PASTOR D. AGO, petitioner,  vs. THE HON. COURT OF APPEALS, HON. MONTANO A.

ORTIZ,
Judge of the Court of First Instance of Agusan, THE PROVINCIAL SHERIFF OF SURIGAO and
GRACE PARK ENGINEERING, INC., respondents. G.R. No. L-17898            October 31, 1962

Jose M. Luison for petitioner.

Norberto J. Quisumbing for respondent Grace Park Engineering, Inc.
The Provincial Fiscal of Surigao for respondent Sheriff of Surigao.

LABRABOR, J.:

Appeal by certiorari to review the decision of respondent Court of Appeals in CA-G.R. No. 26723-R entitled
"Pastor D. Ago vs. The Provincial Sheriff of Surigao, et al." which in part reads:

In this case for certiorari and prohibition with preliminary injunction, it appears from the records that
the respondent Judge of the Court of First Instance of Agusan rendered judgment (Annex "A") in open
court on January 28, 1959, basing said judgment on a compromise agreement between the parties.

On August 15, 1959, upon petition, the Court of First Instance issued a writ of execution.

Petitioner's motion for reconsideration dated October 12, 1959 alleges that he, or his counsel, did not
receive a formal and valid notice of said decision, which motion for reconsideration was denied by the
court below in the order of November 14, 1959.

Petitioner now contends that the respondent Judge exceeded in his jurisdiction in rendering the
execution without valid and formal notice of the decision.

A compromise agreement is binding between the parties and becomes the law between them.
(Gonzales vs. Gonzales G.R. No. L-1254, May 21, 1948, 81 Phil. 38; Martin vs. Martin, G.R. No. L-
12439, May 22, 1959) .

It is a general rule in this jurisdiction that a judgment based on a compromise agreement is not
appealable and is immediately executory, unless a motion is filed on the ground fraud, mistake or
duress. (De los Reyes vs. Ugarte, 75 Phil. 505; Lapena vs. Morfe, G.R. No. L-10089, July 31, 1957)

Petitioner's claim that he was not notified or served notice of the decision is untenable. The judgment
on the compromise agreement rendered by the court below dated January 28, 1959, was given in open
court. This alone is a substantial compliance as to notice. (De los Reyes vs. Ugarte, supra)

IN VIEW THEREOF, we believe that the lower court did not exceed nor abuse its jurisdiction in
ordering the execution of the judgment. The petition for certiorari is hereby dismissed and the writ of
preliminary injunction heretofore dissolved, with costs against the petitioner.

IT IS SO ORDERED.

The facts of the case may be briefly stated as follows: In 1957, petitioner Pastor D. Ago bought sawmill
machineries and equipments from respondent Grace Park Engineer domineering, Inc., executing a chattel
mortgage over said machineries and equipments to secure the payment of balance of the price remaining
unpaid of P32,000.00, which petitioner agreed to pay on installment basis.

Petitioner Ago defaulted in his payment and so, in 1958 respondent Grace Park Engineering, Inc. instituted
extra-judicial foreclosure proceedings of the mortgage. To enjoin said foreclosure, petitioner herein instituted
Special Civil Case No. 53 in the Court of First Instance of Agusan. The parties to the case arrived at a
compromise agreement and submitted the same in court in writing, signed by Pastor D. Ago and the Grace
Park Engineering, Inc. The Hon. Montano A. Ortiz, Judge of the Court of First Instance of Agusan, then
presiding, dictated a decision in open court on January 28, 1959.

Petitioner continued to default in his payments as provided in the judgment by compromise, so Grace Park
Engineering, Inc. filed with the lower court a motion for execution, which was granted by the court on August
15, 1959. A writ of execution, dated September 23, 1959, later followed.

The herein respondent, Provincial Sheriff of Surigao, acting upon the writ of execution issued by the lower
court, levied upon and ordered the sale of the sawmill machineries and equipments in question. These
machineries and equipments had been taken to and installed in a sawmill building located in Lianga, Surigao
del Sur, and owned by the Golden Pacific Sawmill, Inc., to whom, petitioner alleges, he had sold them on
February 16, 1959 (a date after the decision of the lower court but before levy by the Sheriff).

Having been advised by the sheriff that the public auction sale was set for December 4, 1959, petitioner, on
December 1, 1959, filed the petition for certiorari and prohibition with preliminary injunction with respondent
Court of Appeals, alleging that a copy of the aforementioned judgment given in open court on January 28,
1959 was served upon counsel for petitioner only on September 25, 1959 (writ of execution is dated September
23, 1959); that the order and writ of execution having been issued by the lower court before counsel for
petitioner received a copy of the judgment, its resultant last order that the "sheriff may now proceed with the
sale of the properties levied constituted a grave abuse of discretion and was in excess of its jurisdiction; and
that the respondent Provincial Sheriff of Surigao was acting illegally upon the allegedly void writ of execution
by levying the same upon the sawmill machineries and equipments which have become real properties of the
Golden Pacific sawmill, Inc., and is about to proceed in selling the same without prior publication of the notice
of sale thereof in some newspaper of general circulation as required by the Rules of Court.

The Court of Appeals, on December 8, 1959, issued a writ of preliminary injunction against the sheriff but it
turned out that the latter had already sold at public auction the machineries in question, on December 4, 1959,
as scheduled. The respondent Grace Park Engineering, Inc. was the only bidder for P15,000.00, although the
certificate sale was not yet executed. The Court of Appeals constructed the sheriff to suspend the issuance of a
certificate of sale of the said sawmill machineries and equipment sold by him on December 4, 1959 until the
final decision of the case. On November 9, 1960 the Court of Appeals rendered the aforequoted decision.

Before this Court, petitioner alleges that the Court of Appeals erred (1) in holding that the rendition of
judgment on compromise in open court on January 1959 was a sufficient notice; and (2) in not resolving the
other issues raised before it, namely, (a) the legality of the public auction sale made by the sheriff, and (b) the
nature of the machineries in question, whether they are movables or immovables.

The Court of Appeals held that as a judgment was entered by the court below in open court upon the
submission of the compromise agreement, the parties may be considered as having been notified of said
judgment and this fact constitutes due notice of said judgment. This raises the following legal question: Is the
order dictated in open court of the judgment of the court, and is the fact the petitioner herein was present in
open court was the judgment was dictated, sufficient notice thereof? The provisions of the Rules of Court
decree otherwise. Section 1 of Rule 35 describes the manner in which judgment shall be rendered, thus:

SECTION 1. How judgment rendered. — All judgments determining the merits of cases shall be in
writing personally and directly prepared by the judge, and signed by him, stating clearly and distinctly
the facts and the law on which it is based, filed with the clerk of the court.

The court of first instance being a court of record, in order that a judgment may be considered as rendered,
must not only be in writing, signed by the judge, but it must also be filed with the clerk of court. The mere
pronouncement of the judgment in open court with the stenographer taking note thereof does not, therefore,
constitute a rendition of the judgment. It is the filing of the signed decision with the clerk of court that
constitutes rendition. While it is to be presumed that the judgment that was dictated in open court will be the
judgment of the court, the court may still modify said order as the same is being put into writing. And even if
the order or judgment has already been put into writing and signed, while it has not yet been delivered to the
clerk for filing it is still subject to amendment or change by the judge. It is only when the judgment signed by
the judge is actually filed with the clerk of court that it becomes a valid and binding judgment. Prior thereto, it
could still be subject to amendment and change and may not, therefore, constitute the real judgment of the
court.

Regarding the notice of judgment, the mere fact that a party heard the judge dictating the judgment in open
court, is not a valid notice of said judgment. If rendition thereof is constituted by the filing with the clerk of
court of a signed copy (of the judgment), it is evident that the fact that a party or an attorney heard the order or
judgment being dictated in court cannot be considered as notice of the real judgment. No judgment can be
notified to the parties unless it has previously been rendered. The notice, therefore, that a party has of a
judgment that was being dictated is of no effect because at the time no judgment has as yet been signed by the
judge and filed with the clerk.

Besides, the Rules expressly require that final orders or judgments be served personally or by registered mail.
Section 7 of Rule 27 provides as follows:

SEC. 7. Service of final orders or judgments. — Final orders or judgments shall be served either
personally or by registered mail.

In accordance with this provision, a party is not considered as having been served with the judgment merely
because he heard the judgment dictating the said judgment in open court; it is necessary that he be served with
a copy of the signed judgment that has been filed with the clerk in order that he may legally be considered as
having been served with the judgment.

For all the foregoing, the fact that the petitioner herein heard the trial judge dictating the judgment in open
court, is not sufficient to constitute the service of judgement as required by the above-quoted section 7 of Rule
2 the signed judgment not having been served upon the petitioner, said judgment could not be effective upon
him (petitioner) who had not received it. It follows as a consequence that the issuance of the writ of execution
null and void, having been issued before petitioner her was served, personally or by registered mail, a copy of
the decision.

The second question raised in this appeal, which has been passed upon by the Court of Appeals, concerns the
validity of the proceedings of the sheriff in selling the sawmill machineries and equipments at public auction
with a notice of the sale having been previously published.

The record shows that after petitioner herein Pastor D. Ago had purchased the sawmill machineries and
equipments he assigned the same to the Golden Pacific Sawmill, Inc. in payment of his subscription to the
shares of stock of said corporation. Thereafter the sawmill machinery and equipments were installed in a
building and permanently attached to the ground. By reason of such installment in a building, the said sawmill
machineries and equipment became real estate properties in accordance with the provision of Art. 415 (5) of
the Civil Code, thus:

ART. 415. The following are immovable property:

xxx           xxx           xxx

 (5) Machinery, receptacles, instruments or implements tended by the owner of the tenement for an
industry or works which may be carried on in a building or on a piece of land, and which tend directly
to meet the needs of the said industry or works;

This Court in interpreting a similar question raised before it in the case of Berkenkotter vs. Cu Unjieng e Hijos,
61 Phil. 683, held that the installation of the machine and equipment in the central of the Mabalacat Sugar Co.,
Inc. for use in connection with the industry carried by the company, converted the said machinery and
equipment into real estate by reason of their purpose. Paraphrasing language of said decision we hold that by
the installment of the sawmill machineries in the building of the Gold Pacific Sawmill, Inc., for use in the
sawing of logs carried on in said building, the same became a necessary and permanent part of the building or
real estate on which the same was constructed, converting the said machineries and equipments into real estate
within the meaning of Article 415(5) above-quoted of the Civil Code of the Philippines.

Considering that the machineries and equipments in question valued at more than P15,000.00 appear to have
been sold without the necessary advertisement of sale by publication in a newspaper, as required in Sec. 16 of
Rule 39 of the Rules of Court, which is as follows:

SEC. 16. Notice of sale of property on execution. — Before the sale of property on execution, notice
thereof must be given as follows:

xxx           xxx           xxx

(c) In case of real property, by posting a similar notice particularly describing the property for twenty
days in three public places in the municipality or city where the property is situated, and also where
the property is to be sold, and, if the assessed value of the property exceeds four hundred pesos, by
publishing a copy of the notice once a week, for the same period, in some newspaper published or
having general circulation in the province, if there be one. If there are newspapers published in the
province in both the English and Spanish languages, then a like publication for a like period shall be
made in one newspaper published in the English language, and in one published in the Spanish
language.

the sale made by the sheriff must be declared null and void.

WHEREFORE, the decision of the Court of Appeals sought to be reviewed is hereby set aside and We declare
that the issuance of the writ of execution in this case against the sawmill machineries and equipments
purchased by petitioner Pastor D. Ago from the Grace Park Engineering, Inc., as well as the sale of the same
by the Sheriff of Surigao, are null and void. Costs shall be against the respondent Grace Park Engineering, Inc.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala and Makalintal,
JJ., concur.
Padilla, J., took no part.

G.R. No. L-17500             May 16, 1967

PEOPLE'S BANK AND TRUST CO. and ATLANTIC GULF AND PACIFIC CO. OF
MANILA, plaintiffs-appellants, 
vs.
DAHICAN LUMBER COMPANY, DAHICAN AMERICAN LUMBER CORPORATION and
CONNELL BROS. CO. (PHIL.), defendants-appellants.
Angel S. Gamboa for defendants-appellants.
Laurel Law Offices for plaintiffs-appellants.

DIZON, J.:

On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia corporation licensed to
do business in the Philippines — hereinafter referred to as ATLANTIC — sold and assigned all its rights in the
Dahican Lumber concession to Dahican Lumber Company — hereinafter referred to as DALCO — for the
total sum of $500,000.00, of which only the amount of $50,000.00 was paid.

Thereafter, to develop the concession, DALCO obtained various loans from the People's Bank & Trust
Company — hereinafter referred to as the BANK — amounting, as of July 13, 1950, to P200,000.00. In
addition, DALCO obtained, through the BANK, a loan of $250,000.00 from the Export-Import Bank of
Washington D.C., evidenced by five promissory notes of $50,000.00 each, maturing on different dates,
executed by both DALCO and the Dahican America Lumber Corporation, a foreign corporation and a
stockholder of DALCO, — hereinafter referred to as DAMCO, all payable to the BANK or its order.

As security for the payment of the abovementioned loans, on July 13, 1950 DALCO executed in favor of the
BANK — the latter acting for itself and as trustee for the Export-Import Bank of Washington D.C. — a deed
of mortgage covering five parcels of land situated in the province of Camarines Norte together with all the
buildings and other improvements existing thereon and all the personal properties of the mortgagor located in
its place of business in the municipalities of Mambulao and Capalonga, Camarines Norte (Exhibit D). On the
same date, DALCO executed a second mortgage on the same properties in favor of ATLANTIC to secure
payment of the unpaid balance of the sale price of the lumber concession amounting to the sum of $450,000.00
(Exhibit G). Both deeds contained the following provision extending the mortgage lien to properties to be
subsequently acquired — referred to hereafter as "after acquired properties" — by the mortgagor:

All property of every nature and description taken in exchange or replacement, and all buildings,
machinery, fixtures, tools equipment and other property which the Mortgagor may hereafter acquire,
construct, install, attach, or use in, to, upon, or in connection with the premises, shall immediately be
and become subject to the lien of this mortgage in the same manner and to the same extent as if now
included therein, and the Mortgagor shall from time to time during the existence of this mortgage
furnish the Mortgagee with an accurate inventory of such substituted and subsequently acquired
property.

Both mortgages were registered in the Office of the Register of Deeds of Camarines Norte. In addition thereto
DALCO and DAMCO pledged to the BANK 7,296 shares of stock of DALCO and 9,286 shares of DAMCO
to secure the same obligations.

Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its maturity, the BANK paid the
same to the Export-Import Bank of Washington D.C., and the latter assigned to the former its credit and the
first mortgage securing it. Subsequently, the BANK gave DALCO and DAMCO up to April 1, 1953 to pay the
overdue promissory note.

After July 13, 1950 — the date of execution of the mortgages mentioned above — DALCO purchased various
machineries, equipment, spare parts and supplies in addition to, or in replacement of some of those already
owned and used by it on the date aforesaid. Pursuant to the provision of the mortgage deeds quoted theretofore
regarding "after acquired properties," the BANK requested DALCO to submit complete lists of said properties
but the latter failed to do so. In connection with these purchases, there appeared in the books of DALCO as due
to Connell Bros. Company (Philippines) — a domestic corporation who was acting as the general purchasing
agent of DALCO — thereinafter called CONNELL — the sum of P452,860.55 and to DAMCO, the sum of
P2,151,678.34.
On December 16, 1952, the Board of Directors of DALCO, in a special meeting called for the purpose, passed
a resolution agreeing to rescind the alleged sales of equipment, spare parts and supplies by CONNELL and
DAMCO to it. Thereafter, the corresponding agreements of rescission of sale were executed between DALCO
and DAMCO, on the one hand and between DALCO and CONNELL, on the other.

On January 13, 1953, the BANK, in its own behalf and that of ATLANTIC, demanded that said agreements be
cancelled but CONNELL and DAMCO refused to do so. As a result, on February 12, 1953; ATLANTIC and
the BANK, commenced foreclosure proceedings in the Court of First Instance of Camarines Norte against
DALCO and DAMCO. On the same date they filed an ex-parte application for the appointment of a Receiver
and/or for the issuance of a writ of preliminary injunction to restrain DALCO from removing its properties.
The court granted both remedies and appointed George H. Evans as Receiver. Upon defendants' motion,
however, the court, in its order of February 21, 1953, discharged the Receiver.

On March 2, 1953, defendants filed their answer denying the material allegations of the complaint and alleging
several affirmative defenses and a counterclaim.

On March 4 of the same year, CONNELL, filed a motion for intervention alleging that it was the owner and
possessor of some of the equipments, spare parts and supplies which DALCO had acquired subsequent to the
execution of the mortgages sought to be foreclosed and which plaintiffs claimed were covered by the lien. In
its order of March 18,1953 the Court granted the motion, as well as plaintiffs' motion to set aside the order
discharging the Receiver. Consequently, Evans was reinstated.

On April 1, 1953, CONNELL filed its answer denying the material averment of the complaint, and asserting
affirmative defenses and a counterclaim.

Upon motion of the parties the Court, on September 30, 1953, issued an order transferring the venue of the
action to the Court of First Instance of Manila where it was docketed as Civil Case No. 20987.

On August 30, 1958, upon motion of all the parties, the Court ordered the sale of all the machineries,
equipment and supplies of DALCO, and the same were subsequently sold for a total consideration of
P175,000.00 which was deposited in court pending final determination of the action. By a similar agreement
one-half (P87,500.00) of this amount was considered as representing the proceeds obtained from the sale of the
"undebated properties" (those not claimed by DAMCO and CONNELL), and the other half as representing
those obtained from the sale of the "after acquired properties".

After due trial, the Court, on July 15, 1960, rendered judgment as follows:

IN VIEW WHEREFORE, the Court:

1. Condemns Dahican Lumber Co. to pay unto People's Bank the sum of P200,000,00 with 7%
interest per annum from July 13, 1950, Plus another sum of P100,000.00 with 5% interest per annum
from July 13, 1950; plus 10% on both principal sums as attorney's fees;

2. Condemns Dahican Lumber Co. to pay unto Atlantic Gulf the sum of P900,000.00 with 4% interest
per annum from July 3, 1950, plus 10% on both principal as attorney's fees;

3. Condemns Dahican Lumber Co. to pay unto Connell Bros, the sum of P425,860.55, and to pay unto
Dahican American Lumber Co. the sum of P2,151,678.24 both with legal interest from the date of the
filing of the respective answers of those parties, 10% of the principals as attorney's fees;
 4. Orders that of the sum realized from the sale of the properties of P175,000.00, after deducting the
recognized expenses, one-half thereof be adjudicated unto plaintiffs, the court no longer specifying the
share of each because of that announced intention under the stipulation of facts to "pool their
resources"; as to the other one-half, the same should be adjudicated unto both plaintiffs, and defendant
Dahican American and Connell Bros. in the proportion already set forth on page 9, lines 21, 22 and 23
of the body of this decision; but with the understanding that whatever plaintiffs and Dahican American
and Connell Bros. should receive from the P175,000.00 deposited in the Court shall be applied to the
judgments particularly rendered in favor of each;

5. No other pronouncement as to costs; but the costs of the receivership as to the debated properties
shall be borne by People's Bank, Atlantic Gulf, Connell Bros., and Dahican American Lumber Co.,
pro-rata.

On the following day, the Court issued the following supplementary decision:

IN VIEW WHEREOF, the dispositive part of the decision is hereby amended in order to add the
following paragraph 6:

6. If the sums mentioned in paragraphs 1 and 2 are not paid within ninety (90) days, the Court orders
the sale at public auction of the lands object of the mortgages to satisfy the said mortgages and costs
of foreclosure.

From the above-quoted decision, all the parties appealed.

Main contentions of plaintiffs as appellants are the following: that the "after acquired properties" were subject
to the deeds of mortgage mentioned heretofore; that said properties were acquired from suppliers other than
DAMCO and CONNELL; that even granting that DAMCO and CONNELL were the real suppliers, the
rescission of the sales to DALCO could not prejudice the mortgage lien in favor of plaintiffs; that considering
the foregoing, the proceeds obtained from the sale of the "after acquired properties" as well as those obtained
from the sale of the "undebated properties" in the total sum of P175,000.00 should have been awarded
exclusively to plaintiffs by reason of the mortgage lien they had thereon; that damages should have been
awarded to plaintiffs against defendants, all of them being guilty of an attempt to defraud the former when they
sought to rescind the sales already mentioned for the purpose of defeating their mortgage lien, and finally, that
defendants should have been made to bear all the expenses of the receivership, costs and attorney's fees.

