EN BANC

LUIS MARCOS P. LAUREL, G.R. No. 155076

Petitioner,
Present:
Puno, C.J.,
Quisumbing,
Ynares-Santiago,
Carpio,
- versus - Austria-Martinez,
Corona,
Carpio Morales,
Azcuna,
Tinga,
Chico-Nazario,
Velasco, Jr.,
Nachura,
Leonardo-De Castro, and
Brion, JJ.
HON. ZEUS C. ABROGAR,
Presiding Judge of the Regional
Trial Court, Makati City, Branch 150,
PEOPLE OF THE PHILIPPINES Promulgated:
& PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY,
Respondents. January 13, 2009

x ---------------------------------------------------------------------------------------- x

RESOLUTION

YNARES-SANTIAGO, J.:

On February 27, 2006, this Courts First Division rendered judgment in this case as follows:

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Orders of the
Regional Trial Court and the Decision of the Court of Appeals are REVERSED and SET ASIDE. The
Regional Trial Court is directed to issue an order granting the motion of the petitioner to quash
the Amended Information.

SO ORDERED.[1]

By way of brief background, petitioner is one of the accused in Criminal Case No. 99-2425, filed with
the Regional Trial Court of Makati City, Branch 150. The Amended Information charged the accused with thef
under Article 308 of the Revised Penal Code, committed as follows:
 On or about September 10-19, 1999, or prior thereto in Makati City, and within the jurisdiction
of this Honorable Court, the accused, conspiring and confederating together and all of them
mutually helping and aiding one another, with intent to gain and without the knowledge and
consent of the Philippine Long Distance Telephone (PLDT), did then and there willfully,
unlawfully and feloniously take, steal and use the international long distance calls belonging to
PLDT by conducting International Simple Resale (ISR), which is a method of routing and
completing international long distance calls using lines, cables, antenae, and/or air wave
frequency which connect directly to the local or domestic exchange facilities of the country
where the call is destined, effectively stealing this business from PLDT while using its facilities in
the estimated amount of P20,370,651.92 to the damage and prejudice of PLDT, in the said
amount.

CONTRARY TO LAW.[2]

Petitioner filed a Motion to Quash (with Motion to Defer Arraignment), on the ground that the factual
allegations in the Amended Information do not constitute the felony of thef. The trial court denied the Motion
to Quash the Amended Information, as well petitioners subsequent Motion for Reconsideration.

Petitioners special civil action for certiorari was dismissed by the Court of Appeals. Thus, petitioner filed
the instant petition for review with this Court.

In the above-quoted Decision, this Court held that the Amended Information does not contain material
allegations charging petitioner with thef of personal property since international long distance calls and the
business of providing telecommunication or telephone services are not personal properties under Article 308
of the Revised Penal Code.

Respondent Philippine Long Distance Telephone Company (PLDT) filed a Motion for Reconsideration
with Motion to Refer the Case to the Supreme Court En Banc. It maintains that the Amended Information
charging petitioner with thef is valid and sufficient; that it states the names of all the accused who were
specifically charged with the crime of thef of PLDTs international calls and business of providing
telecommunication or telephone service on or about September 10 to 19, 1999 in Makati City by conducting
ISR or International Simple Resale; that it identifies the international calls and business of providing
telecommunication or telephone service of PLDT as the personal properties which were unlawfully taken by
the accused; and that it satisfies the test of sufficiency as it enabled a person of common understanding to
know the charge against him and the court to render judgment properly.

PLDT further insists that the Revised Penal Code should be interpreted in the context of the Civil Codes
definition of real and personal property. The enumeration of real properties in Article 415 of the Civil Code is
exclusive such that all those not included therein are personal properties. Since Article 308 of the Revised
Penal Code used the words personal property without qualification, it follows that all personal properties as
understood in the context of the Civil Code, may be the subject of thef under Article 308 of the Revised Penal
Code. PLDT alleges that the international calls and business of providing telecommunication or telephone
service are personal properties capable of appropriation and can be objects of thef.

PLDT also argues that taking in relation to thef under the Revised Penal Code does not require
asportation, the sole requisite being that the object should be capable of appropriation. The element of taking
referred to in Article 308 of the Revised Penal Code means the act of depriving another of the possession and
dominion of a movable coupled with the intention, at the time of the taking, of withholding it with the
character of permanency. There must be intent to appropriate, which means to deprive the lawful owner of
the thing. Thus, the term personal properties under Article 308 of the Revised Penal Code is not limited to only
personal properties which are susceptible of being severed from a mass or larger quantity and of being
transported from place to place.

PLDT likewise alleges that as early as the 1930s, international telephone calls were in existence; hence,
there is no basis for this Courts finding that the Legislature could not have contemplated the thef of
international telephone calls and the unlawful transmission and routing of electronic voice signals or impulses
emanating from such calls by unlawfully tampering with the telephone device as within the coverage of the
Revised Penal Code.

According to respondent, the international phone calls which are electric currents or sets of electric
impulses transmitted through a medium, and carry a pattern representing the human voice to a receiver, are
personal properties which may be subject of thef. Article 416(3) of the Civil Code deems forces of nature
(which includes electricity) which are brought under the control by science, are personal property.

In his Comment to PLDTs motion for reconsideration, petitioner Laurel claims that a telephone call is a
conversation on the phone or a communication carried out using the telephone. It is not synonymous to
electric current or impulses. Hence, it may not be considered as personal property susceptible of
appropriation. Petitioner claims that the analogy between generated electricity and telephone calls is
misplaced. PLDT does not produce or generate telephone calls. It only provides the facilities or services for the
transmission and switching of the calls. He also insists that business is not personal property. It is not the
business that is protected but the right to carry on a business. This right is what is considered as
property. Since the services of PLDT cannot be considered as property, the same may not be subject of thef.

The Office of the Solicitor General (OSG) agrees with respondent PLDT that international phone calls
and the business or service of providing international phone calls are subsumed in the enumeration and
definition of personal property under the Civil Code hence, may be proper subjects of thef. It noted that the
cases of United States v. Genato,[3] United States v. Carlos[4] andUnited States v. Tambunting,[5] which recognized
intangible properties like gas and electricity as personal properties, are deemed incorporated in our penal
laws. Moreover, the thef provision in the Revised Penal Code was deliberately couched in broad terms
precisely to be all-encompassing and embracing even such scenario that could not have been easily
anticipated.
 According to the OSG, prosecution under Republic Act (RA) No. 8484 or the Access Device Regulations
Act of 1998 and RA 8792 or the Electronic Commerce Act of 2000 does not preclude prosecution under the
Revised Penal Code for the crime of thef. The latter embraces unauthorized appropriation or use of PLDTs
international calls, service and business, for personal profit or gain, to the prejudice of PLDT as owner
thereof. On the other hand, the special laws punish the surreptitious and advanced technical means employed
to illegally obtain the subject service and business. Even assuming that the correct indictment should have
been under RA 8484, the quashal of the information would still not be proper. The charge of thef as alleged in
the Information should be taken in relation to RA 8484 because it is the elements, and not the designation of
the crime, that control.

Considering the gravity and complexity of the novel questions of law involved in this case, the Special First
Division resolved to refer the same to the Banc.

We resolve to grant the Motion for Reconsideration but remand the case to the trial court for proper
clarification of the Amended Information.

Article 308 of the Revised Penal Code provides:

Art. 308. Who are liable for theft. Thef is committed by any person who, with intent to gain but
without violence against, or intimidation of persons nor force upon things, shall take personal
property of another without the latters consent.

The elements of thef under Article 308 of the Revised Penal Code are as follows: (1) that there be
taking of personal property; (2) that said property belongs to another; (3) that the taking be done with intent
to gain; (4) that the taking be done without the consent of the owner; and (5) that the taking be accomplished
without the use of violence against or intimidation of persons or force upon things.

Prior to the passage of the Revised Penal Code on December 8, 1930, the definition of the term personal
property in the penal code provision on thef had been established in Philippine jurisprudence. This Court,
in United States v. Genato, United States v. Carlos, and United States v. Tambunting, consistently ruled that any
personal property, tangible or intangible, corporeal or incorporeal, capable of appropriation can be the object
of thef.

Moreover, since the passage of the Revised Penal Code on December 8, 1930, the term personal property has
had a generally accepted definition in civil law. In Article 335 of the Civil Code of Spain, personal property is
defined as anything susceptible of appropriation and not included in the foregoing chapter (not real
property). Thus, the term personal property in the Revised Penal Code should be interpreted in the context of
the Civil Code provisions in accordance with the rule on statutory construction that where words have been
long used in a technical sense and have been judicially construed to have a certain meaning, and have been
adopted by the legislature as having a certain meaning prior to a particular statute, in which they are used, the
words used in such statute should be construed according to the sense in which they have been previously
used.[6] In fact, this Court used the Civil Code definition of personal property in interpreting the thef provision
of the penal code in United States v. Carlos.

Cognizant of the definition given by jurisprudence and the Civil Code of Spain to the term personal property at
the time the old Penal Code was being revised, still the legislature did not limit or qualify the definition of
personal property in the Revised Penal Code. Neither did it provide a restrictive definition or an exclusive
enumeration of personal property in the Revised Penal Code, thereby showing its intent to retain for the term
an extensive and unqualified interpretation. Consequently, any property which is not included in the
enumeration of real properties under the Civil Code and capable of appropriation can be the subject of thef
under the Revised Penal Code.

The only requirement for a personal property to be the object of thef under the penal code is that it be
capable of appropriation. It need not be capable of asportation, which is defined as carrying away.
[7]
Jurisprudence is settled that to take under the thef provision of the penal code does not require asportation
or carrying away.[8]

To appropriate means to deprive the lawful owner of the thing. [9] The word take in the Revised Penal Code
includes any act intended to transfer possession which, as held in the assailed Decision, may be committed
through the use of the offenders own hands, as well as any mechanical device, such as an access device or card
as in the instant case. This includes controlling the destination of the property stolen to deprive the owner of
the property, such as the use of a meter tampering, as held in Natividad v. Court of Appeals,[10] use of a device
to fraudulently obtain gas, as held inUnited States v. Tambunting, and the use of a jumper to divert electricity,
as held in the cases of United States v. Genato, United States v. Carlos, and United States v. Menagas.[11]

As illustrated in the above cases, appropriation of forces of nature which are brought under control by science
such as electrical energy can be achieved by tampering with any apparatus used for generating or measuring
such forces of nature, wrongfully redirecting such forces of nature from such apparatus, or using any device to
fraudulently obtain such forces of nature. In the instant case, petitioner was charged with engaging in
International Simple Resale (ISR) or the unauthorized routing and completing of international long distance
calls using lines, cables, antennae, and/or air wave frequency and connecting these calls directly to the local or
domestic exchange facilities of the country where destined.

As early as 1910, the Court declared in Genato that ownership over electricity (which an international long
distance call consists of), as well as telephone service, is protected by the provisions on thef of the Penal
Code. The pertinent provision of the Revised Ordinance of the City of Manila, which was involved in the said
case, reads as follows:
 Injury to electric apparatus; Tapping current; Evidence. No person shall destroy, mutilate,
deface, or otherwise injure or tamper with any wire, meter, or other apparatus installed or used
for generating, containing, conducting, or measuring electricity, telegraph or telephone service,
nor tap or otherwise wrongfully deflect or take any electric current from such wire, meter, or
other apparatus.

No person shall, for any purpose whatsoever, use or enjoy the benefits of any device by
means of which he may fraudulently obtain any current of electricity or any telegraph or
telephone service; and the existence in any building premises of any such device shall, in the
absence of satisfactory explanation, be deemed sufficient evidence of such use by the persons
benefiting thereby.

It was further ruled that even without the above ordinance the acts of subtraction punished therein are
covered by the provisions on thef of the Penal Code then in force, thus:

Even without them (ordinance), the right of the ownership of electric current is secured
by articles 517 and 518 of the Penal Code; the application of these articles in cases of
subtraction of gas, a fluid used for lighting, and in some respects resembling electricity, is
confirmed by the rule laid down in the decisions of the supreme court of Spain of January 20,
1887, and April 1, 1897, construing and enforcing the provisions of articles 530 and 531 of the
Penal Code of that country, articles 517 and 518 of the code in force in these islands.

The acts of subtraction include: (a) tampering with any wire, meter, or other apparatus installed or used for
generating, containing, conducting, or measuring electricity, telegraph or telephone service; (b) tapping or
otherwise wrongfully deflecting or taking any electric current from such wire, meter, or other apparatus; and
(c) using or enjoying the benefits of any device by means of which one may fraudulently obtain any current of
electricity or any telegraph or telephone service.

In the instant case, the act of conducting ISR operations by illegally connecting various equipment or apparatus
to private respondent PLDTs telephone system, through which petitioner is able to resell or re-route
international long distance calls using respondent PLDTs facilities constitutes all three acts of subtraction
mentioned above.

The business of providing telecommunication or telephone service is likewise personal property which can be
the object of thef under Article 308 of the Revised Penal Code. Business may be appropriated under Section 2
of Act No. 3952 (Bulk Sales Law), hence, could be object of thef:

Section 2. Any sale, transfer, mortgage, or assignment of a stock of goods, wares,

merchandise, provisions, or materials otherwise than in the ordinary course of trade and the
regular prosecution of the business of the vendor, mortgagor, transferor, or assignor, or any sale,
transfer, mortgage, or assignment of all, or substantially all, of the business or trade theretofore
conducted by the vendor, mortgagor, transferor or assignor, or all, or substantially all, of the
 fixtures and equipment used in and about the business of the vendor, mortgagor, transferor, or
assignor, shall be deemed to be a sale and transfer in bulk, in contemplation of the Act. x x x.

In Strochecker v. Ramirez,[12] this Court stated:

With regard to the nature of the property thus mortgaged which is one-half interest in
the business above described, such interest is a personal property capable of appropriation and
not included in the enumeration of real properties in article 335 of the Civil Code, and may be
the subject of mortgage.

Interest in business was not specifically enumerated as personal property in the Civil Code in force at the time
the above decision was rendered. Yet, interest in business was declared to be personal property since it is
capable of appropriation and not included in the enumeration of real properties. Article 414 of the Civil Code
provides that all things which are or may be the object of appropriation are considered either real property or
personal property. Business is likewise not enumerated as personal property under the Civil Code. Just like
interest in business, however, it may be appropriated. Following the ruling in Strochecker v. Ramirez, business
should also be classified as personal property. Since it is not included in the exclusive enumeration of real
properties under Article 415, it is therefore personal property.[13]

As can be clearly gleaned from the above disquisitions, petitioners acts constitute thef of respondent
PLDTs business and service, committed by means of the unlawful use of the latters facilities. In this regard, the
Amended Information inaccurately describes the offense by making it appear that what petitioner took were
the international long distance telephone calls, rather than respondent PLDTs business.

