco was never deprived of the use and benefit of the agricultural
lands of Hacienda Luisita it divested itself in favor of HLI.
It bears stressing that [o]wnership is defined as a relation in law by virtue
of which a thing pertaining to one person is completely subjected to his will in
everything not prohibited by law or the concurrence with the rights of

another.[18] The attributes of ownership are: jus utendi or the right to possess and
enjoy, jus fruendi or the right to the fruits, jus abutendi or the right to abuse or
consume, jus disponendi or the right to dispose or alienate, and jus vindicandi or
the right to recover or vindicate.[19]
When the agricultural lands of Hacienda Luisita were transferred by Tadeco
to HLI in order to comply with CARP through the stock distribution option
scheme, sealed with the imprimatur of PARC under PARC Resolution No. 89-12-2
dated November 21, 1989, Tadeco was consequently dispossessed of the aforementioned attributes of ownership. Notably, Tadeco and HLI are two different
entities with separate and distinct legal personalities. Ownership by one cannot be
considered as ownership by the other.
Corollarily, it is the official act by the government, that is, the PARCs
approval of the SDP, which should be considered as the reckoning point for the
taking of the agricultural lands of Hacienda Luisita. Although the transfer of
ownership over the agricultural lands was made prior to the SDPs approval, it is
this Courts consistent view that these lands officially became subject of the
agrarian reform coverage through the stock distribution scheme only upon the
approval of the SDP. And as We have mentioned in Our November 22, 2011
Resolution, such approval is akin to a notice of coverage ordinarily issued under
compulsory acquisition.
Further, if We adhere to HLIs view that the Notice of Coverage issued on
January 2, 2006 should, at the very least, be considered as the date of taking as
this was the only time that the agricultural portion of the hacienda was placed
under compulsory acquisition in view of HLIs failure to perform certain
obligations under the SDP, this Court would, in effect, be penalizing the qualified
FWBs twice for acceding to the adoption of the stock distribution scheme: first, by
depriving the qualified FWBs of the agricultural lands that they should have gotten

early on were it not for the adoption of the stock distribution scheme of which they
only became minority stockholders; and second, by making them pay higher
amortizations for the agricultural lands that should have been given to them
decades ago at a much lower cost were it not for the landowners initiative of
adopting the stock distribution scheme for free.
Reiterating what We already mentioned in Our November 22, 2011
Resolution, [e]ven if it is the government which will pay the just compensation to
HLI, this will also affect the FWBs as they will be paying higher amortizations to
the government if the taking will be considered to have taken place only on
January 2, 2006. As aptly observed by Justice Leonardo-De Castro in her
Concurring Opinion, this will put the land beyond the capacity of the [FWBs] to
pay, which this Court should not countenance.
Considering the above findings, it cannot be gainsaid that effective
taking took place in the case at bar upon the approval of the SDP, that is, on
November 21, 1989.
HLI postulates that just compensation is a question of fact that should be left
to the determination by the DAR, Land Bank of the Philippines (LBP) or even the
special agrarian court (SAC).[20] As a matter of fact, the Court, in its November 22,
2011 Resolution, dispositively ordered the DAR and the LBP to determine the
compensation due to HLI. And as indicated in the body of said Resolution:
The foregoing notwithstanding, it bears stressing that the DARs
land valuation is only preliminary and is not, by any means, final and
conclusive upon the landowner. The landowner can file an original
action with the RTC acting as a special agrarian court to determine just
compensation. The court has the right to review with finality the
determination in the exercise of what is admittedly a judicial function.

As regards the issue on when taking occurred with respect to the

agricultural lands in question, We, however, maintain that this Court can rule, as it
has in fact already ruled on its reckoning date, that is, November 21, 1989, the date
of issuance of PARC Resolution No. 89-12-2, based on the above-mentioned
disquisitions. The investment on SACs of original and exclusive jurisdiction over
all petitions for the determination of just compensation to landowners [21] will not
preclude the Court from ruling upon a matter that may already be resolved based
on the records before Us. By analogy, Our ruling in Heirs of Dr. Jose Deleste v.
LBP is applicable:
Indeed, it is the Office of the DAR Secretary which is vested with
the primary and exclusive jurisdiction over all matters involving the
implementation of the agrarian reform program. However, this will not
prevent the Court from assuming jurisdiction over the petition
considering that the issues raised in it may already be resolved on
the basis of the records before Us. Besides, to allow the matter to
remain with the Office of the DAR Secretary would only cause
unnecessary delay and undue hardship on the parties. Applicable, by
analogy, is Our ruling in the recent Bagong Pagkakaisa ng Manggagawa
ng Triumph International v. Department of Labor and Employment
Secretary, where We held:
But as the CA did, we similarly recognize that undue
hardship, to the point of injustice, would result if a remand would
be ordered under a situation where we are in the position to
resolve the case based on the records before us. As we said
in Roman Catholic Archbishop of Manila v. Court of Appeals:
[w]e have laid down the rule that the remand of the case to
the lower court for further reception of evidence is not necessary
where the Court is in a position to resolve the dispute based on the
records before it. On many occasions, the Court, in the public
interest and for the expeditious administration of justice, has
resolved actions on the merits instead of remanding them to the
trial court for further proceedings, such as where the ends of
justice, would not be subserved by the remand of the case.
[22]
(Emphasis supplied; citations omitted.)

Even though the compensation due to HLI will still be preliminarily

determined by DAR and LBP, subject to review by the RTC acting as a SAC, the
fact that the reckoning point of taking is already fixed at a certain date should
already hasten the proceedings and not further cause undue hardship on the parties,
especially the qualified FWBs.
By a vote of 8-6, the Court affirmed its ruling that the date of taking in
determining just compensation is November 21, 1989 when PARC approved
HLIs stock option plan.
As regards the issue of interest on just compensation, We also leave this
matter to the DAR and the LBP, subject to review by the RTC acting as a SAC.
Option will not ensure
control over agricultural lands
In Our November 22, 2011 Resolution, this Court held:
After having discussed and considered the different contentions
raised by the parties in their respective motions, We are now left to
contend with one crucial issue in the case at bar, that is, control over the
agricultural lands by the qualified FWBs.
Upon a review of the facts and circumstances, We realize that the
FWBs will never have control over these agricultural lands for as long as
they remain as stockholders of HLI. In Our July 5, 2011 Decision, this
Court made the following observations:
There is, thus, nothing unconstitutional in the formula
prescribed by RA 6657. The policy on agrarian reform is that
control over the agricultural land must always be in the hands
of the farmers. Then it falls on the shoulders of DAR and PARC
to see to it the farmers should always own majority of the
common shares entitled to elect the members of the board of
directors to ensure that the farmers will have a clear majority in

the board. Before the SDP is approved, strict scrutiny of the

proposed SDP must always be undertaken by the DAR and PARC,
such that the value of the agricultural land contributed to the
corporation must always be more than 50% of the total assets of
the corporation to ensure that the majority of the members of the
board of directors are composed of the farmers. The PARC
composed of the President of the Philippines and cabinet
secretaries must see to it that control over the board of directors
rests with the farmers by rejecting the inclusion of nonagricultural assets which will yield the majority in the board of
directors to non-farmers. Any deviation, however, by PARC or
DAR from the correct application of the formula prescribed by the
second paragraph of Sec. 31 of RA 6675 does not make said
provision constitutionally infirm. Rather, it is the application of
said provision that can be challenged. Ergo, Sec. 31 of RA 6657
does not trench on the constitutional policy of ensuring control by
the farmers.
In line with Our finding that control over agricultural lands must
always be in the hands of the farmers, We reconsider our ruling that the
qualified FWBs should be given an option to remain as stockholders of
HLI, inasmuch as these qualified FWBs will never gain control given the
present proportion of shareholdings in HLI.
A revisit of HLIs Proposal for Stock Distribution under CARP
and the Stock Distribution Option Agreement (SDOA) upon which the
proposal was based reveals that the total assets of HLI is PhP
590,554,220, while the value of the 4,915.7466 hectares is PhP
196,630,000. Consequently, the share of the farmer-beneficiaries in the
HLI capital stock is 33.296% (196,630,000 divided by 590,554.220);
118,391,976.85 HLI shares represent 33.296%. Thus, even if all the
holders of the 118,391,976.85 HLI shares unanimously vote to remain as
HLI stockholders, which is unlikely, control will never be placed in the
hands of the farmer-beneficiaries. Control, of course, means the
majority of 50% plus at least one share of the common shares and other
voting shares. Applying the formula to the HLI stockholdings, the
number of shares that will constitute the majority is 295,112,101 shares
(590,554,220 divided by 2 plus one [1] HLI share). The 118,391,976.85
shares subject to the SDP approved by PARC substantially fall short of
the 295,112,101 shares needed by the FWBs to acquire control over
HLI. Hence, control can NEVER be attained by the FWBs. There is

even no assurance that 100% of the 118,391,976.85 shares issued to the

FWBs will all be voted in favor of staying in HLI, taking into account
the previous referendum among the farmers where said shares were not
voted unanimously in favor of retaining the SDP. In light of the
foregoing consideration, the option to remain in HLI granted to the
individual FWBs will have to be recalled and revoked.
Moreover, bearing in mind that with the revocation of the
approval of the SDP, HLI will no longer be operating under SDP and
will only be treated as an ordinary private corporation; the FWBs who
remain as stockholders of HLI will be treated as ordinary stockholders
and will no longer be under the protective mantle of RA 6657.
(Emphasis in the original.)

HLI, however, takes exception to the above-mentioned ruling and contends

that [t]here is nothing in the Constitution nor in the agrarian laws which require
that control over the agricultural lands must always be in the hands of the
farmers.[23] Moreover, both HLI and Mallari, et al. claim that the option given to
the qualified FWBs to remain as stockholders of HLI is neither iniquitous nor
prejudicial to the FWBs.[24]
The Court agrees that the option given to the qualified FWBs whether to
remain as stockholders of HLI or opt for land distribution is neither iniquitous nor
prejudicial to the FWBs. Nonetheless, the Court is not unmindful of the policy on
agrarian reform that control over the agricultural land must always be in the hands
of the farmers. Contrary to the stance of HLI, both the Constitution and RA 6657
intended the farmers, individually or collectively, to have control over the
agricultural lands of HLI; otherwise, all these rhetoric about agrarian reform will
be rendered for naught. Sec. 4, Art. XIII of the 1987 Constitution provides:
Section 4. The State shall, by law, undertake an agrarian reform
program founded on the right of farmers and regular farmworkers
who are landless, to own directly or collectively the lands they till or,
in the case of other farmworkers, to receive a just share of the fruits

thereof. To this end, the State shall encourage and undertake the just
distribution of all agricultural lands, subject to such priorities and
reasonable retention limits as the Congress may prescribe, taking into
account ecological, developmental, or equity considerations, and subject
to the payment of just compensation. In determining retention limits, the
State shall respect the right of small landowners. The State shall further
provide incentives for voluntary land-sharing. (Emphasis supplied.)

Pursuant to and as a mechanism to carry out the above-mentioned

constitutional directive, RA 6657 was enacted. In consonance with the
constitutional policy on agrarian reform, Sec. 2 of RA 6657 also states:
SECTION 2. Declaration of Principles and Policies. - It is the
policy of the State to pursue a Comprehensive Agrarian Reform Program
(CARP). The welfare of the landless farmers and farm workers will
receive the highest consideration to promote social justice and to move
the nation towards sound rural development and industrialization, and
the establishment of owner cultivatorship of economic-sized farms as the
basis of Philippine agriculture.
To this end, a more equitable distribution and ownership of land,
with due regard to the rights of landowners to just compensation and to
the ecological needs of the nation, shall be undertaken to provide farmers
and farm workers with the opportunity to enhance their dignity and
improve the quality of their lives through greater productivity of
agricultural lands.
The agrarian reform program is founded on the right of
farmers and regular farm workers, who are landless, to own directly
or collectively the lands they till or, in the case of other farm
workers, to receive a share of the fruits thereof. To this end, the State
shall encourage the just distribution of all agricultural lands, subject to
the priorities and retention limits set forth in this Act, having taken into
account ecological, developmental, and equity considerations, and
subject to the payment of just compensation. The State shall respect the
right of small landowners and shall provide incentives for voluntary
land-sharing.

The State shall recognize the right of farmers, farm workers and
landowners, as well as cooperatives and other independent farmers
organization, to participate in the planning, organization, and
management of the program, and shall provide support to agriculture
through appropriate technology and research, and adequate financial,
production, marketing and other support services.
The State shall apply the principles of agrarian reform or
stewardship, whenever applicable, in accordance with law, in the
disposition or utilization of other natural resources, including lands of
the public domain, under lease or concession, suitable to agriculture,
subject to prior rights, homestead rights of small settlers and the rights of
indigenous communities to their ancestral lands.
The State may resettle landless farmers and farm workers in its
own agricultural estates, which shall be distributed to them in the manner
provided by law.
By means of appropriate incentives, the State shall encourage the
formation and maintenance of economic-sized family farms to be
constituted by individual beneficiaries and small landowners.
The State shall protect the rights of subsistence fishermen,
especially of local communities, to the preferential use of communal
marine and fishing resources, both inland and offshore. It shall provide
support to such fishermen through appropriate technology and research,
adequate financial, production and marketing assistance and other
services, The State shall also protect, develop and conserve such
resources. The protection shall extend to offshore fishing grounds of
subsistence fishermen against foreign intrusion. Fishworkers shall
receive a just share from their labor in the utilization of marine and
fishing resources.
The State shall be guided by the principles that land has a social
function and land ownership has a social responsibility. Owners of
agricultural land have the obligation to cultivate directly or through labor
administration the lands they own and thereby make the land productive.
The State shall provide incentives to landowners to invest the
proceeds of the agrarian reform program to promote industrialization,
employment and privatization of public sector enterprises. Financial

instruments used as payment for lands shall contain features that shall
enhance negotiability and acceptability in the marketplace.
The State may lease undeveloped lands of the public domain to
qualified entities for the development of capital-intensive farms,
traditional and pioneering crops especially those for exports subject to
the prior rights of the beneficiaries under this Act. (Emphasis supplied.)

Based on the above-quoted provisions, the notion of farmers and regular

farmworkers having the right to own directly or collectively the lands they till is
abundantly clear. We have extensively discussed this ideal in Our July 5, 2011
Decision:
The wording of the provision is unequivocal the farmers and
regular farmworkers have a right TO OWN DIRECTLY OR
COLLECTIVELY THE LANDS THEY TILL. The basic law allows two
(2) modes of land distributiondirect and indirect ownership. Direct
transfer to individual farmers is the most commonly used method by
DAR and widely accepted. Indirect transfer through collective
ownership of the agricultural land is the alternative to direct ownership
of agricultural land by individual farmers. The aforequoted Sec. 4
EXPRESSLY authorizes collective ownership by farmers. No language
can be found in the 1987 Constitution that disqualifies or prohibits
corporations or cooperatives of farmers from being the legal entity
through which collective ownership can be exercised. The word
collective is defined as indicating a number of persons or things
considered as constituting one group or aggregate, while
collectively is defined as in a collective sense or manner; in a mass
or body. By using the word collectively, the Constitution allows
for indirect ownership of land and not just outright agricultural land
transfer. This is in recognition of the fact that land reform may become
successful even if it is done through the medium of juridical entities
composed of farmers.
Collective ownership is permitted in two (2) provisions of RA
6657. Its Sec. 29 allows workers cooperatives or associations to
collectively own the land, while the second paragraph of Sec. 31 allows

corporations or associations to own agricultural land with the farmers

becoming stockholders or members. Said provisions read:
SEC. 29. Farms owned or operated by corporations or
other business associations.In the case of farms owned or
operated by corporations or other business associations, the
following rules shall be observed by the PARC.
In general, lands shall be distributed directly to the
individual worker-beneficiaries.
In case it is not economically feasible and sound to divide
the land, then it shall be owned collectively by the worker
beneficiaries who shall form a workers cooperative or
association which will deal with the corporation or business
association. x x x
SEC. 31. Corporate Landowners. x x x
xxxx
Upon certification by the DAR, corporations owning
agricultural lands may give their qualified beneficiaries the right
to purchase such proportion of the capital stock of
the corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the companys total
assets, under such terms and conditions as may be agreed upon by
them. In no case shall the compensation received by the workers
at the time the shares of stocks are distributed be reduced. The
same principle shall be applied to associations, with respect to
their equity or participation. x x x
Clearly, workers cooperatives or associations under Sec. 29 of
RA 6657 and corporations or associations under the succeeding Sec. 31,
as differentiated from individual farmers, are authorized vehicles for the
collective ownership of agricultural land. Cooperatives can be registered
with the Cooperative Development Authority and acquire legal
personality of their own, while corporations are juridical persons under
the Corporation Code. Thus, Sec. 31 is constitutional as it simply
implements Sec. 4 of Art. XIII of the Constitution that land can be
owned COLLECTIVELY by farmers. Even the framers of the l987

Constitution are in unison with respect to the two (2) modes of

ownership of agricultural lands tilled by farmersDIRECT and
COLLECTIVE, thus:
MR. NOLLEDO. And when we talk of the phrase to
own directly, we mean the principle of direct ownership by
the tiller?
MR. MONSOD. Yes.
MR. NOLLEDO. And when we talk of collectively, we mean
communal ownership, stewardship or State ownership?
MS. NIEVA. In this section, we conceive of cooperatives; that is
farmers cooperatives owning the land, not the State.
MR. NOLLEDO. And when we talk of collectively, referring
to farmers cooperatives, do the farmers own specific areas of
land where they only unite in their efforts?
MS. NIEVA. That is one way.
MR. NOLLEDO. Because I understand that there are two basic
systems involved: the moshave type of agriculture and the
kibbutz. So are both contemplated in the report?
MR. TADEO. Ang dalawa kasing pamamaraan ng
pagpapatupad ng tunay na reporma sa lupa ay ang
pagmamay-ari ng lupa na hahatiin sa individual na
pagmamay-ari directly at ang tinatawag na sama-samang
gagawin ng mga magbubukid. Tulad sa Negros, ang gusto ng
mga magbubukid ay gawin nila itong cooperative or collective
farm. Ang ibig sabihin ay sama-sama nilang sasakahin.
xxxx
MR. TINGSON. x x x When we speak here of to own directly
or collectively the lands they till, is this land for the tillers rather
than land for the landless? Before, we used to hear land for the
landless, but now the slogan is land for the tillers. Is that
right?

MR. TADEO. Ang prinsipyong umiiral dito ay iyong land for the
tillers. Ang ibig sabihin ng directly ay tulad sa
implementasyon sa rice and corn lands kung saan inaari na ng
mga magsasaka ang lupang binubungkal nila. Ang ibig
sabihin naman ng collectively ay sama-samang paggawa sa
isang lupain o isang bukid, katulad ng sitwasyon sa Negros.
As Commissioner Tadeo explained, the farmers will work on the
agricultural land sama-sama or collectively. Thus, the main requisite
for collective ownership of land is collective or group work by farmers
of the agricultural land. Irrespective of whether the landowner is a
cooperative, association or corporation composed of farmers, as long as
concerted group work by the farmers on the land is present, then it falls
within the ambit of collective ownership scheme. (Emphasis in the
original; underscoring supplied.)

As aforequoted, there is collective ownership as long as there is a concerted

group work by the farmers on the land, regardless of whether the landowner is a
cooperative, association or corporation composed of farmers. However, this
definition of collective ownership should be read in light of the clear policy of the
law on agrarian reform, which is to emancipate the tiller from the bondage of the
soil and empower the common people. Worth noting too is its noble goal of
rectifying the acute imbalance in the distribution of this precious resource among
our people.[25] Accordingly, HLIs insistent view that control need not be in the
hands of the farmers translates to allowing it to run roughshod against the very
reason for the enactment of agrarian reform laws and leave the farmers in their
shackles with sheer lip service to look forward to.
Notably, it has been this Courts consistent stand that control over the
agricultural land must always be in the hands of the farmers. As We wrote in Our
July 5, 2011 Decision:
There is, thus, nothing unconstitutional in the formula prescribed
by RA 6657. The policy on agrarian reform is that control over the

agricultural land must always be in the hands of the farmers. Then

it falls on the shoulders of DAR and PARC to see to it the farmers should
always own majority of the common shares entitled to elect the members
of the board of directors to ensure that the farmers will have a clear
majority in the board. Before the SDP is approved, strict scrutiny of the
proposed SDP must always be undertaken by the DAR and PARC, such
that the value of the agricultural land contributed to the corporation must
always be more than 50% of the total assets of the corporation to ensure
that the majority of the members of the board of directors are composed
of the farmers. The PARC composed of the President of
the Philippines and cabinet secretaries must see to it that control
over the board of directors rests with the farmers by rejecting the
inclusion of non-agricultural assets which will yield the majority in
the board of directors to non-farmers. Any deviation, however, by
PARC or DAR from the correct application of the formula
prescribed by the second paragraph of Sec. 31 of RA 6675 does not
make said provision constitutionally infirm. Rather, it is the
application of said provision that can be challenged.Ergo, Sec. 31 of
RA 6657 does not trench on the constitutional policy of ensuring control
by the farmers. (Emphasis supplied.)

There is an aphorism that what has been done can no longer be undone.
That may be true, but not in this case. The SDP was approved by PARC even if the
qualified FWBs did not and will not have majority stockholdings in HLI, contrary
to the obvious policy by the government on agrarian reform. Such an adverse
situation for the FWBs will not and should not be permitted to stand. For this
reason, We maintain Our ruling that the qualified FWBs will no longer have the
option to remain as stockholders of HLI.
FWBs Entitled
to Proceeds of Sale

HLI reiterates its claim over the proceeds of the sales of the 500 hectares and
80.51 hectares of the land as corporate owner and argues that the return of said
proceeds to the FWBs is unfair and violative of the Corporation Code.

This claim is bereft of merit.

It cannot be denied that the adverted 500-hectare converted land and the
SCTEX lot once formed part of what would have been agrarian-distributable lands,
in fine subject to compulsory CARP coverage. And, as stated in our July 5, 2011
Decision, were it not for the approval of the SDP by PARC, these large parcels of
land would have been distributed and ownership transferred to the FWBs, subject
to payment of just compensation, given that, as of 1989, the subject 4,915 hectares
of Hacienda Luisita were already covered by CARP. Accordingly, the proceeds
realized from the sale and/or disposition thereof should accrue for the benefit of the
FWBs, less deductions of the 3% of the proceeds of said transfers that were paid to
the FWBs, the taxes and expenses relating to the transfer of titles to the transferees,
and the expenditures incurred by HLI and Centennary Holdings, Inc. for legitimate
corporate purposes, as prescribed in our November 22, 2011 Resolution.
Homelots
In the present recourse, HLI also harps on the fact that since the homelots
given to the FWBs do not form part of the 4,915.75 hectares covered by the SDP,
then the value of these homelots should, with the revocation of the SDP, be paid to
Tadeco as the landowner.[26]
We disagree. As We have explained in Our July 5, 2011 Decision, the
distribution of homelots is required under RA 6657 only for corporations or
business associations owning or operating farms which opted for land distribution.
This is provided under Sec. 30 of RA 6657. Particularly:
SEC. 30. Homelots and Farmlots for Members of
Cooperatives. The individual members of the cooperatives or
corporations mentioned in the preceding section shall be provided with

homelots and small farmlots for their family use, to be taken from the
land owned by the cooperative or corporation. (Italics supplied.)

The preceding section referred to in the above-quoted provision is Sec.

29 of RA 6657, which states:
SEC. 29. Farms Owned or Operated by Corporations or Other
Business Associations. In the case of farms owned or operated by
corporations or other business associations, the following rules shall be
observed by the PARC.
In general, lands shall be distributed directly to the individual
worker-beneficiaries.
In case it is not economically feasible and sound to divide the
land, then it shall be owned collectively by the worker-beneficiaries who
shall form a workers cooperative or association which will deal with
the corporation or business association. Until a new agreement is entered
into by and between the workers cooperative or association and the
corporation or business association, any agreement existing at the time
this Act takes effect between the former and the previous landowner
shall be respected by both the workers cooperative or association and
the corporation or business association.

Since none of the above-quoted provisions made reference to corporations

which opted for stock distribution under Sec. 31 of RA 6657, then it is apparent
that said corporations are not obliged to provide for homelots. Nonetheless, HLI
undertook to subdivide and allocate for free and without charge among the
qualified family-beneficiaries x x x residential or homelots of not more than 240
sq. m. each, with each family beneficiary being assured of receiving and owning a
homelot in the barrio or barangay where it actually resides. In fact, HLI was able
to distribute homelots to some if not all of the FWBs. Thus, in our November 22,
2011 Resolution, We declared that the homelots already received by the FWBs
shall be respected with no obligation to refund or to return them.

The Court, by a unanimous vote, resolved to maintain its ruling that the
FWBs shall retain ownership of the homelots given to them with no obligation to
pay for the value of said lots. However, since the SDP was already revoked with
finality, the Court directs the government through the DAR to pay HLI the just
compensation for said homelots in consonance with Sec. 4, Article XIII of the 1987
Constitution that the taking of land for use in the agrarian reform program is
subject to the payment of just compensation. Just compensation should be paid
to HLI instead of Tadeco in view of the Deed of Assignment and Conveyance
dated March 22, 1989 executed between Tadeco and HLI, where Tadeco
transferred and conveyed to HLI the titles over the lots in question. DAR is ordered
to compute the just compensation of the homelots in accordance with existing
laws, rules and regulations.
To recapitulate, the Court voted on the following issues in this manner:
1.

In determining the date of taking, the Court voted 8-6 to maintain

the ruling fixing November 21, 1989 as the date of taking, the
value of the affected lands to be determined by the LBP and the DAR;

2.

On the propriety of the revocation of the option of the FWBs to

remain as HLI stockholders, the Court, by unanimous vote, agreed to
reiterate its ruling in its November 22, 2011 Resolution that the option
granted to the FWBs stays revoked;

3.