On the other hand, defendants-appellants contend that the trial court erred: firstly, in not holding that plaintiffs
had no cause of action against them because the promissory note sued upon was not yet due when the action to
foreclose the mortgages was commenced; secondly, in not holding that the mortgages aforesaid were null and
void as regards the "after acquired properties" of DALCO because they were not registered in accordance with
the Chattel Mortgage Law, the court erring, as a consequence, in holding that said properties were subject to
the mortgage lien in favor of plaintiffs; thirdly, in not holding that the provision of the fourth paragraph of each
of said mortgages did not automatically make subject to such mortgages the "after acquired properties", the
only meaning thereof being that the mortgagor was willing to constitute a lien over such properties; fourthly, in
not ruling that said stipulation was void as against DAMCO and CONNELL and in not awarding the proceeds
obtained from the sale of the "after acquired properties" to the latter exclusively; fifthly, in appointing a
Receiver and in holding that the damages suffered by DAMCO and CONNELL by reason of the depreciation
or loss in value of the "after acquired properties" placed under receivership was damnum absque injuria and,
consequently, in not awarding, to said parties the corresponding damages claimed in their counterclaim; lastly,
in sentencing DALCO and DAMCO to pay attorney's fees and in requiring DAMCO and CONNELL to pay
the costs of the Receivership, instead of sentencing plaintiffs to pay attorney's fees.
Plaintiffs' brief as appellants submit six assignments of error, while that of defendants also as appellants submit
a total of seventeen. However, the multifarious issues thus before Us may be resolved, directly or indirectly, by
deciding the following issues:

Firstly, are the so-called "after acquired properties" covered by and subject to the deeds of mortgage subject of
foreclosure?; secondly, assuming that they are subject thereto, are the mortgages valid and binding on the
properties aforesaid inspite of the fact that they were not registered in accordance with the provisions of the
Chattel Mortgage Law?; thirdly, assuming again that the mortgages are valid and binding upon the "after
acquired properties", what is the effect thereon, if any, of the rescission of sales entered into, on the one hand,
between DAMCO and DALCO, and between DALCO and CONNELL, on the other?; and lastly, was the
action to foreclose the mortgages premature?

A. Under the fourth paragraph of both deeds of mortgage, it is crystal clear that all property of every nature
and description taken in exchange or replacement, as well as all buildings, machineries, fixtures, tools,
equipments, and other property that the mortgagor may acquire, construct, install, attach; or use in, to upon, or
in connection with the premises — that is, its lumber concession — "shall immediately be and become subject
to the lien" of both mortgages in the same manner and to the same extent as if already included therein at the
time of their execution. As the language thus used leaves no room for doubt as to the intention of the parties,
We see no useful purpose in discussing the matter extensively. Suffice it to say that the stipulation referred to
is common, and We might say logical, in all cases where the properties given as collateral are perishable or
subject to inevitable wear and tear or were intended to be sold, or to be used — thus becoming subject to the
inevitable wear and tear — but with the understanding — express or implied — that they shall be replaced
with others to be thereafter acquired by the mortgagor. Such stipulation is neither unlawful nor immoral, its
obvious purpose being to maintain, to the extent allowed by circumstances, the original value of the properties
given as security. Indeed, if such properties were of the nature already referred to, it would be poor judgment
on the part of the creditor who does not see to it that a similar provision is included in the contract.

B. But defendants contend that, granting without admitting, that the deeds of mortgage in question cover the
"after acquired properties" of DALCO, the same are void and ineffectual because they were not registered in
accordance with the Chattel Mortgage Law. In support of this and of the proposition that, even if said
mortgages were valid, they should not prejudice them, the defendants argue (1) that the deeds do not describe
the mortgaged chattels specifically, nor were they registered in accordance with the Chattel Mortgage Law; (2)
that the stipulation contained in the fourth paragraph thereof constitutes "mere executory agreements to give a
lien" over the "after acquired properties" upon their acquisition; and (3) that any mortgage stipulation
concerning "after acquired properties" should not prejudice creditors and other third persons such as DAMCO
and CONNELL.

The stipulation under consideration strongly belies defendants contention. As adverted to hereinbefore, it states
that all property of every nature, building, machinery etc. taken in exchange or replacement by the mortgagor
"shall immediately be and become subject to the lien of this mortgage in the same manner and to the same
extent as if now included therein". No clearer language could have been chosen.

Conceding, on the other hand, that it is the law in this jurisdiction that, to affect third persons, a chattel
mortgage must be registered and must describe the mortgaged chattels or personal properties sufficiently to
enable the parties and any other person to identify them, We say that such law does not apply to this case.

As the mortgages in question were executed on July 13, 1950 with the old Civil Code still in force, there can
be no doubt that the provisions of said code must govern their interpretation and the question of their validity.
It happens however, that Articles 334 and 1877 of the old Civil Code are substantially reproduced in Articles
415 and 2127, respectively, of the new Civil Code. It is, therefore, immaterial in this case whether we take the
former or the latter as guide in deciding the point under consideration.
Article 415 does not define real property but enumerates what are considered as such, among them being
machinery, receptacles, instruments or replacements intended by owner of the tenement for an industry or
works which may be carried on in a building or on a piece of land, and shall tend directly to meet the needs of
the said industry or works.

On the strength of the above-quoted legal provisions, the lower court held that inasmuch as "the chattels were
placed in the real properties mortgaged to plaintiffs, they came within the operation of Art. 415, paragraph 5
and Art. 2127 of the New Civil Code".

We find the above ruling in agreement with our decisions on the subject:

(1) In Berkenkotter vs. Cu Unjieng, 61 Phil. 663, We held that Article 334, paragraph 5 of the Civil Code (old)
gives the character of real property to machinery, liquid containers, instruments or replacements 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 or industry.

(2) In Cu Unjieng e Hijos vs. Mabalacat Sugar Co., 58 Phil. 439, We held that a mortgage constituted on a
sugar central includes not only the land on which it is built but also the buildings, machinery and accessories
installed at the time the mortgage was constituted as well as the buildings, machinery and
accessories  belonging to the mortgagor, installed after the constitution thereof .

It is not disputed in the case at bar that the "after acquired properties" were purchased by DALCO in
connection with, and for use in the development of its lumber concession and that they were purchased in
addition to, or in replacement of those already existing in the premises on July 13, 1950. In Law, therefore,
they must be deemed to have been immobilized, with the result that the real estate mortgages involved herein
— which were registered as such — did not have to be registered a second time as chattel mortgages in order
to bind the "after acquired properties" and affect third parties.

But defendants, invoking the case of Davao Sawmill Company vs. Castillo, 61 Phil. 709, claim that the "after
acquired properties" did not become immobilized because DALCO did not own the whole area of its lumber
concession all over which said properties were scattered.

The facts in the Davao Sawmill case, however, are not on all fours with the ones obtaining in the present. In
the former, the Davao Sawmill Company, Inc., had repeatedly treated the machinery therein involved
as personal property by executing chattel mortgages thereon in favor of third parties, while in the present case
the parties had treated the "after acquired properties" as real properties by expressly and unequivocally
agreeing that they shall automatically become subject to the lien of the real estate mortgages executed by them.
In the Davao Sawmill decision it was, in fact, stated that "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"
(61 Phil. 112, emphasis supplied). In the present case, the characterization of the "after acquired properties" as
real property was made not only by one but by both interested parties. There is, therefore, more reason to hold
that such consensus impresses upon the properties the character determined by the parties who must now be
held in estoppel to question it.

Moreover, quoted in the Davao Sawmill case was that of Valdez vs. Central Altagracia, Inc. (225 U.S. 58)
where it was held that while under the general law of Puerto Rico, machinery placed on property by a tenant
does not become immobilized, yet, when the tenant places it there pursuant to contract that it shall belong to
the owner, it then becomes immobilized as to that tenant and even as against his assignees and creditors who
had sufficient notice of such stipulation. In the case at bar it is not disputed that DALCO purchased the "after
acquired properties" to be placed on, and be used in the development of its lumber concession, and agreed
further that the same shall become immediately subject to the lien constituted by the questioned mortgages.
There is also abundant evidence in the record that DAMCO and CONNELL had full notice of such stipulation
and had never thought of disputed validity until the present case was filed. Consequently all of them must be
deemed barred from denying that the properties in question had become immobilized.

What We have said heretofore sufficiently disposes all the arguments adduced by defendants in support their
contention that the mortgages under foreclosure are void, and, that, even if valid, are ineffectual as against
DAMCO and CONNELL.

Now to the question of whether or not DAMCO CONNELL have rights over the "after acquired properties"
superior to the mortgage lien constituted thereon in favor of plaintiffs. It is defendants' contention that in
relation to said properties they are "unpaid sellers"; that as such they had not only a superior lien on the "after
acquired properties" but also the right to rescind the sales thereof to DALCO.

This contention — it is obvious — would have validity only if it were true that DAMCO and CONNELL were
the suppliers or vendors of the "after acquired properties". According to the record, plaintiffs did not know
their exact identity and description prior to the filing of the case bar because DALCO, in violation of its
obligation under the mortgages, had failed and refused theretofore to submit a complete list thereof. In the
course of the proceedings, however, when defendants moved to dissolve the order of receivership and the writ
of preliminary injunction issued by the lower court, they attached to their motion the lists marked as Exhibits
1, 2 and 3 describing the properties aforesaid. Later on, the parties agreed to consider said lists as identifying
and describing the "after acquire properties," and engaged the services of auditors to examine the books of
DALCO so as to bring out the details thereof. The report of the auditors and its annexes (Exhibits V, V-1 —
V4) show that neither DAMCO nor CONNELL had supplied any of the goods of which they respective
claimed to be the unpaid seller; that all items were supplied by different parties, neither of whom appeared to
be DAMCO or CONNELL that, in fact, CONNELL collected a 5% service charge on the net value of all items
it claims to have sold to DALCO and which, in truth, it had purchased for DALCO as the latter's general agent;
that CONNELL had to issue its own invoices in addition to those o f the real suppliers in order to collect and
justify such service charge.

Taking into account the above circumstances together with the fact that DAMCO was a stockholder and
CONNELL was not only a stockholder but the general agent of DALCO, their claim to be the suppliers of the
"after acquired required properties" would seem to be preposterous. The most that can be claimed on the basis
of the evidence is that DAMCO and CONNELL probably financed some of the purchases. But if DALCO still
owes them any amount in this connection, it is clear that, as financiers, they can not claim any right over the
"after acquired properties" superior to the lien constituted thereon by virtue of the deeds of mortgage under
foreclosure. Indeed, the execution of the rescission of sales mentioned heretofore appears to be but a desperate
attempt to better or improve DAMCO and CONNELL's position by enabling them to assume the role of
"unpaid suppliers" and thus claim a vendor's lien over the "after acquired properties". The attempt, of course, is
utterly ineffectual, not only because they are not the "unpaid sellers" they claim to be but also because there is
abundant evidence in the record showing that both DAMCO and CONNELL had known and admitted from the
beginning that the "after acquired properties" of DALCO were meant to be included in the first and second
mortgages under foreclosure.

The claim that Belden, of ATLANTIC, had given his consent to the rescission, expressly or otherwise, is of no
consequence and does not make the rescission valid and legally effective. It must be stated clearly, however, in
justice to Belden, that, as a member of the Board of Directors of DALCO, he opposed the resolution of
December 15, 1952 passed by said Board and the subsequent rescission of the sales.

Finally, defendants claim that the action to foreclose the mortgages filed on February 12, 1953 was premature
because the promissory note sued upon did not fall due until April 1 of the same year, concluding from this
that, when the action was commenced, the plaintiffs had no cause of action. Upon this question the lower court
says the following in the appealed judgment;
 The other is the defense of prematurity of the causes of action in that plaintiffs, as a matter of grace,
conceded an extension of time to pay up to 1 April, 1953 while the action was filed on 12 February,
1953, but, as to this, the Court taking it that there is absolutely no debate that Dahican Lumber Co.,
was insolvent as of the date of the filing of the complaint, it should follow that the debtor thereby lost
the benefit to the period.

x x x unless he gives a guaranty or security for the debt . . . (Art. 1198, New Civil Code);

and as the guaranty was plainly inadequate since the claim of plaintiffs reached in the aggregate,
P1,200,000 excluding interest while the aggregate price of the "after-acquired" chattels claimed by
Connell under the rescission contracts was P1,614,675.94, Exh. 1, Exh. V, report of auditors, and as a
matter of fact, almost all the properties were sold afterwards for only P175,000.00, page 47, Vol. IV,
and the Court understanding that when the law permits the debtor to enjoy the benefits of the period
notwithstanding that he is insolvent by his giving a guaranty for the debt, that must mean a new and
efficient guaranty, must concede that the causes of action for collection of the notes were not
premature.

Very little need be added to the above. Defendants, however, contend that the lower court had no basis for
finding that, when the action was commenced, DALCO was insolvent for purposes related to Article 1198,
paragraph 1 of the Civil Code. We find, however, that the finding of the trial court is sufficiently supported by
the evidence particularly the resolution marked as Exhibit K, which shows that on December 16, 1952 — in
the words of the Chairman of the Board — DALCO was "without funds, neither does it expect to have any
funds in the foreseeable future." (p. 64, record on appeal).

The remaining issues, namely, whether or not the proceeds obtained from the sale of the "after acquired
properties" should have been awarded exclusively to the plaintiffs or to DAMCO and CONNELL, and if in
law they should be distributed among said parties, whether or not the distribution should be pro-rata or
otherwise; whether or not plaintiffs are entitled to damages; and, lastly, whether or not the expenses incidental
to the Receivership should be borne by all the parties on a pro-rata basis or exclusively by one or some of them
are of a secondary nature as they are already impliedly resolved by what has been said heretofore.

As regard the proceeds obtained from the sale of the of after acquired properties" and the "undebated
properties", it is clear, in view of our opinion sustaining the validity of the mortgages in relation thereto, that
said proceeds should be awarded exclusively to the plaintiffs in payment of the money obligations secured by
the mortgages under foreclosure.

On the question of plaintiffs' right to recover damages from the defendants, the law (Articles 1313 and 1314 of
the New Civil Code) provides that creditors are protected in cases of contracts intended to defraud them; and
that any third person who induces another to violate his contract shall be liable for damages to the other
contracting party. Similar liability is demandable under Arts. 20 and 21 — which may be given retroactive
effect (Arts. 225253) — or under Arts. 1902 and 2176 of the Old Civil Code.

The facts of this case, as stated heretofore, clearly show that DALCO and DAMCO, after failing to pay the
fifth promissory note upon its maturity, conspired jointly with CONNELL to violate the provisions of the
fourth paragraph of the mortgages under foreclosure by attempting to defeat plaintiffs' mortgage lien on the
"after acquired properties". As a result, the plaintiffs had to go to court to protect their rights thus jeopardized.
Defendants' liability for damages is therefore clear.

However, the measure of the damages suffered by the plaintiffs is not what the latter claim, namely, the
difference between the alleged total obligation secured by the mortgages amounting to around P1,200,000.00,
plus the stipulated interest and attorney's fees, on the one hand, and the proceeds obtained from the sale of
"after acquired properties", and of those that were not claimed neither by DAMCO nor CONNELL, on the
other. Considering that the sale of the real properties subject to the mortgages under foreclosure has not been
effected, and considering further the lack of evidence showing that the true value of all the properties already
sold was not realized because their sale was under stress, We feel that We do not have before Us the true
elements or factors that should determine the amount of damages that plaintiffs are entitled recover from
defendants. It is, however, our considered opinion that, upon the facts established, all the expenses of the
Receivership, which was deemed necessary to safeguard the rights of the plaintiffs, should be borne by the
defendants, jointly and severally, in the same manner that all of them should pay to the plaintiffs, jointly a
severally, attorney's fees awarded in the appealed judgment.

In consonance with the portion of this decision concerning the damages that the plaintiffs are entitled to
recover from the defendants, the record of this case shall be remanded below for the corresponding
proceedings.

Modified as above indicated, the appealed judgment is affirmed in all other respects. With costs.

Concepcion, C.J., Reyes, J.B.L., Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.

G.R. No. 166102, August 05, 2015

MANILA ELECTRIC COMPANY, Petitioner, v. THE CITY ASSESSOR AND CITY TREASURER OF

LUCENA CITY, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by Manila
Electric Company (MERALCO), seeking the reversal of the Decision1 dated May 13, 2004 and
Resolution2 dated November 18, 2004 of the Court of Appeals in CA-G.R. SP No. 67027. The appellate court
affirmed the Decision3 dated May 3, 2001 of the Central Board of Assessment Appeals (CBAA) in CBAA
Case No. L-20-98, which, in turn, affirmed with modification the Decision4 dated June 17, 19985of the Local
Board of Assessment Appeals (LBAA) of Lucena City, Quezon Province, as regards Tax Declaration Nos.
019-6500 and 019-7394, ruling that MERALCO is liable for real property tax on its transformers, electric posts
(or poles), transmission lines, insulators, and electric meters, beginning 1992.

MERALCO is a private corporation organized and existing under Philippine laws to operate as a public utility
engaged in electric distribution. MERALCO has been successively granted franchises to operate in Lucena
City beginning 1922 until present time, particularly, by: (1) Resolution No. 366 dated May 15, 1922 of the
Municipal Council of Lucena; (2) Resolution No. 1087 dated July 1, 1957 of the Municipal Council of Lucena;
(3) Resolution No. 26798 dated June 13, 1972 of the Municipal Board of Lucena City; 9 (4) Certificate of
Franchise10 dated October 28, 1993 issued by the National Electrification Commission; and (5) Republic Act
No. 920911 approved on June 9, 2003 by Congress.12

On February 20, 1989, MERALCO received from the City Assessor of Lucena a copy of Tax Declaration No.
019-650013 covering the following electric facilities, classified as capital investment, of the company: (a)
transformer and electric post; (b) transmission line; (c) insulator; and (d) electric meter, located in Quezon
Ave. Ext., Brgy. Gulang-Gulang, Lucena City. Under Tax Declaration No. 019-6500, these electric facilities
had a market value of P81,811,000.00 and an assessed value of P65,448,800.00, and were subjected to real
property tax as of 1985.

MERALCO appealed Tax Declaration No. 019-6500 before the LBAA of Lucena City, which was docketed
as LBAA-89-2. MERALCO claimed that its capital investment consisted only of its substation facilities, the
true and correct value of which was only P9,454,400.00; and that MERALCO was exempted from payment of
real property tax on said substation facilities.

The LBAA rendered a Decision14 in LBAA-89-2 on July 5, 1989, finding that under its franchise, MERALCO
was required to pay the City Government of Lucena a tax equal to 5% of its gross earnings, and "[s]aid tax
shall be due and payable quarterly and shall be in lieu of any and all taxes of any kind, nature, or description
levied, established, or collected x x x, on its poles, wires, insulators, transformers and structures, installations,
conductors, and accessories, x x x, from which taxes the grantee (MERALCO) is hereby expressly
exempted."15 As regards the issue of whether or not the poles, wires, insulators, transformers, and electric
meters of MERALCO were real properties, the LBAA cited the 1964 case of Board of Assessment Appeals v.
Manila Electric Company16 (1964 MERALCO case) in which the Court held that: (1) the steel towers fell
within the term "poles" expressly exempted from taxes under the franchise of MERALCO; and (2) the steel
towers were personal properties under the provisions of the Civil Code and, hence, not subject to real property
tax. The LBAA lastly ordered that Tax Declaration No. 019-6500 would remain and the poles, wires,
insulators, transformers, and electric meters of MERALCO would be continuously assessed, but the City
Assessor would stamp on the said Tax Declaration the word "exempt." The LBAA decreed in the end: cralawl awlibrary

WHEREFORE, from the evidence adduced by the parties, the Board overrules the claim of the [City Assessor
of Lucena] and sustain the claim of [MERALCO].

Further, the Appellant (Meralco) is hereby ordered to render an accounting to the City Treasurer of Lucena and
to pay the City Government of Lucena the amount corresponding to the Five (5%) per centum of the gross
earnings in compliance with paragraph 13 both Resolutions 108 and 2679, respectively, retroactive from
November 9, 1957 to date, if said tax has not yet been paid.17 chanrobleslaw

The City Assessor of Lucena filed an appeal with the CBAA, which was docketed as CBAA Case No. 248. In
its Decision18 dated April 10, 1991, the CBAA affirmed the assailed LBAA judgment. Apparently, the City
Assessor of Lucena no longer appealed said CBAA Decision and it became final and executory.

