EN BANC
DECISION
[G.R. No. L-10500. June 30, 1959.]
USAFFE VETERANS ASSOCIATION, INC., Plaintiff-Appellant, v.
THE TREASURER OF THE PHILIPPINES, ET AL., Defendants-
Appellees.
Lorenzo B. Camins, Castor C. Ames and Alberto M. K. Jamir
for Appellant.
Solicitor General Ambrosio Padilla, Assistant Solicitor General
Jose P. Alejandro and Solicitor Jorge R. Coquia for Appellees.
SYLLABUS
1. UNITED STATES GRANTS; GRANT FOR THE OPERATION AND
MAINTENANCE OF THE PHILIPPINE ARMY; UNEXPENDED
SUMS REFUNDABLE. — The United States Congressional Act of
December 17, 1941 (Public Law No. 353), appropriating $269-million,
expressly provided that the amount "shall be available for payment to
the Government of the Commonwealth of the Philippines upon its
written request either in advance of or in reimbursement for all or any
part of the estimated or actual costs" of operation, mobilization oand
maintenance of the Philippine Army. Held: Ownership of the money
did not vest in the Philippine Government upon delivery thereof. In
any systems of accounting, advances of funds for expenditures
contemplate disbursements to be reported, and credited if
apporoved, against such advances the unexpended sums to be
returned later.
2. INTERNATIONAL LAW; EXECUTIVE AGREEMENTS; BINDING
EVEN WITHOUT CONCURRENCE OF SENATE. --The Court
apparently holds that Executive agreements may be entered into with
other states, and are effected even without the concurrence of the
Senate.
3. ID.; ID.; ID.; NATURE OF EXECUTIVE AGREEMENTS. —
Executive Agreements fall into two classes: (1) agreements entered
into may be termed as presidential agreements, and (2) agreements
entered into purxuance of acts of Congress, which have been
designated as Congressional-Executive Agreements.
4. ID.; ID.; ID.; ID.; ROMULO-SNYDER AGREEMENT. — Romulo
Snyder Agreement (1950) whereby the Philippine Government
undertook to return to the United States Government in ten annual
installments, a total of about 35 million dollars advanced by the
United States to, but unexpended by the National Defense Forces of
the Philippines, may fall under any of these two classes of executive
agreements.
5. ID.; ID.; ID.; ID.; ID.; RATIFICATION OF THE AGREEMENT. —
The acts of Congress appropriating funds for the yearly installments
necessary to comply with the Romulo-Snyder Agreement, constitute
a ratification thereof.
BENGZON, J.:
The central issue in this litigation concerns the validity of the Romulo-
Snyder Agreement undertook to return to the United States
Government in ten annual installments, a total of about 35-million
dollars advanced by the United States to, but unexpended by, the
National Defense Forces of the Philippines.
In October 1954, the Usaffe Veterans Associations Inc., hereafter
called Usaffe Veterans, for itself and for many other Filipino veterans
of World War II, ex-members of the United States Armed Forces in
the Far East (USAF-FE) prayed in its complaint before the Manila
court of first instance that said Agreement be annulled, that
payments thereunder be declared illegal and that defendants as
officers of the Philippine Republic be restrained from dibursing any
funds in the National Treasury in pursuance of said Agreement. Said
Usaffe Veterans further asked that the moneys available, instead of
being remitted to the States, should be turned overt to the Finance
Service of the Armed Forces of the Philippines for the payment of all
pending claims of the veterans represented by plaintiff.
The complaint rested on plaintiff’s three porpositions: first, that the
funds to be "returned" under the Agreement were funds appropriated
by the American Congress for the Philippine Army, actually delivered
to the Philippine Government and actually owned by the said
Government; second, that U.S. Secretary Snyder of the Treasury,
had no authority to retake such funds from the P.I. Government; and
third, tha Philippine Foreign Secretary Carlos P. Romulo had no
authority to return or promise to return the aforesaid sums of money
through the so-called Romulo-Snyder Agreement.
The defendants moved to dismiss, alleging Governmental immunitu
from suit. but the court required an answer, and then the case on the
merits. Thereafter, it dismissed the complaint, upheld the validity of
the Agreement and dissolved the preliminary injunction it had
previously issued. The plaintiff appealed.
On July 26, 1941, foreseeing the War in the Pacific, President
Franklin D. Roosevelt, called into the serve of the Armed Forces of
the United States, for the duration of the emergency, all the
organized military forces of the Philippine Commonwealth. His order
was published here by Proclamation No. 740 of President Quezon on
August 10, 1941. In October 1941, by two special orders, General
Douglas MacArthur, Commanding General of the United States Army
Forces in the Far East (known as USAFFE) placed under his
command all the Philippine Army units including the Philippine
constabulary, about 100,000 officers and soldiers.
For the expenses incident to such incorporation mobilization and
activities, the Congress of the United States provided in its
Appropriation Act of December 17, 1941 (Public Law No. 353, 77th
Congress) as follows:jgc:chanrobles.com.ph
"For all expenses necessary for the mobilization operation and
maintenance of the Army of the Philippines, including expenses
connected with calling into the service of the service of the armed
forces of the United States the organized military forces of the
Government of the Commonwealth of the Philippines, . . . but shall
be expended and accounted for in the manner prescribed by the
President of the United States, $269,000.00; to remain available until
June 30, 1943, which shall be available for payment to the
Government of the Commonwealth of the Philippines upon its written
request, either in advance of or in reimbursement for all or any parr
of the estimated or actual costs, as authorized by the Commanding
General, United States Army Forces in the Far Eastm of necessary
express for the purposes aforesaid, . . . (Emphasis ours.)
In subsequent Acts, the U.S. Congress approriated moneys in
language identical to the above: $28,313,000.00 for the fiscal year
ending June 30. 1943; and $100,000,000 each year, for the fiscal
years ending June 30, 9144, June 30, 1945, and June 30, 1946. 1
The last pertinent appropriation was Public Law No. 301 (79th
Congress) Known as the Rescission Act. It simply set aside 200
million dollars for the Army of the Philippines for the fiscal years
ending June 30, 1946.
Now, pursuant to the power reserved to him under Public Law 353
above-quoted, President Roosevelt issued on January 3, 1942, his
Executive Order No. 9011 prescribing partly as
follows:jgc:chanrobles.com.ph
"2. (a) Necessary expenditures from funds in the Philippine Treasury
for the purposes authorized by the Act of December 17, 1941, will be
made by disbursing officers of the Army of the Philippines on the
approval of authority of the Commanding General, United States
Army Forces in the Far East, and such purposes as he may deem
proper and his determination thereon shall be final and conclusive
upon the accounting officers of the Philippine Government, and such
expenditures will be accounted for in accordance with procedures
established by Philippine Commonwealth Laws and regulations."
(Emphasis Supplied.)
Out of the total amounts thus appropriated by the United States
Congress as above itemized, P570,863,000.00 was transferred
directly to the Philippine Armed Forces by means of vouchers which
stated "Advance of Funds under Public Law 353-77th Congress and
Executive Order No. 9011." this amount was used (mostly) to
discharge in the Philippine Islands the monetary obligations assumed
by the U.S. Government as a result of the induction of the Philippine
Armed Forces into the U.S. Army, and of its operations beginning in
1941. Part of these obligations consisted in the claims of Filipino
USAFFE soldiers for arrears in pay and in the charges for supplies
used by them and the guerrillas.
Of the millions so transferred, there remained unexpended and
uncommited in the possession of the Philippine Armed Forces as of
December 31, 1949, about 35 million dollars. As at the time, the
Philippine Government badly needed funds for its activities,
President Quirino, through Government Miguel Cuaderno of the
Central Bank proposed to the corresponding officials of the U.S
Government the retention of the 35-million dollars as a loan, and for
its repayment inten annual installments. After protracted negotiations
the deal was concluded and the Romulo-Snyder Agreement was
signed in Washington on November 6, 1950, by the then Philippine
Secretary of Foreign Affairs, Carlos P. Romulo, and the then
American Secretary of the Treasury, John W. Snyder.
Principal stipulation therein was this
paragraph:jgc:chanrobles.com.ph
"3. The Government of the Republic of the Philippines further agrees
to pay the dollar amount payable hereunder to the Secretary of the
Treasury of the United States in ten annual installments, the first nine
payments to be in the amount of $3,500,000.00 and the final residual
payment to be in the amount determined by deducting the total of the
previous principal payments from the total amount of dollars to be
paid to the Secretary of the Treasury of the United States, the latter
amount to be determined as provide in Article II hereof. . . . ."cralaw
virtua1aw library
It should be added that the agreement, made on the basis of the
parties’ belief that $35-million was the outstanding balance, provided
in its article II for a audit by appropriate officers to compute the exact
amount due.
In compliance with the Agreement, this Government has
appropriated by law and paid to the United States up to and including
1954, yearly installments totalling P33,187.663.24. There is no
reason to doubt that subsequent budgets failed to make the
corresponding appropriations for other installments.
In this appeal, the Usaffe Veterans reiterated with extended
arguments, their basic propositions. They insist; first, the money
delivered by the U.S. to the Armed Forces of the Philippine Island
were straight payments for military services; ownership thereof
vested in the Philippine Government upon delivery, and
consequently, there was nothing to return, nothing to consider as a
loan; and second,the Romulo-Snyder Agreement was void because
there was no loan to be repaid and because it was not binding on the
Philippine Government for lack of authority of the officers who
concluded the same.
With regard to the first point, it must be rememberd that the first
Congressional Act of December 17, 1941 (Public Law No. 353)
appropriating $269-million expressly said the amount "shall be
available for payment to the Government of the Commonwealth of
the Philippines upon its written request, either in advance of or in
reimbursement for all or any part of the estimated or actual costs" of
operation, mobilization and maintenance of the Philippine Army. Note
carefully, the money is to be handed to the Philippine Government
either in advance of expenditures or in reimbursement thereof. All the
voucheres signed upon recipt of the money state clearly, "Advance of
funds under Public Law 353-7th Congress and Executive Order No.
9011."
In any system of accounting, advances of funds for expenditures
contemplate disbursement to be reported, and credited if approved,
against such advances the unexpended sums to be returned later. In
fact, the Congressional law itself required accounting "in the manner
prescribed by the President of the U.S." and said President in his
Executive Order No. 9011, outlined the procedure whereby advanced
funds shall be accounted for. Furthermore, it requires as a condition
sine qua non that all expenditures shall first be approved by the
Commanding-General, United States Army Forces in the Far East.
Now, these ideas of "founds advanced’ to meet such expenditures of
the Philippine Army as may be approved by the USAFFE
Commanding-General, in connection with the requirement of
accounting therefore evidently contradict appellants to the Phillippine
Government for its aremed services, and passed into the absolute
control of such Government.
In fact, the respective army officers of both nations, 2 who are
presumed to know their business, have consistently regarded the
money as funds advanced, to be subsequently accounted for —
which means submission of expenditures, and if approved, return of
unexpended balance.
Now then, it is undeniable that upon a final redition of accounts by
the Philippine Government, a superabit resulted of at least 35 million
dollars in favor of the U.S. Instead of returning such amount in one
lump sum, our Executive Department arranged for its repayment in
ten annual installments. Prima facie such arrangement should raise
no valied objection, given the obligation to return-which we know
exists.
Yet plaintiff attempts to blocks such repayment because many
alleged claims of veterans have not been processed and paid,
December 31, 1949, having been fixed as the deadline for the
presentation and/or payment of such claims. Plaintiff obviously
calculates that if the return is prevented and the money kept here, it
might manage to presuade the powers-that-be to extend the deadline
anew. Hence the two-pronged attack: (a) no obligation to repay; (b)
the officers who promised to repay had no authority to bind this
Government.
The first ground has proved untenable.
On the second, there is no doubt that President Quirino approved the
negotiations. And he had power to contract budgetary loans under
Republic Act No. 213, amending Republic Act No. 16. the most
important argument, however, rests on the lack of ratification of the
Agreement by the Senate of the Philippines to make it binding on this
Government. On this matter, the defendants explain as
follows:jgc:chanrobles.com.ph
"That the agreement is not a ‘treaty’ as that term is used in the
Constitution, is conceded. The agreement was never submitted to
Senate for concurrence (Art. VII, Sect. 10). (7). However, it must be
noted that a treaty is not the only form that an international
agreement may assumen. For the grant of the treaty-making power
to the Executive and the Senate does not exhaust the power of the
government over international international relation, Consequently,
executive agreements may be entered into with other states and are
effective even without the concurrence of the Senate (Sinco,
Philippine Political Law, 10th ed., 303; Tanada and Fernando,
Constitution of the Philippines, 4th ed., Vol. II, 1055). It is observed in
this connection that from the point of view of international law, there
is no difference between treaties and executive agreements in their
binding effect upon states concerned as long as the negotiating
functionaries have remained within their powers (dHackworth, Digest
of of International Law, Vol. 5, 395, citing U.S. v. Belmont, 301 U.S.
342, State of Russia v. National City Bank of New York, 69 F. (2d)
44; United States v. Pink, 315 U.S. 203; Altman & Co., v. United
States, 224 U.S. 583. See also McDougal and Lans, "Treaties and
Executive Agreements 54 Yale Law Journa 181, 381, et seg.; and
sinco; Op. cit. 305) ‘The distinction between so-called executive
agreements’ and ‘treaties’ is purely a constitutional one and has no
international legal significance’ (Research in International Law, Draft
Convention on the Law of Treaties (Harvard Law School), Comment,
29 Am. J. Int.) Law Supp. 653, 897. See also Hackwork, op. cit.
391).
"There are now various forms of such pacts or agreements entered
into by and between sovereign states which do not necessarily come
under the strict sense of a treaty and which do not require ratification
or consent of the legistlative body of the State, but nevertheless, are
consideration valid international agreements. In a survey of the
practice of States made by Harvard Research in the Draft
Convention in the Law of Treaties (1935, pp. 711-713) it has been
shown that there had been more executive agreements entered into
by States then treaties (Hudson, International Legislation, I, p. ixii-
xcvii).
"In the leading case of Altman v. U.S., 224, U.S. 583, it was
sentatives of two sovereign nations and made in the name and or
behalf of the contracting parties and dealing with important
commercial relations between the two countries, is a treaty both
internationally although as an executive agreement it is not
technically a treaty requiring the advice and consent of the Senate.
(Herbert Briggs, The Law of Nations, 1947 ed., p. 489).
"Nature of Executive Agreement"
"Executive Agreements fall into two classes: (1) agreements made
purely as executive acts affecting external relations and independent
of or without legislative authorization, which may be termed as
presidential agreements, and (2) agreements entered into in
pursuance of acts of Congress, which have been designated as
Congressional-Executive Agreements (Sinco, supra, 304; Hackworth,
supra, 390; McDougal and lans, supra, 204-205; Hyke, International
Law, 2nd ed., Vol. II, 1406; et seq.)
‘The Romulo-Snyder Agreement may fall under any of these two
classes, for precisely on September 18, 1946, Congress of the
Philippines specifically authorized the President of the Philippines to
obtain such loans or incur such indebtednesss with the Government
of the United States, its agencies or instrumentalities (Republic Act
No. 16, September 18, 1946, amended by Republic Act No. 213,
June 1, 1948). . . ."cralaw virtua1aw library
"Even granting, arguendo, that there was no legislative authorization,
it is hereby maintained that the Romulo-Snyder Agreement was
legally and validly entered into to conform to the second category,
namely, ‘agreements entered into purely as executive acts without
legislative authorization.’ This second category ususlly includes
money agreements relating to the settlement of pecuniary claims of
citizens. It may be said that this method of settling such claims has
come to be the usual way of dealing with matters of this kind
(Memorandum of the Solicitor of the Under-Secretary of State
(Philip), August 23, 1922, MS Dept. of State, file 711.00/98a)."cralaw
virtua1aw library
Such considerations seem persuasive; indeed, the Agreement was
not submitted to the U.S. Senate either; but we do not stop to check
the authorities above listed nor test the conclusions derived
therefrom in order to render a definite pronouncement, for the reason
that our Senate Resolution No. 15 3 practically admits the validity
and binding force of such Agreement. Furthermore, the acts of
Congress Appropriating funds for the yearly installments necessary
to comply with such Agreements constitute a ratification thereof,
which places the question of validity out of the Court’s reach, no
constitutional principle having been invoked to restrict Congress’
plenary power to appropriate funds — loan or no loan.