A perusal of the records of this case readily reveals that petitioner and respondent PLDT extensively discussed
the issue of ownership of telephone calls. The prosecution has taken the position that said telephone calls
belong to respondent PLDT. This is evident from its Comment where it defined the issue of this case as
whether or not the unauthorized use or appropriation of PLDT international telephone calls, service and
facilities, for the purpose of generating personal profit or gain that should have otherwise belonged to PLDT,
constitutes thef.[14]

In discussing the issue of ownership, petitioner and respondent PLDT gave their respective explanations on
how a telephone call is generated.[15] For its part, respondent PLDT explains the process of generating a
telephone call as follows:

38. The role of telecommunication companies is not limited to merely providing the
medium (i.e. the electric current) through which the human voice/voice signal of the caller is
transmitted. Before the human voice/voice signal can be so transmitted, a telecommunication
company, using its facilities, must first break down or decode the human voice/voice signal into
electronic impulses and subject the same to further augmentation and enhancements. Only
 afer such process of conversion will the resulting electronic impulses be transmitted by a
telecommunication company, again, through the use of its facilities. Upon reaching the
destination of the call, the telecommunication company will again break down or decode the
electronic impulses back to human voice/voice signal before the called party receives the
same. In other words, a telecommunication company both converts/reconverts the human
voice/voice signal and provides the medium for transmitting the same.

39. Moreover, in the case of an international telephone call, once the electronic
impulses originating from a foreign telecommunication company country (i.e. Japan) reaches
the Philippines through a local telecommunication company (i.e. private respondent PLDT), it is
the latter which decodes, augments and enhances the electronic impulses back to the human
voice/voice signal and provides the medium (i.e. electric current) to enable the called party to
receive the call. Thus, it is not true that the foreign telecommunication company provides (1)
the electric current which transmits the human voice/voice signal of the caller and (2) the
electric current for the called party to receive said human voice/voice signal.

40. Thus, contrary to petitioner Laurels assertion, once the electronic impulses or
electric current originating from a foreign telecommunication company (i.e. Japan) reaches
private respondent PLDTs network, it is private respondent PLDT which decodes, augments and
enhances the electronic impulses back to the human voice/voice signal and provides the
medium (i.e. electric current) to enable the called party to receive the call. Without private
respondent PLDTs network, the human voice/voice signal of the calling party will never reach
the called party.[16]

In the assailed Decision, it was conceded that in making the international phone calls, the human voice is
converted into electrical impulses or electric current which are transmitted to the party called. A telephone
call, therefore, is electrical energy. It was also held in the assailed Decision that intangible property such as
electrical energy is capable of appropriation because it may be taken and carried away. Electricity is personal
property under Article 416 (3) of the Civil Code, which enumerates forces of nature which are brought under
control by science.[17]

Indeed, while it may be conceded that international long distance calls, the matter alleged to be stolen in the
instant case, take the form of electrical energy, it cannot be said that such international long distance calls
were personal properties belonging to PLDT since the latter could not have acquired ownership over such
calls. PLDT merely encodes, augments, enhances, decodes and transmits said calls using its complex
communications infrastructure and facilities. PLDT not being the owner of said telephone calls, then it could
not validly claim that such telephone calls were taken without its consent. It is the use of these
communications facilities without the consent of PLDT that constitutes the crime of thef, which is the
unlawful taking of the telephone services and business.

Therefore, the business of providing telecommunication and the telephone service are personal
property under Article 308 of the Revised Penal Code, and the act of engaging in ISR is an act of subtraction
penalized under said article. However, the Amended Information describes the thing taken as, international
long distance calls, and only later mentions stealing the business from PLDT as the manner by which the gain
was derived by the accused. In order to correct this inaccuracy of description, this case must be remanded to
the trial court and the prosecution directed to amend the Amended Information, to clearly state that the
property subject of the thef are the services and business of respondent PLDT. Parenthetically, this
amendment is not necessitated by a mistake in charging the proper offense, which would have called for the
dismissal of the information under Rule 110, Section 14 and Rule 119, Section 19 of the Revised Rules on
Criminal Procedure. To be sure, the crime is properly designated as one of thef. The purpose of the
amendment is simply to ensure that the accused is fully and sufficiently apprised of the nature and cause of
the charge against him, and thus guaranteed of his rights under the Constitution.

ACCORDINGLY, the motion for reconsideration is GRANTED. The assailed Decision dated February 27,
2006 is RECONSIDERED and SET ASIDE. The Decision of the Court of Appeals in CA-G.R. SP No. 68841 affirming
the Order issued by Judge Zeus C. Abrogar of the Regional Trial Court of Makati City, Branch 150, which denied
the Motion to Quash (With Motion to Defer Arraignment) in Criminal Case No. 99-2425 for thef,
is AFFIRMED. The case is remanded to the trial court and the Public Prosecutor of Makati City is
hereby DIRECTED to amend the Amended Information to show that the property subject of the thef were
services and business of the private offended party.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-16218 November 29, 1962

ANTONIA BICERRA, DOMINGO BICERRA, BERNARDO BICERRA, CAYETANO BICERRA, LINDA BICERRA, PIO
BICERRA and EUFRICINA BICERRA, plaintiffs-appellants,
vs.
TOMASA TENEZA and BENJAMIN BARBOSA, defendants-appellees.

Agripino Brillantes and Alberto B. Bravo for plaintiffs-appellants.

Ernesto Parol for defendants-appellees.

MAKALINTAL, J.:

This case is before us on appeal from the order of the Court of First Instance of Abra dismissing the complaint
filed by appellants, upon motion of defendants-appellate on the ground that the action was within the exclude
(original) jurisdiction of the Justice of the Peace Court of Lagangilang, of the same province.

The complaint alleges in substance that appellants were the owners of the house, worth P200.00, built on and
owned by them and situated in the said municipality Lagangilang; that sometime in January 1957 appealed
forcibly demolished the house, claiming to be the owners thereof; that the materials of the house, afer it was
dismantled, were placed in the custody of the barrio lieutenant of the place; and that as a result of appellate's
refusal to restore the house or to deliver the material appellants the latter have suffered actual damages the
amount of P200.00, plus moral and consequential damages in the amount of P600.00. The relief prayed for is
that "the plaintiffs be declared the owners of the house in question and/or the materials that resulted in (sic)
its dismantling; (and) that the defendants be orders pay the sum of P200.00, plus P600.00 as damages, the
costs."

The issue posed by the parties in this appeal is whether the action involves title to real property, as appellants
contend, and therefore is cognizable by the Court of First Instance (Sec. 44, par. [b], R.A. 296, as amended),
whether it pertains to the jurisdiction of the Justice of the Peace Court, as stated in the order appealed from,
since there is no real property litigated, the house having ceased to exist, and the amount of the demand does
exceed P2,000.00 (Sec. 88, id.)1

The dismissal of the complaint was proper. A house is classified as immovable property by reason of its
adherence to the soil on which it is built (Art. 415, par. 1, Civil Code). This classification holds true regardless of
the fact that the house may be situated on land belonging to a different owner. But once the house is
demolished, as in this case, it ceases to exist as such and hence its character as an immovable likewise ceases.
It should be noted that the complaint here is for recovery of damages. This is the only positive relief prayed for
by appellants. To be sure, they also asked that they be declared owners of the dismantled house and/or of the
materials. However, such declaration in no wise constitutes the relief itself which if granted by final judgment
could be enforceable by execution, but is only incidental to the real cause of action to recover damages.

The order appealed from is affirmed. The appeal having been admitted in forma pauperis, no costs are
adjudged.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and Regala,
JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-55729 March 28, 1983

ANTONIO PUNSALAN, JR., petitioner,

vs.
REMEDIOS VDA. DE LACSAMANA and THE HONORABLE JUDGE RODOLFO A. ORTIZ, respondents.

Benjamin S. Benito & Associates for petitioner.

Expedito Yummul for private respondent.

MELENCIO-HERRERA, J.:
The sole issue presented by petitioner for resolution is whether or not respondent Court erred in denying the
Motion to Set Case for Pre-trial with respect to respondent Remedios Vda. de Lacsamana as the case had been
dismissed on the ground of improper venue upon motion of co-respondent Philippine National Bank (PNB).

It appears that petitioner, Antonio Punsalan, Jr., was the former registered owner of a parcel of land consisting
of 340 square meters situated in Bamban, Tarlac. In 1963, petitioner mortgaged said land to respondent PNB
(Tarlac Branch) in the amount of P10,000.00, but for failure to pay said amount, the property was foreclosed
on December 16, 1970. Respondent PNB (Tarlac Branch) was the highest bidder in said foreclosure
proceedings. However, the bank secured title thereto only on December 14, 1977.

In the meantime, in 1974, while the properly was still in the alleged possession of petitioner and with the
alleged acquiescence of respondent PNB (Tarlac Branch), and upon securing a permit from the Municipal
Mayor, petitioner constructed a warehouse on said property. Petitioner declared said warehouse for tax
purposes for which he was issued Tax Declaration No. 5619. Petitioner then leased the warehouse to one
Hermogenes Sibal for a period of 10 years starting January 1975.

On July 26, 1978, a Deed of Sale was executed between respondent PNB (Tarlac Branch) and respondent
Lacsamana over the property. This contract was amended on July 31, 1978, particularly to include in the sale,
the building and improvement thereon. By virtue of said instruments, respondent - Lacsamana secured title
over the property in her name (TCT No. 173744) as well as separate tax declarations for the land and building. 1

On November 22, 1979, petitioner commenced suit for "Annulment of Deed of Sale with Damages" against
herein respondents PNB and Lacsamana before respondent Court of First Instance of Rizal, Branch XXXI,
Quezon City, essentially impugning the validity of the sale of the building as embodied in the Amended Deed of
Sale. In this connection, petitioner alleged:

xxx xxx xxx

22. That defendant, Philippine National Bank, through its Branch Manager ... by virtue of the
request of defendant ... executed a document dated July 31, 1978, entitled Amendment to Deed
of Absolute Sale ... wherein said defendant bank as Vendor sold to defendant Lacsamana the
building owned by the plaintiff under Tax Declaration No. 5619, notwithstanding the fact that
said building is not owned by the bank either by virtue of the public auction sale conducted by
the Sheriff and sold to the Philippine National Bank or by virtue of the Deed of Sale executed by
the bank itself in its favor on September 21, 1977 ...;

23. That said defendant bank fraudulently mentioned ... that the sale in its favor should likewise
have included the building, notwithstanding no legal basis for the same and despite full
knowledge that the Certificate of Sale executed by the sheriff in its favor ... only limited the sale
to the land, hence, by selling the building which never became the property of defendant, they
have violated the principle against 'pactum commisorium'.

Petitioner prayed that the Deed of Sale of the building in favor of respondent Lacsamana be declared null and
void and that damages in the total sum of P230,000.00, more or less, be awarded to him. 2

In her Answer filed on March 4, 1980,-respondent Lacsamana averred the affirmative defense of lack of cause
of action in that she was a purchaser for value and invoked the principle in Civil Law that the "accessory follows
the principal". 3
On March 14, 1980, respondent PNB filed a Motion to Dismiss on the ground that venue was improperly laid
considering that the building was real property under article 415 (1) of the New Civil Code and therefore
section 2(a) of Rule 4 should apply. 4

Opposing said Motion to Dismiss, petitioner contended that the action for annulment of deed of sale with
damages is in the nature of a personal action, which seeks to recover not the title nor possession of the
property but to compel payment of damages, which is not an action affecting title to real property.

On April 25, 1980, respondent Court granted respondent PNB's Motion to Dismiss as follows:

Acting upon the 'Motion to Dismiss' of the defendant Philippine National Bank dated March 13,
1980, considered against the plaintiff's opposition thereto dated April 1, 1980, including the
reply therewith of said defendant, this Court resolves to DISMISS the plaintiff's complaint for
improper venue considering that the plaintiff's complaint which seeks for the declaration as null
and void, the amendment to Deed of Absolute Sale executed by the defendant Philippine
National Bank in favor of the defendant Remedios T. Vda. de Lacsamana, on July 31, 1978,
involves a warehouse allegedly owned and constructed by the plaintiff on the land of the
defendant Philippine National Bank situated in the Municipality of Bamban, Province of Tarlac,
which warehouse is an immovable property pursuant to Article 415, No. 1 of the New Civil
Code; and, as such the action of the plaintiff is a real action affecting title to real property which,
under Section 2, Rule 4 of the New Rules of Court, must be tried in the province where the
property or any part thereof lies. 5

In his Motion for Reconsideration of the aforestated Order, petitioner reiterated the argument that the action
to annul does not involve ownership or title to property but is limited to the validity of the deed of sale and
emphasized that the case should proceed with or without respondent PNB as respondent Lacsamana had
already filed her Answer to the Complaint and no issue on venue had been raised by the latter.

On September 1, 1980,.respondent Court denied reconsideration for lack of merit.

Petitioner then filed a Motion to Set Case for Pre-trial, in so far as respondent Lacsamana was concerned, as
the issues had already been joined with the filing of respondent Lacsamana's Answer.

In the Order of November 10, 1980 respondent Court denied said Motion to Set Case for Pre-trial as the case
was already dismissed in the previous Orders of April 25, 1980 and September 1, 1980.

Hence, this Petition for Certiorari, to which we gave due course.

We affirm respondent Court's Order denying the setting for pre-trial.

The warehouse claimed to be owned by petitioner is an immovable or real property as provided in article
415(l) of the Civil Code. 6 Buildings are always immovable under the Code. 7 A building treated separately from
the land on which it stood is immovable property and the mere fact that the parties to a contract seem to have
dealt with it separate and apart from the land on which it stood in no wise changed its character as immovable
property. 8

While it is true that petitioner does not directly seek the recovery of title or possession of the property in
question, his action for annulment of sale and his claim for damages are closely intertwined with the issue of
ownership of the building which, under the law, is considered immovable property, the recovery of which is
petitioner's primary objective. The prevalent doctrine is that an action for the annulment or rescission of a sale
of real property does not operate to efface the fundamental and prime objective and nature of the case, which
is to recover said real property. It is a real action. 9

Respondent Court, therefore, did not err in dismissing the case on the ground of improper venue (Section 2,
Rule 4) 10, which was timely raised (Section 1, Rule 16) 11.