Six years later, on October 29, 1997, MERALCO received a letter19 dated October 16, 1997 from the City
Treasurer of Lucena, which stated that the company was being assessed real property tax delinquency on its
machineries beginning 1990, in the total amount of P17,925,117.34, computed as follows: chanRoblesvirtualLawlibrary

TAX ASSESSED  COVERED TAX DUE PENALTY TOTAL

DEC. # VALUE PERIOD
019-6500 P65,448,800.00 1990-94 P3,272,440.00
P2,356,156.80 P5,628,596.80
019-7394 78,538,560.00 1995 785,385.60
534,062.21 1,319,447.81
1996 785,385.60
345,569.66 1,130,955.26
lst-3rd/1997 589,039.20
117,807.84 706,847.04
4th 1997 196,346.40
(19,634.64) 176,711.76
BASIC---- P8,962,558.67
SEF---- 8,962,558.67
TOTAL TAX DELINQUENCY---- P17,925,117.34

The City Treasurer of Lucena requested that MERALCO settle the payable amount soon to avoid accumulation
of penalties. Attached to the letter were the following documents: (a) Notice of Assessment 20 dated October 20,
1997 issued by the City Assessor of Lucena, pertaining to Tax Declaration No. 019-7394, which increased the
market value and assessed value of the machinery; (b) Property Record Form;21 and (c) Tax Declaration No.
019-6500.22
MERALCO appealed Tax Declaration Nos. 019-6500 and 019-7394 before the LBAA of Lucena City on
December 23, 1997 and posted a surety bond23 dated December 10, 1997 to guarantee payment of its real
property tax delinquency. MERALCO asked the LBAA to cancel and nullify the Notice of Assessment dated
October 20, 1997 and declare the properties covered by Tax Declaration Nos. 019-6500 and 019-7394 exempt
from real property tax.

In its Decision dated June 17, 1998 regarding Tax Declaration Nos. 019-6500 and 019-7394, the LBAA
declared that Sections 234 and 534(f) of the Local Government Code repealed the provisions in the franchise
of MERALCO and Presidential Decree No. 55124 pertaining to the exemption of MERALCO from payment of
real property tax on its poles, wires, insulators, transformers, and meters. The LBAA refused to apply as res
judicata its earlier judgment in LBAA-89-2, as affirmed by the CBAA, because it involved collection of taxes
from 1985 to 1989, while the present case concerned the collection of taxes from 1989 to 1997; and LBAA is
only an administrative body, not a court or quasi-judicial body. The LBAA though instructed that the
computation of the real property tax for the machineries should be based on the prevailing 1991 Schedule of
Market Values, less the depreciation cost allowed by law. The LBAA ultimately disposed: cralawl awlibrary

WHEREFORE, in view of the foregoing, it is hereby ordered that: chanRoblesvirtualLawlibrary

1) MERALCO's appeal be dismissed for lack of merit; ChanRoblesVirtualawlibrary

2) MERALCO be required to pay the realty tax on the questioned properties, because they are not exempt by
law, same to be based on the 1991 level of assessment, less depreciation cost allowed by law.25 chanrobleslaw

MERALCO went before the CBAA on appeal, which was docketed as CBAA Case No. L-20-98. The CBAA,
in its Decision dated May 3, 2001, agreed with the LBAA that MERALCO could no longer claim exemption
from real property tax on its machineries with the enactment of Republic Act No. 7160, otherwise known as
the Local Government Code of 1991, thus: cralawl awlibrary

Indeed, the Central Board of Assessment Appeals has had the opportunity of ruling in [MERALCO's] favor in
connection with this very same issue. The matter was settled on April 10, 1991 where this Authority ruled that
"wires, insulators, transformers and electric meters which are mounted on poles and can be separated from the
poles and moved from place to place without breaking the material or causing [the] deterioration of the object,
are deemed movable or personal property". The same position of MERALCO would have been tenable and
that decision may have stood firm prior to the enactment of R.A. 7160 but not anymore in this jurisdiction. The
Code provides and now sets a more stringent yet broadened concept of machinery, x x x: chanRoblesvirtualLawlibrary

x x x x

The pivotal point where the difference lie between the former and the current case is that by the very wordings
of [Section 199(0)], the ground being anchored upon by MERALCO concerning the properties in question
being personal in nature does not hold anymore for the sole reason that these come now within the purview and
new concept of Machineries. The new law has treated these in an unequivocal manner as machineries in the
sense that they are instruments, mechanical contrivances or apparatus though not attached permanently to the
real properties of [MERALCO] are actually, directly and exclusively used to meet their business of distributing
electricity.

x x x x

Clearly, [Section 234 of the Local Government Code] lists down the instances of exemption in real property
taxation and very apparent is the fact that the enumeration is exclusive in character in view of the wordings in
the last paragraph. Applying the maxim "Expressio Unius est Exclusio Alterius", we can say that "Where the
statute enumerates those who can avail of the exemption, it is construed as excluding all others not mentioned
therein". Therefore, the above-named company [had] lost its previous exemptions under its franchise because
of non-inclusion in the enumeration in Section 234. Furthermore, all tax exemptions being enjoyed by all
persons, whether natural or juridical, including all government-owned or controlled corporations are expressly
withdrawn, upon effectivity of R.A. 7160.

In the given facts, it has been manifested that the Municipal Board of Lucena passed Resolution No. 108 on
July 1, 1957 extending the franchise of MERALCO to operate in Lucena city an electric light system for thirty-
five years, which should have expired on November 9, 1992 and under Resolution No. 2679 passed on June
13, 1972 by the City Council of Lucena City awarding [MERALCO] a franchise to operate for twenty years an
electric light, heat and power system in Lucena City, also to expire in the year 1992. Under those franchises,
they were only bound to pay franchise taxes and nothing more.

Now, granting arguendo that there is no express revocation of the exemption under the franchise of
[MERALCO] since, unquestionably [MERALCO] is a recipient of another franchise granted this time by the
National Electrification Commission as evidenced by a certificate issued on October 28, 1993, such
conferment does not automatically include and/or award exemption from taxes, nor does it impliedly give the
franchisee the right to continue the privileges like exemption granted under its previous franchise. It is just a
plain and simple franchise. In countless times, the Supreme Court has ruled that exemption must be clear in the
language of the law granting such exemption for it is strictly construed and favored against the person invoking
it. In addition, a franchise though in the form of a contract is also a privilege that must yield to the sublime yet
inherent powers of the state, one of these is the power of taxation.

Looking into the law creating the National Electrification Administration (Commission), P.D. 269 as amended
by P.D. 1645, nowhere in those laws can we find such authority to bestow upon the grantee any tax exemption
of whatever nature except those of cooperatives. This we believe is basically in consonance with the provisions
of the Local Government Code more particularly Section 234.

Furthermore, Section 534(f) of R.A. 7160 which is taken in relation to Section 234 thereof states that "All
general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative
regulations or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby
repealed or modified accordingly". Anent this unambiguous mandate, P.D. 551 is mandatorily repealed due to
its contradictory
chanrobleslaw
and irreconcilable provisions with R.A. 7160.26

Yet, the CBAA modified the ruling of the LBAA by excluding from the real property tax deficiency
assessment the years 1990 to 1991, considering that: cralawlawlibrary

In the years 1990 and 1991, the exemption granted to MERALCO under its franchise which incidentally
expired upon the effectivity of the Local Government Code of 1991 was very much in effect and the decision
rendered by the Central Board of Assessment Appeals (CBAA) classifying its poles, wires, insulators,
transformers and electric meters as personal property was still controlling as the law of the case. So, from 1990
to 1991, it would be inappropriate and illegal to make the necessary assessment on those properties, much
more to impose any penalty for nonpayment of such.

But, assessments made beginning 1992 until 1997 by the City Government of Lucena is legal, both
procedurally and substantially. When R.A. 7160, which incorporated amended provisions of the Real Property
Tax Code, took effect on January 1, 1992, as already discussed, the nature of the aforecited questioned
properties considered formerly as personal metamorphosed to machineries and the exemption being invoked
by [MERALCO] was automatically withdrawn pursuant to the letter and spirit of the law. x x x.27 chanrobleslaw

Resultantly, the decretal portion of said CBAA Decision reads: cralawlawlibrary

WHEREFORE, in view of the foregoing, the Decision appealed from is hereby modified. The City Assessor of
Lucena City is hereby directed to make a new assessment on the subject properties to retroact from the year
1992 and the City Treasurer to collect the tax liabilities in accordance with the provisions of the cited Section
222 of the Local Government Code.28 chanrobleslaw

The CBAA denied the Motion for Reconsideration of MERALCO in a Resolution 29 dated August 16, 2001.

Disgruntled, MERALCO sought recourse from the Court of Appeals by filing a Petition for Review under
Rule 43 of the Rules of Court, which was docketed as CA-G.R. SP No. 67027.

The Court of Appeals rendered a Decision on May 13, 2004 rejecting all arguments proffered by MERALCO.
The appellate court found no deficiency in the Notice of Assessment issued by the City Assessor of Lucena: cralawlawlibrary

It was not disputed that [MERALCO] failed to provide the [City Assessor and City Treasurer of Lucena] with
a sworn statement declaring the true value of each of the subject transformer and electric post, transmission
line, insulator and electric meter which should have been made the basis of the fair and current market value of
the aforesaid property and which would enable the assessor to identify the same for assessment purposes.
[MERALCO] merely claims that the assessment made by the [City Assessor and City Treasurer of Lucena]
was incorrect but did not even mention in their pleading the true and correct assessment of the said properties.
Absent any sworn statement given by [MERALCO], [the City Assessor and City Treasurer of Lucena] were
constrained to make an assessment based on the materials within [their reach].30 chanrobleslaw

The Court of Appeals further ruled that there was no more basis for the real property tax exemption of
MERALCO under the Local Government Code and that the withdrawal of said exemption did not violate the
non-impairment clause of the Constitution, thus: cralawlawlibrary

Although it could not be denied that [MERALCO] was previously granted a Certificate of Franchise by the
National Electrification Commission on October 28, 1993 x x x, such conferment does not automatically
include an exemption from the payment of realty tax, nor does it impliedly give the franchisee the right to
continue the privileges granted under its previous franchise considering that Sec. 534(f) of the Local
Government Code of 1991 expressly repealed those provisions which are inconsistent with the Code.

At the outset, the Supreme Court has held that "Section 193 of the LGC prescribes the general rule, viz., tax
exemptions or incentives granted to or presently enjoyed by natural or juridical persons are withdrawn upon
the effectivity of the LGC except with respect to those entities expressly enumerated. In the same vein, We
must hold that the express withdrawal upon effectivity of the LGC of all exemptions except only as provided
therein, can no longer be invoked by MERALCO to disclaim liability for the local tax." (City Government of
San Pablo, Laguna vs. Reyes, 305 SCRA 353, 362-363)

In fine, [MERALCO's] invocation of the non-impairment clause of the Constitution is accordingly unavailing.
The LGC was enacted in pursuance of the constitutional policy to ensure autonomy to local governments and
to enable them to attain fullest development as self-reliant communities. The power to tax is primarily vested
in Congress. However, in our jurisdiction, it may be exercised by local legislative bodies, no longer merely by
virtue of a valid delegation as before, but pursuant to [a] direct authority conferred by Section 5, Article X of
the Constitution. The important legal effect of Section 5 is that henceforth, in interpreting statutory provisions
on municipal fiscal powers, doubts will be resolved in favor of the municipal corporations. (Ibid. pp. 363-
365)31chanrobleslaw

MERALCO similarly failed to persuade the Court of Appeals that the transformers, transmission lines,
insulators, and electric meters mounted on the electric posts of MERALCO were not real properties. The
appellate court invoked the definition of "machinery" under Section 199(o) of the Local Government Code and
then wrote that: cralawl awlibrary
We firmly believe and so hold that the wires, insulators, transformers and electric meters mounted on the poles
of [MERALCO] may nevertheless be considered as improvements on the land, enhancing its utility and
rendering it useful in distributing electricity. The said properties are actually, directly and exclusively used to
meet the needs of [MERALCO] in the distribution of electricity.

In addition, "improvements on land are commonly taxed as realty even though for some purposes they might
be considered personalty. It is a familiar personalty phenomenon to see things classed as real property for
purposes of taxation which on general principle might be considered personal property." (Caltex (Phil) Inc. vs.
Central Board of Assessment Appeals, 114 SCRA 296, 301-302)32 chanrobleslaw

Lastly, the Court of Appeals agreed with the CBAA that the new assessment of the transformers, electric posts,
transmission lines, insulators, and electric meters of MERALCO shall retroact to 1992.

Hence, the Court of Appeals adjudged: cralawlawlibrary

WHEREFORE, premises considered, the assailed Decision [dated] May 3, 2001 and Resolution dated
August 16, 2001 are hereby AFFIRMED in toto and the present petition is hereby DENIED DUE COURSE
and
chanrobleslaw
accordingly DISMISSED for lack of merit. 33

In a Resolution dated November 18, 2004, the Court of Appeals denied the Motion for Reconsideration of
MERALCO.

MERALCO is presently before the Court via the instant Petition for Review on Certiorari grounded on the
following lone assignment of error: cralawl awlibrary

THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN AFFIRMING IN TOTO

THE DECISION OF THE CENTRAL BOARD OF ASSESSMENT APPEALS WHICH HELD THAT THE
SUBJECT PROPERTIES ARE REAL PROPERTIES SUBJECT TO REAL PROPERTY TAX; AND THAT
ASSESSMENT ON THE SUBJECT PROPERTIES SHOULD BE MADE TO TAKE EFFECT
RETROACTIVELY FROM 1992 UNTIL 1997, WITH PENALTIES; THE SAME BEING UNJUST,
WHIMSICAL AND NOT IN ACCORD WITH THE LOCAL GOVERNMENT CODE.34 chanrobleslaw

MERALCO argues that its transformers, electric posts, transmission lines, insulators, and electric meters are
not subject to real property tax, given that: (1) the definition of "machinery" under Section 199(o) of the Local
Government Code, on which real property tax is imposed, must still be within the contemplation of real or
immovable property under Article 415 of the Civil Code because it is axiomatic that a statute should be
construed to harmonize with other laws on the same subject matter as to form a complete, coherent, and
intelligible system; (2) the Decision dated April 10, 1991 of the CBAA in CBAA Case No. 248, which
affirmed the Decision dated July 5, 1989 of the LBAA in LBAA-89-2, ruling that the transformers, electric
posts, transmission lines, insulators, and electric meters of MERALCO are movable or personal properties, is
conclusive and binding; and (3) the electric poles are not exclusively used to meet the needs of MERALCO
alone since these are also being utilized by other entities such as cable and telephone companies.

MERALCO further asserts that even if it is assumed for the sake of argument that the transformers, electric
posts, transmission lines, insulators, and electric meters are real properties, the assessment of said properties by
the City Assessor in 1997 is a patent nullity. The collection letter dated October 16, 1997 of the City Treasurer
of Lucena, Notice of Assessment dated October 20, 1997 of the City Assessor of Lucena, the Property Record
Form dated October 20, 1997, and Tax Declaration No. 019-6500 simply state a lump sum market value for all
the transformers, electric posts, transmission lines, insulators, and electric meters covered and did not provide
an inventory/list showing the actual number of said properties, or a schedule of values presenting the fair
market value of each property or type of property, which would have enabled MERALCO to verify the
correctness and reasonableness of the valuation of its properties. MERALCO was not furnished at all with a
copy of Tax Declaration No. 019-7394, and while it received a copy of Tax Declaration No. 019-6500, said tax
declaration did not contain the requisite information regarding the date of operation of MERALCO and the
original cost, depreciation, and market value for each property covered. For the foregoing reasons, the
assessment of the properties of MERALCO in 1997 was arbitrary, whimsical, and without factual basis - in
patent violation of the right to due process of MERALCO. MERALCO additionally explains that it cannot be
expected to make a declaration of its transformers, electric posts, transmission lines, insulators, and electric
meters, because all the while, it was of the impression that the said properties were personal properties by
virtue of the Decision dated July 5, 1989 of the LBAA in LBAA-89-2 and the Decision dated April 10, 1991 of
the CBAA in CBAA Case No. 248.

Granting that the assessment of its transformers, electric posts, transmission lines, insulators, and electric
meters by the City Assessor of Lucena in 1997 is valid, MERALCO alternatively contends that: (1) under
Sections 22135 and 22236 of the Local Government Code, the assessment should take effect only on January 1,
1998 and not retroact to 1992; (2) MERALCO should not be held liable for penalties and interests since its
nonpayment of real property tax on its properties was in good faith; and (3) if interest may be legally imposed
on MERALCO, it should only begin to run on the date it received the Notice of Assessment on October 29,
1997 and not all the way back to 1992.

At the end of its Petition, MERALCO prays: cralawl awlibrary

WHEREFORE, it is respectfully prayed of this Honorable Court that the appealed Decision dated May 13,
2004 of the Court of Appeals, together with its Resolution dated November 18, 2004 be reversed and set aside,
and judgment be rendered x x x nullifying and cancel[l]ing the Notice of Assessment, dated October 20, 1997,
issued by respondent City Assessor, and the collection letter dated October 16, 1997 of respondent City
Treasurer.

Petitioner also prays for such other relief as may be deemed just and equitable in the premises. 37
chanrobleslaw

The City Assessor and City Treasurer of Lucena counter that: (1) MERALCO was obliged to pay the real
property tax due, instead of posting a surety bond, while its appeal was pending, because Section 231 of the
Local Government Code provides that the appeal of an assessment shall not suspend the collection of the real
property taxes; (2) the cases cited by MERALCO can no longer be applied to the case at bar since they had
been decided when Presidential Decree No. 464, otherwise known as the Real Property Tax Code, was still in
effect; (3) under the now prevailing Local Government Code, which expressly repealed the Real Property Tax
Code, the transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO fall
within the new definition of "machineries," deemed as real properties subject to real property tax; and (4) the
Notice of Assessment dated October 20, 1997 covering the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO only retroacts to 1992, which is less than 10 years prior to the
date of initial assessment, so it is in compliance with Section 222 of the Local Government Code, and since
MERALCO has yet to pay the real property taxes due on said assessment, then it is just right and appropriate
that it also be held liable to pay for penalties and interests from 1992 to present time. Ultimately, the City
Assessor and City Treasurer of Lucena seek judgment denying the instant Petition and ordering MERALCO to
pay the real property taxes due.

The Petition is partly meritorious.

The Court finds that the transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO are no longer exempted from real property tax and may qualify as "machinery" subject to real
property tax under the Local Government Code. Nevertheless, the Court declares null and void the appraisal
and assessment of said properties of MERALCO by the City Assessor in 1997 for failure to comply with the
requirements of the Local Government Code and, thus, violating the right of MERALCO to due process.

By posting a surety bond before

filing its appeal of the assessment with
the LBAA, MERALCO substantially complied
with the requirement of payment under
protest in Section 252 of the Local 
Government Code.

Section 252 of the Local Government Code mandates that "[n]o protest shall be entertained unless the taxpayer
first pays the tax." It is settled that the requirement of "payment under protest" is a condition sine qua
non before an appeal may be entertained.38 Section 231 of the same Code also dictates that "[a]ppeal on
assessments of real property x x x shall, in no case, suspend the collection of the corresponding realty taxes on
the property involved as assessed by the provincial or city assessor, without prejudice to subsequent
adjustment depending upon the final outcome of the appeal." Clearly, under the Local Government Code, even
when the assessment of the real property is appealed, the real property tax due on the basis thereof should be
paid to and/or collected by the local government unit concerned.

In the case at bar, the City Treasurer of Lucena, in his letter dated October 16, 1997, sought to collect from
MERALCO the amount of P17,925,l 17.34 as real property taxes on its machineries, plus penalties, for the
period of 1990 to 1997, based on Tax Declaration Nos. 019-6500 and 019-7394 issued by the City Assessor of
Lucena. MERALCO appealed Tax Declaration Nos. 019-6500 and 019-7394 with the LBAA, but instead of
paying the real property taxes and penalties due, it posted a surety bond in the amount of PI 7,925,117.34.

By posting the surety bond, MERALCO may be considered to have substantially complied with Section 252 of
the Local Government Code for the said bond already guarantees the payment to the Office of the City
Treasurer of Lucena of the total amount of real property taxes and penalties due on Tax Declaration Nos. 019-
6500 and 019-7394. This is not the first time that the Court allowed a surety bond as an alternative to cash
payment of the real property tax before protest/appeal as required by Section 252 of the Local Government
Code. In Camp John Hay Development Corporation v. Central Board of Assessment Appeals 39 the Court
affirmed the ruling of the CBAA and the Court of Tax Appeals en bane applying the "payment under protest"
requirement in Section 252 of the Local Government Code and remanding the case to the LBAA for "further
proceedings subject to a full and up-to-date payment, either in cash or surety, of realty tax on the subject
properties x x x."

Accordingly, the LBAA herein correctly took cognizance of and gave due course to the appeal of Tax
Declaration Nos. 019-6500 and 019-7394 filed by MERALCO.

Beginning January 1, 1992, 

MERALCO can no longer claim 
exemption from real property tax of
its transformers, electric posts, 
transmission lines, insulators, and 
electric meters based on its 
franchise.

MERALCO relies heavily on the Decision dated April 10, 1991 of the CBAA in CBAA Case No. 248, which
affirmed the Decision dated July 5, 1989 of the LBAA in LBAA-89-2. Said decisions of the CBAA and the
LBAA, in turn, cited Board of Assessment Appeals v. Manila Electric Co.,40 which was decided by the Court
way back in 1964 (1964 MERALCO case). The decisions in CBAA Case No. 248 and the 1964 MERALCO
case recognizing the exemption from real property tax of the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO are no longer applicable because of subsequent developments
that changed the factual and legal milieu for MERALCO in the present case.