In conclusion, plaintiff, to say the least, failed to make a clear case
for the relief demanded; its petition was therefore, propely denied.
Judgment affirmed.
Paras, C.J., Padilla, Montemayor, Bautista Angelo Labrador,
Concepcion, Endencia and Barrera, JJ., concur.
Judgment affirmed.
USAFFE VETERANS ASSOCIATION, INC. vs. THE
TREASURER OF THE PHILIPPINES, ET AL.
DOCTRINE:
ART. VII. Section 21. No treaty or international agreement
shall be valid and effective unless concurred in by at least two-
thirds of all the Members of the Senate.
FACTS:
In October 1954, the USAFFE Veterans Associations Inc.
(Usaffe), prayed in its complaint before the Manila court of first
instance that the Romulo-Snyder Agreement (1950) whereby
the Philippine Government undertook to return to the United
States Government in ten annual installments, a total of about
35-million dollars advanced by the United States to, but
unexpanded by, the National Defense Forces of the
Philippines be annulled, that payments thereunder be declared
illegal and that defendants as officers of the Philippine
Republic be restrained from disbursing any funds in the
National Treasury in pursuance of said Agreement. Said
Usaffe Veterans further asked that the moneys available,
instead of being remitted to the United States, should be
turned over to the Finance Service of the Armed Forces of the
Philippines for the payment of all pending claims of the
veterans represented by plaintiff.
The complaint rested on plaintiff's three propositions: first, that
the funds to be "returned" under the Agreement were funds
appropriated by the American Congress for the Philippine
army, actually delivered to the Philippine Government and
actually owned by said Government; second, that U.S.
Secretary Snyder of the Treasury, had no authority to retake
such funds from the P.I. Government; and third, that Philippine
foreign Secretary Carlos P. Romulo had no authority to return
or promise to return the aforesaid sums of money through the
so-called Romulo-Snyder Agreement.
The defendants moved to dismiss, alleging Governmental
immunity from suit. But the court required an answer, and then
heard the case merits. Thereafter, it dismissed the complaint,
upheld the validity of the Agreement and dissolved the
preliminary injunction i had previously issued. The plaintiff
appealed.
ISSUE: Whether the Romulo-Snyder Agreement is void.
HELD: There is no doubt that President Quirino approved the
negotiations. And he had power to contract budgetary loans
under Republic Act No. 213, amending the Republic Act No.
16. The most important argument, however, rests on the lack
of ratification of the Agreement by the Senate of the
Philippines to make it binding on this Government. On this
matter, the defendants explain as follows:
That the agreement is not a "treaty" as that term is used in the
Constitution, is conceded. The agreement was never
submitted to the Senate for concurrence (Art. VII, Sec. 10 (7).
However, it must be noted that treaty is not the only form that
an international agreement may assume. For the grant of the
treaty-making power to the Executive and the Senate does not
exhaust the power of the government over international
relations. Consequently, executive agreements may be
entered with other states and are effective even without the
concurrence of the Senate. It is observed in this connection
that from the point of view of the international law, there is no
difference between treaties and executive agreements in their
binding effect upon states concerned as long as the
negotiating functionaries have remained within their powers.
"The distinction between so-called executive agreements" and
"treaties" is purely a constitutional one and has no international
legal significance".
There are now various forms of such pacts or agreements
entered into by and between sovereign states which do not
necessarily come under the strict sense of a treaty and which
do not require ratification or consent of the legislative body of
the State, but nevertheless, are considered valid international
agreements.
In the leading case of Altman vs, U. S., 224, U. S. 583, it was
held that "an international compact negotiated between the
representatives of two sovereign nations and made in the
name and or behalf of the contracting parties and dealing with
important commercial relations between the two countries, is a
treaty both internationally although as an executive agreement
it is not technically a treaty requiring the advice and consent of
the Senate.
Nature of Executive Agreements.
Executive Agreements fall into two classes: (1) agreements
made purely as executive acts affecting external relations and
independent of or without legislative authorization, which may
be termed as presidential agreements and (2) agreements
entered into in pursuants of acts of Congress, which have
been designated as Congressional-Executive Agreements.