Petitioner's other contention that the case should proceed in so far as respondent Lacsamana is concerned as
she had already filed an Answer, which did not allege improper venue and, therefore, issues had already been
joined, is likewise untenable. Respondent PNB is an indispensable party as the validity of the Amended
Contract of Sale between the former and respondent Lacsamana is in issue. It would, indeed, be futile to
proceed with the case against respondent Lacsamana alone.

WHEREFORE, the petition is hereby denied without prejudice to the refiling of the case by petitioner Antonio
Punsalan, Jr. in the proper forum.

Costs against petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 120098 October 2, 2001

RUBY L. TSAI, petitioner,

vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R VILLALUZ, respondents.

x---------------------------------------------------------x

[G.R. No. 120109. October 2, 2001.]

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,

vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R VILLALUZ, respondents.

QUISUMBING, J.:

These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R. CV No. 32986, affirming the
decision2 of the Regional Trial Court of Manila, Branch 7, in Civil Case No. 89-48265. Also assailed is respondent
court's resolution denying petitioners' motion for reconsideration.

On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a three million peso
(P3,000,000.00) loan from petitioner Philippine Bank of Communications (PBCom). As security for the loan,
EVERTEX executed in favor of PBCom, a deed of Real and Chattel Mortgage over the lot under TCT No. 372097,
where its factory stands, and the chattels located therein as enumerated in a schedule attached to the
mortgage contract. The pertinent portions of the Real and Chattel Mortgage are quoted below:

MORTGAGE

(REAL AND CHATTEL)

xxx xxx xxx

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage, to the
MORTGAGEE, . . . certain parcel(s) of land, together with all the buildings and improvements now
existing or which may hereafer exist thereon, situated in . . .

"Annex A"

(Real and Chattel Mortgage executed by Ever Textile Mills in favor of PBCommunications continued)

LIST OF MACHINERIES & EQUIPMENT

A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in Hongkong:

Serial Numbers Size of Machines

xxx xxx xxx

B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.

xxx xxx xxx

C. Two (2) Circular Knitting Machines made in West Germany.

xxx xxx xxx

D. Four (4) Winding Machines.

xxx xxx xxx

SCHEDULE "A"

I. TCT # 372097 - RIZAL

xxx xxx xxx

II. Any and all buildings and improvements now existing or hereafer to exist on the above-mentioned
lot.

III. MACHINERIES & EQUIPMENT situated, located and/or installed on the above-mentioned lot located
at . . .

(a) Forty eight sets (48) Vayrow Knitting Machines . . .

 (b) Sixteen sets (16) Vayrow Knitting Machines . . .

(c) Two (2) Circular Knitting Machines . . .

(d) Two (2) Winding Machines . . .

(e) Two (2) Winding Machines . . .

IV. Any and all replacements, substitutions, additions, increases and accretions to above properties.

xxx xxx xxx3

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan was secured by a
Chattel Mortgage over personal properties enumerated in a list attached thereto. These listed properties were
similar to those listed in Annex A of the first mortgage deed.

Afer April 23, 1979, the date of the execution of the second mortgage mentioned above, EVERTEX purchased
various machines and equipments.

On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings docketed as SP Proc.
No. LP-3091-P before the defunct Court of First Instance of Pasay City, Branch XXVIII. The CFI issued an order
on November 24, 1982 declaring the corporation insolvent. All its assets were taken into the custody of the
Insolvency Court, including the collateral, real and personal, securing the two mortgages as abovementioned.

In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the latter commenced extrajudicial
foreclosure proceedings against EVERTEX under Act 3135, otherwise known as "An Act to Regulate the Sale of
Property under Special Powers Inserted in or Annexed to Real Estate Mortgages" and Act 1506 or "The Chattel
Mortgage Law". A Notice of Sheriff's Sale was issued on December 1, 1982.

On December 15, 1982, the first public auction was held where petitioner PBCom emerged as the highest
bidder and a Certificate of Sale was issued in its favor on the same date. On December 23, 1982, another
public auction was held and again, PBCom was the highest bidder. The sheriff issued a Certificate of Sale on the
same day.

On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it. In November
1986, it leased the entire factory premises to petitioner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988,
PBCom sold the factory, lock, stock and barrel to Tsai for P9,000,000.00, including the contested machineries.

On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with the
Regional Trial Court against PBCom, alleging inter alia that the extrajudicial foreclosure of subject mortgage
was in violation of the Insolvency Law. EVERTEX claimed that no rights having been transmitted to PBCom over
the assets of insolvent EVERTEX, therefore Tsai acquired no rights over such assets sold to her, and should
reconvey the assets.

Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated the contested
properties, which were not included in the Real and Chattel Mortgage of November 26, 1975 nor in the Chattel
Mortgage of April 23, 1979, and neither were those properties included in the Notice of Sheriff's Sale dated
December 1, 1982 and Certificate of Sale . . . dated December 15, 1982.
The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular Knitting Machines, 1
Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1 Heatset Equipment.

The RTC found that the lease and sale of said personal properties were irregular and illegal because they were
not duly foreclosed nor sold at the December 15, 1982 auction sale since these were not included in the
schedules attached to the mortgage contracts. The trial court decreed:

WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and against the defendants:

1. Ordering the annulment of the sale executed by defendant Philippine Bank of Communications in
favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it affects the personal properties listed in par.
9 of the complaint, and their return to the plaintiff corporation through its assignee, plaintiff Mamerto
R. Villaluz, for disposition by the Insolvency Court, to be done within ten (10) days from finality of this
decision;

2. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of
P5,200,000.00 as compensation for the use and possession of the properties in question from
November 1986 to February 1991 and P100,000.00 every month thereafer, with interest thereon at
the legal rate per annum until full payment;

3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P50,000.00
as and for attorney's fees and expenses of litigation;

4. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P200,000.00
by way of exemplary damages;

5. Ordering the dismissal of the counterclaim of the defendants; and

6. Ordering the defendants to proportionately pay the costs of suit.

SO ORDERED.4

Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its decision dated August 31,
1994, the dispositive portion of which reads:

WHEREFORE, except for the deletion therefrom of the award; for exemplary damages, and reduction of the
actual damages, from P100,000.00 to P20,000.00 per month, from November 1986 until subject personal
properties are restored to appellees, the judgment appealed from is hereby AFFIRMED, in all other respects.
No pronouncement as to costs.5

Motion for reconsideration of the above decision having been denied in the resolution of April 28, 1995,
PBCom and Tsai filed their separate petitions for review with this Court.

In G.R No. 120098, petitioner Tsai ascribed the following errors to the respondent court:

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT MAKING A CONTRACT FOR
THE PARTIES BY TREATING THE 1981 ACQUIRED MACHINERIES AS CHATTELS INSTEAD OF REAL
 PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OF
CHATTEL MORTGAGE.

II

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING THAT THE DISPUTED
1981 MACHINERIES ARE NOT REAL PROPERTIES DEEMED PART OF THE MORTGAGE DESPITE THE
CLEAR IMPORT OF THE EVIDENCE AND APPLICABLE RULINGS OF THE SUPREME COURT.

III

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN DEEMING PETITIONER A

PURCHASER IN BAD FAITH.

IV

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN ASSESSING PETITIONER ACTUAL
DAMAGES, ATTORNEY'S FEES AND EXPENSES OF LITIGATION FOR WANT OF VALID FACTUAL AND
LEGAL BASIS.

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING AGAINST PETITIONER'S
ARGUMENTS ON PRESCRIPTION AND LACHES.6

In G.R. No. 120098, PBCom raised the following issues:

I.

DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED UNDER PARAGRAPH 9 OF THE
COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF THE 1975 DEED OF REAL ESTATE MORTGAGE AND
EXCLUDED THEM FROM THE REAL PROPERTY EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE
PROVISION IN THE 1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF THE
MORTGAGE SHALL FORM PART THEREOF, AND DESPITE THE UNDISPUTED FACT THAT SAID MACHINERIES ARE
BIG AND HEAVY, BOLTED OR CEMENTED ON THE REAL PROPERTY MORTGAGED BY EVER TEXTILE MILLS TO
PBCOM, AND WERE ASSESSED FOR REAL ESTATE TAX PURPOSES?

II

CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN GOOD FAITH, EXTENDED CREDIT
FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982 TOTALLED P9,547,095.28, WHO HAD SPENT FOR
MAINTENANCE AND SECURITY ON THE DISPUTED MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF
EVER TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER THE SAID MACHINERIES OR IN LIEU
THEREOF BE ASSESSED DAMAGES. IS THAT SITUATION TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT? 7

The principal issue, in our view, is whether or not the inclusion of the questioned properties in the foreclosed
properties is proper. The secondary issue is whether or not the sale of these properties to petitioner Ruby Tsai
is valid.
For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties by treating the 1981
acquired units of machinery as chattels instead of real properties within their earlier 1975 deed of Real and
Chattel Mortgage or 1979 deed of Chattel Mortgage. 8 Additionally, Tsai argues that respondent court erred in
holding that the disputed 1981 machineries are not real properties. 9 Finally, she contends that the Court of
Appeals erred in holding against petitioner's arguments on prescription and laches10 and in assessing petitioner
actual damages, attorney's fees and expenses of litigation, for want of valid factual and legal basis. 11

Essentially, PBCom contends that respondent court erred in affirming the lower court's judgment decreeing
that the pieces of machinery in dispute were not duly foreclosed and could not be legally leased nor sold to
Ruby Tsai. It further argued that the Court of Appeals' pronouncement that the pieces of machinery in
question were personal properties have no factual and legal basis. Finally, it asserts that the Court of Appeals
erred in assessing damages and attorney's fees against PBCom.

In opposition, private respondents argue that the controverted units of machinery are not "real properties"
but chattels, and, therefore, they were not part of the foreclosed real properties, rendering the lease and the
subsequent sale thereof to Tsai a nullity.12

Considering the assigned errors and the arguments of the parties, we find the petitions devoid of merit and
ought to be denied.

Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on certiorari under
Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the factual
findings complained of are devoid of support by the evidence on record or the assailed judgment is based on
misapprehension of facts.13 This rule is applied more stringently when the findings of fact of the RTC is affirmed
by the Court of Appeals.14

The following are the facts as found by the RTC and affirmed by the Court of Appeals that are decisive of the
issues: (1) the "controverted machineries" are not covered by, or included in, either of the two mortgages, the
Real Estate and Chattel Mortgage, and the pure Chattel Mortgage; (2) the said machineries were not included
in the list of properties appended to the Notice of Sale, and neither were they included in the Sheriff's Notice
of Sale of the foreclosed properties.15

Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy, bolted or
cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso facto immovable under
Article 415 (3) and (5) of the New Civil Code. This assertion, however, does not settle the issue. Mere nuts and
bolts do not foreclose the controversy. We have to look at the parties' intent.

While it is true that the controverted properties appear to be immobile, a perusal of the contract of Real and
Chattel Mortgage executed by the parties herein gives us a contrary indication. In the case at bar, both the trial
and the appellate courts reached the same finding that the true intention of PBCOM and the owner, EVERTEX,
is to treat machinery and equipment as chattels. The pertinent portion of respondent appellate court's ruling is
quoted below:

As stressed upon by appellees, appellant bank treated the machineries as chattels; never as real
properties. Indeed, the 1975 mortgage contract, which was actually real and chattel mortgage, militates
against appellants' posture. It should be noted that the printed form used by appellant bank was mainly
for real estate mortgages. But reflective of the true intention of appellant PBCOM and appellee
EVERTEX was the typing in capital letters, immediately following the printed caption of mortgage, of
the phrase "real and chattel." So also, the "machineries and equipment" in the printed form of the bank
 had to be inserted in the blank space of the printed contract and connected with the word "building"
by typewritten slash marks. Now, then, if the machineries in question were contemplated to be
included in the real estate mortgage, there would have been no necessity to ink a chattel mortgage
specifically mentioning as part III of Schedule A a listing of the machineries covered thereby. It would
have sufficed to list them as immovables in the Deed of Real Estate Mortgage of the land and building
involved.

As regards the 1979 contract, the intention of the parties is clear and beyond question. It refers solely
to chattels. The inventory list of the mortgaged properties is an itemization of sixty-three (63)
individually described machineries while the schedule listed only machines and 2,996,880.50 worth of
finished cotton fabrics and natural cotton fabrics.16

In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated by the evidence
on record, we find no compelling reason to depart therefrom.

Too, assuming arguendo that the properties in question are immovable by nature, nothing detracts the parties
from treating it as chattels to secure an obligation under the principle of estoppel. As far back as Navarro v.
Pineda, 9 SCRA 631 (1963), an immovable may be considered a personal property if there is a stipulation as
when it is used as security in the payment of an obligation where a chattel mortgage is executed over it, as in
the case at bar.

In the instant case, the parties herein: (1) executed a contract styled as "Real Estate Mortgage and Chattel
Mortgage," instead of just "Real Estate Mortgage" if indeed their intention is to treat all properties included
therein as immovable, and (2) attached to the said contract a separate "LIST OF MACHINERIES & EQUIPMENT".
These facts, taken together, evince the conclusion that the parties' intention is to treat these units of
machinery as chattels. A fortiori, the contested afer-acquired properties, which are of the same description as
the units enumerated under the title "LIST OF MACHINERIES & EQUIPMENT," must also be treated as chattels.

Accordingly, we find no reversible error in the respondent appellate court's ruling that inasmuch as the subject
mortgages were intended by the parties to involve chattels, insofar as equipment and machinery were
concerned, the Chattel Mortgage Law applies, which provides in Section 7 thereof that: "a chattel mortgage
shall be deemed to cover only the property described therein and not like or substituted property thereafter
acquired by the mortgagor and placed in the same depository as the property originally mortgaged, anything
in the mortgage to the contrary notwithstanding."

And, since the disputed machineries were acquired in 1981 and could not have been involved in the 1975 or
1979 chattel mortgages, it was consequently an error on the part of the Sheriff to include subject machineries
with the properties enumerated in said chattel mortgages.

As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor. Consequently,
the sale thereof to Tsai is also a nullity under the elementary principle of nemo dat quod non habet, one
cannot give what one does not have.17

Petitioner Tsai also argued that assuming that PBCom's title over the contested properties is a nullity, she is
nevertheless a purchaser in good faith and for value who now has a better right than EVERTEX.

