You are on page 1of 130

GAMINDE VS COA

The Case

The case is a special civil action of certiorari seeking to annul and set aside two "decisions" of the
Commission on Audit ruling that petitioners term of office as Commissioner, Civil Service
Commission, to which she was appointed on June 11, 1993, expired on February 02, 1999, as set
forth in her appointment paper.

The Facts

On June 11, 1993, the President of the Philippines appointed petitioner Thelma P. Gaminde, ad
interim,Commissioner, Civil Service Commission. She assumed office on June 22, 1993, after taking
an oath of office. On September 07, 1993, the Commission on Appointment, Congress of the
Philippines confirmed the appointment. We quote verbatim her appointment paper:

"11 June 1993

"Madam:

"Pursuant to the provisions of existing laws, you are hereby appointed, ad interim, COMMISSIONER,
CIVIL SERVICE COMMISSION, for a term expiring February 2, 1999.

"By virtue hereof, you may qualify and enter upon the performance of the duties of the office,
furnishing this Office and the Civil Service Commission with copies of your oath of office." 1

However, on February 24, 1998, petitioner sought clarification from the Office of the President as to
the expiry date of her term of office. In reply to her request, the Chief Presidential Legal Counsel, in
a letter dated April 07, 19982opined that petitioners term of office would expire on February 02,
2000, not on February 02, 1999.

Relying on said advisory opinion, petitioner remained in office after February 02, 1999. On February
04, 1999, Chairman Corazon Alma G. de Leon, wrote the Commission on Audit requesting opinion
on whether or not Commissioner Thelma P. Gaminde and her co-terminous staff may be paid their
salaries notwithstanding the expiration of their appointments on February 02, 1999.

On February 18, 1999, the General Counsel, Commission on Audit, issued an opinion that "the term
of Commissioner Gaminde has expired on February 02, 1999 as stated in her appointment
conformably with the constitutional intent." 3

Consequently, on March 24, 1999, CSC Resident Auditor Flovitas U. Felipe issued notice of
disallowance No. 99-002-101 (99), disallowing in audit the salaries and emoluments pertaining to
petitioner and her co-terminous staff, effective February 02, 1999. 4

On April 5, 1999, petitioner appealed the disallowance to the Commission on Audit en banc. On
June 15, 1999, the Commission on Audit issued Decision No. 99-090 dismissing petitioners appeal.
The Commission on Audit affirmed the propriety of the disallowance, holding that the issue of
petitioners term of office may be properly addressed by mere reference to her appointment paper
which set the expiration date on February 02, 1999, and that the Commission is bereft of power to
recognize an extension of her term, not even with the implied acquiescence of the Office of the
President.5
In time, petitioner moved for reconsideration; however, on August 17, 1999, the Commission on
Audit denied the motion in Decision No. 99-129. 6

Hence, this petition.7

The Issue

The basic issue raised is whether the term of office of Atty. Thelma P. Gaminde, as Commissioner,
Civil Service Commission, to which she was appointed on June 11, 1993, expired on February 02,
1999, as stated in the appointment paper, or on February 02, 2000, as claimed by her.

The Courts Ruling

The term of office of the Chairman and members of the Civil Service Commission is prescribed in
the 1987 Constitution, as follows:

"Section 1 (2). The Chairman and the Commissioners shall be appointed by the President with the
consent of the Commission on Appointments for a term of seven years without reappointment. Of
those first appointed, the Chairman shall hold office for seven years, a Commissioner for five years,
and another Commissioner for three years, without reappointment. Appointment to any vacancy
shall be only for the unexpired term of the predecessor. In no case shall any Member be appointed
or designated in a temporary or acting capacity." 8

The 1973 Constitution introduced the first system of a regular rotation or cycle in the membership
of the Civil Service Commission. The provision on the 1973 Constitution reads:

"x x x The Chairman and the Commissioners shall be appointed by the Prime Minister for a term of
seven years without reappointment. Of the Commissioners first appointed, one shall hold office for
seven years, another for five years, and the third for three years. Appointment to any vacancy shall
be only for the unexpired portion of the term of the predecessor." 9

Actually, this was a copy of the Constitutional prescription in the amended 1935 Constitution of a
rotational system for the appointment of the Chairman and members of the Commission on
Elections. The Constitutional amendment creating an independent Commission on Elections
provides as follows:

"Section 1. There shall be an independent Commission on Elections composed of a Chairman and


two other Members to be appointed by the President with the consent of the Commission on
Appointments, who shall hold office for a term of nine years and may not be reappointed. Of the
Members of the Commission first appointed, one shall hold office for nine years, another for six
years, and the third for three years. The Chairman and the other Members of the Commission on
Elections may be removed from office only by impeachment in the manner provided in this
Constitution."10

In Republic vs. Imperial,11 we said that "the operation of the rotational plan requires two conditions,
both indispensable to its workability: (1) that the terms of the first three (3) Commissioners
should start on a common date, and, (2) that any vacancy due to death, resignation or disability
before the expiration of the term should only be filled only for the unexpired balance of the term."12

Consequently, the terms of the first Chairmen and Commissioners of the Constitutional
Commissions under the 1987 Constitution must start on a common date, irrespective of the
variations in the dates of appointments and qualifications of the appointees, in order that the
expiration of the first terms of seven, five and three years should lead to the regular recurrence of
the two-year interval between the expiration of the terms. 13
Applying the foregoing conditions to the case at bar, we rule that the appropriate starting point of
the terms of office of the first appointees to the Constitutional Commissions under the 1987
Constitution must be on February 02, 1987, the date of the adoption of the 1987 Constitution. In
case of a belated appointment or qualification, the interval between the start of the term and the
actual qualification of the appointee must be counted against the latter. 14

In the law of public officers, there is a settled distinction between "term" and "tenure." "[T]he term
of an office must be distinguished from the tenure of the incumbent. The term means the time
during which the officer may claim to hold office as of right, and fixes the interval after which the
several incumbents shall succeed one another. The tenure represents the term during which the
incumbent actually holds the office. The term of office is not affected by the hold-over. The tenure
may be shorter than the term for reasons within or beyond the power of the incumbent." 15

In concluding that February 02, 1987 is the proper starting point of the terms of office of the first
appointees to the Constitutional Commissions of a staggered 7-5-3 year terms, we considered the
plain language of Article IX (B), Section 1 (2), Article IX (C), Section 1 (2) and Article IX (D), Section
1 (2) of the 1987 Constitution that uniformly prescribed a seven-year term of office for Members of
the Constitutional Commissions, without re-appointment, and for the first appointees terms of
seven, five and three years, without re-appointment. In no case shall any Member be appointed or
designated in a temporary or acting capacity. There is no need to expressly state the beginning of
the term of office as this is understood to coincide with the effectivity of the Constitution upon its
ratification (on February 02, 1987).

On the other hand, Article XVIII, Transitory Provisions, 1987 Constitution provides:

"SEC. 15. The incumbent Members of the Civil Service Commission, the Commission on Elections,
and the Commission on Audit shall continue in office for one year after the ratification of this
Constitution, unless they are sooner removed for cause or become incapacitated to discharge the
duties of their office or appointed to a new term thereunder. In no case shall any Member serve
longer than seven years including service before the ratification of this Constitution." 16

What the above quoted Transitory Provisions contemplate is "tenure" not "term" of the incumbent
Chairmen and Members of the Civil Service Commission, the Commission on Elections and the
Commission on Audit, who "shall continue in office for one year after the ratification of this
Constitution, unless they are sooner removed for cause or become incapacitated to discharge the
duties of their office or appointed to a new term thereunder." The term "unless" imports an
exception to the general rule.17 Clearly, the transitory provisions mean that the incumbent
members of the Constitutional Commissions shall continue in office for one year after the
ratification of this Constitution under their existing appointments at the discretion of the appointing
power, who may cut short their tenure by: (1) their removal from office for cause; (2) their
becoming incapacitated to discharge the duties of their office, or (3) their appointment to a new
term thereunder, all of which events may occur before the end of the one year period after the
effectivity of the Constitution.

However, the transitory provisions do not affect the term of office fixed in Article IX, providing for a
seven-five-three year rotational interval for the first appointees under this Constitution.

At the time of the adoption of the 1987 Constitution, the incumbent Chairman and members of the
Civil Service Commission were the following: (1) Chairperson Celerina G. Gotladera. She was
initially appointed as OIC Chairman on March 19, 1986, and appointed chairman on December 24,
1986, which she assumed on March 13, 1987. (2) Atty. Cirilo G. Montejo. On June 25, 1986,
President Corazon C. Aquino appointed him Commissioner, without any term. He assumed office on
July 9, 1986, and served until March 31, 1987, when he filed a certificate of candidacy for the
position of Congressman, 2nd District, Leyte, thereby vacating his position as Commissioner. His
tenure was automatically cut-off by the filing of his certificate of candidacy. (3) Atty. Mario D. Yango.
On January 22, 1985, President Ferdinand E. Marcos appointed him Commissioner for a term
expiring January 25, 1990. He served until February 2, 1988, when his term ended in virtue of the
transitory provisions referred to. On May 30, 1988, President Aquino re-appointed him to a new
three-year term and served until May 31, 1991, exceeding his lawful term, but not exceeding the
maximum of seven years, including service before the ratification of the 1987 Constitution. Under
this factual milieu, it was only Commissioner Yango who was extended a new term under the 1987
Constitution. The period consumed between the start of the term on February 02, 1987, and his
actual assumption on May 30, 1988, due to his belated appointment, must be counted against him.

Given the foregoing common starting point, we compute the terms of the first appointees and their
successors to the Civil Service Commission under the 1987 Constitution by their respective lines, as
follows:

First line : Chairman seven-year term. February 02, 1987 to February 01, 1994. On January 30,
1988, the President nominated Ms. Patricia A. Sto. Tomas Chairman, Civil Service Commission. On
March 02, 1988, the Commission on Appointments confirmed the nomination. She assumed office
on March 04, 1988. Her term ended on February 02, 1994. She served as de facto Chairman until
March 04, 1995. On March 05, 1995, the President appointed then Social Welfare Secretary Corazon
Alma G. de Leon, Chairman, Civil Service Commission, to a regular seven-year term. This term must
be deemed to start on February 02, 1994, immediately succeeding her predecessor, whose term
started on the common date of the terms of office of the first appointees under the 1987
Constitution. She assumed office on March 22, 1995, for a term expiring February 02, 2001.

This is shown in her appointment paper, quoted verbatim as follows:

"March 5, 1995

"Madam:

"Pursuant to the provisions of Article VII, Section 16, paragraph 2, of the Constitution, you are
hereby appointed, ad interim, CHAIRMAN, CIVIL SERVICE COMMISSION, for a term expiring February
2, 2001.

"By virtue hereof, you may qualify and enter upon the performance of the duties of the office,
furnishing this Office and the Civil Service Commission with copies of your oath of office.

"(Sgd.) FIDEL V. RAMOS"

Second line : Commissioner Five-year term. February 02, 1987 to February 02, 1992. On January
30, 1988, the President nominated Atty. Samilo N. Barlongay Commissioner, Civil Service
Commission. On February 17, 1988, the Commission on Appointments, Congress of the Philippines,
confirmed the nomination. He assumed office on March 04, 1988. His term ended on February 02,
1992. He served as de facto Commissioner until March 04, 1993.

On June 11, 1993, the President appointed Atty. Thelma P. Gaminde Commissioner, Civil Service
Commission, for a term expiring February 02, 1999. 18 This terminal date is specified in her
appointment paper. On September 07, 1993, the Commission on Appointments confirmed the
appointment. She accepted the appointment and assumed office on June 22, 1993. She is bound by
the term of the appointment she accepted, expiring February 02, 1999. In this connection, the
letter dated April 07, 1998, of Deputy Executive Secretary Renato C. Corona 19 clarifying that her
term would expire on February 02, 2000, was in error. What was submitted to the Commission on
Appointments was a nomination for a term expiring on February 02, 1999. Thus, the term of her
successor20 must be deemed to start on February 02, 1999, and expire on February 02, 2006.
Third line : Commissioner Three-year term. February 02, 1987 to February 02, 1990. Atty. Mario D.
Yango was incumbent commissioner at the time of the adoption of the 1987 Constitution. His
extended tenure ended on February 02, 1988. In May, 1988, President Corazon C. Aquino appointed
him Commissioner, Civil Service Commission to a new three-year term thereunder. He assumed
office on May 30, 1988. His term ended on February 02, 1990, but served as de facto Commissioner
until May 31, 1991. On November 26, 1991, the President nominated Atty. Ramon P. Ereeta as
Commissioner, Civil Service Commission. On December 04, 1991, the Commission on Appointments
confirmed the nomination. He assumed office on December 12, 1991, for a term expiring February
02, 1997.21

Commendably, he voluntarily retired on February 02, 1997. On February 03, 1997, President Fidel V.
Ramos appointed Atty. Jose F. Erestain, Jr. Commissioner, Civil Service Commission, for a term
expiring February 02, 2004. He assumed office on February 11, 1997.

Thus, we see the regular interval of vacancy every two (2) years, namely, February 02, 1994, for
the first Chairman,22 February 02, 1992, for the first five-year term Commissioner, 23 and February
02, 1990, for the first three-year term Commissioner. 24 Their successors must also maintain the two
year interval, namely: February 02, 2001, for Chairman; 25 February 02, 1999, for Commissioner
Thelma P. Gaminde, and February 02, 1997, for Commissioner Ramon P. Ereeta, Jr.

The third batch of appointees would then be having terms of office as follows:

First line : Chairman, February 02, 2001 to February 02, 2008; Second line: Commissioner, February
02, 1999 to February 02, 2006;26 and, Third line: Commissioner, February 02, 1997 to February 02,
2004,27 thereby consistently maintaining the two-year interval.

The line of succession, terms of office and tenure of the Chairman and members of the Civil Service
Commission may be outlined as follows: 28

Chairman Term Tenure

(7-year original)

Sto. Tomas 1st appointee Feb. 02, 1987 to Mar. 04, 1988 to

Feb. 02, 1994 March 08, 1995

De Leon 2nd appointee Feb. 02, 1994 to March 22, 1995 to

(incumbent) Feb. 02, 2001 Feb. 02, 2001

_______ - 3rd appointee Feb. 02, 2001 to

Feb. 02, 2008

2nd Member Term Tenure

(5-year original)

Barlongay 1st appointee Feb. 02, 1987 to March 04, 1988 to

Feb. 02, 1992 March 04, 1993


Gaminde 2nd appointee Feb. 02, 1992 to June 11, 1993 to

Feb. 02, 1999 Feb. 02, 2000

Valmores 3rd appointee Feb. 02, 1999 to Sept. 08, 2000 to

(incumbent) Feb. 02, 2006 Feb. 02, 2006

3rd Member Term Tenure

(3-year original)

Yango - 1st appointee Feb. 02, 1987 to May 30, 1988 to

Feb. 02, 1990 May 31, 1991

Ereeta 2nd appointee Feb. 02, 1990 to Dec. 12, 1991 to

Feb. 02, 1997 Feb. 02, 1997

Erestain, Jr. 3rd appointee Feb. 02, 1997 to Feb. 11, 1997 to

(incumbent) Feb. 02, 2004 Feb. 02, 2004

The Fallo

WHEREFORE, we adjudge that the term of office of Ms. Thelma P. Gaminde as Commissioner, Civil
Service Commission, under an appointment extended to her by President Fidel V. Ramos on June
11, 1993, expired on February 02, 1999. However, she served as de facto officer in good faith until
February 02, 2000, and thus entitled to receive her salary and other emoluments for actual service
rendered. Consequently, the Commission on Audit erred in disallowing in audit such salary and
other emoluments, including that of her co-terminous staff.

ACCORDINGLY, we REVERSE the decisions of the Commission on Audit insofar as they disallow the
salaries and emoluments of Commissioner Thelma P. Gaminde and her coterminous staff during her
tenure as de facto officer from February 02, 1999, until February 02, 2000.

This decision shall be effective immediately.

No costs.

Brillantes vs Yorac

The petitioner is challenging the designation by the President of the Philippines of Associate
Commissioner Haydee B. Yorac as Acting Chairman of the Commission on Elections, in place of
Chairman Hilario B. Davide, who had been named chairman of the fact-finding commission to
investigate the December 1989 coup d' etat attempt.
The qualifications of the respondent are conceded by the petitioner and are not in issue in this
case. What is the power of the President of the Philippines to make the challenged designation in
view of the status of the Commission on Elections as an independent constitutional body and the
specific provision of Article IX-C, Section 1(2) of the Constitution that "(I)n no case shall any
Member (of the Commission on Elections) be appointed or designated in a temporary or acting
capacity."
The petitioner invokes the case of Nacionalista Party v. Bautista, 85 Phil. 101, where President
Elpidio Quirino designated the Solicitor General as acting member of the Commission on Elections
and the Court revoked the designation as contrary to the Constitution. It is also alleged that the
respondent is not even the senior member of the Commission on Elections, being outranked by
Associate Commissioner Alfredo E. Abueg, Jr.:-cralaw
The petitioner contends that the choice of the Acting Chairman of the Commission on Elections is
an internal matter that should be resolved by the members themselves and that the intrusion of
the President of the Philippines violates their independence. He cites the practice in this Court,
where the senior Associate Justice serves as Acting Chief Justice in the absence of the Chief Justice.
No designation from the President of the Philippines is necessary.
In his Comment, the Solicitor General argues that no such designation is necessary in the case of
the Supreme Court because the temporary succession cited is provided for in Section 12 of the
Judiciary Act of 1948. A similar rule is found in Section 5 of BP 129 for the Court of Appeals. There is
no such arrangement, however, in the case of the Commission on Elections. The designation made
by the President of the Philippines should therefore be sustained for reasons of "administrative
expediency," to prevent disruption of the functions of the COMELEC.
Expediency is a dubious justification. It may also be an overstatement to suggest that the
operations of the Commission on Elections would have been disturbed or stalemated if the
President of the Philippines had not stepped in and designated an Acting Chairman. There did not
seem to be any such problem. In any event, even assuming that difficulty, we do not agree that
"only the President (could) act to fill the hiatus," as the Solicitor General maintains.
Article IX-A, Section 1, of the Constitution expressly describes all the Constitutional Commissions as
"independent." Although essentially executive in nature, they are not under the control of the
President of the Philippines in the discharge of their respective functions. Each of these
Commissions conducts its own proceedings under the applicable laws and its own rules and in the
exercise of its own discretion. Its decisions, orders and rulings are subject only to review
on Certiorari by this Court as provided by the Constitution in Article IX-A, Section 7.
The choice of a temporary chairman in the absence of the regular chairman comes under that
discretion. That discretion cannot be exercised for it, even with its consent, by the President of the
Philippines.
A designation as Acting Chairman is by its very terms essentially temporary and therefore
revocable at will. No cause need be established to justify its revocation. Assuming its validity, the
designation of the respondent as Acting Chairman of the Commission on Elections may be
withdrawn by the President of the Philippines at any time and for whatever reason she sees fit. It is
doubtful if the respondent, having accepted such designation, will not be estopped from
challenging its withdrawal.chanrobles virtual law library
It is true, as the Solicitor General points out, that the respondent cannot be removed at will from
her permanent position as Associate Commissioner. It is no less true, however, that she can be
replaced as Acting Chairman, with or without cause, and thus deprived of the powers and
perquisites of that temporary position.
The lack of a statutory rule covering the situation at bar is no justification for the President of the
Philippines to fill the void by extending the temporary designation in favor of the respondent. This
is still a government of laws and not of men. The problem allegedly sought to be corrected, if it
existed at all, did not call for presidential action. The situation could have been handled by the
members of the Commission on Elections themselves without the participation of the President,
however well-meaning.
In the choice of the Acting Chairman, the members of the Commission on Elections would most
likely have been guided by the seniority rule as they themselves would have appreciated it. In any
event, that choice and the basis thereof were for them and not the President to make.
The Court has not the slightest doubt that the President of the Philippines was moved only by the
best of motives when she issued the challenged designation. But while conceding her goodwill, we
cannot sustain her act because it conflicts with the Constitution. Hence, even as this Court revoked
the designation in the Bautista case, so too must it annul the designation in the case at bar.
The Constitution provides for many safeguards to the independence of the Commission on
Elections, foremost among which is the security of tenure of its members. That guaranty is not
available to the respondent as Acting Chairman of the Commission on Elections by designation of
the President of the Philippines.
WHEREFORE, the designation by the President of the Philippines of respondent Haydee B. Yorac as
Acting Chairman of the Commission on Elections is declared UNCONSTITUTIONAL, and the
respondent is hereby ordered to desist from serving as such. This is without prejudice to the
incumbent Associate Commissioners of the Commission on Elections restoring her to the same
position if they so desire, or choosing another member in her place, pending the appointment of a
permanent Chairman by the President of the Philippines with the consent of the Commission on
Appointments.: rd
SO ORDERED.

ECONOMIC VS CA

PURISIMA, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of
Court to review and set aside the 7 November 1996 Decision[1] and 18 March
1997 Resolution[2] of the Court of Appeals[3] in CA - G.R. SP No. 37720.

As culled by the Court of Appeals, the antecedent facts that matter are, as follows:

In a letter dated October 13, 1988, respondent CSC through Chairman Patricia A. Sto.
Tomas required the Secretary of Finance to submit to the CSC all appointments in the
Economic Intelligence and Investigation Bureau (EIIB).

Instead of complying with the said letter, petitioner Jose T. Almonte, as Commissioner of
EIIB, wrote a letter dated March 29, 1989, to respondent CSC, requesting for confirmation
of EIIBs exemption from CSC rules and regulations with respect to appointments and other
personnel actions invoking as basis for such exemption PD No. 1458 and LOI No. 71.

On June 21, 1989, respondent CSC issued the subject Resolution No. 89-400, denying
petitioner Almontes request for exemption of the EIIB from the coverage of the civil service
rules and regulations and reiterating its order that petitioner EIIB submit to the CSC all
appointments to career or non-career positions in the Bureau.

Not having received any compliance from petitioners, respondent CSC, in its Order of
December 7, 1990, directed petitioner Jose T. Almonte to immediately implement
Resolution No. 89-400, with a warning that any EIIB official who shall fail or refuse to
comply with the said order shall be held liable for indirect contempt.

On June 4, 1991, respondent CSC issued another order, requiring petitioner Almonte to
show cause why he should not be cited for indirect contempt for his continued refusal to
implement or comply with CSC Resolution No. 89-400 and the Order of December 7, 1990.
In a letter, dated June 13, 1991, petitioner Almonte explained to the respondent CSC the
reasons of the EIIB for its inability to comply with Resolution No. 89-400. He invoked PD
No. 1458 and LOI No. 71 exempting the EIIB from the coverage of civil service rules and
regulations on appointments and other personnel actions. Petitioner Almonte prayed that
Resolution No. 89-400, the Order of June 4, 1991, and the subsequent orders be set aside.

On August 22, 1991, respondent CSC issued an order, finding petitioner Almonte guilty of
indirect contempt of the Commission, the dispositive portion of which reads as follows:

WHEREFORE, foregoing premises considered, the Commission hereby resolves to find and adjudge
Jose T. Almonte, Commissioner, EIIB, guilty of indirect contempt of the Commission pursuant to
Section 12 (11), Book V, Subtitle A of Executive Order No. 292 and Memorandum Circular No. 42,
series of 1990. He is thus meted the penalty of fine P1,000.00 each day from the date of receipt of
this Order dated December 7, 1990. Accordingly, the Cashier of the EIIB is hereby directed to
deduct from the salary of Commissioner Almonte the amount of P1,000.00 each day of his failure
to comply with the above CSC Order. Let copies of this Order be furnished the Resident Auditor of
the EIIB as well as the COA, the Secretary of the Department of Finance and the CSFO-DND, for
their information and guidance.

SO ORDERED.

Dissatisfied therewith, petitioner went to the Court of Appeals on a Petition for


Certiorari. However, on November 7, 1996, the Court of Appeals dismissed the petition;
ratiocinating thus:

The 1987 Constitution is so clear and categorical in its mandate that:

Article IX (B), Section 2 (1). - The civil service embraces all branches, subdivisions,
instrumentalities, and agencies of the Government, including government-owned or controlled
corporations with original charters.

The civil service contemplated in the constitutional provision is very comprehensive in its scope,
that it includes every category of officer or employee of the government, its branches, subdivisions
and instrumentalities, and even employees of private corporations, if such corporations are
controlled or owned by the government with original charters.

In the light of this constitutional mandate, petitioner EIIB, being a government agency, is
necessarily embraced by the civil service. The fact that positions in the EIIB are primarily
confidential did not place it outside the domain of civil servants, since it is conceded that one
holding in the Government a primarily confidential position is in the Civil Service (Ingles v. Mutuc,
26 SCRA 171). That fact merely exempts confidential positions in the EIIB from the constitutional
rule that appointments in the civil service shall be made only according to merit and fitness to be
determined, as far as practicable ... by competitive examination [Art. IX (B), Sec. 2 (2) ]. And it is in
this sense that the provisions of PD 1458, particularly Section 5 and LOI 71 relied upon by the
petitioners should be interpreted.

Neither does petitioners contention that if EIIBs positions and personnel actions will be opened, one
may know its operations, movements, targets, strategies, and tactics and the whole of its
being deserve merit, as the same is pure speculation and conjecture. EIIB officials and personnel
remain civil servants and as correctly argued by the Solicitor General, EIIB officials occupying
confidential positions, remain accountable to the people and are subject to the same state policies
on morale, efficiency, integrity, responsiveness and courtesy in the civil service. Thus, We hold that
the personnel in the EEIB are covered by the civil service.
xxx

WHEREFORE, the Court upholds Resolution No. 89-400 but declares CSC Orders of
December 7, 1990, June 4, 1991, and of August 22, 1991, as NULL AND VOID, the Civil
Service Commission not having jurisdiction to cite and punish Commissioner Jose T.
Almonte of the Economic Intelligence and Investigation Bureau for indirect contempt of the
Commission.

With the denial of its motion for reconsideration by Resolution, dated March 18, 1997, of the
Court of Appeals, petitioner found its way to this Court via the present Petition; contending, that:

IN HOLDING THAT PETITIONER IS COVERED BY CIVIL SERVICE, RESPONDENT COURT


VIOLATED P.D. No. 1458 AND LOI No. 71 WHICH EXPRESSLY EXEMPT IT FROM CIVIL SERVICE
COVERAGE.

The pivotal issue here is: whether or not the petitioner, Economic Intelligence Investigation
Bureau (EIIB), is embraced by the Civil Service.

Section 2, subparagraph (1), Article IX, paragraph (B) of the 1987 Constitution provides:

The civil service embraces all branches, subdivisions, instrumentalities, agencies of the
Government, including government-owned or controlled corporations with original charter.

Succinct and clear is the provision of the Constitution in point that all government
agencies, without exception, are covered by the civil service.

Petitioner EIIB is a government agency under the Department of Finance as provided by Section
17, Chapter 4, Title II, Book IV of the 1987 Administrative Code. [4] Therefore, EIIB is within the ambit
of the Civil Service Law.

The civil service within the contemplation of the aforecited constitutional provision is
comprehensive in scope.It embraces all officers and employees of the government, its branches,
subdivisions and instrumentalities. Even employees of corporations owned or controlled by the
government, with original charters, are covered thereby.

Petitioner contends that EIIB is expressly exempted from civil service coverage, under Section 5
of P.D. No. 1458, which provides :

Application of WAPCO and Civil Service Rules - Personnel of the FDIIB shall be exempted
from WAPCO and Civil Service Rules and Regulations relative to appointments and other
personnel actions: Provided,That they shall be entitled to the benefits and privileges
accorded to government employees ...

On the other hand, LOI No. 71, the Implementing Rules of P.D. No. 1458, reads:

10. It is further directed that personnel of the BII shall be exempt from OCPC and Civil
Service Rules and Regulations relative to appointments and other personnel
actions; Provided, That they shall be entitled to the benefits accorded to government
employees ... "

Petitioners submission is barren of merit.


The aforecited provisions of law provide for the exemption of petitioner EIIB only from Civil
Service Rules and Regulations relative to appointments and other personnel actions, but
not from the Civil Service Law or Civil Service Rules and Regulations relative to any other
matter.

Neither can we uphold petitioners reliance on Section 26 of Executive Order No. 127.
[5]
Petitioner, in gist, asserts exemption from Civil Service coverage since the Bureau forms part of
the intelligence community created under the said Executive Order.

There is merit in the disquisition by the Court of Appeals that membership of petitioner EIIB in
the intelligence community is of no moment, insofar as application of the Civil Service Law is
concerned. The National Bureau of Investigation (NBI), also a member of the intelligence
community which performs functions similar to those of EIIB, e.g., intelligence gathering,
investigation, research, etc., submits to the Civil Service Commission the appointments of all NBI
personnel, whether belonging to the career or non-career service. Besides, in Ingles vs. Mutuc,
26 SCRA 171, this Court ruled that one holding in the Government a primarily confidential position
is in the Civil Service.

Equally untenable is petitioners contention that because the personnel of EIIB are occupying
jobs highly confidential in nature, the EIIB should not be required to submit the names of its
personnel to the Civil Service Commission.

In Almonte vs. Vasquez, 244 SCRA 286 [1995], EIIB was ordered by the Ombudsman to
produce documents relating to personnel services and salary vouchers of EIIB employees. The
Bureau pleaded that such documents are classified, and knowledge of EIIBs documents relative to
its Personnel Services Funds and its plantilla will inevitably lead to knowledge of its operations,
movements, targets and strategies, which could destroy the Bureau itself. The Court ruled that the
required documents can be examined by the Ombudsman, explaining that:

... [T]here is no claim that military or diplomatic secrets will be disclosed by the production
of records pertaining to the personnel of the EIIB. Indeed, EIIBs function is the gathering
and evaluation of intelligence reports and information regarding illegal activities affecting
the national economy, such as, but not limited to, economic sabotage, smuggling, tax
evasion, dollar salting. Consequently, while in cases which involve state secrets it may be
sufficient to determine from the circumstances of the case that there is reasonable danger
that compulsion of the evidence will expose military matters without compelling
production, no similar excuse can be made for a privilege resting on other considerations.

Nor has our attention been called to any law or regulation which considers personnel
records of the EIIB as classified information ...

All things viewed in proper perspective, we are of the opinion, and so hold, that the Court of
Appeals erred not in holding that:

... [R]espondent CSCs act of requiring petitioner EIIB to submit to it all appointments in the
Bureau, for appropriate action, is part of its administrative function as the central
personnel agency of the government.

WHEREFORE, the petition is hereby DENIED; and the Decision of the Court of Appeals in CA-
GR SP No. 37720 AFFIRMED, without any pronouncement as to costs.

PNOV VS LEOGARDO

MELENCIO-HERRERA, J.:
Through this Petition for Certiorari, Philippine National Oil Company-Energy Development
Corporation (PNOC-EDC) seeks to declare null and void, for lack of jurisdiction, the Order of public
respondent, the Deputy Minister of Labor, sustaining his jurisdiction over the instant controversy.

Petitioner PNOC-EDC is a subsidiary of the Philippine National Oil Company (PNOC). On 20 January
1978, it filed with the Ministry of Labor and Employment, Regional Office No. VII, Cebu City (MOLE),
a clearance application to dismiss/ terminate the services of private respondent, Vicente D. Ellelina,
a contractual employee.

The application for clearance was premised on Ellelina's alleged commission of a crime (Alarm or
Public Scandal) during a Christmas party on 19 December 1977 at petitioner's camp in Uling, Cebu,
when, because of the refusal of the raffle committee to give him the prize corresponding to his lost
winning ticket, he tried to grab the armalite rifle of the PC Officer outside the building despite the
warning shots fired by the latter.

Clearance to dismiss was initially granted by MOLE but was subsequently revoked and petitioner
was ordered to reinstate Ellelina to his former position, without loss of seniority rights, and with
backwages from I February 1978 up to his actual reinstatement.

Petitioner appealed to the Minister of Labor who, acting through public respondent, affirmed, on 14
August 1981, the appealed Order. Hence, this Petition predicated substantially on the following
grounds:

1. Under Article 277 of the Labor Code, the Ministry of Labor and Employment has no jurisdiction
over petitioner because it is a government-owned or controlled corporation;

2. Ellelina's dismissal is valid and just because it is based upon the commission of a crime.

On the other hand, public respondent contends:

(a) While the petitioner is a subsidiary of the PNOC, it is still covered by the Labor Code and,
therefore, within the jurisdiction of the Ministry of Labor inasmuch as petitioner was organized as a
private corporation under the Corporation Law and registered with the Securities and Exchange
Commission;

(b) Petitioner is estopped from assailing the Labor Department's jurisdiction, having subjected itself
to the latter when it filed the application for clearance to terminate Ellelina's services; and

(c) Dismissal is too harsh a penalty.

The issues that confront us, therefore, are (1) whether or not public respondent committed grave
abuse of discretion in holding that petitioner is governed by the Labor Code; and (2) whether or not
Ellelina's dismissal was justified.

Under the laws then in force, employees of government-owned and/or controlled corporations were
governed by the Civil Service Law and not by the Labor Code. Thus, Article 277 of the Labor Code
(PD 442) then provided:

The terms and conditions of employment of all government employees, including employees of
government- owned and controlled corporations shall be governed by the Civil Service Law, rules
and regulations ... .

In turn, the 1973 Constitution provided:


The Civil Service embraces every branch, agency, subdivision and instrumentality of the
government, including government-owned or controlled corporations.

In National Housing Corporation vs. Juco (L-64313, January 17, 1985, 134 SCRA 172), we laid down
the doctrine that employees of government-owned and/or controlled corporations, whether created
by special law or formed as subsidiaries under the general Corporation Law, are governed by the
Civil Service Law and not by the Labor Code.

However, the above doctrine has been supplanted by the present Constitution, which provides:

The Civil Service embraces all branches, subdivisions, instrumentalities and agencies of the
Government, including government-owned or controlled corporations with original charters. (Article
IX-B, Section 2 [1])

Thus, under the present state of the law, the test in determining whether a government-owned or
controlled corporation is subject to the Civil Service Law is the manner of its creation such that
government corporations created by special charter are subject to its provisions while those
incorporated under the general Corporation Law are not within its coverage.

In NASECO vs. NLRC (G.R. No. 69870, November 29,1988), we had occasion to apply the present
Constitution in deciding whether or not the employees of NASECO (a subsidiary of the NIDC, which
is in turn a subsidiary wholly-owned by the PNB, a government-owned corporation) are covered by
the Civil Service Law or the Labor Code notwithstanding that the case arose at the time when the
1973 Constitution was still in effect. We held that the NLRC has jurisdiction over the employees of
NASECO "on the premise that it is the 1987 Constitution that governs because it is the Constitution
in place at the time of decision;" and that being a corporation without an original charter, the
employees of NASECO are subject to the provisions of the Labor Code.

We see no reason to depart from the ruling in the aforesaid case.

We hold, therefore, that the PNOC-EDC having been incorporated under the general Corporation
Law, is a government-owned or controlled corporation whose employees are subject to the
provisions of the Labor Code. This is apparently the intendment in the NASECO case
notwithstanding the fact that the NASECO therein was a subsidiary of the PNB, a government-
owned corporation.

In so far as Ellelina is concerned, we hold that the reinstatement ordered by public respondent,
without loss of seniority rights, is proper. However, consistent with the rulings of the Court,
backwages should be limited to three years from 1 February 1978. The dismissal ordered by
petitioner was a bit too harsh considering the nature of the act which he had committed and that it
was his first offense.

WHEREFORE, the Petition is DISMISSED, and the judgment of respondent public official is hereby
AFFIRMED. No costs.

SO ORDERED.

CAYO G. GAMOGAMO, petitioner, vs. PNOC SHIPPING AND TRANSPORT


CORP., respondent.

DECISION

DAVIDE, JR., C.J.:


The pivotal issue raised in the petition in this case is whether, for the purpose of computing an
employees retirement pay, prior service rendered in a government agency can be tacked in and
added to the creditable service later acquired in a government-owned and controlled corporation
without original charter.

On 23 January 1963, Petitioner Cayo F. Gamogamo was first employed with the Department of
Health (DOH) as Dental Aide. On 22 February 1967, he was promoted to the position of Dentist
1. He remained employed at the DOH for fourteen years until he resigned on 2 November 1977. [1]

On 9 November 1977, petitioner was hired as company dentist by Luzon Stevedoring


Corporation (LUSTEVECO), a private domestic corporation. [2] Subsequently, respondent PNOC
Shipping and Transport Corporation (hereafter Respondent) acquired and took over the shipping
business of LUSTEVECO, and on 1 August 1979, petitioner was among those who opted to be
absorbed by the Respondent. [3] Thus, he continued to work as company dentist. In a letter dated 1
August 1979, Respondent assumed without interruption petitioners service credits with
LUSTEVECO,[4] but it did not make reference to nor assumed petitioners service credits with the
DOH.

On 10 June 1993, then President Fidel V. Ramos issued a memorandum [5] approving the
privatization of PNOC subsidiaries, including Respondent, pursuant to the provisions of Section III(B)
of the Guidelines and Regulations to implement Executive Order No. 37. [6] Accordingly, Respondent
implemented a Manpower Reduction Program to govern employees whose respective positions
have been classified as redundant as a result of Respondents decrease in operations and the
downsizing of the organization due to lay-up and sale of its vessels pursuant to its direction towards
privatization.[7] Under this program, retrenched employees shall receive a two-month pay for every
year of service.

Sometime in 1995, petitioner requested to be included in the next retrenchment


schedule. However, his request was turned down for the following reasons: [8]

1. As a company dentist he was holding a permanent position;

2. He was already due for mandatory retirement in April 1995 under his retirement plan
(first day of the month following his 60th birthday which was on 7 March 1995).

Eventually, petitioner retired after serving the Respondent and LUSTEVECO for 17 years and 4
months upon reaching his 60th birthday, on 1 April 1995. He received a retirement pay of
P512,524.15,[9] which is equivalent to one month pay for every year of service and other benefits.

On 30 August 1995, Admiral Carlito Y. Cunanan, Repondents president, died of Dengue Fever
and was forthwith replaced by Dr. Nemesio E. Prudente who assumed office in December 1995. The
new president implemented significant cost-saving measures. In 1996, after petitioners retirement,
the cases of Dr. Rogelio T. Buena (company doctor) and Mrs. Luz C. Reyes (telephone operator),
who were holding permanent/non-redundant positions but were willing to be retrenched under the
program were brought to the attention of the new president who ordered that a study on the cost-
effect of the retrenchment of these employees be conducted. After a thorough study, Respondents
Board of Directors recommended the approval of the retrenchment. These two employees were
retrenched and paid a 2-month separation pay for every year of service under
Respondents Manpower Reduction Program.[10]

In view of the action taken by Respondent in the retrenchment of Dr. Buena and Mrs. Reyes,
petitioner filed a complaint at the National Labor Relations Commission (NLRC) for the full payment
of his retirement benefits.Petitioner argued that his service with the DOH should have been
included in the computation of his years of service. Hence, with an accumulated service of 32 years
he should have been paid a two-month pay for every year of service per the retirement plan and
thus should have received at least P1,833,920.00.

The Labor Arbiter dismissed petitioners complaint. [11] On appeal, however, the NLRC reversed
the decision of the Labor Arbiter. In its decision[12] of 28 November 1997, the NLRC ruled:

WHEREFORE, the Decision of the Labor Arbiter dated May 30, 1997 is hereby SET ASIDE and
another judgment is hereby rendered to wit:

(1) the government service of the complainant with the Department of Health numbering
fourteen (14) years is hereby considered creditable service for purposes of computing his
retirement benefits;

(2) crediting his fourteen (14) years service with the Department of Health, together with
his nearly eighteen (18) years of service with the respondent, complainant therefore has
almost thirty-two (32) years service upon which his retirement benefits would be
computed or based on;

(3) complainant is entitled to the full payment of his retirement benefits pursuant to the
respondents Retirement Law or the retrenchment program (Manpower Reduction
Program). In any case, he is entitled to two (2) months retirement/separation pay for
every year of service.

(4) all other claims are DISMISSED.

SO ORDERED.

Respondent filed a motion for reconsideration but it was denied. [13]

Unsatisfied with the reversal, Respondent filed with the Court of Appeals a special civil action
for certiorariwhich was docketed as CA-G.R. SP No. 51152. In its decision[14] of 8 November 1999,
the Court of Appeals set aside the NLRC judgment and decreed:

WHEREFORE, the petition is hereby GIVEN DUE COURSE and the writ prayed for GRANTED.
Consequently, the Decision and Resolution of the National Labor Relations Commission (Second
Division) dated November 28, 1997 and May 15, 1998, respectively, are hereby SET ASIDE AND
NULLIFIED, without prejudice to private respondent Cayo F. Gamo-gamos recovery of whatever
benefits he may have been entitled to receive by reason of his fourteen (14) years of service with
the Department of Health.

No pronouncement as to costs.

His motion for reconsideration having been denied by the Court of Appeals, [15] petitioner filed
with us the petition in the case at bar. Petitioner contends that: (1) his years of service with the
DOH must be considered as creditable service for the purpose of computing his retirement pay; and
(2) he was discriminated against in the application of the Manpower Reduction Program. [16]

Petitioner maintains that his government service with the DOH should be recognized and
tacked in to his length of service with Respondent because LUSTEVECO, which was later bought by
Respondent, and Respondent itself, were government-owned and controlled corporations and were,
therefore, under the Civil Service Law. Prior to the separation of Respondent from the Civil Service
by virtue of the 1987 Constitution, petitioners length of service was considered continuous. The
effectivity of the 1987 Constitution did not interrupt his continuity of service. He claims that he is
supported by the opinion of 18 May 1993 of the Civil Service Commission in the case of Petron
Corporation, where the Commission allegedly opined:

that all government services rendered by employees of the Petron prior to 1987 Constitution are
considered creditable services for purposes of computation of retirement benefits. This must
necessarily be so considering that in the event that Petron would consider only those services of an
employee with Petron when it was excluded from the civil service coverage (that is after the 1987
Constitution), it would render nugatory his government agencies prior to his transfer to
Petron. Hence, Petron or any other PNOC subsidiary has to include in its retirement scheme or in its
Collective Bargaining Agreement a provision of the inclusion of the other government services of its
employees rendered outside Petron, otherwise, it would be prejudicial to the interest of the
retireable employee concerned.

Petitioner asserts that with the tacking in of his 14 years of service with the DOH to his 17
years and 4 months service with LUSTEVECO and Respondent, he had 31 years and 4 months
creditable service as basis for the computation of his retirement benefits. Thus, pursuant to
Respondents Manpower Reduction Program, he should have been paid two months pay for every
year of his 31 years of service.

Petitioner likewise asserts that the principle of tacking is anchored on Republic Act No. 7699. [17]

Petitioner concludes that there was discrimination when his application for coverage under the
Manpower Reduction Program was disapproved. His application was denied because he was holding
a permanent position and that he was due for retirement. However, Respondent granted the
application of Dr. Rogelio Buena, who was likewise holding a permanent position and was also
about to retire. Petitioner was only given one-month pay for every year of service under the regular
retirement plan while Dr. Buena was given a 2-month pay for every year of service under the
Manpower Reduction Program.

In its Comment to the petition, Respondent maintains that although it is a government-owned


and controlled corporation, it has no original charter. Hence, it is not within the coverage of the
Civil Service Law. It cites the decision in PNOC-EDC v. Leogardo,[18] wherein we held that only
corporations created by special charters are subject to the provisions of the Civil Service
Law. Those without original charters are covered by the Labor Code.Respondent also asserts that
R.A. No. 7699 is not applicable. Under this law an employee who has worked in both the private and
public sectors and has been covered by both the Government Service Insurance System (GSIS) and
the Social Security System (SSS), shall have his creditable services or contributions in both
Systems credited to his service or contribution record in each of the Systems, which shall be
summed up for purposes of old age, disability, survivorship and other benefits in case the covered
member does not qualify for such benefits in either or both Systems without the totalization.

Respondent further contends that petitioner was not discriminated upon when his application
under the Manpower Reduction Program was denied. At the time of his retirement in 1995,
redundancy was the main consideration for qualification for the Manpower Reduction
Program. Petitioner was not qualified. However in 1996, in order to solve the companys business
reversals, the new president, Dr. Nemesio Prudente, found it necessary to implement cost-saving
strategies, among which was the retrenchment of willing employees. Thus, the applications for
retrenchment of Dr. Buena and Mrs. Reyes were approved. Respondent had the prerogative to
amend its policies to meet the contingencies of the business for self-preservation.

We rule in the negative the issue of whether petitioners service with the DOH should be
included in the computation of his retirement benefits.

Respondents Retirement scheme[19] pertinently provides:


ARTICLE IV

RETIREMENT BENEFITS

SEC 4.1. Normal Retirement Date/Eligibility. -- The normal retirement date of an employee shall be
the first day of the month next following the employees sixtieth (60 th) birthday. To be eligible for the
retirement benefit described under Sec. 4.2, the employee must have rendered at least ten (10)
years of continuous service with the Company. In case the retiring employee has rendered less than
ten (10) years of service with the Company, he shall be entitled to one (1) months final monthly
basic salary (12/12) for every year of service.

SEC. 4.2. Normal Retirement Benefit. -- The retirement benefit shall be payable in lump sum upon
retirement which shall be determined on the basis of the retirees final monthly basic salary (14/12)
as follows:

(a) One (1) months pay for every year of service for those who have completed at least twenty (20)
years of continuous service with the Company.

(b) One and one-half (1 1/2) months pay for every year of service for those who have completed
twenty-one (21) to thirty (30) continuous years of service with the Company.

(c) Two (2) months pay for every year of service for those who have completed at least thirty-one
(31) years of service with the Company.

It is clear therefrom that the creditable service referred to in the Retirement Plan is the retirees
continuous years of service with Respondent.

Retirement results from a voluntary agreement between the employer and the employee
whereby the latter after reaching a certain age agrees to sever his employment with the former. [20]

Since the retirement pay solely comes from Respondents funds, it is but natural that
Respondent shall disregard petitioners length of service in another company for the computation of
his retirement benefits.

Petitioner was absorbed by Respondent from LUSTEVECO on 1 August 1979. Ordinarily, his
creditable service shall be reckoned from such date. However, since Respondent took over the
shipping business of LUSTEVECO and agreed to assume without interruption all the service credits
of petitioner with LUSTEVECO,[21] petitioners creditable service must start from 9 November 1977
when he started working with LUSTEVECO [22] until his day of retirement on 1 April 1995. Thus,
petitioners creditable service is 17.3333 years.

