G.R. No.

133250 November 11, 2003

FRANCISCO I. CHAVEZ, petitioner,

vs.
PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY DEVELOPMENT
CORPORATION, respondents.

RESOLUTION

CARPIO, J.:

This Court is asked to legitimize a government contract that conveyed to a private entity 157.84 hectares of
reclaimed public lands along Roxas Boulevard in Metro Manila at the negotiated price of P1,200 per square
meter. However, published reports place the market price of land near that area at that time at a high of
P90,000 per square meter.1 The difference in price is a staggering P140.16 billion, equivalent to the budget of
the entire Judiciary for seventeen years and more than three times the Marcos Swiss deposits that this Court
forfeited in favor of the government.

Many worry to death that the private investors will lose their investments, at most not more than one-half
billion pesos in legitimate expenses,2 if this Court voids the contract. No one seems to worry about the more
than tens of billion pesos that the hapless Filipino people will lose if the contract is allowed to stand. There are
those who question these figures, but the questions arise only because the private entity somehow managed
to inveigle the government to sell the reclaimed lands without public bidding in patent violation of the
Government Auditing Code.

Fortunately for the Filipino people, two Senate Committees, the Senate Blue Ribbon Committee and the
Committee on Accountability of Public Officers, conducted extensive public hearings to determine the actual
market value of the public lands sold to the private entity. The Senate Committees established the clear,
indisputable and unalterable fact that the sale of the public lands is grossly and unconscionably
undervalued based on official documents submitted by the proper government agencies during the
Senate investigation. We quote the joint report of these two Senate Committees, Senate Committee Report
No. 560, as approved by the Senate in plenary session on 27 September 1997:3

The Consideration for the Property

PEA, under the JVA, obligated itself to convey title and possession over the Property, consisting of
approximately One Million Five Hundred Seventy Eight Thousand Four Hundred Forty One
(1,578,441) Square Meters for a total consideration of One Billion Eight Hundred Ninety Four Million
One Hundred Twenty Nine Thousand Two Hundred (P1,894,129,200.00) Pesos, or a price of One
Thousand Two Hundred (P1,200.00) Pesos per square meter.

According to the zonal valuation of the Bureau of Internal Revenue, the value of the Property is
Seven Thousand Eight Hundred Pesos (P7,800.00) per square meter. The Municipal Assessor
of Paraaque, Metro Manila, where the Property is located, pegs the market value of the
Property at Six Thousand Pesos (P6,000.00) per square meter. Based on these alone, the price at
which PEA agreed to convey the property is a pittance. And PEA cannot claim ignorance of these
valuations, at least not those of the Municipal Assessors office, since it has been trying to convince
the Office of the Municipal Assessor of Paraaque to reduce the valuation of various reclaimed
properties thereat in order for PEA to save on accrued real property taxes.

PEAs justification for the purchase price are various appraisal reports, particularly the following:

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 (1) An appraisal by Vic T. Salinas Realty and Consultancy Services concluding that the
Property is worth P500.00 per square meter for the smallest island and P750.00 per square
meter for the two other islands, or a total of P1,170,000.00 as of 22 February 1995;

(2) An appraisal by Valencia Appraisal Corporation concluding that the Property is worth P850
per square meter for Island I, P800 per square meter for Island II and P600 per square meter
for the smallest island, or a total of P1,289,732,000, also as of 22 February 1995; and

(3) An Appraisal by Asian Appraisal Company, Inc. (AACI), stating that the Property is worth
approximately P1,000 per square meter for Island I, P950 per square meter for Island II and
P600 per square meter for Island III, or a total of P1,518,805,000 as of 27 February 1995.

The credibility of the foregoing appraisals, however, are [sic] greatly impaired by a subsequent
appraisal report of AACI stating that the property is worth P4,500.00 per square meter as of 26 March
1996. Such discrepancies in the appraised value as appearing in two different reports by the same
appraisal company submitted within a span of one year render all such appraisal reports unworthy of
even the slightest consideration. Furthermore, the appraisal report submitted by the Commission
on Audit estimates the value of the Property to be approximately P33,673,000,000.00, or
P21,333.07 per square meter.