On the propriety of returning to the FWBs the proceeds of the sale of

the 500-hectare converted land and of the 80.51-hectare SCTEX land,
the Court unanimously voted to maintain its ruling to order the
payment of the proceeds of the sale of the said land to the FWBs less
the 3% share, taxes and expenses specified in the fallo of the
November 22, 2011 Resolution;

4.

On the payment of just compensation for the homelots to HLI, the

Court, by unanimous vote, resolved to amend its July 5, 2011
Decision and November 22, 2011 Resolution by ordering the
government, through the DAR, to pay to HLI the just compensation
for the homelots thus distributed to the FWBS.

WHEREFORE, the Motion to Clarify and Reconsider Resolution of

November 22, 2011 dated December 16, 2011 filed by petitioner Hacienda Luisita,
Inc. and the Motion for Reconsideration/Clarification dated December 9, 2011
filed by private respondents Noel Mallari, Julio Suniga, Supervisory Group of
Hacienda Luisita, Inc. and Windsor Andaya are hereby DENIED with this
qualification: the July 5, 2011 Decision, as modified by the November 22, 2011
Resolution, isFURTHER MODIFIED in that the government, through DAR, is
ordered to pay Hacienda Luisita, Inc. the just compensation for the 240-square
meter homelots distributed to the FWBs.
The July 5, 2011 Decision, as modified by the November 22, 2011
Resolution

and

further

modified

by

this

Resolution

is

declared FINAL andEXECUTORY. The entry of judgment of said decision shall

be made upon the time of the promulgation of this Resolution.
No further pleadings shall be entertained in this case.
SO ORDERED.

[G.R. No. 125218. January 23, 1998]

FILSTREAM INTERNATIONAL INCORPORATED, petitioner, vs. COURT

OF APPEALS, JUDGE FELIPE S. TONGCO and THE CITY OF
MANILA, respondent.

[G.R. No. 128077. January 23, 1998]

FILSTREAM
INTERNATIONAL
INCORPORATED, petitioner, vs.,
COURT OF APPEALS, ORLANDO MALIT, ANTONIO CAGUIAT,
ALICIA CABRERA, ARMANDO LACHICA, JACINTO CAGUIAT,
GLORIA ANTONIO, ELIZALDE NAVARRA, DOLORES FUENTES,
SUSANA ROY, ANTONIO IBANEZ, BENIGNO BASILIO, LUCERIA
DEMATULAC, FLORENCIA GOMEZ, LAZARO GOMEZ, JOSE
GOMEZ, VENANCIO MANALOTO, CRISTINO UMALI, DEMETRIA
GATUS, PRISCILLA MALONG, DOMINGO AGUILA, RAMON SAN
AGUSTIN, JULIAN FERRER, JR., FRANCISCO GALANG,
FLORENTINO MALIWAT, SEVERINA VILLAR, TRINIDAD NAGUIT,
JOSE NAGUIT, FORTUNATO AGUSTIN CABRERA, GAUDENCIO
INTAL, DANILO DAVID, ENRIQUE DAVID, VICENTE DE GUZMAN,
POLICARPIO LUMBA, BELEN PALMA, ELEN SOMVILLO,
LEONARDO MANICAD, OPRENG MICLAT, BENITA MATA,
GREGORIO LOPEZ, MARCELINA SAPNO, JESUS MERCADO,
and CALIXTO GOMEZ, respondent.
DECISION
FRANCISCO, J.:

In resolving the instant petitions, the Court is tasked to strike a balance between the
contending interests when the state exercised its power of eminent domain. On one
side we have the owners of the property to be expropriated who must be duly
compensated for the loss of their property, while on the other is the State which must
take the property for public use.
Petitioner, Filstream International Inc., is the registered owner of the properties
subject of this dispute consisting of adjacent parcels of land situated in Antonio Rivera
Street, Tondo II, Manila, with a total area of 3,571.10 square meters and covered by
T.C.T. Nos. 203937, 203936, 169198, 169199, 169200 and 169202 of the Register of
Deeds of Manila.
On January 7, 1993, petitioner filed an ejectment suit before the Metropolitan Trial
Court of Manila (Branch 15) docketed as Civil Case No. 140817-CV against the

occupants of the abovementioned parcels of land (herein private respondents in G.R.

No. 128077) on the grounds of termination of the lease contract and non-payment of
rentals. Judgment was rendered by the MTC on September 14, 1993 ordering private
respondents to vacate the premises and pay back rentals to petitioner.
[1]

Not satisfied, private respondents appealed the decision to the Regional Trial Court
of Manila, Branch 4 (Civil Case No. 93-68130) which in turn affirmed the decision of the
MTC in its decision dated February 22, 1994. Still not content, private respondents
proceeded to the Court of Appeals via a petition for review (CA-G.R. SP No. 33714).The
result however remained the same as the CA affirmed the decision of the RTC in its
decision dated August 25, 1994.
[2]

Thereafter, no further action was taken by the private respondents, as a result of

which the decision in the ejectment suit became final and executory.
However, it appeared that during the pendency of the ejectment proceedings private
respondents filed on May 25, 1993, a complaint for Annulment of Deed of Exchange
against petitioner Filstream which was docketed in Civil Case No. 93-66059 before the
RTC of Manila, Branch 43. It was at this stage that respondent City of Manila came into
the picture when the city government approved Ordinance No. 7813 on November 5,
1993, authorizing Mayor Alfredo S. Lim to initiate the acquisition by negotiation,
expropriation, purchase, or other legal means certain parcels of land registered under
T.C.T. Nos. 169193, 169198, 169190, 169200, 169202, and 169192 of the Registry of
Deeds of Manila which formed part of the properties of petitioner then occupied by
private respondents. Subsequently, the City of Manila approved Ordinance No.
7855 declaring the expropriation of certain parcels of land situated along Antonio Rivera
and Fernando Ma. Guerero streets in Tondo, Manila which were owned by Mr. Enrique
Quijano Gutierez, petitioners predecessor-in-interest. The said properties were to be
sold and distributed to qualified tenants of the area pursuant to the Land Use
Development Program of the City of Manila.
[3]

[4]

On May 23, 1994, respondent City of Manila filed a complaint for eminent domain
(Civil Case No. 94-70560) before the RTC of Manila, Branch 42, seeking to expropriate
the aforecited parcels of land owned by petitioner Filstream which are situated at
Antonio Rivera Street, Tondo II, Manila.
[5]

[6]

Pursuant to the complaint filed by respondent City of Manila,the trial court issued a
Writ of Possession in favor of the former which ordered the transfer of possession over
the disputed premises to the City of Manila.
[7]

At this juncture, petitioner Filstream filed a motion to dismiss the complaint for
eminent domain as well as a motion to quash the writ of possession. The motion to
dismiss was premised on the following grounds: no valid cause of action; the petition
does not satisfy the requirements of public use and a mere clandestine maneuver to
circumvent the writ execution issued by the RTC of Manila, Branch 4 in the ejectment
suit; violation of the constitutional guarantee against non-impairment of obligation and
contract; price offered was too low hence violative of the just compensation provision of
the constitution and the said amount is without the certification of the City Treasurer for
availability of funds. With respect to the motion to quash the writ of possession,
[8]

petitioner raised the following objections: failure to comply with Section 2 of Rule 67 of
the Rules of Court, Ordinance No. 7813 is a void enactment for it was approved without
a public hearing and violative of the constitutional guarantee against impairment of
obligation and contracts; the price is too low and unconscionable violating the just
compensation provision of the constitution, and the said writ is tainted with infirmity
considering the absence of a certification from the City of Manila that there is an
immediately available fund for the subject expropriation.
[9]

Respondent City of Manila filed its opposition to petitioner Filstreams two motion
and to which petitioner accordingly filed a reply. On September 30, 1994, the RTC of
Manila, Branch 42, issued an order denying petitioner Filstreams motion to dismiss and
the motion to quash the Writ of Possession and declared as follows:
[10]

[11]

IN FINE, the defendants motion to dismiss and motion to quash writ of

possession are both without merit and are hereby DENIED and the subject
parcels of lands covered by TCT Nos. 203937, 203936, 169198, 169199,
169200, and 169202 (of the Register of Deeds of Manila) located at Antonio
Rivera Street, Tondo II, Manila with a total area of 3,571.10 square meters are
hereby declared CONDEMNED in favor of the City of Manila for distribution
and resale to all poor and landless qualified residents/tenants in the said area
under the citys land-for-the-landless program upon payment of just
compensation which is yet to be determined by this Court.
[12]

Petitioner filed a motion for reconsideration as well as a supplemental motion for

reconsideration seeking the reversal of the above-quoted order but the same were
denied. Still, petitioner filed a subsequent motion to be allowed to file a second motion
for reconsideration but it was also denied.
[13]

[14]

[15]

Aggrieved, petitioner filed on March 31, 1996, a Petition for Certiorari with the Court
of Appeals (CA-G.R. SP No. 36904) seeking to set aside the September 30, 1994 order
of the RTC of Manila, Branch 42. However, on March 18, 1996, respondent CA issued a
resolution dismissing the petition in this wise:

It appearing that the above-entitled petition is insufficient in form and

substance -- it does not comply with Section 2(a), Rule 6 of the Revised
Internal Rules of the Court of Appeals which requires that the petition shall be
x x x accompanied by x x x other pertinent documents and papers, aside from
the fact that copies of the pleadings attached to the petition are blurred and
unreadable -- this Court resolved to summarily DISMISS the same (petition).
[16]

Petitioner filed a motion for reconsideration and attached clearer copies of the
pertinent documents and papers pursuant to Section 2(a) Rule 6 of the Revised Internal
Rules of the Court of Appeals. But on May 20, 1996, respondent CA issued a resolution
denying the motion as petitioner failed to submit clearer and readable copies of the
pleadings. This prompted petitioner to proceed to this Court giving rise to the instant
[17]

petition for review on certiorari under Rule 45 and docketed herein as G.R. No. 125218,
assailing the dismissal of its petition by the CA in its resolution dated March 18, 1996 as
well as that of its motion for reconsideration in the resolution dated May 20, 1996.
Meanwhile, owing to the finality of the decision in the ejectment suit (Civil Case No
140817 CV), the MTC of Manila, Branch 15, upon motion of petitioner Filstream, issued
a Writ of Execution as well as a Notice to Vacate the disputed premises. Private
respondents filed a Motion to Recall/Quash the Writ of Execution and Notice to
Vacate alleging the existence of a supervening event in that the properties subject of
the dispute have already been ordered condemned in an expropriation proceeding in
favor of the City of Manila for the benefit of the qualified occupants thereof, thus
execution shall be stayed. Petitioner opposed the motion, reiterating that the decision in
the ejectment case is already final and executory and disputed private respondents right
to interpose the expropriation proceedings as a defense because the latter were not
parties to the same.
[18]

[19]

For its part, the City of Manila filed on March 13, 1996, a motion for intervention with
prayer to stay/quash the writ of execution on the ground that it is the present possessor
of the property subject of execution.
In its order dated March 14, 1996, the MTC of Manila, Branch 14, denied private
respondents motion as it found the allegations therein bereft of merit and upheld the
issuance of the Writ of Execution and Notice to Vacate in petitioners favor.
Subsequently, the trial court also denied the motion filed by the City of Manila.
[20]

On April 22, 1996, the trial court issued an order commanding the demolition of the
structure erected on the disputed premises. To avert the demolition, private respondents
filed before the RTC of Manila, Branch 14, a Petition for Certiorari and Prohibition with
prayer for the issuance of a temporary restraining order and preliminary injunction
(docketed as Civil Case No. 96-78098). On April 29, 1996, the RTC of Manila, Branch
33, issued a TRO enjoining the execution if the writ issued in Civil Case No. 140817-CV
by the MTC of Manila, Branch 14. Subsequently, the RTC issued a writ of preliminary
injunction on May 14, 1996.
[21]

[22]

On May 15, 1996, the City of Manila filed its Petition for Certiorari and Prohibition
with prayer for the issuance of a temporary restraining order and preliminary injunction
which was raffled to Branch 23 of the RTC of Manila (docketed as Civil Case No. 9678382), seeking the reversal of the orders issued by the MTC of Manila, Branch 14,
which denied its motion to intervene and quash the writ of execution in Civil Case No.
140817-CV.
Thereafter, upon motion filed by the City of Manila, an order was issued by the RTC
of Manila, Branch 10, ordering the consolidation of Civil Case No. 96-78382 with Civil
Case No. 96-78098 pending before Branch 14 of the RTC of Manila. On May 21,
1996, the RTC of Manila, Branch 14, issued an injunction in Civil Case No. 96-78098
enjoining the implementation of the writ of execution until further orders from the court.
Petitioner Filstream filed a Motion to Dissolve the Writ of Preliminary Injunction and to
be allowed to post a counter-bond but the trial court denied the same. Filstream then
filed a motion for reconsideration from the order of denial but pending resolution of this
[23]

[24]

motion for voluntary inhibition of the presiding judge of the RTC of Manila, Branch
14. The motion for inhibition was granted and as a result, the consolidated cases (Civil
Case No. 96-78382 and 96-78098) were re-raffled to the RTC of Manila, Branch 33.
[25]

During the proceedings before the RTC of Manila, Branch 33, petitioner Filstream
moved for the dismissal of the consolidated cases (Civil Case No. 96-78382 and 9678098) for violation of Supreme Court Circular No. 04-94 (forum shopping) because the
same parties, causes of action and subject matter involved therein have already been
disposed of in the decision in the ejectment case (Civil Case No. 140817) which has
already become final and executory prior to the filing of these consolidated cases.
On December 9, 1996, an order was issued by the RTC of Manila, Branch 33,
ordering the dismissal of Civil Cases Nos. 96-78382 and 96-78098 for violation of
Supreme Court Circular No. 04-94. Immediately thereafter, petitioner Filstream filed
an Ex-parte Motion for Issuance of an Alias Writ of Demolition and Ejectment and a
supplemental motion to the same dated January 10 and 13, 1997, respectively, before
the MTC of Manila, Branch 15, which promulgated the decision in the ejectment suit
(Civil Case No. 140817-CV). On January 23, 1997, the court granted the motion and
issued the corresponding writ of demolition.
[26]

[27]

As a consequence of the dismissal of the consolidated cases, herein private

respondents filed a Petition for Certiorari and Prohibition with prayer for the issuance of
a temporary restraining order and preliminary injunction before the Court of Appeals
(docketed as CA-G.R. SP No. 43101) assailing the above-mentioned order of
dismissal by the RTC of Manila, Branch 33, as having been issued with grave abuse of
discretion tantamount to lack or in excess of jurisdiction.
[28]

In a resolution dated January 28, 1997, the Court of Appeals granted herein private
respondents prayer for the issuance of a temporary restraining order and directed the
MTC of Manila, Branch 15, to desist from implementing the order of demolition dated
January 23, 1997, unless otherwise directed.
[29]

At the conclusion of the hearing for the issuance of a writ of preliminary injunction,
the Court of Appeals, in its resolution dated February 18, 1997, found merit in private
respondents allegations in support of their application of the issuance of the writ and
granted the same, to wit:

Finding that the enforcement or implementation of the writ of execution and

notice to vacate issued in Civil Case No. 140817-CV, the ejectment case
before respondent Judge Jiro, during the pendency of the instant petition,
would probably be in violation of petitioners right, and would tend to render the
judgment in the instant case ineffectual, and probably work injustice to the
petitioners, the application for the issuance of a writ of preliminary injunction is
hereby GRANTED.
WHEREFORE, upon the filing of a bond in the amount of P150,000.00, let a
writ of preliminary injunction be issued enjoining respondents, their
employees, agents, representatives and anyone acting in their behalf from

enforcing or executing the writ of execution and notice to vacate issued in Civil
Case No. 140817-CV of the court of respondent Judge Jiro, or otherwise
disturbing the status quo, until further orders of this Court.
[30]

In turn, petitioner Filstream is now before this Court via a Petition

for Certiorari under Rule 65 (G.R. No. 128077), seeking to nullify the Resolutions of the
Court of Appeals dated January 28, 1997 and February 18, 1997 which granted herein
private respondents prayer for a TRO and Writ of Preliminary Injunction, the same being
null and void for having been issued in grave abuse of discretion.
Upon motion filed by petitioner Filstream, in order to avoid any conflicting decision
on the legal issues raised in the petitions, the Court ordered that the later petition, G.R.
No. 128077 be consolidated with G.R. No. 128077 in the resolution of March 5, 1997.
[31]

The issue raised in G.R. No. 125218 is purely procedural and technical
matter. Petitioner takes exception to the resolutions of respondent CA dated March 18,
1996 and May 20, 1996 which ordered the dismissal of its Petition for Certiorari for noncompliance with Sec. 2(a) of Rule 6 of the Revised Internal Rules of the Court of
Appeals by failing to attach to its petition other pertinent documents and papers and for
attaching copies of pleadings which are blurred and unreadable. Petitioner argues that
respondent appellate court seriously erred in giving more premium to form rather than
the substance.
We agree with the petitioner. A strict adherence to the technical and procedural
rules in this case would defeat rather than meet the ends of justice as it would result in
the violation of the substantial rights of petitioner. At stake in the appeal filed by
petitioner before the CA is the exercise of their property rights over the disputed
premises which have been expropriated and have in fact been ordered condemned in
favor of the City of Manila. In effect, the dismissal of their appeal in the expropriation
proceedings based on the aforementioned grounds is tantamount to a deprivation of
property without due process of law as it would automatically validate the expropriation
proceedings based on the aforementioned grounds is tantamount to a deprivation of
property without due process of law as it would automatically validate the expropriation
proceedings which the petitioner is still disputing. It must be emphasized that where
substantial rights are affected, as in this case, the stringent application of procedural
rules may be relaxed if only to meet the ends of substantial justice.
In these instances, respondent CA can exercise its discretion to suspend its internal
rules and allow the parties to present and litigate their causes of action so that the Court
can make an actual and complete disposition of the issues presented in the
case. Rather than simply dismissing the petition summarily for non-compliance with
respondent courts internal rules, respondent CA should have instead entertained
petitioner Filstreams petition for review on Certiorari, and ordered petitioner to submit
the corresponding pleadings which it deems relevant and replace those which are
unreadable. This leniency could not have caused any prejudiced to the rights of the
other parties.

With regard to the other petition, G.R. No. 128077, petitioner Filstream objects to
the issuance by respondent CA of the restraining order and the preliminary injunction
enjoining the execution of the writ of demolition issued in the ejectment suit (Civil Case
No. 140817-CV) as an incident to private respondents pending petition assailing the
dismissal by the RTC of Manila, Branch 33, of the consolidated petitions
for certiorari filed by private respondents and the City of Manila on the ground of forum
shopping.
The propriety of the issuance of the restraining order and the writ of preliminary
injunction is but a mere incient to the actual controversy which is rooted in the assertion
of the conflicting rights of the parties in this case over the disputed premises. In order to
determine whether private respondents are entitled to the injunctive reliefs granted by
respondent CA, we deemed it proper to extract the source of discord.
Petitioner Filstream anchors its claim by virtue of its ownership over the properties
and the existence of a final and executory judgment against private respondents
ordering the latters ejectment from the premises (Civil Case No. 140817-CV).
Private respondents claim on the other hand hinges on an alleged supervening
event which has rendered the enforcement of petitioners rights moot, that is, the
expropriation proceedings (Civil Case No. 94-70560) undertaken by the City of Manila
over the disputed premises for the benefit of herein private respondents. For its part, the
City of Manila is merely exercising its power of eminent domain within its jurisdiction by
expropriating petitioners properties for public use.
There is no dispute as to the existence of a final and executory judgment in favor of
petitioner Filstream ordering the ejectment of private respondents from the properties
subject of this dispute. The judgment in the ejectment suit became final and executory
after private respondents failed to interpose any appeal from the adverse decision of the
Court of Appeals dated August 25, 1994 in CA-G.R. SP No. 33714. Thus, petitioner has
every right to assert the execution of this decision as it had already became final and
executory.
However, it must also be conceded that the City of Manila has an undeniable right
to exercise its power of eminent domain within its jurisdiction. The right to expropriate
private property for public use is expressly granted to it under Section 19 of the 1991
Local Government Code, to wit:

SECTION 19. Eminent Domain A local government unit may, through its chief
executive and acting pursuant to an ordinance, exercise the power of eminent
domain for public use, or purpose, or welfare for the benefit of the poor and
the landless, upon payment of just compensation, pursuant to the provisions
of the Constitution and pertinent laws: Provided, however, that the power of
eminent domain may not be exercised unless a valid and definite offer has
been previously made to the owner, and such offer was not accepted;
Provided, further, That the local government unit may immediately take
possession of the property upon the filing of the expropriation proceedings
and upon making a deposit with the proper court of at least fifteen (15%) of

the fair market value of the property based on the current tax declaration of
the property to be expropriated:Provided, finally, That the amount to be paid
for the expropriated property shall be determined by the proper court, based
on the fair market value at the time of the taking of the property. (Italics
supplied)
More specifically, the City of Manila has the power to expropriate private property in
the pursuit of its urban land reform and housing program as explicitly laid out in the
Revised Charter of the City of Manila (R.A. No. 409) as follows:

General powers The city may have a common seal and alter the same at
pleasure, and may take, purchase, receive, hold, lease, convey, and dispose
of real and personal property for the general interest of the city, condemn
private property for public use, contract and be contracted with, sue and be
sued, and prosecute and defend to final judgment and execution, and
exercise all the powers hereinafter conferred. (R.A. 409, Sec. 3; Italics
supplied).
xxxxxxxxx
Sec. 100. The City of Manila is authorized to acquire private lands in the city
and to subdivide the same into home lots for sale on easy terms to city
residents, giving first priority to the bona fide tenants or occupants of said
lands, and second priority to laborers and low-salaried employees. For the
purpose of this section, the city may raise necessary funds by appropriations
of general funds, by securing loans or by issuing bonds, and, if necessary,
may acquire the lands through expropriation proceedings in accordance with
law, with the approval of the President x x x. (Italics supplied).
In fact, the City of Manilas right to exercise these prerogatives notwithstanding the
existence of a final and executory judgment over the property to be expropriated has
been upheld by this Court in the case of Philippine Columbian Association vs. Panis,
G.R. No. 106528, December 21, 1993. Relying on the aforementioned provisions of
the Revised Charter of the City of Manila, the Court declared that:
[32]

The City of Manila, acting through its legislative branch, has the express
power to acquire private lands in the city and subdivide these lands into home
lots for sale to bona-fide tenants or occupants thereof, and to laborers and
low-salaried employees of the city.
That only a few could actually benefit from the expropriation of the property
does not diminish its public use character. It is simply not possible to provide

all at once land and shelter for all who need them (Sumulong v. Guerrero, 154
SCRA 461 [1987]).
Corollary to the expanded notion of public use, expropriation is not anymore
confined to vast tracts of land and landed estates (Province of Camarines Sur
v. Court of Appeals, G.R. Nol 103125, May 17, 1993; J. M. Tuason and Co.,
Inc. v. Land Tenure Administration, 31 SCRA 413 [1970]). It is therefore of no
moment that the land sought to be expropriated in this case is less than the
half a hectare only (Pulido v. Court of Appeals, 122 SCRA 63 [1983]).
Through the years, the public use requirement in eminent domain has evolved
into a flexible concept, influenced by changing conditions (Sumulong v.
Guerrero, supra; Manotok v. National Housing Authority, 150 SCRA 89 [1987];
Heirs of Juancho Ardona v. Reyes, 125 SCRA 220 [1983]). Public use now
includes the broader notion of indirect public benefit or advantage, including a
particular, urban land reform and housing.
[33]

We take judicial notice of the fact that urban land reform has become a paramount
task in view of the acute shortage of decent housing in urban areas particularly in Metro
Manila. Nevertheless, despite the existence of a serious dilemma, local government
units are not given an unbridled authority when exercising their power of eminent
domain in pursuit of solutions to these problems. The basic rules still have to be
followed, which are as follows: no person shall be deprived of life, liberty, or property
without due process of law, nor shall any person be denied the equal protection of the
laws (Art. 3, Sec. 1, 1987 Constitution); private property shall not be taken for public use
without just compensation (Art. 3, Section 9, 1987 Constitution). Thus the exercise by
local government units of the power of eminent domain is not without limitations. Even
Section 19 of the 1991 Local Government Code is very explicit that it must comply with
the provisions of the Constitution and pertinent laws, to wit:

SECTION 19. Eminent Domain. A local government unit may, through its chief
executive and acting pursuant to an ordinance, exercise the power of eminent
domain for public use, or purpose, or welfare for the benefit of the poor and
the landless, upon payment of just compensation, pursuant to the provisions
of the Constitution and pertinent laws: x x x. (Italics supplied).
The governing law that deals with the subject of expropriation for purposed of urban
land reform and housing in Republic Act No. 7279 (Urban Development and Housing
Act of 1992) and Sections 9 and 10 of which specifically provide as follows:

Sec. 9. Priorities in the acquisition of Land Lands for socialized housing shall
be acquired in the following order:

(a) Those owned by the Government or any of its sub-divisions,

instrumentalities, or agencies, including government-owned or controlled
corporations and their subsidiaries;
(b) Alienable lands of the public domain;
(c) Unregistered or abandoned and idle lands;
(d) Those within the declared Areas of Priority Development, Zonal
Improvement sites, and Slum Improvement and Resettlement Program sites
which have not yet been acquired;
(e) Bagong Lipunan Improvement sites and Services or BLISS sites which
have not yet been acquired; and
(f) Privately-owned lands.
Where on-site development is found more practicable and advantageous to
the beneficiaries, the priorities mentioned in this section shall not apply. The
local government units shall give budgetary priority to on-site development of
government lands.
Sec. 10. Modes of Land Acquisition. The modes of acquiring lands for
purposes of this Act shall include, among others, community mortgage, land
swapping, land assembly or consolidation, land banking, donation to the
Government, joint venture agreement, negotiated purchase, and
expropriation: Provided, however, That expropriation shall be resorted to only
when other modes of acquisition have been exhausted: Provided further, That
where expropriation is resorted to, parcels of land owned by small property
owners shall be exempted for purposes of this Act: Provided, finally, That
abandoned property, as herein defined, shall be reverted and escheated to
the State in a proceeding analogous to the procedure laid down in Rule 91 of
the Rules of Court.
For the purpose of socialized housing, government-owned and foreclosed
properties shall be acquired by the local government units, or by the National
Housing Authority primarily through negotiated purchase: Provided, That
qualified beneficiaries who are actual occupants of the land shall be given the
right of first refusal. (Italics supplied).
Very clear from the abovequoted provisions are the limitations with respect to the
order of priority in acquiring private lands and in resorting to expropriation proceedings

as means to acquire the same. Private lands rank last in the order of priority for
purposes of socialized housing. In the same vein, expropriation proceedings are to be
resorted to only when the other modes of acquisition have been exhausted. Compliance
with these conditions must be deemed mandatory because these are the only
safeguards in securing the right of owners of private property to due process when their
property is expropriated for public use.
Proceeding from the parameters laid out in the above disquisitions, we now pose
the crucial question: Did the city of Manila comply with the abovementioned conditions
when it expropriated petitioner Filstreams properties? We have carefully scrutinized the
records of this case and found nothing that would indicate the respondent City of Manila
complied with Sec. 9 and Sec. 10 of R.A. 7279. Petitioners Filstreams properties were
expropriated and ordered condemned in favor of the City of Manila sans any showing
that resort to the acquisition of other lands listed under Sec. 9 of RA 7279 have proved
futile. Evidently, there was a violation of petitioner Filstreams right to due process which
must accordingly be rectified.
Indeed, it must be emphasized that the State has a paramount interest in exercising
its power of eminent domain for the general good considering that the right of the State
to expropriate private property as long as it is for public use always takes precedence
over the interest of private property owners. However we must not lose sight of the fact
that the individual rights affected by the exercise of such right are also entitled to
protection, bearing in mind that the exercise of this superior right cannot override the
guarantee of due process extended by the law to owners of the property to be
expropriated. In this regard, vigilance over compliance with the due process
requirements is in order.
WHEREFORE, the petitions are hereby GRANTED. In G.R. 125218, the resolutions
of the Court of Appeals in CA-G.R. SP No. 36904 dated March 18, 1996 and May 20,
1996 are hereby REVERSED and SET ASIDE. In G.R. No. 128077, the resolution of the
Court of Appeals in CA-G.R. SP No. 43101 dated January 28, 1997 and February 18,
1997 are REVERSED and SET ASIDE.
SO ORDERED.