To the contrary, however, are the factual findings and conclusions of the trial court that she is not a purchaser
in good faith. Well-settled is the rule that the person who asserts the status of a purchaser in good faith and
for value has the burden of proving such assertion.18 Petitioner Tsai failed to discharge this burden
persuasively.

Moreover, a purchaser in good faith and for value is one who buys the property of another without notice that
some other person has a right to or interest in such property and pays a full and fair price for the same, at the
time of purchase, or before he has notice of the claims or interest of some other person in the
property.19 Records reveal, however, that when Tsai purchased the controverted properties, she knew of
respondent's claim thereon. As borne out by the records, she received the letter of respondent's counsel,
apprising her of respondent's claim, dated February 27, 1987. 20 She replied thereto on March 9,
1987.21 Despite her knowledge of respondent's claim, she proceeded to buy the contested units of machinery
on May 3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in good faith.

Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputed properties are located
is equally unavailing. This defense refers to sale of lands and not to sale of properties situated therein.
Likewise, the mere fact that the lot where the factory and the disputed properties stand is in PBCom's name
does not automatically make PBCom the owner of everything found therein, especially in view of EVERTEX's
letter to Tsai enunciating its claim.

Finally, petitioners' defense of prescription and laches is less than convincing. We find no cogent reason to
disturb the consistent findings of both courts below that the case for the reconveyance of the disputed
properties was filed within the reglementary period. Here, in our view, the doctrine of laches does not apply.
Note that upon petitioners' adamant refusal to heed EVERTEX's claim, respondent company immediately filed
an action to recover possession and ownership of the disputed properties. There is no evidence showing any
failure or neglect on its part, for an unreasonable and unexplained length of time, to do that which, by
exercising due diligence, could or should have been done earlier. The doctrine of stale demands would apply
only where by reason of the lapse of time, it would be inequitable to allow a party to enforce his legal rights.
Moreover, except for very strong reasons, this Court is not disposed to apply the doctrine of laches to
prejudice or defeat the rights of an owner.22

As to the award of damages, the contested damages are the actual compensation, representing rentals for the
contested units of machinery, the exemplary damages, and attorney's fees.

As regards said actual compensation, the RTC awarded P100,000.00 corresponding to the unpaid rentals of the
contested properties based on the testimony of John Chua, who testified that the P100,000.00 was based on
the accepted practice in banking and finance, business and investments that the rental price must take into
account the cost of money used to buy them. The Court of Appeals did not give full credence to Chua's
projection and reduced the award to P20,000.00.

Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but
must actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence
obtainable of the actual amount thereof.23 However, the allegations of respondent company as to the amount
of unrealized rentals due them as actual damages remain mere assertions unsupported by documents and
other competent evidence. In determining actual damages, the court cannot rely on mere assertions,
speculations, conjectures or guesswork but must depend on competent proof and on the best evidence
obtainable regarding the actual amount of loss.24 However, we are not prepared to disregard the following
dispositions of the respondent appellate court:
 . . . In the award of actual damages under scrutiny, there is nothing on record warranting the said award
of P5,200,000.00, representing monthly rental income of P100,000.00 from November 1986 to
February 1991, and the additional award of P100,000.00 per month thereafer.

As pointed out by appellants, the testimonial evidence, consisting of the testimonies of Jonh (sic) Chua
and Mamerto Villaluz, is shy of what is necessary to substantiate the actual damages allegedly
sustained by appellees, by way of unrealized rental income of subject machineries and equipments.

The testimony of John Cua (sic) is nothing but an opinion or projection based on what is claimed to be a
practice in business and industry. But such a testimony cannot serve as the sole basis for assessing the
actual damages complained of. What is more, there is no showing that had appellant Tsai not taken
possession of the machineries and equipments in question, somebody was willing and ready to rent the
same for P100,000.00 a month.

xxx xxx xxx

Then, too, even assuming arguendo that the said machineries and equipments could have generated a
rental income of P30,000.00 a month, as projected by witness Mamerto Villaluz, the same would have
been a gross income. Therefrom should be deducted or removed, expenses for maintenance and
repairs . . . Therefore, in the determination of the actual damages or unrealized rental income sued
upon, there is a good basis to calculate that at least four months in a year, the machineries in dispute
would have been idle due to absence of a lessee or while being repaired. In the light of the foregoing
rationalization and computation, We believe that a net unrealized rental income of P20,000.00 a
month, since November 1986, is more realistic and fair. 25

As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of Appeals deleted. But
according to the CA, there was no clear showing that petitioners acted malevolently, wantonly and
oppressively. The evidence, however, shows otherwise.It is a requisite to award exemplary damages that the
wrongful act must be accompanied by bad faith,26 and the guilty acted in a wanton, fraudulent, oppressive,
reckless or malevolent manner.27 As previously stressed, petitioner Tsai's act of purchasing the controverted
properties despite her knowledge of EVERTEX's claim was oppressive and subjected the already insolvent
respondent to gross disadvantage. Petitioner PBCom also received the same letters of Atty. Villaluz, responding
thereto on March 24, 1987.28 Thus, PBCom's act of taking all the properties found in the factory of the
financially handicapped respondent, including those properties not covered by or included in the mortgages, is
equally oppressive and tainted with bad faith. Thus, we are in agreement with the RTC that an award of
exemplary damages is proper.

The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of the Civil Code
provides that no proof of pecuniary loss is necessary for the adjudication of exemplary damages, their
assessment being lef to the discretion of the court in accordance with the circumstances of each case. 29 While
the imposition of exemplary damages is justified in this case, equity calls for its reduction. In Inhelder
Corporation v. Court of Appeals, G.R. No. L-52358, 122 SCRA 576, 585, (May 30, 1983), we laid down the rule
that judicial discretion granted to the courts in the assessment of damages must always be exercised with
balanced restraint and measured objectivity. Thus, here the award of exemplary damages by way of example
for the public good should be reduced to P100,000.00.

By the same token, attorney's fees and other expenses of litigation may be recovered when exemplary
damages are awarded.30 In our view, RTC's award of P50,000.00 as attorney's fees and expenses of litigation is
reasonable, given the circumstances in these cases.
WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court of Appeals in CA-G.R.
CV No. 32986 are AFFIRMED WITH MODIFICATIONS. Petitioners Philippine Bank of Communications and Ruby
L. Tsai are hereby ordered to pay jointly and severally Ever Textile Mills, Inc. the following: (1) P20,000.00 per
month, as compensation for the use and possession of the properties in question from November 1986 31 until
subject personal properties are restored to respondent corporation; (2) P100,000.00 by way of exemplary
damages, and (3) P50,000.00 as attorney's fees and litigation expenses. Costs against petitioners.

SO ORDERED

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-50466 May 31, 1982

CALTEX (PHILIPPINES) INC., petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF PASAY, respondents.

AQUINO, J.:

This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc. in its gas
stations located on leased land.

The machines and equipment consists of underground tanks, elevated tank, elevated water tanks, water tanks,
gasoline pumps, computing pumps, water pumps, car washer, car hoists, truck hoists, air compressors and
tireflators. The city assessor described the said equipment and machinery in this manner:

A gasoline service station is a piece of lot where a building or shed is erected, a water tank if
there is any is placed in one corner of the lot, car hoists are placed in an adjacent shed, an air
compressor is attached in the wall of the shed or at the concrete wall fence.

The controversial underground tank, depository of gasoline or crude oil, is dug deep about six
feet more or less, a few meters away from the shed. This is done to prevent conflagration
because gasoline and other combustible oil are very inflammable.

This underground tank is connected with a steel pipe to the gasoline pump and the gasoline
pump is commonly placed or constructed under the shed. The footing of the pump is a cement
pad and this cement pad is imbedded in the pavement under the shed, and evidence that the
gasoline underground tank is attached and connected to the shed or building through the pipe
to the pump and the pump is attached and affixed to the cement pad and pavement covered by
the roof of the building or shed.
 The building or shed, the elevated water tank, the car hoist under a separate shed, the air
compressor, the underground gasoline tank, neon lights signboard, concrete fence and
pavement and the lot where they are all placed or erected, all of them used in the pursuance of
the gasoline service station business formed the entire gasoline service-station.

As to whether the subject properties are attached and affixed to the tenement, it is clear they
are, for the tenement we consider in this particular case are (is) the pavement covering the
entire lot which was constructed by the owner of the gasoline station and the improvement
which holds all the properties under question, they are attached and affixed to the pavement
and to the improvement.

The pavement covering the entire lot of the gasoline service station, as well as all the
improvements, machines, equipments and apparatus are allowed by Caltex (Philippines) Inc. ...

The underground gasoline tank is attached to the shed by the steel pipe to the pump, so with
the water tank it is connected also by a steel pipe to the pavement, then to the electric motor
which electric motor is placed under the shed. So to say that the gasoline pumps, water pumps
and underground tanks are outside of the service station, and to consider only the building as
the service station is grossly erroneous. (pp. 58-60, Rollo).

The said machines and equipment are loaned by Caltex to gas station operators under an appropriate lease
agreement or receipt. It is stipulated in the lease contract that the operators, upon demand, shall return to
Caltex the machines and equipment in good condition as when received, ordinary wear and tear excepted.

The lessor of the land, where the gas station is located, does not become the owner of the machines and
equipment installed therein. Caltex retains the ownership thereof during the term of the lease.

The city assessor of Pasay City characterized the said items of gas station equipment and machinery as taxable
realty. The realty tax on said equipment amounts to P4,541.10 annually (p. 52, Rollo). The city board of tax
appeals ruled that they are personalty. The assessor appealed to the Central Board of Assessment Appeals.

The Board, which was composed of Secretary of Finance Cesar Virata as chairman, Acting Secretary of Justice
Catalino Macaraig, Jr. and Secretary of Local Government and Community Development Jose Roo, held in its
decision of June 3, 1977 that the said machines and equipment are real property within the meaning of
sections 3(k) & (m) and 38 of the Real Property Tax Code, Presidential Decree No. 464, which took effect on
June 1, 1974, and that the definitions of real property and personal property in articles 415 and 416 of the Civil
Code are not applicable to this case.

The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's place) in its resolution
of January 12, 1978, denying Caltex's motion for reconsideration, a copy of which was received by its lawyer on
April 2, 1979.

On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the Board's
decision and for a declaration that t he said machines and equipment are personal property not subject to
realty tax (p. 16, Rollo).

The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate jurisdiction over this
case is not correct. When Republic act No. 1125 created the Tax Court in 1954, there was as yet no Central
Board of Assessment Appeals. Section 7(3) of that law in providing that the Tax Court had jurisdiction to review
by appeal decisions of provincial or city boards of assessment appeals had in mind the local boards of
assessment appeals but not the Central Board of Assessment Appeals which under the Real Property Tax Code
has appellate jurisdiction over decisions of the said local boards of assessment appeals and is, therefore, in the
same category as the Tax Court.

Section 36 of the Real Property Tax Code provides that the decision of the Central Board of Assessment
Appeals shall become final and executory afer the lapse of fifeen days from the receipt of its decision by the
appellant. Within that fifeen-day period, a petition for reconsideration may be filed. The Code does not
provide for the review of the Board's decision by this Court.

Consequently, the only remedy available for seeking a review by this Court of the decision of the Central Board
of Assessment Appeals is the special civil action of certiorari, the recourse resorted to herein by Caltex
(Philippines), Inc.

The issue is whether the pieces of gas station equipment and machinery already enumerated are subject to
realty tax. This issue has to be resolved primarily under the provisions of the Assessment Law and the Real
Property Tax Code.

Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land, buildings,
machinery, and other improvements" not specifically exempted in section 3 thereof. This provision is
reproduced with some modification in the Real Property Tax Code which provides:

SEC. 38. Incidence of Real Property Tax. There shall be levied, assessed and collected in all
provinces, cities and municipalities an annual ad valorem tax on real property, such as land,
buildings, machinery and other improvements affixed or attached to real property not
hereinafer specifically exempted.

The Code contains the following definitions in its section 3:

k) Improvements is a valuable addition made to property or an amelioration in its condition,

amounting to more than mere repairs or replacement of waste, costing labor or capital and
intended to enhance its value, beauty or utility or to adapt it for new or further purposes.

m) Machinery shall embrace machines, mechanical contrivances, instruments, appliances

and apparatus attached to the real estate. It includes the physical facilities available for
production, as well as the installations and appurtenant service facilities, together with all other
equipment designed for or essential to its manufacturing, industrial or agricultural purposes
(See sec. 3[f], Assessment Law).

We hold that the said equipment and machinery, as appurtenances to the gas station building or shed owned
by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the operation of the gas
station, for without them the gas station would be useless, and which have been attached or affixed
permanently to the gas station site or embedded therein, are taxable improvements and machinery within the
meaning of the Assessment Law and the Real Property Tax Code.

Caltex invokes the rule that machinery which is movable in its nature only becomes immobilized when placed
in a plant by the owner of the property or plant but not when so placed by a tenant, a usufructuary, or any
person having only a temporary right, unless such person acted as the agent of the owner (Davao Saw Mill Co.
vs. Castillo, 61 Phil 709).
That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding machinery that
becomes real property by destination. In the Davao Saw Mills case the question was whether the machinery
mounted on foundations of cement and installed by the lessee on leased land should be regarded as real
property for purposes of execution of a judgment against the lessee. The sheriff treated the machinery as
personal property. This Court sustained the sheriff's action. (Compare with Machinery & Engineering Supplies,
Inc. vs. Court of Appeals, 96 Phil. 70, where in a replevin case machinery was treated as realty).

Here, the question is whether the gas station equipment and machinery permanently affixed by Caltex to its
gas station and pavement (which are indubitably taxable realty) should be subject to the realty tax. This
question is different from the issue raised in the Davao Saw Mill case.

Improvements on land are commonly taxed as realty even though for some purposes they might be considered
personalty (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar phenomenon to see things classed as real
property for purposes of taxation which on general principle might be considered personal property" (Standard
Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).

This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric Co., 119 Phil. 328,
where Meralco's steel towers were considered poles within the meaning of paragraph 9 of its franchise which
exempts its poles from taxation. The steel towers were considered personalty because they were attached to
square metal frames by means of bolts and could be moved from place to place when unscrewed and
dismantled.

Nor are Caltex's gas station equipment and machinery the same as tools and equipment in the repair shop of a
bus company which were held to be personal property not subject to realty tax (Mindanao Bus Co. vs. City
Assessor, 116 Phil. 501).

The Central Board of Assessment Appeals did not commit a grave abuse of discretion in upholding the city
assessor's is imposition of the realty tax on Caltex's gas station and equipment.