In the 1964 MERALCO case, the City Assessor of Quezon City considered the steel towers of MERALCO as
real property and required MERALCO to pay real property taxes for the said steel towers for the years 1952 to
1956. MERALCO was operating pursuant to the franchise granted under Ordinance No. 44 dated March 24,
1903 of the Municipal Board of Manila, which it acquired from the original grantee, Charles M. Swift. Under
its franchise, MERALCO was expressly granted the following tax exemption privilege: cralawl awlibrary

Par 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant (not including
poles, wires, transformers, and insulators), machinery and personal property as other persons are or may be
hereafter required by law to pay. x x x Said percentage shall be due and payable at the times stated in
paragraph nineteen of Part One hereof, x x x  and shall be in lieu of all taxes and assessments of whatsoever
nature, and by whatsoever authority upon the privileges, earnings, income, franchise, and poles, wires,
transformers, and insulators of the grantee from which taxes and assessments the grantee is hereby expressly
exempted, x x x.41chanrobleslaw

Given the express exemption from taxes and assessments of the "poles, wires, transformers, and insulators" of
MERALCO in the aforequoted paragraph, the sole issue in the 1964 MERALCO case was whether or not the
steel towers of MERALCO qualified as "poles" which were exempted from real property tax. The Court ruled
in the affirmative, ratiocinating that: cralawl awlibrary

Along the streets, in the City of Manila, may be seen cylindrical metal poles, cubical concrete poles, and poles
of the PLDT Co. which are made of two steel bars joined together by an interlacing metal rod. They are called
"poles" notwithstanding the fact that they are not made of wood. It must be noted from paragraph 9, above
quoted, that the concept of the "poles" for which exemption is granted, is not determined by their place or
location, nor by the character of the electric current it carries, nor the material or form of which it is made, but
the use to which they are dedicated. In accordance with the definitions, a pole is not restricted to a long
cylindrical piece of wood or metal, but includes "upright standards to the top of which something is affixed or
by which something is supported." As heretofore described, respondent's steel supports consist of a framework
of four steel bars or strips which are bound by steel cross-arms atop of which are cross-arms supporting five
high voltage transmission wires (See Annex A) and their sole function is to support or carry such wires.

The conclusion of the CTA that the steel supports in question are embraced in the term "poles" is not a novelty.
Several courts of last resort in the United States have called these steel supports "steel towers", and they have
denominated these supports or towers, as electric poles. In their decisions the words "towers" and "poles" were
used interchangeably, and it is well understood in that jurisdiction that a transmission tower or pole means the
same thing.

x x x x

It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in the petitioner's
franchise, should not be given a restrictive and narrow interpretation, as to defeat the very object for which the
franchise was granted. The poles as contemplated thereon, should be understood and taken as a part of the
electric power system of the respondent Meralco, for the conveyance of electric current from the source thereof
to its consumers, x x x.42 chanrobleslaw

Similarly, it was clear that under the 20-year franchise granted to MERALCO by the Municipal Board of
Lucena City through Resolution No. 2679 dated June 13, 1972, the transformers, electric posts, transmission
lines, insulators, and electric meters of MERALCO were exempt from real property tax. Paragraph 13 of
Resolution No. 2679 is quoted in full below: cralawlawlibrary

13. The grantee shall be liable to pay the same taxes upon its real estate, building, machinery, and personal
property (not including poles, wires, transformers, and insulators) as other persons are now or may
hereafter be required by law to pay. In consideration of the franchise and rights hereby granted, the grantee
shall pay into the City Treasury of Lucena a tax equal to FIVE (5%) PER CENTUM of the gross
earnings received from electric current sold or supplied under this franchise. Said tax shall be due and payable
quarterly and shall be in lieu of any and all taxes of any kind, nature or description levied, established, or
collected by any authority whatsoever, municipal, provincial, or national, now or in the future, on its poles,
wires, insulators, switches, transformers and structures, installations, conductors, and
accessories, placed in and over and under all the private and/or public property, including public streets and
highways, provincial roads, bridges, and public squares, and on its franchise rights, privileges, receipts,
revenues and profits, from which taxes the grantee is hereby expressly exempted. (Emphases supplied.) chanrobleslaw

In CBAA Case No. 248 (and LBAA-89-2), the City Assessor assessed the transformers, electric posts,
transmission lines, insulators, and electric meters of MERALCO located in Lucena City beginning 1985 under
Tax Declaration No. 019-6500. The CBAA in its Decision dated April 10, 1991 in CBAA Case No. 248
sustained the exemption of the said properties of MERALCO from real property tax on the basis of paragraph
13 of Resolution No. 2679 and the 1964 MERALCO case.

Just when the franchise of MERALCO in Lucena City was about to expire, the Local Government Code took
effect on January 1, 1992, Sections 193 and 234 of which provide: cralawlawlibrary

Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts, cooperatives duly registered under
R.A. No. 6938, non-stock and nonprofit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code.

Section 234. Exemptions from Real Property Tax. - The following are exempted from payment of the real
property tax: chanRoblesvirtualLawlibrary

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person; ChanRoblesVirtualawlibrary

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or
religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for
religious, charitable or educational purposes; ChanRoblesVirtualawlibrary

(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and
government-owned or controlled corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power; ChanRoblesVirtualawlibrary

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously granted to, or
presently enjoyed by, all persons, whether natural or juridical, including all government-owned or controlled
corporations are hereby withdrawn upon the effectivity of this Code. chanrobleslaw

The Local Government Code, in addition, contains a general repealing clause under Section 534(f) which
states that "[a]ll general and special laws, acts, city charters, decrees, executive orders, proclamations and
administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this
Code are hereby repealed or modified accordingly."

Taking into account the above-mentioned provisions, the evident intent of the Local Government Code is to
withdraw/repeal all exemptions from local taxes, unless otherwise provided by the Code. The limited and
restrictive nature of the tax exemption privileges under the Local Government Code is consistent with the State
policy to ensure autonomy of local governments and the objective of the Local Government Code to grant
genuine and meaningful autonomy to enable local government units to attain their fullest development as self-
reliant communities and make them effective partners in the attainment of national goals. The obvious
intention of the law is to broaden the tax base of local government units to assure them of substantial sources
of revenue.43

Section 234 of the Local Government Code particularly identifies the exemptions from payment of real
property tax, based on the ownership, character, and use of the property, viz.:cralawlawlibrary

(a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are real properties
owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, and (vi) registered
cooperatives.

(b) Character Exemptions. Exempted from real property taxes on the basis of their character are: (i) charitable
institutions, (ii) houses and temples of prayer like churches, parsonages or convents appurtenant thereto,
mosques, and (iii) nonprofit or religious cemeteries.

(c) Usage exemptions. Exempted from real property taxes on the basis of the actual, direct and exclusive use to
which they are devoted are: (i) all lands, buildings and improvements which are actually directly and
exclusively used for religious, charitable or educational purposes; (ii) all machineries and equipment actually,
directly and exclusively used by local water districts or by government-owned or controlled corporations
engaged in the supply and distribution of water and/or generation and transmission of electric power; and (iii)
all machinery and equipment used for pollution control and environmental protection.

To help provide a healthy environment in the midst of the modernization of the country, all machinery and
equipment for pollution control and environmental protection may not be taxed by local governments.

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or juridical persons
including government-owned or controlled corporations are withdrawn upon the effectivity of the Code.44 chanrobleslaw

The last paragraph of Section 234 had unequivocally withdrawn, upon the effectivity of the Local Government
Code, exemptions from payment of real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided in the same section.

MERALCO, a private corporation engaged in electric distribution, and its transformers, electric posts,
transmission lines, insulators, and electric meters used commercially do not qualify under any of the
ownership, character, and usage exemptions enumerated in Section 234 of the Local Government Code. It is a
basic precept of statutory construction that the express mention of one person, thing, act, or consequence
excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.45 Not being among
the recognized exemptions from real property tax in Section 234 of the Local Government Code, then the
exemption of the transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO
from real property tax granted under its franchise was among the exemptions withdrawn upon the effectivity of
the Local Government Code on January 1, 1998.

It is worthy to note that the subsequent franchises for operation granted to MERALCO, i.e., under the
Certificate of Franchise dated October 28, 1993 issued by the National Electrification Commission and
Republic Act No. 9209 enacted on June 9, 2003 by Congress, are completely silent on the matter of exemption
from real property tax of MERALCO or any of its properties.

It is settled that tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must
point to a specific provision of law conferring on the taxpayer, in clear and plain terms, exemption from a
common burden. Any doubt whether a tax exemption exists is resolved against the taxpayer.46MERALCO has
failed to present herein any express grant of exemption from real property tax of its transformers, electric
posts, transmission lines, insulators, and electric meters that is valid and binding even under the Local
Government Code.

The transformers, electric posts, 

transmission lines, insulators, and electric 
meters of MERALCO may qualify as 
"machinery" under the Local Government 
Code subject to real property tax.

Through the years, the relevant laws have consistently considered "machinery" as real property subject to real
property tax. It is the definition of "machinery" that has been changing and expanding, as the following table
will show:chanRoblesvirtualLawlibrary

Real Property 
Incidence of Real Property Tax Definition of Machinery47
Tax Law
The Assessment Section 2. Incidence of real Section 3. Property exempt from tax.
Law property tax. - Except in chartered - The exemptions shall be as
(Commonwealth Act cities, there shall be levied, assessed, follows:
No. 470) and collected, an annual ad valorem x x x x
tax on real property, including land, (f) Machinery, which term shall
Effectivity: January buildings, machinery, and other embrace machines, mechanical
1, 1940 improvements not hereinafter contrivances, instruments,
specifically exempted. appliances, and apparatus attached to
the real estate, used for industrial
agricultural or manufacturing
purposes, during the first five years
of the operation of the machinery.
Real Property  Section 38. Incidence of Real Section 3. Definition of Terms. -
Tax Code Property Tax. - There shall be When used in this Code -
levied, assessed and collected in all
Effectivity: June 1, provinces, cities and municipalities x x x x
1974 an annual ad valorem tax on real
property, such as land, buildings, (m) Machinery - shall embrace
machinery and other improvements machines, mechanical contrivances,
affixed or attached to real property instruments, appliances and
not hereinafter specifically apparatus attached to the real estate.
exempted. 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.
Real Property  Section 38. Incidence of Real Section 3. Definition of Terms.
Tax Code, as Property Tax. - There shall be   When used in this Code -
amended by levied, assessed and collected in all x x x x
Presidential provinces, cities and municipalities
Decree No. 1383 an annual ad valorem tax on real (m) Machinery - shall embrace
property, such as land, buildings, machines, equipment, mechanical
Effectivity: May 25, machinery and other improvements contrivances, instruments,
1978 affixed or attached to real property appliances and apparatus attached to
not hereinafter specifically the real estate. It shall include the
exempted. physical facilities available for
production, as well as the
installations and appurtenant service
facilities, together with all those not
permanently attached to the real
estate but are actually, directly and
essentially used to meet the needs of
the particular industry, business, or
works, which by their very nature
and purpose are designed for, or
essential to manufacturing,
commercial, mining, industrial or
agricultural purposes.
Local Section 232. Power to Levy Real Section 199. Definitions. - When
Government Property Tax. — A province or city used in this Title:
  Code or a municipality within the x x x x
Metropolitan Manila Area may levy
Effectivity:  an annual ad valorem tax on real (o) "Machinery" embraces machines,
January 1, 1992 property such as land, equipment, mechanical contrivances,
building, machinery, and other instruments, appliances or
improvement not hereinafter apparatuswhich may or may not be
specifically exempted. attached, permanently or
temporarily, to the real property.
It includes the physical facilities for
production, the installations and
appurtenant service facilities, those
which are mobile, self-powered or
self- propelled, and those not
permanently attached to the real
property which are actually, directly,
and exclusively used to meet the
needs of the particular industry,
business or activity and which by
their very nature and purpose are
designed for, or necessary to its
manufacturing, mining,logging,
commercial, industrial or
agricultural  purposes[.]

MERALCO is a public utility engaged in electric distribution, and its transformers, electric posts, transmission
lines, insulators, and electric meters constitute the physical facilities through which MERALCO delivers
electricity to its consumers. Each may be considered as one or more of the following: a
"machine,"48 "equipment,"49 "contrivance,"50 "instrument,"51 "appliance,"52 "apparatus,"53 or "installation."54

The Court highlights that under Section 199(o) of the Local Government Code, machinery, to be deemed real
property subject to real property tax, need no longer be annexed to the land or building as these "may or may
not be attached, permanently or temporarily to the real property," and in fact, such machinery may even be
"mobile."55 The same provision though requires that to be machinery subject to real property tax, the physical
facilities for production, installations, and appurtenant service facilities, those which are mobile, self-powered
or self-propelled, or not permanently attached to the real property (a) must be actually, directly, and
exclusively used to meet the needs of the particular industry, business, or activity; and (2) by their very nature
and purpose, are designed for, or necessary for manufacturing, mining, logging, commercial, industrial, or
agricultural purposes. Thus, Article 290(o) of the Rules and Regulations Implementing the Local Government
Code of 1991 recognizes the following exemption: cralawlawlibrary

Machinery which are of general purpose use including but not limited to office equipment, typewriters,
telephone equipment, breakable or easily damaged containers (glass or cartons), microcomputers, facsimile
machines, telex machines, cash dispensers, furnitures and fixtures, freezers, refrigerators, display cases or
racks, fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to
meet the needs of a particular industry, business or activity shall not be considered within the definition of
machinery under this Rule. (Emphasis supplied.) chanrobleslaw

The 1964 MERALCO case was decided when The Assessment Law was still in effect and Section 3(f) of said
law still required that the machinery be attached to the real property. Moreover, as the Court pointed out
earlier, the ruling in the 1964 MERALCO case  - that the electric poles (including the steel towers) of
MERALCO are not subject to real property tax - was primarily based on the express exemption granted to
MERALCO under its previous franchise. The reference in said case to the Civil Code definition of real
property was only an alternative argument: cralawlawlibrary

Granting for the purpose of argument that the steel supports or towers in question are not embraced
within the term poles, the logical question posited is whether they constitute real properties, so that they
can be subject to a real property tax.The tax law does not provide for a definition of real property;
but Article 415 of the Civil Code does, by stating the following are immovable property: cralawl awlibrary

(1) Land, buildings, roads, and constructions of all kinds adhered to the soil; ChanRoblesVirtualawlibrary

x x x x

(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom
without breaking the material or deterioration of the object; ChanRoblesVirtualawlibrary

x x x x

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry
or works which may be carried in a building or on a piece of land, and which tends directly to meet the needs
of the said industry or works; ChanRoblesVirtualawlibrary

xxxx
The steel towers or supports in question, do not come within the objects mentioned in paragraph 1, because
they do not constitute buildings or constructions adhered to the soil. They are not constructions analogous to
buildings nor adhering to the soil. As per description, given by the lower court, they are removable and merely
attached to a square metal frame by means of bolts, which when unscrewed could easily be dismantled and
moved from place to place. They can not be included under paragraph 3, as they are not attached to an
immovable in a fixed manner, and they can be separated without breaking the material or causing deterioration
upon the object to which they are attached. Each of these steel towers or supports consists of steel bars or metal
strips, joined together by means of bolts, which can be disassembled by unscrewing the bolts and reassembled
by screwing the same. These steel towers or supports do not also fall under paragraph 5, for they are not
machineries or receptacles, instruments or implements, and even if they were, they are not intended for
industry or works on the land. Petitioner is not engaged in an industry or works on the land in which the steel
supports or towers are constructed.56(Emphases supplied.) chanrobleslaw

The aforequoted conclusions of the Court in the 1964 MERALCO  case do not hold true anymore under the
Local Government Code.

While the Local Government Code still does not provide for a specific definition of "real property," Sections
199(o) and 232 of the said Code, respectively, gives an extensive definition of what constitutes "machinery"
and unequivocally subjects such machinery to real property tax. The Court reiterates that the machinery subject
to real property tax under the Local Government Code "may or may not be attached, permanently or
temporarily to the real property;" and the physical facilities for production, installations, and appurtenant
service facilities, those which are mobile, self-powered or self-propelled, or are not permanently attached must
(a) be actually, directly, and exclusively used to meet the needs of the particular industry, business, or activity;
and (2) by their very nature and purpose, be designed for, or necessary for manufacturing, mining, logging,
commercial, industrial, or agricultural purposes.

Article 415, paragraph (1) of the Civil Code declares as immovables or real properties "[l]and, buildings, roads
and constructions of all kinds adhered to the soil." The land, buildings, and roads are immovables by nature
"which cannot be moved from place to place," whereas the constructions adhered to the soil are immovables
by incorporation "which are essentially movables, but are attached to an immovable in such manner as to be an
integral part thereof."57 Article 415, paragraph (3) of the Civil Code, referring to "[ejverything attached to an
immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the
material or deterioration of the object," are likewise immovables by incorporation. In contrast, the Local
Government Code considers as real property machinery which "may or may not be attached, permanently or
temporarily to the real property," and even those which are "mobile."

Article 415, paragraph (5) of the Civil Code considers as immovables or real properties "[machinery,
receptacles, instruments or implements intended by the owner of the tenement for an industry or works which
may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said
industry or works." The Civil Code, however, does not define "machinery."

The properties under Article 415, paragraph (5) of the Civil Code are immovables by destination, or "those
which are essentially movables, but by the purpose for which they have been placed in an immovable, partake
of the nature of the latter because of the added utility derived therefrom." 58 These properties, including
machinery, become immobilized if the following requisites concur: (a) they are placed in the tenement by the
owner of such tenement; (b) they are destined for use in the industry or work in the tenement; and (c) they tend
to directly meet the needs of said industry or works.59 The first two requisites are not found anywhere in the
Local Government Code.

MERALCO insists on harmonizing the aforementioned provisions of the Civil Code and the Local
Government Code. The Court disagrees, however, for this would necessarily mean imposing additional
requirements for classifying machinery as real property for real property tax purposes not provided for, or even
in direct conflict with, the provisions of the Local Government Code.

As between the Civil Code, a general law governing property and property relations, and the Local
Government Code, a special law granting local government units the power to impose real property tax, then
the latter shall prevail. As the Court pronounced in Disomangcop v. The Secretary of the Department of Public
Works and Highways Simeon A. Datumanong60: cralawlawlibrary

It is a finely-imbedded principle in statutory construction that a special provision or law prevails over a general
one. Lex specialis derogant generali. As this Court expressed in the case of Leveriza v. Intermediate Appellate
Court, "another basic principle of statutory construction mandates that general legislation must give way to
special legislation on the same subject, and generally be so interpreted as to embrace only cases in which the
special provisions are not applicable, that specific statute prevails over a general statute and that where two
statutes are of equal theoretical application to a particular case, the one designed therefor specially should
prevail." (Citations omitted.)chanrobleslaw

The Court also very clearly explicated in Vinzons-Chato v. Fortune Tobacco Corporation61 that: cralawl awlibrary

A general law and a special law on the same subject are statutes in pah materia and should, accordingly, be
read together and harmonized, if possible, with a view to giving effect to both. The rule is that where there are
two acts, one of which is special and particular and the other general which, if standing alone, would include
the same matter and thus conflict with the special act, the special law must prevail since it evinces the
legislative intent more clearly than that of a general statute and must not be taken as intended to affect the
more particular and specific provisions of the earlier act, unless it is absolutely necessary so to construe it in
order to give its words any meaning at all.

The circumstance that the special law is passed before or after the general act does not change the principle.
Where the special law is later, it will be regarded as an exception to, or a qualification of, the prior general act;
and where the general act is later, the special statute will be construed as remaining an exception to its terms,
unless repealed expressly or by necessary implication. (Citations omitted.) chanrobleslaw

Furthermore, in Caltex (Philippines), Inc. v. Central Board of Assessment Appeals, 62 the Court acknowledged
that "[i]t is a familiar phenomenon to see things classed as real property for purposes of taxation which on
general principle might be considered personal property[.]"

Therefore, for determining whether machinery is real property subject to real property tax, the definition and
requirements under the Local Government Code are controlling.

MERALCO maintains that its electric posts are not machinery subject to real property tax because said posts
are not being exclusively used by MERALCO; these are also being utilized by cable and telephone companies.
This, however, is a factual issue which the Court cannot take cognizance of in the Petition at bar as it is not a
trier of facts. Whether or not the electric posts of MERALCO are actually being used by other companies or
industries is best left to the determination of the City Assessor or his deputy, who has been granted the
authority to take evidence under Article 304 of the Rules and Regulations Implementing the Local Government
Code of 1991.

Nevertheless, the appraisal and 

assessment of the transformers, electric 
posts, transmission lines, insulators, and 
electric meters of MERALCO as machinery
under Tax Declaration Nos. 019-6500 and
019-7394 were not in accordance with the
Local Government Code and in violation of 
the right to due process of MERALCO and,
therefore, null and void.