There were also other offers made for the property from other parties which indicate that the Property
has been undervalued by PEA. For instance, on 06 March 1995, Mr. Young D. See, President of Saeil
Heavy Industries Co., Ltd., (South Korea), offered to buy the property at P1,400.00 and expressed its
willingness to issue a stand-by letter of credit worth $10 million. PEA did not consider this offer and
instead finalized the JVA with AMARI. Other offers were made on various dates by Aspac
Management and Development Group Inc. (for P1,600 per square meter), Universal Dragon
Corporation (for P1,600 per square meter), Cleene Far East Manila Incorporated and Hyosan Prime
Construction Co. Ltd. which had prepared an Irrevocable Clean Letter of Credit for P100,000,000.

In addition, AMARI agreed to pay huge commissions and bonuses to various persons, amounting to
P1,596,863,050.00 (P1,754,707,150.00 if the bonus is included), as will be discussed fully below,
which indicate that AMARI itself believed the market value to be much higher than the agreed
purchase price. If such commissions are added to the purchase price, AMARIs acquisition cost for the
Property will add-up to P3,490,992,250.00 (excluding the bonus). If AMARI was willing to pay such
amount for the Property, why was PEA willing to sell for only P1,894,129,200.00, making the
Government stand to lose approximately P1,596,863,050.00?

x x x

Even if we simply assume that the market value of the Property is half of the market value fixed by the
Municipal Assessors Office of Paraaque for lands along Roxas Boulevard, or P3,000.00 per square
meter, the Government now stands to lose approximately P2,841,193,800.00. But an even better
assumption would be that the value of the Property is P4,500.00 per square meter, as per the AACI
appraisal report dated 26 March 1996, since this is the valuation used to justify the issuance of P4
billion worth of shares of stock of Centennial City Inc. (CCI) in exchange for 4,800,000 AMARI shares
with a total par value of only P480,000,000.00. With such valuation, the Governments loss will
amount to P5,208,855,300.00.

Clearly, the purchase price agreed to by PEA is way below the actual value of the Property,
thereby subjecting the Government to grave injury and enabling AMARI to enjoy tremendous
benefit and advantage. (Emphasis supplied)

The Senate Committee Report No. 560 attached the following official documents from the Bureau of Internal
Revenue, the Municipal Assessor of Paraaque, Metro Manila, and the Commission on Audit:

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 1. Annex "M," Certified True Copy of BIR Zonal Valuations as certified by Antonio F. Montemayor,
Revenue District Officer. This official document fixed the market value of the 157.84 hectares
at P7,800 per square meter.

2. Annex "N," Certification of Soledad S. Medina-Cue, Municipal Assessor, Paraaque, dated 10

December 1996. This official document fixed the market value at P6,000 per square meter.

3. Exhibit "1-Engr. Santiago," the Appraisal Report of the Commission on Audit. This official
document fixed the market value at P21,333.07 per square meter.

Whether based on the official appraisal of the BIR, the Municipal Assessor or the Commission on Audit, the
P1,200 per square meter purchase price, or a total of P1.894 billion for the 157.84 hectares of government
lands, is grossly and unconscionably undervalued. The authoritative appraisal, of course, is that of the
Commission on Audit which valued the 157.84 hectares at P21,333.07 per square meter or a total of P33.673
billion. Thus, based on the official appraisal of the Commission on Audit, the independent
constitutional body that safeguards government assets, the actual loss to the Filipino people is a
shocking P31.779 billion.

This gargantuan monetary anomaly, aptly earning the epithet "Grandmother of All Scams," 4 is not the major
defect of this government contract. The major flaw is not even the P1.754 billion in commissions the Senate
Committees discovered the private entity paid to various persons to secure the contract, 5 described in Senate
Report No. 560 as follows:

A Letter-Agreement dated 09 June 1995 signed by Messrs. Premchai Karnasuta and Emmanuel Sy
for and in behalf of AMARI, on the one hand, and stockholders of AMARI namely, Mr. Chin San
Cordova (a.k.a. Benito Co) and Mr. Chua Hun Siong (a.k.a. Frank Chua), on the other, sets forth
various payments AMARI paid or agreed to pay the aforesaid stockholders by way of fees for
"professional efforts and services in successfully negotiating and securing for AMARI the
Joint Venture Agreement", as follows:

Form of Payment Paid/Payable On Amount

Managers Checks 28 April 1995 P 400,000,000.00

Managers Checks Upon signing of letter 262,500,000.00

10 Post Dated Checks (PDCs) 60 days from date of letter 127,000,000.00

24 PDCs 31 Aug. 95 to 31 Jan. 98 150,000,000.00

48 PDCs Monthly, over a 12-month 357,363,050.00

pd. from date of letter

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 Cash bonus When sale of land begins not exceeding

157,844,100.00

Developed land from Project Upon completion of each Costing

phase

300,000,000.00

TOTAL P1,754,707,150.00

==============

Mr. Luis Benitez of SGV, the external auditors of AMARI, testified that said Letter-Agreement
was approved by the AMARI Board.6 (Emphasis supplied)

The private entity that purchased the reclaimed lands for P1.894 billion expressly admitted before the Senate
Committees that it spent P1.754 billion in commissions to pay various individuals for "professional efforts
and services in successfully negotiating and securing" the contract. By any legal or moral yardstick,
the P1.754 billion in commissions obviously constitutes bribe money. Nonetheless, there are those who
insist that the billions in investments of the private entity deserve protection by this Court. Should this Court
establish a new doctrine by elevating grease money to the status of legitimate investments deserving of
protection by the law? Should this Court reward the patently illegal and grossly unethical business practice of
the private entity in securing the contract? Should we allow those with hands dripping with dirty money
equitable relief from this Court?

Despite these revolting anomalies unearthed by the Senate Committees, the fatal flaw of this contract is that
it glaringly violates provisions of the Constitution expressly prohibiting the alienation of lands of the public
domain.

Thus, we now come to the resolution of the second Motions for Reconsideration 7 filed by public respondent
Public Estates Authority ("PEA") and private respondent Amari Coastal Bay Development Corporation
("Amari"). As correctly pointed out by petitioner Francisco I. Chavez in his Consolidated Comment, 8 the
second Motions for Reconsideration raise no new issues.

However, the Supplement to "Separate Opinion, Concurring and Dissenting" of Justice Josue N. Bellosillo
brings to the Courts attention the Resolutions of this Court on 3 February 1965 and 24 June 1966 in L- 21870
entitled "Manuel O. Ponce, et al. v. Hon. Amador Gomez, et al." and No. L-22669 entitled "Manuel O. Ponce,
et al. v. The City of Cebu, et al." ("Ponce Cases"). In effect, the Supplement to the Dissenting Opinion
claims that these two Resolutions serve as authority that a single private corporation like Amari may
acquire hundreds of hectares of submerged lands, as well as reclaimed submerged lands, within
Manila Bay under the Amended Joint Venture Agreement ("Amended JVA").

We find the cited Ponce Cases inapplicable to the instant case.

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First, as Justice Bellosillo himself states in his supplement to his dissent, the Ponce Cases admit
that "submerged lands still belong to the National Government."9 The correct formulation, however, is
that submerged lands are owned by the State and are inalienable. Section 2, Article XII of the 1987
Constitution provides:

All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces
of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. x x x. (Emphasis supplied)

Submerged lands, like the waters (sea or bay) above them, are part of the States inalienable natural
resources. Submerged lands are property of public dominion, absolutely inalienable and outside the
commerce of man.10This is also true with respect to foreshore lands. Any sale of submerged or foreshore
lands is void being contrary to the Constitution.11

This is why the Cebu City ordinance merely granted Essel, Inc. an "irrevocable option" to purchase the
foreshore lands after the reclamation and did not actually sell to Essel, Inc. the still to be reclaimed foreshore
lands. Clearly, in the Ponce Cases the option to purchase referred to reclaimed lands, and not to foreshore
lands which are inalienable. Reclaimed lands are no longer foreshore or submerged lands, and thus may
qualify as alienable agricultural lands of the public domain provided the requirements of public land laws are
met.

In the instant case, the bulk of the lands subject of the Amended JVA are still submerged lands even to this
very day, and therefore inalienable and outside the commerce of man. Of the 750 hectares subject of the
Amended JVA, 592.15 hectares or 78% of the total area are still submerged, permanently under the
waters of Manila Bay. Under the Amended JVA, the PEA conveyed to Amari the submerged lands even
before their actual reclamation, although the documentation of the deed of transfer and issuance of the
certificates of title would be made only after actual reclamation.