The Romulo-Snyder Agreement may fall under any of these

two classes, for precisely on September 18, 1946, Congress of
the Philippines specifically authorized the President of the
Philippines to obtain such loans or incur such indebtedness
with the Government of the United States, its agencies or
instrumentalities.

Even granting, arguendo, that there was no legislative

authorization, it is hereby maintained that the Romulo-Snyder
Agreement was legally and validly entered into to conform to
the second category, namely, "agreements entered into purely
as executive acts without legislative authorization." This
second category usually includes money agreements relating
to the settlement of pecuniary claims of citizens. It may be said
that this method of settling such claims has come to be the
usual way of dealing with matters of this kind.

Such considerations seems persuasive; indeed, the

Agreement was not submitted to the U.S. Senate either; but
we do not stop to check the authorities above listed nor test
the conclusions derived therefrom in order to render a definite
pronouncement, for the reason that our Senate Resolution No.
153 practically admits the validity and binding force of such
Agreement. Furthermore, the acts of Congress Appropriating
funds for the yearly installments necessary to comply with such
Agreements constitute a ratification thereof, which places the
question the validity out of the Court's reach, no constitutional
principle having been invoked to restrict Congress' plenary
power to appropriate funds-loan or no loan.

Petition denied.
 Hundreds of executive agreements, other than those entered
into under the trade- agreements act, have been negotiated
with foreign governments. . . . It would seem to be sufficient, in
order to show that the trade agreements under the act of 1934
are not anomalous in character, that they are not treaties, and
that they have abundant precedent in our history, to refer to
certain classes of agreements heretofore entered into by the
Executive without the approval of the Senate. They cover such
subjects as the inspection of vessels, navigation dues, income
tax on shipping profits, the admission of civil aircraft, customs
matters, and commercial relations generally, international
claims, postal matters, the registration of trade-marks and
copyrights, etc. Some of them were concluded not by specific
congressional authorization but in conformity with policies
declared in acts of Congress with respect to the general
Commissioner of Customs vs. Eastern Sea Trading (G.R. subject matter, such as tariff acts; while still others, particularly
No. L-14279) those with respect to the settlement of claims against foreign
governments, were concluded independently of any legislation.
FACTS: EST was a shipping company charged in the
importation from Japan of onion and garlic into the Philippines.
In 1956, the Commissioner of Customs ordered the seizure
and forfeiture of the import goods because EST was not able
to comply with Central Bank Circulars 44 and 45. The said
circulars were pursuant to EO 328 w/c sought to regulate the
importation of such non-dollar goods from Japan (as there was
a Trade and Financial Agreement b/n the Philippines and
Japan then). EST questioned the validity of the said EO
averring that the said EO was never concurred upon by the
Senate. The issue was elevated to the Court of Tax Appeals
and the latter ruled in favor of EST. The Commissioner
appealed.

ISSUE: Whether or not the EO is subject to the concurrence of

at least 2/3 of the Senate.