We cannot uphold petitioners contention that his fourteen years of service with the DOH should
be considered because his last two employers were government-owned and controlled
corporations, and fall under the Civil Service Law. Article IX(B), Section 2 paragraph 1 of the 1987
Constitution states --

Sec. 2. (1) The civil service embraces all branches, subdivisions, instrumentalities, and agencies of
the Government, including government-owned or controlled corporations with original charters.

It is not at all disputed that while Respondent and LUSTEVECO are government-owned and
controlled corporations, they have no original charters; hence they are not under the Civil Service
Law. In Philippine National Oil Company-Energy Development Corporation v. National Labor
Relations Commission,[23] we ruled:
xxx Thus under the present state of the law, the test in determining whether a government-owned
or controlled corporation is subject to the Civil Service Law are [sic] the manner of its creation, such
that government corporations created by special charter(s) are subject to its provisions while those
incorporated under the General Corporation Law are not within its coverage.

Consequently, Respondent was not bound by the opinion of the Civil Service Commission of 18 May
1993.

Petitioners contention that the principle of tacking of creditable service is mandated by


Republic Act No. 7699 is baseless. Section 3 of Republic Act No. 7699 reads:

SEC 3. Provisions of any general or special law or rules and regulations to the contrary
notwithstanding, a covered worker who transfer(s) employment from one sector to another or is
employed in both sectors, shall have his creditable services or contributions in both systems
credited to his service or contribution record in each of the Systems and shall be totalized for
purposes of old-age, disability, survivorship, and other benefits in case the covered employee does
not qualify for such benefits in either or both Systems without totalization: Provided, however, That
overlapping periods of membership shall be credited only once for purposes of totalization
(underscoring, ours).

Obviously, totalization of service credits is only resorted to when the retiree does not qualify for
benefits in either or both of the Systems. Here, petitioner is qualified to receive benefits granted by
the Government Security Insurance System (GSIS), if such right has not yet been exercised. The
pertinent provisions of law are:

SEC. 12 Old Age Pension. -- (a) xxx

(b) A member who has rendered at least three years but less than fifteen years of service at the
time of separation shall, upon reaching sixty years of age or upon separation after age sixty,
receive a cash payment equivalent to one hundred percent of his average monthly compensation
for every year of service with an employer (Presidential Decree No, 1146, as amended, otherwise
known as the Government Service Insurance Act of 1977).

SEC. 4. All contributions paid by such member personally, and those that were paid by his
employers to both Systems shall be considered in the processing of benefits which he can claim
from either or both Systems: Provided, however, That the amount of benefits to be paid by one
System shall be in proportion to the number of contributions actually remitted to that System
(Republic Act No. 7699).

In any case, petitioners fourteen years of service with the DOH may not remain uncompensated
because it may be recognized by the GSIS pursuant to the aforequoted Section 12, as may be
determined by the GSIS. Since petitioner may be entitled to some benefits from the GSIS, he
cannot avail of the benefits under R.A. No. 7699.

It may also be pointed out that upon his receipt of the amount of P512,524.15 from Respondent
as retirement benefit pursuant to its retirement scheme, petitioner signed and delivered to
Respondent a Release and Undertaking wherein he waives all actions, causes of actions, debts,
dues, monies and accounts in connection with his employment with Respondent. [24] This quitclaim
releases Respondent from any other obligation in favor of petitioner. While quitclaims executed by
employees are commonly frowned upon as contrary to public policy and are ineffective to bar
claims for the full measure of the employees legal rights, there are legitimate waivers that
represent a voluntary and reasonable settlement of laborers claims which should be respected by
the courts as the law between the parties. [25] Settled is the rule that not all quitclaims are per
se invalid or against public policy, except (1) where there is clear proof that the waiver was
wangled from an unsuspecting or gullible person; and (2) where the terms of settlement are
unconscionable on their face.[26] We discern nothing from the record that would suggest that
petitioner was coerced, intimidated or deceived into signing the Release and Undertaking. Neither
are we convinced that the consideration for the quitclaim is unconscionable because it is actually
the full amount of the retirement benefit provided for in the companys retirement plan.

In light of the foregoing, we need not discuss any further the issue of whether petitioner was
discriminated by Respondent in the implementation of the Manpower Reduction Program. In any
event, that issue is factual and petitioner has failed to demonstrate that, indeed, he was
discriminated upon.

WHEREFORE, no reversible error on the part of the Respondent Court of Appeals having been
shown, the petition in this case is DENIED and the appealed decision in CA-G.R. SP No. 51152 is
hereby AFFIRMED.

Costs against petitioner.

SALAZAR VS MATHAY

MARTIN, J.:t.hqw

The main issue in this appeal is whether or not the services of petitioner as "confidential agent" in
the Office of the Auditor, GSIS was validly terminated on the alleged ground of loss of confidence,
and if not, whether or not she could still be reinstated to said position after accepting the position
of Junior Examiner in the same office.

On January 20, 1960, petitioner Melania C. Salazar was appointed by the Auditor General
"confidential agent" in the Office of the Auditor General, Government Service Insurance System
with compensation of P3,120.00 per annum, to take effect on January 27, 1960 upon her
assumption of office. Her appointment was noted by the Commissioner of Civil Service under
Section 5, paragraph (j) of Republic Act No. 2260, 1 subject to the usual physical and medical
examination. On March 28, 1962 she was extended another appointment by way of promotion, as
"confidential agent" in the same office with compensation of P3,300.00 per annum, to take effect
on April 1, 1962. On August 28, 1964, her salary as "confidential agent" was adjusted to P4,200.00
per annum, effective July 1, 1964. 2 On February 12, 1965, the Acting Deputy Commissioner of the
Civil Service issued a third indorsement to the Auditor General stating that the petitioner has
qualified in the general examination held on February 27, 1969 and her appointment, which have
been previously approved as provisional under section 24(c), Republic Act 2260, was approved
anew subject to the usual physical and medical examination. 3 Again, on October 7, 1965,
petitioner's salary as "confidential agent" was adjusted to P5,500.00 per annum effective July 1,
1965. 4

On March 18, 1966, much to her surprise, petitioner received a notice from the Auditor General that
her services as "confidential agent" in the Office of the Auditor, Government Service Insurance
System have been terminated as of the close of office hours on March 31, 1966. 5

On March 31, 1966, the Auditor General upon favorable recommendation of Mr. Pedro Encabo,
Auditor of the Government Service Insurance System issued an appointment to petitioner Melania
C. Salazar as Junior Examiner in his office with a compensation of P2,400.00 per annum, to take
effect on April 1, 1966. Said appointment was approved by the Commission of Civil Service under
Section 24(c) of Republic Act No. 2260 with a notice that general clerical eligibility is not
appropriate for the position involved. 6 On the same day, petitioner assumed the position of Junior
Examiner in the Office of the Auditor, GSIS, with the salary of P2,400.00 which was later adjusted to
P2,580.00 per annum effective July 1, 1966. 7

On December 27, 1966, petitioner wrote the Commissioner of Civil Service requesting that she be
reinstated to her former position as "confidential agent" in the Office of the Auditor,
GSIS. 8 However, no action was taken on said letter. 9

On March 18, 1967, petitioner filed a petition for mandamus with the Supreme Court docketed as
G.R. No. L-37256 to compel the Auditor General to reinstate her to her former position as
"confidential agent" in the Office of the Auditor, GSIS, effective April 1, 1968 but the Supreme Court
dismissed the petition for mandamus without prejudice to her filing the proper action to the Court
of First Instance 10 which petitioner did by filing the proper action in the Court of First Instance of
Manila an action for mandamus to compel the Auditor General to return her to her former position
as "confidential agent" in the Office of the Auditor General.

The crux of the problem in this appeal hinges on the nature of the position held by the petitioner in
the Office of the Auditor, GSIS whether it is primarily confidential or not. If it is, then her services
as confidential agent can be terminated any time at the pleasure of the appointing power. 11 There
are two instances when a position may be considered primarily confidential: (1) When the President
upon recommendation of the Commissioner of Civil Service (now Civil Service Commission) has
declared the position to be primarily confidential; 12 or (2) In the absence of such declaration when
by the nature of the functions of the office, there exists "close intimacy between the appointee and
appointing power which insures freedom of intercourse without embarrassment or freedom from
misgiving or betrayals of personal trust or confidential matters of state." 13 In the case before Us,
the provision of Executive Order No. 265, 14 declaring "... confidential agents in the several
department and offices of the Government, unless otherwise directed by the President, to be
primarily confidential" brings within the fold of the aforementioned executive order the position of
confidential agent in the Office of the Auditor, GSIS, as among those positions which are primarily
confidential. Since the position of the petitioner falls under the first category of primarily
confidential positions, it is no longer necessary to inquire into the nature of the functions attached
to the office in order to determine whether her position is primarily confidential or not. Her position
being primarily confidential, petitioner cannot complain that the termination of her services as
confidential agent in the Office of the Auditor, GSIS is in violation of her security of tenure. In the
case of Delos Santos vs. Mallari, supra, primarily confidential positions are excluded from the merit
system, and dismissal at pleasure of officers or employees therein is allowed by the Constitution,
although in Ingles vs. Mutuc, 15 this assumption was held to be inaccurate. According to the Court,
the proper expression to be used is that the term of the incumbent merely expires. Thus in said
case, the Court held: +.wph!1

This should not be misunderstood as denying that the incumbent of a primarily


confidential position holds office at the pleasure only of the appointing power. It
should be noted, however, that when such pleasure turns into displeasure, the
incumbent is not "removed" or dismissed" from office his "term" merely "expires,"
in much the the same way as officer, whose right thereto ceases upon expiration of
the fixed term for which he had been appointed or elected, is not and cannot be
deemed "removed" or "dismissed" therefrom, upon the expiration of said term. The
main difference between the former the primarily confidential officer and the
latter is that the latter's term is fixed of definite, whereas that of the former is not pre-
fixed, but indefinite, at the time of his appointment or election, and becomes fixed and
determined when the appointing power expresses its decision to put an end to the
services of the incumbent. When this even takes place, the latter is not "removed" or
"dismissed" from office his term has merely "expired."
Accordingly, it can be said that petitioner was not removed from her office as confidential agent in
the office of the Auditor, GSIS, but that her term in said position has already expired when the
appointing power terminated her services.

But even granting for the sake of argument, that petitioner's position was not primarily confidential
and that therefore her removal from said position for loss of confidence was in violation of her
security of tenure as a civil service employee, yet by her acceptance of the position of Junior
Examiner in the Office of the Auditor, GSIS on April 1, 1976, she was deemed to have abandoned
former position of "confidential agent" in the same office. To constitute abandonment, there must
be a total abandonment to clearly indicate an absolute relinquishment of the office. 16 The officer
should manifest a clear intention to abandon the office and its duties which may be inferred from
his conduct. In one case, the Court held that abandonment of an office by reason of the acceptance
of another, in order to be effective and binding should spring from and be accompanied by
deliberation and freedom of choice, either to keep the old office or renounce it for another. 17 In the
instant case, the day after her services as "confidential agent" in the Office of the Auditor,
Government Service Insurance System were terminated, petitioner accepted unqualifiedly the
position of Junior Examiner in the same office. She took her oath of office, performed the duties
thereof and received her salary. All these clearly indicate that she has completely abandoned her
former position. In Summers vs. Ozaeta, 18 a cadastral judge accepted the position of judge-at-large
of the Court of First Instance, took his office as such, performed the powers and duties thereof, and
withdraw the salary of judge-at-large, the Court held that he has abandoned his former position.
In Agapuyan vs. Ledesma,19 where an acting chief of police after his removal from office accepted
an appointment as a permanent anger in the Bureau of Forestry, the Court likewise held that he
was deemed to have abandoned his former office. That petitioner had the clear intention to
abandon her old position is firmed up by the fact that after her services as "confidential agent" in
the Office of the Auditor, GSIS, she did not even bother to find out the reason for the termination of
her services. Right the next day, she accepted the position of Junior Examiner in the same office. It
took almost a year when she changed her mind and wanted to return to her old position. Certainly,
by her conduct she has shown her clear intention to abandon it.

WHEREFORE, the decision appealed from is hereby affirmed with costs against petitioner.

SO ORDERED.

DELOS SANTOS VA MALLARE

TUASON, J.:

This is an original action of quo warranto questioning the legality of the appointment of respondent
Gil R. Mallare to the office of city engineer for the City of Baguio which the petitioner occupied and
claims to be still occupying. The real issue however is the legality of the petitioner's removal from
the same office which would be the effect of Mallare's appointment if the same be allowed to stand.
It is the petitioner's contention that under the Constitution he can not be removed against his will
and without cause. The complaint against the other respondents has to do merely with their
recognition of Mallare as the lawful holder of the disputed office and is entirely dependent upon the
result of the basic action against the last-mentioned respondent (Mallare).

Stripped of details unessential to the solution of the case, the facts are that Eduardo de los Santos,
the petitioner, was appointed City Engineer of Baguio on July 16, 1946, by the President,
appointment which was confirmed by the Commission on Appointments on August 6, and on the
23rd of that month, he qualified for and began to exercise the duties and functions of the position.
On June 1, 1950, Gil R. Mallare was extended an ad interim appointment by the President to the
same position, after which, on June 3, the Undersecretary of the Department of Public Works and
Communications directed Santos to report to the Bureau of Public Works for another assignment.
Santos refused to vacate the office, and when the City Mayor and the other officials named as
Mallare's co-defendants ignored him and paid Mallare the salary corresponding to the position, he
commenced these proceedings.

The petitioner rests his case on Article XII of the Constitution, section 4 of which reads: "No officer
or employee in the Civil Service shall be removed or suspended except for cause as provided by
law."

It is admitted in respondents' answer that the City Engineer of Baguio "belongs to the unclassified
service." And this Court, in an exhaustive opinion by Mr. Justice Montemayor in the case of Lacson
vs. Romero, 47 Off. Gaz., 1778, involving the office of provincial fiscal, ruled that officers or
employees in the unclassified as well as those in the classified service are protected by the above-
cited provision of the organic law. But there is this difference between the Lacson case and the
case at bar: Section 2545 of the Revised Administrative Code, which falls under Chapter 61 entitled
"City of Baguio," authorizes the Governor General (now the President) to remove at pleasure any of
the officers enumerated therein, one of whom is the city engineer. The first question that presents
itself is, is this provision still in force?

Section 2 of Article XVI of the Constitution declares that "All laws of the Philippine Islands shall
continue in force until the inauguration of the Commonwealth of the Philippines; thereafter, such
laws shall remain operative, unlessinconsistent with this Constitution, until amended, altered,
modified, or repealed by the Congress of the Philippines, . . . ."

It seems plain beyond doubt that the provision of section 2545 of the Revised Administrative Code,
he (Governor-General now President) may remove at pleasure any of the said appointive officers,"
is incompatible with the constitutional inhibition that "No officer or employee in the Civil Service
shall be removed or suspended except for cause as provided by law." The two provisions are
mutually repugnant and absolutely irreconcilable. One in express terms permits what the other in
similar terms prohibits.

The Constitution leaves it to the Congress to provide for the cause of removal, and it is suggested
that the President's pleasure is itself a cause. The phrase "for cause" in connection with the
removals of public officers has acquired a well-defined concept. "It means for reasons which the law
and sound public policy recognized as sufficient warrant for removal, that is, legal cause, and not
merely causes which the appointing power in the exercise of discretion may deem sufficient. It is
implied that officers may not be removed at the mere will of those vested with the power of
removal, or without any cause. Moreover, the cause must relate to and affect the administration of
the office, and must be restricted to something of a substantial nature directly affecting the rights
and interests of the public."(43 Am. Jur., 47, 48.)

Reconsideration of the decision in Lacson vs. Romero as far as officers in the unclassified service
are concerned is urged. It is contended that only officers and employees in the classified service
should be brought within the purview of Article XII of the Constitution.

Section 1 of this article ordains: "A Civil Service embracing all branches and subdivisions of the
Government shall be provided by law. Appointments in the Civil Service, except as those which are
policy-determining, primarily confidential or highly technical in nature, shall be made only
according to merit and fitness, to be determined as far as practicable by competitive examination."
The first clause is a definition of the scope of Civil Service, the men and women which section 4
protects. It seems obvious from that definition that the entire Civil Service is contemplated, except
positions "which are policy-determining, primarily confidential or highly technical in nature." This
theory is confirmed by the enactment of Commonwealth Act No. 177 on November 30, 1936 to
implement Article XII of the Constitution. Commonwealth Act No. 177 explains Civil Service almost
in the identical words of that article of the organic law. As a contemporaneous construction, this Act
affords an index to the meaning of Civil Service as conceived by the framers of the Constitution.
"The principle of contemporaneous construction may be applied to the construction given by the
legislature to the constitutional provisions dealing with legislative powers and procedure. Though
not conclusive, such interpretation is generally conceded as being entitled to great weight."
(U.S. vs.Sprague, 282 U.S., 716; 75 L. ed. 640; 51 S. Ct., 220; 71 A.L.R., 1381; Den ex dem.
Murray vs. Hoboken Land and Improv. Co., 18 How. [U.S.], 272; 15 L. ed., 372; Clark vs. Boyce, 20
Ariz., 544; 185 P., 136, citing R.C.L.; 11 Am. Jur. 699.) The principle of express mention and implied
exclusion may be made use of also to drive home this point.

We are led to the same conclusion by the existing provisions at the time of the adoption of the
Constitution. Civil Service as embracing both classes of officers and employees possessed definite
legal and statutory meaning when the Constitution was approved. Section 670 of the Revised
Administrative Code already provided that "Persons in the Philippine civil service pertain either to
the classified service," and went on to say that "The classified service embraces all not expressly
declared to be in the unclassified service." Then section 671 described persons in the unclassified
service as "officers, other than the provincial treasurers and assistant directors of bureaus or
offices, appointed by the President of the Philippines, with the consent of the Commission on
Appointments of the National Assembly, and all other officers of the government whose
appointments are by law vested in the President of the Philippines alone."

The rules of the construction inform us that the words use in the constitution are to be given the
sense they have in common use. (Okanogan Indians vs. United States, 279, U.S., 665; 64 A.L.R.,
1434; 73 Law ed., 894.) It has been said that we must look to the history of the times, examine the
state of things existing when the Constitution was framed and adopted, (Rhode
Islands vs. Massachusetts, 12 Pet., 657; 9 Law ed., 1233), and interpret it in the light of the law
then in operation. (Mattox vs. United States, 156, U.S., 237; 39 Law ed., 409.)

Attention is drawn to supposed inconveniences of tying the hands of the appointing power in
changing and shifting officers in the unclassified service. "If it is argued all important officers
and employees of the government falling within the unclassified service as enumerated in section
671 of the Revised Administrative Code as amended by Commonwealth Act No. 177, may not be
removed by the President except for cause as provided by law, . . . the President would be seriously
crippled in the discharge of the grave duty and responsibility laid upon him by the Constitution to
take care that the laws faithfully executed."

Questions of expediency are, of course, beyond the province of the court to take into account in the
interpretation of laws or of the Constitution where the language is otherwise clear. But the
argument is, we think, unsound even if the case be approached from this angle. It contains its own
refutation. The Constitution and the law implementing it afford adequate safeguards against such
consequences as have been painted.

The argument proceeds, contrary to its context, on the assumption that removes of civil service
officers and employees are absolutely prohibited, which is not the case. The Constitution authorizes
removals and only requires that they be for cause. And the occasions for removal would be greatly
diminished if the injunction of section 1 of Article XII of the Constitution that appointments in the
civil service shall be made only according to merit and fitness, to be determined as far as
practicable by competitive examination would be adhered of meticulously in the first place.

By far greater mischiefs would be fomented by an unbridled authority to remove. Such license
would thwart the very aims of the Constitution which are expounded by Dean Aruego, himself a
member of the Constitutional Convention, in the following remarks copied with approval in Lacson
vs. Romero, supra:
The adoption of the "merit system" in government service has secured efficiency and social
justice. It eliminates the political factor in the selection of civil employees which is the first
essential to an efficient personnel system. It insures equality of opportunity to all deserving
applicants desirous of a career in the public service. It advocates a new concept of the public
office as a career open to all and not the exclusive patrimony of any party or faction to be
doled out as a reward for party service.

The "merit system" was adopted only after the nations of the world took cognizance of its
merits. Political patronage in the government service was sanctioned in 1879 by the
Constitutional right of President of the United States to act alone in the matter of removals.
From the time of Andrew Jackson the principle of the "To the victor belongs the spoils'
dominated the Federal Government. The system undermined moral values and destroyed
administrative efficiency.

Since the establishment of the American Regime in the Philippines we have enjoyed the
benefits of the "merit system." The Schurmann Commission advocated in its reports that
"the greatest care should be taken in the selection of the officials for administration. They
should be men of the highest character and fitness, and partisan politics should be entirely
separated from the government." The fifth act passed by the Philippine Commission created
a Board of Civil Service. It instituted a system here that was far more radical and thorough
than that in the United States. The Governor-General after William Taft adopted the policy of
appointing Filipinos in the government regardless of their party affiliation. As the result of
these the personnel of the Civil Service had gradually come to be one of which the people of
the United States could feel justly proud.

Necessity for Constitutional provision. The inclusion in the constitution of provisions


regarding the "merit system" is a necessity of modern times. As its establishment secures
good government the citizens have a right to accept its guarantee as a permanent
institution.

Separation, suspension, demotions and transfers. The "merit system" will be ineffective if
no safeguards are placed around the separation and removal of public employees. The
Committee's report requires that removals shall be made only for "causes and in the manner
provided by law. This means that there should be bona fide reasons and action maybe taken
only after the employee shall have been given a fair hearing. This affords the public
employees reasonable security of tenure. (II Aruego's Framing of the Constitution, 886, 887,
890.)

As has been seen, three specified classes of positions policy-determining, primarily confidential
and highly technical are excluded from the merit system and dismissal at pleasure of officers
and employees appointed therein is allowed by the Constitution. These positions involved the
highest degree of confidence, or are closely bound out with and dependent on other positions to
which they are subordinate, or are temporary in nature. It may truly be said that the good of the
service itself demands that appointments coming under this category determinable at the will of
the officer that makes them.

The office of city engineer is neither primarily confidential, policy-determining, nor highly technical.

Every appointment implies confidence, but much more than ordinary confidence is reposed in the
occupant of a position that is primarily confidential. The latter phrase denotes not only confidence
in the aptitude of the appointee for the duties of the office but primarily close intimacy which
insures freedom of intercourse without embarrassment or freedom from misgivings of betrayals of
personal trust or confidential matters of state. Nor is the position of city engineer policy-
determining. A city engineer does not formulate a method of action for the government or any its
subdivisions. His job is to execute policy, not to make it. With specific reference to the City Engineer
of Baguio, his powers and duties are carefully laid down for him be section 2557 of the Revised
Administrative Code and are essentially ministerial in character. Finally, the position of city
engineer is technical but not highly so. A city engineer is not required nor is he supposed to
possess a technical skill or training in the supreme or superior degree, which is the sense in which
"highly technical" is, we believe, employed in the Constitution. There are hundreds of technical
men in the classified civil service whose technical competence is not lower than that of a city
engineer. As a matter of fact, the duties of a city engineer are eminently administrative in
character and could very well be discharged by non-technical men possessing executive ability.

Section 10 of Article VIII of the Constitution requires that "All cases involving the constitutionality of
a treaty or law shall be heard and decided by the Supreme Court in banc," and warns that "no
treaty or law may be declared unconstitutional without the concurrence of two-thirds of all the
members of the Court." The question arises as to whether this judgment operates as invalidation of
section 2545 of the Revised Administrative Code or a part of it so as to need at least eight votes to
make effective. The answer should be in negative.

We are not declaring any part of section 2545 of the Revised Administrative Code unconstitutional.
What we declare is that the particular provision thereof which gave the Chief Executive power to
remove officers at pleasure has been repealed by the Constitution and ceased to be operative from
the time that instrument went into effect. Unconstitutionally, as we understand it, denotes life and
vigor, and unconstitutional legislation presupposes posteriority in point of time to the Constitution.
It is a statute that "attempts to validate and legalize a course of conduct the effect of which the
Constitution specifically forbids (State ex-rel. Mack vs. Guckenberger, 139 Ohio St., 273; 39 NE.
[2d], 840.) A law that has been repealed is as good as if it had never been enacted, and can not, in
the nature of things, contravene or pretend to contravene constitutional inhibition. So, unlike
legislation that is passed in defiance of the Constitution, assertive and menacing, the questioned
part of section 2545 of the Revised Administrative Code does not need a positive declaration of
nullity by the court to put it out of the way. To all intents and purposes, it is non-existent, outlawed
and eliminated from the statute book by the Constitution itself by express mandate before this
petitioner was appointed.

Incidentally, the last discussion answers and disposes of the proposition that in accepting
appointment under section 2545 of the Revised Administrative Code, the petitioner must be
deemed to have accepted the conditions and limitations attached to the appointment. If the clause
of section 2545 which authorized the President to remove officers of the City of Baguio at pleasure
had been abrogated when petitioner's appointment was issued, the appointee can not presumed to
have abided by this condition.

We therefore hold that the petitioner is entitled to remain in office as City Engineer of Baguio with
all the emoluments, rights and privileges appurtenant thereto, until he resigns or is removed for
cause, and that respondent Mallare's appointment is ineffective in so far as it may adversely affect
those emoluments, rights and privileges. Without costs.

LAUREL VS GARCIA

These are two petitions for prohibition seeking to enjoin respondents, their
representatives and agents from proceeding with the bidding for the sale of the 3,179
square meters of land at 306 Roppongi, 5-Chome Minato-ku Tokyo, Japan scheduled on
February 21, 1990. We granted the prayer for a temporary restraining order effective
February 20, 1990. One of the petitioners (in G.R. No. 92047) likewise prayes for a writ
of mandamus to compel the respondents to fully disclose to the public the basis of their
decision to push through with the sale of the Roppongi property inspire of strong public
opposition and to explain the proceedings which effectively prevent the participation of
Filipino citizens and entities in the bidding process.

The oral arguments in G.R. No. 92013, Laurel v. Garcia, et al. were heard by the Court
on March 13, 1990. After G.R. No. 92047, Ojeda v. Secretary Macaraig, et al. was filed,
the respondents were required to file a comment by the Court's resolution dated
February 22, 1990. The two petitions were consolidated on March 27, 1990 when the
memoranda of the parties in the Laurel case were deliberated upon.

The Court could not act on these cases immediately because the respondents filed a
motion for an extension of thirty (30) days to file comment in G.R. No. 92047, followed
by a second motion for an extension of another thirty (30) days which we granted on
May 8, 1990, a third motion for extension of time granted on May 24, 1990 and a fourth
motion for extension of time which we granted on June 5, 1990 but calling the attention
of the respondents to the length of time the petitions have been pending. After the
comment was filed, the petitioner in G.R. No. 92047 asked for thirty (30) days to file a
reply. We noted his motion and resolved to decide the two (2) cases.

The subject property in this case is one of the four (4) properties in Japan acquired by
the Philippine government under the Reparations Agreement entered into with Japan on
May 9, 1956, the other lots being:

(1) The Nampeidai Property at 11-24 Nampeidai-machi, Shibuya-ku, Tokyo which has an
area of approximately 2,489.96 square meters, and is at present the site of the
Philippine Embassy Chancery;

(2) The Kobe Commercial Property at 63 Naniwa-cho, Kobe, with an area of around
764.72 square meters and categorized as a commercial lot now being used as a
warehouse and parking lot for the consulate staff; and

(3) The Kobe Residential Property at 1-980-2 Obanoyama-cho, Shinohara, Nada-ku,


Kobe, a residential lot which is now vacant.

The properties and the capital goods and services procured from the Japanese
government for national development projects are part of the indemnification to the
Filipino people for their losses in life and property and their suffering during World War
II.

The Reparations Agreement provides that reparations valued at $550 million would be
payable in twenty (20) years in accordance with annual schedules of procurements to
be fixed by the Philippine and Japanese governments (Article 2, Reparations
Agreement). Rep. Act No. 1789, the Reparations Law, prescribes the national policy on
procurement and utilization of reparations and development loans. The procurements
are divided into those for use by the government sector and those for private parties in
projects as the then National Economic Council shall determine. Those intended for the
private sector shall be made available by sale to Filipino citizens or to one hundred
(100%) percent Filipino-owned entities in national development projects.

The Roppongi property was acquired from the Japanese government under the Second
Year Schedule and listed under the heading "Government Sector", through Reparations
Contract No. 300 dated June 27, 1958. The Roppongi property consists of the land and
building "for the Chancery of the Philippine Embassy" (Annex M-D to Memorandum for
Petitioner, p. 503). As intended, it became the site of the Philippine Embassy until the
latter was transferred to Nampeidai on July 22, 1976 when the Roppongi building
needed major repairs. Due to the failure of our government to provide necessary funds,
the Roppongi property has remained undeveloped since that time.

A proposal was presented to President Corazon C. Aquino by former Philippine


Ambassador to Japan, Carlos J. Valdez, to make the property the subject of a lease
agreement with a Japanese firm - Kajima Corporation which shall construct two (2)
buildings in Roppongi and one (1) building in Nampeidai and renovate the present
Philippine Chancery in Nampeidai. The consideration of the construction would be the
lease to the foreign corporation of one (1) of the buildings to be constructed in
Roppongi and the two (2) buildings in Nampeidai. The other building in Roppongi shall
then be used as the Philippine Embassy Chancery. At the end of the lease period, all the
three leased buildings shall be occupied and used by the Philippine government. No
change of ownership or title shall occur. (See Annex "B" to Reply to Comment) The
Philippine government retains the title all throughout the lease period and thereafter.
However, the government has not acted favorably on this proposal which is pending
approval and ratification between the parties. Instead, on August 11, 1986, President
Aquino created a committee to study the disposition/utilization of Philippine
government properties in Tokyo and Kobe, Japan through Administrative Order No. 3,
followed by Administrative Orders Numbered 3-A, B, C and D.

On July 25, 1987, the President issued Executive Order No. 296 entitling non-Filipino
citizens or entities to avail of separations' capital goods and services in the event of
sale, lease or disposition. The four properties in Japan including the Roppongi were
specifically mentioned in the first "Whereas" clause.

Amidst opposition by various sectors, the Executive branch of the government has been
pushing, with great vigor, its decision to sell the reparations properties starting with
the Roppongi lot. The property has twice been set for bidding at a minimum floor price
of $225 million. The first bidding was a failure since only one bidder qualified. The
second one, after postponements, has not yet materialized. The last scheduled bidding
on February 21, 1990 was restrained by his Court. Later, the rules on bidding were
changed such that the $225 million floor price became merely a suggested floor price.

The Court finds that each of the herein petitions raises distinct issues. The petitioner in
G.R. No. 92013 objects to the alienation of the Roppongi property to anyone while the
petitioner in G.R. No. 92047 adds as a principal objection the alleged unjustified bias of
the Philippine government in favor of selling the property to non-Filipino citizens and
entities. These petitions have been consolidated and are resolved at the same time for
the objective is the same - to stop the sale of the Roppongi property.

The petitioner in G.R. No. 92013 raises the following issues:

(1) Can the Roppongi property and others of its kind be alienated by the Philippine
Government?; and

(2) Does the Chief Executive, her officers and agents, have the authority and
jurisdiction, to sell the Roppongi property?

Petitioner Dionisio Ojeda in G.R. No. 92047, apart from questioning the authority of the
government to alienate the Roppongi property assails the constitutionality of Executive
Order No. 296 in making the property available for sale to non-Filipino citizens and
entities. He also questions the bidding procedures of the Committee on the Utilization
or Disposition of Philippine Government Properties in Japan for being discriminatory
against Filipino citizens and Filipino-owned entities by denying them the right to be
informed about the bidding requirements.

II

In G.R. No. 92013, petitioner Laurel asserts that the Roppongi property and the related
lots were acquired as part of the reparations from the Japanese government for
diplomatic and consular use by the Philippine government. Vice-President Laurel states
that the Roppongi property is classified as one of public dominion, and not of private
ownership under Article 420 of the Civil Code (See infra).

The petitioner submits that the Roppongi property comes under "property intended for
public service" in paragraph 2 of the above provision. He states that being one of public
dominion, no ownership by any one can attach to it, not even by the State. The
Roppongi and related properties were acquired for "sites for chancery, diplomatic, and
consular quarters, buildings and other improvements" (Second Year Reparations
Schedule). The petitioner states that they continue to be intended for a necessary
service. They are held by the State in anticipation of an opportune use. (Citing 3
Manresa 65-66). Hence, it cannot be appropriated, is outside the commerce of man, or
to put it in more simple terms, it cannot be alienated nor be the subject matter of
contracts (Citing Municipality of Cavite v. Rojas, 30 Phil. 20 [1915]). Noting the non-use
of the Roppongi property at the moment, the petitioner avers that the same remains
property of public dominion so long as the government has not used it for other
purposes nor adopted any measure constituting a removal of its original purpose or
use.

The respondents, for their part, refute the petitioner's contention by saying that the
subject property is not governed by our Civil Code but by the laws of Japan where the
property is located. They rely upon the rule of lex situs which is used in determining the
applicable law regarding the acquisition, transfer and devolution of the title to a
property. They also invoke Opinion No. 21, Series of 1988, dated January 27, 1988 of the
Secretary of Justice which used the lex situs in explaining the inapplicability of
Philippine law regarding a property situated in Japan.

The respondents add that even assuming for the sake of argument that the Civil Code is
applicable, the Roppongi property has ceased to become property of public dominion. It
has become patrimonial property because it has not been used for public service or for
diplomatic purposes for over thirteen (13) years now (Citing Article 422, Civil Code) and
because the intention by the Executive Department and the Congress to convert it to
private use has been manifested by overt acts, such as, among others: (1) the transfer
of the Philippine Embassy to Nampeidai (2) the issuance of administrative orders for the
possibility of alienating the four government properties in Japan; (3) the issuance of
Executive Order No. 296; (4) the enactment by the Congress of Rep. Act No. 6657 [the
Comprehensive Agrarian Reform Law] on June 10, 1988 which contains a provision
stating that funds may be taken from the sale of Philippine properties in foreign
countries; (5) the holding of the public bidding of the Roppongi property but which
failed; (6) the deferment by the Senate in Resolution No. 55 of the bidding to a future
date; thus an acknowledgment by the Senate of the government's intention to remove
the Roppongi property from the public service purpose; and (7) the resolution of this
Court dismissing the petition in Ojeda v. Bidding Committee, et al., G.R. No. 87478
which sought to enjoin the second bidding of the Roppongi property scheduled on
March 30, 1989.
III

In G.R. No. 94047, petitioner Ojeda once more asks this Court to rule on the
constitutionality of Executive Order No. 296. He had earlier filed a petition in G.R. No.
87478 which the Court dismissed on August 1, 1989. He now avers that the executive
order contravenes the constitutional mandate to conserve and develop the national
patrimony stated in the Preamble of the 1987 Constitution. It also allegedly violates:

(1) The reservation of the ownership and acquisition of alienable lands of the public
domain to Filipino citizens. (Sections 2 and 3, Article XII, Constitution; Sections 22 and
23 of Commonwealth Act 141).itc-asl

(2) The preference for Filipino citizens in the grant of rights, privileges and concessions
covering the national economy and patrimony (Section 10, Article VI, Constitution);

(3) The protection given to Filipino enterprises against unfair competition and trade
practices;

(4) The guarantee of the right of the people to information on all matters of public
concern (Section 7, Article III, Constitution);

(5) The prohibition against the sale to non-Filipino citizens or entities not wholly owned
by Filipino citizens of capital goods received by the Philippines under the Reparations
Act (Sections 2 and 12 of Rep. Act No. 1789); and

(6) The declaration of the state policy of full public disclosure of all transactions
involving public interest (Section 28, Article III, Constitution).

Petitioner Ojeda warns that the use of public funds in the execution of an
unconstitutional executive order is a misapplication of public funds He states that since
the details of the bidding for the Roppongi property were never publicly disclosed until
February 15, 1990 (or a few days before the scheduled bidding), the bidding guidelines
are available only in Tokyo, and the accomplishment of requirements and the selection
of qualified bidders should be done in Tokyo, interested Filipino citizens or entities
owned by them did not have the chance to comply with Purchase Offer Requirements on
the Roppongi. Worse, the Roppongi shall be sold for a minimum price of $225 million
from which price capital gains tax under Japanese law of about 50 to 70% of the floor
price would still be deducted.

IV

The petitioners and respondents in both cases do not dispute the fact that the Roppongi
site and the three related properties were through reparations agreements, that these
were assigned to the government sector and that the Roppongi property itself was
specifically designated under the Reparations Agreement to house the Philippine
Embassy.

The nature of the Roppongi lot as property for public service is expressly spelled out. It
is dictated by the terms of the Reparations Agreement and the corresponding contract
of procurement which bind both the Philippine government and the Japanese
government.

There can be no doubt that it is of public dominion unless it is convincingly shown that
the property has become patrimonial. This, the respondents have failed to do.
As property of public dominion, the Roppongi lot is outside the commerce of man. It
cannot be alienated. Its ownership is a special collective ownership for general use and
enjoyment, an application to the satisfaction of collective needs, and resides in the
social group. The purpose is not to serve the State as a juridical person, but the
citizens; it is intended for the common and public welfare and cannot be the object of
appropration. (Taken from 3 Manresa, 66-69; cited in Tolentino, Commentaries on the
Civil Code of the Philippines, 1963 Edition, Vol. II, p. 26).

The applicable provisions of the Civil Code are:

ART. 419. Property is either of public dominion or of private ownership.

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.

ART. 421. All other property of the State, which is not of the character stated
in the preceding article, is patrimonial property.

The Roppongi property is correctly classified under paragraph 2 of Article 420 of the
Civil Code as property belonging to the State and intended for some public service.

Has the intention of the government regarding the use of the property been changed
because the lot has been Idle for some years? Has it become patrimonial?

The fact that the Roppongi site has not been used for a long time for actual Embassy
service does not automatically convert it to patrimonial property. Any such conversion
happens only if the property is withdrawn from public use (Cebu Oxygen and Acetylene
Co. v. Bercilles, 66 SCRA 481 [1975]). A property continues to be part of the public
domain, not available for private appropriation or ownership until there is a formal
declaration on the part of the government to withdraw it from being such (Ignacio v.
Director of Lands, 108 Phil. 335 [1960]).

The respondents enumerate various pronouncements by concerned public officials


insinuating a change of intention. We emphasize, however, that an abandonment of the
intention to use the Roppongi property for public service and to make it patrimonial
property under Article 422 of the Civil Code must be definiteAbandonment cannot be
inferred from the non-use alone specially if the non-use was attributable not to the
government's own deliberate and indubitable will but to a lack of financial support to
repair and improve the property (See Heirs of Felino Santiago v. Lazaro, 166 SCRA 368
[1988]). Abandonment must be a certain and positive act based on correct legal
premises.

A mere transfer of the Philippine Embassy to Nampeidai in 1976 is not relinquishment of


the Roppongi property's original purpose. Even the failure by the government to repair
the building in Roppongi is not abandonment since as earlier stated, there simply was a
shortage of government funds. The recent Administrative Orders authorizing a study of
the status and conditions of government properties in Japan were merely directives for
investigation but did not in any way signify a clear intention to dispose of the
properties.

Executive Order No. 296, though its title declares an "authority to sell", does not have a
provision in its text expressly authorizing the sale of the four properties procured from
Japan for the government sector. The executive order does not declare that the
properties lost their public character. It merely intends to make the
properties available to foreigners and not to Filipinos alone in case of a sale, lease or
other disposition. It merely eliminates the restriction under Rep. Act No. 1789 that
reparations goods may be sold only to Filipino citizens and one hundred (100%) percent
Filipino-owned entities. The text of Executive Order No. 296 provides:

Section 1. The provisions of Republic Act No. 1789, as amended, and of


other laws to the contrary notwithstanding, the above-mentioned properties
can be made available for sale, lease or any other manner of disposition to
non-Filipino citizens or to entities owned by non-Filipino citizens.

Executive Order No. 296 is based on the wrong premise or assumption that the
Roppongi and the three other properties were earlier converted into alienable real
properties. As earlier stated, Rep. Act No. 1789 differentiates the procurements for the
government sector and the private sector (Sections 2 and 12, Rep. Act No. 1789). Only
the private sector properties can be sold to end-users who must be Filipinos or entities
owned by Filipinos. It is this nationality provision which was amended by Executive
Order No. 296.

Section 63 (c) of Rep. Act No. 6657 (the CARP Law) which provides as one of the sources
of funds for its implementation, the proceeds of the disposition of the properties of the
Government in foreign countries, did not withdraw the Roppongi property from being
classified as one of public dominion when it mentions Philippine properties abroad.
Section 63 (c) refers to properties which are alienable and not to those reserved for
public use or service. Rep Act No. 6657, therefore, does not authorize the Executive
Department to sell the Roppongi property. It merely enumerates possible sources of
future funding to augment (as and when needed) the Agrarian Reform Fund created
under Executive Order No. 299. Obviously any property outside of the commerce of man
cannot be tapped as a source of funds.

The respondents try to get around the public dominion character of the Roppongi
property by insisting that Japanese law and not our Civil Code should apply.

It is exceedingly strange why our top government officials, of all people, should be the
ones to insist that in the sale of extremely valuable government property, Japanese law
and not Philippine law should prevail. The Japanese law - its coverage and effects, when
enacted, and exceptions to its provision is not presented to the Court It is simply
asserted that the lex loci rei sitae or Japanese law should apply without stating what
that law provides. It is a ed on faith that Japanese law would allow the sale.

We see no reason why a conflict of law rule should apply when no conflict of law
situation exists. A conflict of law situation arises only when: (1) There is a dispute over
the title or ownership of an immovable, such that the capacity to take and transfer
immovables, the formalities of conveyance, the essential validity and effect of the
transfer, or the interpretation and effect of a conveyance, are to be determined (See
Salonga, Private International Law, 1981 ed., pp. 377-383); and (2) A foreign law on
land ownership and its conveyance is asserted to conflict with a domestic law on the
same matters. Hence, the need to determine which law should apply.
In the instant case, none of the above elements exists.

The issues are not concerned with validity of ownership or title. There is no question
that the property belongs to the Philippines. The issue is the authority of the
respondent officials to validly dispose of property belonging to the State. And the
validity of the procedures adopted to effect its sale. This is governed by Philippine Law.
The rule of lex situs does not apply.

The assertion that the opinion of the Secretary of Justice sheds light on the relevance of
the lex situs rule is misplaced. The opinion does not tackle the alienability of the real
properties procured through reparations nor the existence in what body of the authority
to sell them. In discussing who are capable of acquiring the lots, the Secretary merely
explains that it is the foreign law which should determine who can acquire the
properties so that the constitutional limitation on acquisition of lands of the public
domain to Filipino citizens and entities wholly owned by Filipinos is inapplicable. We see
no point in belaboring whether or not this opinion is correct. Why should we discuss
who can acquire the Roppongi lot when there is no showing that it can be sold?

The subsequent approval on October 4, 1988 by President Aquino of the


recommendation by the investigating committee to sell the Roppongi property was
premature or, at the very least, conditioned on a valid change in the public character of
the Roppongi property. Moreover, the approval does not have the force and effect of law
since the President already lost her legislative powers. The Congress had already
convened for more than a year.

Assuming for the sake of argument, however, that the Roppongi property is no longer of
public dominion, there is another obstacle to its sale by the respondents.

There is no law authorizing its conveyance.

Section 79 (f) of the Revised Administrative Code of 1917 provides

Section 79 (f ) Conveyances and contracts to which the Government is a


party. In cases in which the Government of the Republic of the Philippines
is a party to any deed or other instrument conveying the title to real estate
or to any other property the value of which is in excess of one hundred
thousand pesos, the respective Department Secretary shall prepare the
necessary papers which, together with the proper recommendations, shall
be submitted to the Congress of the Philippines for approval by the
same. Such deed, instrument, or contract shall be executed and signed by
the President of the Philippines on behalf of the Government of the
Philippines unless the Government of the Philippines unless the authority
therefor be expressly vested by law in another officer. (Emphasis supplied)

The requirement has been retained in Section 48, Book I of the Administrative Code of
1987 (Executive Order No. 292).

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)

It is not for the President to convey valuable real property of the government on his or
her own sole will. Any such conveyance must be authorized and approved by a law
enacted by the Congress. It requires executive and legislative concurrence.

Resolution No. 55 of the Senate dated June 8, 1989, asking for the deferment of the sale
of the Roppongi property does not withdraw the property from public domain much less
authorize its sale. It is a mere resolution; it is not a formal declaration abandoning the
public character of the Roppongi property. In fact, the Senate Committee on Foreign
Relations is conducting hearings on Senate Resolution No. 734 which raises serious
policy considerations and calls for a fact-finding investigation of the circumstances
behind the decision to sell the Philippine government properties in Japan.

The resolution of this Court in Ojeda v. Bidding Committee, et al., supra, did not pass
upon the constitutionality of Executive Order No. 296. Contrary to respondents'
assertion, we did not uphold the authority of the President to sell the Roppongi
property. The Court stated that the constitutionality of the executive order was not the
real issue and that resolving the constitutional question was "neither necessary nor
finally determinative of the case." The Court noted that "[W]hat petitioner ultimately
questions is the use of the proceeds of the disposition of the Roppongi property." In
emphasizing that "the decision of the Executive to dispose of the Roppongi property to
finance the CARP ... cannot be questioned" in view of Section 63 (c) of Rep. Act No.
6657, the Court did not acknowledge the fact that the property became alienable nor
did it indicate that the President was authorized to dispose of the Roppongi property.
The resolution should be read to mean that in case the Roppongi property is re-
classified to be patrimonial and alienable by authority of law, the proceeds of a sale may
be used for national economic development projects including the CARP.

Moreover, the sale in 1989 did not materialize. The petitions before us question the
proposed 1990 sale of the Roppongi property. We are resolving the issues raised in
these petitions, not the issues raised in 1989.

Having declared a need for a law or formal declaration to withdraw the Roppongi
property from public domain to make it alienable and a need for legislative authority to
allow the sale of the property, we see no compelling reason to tackle the constitutional
issues raised by petitioner Ojeda.

The Court does not ordinarily pass upon constitutional questions unless these questions
are properly raised in appropriate cases and their resolution is necessary for the
determination of the case (People v. Vera, 65 Phil. 56 [1937]). The Court will not pass
upon a constitutional question although properly presented by the record if the case
can be disposed of on some other ground such as the application of a statute or general
law (Siler v. Louisville and Nashville R. Co., 213 U.S. 175, [1909], Railroad Commission v.
Pullman Co., 312 U.S. 496 [1941]).