The Amended JVA states that the PEA "hereby contributes to the Joint Venture its rights and
privileges to perform Rawland Reclamation and Horizontal Development as well as own the Reclamation
Area."12 The Amended JVA further states that "the sharing of the Joint Venture Proceeds shall be based on
the ratio of thirty percent (30%) for PEA and seventy percent (70%) for AMARI." 13 The Amended JVA also
provides that the PEA "hereby designates AMARI to perform PEAs rights and privileges to reclaim, own and
develop the Reclamation Area."14 In short, under the Amended JVA the PEA contributed its rights,
privileges and ownership over the Reclamation Area to the Joint Venture which is 70% owned by
Amari. Moreover, the PEA delegated to Amari the right and privilege to reclaim the submerged lands.

The Amended JVA mandates that the PEA had "the duty to execute without delay the necessary deed of
transfer or conveyance of the title pertaining to AMARIs Land share based on the Land Allocation Plan." 15 The
Amended JVA also provides that "PEA, when requested in writing by AMARI, shall then cause the issuance
and delivery of the proper certificates of title covering AMARIs Land Share in the name of AMARI, x x x." 16

In the Ponce Cases, the City of Cebu retained ownership of the reclaimed foreshore lands and Essel, Inc.
only had an "irrevocable option" to purchase portions of the foreshore lands once actually reclaimed. In sharp
contrast, in the instant case ownership of the reclamation area, including the submerged lands, was
immediately transferred to the joint venture. Amari immediately acquired the absolute right to own 70%
percent of the reclamation area, with the deeds of transfer to be documented and the certificates of title to be
issued upon actual reclamation. Amaris right to own the submerged lands is immediately effective upon the
approval of the Amended JVA and not merely an option to be exercised in the future if and when the
reclamation is actually realized. The submerged lands, being inalienable and outside the commerce of man,
could not be the subject of the commercial transactions specified in the Amended JVA.

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Second, in the Ponce Cases the Cebu City ordinance granted Essel, Inc. an "irrevocable option" to purchase
from Cebu City not more than 70% of the reclaimed lands. The ownership of the reclaimed lands remained
with Cebu City until Essel, Inc. exercised its option to purchase. With the subsequent enactment of the
Government Auditing Code (Presidential Decree No. 1445) on 11 June 1978, any sale of government land
must be made only through public bidding. Thus, such an "irrevocable option" to purchase government land
would now be void being contrary to the requirement of public bidding expressly required in Section 79 17 of PD
No. 1445. This requirement of public bidding is reiterated in Section 379 18 of the 1991 Local Government
Code.19 Obviously, the ingenious reclamation scheme adopted in the Cebu City ordinance can no longer be
followed in view of the requirement of public bidding in the sale of government lands. In the instant case, the
Amended JVA is a negotiated contract which clearly contravenes Section 79 of PD No. 1445.

Third, Republic Act No. 1899 authorized municipalities and chartered cities to reclaim foreshore lands. The
two Resolutions in the Ponce Cases upheld the Cebu City ordinance only with respect to foreshore areas, and
nullified the same with respect to submerged areas. Thus, the 27 June 1965 Resolution made the injunction
of the trial court against the City of Cebu "permanent insofar x x x as the area outside or beyond the foreshore
land proper is concerned."

As we held in the 1998 case of Republic Real Estate Corporation v. Court of Appeals,20 citing the Ponce
Cases, RA No. 1899 applies only to foreshore lands, not to submerged lands. In his concurring opinion
in Republic Real Estate Corporation, Justice Reynato S. Puno stated that under Commonwealth Act No.
141, "foreshore and lands under water were not to be alienated and sold to private parties," and that such
lands "remained property of the State." Justice Puno emphasized that "Commonwealth Act No. 141 has
remained in effect at present." The instant case involves principally submerged lands within Manila Bay. On
this score, the Ponce Cases, which were decided based on RA No. 1899, are not applicable to the instant
case.