HELD: No, executive Agreements are not like treaties which

are subject to the concurrence of at least 2/3 of the members
of the Senate. Agreements concluded by the President which
fall short of treaties are commonly referred to as executive
agreements and are no less common in our scheme of
government than are the more formal instruments — treaties
and conventions. They sometimes take the form of exchanges
of notes and at other times that of more formal documents
denominated ‘agreements’ or ‘protocols’. The point where
ordinary correspondence between this and other governments
ends and agreements — whether denominated executive
agreements or exchanges of notes or otherwise — begin, may
sometimes be difficult of ready ascertainment. It would be
useless to undertake to discuss here the large variety of
executive agreements as such, concluded from time to time.

Commissioner of Customs & Collector of Customs vs
Eastern Sea Trading
3 SCRA 351 – Political Law – Constitutional Law – Treaties vs
Executive Agreements
Eastern Sea Trading (EST) was a shipping company which
imports from Japan onion and garlic into the Philippines. In
1956, the Commissioner of Customs ordered the seizure and
forfeiture of the import goods because EST was not able to
comply with Central Bank Circulars 44 and 45. The said
circulars were pursuant to Executive Order 328. On the other
hand, EO 328 was the implementing law of the Trades and
Financial Agreements, an executive agreement, entered into
between the Philippines and Japan. The said executive
agreement states, among others, that all import transactions
between Japan and the Philippines should be invoiced in
dollar. In this case, the said items imported by EST from Japan
were not invoiced in dollar.
EST questioned the validity of the said EO averring that the
executive agreement that the EO was implementing was never
concurred upon by the Senate. The issue was elevated to the
Court of Tax Appeals and the latter ruled in favor of EST. The
Commissioner appealed.
ISSUE: Whether or not the Executive Agreement is subject to
the concurrence by the Senate.
HELD: No, Executive Agreements are not like treaties which
are subject to the concurrence of at least 2/3 of the members
of the Senate. Agreements concluded by the President which
fall short of treaties are commonly referred to as executive
agreements and are no less common in our scheme of
government than are the more formal instruments — treaties
and conventions. They sometimes take the form of exchanges
of notes and at other times that of more formal documents
denominated ‘agreements’ or ‘protocols’.
The point where ordinary correspondence between this and
other governments ends and agreements — whether
denominated executive agreements or exchanges of notes or
otherwise — begin, may sometimes be difficult of ready
ascertainment. It would be useless to undertake to discuss
here the large variety of executive agreements as such,
concluded from time to time. Hundreds of executive
agreements, other than those entered into under the trade-
agreements act, have been negotiated with foreign
governments. . . . It would seem to be sufficient, in order to
show that the trade agreements under the act of 1934 are not
anomalous in character, that they are not treaties, and that
they have abundant precedent in our history, to refer to certain
classes of agreements heretofore entered into by the
Executive without the approval of the Senate.
They cover such subjects as the inspection of vessels,
navigation dues, income tax on shipping profits, the admission
of civil aircraft, customs matters, and commercial relations
generally, international claims, postal matters, the registration
of trade-marks and copyrights, etc. Some of them were
concluded not by specific congressional authorization but in
conformity with policies declared in acts of Congress with
respect to the general subject matter, such as tariff acts; while
still others, particularly those with respect to the settlement of
claims against foreign governments, were concluded
independently of any legislation.