The petitioner in G.R. No. 92013 states why the Roppongi property should not be sold:
The Roppongi property is not just like any piece of property. It was given to
the Filipino people in reparation for the lives and blood of Filipinos who died
and suffered during the Japanese military occupation, for the suffering of
widows and orphans who lost their loved ones and kindred, for the homes
and other properties lost by countless Filipinos during the war. The Tokyo
properties are a monument to the bravery and sacrifice of the Filipino
people in the face of an invader; like the monuments of Rizal, Quezon, and
other Filipino heroes, we do not expect economic or financial benefits from
them. But who would think of selling these monuments? Filipino honor and
national dignity dictate that we keep our properties in Japan as memorials to
the countless Filipinos who died and suffered. Even if we should become
paupers we should not think of selling them. For it would be as if we sold
the lives and blood and tears of our countrymen. (Rollo- G.R. No. 92013,
p.147)

The petitioner in G.R. No. 92047 also states:

Roppongi is no ordinary property. It is one ceded by the Japanese


government in atonement for its past belligerence for the valiant sacrifice of
life and limb and for deaths, physical dislocation and economic devastation
the whole Filipino people endured in World War II.

It is for what it stands for, and for what it could never bring back to life, that
its significance today remains undimmed, inspire of the lapse of 45 years
since the war ended, inspire of the passage of 32 years since the property
passed on to the Philippine government.

Roppongi is a reminder that cannot should not be dissipated ... (Rollo-


92047, p. 9)

It is indeed true that the Roppongi property is valuable not so much because of the
inflated prices fetched by real property in Tokyo but more so because of its symbolic
value to all Filipinos veterans and civilians alike. Whether or not the Roppongi and
related properties will eventually be sold is a policy determination where both the
President and Congress must concur. Considering the properties' importance and value,
the laws on conversion and disposition of property of public dominion must be faithfully
followed.

WHEREFORE, IN VIEW OF THE FOREGOING, the petitions are GRANTED. A writ of


prohibition is issued enjoining the respondents from proceeding with the sale of the
Roppongi property in Tokyo, Japan. The February 20, 1990 Temporary Restraining Order
is made PERMANENT.

SO ORDERED.

CHAVEZ VS PEA

CARPIO, J.:

This is an original Petition for Mandamus with prayer for a writ of preliminary injunction and a
temporary restraining order. The petition seeks to compel the Public Estates Authority ("PEA" for
brevity) to disclose all facts on PEA's then on-going renegotiations with Amari Coastal Bay and
Development Corporation ("AMARI" for brevity) to reclaim portions of Manila Bay. The petition
further seeks to enjoin PEA from signing a new agreement with AMARI involving such reclamation.

The Facts

On November 20, 1973, the government, through the Commissioner of Public Highways, signed a
contract with the Construction and Development Corporation of the Philippines ("CDCP" for brevity)
to reclaim certain foreshore and offshore areas of Manila Bay. The contract also included the
construction of Phases I and II of the Manila-Cavite Coastal Road. CDCP obligated itself to carry out
all the works in consideration of fifty percent of the total reclaimed land.

On February 4, 1977, then President Ferdinand E. Marcos issued Presidential Decree No. 1084
creating PEA. PD No. 1084 tasked PEA "to reclaim land, including foreshore and submerged areas,"
and "to develop, improve, acquire, x x x lease and sell any and all kinds of lands." 1 On the same
date, then President Marcos issued Presidential Decree No. 1085 transferring to PEA the "lands
reclaimed in the foreshore and offshore of the Manila Bay" 2 under the Manila-Cavite Coastal Road
and Reclamation Project (MCCRRP).

On December 29, 1981, then President Marcos issued a memorandum directing PEA to amend its
contract with CDCP, so that "[A]ll future works in MCCRRP x x x shall be funded and owned by PEA."
Accordingly, PEA and CDCP executed a Memorandum of Agreement dated December 29, 1981,
which stated:

"(i) CDCP shall undertake all reclamation, construction, and such other works in the MCCRRP
as may be agreed upon by the parties, to be paid according to progress of works on a unit
price/lump sum basis for items of work to be agreed upon, subject to price escalation,
retention and other terms and conditions provided for in Presidential Decree No. 1594. All the
financing required for such works shall be provided by PEA.

xxx

(iii) x x x CDCP shall give up all its development rights and hereby agrees to cede and
transfer in favor of PEA, all of the rights, title, interest and participation of CDCP in and to all
the areas of land reclaimed by CDCP in the MCCRRP as of December 30, 1981 which have
not yet been sold, transferred or otherwise disposed of by CDCP as of said date, which areas
consist of approximately Ninety-Nine Thousand Four Hundred Seventy Three (99,473) square
meters in the Financial Center Area covered by land pledge No. 5 and approximately Three
Million Three Hundred Eighty Two Thousand Eight Hundred Eighty Eight (3,382,888) square
meters of reclaimed areas at varying elevations above Mean Low Water Level located outside
the Financial Center Area and the First Neighborhood Unit." 3

On January 19, 1988, then President Corazon C. Aquino issued Special Patent No. 3517, granting
and transferring to PEA "the parcels of land so reclaimed under the Manila-Cavite Coastal Road and
Reclamation Project (MCCRRP) containing a total area of one million nine hundred fifteen thousand
eight hundred ninety four (1,915,894) square meters." Subsequently, on April 9, 1988, the Register
of Deeds of the Municipality of Paraaque issued Transfer Certificates of Title Nos. 7309, 7311, and
7312, in the name of PEA, covering the three reclaimed islands known as the "Freedom Islands"
located at the southern portion of the Manila-Cavite Coastal Road, Paraaque City. The Freedom
Islands have a total land area of One Million Five Hundred Seventy Eight Thousand Four Hundred
and Forty One (1,578,441) square meters or 157.841 hectares.

On April 25, 1995, PEA entered into a Joint Venture Agreement ("JVA" for brevity) with AMARI, a
private corporation, to develop the Freedom Islands. The JVA also required the reclamation of an
additional 250 hectares of submerged areas surrounding these islands to complete the
configuration in the Master Development Plan of the Southern Reclamation Project-MCCRRP. PEA
and AMARI entered into the JVA through negotiation without public bidding. 4 On April 28, 1995, the
Board of Directors of PEA, in its Resolution No. 1245, confirmed the JVA. 5 On June 8, 1995, then
President Fidel V. Ramos, through then Executive Secretary Ruben Torres, approved the JVA. 6

On November 29, 1996, then Senate President Ernesto Maceda delivered a privilege speech in the
Senate and denounced the JVA as the "grandmother of all scams." As a result, the Senate
Committee on Government Corporations and Public Enterprises, and the Committee on
Accountability of Public Officers and Investigations, conducted a joint investigation. The Senate
Committees reported the results of their investigation in Senate Committee Report No. 560 dated
September 16, 1997.7 Among the conclusions of their report are: (1) the reclaimed lands PEA seeks
to transfer to AMARI under the JVA are lands of the public domain which the government has not
classified as alienable lands and therefore PEA cannot alienate these lands; (2) the certificates of
title covering the Freedom Islands are thus void, and (3) the JVA itself is illegal.

On December 5, 1997, then President Fidel V. Ramos issued Presidential Administrative Order No.
365 creating a Legal Task Force to conduct a study on the legality of the JVA in view of Senate
Committee Report No. 560. The members of the Legal Task Force were the Secretary of Justice, 8 the
Chief Presidential Legal Counsel,9 and the Government Corporate Counsel.10 The Legal Task Force
upheld the legality of the JVA, contrary to the conclusions reached by the Senate Committees. 11

On April 4 and 5, 1998, the Philippine Daily Inquirer and Today published reports that there were
on-going renegotiations between PEA and AMARI under an order issued by then President Fidel V.
Ramos. According to these reports, PEA Director Nestor Kalaw, PEA Chairman Arsenio Yulo and
retired Navy Officer Sergio Cruz composed the negotiating panel of PEA.

On April 13, 1998, Antonio M. Zulueta filed before the Court a Petition for Prohibition with
Application for the Issuance of a Temporary Restraining Order and Preliminary Injunction docketed
as G.R. No. 132994 seeking to nullify the JVA. The Court dismissed the petition "for unwarranted
disregard of judicial hierarchy, without prejudice to the refiling of the case before the proper
court."12

On April 27, 1998, petitioner Frank I. Chavez ("Petitioner" for brevity) as a taxpayer, filed the
instant Petition for Mandamus with Prayer for the Issuance of a Writ of Preliminary Injunction and
Temporary Restraining Order. Petitioner contends the government stands to lose billions of pesos in
the sale by PEA of the reclaimed lands to AMARI. Petitioner prays that PEA publicly disclose the
terms of any renegotiation of the JVA, invoking Section 28, Article II, and Section 7, Article III, of the
1987 Constitution on the right of the people to information on matters of public concern. Petitioner
assails the sale to AMARI of lands of the public domain as a blatant violation of Section 3, Article XII
of the 1987 Constitution prohibiting the sale of alienable lands of the public domain to private
corporations. Finally, petitioner asserts that he seeks to enjoin the loss of billions of pesos in
properties of the State that are of public dominion.

After several motions for extension of time,13 PEA and AMARI filed their Comments on October 19,
1998 and June 25, 1998, respectively. Meanwhile, on December 28, 1998, petitioner filed an
Omnibus Motion: (a) to require PEA to submit the terms of the renegotiated PEA-AMARI contract; (b)
for issuance of a temporary restraining order; and (c) to set the case for hearing on oral argument.
Petitioner filed a Reiterative Motion for Issuance of a TRO dated May 26, 1999, which the Court
denied in a Resolution dated June 22, 1999.

In a Resolution dated March 23, 1999, the Court gave due course to the petition and required the
parties to file their respective memoranda.
On March 30, 1999, PEA and AMARI signed the Amended Joint Venture Agreement ("Amended JVA,"
for brevity). On May 28, 1999, the Office of the President under the administration of then President
Joseph E. Estrada approved the Amended JVA.

Due to the approval of the Amended JVA by the Office of the President, petitioner now prays that on
"constitutional and statutory grounds the renegotiated contract be declared null and void." 14

The Issues

The issues raised by petitioner, PEA15 and AMARI16 are as follows:

I. WHETHER THE PRINCIPAL RELIEFS PRAYED FOR IN THE PETITION ARE MOOT AND
ACADEMIC BECAUSE OF SUBSEQUENT EVENTS;

II. WHETHER THE PETITION MERITS DISMISSAL FOR FAILING TO OBSERVE THE PRINCIPLE
GOVERNING THE HIERARCHY OF COURTS;

III. WHETHER THE PETITION MERITS DISMISSAL FOR NON-EXHAUSTION OF ADMINISTRATIVE


REMEDIES;

IV. WHETHER PETITIONER HAS LOCUS STANDI TO BRING THIS SUIT;

V. WHETHER THE CONSTITUTIONAL RIGHT TO INFORMATION INCLUDES OFFICIAL


INFORMATION ON ON-GOING NEGOTIATIONS BEFORE A FINAL AGREEMENT;

VI. WHETHER THE STIPULATIONS IN THE AMENDED JOINT VENTURE AGREEMENT FOR THE
TRANSFER TO AMARI OF CERTAIN LANDS, RECLAIMED AND STILL TO BE RECLAIMED, VIOLATE
THE 1987 CONSTITUTION; AND

VII. WHETHER THE COURT IS THE PROPER FORUM FOR RAISING THE ISSUE OF WHETHER THE
AMENDED JOINT VENTURE AGREEMENT IS GROSSLY DISADVANTAGEOUS TO THE
GOVERNMENT.

The Court's Ruling

First issue: whether the principal reliefs prayed for in the petition are moot and
academic because of subsequent events.

The petition prays that PEA publicly disclose the "terms and conditions of the on-going negotiations
for a new agreement." The petition also prays that the Court enjoin PEA from "privately entering
into, perfecting and/or executing any new agreement with AMARI."

PEA and AMARI claim the petition is now moot and academic because AMARI furnished petitioner
on June 21, 1999 a copy of the signed Amended JVA containing the terms and conditions agreed
upon in the renegotiations. Thus, PEA has satisfied petitioner's prayer for a public disclosure of the
renegotiations. Likewise, petitioner's prayer to enjoin the signing of the Amended JVA is now moot
because PEA and AMARI have already signed the Amended JVA on March 30, 1999. Moreover, the
Office of the President has approved the Amended JVA on May 28, 1999.

Petitioner counters that PEA and AMARI cannot avoid the constitutional issue by simply fast-
tracking the signing and approval of the Amended JVA before the Court could act on the issue.
Presidential approval does not resolve the constitutional issue or remove it from the ambit of
judicial review.
We rule that the signing of the Amended JVA by PEA and AMARI and its approval by the President
cannot operate to moot the petition and divest the Court of its jurisdiction. PEA and AMARI have
still to implement the Amended JVA. The prayer to enjoin the signing of the Amended JVA on
constitutional grounds necessarily includes preventing its implementation if in the meantime PEA
and AMARI have signed one in violation of the Constitution. Petitioner's principal basis in assailing
the renegotiation of the JVA is its violation of Section 3, Article XII of the Constitution, which
prohibits the government from alienating lands of the public domain to private corporations. If the
Amended JVA indeed violates the Constitution, it is the duty of the Court to enjoin its
implementation, and if already implemented, to annul the effects of such unconstitutional contract.

The Amended JVA is not an ordinary commercial contract but one which seeks to transfer title
and ownership to 367.5 hectares of reclaimed lands and submerged areas of Manila Bay
to a single private corporation. It now becomes more compelling for the Court to resolve the
issue to insure the government itself does not violate a provision of the Constitution intended to
safeguard the national patrimony. Supervening events, whether intended or accidental, cannot
prevent the Court from rendering a decision if there is a grave violation of the Constitution. In the
instant case, if the Amended JVA runs counter to the Constitution, the Court can still prevent the
transfer of title and ownership of alienable lands of the public domain in the name of AMARI. Even
in cases where supervening events had made the cases moot, the Court did not hesitate to resolve
the legal or constitutional issues raised to formulate controlling principles to guide the bench, bar,
and the public.17

Also, the instant petition is a case of first impression. All previous decisions of the Court involving
Section 3, Article XII of the 1987 Constitution, or its counterpart provision in the 1973
Constitution,18 covered agricultural lands sold to private corporations which acquired the lands
from private parties. The transferors of the private corporations claimed or could claim the right
to judicial confirmation of their imperfect titles19 under Title II of Commonwealth Act. 141
("CA No. 141" for brevity). In the instant case, AMARI seeks to acquire from PEA, a public
corporation, reclaimed lands and submerged areas for non-agricultural purposes
by purchase under PD No. 1084 (charter of PEA) and Title III of CA No. 141. Certain undertakings
by AMARI under the Amended JVA constitute the consideration for the purchase. Neither AMARI nor
PEA can claim judicial confirmation of their titles because the lands covered by the Amended JVA
are newly reclaimed or still to be reclaimed. Judicial confirmation of imperfect title requires open,
continuous, exclusive and notorious occupation of agricultural lands of the public domain for at
least thirty years since June 12, 1945 or earlier. Besides, the deadline for filing applications for
judicial confirmation of imperfect title expired on December 31, 1987. 20

Lastly, there is a need to resolve immediately the constitutional issue raised in this petition
because of the possible transfer at any time by PEA to AMARI of title and ownership to portions of
the reclaimed lands. Under the Amended JVA, PEA is obligated to transfer to AMARI the latter's
seventy percent proportionate share in the reclaimed areas as the reclamation progresses. The
Amended JVA even allows AMARI to mortgage at any time the entire reclaimed area to raise
financing for the reclamation project. 21

Second issue: whether the petition merits dismissal for failing to observe the principle
governing the hierarchy of courts.

PEA and AMARI claim petitioner ignored the judicial hierarchy by seeking relief directly from the
Court. The principle of hierarchy of courts applies generally to cases involving factual questions. As
it is not a trier of facts, the Court cannot entertain cases involving factual issues. The instant case,
however, raises constitutional issues of transcendental importance to the public. 22 The Court can
resolve this case without determining any factual issue related to the case. Also, the instant case is
a petition for mandamus which falls under the original jurisdiction of the Court under Section 5,
Article VIII of the Constitution. We resolve to exercise primary jurisdiction over the instant case.
Third issue: whether the petition merits dismissal for non-exhaustion of administrative
remedies.

PEA faults petitioner for seeking judicial intervention in compelling PEA to disclose publicly certain
information without first asking PEA the needed information. PEA claims petitioner's direct resort to
the Court violates the principle of exhaustion of administrative remedies. It also violates the rule
that mandamus may issue only if there is no other plain, speedy and adequate remedy in the
ordinary course of law.

PEA distinguishes the instant case from Taada v. Tuvera 23 where the Court granted the petition for
mandamus even if the petitioners there did not initially demand from the Office of the President the
publication of the presidential decrees. PEA points out that in Taada, the Executive Department
had an affirmative statutory duty under Article 2 of the Civil Code24 and Section 1 of
Commonwealth Act No. 63825 to publish the presidential decrees. There was, therefore, no need for
the petitioners in Taada to make an initial demand from the Office of the President. In the instant
case, PEA claims it has no affirmative statutory duty to disclose publicly information about its
renegotiation of the JVA. Thus, PEA asserts that the Court must apply the principle of exhaustion of
administrative remedies to the instant case in view of the failure of petitioner here to demand
initially from PEA the needed information.

The original JVA sought to dispose to AMARI public lands held by PEA, a government corporation.
Under Section 79 of the Government Auditing Code, 26 the disposition of government lands to
private parties requires public bidding. PEA was under a positive legal duty to disclose to the
public the terms and conditions for the sale of its lands. The law obligated PEA to make this
public disclosure even without demand from petitioner or from anyone. PEA failed to make this
public disclosure because the original JVA, like the Amended JVA, was the result of a negotiated
contract, not of a public bidding. Considering that PEA had an affirmative statutory duty to make
the public disclosure, and was even in breach of this legal duty, petitioner had the right to seek
direct judicial intervention.

Moreover, and this alone is determinative of this issue, the principle of exhaustion of administrative
remedies does not apply when the issue involved is a purely legal or constitutional question. 27 The
principal issue in the instant case is the capacity of AMARI to acquire lands held by PEA in view of
the constitutional ban prohibiting the alienation of lands of the public domain to private
corporations. We rule that the principle of exhaustion of administrative remedies does not apply in
the instant case.

Fourth issue: whether petitioner has locus standi to bring this suit

PEA argues that petitioner has no standing to institute mandamus proceedings to enforce his
constitutional right to information without a showing that PEA refused to perform an affirmative
duty imposed on PEA by the Constitution. PEA also claims that petitioner has not shown that he will
suffer any concrete injury because of the signing or implementation of the Amended JVA. Thus,
there is no actual controversy requiring the exercise of the power of judicial review.

The petitioner has standing to bring this taxpayer's suit because the petition seeks to compel PEA
to comply with its constitutional duties. There are two constitutional issues involved here. First is
the right of citizens to information on matters of public concern. Second is the application of a
constitutional provision intended to insure the equitable distribution of alienable lands of the public
domain among Filipino citizens. The thrust of the first issue is to compel PEA to disclose publicly
information on the sale of government lands worth billions of pesos, information which the
Constitution and statutory law mandate PEA to disclose. The thrust of the second issue is to
prevent PEA from alienating hundreds of hectares of alienable lands of the public domain in
violation of the Constitution, compelling PEA to comply with a constitutional duty to the nation.
Moreover, the petition raises matters of transcendental importance to the public. In Chavez v.
PCGG,28 the Court upheld the right of a citizen to bring a taxpayer's suit on matters of
transcendental importance to the public, thus -

"Besides, petitioner emphasizes, the matter of recovering the ill-gotten wealth of the
Marcoses is an issue of 'transcendental importance to the public.' He asserts that ordinary
taxpayers have a right to initiate and prosecute actions questioning the validity of acts or
orders of government agencies or instrumentalities, if the issues raised are of 'paramount
public interest,' and if they 'immediately affect the social, economic and moral well being of
the people.'

Moreover, the mere fact that he is a citizen satisfies the requirement of personal interest,
when the proceeding involves the assertion of a public right, such as in this case. He invokes
several decisions of this Court which have set aside the procedural matter of locus standi,
when the subject of the case involved public interest.

xxx

In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the
object of mandamus is to obtain the enforcement of a public duty, the people are regarded
as the real parties in interest; and because it is sufficient that petitioner is a citizen and as
such is interested in the execution of the laws, he need not show that he has any legal or
special interest in the result of the action. In the aforesaid case, the petitioners sought to
enforce their right to be informed on matters of public concern, a right then recognized in
Section 6, Article IV of the 1973 Constitution, in connection with the rule that laws in order to
be valid and enforceable must be published in the Official Gazette or otherwise effectively
promulgated. In ruling for the petitioners' legal standing, the Court declared that the right
they sought to be enforced 'is a public right recognized by no less than the fundamental law
of the land.'

Legaspi v. Civil Service Commission, while reiterating Taada, further declared that 'when a
mandamus proceeding involves the assertion of a public right, the requirement of personal
interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the
general 'public' which possesses the right.'

Further, in Albano v. Reyes, we said that while expenditure of public funds may not have
been involved under the questioned contract for the development, management and
operation of the Manila International Container Terminal, 'public interest [was] definitely
involved considering the important role [of the subject contract] . . . in the economic
development of the country and the magnitude of the financial consideration involved.' We
concluded that, as a consequence, the disclosure provision in the Constitution would
constitute sufficient authority for upholding the petitioner's standing.

Similarly, the instant petition is anchored on the right of the people to information and
access to official records, documents and papers a right guaranteed under Section 7,
Article III of the 1987 Constitution. Petitioner, a former solicitor general, is a Filipino citizen.
Because of the satisfaction of the two basic requisites laid down by decisional law to sustain
petitioner's legal standing, i.e. (1) the enforcement of a public right (2) espoused by a Filipino
citizen, we rule that the petition at bar should be allowed."

We rule that since the instant petition, brought by a citizen, involves the enforcement of
constitutional rights - to information and to the equitable diffusion of natural resources - matters of
transcendental public importance, the petitioner has the requisite locus standi.
Fifth issue: whether the constitutional right to information includes official information
on on-going negotiations before a final agreement.

Section 7, Article III of the Constitution explains the people's right to information on matters of
public concern in this manner:

"Sec. 7. The right of the people to information on matters of public concern shall be
recognized. Access to official records, and to documents, and papers pertaining to
official acts, transactions, or decisions, as well as to government research data used as
basis for policy development, shall be afforded the citizen, subject to such limitations as may
be provided by law." (Emphasis supplied)

The State policy of full transparency in all transactions involving public interest reinforces the
people's right to information on matters of public concern. This State policy is expressed in Section
28, Article II of the Constitution, thus:

"Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts and
implements a policy of full public disclosure of all its transactions involving public
interest." (Emphasis supplied)

These twin provisions of the Constitution seek to promote transparency in policy-making and in the
operations of the government, as well as provide the people sufficient information to exercise
effectively other constitutional rights. These twin provisions are essential to the exercise of freedom
of expression. If the government does not disclose its official acts, transactions and decisions to
citizens, whatever citizens say, even if expressed without any restraint, will be speculative and
amount to nothing. These twin provisions are also essential to hold public officials "at all times x x x
accountable to the people,"29 for unless citizens have the proper information, they cannot hold
public officials accountable for anything. Armed with the right information, citizens can participate
in public discussions leading to the formulation of government policies and their effective
implementation. An informed citizenry is essential to the existence and proper functioning of any
democracy. As explained by the Court in Valmonte v. Belmonte, Jr.30

"An essential element of these freedoms is to keep open a continuing dialogue or process of
communication between the government and the people. It is in the interest of the State that
the channels for free political discussion be maintained to the end that the government may
perceive and be responsive to the people's will. Yet, this open dialogue can be effective only
to the extent that the citizenry is informed and thus able to formulate its will intelligently.
Only when the participants in the discussion are aware of the issues and have access to
information relating thereto can such bear fruit."

PEA asserts, citing Chavez v. PCGG,31 that in cases of on-going negotiations the right to
information is limited to "definite propositions of the government." PEA maintains the right does not
include access to "intra-agency or inter-agency recommendations or communications during the
stage when common assertions are still in the process of being formulated or are in the
'exploratory stage'."

Also, AMARI contends that petitioner cannot invoke the right at the pre-decisional stage or before
the closing of the transaction. To support its contention, AMARI cites the following discussion in the
1986 Constitutional Commission:

"Mr. Suarez. And when we say 'transactions' which should be distinguished from contracts,
agreements, or treaties or whatever, does the Gentleman refer to the steps leading to the
consummation of the contract, or does he refer to the contract itself?
Mr. Ople: The 'transactions' used here, I suppose is generic and therefore, it can
cover both steps leading to a contract and already a consummated contract, Mr.
Presiding Officer.

Mr. Suarez: This contemplates inclusion of negotiations leading to the


consummation of the transaction.

Mr. Ople: Yes, subject only to reasonable safeguards on the national interest.

Mr. Suarez: Thank you."32 (Emphasis supplied)

AMARI argues there must first be a consummated contract before petitioner can invoke the right.
Requiring government officials to reveal their deliberations at the pre-decisional stage will degrade
the quality of decision-making in government agencies. Government officials will hesitate to
express their real sentiments during deliberations if there is immediate public dissemination of
their discussions, putting them under all kinds of pressure before they decide.

We must first distinguish between information the law on public bidding requires PEA to disclose
publicly, and information the constitutional right to information requires PEA to release to the
public. Before the consummation of the contract, PEA must, on its own and without demand from
anyone, disclose to the public matters relating to the disposition of its property. These include the
size, location, technical description and nature of the property being disposed of, the terms and
conditions of the disposition, the parties qualified to bid, the minimum price and similar
information. PEA must prepare all these data and disclose them to the public at the start of the
disposition process, long before the consummation of the contract, because the Government
Auditing Code requires public bidding. If PEA fails to make this disclosure, any citizen can demand
from PEA this information at any time during the bidding process.

Information, however, on on-going evaluation or review of bids or proposals being undertaken


by the bidding or review committee is not immediately accessible under the right to information.
While the evaluation or review is still on-going, there are no "official acts, transactions, or
decisions" on the bids or proposals. However, once the committee makes its official
recommendation, there arises a "definite proposition" on the part of the government. From
this moment, the public's right to information attaches, and any citizen can access all the non-
proprietary information leading to such definite proposition. In Chavez v. PCGG,33 the Court ruled
as follows:

"Considering the intent of the framers of the Constitution, we believe that it is incumbent
upon the PCGG and its officers, as well as other government representatives, to disclose
sufficient public information on any proposed settlement they have decided to take up with
the ostensible owners and holders of ill-gotten wealth. Such information, though, must
pertain to definite propositions of the government, not necessarily to intra-agency or
inter-agency recommendations or communications during the stage when common
assertions are still in the process of being formulated or are in the "exploratory" stage. There
is need, of course, to observe the same restrictions on disclosure of information in general,
as discussed earlier such as on matters involving national security, diplomatic or foreign
relations, intelligence and other classified information." (Emphasis supplied)

Contrary to AMARI's contention, the commissioners of the 1986 Constitutional Commission


understood that the right to information "contemplates inclusion of negotiations leading to
the consummation of the transaction."Certainly, a consummated contract is not a requirement
for the exercise of the right to information. Otherwise, the people can never exercise the right if no
contract is consummated, and if one is consummated, it may be too late for the public to expose its
defects.1wphi1.nt
Requiring a consummated contract will keep the public in the dark until the contract, which may be
grossly disadvantageous to the government or even illegal, becomes a fait accompli. This negates
the State policy of full transparency on matters of public concern, a situation which the framers of
the Constitution could not have intended. Such a requirement will prevent the citizenry from
participating in the public discussion of any proposed contract, effectively truncating a basic right
enshrined in the Bill of Rights. We can allow neither an emasculation of a constitutional right, nor a
retreat by the State of its avowed "policy of full disclosure of all its transactions involving public
interest."

The right covers three categories of information which are "matters of public concern," namely: (1)
official records; (2) documents and papers pertaining to official acts, transactions and decisions;
and (3) government research data used in formulating policies. The first category refers to any
document that is part of the public records in the custody of government agencies or officials. The
second category refers to documents and papers recording, evidencing, establishing, confirming,
supporting, justifying or explaining official acts, transactions or decisions of government agencies
or officials. The third category refers to research data, whether raw, collated or processed, owned
by the government and used in formulating government policies.

The information that petitioner may access on the renegotiation of the JVA includes evaluation
reports, recommendations, legal and expert opinions, minutes of meetings, terms of reference and
other documents attached to such reports or minutes, all relating to the JVA. However, the right to
information does not compel PEA to prepare lists, abstracts, summaries and the like relating to the
renegotiation of the JVA.34 The right only affords access to records, documents and papers, which
means the opportunity to inspect and copy them. One who exercises the right must copy the
records, documents and papers at his expense. The exercise of the right is also subject to
reasonable regulations to protect the integrity of the public records and to minimize disruption to
government operations, like rules specifying when and how to conduct the inspection and
copying.35

The right to information, however, does not extend to matters recognized as privileged information
under the separation of powers. 36 The right does not also apply to information on military and
diplomatic secrets, information affecting national security, and information on investigations of
crimes by law enforcement agencies before the prosecution of the accused, which courts have long
recognized as confidential.37 The right may also be subject to other limitations that Congress may
impose by law.

There is no claim by PEA that the information demanded by petitioner is privileged information
rooted in the separation of powers. The information does not cover Presidential conversations,
correspondences, or discussions during closed-door Cabinet meetings which, like internal
deliberations of the Supreme Court and other collegiate courts, or executive sessions of either
house of Congress,38 are recognized as confidential. This kind of information cannot be pried open
by a co-equal branch of government. A frank exchange of exploratory ideas and assessments, free
from the glare of publicity and pressure by interested parties, is essential to protect the
independence of decision-making of those tasked to exercise Presidential, Legislative and Judicial
power.39 This is not the situation in the instant case.

We rule, therefore, that the constitutional right to information includes official information on on-
going negotiationsbefore a final contract. The information, however, must constitute definite
propositions by the government and should not cover recognized exceptions like privileged
information, military and diplomatic secrets and similar matters affecting national security and
public order.40 Congress has also prescribed other limitations on the right to information in several
legislations.41
Sixth issue: whether stipulations in the Amended JVA for the transfer to AMARI of lands,
reclaimed or to be reclaimed, violate the Constitution.

The Regalian Doctrine

The ownership of lands reclaimed from foreshore and submerged areas is rooted in the Regalian
doctrine which holds that the State owns all lands and waters of the public domain. Upon the
Spanish conquest of the Philippines, ownership of all "lands, territories and possessions" in the
Philippines passed to the Spanish Crown. 42 The King, as the sovereign ruler and representative of
the people, acquired and owned all lands and territories in the Philippines except those he disposed
of by grant or sale to private individuals.

The 1935, 1973 and 1987 Constitutions adopted the Regalian doctrine substituting, however, the
State, in lieu of the King, as the owner of all lands and waters of the public domain. The Regalian
doctrine is the foundation of the time-honored principle of land ownership that "all lands that were
not acquired from the Government, either by purchase or by grant, belong to the public
domain."43 Article 339 of the Civil Code of 1889, which is now Article 420 of the Civil Code of 1950,
incorporated the Regalian doctrine.

Ownership and Disposition of Reclaimed Lands

The Spanish Law of Waters of 1866 was the first statutory law governing the ownership and
disposition of reclaimed lands in the Philippines. On May 18, 1907, the Philippine Commission
enacted Act No. 1654 which provided for the lease, but not the sale, of reclaimed lands of
the government to corporations and individuals. Later, on November 29, 1919, the Philippine
Legislature approved Act No. 2874, the Public Land Act, which authorized the lease, but not the
sale, of reclaimed lands of the government to corporations and individuals. On November
7, 1936, the National Assembly passed Commonwealth Act No. 141, also known as the Public Land
Act, which authorized the lease, but not the sale, of reclaimed lands of the government
to corporations and individuals. CA No. 141 continues to this day as the general law governing
the classification and disposition of lands of the public domain.

The Spanish Law of Waters of 1866 and the Civil Code of 1889

Under the Spanish Law of Waters of 1866, the shores, bays, coves, inlets and all waters within the
maritime zone of the Spanish territory belonged to the public domain for public use. 44 The Spanish
Law of Waters of 1866 allowed the reclamation of the sea under Article 5, which provided as
follows:

"Article 5. Lands reclaimed from the sea in consequence of works constructed by the State,
or by the provinces, pueblos or private persons, with proper permission, shall become the
property of the party constructing such works, unless otherwise provided by the terms of the
grant of authority."

Under the Spanish Law of Waters, land reclaimed from the sea belonged to the party undertaking
the reclamation, provided the government issued the necessary permit and did not reserve
ownership of the reclaimed land to the State.

Article 339 of the Civil Code of 1889 defined property of public dominion as follows:

"Art. 339. Property of public dominion is

1. That devoted to public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, riverbanks, shores, roadsteads, and that of a similar character;
2. That belonging exclusively to the State which, without being of general public use, is
employed in some public service, or in the development of the national wealth, such as
walls, fortresses, and other works for the defense of the territory, and mines, until granted to
private individuals."

Property devoted to public use referred to property open for use by the public. In contrast, property
devoted to public service referred to property used for some specific public service and open only
to those authorized to use the property.

Property of public dominion referred not only to property devoted to public use, but also to property
not so used but employed to develop the national wealth. This class of property constituted
property of public dominion although employed for some economic or commercial activity to
increase the national wealth.

Article 341 of the Civil Code of 1889 governed the re-classification of property of public dominion
into private property, to wit:

"Art. 341. Property of public dominion, when no longer devoted to public use or to the
defense of the territory, shall become a part of the private property of the State."

This provision, however, was not self-executing. The legislature, or the executive department
pursuant to law, must declare the property no longer needed for public use or territorial defense
before the government could lease or alienate the property to private parties. 45

Act No. 1654 of the Philippine Commission

On May 8, 1907, the Philippine Commission enacted Act No. 1654 which regulated the lease of
reclaimed and foreshore lands. The salient provisions of this law were as follows:

"Section 1. The control and disposition of the foreshore as defined in existing law, and
the title to all Government or public lands made or reclaimed by the Government
by dredging or filling or otherwise throughout the Philippine Islands, shall be retained
by the Government without prejudice to vested rights and without prejudice to rights
conceded to the City of Manila in the Luneta Extension.

Section 2. (a) The Secretary of the Interior shall cause all Government or public lands made
or reclaimed by the Government by dredging or filling or otherwise to be divided into lots or
blocks, with the necessary streets and alleyways located thereon, and shall cause plats and
plans of such surveys to be prepared and filed with the Bureau of Lands.

(b) Upon completion of such plats and plans the Governor-General shall give notice to
the public that such parts of the lands so made or reclaimed as are not needed for
public purposes will be leased for commercial and business purposes, x x x.

xxx

(e) The leases above provided for shall be disposed of to the highest and best
bidder therefore, subject to such regulations and safeguards as the Governor-General may
by executive order prescribe." (Emphasis supplied)

Act No. 1654 mandated that the government should retain title to all lands reclaimed by
the government. The Act also vested in the government control and disposition of foreshore
lands. Private parties could lease lands reclaimed by the government only if these lands were no
longer needed for public purpose. Act No. 1654 mandated public bidding in the lease of
government reclaimed lands. Act No. 1654 made government reclaimed lands sui generis in that
unlike other public lands which the government could sell to private parties, these reclaimed lands
were available only for lease to private parties.

Act No. 1654, however, did not repeal Section 5 of the Spanish Law of Waters of 1866. Act No. 1654
did not prohibit private parties from reclaiming parts of the sea under Section 5 of the Spanish Law
of Waters. Lands reclaimed from the sea by private parties with government permission remained
private lands.

Act No. 2874 of the Philippine Legislature

On November 29, 1919, the Philippine Legislature enacted Act No. 2874, the Public Land Act. 46 The
salient provisions of Act No. 2874, on reclaimed lands, were as follows:

"Sec. 6. The Governor-General, upon the recommendation of the Secretary of


Agriculture and Natural Resources, shall from time to time classify the lands of
the public domain into

(a) Alienable or disposable,

(b) Timber, and

(c) Mineral lands, x x x.

Sec. 7. For the purposes of the government and disposition of alienable or disposable public
lands, the Governor-General, upon recommendation by the Secretary of
Agriculture and Natural Resources, shall from time to time declare what lands are
open to disposition or concession under this Act."

Sec. 8. Only those lands shall be declared open to disposition or concession which
have been officially delimited or classified x x x.

xxx

Sec. 55. Any tract of land of the public domain which, being neither timber nor mineral land,
shall be classified as suitable for residential purposes or for commercial, industrial,
or other productive purposes other than agricultural purposes, and shall be open to
disposition or concession, shall be disposed of under the provisions of this chapter, and not
otherwise.

Sec. 56. The lands disposable under this title shall be classified as follows:

(a) Lands reclaimed by the Government by dredging, filling, or other means;

(b) Foreshore;

(c) Marshy lands or lands covered with water bordering upon the shores or banks of
navigable lakes or rivers;

(d) Lands not included in any of the foregoing classes.

x x x.
Sec. 58. The lands comprised in classes (a), (b), and (c) of section fifty-six shall be
disposed of to private parties by lease only and not otherwise, as soon as the
Governor-General, upon recommendation by the Secretary of Agriculture and
Natural Resources, shall declare that the same are not necessary for the public
service and are open to disposition under this chapter. The lands included in class
(d) may be disposed of by sale or lease under the provisions of this Act." (Emphasis
supplied)

Section 6 of Act No. 2874 authorized the Governor-General to "classify lands of the public domain
into x x x alienable or disposable"47 lands. Section 7 of the Act empowered the Governor-General to
"declare what lands are open to disposition or concession." Section 8 of the Act limited alienable or
disposable lands only to those lands which have been "officially delimited and classified."

Section 56 of Act No. 2874 stated that lands "disposable under this title 48 shall be classified" as
government reclaimed, foreshore and marshy lands, as well as other lands. All these lands,
however, must be suitable for residential, commercial, industrial or other productive non-
agricultural purposes. These provisions vested upon the Governor-General the power to classify
inalienable lands of the public domain into disposable lands of the public domain. These provisions
also empowered the Governor-General to classify further such disposable lands of the public
domain into government reclaimed, foreshore or marshy lands of the public domain, as well as
other non-agricultural lands.

Section 58 of Act No. 2874 categorically mandated that disposable lands of the public domain
classified as government reclaimed, foreshore and marshy lands "shall be disposed of to
private parties by lease only and not otherwise." The Governor-General, before allowing the
lease of these lands to private parties, must formally declare that the lands were "not necessary for
the public service." Act No. 2874 reiterated the State policy to lease and not to sell government
reclaimed, foreshore and marshy lands of the public domain, a policy first enunciated in 1907 in Act
No. 1654. Government reclaimed, foreshore and marshy lands remained sui generis, as the only
alienable or disposable lands of the public domain that the government could not sell to private
parties.

The rationale behind this State policy is obvious. Government reclaimed, foreshore and marshy
public lands for non-agricultural purposes retain their inherent potential as areas for public service.
This is the reason the government prohibited the sale, and only allowed the lease, of these lands to
private parties. The State always reserved these lands for some future public service.

Act No. 2874 did not authorize the reclassification of government reclaimed, foreshore and marshy
lands into other non-agricultural lands under Section 56 (d). Lands falling under Section 56 (d) were
the only lands for non-agricultural purposes the government could sell to private parties. Thus,
under Act No. 2874, the government could not sell government reclaimed, foreshore and marshy
lands to private parties, unless the legislature passed a law allowing their sale.49

Act No. 2874 did not prohibit private parties from reclaiming parts of the sea pursuant to Section 5
of the Spanish Law of Waters of 1866. Lands reclaimed from the sea by private parties with
government permission remained private lands.

Dispositions under the 1935 Constitution

On May 14, 1935, the 1935 Constitution took effect upon its ratification by the Filipino people. The
1935 Constitution, in adopting the Regalian doctrine, declared in Section 1, Article XIII, that

"Section 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals,
coal, petroleum, and other mineral oils, all forces of potential energy and other natural
resources of the Philippines belong to the State, and their disposition, exploitation,
development, or utilization shall be limited to citizens of the Philippines or to corporations or
associations at least sixty per centum of the capital of which is owned by such citizens,
subject to any existing right, grant, lease, or concession at the time of the inauguration of
the Government established under this Constitution. Natural resources, with the
exception of public agricultural land, shall not be alienated, and no license,
concession, or lease for the exploitation, development, or utilization of any of the natural
resources shall be granted for a period exceeding twenty-five years, renewable for another
twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial
uses other than the development of water power, in which cases beneficial use may be the
measure and limit of the grant." (Emphasis supplied)

The 1935 Constitution barred the alienation of all natural resources except public agricultural lands,
which were the only natural resources the State could alienate. Thus, foreshore lands, considered
part of the State's natural resources, became inalienable by constitutional fiat, available only for
lease for 25 years, renewable for another 25 years. The government could alienate foreshore lands
only after these lands were reclaimed and classified as alienable agricultural lands of the public
domain. Government reclaimed and marshy lands of the public domain, being neither timber nor
mineral lands, fell under the classification of public agricultural lands. 50 However, government
reclaimed and marshy lands, although subject to classification as disposable public agricultural
lands, could only be leased and not sold to private parties because of Act No. 2874.

The prohibition on private parties from acquiring ownership of government reclaimed and marshy
lands of the public domain was only a statutory prohibition and the legislature could therefore
remove such prohibition. The 1935 Constitution did not prohibit individuals and corporations from
acquiring government reclaimed and marshy lands of the public domain that were classified as
agricultural lands under existing public land laws. Section 2, Article XIII of the 1935 Constitution
provided as follows:

"Section 2. No private corporation or association may acquire, lease, or hold public


agricultural lands in excess of one thousand and twenty four hectares, nor may
any individual acquire such lands by purchase in excess of one hundred and forty
hectares, or by lease in excess of one thousand and twenty-four hectares, or by
homestead in excess of twenty-four hectares. Lands adapted to grazing, not exceeding two
thousand hectares, may be leased to an individual, private corporation, or association."
(Emphasis supplied)

Still, after the effectivity of the 1935 Constitution, the legislature did not repeal Section 58 of Act
No. 2874 to open for sale to private parties government reclaimed and marshy lands of the public
domain. On the contrary, the legislature continued the long established State policy of retaining for
the government title and ownership of government reclaimed and marshy lands of the public
domain.

Commonwealth Act No. 141 of the Philippine National Assembly

On November 7, 1936, the National Assembly approved Commonwealth Act No. 141, also known as
the Public Land Act, which compiled the then existing laws on lands of the public domain. CA No.
141, as amended, remains to this day the existing general law governing the classification and
disposition of lands of the public domain other than timber and mineral lands. 51

Section 6 of CA No. 141 empowers the President to classify lands of the public domain into
"alienable or disposable"52 lands of the public domain, which prior to such classification are
inalienable and outside the commerce of man. Section 7 of CA No. 141 authorizes the President to
"declare what lands are open to disposition or concession." Section 8 of CA No. 141 states that the
government can declare open for disposition or concession only lands that are "officially delimited
and classified." Sections 6, 7 and 8 of CA No. 141 read as follows:

"Sec. 6. The President, upon the recommendation of the Secretary of Agriculture


and Commerce, shall from time to time classify the lands of the public domain
into

(a) Alienable or disposable,

(b) Timber, and

(c) Mineral lands,

and may at any time and in like manner transfer such lands from one class to another, 53 for
the purpose of their administration and disposition.

Sec. 7. For the purposes of the administration and disposition of alienable or disposable
public lands, the President, upon recommendation by the Secretary of Agriculture
and Commerce, shall from time to time declare what lands are open to disposition
or concession under this Act.

Sec. 8. Only those lands shall be declared open to disposition or concession which
have been officially delimited and classified and, when practicable, surveyed, and
which have not been reserved for public or quasi-public uses, nor appropriated by
the Government, nor in any manner become private property, nor those on which a private
right authorized and recognized by this Act or any other valid law may be claimed, or which,
having been reserved or appropriated, have ceased to be so. x x x."

Thus, before the government could alienate or dispose of lands of the public domain, the President
must first officially classify these lands as alienable or disposable, and then declare them open to
disposition or concession. There must be no law reserving these lands for public or quasi-public
uses.

The salient provisions of CA No. 141, on government reclaimed, foreshore and marshy lands of the
public domain, are as follows:

"Sec. 58. Any tract of land of the public domain which, being neither timber nor
mineral land, is intended to be used for residential purposes or for commercial,
industrial, or other productive purposes other than agricultural, and is open to
disposition or concession, shall be disposed of under the provisions of this
chapter and not otherwise.

Sec. 59. The lands disposable under this title shall be classified as follows:

(a) Lands reclaimed by the Government by dredging, filling, or other means;

(b) Foreshore;

(c) Marshy lands or lands covered with water bordering upon the shores or banks of
navigable lakes or rivers;

(d) Lands not included in any of the foregoing classes.


Sec. 60. Any tract of land comprised under this title may be leased or sold, as the case may
be, to any person, corporation, or association authorized to purchase or lease public lands
for agricultural purposes. x x x.

Sec. 61. The lands comprised in classes (a), (b), and (c) of section fifty-nine shall
be disposed of to private parties by lease only and not otherwise, as soon as the
President, upon recommendation by the Secretary of Agriculture, shall declare that the
same are not necessary for the public service and are open to disposition under this
chapter. The lands included in class (d) may be disposed of by sale or lease under
the provisions of this Act." (Emphasis supplied)

Section 61 of CA No. 141 readopted, after the effectivity of the 1935 Constitution, Section 58 of Act
No. 2874 prohibiting the sale of government reclaimed, foreshore and marshy disposable lands of
the public domain. All these lands are intended for residential, commercial, industrial or other non-
agricultural purposes. As before, Section 61 allowed only the lease of such lands to private parties.
The government could sell to private parties only lands falling under Section 59 (d) of CA No. 141,
or those lands for non-agricultural purposes not classified as government reclaimed, foreshore and
marshy disposable lands of the public domain. Foreshore lands, however, became inalienable under
the 1935 Constitution which only allowed the lease of these lands to qualified private parties.