EN BANC
DIOSDADO LAGCAO, G.R. No. 155746
DOROTEO LAGCAO and
URSULA LAGCAO,
Petitioners, Present:
DAVIDE, C.J.,
PUNO,
PANGANIBAN,
QUISUMBING,

YNARES-SANTIAGO,
- versus - SANDOVAL-GUTIERREZ,
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO MORALES,*
CALLEJO, SR.,
AZCUNA,*
TINGA and
CHICO-NAZARIO,* JJ.
JUDGE GENEROSA G. LABRA,
Branch 23, Regional Trial Court,
Cebu, and the CITY OF CEBU,
Respondent. Promulgated:
October 13, 2004
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
CORONA, J.:

Before us is a petition for review of the decision dated July 1,

2002 of the Regional Trial Court, Branch 23, Cebu City [1]upholding
the validity of the City of Cebus Ordinance No. 1843, as well as the
lower courts order dated August 26, 2002 denying petitioners
motion for reconsideration.

In 1964, the Province of Cebu donated 210 lots to the City of Cebu.
One of these lots was Lot 1029, situated in Capitol Hills, Cebu City,
with an area of 4,048 square meters. In 1965, petitioners purchased
Lot 1029 on installment basis. But then, in late 1965, the 210 lots,
including
[2]

Lot

1029,

reverted

to

the

Province

of

Cebu.

Consequently, the province tried to annul the sale of Lot 1029 by

the City of Cebu to the petitioners. This prompted the latter to sue
the province for specific performance and damages in the then
Court of First Instance.
On July 9, 1986, the court a quo ruled in favor of petitioners
and ordered the Province of Cebu to execute the final deed of sale in
favor of petitioners. On June 11, 1992, the Court of Appeals
affirmed the decision of the trial court. Pursuant to the ruling of
the appellate court, the Province of Cebu executed on June 17,
1994 a deed of absolute sale over Lot 1029 in favor of petitioners.
Thereafter, Transfer Certificate of Title (TCT) No. 129306 was issued
in the name of petitioners and Crispina Lagcao. [3]
After acquiring title, petitioners tried to take possession of the lot
only to discover that it was already occupied by squatters. Thus, on
June 15, 1997, petitioners instituted ejectment proceedings against
the squatters. The Municipal Trial Court in Cities (MTCC), Branch

1, Cebu City, rendered a decision on April 1, 1998, ordering the

squatters to vacate the lot. On appeal, the RTC affirmed the MTCCs
decision and issued a writ of execution and order of demolition.
However, when the demolition order was about to be implemented,
Cebu City Mayor Alvin Garcia wrote two letters [4] to the MTCC,
requesting the deferment of the demolition on the ground that the
City was still looking for a relocation site for the squatters. Acting
on the mayors request, the MTCC issued two orders suspending the
demolition

for

period

of

120

days

from

February

22,

1999.Unfortunately for petitioners, during the suspension period,

the Sangguniang Panlungsod (SP) of Cebu City passed a resolution
which identified Lot 1029 as a socialized housing site pursuant to
RA 7279.[5] Then, on June 30, 1999, the SP of Cebu City passed
Ordinance No. 1772[6] which included Lot 1029 among the identified
sites for socialized housing. On July, 19, 2000, Ordinance No.
1843[7] was enacted by the SP of Cebu City authorizing the mayor of
Cebu City to initiate expropriation proceedings for the acquisition of
Lot 1029 which was registered in the name of petitioners. The
intended acquisition was to be used for the benefit of the homeless
after its subdivision and sale to the actual occupants thereof. For
this

purpose,

the

ordinance

appropriated

the

amount

ofP6,881,600 for the payment of the subject lot. This ordinance was
approved by Mayor Garcia on August 2, 2000.
On August 29, 2000, petitioners filed with the RTC an action for
declaration

of

nullity

of

Ordinance

No.

1843

for

being

unconstitutional. The trial court rendered its decision on July 1,

2002

dismissing

the

complaint

filed

by

petitioners

whose

subsequent motion for reconsideration was likewise denied on

August 26, 2002.
In this appeal, petitioners argue that Ordinance No. 1843 is
unconstitutional as it sanctions the expropriation of their property
for the purpose of selling it to the squatters, an endeavor contrary
to the concept of public use contemplated in the Constitution.
[8]

They allege that it will benefit only a handful of people. The

ordinance, according to petitioners, was obviously passed for

politicking, the squatters undeniably being a big source of votes.
In sum, this Court is being asked to resolve whether or not the
intended expropriation by the City of Cebu of a 4,048-square-meter
parcel of land owned by petitioners contravenes the Constitution
and applicable laws.

Under Section 48 of RA 7160, [9] otherwise known as the Local

Government Code of 1991,[10] local legislative power shall
be exercised by the Sangguniang Panlungsod of the city. The
legislative acts of the Sangguniang Panlungsod in the exercise of its
lawmaking authority are denominated ordinances.
Local government units have no inherent power of eminent domain
and can exercise it only when expressly authorized by the
legislature.[11] By virtue of RA 7160, Congress conferred upon local
government units the power to expropriate. Ordinance No. 1843
was enacted pursuant to Section 19 of RA 7160:
SEC. 19. Eminent Domain. A local government unit may,
through its chief executive and acting pursuant to an ordinance,
exercise the power of eminent domain for public use, or purpose,
or welfare for the benefit of the poor and the landless, upon
payment of just compensation, pursuant to the provisions of the
Constitution and pertinent laws xxx. (italics supplied).

Ordinance

No.

1843

which

authorized

the

expropriation

of

petitioners lot was enacted by the SP of Cebu City to provide

socialized housing for the homeless and low-income residents of the
City.
However, while we recognize that housing is one of the most
serious social problems of the country, local government units do

not possess unbridled authority to exercise their power of eminent

domain in seeking solutions to this problem.
There are two legal provisions which limit the exercise of this
power: (1) no person shall be deprived of life, liberty, or property
without due process of law, nor shall any person be denied the
equal protection of the laws; [12] and (2) private property shall not be
taken for public use without just compensation. [13] Thus, the
exercise by local government units of the power of eminent domain
is not absolute. In fact, Section 19 of RA 7160 itself explicitly states
that such exercise must comply with the provisions of the
Constitution and pertinent laws.
The exercise of the power of eminent domain drastically affects a
landowners right to private property, which is as much a
constitutionally-protected right necessary for the preservation and
enhancement of personal dignity and intimately connected with the
rights to life and liberty.[14] Whether directly exercised by the State
or by its authorized agents, the exercise of eminent domain is
necessarily in derogation of private rights. [15] For this reason, the
need for a painstaking scrutiny cannot be overemphasized.

The due process clause cannot be trampled upon each time an

ordinance

orders

the

expropriation

of

individuals property.The courts cannot even adopt a

private
hands-off

policy simply because public use or public purpose is invoked by an

ordinance,

or

just

compensation

has

been

fixed

and

determined. In De Knecht vs. Bautista,[16] we said:

It is obvious then that a land-owner is covered by the mantle of
protection due process affords. It is a mandate of reason. It frowns
on arbitrariness, it is the antithesis of any governmental act that
smacks of whim or caprice. It negates state power to act in an
oppressive manner. It is, as had been stressed so often, the
embodiment of the sporting idea of fair play. In that sense, it
stands as a guaranty of justice. That is the standard that must be
met by any governmental agency in the exercise of whatever
competence is entrusted to it. As was so emphatically stressed by
the present Chief Justice, Acts of Congress, as well as those of
the Executive, can deny due process only under pain of nullity.
xxx.

The foundation of the right to exercise eminent domain is genuine

necessity
[17]

and

that

necessity

must

be

of

public

character.

Government may not capriciously or arbitrarily choose which

private property should be expropriated. In this case, there was no

showing at all why petitioners property was singled out for
expropriation by the city ordinance or what necessity impelled the
particular choice or selection. Ordinance No. 1843 stated no reason
for the choice of petitioners property as the site of a socialized
housing project.

Condemnation of private lands in an irrational or piecemeal

fashion or the random expropriation of small lots to accommodate
no more than a few tenants or squatters is certainly not the
condemnation for public use contemplated by the Constitution. This
is depriving a citizen of his property for the convenience of a few
without perceptible benefit to the public.[18]
RA 7279 is the law that governs the local expropriation of property
for purposes of urban land reform and housing. Sections 9 and 10
thereof provide:
SEC 9. Priorities in the Acquisition of Land. Lands for socialized
housing shall be acquired in the following order:
(a) Those owned by the Government or any of its
subdivisions, instrumentalities, or agencies, including
government-owned or controlled corporations and
their subsidiaries;
(b) Alienable lands of the public domain;
(c) Unregistered or abandoned and idle lands;
(d) Those within the declared Areas or Priority
Development, Zonal Improvement Program sites, and
Slum Improvement and Resettlement Program sites
which have not yet been acquired;
(e) Bagong Lipunan Improvement of Sites and Services or
BLISS which have not yet been acquired; and
(f) Privately-owned lands.

Where on-site development is found more practicable and

advantageous to the beneficiaries, the priorities mentioned in this
section shall not apply. The local government units shall give
budgetary priority to on-site development of government lands.
(Emphasis supplied).
SEC. 10. Modes of Land Acquisition. The modes of acquiring
lands for purposes of this Act shall include, among others,
community mortgage, land swapping, land assembly or
consolidation, land banking, donation to the Government, joint
venture agreement, negotiated purchase, and expropriation:
Provided, however, That expropriation shall be resorted to
only when other modes of acquisition have been exhausted:
Provided further, That where expropriation is resorted to, parcels
of land owned by small property owners shall be exempted for
purposes of this Act: xxx. (Emphasis supplied).

In the recent case of Estate or Heirs of the Late Ex-Justice Jose

B.L. Reyes et al. vs. City of Manila, [19] we ruled that the above-quoted
provisions are strict limitations on the exercise of the power of
eminent domain by local government units, especially with respect
to (1) the order of priority in acquiring land for socialized housing
and (2) the resort to expropriation proceedings as a means to
acquiring it. Private lands rank last in the order of priority for
purposes of socialized housing. In the same vein, expropriation
proceedings may be resorted to only after the other modes of
acquisition are exhausted. Compliance with these conditions
ismandatory because these are the only safeguards of oftentimes
helpless owners of private property against what may be a

tyrannical violation of due process when their property is forcibly

taken from them allegedly for public use.
We have found nothing in the records indicating that the City
of Cebu complied strictly with Sections 9 and 10 of RA 7279.
Ordinance No. 1843 sought to expropriate petitioners property
without any attempt to first acquire the lands listed in (a) to (e) of
Section 9 of RA 7279. Likewise, Cebu City failed to establish that
the other modes of acquisition in Section 10 of RA 7279 were first
exhausted. Moreover, prior to the passage of Ordinance No. 1843,
there was no evidence of a valid and definite offer to buy petitioners
property as required by Section 19 of RA 7160. [20] We therefore find
Ordinance No. 1843 to be constitutionally infirm for being violative
of the petitioners right to due process.
It should also be noted that, as early as 1998, petitioners had
already obtained a favorable judgment of eviction against the illegal
occupants of their property. The judgment in this ejectment case
had, in fact, already attained finality, with a writ of execution and
an order of demolition. But Mayor Garcia requested the trial court
to suspend the demolition on the pretext that the City was still
searching for a relocation site for the squatters. However, instead of
looking for a relocation site during the suspension period, the city

council suddenly enacted Ordinance No. 1843 for the expropriation

of petitioners lot. It was trickery and bad faith, pure and simple.
The unconscionable manner in which the questioned ordinance was
passed clearly indicated that respondent City transgressed the
Constitution, RA 7160 and RA 7279.
For an ordinance to be valid, it must not only be within the
corporate powers of the city or municipality to enact but must also
be passed according to the procedure prescribed by law. It must be
in accordance with certain well-established basic principles of a
substantive nature. These principles require that an ordinance (1)
must not contravene the Constitution or any statute (2) must not be
unfair or oppressive (3) must not be partial or discriminatory (4)
must not prohibit but may regulate trade (5) must be general and
consistent with public policy, and (6) must not be unreasonable. [21]
Ordinance No. 1843 failed to comply with the foregoing
substantive requirements. A clear case of constitutional infirmity
having been thus established, this Court is constrained to nullify
the subject ordinance. We recapitulate:

first, as earlier discussed, the questioned ordinance is

repugnant to the pertinent provisions of the Constitution, RA
7279 and RA 7160;
second, the precipitate manner in which it was enacted was
plain oppression masquerading as a pro-poor ordinance;
third, the fact that petitioners small property was singled out
for expropriation for the purpose of awarding it to no more
than a few squatters indicated manifest partiality against
petitioners, and
fourth, the ordinance failed to show that there was a
reasonable relation between the end sought and the means
adopted. While the objective of the City of Cebu was to provide
adequate housing to slum dwellers, the means it employed in
pursuit of such objective fell short of what was legal, sensible
and called for by the circumstances.
Indeed, experience has shown that the disregard of basic
liberties and the use of short-sighted methods in expropriation
proceedings have not achieved the desired results. Over the years,
the government has tried to remedy the worsening squatter

problem. Far from solving it, however, governments kid-glove

approach has only resulted in the multiplication and proliferation of
squatter colonies and blighted areas. A pro-poor program that is
well-studied, adequately funded, genuinely sincere and truly
respectful of everyones basic rights is what this problem calls for,
not

the

improvident

enactment

of

politics-based

ordinances

targeting small private lots in no rational fashion.

WHEREFORE, the petition is hereby GRANTED. The July 1,
2002 decision of Branch 23 of the Regional Trial Court of Cebu City
is REVERSED and SET ASIDE.
SO ORDERED.
G.R. No. L-20620 August 15, 1974
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
vs.
CARMEN M. VDA. DE CASTELLVI, ET AL., defendants-appellees.
Office of the Solicitor General for plaintiff-appellant.
C.A. Mendoza & A. V. Raquiza and Alberto Cacnio & Associates for defendantappellees.

ZALDIVAR, J.:p
Appeal from the decision of the Court of First Instance of Pampanga in its Civil Case
No. 1623, an expropriation proceeding.

Plaintiff-appellant, the Republic of the Philippines, (hereinafter referred to as the

Republic) filed, on June 26, 1959, a complaint for eminent domain against
defendant-appellee, Carmen M. Vda. de Castellvi, judicial administratrix of the
estate of the late Alfonso de Castellvi (hereinafter referred to as Castellvi), over a
parcel of land situated in the barrio of San Jose, Floridablanca, Pampanga,
described as follows:
A parcel of land, Lot No. 199-B Bureau of Lands Plan Swo 23666.
Bounded on the NE by Maria Nieves Toledo-Gozun; on the SE by
national road; on the SW by AFP reservation, and on the NW by AFP
reservation. Containing an area of 759,299 square meters, more or
less, and registered in the name of Alfonso Castellvi under TCT No.
13631 of the Register of Pampanga ...;
and against defendant-appellee Maria Nieves Toledo Gozun (hereinafter referred to
as Toledo-Gozun over two parcels of land described as follows:
A parcel of land (Portion Lot Blk-1, Bureau of Lands Plan Psd, 26254.
Bounded on the NE by Lot 3, on the SE by Lot 3; on the SW by Lot 1B, Blk. 2 (equivalent to Lot 199-B Swo 23666; on the NW by AFP
military reservation. Containing an area of 450,273 square meters,
more or less and registered in the name of Maria Nieves Toledo-Gozun
under TCT No. 8708 of the Register of Deeds of Pampanga. ..., and
A parcel of land (Portion of lot 3, Blk-1, Bureau of Lands Plan Psd
26254. Bounded on the NE by Lot No. 3, on the SE by school lot and
national road, on the SW by Lot 1-B Blk 2 (equivalent to Lot 199-B Swo
23666), on the NW by Lot 1-B, Blk-1. Containing an area of 88,772
square meters, more or less, and registered in the name of Maria
Nieves Toledo Gozun under TCT No. 8708 of the Register of Deeds of
Pampanga, ....
In its complaint, the Republic alleged, among other things, that the fair market value
of the above-mentioned lands, according to the Committee on Appraisal for the
Province of Pampanga, was not more than P2,000 per hectare, or a total market
value of P259,669.10; and prayed, that the provisional value of the lands be fixed at
P259.669.10, that the court authorizes plaintiff to take immediate possession of the
lands upon deposit of that amount with the Provincial Treasurer of Pampanga; that
the court appoints three commissioners to ascertain and report to the court the just
compensation for the property sought to be expropriated, and that the court issues
thereafter a final order of condemnation.
On June 29, 1959 the trial court issued an order fixing the provisional value of the
lands at P259,669.10.

In her "motion to dismiss" filed on July 14, 1959, Castellvi alleged, among other
things, that the land under her administration, being a residential land, had a fair
market value of P15.00 per square meter, so it had a total market value of
P11,389,485.00; that the Republic, through the Armed Forces of the Philippines,
particularly the Philippine Air Force, had been, despite repeated demands, illegally
occupying her property since July 1, 1956, thereby preventing her from using and
disposing of it, thus causing her damages by way of unrealized profits. This
defendant prayed that the complaint be dismissed, or that the Republic be ordered
to pay her P15.00 per square meter, or a total of P11,389,485.00, plus interest
thereon at 6% per annum from July 1, 1956; that the Republic be ordered to pay her
P5,000,000.00 as unrealized profits, and the costs of the suit.
By order of the trial court, dated August, 1959, Amparo C. Diaz, Dolores G. viuda de
Gil, Paloma Castellvi, Carmen Castellvi, Rafael Castellvi, Luis Castellvi, Natividad
Castellvi de Raquiza, Jose Castellvi and Consuelo Castellvi were allowed to
intervene as parties defendants. Subsequently, Joaquin V. Gozun, Jr., husband of
defendant Nieves Toledo Gozun, was also allowed by the court to intervene as a
party defendant.
After the Republic had deposited with the Provincial Treasurer of Pampanga the
amount of P259,669.10, the trial court ordered that the Republic be placed in
possession of the lands. The Republic was actually placed in possession of the
lands on August 10,
1959. 1
In her "motion to dismiss", dated October 22, 1959, Toledo-Gozun alleged, among
other things, that her two parcels of land were residential lands, in fact a portion with
an area of 343,303 square meters had already been subdivided into different lots for
sale to the general public, and the remaining portion had already been set aside for
expansion sites of the already completed subdivisions; that the fair market value of
said lands was P15.00 per square meter, so they had a total market value of
P8,085,675.00; and she prayed that the complaint be dismissed, or that she be paid
the amount of P8,085,675.00, plus interest thereon at the rate of 6% per annum
from October 13, 1959, and attorney's fees in the amount of P50,000.00.
Intervenors Jose Castellvi and Consuelo Castellvi in their answer, filed on February
11, 1960, and also intervenor Joaquin Gozun, Jr., husband of defendant Maria
Nieves Toledo-Gozun, in his motion to dismiss, dated May 27, 1960, all alleged that
the value of the lands sought to be expropriated was at the rate of P15.00 per
square meter.
On November 4, 1959, the trial court authorized the Provincial Treasurer of
Pampanga to pay defendant Toledo-Gozun the sum of P107,609.00 as provisional
value of her lands. 2 On May 16, 1960 the trial Court authorized the Provincial Treasurer of
Pampanga to pay defendant Castellvi the amount of P151,859.80 as provisional value of the land under

her administration, and ordered said defendant to deposit the amount with the Philippine National Bank
under the supervision of the Deputy Clerk of Court. In another order of May 16, 1960 the trial Court
entered an order of condemnation.3

The trial Court appointed three commissioners: Atty. Amadeo Yuzon, Clerk of Court,
as commissioner for the court; Atty. Felicisimo G. Pamandanan, counsel of the
Philippine National Bank Branch at Floridablanca, for the plaintiff; and Atty. Leonardo
F. Lansangan, Filipino legal counsel at Clark Air Base, for the defendants. The
Commissioners, after having qualified themselves, proceeded to the performance of
their duties.
On March 15,1961 the Commissioners submitted their report and recommendation,
wherein, after having determined that the lands sought to be expropriated were
residential lands, they recommended unanimously that the lowest price that should
be paid was P10.00 per square meter, for both the lands of Castellvi and ToledoGozun; that an additional P5,000.00 be paid to Toledo-Gozun for improvements
found on her land; that legal interest on the compensation, computed from August
10, 1959, be paid after deducting the amounts already paid to the owners, and that
no consequential damages be awarded. 4 The Commissioners' report was objected to by all the
parties in the case by defendants Castellvi and Toledo-Gozun, who insisted that the fair market value
of their lands should be fixed at P15.00 per square meter; and by the Republic, which insisted that the
price to be paid for the lands should be fixed at P0.20 per square meter. 5

After the parties-defendants and intervenors had filed their respective memoranda,
and the Republic, after several extensions of time, had adopted as its memorandum
its objections to the report of the Commissioners, the trial court, on May 26, 1961,
rendered its decision 6 the dispositive portion of which reads as follows:
WHEREFORE, taking into account all the foregoing circumstances, and
that the lands are titled, ... the rising trend of land values ..., and the
lowered purchasing power of the Philippine peso, the court finds that
the unanimous recommendation of the commissioners of ten (P10.00)
pesos per square meter for the three lots of the defendants subject of
this action is fair and just.
xxx xxx xxx
The plaintiff will pay 6% interest per annum on the total value of the
lands of defendant Toledo-Gozun since (sic) the amount deposited as
provisional value from August 10, 1959 until full payment is made to
said defendant or deposit therefor is made in court.
In respect to the defendant Castellvi, interest at 6% per annum will also
be paid by the plaintiff to defendant Castellvi from July 1, 1956 when
plaintiff commenced its illegal possession of the Castellvi land when the
instant action had not yet been commenced to July 10, 1959 when the

provisional value thereof was actually deposited in court, on the total

value of the said (Castellvi) land as herein adjudged. The same rate of
interest shall be paid from July 11, 1959 on the total value of the land
herein adjudged minus the amount deposited as provisional value, or
P151,859.80, such interest to run until full payment is made to said
defendant or deposit therefor is made in court. All the intervenors
having failed to produce evidence in support of their respective
interventions, said interventions are ordered dismissed.
The costs shall be charged to the plaintiff.
On June 21, 1961 the Republic filed a motion for a new trial and/or reconsideration,
upon the grounds of newly-discovered evidence, that the decision was not
supported by the evidence, and that the decision was against the law, against which
motion defendants Castellvi and Toledo-Gozun filed their respective oppositions. On
July 8, 1961 when the motion of the Republic for new trial and/or reconsideration
was called for hearing, the Republic filed a supplemental motion for new trial upon
the ground of additional newly-discovered evidence. This motion for new trial and/or
reconsideration was denied by the court on July 12, 1961.
On July 17, 1961 the Republic gave notice of its intention to appeal from the
decision of May 26, 1961 and the order of July 12, 1961. Defendant Castellvi also
filed, on July 17, 1961, her notice of appeal from the decision of the trial court.
The Republic filed various ex-parte motions for extension of time within which to file
its record on appeal. The Republic's record on appeal was finally submitted on
December 6, 1961.
Defendants Castellvi and Toledo-Gozun filed not only a joint opposition to the
approval of the Republic's record on appeal, but also a joint memorandum in support
of their opposition. The Republic also filed a memorandum in support of its prayer
for the approval of its record on appeal. On December 27, 1961 the trial court issued
an order declaring both the record on appeal filed by the Republic, and the record on
appeal filed by defendant Castellvi as having been filed out of time, thereby
dismissing both appeals.
On January 11, 1962 the Republic filed a "motion to strike out the order of December
27, 1961 and for reconsideration", and subsequently an amended record on appeal,
against which motion the defendants Castellvi and Toledo-Gozun filed their
opposition. On July 26, 1962 the trial court issued an order, stating that "in the
interest of expediency, the questions raised may be properly and finally determined
by the Supreme Court," and at the same time it ordered the Solicitor General to
submit a record on appeal containing copies of orders and pleadings specified
therein. In an order dated November 19, 1962, the trial court approved the
Republic's record on appeal as amended.