Salvador H. Laurel, petitioner, vs. Ramon Garcia, as head of
the Asset Privatization Trust, Raul Manglapus, as Secretary of
Foreign Affairs, and Catalino Macaraig, as Executive
Secretary, respondents.
Facts: The subject property in this case is one of the 4
properties in Japan acquired by the Philippine government
under the Reparations Agreement entered into with Japan, the
Roppongi property. The said property was acquired from the
Japanese government through Reparations Contract No. 300.
It consists of the land and building for the Chancery of the
Philippine Embassy. As intended, it became the site of the
Philippine Embassy until the latter was transferred to
Nampeidai when the Roppongi building needed major repairs.
President Aquino created a committee to study the
disposition/utilization of Philippine government properties in
Tokyo and Kobe, Japan. The President issued EO 296 entitling
non-Filipino citizens or entities to avail of separations' capital
goods and services in the event of sale, lease or disposition.
Issues: Whether or not the Chief Executive, her officers and
agents, have the authority and jurisdiction, to sell the Roppongi
property.
Ruling: It is not for the President to convey valuable real
property of the government on his or her own sole will. Any
such conveyance must be authorized and approved by a law
enacted by the Congress. It requires executive and legislative
concurrence. It is indeed true that the Roppongi property is
valuable not so much because of the inflated prices fetched by
real property in Tokyo but more so because of its symbolic
value to all Filipinos, veterans and civilians alike. Whether or
not the Roppongi and related properties will eventually be sold
is a policy determination where both the President and
Congress must concur. Considering the properties' importance
and value, the laws on conversion and disposition of property
of public dominion must be faithfully followed
Salvador H. Laurel, petitioner, vs. Ramon Garcia, as head of
the Asset Privatization Trust, Raul Manglapus, as Secretary of
Foreign Affairs, and Catalino Macaraig, as Executive
Secretary, respondents.
FACTS:
The subject Roppongi property is one of the properties
acquired by the Philippines from Japan pursuant to a
Reparations Agreement. The property is where the Philippine
Embassy was once located, before it transferred to the
Nampeidai property. It was decided that the properties
would be
available to sale or disposition. One of the first properties
opened up for public auction was the Roppongi property,
despite numerous oppositions from different sectors.
HELD:
The Roppongi property was acquired together with the
other properties through reparation agreements. They
were assigned to the government sector and that the
Roppongi property was specifically designated under the
agreement to house the Philippine embassy.
 It is of public dominion unless it is convincingly shown
that the property has become patrimonial. The respondents
have failed to do so.
As property of public dominion, the Roppongi lot is outside the
commerce of man. It cannot be alienated. Its ownership
is a special collective ownership for general use and
payment, in application to the satisfaction of collective needs,
and resides in the social group. The purpose is not to
serve the State as the juridical person but the citizens; it is
intended for the common and public welfare and cannot be the
object of appropriation.
The fact that the Roppongi site has not been used for a long
time for actual Embassy service doesn’t automatically
convert it to patrimonial property. Any such conversion
happens only if the property is withdrawn from public use. 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.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11658 February 15, 1918
LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J. G.
WILLIAMSON, defendants-appellees.
Booram and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compañia Agricola Filipina" bought a considerable
quantity of rice-cleaning machinery company from the
defendant machinery company, and executed a chattel
mortgage thereon to secure payment of the purchase price. It
included in the mortgage deed the building of strong materials
in which the machinery was installed, without any reference to
the land on which it stood. The indebtedness secured by this
instrument not having been paid when it fell due, the
mortgaged property was sold by the sheriff, in pursuance of
the terms of the mortgage instrument, and was bought in by
the machinery company. The mortgage was registered in the
chattel mortgage registry, and the sale of the property to the
machinery company in satisfaction of the mortgage was
annotated in the same registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914,
the "Compañia Agricola Filipina" executed a deed of sale of
the land upon which the building stood to the machinery
company, but this deed of sale, although executed in a public
document, was not registered. This deed makes no reference
to the building erected on the land and would appear to have
been executed for the purpose of curing any defects which
might be found to exist in the machinery company's title to the
building under the sheriff's certificate of sale. The machinery
company went into possession of the building at or about the
time when this sale took place, that is to say, the month of
December, 1913, and it has continued in possession ever
since.
At or about the time when the chattel mortgage was executed
in favor of the machinery company, the mortgagor, the
"Compañia Agricola Filipina" executed another mortgage to the
plaintiff upon the building, separate and apart from the land on
which it stood, to secure payment of the balance of its
indebtedness to the plaintiff under a contract for the
construction of the building. Upon the failure of the mortgagor
to pay the amount of the indebtedness secured by the
mortgage, the plaintiff secured judgment for that amount,
levied execution upon the building, bought it in at the sheriff's
sale on or about the 18th of December, 1914, and had the
sheriff's certificate of the sale duly registered in the land
registry of the Province of Cavite.
At the time when the execution was levied upon the building,
the defendant machinery company, which was in possession,
filed with the sheriff a sworn statement setting up its claim of
title and demanding the release of the property from the levy.
Thereafter, upon demand of the sheriff, the plaintiff executed
an indemnity bond in favor of the sheriff in the sum of P12,000,
in reliance upon which the sheriff sold the property at public
auction to the plaintiff, who was the highest bidder at the
sheriff's sale.
This action was instituted by the plaintiff to recover possession
of the building from the machinery company.
The trial judge, relying upon the terms of article 1473 of the
Civil Code, gave judgment in favor of the machinery company,
on the ground that the company had its title to the building
registered prior to the date of registry of the plaintiff's
certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees,
the ownership shall be transfer to the person who may have
the first taken possession thereof in good faith, if it should be
personal property.
Should it be real property, it shall belong to the person
acquiring it who first recorded it in the registry.
Should there be no entry, the property shall belong to the
person who first took possession of it in good faith, and, in the
absence thereof, to the person who presents the oldest title,
provided there is good faith.
The registry her referred to is of course the registry of real
property, and it must be apparent that the annotation or
inscription of a deed of sale of real property in a chattel
mortgage registry cannot be given the legal effect of an
inscription in the registry of real property. By its express terms,
the Chattel Mortgage Law contemplates and makes provision
for mortgages of personal property; and the sole purpose and
object of the chattel mortgage registry is to provide for the
registry of "Chattel mortgages," that is to say, mortgages of
personal property executed in the manner and form prescribed
in the statute. The building of strong materials in which the
rice-cleaning machinery was installed by the "Compañia
Agricola Filipina" was real property, and the mere fact that the
parties seem to have dealt with it separate and apart from the
land on which it stood in no wise changed its character as real
property. It follows that neither the original registry in the
chattel mortgage of the building and the machinery installed
therein, not the annotation in that registry of the sale of the
mortgaged property, had any effect whatever so far as the
building was concerned.
We conclude that the ruling in favor of the machinery company
cannot be sustained on the ground assigned by the trial judge.
We are of opinion, however, that the judgment must be
sustained on the ground that the agreed statement of facts in
the court below discloses that neither the purchase of the
building by the plaintiff nor his inscription of the sheriff's
certificate of sale in his favor was made in good faith, and that
the machinery company must be held to be the owner of the
property under the third paragraph of the above cited article of
the code, it appearing that the company first took possession
of the property; and further, that the building and the land were
sold to the machinery company long prior to the date of the
sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article 1473
of the Civil Code require "good faith," in express terms, in
relation to "possession" and "title," but contain no express
requirement as to "good faith" in relation to the "inscription" of
the property on the registry, it must be presumed that good
faith is not an essential requisite of registration in order that it
may have the effect contemplated in this article. We cannot
agree with this contention. It could not have been the intention
of the legislator to base the preferential right secured under
this article of the code upon an inscription of title in bad faith.
Such an interpretation placed upon the language of this
section would open wide the door to fraud and collusion. The
public records cannot be converted into instruments of fraud
and oppression by one who secures an inscription therein in
bad faith. The force and effect given by law to an inscription in
a public record presupposes the good faith of him who enters
such inscription; and rights created by statute, which are
predicated upon an inscription in a public registry, do not and
cannot accrue under an inscription "in bad faith," to the benefit
of the person who thus makes the inscription.
Construing the second paragraph of this article of the code, the
supreme court of Spain held in its sentencia of the 13th of
May, 1908, that:
This rule is always to be understood on the basis of the good
faith mentioned in the first paragraph; therefore, it having been
found that the second purchasers who record their purchase
had knowledge of the previous sale, the question is to be
decided in accordance with the following paragraph. (Note 2,
art. 1473, Civ. Code, Medina and Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides that
the title of conveyance of ownership of the real property that is
first recorded in the registry shall have preference, this
provision must always be understood on the basis of the good
faith mentioned in the first paragraph; the legislator could not
have wished to strike it out and to sanction bad faith, just to
comply with a mere formality which, in given cases, does not
obtain even in real disputes between third persons. (Note 2,
art. 1473, Civ. Code, issued by the publishers of the La
Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the
plaintiff, when he bought the building at the sheriff's sale and
inscribed his title in the land registry, was duly notified that the
machinery company had bought the building from plaintiff's
judgment debtor; that it had gone into possession long prior to
the sheriff's sale; and that it was in possession at the time
when the sheriff executed his levy. The execution of an
indemnity bond by the plaintiff in favor of the sheriff, after the
machinery company had filed its sworn claim of ownership,
leaves no room for doubt in this regard. Having bought in the
building at the sheriff's sale with full knowledge that at the time
of the levy and sale the building had already been sold to the
machinery company by the judgment debtor, the plaintiff
cannot be said to have been a purchaser in good faith; and of
course, the subsequent inscription of the sheriff's certificate of
title must be held to have been tainted with the same defect.
Perhaps we should make it clear that in holding that the
inscription of the sheriff's certificate of sale to the plaintiff was
not made in good faith, we should not be understood as
questioning, in any way, the good faith and genuineness of the
plaintiff's claim against the "Compañia Agricola Filipina." The
truth is that both the plaintiff and the defendant company
appear to have had just and righteous claims against their
common debtor. No criticism can properly be made of the
exercise of the utmost diligence by the plaintiff in asserting and
exercising his right to recover the amount of his claim from the
estate of the common debtor.
We are strongly inclined to believe that in procuring the levy of
execution upon the factory building and in buying it at the
sheriff's sale, he considered that he was doing no more than
he had a right to do under all the circumstances, and it is
highly possible and even probable that he thought at that time
that he would be able to maintain his position in a contest with
the machinery company. There was no collusion on his part
with the common debtor, and no thought of the perpetration of
a fraud upon the rights of another, in the ordinary sense of the
word. He may have hoped, and doubtless he did hope, that the
title of the machinery company would not stand the test of an
action in a court of law; and if later developments had
confirmed his unfounded hopes, no one could question the
legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery
company's claim of ownership when he executed the indemnity
bond and bought in the property at the sheriff's sale, and it
appearing further that the machinery company's claim of
ownership was well founded, he cannot be said to have been
an innocent purchaser for value. He took the risk and must
stand by the consequences; and it is in this sense that we find
that he was not a purchaser in good faith.
One who purchases real estate with knowledge of a defect or
lack of title in his vendor cannot claim that he has acquired title
thereto in good faith as against the true owner of the land or of
an interest therein; and the same rule must be applied to one
who has knowledge of facts which should have put him upon
such inquiry and investigation as might be necessary to
acquaint him with the defects in the title of his vendor. A
purchaser cannot close his eyes to facts which should put a
reasonable man upon his guard, and then claim that he acted
in good faith under the belief that there was no defect in the
title of the vendor. His mere refusal to believe that such defect
exists, or his willful closing of his eyes to the possibility of the
existence of a defect in his vendor's title, will not make him an
innocent purchaser for value, if afterwards develops that the
title was in fact defective, and it appears that he had such
notice of the defects as would have led to its discovery had he
acted with that measure of precaution which may reasonably
be acquired of a prudent man in a like situation. Good faith, or
lack of it, is in its analysis a question of intention; but in
ascertaining the intention by which one is actuated on a given
occasion, we are necessarily controlled by the evidence as to
the conduct and outward acts by which alone the inward
motive may, with safety, be determined. So it is that "the
honesty of intention," "the honest lawful intent," which
constitutes good faith implies a "freedom from knowledge and
circumstances which ought to put a person on inquiry," and so
it is that proof of such knowledge overcomes the presumption
of good faith in which the courts always indulge in the absence
of proof to the contrary. "Good faith, or the want of it, is not a
visible, tangible fact that can be seen or touched, but rather a
state or condition of mind which can only be judged of by
actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt.,
504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann.,
2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10,
17.)
We conclude that upon the grounds herein set forth the
disposing part of the decision and judgment entered in the
court below should be affirmed with costs of this instance
against the appellant. So ordered.
Arellano, C.J., Johnson, Araullo, Street and Malcolm, JJ.,
concur.
Torres, Avanceña and Fisher, JJ., took no part.
 On the other hand, Yee, another creditor of CAF who
engaged in the construction of the building, being the
highest bidder in an auction conducted by the sheriff,
purchased the same building where the machines were
installed. Apparently CAF also executed a chattel
mortgage in favor Yee. Yee registered the sale in
the registry of land. Yee was however aware that prior to
his buying, the property has been sold in favor of Strong
Machinery – evidence is the chattel mortgage already
registered by Strong Machinery (constructive notice).
ISSUE: Who is the owner of the building?
HELD: The SC ruled that Strong Machinery has a better
right to the contested property. Yee cannot be regarded
as a buyer in good faith as he was already aware of the
fact that there was a prior sale of the same property to
Strong Machinery.
The SC also noted that the Chattel Mortgage Law
expressly contemplates provisions for chattel mortgages
which only deal with personal properties. The fact that the
parties dealt the building as if it’s a personal property
does not change the nature of the thing. It is still a real
property. Its inscription in the Chattel Mortgage registry
does not modify its inscription the registry of real
property.