Section 58 of CA No. 141 expressly states that disposable lands of the public domain intended for
residential, commercial, industrial or other productive purposes other than agricultural "shall be
disposed of under the provisions of this chapter and not otherwise." Under Section 10 of
CA No. 141, the term "disposition" includes lease of the land. Any disposition of government
reclaimed, foreshore and marshy disposable lands for non-agricultural purposes must comply with
Chapter IX, Title III of CA No. 141,54 unless a subsequent law amended or repealed these provisions.

In his concurring opinion in the landmark case of Republic Real Estate Corporation v. Court of
Appeals,55Justice Reynato S. Puno summarized succinctly the law on this matter, as follows:

"Foreshore lands are lands of public dominion intended for public use. So too are lands
reclaimed by the government by dredging, filling, or other means. Act 1654 mandated that
the control and disposition of the foreshore and lands under water remained in the national
government. Said law allowed only the 'leasing' of reclaimed land. The Public Land Acts of
1919 and 1936 also declared that the foreshore and lands reclaimed by the government
were to be "disposed of to private parties by lease only and not otherwise." Before leasing,
however, the Governor-General, upon recommendation of the Secretary of Agriculture and
Natural Resources, had first to determine that the land reclaimed was not necessary for the
public service. This requisite must have been met before the land could be disposed of. But
even then, the foreshore and lands under water were not to be alienated and sold
to private parties. The disposition of the reclaimed land was only by lease. The
land remained property of the State." (Emphasis supplied)

As observed by Justice Puno in his concurring opinion, "Commonwealth Act No. 141 has remained in
effect at present."

The State policy prohibiting the sale to private parties of government reclaimed, foreshore and
marshy alienable lands of the public domain, first implemented in 1907 was thus reaffirmed in CA
No. 141 after the 1935 Constitution took effect. The prohibition on the sale of foreshore lands,
however, became a constitutional edict under the 1935 Constitution. Foreshore lands became
inalienable as natural resources of the State, unless reclaimed by the government and classified as
agricultural lands of the public domain, in which case they would fall under the classification of
government reclaimed lands.
After the effectivity of the 1935 Constitution, government reclaimed and marshy disposable lands
of the public domain continued to be only leased and not sold to private parties. 56 These lands
remained sui generis, as the only alienable or disposable lands of the public domain the
government could not sell to private parties.

Since then and until now, the only way the government can sell to private parties government
reclaimed and marshy disposable lands of the public domain is for the legislature to pass a law
authorizing such sale. CA No. 141 does not authorize the President to reclassify government
reclaimed and marshy lands into other non-agricultural lands under Section 59 (d). Lands classified
under Section 59 (d) are the only alienable or disposable lands for non-agricultural purposes that
the government could sell to private parties.

Moreover, Section 60 of CA No. 141 expressly requires congressional authority before lands under
Section 59 that the government previously transferred to government units or entities could be sold
to private parties. Section 60 of CA No. 141 declares that

"Sec. 60. x x x The area so leased or sold shall be such as shall, in the judgment of the
Secretary of Agriculture and Natural Resources, be reasonably necessary for the purposes for
which such sale or lease is requested, and shall not exceed one hundred and forty-four
hectares: Provided, however, That this limitation shall not apply to grants, donations, or
transfers made to a province, municipality or branch or subdivision of the Government for
the purposes deemed by said entities conducive to the public interest; but the land so
granted, donated, or transferred to a province, municipality or branch or
subdivision of the Government shall not be alienated, encumbered, or otherwise
disposed of in a manner affecting its title, except when authorized by Congress: x
x x." (Emphasis supplied)

The congressional authority required in Section 60 of CA No. 141 mirrors the legislative authority
required in Section 56 of Act No. 2874.

One reason for the congressional authority is that Section 60 of CA No. 141 exempted government
units and entities from the maximum area of public lands that could be acquired from the State.
These government units and entities should not just turn around and sell these lands to private
parties in violation of constitutional or statutory limitations. Otherwise, the transfer of lands for
non-agricultural purposes to government units and entities could be used to circumvent
constitutional limitations on ownership of alienable or disposable lands of the public domain. In the
same manner, such transfers could also be used to evade the statutory prohibition in CA No. 141
on the sale of government reclaimed and marshy lands of the public domain to private parties.
Section 60 of CA No. 141 constitutes by operation of law a lien on these lands. 57

In case of sale or lease of disposable lands of the public domain falling under Section 59 of CA No.
141, Sections 63 and 67 require a public bidding. Sections 63 and 67 of CA No. 141 provide as
follows:

"Sec. 63. Whenever it is decided that lands covered by this chapter are not needed for public
purposes, the Director of Lands shall ask the Secretary of Agriculture and Commerce (now
the Secretary of Natural Resources) for authority to dispose of the same. Upon receipt of
such authority, the Director of Lands shall give notice by public advertisement in the same
manner as in the case of leases or sales of agricultural public land, x x x.

Sec. 67. The lease or sale shall be made by oral bidding; and adjudication shall be
made to the highest bidder. x x x." (Emphasis supplied)
Thus, CA No. 141 mandates the Government to put to public auction all leases or sales of alienable
or disposable lands of the public domain. 58

Like Act No. 1654 and Act No. 2874 before it, CA No. 141 did not repeal Section 5 of the Spanish
Law of Waters of 1866. Private parties could still reclaim portions of the sea with government
permission. However, the reclaimed land could become private land only if classified as
alienable agricultural land of the public domain open to disposition under CA No. 141. The
1935 Constitution prohibited the alienation of all natural resources except public agricultural lands.

The Civil Code of 1950

The Civil Code of 1950 readopted substantially the definition of property of public dominion found
in the Civil Code of 1889. Articles 420 and 422 of the Civil Code of 1950 state that

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

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth.

x x x.

Art. 422. Property of public dominion, when no longer intended for public use or for public
service, shall form part of the patrimonial property of the State."

Again, the government must formally declare that the property of public dominion is no longer
needed for public use or public service, before the same could be classified as patrimonial property
of the State.59 In the case of government reclaimed and marshy lands of the public domain, the
declaration of their being disposable, as well as the manner of their disposition, is governed by the
applicable provisions of CA No. 141.

Like the Civil Code of 1889, the Civil Code of 1950 included as property of public dominion those
properties of the State which, without being for public use, are intended for public service or the
"development of the national wealth." Thus, government reclaimed and marshy lands of the
State, even if not employed for public use or public service, if developed to enhance the national
wealth, are classified as property of public dominion.

Dispositions under the 1973 Constitution

The 1973 Constitution, which took effect on January 17, 1973, likewise adopted the Regalian
doctrine. Section 8, Article XIV of the 1973 Constitution stated that

"Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and other mineral
oils, all forces of potential energy, fisheries, wildlife, and other natural resources of the
Philippines belong to the State. With the exception of agricultural, industrial or
commercial, residential, and resettlement lands of the public domain, natural
resources shall not be alienated, and no license, concession, or lease for the exploration,
development, exploitation, or utilization of any of the natural resources shall be granted for a
period exceeding twenty-five years, renewable for not more than twenty-five years, except
as to water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, in which cases, beneficial use may be the measure and the
limit of the grant." (Emphasis supplied)

The 1973 Constitution prohibited the alienation of all natural resources with the exception of
"agricultural, industrial or commercial, residential, and resettlement lands of the public domain." In
contrast, the 1935 Constitution barred the alienation of all natural resources except "public
agricultural lands." However, the term "public agricultural lands" in the 1935 Constitution
encompassed industrial, commercial, residential and resettlement lands of the public domain. 60 If
the land of public domain were neither timber nor mineral land, it would fall under the classification
of agricultural land of the public domain. Both the 1935 and 1973 Constitutions, therefore,
prohibited the alienation of all natural resources except agricultural lands of the public
domain.

The 1973 Constitution, however, limited the alienation of lands of the public domain to individuals
who were citizens of the Philippines. Private corporations, even if wholly owned by Philippine
citizens, were no longer allowed to acquire alienable lands of the public domain unlike in the 1935
Constitution. Section 11, Article XIV of the 1973 Constitution declared that

"Sec. 11. The Batasang Pambansa, taking into account conservation, ecological, and
development requirements of the natural resources, shall determine by law the size of land
of the public domain which may be developed, held or acquired by, or leased to, any
qualified individual, corporation, or association, and the conditions therefor. No private
corporation or association may hold alienable lands of the public domain except
by lease not to exceed one thousand hectares in area nor may any citizen hold such lands
by lease in excess of five hundred hectares or acquire by purchase, homestead or grant, in
excess of twenty-four hectares. No private corporation or association may hold by lease,
concession, license or permit, timber or forest lands and other timber or forest resources in
excess of one hundred thousand hectares. However, such area may be increased by the
Batasang Pambansa upon recommendation of the National Economic and Development
Authority." (Emphasis supplied)

Thus, under the 1973 Constitution, private corporations could hold alienable lands of the public
domain only through lease. Only individuals could now acquire alienable lands of the public
domain, and private corporations became absolutely barred from acquiring any kind of
alienable land of the public domain. The constitutional ban extended to all kinds of alienable
lands of the public domain, while the statutory ban under CA No. 141 applied only to government
reclaimed, foreshore and marshy alienable lands of the public domain.

PD No. 1084 Creating the Public Estates Authority

On February 4, 1977, then President Ferdinand Marcos issued Presidential Decree No. 1084 creating
PEA, a wholly government owned and controlled corporation with a special charter. Sections 4 and
8 of PD No. 1084, vests PEA with the following purposes and powers:

"Sec. 4. Purpose. The Authority is hereby created for the following purposes:

(a) To reclaim land, including foreshore and submerged areas, by dredging, filling
or other means, or to acquire reclaimed land;

(b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and sell any
and all kinds of lands, buildings, estates and other forms of real property, owned,
managed, controlled and/or operated by the government;
(c) To provide for, operate or administer such service as may be necessary for the efficient,
economical and beneficial utilization of the above properties.

Sec. 5. Powers and functions of the Authority. The Authority shall, in carrying out the
purposes for which it is created, have the following powers and functions:

(a)To prescribe its by-laws.

xxx

(i) To hold lands of the public domain in excess of the area permitted to private
corporations by statute.

(j) To reclaim lands and to construct work across, or otherwise, any stream, watercourse,
canal, ditch, flume x x x.

xxx

(o) To perform such acts and exercise such functions as may be necessary for the attainment
of the purposes and objectives herein specified." (Emphasis supplied)

PD No. 1084 authorizes PEA to reclaim both foreshore and submerged areas of the public domain.
Foreshore areas are those covered and uncovered by the ebb and flow of the tide. 61 Submerged
areas are those permanently under water regardless of the ebb and flow of the tide. 62 Foreshore
and submerged areas indisputably belong to the public domain 63 and are inalienable unless
reclaimed, classified as alienable lands open to disposition, and further declared no longer needed
for public service.

The ban in the 1973 Constitution on private corporations from acquiring alienable lands of the
public domain did not apply to PEA since it was then, and until today, a fully owned government
corporation. The constitutional ban applied then, as it still applies now, only to "private
corporations and associations." PD No. 1084 expressly empowers PEA "to hold lands of the
public domain" even "in excess of the area permitted to private corporations by statute." Thus,
PEA can hold title to private lands, as well as title to lands of the public domain.

In order for PEA to sell its reclaimed foreshore and submerged alienable lands of the public domain,
there must be legislative authority empowering PEA to sell these lands. This legislative authority is
necessary in view of Section 60 of CA No.141, which states

"Sec. 60. x x x; but the land so granted, donated or transferred to a province, municipality,
or branch or subdivision of the Government shall not be alienated, encumbered or otherwise
disposed of in a manner affecting its title, except when authorized by Congress; x x x."
(Emphasis supplied)

Without such legislative authority, PEA could not sell but only lease its reclaimed foreshore and
submerged alienable lands of the public domain. Nevertheless, any legislative authority granted to
PEA to sell its reclaimed alienable lands of the public domain would be subject to the constitutional
ban on private corporations from acquiring alienable lands of the public domain. Hence, such
legislative authority could only benefit private individuals.

Dispositions under the 1987 Constitution


The 1987 Constitution, like the 1935 and 1973 Constitutions before it, has adopted the Regalian
doctrine. The 1987 Constitution declares that all natural resources are "owned by the State," and
except for alienable agricultural lands of the public domain, natural resources cannot be alienated.
Sections 2 and 3, Article XII of the 1987 Constitution state that

"Section 2. All lands of the public domain, waters, minerals, coal, petroleum and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall be under the full control
and supervision of the State. x x x.

Section 3. Lands of the public domain are classified into agricultural, forest or timber,
mineral lands, and national parks. Agricultural lands of the public domain may be further
classified by law according to the uses which they may be devoted. Alienable lands of the
public domain shall be limited to agricultural lands. Private corporations or
associations may not hold such alienable lands of the public domain except by
lease, for a period not exceeding twenty-five years, renewable for not more than
twenty-five years, and not to exceed one thousand hectares in area. Citizens of the
Philippines may lease not more than five hundred hectares, or acquire not more than twelve
hectares thereof by purchase, homestead, or grant.

Taking into account the requirements of conservation, ecology, and development, and
subject to the requirements of agrarian reform, the Congress shall determine, by law, the
size of lands of the public domain which may be acquired, developed, held, or leased and the
conditions therefor." (Emphasis supplied)

The 1987 Constitution continues the State policy in the 1973 Constitution banning private
corporations from acquiring any kind of alienable land of the public domain. Like the 1973
Constitution, the 1987 Constitution allows private corporations to hold alienable lands of the public
domain only through lease. As in the 1935 and 1973 Constitutions, the general law governing the
lease to private corporations of reclaimed, foreshore and marshy alienable lands of the public
domain is still CA No. 141.

The Rationale behind the Constitutional Ban

The rationale behind the constitutional ban on corporations from acquiring, except through lease,
alienable lands of the public domain is not well understood. During the deliberations of the 1986
Constitutional Commission, the commissioners probed the rationale behind this ban, thus:

"FR. BERNAS: Mr. Vice-President, my questions have reference to page 3, line 5 which says:

`No private corporation or association may hold alienable lands of the public domain except
by lease, not to exceed one thousand hectares in area.'

If we recall, this provision did not exist under the 1935 Constitution, but this was introduced
in the 1973 Constitution. In effect, it prohibits private corporations from acquiring alienable
public lands. But it has not been very clear in jurisprudence what the reason for
this is. In some of the cases decided in 1982 and 1983, it was indicated that the
purpose of this is to prevent large landholdings. Is that the intent of this provision?

MR. VILLEGAS: I think that is the spirit of the provision.


FR. BERNAS: In existing decisions involving the Iglesia ni Cristo, there were instances where
the Iglesia ni Cristo was not allowed to acquire a mere 313-square meter land where a
chapel stood because the Supreme Court said it would be in violation of this." (Emphasis
supplied)

In Ayog v. Cusi,64 the Court explained the rationale behind this constitutional ban in this way:

"Indeed, one purpose of the constitutional prohibition against purchases of public agricultural
lands by private corporations is to equitably diffuse land ownership or to encourage 'owner-
cultivatorship and the economic family-size farm' and to prevent a recurrence of cases like
the instant case. Huge landholdings by corporations or private persons had spawned social
unrest."

However, if the constitutional intent is to prevent huge landholdings, the Constitution could have
simply limited the size of alienable lands of the public domain that corporations could acquire. The
Constitution could have followed the limitations on individuals, who could acquire not more than 24
hectares of alienable lands of the public domain under the 1973 Constitution, and not more than 12
hectares under the 1987 Constitution.

If the constitutional intent is to encourage economic family-size farms, placing the land in the name
of a corporation would be more effective in preventing the break-up of farmlands. If the farmland is
registered in the name of a corporation, upon the death of the owner, his heirs would inherit shares
in the corporation instead of subdivided parcels of the farmland. This would prevent the continuing
break-up of farmlands into smaller and smaller plots from one generation to the next.

In actual practice, the constitutional ban strengthens the constitutional limitation on individuals
from acquiring more than the allowed area of alienable lands of the public domain. Without the
constitutional ban, individuals who already acquired the maximum area of alienable lands of the
public domain could easily set up corporations to acquire more alienable public lands. An individual
could own as many corporations as his means would allow him. An individual could even hide his
ownership of a corporation by putting his nominees as stockholders of the corporation. The
corporation is a convenient vehicle to circumvent the constitutional limitation on acquisition by
individuals of alienable lands of the public domain.

The constitutional intent, under the 1973 and 1987 Constitutions, is to transfer ownership of only a
limited area of alienable land of the public domain to a qualified individual. This constitutional
intent is safeguarded by the provision prohibiting corporations from acquiring alienable lands of the
public domain, since the vehicle to circumvent the constitutional intent is removed. The available
alienable public lands are gradually decreasing in the face of an ever-growing population. The most
effective way to insure faithful adherence to this constitutional intent is to grant or sell alienable
lands of the public domain only to individuals. This, it would seem, is the practical benefit arising
from the constitutional ban.

The Amended Joint Venture Agreement

The subject matter of the Amended JVA, as stated in its second Whereas clause, consists of three
properties, namely:

1. "[T]hree partially reclaimed and substantially eroded islands along Emilio Aguinaldo
Boulevard in Paranaque and Las Pinas, Metro Manila, with a combined titled area of
1,578,441 square meters;"

2. "[A]nother area of 2,421,559 square meters contiguous to the three islands;" and
3. "[A]t AMARI's option as approved by PEA, an additional 350 hectares more or less to
regularize the configuration of the reclaimed area." 65

PEA confirms that the Amended JVA involves "the development of the Freedom Islands and further
reclamation of about 250 hectares x x x," plus an option "granted to AMARI to subsequently reclaim
another 350 hectares x x x."66

In short, the Amended JVA covers a reclamation area of 750 hectares. Only 157.84 hectares of
the 750-hectare reclamation project have been reclaimed, and the rest of the 592.15
hectares are still submerged areas forming part of Manila Bay.

Under the Amended JVA, AMARI will reimburse PEA the sum of P1,894,129,200.00 for PEA's "actual
cost" in partially reclaiming the Freedom Islands. AMARI will also complete, at its own expense, the
reclamation of the Freedom Islands. AMARI will further shoulder all the reclamation costs of all the
other areas, totaling 592.15 hectares, still to be reclaimed. AMARI and PEA will share, in the
proportion of 70 percent and 30 percent, respectively, the total net usable area which is defined in
the Amended JVA as the total reclaimed area less 30 percent earmarked for common areas. Title to
AMARI's share in the net usable area, totaling 367.5 hectares, will be issued in the name of AMARI.
Section 5.2 (c) of the Amended JVA provides that

"x x x, PEA shall have the duty to execute without delay the necessary deed of transfer or
conveyance of the title pertaining to AMARI's Land share based on the Land Allocation
Plan. PEA, when requested in writing by AMARI, shall then cause the issuance and
delivery of the proper certificates of title covering AMARI's Land Share in the
name of AMARI, x x x; provided, that if more than seventy percent (70%) of the titled area
at any given time pertains to AMARI, PEA shall deliver to AMARI only seventy percent (70%)
of the titles pertaining to AMARI, until such time when a corresponding proportionate area of
additional land pertaining to PEA has been titled." (Emphasis supplied)

Indisputably, under the Amended JVA AMARI will acquire and own a maximum of 367.5
hectares of reclaimed land which will be titled in its name.

To implement the Amended JVA, PEA delegated to the unincorporated PEA-AMARI joint venture
PEA's statutory authority, rights and privileges to reclaim foreshore and submerged areas in Manila
Bay. Section 3.2.a of the Amended JVA states that

"PEA hereby contributes to the joint venture its rights and privileges to perform Rawland
Reclamation and Horizontal Development as well as own the Reclamation Area, thereby
granting the Joint Venture the full and exclusive right, authority and privilege to undertake
the Project in accordance with the Master Development Plan."

The Amended JVA is the product of a renegotiation of the original JVA dated April 25, 1995 and its
supplemental agreement dated August 9, 1995.

The Threshold Issue

The threshold issue is whether AMARI, a private corporation, can acquire and own under the
Amended JVA 367.5 hectares of reclaimed foreshore and submerged areas in Manila Bay in view of
Sections 2 and 3, Article XII of the 1987 Constitution which state that:

"Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. x x x.
xxx

Section 3. x x x Alienable lands of the public domain shall be limited to agricultural


lands. Private corporations or associations may not hold such alienable lands of
the public domain except by lease, x x x."(Emphasis supplied)

Classification of Reclaimed Foreshore and Submerged Areas

PEA readily concedes that lands reclaimed from foreshore or submerged areas of Manila Bay are
alienable or disposable lands of the public domain. In its Memorandum, 67 PEA admits that

"Under the Public Land Act (CA 141, as amended), reclaimed lands are classified as
alienable and disposable lands of the public domain:

'Sec. 59. The lands disposable under this title shall be classified as follows:

(a) Lands reclaimed by the government by dredging, filling, or other means;

x x x.'" (Emphasis supplied)

Likewise, the Legal Task Force 68 constituted under Presidential Administrative Order No. 365
admitted in its Report and Recommendation to then President Fidel V. Ramos, "[R]eclaimed lands
are classified as alienable and disposable lands of the public domain."69 The Legal Task
Force concluded that

"D. Conclusion

Reclaimed lands are lands of the public domain. However, by statutory authority, the rights
of ownership and disposition over reclaimed lands have been transferred to PEA, by virtue of
which PEA, as owner, may validly convey the same to any qualified person without violating
the Constitution or any statute.

The constitutional provision prohibiting private corporations from holding public land, except
by lease (Sec. 3, Art. XVII,70 1987 Constitution), does not apply to reclaimed lands whose
ownership has passed on to PEA by statutory grant."

Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of Manila
Bay are part of the "lands of the public domain, waters x x x and other natural resources" and
consequently "owned by the State." As such, foreshore and submerged areas "shall not be
alienated," unless they are classified as "agricultural lands" of the public domain. The mere
reclamation of these areas by PEA does not convert these inalienable natural resources of the State
into alienable or disposable lands of the public domain. There must be a law or presidential
proclamation officially classifying these reclaimed lands as alienable or disposable and open to
disposition or concession. Moreover, these reclaimed lands cannot be classified as alienable or
disposable if the law has reserved them for some public or quasi-public use. 71

Section 8 of CA No. 141 provides that "only those lands shall be declared open to disposition or
concession which have been officially delimited and classified."72 The President has the
authority to classify inalienable lands of the public domain into alienable or disposable lands of the
public domain, pursuant to Section 6 of CA No. 141. In Laurel vs. Garcia, 73 the Executive
Department attempted to sell the Roppongi property in Tokyo, Japan, which was acquired by the
Philippine Government for use as the Chancery of the Philippine Embassy. Although the Chancery
had transferred to another location thirteen years earlier, the Court still ruled that, under Article
42274 of the Civil Code, a property of public dominion retains such character until formally declared
otherwise. The Court ruled that

"The fact that the Roppongi site has not been used for a long time for actual Embassy
service does not automatically convert it to patrimonial property. Any such conversion
happens only if the property is withdrawn from public use (Cebu Oxygen and Acetylene Co. v.
Bercilles, 66 SCRA 481 [1975]. A property continues to be part of the public domain,
not available for private appropriation or ownership 'until there is a formal
declaration on the part of the government to withdraw it from being such' (Ignacio
v. Director of Lands, 108 Phil. 335 [1960]." (Emphasis supplied)

PD No. 1085, issued on February 4, 1977, authorized the issuance of special land patents for lands
reclaimed by PEA from the foreshore or submerged areas of Manila Bay. On January 19, 1988 then
President Corazon C. Aquino issued Special Patent No. 3517 in the name of PEA for the 157.84
hectares comprising the partially reclaimed Freedom Islands. Subsequently, on April 9, 1999 the
Register of Deeds of the Municipality of Paranaque issued TCT Nos. 7309, 7311 and 7312 in the
name of PEA pursuant to Section 103 of PD No. 1529 authorizing the issuance of certificates of title
corresponding to land patents. To this day, these certificates of title are still in the name of PEA.

PD No. 1085, coupled with President Aquino's actual issuance of a special patent covering the
Freedom Islands, is equivalent to an official proclamation classifying the Freedom Islands as
alienable or disposable lands of the public domain. PD No. 1085 and President Aquino's issuance of
a land patent also constitute a declaration that the Freedom Islands are no longer needed for public
service. The Freedom Islands are thus alienable or disposable lands of the public domain,
open to disposition or concession to qualified parties.

At the time then President Aquino issued Special Patent No. 3517, PEA had already reclaimed the
Freedom Islands although subsequently there were partial erosions on some areas. The
government had also completed the necessary surveys on these islands. Thus, the Freedom Islands
were no longer part of Manila Bay but part of the land mass. Section 3, Article XII of the 1987
Constitution classifies lands of the public domain into "agricultural, forest or timber, mineral lands,
and national parks." Being neither timber, mineral, nor national park lands, the reclaimed Freedom
Islands necessarily fall under the classification of agricultural lands of the public domain. Under the
1987 Constitution, agricultural lands of the public domain are the only natural resources that the
State may alienate to qualified private parties. All other natural resources, such as the seas or
bays, are "waters x x x owned by the State" forming part of the public domain, and are inalienable
pursuant to Section 2, Article XII of the 1987 Constitution.

AMARI claims that the Freedom Islands are private lands because CDCP, then a private corporation,
reclaimed the islands under a contract dated November 20, 1973 with the Commissioner of Public
Highways. AMARI, citing Article 5 of the Spanish Law of Waters of 1866, argues that "if the
ownership of reclaimed lands may be given to the party constructing the works, then it cannot be
said that reclaimed lands are lands of the public domain which the State may not alienate." 75 Article
5 of the Spanish Law of Waters reads as follows:

"Article 5. Lands reclaimed from the sea in consequence of works constructed by the State,
or by the provinces, pueblos or private persons, with proper permission, shall become the
property of the party constructing such works, unless otherwise provided by the terms
of the grant of authority." (Emphasis supplied)

Under Article 5 of the Spanish Law of Waters of 1866, private parties could reclaim from the sea
only with "proper permission" from the State. Private parties could own the reclaimed land only if
not "otherwise provided by the terms of the grant of authority." This clearly meant that no one
could reclaim from the sea without permission from the State because the sea is property of public
dominion. It also meant that the State could grant or withhold ownership of the reclaimed land
because any reclaimed land, like the sea from which it emerged, belonged to the State. Thus, a
private person reclaiming from the sea without permission from the State could not acquire
ownership of the reclaimed land which would remain property of public dominion like the sea it
replaced.76 Article 5 of the Spanish Law of Waters of 1866 adopted the time-honored principle of
land ownership that "all lands that were not acquired from the government, either by purchase or
by grant, belong to the public domain." 77

Article 5 of the Spanish Law of Waters must be read together with laws subsequently enacted on
the disposition of public lands. In particular, CA No. 141 requires that lands of the public domain
must first be classified as alienable or disposable before the government can alienate them. These
lands must not be reserved for public or quasi-public purposes. 78 Moreover, the contract between
CDCP and the government was executed after the effectivity of the 1973 Constitution which barred
private corporations from acquiring any kind of alienable land of the public domain. This contract
could not have converted the Freedom Islands into private lands of a private corporation.

Presidential Decree No. 3-A, issued on January 11, 1973, revoked all laws authorizing the
reclamation of areas under water and revested solely in the National Government the power to
reclaim lands. Section 1 of PD No. 3-A declared that

"The provisions of any law to the contrary notwithstanding, the reclamation of areas
under water, whether foreshore or inland, shall be limited to the National Government
or any person authorized by it under a proper contract. (Emphasis supplied)

x x x."

PD No. 3-A repealed Section 5 of the Spanish Law of Waters of 1866 because reclamation of areas
under water could now be undertaken only by the National Government or by a person contracted
by the National Government. Private parties may reclaim from the sea only under a contract with
the National Government, and no longer by grant or permission as provided in Section 5 of the
Spanish Law of Waters of 1866.

Executive Order No. 525, issued on February 14, 1979, designated PEA as the National
Government's implementing arm to undertake "all reclamation projects of the government," which
"shall be undertaken by the PEA or through a proper contract executed by it with any
person or entity." Under such contract, a private party receives compensation for reclamation
services rendered to PEA. Payment to the contractor may be in cash, or in kind consisting of
portions of the reclaimed land, subject to the constitutional ban on private corporations from
acquiring alienable lands of the public domain. The reclaimed land can be used as payment in kind
only if the reclaimed land is first classified as alienable or disposable land open to disposition, and
then declared no longer needed for public service.

The Amended JVA covers not only the Freedom Islands, but also an additional 592.15 hectares
which are still submerged and forming part of Manila Bay. There is no legislative or
Presidential act classifying these submerged areas as alienable or disposable lands of
the public domain open to disposition. These submerged areas are not covered by any patent
or certificate of title. There can be no dispute that these submerged areas form part of the public
domain, and in their present state are inalienable and outside the commerce of man. Until
reclaimed from the sea, these submerged areas are, under the Constitution, "waters x x x owned
by the State," forming part of the public domain and consequently inalienable. Only when actually
reclaimed from the sea can these submerged areas be classified as public agricultural lands, which
under the Constitution are the only natural resources that the State may alienate. Once reclaimed
and transformed into public agricultural lands, the government may then officially classify these
lands as alienable or disposable lands open to disposition. Thereafter, the government may declare
these lands no longer needed for public service. Only then can these reclaimed lands be considered
alienable or disposable lands of the public domain and within the commerce of man.

The classification of PEA's reclaimed foreshore and submerged lands into alienable or disposable
lands open to disposition is necessary because PEA is tasked under its charter to undertake public
services that require the use of lands of the public domain. Under Section 5 of PD No. 1084, the
functions of PEA include the following: "[T]o own or operate railroads, tramways and other kinds of
land transportation, x x x; [T]o construct, maintain and operate such systems of sanitary sewers as
may be necessary; [T]o construct, maintain and operate such storm drains as may be necessary."
PEA is empowered to issue "rules and regulations as may be necessary for the proper use by
private parties of any or all of the highways, roads, utilities, buildings and/or any of its
properties and to impose or collect fees or tolls for their use." Thus, part of the reclaimed
foreshore and submerged lands held by the PEA would actually be needed for public use or service
since many of the functions imposed on PEA by its charter constitute essential public services.

Moreover, Section 1 of Executive Order No. 525 provides that PEA "shall be primarily responsible for
integrating, directing, and coordinating all reclamation projects for and on behalf of the National
Government." The same section also states that "[A]ll reclamation projects shall be approved by
the President upon recommendation of the PEA, and shall be undertaken by the PEA or through a
proper contract executed by it with any person or entity; x x x." Thus, under EO No. 525, in relation
to PD No. 3-A and PD No.1084, PEA became the primary implementing agency of the National
Government to reclaim foreshore and submerged lands of the public domain. EO No. 525
recognized PEA as the government entity "to undertake the reclamation of lands and ensure their
maximum utilization in promoting public welfare and interests."79 Since large portions of these
reclaimed lands would obviously be needed for public service, there must be a formal declaration
segregating reclaimed lands no longer needed for public service from those still needed for public
service.1wphi1.nt

Section 3 of EO No. 525, by declaring that all lands reclaimed by PEA "shall belong to or be owned
by the PEA," could not automatically operate to classify inalienable lands into alienable or
disposable lands of the public domain. Otherwise, reclaimed foreshore and submerged lands of the
public domain would automatically become alienable once reclaimed by PEA, whether or not
classified as alienable or disposable.

The Revised Administrative Code of 1987, a later law than either PD No. 1084 or EO No. 525, vests
in the Department of Environment and Natural Resources ("DENR" for brevity) the following powers
and functions:

"Sec. 4. Powers and Functions. The Department shall:

(1) x x x

xxx

(4) Exercise supervision and control over forest lands, alienable and disposable
public lands, mineral resources and, in the process of exercising such control, impose
appropriate taxes, fees, charges, rentals and any such form of levy and collect such
revenues for the exploration, development, utilization or gathering of such resources;

xxx

(14) Promulgate rules, regulations and guidelines on the issuance of licenses,


permits, concessions, lease agreements and such other privileges concerning the
development, exploration and utilization of the country's marine, freshwater, and
brackish water and over all aquatic resources of the country and shall continue to
oversee, supervise and police our natural resources; cancel or cause to cancel such
privileges upon failure, non-compliance or violations of any regulation, order, and for all
other causes which are in furtherance of the conservation of natural resources and
supportive of the national interest;

(15) Exercise exclusive jurisdiction on the management and disposition of all lands
of the public domain and serve as the sole agency responsible for classification,
sub-classification, surveying and titling of lands in consultation with appropriate
agencies."80 (Emphasis supplied)

As manager, conservator and overseer of the natural resources of the State, DENR exercises
"supervision and control over alienable and disposable public lands." DENR also exercises
"exclusive jurisdiction on the management and disposition of all lands of the public domain." Thus,
DENR decides whether areas under water, like foreshore or submerged areas of Manila Bay, should
be reclaimed or not. This means that PEA needs authorization from DENR before PEA can undertake
reclamation projects in Manila Bay, or in any part of the country.

DENR also exercises exclusive jurisdiction over the disposition of all lands of the public domain.
Hence, DENR decides whether reclaimed lands of PEA should be classified as alienable under
Sections 681 and 782 of CA No. 141. Once DENR decides that the reclaimed lands should be so
classified, it then recommends to the President the issuance of a proclamation classifying the lands
as alienable or disposable lands of the public domain open to disposition. We note that then DENR
Secretary Fulgencio S. Factoran, Jr. countersigned Special Patent No. 3517 in compliance with the
Revised Administrative Code and Sections 6 and 7 of CA No. 141.

In short, DENR is vested with the power to authorize the reclamation of areas under water, while
PEA is vested with the power to undertake the physical reclamation of areas under water, whether
directly or through private contractors. DENR is also empowered to classify lands of the public
domain into alienable or disposable lands subject to the approval of the President. On the other
hand, PEA is tasked to develop, sell or lease the reclaimed alienable lands of the public domain.

Clearly, the mere physical act of reclamation by PEA of foreshore or submerged areas does not
make the reclaimed lands alienable or disposable lands of the public domain, much less patrimonial
lands of PEA. Likewise, the mere transfer by the National Government of lands of the public domain
to PEA does not make the lands alienable or disposable lands of the public domain, much less
patrimonial lands of PEA.

Absent two official acts a classification that these lands are alienable or disposable and open to
disposition and a declaration that these lands are not needed for public service, lands reclaimed by
PEA remain inalienable lands of the public domain. Only such an official classification and formal
declaration can convert reclaimed lands into alienable or disposable lands of the public domain,
open to disposition under the Constitution, Title I and Title III 83 of CA No. 141 and other applicable
laws.84

PEA's Authority to Sell Reclaimed Lands

PEA, like the Legal Task Force, argues that as alienable or disposable lands of the public domain,
the reclaimed lands shall be disposed of in accordance with CA No. 141, the Public Land Act. PEA,
citing Section 60 of CA No. 141, admits that reclaimed lands transferred to a branch or subdivision
of the government "shall not be alienated, encumbered, or otherwise disposed of in a manner
affecting its title, except when authorized by Congress: x x x."85 (Emphasis by PEA)
In Laurel vs. Garcia,86 the Court cited Section 48 of the Revised Administrative Code of 1987,
which states that

"Sec. 48. Official Authorized to Convey Real Property. Whenever real property of the
Government is authorized by law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following: x x x."

Thus, the Court concluded that a law is needed to convey any real property belonging to the
Government. The Court declared that -

"It is not for the President to convey real property of the government on his or her own sole
will. Any such conveyance must be authorized and approved by a law enacted by
the Congress. It requires executive and legislative concurrence." (Emphasis supplied)

PEA contends that PD No. 1085 and EO No. 525 constitute the legislative authority allowing PEA to
sell its reclaimed lands. PD No. 1085, issued on February 4, 1977, provides that

"The land reclaimed in the foreshore and offshore area of Manila Bay pursuant to
the contract for the reclamation and construction of the Manila-Cavite Coastal Road Project
between the Republic of the Philippines and the Construction and Development Corporation
of the Philippines dated November 20, 1973 and/or any other contract or reclamation
covering the same area is hereby transferred, conveyed and assigned to the
ownership and administration of the Public Estates Authority established pursuant to
PD No. 1084; Provided, however, That the rights and interests of the Construction and
Development Corporation of the Philippines pursuant to the aforesaid contract shall be
recognized and respected.

Henceforth, the Public Estates Authority shall exercise the rights and assume the obligations
of the Republic of the Philippines (Department of Public Highways) arising from, or incident
to, the aforesaid contract between the Republic of the Philippines and the Construction and
Development Corporation of the Philippines.

In consideration of the foregoing transfer and assignment, the Public Estates Authority shall
issue in favor of the Republic of the Philippines the corresponding shares of stock in said
entity with an issued value of said shares of stock (which) shall be deemed fully paid and
non-assessable.

The Secretary of Public Highways and the General Manager of the Public Estates Authority
shall execute such contracts or agreements, including appropriate agreements with the
Construction and Development Corporation of the Philippines, as may be necessary to
implement the above.

Special land patent/patents shall be issued by the Secretary of Natural Resources


in favor of the Public Estates Authority without prejudice to the subsequent
transfer to the contractor or his assignees of such portion or portions of the land
reclaimed or to be reclaimed as provided for in the above-mentioned contract. On
the basis of such patents, the Land Registration Commission shall issue the
corresponding certificate of title." (Emphasis supplied)

On the other hand, Section 3 of EO No. 525, issued on February 14, 1979, provides that -

"Sec. 3. All lands reclaimed by PEA shall belong to or be owned by the PEA which
shall be responsible for its administration, development, utilization or disposition in
accordance with the provisions of Presidential Decree No. 1084. Any and all income that the
PEA may derive from the sale, lease or use of reclaimed lands shall be used in accordance
with the provisions of Presidential Decree No. 1084."

There is no express authority under either PD No. 1085 or EO No. 525 for PEA to sell its reclaimed
lands. PD No. 1085 merely transferred "ownership and administration" of lands reclaimed from
Manila Bay to PEA, while EO No. 525 declared that lands reclaimed by PEA "shall belong to or be
owned by PEA." EO No. 525 expressly states that PEA should dispose of its reclaimed lands "in
accordance with the provisions of Presidential Decree No. 1084," the charter of PEA.

PEA's charter, however, expressly tasks PEA "to develop, improve, acquire, administer, deal in,
subdivide, dispose, lease and sell any and all kinds of lands x x x owned, managed, controlled
and/or operated by the government."87(Emphasis supplied) There is, therefore, legislative
authority granted to PEA to sell its lands, whether patrimonial or alienable lands of the
public domain. PEA may sell to private parties its patrimonial propertiesin accordance with the
PEA charter free from constitutional limitations. The constitutional ban on private corporations from
acquiring alienable lands of the public domain does not apply to the sale of PEA's patrimonial lands.

PEA may also sell its alienable or disposable lands of the public domain to private individuals
since, with the legislative authority, there is no longer any statutory prohibition against such sales
and the constitutional ban does not apply to individuals. PEA, however, cannot sell any of its
alienable or disposable lands of the public domain to private corporations since Section 3, Article
XII of the 1987 Constitution expressly prohibits such sales. The legislative authority benefits only
individuals. Private corporations remain barred from acquiring any kind of alienable land of the
public domain, including government reclaimed lands.

The provision in PD No. 1085 stating that portions of the reclaimed lands could be transferred by
PEA to the "contractor or his assignees" (Emphasis supplied) would not apply to private
corporations but only to individuals because of the constitutional ban. Otherwise, the provisions of
PD No. 1085 would violate both the 1973 and 1987 Constitutions.

The requirement of public auction in the sale of reclaimed lands

Assuming the reclaimed lands of PEA are classified as alienable or disposable lands open to
disposition, and further declared no longer needed for public service, PEA would have to conduct a
public bidding in selling or leasing these lands. PEA must observe the provisions of Sections 63 and
67 of CA No. 141 requiring public auction, in the absence of a law exempting PEA from holding a
public auction.88 Special Patent No. 3517 expressly states that the patent is issued by authority of
the Constitution and PD No. 1084, "supplemented by Commonwealth Act No. 141, as amended."
This is an acknowledgment that the provisions of CA No. 141 apply to the disposition of reclaimed
alienable lands of the public domain unless otherwise provided by law. Executive Order No.
654,89 which authorizes PEA "to determine the kind and manner of payment for the transfer" of its
assets and properties, does not exempt PEA from the requirement of public auction. EO No. 654
merely authorizes PEA to decide the mode of payment, whether in kind and in installment, but does
not authorize PEA to dispense with public auction.

Moreover, under Section 79 of PD No. 1445, otherwise known as the Government Auditing Code,
the government is required to sell valuable government property through public bidding. Section 79
of PD No. 1445 mandates that

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

It is only when the public auction fails that a negotiated sale is allowed, in which case the
Commission on Audit must approve the selling price. 90 The Commission on Audit implements
Section 79 of the Government Auditing Code through Circular No. 89-296 91 dated January 27, 1989.
This circular emphasizes that government assets must be disposed of only through public auction,
and a negotiated sale can be resorted to only in case of "failure of public auction."

At the public auction sale, only Philippine citizens are qualified to bid for PEA's reclaimed foreshore
and submerged alienable lands of the public domain. Private corporations are barred from bidding
at the auction sale of any kind of alienable land of the public domain.

PEA originally scheduled a public bidding for the Freedom Islands on December 10, 1991. PEA
imposed a condition that the winning bidder should reclaim another 250 hectares of submerged
areas to regularize the shape of the Freedom Islands, under a 60-40 sharing of the additional
reclaimed areas in favor of the winning bidder. 92 No one, however, submitted a bid. On December
23, 1994, the Government Corporate Counsel advised PEA it could sell the Freedom Islands through
negotiation, without need of another public bidding, because of the failure of the public bidding on
December 10, 1991.93

However, the original JVA dated April 25, 1995 covered not only the Freedom Islands and the
additional 250 hectares still to be reclaimed, it also granted an option to AMARI to reclaim another
350 hectares. The original JVA, a negotiated contract, enlarged the reclamation area to 750
hectares.94 The failure of public bidding on December 10, 1991, involving only 407.84
hectares,95 is not a valid justification for a negotiated sale of 750 hectares, almost double the area
publicly auctioned. Besides, the failure of public bidding happened on December 10, 1991, more
than three years before the signing of the original JVA on April 25, 1995. The economic situation in
the country had greatly improved during the intervening period.

Reclamation under the BOT Law and the Local Government Code

The constitutional prohibition in Section 3, Article XII of the 1987 Constitution is absolute and clear:
"Private corporations or associations may not hold such alienable lands of the public domain except
by lease, x x x." Even Republic Act No. 6957 ("BOT Law," for brevity), cited by PEA and AMARI as
legislative authority to sell reclaimed lands to private parties, recognizes the constitutional ban.
Section 6 of RA No. 6957 states

"Sec. 6. Repayment Scheme. - For the financing, construction, operation and maintenance of
any infrastructure projects undertaken through the build-operate-and-transfer arrangement
or any of its variations pursuant to the provisions of this Act, the project proponent x x x may
likewise be repaid in the form of a share in the revenue of the project or other non-monetary
payments, such as, but not limited to, the grant of a portion or percentage of the reclaimed
land, subject to the constitutional requirements with respect to the ownership of
the land: x x x." (Emphasis supplied)
A private corporation, even one that undertakes the physical reclamation of a government BOT
project, cannot acquire reclaimed alienable lands of the public domain in view of the constitutional
ban.

Section 302 of the Local Government Code, also mentioned by PEA and AMARI, authorizes local
governments in land reclamation projects to pay the contractor or developer in kind consisting of a
percentage of the reclaimed land, to wit:

"Section 302. Financing, Construction, Maintenance, Operation, and Management of


Infrastructure Projects by the Private Sector. x x x

xxx

In case of land reclamation or construction of industrial estates, the repayment plan may
consist of the grant of a portion or percentage of the reclaimed land or the industrial estate
constructed."

Although Section 302 of the Local Government Code does not contain a proviso similar to that of
the BOT Law, the constitutional restrictions on land ownership automatically apply even though not
expressly mentioned in the Local Government Code.

Thus, under either the BOT Law or the Local Government Code, the contractor or developer, if a
corporate entity, can only be paid with leaseholds on portions of the reclaimed land. If the
contractor or developer is an individual, portions of the reclaimed land, not exceeding 12
hectares96 of non-agricultural lands, may be conveyed to him in ownership in view of the legislative
authority allowing such conveyance. This is the only way these provisions of the BOT Law and the
Local Government Code can avoid a direct collision with Section 3, Article XII of the 1987
Constitution.

Registration of lands of the public domain

Finally, PEA theorizes that the "act of conveying the ownership of the reclaimed lands to public
respondent PEA transformed such lands of the public domain to private lands." This theory is
echoed by AMARI which maintains that the "issuance of the special patent leading to the eventual
issuance of title takes the subject land away from the land of public domain and converts the
property into patrimonial or private property." In short, PEA and AMARI contend that with the
issuance of Special Patent No. 3517 and the corresponding certificates of titles, the 157.84
hectares comprising the Freedom Islands have become private lands of PEA. In support of their
theory, PEA and AMARI cite the following rulings of the Court:

1. Sumail v. Judge of CFI of Cotabato,97 where the Court held

"Once the patent was granted and the corresponding certificate of title was issued, the land
ceased to be part of the public domain and became private property over which the Director
of Lands has neither control nor jurisdiction."

2. Lee Hong Hok v. David,98 where the Court declared -

"After the registration and issuance of the certificate and duplicate certificate of title based
on a public land patent, the land covered thereby automatically comes under the operation
of Republic Act 496 subject to all the safeguards provided therein."3. Heirs of Gregorio
Tengco v. Heirs of Jose Aliwalas,99 where the Court ruled -
"While the Director of Lands has the power to review homestead patents, he may do so only
so long as the land remains part of the public domain and continues to be under his
exclusive control; but once the patent is registered and a certificate of title is issued, the
land ceases to be part of the public domain and becomes private property over which the
Director of Lands has neither control nor jurisdiction."

4. Manalo v. Intermediate Appellate Court,100 where the Court held

"When the lots in dispute were certified as disposable on May 19, 1971, and free patents
were issued covering the same in favor of the private respondents, the said lots ceased to be
part of the public domain and, therefore, the Director of Lands lost jurisdiction over the
same."