The Local Government Code defines "appraisal" as the "act or process of determining the value of property as
of a specific date for a specific purpose." "Assessment" is "the act or process of determining the value of a
property, or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of
the properties[.]"63 When it comes to machinery, its appraisal and assessment are particularly governed by
Sections 224 and 225 of the Local Government Code, which read: cralawlawlibrary

Section 224. Appraisal and Assessment of Machinery. - (a) The fair market value of a brand-new machinery
shall be the acquisition cost. In all other cases, the fair market value shall be determined by dividing the
remaining economic life of the machinery by its estimated economic life and multiplied by the replacement or
reproduction cost.

(b) If the machinery is imported, the acquisition cost includes freight, insurance, bank and other charges,
brokerage, arrastre and handling, duties and taxes, plus cost of inland transportation, handling, and installation
charges at the present site. The cost in foreign currency of imported machinery shall be converted to peso cost
on the basis of foreign currency exchange rates as fixed by the Central Bank.

Section 225. Depreciation Allowance for Machinery. - For purposes of assessment, a depreciation allowance
shall be made for machinery at a rate not exceeding five percent (5%) of its original cost or its replacement or
reproduction cost, as the case may be, for each year of use: Provided, however, That the remaining value for all
kinds of machinery shall be fixed at not less than twenty percent (20%) of such original, replacement, or
reproduction cost for so long as the machinery is useful and in operation. chanrobleslaw

It is apparent from these two provisions that every machinery must be individually appraised and assessed
depending on its acquisition cost, remaining economic life, estimated economic life, replacement or
reproduction cost, and depreciation.

Article 304 of the Rules and Regulations Implementing the Local Government Code of 1991 expressly
authorizes the local assessor or his deputy to receive evidence for the proper appraisal and assessment of the
real property: cralawlawlibrary

Article 304. Authority of Local Assessors to Take Evidence. - For the purpose of obtaining information on
which to base the market value of any real property, the assessor of the province, city, or municipality or his
deputy may summon the owners of the properties to be affected or persons having legal interest therein and
witnesses, administer oaths, and take deposition concerning the property, its ownership, amount, nature, and
value.
chanrobleslaw

The Local Government Code further mandates that the taxpayer be given a notice of the assessment of real
property in the following manner: cralawl awlibrary

Section 223.  Notification of New or Revised Assessment. - When real property is assessed for the first time or
when an existing assessment is increased or decreased, the provincial, city or municipal assessor shall within
thirty (30) days give written notice of such new or revised assessment to the person in whose name the
property is declared. The notice may be delivered personally or by registered mail or through the assistance of
the punong barangay to the last known address of the person to served. chanrobleslaw

A notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending
tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax. 64 In Manila
Electric Company v. Barlis,65 the Court described the contents of a valid notice of assessment of real property
and differentiated the same from a notice of collection:cralawl awlibrary

A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer
of the value of a specific property, or proportion thereof subject to tax, including the discovery, listing,
classification, and appraisal of properties. The September 3, 1986 and October 31, 1989 notices do not contain
the essential information that a notice of assessment must specify, namely, the value of a specific property or
proportion thereof which is being taxed, nor does it state the discovery, listing, classification and appraisal of
the property subject to taxation. In fact, the tenor of the notices bespeaks an intention to collect unpaid taxes,
thus the reminder to the taxpayer that the failure to pay the taxes shall authorize the government to auction off
the properties subject to taxes x x x.
chanrobleslaw

Although the ruling quoted above was rendered under the Real Property Tax Code, the requirement of a notice
of assessment has not changed under the Local Government Code.

A perusal of the documents received by MERALCO on October 29, 1997 reveals that none of them constitutes
a valid notice of assessment of the transformers, electric posts, transmission lines, insulators, and electric
meters of MERALCO.

The letter dated October 16, 1997 of the City Treasurer of Lucena (which interestingly precedes the purported
Notice of Assessment dated October 20, 1997 of the City Assessor of Lucena) is a notice of collection, ending
with the request for MERALCO to settle the payable amount soon in order to avoid accumulation of penalties.
It only presented in table form the tax declarations covering the machinery, assessed values in the tax
declarations in lump sums for all the machinery, the periods covered, and the taxes and penalties due again in
lump sums for all the machinery.

The Notice of Assessment dated October 20, 1997 issued by the City Assessor gave a summary of the
new/revised assessment of the "machinery" located in "Quezon Avenue Ext., Brgy. Gulang-Gulang, Lucena
City," covered by Tax Declaration No. 019-7394, with total market value of P98,173,200.00 and total assessed
value of P78,538,560.00. The Property Record Form basically contained the same information. Without
specific description or identification of the machinery covered by said tax declaration, said Notice of
Assessment and Property Record Form give the false impression that there is only one piece of machinery
covered.

In Tax Declaration No. 019-6500, the City Assessor reported its findings under "Building and Improvements"
and not "Machinery." Said tax declaration covered "capital investment-commercial," specifically: (a)
Transformer and Electric Post; (b) Transmission Line, (c) Insulator, and (d) Electric Meter, with a total market
value of P81,811,000.00, assessment level of 80%, and assessed value of £65,448,800.00. Conspicuously, the
table for "Machinery" - requiring the description, date of operation, replacement cost, depreciation, and market
value of the machinery - is totally blank.

MERALCO avers, and the City Assessor and the City Treasurer of Lucena do not refute at all, that
MERALCO has not been furnished the Owner's Copy of Tax Declaration No. 019-7394, in which the total
market value of the machinery of MERALCO was increased by PI6,632,200.00, compared to that in Tax
Declaration No. 019-6500.

The Court cannot help but attribute the lack of a valid notice of assessment to the apparent lack of a valid
appraisal and assessment conducted by the City Assessor of Lucena in the first place. It appears that the City
Assessor of Lucena simply lumped together all the transformers, electric posts, transmission lines, insulators,
and electric meters of MERALCO located in Lucena City under Tax Declaration Nos. 019-6500 and 019-7394,
contrary to the specificity demanded under Sections 224 and 225 of the Local Government Code for appraisal
and assessment of machinery. The City Assessor and the City Treasurer of Lucena did not even provide the
most basic information such as the number of transformers, electric posts, insulators, and electric meters or the
length of the transmission lines appraised and assessed under Tax Declaration Nos. 019-6500 and 019-7394.
There is utter lack of factual basis for the assessment of the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO.

The Court of Appeals laid the blame on MERALCO for the lack of information regarding its transformers,
electric posts, transmission lines, insulators, and electric meters for appraisal and assessment purposes because
MERALCO failed to file a sworn declaration of said properties as required by Section 202 of the Local
Government Code. As MERALCO explained, it cannot be expected to file such a declaration when all the
while it believed that said properties were personal or movable properties not subject to real property tax. More
importantly, Section 204 of the Local Government Code exactly covers such a situation, thus: cralawl awlibrary

Section 204. Declaration of Real Property by the Assessor. -When any person, natural or juridical, by whom
real property is required to be declared under Section 202 hereof, refuses or fails for any reason to make such
declaration within the time prescribed, the provincial, city or municipal assessor shall himself declare the
property in the name of the defaulting owner, if known, or against an unknown owner, as the case may be, and
shall assess the property for taxation in accordance with the provision of this Title. No oath shall be required of
a declaration thus made by the provincial, city or municipal assessor. chanrobleslaw

Note that the only difference between the declarations of property made by the taxpayer, on one hand, and the
provincial/city/municipal assessor, on the other, is that the former must be made under oath. After making the
declaration of the property himself for the owner, the provincial/city/municipal assessor is still required to
assess the property for taxation in accordance with the provisions of the Local Government Code.

It is true that tax assessments by tax examiners are presumed correct and made in good faith, with the taxpayer
having the burden of proving otherwise.66 In this case, MERALCO was able to overcome the presumption
because it has clearly shown that the assessment of its properties by the City Assessor was baselessly and
arbitrarily done, without regard for the requirements of the Local Government Code.

The exercise of the power of taxation constitutes a deprivation of property under the due process clause, and
the taxpayer's right to due process is violated when arbitrary or oppressive methods are used in assessing and
collecting taxes. 67 The Court applies by analogy its pronouncements in Commissioner of Internal Revenue v.
United Salvage and Towage (Phils.), Inc.,68 concerning an assessment that did not comply with the
requirements of the National Internal Revenue Code: cralawlawlibrary

On the strength of the foregoing observations, we ought to reiterate our earlier teachings that "in balancing the
scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the
law on one side, and the constitutional rights of a citizen to due process of law and the equal protection of the
laws on the other, the scales must tilt in favor of the individual, for a citizen's right is amply protected by the
Bill of Rights under the Constitution." Thus, while "taxes are the lifeblood of the government," the power to
tax has its limits, in spite of all its plenitude. Even as we concede the inevitability and indispensability of
taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with
the prescribed procedure. (Citations omitted.) chanrobleslaw

The appraisal and assessment of the transformers, electric posts, transmission lines, insulators, and electric
meters of MERALCO under Tax Declaration Nos. 019-6500 and 019-7394, not being in compliance with the
Local Government Code, are attempts at deprivation of property without due process of law and, therefore,
null and void.

WHEREFORE, premises considered, the Court PARTLY GRANTS the instant Petition and AFFIRMS

with MODIFICATION the Decision dated May 13, 2004 of the Court of Appeals in CA-G.R. SP No. 67027,
affirming in toto the Decision dated May 3, 2001 of the Central Board of Assessment Appeals in CBAA Case
No. L-20-98. The Court DECLARES that the transformers, electric posts, transmission lines, insulators, and
electric meters of Manila Electric Company are NOT EXEMPTED from real property tax under the Local
Government Code. However, the Court also DECLARES the appraisal and assessment of the said properties
under Tax Declaration Nos. 019-6500 and 019-7394 as NULL and VOID for not complying with the
requirements of the Local Government Code and violating the right to due process of Manila Electric
Company, and ORDERS the CANCELLATION of the collection letter dated October 16, 1997 of the City
Treasurer of Lucena and the Notice of Assessment dated October 20, 1997 of the City Assessor of Lucena,
but WITHOUT PREJUDICE to the conduct of a new appraisal and assessment of the same properties by the
City Assessor of Lucena in accord with the provisions of the Local Government Code and guidelines issued by
the Bureau of Local Government Financing.

SO ORDERED. chanroblesvirtuallawlibrary

Sereno, CJ., (Chairperson), Bersamin, Perez, and Perlas-Bernabe, JJ., concur.

Endnotes:

SECOND DIVISION
[ G.R. No. 217336, October 17, 2018 ]
REPUBLIC OF THE PHILIPPINES, PETITIONER, VS. SPS. ILDEFONSO ALEJANDRE AND
ZENAIDA FERRER ALEJANDRE, RESPONDENTS.

DECISION
CAGUIOA, J:
Before the Court is a petition for review on certiorari[1] (Petition) under Rule 45 of the Rules of Court (Rules) assailing the
Decision[2] dated February 27, 2015 (Decision) of the Court of Appeals [3] (CA) in CA-G.R. CV No. 101259, which sustained the
Amended Decision[4] dated June 12, 2008 of the Regional Trial Court of Bangued, Abra, Branch 2 (RTC) in LRC Case No. N-20,
which granted the respondents' application for registration of Lot 6487, Cad. 536, Ap-CAR-000007, with an area of 256 square
meters located at Barrio Poblacion, Municipality of Bangued, Province of Abra.

The Facts

The CA Decision narrates the antecedents as follows:

On July 18, 1991, Spouses Alejandre (applicants-spouses, for brevity) filed an application for the registration of Lot No. 6487
under P.D. No. 1529, described in plan Ap-CAR-000007, Cad-536, with an area of 256 square meters. They alleged that they are
the owners of the subject property by virtue of a deed of sale or conveyance; that the subject property was sold to them by its
former owner Angustia Lizardo Taleon by way of a Deed of Absolute Sale executed on June 20, 1990; that the said land is
presently occupied by the applicants-spouses.

On September 16, 1991, the Office of the Solicitor General, as counsel for the Republic, entered its appearance.

On November 12, 1991, the Land Registration Authority (LRA, for brevity) submitted a Report noting that there were
discrepancies in the plan submitted by the applicant spouses, which discrepancies were referred to the Lands Management Sector
for verification and correction.

On January 30, 1992, the trial court issued an order of general default and allowed the applicants-spouses to present their
evidence.

On July 20, 1992, the trial court granted the applicant spouses' motion to submit original tracing cloth plan and technical
description for purposes of facilitating the approval of the re-surveyed plans as well as the submission of the new plan for the
scrutiny and approval of the LRA.

On August 10, 1992, the applicants-spouses filed their Formal Offer of Evidence. On April 26, 1993, they submitted the
corrected advance plan and technical description to the trial court.

On August 20, 1993, the LRA submitted its Supplementary Report stating that the "polygon does not close" even after the
corrections effected on the bearings and distances of the technical description were made. Hence, the LRA requested for
reverification and correction.

In an Order dated December 10, 1997, the trial court deemed the case submitted for decision.

Subsequently, or on April 15, 1998, the LRA submitted its Final Report stating that it applied the corrected technical description
of the subject lot and no more discrepancy exists, however, the area was increased by six (6) meters. As such, on August 24,
1998, the trial court ordered the submission of publication of the amended or new technical description. On May 6, 2000, the trial
court issued another Notice setting the case for Initial Hearing on July 25, 2000.

On June 1, 2000, the Republic filed its Opposition to the application based on the following grounds: (1) that neither the
applicants nor their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of
the land in question since June 12, 1945 or earlier as required by Section 48 (b) of Commonwealth Act No. 141 (CA 141), x x x
as amended by Presidential Decree No. 1073 (PD 1073); (2) that applicants failed to adduce any muniment of title and/or the tax
declarations with the petition to evidence bona fideacquisition of the land applied for or of its open, continuous, exclusive and
notorious possession and occupation thereof in the concept of an owner since 12 June 1945 or earlier; that the tax declaration
adverted to in the petition does not appear to be genuine and the tax declaration indicates pretended possession of applicants to be
of recent vintage[;] and (3) that the subject property applied for is a portion of the public domain belonging to the Republic of the
Philippines which is not subject to private appropriation.

After trial, the trial court rendered its Decision dated March 31, 2006 granting the application for registration of title, the
dispositive portion of which reads:
"WHEREFORE, premises considered, the Court finds the application to be well-taken and the same is hereby granted.

Let a copy of this decision be furnished the Land Registration Authority, Office of the Solicitor General and Bureau of Lands.

SO ORDERED."
On June 12, 2008, the trial court issued the Amended Decision which increased the area subject for land registration to two
hundred sixty-two square meters (262 sqm) from two hundred fifty-six square meters (256 sqm) from the original decision.

Disagreeing with the trial court's grant of the application for land registration, the Republic interposed [an] appeal [to the CA].[5]
Ruling of the CA

The CA in its Decision[6] dated February 27, 2015 denied the appeal of the Republic. The dispositive portion thereof states:
WHEREFORE, premises considered, the present appeal is DENIED. Accordingly, the Amended Decision of the Regional Trial
Court of Bangued, Abra, Branch 2, is SUSTAINED.

SO ORDERED.[7]
The CA justified that based on the allegations of the applicants spouses Ildefonso Alejandre and Zenaida Ferrer Alejandre
(respondents) in their application for land registration and subsequent pleadings, they come under paragraph 4 of Section 14,
Presidential Decree No. (PD) 1529[8] - those who have acquired ownership of lands in any manner provided for by law - because
they acquired the land in question by virtue of a Deed of Absolute Sale executed on June 20, 1990[9] from Angustia Alejandre
Taleon who acquired the land from her mother by inheritance.[10]

The Republic filed the instant Petition without filing a motion for reconsideration with the CA on the ground that the CA decided
the Republic's appeal in gross disregard of the law and in a manner not in accordance with the applicable decisions of the Court.
[11]

Respondents filed their "Comment and Compliance"[12] dated July 18, 2016. The Republic filed a Reply[13] dated March 3, 2017.

The Issue

The Petition raises this sole issue: whether the CA seriously misappreciated the facts as well as made findings which are
inconsistent with, or not supported by, the evidence on record; and gravely misapplied the applicable laws and jurisprudence.[14]

The Court's Ruling

The Petition is impressed with merit.

The RTC Amended Decision justified the granting of the application for land registration under the Property Registration Decree
(PD 1529) on these factual findings:
It appears from the evidence presented that the applicants acquired the property sought to be registered by means of a Deed of
Absolute Sale [dated June 20, 1990 (Exh. "K" to "K5")] executed by Angustia Alejandre Taleon as vendor in favor of the
petitioners spouses Ildefonso Alejandre and Zenaida F. Alejandre as vendees. Said property was previously inherited by the
vendor from her late mother Angustia Alejandre who inherited the same property from Don Santiago Alejandre, the grandfather
of the applicant Dr. Ildefonso Alejandre.[15]
The CA sustained the RTC Amended Decision in this wise:
Under Section 14 of PD No. 1529, there are four (4) types of applicants who may apply for registration of title to land[,] viz[.]:
Section 14. Who may apply. The following persons may file in the proper Court of First Instance 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.

(2) Those who have acquired ownership of private lands by prescription under the provision of existing laws.

(3) Those who have acquired ownership of private lands or abandoned river beds by right of accession or accretion under the
existing laws.

(4) Those who have acquired ownership of land in any other manner provided for by law. (Italics and Emphasis Ours)
In the case at bar, basing from the allegations of the applicants spouses in their application for land registration and subsequent
pleadings, clearly, they come under Paragraph 4 of the quoted section and not under Paragraph 1 of the same section. It is
undisputed that they acquired the land in question by virtue of a Deed of Absolute Sale executed on June 20, 1990 from Angustia
Alejandre Taleon who acquired the land from her mother by inheritance. In other words, the applicant spouses acquired
ownership over Lot 6487 through a contract of sale, which is well within the purview of Paragraph 4 of Section 14 of P.D. No.
1529.

As a consequence, the requirement of open, continuous, exclusive and notorious possession and/or occupation in the concept of
an owner has no application in the case at bar. Not even the requirement that the land applied for should have been declared
disposable and alienable applies considering that this is just one of the requisites to be proven when applicants for land
registration fall under Paragraph 1 of Section 14 of P.D. No. 1529, which is not the case at bar.[16]
The Republic argues that under the law, citing Section 24 of PD 1529 and Section 48(b) of Commonwealth Act No. 141, [17] as
amended by Section 4 of PD 1073,[18] before an applicant can register his title over a particular parcel of land, he must show that:
(a) he, by himself or through his predecessors-in-interest, has been in open, continuous, exclusive and notorious possession and
occupation of the subject land under a bona fide claim of ownership since June 12, 1945, or earlier; and (b) the subject land falls
within the alienable and disposable portion of the public domain.[19]

The Republic also argues, citing Republic v. Sayo,[20] Director of Lands v. IAC[21] and Director of Lands v. Aquino,[22] that in land
registration proceedings, the applicant has the burden of overcoming the presumption that the land sought to be registered
belongs to the public domain or the presumption of State ownership of the lands of the public domain. [23]

Citing Bracewell v. Court of Appeals,[24] the Republic further posits that to prove that the subject land 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 Land investigators, and a legislative act or a statute, declaring the land as
already alienable and disposable.[25]

Pursuant to Article 419 of the Civil Code, property, in relation to the person to whom it belongs, is either of public dominion or
of private ownership. As such, properties are owned either in a public capacity (dominio publico) or in a private capacity
(propiedad privado).[26]

There are three kinds of property of public dominion: (1) those intended for public use; (2) those intended for some public
service; and (3) those intended for the development of national wealth. This is provided in Article 420 of the Civil Code, to wit:
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.
With respect to provinces, cities and municipalities or local government units (LGUs), property for public use "consist of the
provincial roads, city streets, municipal streets, the squares, fountains, public waters, promenades, and public works for public
service paid for by said provinces, cities, or municipalities." [27]

In turn, the Civil Code classifies property of private ownership into three categories: (1) patrimonial property of the State under
Articles 421 and 422; (2) patrimonial property of LGUs under Article 424; and (3) property belonging to private individuals
under Article 425, hence:
ART. 421. All other property of the State, which is not of the character stated in the preceding article, is patrimonial property.

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.
x x x x

ART. 424. Property for public use, in the provinces, cities, and municipalities, consist of the provincial roads, city streets,
municipal streets, the squares, fountains, public waters, promenades, and public works for public service paid for by said
provinces, cities, or municipalities.

All other property possessed by any of them is patrimonial and shall be governed by this Code, without prejudice to the
provisions of special laws.

ART. 425. Property of private ownership, besides the patrimonial property of the State, provinces, cities, and municipalities,
consists of all property belonging to private persons, either individually or collectively.
From the foregoing, property of private ownership or patrimonial property of the State may be sub-classified into:

(1) "By nature or use" or those covered by Article 421, which are not property of public dominion or imbued with public purpose
based on the State's current or intended use; and

(2) "By conversion" or those covered by Article 422, which previously assumed the nature of property of public dominion by
virtue of the State's use, but which are no longer being used or intended for said purpose. Since those properties could only come
from property of public dominion as defined under Article 420, "converted" patrimonial property of the State are separate from
and not a subset of patrimonial property "by nature or use" under Article 421.