Defendant Castellvi did not insist on her appeal. Defendant Toledo-Gozun did not
appeal.
The motion to dismiss the Republic's appeal was reiterated by appellees Castellvi
and Toledo-Gozun before this Court, but this Court denied the motion.
In her motion of August 11, 1964, appellee Castellvi sought to increase the
provisional value of her land. The Republic, in its comment on Castellvi's motion,
opposed the same. This Court denied Castellvi's motion in a resolution dated
October 2,1964.
The motion of appellees, Castellvi and Toledo-Gozun, dated October 6, 1969,
praying that they be authorized to mortgage the lands subject of expropriation, was
denied by this Court or October 14, 1969.
On February 14, 1972, Attys. Alberto Cacnio, and Associates, counsel for the estate
of the late Don Alfonso de Castellvi in the expropriation proceedings, filed a notice of
attorney's lien, stating that as per agreement with the administrator of the estate of
Don Alfonso de Castellvi they shall receive by way of attorney's fees, "the sum
equivalent to ten per centum of whatever the court may finally decide as the
expropriated price of the property subject matter of the case."
--------Before this Court, the Republic contends that the lower court erred:
1. In finding the price of P10 per square meter of the lands subject of
the instant proceedings as just compensation;
2. In holding that the "taking" of the properties under expropriation
commenced with the filing of this action;
3. In ordering plaintiff-appellant to pay 6% interest on the adjudged
value of the Castellvi property to start from July of 1956;
4. In denying plaintiff-appellant's motion for new trial based on newly
discovered evidence.
In its brief, the Republic discusses the second error assigned as the first issue to be
considered. We shall follow the sequence of the Republic's discussion.
1. In support of the assigned error that the lower court erred in holding that the
"taking" of the properties under expropriation commenced with the filing of the
complaint in this case, the Republic argues that the "taking" should be reckoned
from the year 1947 when by virtue of a special lease agreement between the

Republic and appellee Castellvi, the former was granted the "right and privilege" to
buy the property should the lessor wish to terminate the lease, and that in the event
of such sale, it was stipulated that the fair market value should be as of the time of
occupancy; and that the permanent improvements amounting to more that half a
million pesos constructed during a period of twelve years on the land, subject of
expropriation, were indicative of an agreed pattern of permanency and stability of
occupancy by the Philippine Air Force in the interest of national Security. 7
Appellee Castellvi, on the other hand, maintains that the "taking" of property under
the power of eminent domain requires two essential elements, to wit: (1) entrance
and occupation by condemn or upon the private property for more than a momentary
or limited period, and (2) devoting it to a public use in such a way as to oust the
owner and deprive him of all beneficial enjoyment of the property. This appellee
argues that in the instant case the first element is wanting, for the contract of lease
relied upon provides for a lease from year to year; that the second element is also
wanting, because the Republic was paying the lessor Castellvi a monthly rental of
P445.58; and that the contract of lease does not grant the Republic the "right and
privilege" to buy the premises "at the value at the time of occupancy." 8
Appellee Toledo-Gozun did not comment on the Republic's argument in support of
the second error assigned, because as far as she was concerned the Republic had
not taken possession of her lands prior to August 10, 1959. 9
In order to better comprehend the issues raised in the appeal, in so far as the
Castellvi property is concerned, it should be noted that the Castellvi property had
been occupied by the Philippine Air Force since 1947 under a contract of lease,
typified by the contract marked Exh. 4-Castellvi, the pertinent portions of which read:
CONTRACT OF LEASE
This AGREEMENT OF LEASE MADE AND ENTERED into by and
between INTESTATE ESTATE OF ALFONSO DE CASTELLVI,
represented by CARMEN M. DE CASTELLVI, Judicial Administratrix ...
hereinafter called the LESSOR and THE REPUBLIC OF THE
PHILIPPINES represented by MAJ. GEN. CALIXTO DUQUE, Chief of
Staff of the ARMED FORCES OF THE PHILIPPINES, hereinafter
called the LESSEE,
WITNESSETH:
1. For and in consideration of the rentals hereinafter reserved and the
mutual terms, covenants and conditions of the parties, the LESSOR
has, and by these presents does, lease and let unto the LESSEE the
following described land together with the improvements thereon and
appurtenances thereof, viz:

Un Terreno, Lote No. 27 del Plano de subdivision Psu 34752, parte de

la hacienda de Campauit, situado en el Barrio de San Jose, Municipio
de Floridablanca Pampanga. ... midiendo una extension superficial de
cuatro milliones once mil cuatro cientos trienta y cinco (4,001,435) [sic]
metros cuadrados, mas o menos.
Out of the above described property, 75.93 hectares thereof are
actually occupied and covered by this contract. .
Above lot is more particularly described in TCT No. 1016, province of
Pampanga ...
of which premises, the LESSOR warrants that he/she/they/is/are the registered
owner(s) and with full authority to execute a contract of this nature.
2. The term of this lease shall be for the period beginning July 1, 1952
the date the premises were occupied by the PHILIPPINE AIR FORCE,
AFP until June 30, 1953, subject to renewal for another year at the
option of the LESSEE or unless sooner terminated by the LESSEE as
hereinafter provided.
3. The LESSOR hereby warrants that the LESSEE shall have quiet,
peaceful and undisturbed possession of the demised premises
throughout the full term or period of this lease and the LESSOR
undertakes without cost to the LESSEE to eject all trespassers, but
should the LESSOR fail to do so, the LESSEE at its option may
proceed to do so at the expense of the LESSOR. The LESSOR further
agrees that should he/she/they sell or encumber all or any part of the
herein described premises during the period of this lease, any
conveyance will be conditioned on the right of the LESSEE hereunder.
4. The LESSEE shall pay to the LESSOR as monthly rentals under this
lease the sum of FOUR HUNDRED FIFTY-FIVE PESOS & 58/100
(P455.58) ...
5. The LESSEE may, at any time prior to the termination of this lease,
use the property for any purpose or purposes and, at its own costs and
expense make alteration, install facilities and fixtures and errect
additions ... which facilities or fixtures ... so placed in, upon or attached
to the said premises shall be and remain property of the LESSEE and
may be removed therefrom by the LESSEE prior to the termination of
this lease. The LESSEE shall surrender possession of the premises
upon the expiration or termination of this lease and if so required by the
LESSOR, shall return the premises in substantially the same condition
as that existing at the time same were first occupied by the AFP,

reasonable and ordinary wear and tear and damages by the elements
or by circumstances over which the LESSEE has no control excepted:
PROVIDED, that if the LESSOR so requires the return of the premises
in such condition, the LESSOR shall give written notice thereof to the
LESSEE at least twenty (20) days before the termination of the lease
and provided, further, that should the LESSOR give notice within the
time specified above, the LESSEE shall have the right and privilege to
compensate the LESSOR at the fair value or the equivalent, in lieu of
performance of its obligation, if any, to restore the premises. Fair value
is to be determined as the value at the time of occupancy less fair wear
and tear and depreciation during the period of this lease.
6. The LESSEE may terminate this lease at any time during the term
hereof by giving written notice to the LESSOR at least thirty (30) days
in advance ...
7. The LESSEE should not be responsible, except under special
legislation for any damages to the premises by reason of combat
operations, acts of GOD, the elements or other acts and deeds not due
to the negligence on the part of the LESSEE.
8. This LEASE AGREEMENT supersedes and voids any and all
agreements and undertakings, oral or written, previously entered into
between the parties covering the property herein leased, the same
having been merged herein. This AGREEMENT may not be modified or
altered except by instrument in writing only duly signed by the parties. 10
It was stipulated by the parties, that "the foregoing contract of lease (Exh. 4,
Castellvi) is 'similar in terms and conditions, including the date', with the annual
contracts entered into from year to year between defendant Castellvi and the
Republic of the Philippines (p. 17, t.s.n., Vol. III)". 11 It is undisputed, therefore, that the
Republic occupied Castellvi's land from July 1, 1947, by virtue of the above-mentioned contract, on a year
to year basis (from July 1 of each year to June 30 of the succeeding year) under the terms and conditions
therein stated.

Before the expiration of the contract of lease on June 30, 1956 the Republic sought
to renew the same but Castellvi refused. When the AFP refused to vacate the leased
premises after the termination of the contract, on July 11, 1956, Castellvi wrote to
the Chief of Staff, AFP, informing the latter that the heirs of the property had decided
not to continue leasing the property in question because they had decided to
subdivide the land for sale to the general public, demanding that the property be
vacated within 30 days from receipt of the letter, and that the premises be returned
in substantially the same condition as before occupancy (Exh. 5 Castellvi). A
follow-up letter was sent on January 12, 1957, demanding the delivery and return of
the property within one month from said date (Exh. 6 Castellvi). On January 30,

1957, Lieutenant General Alfonso Arellano, Chief of Staff, answered the letter of
Castellvi, saying that it was difficult for the army to vacate the premises in view of
the permanent installations and other facilities worth almost P500,000.00 that were
erected and already established on the property, and that, there being no other
recourse, the acquisition of the property by means of expropriation proceedings
would be recommended to the President (Exhibit "7" Castellvi).
Defendant Castellvi then brought suit in the Court of First Instance of Pampanga, in
Civil Case No. 1458, to eject the Philippine Air Force from the land. While this
ejectment case was pending, the Republic instituted these expropriation
proceedings, and, as stated earlier in this opinion, the Republic was placed in
possession of the lands on August 10, 1959, On November 21, 1959, the Court of
First Instance of Pampanga, dismissed Civil Case No. 1458, upon petition of the
parties, in an order which, in part, reads as follows:
1. Plaintiff has agreed, as a matter of fact has already signed an
agreement with defendants, whereby she has agreed to receive the
rent of the lands, subject matter of the instant case from June 30, 1966
up to 1959 when the Philippine Air Force was placed in possession by
virtue of an order of the Court upon depositing the provisional amount
as fixed by the Provincial Appraisal Committee with the Provincial
Treasurer of Pampanga;
2. That because of the above-cited agreement wherein the
administratrix decided to get the rent corresponding to the rent from
1956 up to 1959 and considering that this action is one of illegal
detainer and/or to recover the possession of said land by virtue of nonpayment of rents, the instant case now has become moot and
academic and/or by virtue of the agreement signed by plaintiff, she has
waived her cause of action in the above-entitled case. 12
The Republic urges that the "taking " of Castellvi's property should be deemed as of
the year 1947 by virtue of afore-quoted lease agreement. In American
Jurisprudence, Vol. 26, 2nd edition, Section 157, on the subject of "Eminent Domain,
we read the definition of "taking" (in eminent domain) as follows:
Taking' under the power of eminent domain may be defined generally
as entering upon private property for more than a momentary period,
and, under the warrant or color of legal authority, devoting it to a public
use, or otherwise informally appropriating or injuriously affecting it in
such a way as substantially to oust the owner and deprive him of all
beneficial enjoyment thereof. 13
Pursuant to the aforecited authority, a number of circumstances must be present in
the "taking" of property for purposes of eminent domain.

First, the expropriator must enter a private property. This circumstance is present in
the instant case, when by virtue of the lease agreement the Republic, through the
AFP, took possession of the property of Castellvi.
Second, the entrance into private property must be for more than a momentary
period. "Momentary" means, "lasting but a moment; of but a moment's duration"
(The Oxford English Dictionary, Volume VI, page 596); "lasting a very short time;
transitory; having a very brief life; operative or recurring at every moment"
(Webster's Third International Dictionary, 1963 edition.) The word "momentary" when
applied to possession or occupancy of (real) property should be construed to mean
"a limited period" not indefinite or permanent. The aforecited lease contract was
for a period of one year, renewable from year to year. The entry on the property,
under the lease, is temporary, and considered transitory. The fact that the Republic,
through the AFP, constructed some installations of a permanent nature does not
alter the fact that the entry into the land was transitory, or intended to last a year,
although renewable from year to year by consent of 'The owner of the land. By
express provision of the lease agreement the Republic, as lessee, undertook to
return the premises in substantially the same condition as at the time the property
was first occupied by the AFP. It is claimed that the intention of the lessee was to
occupy the land permanently, as may be inferred from the construction of permanent
improvements. But this "intention" cannot prevail over the clear and express terms of
the lease contract. Intent is to be deduced from the language employed by the
parties, and the terms 'of the contract, when unambiguous, as in the instant case,
are conclusive in the absence of averment and proof of mistake or fraud the
question being not what the intention was, but what is expressed in the language
used. (City of Manila v. Rizal Park Co., Inc., 53 Phil. 515, 525); Magdalena Estate,
Inc. v. Myrick, 71 Phil. 344, 348). Moreover, in order to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall be principally
considered (Art. 1371, Civil Code). If the intention of the lessee (Republic) in 1947
was really to occupy permanently Castellvi's property, why was the contract of lease
entered into on year to year basis? Why was the lease agreement renewed from
year to year? Why did not the Republic expropriate this land of Castellvi in 1949
when, according to the Republic itself, it expropriated the other parcels of land that it
occupied at the same time as the Castellvi land, for the purpose of converting them
into a jet air base? 14 It might really have been the intention of the Republic to expropriate the lands
in question at some future time, but certainly mere notice - much less an implied notice of such
intention on the part of the Republic to expropriate the lands in the future did not, and could not, bind the
landowner, nor bind the land itself. The expropriation must be actually commenced in court (Republic vs.
Baylosis, et al., 96 Phil. 461, 484).

Third, the entry into the property should be under warrant or color of legal authority.
This circumstance in the "taking" may be considered as present in the instant case,
because the Republic entered the Castellvi property as lessee.
Fourth, the property must be devoted to a public use or otherwise informally
appropriated or injuriously affected. It may be conceded that the circumstance of the

property being devoted to public use is present because the property was used by
the air force of the AFP.
Fifth, the utilization of the property for public use must be in such a way as to oust
the owner and deprive him of all beneficial enjoyment of the property. In the instant
case, the entry of the Republic into the property and its utilization of the same for
public use did not oust Castellvi and deprive her of all beneficial enjoyment of the
property. Castellvi remained as owner, and was continuously recognized as owner
by the Republic, as shown by the renewal of the lease contract from year to year,
and by the provision in the lease contract whereby the Republic undertook to return
the property to Castellvi when the lease was terminated. Neither was Castellvi
deprived of all the beneficial enjoyment of the property, because the Republic was
bound to pay, and had been paying, Castellvi the agreed monthly rentals until the
time when it filed the complaint for eminent domain on June 26, 1959.
It is clear, therefore, that the "taking" of Catellvi's property for purposes of eminent
domain cannot be considered to have taken place in 1947 when the Republic
commenced to occupy the property as lessee thereof. We find merit in the
contention of Castellvi that two essential elements in the "taking" of property under
the power of eminent domain, namely: (1) that the entrance and occupation by the
condemnor must be for a permanent, or indefinite period, and (2) that in devoting the
property to public use the owner was ousted from the property and deprived of its
beneficial use, were not present when the Republic entered and occupied the
Castellvi property in 1947.
Untenable also is the Republic's contention that although the contract between the
parties was one of lease on a year to year basis, it was "in reality a more or less
permanent right to occupy the premises under the guise of lease with the 'right and
privilege' to buy the property should the lessor wish to terminate the lease," and "the
right to buy the property is merged as an integral part of the lease relationship ... so
much so that the fair market value has been agreed upon, not, as of the time of
purchase, but as of the time of occupancy" 15 We cannot accept the Republic's contention that
a lease on a year to year basis can give rise to a permanent right to occupy, since by express legal
provision a lease made for a determinate time, as was the lease of Castellvi's land in the instant case,
ceases upon the day fixed, without need of a demand (Article 1669, Civil Code). Neither can it be said
that the right of eminent domain may be exercised by simply leasing the premises to be expropriated
(Rule 67, Section 1, Rules of Court). Nor can it be accepted that the Republic would enter into a contract
of lease where its real intention was to buy, or why the Republic should enter into a simulated contract of
lease ("under the guise of lease", as expressed by counsel for the Republic) when all the time the
Republic had the right of eminent domain, and could expropriate Castellvi's land if it wanted to without
resorting to any guise whatsoever. Neither can we see how a right to buy could be merged in a contract of
lease in the absence of any agreement between the parties to that effect. To sustain the contention of the
Republic is to sanction a practice whereby in order to secure a low price for a land which the government
intends to expropriate (or would eventually expropriate) it would first negotiate with the owner of the land
to lease the land (for say ten or twenty years) then expropriate the same when the lease is about to
terminate, then claim that the "taking" of the property for the purposes of the expropriation be reckoned as
of the date when the Government started to occupy the property under the lease, and then assert that the
value of the property being expropriated be reckoned as of the start of the lease, in spite of the fact that

the value of the property, for many good reasons, had in the meantime increased during the period of the
lease. This would be sanctioning what obviously is a deceptive scheme, which would have the effect of
depriving the owner of the property of its true and fair market value at the time when the expropriation
proceedings were actually instituted in court. The Republic's claim that it had the "right and privilege" to
buy the property at the value that it had at the time when it first occupied the property as lessee nowhere
appears in the lease contract. What was agreed expressly in paragraph No. 5 of the lease agreement was
that, should the lessor require the lessee to return the premises in the same condition as at the time the
same was first occupied by the AFP, the lessee would have the "right and privilege" (or option) of paying
the lessor what it would fairly cost to put the premises in the same condition as it was at the
commencement of the lease, in lieu of the lessee's performance of the undertaking to put the land in said
condition. The "fair value" at the time of occupancy, mentioned in the lease agreement, does not refer to
the value of the property if bought by the lessee, but refers to the cost of restoring the property in the
same condition as of the time when the lessee took possession of the property. Such fair value cannot
refer to the purchase price, for purchase was never intended by the parties to the lease contract. It is a
rule in the interpretation of contracts that "However general the terms of a contract may be, they shall not
be understood to comprehend things that are distinct and cases that are different from those upon which
the parties intended to agree" (Art. 1372, Civil Code).

We hold, therefore, that the "taking" of the Castellvi property should not be reckoned
as of the year 1947 when the Republic first occupied the same pursuant to the
contract of lease, and that the just compensation to be paid for the Castellvi property
should not be determined on the basis of the value of the property as of that year.
The lower court did not commit an error when it held that the "taking" of the property
under expropriation commenced with the filing of the complaint in this case.
Under Section 4 of Rule 67 of the Rules of Court,

16

the "just compensation" is to be

determined as of the date of the filing of the complaint. This Court has ruled that when the taking of the
property sought to be expropriated coincides with the commencement of the expropriation proceedings,
or takes place subsequent to the filing of the complaint for eminent domain, the just compensation should
be determined as of the date of the filing of the complaint. (Republic vs. Philippine National Bank, L14158, April 12, 1961, 1 SCRA 957, 961-962). In the instant case, it is undisputed that the Republic was
placed in possession of the Castellvi property, by authority of the court, on August 10, 1959. The "taking"
of the Castellvi property for the purposes of determining the just compensation to be paid must, therefore,
be reckoned as of June 26, 1959 when the complaint for eminent domain was filed.

Regarding the two parcels of land of Toledo-Gozun, also sought to be expropriated,

which had never been under lease to the Republic, the Republic was placed in
possession of said lands, also by authority of the court, on August 10, 1959, The
taking of those lands, therefore, must also be reckoned as of June 26, 1959, the
date of the filing of the complaint for eminent domain.
2. Regarding the first assigned error discussed as the second issue the
Republic maintains that, even assuming that the value of the expropriated lands is to
be determined as of June 26, 1959, the price of P10.00 per square meter fixed by
the lower court "is not only exhorbitant but also unconscionable, and almost
fantastic". On the other hand, both Castellvi and Toledo-Gozun maintain that their
lands are residential lands with a fair market value of not less than P15.00 per
square meter.

The lower court found, and declared, that the lands of Castellvi and Toledo-Gozun
are residential lands. The finding of the lower court is in consonance with the
unanimous opinion of the three commissioners who, in their report to the court,
declared that the lands are residential lands.
The Republic assails the finding that the lands are residential, contending that the
plans of the appellees to convert the lands into subdivision for residential purposes
were only on paper, there being no overt acts on the part of the appellees which
indicated that the subdivision project had been commenced, so that any
compensation to be awarded on the basis of the plans would be speculative. The
Republic's contention is not well taken. We find evidence showing that the lands in
question had ceased to be devoted to the production of agricultural crops, that they
had become adaptable for residential purposes, and that the appellees had actually
taken steps to convert their lands into residential subdivisions even before the
Republic filed the complaint for eminent domain. In the case of City of Manila vs.
Corrales (32 Phil. 82, 98) this Court laid down basic guidelines in determining the
value of the property expropriated for public purposes. This Court said:
In determining the value of land appropriated for public purposes, the
same consideration are to be regarded as in a sale of property
between private parties. The inquiry, in such cases, must be what is the
property worth in the market, viewed not merely with reference to the
uses to which it is at the time applied, but with reference to the uses to
which it is plainly adapted, that is to say, What is it worth from its
availability for valuable uses?
So many and varied are the circumstances to be taken into account in
determining the value of property condemned for public purposes, that
it is practically impossible to formulate a rule to govern its appraisement
in all cases. Exceptional circumstances will modify the most carefully
guarded rule, but, as a general thing, we should say that the
compensation of the owner is to be estimated by reference to the use
for which the property is suitable, having regard to the existing
business or wants of the community, or such as may be reasonably
expected in the immediate future. (Miss. and Rum River Boom Co. vs.
Patterson, 98 U.S., 403).
In expropriation proceedings, therefore, the owner of the land has the right to its
value for the use for which it would bring the most in the market. 17 The owner may thus
show every advantage that his property possesses, present and prospective, in order that the price it
could be sold for in the market may be satisfactorily determined. 18 The owner may also show that the
property is suitable for division into village or town lots. 19

The trial court, therefore, correctly considered, among other circumstances, the
proposed subdivision plans of the lands sought to be expropriated in finding that

those lands are residential lots. This finding of the lower court is supported not only
by the unanimous opinion of the commissioners, as embodied in their report, but
also by the Provincial Appraisal Committee of the province of Pampanga composed
of the Provincial Treasurer, the Provincial Auditor and the District Engineer. In the
minutes of the meeting of the Provincial Appraisal Committee, held on May 14, 1959
(Exh. 13-Castellvi) We read in its Resolution No. 10 the following:
3. Since 1957 the land has been classified as residential in view of its
proximity to the air base and due to the fact that it was not being
devoted to agriculture. In fact, there is a plan to convert it into a
subdivision for residential purposes. The taxes due on the property
have been paid based on its classification as residential land;
The evidence shows that Castellvi broached the idea of subdividing her land into
residential lots as early as July 11, 1956 in her letter to the Chief of Staff of the
Armed Forces of the Philippines. (Exh. 5-Castellvi) As a matter of fact, the layout of
the subdivision plan was tentatively approved by the National Planning Commission
on September 7, 1956. (Exh. 8-Castellvi). The land of Castellvi had not been
devoted to agriculture since 1947 when it was leased to the Philippine Army. In 1957
said land was classified as residential, and taxes based on its classification as
residential had been paid since then (Exh. 13-Castellvi). The location of the Castellvi
land justifies its suitability for a residential subdivision. As found by the trial court, "It
is at the left side of the entrance of the Basa Air Base and bounded on two sides by
roads (Exh. 13-Castellvi), paragraphs 1 and 2, Exh. 12-Castellvi), the poblacion, (of
Floridablanca) the municipal building, and the Pampanga Sugar Mills are closed by.
The barrio schoolhouse and chapel are also near (T.S.N. November 23,1960, p.
68)." 20
The lands of Toledo-Gozun (Lot 1-B and Lot 3) are practically of the same condition
as the land of Castellvi. The lands of Toledo-Gozun adjoin the land of Castellvi. They
are also contiguous to the Basa Air Base, and are along the road. These lands are
near the barrio schoolhouse, the barrio chapel, the Pampanga Sugar Mills, and the
poblacion of Floridablanca (Exhs. 1, 3 and 4-Toledo-Gozun). As a matter of fact,
regarding lot 1-B it had already been surveyed and subdivided, and its conversion
into a residential subdivision was tentatively approved by the National Planning
Commission on July 8, 1959 (Exhs. 5 and 6 Toledo-Gozun). As early as June, 1958,
no less than 32 man connected with the Philippine Air Force among them
commissioned officers, non-commission officers, and enlisted men had requested
Mr. and Mrs. Joaquin D. Gozun to open a subdivision on their lands in question
(Exhs. 8, 8-A to 8-ZZ-Toledo-Gozun). 21
We agree with the findings, and the conclusions, of the lower court that the lands
that are the subject of expropriation in the present case, as of August 10, 1959 when
the same were taken possession of by the Republic, were residential lands and
were adaptable for use as residential subdivisions. Indeed, the owners of these

lands have the right to their value for the use for which they would bring the most in
the market at the time the same were taken from them. The most important issue to
be resolved in the present case relates to the question of what is the just
compensation that should be paid to the appellees.
The Republic asserts that the fair market value of the lands of the appellees is P.20
per square meter. The Republic cites the case of Republic vs. Narciso, et al., L6594, which this Court decided on May 18, 1956. The Narciso case involved lands
that belonged to Castellvi and Toledo-Gozun, and to one Donata Montemayor, which
were expropriated by the Republic in 1949 and which are now the site of the Basa
Air Base. In the Narciso case this Court fixed the fair market value at P.20 per
square meter. The lands that are sought to be expropriated in the present case
being contiguous to the lands involved in the Narciso case, it is the stand of the
Republic that the price that should be fixed for the lands now in question should also
be at P.20 per square meter.
We can not sustain the stand of the Republic. We find that the price of P.20 per
square meter, as fixed by this Court in the Narciso case, was based on the
allegation of the defendants (owners) in their answer to the complaint for eminent
domain in that case that the price of their lands was P2,000.00 per hectare and that
was the price that they asked the court to pay them. This Court said, then, that the
owners of the land could not be given more than what they had asked,
notwithstanding the recommendation of the majority of the Commission on Appraisal
which was adopted by the trial court that the fair market value of the lands was
P3,000.00 per hectare. We also find that the price of P.20 per square meter in the
Narciso case was considered the fair market value of the lands as of the year 1949
when the expropriation proceedings were instituted, and at that time the lands were
classified as sugar lands, and assessed for taxation purposes at around P400.00
per hectare, or P.04 per square meter. 22 While the lands involved in the present
case, like the lands involved in the Narciso case, might have a fair market value of
P.20 per square meter in 1949, it can not be denied that ten years later, in 1959,
when the present proceedings were instituted, the value of those lands had
increased considerably. The evidence shows that since 1949 those lands were no
longer cultivated as sugar lands, and in 1959 those lands were already classified,
and assessed for taxation purposes, as residential lands. In 1959 the land of
Castellvi was assessed at P1.00 per square meter. 23
The Republic also points out that the Provincial Appraisal Committee of Pampanga,
in its resolution No. 5 of February 15, 1957 (Exhibit D), recommended the sum of
P.20 per square meter as the fair valuation of the Castellvi property. We find that this
resolution was made by the Republic the basis in asking the court to fix the
provisional value of the lands sought to be expropriated at P259,669.10, which was
approved by the court. 24 It must be considered, however, that the amount fixed as the provisional
value of the lands that are being expropriated does not necessarily represent the true and correct value of
the land. The value is only "provisional" or "tentative", to serve as the basis for the immediate occupancy

of the property being expropriated by the condemnor. The records show that this resolution No. 5 was
repealed by the same Provincial Committee on Appraisal in its resolution No. 10 of May 14, 1959 (Exhibit
13-Castellvi). In that resolution No. 10, the appraisal committee stated that "The Committee has observed
that the value of the land in this locality has increased since 1957 ...", and recommended the price of
P1.50 per square meter. It follows, therefore, that, contrary to the stand of the Republic, that resolution
No. 5 of the Provincial Appraisal Committee can not be made the basis for fixing the fair market value of
the lands of Castellvi and Toledo-Gozun.