5.Republic v. Court of Appeals, 101 where the Court stated

"Proclamation No. 350, dated October 9, 1956, of President Magsaysay legally effected a
land grant to the Mindanao Medical Center, Bureau of Medical Services, Department of
Health, of the whole lot, validly sufficient for initial registration under the Land Registration
Act. Such land grant is constitutive of a 'fee simple' title or absolute title in favor of petitioner
Mindanao Medical Center. Thus, Section 122 of the Act, which governs the registration of
grants or patents involving public lands, provides that 'Whenever public lands in the
Philippine Islands belonging to the Government of the United States or to the Government of
the Philippines are alienated, granted or conveyed to persons or to public or private
corporations, the same shall be brought forthwith under the operation of this Act (Land
Registration Act, Act 496) and shall become registered lands.'"

The first four cases cited involve petitions to cancel the land patents and the corresponding
certificates of titles issued to private parties. These four cases uniformly hold that the Director
of Lands has no jurisdiction over private lands or that upon issuance of the certificate of title the
land automatically comes under the Torrens System. The fifth case cited involves the registration
under the Torrens System of a 12.8-hectare public land granted by the National Government to
Mindanao Medical Center, a government unit under the Department of Health. The National
Government transferred the 12.8-hectare public land to serve as the site for the hospital buildings
and other facilities of Mindanao Medical Center, which performed a public service. The Court
affirmed the registration of the 12.8-hectare public land in the name of Mindanao Medical Center
under Section 122 of Act No. 496. This fifth case is an example of a public land being registered
under Act No. 496 without the land losing its character as a property of public dominion.

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

Registration of land under Act No. 496 or PD No. 1529 does not vest in the registrant private or
public ownership of the land. Registration is not a mode of acquiring ownership but is merely
evidence of ownership previously conferred by any of the recognized modes of acquiring
ownership. Registration does not give the registrant a better right than what the registrant had
prior to the registration.102 The registration of lands of the public domain under the Torrens system,
by itself, cannot convert public lands into private lands. 103

Jurisprudence holding that upon the grant of the patent or issuance of the certificate of title the
alienable land of the public domain automatically becomes private land cannot apply to
government units and entities like PEA. The transfer of the Freedom Islands to PEA was made
subject to the provisions of CA No. 141 as expressly stated in Special Patent No. 3517 issued by
then President Aquino, to wit:

"NOW, THEREFORE, KNOW YE, that by authority of the Constitution of the Philippines and in
conformity with the provisions of Presidential Decree No. 1084, supplemented by
Commonwealth Act No. 141, as amended, there are hereby granted and conveyed unto
the Public Estates Authority the aforesaid tracts of land containing a total area of one million
nine hundred fifteen thousand eight hundred ninety four (1,915,894) square meters; the
technical description of which are hereto attached and made an integral part hereof."
(Emphasis supplied)

Thus, the provisions of CA No. 141 apply to the Freedom Islands on matters not covered by PD No.
1084. Section 60 of CA No. 141 prohibits, "except when authorized by Congress," the sale of
alienable lands of the public domain that are transferred to government units or entities. Section 60
of CA No. 141 constitutes, under Section 44 of PD No. 1529, a "statutory lien affecting title" of the
registered land even if not annotated on the certificate of title. 104Alienable lands of the public
domain held by government entities under Section 60 of CA No. 141 remain public lands because
they cannot be alienated or encumbered unless Congress passes a law authorizing their
disposition. Congress, however, cannot authorize the sale to private corporations of reclaimed
alienable lands of the public domain because of the constitutional ban. Only individuals can benefit
from such law.

The grant of legislative authority to sell public lands in accordance with Section 60 of CA No. 141
does not automatically convert alienable lands of the public domain into private or patrimonial
lands. The alienable lands of the public domain must be transferred to qualified private parties, or
to government entities not tasked to dispose of public lands, before these lands can become
private or patrimonial lands. Otherwise, the constitutional ban will become illusory if Congress can
declare lands of the public domain as private or patrimonial lands in the hands of a government
agency tasked to dispose of public lands. This will allow private corporations to acquire directly
from government agencies limitless areas of lands which, prior to such law, are concededly public
lands.

Under EO No. 525, PEA became the central implementing agency of the National Government to
reclaim foreshore and submerged areas of the public domain. Thus, EO No. 525 declares that

"EXECUTIVE ORDER NO. 525

Designating the Public Estates Authority as the Agency Primarily Responsible for all
Reclamation Projects

Whereas, there are several reclamation projects which are ongoing or being proposed to be
undertaken in various parts of the country which need to be evaluated for consistency with
national programs;

Whereas, there is a need to give further institutional support to the Government's declared
policy to provide for a coordinated, economical and efficient reclamation of lands;

Whereas, Presidential Decree No. 3-A requires that all reclamation of areas shall be limited to
the National Government or any person authorized by it under proper contract;

Whereas, a central authority is needed to act on behalf of the National


Government which shall ensure a coordinated and integrated approach in the
reclamation of lands;
Whereas, Presidential Decree No. 1084 creates the Public Estates Authority as a
government corporation to undertake reclamation of lands and ensure their
maximum utilization in promoting public welfare and interests; and

Whereas, Presidential Decree No. 1416 provides the President with continuing authority to
reorganize the national government including the transfer, abolition, or merger of functions
and offices.

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the


powers vested in me by the Constitution and pursuant to Presidential Decree No. 1416, do
hereby order and direct the following:

Section 1. The Public Estates Authority (PEA) shall be primarily responsible for
integrating, directing, and coordinating all reclamation projects for and on behalf
of the National Government. All reclamation projects shall be approved by the President
upon recommendation of the PEA, and shall be undertaken by the PEA or through a proper
contract executed by it with any person or entity; Provided, that, reclamation projects of any
national government agency or entity authorized under its charter shall be undertaken in
consultation with the PEA upon approval of the President.

x x x ."

As the central implementing agency tasked to undertake reclamation projects nationwide, with
authority to sell reclaimed lands, PEA took the place of DENR as the government agency charged
with leasing or selling reclaimed lands of the public domain. The reclaimed lands being leased or
sold by PEA are not private lands, in the same manner that DENR, when it disposes of other
alienable lands, does not dispose of private lands but alienable lands of the public domain. Only
when qualified private parties acquire these lands will the lands become private lands. In the
hands of the government agency tasked and authorized to dispose of alienable of
disposable lands of the public domain, these lands are still public, not private lands.

Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public domain" as
well as "any and all kinds of lands." PEA can hold both lands of the public domain and private lands.
Thus, the mere fact that alienable lands of the public domain like the Freedom Islands are
transferred to PEA and issued land patents or certificates of title in PEA's name does not
automatically make such lands private.

To allow vast areas of reclaimed lands of the public domain to be transferred to PEA as private
lands will sanction a gross violation of the constitutional ban on private corporations from acquiring
any kind of alienable land of the public domain. PEA will simply turn around, as PEA has now
done under the Amended JVA, and transfer several hundreds of hectares of these reclaimed and
still to be reclaimed lands to a single private corporation in only one transaction. This scheme will
effectively nullify the constitutional ban in Section 3, Article XII of the 1987 Constitution which was
intended to diffuse equitably the ownership of alienable lands of the public domain among Filipinos,
now numbering over 80 million strong.

This scheme, if allowed, can even be applied to alienable agricultural lands of the public domain
since PEA can "acquire x x x any and all kinds of lands." This will open the floodgates to
corporations and even individuals acquiring hundreds of hectares of alienable lands of the public
domain under the guise that in the hands of PEA these lands are private lands. This will result in
corporations amassing huge landholdings never before seen in this country - creating the very evil
that the constitutional ban was designed to prevent. This will completely reverse the clear direction
of constitutional development in this country. The 1935 Constitution allowed private corporations to
acquire not more than 1,024 hectares of public lands. 105 The 1973 Constitution prohibited private
corporations from acquiring any kind of public land, and the 1987 Constitution has unequivocally
reiterated this prohibition.

The contention of PEA and AMARI that public lands, once registered under Act No. 496 or PD No.
1529, automatically become private lands is contrary to existing laws. Several laws authorize lands
of the public domain to be registered under the Torrens System or Act No. 496, now PD No. 1529,
without losing their character as public lands. Section 122 of Act No. 496, and Section 103 of PD
No. 1529, respectively, provide as follows:

Act No. 496

"Sec. 122. Whenever public lands in the Philippine Islands belonging to the x x x Government
of the Philippine Islands are alienated, granted, or conveyed to persons or the public or
private corporations, the same shall be brought forthwith under the operation of this Act
and shall become registered lands."

PD No. 1529

"Sec. 103. Certificate of Title to Patents. Whenever public land is by the Government
alienated, granted or conveyed to any person, the same shall be brought forthwith under
the operation of this Decree." (Emphasis supplied)

Based on its legislative history, the phrase "conveyed to any person" in Section 103 of PD No. 1529
includes conveyances of public lands to public corporations.

Alienable lands of the public domain "granted, donated, or transferred to a province, municipality,
or branch or subdivision of the Government," as provided in Section 60 of CA No. 141, may be
registered under the Torrens System pursuant to Section 103 of PD No. 1529. Such registration,
however, is expressly subject to the condition in Section 60 of CA No. 141 that the land "shall not
be alienated, encumbered or otherwise disposed of in a manner affecting its title, except
when authorized by Congress." This provision refers to government reclaimed, foreshore and
marshy lands of the public domain that have been titled but still cannot be alienated or
encumbered unless expressly authorized by Congress. The need for legislative authority prevents
the registered land of the public domain from becoming private land that can be disposed of to
qualified private parties.

The Revised Administrative Code of 1987 also recognizes that lands of the public domain may be
registered under the Torrens System. Section 48, Chapter 12, Book I of the Code states

"Sec. 48. Official Authorized to Convey Real Property. Whenever real property of the
Government is authorized by law to be conveyed, the deed of conveyance shall be executed
in behalf of the government by the following:

(1) x x x

(2) For property belonging to the Republic of the Philippines, but titled in the
name of any political subdivision or of any corporate agency or instrumentality, by
the executive head of the agency or instrumentality." (Emphasis supplied)

Thus, private property purchased by the National Government for expansion of a public wharf may
be titled in the name of a government corporation regulating port operations in the country. Private
property purchased by the National Government for expansion of an airport may also be titled in
the name of the government agency tasked to administer the airport. Private property donated to a
municipality for use as a town plaza or public school site may likewise be titled in the name of the
municipality.106 All these properties become properties of the public domain, and if already
registered under Act No. 496 or PD No. 1529, remain registered land. There is no requirement or
provision in any existing law for the de-registration of land from the Torrens System.

Private lands taken by the Government for public use under its power of eminent domain become
unquestionably part of the public domain. Nevertheless, Section 85 of PD No. 1529 authorizes the
Register of Deeds to issue in the name of the National Government new certificates of title covering
such expropriated lands. Section 85 of PD No. 1529 states

"Sec. 85. Land taken by eminent domain. Whenever any registered land, or interest therein,
is expropriated or taken by eminent domain, the National Government, province, city or
municipality, or any other agency or instrumentality exercising such right shall file for
registration in the proper Registry a certified copy of the judgment which shall state
definitely by an adequate description, the particular property or interest expropriated, the
number of the certificate of title, and the nature of the public use. A memorandum of the
right or interest taken shall be made on each certificate of title by the Register of Deeds, and
where the fee simple is taken, a new certificate shall be issued in favor of the
National Government, province, city, municipality, or any other agency or
instrumentality exercising such right for the land so taken. The legal expenses incident to the
memorandum of registration or issuance of a new certificate of title shall be for the account
of the authority taking the land or interest therein." (Emphasis supplied)

Consequently, lands registered under Act No. 496 or PD No. 1529 are not exclusively private or
patrimonial lands. Lands of the public domain may also be registered pursuant to existing laws.

AMARI makes a parting shot that the Amended JVA is not a sale to AMARI of the Freedom Islands or
of the lands to be reclaimed from submerged areas of Manila Bay. In the words of AMARI, the
Amended JVA "is not a sale but a joint venture with a stipulation for reimbursement of the original
cost incurred by PEA for the earlier reclamation and construction works performed by the CDCP
under its 1973 contract with the Republic." Whether the Amended JVA is a sale or a joint venture,
the fact remains that the Amended JVA requires PEA to "cause the issuance and delivery of the
certificates of title conveying AMARI's Land Share in the name of AMARI." 107

This stipulation still contravenes Section 3, Article XII of the 1987 Constitution which provides that
private corporations "shall not hold such alienable lands of the public domain except by lease." The
transfer of title and ownership to AMARI clearly means that AMARI will "hold" the reclaimed lands
other than by lease. The transfer of title and ownership is a "disposition" of the reclaimed lands, a
transaction considered a sale or alienation under CA No. 141, 108 the Government Auditing
Code,109 and Section 3, Article XII of the 1987 Constitution.

The Regalian doctrine is deeply implanted in our legal system. Foreshore and submerged areas
form part of the public domain and are inalienable. Lands reclaimed from foreshore and submerged
areas also form part of the public domain and are also inalienable, unless converted pursuant to
law into alienable or disposable lands of the public domain. Historically, lands reclaimed by the
government are sui generis, not available for sale to private parties unlike other alienable public
lands. Reclaimed lands retain their inherent potential as areas for public use or public service.
Alienable lands of the public domain, increasingly becoming scarce natural resources, are to be
distributed equitably among our ever-growing population. To insure such equitable distribution, the
1973 and 1987 Constitutions have barred private corporations from acquiring any kind of alienable
land of the public domain. Those who attempt to dispose of inalienable natural resources of the
State, or seek to circumvent the constitutional ban on alienation of lands of the public domain to
private corporations, do so at their own risk.

We can now summarize our conclusions as follows:


1. The 157.84 hectares of reclaimed lands comprising the Freedom Islands, now covered by
certificates of title in the name of PEA, are alienable lands of the public domain. PEA
may lease these lands to private corporations but may not sell or transfer ownership of these
lands to private corporations. PEA may only sell these lands to Philippine citizens, subject to
the ownership limitations in the 1987 Constitution and existing laws.

2. The 592.15 hectares of submerged areas of Manila Bay remain inalienable natural
resources of the public domain until classified as alienable or disposable lands open to
disposition and declared no longer needed for public service. The government can make
such classification and declaration only after PEA has reclaimed these submerged areas.
Only then can these lands qualify as agricultural lands of the public domain, which are the
only natural resources the government can alienate. In their present state, the 592.15
hectares of submerged areas are inalienable and outside the commerce of man.

3. Since the Amended JVA seeks to transfer to AMARI, a private corporation, ownership of
77.34 hectares110of the Freedom Islands, such transfer is void for being contrary to Section 3,
Article XII of the 1987 Constitution which prohibits private corporations from acquiring any
kind of alienable land of the public domain.

4. Since the Amended JVA also seeks to transfer to AMARI ownership of 290.156
hectares111 of still submerged areas of Manila Bay, such transfer is void for being contrary to
Section 2, Article XII of the 1987 Constitution which prohibits the alienation of natural
resources other than agricultural lands of the public domain. PEA may reclaim these
submerged areas. Thereafter, the government can classify the reclaimed lands as alienable
or disposable, and further declare them no longer needed for public service. Still, the
transfer of such reclaimed alienable lands of the public domain to AMARI will be void in view
of Section 3, Article XII of the 1987 Constitution which prohibits private corporations from
acquiring any kind of alienable land of the public domain.

Clearly, the Amended JVA violates glaringly Sections 2 and 3, Article XII of the 1987 Constitution.
Under Article 1409112 of the Civil Code, contracts whose "object or purpose is contrary to law," or
whose "object is outside the commerce of men," are "inexistent and void from the beginning." The
Court must perform its duty to defend and uphold the Constitution, and therefore declares the
Amended JVA null and void ab initio.

Seventh issue: whether the Court is the proper forum to raise the issue of whether the
Amended JVA is grossly disadvantageous to the government.

Considering that the Amended JVA is null and void ab initio, there is no necessity to rule on this last
issue. Besides, the Court is not a trier of facts, and this last issue involves a determination of
factual matters.

WHEREFORE, the petition is GRANTED. The Public Estates Authority and Amari Coastal Bay
Development Corporation are PERMANENTLY ENJOINED from implementing the Amended Joint
Venture Agreement which is hereby declared NULL and VOID ab initio.

DIRECTOR OF LANDS VS IAC

NARVASA, J.:

The Director of Lands has brought this appeal by certiorari from a judgment of the Intermediate
Appellate Court affirming a decision of the Court of First Instance of Isabela, which ordered
registration in favor of Acme Plywood & Veneer Co., Inc. of five parcels of land measuring 481, 390
square meters, more or less, acquired by it from Mariano and Acer Infiel, members of the Dumagat
tribe.

The registration proceedings were for confirmation of title under Section 48 of Commonwealth Act
No. 141 (The Public Land Act). as amended: and the appealed judgment sums up the findings of the
trial court in said proceedings in this wise:

1. That Acme Plywood & Veneer Co. Inc., represented by Mr. Rodolfo Nazario is a corporation
duly organized in accordance with the laws of the Republic of the Philippines and registered
with the Securities and Exchange Commission on December 23, 1959;

2. That Acme Plywood & Veneer Co. Inc., represented by Mr. Rodolfo Nazario can acquire real
properties pursuant to the provisions of the Articles of Incorporation particularly on the
provision of its secondary purposes (paragraph (9), Exhibit 'M-l');

3. That the land subject of the Land Registration proceeding was ancestrally acquired by
Acme Plywood & Veneer Co., Inc., on October 29, 1962, from Mariano Infiel and Acer Infiel,
both members of the Dumagat tribe and as such are cultural minorities;

4. That the constitution of the Republic of the Philippines of 1935 is applicable as the sale
took place on October 29, 1962;

5. That the possession of the Infiels over the land relinquished or sold to Acme Plywood &
Veneer Co., Inc., dates back before the Philippines was discovered by Magellan as the
ancestors of the Infiels have possessed and occupied the land from generation to generation
until the same came into the possession of Mariano Infiel and Acer Infiel;

6. That the possession of the applicant Acme Plywood & Veneer Co., Inc., is continuous,
adverse and public from 1962 to the present and tacking the possession of the Infiels who
were granted from whom the applicant bought said land on October 29, 1962, hence the
possession is already considered from time immemorial.

7. That the land sought to be registered is a private land pursuant to the provisions of
Republic Act No. 3872 granting absolute ownership to members of the non-Christian Tribes
on land occupied by them or their ancestral lands, whether with the alienable or disposable
public land or within the public domain;

8. That applicant Acme Plywood & Veneer Co. Inc., has introduced more than Forty-Five
Million (P45,000,000.00) Pesos worth of improvements, said improvements were seen by the
Court during its ocular investigation of the land sought to be registered on September 18,
1982;

9. That the ownership and possession of the land sought to be registered by the applicant
was duly recognized by the government when the Municipal Officials of Maconacon, Isabela,
have negotiated for the donation of the townsite from Acme Plywood & Veneer Co., Inc., and
this negotiation came to reality when the Board of Directors of the Acme Plywood & Veneer
Co., Inc., had donated a part of the land bought by the Company from the Infiels for the
townsite of Maconacon Isabela (Exh. 'N') on November 15, 1979, and which donation was
accepted by the Municipal Government of Maconacon, Isabela (Exh. 'N-l'), during their
special session on November 22, 1979.

The Director of Lands takes no issue with any of these findings except as to the applicability of the
1935 Constitution to the matter at hand. Concerning this, he asserts that, the registration
proceedings have been commenced only on July 17, 1981, or long after the 1973 Constitution had
gone into effect, the latter is the correctly applicable law; and since section 11 of its Article XIV
prohibits private corporations or associations from holding alienable lands of the public domain,
except by lease not to exceed 1,000 hectares (a prohibition not found in the 1935 Constitution
which was in force in 1962 when Acme purchased the lands in question from the Infiels), it was
reversible error to decree registration in favor of Acme Section 48, paragraphs (b) and (c), of
Commonwealth Act No. 141, as amended, reads:

SEC. 48. The following described citizens of the Philippines, occupying lands of the public
domain or claiming to own any such lands or an interest therein, but whose titles have not
been perfected or completed, may apply to the Court of First Instance of the province where
the land is located for confirmation of their claims, and the issuance of a certificate of title
therefor, under the Land Registration Act, to wit:

xxx xxx xxx

(b) Those who by themselves or through their predecessors-in-interest have been in open,
continuous, exclusive and notorious possession and occupation of agricultural lands of the
public domain, under a bona fide claim of acquisition or ownership, for at least thirty years
immediately preceding the filing of the application for confirmation of title except when
prevented by war or force majeure. These shall be conclusively presumed to have performed
all the conditions essential to a Government grant and shall be entitled to a certificate of title
under the provisions of this chapter.

(c) Members of the National Cultural minorities who by themselves or through their
predecessors-in-interest have been in open. continuous, exclusive and notorious possession
and occupation of lands of the public domain suitable to agriculture, whether disposable or
not, under a bona fide claim of ownership for at least 30 years shall be entitled to the rights
granted in subsection (b) hereof.

The Petition for Review does not dispute-indeed, in view of the quoted findings of the trial court
which were cited and affirmed by the Intermediate Appellate Court, it can no longer controvert
before this Court-the fact that Mariano and Acer Infiel, from whom Acme purchased the lands in
question on October 29, 1962, are members of the national cultural minorities who had, by
themselves and through their progenitors, possessed and occupied those lands since time
immemorial, or for more than the required 30-year period and were, by reason thereof, entitled to
exercise the right granted in Section 48 of the Public Land Act to have their title judicially
confirmed. Nor is there any pretension that Acme, as the successor-in-interest of the Infiels, is
disqualified to acquire and register ownership of said lands under any provisions of the 1973
Constitution other than Section 11 of its Article XIV already referred to.

Given the foregoing, the question before this Court is whether or not the title that the Infiels had
transferred to Acme in 1962 could be confirmed in favor of the latter in proceedings instituted by it
in 1981 when the 1973 Constitution was already in effect, having in mind the prohibition therein
against private corporations holding lands of the public domain except in lease not exceeding
1,000 hectares.

The question turns upon a determination of the character of the lands at the time of institution of
the registration proceedings in 1981. If they were then still part of the public domain, it must be
answered in the negative. If, on the other hand, they were then already private lands, the
constitutional prohibition against their acquisition by private corporations or associations obviously
does not apply.
In this regard, attention has been invited to Manila Electric Company vs. Castro-Bartolome, et
al, 1 where a similar set of facts prevailed. In that case, Manila Electric Company, a domestic
corporation more than 60% of the capital stock of which is Filipino-owned, had purchased in 1947
two lots in Tanay, Rizal from the Piguing spouses. The lots had been possessed by the vendors and,
before them, by their predecessor-in-interest, Olimpia Ramos, since prior to the outbreak of the
Pacific War in 1941. On December 1, 1976, Meralco applied to the Court of First Instance of Rizal,
Makati Branch, for confirmation of title to said lots. The court, assuming that the lots were public
land, dismissed the application on the ground that Meralco, a juridical person, was not qualified to
apply for registration under Section 48(b) of the Public Land Act which allows only Filipino citizens
or natural persons to apply for judicial confirmation of imperfect titles to public land. Meralco
appealed, and a majority of this Court upheld the dismissal. It was held that:

..., the said land is still public land. It would cease to be public land only upon the issuance of
the certificate of title to any Filipino citizen claiming it under section 48(b). Because it is still
public land and the Meralco, as a juridical person, is disqualified to apply for its registration
under section 48(b), Meralco's application cannot be given due course or has to be
dismissed.

Finally, it may be observed that the constitutional prohibition makes no distinction between
(on the one hand) alienable agricultural public lands as to which no occupant has an
imperfect title and (on the other hand) alienable lands of the public domain as to which an
occupant has on imperfect title subject to judicial confirmation.

Since section 11 of Article XIV does not distinguish, we should not make any distinction or
qualification. The prohibition applies to alienable public lands as to which a Torrens title may
be secured under section 48(b). The proceeding under section 48(b) 'presupposes that the
land is public' (Mindanao vs. Director of Lands, L-19535, July 30, 1967, 20 SCRA 641, 644).

The present Chief Justice entered a vigorous dissent, tracing the line of cases beginning
with Carino in 1909 2 thru Susi in 1925 3 down to Herico in 1980, 4 which developed, affirmed and
reaffirmed the doctrine that open, exclusive and undisputed possession of alienable public land for
the period prescribed by law creates the legal fiction whereby the land, upon completion of the
requisite period ipso jure and without the need of judicial or other sanction, ceases to be public
land and becomes private property. That said dissent expressed what is the better and, indeed,
the correct, view-becomes evident from a consideration of some of the principal rulings cited
therein,

The main theme was given birth, so to speak, in Carino involving the Decree/Regulations of June
25, 1880 for adjustment of royal lands wrongfully occupied by private individuals in the Philippine
Islands. It was ruled that:

It is true that the language of articles 4 and 5 5 attributes title to those 'who may prove'
possession for the necessary time and we do not overlook the argument that this means
may prove in registration proceedings. It may be that an English conveyancer would have
recommended an application under the foregoing decree, but certainly it was not calculated
to convey to the mind of an Igorot chief the notion that ancient family possessions were in
danger, if he had read every word of it. The words 'may prove' (acrediten) as well or better,
in view of the other provisions, might be taken to mean when called upon to do so in any
litigation. There are indications that registration was expected from all but none sufficient to
show that, for want of it, ownership actually gained would be lost. The effect of the proof,
wherever made, was not to confer title, but simply to establish it, as already conferred by the
decree, if not by earlier law. ...
That ruling assumed a more doctrinal character because expressed in more categorical language,
in Susi:

.... In favor of Valentin Susi, there is, moreover, the presumption juris et de jure established
in paragraph (b) of section 45 of Act No. 2874, amending Act No. 926, that all the necessary
requirements for a grant by the Government were complied with, for he has been in actual
and physical possession, personally and through his predecessors, of an agricultural land of
the public domain openly, continuously, exclusively and publicly since July 26, 1984, with a
right to a certificate of title to said land under the provisions of Chapter VIII of said Act. So
that when Angela Razon applied for the grant in her favor, Valentin Susi had already
acquired, by operation of law not only a right to a grant, but a grant of the Government, for
it is not necessary that a certificate of title should be issued in order that said grant may be
sanctioned by the courts, an application therefore is sufficient, under the provisions of
section 47 of Act No. 2874. If by a legal fiction, Valentin Susi had acquired the land in
question by a grant of the State, it had already ceased to be of the public domain and had
become private property, at least by presumption, of Valentin Susi, beyond the control of the
Director of Lands. Consequently, in selling the land in question of Angela Razon, the Director
of Lands disposed of a land over which he had no longer any title or control, and the sale
thus made was void and of no effect, and Angela Razon did not thereby acquire any right. 6

Succeeding cases, of which only some need be mentioned, likeof Lacaste vs. Director of
Lands, 7 Mesina vs. Vda. de Sonza, 8 Manarpac vs. Cabanatuan, 9 Miguel vs. Court of
Appeals 10 and Herico vs. Dar, supra, by invoking and affirming the Susi doctrine have firmly rooted
it in jurisprudence.

11
Herico, in particular, appears to be squarely affirmative:

.... Secondly, under the provisions of Republic Act No. 1942, which the respondent Court held
to be inapplicable to the petitioner's case, with the latter's proven occupation and cultivation
for more than 30 years since 1914, by himself and by his predecessors-in-interest, title over
the land has vested on petitioner so as to segregate the land from the mass of public
land. Thereafter, it is no longer disposable under the Public Land Act as by free patent. ....

xxx xxx xxx

As interpreted in several cases, when the conditions as specified in the foregoing provision
are complied with, the possessor is deemed to have acquired, by operation of law, a right to
a grant, a government grant, without the necessity of a certificate of title being issued. The
land, therefore, ceases to be of the public domain and beyond the authority of the Director of
Lands to dispose of. The application for confirmation is mere formality, the lack of which
does not affect the legal sufficiency of the title as would be evidenced by the patent and the
Torrens title to be issued upon the strength of said patent. 12

Nothing can more clearly demonstrate the logical inevitability of considering possession of public
land which is of the character and duration prescribed by statute as the equivalent of an express
grant from the State than the dictum of the statute itself 13 that the possessor(s) "... shall be
conclusively presumed to have performed all the conditions essential to a Government grant and
shall be entitled to a certificate of title .... " No proof being admissible to overcome a conclusive
presumption, confirmation proceedings would, in truth be little more than a formality, at the most
limited to ascertaining whether the possession claimed is of the required character and length of
time; and registration thereunder would not confer title, but simply recognize a title already vested.
The proceedings would not originally convert the land from public to private land, but only confirm
such a conversion already affected by operation of law from the moment the required period of
possession became complete. As was so well put in Carino, "... (T)here are indications that
registration was expected from all, but none sufficient to show that, for want of it, ownership
actually gained would be lost. The effect of the proof, wherever made, was not to confer title, but
simply to establish it, as already conferred by the decree, if not by earlier law."

If it is accepted-as it must be-that the land was already private land to which the Infiels had a
legally sufficient and transferable title on October 29, 1962 when Acme acquired it from said
owners, it must also be conceded that Acme had a perfect right to make such acquisition, there
being nothing in the 1935 Constitution then in force (or, for that matter, in the 1973 Constitution
which came into effect later) prohibiting corporations from acquiring and owning private lands.

Even on the proposition that the land remained technically "public" land, despite immemorial
possession of the Infiels and their ancestors, until title in their favor was actually confirmed in
appropriate proceedings under the Public Land Act, there can be no serious question of Acmes right
to acquire the land at the time it did, there also being nothing in the 1935 Constitution that might
be construed to prohibit corporations from purchasing or acquiring interests in public land to which
the vendor had already acquired that type of so-called "incomplete" or "imperfect" title. The only
limitation then extant was that corporations could not acquire, hold or lease public agricultural
lands in excess of 1,024 hectares. The purely accidental circumstance that confirmation
proceedings were brought under the aegis of the 1973 Constitution which forbids corporations from
owning lands of the public domain cannot defeat a right already vested before that law came into
effect, or invalidate transactions then perfectly valid and proper. This Court has already held, in
analogous circumstances, that the Constitution cannot impair vested rights.

We hold that the said constitutional prohibition 14 has no retroactive application to the sales
application of Binan Development Co., Inc. because it had already acquired a vested right to
the land applied for at the time the 1973 Constitution took effect.

That vested right has to be respected. It could not be abrogated by the new Constitution.
Section 2, Article XIII of the 1935 Constitution allows private corporations to purchase public
agricultural lands not exceeding one thousand and twenty-four hectares. Petitioner'
prohibition action is barred by the doctrine of vested rights in constitutional law.

xxx xxx xxx

The due process clause prohibits the annihilation of vested rights. 'A state may not impair
vested rights by legislative enactment, by the enactment or by the subsequent repeal of a
municipal ordinance, or by a change in the constitution of the State, except in a legitimate
exercise of the police power'(16 C.J.S. 1177-78).

xxx xxx xxx

In the instant case, it is incontestable that prior to the effectivity of the 1973 Constitution the
right of the corporation to purchase the land in question had become fixed and established
and was no longer open to doubt or controversy.

Its compliance with the requirements of the Public Land Law for the issuance of a patent had
the effect of segregating the said land from the public domain. The corporation's right to
obtain a patent for the land is protected by law. It cannot be deprived of that right without
due process (Director of Lands vs. CA, 123 Phil. 919).<re||an1w> 15

The fact, therefore, that the confirmation proceedings were instituted by Acme in its own name
must be regarded as simply another accidental circumstance, productive of a defect hardly more
than procedural and in nowise affecting the substance and merits of the right of ownership sought
to be confirmed in said proceedings, there being no doubt of Acme's entitlement to the land. As it is
unquestionable that in the light of the undisputed facts, the Infiels, under either the 1935 or the
1973 Constitution, could have had title in themselves confirmed and registered, only a rigid
subservience to the letter of the law would deny the same benefit to their lawful successor-in-
interest by valid conveyance which violates no constitutional mandate.

The Court, in the light of the foregoing, is of the view, and so holds, that the majority ruling
in Meralco must be reconsidered and no longer deemed to be binding precedent. The correct rule,
as enunciated in the line of cases already referred to, is that alienable public land held by a
possessor, personally or through his predecessors-in-interest, openly, continuously and exclusively
for the prescribed statutory period (30 years under The Public Land Act, as amended) is converted
to private property by the mere lapse or completion of said period, ipso jure. Following that rule
and on the basis of the undisputed facts, the land subject of this appeal was already private
property at the time it was acquired from the Infiels by Acme. Acme thereby acquired a registrable
title, there being at the time no prohibition against said corporation's holding or owning private
land. The objection that, as a juridical person, Acme is not qualified to apply for judicial
confirmation of title under section 48(b) of the Public Land Act is technical, rather than substantial
and, again, finds its answer in the dissent in Meralco:

6. To uphold respondent judge's denial of Meralco's application on the technicality that the
Public Land Act allows only citizens of the Philippines who are natural persons to apply for
confirmation of their title would be impractical and would just give rise to multiplicity of court
actions. Assuming that there was a technical error not having filed the application for
registration in the name of the Piguing spouses as the original owners and vendors, still it is
conceded that there is no prohibition against their sale of the land to the applicant Meralco
and neither is there any prohibition against the application being refiled with retroactive
effect in the name of the original owners and vendors (as such natural persons) with the end
result of their application being granted, because of their indisputable acquisition of
ownership by operation of law and the conclusive presumption therein provided in their
favor. It should not be necessary to go through all the rituals at the great cost of refiling of all
such applications in their names and adding to the overcrowded court dockets when the
Court can after all these years dispose of it here and now. (See Francisco vs. City of Davao)

The ends of justice would best be served, therefore, by considering the applications for
confirmation as amended to conform to the evidence, i.e. as filed in the names of the original
persons who as natural persons are duly qualified to apply for formal confirmation of the title
that they had acquired by conclusive presumption and mandate of the Public Land Act and
who thereafter duly sold to the herein corporations (both admittedly Filipino corporations
duly qualified to hold and own private lands) and granting the applications for confirmation
of title to the private lands so acquired and sold or exchanged.

There is also nothing to prevent Acme from reconveying the lands to the Infiels and the latter from
themselves applying for confirmation of title and, after issuance of the certificate/s of title in their
names, deeding the lands back to Acme. But this would be merely indulging in empty charades,
whereas the same result is more efficaciously and speedily obtained, with no prejudice to anyone,
by a liberal application of the rule on amendment to conform to the evidence suggested in the
dissent in Meralco.

While this opinion seemingly reverses an earlier ruling of comparatively recent vintage, in a real
sense, it breaks no precedent, but only reaffirms and re-established, as it were, doctrines the
soundness of which has passed the test of searching examination and inquiry in many past cases.
Indeed, it is worth noting that the majority opinion, as well as the concurring opinions of Chief
Justice Fernando and Justice Abad Santos, in Meralco rested chiefly on the proposition that the
petitioner therein, a juridical person, was disqualified from applying for confirmation of an imperfect
title to public land under Section 48(b) of the Public Land Act. Reference to the 1973 Constitution
and its Article XIV, Section 11, was only tangential limited to a brief paragraph in the main opinion,
and may, in that context, be considered as essentially obiter. Meralco, in short, decided no
constitutional question.

WHEREFORE, there being no reversible error in the appealed judgment of the Intermediate
Appellate Court, the same is hereby affirmed, without costs in this instance.

SO ORDERED.

Feria, Yap, Fernan, Alampay, Cruz, Paras and Feliciano, JJ., concur.

CRUZ VS SECRETARY

RESOLUTION

PER CURIAM:

Petitioners Isagani Cruz and Cesar Europa brought this suit for prohibition and mandamus as
citizens and taxpayers, assailing the constitutionality of certain provisions of Republic Act No. 8371
(R.A. 8371), otherwise known as the Indigenous Peoples Rights Act of 1997 (IPRA), and its
Implementing Rules and Regulations (Implementing Rules).

In its resolution of September 29, 1998, the Court required respondents to comment. 1 In
compliance, respondents Chairperson and Commissioners of the National Commission on
Indigenous Peoples (NCIP), the government agency created under the IPRA to implement its
provisions, filed on October 13, 1998 their Comment to the Petition, in which they defend the
constitutionality of the IPRA and pray that the petition be dismissed for lack of merit.

On October 19, 1998, respondents Secretary of the Department of Environment and Natural
Resources (DENR) and Secretary of the Department of Budget and Management (DBM) filed
through the Solicitor General a consolidated Comment. The Solicitor General is of the view that the
IPRA is partly unconstitutional on the ground that it grants ownership over natural resources to
indigenous peoples and prays that the petition be granted in part.

On November 10, 1998, a group of intervenors, composed of Sen. Juan Flavier, one of the authors
of the IPRA, Mr. Ponciano Bennagen, a member of the 1986 Constitutional Commission, and the
leaders and members of 112 groups of indigenous peoples (Flavier, et. al), filed their Motion for
Leave to Intervene. They join the NCIP in defending the constitutionality of IPRA and praying for the
dismissal of the petition.

On March 22, 1999, the Commission on Human Rights (CHR) likewise filed a Motion to Intervene
and/or to Appear as Amicus Curiae. The CHR asserts that IPRA is an expression of the principle of
parens patriae and that the State has the responsibility to protect and guarantee the rights of those
who are at a serious disadvantage like indigenous peoples. For this reason it prays that the petition
be dismissed.
On March 23, 1999, another group, composed of the Ikalahan Indigenous People and the Haribon
Foundation for the Conservation of Natural Resources, Inc. (Haribon, et al.), filed a motion to
Intervene with attached Comment-in-Intervention. They agree with the NCIP and Flavier, et al. that
IPRA is consistent with the Constitution and pray that the petition for prohibition and mandamus be
dismissed.

The motions for intervention of the aforesaid groups and organizations were granted.

Oral arguments were heard on April 13, 1999. Thereafter, the parties and intervenors filed their
respective memoranda in which they reiterate the arguments adduced in their earlier pleadings
and during the hearing.

Petitioners assail the constitutionality of the following provisions of the IPRA and its Implementing
Rules on the ground that they amount to an unlawful deprivation of the States ownership over
lands of the public domain as well as minerals and other natural resources therein, in violation of
the regalian doctrine embodied in Section 2, Article XII of the Constitution:

"(1) Section 3(a) which defines the extent and coverage of ancestral domains, and Section 3(b)
which, in turn, defines ancestral lands;

"(2) Section 5, in relation to section 3(a), which provides that ancestral domains including
inalienable public lands, bodies of water, mineral and other resources found within ancestral
domains are private but community property of the indigenous peoples;

"(3) Section 6 in relation to section 3(a) and 3(b) which defines the composition of ancestral
domains and ancestral lands;

"(4) Section 7 which recognizes and enumerates the rights of the indigenous peoples over the
ancestral domains;

(5) Section 8 which recognizes and enumerates the rights of the indigenous peoples over the
ancestral lands;

"(6) Section 57 which provides for priority rights of the indigenous peoples in the harvesting,
extraction, development or exploration of minerals and other natural resources within the areas
claimed to be their ancestral domains, and the right to enter into agreements with nonindigenous
peoples for the development and utilization of natural resources therein for a period not exceeding
25 years, renewable for not more than 25 years; and

"(7) Section 58 which gives the indigenous peoples the responsibility to maintain, develop, protect
and conserve the ancestral domains and portions thereof which are found to be necessary for
critical watersheds, mangroves, wildlife sanctuaries, wilderness, protected areas, forest cover or
reforestation."2

Petitioners also content that, by providing for an all-encompassing definition of "ancestral domains"
and "ancestral lands" which might even include private lands found within said areas, Sections 3(a)
and 3(b) violate the rights of private landowners. 3

In addition, petitioners question the provisions of the IPRA defining the powers and jurisdiction of
the NCIP and making customary law applicable to the settlement of disputes involving ancestral
domains and ancestral lands on the ground that these provisions violate the due process clause of
the Constitution.4
These provisions are:

"(1) sections 51 to 53 and 59 which detail the process of delineation and recognition of
ancestral domains and which vest on the NCIP the sole authority to delineate ancestral
domains and ancestral lands;

"(2) Section 52[i] which provides that upon certification by the NCIP that a particular area is
an ancestral domain and upon notification to the following officials, namely, the Secretary of
Environment and Natural Resources, Secretary of Interior and Local Governments, Secretary
of Justice and Commissioner of the National Development Corporation, the jurisdiction of said
officials over said area terminates;

"(3) Section 63 which provides the customary law, traditions and practices of indigenous
peoples shall be applied first with respect to property rights, claims of ownership, hereditary
succession and settlement of land disputes, and that any doubt or ambiguity in the
interpretation thereof shall be resolved in favor of the indigenous peoples;

"(4) Section 65 which states that customary laws and practices shall be used to resolve
disputes involving indigenous peoples; and

"(5) Section 66 which vests on the NCIP the jurisdiction over all claims and disputes involving
rights of the indigenous peoples." 5

Finally, petitioners assail the validity of Rule VII, Part II, Section 1 of the NCIP Administrative Order
No. 1, series of 1998, which provides that "the administrative relationship of the NCIP to the Office
of the President is characterized as a lateral but autonomous relationship for purposes of policy and
program coordination." They contend that said Rule infringes upon the Presidents power of control
over executive departments under Section 17, Article VII of the Constitution. 6

Petitioners pray for the following:

"(1) A declaration that Sections 3, 5, 6, 7, 8, 52[I], 57, 58, 59, 63, 65 and 66 and other
related provisions of R.A. 8371 are unconstitutional and invalid;

"(2) The issuance of a writ of prohibition directing the Chairperson and Commissioners of the
NCIP to cease and desist from implementing the assailed provisions of R.A. 8371 and its
Implementing Rules;

"(3) The issuance of a writ of prohibition directing the Secretary of the Department of
Environment and Natural Resources to cease and desist from implementing Department of
Environment and Natural Resources Circular No. 2, series of 1998;

"(4) The issuance of a writ of prohibition directing the Secretary of Budget and Management
to cease and desist from disbursing public funds for the implementation of the assailed
provisions of R.A. 8371; and

"(5) The issuance of a writ of mandamus commanding the Secretary of Environment and
Natural Resources to comply with his duty of carrying out the States constitutional mandate
to control and supervise the exploration, development, utilization and conservation of
Philippine natural resources."7

After due deliberation on the petition, the members of the Court voted as follows:
Seven (7) voted to dismiss the petition. Justice Kapunan filed an opinion, which the Chief Justice
and Justices Bellosillo, Quisumbing, and Santiago join, sustaining the validity of the challenged
provisions of R.A. 8371. Justice Puno also filed a separate opinion sustaining all challenged
provisions of the law with the exception of Section 1, Part II, Rule III of NCIP Administrative Order
No. 1, series of 1998, the Rules and Regulations Implementing the IPRA, and Section 57 of the IPRA
which he contends should be interpreted as dealing with the large-scale exploitation of natural
resources and should be read in conjunction with Section 2, Article XII of the 1987 Constitution. On
the other hand, Justice Mendoza voted to dismiss the petition solely on the ground that it does not
raise a justiciable controversy and petitioners do not have standing to question the constitutionality
of R.A. 8371.

Seven (7) other members of the Court voted to grant the petition. Justice Panganiban filed a
separate opinion expressing the view that Sections 3 (a)(b), 5, 6, 7 (a)(b), 8, and related provisions
of R.A. 8371 are unconstitutional. He reserves judgment on the constitutionality of Sections 58, 59,
65, and 66 of the law, which he believes must await the filing of specific cases by those whose
rights may have been violated by the IPRA. Justice Vitug also filed a separate opinion expressing
the view that Sections 3(a), 7, and 57 of R.A. 8371 are unconstitutional. Justices Melo, Pardo,
Buena, Gonzaga-Reyes, and De Leon join in the separate opinions of Justices Panganiban and Vitug.

As the votes were equally divided (7 to 7) and the necessary majority was not obtained, the case
was redeliberated upon. However, after redeliberation, the voting remained the same. Accordingly,
pursuant to Rule 56, Section 7 of the Rules of Civil Procedure, the petition is DISMISSED.

Attached hereto and made integral parts thereof are the separate opinions of Justices Puno, Vitug,
Kapunan, Mendoza, and Panganiban.

SO ORDERED.

CHEESMAN VS IAC

NARVASA, J.:

This appeal concerns the attempt by an American citizen (petitioner Thomas Cheesman) to annul
for lack of consent on his part the sale by his Filipino wife (Criselda) of a residential lot and
building to Estelita Padilla, also a Filipino.

Thomas Cheesman and Criselda P. Cheesman were married on December 4, 1970 but have been
separated since February 15,1981. 1

On June 4, 1974, a "Deed of Sale and Transfer of Possessory Rights" was executed by Armando
Altares conveying a parcel of unregistered land and the house thereon (at No. 7 Neptune Street,
Gordon Heights, Olongapo City) in favor of "Criselda P. Cheesman, of legal age, Filipino citizen,
married to Thomas Cheesman, and residing at Lot No. 1, Blk. 8, Filtration Road, Sta. Rita, Olongapo
City . . ." 2 Thomas Cheesman, although aware of the deed, did not object to the transfer being
made only to his wife.3

Thereafterand again with the knowledge of Thomas Cheesman and also without any protest by
himtax declarations for the property purchased were issued in the name only of Criselda
Cheesman and Criselda assumed exclusive management and administration of said property,
leasing it to tenants. 4

On July 1, 1981, Criselda Cheesman sold the property to Estelita M. Padilla, without the knowledge
or consent of Thomas Cheesman. 5 The deed described Criselda as being" . . . of legal age, married
to an American citizen,. . ." 6
Thirty days later, or on July 31, 1981, Thomas Cheesman brought suit in the Court of First Instance
at Olongapo City against his wife, Criselda, and Estelita Padilla, praying for the annulment of the
sale on the ground that the transaction had been executed without his knowledge and
consent. 7 An answer was filed in the names of both defendants, alleging that (1) the property sold
was paraphernal, having been purchased by Criselda with funds exclusively belonging to her ("her
own separate money"); (2) Thomas Cheesman, being an American, was disqualified to have any
interest or right of ownership in the land; and (3) Estelita Padilla was a buyer in good faith. 8

During the pre-trial conference, the parties agreed upon certain facts which were subsequently set
out in a pre-trial Order dated October 22, 1981, 9 as follows:

1. Both parties recognize the existence of the Deed of Sale over the residential house
located at No. 7 Granada St., Gordon Heights, Olongapo City, which was acquired from
Armando Altares on June 4, 1974 and sold by defendant Criselda Cheesman to Estelita
Padilla on July 12, 1981; and

2. That the transaction regarding the transfer of their property took place during the
existence of their marriage as the couple were married on December 4, 1970 and the
questioned property was acquired sometime on June 4,1974.