With respect to lands, which are immovable property pursuant to Article 415(1) of the Civil Code, they can either be lands of
public dominion or of private ownership following the general classification of property under Article 419.

Section 3, Article XII of the 1987 Constitution, which embodies the Regalian doctrine, classifies lands of the public domain into
five categories - agricultural lands, forest lands, timber lands, mineral lands, and national parks. The provision states:
SEC. 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 to which they may be
devoted. Alienable lands of the public domain shall be limited to agricultural lands. x x x (Emphasis supplied)
Section 3 mandates that only lands classified as agricultural may be declared alienable, and thus susceptible of private ownership.
As the connotative term suggests, the conversion of land of the public domain into alienable and disposable opens the latter to
private ownership.[28] At that point (i.e., upon the declaration of alienability and disposability), the land ceases to possess the
characteristics inherent in properties of public dominion that they are outside the commerce of man, cannot be acquired by
prescription, and cannot be registered under the land registration law, [29] and accordingly assume the nature of patrimonial
property of the State that is property owned by the State in its private capacity.

As noted by Justice Edgardo L. Paras:

It is believed that forest and mining lands are properties of public dominion of the third class, i.e., properties for the development
of the national wealth. Upon the other hand, the public agricultural lands before being made available to the general public should
also be properties of public dominion for the development of the national wealth (and as such may not be acquired by
prescription); but after being made so available, they become patrimonial property of the State, and therefore subject to
prescription. Moreover, once already acquired by private individuals, they become private property. x x x[30] (Emphasis
and underscoring supplied)
Thus, it can be gathered from the foregoing that the subject of the land registration application under Section 14 of PD 1529 is
either alienable and disposable land of public domain or private land. While Section 14(4) does not describe or identify the kind
of land unlike in (1), which refer to "alienable and disposable lands of the public domain;" (2), which refer to "private lands"; and
(3) "private lands or abandoned river beds," the land covered by (4) cannot be other than alienable and disposable land of public
domain, i.e., public agricultural lands[31] and private lands or lands of private ownership in the context of Article 435.

This premise proceeds from the well-entrenched rule that all lands not appearing to be clearly of private dominion or ownership
presumptively belong to the State.[32] Accordingly, public lands not shown to have been classified, reclassified or released as
alienable agricultural land or alienated to a private person by the State remain part of the inalienable lands of public
domain.[33] Therefore, the onus to overturn, by incontrovertible evidence, the presumption that the land subject of an
application for registration is alienable and disposable rests with the applicant. [34]

Respondents, based on the evidence that they adduced, are apparently claiming ownership over the land subject of their
application for registration by virtue of tradition, as a consequence of the contract of sale, and by succession in so far as their
predecessors-in-interest are concerned. Both modes are derivative modes of acquiring ownership. Yet, they failed to prove the
nature or classification of the land. The fact that they acquired the same by sale and their transferor by succession is not
incontrovertible proof that it is of private dominion or ownership. In the absence of such incontrovertible proof of private
ownership, the well-entrenched presumption arising from the Regalian doctrine that the subject land is of public domain or
dominion must be overcome. Respondents failed to do this.
The real property tax declarations (Exhibits "L" and "M"), the Deed of Absolute Sale dated June 20, 1990 (Exhibit "K" to "K5"),
and the technical descriptions of the subject property (Exhibit "J") are insufficient evidence to overcome the presumption that the
land subject of the registration is inalienable land of public domain or dominion. Thus, respondents' application for land
registration should not have been granted.

WHEREFORE, the Petition is hereby GRANTED. The Decision dated February 27, 2015 of the Court of Appeals in CA-G.R.
CV No. 101259 and the Amended Decision dated June 12, 2008 of the Regional Trial Court of Bangued, Abra, Branch 2 in LRC
Case No. N-20 are REVERSED and SET ASIDE. Respondents' application for registration in LRC Case No. N-20
is DISMISSED without prejudice.

SO ORDERED.

SECOND DIVISION

G.R. No. 208480, September 25, 2019

REPUBLIC OF THE PHILIPPINES, PETITIONER, v. NATIONAL COMMISSION ON

INDIGENOUS PEOPLES, REGISTER OF DEEDS OF BAGUIO CITY, LAND REGISTRATION
AUTHORITY, HEIRS OF COSEN PIRASO, REPRESENTED BY RICHARD A. ACOP, HEIRS OF
JOSEPHINE MOLINTAS ABANAG, REPRESENTED BY ISAIAS M. ABANAG, MARION T. POOL,
JOAN L. GORIO, AND VIRGINIA C. GAO-AN, RESPONDENTS.

DECISION

CARPIO, ACTING C.J.:

The Case

Before this Court is a Petition for Review1 under Rule 45 of the Rules of Court assailing the Decision2and
Resolution3 of the Court of Appeals in CA-G.R. SP No. 126498 dated 15 January 2013 and22 July 2013,
respectively. The Decision dismissed the Petition for Certiorari, Prohibition and Mandamus with Prayer for
the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction filed by petitioner
Republic of the Philippines (Republic) against public respondent National Commission on Indigenous Peoples
(NCIP). The NCIP issued Certificates of Ancestral Land Title (CALTs) in favor of private respondents, the
heirs of Cosen Piraso (Pirasos) and private respondents, the heirs of Josephine Molintas Abanag (Abanags)
through Resolution Nos. 107-2010-AL4 and 108-2010-AL,5 both dated 10 November 2010. Subsequently,
public respondent Land Registration Auhority (LRA) issued the corresponding Transfer Certificates of Title
(TCTs) covering the said properties.6

The Antecedent Facts

Below are the facts of the case according to the Decision7 of the Court of Appeals:
In Resolution No. 107-2010-AL, the petitioners are the heirs of Co[s]en "Sarah" Piraso, the daughter of Piraso,
otherwise known as Kapitan Piraso, an Ibaloi, who occupied an ancestral land located at what is known as
Session Road, Baguio City. Aside from having five (5) children, Kapitan Piraso also adopted, in accordance
with the Ibaloi tradition, a son in the name of Nimer. Nimer and his family, in turn, [have] been planting and
harvesting vegetables and fruit-bearing trees on several portions of the ancestral land.

Thereafter, the petitioners as represented by Richard A. Acop filed an application for the identification,
delineation and recognition of the ancestral land initially before Baguio NCIP City Office pursuant to the
provisions of R.A. 8371, otherwise known as the Indigenous Peoples' Rights Act of 1997 (IPRA). The
petitioners alleged that the subject ancestral land has been occupied, possessed, and utilized by them and their
[predecessors]-in-interest for so many years. Subsequently, the NCIP recognized the petitioners' rights over the
subject parcels of ancestral land after finding that the genealogy of the petitioners shows an unbroken line of
generations starting from Piraso who have never left the subject ancestral land for the last 120 years.

In view of said findings, the NCIP ordered the issuance of eight (8) Certificates of Ancestral Land Titles
(CALTs) under the petitioners' names as well as that of Nimer.

With respect to Resolution No. 108-2010-AL, the petitioners are the heirs of Josephine Molintas Abanag, who
in turn was a descendant of an Ibaloi native named Menchi. Menchi originally owned several parcels of
ancestral land located in various parts of what is now known as Baguio City and these parcels were
subsequently inherited by his descendants.

Consequently, the petitioners as represented by Isaias M. Abanag and Marion T. Pool filed a petition for the
identification, delineation and recognition of their ancestral lands in Baguio City pursuant to R.A. 8371.
Thereafter, an ocular inspection was conducted which revealed the coverage of the ancestral lands of the
Molintas. In addition, the petitioners therein also submitted numerous pieces of documentary evidence such as
the narrative of customs and traditions of the Ibaloi community in Baguio City, Assessment of Real Property,
Tax receipts, photographs of improvements, rituals, and members of the Molintas family led by Josephine
Molintas Abanag. In the end, the NCIP granted the petition and ordered the issuance of twenty-eight (28)
CALTs covering the same number of parcels of ancestral land in the name of the petitioners and Joan L. Gorio,
a transferee often (10) parcels of land from the heirs of Josephine Molintas Abanag.

Almost two (2) years after, here now comes the Republic of the Philippines as represented by the Office of the
Solicitor General (OSG) seeking to annul, reverse and set aside the assailed Resolutions of the NCIP through
this instant petition x x x.8

The Resolutions of the NCIP

In its Resolution No. 107-2010-AL9 and Resolution No. 108-2010-AL10 dated 10 November 2010, the NCIP
held that private respondents Pirasos and Abanags have vested rights over their ancestral lands on the basis of
a native title and as mandated by Article XII, Section 5 of the 1987 Constitution and Republic Act No. 8371
(RA 8371), otherwise known as "The Indigenous Peoples' Rights Act of 1997."

The NCIP described native title as "the interests and rights of indigenous inhabitants in land, whether
communal, group or individual, possessed under the traditional laws acknowledged by, and the traditional
customs observed by, the indigenous inhabitants."11 It "has its origin in and is given its content by the
traditional laws acknowledged by and the traditional customs observed by the indigenous inhabitants of a
territory. The nature and incidents of native title must be ascertained as a matter of fact by reference to those
laws and customs."12 The NCIP held that the Pirasos and Abanags' entitlement to the land is mandated by
Article XII, Section 5 of the 1987 Constitution which provides that "[t]he State, subject to the provisions of
this Constitution and national development policies and programs, shall protect the rights of indigenous
cultural communities to their ancestral lands to ensure their economic, social, and cultural well-being."

The said Resolutions granted both Petitions and directed the Ancestral Domains Office, through the Director,
to prepare the necessary CALTs for each respective parcel of land described. The NCIP ruled in both
Resolutions that the Pirasos and the Abanags are guaranteed the right to their ancestral lands provided for
under Section 8,13 RA 8371, and such other rights granted by law.

The dispositive portion of Resolution No. 107-2010-AL provides:

WHEREFORE, premises considered, Petition is hereby GRANTED and the Ancestral Domains Office,
through the Director is directed to prepare eight (8) Certificate of Ancestral Land Titles (CALTs) for each of
the respective parcel of land described in the technical descriptions hereto attached, bearing CALT number as
follows:
 1. CALT NO. CAR-BAG-1110-000268 for Parcel Lot 1
2. CALT NO. CAR-BAG-1110-000269 for Parcel Lot 2
3. CALT NO. CAR-BAG-1110-000270 for Parcel Lot 3
4. CALT NO. CAR-BAG-1110-000271 for Parcel Lot 4
5. CALT NO. CAR-BAG-1110-000272 for Parcel Lot 5
6. CALT NO. CAR-BAG-1110-000273 for Parcel Lot 6
7. CALT NO. CAR-BAG-1110-000274 for Parcel Lot 7 and
8. CALT NO. CAR-BAG-1110-000275 for Parcel Lot 8

Lot No. 1 shall be in the name of Manuel Nimer, of legal age, married, Filipino citizen, and with residence and
postal address at Upper Session Road, Baguio City while Lot Nos. 2, 3 and 4 shall be in the name of the Heirs
of Cosen Piraso represented by Richard A. Acop, of legal age, married, Filipino citizen, and with residence and
postal address at Acop, Tublay, Benguet Province and Lot Nos. 3, 5, 6, 7 and 8 shall be in the name of Joan L.
Gorio of legal age, single, Filipino citizen, and with residence and postal address at Romulo Drive, Pacdal,
Baguio City.

Petitioners are guaranteed the right to ancestral lands provided for under Section 8, R.A. 8371 and such other
rights granted by law.

SO ORDERED.14
The dispositive portion of Resolution No. 108-2010-AL provides:
WHEREFORE, premises considered, Petition is hereby GRANTED and the Ancestral Domains Office,
through the Director, is directed to prepare Certificate of Ancestral Land Titles (CALTs) for each of the
respective parcel of ancestral land described in the technical descriptions, bearing CALT number as follows:    

1. CALT NO. CAR-BAG-1110-000276 for Parcel Lot 1

2. CALT NO. CAR-BAG-1110-000277 for Parcel Lot 2
3. CALT NO. CAR-BAG-1110-000278 for Parcel Lot 3
4. CALT NO. CAR-BAG-1110-000279 for Parcel Lot 4
5. CALT NO. CAR-BAG-1110-000280 for Parcel Lot 5
6. CALT NO. CAR-BAG-1110-000281 for Parcel Lot 6
7. CALT NO. CAR-BAG-1110-000282 for Parcel Lot 7
8. CALT NO. CAR-BAG-1110-000283 for Parcel Lot 8
9. CALT NO. CAR-BAG-1110-000284 for Parcel Lot 9
10. CALT NO. CAR-BAG-1110-000285 for Parcel Lot 10
11. CALT NO. CAR-BAG-1110-000286 for Parcel Lot 11
12. CALT NO. CAR-BAG-1110-000287 for Parcel Lot 12
13. CALT NO. CAR-BAG-1110-000288 for Parcel Lot 13
14. CALT NO. CAR-BAG-1110-000289 for Parcel Lot 14
15. CALT NO. CAR-BAG-1110-000290 for Parcel Lot 15
16. CALT NO. CAR-BAG-1110-000291 for Parcel Lot 16
17. CALT NO. CAR-BAG-1110-000292 for Parcel Lot 17
18. CALT NO. CAR-BAG-1110-000293 for Parcel Lot 18
19. CALT NO. CAR-BAG-1110-000294 for Parcel Lot 19
20. CALT NO. CAR-BAG-1110-000295 for Parcel Lot 20
21. CALT NO. CAR-BAG-1110-000296 for Parcel Lot 21
22. CALT NO. CAR-BAG-1110-000297 for Parcel Lot 22
23. CALT NO. CAR-BAG-1110-000298 for Parcel Lot 23
24. CALT NO. CAR-BAG-1110-000299 for Parcel Lot 24
25. CALT NO. CAR-BAG-1110-000300 for Parcel Lot 25
26. CALT NO. CAR-BAG-1110-000301 for Parcel Lot 26
27. CALT NO. CAR-BAG-1110-000302 for Parcel Lot 27
 28. CALT NO. CAR-BAG-1110-000303 for Parcel Lot 28

Lots 1, 2, 4, 5, 6, 8, 10, 14, 15, 16, 18, and 21 will each be issued Certificates of Ancestral Land Title in the
name of the Heirs of Josephine Abanag and Heirs of Mercedes A. Tabon, represented by Isaias Abanag, of
legal age, single, Filipino, and with residence and postal address at No. 1 Gibraltar Road, Pacdal, Baguio City
and Marion T. Pool, of legal age, widow, Filipino, and with residence and postal address at No. 1 Gibraltar
Road, Pacdal, Baguio City[.]

Lots 11, 12, 13, 19, 22, 23, 25, 26, 27, and 30 will each be issued Certificates of Ancestral Land Title in the
name of Joan L. Gorio, of legal age, single, Filipino citizen and with residence and postal address at Romulo
Drive, Pacdal, Baguio City[.]

Lots 3, 7, 9, 20, 24, 29, 31 ad 32 will each be issued Certificates of Ancestral Land Title in the name of
Virginia C. Gao-an, of legal age, single, Filipino citizen, and with residence and postal address at Justice
Village, Baguio City.

Lot 17 will be issued a Certificate of Ancestral Land Title in the name of Virginia C. Gao-an, of legal age,
single, Filipino citizen, and with residence and postal address at Justice Village, Baguio City and the 600 sq.m.
portion thereof will be in the name of Isaias Abanag, of legal age, single, Filipino citizen, and with residence
and postal address at No. 1 Gibraltar Road, Baguio City.

Lot 28 will be in the name of Virginia C. Gao-an, of legal age, single, Filipino citizen, and with residence and
postal address at Justice Village, Baguio City and the 1,000 sq.m. in the name of Isaias Abanag, of legal age,
single, Filipino citizen, and with residence and postal address at No. 1 Gibraltar Road, Baguio City.

There was a Deed of Undertaking by the Petitioners supporting their claim. Petitioners are guaranteed the right
to ancestral lands provided for under Section 8, R.A. 8371 and such other rights granted by law.

SO ORDERED.15

The Ruling of the Court of Appeals

In its Decision16 promulgated on 15 January 2013, the Court of Appeals "agrees with the finding of the NCIP
that Baguio City is no different from any part of the Philippines and that there is no sensible difference that
merits the city's exclusion from the coverage of the IPRA x x x." 17 The dispositive portion of the ruling
provides:
WHEREFORE, premises considered, the instant Petition for Certiorari, Prohibition and Mandamus is
DENIED for lack of merit, the Prayer for Issuance of a Temporary Restraining Order and/or Writ of
Preliminary Injunction are DENIED for being moot and academic and the assailed Resolution Nos. 107-2010-
AL and 108-2010-AL both dated 10 November 2010 and both rendered by the National Commission on
Indigenous Peoples are hereby AFFIRMED.

SO ORDERED.18

The Issues

In this Petition, the Republic of the Philippines seeks a reversal of the decision of the Court of Appeals and
raises the following arguments:

A. THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR

WHEN IT DECLARED THAT LANDS WITHIN BAGUIO CITY AND THE BAGUIO
 TOWNSITE RESERVATION ARE COVERED BY IPRA, CONTRARY TO LAW AND
JURISPRUDENCE COROLLARY FOR THE FOLLOWING REASONS:
1. THE BAGUIO TOWNSITE RESERVATION, WITH THE EXCEPTION OF
EXISTING PROPERTY RIGHTS RECOGNIZED OR VESTED BEFORE THE
EFFECTIVITY OF THE IPRA, IS EXEMPT FROM THE COVERAGE OF SAID
LAW AS PROVIDED IN SECTION 78 THEREOF.

2. THE NCIP HAS NO JURISDICTION TO ISSUE CALTS OVER LANDS WITHIN

BAGUIO CITY AND THE BAGUIO TOWNSITE RESERVATION, OUTSIDE OF
THOSE OVER WHICH PRIOR LAND RIGHTS  AND TITLES HAVE  BEEN 
EARLIER  RECOGNIZED BY JUDICIAL, ADMINISTRATIVE, OR OTHER
PROCESSES BEFORE THE EFFECTIVITY OF THE IPRA.

B. THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE  ERROR 

WHEN  IT  RULED THAT  THE ASSAILED NCIP RESOLUTIONS ARE VALID,
CONTRARY TO THE CONSTITUTION AND APPLICABLE LAWS AND
JURISPRUDENCE.

C. ASSUMING ARGUENDO THAT THE SUBJECT CERTIFICATES OF  ANCESTRAL 

LAND TITLES  ARE VALID,  THE  HONORABLE  COURT  OF  APPEALS
COMMITTED REVERSIBLE ERROR WHEN IT UPHELD THE ISSUANCE OF TCT
BASED ON THE CALTS. THERE IS NO LAW WHICH ALLOWS THEIR CONVERSION
INTO TORRENS CERTIFICATES OF TITLE.19

The Republic seeks the issuance of a writ of preliminary prohibitory injunction, and a permanent injunction to
restrain and enjoin the NCIP from further issuing Certificates of Ancestral Domain Title (CADT) and CALTs
in Baguio City. The subject CALTs cover almost one-fifth (1/5) of the 57.49 square kilometers that comprise
Baguio City.

The Ruling of this Court

We grant the petition.

Under the facts, the NCIP has

no legal authority to issue
CALTs or CADTs in favor of
the subject properties included
as Townsite Reservation areas
in Baguio City.