The Republic further relied on the certification of the Acting Assistant Provincial
Assessor of Pampanga, dated February 8, 1961 (Exhibit K), to the effect that in
1950 the lands of Toledo-Gozun were classified partly as sugar land and partly as
urban land, and that the sugar land was assessed at P.40 per square meter, while
part of the urban land was assessed at P.40 per square meter and part at P.20 per
square meter; and that in 1956 the Castellvi land was classified as sugar land and
was assessed at P450.00 per hectare, or P.045 per square meter. We can not also
consider this certification of the Acting Assistant Provincial Assessor as a basis for
fixing the fair market value of the lands of Castellvi and Toledo-Gozun because, as
the evidence shows, the lands in question, in 1957, were already classified and
assessed for taxation purposes as residential lands. The certification of the assessor
refers to the year 1950 as far as the lands of Toledo-Gozun are concerned, and to
the year 1956 as far as the land of Castellvi is concerned. Moreover, this Court has
held that the valuation fixed for the purposes of the assessment of the land for
taxation purposes can not bind the landowner where the latter did not intervene in
fixing it. 25
On the other hand, the Commissioners, appointed by the court to appraise the lands
that were being expropriated, recommended to the court that the price of P10.00 per
square meter would be the fair market value of the lands. The commissioners made
their recommendation on the basis of their observation after several ocular
inspections of the lands, of their own personal knowledge of land values in the
province of Pampanga, of the testimonies of the owners of the land, and other
witnesses, and of documentary evidence presented by the appellees. Both Castellvi
and Toledo-Gozun testified that the fair market value of their respective land was at
P15.00 per square meter. The documentary evidence considered by the
commissioners consisted of deeds of sale of residential lands in the town of San
Fernando and in Angeles City, in the province of Pampanga, which were sold at
prices ranging from P8.00 to P20.00 per square meter (Exhibits 15, 16, 17, 18, 19,
20, 21, 22, 23-Castellvi). The commissioners also considered the decision in Civil
Case No. 1531 of the Court of First Instance of Pampanga, entitled Republic vs.
Sabina Tablante, which was expropriation case filed on January 13, 1959, involving
a parcel of land adjacent to the Clark Air Base in Angeles City, where the court fixed
the price at P18.00 per square meter (Exhibit 14-Castellvi). In their report, the
commissioners, among other things, said:
... This expropriation case is specially pointed out, because the
circumstances and factors involved therein are similar in many respects

to the defendants' lands in this case. The land in Civil Case No. 1531 of
this Court and the lands in the present case (Civil Case No. 1623) are
both near the air bases, the Clark Air Base and the Basa Air Base
respectively. There is a national road fronting them and are situated in
a first-class municipality. As added advantage it may be said that the
Basa Air Base land is very near the sugar mill at Del Carmen,
Floridablanca, Pampanga, owned by the Pampanga Sugar Mills. Also
just stone's throw away from the same lands is a beautiful vacation
spot at Palacol, a sitio of the town of Floridablanca, which counts with a
natural swimming pool for vacationists on weekends. These
advantages are not found in the case of the Clark Air Base. The
defendants' lands are nearer to the poblacion of Floridablanca then
Clark Air Base is nearer (sic) to the poblacion of Angeles, Pampanga.
The deeds of absolute sale, according to the undersigned
commissioners, as well as the land in Civil Case No. 1531 are
competent evidence, because they were executed during the year
1959 and before August 10 of the same year. More specifically so the
land at Clark Air Base which coincidentally is the subject matter in the
complaint in said Civil Case No. 1531, it having been filed on January
13, 1959 and the taking of the land involved therein was ordered by the
Court of First Instance of Pampanga on January 15, 1959, several
months before the lands in this case were taken by the plaintiffs ....
From the above and considering further that the lowest as well as the
highest price per square meter obtainable in the market of Pampanga
relative to subdivision lots within its jurisdiction in the year 1959 is very
well known by the Commissioners, the Commission finds that the
lowest price that can be awarded to the lands in question is P10.00 per
square meter. 26
The lower court did not altogether accept the findings of the Commissioners based
on the documentary evidence, but it considered the documentary evidence as basis
for comparison in determining land values. The lower court arrived at the conclusion
that "the unanimous recommendation of the commissioners of ten (P10.00) pesos
per square meter for the three lots of the defendants subject of this action is fair and
just". 27 In arriving at its conclusion, the lower court took into consideration, among other circumstances,
that the lands are titled, that there is a rising trend of land values, and the lowered purchasing power of
the Philippine peso.

In the case of Manila Railroad Co. vs. Caligsihan, 40 Phil. 326, 328, this Court said:
A court of first instance or, on appeal, the Supreme Court, may change
or modify the report of the commissioners by increasing or reducing the
amount of the award if the facts of the case so justify. While great

weight is attached to the report of the commissioners, yet a court may

substitute therefor its estimate of the value of the property as gathered
from the record in certain cases, as, where the commissioners have
applied illegal principles to the evidence submitted to them, or where
they have disregarded a clear preponderance of evidence, or where
the amount allowed is either palpably inadequate or excessive. 28
The report of the commissioners of appraisal in condemnation proceedings are not
binding, but merely advisory in character, as far as the court is concerned. 29 In our
analysis of the report of the commissioners, We find points that merit serious consideration in the
determination of the just compensation that should be paid to Castellvi and Toledo-Gozun for their lands.
It should be noted that the commissioners had made ocular inspections of the lands and had considered
the nature and similarities of said lands in relation to the lands in other places in the province of
Pampanga, like San Fernando and Angeles City. We cannot disregard the observations of the
commissioners regarding the circumstances that make the lands in question suited for residential
purposes their location near the Basa Air Base, just like the lands in Angeles City that are near the
Clark Air Base, and the facilities that obtain because of their nearness to the big sugar central of the
Pampanga Sugar mills, and to the flourishing first class town of Floridablanca. It is true that the lands in
question are not in the territory of San Fernando and Angeles City, but, considering the facilities of
modern communications, the town of Floridablanca may be considered practically adjacent to San
Fernando and Angeles City. It is not out of place, therefore, to compare the land values in Floridablanca to
the land values in San Fernando and Angeles City, and form an idea of the value of the lands in
Floridablanca with reference to the land values in those two other communities.

The important factor in expropriation proceeding is that the owner is awarded the
just compensation for his property. We have carefully studied the record, and the
evidence, in this case, and after considering the circumstances attending the lands
in question We have arrived at the conclusion that the price of P10.00 per square
meter, as recommended by the commissioners and adopted by the lower court, is
quite high. It is Our considered view that the price of P5.00 per square meter would
be a fair valuation of the lands in question and would constitute a just compensation
to the owners thereof. In arriving at this conclusion We have particularly taken into
consideration the resolution of the Provincial Committee on Appraisal of the province
of Pampanga informing, among others, that in the year 1959 the land of Castellvi
could be sold for from P3.00 to P4.00 per square meter, while the land of ToledoGozun could be sold for from P2.50 to P3.00 per square meter. The Court has
weighed all the circumstances relating to this expropriations proceedings, and in
fixing the price of the lands that are being expropriated the Court arrived at a happy
medium between the price as recommended by the commissioners and approved by
the court, and the price advocated by the Republic. This Court has also taken
judicial notice of the fact that the value of the Philippine peso has considerably gone
down since the year 1959. 30Considering that the lands of Castellvi and Toledo-Gozun are
adjoining each other, and are of the same nature, the Court has deemed it proper to fix the same price for
all these lands.

3. The third issue raised by the Republic relates to the payment of

interest. The Republic maintains that the lower court erred when it
ordered the Republic to pay Castellvi interest at the rate of 6% per

annum on the total amount adjudged as the value of the land of

Castellvi, from July 1, 1956 to July 10, 1959. We find merit in this
assignment of error.
In ordering the Republic to pay 6% interest on the total value of the land of Castellvi
from July 1, 1956 to July 10, 1959, the lower court held that the Republic had
illegally possessed the land of Castellvi from July 1, 1956, after its lease of the land
had expired on June 30, 1956, until August 10, 1959 when the Republic was placed
in possession of the land pursuant to the writ of possession issued by the court.
What really happened was that the Republic continued to occupy the land of
Castellvi after the expiration of its lease on June 30, 1956, so much so that Castellvi
filed an ejectment case against the Republic in the Court of First Instance of
Pampanga. 31 However, while that ejectment case was pending, the Republic filed the complaint for
eminent domain in the present case and was placed in possession of the land on August 10, 1959, and
because of the institution of the expropriation proceedings the ejectment case was later dismissed. In the
order dismissing the ejectment case, the Court of First Instance of Pampanga said:

Plaintiff has agreed, as a matter of fact has already signed an

agreement with defendants, whereby she had agreed to receive the
rent of the lands, subject matter of the instant case from June 30, 1956
up to 1959 when the Philippine Air Force was placed in possession by
virtue of an order of the Court upon depositing the provisional amount
as fixed by the Provincial Appraisal Committee with the Provincial
Treasurer of
Pampanga; ...
If Castellvi had agreed to receive the rentals from June 30, 1956 to August 10, 1959,
she should be considered as having allowed her land to be leased to the Republic
until August 10, 1959, and she could not at the same time be entitled to the payment
of interest during the same period on the amount awarded her as the just
compensation of her land. The Republic, therefore, should pay Castellvi interest at
the rate of 6% per annum on the value of her land, minus the provisional value that
was deposited, only from July 10, 1959 when it deposited in court the provisional
value of the land.
4. The fourth error assigned by the Republic relates to the denial by the lower court
of its motion for a new trial based on nearly discovered evidence. We do not find
merit in this assignment of error.
After the lower court had decided this case on May 26, 1961, the Republic filed a
motion for a new trial, supplemented by another motion, both based upon the
ground of newly discovered evidence. The alleged newly discovered evidence in the
motion filed on June 21, 1961 was a deed of absolute sale-executed on January 25,
1961, showing that a certain Serafin Francisco had sold to Pablo L. Narciso a parcel
of sugar land having an area of 100,000 square meters with a sugar quota of 100

piculs, covered by P.A. No. 1701, situated in Barrio Fortuna, Floridablanca, for
P14,000, or P.14 per square meter.
In the supplemental motion, the alleged newly discovered evidence were: (1) a deed
of sale of some 35,000 square meters of land situated at Floridablanca for
P7,500.00 (or about P.21 per square meter) executed in July, 1959, by the spouses
Evelyn D. Laird and Cornelio G. Laird in favor of spouses Bienvenido S. Aguas and
Josefina Q. Aguas; and (2) a deed of absolute sale of a parcel of land having an
area of 4,120,101 square meters, including the sugar quota covered by Plantation
Audit No. 161 1345, situated at Floridablanca, Pampanga, for P860.00 per hectare
(a little less than P.09 per square meter) executed on October 22, 1957 by Jesus
Toledo y Mendoza in favor of the Land Tenure Administration.
We find that the lower court acted correctly when it denied the motions for a new
trial.
To warrant the granting of a new trial based on the ground of newly discovered
evidence, it must appear that the evidence was discovered after the trial; that even
with the exercise of due diligence, the evidence could not have been discovered and
produced at the trial; and that the evidence is of such a nature as to alter the result
of the case if admitted. 32 The lower court correctly ruled that these requisites were not complied
with.

The lower court, in a well-reasoned order, found that the sales made by Serafin
Francisco to Pablo Narciso and that made by Jesus Toledo to the Land Tenure
Administration were immaterial and irrelevant, because those sales covered
sugarlands with sugar quotas, while the lands sought to be expropriated in the
instant case are residential lands. The lower court also concluded that the land sold
by the spouses Laird to the spouses Aguas was a sugar land.
We agree with the trial court. In eminent domain proceedings, in order that evidence
as to the sale price of other lands may be admitted in evidence to prove the fair
market value of the land sought to be expropriated, the lands must, among other
things, be shown to be similar.
But even assuming, gratia argumenti, that the lands mentioned in those deeds of
sale were residential, the evidence would still not warrant the grant of a new trial, for
said evidence could have been discovered and produced at the trial, and they
cannot be considered newly discovered evidence as contemplated in Section 1(b) of
Rule 37 of the Rules of Court. Regarding this point, the trial court said:
The Court will now show that there was no reasonable diligence
employed.

The land described in the deed of sale executed by Serafin Francisco,

copy of which is attached to the original motion, is covered by a
Certificate of Title issued by the Office of the Register of Deeds of
Pampanga. There is no question in the mind of the court but this
document passed through the Office of the Register of Deeds for the
purpose of transferring the title or annotating the sale on the certificate
of title. It is true that Fiscal Lagman went to the Office of the Register of
Deeds to check conveyances which may be presented in the evidence
in this case as it is now sought to be done by virtue of the motions at
bar, Fiscal Lagman, one of the lawyers of the plaintiff, did not exercise
reasonable diligence as required by the rules. The assertion that he
only went to the office of the Register of Deeds 'now and then' to check
the records in that office only shows the half-hazard [sic] manner by
which the plaintiff looked for evidence to be presented during the
hearing before the Commissioners, if it is at all true that Fiscal Lagman
did what he is supposed to have done according to Solicitor Padua. It
would have been the easiest matter for plaintiff to move for the
issuance of a subpoena duces tecum directing the Register of Deeds of
Pampanga to come to testify and to bring with him all documents found
in his office pertaining to sales of land in Floridablanca adjacent to or
near the lands in question executed or recorded from 1958 to the
present. Even this elementary precaution was not done by plaintiff's
numerous attorneys.
The same can be said of the deeds of sale attached to the
supplementary motion. They refer to lands covered by certificate of title
issued by the Register of Deeds of Pampanga. For the same reason
they could have been easily discovered if reasonable diligence has
been exerted by the numerous lawyers of the plaintiff in this case. It is
noteworthy that all these deeds of sale could be found in several
government offices, namely, in the Office of the Register of Deeds of
Pampanga, the Office of the Provincial Assessor of Pampanga, the
Office of the Clerk of Court as a part of notarial reports of notaries
public that acknowledged these documents, or in the archives of the
National Library. In respect to Annex 'B' of the supplementary motion
copy of the document could also be found in the Office of the Land
Tenure Administration, another government entity. Any lawyer with a
modicum of ability handling this expropriation case would have right
away though [sic] of digging up documents diligently showing
conveyances of lands near or around the parcels of land sought to be
expropriated in this case in the offices that would have naturally come
to his mind such as the offices mentioned above, and had counsel for
the movant really exercised the reasonable diligence required by the
Rule' undoubtedly they would have been able to find these documents
and/or caused the issuance of subpoena duces tecum. ...

It is also recalled that during the hearing before the Court of the Report
and Recommendation of the Commissioners and objection thereto,
Solicitor Padua made the observation:
I understand, Your Honor, that there was a sale that took place in this
place of land recently where the land was sold for P0.20 which is
contiguous to this land.
The Court gave him permission to submit said document subject to the
approval of the Court. ... This was before the decision was rendered,
and later promulgated on May 26, 1961 or more than one month after
Solicitor Padua made the above observation. He could have, therefore,
checked up the alleged sale and moved for a reopening to adduce
further evidence. He did not do so. He forgot to present the evidence at
a more propitious time. Now, he seeks to introduce said evidence
under the guise of newly-discovered evidence. Unfortunately the Court
cannot classify it as newly-discovered evidence, because tinder the
circumstances, the correct qualification that can be given is 'forgotten
evidence'. Forgotten however, is not newly-discovered
evidence. 33
The granting or denial of a motion for new trial is, as a general rule, discretionary
with the trial court, whose judgment should not be disturbed unless there is a clear
showing of abuse of discretion. 34 We do not see any abuse of discretion on the part of the lower
court when it denied the motions for a new trial.

WHEREFORE, the decision appealed from is modified, as follows:

(a) the lands of appellees Carmen Vda. de Castellvi and Maria Nieves
Toledo-Gozun, as described in the complaint, are declared
expropriated for public use;
(b) the fair market value of the lands of the appellees is fixed at P5.00
per square meter;
(c) the Republic must pay appellee Castellvi the sum of P3,796,495.00
as just compensation for her one parcel of land that has an area of
759,299 square meters, minus the sum of P151,859.80 that she
withdrew out of the amount that was deposited in court as the
provisional value of the land, with interest at the rate of 6% per annum
from July 10, 1959 until the day full payment is made or deposited in
court;
(d) the Republic must pay appellee Toledo-Gozun the sum of
P2,695,225.00 as the just compensation for her two parcels of land that

have a total area of 539,045 square meters, minus the sum of

P107,809.00 that she withdrew out of the amount that was deposited in
court as the provisional value of her lands, with interest at the rate of
6%, per annum from July 10, 1959 until the day full payment is made or
deposited in court; (e) the attorney's lien of Atty. Alberto Cacnio is
enforced; and
(f) the costs should be paid by appellant Republic of the Philippines, as
provided in Section 12, Rule 67, and in Section 13, Rule 141, of the
Rules of Court.
IT IS SO ORDERED.

[G.R. No. 139495. November 27, 2000]

MACTAN-CEBU
INTERNATIONAL
AIRPORT
AUTHORITY
(MCIAA), petitioner, vs. THE HON. COURT OF APPEALS and
VIRGINIA CHIONGBIAN, respondents.
DECISION
GONZAGA-REYES, J.:

This Petition for Review on Certiorari seeks the reversal of the Decision of the Court
of Appeals in CA G.R. CV No. 56495 entitled Virginia Chiongbian vs. Mactan-Cebu
International Airport Authority which affirmed the Decision of the Regional Trial Court ,
7th Judicial Region, Branch 24, Cebu City.
[1]

[2]

The Court of Appeals rendered its decision based on the following facts:

Subject of the action is Lot 941 consisting of 13,766 square meters located in
Lahug, Cebu City, adjoining the then Lahug Airport and covered by TCT No.
120366 of the Registry of Deeds of Cebu City, in the name of MCIAA.
During the liberation, the Lahug Airport was occupied by the United States
Army. Then, in 1947, it was turned over to the Philippine Government through
the Surplus Property Commission. Subsequently, it was transferred to the
Bureau of Aeronautics which was succeeded by the National Airports
Corporation. When the latter was dissolved, it was replaced by the Civil
Aeronautics Administration (CAA).

On April 16, 1952, the Republic of the Philippines, represented by the CAA,
filed an expropriation proceeding, Civil Case No. R-1881 (Court of First
Instance of Cebu, Third Branch), on several parcels of land in Lahug, Cebu
City, which included Lot 941, for the expansion and improvement of Lahug
Airport.
In June 1953, appellee Virginia Chiongbian purchased Lot 941 from its
original owner, Antonina Faborada, the original defendant in the expropriation
case, for P8,000.00. Subsequently, TCT No. 9919 was issued in her name
(Exh. D).
Then, on December 29, 1961, judgment was rendered in the expropriation
case in favor of the Republic of the Philippines which was made to pay
Virginia Chiongbian the amount of P34,415.00 for Lot 941, with legal interest
computed from November 16, 1947, the date when the government begun
using it. Virginia Chiongbian did not appeal therefrom.
Thereafter, absolute title to Lot 941 was transferred to the Republic of the
Philippines under TCT No. 27696 (Exhs. E and 2).
Then, in 1990, Republic Act No. 6958 was passed by Congress creating the
Mactan-Cebu International Airport Authority to which the assets of the Lahug
Airport was transferred. Lot 941 was then transferred in the name of MCIAA
under TCT No. 120366 on May 8, 1992.
On July 24, 1995, Virginia Chiongbian filed a complaint for reconveyance of
Lot 941 with the Regional Trial Court of Cebu, Branch 9, docketed as Civil
Case No. CEB-17650 alleging, that sometime in 1949, the National Airport
Corporation (NAC) ventured to expand the Cebu Lahug Airport. As a
consequence, it sought to acquire by expropriation or negotiated sale several
parcels of lands adjoining the Lahug Airport, one of which was Lot 941 owned
by Virginia Chiongbian. Since she and other landowners could not agree with
the NACs offer for the compensation of their lands, a suit for eminent domain
was instituted on April 16, 1952, before the then Court of First Instance of
Cebu (Branch III), against forty-five (45) landowners, including Virginia
Chiongbian, docketed as Civil Case No. R-1881, entitled Republic of the
Philippine vs. Damian Ouano, et al.It was finally decided on December 29,
1961 in favor of the Republic of the Philippines.
Some of the defendants-landowners, namely, Milagros Urgello, Mamerto
Escano, Inc. and Ma. Atega Vda. de Deen, appealed the decision to the Court
of Appeals under CA-G.R. No. 33045-R, which rendered a modified judgment

allowing them to repurchase their expropriated properties. Virginia

Chiongbian, on the other hand, did not appeal and instead, accepted the
compensation for Lot 941 in the amount of P34,415, upon the assurance of
the NAC that she or her heirs would be given the right of reconveyance for the
same price once the land would no longer be used as (sic) airport.
Consequently, TCT No. 9919 of Virginia Chiongbian was cancelled and TCT
No. 27696 was issued in the name of the Republic of the Philippines. Then,
with the creation of the MCIAA, it was cancelled and TCT No. 120366 was
issued in its name.
However, no expansion of the Lahug Airport was undertaken by MCIAA and
its predecessors-in-interest. In fact, when Mactan International Airport was
opened for commercial flights, the Lahug Airport was closed at the end of
1991 and all its airport activities were undertaken at and transferred to the
Mactan International Airport. Thus, the purpose for which Lot 941 was taken
ceased to exist.
[3]

On June 3, 1997, the RTC rendered judgment in favor of the respondent Virginia
Chiongbian (CHIONGBIAN) the dispositive portion of the decision reads:

WHEREFORE, in the light of the foregoing, the Court hereby renders

judgment in favor of the plaintiff, Virginia Chiongbian and against the
defendant, Mactan Cebu International Authority (MCIAA), ordering the latter to
restore to plaintiff the possession and ownership of the property denominated
as Lot No. 941 upon reimbursement of the expropriation price paid to plaintiff.
The Register of Deeds is therefore ordered to effect the Transfer of the
Certificate Title from the defendant to the plaintiff on Lot No. 941, cancelling
Transfer Certificate of Title No. 120366 in the name of defendant MCIAA and
to issue a new title on the same lot in the name of Virginia Chiongbian.
No pronouncement as to cost.
SO ORDERED.

[4]

Aggrieved by the holding of the trial court, the petitioner Mactan Cebu International
Airport Authority (MCIAA) appealed the decision to the Court of Appeals, which affirmed
the RTC decision. Motion for Reconsideration was denied hence this petition where
MCIAA raises the following grounds in support of its petition:
[5]

I.

THE COURT OF APPEALS ERRED IN UPHOLDING THE TRIAL COURTS

JUDGMENT THAT THERE WAS A REPURCHASE AGREEMENT AND
IGNORING PETITIONERS PROTESTATIONS THAT ADMISSION OF
RESPONDENTS ORAL EVIDENCE IS NOT ALLOWED UNDER THE
STATUE OF FRAUDS.
II.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE DECISION

IN LIMBACO IS MATERIAL AND APPLICABLE TO THE CASE AT BAR.
III.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE MODIFIED

JUDGMENT IN CA-GR NO. 33045 SHOULD INURE TO THE BENEFIT OF
CHIONGBIAN EVEN IF SHE WAS NOT A PARTY IN SAID APPEALED
CASE.
IV.