The action resulted in a judgment dated June 24, 1982, 10 declaring void ab initio the sale executed
by Criselda Cheesman in favor of Estelita M. Padilla, and ordering the delivery of the property to
Thomas Cheesman as administrator of the conjugal partnership property, and the payment to him
of P5,000.00 as attorney's fees and expenses of litigation. 11

The judgment was however set aside as regards Estelita Padilla on a petition for relief filed by the
latter, grounded on "fraud, mistake and/or excusable negligence" which had seriously impaired her
right to present her case adequately. 12 "After the petition for relief from judgment was given due
course," according to petitioner, "a new judge presided over the case." 13

Estelita Padilla filed a supplemental pleading on December 20, 1982 as her own answer to the
complaint, and a motion for summary judgment on May 17, 1983. Although there was initial
opposition by Thomas Cheesman to the motion, the parties ultimately agreed on the rendition by
the court of a summary judgment after entering into a stipulation of facts, at the hearing of the
motion on June 21, 1983, the stipulation being of the following tenor: 14

(1) that the property in question was bought during the existence of the marriage between
the plaintiff and the defendant Criselda P. Cheesman;

(2) that the property bought during the marriage was registered in the name of Criselda
Cheesman and that the Deed of Sale and Transfer of Possessory Rights executed by the
former owner-vendor Armando Altares in favor of Criselda Cheesman made no mention of
the plaintiff;

(3) that the property, subject of the proceedings, was sold by defendant Criselda Cheesman
in favor of the other defendant Estelita M. Padilla, without the written consent of the plaintiff.

Obviously upon the theory that no genuine issue existed any longer and there was hence no need
of a trial, the parties having in fact submitted, as also stipulated, their respective memoranda each
praying for a favorable verdict, the Trial Court 15 rendered a "Summary Judgment" dated August 3,
1982 declaring "the sale executed by . . . Criselda Cheesman in favor of . . . Estelita Padilla to be
valid," dismissing Thomas Cheesman's complaint and ordering him "to immediately turn over the
possession of the house and lot subject of . . . (the) case to . . . Estelita Padilla . . ." 16
The Trial Court found that

1) the evidence on record satisfactorily overcame the disputable presumption in Article 160
of the Civil Codethat all property of the marriage belongs to the conjugal partnership
"unless it be proved that it pertains exclusively to the husband or to the wife"and that the
immovable in question was in truth Criselda's paraphernal property;

2) that moreover, said legal presumption in Article 160 could not apply "inasmuch as the
husband-plaintiff is an American citizen and therefore disqualified under the Constitution to
acquire and own real properties; and

3) that the exercise by Criselda of exclusive acts of dominion with the knowledge of her
husband "had led . . . Estelita Padilla to believe that the properties were the exclusive
properties of Criselda Cheesman and on the faith of such a belief she bought the properties
from her and for value," and therefore, Thomas Cheesman was, under Article 1473 of the
Civil Code, estopped to impugn the transfer to Estelita Padilla.

Thomas Cheesman appealed to the Intermediate Appellate Court. There he assailed the Trial Court
acts (1) of granting Estelita Padilla's petition for relief, and its resolution of matters not subject of
said petition; (2) of declaring valid the sale to Estelita Padilla despite the lack of consent thereto by
him, and the presumption of the conjugal character of the property in question pursuant to Article
160 of the Civil Code; (3) of disregarding the judgment of June 24, 1982 which, not having been set
aside as against Criselda Cheesman, continued to be binding on her; and (4) of making findings of
fact not supported by evidence. All of these contentions were found to be without merit by the
Appellate Tribunal which, on January 7, 1986, promulgated a decision (erroneously denominated,
"Report")17affirming the "Summary Judgment complained of," "having found no reversible error"
therein.

Once more, Thomas Cheesman availed of the remedy of appeal, this time to this Court. Here, he
argues that it was reversible error for the Intermediate Appellate Court

1) to find that the presumption that the property in question is conjugal in accordance with Article
160 had been satisfactorily overcome by Estelita Padilla; 18

2) to rule that Estelita Padilla was a purchaser of said property in good faith, it appearing:

a) that the deed by which the property was conveyed to Criselda Cheesman described her as
"married to Thomas C. Cheesman," as well as the deed by which the property was later
conveyed to Estelita Padilla by Criselda Cheesman also described her as "married to an
American citizen," and both said descriptions had thus "placed Estelita on knowledge of the
conjugal nature of the property;" and

b) that furthermore, Estelita had admitted to stating in the deed by which she acquired the
property a price much lower than that actually paid "in order to avoid payment of more
obligation to the government;"19

3) to decline to declare that the evidence did not warrant the grant of Estelita Padilla's petition for
relief on the ground of "fraud, mistake and/or excusable negligence;" 20

4) to hold that Thomas Cheesman had waived his objection to Estelita's petition for relief by failing
to appeal from the order granting the same;

5) to accord to Estelita Padilla a relief other than that she had specifically prayed for in her petition
for relief, ie., "the restoration of the purchase price which Estelita allegedly paid to Criselda;" 21 and
6) to fail to declare that Thomas Cheesman's citizenship is not a bar to his action to recover the lot
and house for the conjugal partnership. 22

Such conclusions as that (1) fraud, mistake or excusable negligence existed in the premises
justifying relief to Estelita Padilla under Rule 38 of the Rules of Court, or (2) that Criselda Cheesman
had used money she had brought into her marriage to Thomas Cheesman to purchase the lot and
house in question, or (3) that Estelita Padilla believed in good faith that Criselda Cheesman was the
exclusive owner of the property that she (Estelita) intended to and did in fact buyderived from
the evidence adduced by the parties, the facts set out in the pleadings or otherwise appearing on
recordare conclusions or findings of fact. As distinguished from a question of lawwhich exists
"when the doubt or difference arises as to what the law is on a certain state of facts" "there is a
question of fact when the doubt or difference arises as to the truth or the falsehood of alleged
facts;"23 or when the "query necessarily invites calibration of the whole evidence considering
mainly the credibility of witnesses, existence and relevancy of specific surrounding circumstances,
their relation; to each other and to the whole and the probabilities of the situation." 24

Now, it is axiomatic that only questions of law, distinctly set forth, may be raised in a petition for
the review oncertiorari of a decision of the Court of Appeals presented to this Court. 25 As everyone
knows or ought to know, the appellate jurisdiction of this Court is limited to reviewing errors of law,
accepting as conclusive the factual findings of the lower court upon its own assessment of the
evidence. 26 The creation of the Court of Appeals was precisely intended to take away from the
Supreme Court the work of examining the evidence, and confine its task to the determination of
questions which do not call for the reading and study of transcripts containing the testimony of
witnesses.27 The rule of conclusiveness of the factual findings or conclusions of the Court of Appeals
is, to be sure, subject to certain exceptions, 28 none of which however obtains in the case at bar.

It is noteworthy that both the Trial Court and the Intermediate Appellate Court reached the same
conclusions on the three (3) factual matters above set forth, after assessment of the evidence and
determination of the probative value thereof. Both Courts found that the facts on record adequately
proved fraud, mistake or excusable negligence by which Estelita Padilla's rights had been
substantially impaired; that the funds used by Criselda Cheesman was money she had earned and
saved prior to her marriage to Thomas Cheesman, and that Estelita Padilla did believe in good faith
that Criselda Cheesman was the sole owner of the property in question. Consequently, these
determinations of fact will not be here disturbed, this Court having been cited to no reason for
doing so.

These considerations dispose of the first three (3) points that petitioner Cheesman seeks to make
in his appeal.1wphi1They also make unnecessary an extended discussion of the other issues
raised by him. As to them, it should suffice to restate certain fundamental propositions.

An order of a Court of First Instance (now Regional Trial Court) granting a petition for relief under
Rule 38 is interlocutory and is not appealable. Hence, the failure of the party who opposed the
petition to appeal from said order, or his participation in the proceedings subsequently had, cannot
be construed as a waiver of his objection to the petition for relief so as to preclude his raising the
same question on appeal from the judgment on the merits of the main case. Such a party need not
repeat his objections to the petition for relief, or perform any act thereafter (e.g., take formal
exception) in order to preserve his right to question the same eventually, on appeal, it being
sufficient for this purpose that he has made of record "the action which he desires the court to take
or his objection to the action of the court and his grounds therefor." 29

Again, the prayer in a petition for relief from judgment under Rule 38 is not necessarily the same
prayer in the petitioner's complaint, answer or other basic pleading. This should be obvious. Equally
obvious is that once a petition for relief is granted and the judgment subject thereof set aside, and
further proceedings are thereafter had, the Court in its judgment on the merits may properly grant
the relief sought in the petitioner's basic pleadings, although different from that stated in his
petition for relief.

Finally, the fundamental law prohibits the sale to aliens of residential land. Section 14, Article XIV of
the 1973 Constitution ordains that, "Save in cases of hereditary succession, no private land shall be
transferred or conveyed except to individuals, corporations, or associations qualified to acquire or
hold lands of the public domain." 30Petitioner Thomas Cheesman was, of course, charged with
knowledge of this prohibition. Thus, assuming that it was his intention that the lot in question be
purchased by him and his wife, he acquired no right whatever over the property by virtue of that
purchase; and in attempting to acquire a right or interest in land, vicariously and clandestinely, he
knowingly violated the Constitution; the sale as to him was null and void. 31 In any event, he had
and has no capacity or personality to question the subsequent sale of the same property by his
wife on the theory that in so doing he is merely exercising the prerogative of a husband in respect
of conjugal property. To sustain such a theory would permit indirect controversion of the
constitutional prohibition. If the property were to be declared conjugal, this would accord to the
alien husband a not insubstantial interest and right over land, as he would then have a decisive
vote as to its transfer or disposition. This is a right that the Constitution does not permit him to
have.

As already observed, the finding that his wife had used her own money to purchase the property
cannot, and will not, at this stage of the proceedings be reviewed and overturned. But even if it
were a fact that said wife had used conjugal funds to make the acquisition, the considerations just
set out militate, on high constitutional grounds, against his recovering and holding the property so
acquired or any part thereof. And whether in such an event, he may recover from his wife any share
of the money used for the purchase or charge her with unauthorized disposition or expenditure of
conjugal funds is not now inquired into; that would be, in the premises, a purely academic exercise.
An equally decisive consideration is that Estelita Padilla is a purchaser in good faith, both the Trial
Court and the Appellate Court having found that Cheesman's own conduct had led her to believe
the property to be exclusive property of the latter's wife, freely disposable by her without his
consent or intervention. An innocent buyer for value, she is entitled to the protection of the law in
her purchase, particularly as against Cheesman, who would assert rights to the property denied
him by both letter and spirit of the Constitution itself.

WHEREFORE, the appealed decision is AFFIRMED, with costs against petitioner.

SO ORDERED.

RAMIREZ VS VDA RAMIREZ

ABAD SANTOS, J.:

The main issue in this appeal is the manner of partitioning the testate estate of Jose Eugenio
Ramirez among the principal beneficiaries, namely: his widow Marcelle Demoron de Ramirez; his
two grandnephews Roberto and Jorge Ramirez; and his companion Wanda de Wrobleski.

The task is not trouble-free because the widow Marcelle is a French who lives in Paris, while the
companion Wanda is an Austrian who lives in Spain. Moreover, the testator provided for
substitutions.

Jose Eugenio Ramirez, a Filipino national, died in Spain on December 11, 1964, with only his widow
as compulsory heir. His will was admitted to probate by the Court of First Instance of Manila, Branch
X, on July 27, 1965. Maria Luisa Palacios was appointed administratrix of the estate. In due time she
submitted an inventory of the estate as follows:
INVENTARIO

Una sexta parte (1/6) proindiviso de un te

rreno, con sus mejoras y edificaciones, situadoen

la Escolta, Manila............................................................. P500,000.00

Una sexta parte (1/6) proindiviso de dos

parcelas de terreno situadas en Antipolo, Rizal................... 658.34

Cuatrocientos noventa y uno (491) acciones

de la 'Central Azucarera de la Carlota a P17.00

por accion ................................................................................8,347.00

Diez mil ochocientos seize (10,806) acciones

de la 'Central Luzon Milling Co.', disuelta y en

liquidacion a P0.15 por accion ..............................................1,620.90

Cuenta de Ahorros en el Philippine Trust

Co....................................................................................... ....... 2,350.73

TOTAL.............................................................. P512,976.97

MENOS:

Deuda al Banco de las Islas Filipinas, garan-

tizada con prenda de las acciones de La Carlota ......... P 5,000,00

VALOR LIQUIDO........................................... P507,976.97

The testamentary dispositions are as follows:

A.En nuda propiedad, a D. Roberto y D. Jorge Ramirez, ambas menores de edad,


residentes en Manila, I.F., calle 'Alright, No. 1818, Malate, hijos de su sobrino D. Jose
Ma. Ramirez, con sustitucion vulgar a favor de sus respectivos descendientes, y, en su
defecto, con sustitucion vulgar reciprocal entre ambos.

El precedente legado en nuda propiedad de la participacion indivisa de la finca Santa


Cruz Building, lo ordena el testador a favor de los legatarios nombrados, en atencion a
que dicha propiedad fue creacion del querido padre del otorgante y por ser aquellos
continuadores del apellido Ramirez,

B.Y en usufructo a saber:


a. En cuanto a una tercera parte, a favor de la esposa del testador, Da. Marcelle
Ramirez, domiciliada en IE PECO, calle del General Gallieni No. 33, Seine Francia, con
sustitucion vulgar u fideicomisaria a favor de Da. Wanda de Wrobleski, de Palma de
Mallorca, Son Rapina Avenida de los Reyes 13,

b.Y en cuanto a las dos terceras partes restantes, a favor de la nombrada Da. Wanda
de Nrobleski con sustitucion vulgar v fideicomisaria a saber:

En cuanto a la mitad de dichas dos terceras partes, a favor de D. Juan Pablo Jankowski,
de Son Rapina Palma de Mallorca; y encuanto a la mitad restante, a favor de su
sobrino, D. Horace V. Ramirez, San Luis Building, Florida St. Ermita, Manila, I.F.

A pesar de las sustituciones fideiconiisarias precedentemente ordinadas, las


usufiructuarias nombradas conjuntamente con los nudo propietarios, podran en
cualquier memento vender a tercero los bienes objeto delegado, sin intervencion
alguna de los titulares fideicomisaarios.

On June 23, 1966, the administratrix submitted a project of partition as follows: the property of the
deceased is to be divided into two parts. One part shall go to the widow 'en pleno dominio" in
satisfaction of her legitime; the other part or "free portion" shall go to Jorge and Roberto Ramirez
"en nuda propriedad." Furthermore, one third (1/3) of the free portion is charged with the widow's
usufruct and the remaining two-thirds (2/3) with a usufruct in favor of Wanda.

Jorge and Roberto opposed the project of partition on the grounds: (a) that the provisions for vulgar
substitution in favor of Wanda de Wrobleski with respect to the widow's usufruct and in favor of
Juan Pablo Jankowski and Horacio V. Ramirez, with respect to Wanda's usufruct are invalid because
the first heirs Marcelle and Wanda) survived the testator; (b) that the provisions for
fideicommissary substitutions are also invalid because the first heirs are not related to the second
heirs or substitutes within the first degree, as provided in Article 863 of the Civil Code; (c) that the
grant of a usufruct over real property in the Philippines in favor of Wanda Wrobleski, who is an
alien, violates Section 5, Article III of the Philippine Constitution; and that (d) the proposed partition
of the testator's interest in the Santa Cruz (Escolta) Building between the widow Marcelle and the
appellants, violates the testator's express win to give this property to them Nonetheless, the lower
court approved the project of partition in its order dated May 3, 1967. It is this order which Jorge
and Roberto have appealed to this Court.

1. The widow's legitime.

The appellant's do not question the legality of giving Marcelle one-half of the estate in full
ownership. They admit that the testator's dispositions impaired his widow's legitime. Indeed, under
Art. 900 of the Civil Code "If the only survivor is the widow or widower, she or he shall be entitled to
one-half of the hereditary estate." And since Marcelle alone survived the deceased, she is entitled
to one-half of his estate over which he could impose no burden, encumbrance, condition or
substitution of any kind whatsoever. (Art. 904, par. 2, Civil Code.)

It is the one-third usufruct over the free portion which the appellants question and justifiably so. It
appears that the court a quo approved the usufruct in favor of Marcelle because the testament
provides for a usufruct in her favor of one-third of the estate. The court a quo erred for Marcelle
who is entitled to one-half of the estate "en pleno dominio" as her legitime and which is more than
what she is given under the will is not entitled to have any additional share in the estate. To give
Marcelle more than her legitime will run counter to the testator's intention for as stated above his
dispositions even impaired her legitime and tended to favor Wanda.

2. The substitutions.
It may be useful to recall that "Substitution is the appoint- judgment of another heir so that he may
enter into the inheritance in default of the heir originally instituted." (Art. 857, Civil Code. And that
there are several kinds of substitutions, namely: simple or common, brief or compendious,
reciprocal, and fideicommissary (Art. 858, Civil Code.) According to Tolentino, "Although the Code
enumerates four classes, there are really only two principal classes of substitutions: the simple and
the fideicommissary. The others are merely variations of these two." (111 Civil Code, p. 185
[1973].)

The simple or vulgar is that provided in Art. 859 of the Civil Code which reads:

ART. 859. The testator may designate one or more persons to substitute the heir or
heirs instituted in case such heir or heirs should die before him, or should not wish, or
should be incapacitated to accept the inheritance.

A simple substitution, without a statement of the cases to which it refers, shall


comprise the three mentioned in the preceding paragraph, unless the testator has
otherwise provided.

The fideicommissary substitution is described in the Civil Code as follows:

ART. 863. A fideicommissary substitution by virtue of which the fiduciary or first heir
instituted is entrusted with the obligation to preserve and to transmit to a second heir
the whole or part of inheritance, shall be valid and shall take effect, provided such
substitution does not go beyond one degree from the heir originally instituted, and
provided further that the fiduciary or first heir and the second heir are living at time of
the death of the testator.

It will be noted that the testator provided for a vulgar substitution in respect of the legacies of
Roberto and Jorge Ramirez, the appellants, thus: con sustitucion vulgar a favor de sus respectivos
descendientes, y, en su defecto, con substitution vulgar reciprocal entre ambos.

The appellants do not question the legality of the substitution so provided. The appellants question
the sustitucion vulgar y fideicomisaria a favor de Da. Wanda de Wrobleski" in connection with the
one-third usufruct over the estate given to the widow Marcelle However, this question has become
moot because as We have ruled above, the widow is not entitled to any usufruct.

The appellants also question the sustitucion vulgar y fideicomisaria in connection with Wanda's
usufruct over two thirds of the estate in favor of Juan Pablo Jankowski and Horace v. Ramirez.

They allege that the substitution in its vulgar aspect as void because Wanda survived the testator
or stated differently because she did not predecease the testator. But dying before the testator is
not the only case for vulgar substitution for it also includes refusal or incapacity to accept the
inheritance as provided in Art. 859 of the Civil Code, supra. Hence, the vulgar substitution is valid.

As regards the substitution in its fideicommissary aspect, the appellants are correct in their claim
that it is void for the following reasons:

(a) The substitutes (Juan Pablo Jankowski and Horace V. Ramirez) are not related to Wanda, the heir
originally instituted. Art. 863 of the Civil Code validates a fideicommissary substitution "provided
such substitution does not go beyond one degree from the heir originally instituted."

What is meant by "one degree" from the first heir is explained by Tolentino as follows:
Scaevola Maura, and Traviesas construe "degree" as designation, substitution, or
transmission. The Supreme Court of Spain has decidedly adopted this construction.
From this point of view, there can be only one tranmission or substitution, and the
substitute need not be related to the first heir. Manresa, Morell and Sanchez Roman,
however, construe the word "degree" as generation, and the present Code has
obviously followed this interpretation. by providing that the substitution shall not go
beyond one degree "from the heir originally instituted." The Code thus clearly
indicates that the second heir must be related to and be one generation from the first
heir.

From this, it follows that the fideicommissary can only be either a child or a parent of
the first heir. These are the only relatives who are one generation or degree from the
fiduciary (Op. cit., pp. 193-194.)

(b) There is no absolute duty imposed on Wanda to transmit the usufruct to the substitutes as
required by Arts. 865 and 867 of the Civil Code. In fact, the appellee admits "that the testator
contradicts the establishment of a fideicommissary substitution when he permits the properties
subject of the usufruct to be sold upon mutual agreement of the usufructuaries and the naked
owners." (Brief, p. 26.)

3. The usufruct of Wanda.

The appellants claim that the usufruct over real properties of the estate in favor of Wanda is void
because it violates the constitutional prohibition against the acquisition of lands by aliens.

The 1935 Constitution which is controlling provides as follows:

SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be


transferred or assigned except to individuals, corporations, or associations qualified to
acquire or hold lands of the public domain in the Philippines. (Art. XIII.)

The court a quo upheld the validity of the usufruct given to Wanda on the ground that the
Constitution covers not only succession by operation of law but also testamentary succession. We
are of the opinion that the Constitutional provision which enables aliens to acquire private lands
does not extend to testamentary succession for otherwise the prohibition will be for naught and
meaningless. Any alien would be able to circumvent the prohibition by paying money to a
Philippine landowner in exchange for a devise of a piece of land.

This opinion notwithstanding, We uphold the usufruct in favor of Wanda because a usufruct, albeit a
real right, does not vest title to the land in the usufructuary and it is the vesting of title to land in
favor of aliens which is proscribed by the Constitution.

IN VIEW OF THE FOREGOING, the estate of Jose Eugenio Ramirez is hereby ordered distributed as
follows:

One-half (1/2) thereof to his widow as her legitime;

One-half (1/2) thereof which is the free portion to Roberto and Jorge Ramirez in naked ownership
and the usufruct to Wanda de Wrobleski with a simple substitution in favor of Juan Pablo Jankowski
and Horace V. Ramirez.

The distribution herein ordered supersedes that of the court a quo. No special pronouncement as to
costs.
SO ORDERED.

HULTS VS PR BUILDERS

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court
assailing the Decision1 dated October 30, 2002 of the Court of Appeals (CA) in CA-G.R. SP No.
60981.

The facts:

Jacobus Bernhard Hulst (petitioner) and his spouse Ida Johanna Hulst-Van Ijzeren (Ida), Dutch
nationals, entered into a Contract to Sell with PR Builders, Inc. (respondent), for the purchase of a
210-sq m residential unit in respondent's townhouse project in Barangay Niyugan, Laurel,
Batangas.

When respondent failed to comply with its verbal promise to complete the project by June 1995, the
spouses Hulst filed before the Housing and Land Use Regulatory Board (HLURB) a complaint for
rescission of contract with interest, damages and attorney's fees, docketed as HLRB Case No. IV6-
071196-0618.

On April 22, 1997, HLURB Arbiter Ma. Perpetua Y. Aquino (HLURB Arbiter) rendered a Decision 2 in
favor of spouses Hulst, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the complainant,


rescinding the Contract to Sell and ordering respondent to:

1) Reimburse complainant the sum of P3,187,500.00, representing the purchase price paid
by the complainants to P.R. Builders, plus interest thereon at the rate of twelve percent
(12%) per annum from the time complaint was filed;

2) Pay complainant the sum of P297,000.00 as actual damages;

3) Pay complainant the sum of P100,000.00 by way of moral damages;

4) Pay complainant the sum of P150,000.00 as exemplary damages;

5) P50,000.00 as attorney's fees and for other litigation expenses; and

6) Cost of suit.

SO ORDERED.3

Meanwhile, spouses Hulst divorced. Ida assigned her rights over the purchased property to
petitioner.4 From then on, petitioner alone pursued the case.

On August 21, 1997, the HLURB Arbiter issued a Writ of Execution addressed to the Ex-Officio
Sheriff of the Regional Trial Court of Tanauan, Batangas directing the latter to execute its
judgment.5

On April 13, 1998, the Ex-Officio Sheriff proceeded to implement the Writ of Execution. However,
upon complaint of respondent with the CA on a Petition for Certiorari and Prohibition, the levy made
by the Sheriff was set aside, requiring the Sheriff to levy first on respondent's personal
properties.6 Sheriff Jaime B. Ozaeta (Sheriff) tried to implement the writ as directed but the writ was
returned unsatisfied.7

On January 26, 1999, upon petitioner's motion, the HLURB Arbiter issued an Alias Writ of
Execution.8

On March 23, 1999, the Sheriff levied on respondent's 15 parcels of land covered by 13 Transfer
Certificates of Title (TCT)9 in Barangay Niyugan, Laurel, Batangas.10

In a Notice of Sale dated March 27, 2000, the Sheriff set the public auction of the levied properties
on April 28, 2000 at 10:00 a.m..11

Two days before the scheduled public auction or on April 26, 2000, respondent filed an Urgent
Motion to Quash Writ of Levy with the HLURB on the ground that the Sheriff made an overlevy since
the aggregate appraised value of the levied properties at P6,500.00 per sq m is P83,616,000.00,
based on the Appraisal Report12 of Henry Hunter Bayne Co., Inc. dated December 11, 1996, which is
over and above the judgment award. 13

At 10:15 a.m. of the scheduled auction date of April 28, 2000, respondent's counsel objected to the
conduct of the public auction on the ground that respondent's Urgent Motion to Quash Writ of Levy
was pending resolution. Absent any restraining order from the HLURB, the Sheriff proceeded to sell
the 15 parcels of land. Holly Properties Realty Corporation was the winning bidder for all 15 parcels
of land for the total amount of P5,450,653.33. The sum of P5,313,040.00 was turned over to the
petitioner in satisfaction of the judgment award after deducting the legal fees. 14

At 4:15 p.m. of the same day, while the Sheriff was at the HLURB office to remit the legal fees
relative to the auction sale and to submit the Certificates of Sale 15 for the signature of HLURB
Director Belen G. Ceniza (HLURB Director), he received the Order dated April 28, 2000 issued by
the HLURB Arbiter to suspend the proceedings on the matter. 16

Four months later, or on August 28, 2000, the HLURB Arbiter and HLURB Director issued an Order
setting aside the sheriff's levy on respondent's real properties, 17 reasoning as follows:

While we are not making a ruling that the fair market value of the levied properties is
PhP6,500.00 per square meter (or an aggregate value of PhP83,616,000.00) as indicated in
the Hunter Baynes Appraisal Report, we definitely cannot agree with the position of the
Complainants and the Sheriff that the aggregate value of the 12,864.00-square meter levied
properties is only around PhP6,000,000.00. The disparity between the two valuations are
[sic] so egregious that the Sheriff should have looked into the matter first before proceeding
with the execution sale of the said properties, especially when the auction sale proceedings
was seasonably objected by Respondent's counsel, Atty. Noel Mingoa. However, instead of
resolving first the objection timely posed by Atty. Mingoa, Sheriff Ozaete totally disregarded
the objection raised and, posthaste, issued the corresponding Certificate of Sale even prior
to the payment of the legal fees (pars. 7 & 8, Sheriff's Return).

While we agree with the Complainants that what is material in an execution sale proceeding
is the amount for which the properties were bidded and sold during the public auction and
that, mere inadequacy of the price is not a sufficient ground to annul the sale, the court is
justified to intervene where the inadequacy of the price shocks the conscience (Barrozo vs.
Macaraeg, 83 Phil. 378). The difference between PhP83,616,000.00 and Php6,000,000.00 is
PhP77,616,000.00 and it definitely invites our attention to look into the proceedings had
especially so when there was only one bidder, the HOLLY PROPERTIES REALTY CORPORATION
represented by Ma, Chandra Cacho (par. 7, Sheriff's Return) and the auction sale proceedings
was timely objected by Respondent's counsel (par. 6, Sheriff's Return) due to the pendency
of the Urgent Motion to Quash the Writ of Levy which was filed prior to the execution sale.

Besides, what is at issue is not the value of the subject properties as determined
during the auction sale, but the determination of the value of the properties
levied upon by the Sheriff taking into consideration Section 9(b) of the 1997 Rules
of Civil Procedure x x x.

xxxx

It is very clear from the foregoing that, even during levy, the Sheriff has to consider the fair
market value of the properties levied upon to determine whether they are sufficient to satisfy
the judgment, and any levy in excess of the judgment award is void (Buan v. Court of
Appeals, 235 SCRA 424).

x x x x18 (Emphasis supplied).

The dispositive portion of the Order reads:

WHEREFORE, the levy on the subject properties made by the Ex-Officio Sheriff of the RTC of
Tanauan, Batangas, is hereby SET ASIDE and the said Sheriff is hereby directed to levy
instead Respondent's real properties that are reasonably sufficient to enforce its final and
executory judgment, this time, taking into consideration not only the value of the properties
as indicated in their respective tax declarations, but also all the other determinants at
arriving at a fair market value, namely: the cost of acquisition, the current value of like
properties, its actual or potential uses, and in the particular case of lands, their size, shape
or location, and the tax declarations thereon.

SO ORDERED.19

A motion for reconsideration being a prohibited pleading under Section 1(h), Rule IV of the 1996
HLURB Rules and Procedure, petitioner filed a Petition for Certiorari and Prohibition with the CA on
September 27, 2000.

On October 30, 2002, the CA rendered herein assailed Decision 20 dismissing the petition. The CA
held that petitioner's insistence that Barrozo v. Macaraeg21 does not apply since said case stated
that "when there is a right to redeem inadequacy of price should not be material" holds no water as
what is obtaining in this case is not "mere inadequacy," but an inadequacy that shocks the senses;
that Buan v. Court of Appeals22 properly applies since the questioned levy covered 15 parcels of
land posited to have an aggregate value of P83,616,000.00 which shockingly exceeded the
judgment debt of only around P6,000,000.00.

Without filing a motion for reconsideration,23 petitioner took the present recourse on the sole
ground that:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE ARBITER'S ORDER
SETTING ASIDE THE LEVY MADE BY THE SHERIFF ON THE SUBJECT PROPERTIES. 24

Before resolving the question whether the CA erred in affirming the Order of the HLURB setting
aside the levy made by the sheriff, it behooves this Court to address a matter of public and national
importance which completely escaped the attention of the HLURB Arbiter and the CA: petitioner
and his wife are foreign nationals who are disqualified under the Constitution from owning real
property in their names.
Section 7 of Article XII of the 1987 Constitution provides:

Sec. 7. Save in cases of hereditary succession, no private lands shall be transferred or


conveyed except to individuals, corporations, or associations qualified to acquire or
hold lands of the public domain. (Emphasis supplied).

The capacity to acquire private land is made dependent upon the capacity to acquire or hold lands
of the public domain. Private land may be transferred or conveyed only to individuals or entities
"qualified to acquire lands of the public domain." The 1987 Constitution reserved the right to
participate in the disposition, exploitation, development and utilization of lands of the public
domain for Filipino citizens25 or corporations at least 60 percent of the capital of which is owned by
Filipinos.26 Aliens, whether individuals or corporations, have been disqualified from acquiring public
lands; hence, they have also been disqualified from acquiring private lands. 27

Since petitioner and his wife, being Dutch nationals, are proscribed under the Constitution from
acquiring and owning real property, it is unequivocal that the Contract to Sell entered into by
petitioner together with his wife and respondent is void. Under Article 1409 (1) and (7) of the Civil
Code, all contracts whose cause, object or purpose is contrary to law or public policy and those
expressly prohibited or declared void by law are inexistent and void from the beginning. Article
1410 of the same Code provides that the action or defense for the declaration of the inexistence of
a contract does not prescribe. A void contract is equivalent to nothing; it produces no civil
effect.28 It does not create, modify or extinguish a juridical relation. 29

Generally, parties to a void agreement cannot expect the aid of the law; the courts leave them as
they are, because they are deemed in pari delicto or "in equal fault."30 In pari delicto is "a universal
doctrine which holds that no action arises, in equity or at law, from an illegal contract; no suit can
be maintained for its specific performance, or to recover the property agreed to be sold or
delivered, or the money agreed to be paid, or damages for its violation; and where the parties are
in pari delicto, no affirmative relief of any kind will be given to one against the other." 31

This rule, however, is subject to exceptions 32 that permit the return of that which may have been
given under a void contract to: (a) the innocent party (Arts. 1411-1412, Civil Code); 33 (b) the debtor
who pays usurious interest (Art. 1413, Civil Code); 34 (c) the party repudiating the void
contract before the illegal purpose is accomplished or before damage is caused to a
third person and if public interest is subserved by allowing recovery (Art. 1414, Civil
Code);35 (d) the incapacitated party if the interest of justice so demands (Art. 1415, Civil
Code);36 (e) the party for whose protection the prohibition by law is intended if the agreement is not
illegal per se but merely prohibited and if public policy would be enhanced by permitting recovery
(Art. 1416, Civil Code);37 and (f) the party for whose benefit the law has been intended such as in
price ceiling laws (Art. 1417, Civil Code) 38 and labor laws (Arts. 1418-1419, Civil Code).39

It is significant to note that the agreement executed by the parties in this case is a Contract to Sell
and not a contract of sale. A distinction between the two is material in the determination of when
ownership is deemed to have been transferred to the buyer or vendee and, ultimately, the
resolution of the question on whether the constitutional proscription has been breached.

In a contract of sale, the title passes to the buyer upon the delivery of the thing sold. The vendor
has lost and cannot recover the ownership of the property until and unless the contract of sale is
itself resolved and set aside.40 On the other hand, a contract to sell is akin to a conditional sale
where the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to
the happening of a future and uncertain event, so that if the suspensive condition does not take
place, the parties would stand as if the conditional obligation had never existed. 41 In other words, in
a contract to sell, the prospective seller agrees to transfer ownership of the property to the buyer
upon the happening of an event, which normally is the full payment of the purchase price. But even
upon the fulfillment of the suspensive condition, ownership does not automatically transfer to the
buyer. The prospective seller still has to convey title to the prospective buyer by executing a
contract of absolute sale.42

Since the contract involved here is a Contract to Sell, ownership has not yet transferred to the
petitioner when he filed the suit for rescission. While the intent to circumvent the constitutional
proscription on aliens owning real property was evident by virtue of the execution of the Contract
to Sell, such violation of the law did not materialize because petitioner caused the rescission of the
contract before the execution of the final deed transferring ownership.

Thus, exception (c) finds application in this case. Under Article 1414, one who repudiates the
agreement and demands his money before the illegal act has taken place is entitled to recover.
Petitioner is therefore entitled to recover what he has paid, although the basis of his claim for
rescission, which was granted by the HLURB, was not the fact that he is not allowed to acquire
private land under the Philippine Constitution. But petitioner is entitled to the recovery only of the
amount of P3,187,500.00, representing the purchase price paid to respondent. No damages may be
recovered on the basis of a void contract; being nonexistent, the agreement produces no juridical
tie between the parties involved.43 Further, petitioner is not entitled to actual as well as interests
thereon,44 moral and exemplary damages and attorney's fees.

The Court takes into consideration the fact that the HLURB Decision dated April 22, 1997 has long
been final and executory. Nothing is more settled in the law than that a decision that has acquired
finality becomes immutable and unalterable and may no longer be modified in any respect even if
the modification is meant to correct erroneous conclusions of fact or law and whether it was made
by the court that rendered it or by the highest court of the land. 45The only recognized exceptions to
the general rule are the correction of clerical errors, the so-called nunc pro tuncentries which cause
no prejudice to any party, void judgments, and whenever circumstances transpire after the finality
of the decision rendering its execution unjust and inequitable. 46 None of the exceptions is present in
this case. The HLURB decision cannot be considered a void judgment, as it was rendered by a
tribunal with jurisdiction over the subject matter of the complaint. 47

Ineluctably, the HLURB Decision resulted in the unjust enrichment of petitioner at the expense of
respondent. Petitioner received more than what he is entitled to recover under the circumstances.

Article 22 of the Civil Code which embodies the maxim, nemo ex alterius incommode debet
lecupletari (no man ought to be made rich out of another's injury), states:

Art. 22. Every person who through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter without just or
legal ground, shall return the same to him.

The above-quoted article is part of the chapter of the Civil Code on Human Relations, the provisions
of which were formulated as basic principles to be observed for the rightful relationship between
human beings and for the stability of the social order; designed to indicate certain norms that
spring from the fountain of good conscience; guides for human conduct that should run as golden
threads through society to the end that law may approach its supreme ideal which is the sway and
dominance of justice.48 There is unjust enrichment when a person unjustly retains a benefit at the
loss of another, or when a person retains money or property of another against the fundamental
principles of justice, equity and good conscience. 49

A sense of justice and fairness demands that petitioner should not be allowed to benefit from his
act of entering into a contract to sell that violates the constitutional proscription.
This is not a case of equity overruling or supplanting a positive provision of law or judicial rule.
Rather, equity is exercised in this case "as the complement of legal jurisdiction [that] seeks to
reach and to complete justice where courts of law, through the inflexibility of their rules and want
of power to adapt their judgments to the special circumstances of cases, are incompetent to do
so."50

The purpose of the exercise of equity jurisdiction in this case is to prevent unjust enrichment and to
ensure restitution. Equity jurisdiction aims to do complete justice in cases where a court of law is
unable to adapt its judgments to the special circumstances of a case because of the inflexibility of
its statutory or legal jurisdiction.51

The sheriff delivered to petitioner the amount of P5,313,040.00 representing the net proceeds
(bidded amount is P5,450,653.33) of the auction sale after deducting the legal fees in the amount
of P137,613.33.52 Petitioner is only entitled to P3,187,500.00, the amount of the purchase price of
the real property paid by petitioner to respondent under the Contract to Sell. Thus, the Court in the
exercise of its equity jurisdiction may validly order petitioner to return the excess amount
of P2,125,540.00.

The Court shall now proceed to resolve the single issue raised in the present petition: whether the
CA seriously erred in affirming the HLURB Order setting aside the levy made by the Sheriff on the
subject properties.

Petitioner avers that the HLURB Arbiter and Director had no factual basis for pegging the fair
market value of the levied properties at P6,500.00 per sq m or P83,616,000.00; that reliance on the
appraisal report was misplaced since the appraisal was based on the value of land in neighboring
developed subdivisions and on the assumption that the residential unit appraised had already been
built; that the Sheriff need not determine the fair market value of the subject properties before
levying on the same since what is material is the amount for which the properties were bidded and
sold during the public auction; that the pendency of any motion is not a valid ground for the Sheriff
to suspend the execution proceedings and, by itself, does not have the effect of restraining the
Sheriff from proceeding with the execution.

Respondent, on the other hand, contends that while it is true that the HLURB Arbiter and Director
did not categorically state the exact value of the levied properties, said properties cannot just
amount to P6,000,000.00; that the HLURB Arbiter and Director correctly held that the value
indicated in the tax declaration is not the sole determinant of the value of the property.

The petition is impressed with merit.

If the judgment is for money, the sheriff or other authorized officer must execute the same
pursuant to the provisions of Section 9, Rule 39 of the Revised Rules of Court, viz:

Sec. 9. Execution of judgments for money, how enforced.

(a) Immediate payment on demand. - The officer shall enforce an execution of a judgment
for money by demanding from the judgment obligor the immediate payment of the full
amount stated in the writ of execution and all lawful fees. x x x

(b) Satisfaction by levy. - If the judgment obligor cannot pay all or part of the obligation in
cash, certified bank check or other mode of payment acceptable to the judgment
obligee, the officer shall levy upon the properties of the judgment obligor of every
kind and nature whatsoever which may be disposed of for value and not otherwise
exempt from execution, giving the latter the option to immediately choose which property
or part thereof may be levied upon, sufficient to satisfy the judgment. If the judgment obligor
does not exercise the option, the officer shall first levy on the personal properties, if any, and
then on the real properties if the personal properties are insufficient to answer for the
judgment.

The sheriff shall sell only a sufficient portion of the personal or real property of
the judgment obligor which has been levied upon.

When there is more property of the judgment obligor than is sufficient to satisfy
the judgment and lawful fees, he must sell only so much of the personal or real
property as is sufficient to satisfy the judgment and lawful fees.

Real property, stocks, shares, debts, credits, and other personal property, or any interest in
either real or personal property, may be levied upon in like manner and with like
effect as under a writ of attachment(Emphasis supplied).53

Thus, under Rule 39, in executing a money judgment against the property of the judgment debtor,
the sheriff shall levy on all property belonging to the judgment debtor as is amply sufficient to
satisfy the judgment and costs, and sell the same paying to the judgment creditor so much of the
proceeds as will satisfy the amount of the judgment debt and costs. Any excess in the proceeds
shall be delivered to the judgment debtor unless otherwise directed by the judgment or order of the
court.54

Clearly, there are two stages in the execution of money judgments. First, the levy and then the
execution sale.

Levy has been defined as the act or acts by which an officer sets apart or appropriates a part or the
whole of a judgment debtor's property for the purpose of satisfying the command of the writ of
execution.55 The object of a levy is to take property into the custody of the law, and thereby render
it liable to the lien of the execution, and put it out of the power of the judgment debtor to divert it
to any other use or purpose.56

On the other hand, an execution sale is a sale by a sheriff or other ministerial officer under the
authority of a writ of execution of the levied property of the debtor. 57

In the present case, the HLURB Arbiter and Director gravely abused their discretion in setting aside
the levy conducted by the Sheriff for the reason that the auction sale conducted by the sheriff
rendered moot and academic the motion to quash the levy. The HLURB Arbiter lost jurisdiction to
act on the motion to quash the levy by virtue of the consummation of the auction sale. Absent any
order from the HLURB suspending the auction sale, the sheriff rightfully proceeded with the auction
sale. The winning bidder had already paid the winning bid. The legal fees had already been
remitted to the HLURB. The judgment award had already been turned over to the judgment
creditor. What was left to be done was only the issuance of the corresponding certificates of sale to
the winning bidder. In fact, only the signature of the HLURB Director for that purpose was
needed58 a purely ministerial act.

A purely ministerial act or duty is one which an officer or tribunal performs in a given state of facts,
in a prescribed manner, in obedience to the mandate of a legal authority, without regard for or the
exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes
a duty upon a public officer and gives him the right to decide how or when the duty shall be
performed, such duty is discretionary and not ministerial. The duty is ministerial only when the
discharge of the same requires neither the exercise of official discretion nor judgment. 59 In the
present case, all the requirements of auction sale under the Rules have been fully complied with to
warrant the issuance of the corresponding certificates of sale.
And even if the Court should go into the merits of the assailed Order, the petition is meritorious on
the following grounds:

Firstly, the reliance of the HLURB Arbiter and Director, as well as the CA, on Barrozo v.
Macaraeg60 and Buan v. Court of Appeals61 is misplaced.

The HLURB and the CA misconstrued the Court's pronouncements in Barrozo. Barrozo involved a
judgment debtor who wanted to repurchase properties sold at execution beyond the one-year
redemption period. The statement of the Court in Barrozo, that "only where such inadequacy
shocks the conscience the courts will intervene," is at best a mere obiter dictum. This declaration
should be taken in the context of the other declarations of the Court in Barrozo,to wit:

Another point raised by appellant is that the price paid at the auction sale was so inadequate
as to shock the conscience of the court. Supposing that this issue is open even after the one-
year period has expired and after the properties have passed into the hands of third persons
who may have paid a price higher than the auction sale money, the first thing to consider is
that the stipulation contains no statement of the reasonable value of the properties; and
although defendant' answer avers that the assessed value was P3,960 it also avers that their
real market value was P2,000 only. Anyway, mere inadequacy of price which was the
complaint' allegation is not sufficient ground to annul the sale. It is only where
such inadequacy shocks the conscience that the courts will intervene. x x x Another
consideration is that the assessed value being P3,960 and the purchase price being in
effect P1,864 (P464 sale price plus P1,400 mortgage lien which had to be discharged) the
conscience is not shocked upon examining the prices paid in the sales in National Bank v.
Gonzales, 45 Phil., 693 and Guerrero v. Guerrero, 57 Phil., 445, sales which were left
undisturbed by this Court.

Furthermore, where there is the right to redeem as in this case inadequacy of


price should not be material because the judgment debtor may re-acquire the
property or else sell his right to redeem and thus recover any loss he claims to
have suffered by reason of the price obtained at the execution sale.

x x x x (Emphasis supplied).62

In other words, gross inadequacy of price does not nullify an execution sale. In an ordinary sale, for
reason of equity, a transaction may be invalidated on the ground of inadequacy of price, or when
such inadequacy shocks one's conscience as to justify the courts to interfere; such does not follow
when the law gives the owner the right to redeem as when a sale is made at public auction, 63 upon
the theory that the lesser the price, the easier it is for the owner to effect redemption. 64 When there
is a right to redeem, inadequacy of price should not be material because the judgment debtor may
re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have
suffered by reason of the price obtained at the execution sale. 65 Thus, respondent stood to gain
rather than be harmed by the low sale value of the auctioned properties because it possesses the
right of redemption. More importantly, the subject matter in Barrozo is the auction sale, not the
levy made by the Sheriff.

The Court does not sanction the piecemeal interpretation of a decision. To get the true intent and
meaning of a decision, no specific portion thereof should be isolated and resorted to, but the
decision must be considered in its entirety. 66

As regards Buan, it is cast under an entirely different factual milieu. It involved the levy on two
parcels of land owned by the judgment debtor; and the sale at public auction of one was sufficient
to fully satisfy the judgment, such that the levy and attempted execution of the second parcel of
land was declared void for being in excess of and beyond the original judgment award granted in
favor of the judgment creditor.

In the present case, the Sheriff complied with the mandate of Section 9, Rule 39 of the Revised
Rules of Court, to "sell only a sufficient portion" of the levied properties "as is sufficient to satisfy
the judgment and the lawful fees." Each of the 15 levied properties was successively bidded upon
and sold, one after the other until the judgment debt and the lawful fees were fully satisfied. Holly
Properties Realty Corporation successively bidded upon and bought each of the levied properties
for the total amount of P5,450,653.33 in full satisfaction of the judgment award and legal fees. 67

Secondly, the Rules of Court do not require that the value of the property levied be exactly the
same as the judgment debt; it can be less or more than the amount of debt. This is the contingency
addressed by Section 9, Rule 39 of the Rules of Court. In the levy of property, the Sheriff does not
determine the exact valuation of the levied property. Under Section 9, Rule 39, in conjunction with
Section 7, Rule 57 of the Rules of Court, the sheriff is required to do only two specific things to
effect a levy upon a realty: (a) file with the register of deeds a copy of the order of execution,
together with the description of the levied property and notice of execution; and (b) leave with the
occupant of the property copy of the same order, description and notice. 68 Records do not show
that respondent alleged non-compliance by the Sheriff of said requisites.