Republic Act No. 8371 (RA 8371) or the "Indigenous Peoples' Rights Act of 1997" (IPRA) expressly excludes
the City of Baguio from the application of the general provisions of the IPRA. Section 78 of RA 8371 provides
that "[t]he City of Baguio shall remain to be governed by its Charter and all lands proclaimed as part of its
townsite reservation shall remain as such until otherwise reclassified by appropriate legislation." Section 78 of
RA 8371 states:
SECTION 78. Special Provision. — The City of Baguio shall remain to be governed by its Charter and all
lands proclaimed as part of its townsite reservation shall remain as such until otherwise reclassified by
appropriate legislation: Provided, That prior land rights and titles recognized and/or acquired through any
judicial, administrative or other processes before the effectivity of this Act shall remain valid: Provided,
further, That this provision shall not apply to any territory which becomes part of the City of Baguio after the
effectivity of this Act. (Emphasis supplied)
Section 78 is a special provision in the IPRA which clearly mandates that (1) the City of Baguio shall not be
subject to provisions of the IPRA but shall still be governed by its own charter; (2) all lands previously
proclaimed as part of the City of Baguio's Townsite Reservation shall remain as such; (3) the re-
classification of properties within the Townsite Reservation of the City of Baguio can only be made through
a law passed by Congress; (4) prior land rights and titles recognized and acquired through any judicial,
administrative or other process before the effectivity of the IPRA shall remain valid; and (5) territories
which became part of the City of Baguio after effectivity of the IPRA are exempted. Thus, RA 8371 is clear
that, for properties part of the townsite reservation of Baguio City before the passage of the IPRA, no new
CALT or CADT can be issued by the NCIP. Under RA 8371, the NCIP is devoid of any power to re-
classify lands previously included as part of the Townsite Reservation of Baguio City before RA 8371
was enacted. The said power to re-classify these properties is solely vested in Congress and can only be
exercised by Congress through the enactment of a new law. Such prohibition to reclassify is reiterated in
the Implementing Rules of the IPRA. Rule XIII, Section 1 of the IPRA law provides:
Section 1. Special Provision. The provisions of the Act relating to the civil, political, social and human rights
and those pertaining to the identification, delineation, recognition, and titling of ancestral lands and domains
are applicable throughout the country; Provided; That lands within the Baguio Townsite Reservation shall
not be reclassified except through appropriate legislation x x x. (Emphasis supplied)
Section 78 of the IPRA is clear that the Charter of Baguio City shall govern the determination of land rights
within Baguio City and not the IPRA. The said declaration by Congress is conclusive. In fact, a review of the
Congressional Deliberations on both the House and Senate bills which gave birth to the IPRA reveal that the
clear intent of the framers is to exempt Baguio City's land areas particularly the Baguio City's Townsite
Reservation from the coverage of the IPRA. House Bill No. 9125 was sponsored by Abra Rep. Jeremias
Zapata, then Chairman of the Committee on Cultural Communities. The said House bill was originally
authored and subsequently presented and defended on the floor by Rep. Gregorio Andolana of North Cotabato.
During the Congressional Debates, House Bill No. 9125 contained a special provision on Baguio City. The
particular provision, Section 86 was amended during the House Deliberations thereon, as follows:
MR: AVILA: One last amendment, Mr. Speaker. On page 35, line 25 (27), after the phrase, "This Act shall
not apply to lands of the City of Baguio which shall remain to be covered by its charter and its townsite
reservation status," the phrase "NOTHING IN THIS ACT SHALL BE READ TO MEAN A DIMINUTION
OF PREVIOUS OR EXISTING RIGHTS," subject to style, Mr. Speaker.

MR. ZAPATA: The Committee accepts subject to style, Mr. Speaker.

THE DEPUTY SPEAKER (Mr. Perez, H.) Is there any objection? (Silence) The Chair hears none; amendment
is approved.20 (Emphasis supplied)
Consequently, Section 86 was amended to read:
The City of Baguio shall remain to be governend by its Charter and all lands proclaimed as part of its townsite
reservation shall remain as such until otherwise reclassified by appropriate legislation: Provided, That prior
land rights and titles recognized and/or acquired through any judical, administrative or other processes before
the effectivity of this Act shall remain valid: Provided, further, That this provision shall not apply to any
territory which becomes part of the City of Baguio after the effectivity of this Act.21
The amended version of Section 86, House Bill No. 9125 was eventually adopted in whole as Section 78 of
Senate Bill No. 1728. Senate Bill No. 1728, sponsored by Senator Juan Flavier, passed into law as Republic
Act No. 8371 or the IPRA in 1997. The clear legislative intent is that, despite the enactment of the IPRA,
Baguio City shall remain to be governed by its charter and that all lands proclaimed as part of Baguio
City's Townsite Reservation shall remain to be a part of the Townsite Reservation unless reclassified by
Congress. The NCIP cannot transgress this clear legislative intent. The IPRA expressly excludes land
proclaimed to be part of the Baguio Townsite Reservation. Absent legislation passed by Congress, the Baguio
Townsite Reservation shall belong to the public and exclusively for public purpose. The Wright Park, the
Secretary's Cottage, the Senate President's Cottage, the Mansion House, and the public roads therein which are
all covered by the assailed CALTs shall remain to exist for the benefit and enjoyment of the public. These
subject lands comprise of historical heritage and belong9 to the State. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:

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

(2)  Those which belong to the State, without being for public use, and are intended for some public
service or for the development of the national wealth. (Emphasis supplied)
While the IPRA does not generally authorize the NCIP to issue ancestral land titles within Baguio City, there
are also recognized exceptions under Section 78. These refer to (1) prior land rights and titles recognized and
acquired through any judicial, administrative or other process before the effectivity of the IPRA; and (2)
territories which became part of Baguio after the effectivity of the IPRA. For prior land rights, the remedy
afforded to indigenous cultural communities is Act No. 926.22 Section 32 of Act No. 926 provides:

CHAPTER IV
FREE PATENTS TO NATIVE SETTLERS

Sec. 32. Any native of the Philippine Islands now as occupant and cultivator of unreserved, unappropriated
agricultural public land, as defined by the Act of Congress of July first, nineteen hundred and two, who has
continuously occupied and cultivated such land, either by himself or through his ancestors, since August first,
eighteen hundred and ninety; or who prior to August first, eighteen hundred and ninety eight continuously
occupied and cultivated such land for three years immediately prior to said date, and who has been
continuously since July fourth, nineteen hundred and two, until the date of the taking effect of this Act, an
occupier and cultivator of such land, shall be entitled to have a patent issued to him without compensation for
such tract of land, not exceeding sixteen hectares, as hereinafter in this chapter provided.
On 1 September 1909, Baguio City was incorporated by the Philippine Assembly. On 12 April 1912, the
Baguio Townsite Reservation was established. Upon the establishment of the Baguio Townsite Reservation,
there remained a question as to what portions of the reservation were public and private. If declared private,
such lands were registrable under Act No. 496 or the Land Registration Act, as provided for by Act No. 926 or
the Public Land Act. In 1912, Civil Reservation Case No. 1, General Land Registration Office (GLRO)
Reservation Record No. 211 was filed with the Court of Land Registration to resolve which lands were
declared public and private. Section 62 of Act No. 926 provides:
Sec. 62. Whenever any lands in the Philippine Islands are set apart as town sites, under the provisions of
chapter five of this Act, it shall be lawful for the Chief of the Bureau of Public Lands, with the approval of the
Secretary of the Interior, to notify the judge of the Court of Land Registration that such lands have been
reserved as a town site and that all private lands or interests therein within the limits described forthwith to be
brought within the operation of the Land Registration Act, and to become registered land within the meaning
of said Registration Act. It shall be the duty of the judge of said court to issue a notice thereof, stating that
claims for all private lands of interests therein within the limits described must be presented for
registration under the Land Registration Act in the manner provided in Act Numbered six hundred and
twenty seven entitled "An Act to bring immediately under the operation of the land Registration Act all lands
lying within the boundaries lawfully set apart for military reservations, and all land[s] desired to be purchased
by the Government of the United [S]tates for military purposes." The procedure for the purpose of this section
and the legal effects thereof shall thereupon be in all respect as provided in sections three, four, five, and six of
said Act numbered six hundred and twenty seven. (Emphasis supplied)
Under Act No. 627, any landowner affected by the declaration of military reservations must register their titles
within the period stated in the Land Registration Act. Otherwise, such land rights would be considered
barred.23 Pursuant to Section 62, the Court of First Instance (CFI) of Benguet issued a notice on 22 July 1915
requiring all persons claiming lots inside the Baguio Townsite Reservation to file within six months from the
date of the notice petitions for the registration of their titles under Act No. 496. On 14 June 1922, the General
Land Registration Office submitted to the CFI a report on the applications for registration and the case was
duly heard. On 13 November 1922, the CFI of Benguet, in resolving Civil Reservation Case No. 1, held that all
claims for private lands by all persons not presented for registration within the period in Act No. 627 are
barred forever. Notwithstanding the CFI decision, several native residents of Baguio City sought the exclusion
of lands occupied by them from the Baguio Townsite Reservation. Thus, on 16 August 1954, President Ramon
Magsaysay issued Administrative Order No. 55,24 series of 1954. The said Order authorized the formation of a
committee to study the claims of the inhabitants, with a view of determining whether it was in public interest
that the said landholdings be segregated from the Baguio Townsite Reservation and opened
to disposition  under the Public Land Act. Forty-eight (48) Igorot claimants originally filed claims under the
said administrative order. Two hundred eighty-five (285) others later filed additional claims.25Respondents
were not among the original and additional claimants. Finally, in Republic v. Fañgonil,26 this Court laid to
rest claims within the Baguio Townsite Reservation, to wit:
This case is about the registration of lots located within the Baguio Townsite Reservation. As
background, it should be noted that in 1912 a petition was filed in the Court of Land Registration
regarding the Baguio Townsite Reservation, Expediente de Reserva No. 1, GLRO Reservation Record
No. 211. In 1914, when the Land Registration Court was abolished, the record was transferred to the
Court of First Instance of Benguet.

The purpose of Case No. 211 was to determine once and for all what portions of the Baguio Townsite
Reservation were private and registerable under Act No. 496 as provided in section 62 of Act No. 926. Once so
determined, no further registration proceeding would be allowed (Sees. 3 and 4, Act No. 627).

The court on July 22, 1915 issued a notice requiring all persons claiming lots inside the reservation to file
within six months from the date of the notice petitions for the registration of their titles under Act No. 496. On
June 13, 1922, the General Land Registration Office submitted to the court a report regarding the applications
for registration. The case was duly heard.

Judge C. M. Villareal in a decision dated November 13, 1922 held that all lands within the Reservation are
public lands with the exception of (1) lands reserved for specified public uses and (2) lands claimed and
adjudicated as private property. He ruled that claims for private lands by all persons not presented for
registration within the period fixed in Act No. 627, in relation to the first Public Land Law, Act No. 926, were
barred forever. (Sees. 3 and 4, Act No. 627.)

That 1922 decision established the rule that lots of the Baguio Townsite Reservation, being public domain, are
not registerable under Act No. 496. As held by Judge Belmonte in a 1973 case, the Baguio Court of First
Instance "has no Jurisdiction to entertain any laijd registration proceedings" under Act No. 496 and the Public
Land Law, covering any lot within the Baguio Townsite Reservation which was terminated in 1922 (Camdas
vs. Director of Lands, L-37782, Resolution of this Court of March 8, 1974, dismissing petition for review of
Judge Belmonte's ruling).

In the instant case, after more than half a century from the 1922 decision declaring the townsite public domain,
or during the years 1972 to 1976, Modesta Paris, Lagya Paris, Samuel Baliwan, Pablo Ramos, Jr., Josephine
Abanag, Menita T. Victor, Emiliano Bautista and Odi Dianson filed with the Court of First Instance of Baguio
applications for the registration of lots (with considerable areas) inside the Baguio Townsite Reservation.

Alternatively, they allege that in case the lots are not registerable under Act No. 496, then section 48 (b) and
(c) of the Public Land Law should be applied because they and their predecessors have been in possession of
the lots for more than thirty years.

The Director of Lands opposed the applications. He filed motions to dismiss on the grounds of lack of
jurisdiction, prescription and res judicata. He relied on the decision in the first registration case, a
proceeding in rem, which barred all subsequent registrations of the Baguio Townsite lots. He contended that
the disposition of said lots should be made by the Director of Lands under Chapter 11 of the Public Land Law
regarding Townsite Reservations. (See Cojuangco vs. Marcos, 82 SCRA 156).

The trial judge admits that section 48 cannot be invoked by the applicants because it applies only to disposable
agricultural lands situated outside the reservation. He concedes that lands within the Baguio Townsite
Reservation may not be acquired by long possession for over thirty years subsequent to Case No. 211  (p. 195,
Rollo).

But he refused to dismiss the application[s] because in his opinion "there is a necessity [for] the presentation of
satisfactory evidence in a regular hearing as to the presence or absence of complete service of notice" so that
the court can determine whether the applications are barred by res judicata. He relies on the isolated case
of Zarate vs. Director of Lands, 58 Phil. 156.

The Solicitor General assailed by certiorari that order denying the motions to dismiss.

Sections 3 and 4 of Act No. 627, the law governing military reservations, contemplate notification to two
classes of persons, namely, (1) those who are living upon or in visible possession of any part of the military
reservation and (2) persons who are not living upon or in visible possession but are absentees.

A distinction is made between these two classes of persons as to the manner in which service of the notice
shall be made. Service is complete as to absentees when publication of the notice in the newspaper is
completed and duly fixed upon the four corners of the premises. The six-month period commences to run from
that time.

On the other hand, as to those who are living upon or in visible possession of the lands, service is not
complete, and the six-month period does not begin to run until the notice is served upon them personally. Their
rights relative to the period within which they must respond are determined by the date of the personal service.

Their notice was a personal notice given by personal service. Only such notice could set the running of the six-
month period against them. (Lagariza, Saba and Garcia vs. Commanding General, 22 Phil. 297, 302; Zarate vs.
Director of Lands, 58 Phil. 156,159-160.)

As already noted, the fact is that the notice in Case No. 211 was issued on July 22,1915. The clerk of
court certified that 134 persons living upon or in visible possession of any part of the reservation were
personally served with notice of the reservation. Section 3 of Act No. 627 provides that the certificate of the
clerk of court is "conclusive proof of service". (Zarate case, pp. 158,162.)

In the Zarate case, the applications for registration of lots within the Baguio Townsite Reservation were filed
in 1930 and 1931 or more than eight years after the decision was rendered in 1922.

The Zarate case is truly an exceptional case because the applicants were able to prove that in 1915 they were
in visible occupation of their lots and the clerk of court did not serve personal notice upon them. The
expediente of Case No. 211 was then still existing. The Zarate case cannot be a precedent at this late hour.

The situation in the Zarate case has not been duplicated since 1933. Judge Fangonil seeks to apply the ruling
therein to the instant eight cases. We find that his order is unwarranted or unreasonable. It would reopen Case
No. 211. It would give way to baseless litigations intended to be foreclosed by that 1912 case.

Private claimants to lands within the Baguio Townsite Reservation were given a chance to register their
lands in Case No. 211. The provisions of Act No. 627, allowing them to do so, are in harmony with the
1909 epochal decision of Justice Holmes in Cariño vs. Insular Government, 212 U.S. 449,41 Phil. 935.
The two Igorots named Zarate and those who were allowed to register their lots in Case No. 211, like
Mateo Cariño, the Igorot involved in the Cariño case, inherited their lands from their ancestors. They
had possession of the lands since time immemorial. The Igorots were allowed to avail themselves of
registration under Act No. 496.

Here, the eight applicants do not base their applications under Act No. 496 on any purchase or grant
from the State nor on possession since time immemorial. That is why Act No. 496 cannot apply to them.
(See Manila Electric Company vs. Castro-Bartolome, L- 49623, June 29, 1982, 114 SCRA 799.) They are
not "Igorot claimants" (See p. 35, Memo of Solicitor General).

Moreover, Annex I of the petition for certiorari shows that the previous attempts of some applicants and their
predecessors to reopen Case No. 211 were dismissed as shown below:

  Name Date Filed Date Dismissed

       
1) Samuel Baliwan Dec. 27, 1968 Aug. 15, 1970
Tommy Banguillas,
2)   predecessor of  May 6, 1965  June 19, 1967
Pablo Ramos, Jr.
3) Josephine Abanag Jan. 9, 1961 July 9, 1963
Sergio Molintas, 
4) predecessor of     Dec. 26, 1968 Oct. 31, 1974
Josephine Abanag
5) Josephine Abanag April 26, 1966 Nov. 12, 1974
 
6) Lagya Paris Oct. 15, 1965 Nov. 13, 1974

In the case of Abanag, she succeeded to two lots claimed by Sumay and Molintas for which Torrens titles were
issued in Case No. 211 on October 21, 1919 (Annexes J and K of Petition). The lots, which Abanag now seeks
to register, were not previously claimed by her predecessors in Case No. 211 (p. 33, Sol. Gen.'s Memo).

We hold that the trial court erred in requiring the presentation of evidence as to the notice required under Act
No. 627. Such evidence cannot be produced at this time because the court record of Case No. 211 was
completely destroyed during the last war.

Anyway, the applicants have the burden of proving that their predecessors were living upon or in visible
possession of the lands in 1915 and were not served any notice. If they have such evidence, apart from
unreliable oral testimony, they should have produced it during the hearing on the motions to dismiss.

To support his motions to dismiss, the Solicitor General introduced evidence proving that after Case No. 211 it
has always been necessary to issue Presidential proclamations for the disposition of portions of the Baguio
Townsite Reservation (Annex E of Petition).

The period of more than fifty years completely bars the applicants from securing relief due to the alleged lack
of personal notice to their predecessors. The law helps the vigilant but not those who sleep on their rights. "For
time is a means of destroying obligations and actions, because time runs against the slothful and contemners of
their own rights."

WHEREFORE, the order denying the motions to dismiss is reversed and set aside. The applications for
registration are hereby dismissed. No costs.

SO ORDERED. 27 (Boldfacing supplied, italicization  in the original)

In Fañgonil, the alleged claims were not previously claimed by the predecessors-in-interest and, therefore, the
Court declared that the said properties were not susceptible of registration. Since the claimants did not base
their applications under Act No. 496 or any purchase from the State, the Court held that the said claims were
not considered valid native claims. Under Fañgonil, 134 persons living upon or in visible possession were
personally served with the notice of reservation. Section 3 of Act No. 627 provides that the certification by the
clerk of court is "conclusive proof of service" of the said notice. Since respondents in the present case claim
possession since time immemorial, their predecessors were necessarily given notice of the reservation and,
hence, should have filed their claims within the stated period. However, no such claim was filed. In fact, the
said lots in the present case were not shown to be part of any ancestral land prior to the effectivity of the
IPRA. To stress, private respondents' rights over the subject properties located in the Townsite
Reservation in Baguio City were never recognized in any administrative or judicial proceedings prior to
the effectivity of the IPRA law. The CALTs and CADTs issued by the NCIP to respondents are thus
void.

WHEREFORE, the Court GRANTS the petition. The Court REVERSES the Decision and Resolution of the
Court of Appeals in CA-G.R. SP No. 126498. The National Commission on Indigenous Peoples Resolution
Nos. 107-2010-AL and 108-2010-AL; O-CALT Nos. 129 and 130 including corresponding TCT Nos. with
CALT Nos.:
CALT NO. CAR-BAG-1110-000268 for Parcel Lot 1
CALT NO. CAR-BAG-1110-000269 for Parcel Lot 2
CALT NO. CAR-BAG-1110-000270 for Parcel Lot 3
CALT NO. CAR-BAG-1110-000271 for Parcel Lot 4
CALT NO. CAR-BAG-1110-000272 for Parcel Lot 5
CALT NO. CAR-BAG-1110-000273 for Parcel Lot 6
CALT NO. CAR-BAG-1110-000274 for Parcel Lot 7
CALT NO. CAR-BAG-1110-000275 for Parcel Lot 8
CALT NO. CAR-BAG-1110-000276 for Parcel Lot 1
CALT NO. CAR-BAG-1110-000277 for Parcel Lot 2
CALT NO. CAR-BAG-1110-000278 for Parcel Lot 3
CALT NO. CAR-BAG-1110-000279 for Parcel Lot 4
CALT NO. CAR-BAG-1110-000280 for Parcel Lot 5
CALT NO. CAR-BAG-1110-000281 for Parcel Lot 6
CALT NO. CAR-BAG-1110-000282 for Parcel Lot 7
CALT NO. CAR-BAG-1110-000283 for Parcel Lot 8
CALT NO. CAR-BAG-1110-000284 for Parcel Lot 9
CALT NO. CAR-BAG-1110-000285 for Parcel Lot 10
CALT NO. CAR-BAG-1110-000286 for Parcel Lot 11
CALT NO. CAR-BAG-1110-000287 for Parcel Lot 12
CALT NO. CAR-BAG-1110-000288 for Parcel Lot 13
CALT NO. CAR-BAG-1110-000289 for Parcel Lot 14
CALT NO. CAR-BAG-1110-000290 for Parcel Lot 15
CALT NO. CAR-BAG-1110-000291 for Parcel Lot 16
CALT NO. CAR-BAG-1110-000292 for Parcel Lot 17
CALT NO. CAR-BAG-1110-000293 for Parcel Lot 18
CALT NO. CAR-BAG-1110-000294 for Parcel Lot 19
CALT NO. CAR-BAG-1110-000295 for Parcel Lot 20
CALT NO. CAR-BAG-1110-000296 for Parcel Lot 21
CALT NO. CAR-BAG-1110-000297 for Parcel Lot 22
CALT NO. CAR-BAG-1110-000298 for Parcel Lot 23
CALT NO. CAR-BAG-1110-000299 for Parcel Lot 24
CALT NO. CAR-BAG-1110-000300 for Parcel Lot 25
CALT NO. CAR-BAG-1110-000301 for Parcel Lot 26
CALT NO. CAR-BAG-1110-000302 for Parcel Lot 27
CALT NO. CAR-BAG-1110-000303 for Parcel Lot 28
and all derivative titles thereto issued subsequent to the filing of the petition are declared NULL and VOID.

SO ORDERED.