WHEREFORE, the questioned decision and resolution of the Central Board of Assessment Appeals are affirmed.
The petition for certiorari is dismissed for lack of merit. No costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-47943 May 31, 1982

MANILA ELECTRIC COMPANY, petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF BATANGAS and
PROVINCIAL ASSESSOR OF BATANGAS, respondents.
AQUINO, J.:

This case is about the imposition of the realty tax on two oil storage tanks installed in 1969 by Manila Electric
Company on a lot in San Pascual, Batangas which it leased in 1968 from Caltex (Phil.), Inc. The tanks are within
the Caltex refinery compound. They have a total capacity of 566,000 barrels. They are used for storing fuel oil
for Meralco's power plants.

According to Meralco, the storage tanks are made of steel plates welded and assembled on the spot. Their
bottoms rest on a foundation consisting of compacted earth as the outermost layer, a sand pad as the
intermediate layer and a two-inch thick bituminous asphalt stratum as the top layer. The bottom of each tank
is in contact with the asphalt layer,

The steel sides of the tank are directly supported underneath by a circular wall made of concrete, eighteen
inches thick, to prevent the tank from sliding. Hence, according to Meralco, the tank is not attached to its
foundation. It is not anchored or welded to the concrete circular wall. Its bottom plate is not attached to any
part of the foundation by bolts, screws or similar devices. The tank merely sits on its foundation. Each empty
tank can be floated by flooding its dike-inclosed location with water four feet deep. (pp. 29-30, Rollo.)

On the other hand, according to the hearing commissioners of the Central Board of Assessment Appeals, the
area where the two tanks are located is enclosed with earthen dikes with electric steel poles on top thereof
and is divided into two parts as the site of each tank. The foundation of the tanks is elevated from the
remaining area. On both sides of the earthen dikes are two separate concrete steps leading to the foundation
of each tank.

Tank No. 2 is supported by a concrete foundation with an asphalt lining about an inch thick. Pipelines were
installed on the sides of each tank and are connected to the pipelines of the Manila Enterprises Industrial
Corporation whose buildings and pumping station are near Tank No. 2.

The Board concludes that while the tanks rest or sit on their foundation, the foundation itself and the walls,
dikes and steps, which are integral parts of the tanks, are affixed to the land while the pipelines are attached to
the tanks. (pp. 60-61, Rollo.) In 1970, the municipal treasurer of Bauan, Batangas, on the basis of an
assessment made by the provincial assessor, required Meralco to pay realty taxes on the two tanks. For the
five-year period from 1970 to 1974, the tax and penalties amounted to P431,703.96 (p. 27, Rollo). The Board
required Meralco to pay the tax and penalties as a condition for entertaining its appeal from the adverse
decision of the Batangas board of assessment appeals.

The Central Board of Assessment Appeals (composed of Acting Secretary of Finance Pedro M. Almanzor as
chairman and Secretary of Justice Vicente Abad Santos and Secretary of Local Government and Community
Development Jose Roo as members) in its decision dated November 5, 1976 ruled that the tanks together
with the foundation, walls, dikes, steps, pipelines and other appurtenances constitute taxable improvements.

Meralco received a copy of that decision on February 28, 1977. On the fifeenth day, it filed a motion for
reconsideration which the Board denied in its resolution of November 25, 1977, a copy of which was received
by Meralco on February 28, 1978.

On March 15, 1978, Meralco filed this special civil action of certiorari to annul the Board's decision and
resolution. It contends that the Board acted without jurisdiction and committed a grave error of law in holding
that its storage tanks are taxable real property.
Meralco contends that the said oil storage tanks do not fall within any of the kinds of real property
enumerated in article 415 of the Civil Code and, therefore, they cannot be categorized as realty by nature, by
incorporation, by destination nor by analogy. Stress is laid on the fact that the tanks are not attached to the
land and that they were placed on leased land, not on the land owned by Meralco.

This is one of those highly controversial, borderline or penumbral cases on the classification of property where
strong divergent opinions are inevitable. The issue raised by Meralco has to be resolved in the light of the
provisions of the Assessment Law, Commonwealth Act No. 470, and the Real Property Tax Code, Presidential
Decree No. 464 which took effect on June 1, 1974.

Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land, buildings,
machinery, and otherimprovements" not specifically exempted in section 3 thereof. This provision is
reproduced with some modification in the Real Property Tax Code which provides:

Sec. 38. Incidence of Real Property Tax. They shall be levied, assessed and collected in all
provinces, cities and municipalities an annual ad valorem tax on real property, such as land,
buildings, machinery and other improvements affixed or attached to real property not
hereinafer specifically exempted.

The Code contains the following definition in its section 3:

k) Improvements is a valuable addition made to property or an amelioration in its condition,

amounting to more than mere repairs or replacement of waste, costing labor or capital and
intended to enhance its value, beauty or utility or to adapt it for new or further purposes.

We hold that while the two storage tanks are not embedded in the land, they may, nevertheless, be considered
as improvements on the land, enhancing its utility and rendering it useful to the oil industry. It is undeniable
that the two tanks have been installed with some degree of permanence as receptacles for the considerable
quantities of oil needed by Meralco for its operations.

Oil storage tanks were held to be taxable realty in Standard Oil Co. of New Jersey vs. Atlantic City, 15 Atl. 2nd
271.

For purposes of taxation, the term "real property" may include things which should generally be regarded as
personal property(84 C.J.S. 171, Note 8). It is a familiar phenomenon to see things classed as real property for
purposes of taxation which on general principle might be considered personal property (Standard Oil Co. of
New York vs. Jaramillo, 44 Phil. 630, 633).

The case of Board of Assessment Appeals vs. Manila Electric Company, 119 Phil. 328, wherein Meralco's steel
towers were held not to be subject to realty tax, is not in point because in that case the steel towers were
regarded as poles and under its franchise Meralco's poles are exempt from taxation. Moreover, the steel
towers were not attached to any land or building. They were removable from their metal frames.

Nor is there any parallelism between this case and Mindanao Bus Co. vs. City Assessor, 116 Phil. 501, where
the tools and equipment in the repair, carpentry and blacksmith shops of a transportation company were held
not subject to realty tax because they were personal property.

WHEREFORE, the petition is dismissed. The Board's questioned decision and resolution are affirmed. No costs.
SO ORDERED.

THIRD DIVISION

[G.R. No. 141970. September 10, 2001]

METROPOLITAN BANK, & TRUST COMPANY, petitioner, vs. Hon. FLORO T. ALEJO, in His Capacity as Presiding
Judge of Branch 172 of the Regional Trial Court of Valenzuela; and SY TAN SE, represented by his
Attorney-in-Fact, SIAN SUAT NGO, respondents.

DECISION
PANGANIBAN, J.:

In a suit to nullify an existing Torrens Certificate of Title (TCT) in which a real estate mortgage is annotated,
the mortgagee is an indispensable party. In such suit, a decision canceling the TCT and the mortgage
annotation is subject to a petition for annulment of judgment, because the non-joinder of the mortgagee
deprived the court of jurisdiction to pass upon the controversy.

The Case

Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court, assailing the
March 25, 1999 Resolution of the Court of Appeals (CA) in CA-GR SP No. 50638, which states in full:

This resolves the petition for annulment of judgment based on external (sic) fraud filed by petitioner
Metropolitan Bank and Trust Company seeking to annul the Decision dated August 12, 1998 rendered by
respondent judge, Honorable Floro T. Alejo, Presiding Judge of the Regional Trial Court, Branch 172,
Valenzuela, Metro Manila, in Civil Case No. 4930-V-96 entitled Sy Tan Se, represented by his attorney-in-fact
Sian Suat Ngo v. Raul Acampado, et al.

This Court has observed that petitioner knew of the questioned Decision sometime [i]n October 1998 (Petition,
Rollo, p. 3). This being the case, petitioner should have first sought recourse by way of petition for relief from
judgment under Rule 38 of the 1997 Rules of Civil Procedure. Accordingly, the petition for annulment of
judgment is DENIED DUE COURSE and DISMISSED outright for being insufficient in form and substance (Section
2, Rule 47, 1997 Rules of Civil Procedure).

Also challenged is the January 27, 2000 CA Resolution[2] denying petitioners Motion for Reconsideration.

The Facts

On November 21, 1995[3] and January 30, 1996,[4] Spouses Raul and Cristina Acampado obtained loans
from petitioner in the amounts of P5,000,000 and P2,000,000, respectively. As security for the payment of
these credit accommodations, the Acampados executed in favor of petitioner a Real Estate Mortgage [5] and an
Amendment of Real Estate Mortgage[6] over a parcel of land registered in their names. The land was covered by
TCT No. V-41319 in the Registry of Deeds of Valenzuela City, where the contracts were also registered on
November 20, 1995 and January 23, 1996, respectively.[7]
On June 3, 1996, a Complaint for Declaration of Nullity of TCT No. V-41319 was filed by Respondent Sy Tan
Se against Spouses Acampado. In the Regional Trial Court (RTC) of Valenzuela, Branch 172, it was docketed as
Civil Case No. 4930-V-96,[8] the progenitor of the present controversy.
Despite being the registered mortgagee of the real property covered by the title sought to be annulled,
petitioner was not made a party to Civil Case No. 4930-V-96, [9] nor was she notified of its existence.
Because the spouses defaulted in the payment of their loan, extrajudicial foreclosure proceedings over the
mortgaged property were initiated on April 19, 1997.
On June 17, 1997, the sheriff of Valenzuela conducted an auction sale of the property, during which
petitioner submitted the highest and winning bid. [10] On July 15, 1997, a Certificate of Sale was issued in its
favor.[11] This sale was entered in the Registry of Deeds of Valenzuela on July 28, 1997.
When the redemption period lapsed exactly a year afer, on July 28, 1998, petitioner executed an Affidavit
of Consolidation of Ownership to enable the Registry of Deeds of Valenzuela to issue a new TCT in its name.
Upon presentation to the Register of Deeds of the Affidavit of Consolidation of Ownership, petitioner was
informed of the existence of the August 12, 1998 RTC Decision in Civil Case No. 4930-V-96, annulling TCT No. V-
41319. The dispositive portion of the Decision[12] stated:

WHEREFORE, judgment is hereby rendered declaring as null and void Transfer Certificate of Title No.V-41319 in
the name of defendant Raul Acampado for having proceeded from an illegitimate source. With costs against
the defendant.

SO ORDERED.

On January 27, 1999, petitioner filed with the Court of Appeals a Petition for Annulment of the RTC
Decision.

Ruling of the Court of Appeals

For being insufficient in form and substance, the Petition for Annulment was outrightly dismissed by the
CA. It ruled that petitioner ought to have filed, instead, a petition for relief from judgment or an action for
quieting of title.
Hence, this Petition.[13]

Issues

In its Memorandum, petitioner presents the following issues:

I

x x x [W]hether or not a petition for annulment of judgment under Rule 47 of the 1997 Rules of Civil Procedure
is the proper remedy available to petitioner under the circumstances.
 II

x x x [W]hether or not the judgment of the trial court in Civil Case No. 4930-V-96 should be annulled. [14]

The Courts Ruling

The Petition is meritorious.

First Issue: Proper Remedy

Respondents aver that a petition for annulment is not proper, because there were three different
remedies available but they were not resorted to by petitioner.
We are not persuaded. First, a petition for relief, the remedy pointed to by the Court of Appeals, was not
available to petitioner. Section 1, Rule 38 of the Rules of Court, states:

Petition for relief from judgment, order, or other proceedings.-When a judgment or final order is entered, or
any other proceeding is thereafer taken against a party in any court through fraud, accident, mistake,
or excusable negligence, he may file a petition in such court and in the same case praying that the judgment,
order or proceeding be set aside. (Italics supplied)

It must be emphasized that petitioner was never a party to Civil Case No. 4930-V-96. In Lagula et al. v.
Casimiro et al.,[15] the Court held that -- relative to a motion for relief on the ground of fraud, accident, mistake,
or excusable negligence -- Rule 38 of the Rules of Court only applies when the one deprived of his right is a
party to the case. Since petitioner was never a party to the case or even summoned to appear therein, then
the remedy of relief from judgment under Rule 38 of the Rules of Court was not proper. This is plainly provided
in the italicized words of the present provision just quoted.
Second, in denying petitioners Motion for Reconsideration of the Decision dismissing the Petition for
Annulment of Judgment, the Court of Appeals reasoned that another remedy, an action for quieting of title,
was also available to petitioner.
We do not agree. It should be stressed that this case was instituted to ask for relief from the peremptory
declaration of nullity of TCT No. V-41319, which had been issued without first giving petitioner an opportunity
to be heard. Petitioner focused on the judgment in Civil Case No. 4930-V-96 which adversely affected it, and
which it therefore sought to annul. Filing an action for quieting of title will not remedy what it perceived as a
disregard of due process; it is therefore not an appropriate remedy.
Equally important, an action for quieting of title is filed only when there is a cloud on title to real property
or any interest therein. As defined, a cloud on title is a semblance of title which appears in some legal form but
which is in fact unfounded.[16] In this case, the subject judgment cannot be considered as a cloud on petitioners
title or interest over the real property covered by TCT No. V-41319, which does not even have a semblance of
being a title.
It would not be proper to consider the subject judgment as a cloud that would warrant the filing of an
action for quieting of title, because to do so would require the court hearing the action to modify or interfere
with the judgment or order of another co-equal court. Well-entrenched in our jurisdiction is the doctrine that
a court has no power to do so, as that action may lead to confusion and seriously hinder the administration of
justice.[17] Clearly, an action for quieting of title is not an appropriate remedy in this case.
Third, private respondent cites a last remedy: the intervention by petitioner in Civil Case No. 4930-V-
96. The availability of this remedy hinges on petitioners knowledge of the pendency of that case, which would
have otherwise been alerted to the need to intervene therein. Though presumed by private respondent, any
such knowledge prior to October 1998 is, however, emphatically denied by petitioner.
The Petition for Annulment before the Court of Appeals precisely alleged that private respondent
purposely concealed the case by excluding petitioner as a defendant in Civil Case No. 4930-V-96, even if the
latter was an indispensable party. Without due process of law, the former intended to deprive petitioner of the
latters duly registered property right. Indeed, the execution of the Decision in Civil Case No. 4930-V-96
necessarily entailed its enforcement against petitioner, even though it was not a party to that case. Hence, the
latter concludes that annulment of judgment was the only effective remedy open to it.
The allegation of extrinsic fraud, if fully substantiated by a preponderance of evidence, may be the basis
for annulling a judgment.[18] The resort to annulment becomes proper because of such allegation, coupled with
the unavailability of the other remedies pointed to by respondents.