Leung Yee vs Frank Strong Machinery Co.

37 Phil. 644 – Civil Law – Law on Property – Multiple

Sale to Different Vendees – Real vs Personal Property
In 1913, Compania Agricola Filipina (CAF) was indebted
to two personalities: Leung Yee and Frank L. Strong
Machinery Co. CAF purchased some rice cleaning
machines from Strong Machinery. CAF installed the
machines in a building. As security for the purchase price,
CAF executed a chattel mortgage on the rice cleaning
machines including the building where the machines were
installed. CAF failed to pay Strong Machinery, hence the
latter foreclosed the mortgage – the same was registered
in the chattel mortgage registry.
CAF also sold the land (where the building was standing)
to Strong Machinery. Strong Machinery took possession
of the building and the land.

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,
Facts:
Ever Textile Mills, Inc. (EVERTEX) obtained a 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 where its
factory stands, and the chattels located therein as enumerated
in a schedule attached to the mortgage contract. PBCom
granted a second loan to EVERTEX. The loan was secured by
a Chattel Mortgage over personal properties enumerated in a
list attached thereto. The listed properties were similar to
those listed in the first mortgage deed. Due to business
reverses, EVERTEX filed insolvency proceedings docketed.
The CFI issued an order on 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.
Upon EVERTEX’s failure to meet its obligation to PBCom, the
latter commenced extrajudicial foreclosure proceedings
against EVERTEX. PBCom was the highest bidder. Thus,
PBCom consolidated its ownership over the lot and all the
properties in it and leased the entire factory premises to
petitioner Ruby L. Tsai. PBCom sold the factory, lock, stock
and barrel to Tsai, including the contested machineries.
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. EVERTEX averred that
PBCom, without any legal or factual basis, appropriated the
contested properties, which were not included in the Real and
Chattel Mortgages.
Issue: Whether or not the foreclosure on after acquired
properties of EVERTEX is valid.
Held: 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
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. 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.
DAVAO SAW MILL vs. APRONIANO G. CASTILLO and
DAVAO LIGHT & POWER CO., INC. G.R. No. L-40411
August 7, 1935
Facts: Davao Saw Mill Co., Inc., is the holder of a lumber
concession from the Government of the Philippine Islands.
However, the land upon which the business was conducted
belonged to another person. On the land the sawmill company
erected a building which housed the machinery used by it.
Some of the implements thus used were clearly personal
property, the conflict concerning machines which were placed
and mounted on foundations of cement. In the contract of
lease between the sawmill company and the owner of the land
there appeared the following provision: That on the expiration
of the period agreed upon, all the improvements and buildings
introduced and erected by the party of the second part shall
pass to the exclusive ownership of the lessor without any
obligation on its part to pay any amount for said improvements
and buildings; which do not include the machineries and
accessories in the improvements.
In another action wherein the Davao Light & Power Co., Inc.,
was the plaintiff and the Davao, Saw, Mill Co., Inc., was the
defendant, a judgment was rendered in favor of the plaintiff in
that action against the defendant; a writ of execution issued
thereon, and the properties now in question were levied upon
as personalty by the sheriff. No third party claim was filed for
such properties at the time of the sales thereof as is borne out
by the record made by the plaintiff herein
It must be noted also that on number of occasion, Davao
Sawmill treated the machinery as personal property by
executing chattel mortgages in favor of third persons. One of
such is the appellee by assignment from the original
mortgages.
The lower court rendered decision in favor of the defendants
herein. Hence, this instant appeal.
Issue:
Whether or not the machineries and equipments were personal
in nature.
Ruling/ Rationale:
Yes. The Supreme Court affirmed the decision of the lower
court. 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 vs. APRONIANO G. CASTILLO and
DAVAO LIGHT & POWER CO., INC. G.R. No. L-40411
August 7, 1935
Facts:
Davao Saw Mill Co., Inc., a holder of a lumber concession, has
operated sawmill in a land which it does not own. The
company erected a building therein which housed the
machinery used by it. Inthe lease contract between the sawmill
company and the owner of the land,it has been agreed
thatafter the lease period or in case the company should leave
or abandon the land leased before the saidperiod, ownership
of all the improvements and buildings except machineries and
accessories,made bythe company shall pass to the owner of
the land without any obligation on its part to pay any amountfor
said improvements and buildings. In another action, A writ of
execution was issued against thecompany and the properties
in question were levied upon. The company assailed the said
writcontending that the machineries and accessories were
personal in nature, hence, not subject to writ of execution. The
trial judge ruled in favour of the company.
Issue:
Whether or not the subject properties are personal in nature.
Held:
The subject properties are personal in nature.Article 334,
paragraph 5, of the [Old] Civil Codeprovides that real property
consists of (5) Machinery, liquid containers, instruments or
implementsintended by the owner of any building or land for
use in connection with any industry or trade beingcarried on
therein and which are expressly adapted to meet the
requirements of such trade of industry. Machinery which is
movable in nature only becomes immovable when placed in a
land by theowner of the property or land but not when so
placed by a tenant or any person having only atemporary right,
unless such person acted as the agent of the owner. In the
case at bar, the machineryis intended not by the owner of the
land but by the saw mill company for use in connection with
itstrade. In this sense, the machinery is not a real property
G.R. No. L-40411 August 7, 1935
DAVAO SAW MILL CO., INC., plaintiff-appellant, vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER
CO., INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and
Delfin Joven for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence
of the decision in the trial court and as set forth by counsel for
the parties on appeal, involves the determination of the nature
of the properties described in the complaint. The trial judge
found that those properties were personal in nature, and as a
consequence absolved the defendants from the complaint,
with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber
concession from the Government of the Philippine Islands. It
has operated a sawmill in the sitio of Maa, barrio of Tigatu,
municipality of Davao, Province of Davao. However, the land
upon which the business was conducted belonged to another
person. On the land the sawmill company erected a building
which housed the machinery used by it. Some of the
implements thus used were clearly personal property, the
conflict concerning machines which were placed and mounted
on foundations of cement. In the contract of lease between the
sawmill company and the owner of the land there appeared the
following provision:
That on the expiration of the period agreed upon, all the
improvements and buildings introduced and erected by the
party of the second part shall pass to the exclusive ownership
of the party of the first part without any obligation on its part to
pay any amount for said improvements and buildings; also, in
the event the party of the second part should leave or abandon
the land leased before the time herein stipulated, the
improvements and buildings shall likewise pass to the
ownership of the party of the first part as though the time
agreed upon had expired: Provided, however, That the
machineries and accessories are not included in the
improvements which will pass to the party of the first part on
the expiration or abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc.,
was the plaintiff and the Davao, Saw, Mill Co., Inc., was the
defendant, a judgment was rendered in favor of the plaintiff in
that action against the defendant in that action; a writ of
execution issued thereon, and the properties now in question
were levied upon as personalty by the sheriff. No third party
claim was filed for such properties at the time of the sales
thereof as is borne out by the record made by the plaintiff
herein. Indeed the bidder, which was the plaintiff in that action,
and the defendant herein having consummated the sale,
proceeded to take possession of the machinery and other
properties described in the corresponding certificates of sale
executed in its favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained
that the Davao Saw Mill Co., Inc., has on a number of
occasions treated the machinery as personal property by
executing chattel mortgages in favor of third persons. One of
such persons is the appellee by assignment from the original
mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point.
According to the Code, real property consists of —
1. Land, buildings, roads and constructions of all kinds
adhering to the soil;
xxx xxx xxx
5. Machinery, liquid containers, instruments or implements
intended by the owner of any building or land for use in
connection with any industry or trade being carried on therein
and which are expressly adapted to meet the requirements of
such trade of industry.
Appellant emphasizes the first paragraph, and appellees the
last mentioned paragraph. We entertain no doubt that the trial
judge and appellees are right in their appreciation of the legal
doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant
should have registered its protest before or at the time of the
sale of this property. It must further be pointed out that while
not conclusive, the characterization of the property as chattels
by the appellant is indicative of intention and impresses upon
the property the character determined by the parties. In this
connection the decision of this court in the case of Standard
Oil Co. of New York vs. Jaramillo ( [1923], 44 Phil., 630),
whether obiter dicta or not, furnishes the key to such a
situation.
It is, however not necessary to spend overly must time in the
resolution of this appeal on side issues. It is machinery which
is involved; moreover, machinery not intended by the owner of
any building or land for use in connection therewith, but
intended by a lessee for use in a building erected on the land
by the latter to be returned to the lessee on the expiration or
abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being
taken to the United States Supreme Court, it was held that
machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the
property or plant, but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right,
unless such person acted as the agent of the owner. In the
opinion written by Chief Justice White, whose knowledge of the
Civil Law is well known, it was in part said:
To determine this question involves fixing the nature and
character of the property from the point of view of the rights of
Valdes and its nature and character from the point of view of
Nevers & Callaghan as a judgment creditor of the Altagracia
Company and the rights derived by them from the execution
levied on the machinery placed by the corporation in the plant.
Following the Code Napoleon, the Porto Rican Code treats as
immovable (real) property, not only land and buildings, but also
attributes immovability in some cases to property of a movable
nature, that is, personal property, because of the destination to
which it is applied. "Things," says section 334 of the Porto
Rican Code, "may be immovable either by their own nature or
by their destination or the object to which they are applicable."
Numerous illustrations are given in the fifth subdivision of
section 335, which is as follows: "Machinery, vessels,
instruments or implements intended by the owner of the
tenements for the industrial or works that they may carry on in
any building or upon any land and which tend directly to meet
the needs of the said industry or works." (See also Code Nap.,
articles 516, 518 et seq. to and inclusive of article 534,
recapitulating the things which, though in themselves movable,
may be immobilized.) So far as the subject-matter with which
we are dealing — machinery placed in the plant — it is plain,
both under the provisions of the Porto Rican Law and of the
Code Napoleon, that machinery which is movable in its nature
only becomes immobilized when placed in a plant by the
owner of the property or plant. Such result would not be
accomplished, therefore, by the placing of machinery in a plant
by a tenant or a usufructuary or any person having only a
temporary right. (Demolombe, Tit. 9, No. 203; Aubry et Rau,
Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and