Fourth, the Ponce Cases involve the authority of the City of Cebu to reclaim foreshore areas pursuant to a
general law, RA No. 1899. The City of Cebu is a public corporation and is qualified, under the 1935, 1973, and
1987 Constitutions, to hold alienable or even inalienable lands of the public domain. There is no dispute that a
public corporation is not covered by the constitutional ban on acquisition of alienable public lands. Both the 9
July 2002 Decision and the 6 May 2003 Resolution of this Court in the instant case expressly recognize this.

Cebu City is an end user government agency, just like the Bases Conversion and Development Authority or
the Department of Foreign Affairs.21 Thus, Congress may by law transfer public lands to the City of Cebu to be
used for municipal purposes, which may be public or patrimonial. Lands thus acquired by the City of Cebu for
a public purpose may not be sold to private parties. However, lands so acquired by the City of Cebu for a
patrimonial purpose may be sold to private parties, including private corporations.

However, in the instant case the PEA is not an end user agency with respect to the reclaimed lands under the
Amended JVA. As we explained in the 6 May 2003 Resolution:

PEA is the central implementing agency tasked to undertake reclamation projects nationwide. PEA
took the place of the Department of Environment and Natural Resources ("DENR" for brevity) as the
government agency charged with leasing or selling all reclaimed lands of the public domain. In the
hands of PEA, which took over the leasing and selling functions of DENR, reclaimed foreshore
(or submerged lands) lands are public lands in the same manner that these same lands would
have been public lands in the hands of DENR. (Emphasis supplied)

Our 9 July 2002 Decision explained the rationale for treating the PEA in the same manner as the DENR with
respect to reclaimed foreshore or submerged lands in this wise:

To allow vast areas of reclaimed lands of the public domain to be transferred to PEA as private lands
will sanction a gross violation of the constitutional ban on private corporations from acquiring any kind
of alienable land of the public domain. PEA will simply turn around, as PEA has now done under the

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 Amended JVA, and transfer several hundreds of hectares of these reclaimed and still to be reclaimed
lands to a single private corporation in only one transaction. This scheme will effectively nullify the
constitutional ban in Section 3, Article XII of the 1987 Constitution which was intended to diffuse
equitably the ownership of alienable lands of the public domain among Filipinos, now numbering over
80 million strong. (Emphasis supplied)

Finally, the Ponce Cases were decided under the 1935 Constitution which allowed private corporations to
acquire alienable lands of the public domain. However, the 1973 Constitution prohibited private corporations
from acquiring alienable lands of the public domain, and the 1987 Constitution reiterated this prohibition.
Obviously, the Ponce Cases cannot serve as authority for a private corporation to acquire alienable public
lands, much less submerged lands, since under the present Constitution a private corporation like Amari is
barred from acquiring alienable lands of the public domain.

Clearly, the facts in the Ponce Cases are different from the facts in the instant case. Moreover, the governing
constitutional and statutory provisions have changed since the Ponce Cases were disposed of in 1965 and
1966 through minute Resolutions of a divided (6 to 5) Court.

This Resolution does not prejudice any innocent third party purchaser of the reclaimed lands covered by the
Amended JVA. Neither the PEA nor Amari has sold any portion of the reclaimed lands to third parties. Title to
the reclaimed lands remains with the PEA. As we stated in our 9 July 2002 Decision:

In the instant case, the only patent and certificates of title issued are those in the name of PEA, a
wholly government owned corporation performing public as well as proprietary functions. No patent or
certificate of title has been issued to any private party. No one is asking the Director of Lands to
cancel PEAs patent or certificates of title. In fact, the thrust of the instant petition is that PEAs
certificates of title should remain with PEA, and the land covered by these certificates, being alienable
lands of the public domain, should not be sold to a private corporation.

As we held in our 9 July 2002 Decision, the Amended JVA "violates glaringly Sections 2 and 3, Article XII of
the 1987 Constitution." In our 6 May 2003 Resolution, we DENIED with FINALITY respondents Motions for
Reconsideration. Litigations must end some time. It is now time to write finis to this "Grandmother of All
Scams."

WHEREFORE, the second Motions for Reconsideration filed by Public Estates Authority and Amari Coastal
Bay Development Corporation are DENIED for being prohibited pleadings. In any event, these Motions for
Reconsideration have no merit. No further pleadings shall be allowed from any of the parties.

SO ORDERED.