Second Issue: Lack of Jurisdiction

It is undisputed that the property covered by TCT No. V-41319 was mortgaged to petitioner, and that the
mortgage was annotated on TCT No. V-41319 before the institution of Civil Case No. 4930-V-96. It is also
undisputed that all subsequent proceedings pertaining to the foreclosure of the mortgage were entered in the
Registry of Deeds. The nullification and cancellation of TCT No. V-41319 carried with it the nullification and
cancellation of the mortgage annotation.
Although a mortgage affects the land itself and not merely the TCT covering it, the cancellation of the TCT
and the mortgage annotation exposed petitioner to real prejudice, because its rights over the mortgaged
property would no longer be known and respected by third parties. Necessarily, therefore, the nullification of
TCT No. V-41319 adversely affected its property rights, considering that a real mortgage is a real right and a
real property by itself.[19]
Evidently, petitioner is encompassed within the definition of an indispensable party; thus, it should have
been impleaded as a defendant in Civil Case No. 4930-V-96.

An indispensable party is a party who has such an interest in the controversy or subject matter that a final
adjudication cannot be made, in his absence, without injuring or affecting that interest[;] a party who has not
only an interest in the subject matter of the controversy, but also has an interest of such nature that a final
decree cannot be made without affecting his interest or leaving the controversy in such a condition that its
final determination may be wholly inconsistent with equity and good conscience. It has also been considered
that an indispensable party is a person in whose absence there cannot be a determination between the parties
already before the court which is effective, complete, or equitable. Further, an indispensable party is one who
must be included in an action before it may properly go forward.

A person is not an indispensable party, however, if his interest in the controversy or subject matter is separable
from the interest of the other parties, so that it will not necessarily be directly or injuriously affected by a
decree which does complete justice between them.[20]
 The joinder of indispensable parties to an action is mandated by Section 7, Rule 3 of the Revised Rules of
Civil Procedures, which we quote:

SEC 7. Compulsory joinder of indispensable parties. Parties in interest without whom no final determination
can be had of an action shall be joined either as plaintiffs or defendants.

Aside from the above provision, jurisprudence requires such joinder, as the following excerpts indicate:

Indispensable parties must always be joined either as plaintiffs or defendants, for the court cannot proceed
without them. x x x. Indispensable parties are those with such an interest in the controversy that a final decree
would necessarily affect their rights, so that the courts cannot proceed without their presence. [21]

"x x x. Without the precence of indispensable parties to a suit or proceeding, a judgment of a Court cannot
attain real finality."[22]

Whenever it appears to the court in the course of a proceeding that an indispensable party has not been
joined, it is the duty of the court to stop the trial and to order the inclusion of such party. (The Revised Rules of
Court, Annotated & Commented by Senator Vicente J. Francisco, Vol. I, p. 271, 1973 ed., See also Cortez vs.
Avila, 101 Phil. 705.) Such an order is unavoidable, for the general rule with reference to the making of parties
in a civil action requires the joinder of all necessary parties wherever possible, and the joinder of all
indispensable parties under any and all conditions, the presence of those latter parties being a sine qua non of
the exercise of judicial power.(Borlasa vs. Polistico, 47 Phil. 345, at p. 347.) It is precisely when an indispensable
party is not before the court (that) the action should be dismissed. (People vs. Rodriguez, 106 Phil. 325. at p.
327.) The absence of an indispensable party renders all subsequent actuations of the court null and void, for
want of authority to act, not only as to the absent parties but even as to those present. [23] (emphasis supplied)

The evident aim and intent of the Rules regarding the joinder of indispensable and necessary parties is a
complete determination of all possible issues, not only between the parties themselves but also as regards to
other persons who may be affected by the judgment. A valid judgment cannot even be rendered where there
is want of indispensable parties.[24]

From the above, it is clear that the presence of indispensable parties is necessary to vest the court with
jurisdiction, which is the authority to hear and determine a cause, the right to act in a case. [25] We stress that
the absence of indispensable parties renders all subsequent actuations of the court null and void, because of
that courts want of authority to act, not only as to the absent parties but even as to those present.
It is argued that petitioner cannot possibly be an indispensable party, since the mortgage may not even be
valid because of the possible absence of compliance with the requirement [26] that the mortgagor be the
absolute owner of the thing mortgaged. It should be emphasized, however, that at the time the mortgage was
constituted, there was an existing TCT (No. V-41319), which named the mortgagors, the Acampado spouses, as
the registered owners of the property. In Seno v. Mangubat[27] this Court held as follows:

The well-known rule in this jurisdiction is that a person dealing with a registered land has a right to rely upon
the face of the Torrens Certificate of Title and to dispense with the need of inquiring further, except when the
party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man
to make such inquiry.

xxxxxxxxx
Thus, where innocent third persons relying on the correctness of the certificate of title issued, acquire rights
over the property, the court cannot disregard such rights and order the total cancellation of the certificate for
that would impair public confidence in the certificate of title; otherwise everyone dealing with property
registered under the Torrens system would have to inquire in every instance as to whether the title ha[s] been
regularly or irregularly issued by the court. Indeed this is contrary to the evident purpose of the law.

The peremptory disregard of the annotations registered and entered in TCT No. V-41319 constituted a
deprivation of private property without due process of law and was therefore unquestionably unjust and
iniquitous. This, we cannot countenance.
Clearly, it was the trial courts duty to order petitioners inclusion as a party to Civil Case No. 4930-V-
96. This was not done. Neither the court nor private respondents bothered to implead petitioner as a party to
the case. In the absence of petitioner, an indispensable party, the trial court had no authority to act on the
case. Its judgment therein was null and void due to lack of jurisdiction over an indispensable party.
In Leonor v. Court of Appeals[28] and Arcelona v. Court of Appeals,[29] we held thus:

A void judgment for want of jurisdiction is no judgment at all. It cannot be the source of any right nor the
creator of any obligation. All acts performed pursuant to it and all claims emanating from it have no legal
effect. Hence, it can never become final and any writ of execution based on it is void:x x x it may be said to be a
lawless thing which can be treated as an outlaw and slain at sight, or ignored wherever and whenever it
exhibits its head.

WHEREFORE, the Petition is GRANTED and the assailed Resolutions of the Court of Appeals
are REVERSED. The Decision of the Regional Trial Court in Civil Case No. 4930-V-41319 is
hereby NULLIFIED and SET ASIDE.No costs.
SO ORDERED.
Melo, (Chairman), Vitug, Gonzaga-Reyes, and Sandoval-Gutierrez, JJ., concur.
EN BANC

[G.R. No. 133250. July 9, 2002]

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

DECISION
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 PEAs 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 fify 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 fifeen 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.
Afer 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, PEA[15] and AMARI[16] 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 Courts 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 petitioners prayer for a public disclosure of the renegotiations. Likewise,
petitioners 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.Petitioners 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 titles[19] 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 latters seventy percent proportionate share in the
reclaimed areas as the reclamation progresses. The Amended JVA even allows AMARI to mortgage at any time
theentire 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 petitioners 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 Code[24] and Section 1 of Commonwealth Act No.
638[25] 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]2 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 taxpayers 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 taxpayers 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 peoples 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 peoples 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 peoples
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 publics 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 AMARIs 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.
Requiring a consummated contract will keep the public in the dark until the contract, which may be grossly
disadvantageous to the government or even illegal, becomes a fait accompli. This negates the State policy of
full transparency on matters of public concern, a situation which the framers of the Constitution could not
have intended. Such a requirement will prevent the citizenry from participating in the public discussion of
any proposedcontract, effectively truncating a basic right enshrined in the Bill of Rights. We can allow neither
an emasculation of a constitutional right, nor a retreat by the State of its avowed policy of full disclosure of all
its transactions involving public interest.
 The right covers three categories of information which are matters of public concern, namely: (1) official
records; (2) documents and papers pertaining to official acts, transactions and decisions; and (3) government
research data used in formulating policies. The first category refers to any document that is part of the public
records in the custody of government agencies or officials. The second category refers to documents and
papers recording, evidencing, establishing, confirming, supporting, justifying or explaining official acts,
transactions or decisions of government agencies or officials. The third category refers to research data,
whether raw, collated or processed, owned by the government and used in formulating government policies.
The information that petitioner may access on the renegotiation of the JVA includes evaluation reports,
recommendations, legal and expert opinions, minutes of meetings, terms of reference and other documents
attached to such reports or minutes, all relating to the JVA. However, the right to information does not compel
PEA to prepare lists, abstracts, summaries and the like relating to the renegotiation of the JVA. [34] The right only
affords access to records, documents and papers, which means the opportunity to inspect and copy them. One
who exercises the right must copy the records, documents and papers at his expense. The exercise of the right
is also subject to reasonable regulations to protect the integrity of the public records and to minimize
disruption to government operations, like rules specifying when and how to conduct the inspection and
copying.[35]
The right to information, however, does not extend to matters recognized as privileged information under
the separation of powers.[36] The right does not also apply to information on military and diplomatic secrets,
information affecting national security, and information on investigations of crimes by law enforcement
agencies before the prosecution of the accused, which courts have long recognized as confidential. [37] The right
may also be subject to other limitations that Congress may impose by law.
There is no claim by PEA that the information demanded by petitioner is privileged information rooted in
the separation of powers. The information does not cover Presidential conversations, correspondences, or
discussions during closed-door Cabinet meetings which, like internal deliberations of the Supreme Court and
other collegiate courts, or executive sessions of either house of Congress, [38] are recognized as
confidential. This kind of information cannot be pried open by a co-equal branch of government. A frank
exchange of exploratory ideas and assessments, free from the glare of publicity and pressure by interested
parties, is essential to protect the independence of decision-making of those tasked to exercise Presidential,
Legislative and Judicial power.[39] This is not the situation in the instant case.
We rule, therefore, that the constitutional right to information includes official information on on-going
negotiations before a final contract. The information, however, must constitute definite propositions by the
government and should not cover recognized exceptions like privileged information, military and diplomatic
secrets and similar matters affecting national security and public order. [40] Congress has also prescribed other
limitations on the right to information in several legislations.[41]

Sixth issue: whether stipulations in the Amended JVA for the transfer to AMARI of lands, reclaimed or to be
reclaimed, violate the Constitution.

The Regalian Doctrine

The ownership of lands reclaimed from foreshore and submerged areas is rooted in the Regalian doctrine
which holds that the State owns all lands and waters of the public domain. Upon the Spanish conquest of the
Philippines, ownership of all lands, territories and possessions in the Philippines passed to the Spanish Crown.
[42]
The King, as the sovereign ruler and representative of the people, acquired and owned all lands and
territories in the Philippines except those he disposed of by grant or sale to private individuals.
 The 1935, 1973 and 1987 Constitutions adopted the Regalian doctrine substituting, however, the State, in
lieu of the King, as the owner of all lands and waters of the public domain. The Regalian doctrine is the
foundation of the time-honored principle of land ownership that all lands that were not acquired from the
Government, either by purchase or by grant, belong to the public domain. [43] Article 339 of the Civil Code of
1889, which is now Article 420 of the Civil Code of 1950, incorporated the Regalian doctrine.
Ownership and Disposition of Reclaimed Lands
The Spanish Law of Waters of 1866 was the first statutory law governing the ownership and disposition of
reclaimed lands in the Philippines. On May 18, 1907, the Philippine Commission enacted Act No. 1654 which
providedfor 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 authorizedthe 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 States
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 afer 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, afer 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, afer 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,
[55]
Justice 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 afer 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.
Afer 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,
thereclaimed 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 AMARIs 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 PEAs 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 AMARIs 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 AMARIs 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 AMARIs 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 PEAs
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 422[74] 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 Aquinos 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 Aquinos 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-Adeclared 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 Governments
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. Thereafer, 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 PEAs 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.
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
countrys 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 6 [81] and 7[82] 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]

PEAs 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.
PEAs charter, however, expressly tasks PEA to develop, improve, acquire, administer, deal in, subdivide,
dispose, lease and sell any and all kinds of lands x x x owned, managed, controlled and/or operated by the
government.[87] (Emphasis supplied) There is, therefore, legislative authority granted to PEA to sell its lands,
whether patrimonial or alienable lands of the public domain. PEA may sell to private parties its patrimonial
properties in accordance with the PEA charter free from constitutional limitations. The constitutional ban on
private corporations from acquiring alienable lands of the public domain does not apply to the sale of PEAs
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 PEAs 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 hectares [96] 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 -
Afer 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 fifh 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 fifh 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 PEAs patent or
certificates of title. In fact, the thrust of the instant petition is that PEAs certificates of title should remain with
PEA, and the land covered by these certificates, being alienable lands of the public domain, should not be sold
to a private corporation.
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 fifeen 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.[104] Alienable 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 Governments 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.

xxx.

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, PEAs 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 PEAs 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 AMARIs 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 afer 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
hectares[110] of the Freedom Islands, such transfer is void for being contrary to Section 3, Article XII
of the 1987 Constitution which prohibits private corporations from acquiring any kind of alienable
land of the public domain.
4. Since the Amended JVA also seeks to transfer to AMARI ownership of 290.156 hectares [111] 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. Thereafer, 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
1409[112] of the Civil Code, contracts whose object or purpose is contrary to law, or whose object is outside the
commerce of men, are inexistent and void from the beginning. The Court must perform its duty to defend and
uphold the Constitution, and therefore declares the Amended JVA null and void ab initio.
 Seventh issue: whether the Court is the proper forum to raise the issue of whether the Amended JVA is
grossly disadvantageous to the government.

Considering that the Amended JVA is null and void ab initio, there is no necessity to rule on this last
issue. Besides, the Court is not a trier of facts, and this last issue involves a determination of factual matters.
WHEREFORE, the petition is GRANTED. The Public Estates Authority and Amari Coastal Bay Development
Corporation are PERMANENTLY ENJOINED from implementing the Amended Joint Venture Agreement which is
hereby declared NULL and VOID ab initio.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 160453 November 12, 2012

REPUBLIC OF THE PHILIPPINES, Petitioner,

vs.
ARCADIO IVAN A. SANTOS III, and ARCADIO C. SANTOS, JR., Respondents.