Thirdly, in determining what amount of property is sufficient out of which to secure satisfaction of
the execution, the Sheriff is left to his own judgment. He may exercise a reasonable discretion, and
must exercise the care which a reasonably prudent person would exercise under like conditions and
circumstances, endeavoring on the one hand to obtain sufficient property to satisfy the purposes of
the writ, and on the other hand not to make an unreasonable and unnecessary levy. 69 Because it is
impossible to know the precise quantity of land or other property necessary to satisfy an execution,
the Sheriff should be allowed a reasonable margin between the value of the property levied upon
and the amount of the execution; the fact that the Sheriff levies upon a little more than is
necessary to satisfy the execution does not render his actions improper. 70 Section 9, Rule 39,
provides adequate safeguards against excessive levying. The Sheriff is mandated to sell so much
only of such real property as is sufficient to satisfy the judgment and lawful fees.

In the absence of a restraining order, no error, much less abuse of discretion, can be imputed to the
Sheriff in proceeding with the auction sale despite the pending motion to quash the levy filed by
the respondents with the HLURB. It is elementary that sheriffs, as officers charged with the delicate
task of the enforcement and/or implementation of judgments, must, in the absence of a restraining
order, act with considerable dispatch so as not to unduly delay the administration of justice;
otherwise, the decisions, orders, or other processes of the courts of justice and the like would be
futile.71 It is not within the jurisdiction of the Sheriff to consider, much less resolve, respondent's
objection to the continuation of the conduct of the auction sale. The Sheriff has no authority, on his
own, to suspend the auction sale. His duty being ministerial, he has no discretion to postpone the
conduct of the auction sale.

Finally, one who attacks a levy on the ground of excessiveness carries the burden of sustaining that
contention.72 In the determination of whether a levy of execution is excessive, it is proper to take
into consideration encumbrances upon the property, as well as the fact that a forced sale usually
results in a sacrifice; that is, the price demanded for the property upon a private sale is not the
standard for determining the excessiveness of the levy. 73

Here, the HLURB Arbiter and Director had no sufficient factual basis to determine the value of the
levied property. Respondent only submitted an Appraisal Report, based merely on surmises. The
Report was based on the projected value of the townhouse project after it shall have been fully
developed, that is, on the assumption that the residential units appraised had already been built.
The Appraiser in fact made this qualification in its Appraisal Report: "[t]he property subject of this
appraisal has not been constructed. The basis of the appraiser is on the existing model
units."74 Since it is undisputed that the townhouse project did not push through, the projected value
did not become a reality. Thus, the appraisal value cannot be equated with the fair market value.
The Appraisal Report is not the best proof to accurately show the value of the levied properties as it
is clearly self-serving.

Therefore, the Order dated August 28, 2000 of HLURB Arbiter Aquino and Director Ceniza in HLRB
Case No. IV6-071196-0618 which set aside the sheriff's levy on respondent's real properties, was
clearly issued with grave abuse of discretion. The CA erred in affirming said Order.

WHEREFORE, the instant petition is GRANTED. The Decision dated October 30, 2002 of the Court
of Appeals in CA-G.R. SP No. 60981 is REVERSED and SET ASIDE. The Order dated August 28,
2000 of HLURB Arbiter Ma. Perpetua Y. Aquino and Director Belen G. Ceniza in HLRB Case No. IV6-
071196-0618 is declared NULL and VOID.HLURB Arbiter Aquino and Director Ceniza are directed to
issue the corresponding certificates of sale in favor of the winning bidder, Holly Properties Realty
Corporation. Petitioner is ordered to return to respondent the amount of P2,125,540.00, without
interest, in excess of the proceeds of the auction sale delivered to petitioner. After the finality of
herein judgment, the amount of P2,125,540.00 shall earn 6% interest until fully paid.

SO ORDERED.

JG SUMMIT VS CA

RESOLUTION

PUNO, J.:

For resolution before this Court are two motions filed by the petitioner, J.G. Summit Holdings, Inc.
for reconsideration of our Resolution dated September 24, 2003 and to elevate this case to the
Court En Banc. The petitioner questions the Resolution which reversed our Decision of November
20, 2000, which in turn reversed and set aside a Decision of the Court of Appeals promulgated on
July 18, 1995.

I. Facts

The undisputed facts of the case, as set forth in our Resolution of September 24, 2003, are as
follows:

On January 27, 1997, the National Investment and Development Corporation (NIDC), a government
corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of
Kobe, Japan (KAWASAKI) for the construction, operation and management of the Subic National
Shipyard, Inc. (SNS) which subsequently became the Philippine Shipyard and Engineering
Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute P330 million for the
capitalization of PHILSECO in the proportion of 60%-40% respectively. One of its salient features is
the grant to the parties of the right of first refusal should either of them decide to sell, assign or
transfer its interest in the joint venture, viz:

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any
third party without giving the other under the same terms the right of first refusal. This provision
shall not apply if the transferee is a corporation owned or controlled by the GOVERNMENT or by a
KAWASAKI affiliate.

On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the
Philippine National Bank (PNB). Such interests were subsequently transferred to the National
Government pursuant to Administrative Order No. 14. On December 8, 1986, President Corazon C.
Aquino issued Proclamation No. 50 establishing the Committee on Privatization (COP) and the Asset
Privatization Trust (APT) to take title to, and possession of, conserve, manage and dispose of non-
performing assets of the National Government. Thereafter, on February 27, 1987, a trust
agreement was entered into between the National Government and the APT wherein the latter was
named the trustee of the National Government's share in PHILSECO. In 1989, as a result of a quasi-
reorganization of PHILSECO to settle its huge obligations to PNB, the National Government's
shareholdings in PHILSECO increased to 97.41% thereby reducing KAWASAKI's shareholdings to
2.59%.

In the interest of the national economy and the government, the COP and the APT deemed it best
to sell the National Government's share in PHILSECO to private entities. After a series of
negotiations between the APT and KAWASAKI, they agreed that the latter's right of first refusal
under the JVA be "exchanged" for the right to top by five percent (5%) the highest bid for the said
shares. They further agreed that KAWASAKI would be entitled to name a company in which it was a
stockholder, which could exercise the right to top. On September 7, 1990, KAWASAKI informed APT
that Philyards Holdings, Inc. (PHI)1 would exercise its right to top.

At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of
the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for
the National Government's 87.6% equity share in PHILSECO. The provisions of the ASBR were
explained to the interested bidders who were notified that the bidding would be held on December
2, 1993. A portion of the ASBR reads:

1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National
Government's equity in PHILSECO consisting of 896,869,942 shares of stock (representing 87.67%
of PHILSECO's outstanding capital stock), which will be sold as a whole block in accordance with the
rules herein enumerated.

xxx xxx xxx

2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT
Board of Trustees and the Committee on Privatization (COP).

2.1 APT reserves the right in its sole discretion, to reject any or all bids.

3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the
National Government's 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED
MILLION (P1,300,000,000.00).

xxx xxx xxx

6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting
following the bidding, for the purpose of determining whether or not it should be endorsed by the
APT Board of Trustees to the COP, and the latter approves the same. The APT shall advise Kawasaki
Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc., that the highest bid is
acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such
advice from APT within which to exercise their "Option to Top the Highest Bid" by offering a bid
equivalent to the highest bid plus five (5%) percent thereof.

6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. exercise their "Option
to Top the Highest Bid," they shall so notify the APT about such exercise of their option and deposit
with APT the amount equivalent to ten percent (10%) of the highest bid plus five percent (5%)
thereof within the thirty (30)-day period mentioned in paragraph 6.0 above. APT will then serve
notice upon Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. declaring them as
the preferred bidder and they shall have a period of ninety (90) days from the receipt of the APT's
notice within which to pay the balance of their bid price.

6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail to exercise their
"Option to Top the Highest Bid" within the thirty (30)-day period, APT will declare the highest bidder
as the winning bidder.

xxx xxx xxx

12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the
official bid forms, including any addenda or amendments thereto issued during the bidding period.
The bidder shall likewise be responsible for informing itself with respect to any and all conditions
concerning the PHILSECO Shares which may, in any manner, affect the bidder's proposal. Failure on
the part of the bidder to so examine and inform itself shall be its sole risk and no relief for error or
omission will be given by APT or COP. . . .

At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. 2 submitted a bid of Two
Billion and Thirty Million Pesos (P2,030,000,000.00) with an acknowledgment of KAWASAKI/
[PHILYARDS'] right to top, viz:

4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on
APT's recommendation based on the result of this bidding. Should the COP approve the highest bid,
APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc.
that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc.
and/or [PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar days from the
date of receipt of such advice from APT within which to exercise their "Option to Top the Highest
Bid" by offering a bid equivalent to the highest bid plus five (5%) percent thereof.

As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993
"subject to the right of Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid
by 5% as specified in the bidding rules."

On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its bid
on the grounds that: (a) the KAWASAKI/PHI consortium composed of KAWASAKI, [PHILYARDS],
Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the last four (4)
companies were the losing bidders thereby circumventing the law and prejudicing the weak
winning bidder; (b) only KAWASAKI could exercise the right to top; (c) giving the same option to top
to PHI constituted unwarranted benefit to a third party; (d) no right of first refusal can be exercised
in a public bidding or auction sale; and (e) the JG Summit consortium was not estopped from
questioning the proceedings.

On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase
price of the subject bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised
its option to top the highest bid and that the COP had approved the same on January 6, 1994. On
February 24, 1994, the APT and PHI executed a Stock Purchase Agreement. Consequently,
petitioner filed with this Court a Petition for Mandamus under G.R. No. 114057. On May 11, 1994,
said petition was referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied
the same for lack of merit. It ruled that the petition for mandamus was not the proper remedy to
question the constitutionality or legality of the right of first refusal and the right to top that was
exercised by KAWASAKI/PHI, and that the matter must be brought "by the proper party in the
proper forum at the proper time and threshed out in a full blown trial." The Court of Appeals further
ruled that the right of first refusal and the right to top are prima facie legal and that the petitioner,
"by participating in the public bidding, with full knowledge of the right to top granted to KAWASAKI/
[PHILYARDS] isestopped from questioning the validity of the award given to [PHILYARDS] after the
latter exercised the right to top and had paid in full the purchase price of the subject shares,
pursuant to the ASBR." Petitioner filed a Motion for Reconsideration of said Decision which was
denied on March 15, 1996. Petitioner thus filed a Petition for Certiorari with this Court alleging
grave abuse of discretion on the part of the appellate court.

On November 20, 2000, this Court rendered x x x [a] Decision ruling among others that the Court of
Appeals erred when it dismissed the petition on the sole ground of the impropriety of the special
civil action of mandamus because the petition was also one of certiorari. It further ruled that a
shipyard like PHILSECO is a public utility whose capitalization must be sixty percent (60%) Filipino-
owned. Consequently, the right to top granted to KAWASAKI under the Asset Specific Bidding Rules
(ASBR) drafted for the sale of the 87.67% equity of the National Government in PHILSECO is illegal
not only because it violates the rules on competitive bidding but more so, because it allows
foreign corporations to own more than 40% equity in the shipyard. It also held that "although the
petitioner had the opportunity to examine the ASBR before it participated in the bidding, it cannot
be estopped from questioning the unconstitutional, illegal and inequitable provisions thereof." Thus,
this Court voided the transfer of the national government's 87.67% share in PHILSECO to
Philyard[s] Holdings, Inc., and upheld the right of JG Summit, as the highest bidder, to take title to
the said shares, viz:

WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and
Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to APT
its bid price of Two Billion Thirty Million Pesos (P2,030,000,000.00), less its bid deposit plus
interests upon the finality of this Decision. In turn, APT is ordered to:

(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from
petitioner;

(b) execute a Stock Purchase Agreement with petitioner;

(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6%
of PHILSECO's total capitalization;

(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One
Million Five Hundred Thousand Pesos (P2,131,500,000.00); and

(e) cause the cancellation of the stock certificates issued to PHI.

SO ORDERED.

In separate Motions for Reconsideration, respondents submit[ted] three basic issues for x x x
resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI can
exercise its right of first refusal only up to 40% of the total capitalization of PHILSECO; and (3)
Whether the right to top granted to KAWASAKI violates the principles of competitive
bidding.3 (citations omitted)

In a Resolution dated September 24, 2003, this Court ruled in favor of the respondents. On the first
issue, we held that Philippine Shipyard and Engineering Corporation (PHILSECO) is not a public
utility, as by nature, a shipyard is not a public utility 4 and that no law declares a shipyard to be a
public utility.5 On the second issue, we found nothing in the 1977 Joint Venture Agreement (JVA)
which prevents Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) from acquiring more
than 40% of PHILSECOs total capitalization.6 On the final issue, we held that the right to top
granted to KAWASAKI in exchange for its right of first refusal did not violate the principles of
competitive bidding.7

On October 20, 2003, the petitioner filed a Motion for Reconsideration 8 and a Motion to Elevate This
Case to the Court En Banc.9 Public respondents Committee on Privatization (COP) and Asset
Privatization Trust (APT), and private respondent Philyards Holdings, Inc. (PHILYARDS) filed their
Comments on J.G. Summit Holdings, Inc.s (JG Summits) Motion for Reconsideration and Motion to
Elevate This Case to the Court En Banc on January 29, 2004 and February 3, 2004, respectively.

II. Issues

Based on the foregoing, the relevant issues to resolve to end this litigation are the following:

1. Whether there are sufficient bases to elevate the case at bar to the Court en banc.

2. Whether the motion for reconsideration raises any new matter or cogent reason to
warrant a reconsideration of this Courts Resolution of September 24, 2003.

Motion to Elevate this Case to the

Court En Banc

The petitioner prays for the elevation of the case to the Court en banc on the following grounds:

1. The main issue of the propriety of the bidding process involved in the present case has
been confused with the policy issue of the supposed fate of the shipping industry which has
never been an issue that is determinative of this case. 10

2. The present case may be considered under the Supreme Court Resolution dated February
23, 1984 which included among en banc cases those involving a novel question of law and
those where a doctrine or principle laid down by the Court en banc or in division may be
modified or reversed.11

3. There was clear executive interference in the judicial functions of the Court when the
Honorable Jose Isidro Camacho, Secretary of Finance, forwarded to Chief Justice Davide, a
memorandum dated November 5, 2001, attaching a copy of the Foreign Chambers Report
dated October 17, 2001, which matter was placed in the agenda of the Court and noted by it
in a formal resolution dated November 28, 2001. 12

Opposing J.G. Summits motion to elevate the case en banc, PHILYARDS points out the petitioners
inconsistency in previously opposing PHILYARDS Motion to Refer the Case to the Court En
Banc. PHILYARDS contends that J.G. Summit should now be estopped from asking that the case be
referred to the Court en banc. PHILYARDS further contends that the Supreme Court en banc is not
an appellate court to which decisions or resolutions of its divisions may be appealed citing Supreme
Court Circular No. 2-89 dated February 7, 1989. 13 PHILYARDS also alleges that there is no novel
question of law involved in the present case as the assailed Resolution was based on well-settled
jurisprudence. Likewise, PHILYARDS stresses that the Resolution was merely an outcome of the
motions for reconsideration filed by it and the COP and APT and is "consistent with the inherent
power of courts to amend and control its process and orders so as to make them conformable to
law and justice. (Rule 135, sec. 5)" 14 Private respondent belittles the petitioners allegations
regarding the change in ponente and the alleged executive interference as shown by former
Secretary of Finance Jose Isidro Camachos memorandum dated November 5, 2001 arguing that
these do not justify a referral of the present case to the Court en banc.
In insisting that its Motion to Elevate This Case to the Court En Banc should be granted, J.G. Summit
further argued that: its Opposition to the Office of the Solicitor Generals Motion to Refer is different
from its own Motion to Elevate; different grounds are invoked by the two motions; there was
unwarranted "executive interference"; and the change in ponente is merely noted in asserting that
this case should be decided by the Court en banc.15

We find no merit in petitioners contention that the propriety of the bidding process involved in the
present case has been confused with the policy issue of the fate of the shipping industry which,
petitioner maintains, has never been an issue that is determinative of this case. The Courts
Resolution of September 24, 2003 reveals a clear and definitive ruling on the propriety of the
bidding process. In discussing whether the right to top granted to KAWASAKI in exchange for its
right of first refusal violates the principles of competitive bidding, we made an exhaustive discourse
on the rules and principles of public bidding and whether they were complied with in the case at
bar.16This Court categorically ruled on the petitioners argument that PHILSECO, as a shipyard, is a
public utility which should maintain a 60%-40% Filipino-foreign equity ratio, as it was a pivotal
issue. In doing so, we recognized the impact of our ruling on the shipbuilding industry which was
beyond avoidance.17

We reject petitioners argument that the present case may be considered under the Supreme Court
Resolution dated February 23, 1984 which included among en banc cases those involving a novel
question of law and those where a doctrine or principle laid down by the court en banc or in
division may be modified or reversed. The case was resolved based on basic principles of the right
of first refusal in commercial law and estoppel in civil law. Contractual obligations arising from
rights of first refusal are not new in this jurisdiction and have been recognized in numerous
cases.18 Estoppel is too known a civil law concept to require an elongated discussion. Fundamental
principles on public bidding were likewise used to resolve the issues raised by the petitioner. To be
sure, petitioner leans on the right to top in a public bidding in arguing that the case at bar involves
a novel issue. We are not swayed. The right to top was merely a condition or a reservation made in
the bidding rules which was fully disclosed to all bidding parties. In Bureau Veritas, represented
by Theodor H. Hunermann v. Office of the President, et al., 19 we dealt with this
conditionality, viz:

x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al., (L-18751, 28
April 1962, 4 SCRA 1245), that in an "invitation to bid, there is a condition imposed upon the
bidders to the effect that the bidding shall be subject to the right of the government to
reject any and all bids subject to its discretion. In the case at bar, the government has
made its choice and unless an unfairness or injustice is shown, the losing bidders have
no cause to complain nor right to dispute that choice. This is a well-settled doctrine in
this jurisdiction and elsewhere."

The discretion to accept or reject a bid and award contracts is vested in the Government agencies
entrusted with that function. The discretion given to the authorities on this matter is of such wide
latitude that the Courts will not interfere therewith, unless it is apparent that it is used as a shield
to a fraudulent award (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x The exercise of this
discretion is a policy decision that necessitates prior inquiry, investigation, comparison, evaluation,
and deliberation. This task can best be discharged by the Government agencies concerned, not by
the Courts. The role of the Courts is to ascertain whether a branch or instrumentality of the
Government has transgressed its constitutional boundaries. But the Courts will not interfere with
executive or legislative discretion exercised within those boundaries. Otherwise, it strays into the
realm of policy decision-making.

It is only upon a clear showing of grave abuse of discretion that the Courts will set aside the award
of a contract made by a government entity. Grave abuse of discretion implies a capricious, arbitrary
and whimsical exercise of power (Filinvest Credit Corp. v. Intermediate Appellate Court, No. 65935,
30 September 1988, 166 SCRA 155). The abuse of discretion must be so patent and gross as to
amount to an evasion of positive duty or to a virtual refusal to perform a duty enjoined by law, as
to act at all in contemplation of law, where the power is exercised in an arbitrary and despotic
manner by reason of passion or hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.], L-40867,
26 July 1988, 163 SCRA 489).

The facts in this case do not indicate any such grave abuse of discretion on the part of public
respondents when they awarded the CISS contract to Respondent SGS. In the "Invitation to
Prequalify and Bid" (Annex "C," supra), the CISS Committee made an express reservation of
the right of the Government to "reject any or all bids or any part thereof or waive any
defects contained thereon and accept an offer most advantageous to the Government."
It is a well-settled rule that where such reservation is made in an Invitation to Bid, the
highest or lowest bidder, as the case may be, is not entitled to an award as a matter of
right (C & C Commercial Corp. v. Menor, L-28360, 27 January 1983, 120 SCRA 112). Even the
lowest Bid or any Bid may be rejected or, in the exercise of sound discretion, the award may be
made to another than the lowest bidder (A.C. Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur.,
788). (emphases supplied)1awphi1.nt

Like the condition in the Bureau Veritas case, the right to top was a condition imposed by the
government in the bidding rules which was made known to all parties. It was a condition
imposed on all bidders equally, based on the APTs exercise of its discretion in deciding
on how best to privatize the governments shares in PHILSECO. It was not a whimsical or
arbitrary condition plucked from the ether and inserted in the bidding rules but a condition which
the APT approved as the best way the government could comply with its contractual obligations to
KAWASAKI under the JVA and its mandate of getting the most advantageous deal for the
government. The right to top had its history in the mutual right of first refusal in the JVA and was
reached by agreement of the government and KAWASAKI.

Further, there is no "executive interference" in the functions of this Court by the mere filing of a
memorandum by Secretary of Finance Jose Isidro Camacho. The memorandum was merely "noted"
to acknowledge its filing. It had no further legal significance. Notably too, the assailed
Resolution dated September 24, 2003 was decided unanimously by the Special First
Division in favor of the respondents.

Again, we emphasize that a decision or resolution of a Division is that of the Supreme Court 20 and
the Court en banc is not an appellate court to which decisions or resolutions of a Division may be
appealed.21

For all the foregoing reasons, we find no basis to elevate this case to the Court en banc.

Motion for Reconsideration

Three principal arguments were raised in the petitioners Motion for Reconsideration. First, that a
fair resolution of the case should be based on contract law, not on policy considerations; the
contracts do not authorize the right to top to be derived from the right of first refusal. 22 Second,
that neither the right of first refusal nor the right to top can be legally exercised by the consortium
which is not the proper party granted such right under either the JVA or the Asset Specific Bidding
Rules (ASBR).23 Third, that the maintenance of the 60%-40% relationship between the National
Investment and Development Corporation (NIDC) and KAWASAKI arises from contract and from the
Constitution because PHILSECO is a landholding corporation and need not be a public utility to be
bound by the 60%-40% constitutional limitation.24

On the other hand, private respondent PHILYARDS asserts that J.G. Summit has not been able to
show compelling reasons to warrant a reconsideration of the Decision of the Court. 25 PHILYARDS
denies that the Decision is based mainly on policy considerations and points out that it is premised
on principles governing obligations and contracts and corporate law such as the rule requiring
respect for contractual stipulations, upholding rights of first refusal, and recognizing the assignable
nature of contracts rights.26 Also, the ruling that shipyards are not public utilities relies on
established case law and fundamental rules of statutory construction. PHILYARDS stresses that
KAWASAKIs right of first refusal or even the right to top is not limited to the 40% equity of the
latter.27 On the landholding issue raised by J.G. Summit, PHILYARDS emphasizes that this is a non-
issue and even involves a question of fact. Even assuming that this Court can take cognizance of
such question of fact even without the benefit of a trial, PHILYARDS opines that landholding by
PHILSECO at the time of the bidding is irrelevant because what is essential is that ultimately a
qualified entity would eventually hold PHILSECOs real estate properties. 28 Further, given the
assignable nature of the right of first refusal, any applicable nationality restrictions, including
landholding limitations, would not affect the right of first refusal itself, but only the manner of its
exercise.29 Also, PHILYARDS argues that if this Court takes cognizance of J.G. Summits allegations of
fact regarding PHILSECOs landholding, it must also recognize PHILYARDS assertions that
PHILSECOs landholdings were sold to another corporation. 30 As regards the right of first refusal,
private respondent explains that KAWASAKIs reduced shareholdings (from 40% to 2.59%) did not
translate to a deprivation or loss of its contractually granted right of first refusal. 31 Also, the bidding
was valid because PHILYARDS exercised the right to top and it was of no moment that losing
bidders later joined PHILYARDS in raising the purchase price. 32

In cadence with the private respondent PHILYARDS, public respondents COP and APT contend:

1. The conversion of the right of first refusal into a right to top by 5% does not violate any
provision in the JVA between NIDC and KAWASAKI.

2. PHILSECO is not a public utility and therefore not governed by the constitutional restriction
on foreign ownership.

3. The petitioner is legally estopped from assailing the validity of the proceedings of the
public bidding as it voluntarily submitted itself to the terms of the ASBR which included the
provision on the right to top.

4. The right to top was exercised by PHILYARDS as the nominee of KAWASAKI and the fact
that PHILYARDS formed a consortium to raise the required amount to exercise the right to top
the highest bid by 5% does not violate the JVA or the ASBR.

5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition of lands does
not apply to PHILSECO because as admitted by petitioner itself, PHILSECO no longer owns
real property.

6. Petitioners motion to elevate the case to the Court en banc is baseless and would only
delay the termination of this case. 33

In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the arguments of the
public and private respondents in this wise:

1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with losing bidders
through the exercise of a right to top, which is contrary to law and the constitution is null and
void for being violative of substantive due process and the abuse of right provision in the
Civil Code.

a. The bidders[] right to top was actually exercised by losing bidders.


b. The right to top or the right of first refusal cannot co-exist with a genuine
competitive bidding.

c. The benefits derived from the right to top were unwarranted.

2. The landholding issue has been a legitimate issue since the start of this case but is
shamelessly ignored by the respondents.

a. The landholding issue is not a non-issue.

b. The landholding issue does not pose questions of fact.

c. That PHILSECO owned land at the time that the right of first refusal was agreed
upon and at the time of the bidding are most relevant.

d. Whether a shipyard is a public utility is not the core issue in this case.

3. Fraud and bad faith attend the alleged conversion of an inexistent right of first refusal to
the right to top.

a. The history behind the birth of the right to top shows fraud and bad faith.

b. The right of first refusal was, indeed, "effectively useless."

4. Petitioner is not legally estopped to challenge the right to top in this case.

a. Estoppel is unavailing as it would stamp validity to an act that is prohibited by law


or against public policy.

b. Deception was patent; the right to top was an attractive nuisance.

c. The 10% bid deposit was placed in escrow.

J.G. Summits insistence that the right to top cannot be sourced from the right of first refusal is not
new and we have already ruled on the issue in our Resolution of September 24, 2003. We upheld
the mutual right of first refusal in the JVA.34 We also ruled that nothing in the JVA prevents
KAWASAKI from acquiring more than 40% of PHILSECOs total capitalization. 35 Likewise, nothing in
the JVA or ASBR bars the conversion of the right of first refusal to the right to top. In sum, nothing
new and of significance in the petitioners pleading warrants a reconsideration of our ruling.

Likewise, we already disposed of the argument that neither the right of first refusal nor the right to
top can legally be exercised by the consortium which is not the proper party granted such right
under either the JVA or the ASBR. Thus, we held:

The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life
Assurance, Mitsui and ICTSI), has joined PHILYARDS in the latter's effort to raise P2.131 billion
necessary in exercising the right to top is not contrary to law, public policy or public morals. There
is nothing in the ASBR that bars the losing bidders from joining either the winning bidder (should
the right to top is not exercised) or KAWASAKI/PHI (should it exercise its right to top as it did), to
raise the purchase price. The petitioner did not allege, nor was it shown by competent evidence,
that the participation of the losing bidders in the public bidding was done with fraudulent intent.
Absent any proof of fraud, the formation by [PHILYARDS] of a consortium is legitimate in a free
enterprise system. The appellate court is thus correct in holding the petitioner estopped from
questioning the validity of the transfer of the National Government's shares in PHILSECO to
respondent.36

Further, we see no inherent illegality on PHILYARDS act in seeking funding from parties who were
losing bidders. This is a purely commercial decision over which the State should not interfere
absent any legal infirmity. It is emphasized that the case at bar involves the disposition of shares in
a corporation which the government sought to privatize. As such, the persons with whom
PHILYARDS desired to enter into business with in order to raise funds to purchase the shares are
basically its business. This is in contrast to a case involving a contract for the operation of or
construction of a government infrastructure where the identity of the buyer/bidder or financier
constitutes an important consideration. In such cases, the government would have to take utmost
precaution to protect public interest by ensuring that the parties with which it is contracting have
the ability to satisfactorily construct or operate the infrastructure.

On the landholding issue, J.G. Summit submits that since PHILSECO is a landholding company,
KAWASAKI could exercise its right of first refusal only up to 40% of the shares of PHILSECO due to
the constitutional prohibition on landholding by corporations with more than 40% foreign-owned
equity. It further argues that since KAWASAKI already held at least 40% equity in PHILSECO, the
right of first refusal was inutile and as such, could not subsequently be converted into the right to
top. 37 Petitioner also asserts that, at present, PHILSECO continues to violate the constitutional
provision on landholdings as its shares are more than 40% foreign-owned. 38 PHILYARDS admits that
it may have previously held land but had already divested such landholdings. 39 It contends,
however, that even if PHILSECO owned land, this would not affect the right of first refusal but only
the exercise thereof. If the land is retained, the right of first refusal, being a property right, could be
assigned to a qualified party. In the alternative, the land could be divested before the exercise of
the right of first refusal. In the case at bar, respondents assert that since the right of first refusal
was validly converted into a right to top, which was exercised not by KAWASAKI, but by PHILYARDS
which is a Filipino corporation (i.e., 60% of its shares are owned by Filipinos), then there is no
violation of the Constitution.40 At first, it would seem that questions of fact beyond cognizance by
this Court were involved in the issue. However, the records show that PHILYARDS admits it had
owned land up until the time of the bidding. 41 Hence, the only issue is whether
KAWASAKI had a valid right of first refusal over PHILSECO shares under the JVA
considering that PHILSECO owned land until the time of the bidding and KAWASAKI
already held 40% of PHILSECOs equity.

We uphold the validity of the mutual rights of first refusal under the JVA between KAWASAKI and
NIDC. First of all, the right of first refusal is a property right of PHILSECO shareholders, KAWASAKI
and NIDC, under the terms of their JVA. This right allows them to purchase the shares of their co-
shareholder before they are offered to a third party. The agreement of co-shareholders to
mutually grant this right to each other, by itself, does not constitute a violation of the
provisions of the Constitution limiting land ownership to Filipinos and Filipino
corporations. As PHILYARDS correctly puts it, if PHILSECO still owns land, the right of first refusal
can be validly assigned to a qualified Filipino entity in order to maintain the 60%-40% ratio. This
transfer, by itself, does not amount to a violation of the Anti-Dummy Laws, absent proof of any
fraudulent intent. The transfer could be made either to a nominee or such other party which the
holder of the right of first refusal feels it can comfortably do business with. Alternatively, PHILSECO
may divest of its landholdings, in which case KAWASAKI, in exercising its right of first refusal, can
exceed 40% of PHILSECOs equity. In fact, it can even be said that if the foreign
shareholdings of a landholding corporation exceeds 40%, it is not the foreign
stockholders ownership of the shares which is adversely affected but the capacity of
the corporation to own land that is, the corporation becomes disqualified to own land. This
finds support under the basic corporate law principle that the corporation and its stockholders are
separate juridical entities. In this vein, the right of first refusal over shares pertains to the
shareholders whereas the capacity to own land pertains to the corporation. Hence, the fact that
PHILSECO owns land cannot deprive stockholders of their right of first refusal. No law disqualifies
a person from purchasing shares in a landholding corporation even if the latter will
exceed the allowed foreign equity, what the law disqualifies is the corporation from
owning land. This is the clear import of the following provisions in the Constitution:

Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils,
all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and utilization of natural resources
shall be under the full control and supervision of the State. The State may directly undertake such
activities, or it may enter into co-production, joint venture, or production-sharing agreements with
Filipino citizens, or corporations or associations at least sixty per centum of whose
capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-
five years, renewable for not more than twenty-five years, and under such terms and conditions as
may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial
uses other than the development of water power, beneficial use may be the measure and limit of
the grant.

xxx xxx xxx

Section 7. Save in cases of hereditary succession, no private lands shall be transferred or


conveyed except to individuals, corporations, or associations qualified to acquire or
hold lands of the public domain.42(emphases supplied)

The petitioner further argues that "an option to buy land is void in itself (Philippine Banking
Corporation v. Lui She, 21 SCRA 52 [1967]). The right of first refusal granted to KAWASAKI, a
Japanese corporation, is similarly void. Hence, the right to top, sourced from the right of first
refusal, is also void."43 Contrary to the contention of petitioner, the case of Lui She did not that say
"an option to buy land is void in itself," for we ruled as follows:

x x x To be sure, a lease to an alien for a reasonable period is valid. So is an option


giving an alien the right to buy real property on condition that he is granted Philippine
citizenship. As this Court said in Krivenko vs. Register of Deeds:

[A]liens are not completely excluded by the Constitution from the use of lands for residential
purposes. Since their residence in the Philippines is temporary, they may be granted temporary
rights such as a lease contract which is not forbidden by the Constitution. Should they desire to
remain here forever and share our fortunes and misfortunes, Filipino citizenship is not impossible to
acquire.

But if an alien is given not only a lease of, but also an option to buy, a piece of land, by
virtue of which the Filipino owner cannot sell or otherwise dispose of his property, this
to last for 50 years, then it becomes clear that the arrangement is a virtual transfer of
ownership whereby the owner divests himself in stages not only of the right to enjoy
the land (jus possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to
dispose of it (jus disponendi) rights the sum total of which make up ownership. It is
just as if today the possession is transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights of which ownership is made up are
consolidated in an alien. And yet this is just exactly what the parties in this case did within this
pace of one year, with the result that Justina Santos'[s] ownership of her property was reduced to a
hollow concept. If this can be done, then the Constitutional ban against alien landholding in the
Philippines, as announced in Krivenko vs. Register of Deeds, is indeed in grave
peril.44 (emphases supplied; Citations omitted)
In Lui She, the option to buy was invalidated because it amounted to a virtual transfer of
ownership as the owner could not sell or dispose of his properties. The contract in Lui
She prohibited the owner of the land from selling, donating, mortgaging, or encumbering the
property during the 50-year period of the option to buy. This is not so in the case at bar where the
mutual right of first refusal in favor of NIDC and KAWASAKI does not amount to a virtual transfer of
land to a non-Filipino. In fact, the case at bar involves a right of first refusal over shares of
stock while the Lui She case involves an option to buy the land itself. As discussed earlier,
there is a distinction between the shareholders ownership of shares and the corporations
ownership of land arising from the separate juridical personalities of the corporation and its
shareholders.

We note that in its Motion for Reconsideration, J.G. Summit alleges that PHILSECO continues to
violate the Constitution as its foreign equity is above 40% and yet owns long-term leasehold
rights which are real rights.45It cites Article 415 of the Civil Code which includes in the definition
of immovable property, "contracts for public works, and servitudes and other real rights over
immovable property."46 Any existing landholding, however, is denied by PHILYARDS citing its recent
financial statements.47 First, these are questions of fact, the veracity of which would require
introduction of evidence. The Court needs to validate these factual allegations based on competent
and reliable evidence. As such, the Court cannot resolve the questions they pose. Second, J.G.
Summit misreads the provisions of the Constitution cited in its own pleadings, to wit:

29.2 Petitioner has consistently pointed out in the past that private respondent is not a 60%-40%
corporation, and this violates the Constitution x x x The violation continues to this day because
under the law, it continues to own real property

xxx xxx xxx

32. To review the constitutional provisions involved, Section 14, Article XIV of the 1973 Constitution
(the JVA was signed in 1977), provided:

"Save in cases of hereditary succession, no private lands shall be transferred or conveyed except
to individuals, corporations, or associations qualified to acquire or hold lands of the public domain."

32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution.

32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the public
domain are corporations at least 60% of which is owned by Filipino citizens (Sec. 22,
Commonwealth Act 141, as amended). (emphases supplied)

As correctly observed by the public respondents, the prohibition in the Constitution applies only to
ownership of land.48 It does not extend to immovable or real property as defined under
Article 415 of the Civil Code.Otherwise, we would have a strange situation where the ownership
of immovable property such as trees, plants and growing fruit attached to the land 49 would be
limited to Filipinos and Filipino corporations only.

III.

WHEREFORE, in view of the foregoing, the petitioners Motion for Reconsideration is DENIED WITH
FINALITY and the decision appealed from is AFFIRMED. The Motion to Elevate This Case to the
Court En Banc is likewise DENIED for lack of merit.

SO ORDERED.

PBC VS LUI SHE


ASTRO, J.:

Justina Santos y Canon Faustino and her sister Lorenzo were the owners in common of a piece of
land in Manila. This parcel, with an area of 2,582.30 square meters, is located on Rizal Avenue and
opens into Florentino Torres street at the back and Katubusan street on one side. In it are two
residential houses with entrance on Florentino Torres street and the Hen Wah Restaurant with
entrance on Rizal Avenue. The sisters lived in one of the houses, while Wong Heng, a Chinese, lived
with his family in the restaurant. Wong had been a long-time lessee of a portion of the property,
paying a monthly rental of P2,620.

On September 22, 1957 Justina Santos became the owner of the entire property as her sister died
with no other heir. Then already well advanced in years, being at the time 90 years old, blind,
crippled and an invalid, she was left with no other relative to live with. Her only companions in the
house were her 17 dogs and 8 maids. Her otherwise dreary existence was brightened now and then
by the visits of Wong's four children who had become the joy of her life. Wong himself was the
trusted man to whom she delivered various amounts for safekeeping, including rentals from her
property at the corner of Ongpin and Salazar streets and the rentals which Wong himself paid as
lessee of a part of the Rizal Avenue property. Wong also took care of the payment; in her behalf, of
taxes, lawyers' fees, funeral expenses, masses, salaries of maids and security guard, and her
household expenses.

"In grateful acknowledgment of the personal services of the lessee to her," Justina Santos executed
on November 15, 1957 a contract of lease (Plff Exh. 3) in favor of Wong, covering the portion then
already leased to him and another portion fronting Florentino Torres street. The lease was for 50
years, although the lessee was given the right to withdraw at any time from the agreement; the
monthly rental was P3,120. The contract covered an area of 1,124 square meters. Ten days later
(November 25), the contract was amended (Plff Exh. 4) so as to make it cover the entire property,
including the portion on which the house of Justina Santos stood, at an additional monthly rental of
P360. For his part Wong undertook to pay, out of the rental due from him, an amount not exceeding
P1,000 a month for the food of her dogs and the salaries of her maids.

On December 21 she executed another contract (Plff Exh. 7) giving Wong the option to buy the
leased premises for P120,000, payable within ten years at a monthly installment of P1,000. The
option, written in Tagalog, imposed on him the obligation to pay for the food of the dogs and the
salaries of the maids in her household, the charge not to exceed P1,800 a month. The option was
conditioned on his obtaining Philippine citizenship, a petition for which was then pending in the
Court of First Instance of Rizal. It appears, however, that this application for naturalization was
withdrawn when it was discovered that he was not a resident of Rizal. On October 28, 1958 she
filed a petition to adopt him and his children on the erroneous belief that adoption would confer on
them Philippine citizenship. The error was discovered and the proceedings were abandoned.

On November 18, 1958 she executed two other contracts, one (Plff Exh. 5) extending the term of
the lease to 99 years, and another (Plff Exh. 6) fixing the term of the option of 50 years. Both
contracts are written in Tagalog.

In two wills executed on August 24 and 29, 1959 (Def Exhs. 285 & 279), she bade her legatees to
respect the contracts she had entered into with Wong, but in a codicil (Plff Exh. 17) of a later date
(November 4, 1959) she appears to have a change of heart. Claiming that the various contracts
were made by her because of machinations and inducements practiced by him, she now directed
her executor to secure the annulment of the contracts.

On November 18 the present action was filed in the Court of First Instance of Manila. The complaint
alleged that the contracts were obtained by Wong "through fraud, misrepresentation, inequitable
conduct, undue influence and abuse of confidence and trust of and (by) taking advantage of the
helplessness of the plaintiff and were made to circumvent the constitutional provision prohibiting
aliens from acquiring lands in the Philippines and also of the Philippine Naturalization Laws." The
court was asked to direct the Register of Deeds of Manila to cancel the registration of the contracts
and to order Wong to pay Justina Santos the additional rent of P3,120 a month from November 15,
1957 on the allegation that the reasonable rental of the leased premises was P6,240 a month.

In his answer, Wong admitted that he enjoyed her trust and confidence as proof of which he
volunteered the information that, in addition to the sum of P3,000 which he said she had delivered
to him for safekeeping, another sum of P22,000 had been deposited in a joint account which he had
with one of her maids. But he denied having taken advantage of her trust in order to secure the
execution of the contracts in question. As counterclaim he sought the recovery of P9,210.49 which
he said she owed him for advances.

Wong's admission of the receipt of P22,000 and P3,000 was the cue for the filing of an amended
complaint. Thus on June 9, 1960, aside from the nullity of the contracts, the collection of various
amounts allegedly delivered on different occasions was sought. These amounts and the dates of
their delivery are P33,724.27 (Nov. 4, 1957); P7,344.42 (Dec. 1, 1957); P10,000 (Dec. 6, 1957);
P22,000 and P3,000 (as admitted in his answer). An accounting of the rentals from the Ongpin and
Rizal Avenue properties was also demanded.

In the meantime as a result of a petition for guardianship filed in the Juvenile and Domestic
Relations Court, the Security Bank & Trust Co. was appointed guardian of the properties of Justina
Santos, while Ephraim G. Gochangco was appointed guardian of her person.

In his answer, Wong insisted that the various contracts were freely and voluntarily entered into by
the parties. He likewise disclaimed knowledge of the sum of P33,724.27, admitted receipt of
P7,344.42 and P10,000, but contended that these amounts had been spent in accordance with the
instructions of Justina Santos; he expressed readiness to comply with any order that the court
might make with respect to the sums of P22,000 in the bank and P3,000 in his possession.

The case was heard, after which the lower court rendered judgment as follows:

[A]ll the documents mentioned in the first cause of action, with the exception of the first
which is the lease contract of 15 November 1957, are declared null and void; Wong Heng is
condemned to pay unto plaintiff thru guardian of her property the sum of P55,554.25 with
legal interest from the date of the filing of the amended complaint; he is also ordered to pay
the sum of P3,120.00 for every month of his occupation as lessee under the document of
lease herein sustained, from 15 November 1959, and the moneys he has consigned since
then shall be imputed to that; costs against Wong Heng.

From this judgment both parties appealed directly to this Court. After the case was submitted for
decision, both parties died, Wong Heng on October 21, 1962 and Justina Santos on December 28,
1964. Wong was substituted by his wife, Lui She, the other defendant in this case, while Justina
Santos was substituted by the Philippine Banking Corporation.

Justina Santos maintained now reiterated by the Philippine Banking Corporation that the lease
contract (Plff Exh. 3) should have been annulled along with the four other contracts (Plff Exhs. 4-7)
because it lacks mutuality; because it included a portion which, at the time, was in custodia legis;
because the contract was obtained in violation of the fiduciary relations of the parties; because her
consent was obtained through undue influence, fraud and misrepresentation; and because the
lease contract, like the rest of the contracts, is absolutely simulated.

Paragraph 5 of the lease contract states that "The lessee may at any time withdraw from this
agreement." It is claimed that this stipulation offends article 1308 of the Civil Code which provides
that "the contract must bind both contracting parties; its validity or compliance cannot be left to
the will of one of them."

We have had occasion to delineate the scope and application of article 1308 in the early case
of Taylor v. Uy Tieng Piao.1 We said in that case:

Article 1256 [now art. 1308] of the Civil Code in our opinion creates no impediment to the
insertion in a contract for personal service of a resolutory condition permitting the
cancellation of the contract by one of the parties. Such a stipulation, as can be readily seen,
does not make either the validity or the fulfillment of the contract dependent upon the will of
the party to whom is conceded the privilege of cancellation; for where the contracting
parties have agreed that such option shall exist, the exercise of the option is as much in the
fulfillment of the contract as any other act which may have been the subject of agreement.
Indeed, the cancellation of a contract in accordance with conditions agreed upon beforehand
is fulfillment.2

And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision in a lease contract that the lessee,
at any time before he erected any building on the land, might rescind the lease, can hardly be
regarded as a violation of article 1256 [now art. 1308] of the Civil Code."

The case of Singson Encarnacion v. Baldomar 4 cannot be cited in support of the claim of want of
mutuality, because of a difference in factual setting. In that case, the lessees argued that they
could occupy the premises as long as they paid the rent. This is of course untenable, for as this
Court said, "If this defense were to be allowed, so long as defendants elected to continue the lease
by continuing the payment of the rentals, the owner would never be able to discontinue it;
conversely, although the owner should desire the lease to continue the lessees could effectively
thwart his purpose if they should prefer to terminate the contract by the simple expedient of
stopping payment of the rentals." Here, in contrast, the right of the lessee to continue the lease or
to terminate it is so circumscribed by the term of the contract that it cannot be said that the
continuance of the lease depends upon his will. At any rate, even if no term had been fixed in the
agreement, this case would at most justify the fixing of a period 5 but not the annulment of the
contract.

Nor is there merit in the claim that as the portion of the property formerly owned by the sister of
Justina Santos was still in the process of settlement in the probate court at the time it was leased,
the lease is invalid as to such portion. Justina Santos became the owner of the entire property upon
the death of her sister Lorenzo on September 22, 1957 by force of article 777 of the Civil Code.
Hence, when she leased the property on November 15, she did so already as owner thereof. As this
Court explained in upholding the sale made by an heir of a property under judicial administration:

That the land could not ordinarily be levied upon while in custodia legis does not mean that
one of the heirs may not sell the right, interest or participation which he has or might have in
the lands under administration. The ordinary execution of property in custodia legis is
prohibited in order to avoid interference with the possession by the court. But the sale made
by an heir of his share in an inheritance, subject to the result of the pending administration,
in no wise stands in the way of such administration. 6

It is next contended that the lease contract was obtained by Wong in violation of his fiduciary
relationship with Justina Santos, contrary to article 1646, in relation to article 1941 of the Civil
Code, which disqualifies "agents (from leasing) the property whose administration or sale may have
been entrusted to them." But Wong was never an agent of Justina Santos. The relationship of the
parties, although admittedly close and confidential, did not amount to an agency so as to bring the
case within the prohibition of the law.
Just the same, it is argued that Wong so completely dominated her life and affairs that the
contracts express not her will but only his. Counsel for Justina Santos cites the testimony of Atty.
Tomas S. Yumol who said that he prepared the lease contract on the basis of data given to him by
Wong and that she told him that "whatever Mr. Wong wants must be followed." 7

The testimony of Atty. Yumol cannot be read out of context in order to warrant a finding that Wong
practically dictated the terms of the contract. What this witness said was:

Q Did you explain carefully to your client, Doa Justina, the contents of this document before
she signed it?

A I explained to her each and every one of these conditions and I also told her these
conditions were quite onerous for her, I don't really know if I have expressed my opinion, but
I told her that we would rather not execute any contract anymore, but to hold it as it was
before, on a verbal month to month contract of lease.