THE COURT OF APPEALS ERRED IN RULING THAT THE RIGHT OF

VIRGINIA CHIONGBIAN TO REPURCHASE SHOULD BE UNDER THE
SAME TERMS AND CONDITIONS AS THE OTHER LANDOWNERS SUCH
THAT HER REPURCHASE PRICE IS ONLY P 34, 415.00.
[6]

MCIAA contends that the Republic of the Philippines appropriated Lot No. 941
through expropriation proceedings in Civil Case No. R-1881. The judgment rendered
therein was unconditional and did not contain a stipulation that ownership thereof would
revert to CHIONGBIAN nor did it give CHIONGBIAN the right to repurchase the same in
the event the lot was no longer used for the purpose it was expropriated. Moreover,
CHIONGBIANs claim that there was a repurchase agreement is not supported by
documentary evidence. The mere fact that twenty six (26) other landowners
repurchased their property located at the aforementioned Lahug airport is of no
consequence considering that said landowners were able to secure a rider in their
contracts entitling them to repurchase their property.
MCIAA also argues that the Court of Appeals erroneously concluded that it did not
object to the evidence presented by CHIONGBIAN to prove the alleged repurchase
agreement considering that the transcript of stenographic notes shows that it
manifested its objections thereto for being in violation of the Statute of Frauds.
MCIAA also faults the Court of Appeals for applying the ruling in the case
of Limbaco vs. Court of Appeals . It is the position of MCIAA that the ruling in the case
ofLimbaco is not squarely in point with respect to the present case for the reason that
the Limbaco case involved a contract of sale of real property and not an expropriation.
[7]

Moreover, MCIAA alleges that the Court of Appeals erred in ruling that the case
of Escao, et. al. vs. Republic proves the existence of the repurchase
agreement.MCIAA claims that although the parties in said case were CHIONGBIANs
co-defendants in Civil Case No. R-1881, CHIONGBIAN did not join in their appeal of the
judgment of condemnation. The modified judgment in CA G.R. No. 33045-R should not
therefore redound to CHIONGBIANs benefit who was no longer a party thereto or to the
compromise agreement which Escao et. al. entered into with the Republic of the
Philippines.
[8]

Finally, assuming for the sake of argument that CHIONGBIAN has a right to
repurchase Lot No. 941, MCIAA claims that the Court of Appeals erred in ruling that the
right of CHIONGBIAN to purchase said lot should be under the same terms and
conditions given to the other landowners and not at the prevailing market price. Such
ruling is grossly unfair and would result in unjustly enriching CHIONGBIAN for the
reason that she received just compensation for the property at the time of its taking by
the government and that the property is now worth several hundreds of millions of
pesos due to the improvements introduced by MCIAA.
[9]

On the other hand, aside from praying that this Court affirm the decision of the
Court of Appeals, the private respondent CHIONGBIAN prays that the petition be
denied for the reason that it violates the 1997 Rules on Civil Procedure, more
specifically the requirement of a certification of non-forum shopping. CHIONGBIAN
claims that the Verification and Certification on Non-Forum Shopping executed by the
MCIAA on September 13, 1999 was signed by a Colonel Marcelino A. Cordova whose
appointment as Assistant General Manager of MCIAA was disapproved by the Civil
Service Commission as early as September 2, 1999. It is CHIONGBIANs position that
since his appointment was disapproved, the Verification attached to the petition for
review on certiorari cannot be considered as having been executed by the plaintiff or
principal party who under Section 5, Rule 7 of the Rules of Court can validly make the
certification in the instant petition. Consequently, the petition should be considered as
not being verified and as such should not be considered as having been filed at all.
After a careful consideration of the arguments presented by the parties, we resolve
to grant the petition.
We first resolve the procedural issue.
We are not persuaded by CHIONGBIANs claim that the Verification and
Certification against forum shopping accompanying MCIAAs petition was insufficient for
allegedly having been signed by one who was not qualified to do so. As pointed out by
the MCIAA, Colonel Cordova signed the Verification and Certification against forum
shopping as Acting General Manager of the MCIAA, pursuant to Office Order No. 532299 dated September 10, 1999 issued by the General Manager of MCIAA, Alfonso Allere.
Colonel Cordova did not sign the Verification and Certification against forum shopping
pursuant to his appointment as assistant General Manager of the MCIAA, which was
later disapproved by the Commission on Appointments. This fact has not been disputed
by CHIONGBIAN.
[10]

We come now to the substantive aspects of the case wherein the issue to be
resolved is whether the abandonment of the public use for which Lot No. 941 was
expropriated entitles CHIONGBIAN to reacquire it.
In Fery vs. Municipality of Cabanatuan , this Court had occasion to rule on the
same issue as follows:
[11]

The answer to that question depends upon the character of the title acquired
by the expropriator, whether it be the State, a province, a municipality, or a
corporation which has the right to acquire property under the power of
eminent domain. If, for example, land is expropriated for a particular purpose,
with the condition that when that purpose is ended or abandoned the property
shall return to its former owner, then, of course, when the purpose is
terminated or abandoned the former owner reacquires the property so
expropriated. If, for example, land is expropriated for a public street and the
expropriation is granted upon condition that the city can only use it for a public
street, then, of course, when the city abandons its use as a public street, it
returns to the former owner, unless there is some statutory provision to the
contrary. Many other similar examples might be given. If, upon the contrary,
however, the decree of expropriation gives to the entity a fee simple title, then,
of course, the land becomes the absolute property of the expropriator,
whether it be the State, a province, or municipality, and in that case the nonuser does not have the effect of defeating the title acquired by the
expropriation proceedings.
When land has been acquired for public use in fee simple, unconditionally,
either by the exercise of eminent domain or by purchase, the former owner
retains no rights in the land, and the public use may be abandoned, or the
land may be devoted to a different use, without any impairment of the estate
or title acquired, or any reversion to the former owner.
[12]

In the present case, evidence reveals that Lot No. 941 was appropriated by the
Republic of the Philippines through expropriation proceedings in Civil Case No. R1881.The dispositive portion of the decision in said case reads insofar as pertinent as
follows:

IN VIEW OF THE FOREGOING, judgment is hereby rendered:

1. Declaring the expropriation of Lots Nos. 75, 76, 89, 90, 91, 105, 106, 107,
108, 104, 921-A, 88, 93, 913-B, 72, 77, 916, 777-A, 918, 919, 920, 764-A,
988, 744-A, 745-A, 746, 747, 752-A, 263-A, 941, 942, 740-A, 743, 985, 956,
976-A, 984, 989-A; and 947, including in the Lahug Airport, Cebu City, justified
and in lawful exercise of the right of eminent domain;

2. Declaring the fair market values of the lots thus taken and condemning the
plaintiff to pay the same to the respective owners with legal interest from the
dates indicated therein, as follows: Lots Nos. 75, 76, 89, 90, 91, 92, 105, 106,
107, 108-P31, 977 (minus P10,639 or P21,278 as balance in favor of
Mamerto Escao, Inc., with legal interest from November 16, 1947 until fully
paid; xxx Lot No. 941- P34,415.00 in favor of Virginia Chiongbian, with
legal interest from November 16, 1947 until fully paid; xxx
3. After the payment of the foregoing financial obligation to the landowners,
directing the latter to deliver to the plaintiff the corresponding Transfer
Certificate of Title to their representative lots; and upon the presentation of the
said titles to the Register of Deeds, ordering the latter to cancel the same and
to issue, in lieu thereof, new Transfer Certificates of Title in the name of the
plaintiff.
NO COST.
SO ORDERED.

[13]

(Emphasis

supplied)

The terms of the judgment are clear and unequivocal and grant title to Lot No. 941
in fee simple to the Republic of the Philippines. There was no condition imposed to the
effect that the lot would return to CHIONGBIAN or that CHIONGBIAN had a right to
repurchase the same if the purpose for which it was expropriated is ended or
abandoned or if the property was to be used other than as the Lahug airport.
CHIONGBIAN cannot rely on the ruling in Mactan Cebu International Airport vs.
Court of Appeals wherein the presentation of parol evidence was allowed to prove the
existence of a written agreement containing the right to repurchase. Said case did not
involve expropriation proceedings but a contract of sale. This Court consequently
allowed the presentation of parol evidence to prove the existence of an agreement
allowing the right of repurchase based on the following ratiocination:
[14]

Under the parol evidence rule, when the terms of an agreement have been
reduced into writing, it is considered as containing all the terms agreed upon,
and there can be, between the parties and their successors-in-interest, no
evidence of such terms other than the contents of the written
agreement. However, a party may present evidence to modify, explain or add
to the terms of the written agreement if he puts in issue in his pleading, the
failure of the written agreement to express the true intent of the parties
thereto. In the case at bench, the fact which private respondents seek to
establish by parol evidence consists of the agreement or representation made
by the NAC that induced Inez Ouano to execute the deed of sale; that the
vendors and their heirs are given the right of repurchase should the

government no longer need the property. Where a parol contemporaneous

agreement was the moving cause of the written contract, or where the parol
agreement forms part of the consideration of the written contract, and it
appears that the written contract was executed on the faith of the parol
contract or representation, such evidence is admissible. It is recognized that
proof is admissible of any collateral parol agreement that is not inconsistent
with the terms of the written contract though it may relate to the same subject
matter. The rule excluding parol evidence to vary or contradict a writing does
not extend so far as to preclude the admission of existing evidence to show
prior or contemporaneous collateral parol agreements between the parties,
but such evidence may be received, regardless of whether or not the written
agreement contains any reference to such collateral agreement, and whether
the action is at law or in equity.
More importantly, no objection was made by petitioner when private
respondents introduced evidence to show the right of repurchase granted by
the NAC to Inez Ouano. It has been repeatedly laid down as a rule of
evidence that a protest or objection against the admission of any evidence
must be made at the proper time, and if not so made, it will be understood to
have been waived.
[15]

This pronouncement is not applicable to the present case since the parol evidence
rule which provides that when the terms of a written agreement have been reduced to
writing, it is considered as containing all the terms agreed upon, and there can be,
between the parties and their successors-in-interest, no evidence of such terms other
than the contents of the written agreement applies to written agreements and has no
application to a judgment of a court. To permit CHIONGBIAN to prove the existence of a
compromise settlement which she claims to have entered into with the Republic of the
Philippines prior to the rendition of judgment in the expropriation case would result in a
modification of the judgment of a court which has long become final and executory.
And even assuming for the sake of argument that CHIONGBIAN could prove the
existence of the alleged written agreement acknowledging her right to repurchase Lot
No. 941 through parol evidence, the Court of Appeals erred in holding that the evidence
presented by CHIONGBIAN was admissible.
Under 1403 of the Civil Code, a contract for the sale of real property shall be
unenforceable unless the same, or some note or memorandum thereof, be in writing,
and subscribed by the party charged, or by his agent; evidence, therefore of the
agreement cannot be received without the writing or a secondary evidence of its
contents.
Contrary to the finding of the Court of Appeals, the records reveal that MCIAA
objected to the purpose for which the testimonies of CHIONGBIAN and Patrosinio
Bercede (BERCEDE) were offered, i.e. to prove the existence of the alleged written
[16]

[17]

agreement evincing a right to repurchase Lot No. 941 in favor of CHIONGBIAN, for
being in violation of the Statute of Frauds. MCIAA also objected to the purpose for which
the testimony of Attorney Manuel Pastrana (PASTRANA) was offered, i.e. to prove the
existence of the alleged written agreement and an alleged deed of sale, on the same
ground. Consequently, the testimonies of these witnesses are inadmissible under the
Statute of Frauds to prove the existence of the alleged sale.
[18]

Aside from being inadmissible under the provisions of the Statute of Frauds,
CHIONGBIANs and BERCEDEs testimonies are also inadmissible for being hearsay in
nature. Evidence is hearsay if its probative value is not based on the personal
knowledge of the witness but on the knowledge of another person who is not on the
witness stand. CHIONGBIAN, through deposition, testified that:
[19]

ATTY. DUBLIN (To Witness)

Q: Mrs. Chiongbian, you said a while ago that there was an assurance by the government to
return this property to you in case Lahug Airport will be no longer used, is that correct?
WITNESS:
A: Yes, sir. That is true.
ATTY. DUBLIN: (To witness)
Q: Can you recall when was this verbal assurance made?
A: I cannot remember anymore.
Q: You cannot also remember the year in which the alleged assurance was made?
A: I cannot also remember because Im very forgetful.
Q: Now, can you tell us so far as you can remember who was that person or government
authority or employee that made the alleged assurance?
A: The owner of the property.
Q: Now, how many times was this assurance being made to you to return this property in
case the Lahug Airport will no longer be used?
A: 2 or 3, I cannot recall.
Q: You cannot also remember in what particular place or places was this assurance being
made?
A: In my previous residence in Mabolo.
DEPOSITION OFFICER:
The assurance was made in my previous residence at Mabolo.
WITNESS:
A: I entrusted that to my lawyer, Atty. Pedro Calderon.
ATTY. DUBLIN: (to witness)
Q: You mean the assurance was made personally to your lawyer at that time, Atty. Pedro
Calderon?

A: Yes, sir.
Q: So you are now trying to tell us that that assurance was never made to you personally. Is
that right, Mam?
A: He assured me directly that the property will be returned to me.
Q: When you said he, are you referring to your lawyer at that time, Atty. Pedro Calderon
A: Yes, sir.
Q: So, in effect, it was your lawyer, Atty. Pedro Calderon, who made the assurance to you
that the property will be returned in case Lahug Airport will be abandoned?
A: Yes, sir.[20]

CHIONGBIANs testimony shows that she had no personal knowledge of the alleged
assurance made by the Republic of the Philippines that Lot No. 941 would be returned
to her in the event that the Lahug Airport was closed. She stated that she only learned
of the alleged assurance of the Republic of the Philippines through her lawyer, Attorney
Calderon, who was not presented as a witness.
BERCEDEs testimony regarding the alleged agreement is likewise inadmissible to
prove the existence of the agreement for also being hearsay in nature. Like
CHIONGBIAN, BERCEDE did not have personal knowledge of the alleged assurance
made by the Republic of the Philippines to his father that their land would be returned
should the Lahug Airport cease to operate for he only learned of the alleged assurance
through his father.
PASTRANAs testimony does little to help CHIONGBIANs cause. He claims that
subsequent to the execution of the alleged written agreement but prior to the rendition
of judgment in the expropriation case, the Republic and CHIONGBIAN executed a Deed
of Sale over Lot No. 941 wherein CHIONGBIAN sold the aforementioned lot to the
Republic of the Philippines. However, CHIONGBIAN never mentioned the existence of a
deed of sale. In fact, the records disclose that Lot No. 941 was transferred to the
Republic of the Philippines pursuant to the judgment of expropriation in Civil Case No.
R-1881 which CHIONGBIAN herself enforced by filing a motion for withdrawal of the
money after the decision was rendered. Moreover, since the very terms of the
judgment in Civil Case No. R-1881 are silent regarding the alleged deed of sale or of
the alleged written agreement acknowledging the right of CHIONGBIAN to repurchase
Lot No. 941, the only logical conclusion is that no sale in fact took place and that no
compromise agreement was executed prior to the rendition of the judgment. Had
CHIONGBIAN and the Republic executed a contract of sale as claimed by PASTRANA,
the Republic of the Philippines would not have needed to pursue the expropriation case
inasmuch as it would be duplicitous and would result in the Republic of the Philippines
expropriating something it had already owned. Expropriation lies only when it is made
necessary by the opposition of the owner to the sale or by the lack of agreement as to
the price. Consequently, CHIONGBIAN cannot compel MCIAA to reconvey Lot No.
941 to her since she has no cause of action against MCIAA.
[21]

[22]

[23]

Finally, CHIONGBIAN cannot invoke the modified judgment of the Court of Appeals
in the case of Republic of the Philippines vs. Escao, et. al. where her co-defendants,
[24]

Mamerto Escao, Inc., Milagros Urgello and Maria Atega Vda. De Deen entered into
separate and distinct compromise agreements with the Republic of the Philippines
wherein they agreed to sell their land subject of the expropriation proceedings to the
latter subject to the resolutory condition that in the event the Republic of the Philippines
no longer uses said property as an airport, title and ownership of said property shall
revert to its respective owners upon reimbursement of the price paid therefor without
interest. MCIAA correctly points out that since CHIONGBIAN did not appeal the
judgment of expropriation in Civil Case No. R-1881 and was not a party to the appeal of
her co-defendants, the judgment therein cannot redound to her benefit. And even
assuming that CHIONGBIAN was a party to the appeal, she was not a party to the
compromise agreements entered into by her co-defendants. A compromise is a contract
whereby the parties, by making reciprocal concessions, avoid litigation or put an end to
one already commenced. Essentially, it is a contract perfected by mere consent, the
latter being manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract. A judicial compromise has the force
of law and is conclusive between the parties and it is not valid and binding on a party
who did not sign the same. Since CHIONGBIAN was not a party to the compromise
agreements, she cannot legally invoke the same.
[25]

[26]

[27]

[28]

ACCORDINGLY,
the
Decision
of
the
Court
of
Appeals
is
hereby REVERSED and SET ASIDE. The complaint of Virgina Chiongbian against the
Mactan-Cebu International Airport Authority for reconveyance of Lot No. 941
is DISMISSED.
SO ORDERED.

[G.R. No. 109791. July 14, 2003]

PHILIPPINE
PORTS
AUTHORITY, petitioner,
ILOILO, respondent.

vs. CITY

OF

D E CI S I O N
AZCUNA, J.:

Before us is a petition for review on certiorari assailing the Decision of the

Regional Trial Court of Iloilo City, Branch 39, dated February 26, 1993 in Civil
Case No. 18477, a case for collection of a sum of money. Seeking to raise
questions purely of law, petitioner Philippine Ports Authority (PPA) would want
us to set aside the ruling ordering it to pay real property and business taxes to
respondent City of Iloilo.
The factual antecedents are summarized by the trial court:

This is an action for the recovery of sum of money filed by [respondent] City of Iloilo,
a public corporation organized under the laws of the Republic of the Philippines,
represented by the Hon. Rodolfo T. Ganzon as City Mayor, against petitioner,
Philippine Ports Authority (PPA), a government corporation created by P.D. 857.
[Respondent] seeks to collect from [petitioner] real property taxes as well as business
taxes, computed from the last quarter of 1984 up to fourth quarter of 1988.
[Respondent] alleges that [petitioner] is engaged in the business of arrastre and
stevedoring services and the leasing of real estate for which it should be obligated to
pay business taxes. It further alleges that [petitioner] is the declared and registered
owner of a warehouse which is used in the operation of its business and is also thereby
subject to real property taxes.
It demands the aggregate amount of P510,888.86 in realty and business taxes as of
December 1988 (real property tax last quarter of 1984 to 1988; business tax- 1984 to
1988) including its corresponding interests and penalty charges.
On July 19, 1989, [petitioner] filed a motion to dismiss but [it] was denied by this
court. A motion for reconsideration was filed, but the same was still denied, after
which [petitioner] filed its answer.
During the pre-trial conference, the following factual and legal issues were defined
and clarified.
Factual Issues:
1. Whether or not [petitioner] is engaged in business;
2. Whether or not the assessment of tax by [respondent] is accurate as of 4 th quarter of
1988 from the year 1984; real property tax in the amount of P180,953.93 and
business tax in the amount of P329,934.93 as of December 31, 1988.

Legal Issues:
1. Whether or not Philippine Ports Authority is exempt from the payment of real
property tax and business tax;
2. Whether by filing a motion to dismiss, [petitioner] impliedly admitted the allegations
in the complaint;
3. Whether Philippine Ports Authority is engaged in business. If in the negative,
whether or not it is exempt from payment of business taxes.

During trial, [respondent] presented two witnesses, namely: Mrs. Rizalina F. Tulio and
Mr. Leoncio Macrangala.
xxxxxxxxx
After [respondent] had rested its case, [petitioner] did not present any evidence.
Instead, its counsel asked the court to give him time to file a memorandum, as said
counsel is convinced that the issues involved in this case are purely legal issues.
He has no quarrel as regards the computation of the real property and business taxes
made by [respondent]. He is convinced, however, that the issue in this case involves a
question of law and that [petitioner] is not liable to pay any kind of taxes to the City of
Iloilo.
[1]

The court a quo rendered its decision holding petitioner liable for real
property taxes from the last quarter of 1984 to December 1986, and for
business taxes with respect to petitioners lease of real property from the last
quarter of 1984 up to 1988. It, however, held that respondent may not collect
business taxes on petitioners arrastre and stevedoring services, as these form
part of petitioners governmental functions. The dispositive portion of said
decision states:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff and against the defendant, ordering the latter to pay the plaintiff, as follows:
1. the amount of P98,519.16 as real property tax, from [the] last quarter of 1984 up to
December 1986;
2. the amount of P3,828.07, as business tax, for leasing of real estate from [the] last
quarter of 1984 up to 1988.[2]

Petitioner now seeks a review of the case, contending that the court a
quo decided a question of substance which has not been decided by us in
that:
(i) It decreed a property of public dominion (port facility) as subject to realty taxes just
because the mentioned property is being administered by what it perceived to be a
taxable government corporation. And,
(ii) It declared that petitioner PPA is subject to business taxes for leasing to private
persons or entities real estate without considering that petitioner PPA is not engaged
in business.[3]

In its Comment, respondent in addition raises the issue of whether or not

petitioner may change its theory on appeal. It points out that petitioner never
raised the issue that the subject property is of public dominion during the trial

nor did it mention it in the memorandum it filed with the lower court. It further
contends that such change of theory patently contradicts petitioners
admission in its pleadings and is disallowed under applicable jurisprudence.
[4]

The records show that the theory of petitioner before the trial court was
different from that of the present petition. In fact, even while at the trial court
stage, petitioner was not consistent in its theory. Initially in its pleadings
therein, it argued that as a government-owned corporation, it is exempt from
paying real property taxes by virtue of its specific exemption in its charter,
Section 40 of the Real Property Tax Code and Executive Order No. 93.
Subsequently, in the memorandum it filed with the trial court, it omitted its
earlier argument and changed its theory by alleging that it is a government
instrumentality, which, according to applicable jurisprudence, may not be
taxed by the local government. After obtaining an adverse decision from the
trial court, it adopts yet another stance on appeal before us, contesting the
taxability of its warehouse. It argued for the first time that since ports
constructed by the State are considered under the Civil Code as properties of
public dominion, its warehouse, which it insists to be part of its port, should be
treated likewise. To support this, it invokes Article 420 of the Civil Code, which
provides:
[5]

[6]

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

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;
xxxxxxxxx
[Emphasis supplied]
Insisting that the subject warehouse is considered as part of its port, it points
to Section 3 (e) of its charter quoted hereunder:
e) port means a place where ships may anchor or tie up for the purpose of shelter,
repair, loading or discharge of cargo, or for other such activities connected with waterborne commerce, andincluding all the land and water areas and the structures,
equipment and facilities related to these functions. [Emphasis supplied]
A perusal of the records shows that this thesis was never presented nor
discussed at the trial stage.