DECISION

BERSAMIN, J.:

By law, accretion - the gradual and imperceptible deposit made through the effects of the current of the water-
belongs to the owner of the land adjacent to the banks of rivers where it forms. The drying up of the river is
not accretion. Hence, the dried-up river bed belongs to the State as property of public dominion, not to the
riparian owner, unless a law vests the ownership in some other person.

Antecedents

Alleging continuous and adverse possession of more than ten years, respondent Arcadio Ivan A. Santos III
(Arcadio Ivan) applied on March 7, 1997 for the registration of Lot 4998-B (the property) in the Regional Trial
Court (RTC) in Parafiaque City. The property, which had an area of 1,045 square meters, more or less, was
located in Barangay San Dionisio, Paraaque City, and was bounded in the Northeast by Lot 4079 belonging to
respondent Arcadio C. Santos, Jr. (Arcadio, Jr.), in the Southeast by the Paraaque River, in the Southwest by an
abandoned road, and in the Northwest by Lot 4998-A also owned by Arcadio Ivan. 1

On May 21, 1998, Arcadio Ivan amended his application for land registration to include Arcadio, Jr. as his co-
applicant because of the latters co-ownership of the property. He alleged that the property had been formed
through accretion and had been in their joint open, notorious, public, continuous and adverse possession for
more than 30 years.2

The City of Paraaque (the City) opposed the application for land registration, stating that it needed the
property for its flood control program; that the property was within the legal easement of 20 meters from the
river bank; and that assuming that the property was not covered by the legal easement, title to the property
could not be registered in favor of the applicants for the reason that the property was an orchard that had
dried up and had not resulted from accretion.3

Ruling of the RTC

On May 10, 2000,4 the RTC granted the application for land registration, disposing:

WHEREFORE, the Court hereby declares the applicants, ARCADIO IVAN A. SANTOS, III and ARCADIO C. SANTOS,
JR., both Filipinos and of legal age, as the TRUE and ABSOLUTE OWNERS of the land being applied for which is
situated in the Barangay of San Dionisio, City of Paraaque with an area of one thousand forty five (1045)
square meters more or less and covered by Subdivision Plan Csd-00-000343, being a portion of Lot 4998, Cad.
299, Case 4, Paraaque Cadastre, LRC Rec. No. and orders the registration of Lot 4998-B in their names with
the following technical description, to wit:

xxxx

Once this Decision became (sic) final and executory, let the corresponding Order for the Issuance of the Decree
be issued.

SO ORDERED.

The Republic, through the Office of the Solicitor General (OSG), appealed.

Ruling of the CA

In its appeal, the Republic ascribed the following errors to the RTC, 5 to wit:

THE TRIAL COURT ERRED IN RULING THAT THE PROPERTY SOUGHT TO BE REGISTERED IS AN ACCRETION TO
THE ADJOINING PROPERTY OWNED BY APPELLEES DESPITE THE ADMISSION OF APPELLEE ARCADIO C. SANTOS
JR. THAT THE SAID PROPERTY WAS NOT FORMED AS A RESULT OF THE GRADUAL FILLING UP OF SOIL THROUGH
THE CURRENT OF THE RIVER.

II

THE TRIAL COURT ERRED IN GRANTING THE APPLICATION FOR LAND REGISTRATION DESPITE APPELLEES
FAILURE TO FORMALLY OFFER IN EVIDENCE AN OFFICIAL CERTIFICATION THAT THE SUBJECT PARCEL OF LAND IS
ALIENABLE AND DISPOSABLE.

III

THE TRIAL COURT ERRED IN RULING THAT APPELLEES HAD SUFFICIENTLY ESTABLISHED THEIR CONTINUOUS,
OPEN, PUBLIC AND ADVERSE OCCUPATION OF THE SUBJECT PROPERTY FOR A PERIOD OF MORE THAN THIRTY
(30) YEARS.

On May 27, 2003, the CA affirmed the RTC.6

The Republic filed a motion for reconsideration, but the CA denied the motion on October 20, 2003. 7
Issues

Hence, this appeal, in which the Republic urges that: 8

RESPONDENTS CLAIM THAT THE SUBJECT PROPERTY IS AN ACCRETION TO THEIR ADJOINING LAND THAT
WOULD ENTITLE THEM TO REGISTER IT UNDER ARTICLE 457 OF THE NEW CIVIL CODE IS CONTRADICTED BY
THEIR OWN EVIDENCE.

II

ASSUMING THAT THE LAND SOUGHT TO BE REGISTERED WAS "PREVIOUSLY A PART OF THE PARAAQUE RIVER
WHICH BECAME AN ORCHARD AFTER IT DRIED UP," THE REGISTRATION OF SAID PROPERTY IN FAVOR OF
RESPONDENTS CANNOT BE ALTERNATIVELY JUSTIFIED UNDER ARTICLE 461 OF THE CIVIL CODE.

III

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT RULING THAT THE FAILURE OF RESPONDENTS
TO FORMALLY OFFER IN EVIDENCE AN OFFICIAL CERTIFICATION THAT THE SUBJECT PROPERTY IS ALIENABLE
AND DISPOSABLE IS FATAL TO THEIR APPLICATION FOR LAND REGISTRATION.

IV

THE FINDING OF THE COURT OF APPEALS THAT RESPONDENTS HAVE CONTINUOUSLY, OPENLY, PUBLICLY AND
ADVERSELY OCCUPIED THE SUBJECT PROPERTY FOR MORE THAN THIRTY (30) YEARS IS NOT SUPPORTED BY
WELL-NIGH INCONTROVERTIBLE EVIDENCE.

To be resolved are whether or not Article 457 of the Civil Code was applicable herein; and whether or not
respondents could claim the property by virtue of acquisitive prescription pursuant to Section 14(1) of
Presidential Decree No. 1529 (Property Registration Decree).

Ruling

The appeal is meritorious.

I.

The CA grossly erred in applying Article 457 of the Civil Code to respondents benefit

Article 457 of the Civil Code provides that "(t)o the owners of lands adjoining the banks of rivers belong the
accretion which they gradually receive from the effects of the currents of the waters."

In ruling for respondents, the RTC pronounced as follows:

On the basis of the evidence presented by the applicants, the Court finds that Arcadio Ivan A. Santos III and
Arcadio C. Santos, Jr., are the owners of the land subject of this application which was previously a part of the
Paraaque River which became an orchard afer it dried up and further considering that Lot 4 which adjoins
the same property is owned by applicant, Arcadio C. Santos, Jr., afer it was obtained by him through
inheritance from his mother, Concepcion Cruz, now deceased. Conformably with Art. 457 of the New Civil
Code, it is provided that:

"Article 457. To the owners of the lands adjoining the bank of rivers belong the accretion which they gradually
receive from the effects of the current of the waters."9

The CA upheld the RTCs pronouncement, holding:

It could not be denied that "to the owners of the lands adjoining the banks of rivers belong the accretion
which they gradually receive from the effects of the current of the waters" (Article 457 New Civil Code) as in
this case, Arcadio Ivan Santos III and Arcadio Santos, Jr., are the owners of the land which was previously part
of the Paraaque River which became an orchard afer it dried up and considering that Lot 4 which adjoins the
same property is owned by the applicant which was obtained by the latter from his mother (Decision, p. 3; p.
38 Rollo).10

The Republic submits, however, that the application by both lower courts of Article 457 of the Civil Code was
erroneous in the face of the fact that respondents evidence did not establish accretion, but instead the drying
up of the Paraaque River.

The Republics submission is correct.

Respondents as the applicants for land registration carried the burden of proof to establish the merits of their
application by a preponderance of evidence, by which is meant such evidence that is of greater weight, or
more convincing than that offered in opposition to it.11 They would be held entitled to claim the property as
their own and apply for its registration under the Torrens system only if they established that, indeed, the
property was an accretion to their land.

Accretion is the process whereby the soil is deposited along the banks of rivers. 12 The deposit of soil, to be
considered accretion, must be: (a) gradual and imperceptible; (b) made through the effects of the current of
the water; and (c) taking place on land adjacent to the banks of rivers. 13

Accordingly, respondents should establish the concurrence of the elements of accretion to warrant the grant of
their application for land registration.

However, respondents did not discharge their burden of proof. They did not show that the gradual and
imperceptible deposition of soil through the effects of the current of the river had formed Lot 4998-B. Instead,
their evidence revealed that the property was the dried-up river bed of the Paraaque River, leading both the
RTC and the CA to themselves hold that Lot 4998-B was "the land which was previously part of the Paraaque
River xxx (and) became an orchard afer it dried up."

Still, respondents argue that considering that Lot 4998-B did not yet exist when the original title of Lot 4 was
issued in their mothers name in 1920, and that Lot 4998-B came about only thereafer as the land formed
between Lot 4 and the Paraaque River, the unavoidable conclusion should then be that soil and sediments
had meanwhile been deposited near Lot 4 by the current of the Paraaque River, resulting in the formation of
Lot 4998-B.

The argument is legally and factually groundless. For one, respondents thereby ignore that the effects of the
current of the river are not the only cause of the formation of land along a river bank. There are several other
causes, including the drying up of the river bed. The drying up of the river bed was, in fact, the uniform
conclusion of both lower courts herein. In other words, respondents did not establish at all that the increment
of land had formed from the gradual and imperceptible deposit of soil by the effects of the current. Also, it
seems to be highly improbable that the large volume of soil that ultimately comprised the dry land with an
area of 1,045 square meters had been deposited in a gradual and imperceptible manner by the current of the
river in the span of about 20 to 30 years the span of time intervening between 1920, when Lot 4 was
registered in the name of their deceased parent (at which time Lot 4998-B was not yet in existence) and the
early 1950s (which respondents witness Rufino Allanigue alleged to be the time when he knew them to have
occupied Lot 4988-B). The only plausible explanation for the substantial increment was that Lot 4988-B was
the dried-up bed of the Paraaque River. Confirming this explanation was Arcadio, Jr.s own testimony to the
effect that the property was previously a part of the Paraaque River that had dried up and become an
orchard.

We observe in this connection that even Arcadio, Jr.s own Transfer Certificate of Title No. 44687 confirmed the
uniform conclusion of the RTC and the CA that Lot 4998-B had been formed by the drying up of the Paraaque
River. Transfer Certificate of Title No. 44687 recited that Lot 4 of the consolidated subdivision plan Pcs-13-
002563, the lot therein described, was bounded "on the SW along line 5-1 by Dried River Bed." 14

That boundary line of "SW along line 5-1" corresponded with the location of Lot 4998-B, which was described
as "bounded by Lot 4079 Cad. 299, (Lot 1, Psu-10676), in the name of respondent Arcadio Santos, Jr. (Now Lot
4, Psd-13-002563) in the Northeast."15

The RTC and the CA grossly erred in treating the dried-up river bed as an accretion that became respondents
property pursuant to Article 457 of the Civil Code. That land was definitely not an accretion. The process of
drying up of a river to form dry land involved the recession of the water level from the river banks, and the
dried-up land did not equate to accretion, which was the gradual and imperceptible deposition of soil on the
river banks through the effects of the current. In accretion, the water level did not recede and was more or less
maintained. Hence, respondents as the riparian owners had no legal right to claim ownership of Lot 4998-B.
Considering that the clear and categorical language of Article 457 of the Civil Code has confined the provision
only to accretion, we should apply the provision as its clear and categorical language tells us to. Axiomatic it is,
indeed, that where the language of the law is clear and categorical, there is no room for interpretation; there is
only room for application.16 The first and fundamental duty of courts is then to apply the law.17

The State exclusively owned Lot 4998-B and may not be divested of its right of ownership. Article 502 of the
Civil Code expressly declares that rivers and their natural beds are public dominion of the State. 18 It follows
that the river beds that dry up, like Lot 4998-B, continue to belong to the

State as its property of public dominion, unless there is an express law that provides that the dried-up river
beds should belong to some other person.19

II

Acquisitive prescription was

not applicable in favor of respondents

The RTC favored respondents application for land registration covering Lot 4998-B also because they had
taken possession of the property continuously, openly, publicly and adversely for more than 30 years based on
their predecessor-in-interest being the adjoining owner of the parcel of land along the river bank. It rendered
the following ratiocination, viz:20
In this regard, the Court found that from the time the applicants became the owners thereof, they took
possession of the same property continuously, openly, publicly and adversely for more than thirty (30) years
because their predecessors-in-interest are the adjoining owners of the subject parcel of land along the river
bank. Furthermore, the fact that applicants paid its realty taxes, had it surveyed per subdivision plan Csd-00-
000343 (Exh. "L") which was duly approved by the Land Management Services and the fact that Engr. Chito B.
Cainglet, OICChief, Surveys Division Land Registration Authority, made a Report that the subject property is
not a portion of the Paraaque River and that it does not fall nor overlap with Lot 5000, thus, the Court opts to
grant the application.

Finally, in the light of the evidence adduced by the applicants in this case and in view of the foregoing reports
of the Department of Agrarian Reforms, Land Registration Authority and the Department of Environment and
Natural Resources, the Court finds and so holds that the applicants have satisfied all the requirements of law
which are essential to a government grant and is, therefore, entitled to the issuance of a certificate of title in
their favor. So also, oppositor failed to prove that the applicants are not entitled thereto, not having presented
any witness.

In fine, the application is GRANTED.

As already mentioned, the CA affirmed the RTC.

Both lower courts erred.

The relevant legal provision is Section 14(1) of Presidential Decree No. 1529 (Property Registration Decree),
which pertinently states:

Section 14. Who may apply. The following persons may file in the proper [Regional Trial Court] an
application for registration of title to land, whether personally or through their duly authorized
representatives:

(1) Those who by themselves or through their predecessors-in-interest have been in open, continuous,
exclusive and notorious possession and occupation of alienable and disposable lands of the public domain
under a bona fide claim of ownership since June 12, 1945, or earlier.

xxxx

Under Section 14(1), then, applicants for confirmation of imperfect title must prove the following, namely: (a)
that the land forms part of the disposable and alienable agricultural lands of the public domain; and (b) that
they have been in open, continuous, exclusive, and notorious possession and occupation of the land under a
bona fide claim of ownership either since time immemorial or since June 12, 1945. 21

The Republic assails the findings by the lower courts that respondents "took possession of the same property
continuously, openly, publicly and adversely for more than thirty (30) years." 22

Although it is well settled that the findings of fact of the trial court, especially when affirmed by the CA, are
accorded the highest degree of respect, and generally will not be disturbed on appeal, with such findings being
binding and conclusive on the Court,23 the Court has consistently recognized exceptions to this rule, including
the following, to wit: (a) when the findings are grounded entirely on speculation, surmises, or conjectures; (b)
when the inference made is manifestly mistaken, absurd, or impossible; (c) when there is grave abuse of
discretion; (d) when the judgment is based on a misapprehension of facts; (e) when the findings of fact are
conflicting; (f) when in making its findings the CA went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the appellee; (g) when the findings are contrary to those
of the trial court; (h) when the findings are conclusions without citation of specific evidence on which they are
based; (i) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not
disputed by respondent; and (j) when the findings of fact are premised on the supposed absence of evidence
and contradicted by the evidence on record.24

Here, the findings of the RTC were obviously grounded on speculation, surmises, or conjectures; and that the
inference made by the RTC and the CA was manifestly mistaken, absurd, or impossible. Hence, the Court
should now review the findings.