decisions quoted in Fuzier-Herman ed. Code Napoleon under
articles 522 et seq.) The distinction rests, as pointed out by
Demolombe, upon the fact that one only having a temporary
right to the possession or enjoyment of property is not
presumed by the law to have applied movable property
belonging to him so as to deprive him of it by causing it by an
act of immobilization to become the property of another. It
follows that abstractly speaking the machinery put by the
Altagracia Company in the plant belonging to Sanchez did not
lose its character of movable property and become immovable
by destination. But in the concrete immobilization took place
because of the express provisions of the lease under which the
Altagracia held, since the lease in substance required the
putting in of improved machinery, deprived the tenant of any
right to charge against the lessor the cost such machinery, and
it was expressly stipulated that the machinery so put in should
become a part of the plant belonging to the owner without
compensation to the lessee. Under such conditions the tenant
in putting in the machinery was acting but as the agent of the
owner in compliance with the obligations resting upon him, and
the immobilization of the machinery which resulted arose in
legal effect from the act of the owner in giving by contract a
permanent destination to the machinery.
xxx xxx xxx
The machinery levied upon by Nevers & Callaghan, that is,
that which was placed in the plant by the Altagracia Company,
being, as regards Nevers & Callaghan, movable property, it
follows that they had the right to levy on it under the execution
upon the judgment in their favor, and the exercise of that right
did not in a legal sense conflict with the claim of Valdes, since
as to him the property was a part of the realty which, as the
result of his obligations under the lease, he could not, for the
purpose of collecting his debt, proceed separately against.
(Valdes vs. Central Altagracia [192], 225 U.S., 58.)
Finding no reversible error in the record, the judgment
appealed from will be affirmed, the costs of this instance to be
paid by the appellant.
Villa-Real, Imperial, Butte, and Goddard, JJ., concur.
TSAI V. COURT OF APPEALS 336 SCRA 324
FACTS:
Ever Textile Mills, Inc. (EVERTEX) obtained loan from
Philippine Bank of Communications (PBCom), secured by a
deed of Real and Chattel Mortgage over the lot where its
factory stands, and the chattels located therein as enumerated
in a schedule attached to the mortgage contract. PBCom
again granted a second loan to EVERTEX which was secured
by a Chattel Mortgage over personal properties enumerated in
a list attached thereto. These listed properties were similar to
those listed in the first mortgage deed. After the date of the
execution of the second mortgage mentioned above,
EVERTEX purchased various machines and equipments.
Upon EVERTEX's failure to meet its obligation to PBCom, the
latter commenced extrajudicial foreclosure proceedings
against EVERTEX under Act 3135 and Act 1506 or "The
Chattel Mortgage Law". PBCom then consolidated its
ownership over the lot and all the properties in it. It leased the
entire factory premises to Ruby Tsai and sold to the same the
factory, lock, stock and barrel including the contested
machineries.
EVERTEX filed a complaint for annulment of sale,
reconveyance, and damages against PBCom, alleging inter
alia that the extrajudicial foreclosure of subject mortgage was
not valid, and that PBCom, without any legal or factual basis,
appropriated the contested properties which were not included
in the Real and Chattel Mortgage of the first mortgage contract
nor in the second contract which is a Chattel Mortgage, and
neither were those properties included in the Notice of Sheriff's
Sale.
ISSUES:
1) W/N the contested properties are personal or movable
properties
2) W/N the sale of these properties to a third person (Tsai) by
the bank through an irregular foreclosure sale is valid.
HELD:
1) Nature of the Properties and Intent of the Parties
The nature of the disputed machineries, i.e., that they were
heavy, bolted or cemented on the real property mortgaged
does not make them ipso facto immovable under Article 415
(3) and (5) of the New Civil Code. While it is true that the
properties appear to be immobile, a perusal of the contract of
Real and Chattel Mortgage executed by the parties herein
reveal their intent, that is - to treat machinery and equipment
as chattels.
In the first mortgage contract, reflective of the true intention of
PBCOM and 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 second 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
63 individually described machineries while the schedule listed
only machines and 2,996,880.50 worth of finished cotton
fabrics and natural cotton fabrics.
UNDER PRINCIPLE OF ESTOPPEL
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, 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.
2) Sale of the Properties Not Included in the Subject of Chattel
Mortgage is Not Valid
The auction sale of the subject properties to PBCom is void.
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. Section 7
provides 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." Since the disputed machineries were
acquired later after the two mortgage contracts were executed,
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 lease and sale of said personal properties were
irregular and illegal because they were not duly foreclosed nor
sold at the auction, no valid title passed in its favor.
Consequently, the sale thereof to Ruby Tsai is also a nullity
under the elementary principle of nemo dat quod non habet,
one cannot give what one does not have
LA BUGAL B’LAAN TRIBAL ASSOCIATION INC., et. al. v. V.
O. RAMOS, Secretary Department of Environment and Natural
Resources; H. RAMOS, Director, Mines and Geosciences
Bureau (MGB-DENR); R. TORRES, Executive Secretary; and
WMC (PHILIPPINES) INC.
The constitutional provision allowing the President to enter into
FTAA is a exception to the rule that participation in the nation’s
natural resources is reserved exclusively to Filipinos. Provision
must be construed strictly against their enjoyment by non-
Filipinos.
RA 7942 (The Philippine Mining Act) took effect on April 9,
1995. Before the effectivity of RA 7942, or on March 30, 1995,
the President signed a Financial and Technical Assistance
Agreement (FTAA) with WMCP, a corporation organized under
Philippine laws, covering close to 100,000 hectares of land in
South Cotabato, Sultan Kudarat, Davao del Sur and North
Cotabato. On August 15, 1995, the Environment Secretary
Victor Ramos issued DENR Administrative Order 95-23, which
was later repealed by DENR Administrative Order 96-40,
adopted on December 20, 1996.
Petitioners prayed that RA 7942, its implementing rules, and
the FTAA between the government and WMCP be declared
unconstitutional on ground that they allow fully foreign owned
corporations like WMCP to exploit, explore and develop
Philippine mineral resources in contravention of Article XII
Section 2 paragraphs 2 and 4 of the Charter.
In January 2001, WMC – a publicly listed Australian mining
and exploration company – sold its whole stake in WMCP to
Sagittarius Mines, 60% of which is owned by Filipinos while
40% of which is owned by Indophil Resources, an Australian
company. DENR approved the transfer and registration of the
FTAA in Sagittarius‘ name but Lepanto Consolidated assailed
the same. The latter case is still pending before the Court of
Appeals.
EO 279, issued by former President Aquino on July 25, 1987,
authorizes the DENR to accept, consider and evaluate
proposals from foreign owned corporations or foreign investors
for contracts or agreements involving wither technical or
financial assistance for large scale exploration, development
and utilization of minerals which upon appropriate
recommendation of the (DENR) Secretary, the President may
execute with the foreign proponent. WMCP likewise contended
that the annulment of the FTAA would violate a treaty between
the Philippines and Australia which provides for the protection
of Australian investments.
ISSUES:
1. Whether or not the Philippine Mining Act is unconstitutional
for allowing fully foreign-owned corporations to exploit the
Philippine mineral resources. 2. Whether or not the FTAA
between the government and WMCP is a ―service contract
that permits fully foreign owned companies to exploit the
Philippine mineral resources.
HELD:
First Issue: RA 7942 is Unconstitutional
RA 7942 or the Philippine Mining Act of 1995 is
unconstitutional for permitting fully foreign owned corporations
to exploit the Philippine natural resources.
Article XII Section 2 of the 1987 Constitution retained the
Regalian Doctrine which states that ―All lands of the public
domain, waters, minerals, coal, petroleum, and other 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. The same
section also states that, ―the exploration and development
and utilization of natural resources shall be under the full
control and supervision of the State.
Conspicuously absent in Section 2 is the provision in the 1935
and 1973 Constitution authorizing the State to grant licenses,
concessions, or leases for the exploration, exploitation,
development, or utilization of natural resources. By such
omission, the utilization of inalienable lands of the public
domain through license, concession or lease is no longer
allowed under the 1987 Constitution.
Under the concession system, the concessionaire makes a
direct equity investment for the purpose of exploiting a
particular natural resource within a given area. The concession
amounts to complete control by the concessionaire over the
country‘s natural resource, for it is given exclusive and plenary
rights to exploit a particular resource at the point of extraction.
The 1987 Constitution, moreover, has deleted the phrase
―management or other forms of assistance in the 1973
Charter. The present Constitution now allows only ―technical
and financial assistance. The management and the operation
of the mining activities by foreign contractors, the primary
feature of the service contracts was precisely the evil the
drafters of the 1987 Constitution sought to avoid.
The constitutional provision allowing the President to enter into
FTAAs is an exception to the rule that participation in the
nation‘s natural resources is reserved exclusively to Filipinos.
Accordingly, such provision must be construed strictly against
their enjoyment by non-Filipinos. Therefore, RA 7942 is invalid
insofar as the said act authorizes service contracts. Although
the statute employs the phrase ―financial and technical
agreements in accordance with the 1987 Constitution, its
pertinent provisions actually treat these agreements as service
contracts that grant beneficial ownership to foreign contractors
contrary to the fundamental law.
The underlying assumption in the provisions of the law is that
the foreign contractor manages the mineral resources just like
the foreign contractor in a service contract. By allowing foreign
contractors to manage or operate all the aspects of the mining
operation, RA 7942 has, in effect, conveyed beneficial
ownership over the nation‘s mineral resources to these
contractors, leaving the State with nothing but bare title
thereto.
The same provisions, whether by design or inadvertence,
permit a circumvention of the constitutionally ordained 60-40%
capitalization requirement for corporations or associations
engaged in the exploitation, development and utilization of
Philippine natural resources.
When parts of a statute are so mutually dependent and
connected as conditions, considerations, inducements or
compensations for each other as to warrant a belief that the
legislature intended them as a whole, then if some parts are
unconstitutional, all provisions that are thus dependent,
conditional or connected, must fail with them.
Under Article XII Section 2 of the 1987 Charter, foreign owned
corporations are limited only to merely technical or financial
assistance to the State for large scale exploration,
development and utilization of minerals, petroleum and other
mineral oils.
Second Issue: RP Government-WMCP FTAA is a Service
Contract
The FTAA between he WMCP and the Philippine government
is likewise unconstitutional since the agreement itself is a
service contract.
Section 1.3 of the FTAA grants WMCP a fully foreign owned
corporation, the exclusive right to explore, exploit, utilize and
dispose of all minerals and by-products that may be produced
from the contract area. Section 1.2 of the same agreement
provides that EMCP shall provide all financing, technology,
management, and personnel necessary for the Mining
Operations.
These contractual stipulations and related provisions in the
FTAA taken together, grant WMCP beneficial ownership over
natural resources that properly belong to the State and are
intended for the benefit of its citizens. These stipulations are
abhorrent to the 1987 Constitution. They are precisely the
vices that the fundamental law seeks to avoid, the evils that it
aims to suppress. Consequently, the contract from which they
spring must be struck down.
 foreign control over the exploitation of our natural resources, to
the prejudice of the Filipino nation.