As a rule, a party who deliberately adopts a certain theory upon which the
case is tried and decided by the lower court will not be permitted to change
theory on appeal. Points of law, theories, issues and arguments not brought to
the attention of the lower court need not be, and ordinarily will not be,
considered by a reviewing court, as these cannot be raised for the first time at
such late stage. Basic considerations of due process underlie this rule. It
would be unfair to the adverse party who would have no opportunity to
present further evidence material to the new theory, which it could have done
had it been aware of it at the time of the hearing before the trial court. To
permit petitioner in this case to change its theory on appeal would thus be
unfair to respondent, and offend the basic rules of fair play, justice and due
process.
[7]

[8]

[9]

[10]

Petitioner however cites an exception to the rule, as enunciated in Lianga

Lumber Co. v. Lianga Timber Co., Inc., wherein we said:
[11]

[I]n the interest of justice and within the sound discretion of the appellate court, a
party may change his theory on appeal only when the factual bases thereof would not
require presentation of any further evidence by the adverse party in order to enable it
to properly meet the issue raised in the new theory.
Petitioner contends that its new theory falls under the aforecited exception, as
the issue does not involve any disputed evidentiary matter.
Contrary to petitioners claim, we find that the new issue raised is not a
purely legal question. It must be emphasized that the enumeration of
properties of public dominion under Article 420 of the Civil Code specifically
states ports constructed by the State. Thus, in order to consider the port in the
case at bar as falling under the said classification, the fact that the port was
constructed by the State must first be established by sufficient evidence. This
fact proved crucial in Santos v. Moreno, where the issue raised was whether
the canals constructed by private persons were of public or private
ownership. We ruled that the canals were privately owned, thus:
[12]

Under Art. 420, canals constructed by the State and devoted and devoted to public use
are of public ownership. Conversely, canals constructed by private persons within
private lands and devoted exclusively for private use must be of private ownership.
In the case at bar, no proof was adduced to establish that the port was
constructed by the State. Petitioner cannot have us automatically conclude
that its port qualified as property of public dominion. It would be unfair to
respondent, which would be deprived of its opportunity to present evidence to

disprove the factual basis of the new theory. It is thus clear that
the Lianga exception cannot apply in the case at bar.
Moreover, as correctly pointed out by respondent, we cannot ignore the
fact that petitioners new position runs contrary to its own admission in the
pleadings filed in the trial court. Under paragraph 3 of respondents complaint
quoted hereunder, the fact of petitioners ownership of the property was
specifically alleged as follows:
III

Defendant is likewise the declared and registered owner of a warehouse standing on

Lot No. 1065 situated at Bgy. Concepcion, City Proper, declared under Tax
Declaration No. 56325. Xerox copy of the said Tax Declaration is hereto attached as
annex D and form[s] an integral part of herein complaint;
[13]

In its Answer, referring to the abovecited complaint, petitioner stated,

Paragraph 3 is admitted. Notably, this admission was never questioned nor
put at issue during the trial.
[14]

Now before us, petitioner contradicts its earlier admission by claiming that
the subject warehouse is a property of public dominion. This inconsistency is
made more apparent by looking closely at what public dominion means.
Tolentino explains this in this wise:
Private ownership is defined elsewhere in the Code; but the meaning of public
dominion is nowhere defined. From the context of various provisions, it is clear
that public dominion does not carry the idea of ownership; property of public
dominion is not owned by the State, but pertains to the State, which as territorial
sovereign exercises certain judicial prerogatives over such property. The ownership of
such property, which has the special characteristics of a collective ownership for the
general use and enjoyment, by virtue of their application to the satisfaction of
collective needs, is in the social group, whether national, provincial, or municipal.
Their purpose is not to serve the State as a juridical person, but the citizens; they are
intended for the common and public welfare, and so they cannot be the object of
appropriation, either by the State or by private persons. [Emphasis supplied]
[15]

Following the above, properties of public dominion are owned by the

general public and cannot be declared to be owned by a public corporation,
such as petitioner.
As the object of the pleadings is to draw the lines of battle, so to speak,
between the litigants and to indicate fairly the nature of the claims or defenses
of both parties, a party cannot subsequently take a position contrary to, or

inconsistent, with his pleadings. Unless a party alleges palpable mistake or

denies such admission, judicial admissions cannot be controverted.
Petitioner is thus bound by its admission of ownership of the subject
property and is barred from claiming otherwise.
[16]

[17]

We also note that petitioner failed to raise the issue of ownership during
the pre-trial. In its petition, it insists that to determine liability for real property
tax, the ownership of the property must first be ascertained. In the pre-trial
order, however, to which petitioner did not object, nowhere was the issue of
ownership included in the stipulated factual or legal issues.
[18]

[19]

We have ruled that a pre-trial is primarily intended to make certain that all
issues necessary to the disposition of a case are properly raised. Thus to
obviate the element of surprise, parties are expected to disclose at the pretrial conference all issues of law and fact which they intend to raise at the trial.
Consequently, the determination of issues at a pre-trial conference bars the
consideration of other questions on appeal. Hence, in the case at bar, the
fact that the issue of ownership is outside of what has been delimited during
the pre-trial further justifies the disallowance of petitioners new theory.
[20]

Therefore, on the basis of the foregoing considerations and in the absence

of compelling reasons to rule otherwise, we hold that petitioner may not be
permitted to change its theory at this stage. Well-settled is the rule that
questions that were not raised in the lower court cannot be raised for the first
time on appeal.
[21]

In any case, granting that petitioners present theory is allowed at this

stage, we nevertheless find it untenable. Concededly, ports constructed by the
State are properties of the public dominion, as Article 420 of the Civil Code
enumerates these as properties intended for public use. It must be stressed
however that what is being taxed in the present case is petitioners warehouse,
which, although located within the port, is distinct from the port itself. In Light
Rail Transit Authority v. Central Board of Assessment Appeals et al.,
petitioner therein similarly sought an exemption from real estate taxes on its
passenger terminals, arguing that said properties are considered as part of
the public roads, which are classified as property of public dominion in the
Civil Code. We ruled therein that:
[22]

[23]

[T]he properties of petitioner are not exclusively considered as public roads being
improvements placed upon the public road, and this [separable] nature of the structure
in itself physically distinguishes it from a public road. Considering further that
carriageways or passenger terminals are elevated structures which are not freely

accessible to the public, vis--vis roads which are public improvements openly utilized
by the public, the former are entirely different from the latter.
Using the same reasoning, the warehouse in the case at bar may not be held
as part of the port, considering its separable nature as an improvement upon
the port, and the fact that it is not open for use by everyone and freely
accessible to the public. In the same way that we ruled in one case that the
exemption of public property from taxation does not extend to improvements
made thereon by homesteaders or occupants at their own expense, we
likewise uphold the taxability of the warehouse in the instant case, it being a
mere improvement built on an alleged property of public dominion, assuming
petitioners port to be so. Moreover, petitioner may not invoke the definition of
port in its charter to expand the meaning of ports constructed by the State in
the Civil Code to include improvements built thereon. It must be noted that the
charter itself limited the use of said definition only for the interpretation of
Presidential Decree (P.D.) No. 857, its by-laws, regulations and rules, and
not of other statutes such as the Civil Code. Given these parameters,
therefore, petitioners move to present its new theory, even if allowed, would
nonetheless prove to be futile.
[24]

[25]

The trial court correctly ruled that for the assessed period of 1984 to 1988,
petitioners exemption from real property taxes was withdrawn by P.D. No.
1931, at least for the period of 1984 to 1986.
Originally, petitioner was exempt from real property taxes on the basis of
the Real Property Tax Code then governing, which provided:
[26]

SECTION 40. Exemptions from Real Property Tax. The exemption shall be as
follows:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions and any government-owned corporation so exempt by its charter:
Provided; however, That this exemption shall not apply to real property of the abovenamed entities the beneficial use of which has been granted, for consideration or
otherwise, to a taxable person.
Petitioners charter, P.D. 857, further specifically exempted it from real
property taxes:
[27]

SECTION 25. Exemption from Realty Taxes The Authority shall be exempt from the
payment of real property taxes imposed by the Republic of the Philippines, its
agencies, instrumentalities or political subdivisions; Provided, That no tax exemptions
shall be extended to any subsidiaries of the Authority that may be organized;

Provided, finally, That investments in fixed assets shall be deductible for income tax
purposes.
It can thus be seen from the foregoing that petitioner, as a governmentowned or controlled corporation, enjoyed an exemption from real property
taxes.
On June 11, 1984, however, P.D. 1931 effectively withdrew all tax
exemption privileges granted to government-owned or controlled corporations
as stated in Section 1 thereof, which reads:
Sec. 1. The provisions of special or general law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes, fees, imposts and other charges
heretofore granted in favor of government-owned or controlled corporations including
their subsidiaries, are hereby withdrawn.
Under the same law, the exemption can be restored in special cases through
an application for restoration with the Secretary of Finance, which, notably,
petitioner did not avail.
[28]

Subsequently, Executive Order (E.O.) No. 93 was enacted on December

17, 1986 restoring tax exemptions provided under certain laws, one of which
is the Real Property Tax Code. The pertinent portion of said law provides:
SECTION 1. The provisions of any general or special law to the contrary
notwithstanding, all tax and duty incentives granted to government and private entities
are hereby withdrawn, except:
xxxxxxxxx
e) those conferred under four basic codes namely:
(i) the Tariff and Customs Code, as amended;
(ii) the National Internal Revenue Code, as amended;
(iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as amended;
[Emphasis supplied]

The abovecited laws, therefore, indicate that petitioners tax exemption

from real property taxes was withdrawn by P.D. 1931 effective June 11, 1984,
but was subsequently restored by virtue of E.O. 93, starting December 17,
1986. Hence, petitioner is liable for real property taxes on its warehouse,
computed from the last quarter of 1984 up to December 1986.
[29]

Petitioner, however, seeks to be excused from liability for taxes by

invoking the pronouncement in Basco v. PAGCOR (Basco) quoted
hereunder:
[30]

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role
is governmental, which places it in the category of an agency or instrumentality of the
Government.Being an instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might be burdened,
impeded or subject to control by a mere Local government. [Emphasis supplied]
Petitioner points out that its exercise of regulatory functions as decreed by its
charter places it within the category of an agency or instrumentality of the
government, which, according toBasco, is beyond the reach of local taxation.
[31]

Reliance in the abovecited case is unavailing considering that P.D. 1931 was never
raised therein, and given that the issue in said case focused on the constitutionality of
P.D. 1869, the charter of PAGCOR. The said decision did not absolutely prohibit local
governments from taxing government instrumentalities. In fact we stated therein:
The power of local government to impose taxes and fees is always subject to
limitations which Congress may provide by law. Since P.D. 1869 remains an operative
law until amended, repealed or revokedits exemption clause remains an exemption to
the exercise of the power of local governments to impose taxes and fees.
[32]

Furthermore, in the more recent case of Mactan Cebu International Airport

Authority v. Marcos, where the Basco case was similarly invoked for tax
exemption, we stated: [N]othing can prevent Congress from decreeing that
even instrumentalities or agencies of the Government performing
governmental functions may be subject to tax.Where it is done precisely to
fulfill a constitutional mandate and national policy, no one can doubt its
wisdom. The fact that tax exemptions of government-owned or controlled
corporations have been expressly withdrawn by the present Local
Government Code clearly attests against petitioners claim of absolute
exemption of government instrumentalities from local taxation.
[33]

[34]

Petitioner also contends that the term government-owned or controlled

corporations referred in P.D. 1931 covers only those not performing

governmental functions. This argument is without legal basis for it reads into
the law a distinction that is not there. It runs contrary to the clear intent of the
law to withdraw from all units of the government, including government-owned
or controlled corporations, their exemptions from taxes. Had it been otherwise,
the law would have said so.
[35]

Moreover, the trial court correctly pointed out that if indeed petitioner were
not subject to local taxation, petitioners charter would not have specifically
provided for its exemption from the payment of real property tax. Its exemption
therein therefore proves that it was only an exception to the general rule of
taxability of petitioner. Given that said privilege was withdrawn by subsequent
law, petitioners claim for exemption from real property taxes for the entire
assessed period fails.
We affirm the finding of the lower court on petitioners liability for business
taxes for the lease of its building to private corporations. During the trial,
petitioner did not present any evidence to refute respondents proof of
petitioners income from the lease of its property. Neither did it present any
proof of exemption from business taxes. Instead, it emphasized its charter
provisions defining its functions as governmental in nature. It averred that it
allowed port users to occupy certain premises within the port area only to
ensure order and convenience in discharging its governmental functions. It
hence claimed that it is not engaged in business, as the act of leasing out its
property was not motivated by profit, but by its duty to manage and control
port operations.
The argument is unconvincing. As admitted by petitioner, it leases out its
premises to private persons for convenience and not necessarily as part of its
governmental function of administering port operations. In fact, its charter
classifies such act of leasing out port facilities as one of petitioners corporate
powers. Any income or profit generated by an entity, even of a corporation
organized without any intention of realizing profit in the conduct of its
activities, is subject to tax. What matters is the established fact that it leased
out its building to ten private entities from which it regularly earned substantial
income. Thus, in the absence of any proof of exemption therefrom, petitioner
is liable for the assessed business taxes.
[36]

[37]

In closing, we reiterate that in taxing government-owned or controlled

corporations, the State ultimately suffers no loss. In National Power Corp. v.
Presiding Judge, RTC, Br. XXV, we elucidated:
[38]

Actually, the State has no reason to decry the taxation of NAPOCORs properties, as
and by way of real property taxes. Real property taxes, after all, form part and parcel

of the financing apparatus of the Government in development and nation-building,

particularly in the local government level.
xxxxxxxxx
To all intents and purposes, real property taxes are funds taken by the State with one
hand and given to the other. In no measure can the government be said to have lost
anything.
Finally, we find it appropriate to restate that the primary reason for the
withdrawal of tax exemption privileges granted to government-owned and
controlled corporations and all other units of government was that such
privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises, hence resulting in the need for
these entities to share in the requirements of development, fiscal or otherwise,
by paying the taxes and other charges due from them.
[39]

WHEREFORE, the Petition is DENIED and the assailed Decision

AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 155650

July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE,
SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY ASSESSOR OF
PARAAQUE, and CITY TREASURER OF PARAAQUE, respondents.
DECISION
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Paraaque City under Executive Order No.
903, otherwise known as the Revised Charter of the Manila International Airport
Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by
then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 909 1 and
2982 amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements

and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA
approximately 600 hectares of land,3 including the runways and buildings ("Airport
Lands and Buildings") then under the Bureau of Air Transportation. 4 The MIAA
Charter further provides that no portion of the land transferred to MIAA shall be
disposed of through sale or any other mode unless specifically approved by the
President of the Philippines.5
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC)
issued Opinion No. 061. The OGCC opined that the Local Government Code of
1991 withdrew the exemption from real estate tax granted to MIAA under Section 21
of the MIAA Charter. Thus, MIAA negotiated with respondent City of Paraaque to
pay the real estate tax imposed by the City. MIAA then paid some of the real estate
tax already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from
the City of Paraaque for the taxable years 1992 to 2001. MIAA's real estate tax
delinquency is broken down as follows:
TAX
TAXABL
DECLARATIO
E YEAR
N
E-016-01370 19922001
E-016-01374 19922001
E-016-01375 19922001
E-016-01376 19922001
E-016-01377 19922001
E-016-01378 19922001
E-016-01379 19922001
E-016-01380 19922001
*E-016-013-85 19982001
*E-016-01387 19982001

TAX DUE
19,558,160.00
111,689,424.90

PENALTY
11,201,083.20

TOTAL
30,789,243.20

68,149,479.59 179,838,904.49

20,276,058.00

12,371,832.00

32,647,890.00

58,144,028.00

35,477,712.00

93,621,740.00

18,134,614.65

11,065,188.59

29,199,803.24

111,107,950.40

67,794,681.59 178,902,631.99

4,322,340.00

2,637,360.00

6,959,700.00

7,776,436.00

4,744,944.00

12,521,380.00

6,444,810.00

2,900,164.50

9,344,974.50

34,876,800.00

5,694,560.00

50,571,360.00

*E-016-01396 19982001
GRAND
TOTAL

75,240.00

33,858.00

109,098.00

P392,435,861.9 P232,070,863.4 P 624,506,725.4

5
7
2

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for
P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of
levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City
of Paraaque threatened to sell at public auction the Airport Lands and Buildings
should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a
clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No.
061. The OGCC pointed out that Section 206 of the Local Government Code
requires persons exempt from real estate tax to show proof of exemption. The
OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt
from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for
prohibition and injunction, with prayer for preliminary injunction or temporary
restraining order. The petition sought to restrain the City of Paraaque from
imposing real estate tax on, levying against, and auctioning for public sale the
Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed
it beyond the 60-day reglementary period. The Court of Appeals also denied on 27
September 2002 MIAA's motion for reconsideration and supplemental motion for
reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for
review.7
Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at
the Barangay Halls of Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in
the public market of Barangay La Huerta; and in the main lobby of the Paraaque
City Hall. The City of Paraaque published the notices in the 3 and 10 January 2003
issues of the Philippine Daily Inquirer, a newspaper of general circulation in the
Philippines. The notices announced the public auction sale of the Airport Lands and
Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative
Session Hall Building of Paraaque City.

A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed
before this Court an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a
Temporary Restraining Order. The motion sought to restrain respondents the City
of Paraaque, City Mayor of Paraaque, Sangguniang Panglungsod ng Paraaque,
City Treasurer of Paraaque, and the City Assessor of Paraaque ("respondents")
from auctioning the Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary restraining order (TRO) effective
immediately. The Court ordered respondents to cease and desist from selling at
public auction the Airport Lands and Buildings. Respondents received the TRO on
the same day that the Court issued it. However, respondents received the TRO only
at 1:25 p.m. or three hours after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the
TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In compliance
with the directive issued during the hearing, MIAA, respondent City of Paraaque,
and the Solicitor General subsequently submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and
Buildings in the name of MIAA. However, MIAA points out that it cannot claim
ownership over these properties since the real owner of the Airport Lands and
Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to
devote the Airport Lands and Buildings for the benefit of the general public. Since
the Airport Lands and Buildings are devoted to public use and public service, the
ownership of these properties remains with the State. The Airport Lands and
Buildings are thus inalienable and are not subject to real estate tax by local
governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA
from the payment of real estate tax. MIAA insists that it is also exempt from real
estate tax under Section 234 of the Local Government Code because the Airport
Lands and Buildings are owned by the Republic. To justify the exemption, MIAA
invokes the principle that the government cannot tax itself. MIAA points out that the
reason for tax exemption of public property is that its taxation would not inure to any
public advantage, since in such a case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly
withdrew the tax exemption privileges of "government-owned and-controlled
corporations" upon the effectivity of the Local Government Code. Respondents
also argue that a basic rule of statutory construction is that the express mention of
one person, thing, or act excludes all others. An international airport is not among
the exceptions mentioned in Section 193 of the Local Government Code. Thus,

respondents assert that MIAA cannot claim that the Airport Lands and Buildings are
exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v.
Marcos8 where we held that the Local Government Code has withdrawn the
exemption from real estate tax granted to international airports. Respondents further
argue that since MIAA has already paid some of the real estate tax assessments, it
is now estopped from claiming that the Airport Lands and Buildings are exempt from
real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of
MIAA are exempt from real estate tax under existing laws. If so exempt, then the real
estate tax assessments issued by the City of Paraaque, and all proceedings taken
pursuant to such assessments, are void. In such event, the other issues raised in
this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax
imposed by local governments.
First, MIAA is not a government-owned or controlled corporation but
an instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic of the
Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation,
is not exempt from real estate tax. Respondents claim that the deletion of the phrase
"any government-owned or controlled so exempt by its charter" in Section 234(e) of
the Local Government Code withdrew the real estate tax exemption of governmentowned or controlled corporations. The deleted phrase appeared in Section 40(a) of
the 1974 Real Property Tax Code enumerating the entities exempt from real estate
tax.
There is no dispute that a government-owned or controlled corporation is not exempt
from real estate tax. However, MIAA is not a government-owned or controlled
corporation. Section 2(13) of the Introductory Provisions of the Administrative Code
of 1987 defines a government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. x x x x

(13) Government-owned or controlled corporation refers to any

agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or proprietary in
nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the
extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis
supplied)
A government-owned or controlled corporation must be "organized as a stock or
non-stock corporation." MIAA is not organized as a stock or non-stock corporation.
MIAA is not a stock corporation because it has no capital stock divided into
shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA
Charter9provides:
SECTION 10. Capital. The capital of the Authority to be contributed by the
National Government shall be increased from Two and One-half Billion
(P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to
consist of:
(a) The value of fixed assets including airport facilities, runways and
equipment and such other properties, movable and immovable[,] which may
be contributed by the National Government or transferred by it from any of its
agencies, the valuation of which shall be determined jointly with the
Department of Budget and Management and the Commission on Audit on the
date of such contribution or transfer after making due allowances for
depreciation and other deductions taking into account the loans and other
liabilities of the Authority at the time of the takeover of the assets and other
properties;
(b) That the amount of P605 million as of December 31, 1986 representing
about seventy percentum (70%) of the unremitted share of the National
Government from 1983 to 1986 to be remitted to the National Treasury as
provided for in Section 11 of E. O. No. 903 as amended, shall be converted
into the equity of the National Government in the Authority. Thereafter, the
Government contribution to the capital of the Authority shall be provided in the
General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into
shares.
Section 3 of the Corporation Code10 defines a stock corporation as one whose
"capital stock is divided into shares and x x x authorized to distribute to the
holders of such shares dividends x x x." MIAA has capital but it is not divided into
shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a
stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of

the Corporation Code defines a non-stock corporation as "one where no part of its
income is distributable as dividends to its members, trustees or officers." A non-stock
corporation must have members. Even if we assume that the Government is
considered as the sole member of MIAA, this will not make MIAA a non-stock
corporation. Non-stock corporations cannot distribute any part of their income to
their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its
annual gross operating income to the National Treasury.11 This prevents MIAA from
qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are
"organized for charitable, religious, educational, professional, cultural, recreational,
fraternal, literary, scientific, social, civil service, or similar purposes, like trade,
industry, agriculture and like chambers." MIAA is not organized for any of these
purposes. MIAA, a public utility, is organized to operate an international and
domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as
a government-owned or controlled corporation. What then is the legal status of MIAA
within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform
efficiently its governmental functions. MIAA is like any other government
instrumentality, the only difference is that MIAA is vested with corporate powers.
Section 2(10) of the Introductory Provisions of the Administrative Code defines a
government "instrumentality" as follows:
SEC. 2. General Terms Defined. x x x x
(10) Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government
instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate
powers. Thus, MIAA exercises the governmental powers of eminent domain, 12 police
authority13 and the levying of fees and charges.14 At the same time, MIAA exercises
"all the powers of a corporation under the Corporation Law, insofar as these powers
are not inconsistent with the provisions of this Executive Order." 15

Likewise, when the law makes a government instrumentality operationally

autonomous, the instrumentality remains part of the National Government
machinery although not integrated with the department framework. The MIAA
Charter expressly states that transforming MIAA into a "separate and autonomous
body"16 will make its operation more "financially viable." 17
Many government instrumentalities are vested with corporate powers but they do not
become stock or non-stock corporations, which is a necessary condition before an
agency or instrumentality is deemed a government-owned or controlled corporation.
Examples are the Mactan International Airport Authority, the Philippine Ports
Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All these
government instrumentalities exercise corporate powers but they are not organized
as stock or non-stock corporations as required by Section 2(13) of the Introductory
Provisions of the Administrative Code. These government instrumentalities are
sometimes loosely called government corporate entities. However, they are not
government-owned or controlled corporations in the strict sense as understood
under the Administrative Code, which is the governing law defining the legal
relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local
Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government
Units. Unless otherwise provided herein, the exercise of the taxing
powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities and local government units.(Emphasis and
underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the
national government, which historically merely delegated to local governments the
power to tax. While the 1987 Constitution now includes taxation as one of the
powers of local governments, local governments may only exercise such power
"subject to such guidelines and limitations as the Congress may provide." 18
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments. The
rule is that a tax is never presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or activity is taxable is
resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer
claiming the exemption. However, when Congress grants an exemption to a national
government instrumentality from local taxation, such exemption is construed liberally
in favor of the national government instrumentality. As this Court declared
in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to
the benefit of the government itself or its agencies. In such case the practical
effect of an exemption is merely to reduce the amount of money that has to be
handled by government in the course of its operations. For these reasons,
provisions granting exemptions to government agencies may be construed
liberally, in favor of non tax-liability of such agencies. 19
There is, moreover, no point in national and local governments taxing each other,
unless a sound and compelling policy requires such transfer of public funds from
one government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for
sound and compelling policy considerations. There must be express language in
the law empowering local governments to tax national government instrumentalities.
Any doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise
provided" in the Code, local governments cannot tax national government
instrumentalities. As this Court held in Basco v. Philippine Amusements and
Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede,
burden or in any manner control the operation of constitutional laws
enacted by Congress to carry into execution the powers vested in the
federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed.
579)
This doctrine emanates from the "supremacy" of the National Government
over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to
the entire absence of power on the part of the States to touch, in that
way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or
political subdivision can regulate a federal instrumentality in such a way
as to prevent it from consummating its federal responsibilities, or even

to seriously burden it in the accomplishment of them." (Antieau, Modern

Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable
activities or enterprise using the power to tax as "a tool for regulation" (U.S. v.
Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to
destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent power to
wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and
therefore owned by the State or the Republic of the Philippines. The Civil Code
provides:
ARTICLE 419. Property is either of public dominion or of private ownership.
ARTICLE 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national
wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character
stated in the preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for
public use or for public service, shall form part of the patrimonial property of
the State.
No one can dispute that properties of public dominion mentioned in Article 420 of the
Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed
by the State," are owned by the State. The term "ports" includes seaports and
airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by
the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings

are properties of public dominion and thus owned by the State or the Republic of the
Philippines.
The Airport Lands and Buildings are devoted to public use because they are used
by the public for international and domestic travel and transportation. The fact
that the MIAA collects terminal fees and other charges from the public does not
remove the character of the Airport Lands and Buildings as properties for public use.
The operation by the government of a tollway does not change the character of the
road as one for public use. Someone must pay for the maintenance of the road,
either the public indirectly through the taxes they pay the government, or only those
among the public who actually use the road through the toll fees they pay upon
using the road. The tollway system is even a more efficient and equitable manner of
taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property
whether it is of public dominion or not. Article 420 of the Civil Code defines property
of public dominion as one "intended for public use." Even if the government collects
toll fees, the road is still "intended for public use" if anyone can use the road under
the same terms and conditions as the rest of the public. The charging of fees, the
limitation on the kind of vehicles that can use the road, the speed restrictions and
other conditions for the use of the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA
charges to airlines, constitute the bulk of the income that maintains the operations of
MIAA. The collection of such fees does not change the character of MIAA as an
airport for public use. Such fees are often termed user's tax. This means taxing
those among the public who actually use a public facility instead of taxing all the
public including those who never use the particular public facility. A user's tax is
more equitable a principle of taxation mandated in the 1987 Constitution. 21
The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport
of the Philippines for both international and domestic air traffic," 22 are properties of
public dominion because they are intended for public use. As properties of public
dominion, they indisputably belong to the State or the Republic of the
Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are
properties of public dominion. As properties of public dominion, the Airport
Lands and Buildings are outside the commerce of man. The Court has ruled
repeatedly that properties of public dominion are outside the commerce of man. As
early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that
properties devoted to public use are outside the commerce of man, thus:

According to article 344 of the Civil Code: "Property for public use in
provinces and in towns comprises the provincial and town roads, the squares,
streets, fountains, and public waters, the promenades, and public works of
general service supported by said towns or provinces."
The said Plaza Soledad being a promenade for public use, the municipal
council of Cavite could not in 1907 withdraw or exclude from public use a
portion thereof in order to lease it for the sole benefit of the defendant Hilaria
Rojas. In leasing a portion of said plaza or public place to the defendant for
private use the plaintiff municipality exceeded its authority in the exercise of
its powers by executing a contract over a thing of which it could not dispose,
nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not outside
the commerce of man may be the object of a contract, and plazas and streets
are outside of this commerce, as was decided by the supreme court of
Spain in its decision of February 12, 1895, which says: "Communal things
that cannot be sold because they are by their very nature outside of
commerce are those for public use, such as the plazas, streets, common
lands, rivers, fountains, etc." (Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of public
dominion are outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to public
use and to be made available to the public in general. They are outside the
commerce of man and cannot be disposed of or even leased by the
municipality to private parties. While in case of war or during an emergency,
town plazas may be occupied temporarily by private individuals, as was done
and as was tolerated by the Municipality of Pozorrubio, when the emergency
has ceased, said temporary occupation or use must also cease, and the town
officials should see to it that the town plazas should ever be kept open to the
public and free from encumbrances or illegal private
constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the
commerce of man, cannot be the subject of an auction sale. 25
Properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. Any encumbrance, levy
on execution or auction sale of any property of public dominion is void for being
contrary to public policy. Essential public services will stop if properties of public
dominion are subject to encumbrances, foreclosures and auction sale. This will
happen if the City of Paraaque can foreclose and compel the auction sale of the
600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber26 the Airport Lands and Buildings, the President must
first withdraw from public use the Airport Lands and Buildings. Sections 83 and 88
of the Public Land Law or Commonwealth Act No. 141, which "remains to this day
the existing general law governing the classification and disposition of lands of the
public domain other than timber and mineral lands,"27 provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and
Natural Resources, the President may designate by proclamation any tract or
tracts of land of the public domain as reservations for the use of the Republic
of the Philippines or of any of its branches, or of the inhabitants thereof, in
accordance with regulations prescribed for this purposes, or for quasi-public
uses or purposes when the public interest requires it, including reservations
for highways, rights of way for railroads, hydraulic power sites, irrigation
systems, communal pastures or lequas communales, public parks, public
quarries, public fishponds, working men's village and other improvements for
the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of
Section eighty-three shall be non-alienable and shall not be subject to
occupation, entry, sale, lease, or other disposition until again declared
alienable under the provisions of this Act or by proclamation of the
President. (Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and
Buildings from public use, these properties remain properties of public dominion and
are inalienable. Since the Airport Lands and Buildings are inalienable in their
present status as properties of public dominion, they are not subject to levy on
execution or foreclosure sale. As long as the Airport Lands and Buildings are
reserved for public use, their ownership remains with the State or the Republic of the
Philippines.
The authority of the President to reserve lands of the public domain for public use,
and to withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book
III of the Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the
Government. (1) The President shall have the power to reserve for
settlement or public use, and for specific public purposes, any of the
lands of the public domain, the use of which is not otherwise directed by
law. The reserved land shall thereafter remain subject to the specific
public purpose indicated until otherwise provided by law or
proclamation;
x x x x. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and Buildings are
withdrawn by law or presidential proclamation from public use, they are properties of
public dominion, owned by the Republic and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the
Republic. Section 48, Chapter 12, Book I of the Administrative Code allows
instrumentalities like MIAA to hold title to real properties owned by the
Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. Whenever real
property of the Government is authorized by law to be conveyed, the deed of
conveyance shall be executed in behalf of the government by the following:
(1) For property belonging to and titled in the name of the Republic of the
Philippines, by the President, unless the authority therefor is expressly vested
by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled in
the name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or instrumentality.
(Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is
clearer because even its executive head cannot sign the deed of conveyance on
behalf of the Republic. Only the President of the Republic can sign such deed of
conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands
and Buildings from the Bureau of Air Transportation of the Department of
Transportation and Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. x x x x
The land where the Airport is presently located as well as the
surrounding land area of approximately six hundred hectares, are
hereby transferred, conveyed and assigned to the ownership and
administration of the Authority, subject to existing rights, if any. The
Bureau of Lands and other appropriate government agencies shall undertake
an actual survey of the area transferred within one year from the promulgation
of this Executive Order and the corresponding title to be issued in the name of
the Authority. Any portion thereof shall not be disposed through sale or

through any other mode unless specifically approved by the President

of the Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. All
existing public airport facilities, runways, lands, buildings and other
property, movable or immovable, belonging to the Airport, and all assets,
powers, rights, interests and privileges belonging to the Bureau of Air
Transportation relating to airport works or air operations, including all
equipment which are necessary for the operation of crash fire and rescue
facilities, are hereby transferred to the Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the
Bureau of Air Transportation and Transitory Provisions. The Manila
International Airport including the Manila Domestic Airport as a division under
the Bureau of Air Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the
Republic receiving cash, promissory notes or even stock since MIAA is not a stock
corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the
Airport Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of the
Philippines for both international and domestic air traffic, is required to provide
standards of airport accommodation and service comparable with the best
airports in the world;
WHEREAS, domestic and other terminals, general aviation and other
facilities, have to be upgraded to meet the current and future air traffic and
other demands of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated that the
objectives of providing high standards of accommodation and service
within the context of a financially viable operation, will best be achieved
by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential
Decree No. 1772, the President of the Philippines is given continuing
authority to reorganize the National Government, which authority
includes the creation of new entities, agencies and instrumentalities of
the Government[.] (Emphasis supplied)

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation
to MIAA was not meant to transfer beneficial ownership of these assets from the
Republic to MIAA. The purpose was merely to reorganize a division in the Bureau
of Air Transportation into a separate and autonomous body. The Republic
remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is
owned solely by the Republic. No party claims any ownership rights over MIAA's
assets adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not
be disposed through sale or through any other mode unless specifically
approved by the President of the Philippines." This only means that the Republic
retained the beneficial ownership of the Airport Lands and Buildings because under
Article 428 of the Civil Code, only the "owner has the right to x x x dispose of a
thing." Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does
not own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands
and Buildings without the Republic paying MIAA any consideration. Under Section 3
of the MIAA Charter, the President is the only one who can authorize the sale or
disposition of the Airport Lands and Buildings. This only confirms that the Airport
Lands and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any
"[r]eal property owned by the Republic of the Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code,
which prohibits local governments from imposing "[t]axes, fees or charges of any
kind on the National Government, its agencies andinstrumentalities x x x." The real
properties owned by the Republic are titled either in the name of the Republic itself
or in the name of agencies or instrumentalities of the National Government. The
Administrative Code allows real property owned by the Republic to be titled in the
name of agencies or instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be exempt from real
estate tax.

The Republic may grant the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when title of the real
property is transferred to an agency or instrumentality even as the Republic remains
the owner of the real property. Such arrangement does not result in the loss of the
tax exemption. Section 234(a) of the Local Government Code states that real
property owned by the Republic loses its tax exemption only if the "beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person."
MIAA, as a government instrumentality, is not a taxable person under Section 133(o)
of the Local Government Code. Thus, even if we assume that the Republic has
granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact
does not make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private
entities are not exempt from real estate tax. For example, the land area occupied by
hangars that MIAA leases to private corporations is subject to real estate tax. In
such a case, MIAA has granted the beneficial use of such land area for a
consideration to ataxable person and therefore such land area is subject to real
estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as
well as those parts of the hospital leased to private individuals are not exempt
from such taxes. On the other hand, the portions of the land occupied by the
hospital and portions of the hospital used for its patients, whether paying or
non-paying, are exempt from real property taxes. 29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because
Section 193 of the Local Government Code of 1991 withdrew the tax exemption of
"all persons, whether natural or juridical" upon the effectivity of the Code. Section
193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions are hereby withdrawn upon effectivity of
this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority
argues that since the Local Government Code withdrew the tax exemption of all
juridical persons, then MIAA is not exempt from real estate tax. Thus, the minority
declares:

It is evident from the quoted provisions of the Local Government Code

that the withdrawn exemptions from realty tax cover not just GOCCs,
but all persons. To repeat, the provisions lay down the explicit proposition
that the withdrawal of realty tax exemption applies to all persons. The
reference to or the inclusion of GOCCs is only clarificatory or illustrative of the
explicit provision.
The term "All persons" encompasses the two classes of persons
recognized under our laws, natural and juridical persons. Obviously,
MIAA is not a natural person. Thus, the determinative test is not just
whether MIAA is a GOCC, but whether MIAA is a juridical person at all.
(Emphasis and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt from local
taxation is its status whether MIAA is a juridical person or not. The minority also
insists that "Sections 193 and 234 may be examined in isolation from Section 133(o)
to ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government
Code expressly withdrew the tax exemption of all juridical persons "[u]nless
otherwise provided in this Code." Now, Section 133(o) of the Local Government
Code expressly provides otherwise, specifically prohibiting local governments
from imposing any kind of tax on national government instrumentalities. Section
133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government
Units. Unless otherwise provided herein, the exercise of the taxing powers
of provinces, cities, municipalities, and barangays shall not extend to the levy
of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its
agencies and instrumentalities, and local government units. (Emphasis and
underscoring supplied)
By express mandate of the Local Government Code, local governments cannot
impose any kind of tax on national government instrumentalities like the MIAA. Local
governments are devoid of power to tax the national government, its agencies and
instrumentalities. The taxing powers of local governments do not extend to the
national government, its agencies and instrumentalities, "[u]nless otherwise provided
in this Code" as stated in the saving clause of Section 133. The saving clause refers
to Section 234(a) on the exception to the exemption from real estate tax of real
property owned by the Republic.

The minority, however, theorizes that unless exempted in Section 193 itself, all
juridical persons are subject to tax by local governments. The minority insists that
the juridical persons exempt from local taxation are limited to the three classes of
entities specifically enumerated as exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts;
(b) cooperatives duly registered under Republic Act No. 6938; and (c) nonstock and non-profit hospitals and educational institutions. It would be
belaboring the obvious why the MIAA does not fall within any of the exempt
entities under Section 193. (Emphasis supplied)
The minority's theory directly contradicts and completely negates Section 133(o) of
the Local Government Code. This theory will result in gross absurdities. It will make
the national government, which itself is a juridical person, subject to tax by local
governments since the national government is not included in the enumeration of
exempt entities in Section 193. Under this theory, local governments can impose any
kind of local tax, and not only real estate tax, on the national government.
Under the minority's theory, many national government instrumentalities with juridical
personalities will also be subject to any kind of local tax, and not only real estate tax.
Some of the national government instrumentalities vested by law with juridical
personalities are: Bangko Sentral ng Pilipinas, 30 Philippine Rice Research
Institute,31Laguna Lake
Development Authority,32 Fisheries Development Authority,33 Bases Conversion
Development Authority,34Philippine Ports Authority,35 Cagayan de Oro Port
Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine
National Railways.39
The minority's theory violates Section 133(o) of the Local Government Code which
expressly prohibits local governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) does not distinguish between national
government instrumentalities with or without juridical personalities. Where the law
does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to
all national government instrumentalities, with or without juridical personalities. The
determinative test whether MIAA is exempt from local taxation is not whether MIAA
is a juridical person, but whether it is a national government instrumentality under
Section 133(o) of the Local Government Code. Section 133(o) is the specific
provision of law prohibiting local governments from imposing any kind of tax on the
national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless
otherwise provided in this Code." This means that unless the Local Government
Code grants an express authorization, local governments have no power to tax the
national government, its agencies and instrumentalities. Clearly, the rule is local

governments have no power to tax the national government, its agencies and
instrumentalities. As an exception to this rule, local governments may tax the
national government, its agencies and instrumentalities only if the Local Government
Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section
234(a) of the Code, which makes the national government subject to real estate tax
when it gives the beneficial use of its real properties to a taxable entity. Section
234(a) of the Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax The following are exempted
from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real
estate tax. The exception to this exemption is when the government gives the
beneficial use of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the
national government, its agencies and instrumentalities are subject to any kind of tax
by local governments. The exception to the exemption applies only to real estate tax
and not to any other tax. The justification for the exception to the exemption is that
the real property, although owned by the Republic, is not devoted to public use or
public service but devoted to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and 234 of
the Local Government Code, the later provisions prevail over Section 133. Thus, the
minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234.
Following an accepted rule of construction, in case of conflict the subsequent
provisions should prevail. Therefore, MIAA, as a juridical person, is subject to
real property taxes, the general exemptions attaching to instrumentalities
under Section 133(o) of the Local Government Code being qualified by
Sections 193 and 234 of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between Section 133 on
one hand, and Sections 193 and 234 on the other. No one has urged that there is
such a conflict, much less has any one presenteda persuasive argument that there

is such a conflict. The minority's assumption of an irreconcilable conflict in the

statutory provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because
Section 193 expressly admits its subordination to other provisions of the Code when
Section 193 states "[u]nless otherwise provided in this Code." By its own words,
Section 193 admits the superiority of other provisions of the Local Government Code
that limit the exercise of the taxing power in Section 193. When a provision of law
grants a power but withholds such power on certain matters, there is no conflict
between the grant of power and the withholding of power. The grantee of the power
simply cannot exercise the power on matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local
Government Units." Section 133 limits the grant to local governments of the power to
tax, and not merely the exercise of a delegated power to tax. Section 133 states that
the taxing powers of local governments "shall not extend to the levy" of any kind of
tax on the national government, its agencies and instrumentalities. There is no
clearer limitation on the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing powers of local
governments, Section 133 logically prevails over Section 193 which grants local
governments such taxing powers. By their very meaning and purpose, the "common
limitations" on the taxing power prevail over the grant or exercise of the taxing
power. If the taxing power of local governments in Section 193 prevails over the
limitations on such taxing power in Section 133, then local governments can impose
any kind of tax on the national government, its agencies and instrumentalities a
gross absurdity.
Local governments have no power to tax the national government, its agencies and
instrumentalities, except as otherwise provided in the Local Government Code
pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided in
this Code." This exception which is an exception to the exemption of the Republic
from real estate tax imposed by local governments refers to Section 234(a) of the
Code. The exception to the exemption in Section 234(a) subjects real property
owned by the Republic, whether titled in the name of the national government, its
agencies or instrumentalities, to real estate tax if the beneficial use of such property
is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase
"government-owned or controlled corporation" is not controlling. The minority points
out that Section 2 of the Introductory Provisions of the Administrative Code admits
that its definitions are not controlling when it provides:

SEC. 2. General Terms Defined. Unless the specific words of the text, or
the context as a whole, or a particular statute, shall require a different
meaning:
xxxx
The minority then concludes that reliance on the Administrative Code definition is
"flawed."
The minority's argument is a non sequitur. True, Section 2 of the Administrative
Code recognizes that a statute may require a different meaning than that defined in
the Administrative Code. However, this does not automatically mean that the
definition in the Administrative Code does not apply to the Local Government Code.
Section 2 of the Administrative Code clearly states that "unless the specific words x
x x of a particular statute shall require a different meaning," the definition in Section
2 of the Administrative Code shall apply. Thus, unless there is specific language in
the Local Government Code defining the phrase "government-owned or controlled
corporation" differently from the definition in the Administrative Code, the definition in
the Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining
the phrase "government-owned or controlled corporation" differently from the
definition in the Administrative Code. Indeed, there is none. The Local Government
Code is silent on the definition of the phrase "government-owned or controlled
corporation." The Administrative Code, however, expressly defines the phrase
"government-owned or controlled corporation." The inescapable conclusion is that
the Administrative Code definition of the phrase "government-owned or controlled
corporation" applies to the Local Government Code.
The third whereas clause of the Administrative Code states that the Code
"incorporates in a unified document the major structural, functional and procedural
principles and rules of governance." Thus, the Administrative Code is the governing
law defining the status and relationship of government departments, bureaus,
offices, agencies and instrumentalities. Unless a statute expressly provides for a
different status and relationship for a specific government unit or entity, the
provisions of the Administrative Code prevail.
The minority also contends that the phrase "government-owned or controlled
corporation" should apply only to corporations organized under the Corporation
Code, the general incorporation law, and not to corporations created by special
charters. The minority sees no reason why government corporations with special
charters should have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled corporations"
under the Administrative Code refer to those corporations owned by the

government or its instrumentalities which are created not by legislative

enactment, but formed and organized under the Corporation Code through
registration with the Securities and Exchange Commission. In short, these are
GOCCs without original charters.
xxxx
It might as well be worth pointing out that there is no point in requiring a
capital structure for GOCCs whose full ownership is limited by its charter to
the State or Republic. Such GOCCs are not empowered to declare dividends
or alienate their capital shares.
The contention of the minority is seriously flawed. It is not in accord with the
Constitution and existing legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or
controlled corporation" does not distinguish between one incorporated under the
Corporation Code or under a special charter. Where the law does not distinguish,
courts should not distinguish.
Second, Congress has created through special charters several government-owned
corporations organized as stock corporations. Prime examples are the Land Bank of
the Philippines and the Development Bank of the Philippines. The special
charter40 of the Land Bank of the Philippines provides:
SECTION 81. Capital. The authorized capital stock of the Bank shall be
nine billion pesos, divided into seven hundred and eighty million common
shares with a par value of ten pesos each, which shall be fully subscribed by
the Government, and one hundred and twenty million preferred shares with a
par value of ten pesos each, which shall be issued in accordance with the
provisions of Sections seventy-seven and eighty-three of this Code.
(Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock Par value. The capital stock of the
Bank shall be Five Billion Pesos to be divided into Fifty Million common
shares with par value of P100 per share. These shares are available for
subscription by the National Government. Upon the effectivity of this Charter,
the National Government shall subscribe to Twenty-Five Million common
shares of stock worth Two Billion Five Hundred Million which shall be deemed
paid for by the Government with the net asset values of the Bank remaining
after the transfer of assets and liabilities as provided in Section 30 hereof.
(Emphasis supplied)

Other government-owned corporations organized as stock corporations under their

special charters are the Philippine Crop Insurance Corporation, 42 Philippine
International Trading Corporation,43 and the Philippine National Bank44 before it was
reorganized as a stock corporation under the Corporation Code. All these
government-owned corporations organized under special charters as stock
corporations are subject to real estate tax on real properties owned by them. To rule
that they are not government-owned or controlled corporations because they are not
registered with the Securities and Exchange Commission would remove them from
the reach of Section 234 of the Local Government Code, thus exempting them from
real estate tax.
Third, the government-owned or controlled corporations created through special
charters are those that meet the two conditions prescribed in Section 16, Article XII
of the Constitution. The first condition is that the government-owned or controlled
corporation must be established for the common good. The second condition is that
the government-owned or controlled corporation must meet the test of economic
viability. Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Governmentowned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of
economic viability. (Emphasis and underscoring supplied)
The Constitution expressly authorizes the legislature to create "government-owned
or controlled corporations" through special charters only if these entities are required
to meet the twin conditions of common good and economic viability. In other words,
Congress has no power to create government-owned or controlled corporations with
special charters unless they are made to comply with the two conditions of common
good and economic viability. The test of economic viability applies only to
government-owned or controlled corporations that perform economic or commercial
activities and need to compete in the market place. Being essentially economic
vehicles of the State for the common good meaning for economic development
purposes these government-owned or controlled corporations with special
charters are usually organized as stock corporations just like ordinary private
corporations.
In contrast, government instrumentalities vested with corporate powers and
performing governmental or public functions need not meet the test of economic
viability. These instrumentalities perform essential public services for the common
good, services that every modern State must provide its citizens. These
instrumentalities need not be economically viable since the government may even
subsidize their entire operations. These instrumentalities are not the "governmentowned or controlled corporations" referred to in Section 16, Article XII of the 1987
Constitution.

Thus, the Constitution imposes no limitation when the legislature creates

government instrumentalities vested with corporate powers but performing essential
governmental or public functions. Congress has plenary authority to create
government instrumentalities vested with corporate powers provided these
instrumentalities perform essential government functions or public services.
However, when the legislature creates through special charters corporations that
perform economic or commercial activities, such entities known as "governmentowned or controlled corporations" must meet the test of economic viability
because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the Development Bank
of the Philippines and similar government-owned or controlled corporations, which
derive their income to meet operating expenses solely from commercial transactions
in competition with the private sector. The intent of the Constitution is to prevent the
creation of government-owned or controlled corporations that cannot survive on their
own in the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to
the Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when
the government creates a corporation, there is a sense in which this
corporation becomes exempt from the test of economic performance. We
know what happened in the past. If a government corporation loses, then it
makes its claim upon the taxpayers' money through new equity infusions from
the government and what is always invoked is the common good. That is the
reason why this year, out of a budget of P115 billion for the entire government,
about P28 billion of this will go into equity infusions to support a few
government financial institutions. And this is all taxpayers' money which could
have been relocated to agrarian reform, to social services like health and
education, to augment the salaries of grossly underpaid public employees.
And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with
the "common good," this becomes a restraint on future enthusiasts for state
capitalism to excuse themselves from the responsibility of meeting the market
test so that they become viable. And so, Madam President, I reiterate, for the
committee's consideration and I am glad that I am joined in this proposal by
Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY
OR THE ECONOMIC TEST," together with the common good.45
Father Joaquin G. Bernas, a leading member of the Constitutional Commission,
explains in his textbook The 1987 Constitution of the Republic of the Philippines: A
Commentary:

The second sentence was added by the 1986 Constitutional Commission. The
significant addition, however, is the phrase "in the interest of the common
good and subject to the test of economic viability." The addition includes the
ideas that they must show capacity to function efficiently in business and that
they should not go into activities which the private sector can do better.
Moreover, economic viability is more than financial viability but also includes
capability to make profit and generate benefits not quantifiable in financial
terms.46 (Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities vested
with corporate powers and performing essential public services. The State is
obligated to render essential public services regardless of the economic viability of
providing such service. The non-economic viability of rendering such essential public
service does not excuse the State from withholding such essential services from the
public.
However, government-owned or controlled corporations with special charters,
organized essentially for economic or commercial objectives, must meet the test of
economic viability. These are the government-owned or controlled corporations that
are usually organized under their special charters as stock corporations, like the
Land Bank of the Philippines and the Development Bank of the Philippines. These
are the government-owned or controlled corporations, along with government-owned
or controlled corporations organized under the Corporation Code, that fall under the
definition of "government-owned or controlled corporations" in Section 2(10) of the
Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did
not create MIAA to compete in the market place. MIAA does not compete in the
market place because there is no competing international airport operated by the
private sector. MIAA performs an essential public service as the primary domestic
and international airport of the Philippines. The operation of an international airport
requires the presence of personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and
departure of passengers, screening out those without visas or travel
documents, or those with hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban on
prohibited importations;
3. The quarantine office of the Department of Health, to enforce health
measures against the spread of infectious diseases into the country;
4. The Department of Agriculture, to enforce measures against the spread of
plant and animal diseases into the country;

5. The Aviation Security Command of the Philippine National Police, to

prevent the entry of terrorists and the escape of criminals, as well as to
secure the airport premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation and
Communications, to authorize aircraft to enter or leave Philippine airspace, as
well as to land on, or take off from, the airport; and
7. The MIAA, to provide the proper premises such as runway and buildings
for the government personnel, passengers, and airlines, and to manage
the airport operations.
All these agencies of government perform government functions essential to the
operation of an international airport.
MIAA performs an essential public service that every modern State must provide its
citizens. MIAA derives its revenues principally from the mandatory fees and charges
MIAA imposes on passengers and airlines. The terminal fees that MIAA charges
every passenger are regulatory or administrative fees 47 and not income from
commercial transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10)
of the Introductory Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined. x x x x
(10) Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a
government-owned or controlled corporation. Without a change in its capital
structure, MIAA remains a government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code. More importantly, as long as
MIAA renders essential public services, it need not comply with the test of economic
viability. Thus, MIAA is outside the scope of the phrase "government-owned or
controlled corporations" under Section 16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase
"government-owned or controlled corporation" as merely "clarificatory or illustrative."
This is fatal. The 1987 Constitution prescribes explicit conditions for the creation of
"government-owned or controlled corporations." The Administrative Code defines

what constitutes a "government-owned or controlled corporation." To belittle this

phrase as "clarificatory or illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled corporation under
Section 2(13) of the Introductory Provisions of the Administrative Code because it is
not organized as a stock or non-stock corporation. Neither is MIAA a governmentowned or controlled corporation under Section 16, Article XII of the 1987
Constitution because MIAA is not required to meet the test of economic viability.
MIAA is a government instrumentality vested with corporate powers and performing
essential public services pursuant to Section 2(10) of the Introductory Provisions of
the Administrative Code. As a government instrumentality, MIAA is not subject to any
kind of tax by local governments under Section 133(o) of the Local Government
Code. The exception to the exemption in Section 234(a) does not apply to MIAA
because MIAA is not a taxable entity under the Local Government Code. Such
exception applies only if the beneficial use of real property owned by the Republic is
given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use
and thus are properties of public dominion. Properties of public dominion are owned
by the State or the Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports
and bridges constructed by the State, banks, shores, roadsteads, and others
of similar character;
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national
wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and seaports. The
Airport Lands and Buildings of MIAA are intended for public use, and at the very
least intended for public service. Whether intended for public use or public service,
the Airport Lands and Buildings are properties of public dominion. As properties of
public dominion, the Airport Lands and Buildings are owned by the Republic and
thus exempt from real estate tax under Section 234(a) of the Local Government
Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative
Code, which governs the legal relation and status of government units, agencies and
offices within the entire government machinery, MIAA is a government
instrumentality and not a government-owned or controlled corporation. Under

Section 133(o) of the Local Government Code, MIAA as a government

instrumentality is not a taxable person because it is not subject to "[t]axes, fees or
charges of any kind" by local governments. The only exception is when MIAA leases
its real property to a "taxable person" as provided in Section 234(a) of the Local
Government Code, in which case the specific real property leased becomes subject
to real estate tax. Thus, only portions of the Airport Lands and Buildings leased to
taxable persons like private parties are subject to real estate tax by the City of
Paraaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being
devoted to public use, are properties of public dominion and thus owned by the
State or the Republic of the Philippines. Article 420 specifically mentions "ports x x x
constructed by the State," which includes public airports and seaports, as properties
of public dominion and owned by the Republic. As properties of public dominion
owned by the Republic, there is no doubt whatsoever that the Airport Lands and
Buildings are expressly exempt from real estate tax under Section 234(a) of the
Local Government Code. This Court has also repeatedly ruled that properties of
public dominion are not subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of
the Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No.
66878. We DECLARE the Airport Lands and Buildings of the Manila International
Airport Authority EXEMPT from the real estate tax imposed by the City of
Paraaque. We declare VOID all the real estate tax assessments, including the final
notices of real estate tax delinquencies, issued by the City of Paraaque on the
Airport Lands and Buildings of the Manila International Airport Authority, except for
the portions that the Manila International Airport Authority has leased to private
parties. We also declare VOID the assailed auction sale, and all its effects, of the
Airport Lands and Buildings of the Manila International Airport Authority.
No costs.
SO ORDERED.