In finding that respondents had been in continuous, open, public and adverse possession of the land for more
than 30 years, the RTC declared:

In this regard, the Court found that from the time the applicant became the owners thereof, they took
possession of the same property continuously, openly, publicly and adversely for more than thirty years
because their predecessor in interest are the adjoining owners of the subject parcel of land along the river
banks. Furthermore, the fact that the applicant paid its realty taxes, had it surveyed per subdivision plan Csd-
00-000343 (Exh. "L") which was duly approved by the Land Management Services and the fact that Engr. Chito
B. Cainglet, OIC Chief, Surveys Division Land Registration Authority, made a Report that the subject property
is not a portion of the Paraaque River and that it does not fall nor overlap with Lot 5000, thus, the Court opts
to grant the application.

The RTC apparently reckoned respondents period of supposed possession to be "more than thirty years" from
the fact that "their predecessors in interest are the adjoining owners of the subject parcel of land." Yet, its
decision nowhere indicated what acts respondents had performed showing their possession of the property
"continuously, openly, publicly and adversely" in that length of time. The decision mentioned only that they
had paid realty taxes and had caused the survey of the property to be made. That, to us, was not enough to
justify the foregoing findings, because, firstly, the payment of realty taxes did not conclusively prove the
payors ownership of the land the taxes were paid for, 25 the tax declarations and payments being mere indicia
of a claim of ownership;26 and, secondly, the causing of surveys of the property involved was not itself an of
continuous, open, public and adverse possession.

The principle that the riparian owner whose land receives the gradual deposits of soil does not need to make
an express act of possession, and that no acts of possession are necessary in that instance because it is the law
itself that pronounces the alluvium to belong to the riparian owner from the time that the deposit created by
the current of the water becomes manifest27 has no applicability herein. This is simply because Lot 4998-B was
not formed through accretion. Hence, the ownership of the land adjacent to the river bank by respondents
predecessor-in-interest did not translate to possession of Lot 4998-B that would ripen to acquisitive
prescription in relation to Lot 4998-B.

On the other hand, the claim of thirty years of continuous, open, public and adverse possession of Lot 4998-B
was not even validated or preponderantly established. The admission of respondents themselves that they
declared the property for taxation purposes only in 1997 and paid realty taxes only from 1999 28 signified that
their alleged possession would at most be for only nine years as of the filing of their application for land
registration on March 7, 1997.

Yet, even conceding, for the sake of argument, that respondents possessed Lot 4998-B for more than thirty
years in the character they claimed, they did not thereby acquire the land by prescription or by other means
without any competent proof that the land was already declared as alienable and disposable by the
Government. Absent that declaration, the land still belonged to the State as part of its public dominion.

Article 419 of the Civil Code distinguishes property as being either of public dominion or of private ownership.
Article 420 of the Civil Code lists the properties considered as part of public dominion, namely: (a) 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; and (b) 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.
As earlier mentioned, Article 502 of the Civil Code declares that rivers and their natural beds are of public
dominion.

Whether the dried-up river bed may be susceptible to acquisitive prescription or not was a question that the
Court resolved in favor of the State in Celestial v. Cachopero, 29 a case involving the registration of land found to
be part of a dried-up portion of the natural bed of a creek. There the Court held:

As for petitioners claim of ownership over the subject land, admittedly a dried-up bed of the Salunayan Creek,
based on (1) her alleged long term adverse possession and that of her predecessor-in-interest, Marcelina
Basadre, even prior to October 22, 1966, when she purchased the adjoining property from the latter, and (2)
the right of accession under Art. 370 of the Spanish Civil Code of 1889 and/or Article 461 of the Civil Code, the
same must fail.

Since property of public dominion is outside the commerce of man and not susceptible to private
appropriation and acquisitive prescription, the adverse possession which may be the basis of a grant of title in
the confirmation of an imperfect title refers only to alienable or disposable portions of the public domain. It is
only afer the Government has declared the land to be alienable and disposable agricultural land that the year
of entry, cultivation and exclusive and adverse possession can be counted for purposes of an imperfect title.

A creek, like the Salunayan Creek, is a recess or arm extending from a river and participating in the ebb and
flow of the sea. As such, under Articles 420(1) and 502(1) of the Civil Code, the Salunayan Creek, including its
natural bed, is property of the public domain which is not susceptible to private appropriation and acquisitive
prescription. And, absent any declaration by the government, that a portion of the creek has dried-up does
not, by itself, alter its inalienable character.

xxxx

Had the disputed portion of the Salunayan Creek dried up afer the present Civil Code took effect, the subject
land would clearly not belong to petitioner or her predecessor-in-interest since under the aforementioned
provision of Article 461, "river beds which are abandoned through the natural change in the course of the
waters ipso facto belong to the owners of the land occupied by the new course," and the owners of the
adjoining lots have the right to acquire them only afer paying their value.

And both Article 370 of the Old Code and Article 461 of the present Civil Code are applicable only when "river
beds are abandoned through the natural change in the course of the waters." It is uncontroverted, however,
that, as found by both the Bureau of Lands and the DENR Regional Executive Director, the subject land became
dry as a result of the construction an irrigation canal by the National Irrigation Administration. Thus, in
Ronquillo v. Court of Appeals, this Court held:

The law is clear and unambiguous. It leaves no room for interpretation. Article 370 applies only if there is a
natural change in the course of the waters. The rules on alluvion do not apply to man-made or artificial
accretions nor to accretions to lands that adjoin canals or esteros or artificial drainage systems. Considering
our earlier finding that the dried-up portion of Estero Calubcub was actually caused by the active intervention
of man, it follows that Article 370 does not apply to the case at bar and, hence, the Del Rosarios cannot be
entitled thereto supposedly as riparian owners.

The dried-up portion of Estero Calubcub should thus be considered as forming part of the land of the public
domain which cannot be subject to acquisition by private ownership. xxx (Emphasis supplied)

Furthermore, both provisions pertain to situations where there has been a change in the course of a river, not
where the river simply dries up. In the instant Petition, it is not even alleged that the Salunayan Creek changed
its course. In such a situation, commentators are of the opinion that the dry river bed remains property of
public dominion. (Bold emphases supplied)

Indeed, under the Regalian doctrine, all lands not otherwise appearing to be clearly within private ownership
are presumed to belong to the State.30 No public land can be acquired by private persons without any grant,
express or implied, from the Government. It is indispensable, therefore, that there is a showing of a title from
the State.31 Occupation of public land in the concept of owner, no matter how long, cannot ripen into
ownership and be registered as a title.32

Subject to the exceptions defined in Article 461 of the Civil Code (which declares river beds that are
abandoned through the natural change in the course of the waters as ipso facto belonging to the owners of the
land occupied by the new course, and which gives to the owners of the adjoining lots the right to acquire only
the abandoned river beds not ipso facto belonging to the owners of the land affected by the natural change of
course of the waters only afer paying their value), all river beds remain property of public dominion and
cannot be acquired by acquisitive prescription unless previously declared by the Government to be alienable
and disposable. Considering that Lot 4998-B was not shown to be already declared to be alienable and
disposable, respondents could not be deemed to have acquired the property through prescription.

Nonetheless, respondents insist that the property was already classified as alienable and disposable by the
Government. They cite as proof of the classification as alienable and disposable the following notation found
on the survey plan, to wit:33

NOTE

ALL CORNERS NOT OTHERWISE DESCRIBED ARE OLD BL CYL. CONC. MONS 15 X 60CM

All corners marked PS are cyl. conc. mons 15 x 60 cm

Surveyed in accordance with Survey Authority NO. 007604-48 of the Regional Executive Director issued by the
CENR-OFFICER dated Dec. 2, 1996.

This survey is inside L.C. Map No. 2623, Proj. No. 25 classified as alienable/disposable by the Bureau of Forest
Devt. on Jan. 3, 1968.

Lot 4998-A = Lot 5883} Cad 299

Lot 4998-B = Lot 5884} Paranaque Cadastre.

Was the notation on the survey plan to the effect that Lot 4998-B was "inside" the map "classified as
alienable/disposable by the Bureau of Forest Development on 03 Jan. 1968" sufficient proof of the propertys
nature as alienable and disposable public land?

To prove that the land subject of an application for registration is alienable, an applicant must conclusively
establish the existence of a positive act of the Government, such as a presidential proclamation, executive
order, administrative action, investigation reports of the Bureau of Lands investigator, or a legislative act or
statute. Until then, the rules on confirmation of imperfect title do not apply.

As to the proofs that are admissible to establish the alienability and disposability of public land, we said in
Secretary of the Department of Environment and Natural Resources v. Yap34 that:

The burden of proof in overcoming the presumption of State ownership of the lands of the public domain is on
the person applying for registration (or claiming ownership), who must prove that the land subject of the
application is alienable or disposable. To overcome this presumption, incontrovertible evidence must be
established that the land subject of the application (or claim) is alienable or disposable.There must still be a
positive act declaring land of the public domain as alienable and disposable. To prove that the land subject of
an application for registration is alienable, the applicant must establish the existence of a positive act of the
government such as a presidential proclamation or an executive order; an administrative action; investigation
reports of Bureau of Lands investigators; and a legislative act or a statute. The applicant may also secure a
certification from the government that the land claimed to have been possessed for the required number of
years is alienable and disposable.

In the case at bar, no such proclamation, executive order, administrative action, report, statute, or certification
was presented to the Court. The records are beref of evidence showing that, prior to 2006, the portions of
Boracay occupied by private claimants were subject of a government proclamation that the land is alienable
and disposable. Absent such well-nigh incontrovertible evidence, the Court cannot accept the submission that
lands occupied by private claimants were already open to disposition before 2006. Matters of land
classification or reclassification cannot be assumed. They call for proof." (Emphasis supplied)

In Menguito v. Republic,35 which we reiterated in Republic v. Sarmiento,36 we specifically resolved the issue of
whether the notation on the survey plan was sufficient evidence to establish the alienability and disposability
of public land, to wit:

To prove that the land in question formed part of the alienable and disposable lands of the public domain,
petitioners relied on the printed words which read: "This survey plan is inside Alienable and Disposable Land
Area, Project No. 27-B as per L.C. Map No. 2623, certified by the Bureau of Forestry on January 3, 1968,"
appearing on Exhibit "E" (Survey Plan No. Swo-13-000227).

This proof is not sufficient. Section 2, Article XII of the 1987 Constitution, provides: "All lands of the public
domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries,
forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. x x x."

For the original registration of title, the applicant (petitioners in this case) must overcome the presumption
that the land sought to be registered forms part of the public domain. Unless public land is shown to have
been reclassified or alienated to a private person by the State, it remains part of the inalienable public domain.
Indeed, "occupation thereof in the concept of owner, no matter how long, cannot ripen into ownership and be
registered as a title." To overcome such presumption, incontrovertible evidence must be shown by the
applicant. Absent such evidence, the land sought to be registered remains inalienable.
In the present case, petitioners cite a surveyor-geodetic engineers notation in Exhibit "E" indicating that the
survey was inside alienable and disposable land. Such notation does not constitute a positive government act
validly changing the classification of the land in question. Verily, a mere surveyor has no authority to reclassify
lands of the public domain. By relying solely on the said surveyors assertion, petitioners have not sufficiently
proven that the land in question has been declared alienable. (Emphasis supplied)

In Republic v. T.A.N. Properties, Inc.,37 we dealt with the sufficiency of the certification by the Provincial
Environmental Officer (PENRO) or Community Environmental Officer (CENRO) to the effect that a piece of
public land was alienable and disposable in the following manner, viz:

x x x it is not enough for the PENRO or CENRO to certify that a land is alienable and disposable. The applicant
for land registration must prove that the DENR Secretary had approved the land classification and released the
land of the public domain as alienable and disposable, and that the land subject of the application for
registration falls within the approved area per verification through survey by the PENRO or CENRO. In addition,
the applicant for land registration must present a copy of the original classification approved by the DENR
Secretary and certified as a true copy by the legal custodian of the official records. These facts must be
established to prove that the land is alienable and disposable. Respondent failed to do so because the
certifications presented by respondent do not, by themselves, prove that the land is alienable and disposable.

Only Torres, respondents Operations Manager, identified the certifications submitted by

respondent.1wphi1 The government officials who issued the certifications were not presented before the
trial court to testify on their contents. The trial court should not have accepted the contents of the
certifications as proof of the facts stated therein. Even if the certifications are presumed duly issued and
admissible in evidence, they have no probative value in establishing that the land is alienable and disposable.

xxxx

The CENRO and Regional Technical Director, FMS-DENR, certifications do not prove that Lot 10705-B falls
within the alienable and disposable land as proclaimed by the DENR Secretary. Such government certifications
do not, by their mere issuance, prove the facts stated therein. Such government certifications may fall under
the class of documents contemplated in the second sentence of Section 23 of Rule 132. As such, the
certifications are prima facie evidence of their due execution and date of issuance but they do not constitute
prima facie evidence of the facts stated therein. (Emphasis supplied)

These rulings of the Court indicate that the notation on the survey plan of Lot 4998-B, Cad-00-000343 to the
effect that the "survey is inside a map classified as alienable/disposable by the Bureau of Forest Devt" did not
prove that Lot 4998-B was already classified as alienable and disposable. Accordingly, respondents could not
validly assert acquisitive prescription of Lot 4988-B.

WHEREFORE, the Court REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on May
27, 2003; DISMISSES the application for registration of Arcadio C. Santos, Jr. and Arcadio Ivan S. Santos III
respecting Lot 4998-B with a total area of 1,045 square meters, more or less, situated in Barangay San Dionisio,
Paraaque City, Metro Manila; and DECLARES Lot 4998-B as exclusively belonging to the State for being part of
the dried--up bed of the Parat1aque River.

Respondents shall pay the costs of suit.

SO ORDERED.