Q But, she did not follow your advice, and she went with the contract just the same?

A She agreed first . . .

Q Agreed what?

A Agreed with my objectives that it is really onerous and that I was really right, but after
that, I was called again by her and she told me to follow the wishes of Mr. Wong Heng.

xxx xxx xxx

Q So, as far as consent is concerned, you were satisfied that this document was perfectly
proper?

xxx xxx xxx

A Your Honor, if I have to express my personal opinion, I would say she is not, because, as I
said before, she told me "Whatever Mr. Wong wants must be followed." 8

Wong might indeed have supplied the data which Atty. Yumol embodied in the lease contract, but
to say this is not to detract from the binding force of the contract. For the contract was fully
explained to Justina Santos by her own lawyer. One incident, related by the same witness, makes
clear that she voluntarily consented to the lease contract. This witness said that the original term
fixed for the lease was 99 years but that as he doubted the validity of a lease to an alien for that
length of time, he tried to persuade her to enter instead into a lease on a month-to-month basis.
She was, however, firm and unyielding. Instead of heeding the advice of the lawyer, she ordered
him, "Just follow Mr. Wong Heng."9 Recounting the incident, Atty. Yumol declared on cross
examination:

Considering her age, ninety (90) years old at the time and her condition, she is a wealthy
woman, it is just natural when she said "This is what I want and this will be done." In
particular reference to this contract of lease, when I said "This is not proper," she said
"You just go ahead, you prepare that, I am the owner, and if there is any illegality, I am the
only one that can question the illegality."10

Atty. Yumol further testified that she signed the lease contract in the presence of her close friend,
Hermenegilda Lao, and her maid, Natividad Luna, who was constantly by her side. 11 Any of them
could have testified on the undue influence that Wong supposedly wielded over Justina Santos, but
neither of them was presented as a witness. The truth is that even after giving his client time to
think the matter over, the lawyer could not make her change her mind. This persuaded the lower
court to uphold the validity of the lease contract against the claim that it was procured through
undue influence.

Indeed, the charge of undue influence in this case rests on a mere inference 12 drawn from the fact
that Justina Santos could not read (as she was blind) and did not understand the English language
in which the contract is written, but that inference has been overcome by her own evidence.

Nor is there merit in the claim that her consent to the lease contract, as well as to the rest of the
contracts in question, was given out of a mistaken sense of gratitude to Wong who, she was made
to believe, had saved her and her sister from a fire that destroyed their house during the liberation
of Manila. For while a witness claimed that the sisters were saved by other persons (the brothers
Edilberto and Mariano Sta. Ana)13 it was Justina Santos herself who, according to her own witness,
Benjamin C. Alonzo, said "very emphatically" that she and her sister would have perished in the fire
had it not been for Wong.14 Hence the recital in the deed of conditional option (Plff Exh. 7) that
"[I]tong si Wong Heng ang siyang nagligtas sa aming dalawang magkapatid sa halos ay tiyak na
kamatayan", and the equally emphatic avowal of gratitude in the lease contract (Plff Exh. 3).

As it was with the lease contract (Plff Exh. 3), so it was with the rest of the contracts (Plff Exhs. 4-7)
the consent of Justina Santos was given freely and voluntarily. As Atty. Alonzo, testifying for her,
said:

[I]n nearly all documents, it was either Mr. Wong Heng or Judge Torres and/or both. When we
had conferences, they used to tell me what the documents should contain. But, as I said, I
would always ask the old woman about them and invariably the old woman used to tell me:
"That's okay. It's all right."15

But the lower court set aside all the contracts, with the exception of the lease contract of
November 15, 1957, on the ground that they are contrary to the expressed wish of Justina Santos
and that their considerations are fictitious. Wong stated in his deposition that he did not pay P360 a
month for the additional premises leased to him, because she did not want him to, but the trial
court did not believe him. Neither did it believe his statement that he paid P1,000 as consideration
for each of the contracts (namely, the option to buy the leased premises, the extension of the lease
to 99 years, and the fixing of the term of the option at 50 years), but that the amount was returned
to him by her for safekeeping. Instead, the court relied on the testimony of Atty. Alonzo in reaching
the conclusion that the contracts are void for want of consideration.

Atty. Alonzo declared that he saw no money paid at the time of the execution of the documents, but
his negative testimony does not rule out the possibility that the considerations were paid at some
other time as the contracts in fact recite. What is more, the consideration need not pass from one
party to the other at the time a contract is executed because the promise of one is the
consideration for the other.16

With respect to the lower court's finding that in all probability Justina Santos could not have
intended to part with her property while she was alive nor even to lease it in its entirety as her
house was built on it, suffice it to quote the testimony of her own witness and lawyer who prepared
the contracts (Plff Exhs. 4-7) in question, Atty. Alonzo:

The ambition of the old woman, before her death, according to her revelation to me, was to
see to it that these properties be enjoyed, even to own them, by Wong Heng because Doa
Justina told me that she did not have any relatives, near or far, and she considered Wong
Heng as a son and his children her grandchildren; especially her consolation in life was when
she would hear the children reciting prayers in Tagalog. 17

She was very emphatic in the care of the seventeen (17) dogs and of the maids who helped
her much, and she told me to see to it that no one could disturb Wong Heng from those
properties. That is why we thought of the ninety-nine (99) years lease; we thought of
adoption, believing that thru adoption Wong Heng might acquire Filipino citizenship; being
the adopted child of a Filipino citizen. 18

This is not to say, however, that the contracts (Plff Exhs. 3-7) are valid. For the testimony just
quoted, while dispelling doubt as to the intention of Justina Santos, at the same time gives the clue
to what we view as a scheme to circumvent the Constitutional prohibition against the transfer of
lands to aliens. "The illicit purpose then becomes the illegal causa"19 rendering the contracts void.

Taken singly, the contracts show nothing that is necessarily illegal, but considered collectively, they
reveal an insidious pattern to subvert by indirection what the Constitution directly prohibits. To be
sure, a lease to an alien for a reasonable period is valid. So is an option giving an alien the right to
buy real property on condition that he is granted Philippine citizenship. As this Court said
in Krivenko v. Register of Deeds:20

[A]liens are not completely excluded by the Constitution from the use of lands for residential
purposes. Since their residence in the Philippines is temporary, they may be
granted temporary rights such as a lease contract which is not forbidden by the Constitution.
Should they desire to remain here forever and share our fortunes and misfortunes, Filipino
citizenship is not impossible to acquire.

But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of
which the Filipino owner cannot sell or otherwise dispose of his property, 21 this to last for 50 years,
then it becomes clear that the arrangement is a virtual transfer of ownership whereby the owner
divests himself in stages not only of the right to enjoy the land ( jus possidendi, jus utendi, jus
fruendi and jus abutendi) but also of the right to dispose of it ( jus disponendi) rights the sum
total of which make up ownership. It is just as if today the possession is transferred, tomorrow, the
use, the next day, the disposition, and so on, until ultimately all the rights of which ownership is
made up are consolidated in an alien. And yet this is just exactly what the parties in this case did
within the space of one year, with the result that Justina Santos' ownership of her property was
reduced to a hollow concept. If this can be done, then the Constitutional ban against alien
landholding in the Philippines, as announced in Krivenko v. Register of Deeds,22 is indeed in grave
peril.

It does not follow from what has been said, however, that because the parties are in pari
delicto they will be left where they are, without relief. For one thing, the original parties who were
guilty of a violation of the fundamental charter have died and have since been substituted by their
administrators to whom it would be unjust to impute their guilt. 23 For another thing, and this is not
only cogent but also important, article 1416 of the Civil Code provides, as an exception to the rule
on pari delicto, that "When the agreement is not illegal per se but is merely prohibited, and the
prohibition by law is designed for the protection of the plaintiff, he may, if public policy is thereby
enhanced, recover what he has paid or delivered." The Constitutional provision that "Save in cases
of hereditary succession, no private agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to acquire or hold lands of the public domain in
the Philippines"24 is an expression of public policy to conserve lands for the Filipinos. As this Court
said in Krivenko:

It is well to note at this juncture that in the present case we have no choice. We are
construing the Constitution as it is and not as we may desire it to be. Perhaps the effect of
our construction is to preclude aliens admitted freely into the Philippines from owning sites
where they may build their homes. But if this is the solemn mandate of the Constitution, we
will not attempt to compromise it even in the name of amity or equity . . . .

For all the foregoing, we hold that under the Constitution aliens may not acquire private or
public agricultural lands, including residential lands, and, accordingly, judgment is affirmed,
without costs.25

That policy would be defeated and its continued violation sanctioned if, instead of setting the
contracts aside and ordering the restoration of the land to the estate of the deceased Justina
Santos, this Court should apply the general rule of pari delicto. To the extent that our ruling in this
case conflicts with that laid down in Rellosa v. Gaw Chee Hun26 and subsequent similar cases, the
latter must be considered as pro tanto qualified.

The claim for increased rentals and attorney's fees, made in behalf of Justina Santos, must be
denied for lack of merit.

And what of the various amounts which Wong received in trust from her? It appears that he kept
two classes of accounts, one pertaining to amount which she entrusted to him from time to time,
and another pertaining to rentals from the Ongpin property and from the Rizal Avenue property,
which he himself was leasing.

With respect to the first account, the evidence shows that he received P33,724.27 on November 8,
1957 (Plff Exh. 16); P7,354.42 on December 1, 1957 (Plff Exh. 13); P10,000 on December 6, 1957
(Plff Exh. 14) ; and P18,928.50 on August 26, 1959 (Def. Exh. 246), or a total of P70,007.19. He
claims, however, that he settled his accounts and that the last amount of P18,928.50 was in fact
payment to him of what in the liquidation was found to be due to him.

He made disbursements from this account to discharge Justina Santos' obligations for taxes,
attorneys' fees, funeral services and security guard services, but the checks (Def Exhs. 247-278)
drawn by him for this purpose amount to only P38,442.84. 27 Besides, if he had really settled his
accounts with her on August 26, 1959, we cannot understand why he still had P22,000 in the bank
and P3,000 in his possession, or a total of P25,000. In his answer, he offered to pay this amount if
the court so directed him. On these two grounds, therefore, his claim of liquidation and settlement
of accounts must be rejected.

After subtracting P38,442.84 (expenditures) from P70,007.19 (receipts), there is a difference of


P31,564 which, added to the amount of P25,000, leaves a balance of P56,564.35 28 in favor of
Justina Santos.

As to the second account, the evidence shows that the monthly income from the Ongpin property
until its sale in Rizal Avenue July, 1959 was P1,000, and that from the Rizal Avenue property, of
which Wong was the lessee, was P3,120. Against this account the household expenses and
disbursements for the care of the 17 dogs and the salaries of the 8 maids of Justina Santos were
charged. This account is contained in a notebook (Def. Exh. 6) which shows a balance of P9,210.49
in favor of Wong. But it is claimed that the rental from both the Ongpin and Rizal Avenue properties
was more than enough to pay for her monthly expenses and that, as a matter of fact, there should
be a balance in her favor. The lower court did not allow either party to recover against the other.
Said the court:

[T]he documents bear the earmarks of genuineness; the trouble is that they were made only
by Francisco Wong and Antonia Matias, nick-named Toning, which was the way she signed
the loose sheets, and there is no clear proof that Doa Justina had authorized these two to
act for her in such liquidation; on the contrary if the result of that was a deficit as alleged
and sought to be there shown, of P9,210.49, that was not what Doa Justina apparently
understood for as the Court understands her statement to the Honorable Judge of the
Juvenile Court . . . the reason why she preferred to stay in her home was because there she
did not incur in any debts . . . this being the case, . . . the Court will not adjudicate in favor of
Wong Heng on his counterclaim; on the other hand, while it is claimed that the expenses
were much less than the rentals and there in fact should be a superavit, . . . this Court must
concede that daily expenses are not easy to compute, for this reason, the Court faced with
the choice of the two alternatives will choose the middle course which after all is permitted
by the rules of proof, Sec. 69, Rule 123 for in the ordinary course of things, a person will live
within his income so that the conclusion of the Court will be that there is neither deficit nor
superavit and will let the matter rest here.

Both parties on appeal reiterate their respective claims but we agree with the lower court that both
claims should be denied. Aside from the reasons given by the court, we think that the claim of
Justina Santos totalling P37,235, as rentals due to her after deducting various expenses, should be
rejected as the evidence is none too clear about the amounts spent by Wong for
food29 masses30 and salaries of her maids.31 His claim for P9,210.49 must likewise be rejected as his
averment of liquidation is belied by his own admission that even as late as 1960 he still had
P22,000 in the bank and P3,000 in his possession.

ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled and set aside; the land
subject-matter of the contracts is ordered returned to the estate of Justina Santos as represented
by the Philippine Banking Corporation; Wong Heng (as substituted by the defendant-appellant Lui
She) is ordered to pay the Philippine Banking Corporation the sum of P56,564.35, with legal interest
from the date of the filing of the amended complaint; and the amounts consigned in court by Wong
Heng shall be applied to the payment of rental from November 15, 1959 until the premises shall
have been vacated by his heirs. Costs against the defendant-appellant.

MANILA PRONCE HOTES VS GSIS

ANILA PRINCE HOTEL, petitioner, vs. GOVERNMENT SERVICE INSURANCE SYSTEM,


MANILA HOTEL CORPORATION, COMMITTEE ON PRIVATIZATION and OFFICE OF THE
GOVERNMENT CORPORATE COUNSEL, respondents.

DECISION

BELLOSILLO, J.:

The Filipino First Policy enshrined in the 1987 Constitution, i.e., in the grant of rights, privileges,
and concessions covering the national economy and patrimony, the State shall give preference to
qualified Filipinos,[1] is invoked by petitioner in its bid to acquire 51% of the shares of the Manila
Hotel Corporation (MHC) which owns the historic Manila Hotel. Opposing, respondents maintain that
the provision is not self-executing but requires an implementing legislation for its
enforcement. Corollarily, they ask whether the 51% shares form part of the national economy and
patrimony covered by the protective mantle of the Constitution.

The controversy arose when respondent Government Service Insurance System (GSIS),
pursuant to the privatization program of the Philippine Government under Proclamation No. 50
dated 8 December 1986, decided to sell through public bidding 30% to 51% of the issued and
outstanding shares of respondent MHC. The winning bidder, or the eventual strategic partner, is to
provide management expertise and/or an international marketing/reservation system, and financial
support to strengthen the profitability and performance of the Manila Hotel.[2] In a close bidding
held on 18 September 1995 only two (2) bidders participated: petitioner Manila Prince Hotel
Corporation, a Filipino corporation, which offered to buy 51% of the MHC or 15,300,000 shares
at P41.58 per share, and Renong Berhad, a Malaysian firm, with ITT-Sheraton as its hotel operator,
which bid for the same number of shares at P44.00 per share, or P2.42 more than the bid of
petitioner.

Pertinent provisions of the bidding rules prepared by respondent GSIS state -

I. EXECUTION OF THE NECESSARY CONTRACTS WITH GSIS/MHC -

1. The Highest Bidder must comply with the conditions set forth below by October 23, 1995 (reset
to November 3, 1995) or the Highest Bidder will lose the right to purchase the Block of Shares and
GSIS will instead offer the Block of Shares to the other Qualified Bidders:

a. The Highest Bidder must negotiate and execute with the GSIS/MHC the Management Contract,
International Marketing/Reservation System Contract or other type of contract specified by the
Highest Bidder in its strategic plan for the Manila Hotel x x x x

b. The Highest Bidder must execute the Stock Purchase and Sale Agreement with GSIS x x x x

K. DECLARATION OF THE WINNING BIDDER/STRATEGIC PARTNER -

The Highest Bidder will be declared the Winning Bidder/Strategic Partner after the following
conditions are met:

a. Execution of the necessary contracts with GSIS/MHC not later than October 23, 1995 (reset to
November 3, 1995); and

b. Requisite approvals from the GSIS/MHC and COP (Committee on Privatization)/ OGCC (Office of
the Government Corporate Counsel) are obtained.[3]

Pending the declaration of Renong Berhard as the winning bidder/strategic partner and the
execution of the necessary contracts, petitioner in a letter to respondent GSIS dated 28 September
1995 matched the bid price of P44.00 per share tendered by Renong Berhad. [4] In a subsequent
letter dated 10 October 1995 petitioner sent a managers check issued by Philtrust Bank for Thirty-
three Million Pesos (P33,000,000.00) as Bid Security to match the bid of the Malaysian Group,
Messrs. Renong Berhad x x x x[5] which respondent GSIS refused to accept.

On 17 October 1995, perhaps apprehensive that respondent GSIS has disregarded the tender of
the matching bid and that the sale of 51% of the MHC may be hastened by respondent GSIS and
consummated with Renong Berhad, petitioner came to this Court on prohibition and mandamus. On
18 October 1995 the Court issued a temporary restraining order enjoining respondents from
perfecting and consummating the sale to the Malaysian firm.

On 10 September 1996 the instant case was accepted by the Court En Banc after it was
referred to it by the First Division. The case was then set for oral arguments with former Chief
Justice Enrique M. Fernando and Fr. Joaquin G. Bernas, S.J., as amici curiae.

In the main, petitioner invokes Sec. 10, second par., Art. XII, of the 1987 Constitution and
submits that the Manila Hotel has been identified with the Filipino nation and has practically
become a historical monument which reflects the vibrancy of Philippine heritage and culture. It is a
proud legacy of an earlier generation of Filipinos who believed in the nobility and sacredness of
independence and its power and capacity to release the full potential of the Filipino people. To all
intents and purposes, it has become a part of the national patrimony.[6] Petitioner also argues that
since 51% of the shares of the MHC carries with it the ownership of the business of the hotel which
is owned by respondent GSIS, a government-owned and controlled corporation, the hotel business
of respondent GSIS being a part of the tourism industry is unquestionably a part of the national
economy. Thus, any transaction involving 51% of the shares of stock of the MHC is clearly covered
by the term national economy, to which Sec. 10, second par., Art. XII, 1987 Constitution, applies. [7]

It is also the thesis of petitioner that since Manila Hotel is part of the national patrimony and its
business also unquestionably part of the national economy petitioner should be preferred after it
has matched the bid offer of the Malaysian firm. For the bidding rules mandate that if for any
reason, the Highest Bidder cannot be awarded the Block of Shares, GSIS may offer this to the other
Qualified Bidders that have validly submitted bids provided that these Qualified Bidders are willing
to match the highest bid in terms of price per share. [8]

Respondents except. They maintain that: First, Sec. 10, second par., Art. XII, of the 1987
Constitution is merely a statement of principle and policy since it is not a self-executing provision
and requires implementing legislation(s) x x x x Thus, for the said provision to operate, there must
be existing laws to lay down conditions under which business may be done. [9]

Second, granting that this provision is self-executing, Manila Hotel does not fall under the
term national patrimony which only refers to 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 all marine wealth in its territorial sea, and exclusive marine zone as cited in the
first and second paragraphs of Sec. 2, Art. XII, 1987 Constitution. According to respondents, while
petitioner speaks of the guests who have slept in the hotel and the events that have transpired
therein which make the hotel historic, these alone do not make the hotel fall under
the patrimony of the nation. What is more, the mandate of the Constitution is addressed to the
State, not to respondent GSIS which possesses a personality of its own separate and distinct from
the Philippines as a State.

Third, granting that the Manila Hotel forms part of the national patrimony, the constitutional
provision invoked is still inapplicable since what is being sold is only 51% of the outstanding shares
of the corporation, not the hotel building nor the land upon which the building stands. Certainly,
51% of the equity of the MHC cannot be considered part of the national patrimony. Moreover, if the
disposition of the shares of the MHC is really contrary to the Constitution, petitioner should have
questioned it right from the beginning and not after it had lost in the bidding.

Fourth, the reliance by petitioner on par. V., subpar. J. 1., of the bidding rules which provides
that if for any reason, the Highest Bidder cannot be awarded the Block of Shares, GSIS may offer
this to the other Qualified Bidders that have validly submitted bids provided that these Qualified
Bidders are willing to match the highest bid in terms of price per share, is misplaced. Respondents
postulate that the privilege of submitting a matching bid has not yet arisen since it only takes
place if for any reason, the Highest Bidder cannot be awarded the Block of Shares. Thus the
submission by petitioner of a matching bid is premature since Renong Berhad could still very well
be awarded the block of shares and the condition giving rise to the exercise of the privilege to
submit a matching bid had not yet taken place.

Finally, the prayer for prohibition grounded on grave abuse of discretion should fail since
respondent GSIS did not exercise its discretion in a capricious, whimsical manner, and if ever it did
abuse its discretion it was not so patent and gross as to amount to an evasion of a positive duty or
a virtual refusal to perform a duty enjoined by law. Similarly, the petition for mandamus should fail
as petitioner has no clear legal right to what it demands and respondents do not have an
imperative duty to perform the act required of them by petitioner.

We now resolve. A constitution is a system of fundamental laws for the governance and
administration of a nation. It is supreme, imperious, absolute and unalterable except by the
authority from which it emanates. It has been defined as the fundamental and paramount law of
the nation.[10] It prescribes the permanent framework of a system of government, assigns to the
different departments their respective powers and duties, and establishes certain fixed principles
on which government is founded. The fundamental conception in other words is that it is a supreme
law to which all other laws must conform and in accordance with which all private rights must be
determined and all public authority administered. [11] Under the doctrine of constitutional
supremacy, if a law or contract violates any norm of the constitution that law or contract whether
promulgated by the legislative or by the executive branch or entered into by private persons for
private purposes is null and void and without any force and effect.Thus, since the Constitution is
the fundamental, paramount and supreme law of the nation, it is deemed written in every statute
and contract.

Admittedly, some constitutions are merely declarations of policies and principles. Their
provisions command the legislature to enact laws and carry out the purposes of the framers who
merely establish an outline of government providing for the different departments of the
governmental machinery and securing certain fundamental and inalienable rights of citizens. [12] A
provision which lays down a general principle, such as those found in Art. II of the 1987
Constitution, is usually not self-executing. But a provision which is complete in itself and becomes
operative without the aid of supplementary or enabling legislation, or that which supplies sufficient
rule by means of which the right it grants may be enjoyed or protected, is self-executing. Thus a
constitutional provision is self-executing if the nature and extent of the right conferred and the
liability imposed are fixed by the constitution itself, so that they can be determined by an
examination and construction of its terms, and there is no language indicating that the subject is
referred to the legislature for action.[13]

As against constitutions of the past, modern constitutions have been generally drafted upon a
different principle and have often become in effect extensive codes of laws intended to operate
directly upon the people in a manner similar to that of statutory enactments, and the function of
constitutional conventions has evolved into one more like that of a legislative body. Hence, unless it
is expressly provided that a legislative act is necessary to enforce a constitutional mandate, the
presumption now is that all provisions of the constitution are self-executing. If the constitutional
provisions are treated as requiring legislation instead of self-executing, the legislature would have
the power to ignore and practically nullify the mandate of the fundamental law. [14] This can be
cataclysmic. That is why the prevailing view is, as it has always been, that -

x x x x in case of doubt, the Constitution should be considered self-executing rather than non-self-
executing x x x x Unless the contrary is clearly intended, the provisions of the Constitution should
be considered self-executing, as a contrary rule would give the legislature discretion to determine
when, or whether, they shall be effective. These provisions would be subordinated to the will of the
lawmaking body, which could make them entirely meaningless by simply refusing to pass the
needed implementing statute.[15]

Respondents argue that Sec. 10, second par., Art. XII, of the 1987 Constitution is clearly not
self-executing, as they quote from discussions on the floor of the 1986 Constitutional Commission -

MR. RODRIGO. Madam President, I am asking this question as the Chairman of the
Committee on Style.If the wording of PREFERENCE is given to QUALIFIED FILIPINOS, can
it be understood as a preference to qualified Filipinos vis-a-vis Filipinos who are not
qualified. So, why do we not make it clear? To qualified Filipinos as against aliens?

THE PRESIDENT. What is the question of Commissioner Rodrigo? Is it to remove the word
QUALIFIED?
MR. RODRIGO. No, no, but say definitely TO QUALIFIED FILIPINOS as against whom? As
against aliens or over aliens ?

MR. NOLLEDO. Madam President, I think that is understood. We use the word QUALIFIED
because the existing laws or prospective laws will always lay down conditions under
which business may be done.For example, qualifications on capital, qualifications on the
setting up of other financial structures, et cetera (underscoring supplied by
respondents).

MR. RODRIGO. It is just a matter of style.

MR. NOLLEDO. Yes.[16]

Quite apparently, Sec. 10, second par., of Art XII is couched in such a way as not to make it
appear that it is non-self-executing but simply for purposes of style. But, certainly, the legislature is
not precluded from enacting further laws to enforce the constitutional provision so long as the
contemplated statute squares with the Constitution. Minor details may be left to the legislature
without impairing the self-executing nature of constitutional provisions.

In self-executing constitutional provisions, the legislature may still enact legislation to facilitate
the exercise of powers directly granted by the constitution, further the operation of such a
provision, prescribe a practice to be used for its enforcement, provide a convenient remedy for the
protection of the rights secured or the determination thereof, or place reasonable safeguards
around the exercise of the right. The mere fact that legislation may supplement and add to or
prescribe a penalty for the violation of a self-executing constitutional provision does not render
such a provision ineffective in the absence of such legislation. The omission from a constitution of
any express provision for a remedy for enforcing a right or liability is not necessarily an indication
that it was not intended to be self-executing. The rule is that a self-executing provision of the
constitution does not necessarily exhaust legislative power on the subject, but any legislation must
be in harmony with the constitution, further the exercise of constitutional right and make it more
available.[17] Subsequent legislation however does not necessarily mean that the subject
constitutional provision is not, by itself, fully enforceable.

Respondents also argue that the non-self-executing nature of Sec. 10, second par., of Art. XII is
implied from the tenor of the first and third paragraphs of the same section which undoubtedly are
not self-executing.[18] The argument is flawed. If the first and third paragraphs are not self-executing
because Congress is still to enact measures to encourage the formation and operation of
enterprises fully owned by Filipinos, as in the first paragraph, and the State still needs legislation to
regulate and exercise authority over foreign investments within its national jurisdiction, as in the
third paragraph, then a fortiori, by the same logic, the second paragraph can only be self-executing
as it does not by its language require any legislation in order to give preference to qualified
Filipinos in the grant of rights, privileges and concessions covering the national economy and
patrimony. A constitutional provision may be self-executing in one part and non-self-executing in
another.[19]

Even the cases cited by respondents holding that certain constitutional provisions are merely
statements of principles and policies, which are basically not self-executing and only placed in the
Constitution as moral incentives to legislation, not as judicially enforceable rights - are simply not in
point.Basco v. Philippine Amusements and Gaming Corporation [20] speaks of constitutional
provisions on personal dignity,[21] the sanctity of family life,[22] the vital role of the youth in nation-
building,[23] the promotion of social justice,[24] and the values of education.[25] Tolentino v. Secretary
of Finance[26] refers to constitutional provisions on social justice and human rights [27] and on
education.[28] Lastly, Kilosbayan, Inc. v. Morato[29] cites provisions on the promotion of general
welfare,[30] the sanctity of family life,[31] the vital role of the youth in nation-building [32] and the
promotion of total human liberation and development. [33] A reading of these provisions indeed
clearly shows that they are not judicially enforceable constitutional rights but merely guidelines for
legislation. The very terms of the provisions manifest that they are only principles upon which
legislations must be based. Res ipsa loquitur.

On the other hand, Sec. 10, second par., Art. XII of the 1987 Constitution is a mandatory,
positive command which is complete in itself and which needs no further guidelines or
implementing laws or rules for its enforcement. From its very words the provision does not require
any legislation to put it in operation. It is per se judicially enforceable. When our Constitution
mandates that [i]n the grant of rights, privileges, and concessions covering national economy and
patrimony, the State shall give preference to qualified Filipinos, it means just that - qualified
Filipinos shall be preferred. And when our Constitution declares that a right exists in certain
specified circumstances an action may be maintained to enforce such right notwithstanding the
absence of any legislation on the subject; consequently, if there is no statute especially enacted to
enforce such constitutional right, such right enforces itself by its own inherent potency and
puissance, and from which all legislations must take their bearings. Where there is a right there is a
remedy. Ubi jus ibi remedium.

As regards our national patrimony, a member of the 1986 Constitutional


Commission[34] explains -

The patrimony of the Nation that should be conserved and developed refers not only to
our rich natural resources but also to the cultural heritage of our race. It also refers to our
intelligence in arts, sciences and letters. Therefore, we should develop not only our lands,
forests, mines and other natural resources but also the mental ability or faculty of our
people.

We agree. In its plain and ordinary meaning, the term patrimony pertains to heritage.[35] When
the Constitution speaks of national patrimony, it refers not only to the natural resources of the
Philippines, as the Constitution could have very well used the term natural resources, but also to
the cultural heritage of the Filipinos.

Manila Hotel has become a landmark - a living testimonial of Philippine heritage. While it was
restrictively an American hotel when it first opened in 1912, it immediately evolved to be truly
Filipino.Formerly a concourse for the elite, it has since then become the venue of various significant
events which have shaped Philippine history. It was called the Cultural Center of the 1930s. It was
the site of the festivities during the inauguration of the Philippine Commonwealth. Dubbed as
the Official Guest House of the Philippine Government it plays host to dignitaries and official
visitors who are accorded the traditional Philippine hospitality. [36]

The history of the hotel has been chronicled in the book The Manila Hotel: The Heart and
Memory of a City.[37] During World War II the hotel was converted by the Japanese Military
Administration into a military headquarters. When the American forces returned to recapture
Manila the hotel was selected by the Japanese together with Intramuros as the two (2) places for
their final stand. Thereafter, in the 1950s and 1960s, the hotel became the center of political
activities, playing host to almost every political convention. In 1970 the hotel reopened after a
renovation and reaped numerous international recognitions, an acknowledgment of the Filipino
talent and ingenuity. In 1986 the hotel was the site of a failed coup d etat where an aspirant for
vice-president was proclaimed President of the Philippine Republic.

For more than eight (8) decades Manila Hotel has bore mute witness to the triumphs
and failures, loves and frustrations of the Filipinos; its existence is impressed with public interest;
its own historicity associated with our struggle for sovereignty, independence and
nationhood. Verily, Manila Hotel has become part of our national economy and patrimony. For sure,
51% of the equity of the MHC comes within the purview of the constitutional shelter for it
comprises the majority and controlling stock, so that anyone who acquires or owns the 51% will
have actual control and management of the hotel. In this instance, 51% of the MHC cannot be
disassociated from the hotel and the land on which the hotel edifice stands. Consequently, we
cannot sustain respondents claim that the Filipino First Policy provision is not applicable since what
is being sold is only 51% of the outstanding shares of the corporation, not the Hotel building nor
the land upon which the building stands. [38]

The argument is pure sophistry. The term qualified Filipinos as used in our Constitution also
includes corporations at least 60% of which is owned by Filipinos. This is very clear from the
proceedings of the 1986 Constitutional Commission -

THE PRESIDENT. Commissioner Davide is recognized.

MR. DAVIDE. I would like to introduce an amendment to the Nolledo amendment. And the
amendment would consist in substituting the words QUALIFIED FILIPINOS with the
following: CITIZENS OF THE PHILIPPINES OR CORPORATIONS OR ASSOCIATIONS WHOSE
CAPITAL OR CONTROLLING STOCK IS WHOLLY OWNED BY SUCH CITIZENS.

xxxx

MR. MONSOD. Madam President, apparently the proponent is agreeable, but we have to
raise a question. Suppose it is a corporation that is 80-percent Filipino, do we not give it
preference?

MR. DAVIDE. The Nolledo amendment would refer to an individual Filipino. What about a
corporation wholly owned by Filipino citizens?

MR. MONSOD. At least 60 percent, Madam President.

MR. DAVIDE. Is that the intention?

MR. MONSOD. Yes, because, in fact, we would be limiting it if we say that the preference
should only be 100-percent Filipino.

MR. DAVIDE. I want to get that meaning clear because QUALIFIED FILIPINOS may refer only
to individuals and not to juridical personalities or entities.

MR. MONSOD. We agree, Madam President.[39]

xxxx

MR. RODRIGO. Before we vote, may I request that the amendment be read again.

MR. NOLLEDO. The amendment will read: IN THE GRANT OF RIGHTS, PRIVILEGES AND
CONCESSIONS COVERING THE NATIONAL ECONOMY AND PATRIMONY, THE STATE SHALL
GIVE PREFERENCE TO QUALIFIED FILIPINOS. And the word Filipinos here, as intended by
the proponents, will include not only individual Filipinos but also Filipino-controlled
entities or entities fully-controlled by Filipinos. [40]

The phrase preference to qualified Filipinos was explained thus -


MR. FOZ. Madam President, I would like to request Commissioner Nolledo to please restate
his amendment so that I can ask a question.

MR. NOLLEDO. IN THE GRANT OF RIGHTS, PRIVILEGES AND CONCESSIONS COVERING THE
NATIONAL ECONOMY AND PATRIMONY, THE STATE SHALL GIVE PREFERENCE TO
QUALIFIED FILIPINOS.

MR. FOZ. In connection with that amendment, if a foreign enterprise is qualified and a
Filipino enterprise is also qualified, will the Filipino enterprise still be given a
preference?

MR. NOLLEDO. Obviously.

MR. FOZ. If the foreigner is more qualified in some aspects than the Filipino enterprise, will
the Filipino still be preferred?

MR. NOLLEDO. The answer is yes.

MR. FOZ. Thank you.[41]

Expounding further on the Filipino First Policy provision Commissioner Nolledo continues

MR. NOLLEDO. Yes, Madam President. Instead of MUST, it will be SHALL - THE STATE SHALL
GIVE PREFERENCE TO QUALIFIED FILIPINOS. This embodies the so-called Filipino First
policy. That means that Filipinos should be given preference in the grant of concessions,
privileges and rights covering the national patrimony. [42]

The exchange of views in the sessions of the Constitutional Commission regarding the subject
provision was still further clarified by Commissioner Nolledo [43] -

Paragraph 2 of Section 10 explicitly mandates the Pro-Filipino bias in all economic concerns. It is
better known as the FILIPINO FIRST Policy x x x x This provision was never found in previous
Constitutions x x x x

The term qualified Filipinos simply means that preference shall be given to those citizens who can
make a viable contribution to the common good, because of credible competence and efficiency. It
certainly does NOT mandate the pampering and preferential treatment to Filipino citizens or
organizations that are incompetent or inefficient, since such an indiscriminate preference would be
counterproductive and inimical to the common good.

In the granting of economic rights, privileges, and concessions, when a choice has to be made
between a qualified foreigner and a qualified Filipino, the latter shall be chosen over the former.

Lastly, the word qualified is also determinable. Petitioner was so considered by respondent GSIS
and selected as one of the qualified bidders. It was pre-qualified by respondent GSIS in accordance
with its own guidelines so that the sole inference here is that petitioner has been found to be
possessed of proven management expertise in the hotel industry, or it has significant equity
ownership in another hotel company, or it has an overall management and marketing proficiency to
successfully operate the Manila Hotel.[44]

The penchant to try to whittle away the mandate of the Constitution by arguing that the subject
provision is not self-executory and requires implementing legislation is quite disturbing. The
attempt to violate a clear constitutional provision - by the government itself - is only too
distressing. To adopt such a line of reasoning is to renounce the duty to ensure faithfulness to the
Constitution. For, even some of the provisions of the Constitution which evidently need
implementing legislation have juridical life of their own and can be the source of a judicial
remedy. We cannot simply afford the government a defense that arises out of the failure to enact
further enabling, implementing or guiding legislation. In fine, the discourse of Fr. Joaquin G. Bernas,
S.J., on constitutional government is apt -

The executive department has a constitutional duty to implement laws, including the Constitution,
even before Congress acts - provided that there are discoverable legal standards for executive
action. When the executive acts, it must be guided by its own understanding of the constitutional
command and of applicable laws. The responsibility for reading and understanding the Constitution
and the laws is not the sole prerogative of Congress. If it were, the executive would have to ask
Congress, or perhaps the Court, for an interpretation every time the executive is confronted by a
constitutional command. That is not how constitutional government operates. [45]

Respondents further argue that the constitutional provision is addressed to the State, not to
respondent GSIS which by itself possesses a separate and distinct personality. This argument again
is at best specious. It is undisputed that the sale of 51% of the MHC could only be carried out with
the prior approval of the State acting through respondent Committee on Privatization. As correctly
pointed out by Fr. Joaquin G. Bernas, S.J., this fact alone makes the sale of the assets of
respondents GSIS and MHC a state action. In constitutional jurisprudence, the acts of persons
distinct from the government are considered state action covered by the Constitution (1) when the
activity it engages in is a public function; (2) when the government is so significantly involved with
the private actor as to make the government responsible for his action; and, (3) when the
government has approved or authorized the action. It is evident that the act of respondent GSIS in
selling 51% of its share in respondent MHC comes under the second and third categories of state
action. Without doubt therefore the transaction, although entered into by respondent GSIS, is in
fact a transaction of the State and therefore subject to the constitutional command. [46]

When the Constitution addresses the State it refers not only to the people but also to the
government as elements of the State. After all, government is composed of three (3) divisions of
power - legislative, executive and judicial. Accordingly, a constitutional mandate directed to the
State is correspondingly directed to the three (3) branches of government. It is undeniable that in
this case the subject constitutional injunction is addressed among others to the Executive
Department and respondent GSIS, a government instrumentality deriving its authority from the
State.

It should be stressed that while the Malaysian firm offered the higher bid it is not yet the
winning bidder. The bidding rules expressly provide that the highest bidder shall only be declared
the winning bidder after it has negotiated and executed the necessary contracts, and secured the
requisite approvals. Since the Filipino First Policy provision of the Constitution bestows preference
on qualifiedFilipinos the mere tending of the highest bid is not an assurance that the highest bidder
will be declared the winning bidder. Resultantly, respondents are not bound to make the award yet,
nor are they under obligation to enter into one with the highest bidder. For in choosing the awardee
respondents are mandated to abide by the dictates of the 1987 Constitution the provisions of which
are presumed to be known to all the bidders and other interested parties.

Adhering to the doctrine of constitutional supremacy, the subject constitutional provision is, as
it should be, impliedly written in the bidding rules issued by respondent GSIS, lest the bidding rules
be nullified for being violative of the Constitution. It is a basic principle in constitutional law that all
laws and contracts must conform with the fundamental law of the land. Those which violate the
Constitution lose their reason for being.
Paragraph V. J. 1 of the bidding rules provides that [i]f for any reason the Highest Bidder cannot
be awarded the Block of Shares, GSIS may offer this to other Qualified Bidders that have validly
submitted bids provided that these Qualified Bidders are willing to match the highest bid in terms
of price per share.[47] Certainly, the constitutional mandate itself is reason enough not to award the
block of shares immediately to the foreign bidder notwithstanding its submission of a higher, or
even the highest, bid. In fact, we cannot conceive of a stronger reason than the constitutional
injunction itself.

In the instant case, where a foreign firm submits the highest bid in a public bidding concerning
the grant of rights, privileges and concessions covering the national economy and patrimony,
thereby exceeding the bid of a Filipino, there is no question that the Filipino will have to be allowed
to match the bid of the foreign entity. And if the Filipino matches the bid of a foreign firm the award
should go to the Filipino. It must be so if we are to give life and meaning to the Filipino First
Policy provision of the 1987 Constitution. For, while this may neither be expressly stated nor
contemplated in the bidding rules, the constitutional fiat is omnipresent to be simply
disregarded. To ignore it would be to sanction a perilous skirting of the basic law.

This Court does not discount the apprehension that this policy may discourage foreign
investors. But the Constitution and laws of the Philippines are understood to be always open to
public scrutiny. These are given factors which investors must consider when venturing into business
in a foreign jurisdiction.Any person therefore desiring to do business in the Philippines or with any
of its agencies or instrumentalities is presumed to know his rights and obligations under the
Constitution and the laws of the forum.

The argument of respondents that petitioner is now estopped from questioning the sale to
Renong Berhad since petitioner was well aware from the beginning that a foreigner could
participate in the bidding is meritless. Undoubtedly, Filipinos and foreigners alike were invited to
the bidding. But foreigners may be awarded the sale only if no Filipino qualifies, or if the qualified
Filipino fails to match the highest bid tendered by the foreign entity. In the case before us, while
petitioner was already preferred at the inception of the bidding because of the constitutional
mandate, petitioner had not yet matched the bid offered by Renong Berhad. Thus it did not have
the right or personality then to compel respondent GSIS to accept its earlier bid. Rightly, only after
it had matched the bid of the foreign firm and the apparent disregard by respondent GSIS of
petitioners matching bid did the latter have a cause of action.

Besides, there is no time frame for invoking the constitutional safeguard unless perhaps the
award has been finally made. To insist on selling the Manila Hotel to foreigners when there is a
Filipino group willing to match the bid of the foreign group is to insist that government be treated
as any other ordinary market player, and bound by its mistakes or gross errors of judgment,
regardless of the consequences to the Filipino people. The miscomprehension of the Constitution is
regrettable. Thus we would rather remedy the indiscretion while there is still an opportunity to do
so than let the government develop the habit of forgetting that the Constitution lays down the
basic conditions and parameters for its actions.

Since petitioner has already matched the bid price tendered by Renong Berhad pursuant to the
bidding rules, respondent GSIS is left with no alternative but to award to petitioner the block of
shares of MHC and to execute the necessary agreements and documents to effect the sale in
accordance not only with the bidding guidelines and procedures but with the Constitution as
well. The refusal of respondent GSIS to execute the corresponding documents with petitioner as
provided in the bidding rules after the latter has matched the bid of the Malaysian firm clearly
constitutes grave abuse of discretion.

The Filipino First Policy is a product of Philippine nationalism. It is embodied in the 1987
Constitution not merely to be used as a guideline for future legislation but primarily to be enforced;
so must it be enforced. This Court as the ultimate guardian of the Constitution will never shun,
under any reasonable circumstance, the duty of upholding the majesty of the Constitution which it
is tasked to defend. It is worth emphasizing that it is not the intention of this Court to impede and
diminish, much less undermine, the influx of foreign investments. Far from it, the Court encourages
and welcomes more business opportunities but avowedly sanctions the preference for Filipinos
whenever such preference is ordained by the Constitution. The position of the Court on this matter
could have not been more appropriately articulated by Chief Justice Narvasa -

As scrupulously as it has tried to observe that it is not its function to substitute its judgment for
that of the legislature or the executive about the wisdom and feasibility of legislation economic in
nature, the Supreme Court has not been spared criticism for decisions perceived as obstacles to
economic progress and development x x x x in connection with a temporary injunction issued by
the Courts First Division against the sale of the Manila Hotel to a Malaysian Firm and its partner,
certain statements were published in a major daily to the effect that that injunction again
demonstrates that the Philippine legal system can be a major obstacle to doing business here.

Let it be stated for the record once again that while it is no business of the Court to intervene in
contracts of the kind referred to or set itself up as the judge of whether they are viable or
attainable, it is its bounden duty to make sure that they do not violate the Constitution or the laws,
or are not adopted or implemented with grave abuse of discretion amounting to lack or excess of
jurisdiction. It will never shirk that duty, no matter how buffeted by winds of unfair and ill-informed
criticism.[48]

Privatization of a business asset for purposes of enhancing its business viability and preventing
further losses, regardless of the character of the asset, should not take precedence over non-
material values. A commercial, nay even a budgetary, objective should not be pursued at the
expense of national pride and dignity. For the Constitution enshrines higher and nobler non-
material values. Indeed, the Court will always defer to the Constitution in the proper governance of
a free society; after all, there is nothing so sacrosanct in any economic policy as to draw itself
beyond judicial review when the Constitution is involved. [49]

Nationalism is inherent in the very concept of the Philippines being a democratic and
republican state, with sovereignty residing in the Filipino people and from whom all government
authority emanates.In nationalism, the happiness and welfare of the people must be the goal. The
nation-state can have no higher purpose. Any interpretation of any constitutional provision must
adhere to such basic concept.Protection of foreign investments, while laudible, is merely a policy. It
cannot override the demands of nationalism.[50]

The Manila Hotel or, for that matter, 51% of the MHC, is not just any commodity to be sold to
the highest bidder solely for the sake of privatization. We are not talking about an ordinary piece of
property in a commercial district. We are talking about a historic relic that has hosted many of the
most important events in the short history of the Philippines as a nation. We are talking about a
hotel where heads of states would prefer to be housed as a strong manifestation of their desire to
cloak the dignity of the highest state function to their official visits to the Philippines. Thus the
Manila Hotel has played and continues to play a significant role as an authentic repository of
twentieth century Philippine history and culture. In this sense, it has become truly a reflection of
the Filipino soul - a place with a history of grandeur; a most historical setting that has played a part
in the shaping of a country. [51]

This Court cannot extract rhyme nor reason from the determined efforts of respondents to sell
the historical landmark - this Grand Old Dame of hotels in Asia - to a total stranger. For, indeed, the
conveyance of this epic exponent of the Filipino psyche to alien hands cannot be less than
mephistophelian for it is, in whatever manner viewed, a veritable alienation of a nations soul for
some pieces of foreign silver. And so we ask: What advantage, which cannot be equally drawn from
a qualified Filipino, can be gained by the Filipinos if Manila Hotel - and all that it stands for - is sold
to a non-Filipino? How much of national pride will vanish if the nations cultural heritage is entrusted
to a foreign entity? On the other hand, how much dignity will be preserved and realized if the
national patrimony is safekept in the hands of a qualified, zealous and well-meaning Filipino? This is
the plain and simple meaning of the Filipino First Policy provision of the Philippine Constitution. And
this Court, heeding the clarion call of the Constitution and accepting the duty of being the elderly
watchman of the nation, will continue to respect and protect the sanctity of the Constitution.

WHEREFORE, respondents GOVERNMENT SERVICE INSURANCE SYSTEM, MANILA HOTEL


CORPORATION, COMMITTEE ON PRIVATIZATION and OFFICE OF THE GOVERNMENT CORPORATE
COUNSEL are directed to CEASE and DESIST from selling 51% of the shares of the Manila Hotel
Corporation to RENONG BERHAD, and to ACCEPT the matching bid of petitioner MANILA PRINCE
HOTEL CORPORATION to purchase the subject 51% of the shares of the Manila Hotel Corporation
at P44.00 per share and thereafter to execute the necessary agreements and documents to effect
the sale, to issue the necessary clearances and to do such other acts and deeds as may be
necessary for the purpose.

SO ORDERED.