ISSUE:

What is the proper interpretation of the phrase “Agreements

involving Either Technical or Financial Assistance” contained in
paragraph 4, Section 2, Article XII of the Constitution.

HELD:

The Supreme Court upheld the constitutionality of the

Philippine Mining Law, its implementing rules and regulations –
insofar as they relate to financial and technical agreements as
well as the subject Financial and Technical Assistance
Agreement.

Full control is not anathematic to day-to-day management by

the contractor, provided that the State retains the power to
direct overall strategy; and to set aside, reverse or modify
plans and actions of the contractor. The idea of full control is
similar to that which is exercised by the board of directors of a
private corporation, the performance of managerial,
operational, financial, marketing and other functions may be
delegated to subordinate officers or given to contractual
entities, but the board retains full residual control of the
business.

La Bugal-B’laan Tribal Association, Inc. Vs Ramos

Natural Resources and Environmental Laws

G.R. No. 127882; January 27, 2004

FACTS:

This petition for prohibition and mandamus challenges the

constitutionality of Republic Act No. 7942 (The Philippine
Mining Act of 1995), its implementing rules and regulations and
the Financial and Technical Assistance Agreement (FTAA)
dated March 30, 1995 by the government with Western Mining
Corporation(Philippines) Inc. (WMCP).

Accordingly, the FTAA violated the 1987 Constitution in that it

is a service contract and is antithetical to the principle of
sovereignty over our natural resources, because they allowed