Caguioa, Reyes, J., Jr., Lazaro-Javier, and Zalameda, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 164527               August 15, 2007

FRANCISCO I. CHAVEZ, Petitioner, 
vs.
NATIONAL HOUSING AUTHORITY, R-II BUILDERS, INC., R-II HOLDINGS, INC., HARBOUR
CENTRE PORT TERMINAL, INC., and MR. REGHIS ROMERO II, Respondents.

DECISION

VELASCO, JR., J.:

In this Petition for Prohibition and Mandamus with Prayer for Temporary Restraining Order and/or Writ of
Preliminary Injunction under Rule 65, petitioner, in his capacity as taxpayer, seeks:

to declare NULL AND VOID the Joint Venture Agreement (JVA) dated March 9, 1993 between the National
Housing Authority and R-II Builders, Inc. and the Smokey Mountain Development and Reclamation Project
embodied therein; the subsequent amendments to the said JVA; and all other agreements signed and executed
in relation thereto – including, but not limited to the Smokey Mountain Asset Pool Agreement dated 26
September 1994 and the separate agreements for Phase I and Phase II of the Project––as well as all other
transactions which emanated therefrom, for being UNCONSTITUTIONAL and INVALID;

to enjoin respondents—particularly respondent NHA—from further implementing and/or enforcing the said
project and other agreements related thereto, and from further deriving and/or enjoying any rights, privileges
and interest therefrom x x x; and

to compel respondents to disclose all documents and information relating to the project––including, but not
limited to, any subsequent agreements with respect to the different phases of the project, the revisions over the
original plan, the additional works incurred thereon, the current financial condition of respondent R-II
Builders, Inc., and the transactions made respecting the project.1

The Facts

On March 1, 1988, then President Corazon C. Aquino issued Memorandum Order No. (MO) 161 2 approving
and directing the implementation of the Comprehensive and Integrated Metropolitan Manila Waste
Management Plan (the Plan). The Metro Manila Commission, in coordination with various government
agencies, was tasked as the lead agency to implement the Plan as formulated by the Presidential Task Force on
Waste Management created by Memorandum Circular No. 39. A day after, on March 2, 1988, MO 161-A3 was
issued, containing the guidelines which prescribed the functions and responsibilities of fifteen (15) various
government departments and offices tasked to implement the Plan, namely: Department of Public Works and
Highway (DPWH), Department of Health (DOH), Department of Environment and Natural Resources
(DENR), Department of Transportation and Communication, Department of Budget and Management,
National Economic and Development Authority (NEDA), Philippine Constabulary Integrated National Police,
Philippine Information Agency and the Local Government Unit (referring to the City of Manila), Department
of Social Welfare and Development, Presidential Commission for Urban Poor, National Housing Authority
(NHA), Department of Labor and Employment, Department of Education, Culture and Sports (now
Department of Education), and Presidential Management Staff.

Specifically, respondent NHA was ordered to "conduct feasibility studies and develop low-cost housing
projects at the dumpsite and absorb scavengers in NHA resettlement/low-cost housing projects."4 On the other
hand, the DENR was tasked to "review and evaluate proposed projects under the Plan with regard to their
environmental impact, conduct regular monitoring of activities of the Plan to ensure compliance with
environmental standards and assist DOH in the conduct of the study on hospital waste management."5

At the time MO 161-A was issued by President Aquino, Smokey Mountain was a wasteland in Balut, Tondo,
Manila, where numerous Filipinos resided in subhuman conditions, collecting items that may have some
monetary value from the garbage. The Smokey Mountain dumpsite is bounded on the north by the Estero
Marala, on the south by the property of the National Government, on the east by the property of B and I Realty
Co., and on the west by Radial Road 10 (R-10).

Pursuant to MO 161-A, NHA prepared the feasibility studies of the Smokey Mountain low-cost housing
project which resulted in the formulation of the "Smokey Mountain Development Plan and Reclamation of the
Area Across R-10" or the Smokey Mountain Development and Reclamation Project (SMDRP; the Project).
The Project aimed to convert the Smokey Mountain dumpsite into a habitable housing project, inclusive of the
reclamation of the area across R-10, adjacent to the Smokey Mountain as the enabling component of the
project.6 Once finalized, the Plan was submitted to President Aquino for her approval.

On July 9, 1990, the Build-Operate-and-Transfer (BOT) Law (Republic Act No. [RA] 6957) was enacted.7 Its
declared policy under Section 1 is "[t]o recognize the indispensable role of the private sector as the main
engine for national growth and development and provide the most appropriate favorable incentives to mobilize
private resources for the purpose." Sec. 3 authorized and empowered "[a]ll government infrastructure agencies,
including government-owned and controlled corporations and local government units x x x to enter into
contract with any duly pre-qualified private contractor for the financing, construction, operation and
maintenance of any financially viable infrastructure facilities through the build-operate-transfer or build and
transfer scheme."

RA 6957 defined "build-and-transfer" scheme as "[a] contractual arrangement whereby the contractor
undertakes the construction, including financing, of a given infrastructure facility, and its turnover after the
completion to the government agency or local government unit concerned which shall pay the contractor its
total investment expended on the project, plus reasonable rate of return thereon." The last paragraph of Sec. 6
of the BOT Law provides that the repayment scheme in the case of "land reclamation or the building of
industrial estates" may consist of "[t]he grant of a portion or percentage of the reclaimed land or industrial
estate built, subject to the constitutional requirements with respect to the ownership of lands."

On February 10, 1992, Joint Resolution No. 038 was passed by both houses of Congress. Sec. 1 of this
resolution provided, among other things, that:
Section 1. There is hereby approved the following national infrastructure projects for implementation under the
provisions of Republic Act No. 6957 and its implementing rules and regulations:

xxxx

(d) Port infrastructure like piers, wharves, quays, storage handling, ferry service and related facilities;

xxxx

(k) Land reclamation, dredging and other related development facilities;

(l) Industrial estates, regional industrial centers and export processing zones including steel mills, iron-making
and petrochemical complexes and related infrastructure and utilities;

xxxx

(p) Environmental and solid waste management-related facilities such as collection equipment, composting
plants, incinerators, landfill and tidal barriers, among others; and

(q) Development of new townsites and communities and related facilities.

This resolution complied with and conformed to Sec. 4 of the BOT Law requiring the approval of all national
infrastructure projects by the Congress.

On January 17, 1992, President Aquino proclaimed MO 4159 approving and directing the implementation of
the SMDRP. Secs. 3 and 4 of the Memorandum Order stated:

Section 3. The National Housing Authority is hereby directed to implement the Smokey Mountain
Development Plan and Reclamation of the Area Across R-10 through a private sector joint venture scheme at
the least cost to the government.

Section 4. The land area covered by the Smokey Mountain dumpsite is hereby conveyed to the National
Housing Authority as well as the area to be reclaimed across R-10. (Emphasis supplied.)

In addition, the Public Estates Authority (PEA) was directed to assist in the evaluation of proposals regarding
the technical feasibility of reclamation, while the DENR was directed to (1) facilitate titling of Smokey
Mountain and of the area to be reclaimed and (2) assist in the technical evaluation of proposals regarding
environmental impact statements.10

In the same MO 415, President Aquino created an Executive Committee (EXECOM) to oversee the
implementation of the Plan, chaired by the National Capital Region-Cabinet Officer for Regional Development
(NCR-CORD) with the heads of the NHA, City of Manila, DPWH, PEA, Philippine Ports Authority (PPA),
DENR, and Development Bank of the Philippines (DBP) as members.11 The NEDA subsequently became a
member of the EXECOM. Notably, in a September 2, 1994 Letter, 12 PEA General Manager Amado Lagdameo
approved the plans for the reclamation project prepared by the NHA.

In conformity with Sec. 5 of MO 415, an inter-agency technical committee (TECHCOM) was created
composed of the technical representatives of the EXECOM "[t]o assist the NHA in the evaluation of the
project proposals, assist in the resolution of all issues and problems in the project to ensure that all aspects of
the development from squatter relocation, waste management, reclamation, environmental protection, land and
house construction meet governing regulation of the region and to facilitate the completion of the project."13
Subsequently, the TECHCOM put out the Public Notice and Notice to Pre-Qualify and Bid for the right to
become NHA’s joint venture partner in the implementation of the SMDRP. The notices were published in
newspapers of general circulation on January 23 and 26 and February 1, 14, 16, and 23, 1992, respectively.
Out of the thirteen (13) contractors who responded, only five (5) contractors fully complied with the required
pre-qualification documents. Based on the evaluation of the pre-qualification documents, the EXECOM
declared the New San Jose Builders, Inc. and R-II Builders, Inc. (RBI) as the top two contractors.14

Thereafter, the TECHCOM evaluated the bids (which include the Pre-feasibility Study and Financing Plan) of
the top two (2) contractors in this manner:

(1) The DBP, as financial advisor to the Project, evaluated their Financial Proposals;

(2) The DPWH, PPA, PEA and NHA evaluated the Technical Proposals for the Housing Construction
and Reclamation;

(3) The DENR evaluated Technical Proposals on Waste Management and Disposal by conducting the
Environmental Impact Analysis; and

(4) The NHA and the City of Manila evaluated the socio-economic benefits presented by the
proposals.

On June 30, 1992, Fidel V. Ramos assumed the Office of the President (OP) of the Philippines.

On August 31, 1992, the TECHCOM submitted its recommendation to the EXECOM to approve the R-II
Builders, Inc. (RBI) proposal which garnered the highest score of 88.475%.

Subsequently, the EXECOM made a Project briefing to President Ramos. As a result, President Ramos issued
Proclamation No. 3915 on September 9, 1992, which reads:

WHEREAS, the National Housing Authority has presented a viable conceptual plan to convert the Smokey
Mountain dumpsite into a habitable housing project, inclusive of the reclamation of the area across Road
Radial 10 (R-10) adjacent to the Smokey Mountain as the enabling component of the project;

xxxx

These parcels of land of public domain are hereby placed under the administration and disposition of the
National Housing Authority to develop, subdivide and dispose to qualified beneficiaries, as well as its
development for mix land use (commercial/industrial) to provide employment opportunities to on-site families
and additional areas for port-related activities.

In order to facilitate the early development of the area for disposition, the Department of Environment and
Natural Resources, through the Lands and Management Bureau, is hereby directed to approve the boundary
and subdivision survey and to issue a special patent and title in the name of the National Housing Authority,
subject to final survey and private rights, if any there be. (Emphasis supplied.)

On October 7, 1992, President Ramos authorized NHA to enter into a Joint Venture Agreement with RBI
"[s]ubject to final review and approval of the Joint Venture Agreement by the Office of the President."16

On March 19, 1993, the NHA and RBI entered into a Joint Venture Agreement 17 (JVA) for the development of
the Smokey Mountain dumpsite and the reclamation of the area across R-10 based on Presidential Decree No.
(PD) 75718 which mandated NHA "[t]o undertake the physical and socio-economic upgrading and development
of lands of the public domain identified for housing," MO 161-A which required NHA to conduct the
feasibility studies and develop a low-cost housing project at the Smokey Mountain, and MO 415 as amended
by MO 415-A which approved the Conceptual Plan for Smokey Mountain and creation of the EXECOM and
TECHCOM. Under the JVA, the Project "involves the clearing of Smokey Mountain for eventual development
into a low cost medium rise housing complex and industrial/commercial site with the reclamation of the area
directly across [R-10] to act as the enabling component of the Project." 19 The JVA covered a lot in Tondo,
Manila with an area of two hundred twelve thousand two hundred thirty-four (212,234) square meters and
another lot to be reclaimed also in Tondo with an area of four hundred thousand (400,000) square meters.

The Scope of Work of RBI under Article II of the JVA is as follows:

a) To fully finance all aspects of development of Smokey Mountain and reclamation of no more than
40 hectares of Manila Bay area across Radial Road 10.

b) To immediately commence on the preparation of feasibility report and detailed engineering with
emphasis to the expedient acquisition of the Environmental Clearance Certificate (ECC) from the
DENR.

c) The construction activities will only commence after the acquisition of the ECC, and

d) Final details of the contract, including construction, duration and delivery timetables, shall be based
on the approved feasibility report and detailed engineering.

Other obligations of RBI are as follows:

2.02 The [RBI] shall develop the PROJECT based on the Final Report and Detailed Engineering as
approved by the Office of the President. All costs and expenses for hiring technical personnel, date
gathering, permits, licenses, appraisals, clearances, testing and similar undertaking shall be for the
account of the [RBI].

2.03 The [RBI] shall undertake the construction of 3,500 temporary housing units complete with basic
amenities such as plumbing, electrical and sewerage facilities within the temporary housing project as
staging area to temporarily house the squatter families from the Smokey Mountain while development
is being undertaken. These temporary housing units shall be turned over to the [NHA] for disposition.

2.04 The [RBI] shall construct 3,500 medium rise low cost permanent housing units on the leveled
Smokey Mountain complete with basic utilities and amenities, in accordance with the plans and
specifications set forth in the Final Report approved by the [NHA]. Completed units ready for
mortgage take out shall be turned over by the [RBI] to NHA on agreed schedule.

2.05 The [RBI] shall reclaim forty (40) hectares of Manila Bay area directly across [R-10] as
contained in Proclamation No. 39 as the enabling component of the project and payment to the [RBI]
as its asset share.

2.06 The [RBI] shall likewise furnish all labor materials and equipment necessary to complete all
herein development works to be undertaken on a phase to phase basis in accordance with the work
program stipulated therein.

The profit sharing shall be based on the approved pre-feasibility report submitted to the EXECOM, viz:

For the developer (RBI):

 1. To own the forty (40) hectares of reclaimed land.

2. To own the commercial area at the Smokey Mountain area composed of 1.3 hectares, and

3. To own all the constructed units of medium rise low cost permanent housing units beyond the 3,500
units share of the [NHA].

For the NHA:

1. To own the temporary housing consisting of 3,500 units.

2. To own the cleared and fenced incinerator site consisting of 5 hectares situated at the Smokey
Mountain area.

3. To own the 3,500 units of permanent housing to be constructed by [RBI] at the Smokey Mountain
area to be awarded to qualified on site residents.

4. To own the Industrial Area site consisting of 3.2 hectares, and

5. To own the open spaces, roads and facilities within the Smokey Mountain area.

In the event of "extraordinary increase in labor, materials, fuel and non-recoverability of total project
expenses,"20the OP, upon recommendation of the NHA, may approve a corresponding adjustment in the
enabling component.

The functions and responsibilities of RBI and NHA are as follows:

For RBI:

4.01 Immediately commence on the preparation of the FINAL REPORT with emphasis to the expedient
acquisition, with the assistance of the [NHA] of Environmental Compliance Certificate (ECC) from the
Environmental Management Bureau (EMB) of the [DENR]. Construction shall only commence after the
acquisition of the ECC. The Environment Compliance Certificate (ECC) shall form part of the FINAL
REPORT.

The FINAL REPORT shall provide the necessary subdivision and housing plans, detailed engineering and
architectural drawings, technical specifications and other related and required documents relative to the
Smokey Mountain area.

With respect to the 40-hectare reclamation area, the [RBI] shall have the discretion to develop the same in a
manner that it deems necessary to recover the [RBI’s] investment, subject to environmental and zoning rules.

4.02 Finance the total project cost for land development, housing construction and reclamation of the
PROJECT.

4.03 Warrant that all developments shall be in compliance with the requirements of the FINAL REPORT.

4.04 Provide all administrative resources for the submission of project accomplishment reports to the [NHA]
for proper evaluation and supervision on the actual implementation.
4.05 Negotiate and secure, with the assistance of the [NHA] the grant of rights of way to the PROJECT, from
the owners of the adjacent lots for access road, water, electrical power connections and drainage facilities.

4.06 Provide temporary field office and transportation vehicles (2 units), one (1) complete set of computer and
one (1) unit electric typewriter for the [NHA’s] field personnel to be charged to the PROJECT.

For the NHA:

4.07 The [NHA] shall be responsible for the removal and relocation of all squatters within Smokey Mountain
to the Temporary Housing Complex or to other areas prepared as relocation areas with the assistance of the
[RBI]. The [RBI] shall be responsible in releasing the funds allocated and committed for relocation as detailed
in the FINAL REPORT.

4.08 Assist the [RBI] and shall endorse granting of exemption fees in the acquisition of all necessary permits,
licenses, appraisals, clearances and accreditations for the PROJECT subject to existing laws, rules and
regulations.

4.09 The [NHA] shall inspect, evaluate and monitor all works at the Smokey Mountain and Reclamation Area
while the land development and construction of housing units are in progress to determine whether the
development and construction works are undertaken in accordance with the FINAL REPORT. If in its
judgment, the PROJECT is not pursued in accordance with the FINAL REPORT, the [NHA] shall require the
[RBI] to undertake necessary remedial works. All expenses, charges and penalties incurred for such remedial,
if any, shall be for the account of the [RBI].

4.10 The [NHA] shall assist the [RBI] in the complete electrification of the PROJECT. x x x

4.11 Handle the processing and documentation of all sales transactions related to its assets shares from the
venture such as the 3,500 units of permanent housing and the allotted industrial area of 3.2 hectares.

4.12 All advances outside of project costs made by the [RBI] to the [NHA] shall be deducted from the
proceeds due to the [NHA].

4.13 The [NHA] shall be responsible for the acquisition of the Mother Title for the Smokey Mountain and
Reclamation Area within 90 days upon submission of Survey returns to the Land Management Sector. The
land titles to the 40-hectare reclaimed land, the 1.3 hectare commercial area at the Smokey Mountain area and
the constructed units of medium-rise permanent housing units beyond the 3,500 units share of the [NHA] shall
be issued in the name of the [RBI] upon completion of the project. However, the [RBI] shall have the authority
to pre-sell its share as indicated in this agreement.

The final details of the JVA, which will include the construction duration, costs, extent of reclamation, and
delivery timetables, shall be based on the FINAL REPORT which will be contained in a Supplemental
Agreement to be executed later by the parties.

The JVA may be modified or revised by written agreement between the NHA and RBI specifying the clauses
to be revised or modified and the corresponding amendments.

If the Project is revoked or terminated by the Government through no fault of RBI or by mutual agreement, the
Government shall compensate RBI for its actual expenses incurred in the Project plus a reasonable rate of
return not exceeding that stated in the feasibility study and in the contract as of the date of such revocation,
cancellation, or termination on a schedule to be agreed upon by both parties.
As a preliminary step in the project implementation, consultations and dialogues were conducted with the
settlers of the Smokey Mountain Dumpsite Area. At the same time, DENR started processing the application
for the Environmental Clearance Certificate (ECC) of the SMDRP. As a result however of the consultative
dialogues, public hearings, the report on the on-site field conditions, the Environmental Impact Statement
(EIS) published on April 29 and May 12, 1993 as required by the Environmental Management Bureau of
DENR, the evaluation of the DENR, and the recommendations from other government agencies, it was
discovered that design changes and additional work have to be undertaken to successfully implement the
Project.21

Thus, on February 21, 1994, the parties entered into another agreement denominated as the Amended and
Restated Joint Venture Agreement22 (ARJVA) which delineated the different phases of the Project. Phase I of
the Project involves the construction of temporary housing units for the current residents of the Smokey
Mountain dumpsite, the clearing and leveling-off of the dumpsite, and the construction of medium-rise low-
cost housing units at the cleared and leveled dumpsite.23 Phase II of the Project involves the construction of an
incineration area for the on-site disposal of the garbage at the dumpsite.24 The enabling component or
consideration for Phase I of the Project was increased from 40 hectares of reclaimed lands across R-10 to 79
hectares.25 The revision also provided for the enabling component for Phase II of 119 hectares of reclaimed
lands contiguous to the 79 hectares of reclaimed lands for Phase I.26 Furthermore, the amended contract
delineated the scope of works and the terms and conditions of Phases I and II, thus:

The PROJECT shall consist of Phase I and Phase II.

Phase I shall involve the following:

a. the construction of 2,992 units of temporary housing for the affected residents while clearing and
development of Smokey Mountain [are] being undertaken

b. the clearing of Smokey Mountain and the subsequent construction of 3,520 units of medium rise
housing and the development of the industrial/commercial site within the Smokey Mountain area

c. the reclamation and development of a 79 hectare area directly across Radial Road 10 to serve as the
enabling component of Phase I

Phase II shall involve the following:

a. the construction and operation of an incinerator plant that will conform to the emission standards of
the DENR

b. the reclamation and development of 119-hectare area contiguous to that to be reclaimed under
Phase I to serve as the enabling component of Phase II.

Under the ARJVA, RBI shall construct 2,992 temporary housing units, a reduction from 3,500 units under the
JVA.27However, it was required to construct 3,520 medium-rise low-cost permanent housing units instead of
3,500 units under the JVA. There was a substantial change in the design of the permanent housing units such
that a "loft shall be incorporated in each unit so as to increase the living space from 20 to 32 square meters.
The additions and changes in the Original Project Component are as follows:

ORIGINAL CHANGES/REVISIONS

1. TEMPORARY HOUSING
 Wood/Plywood, ga. 31 G.I. Concrete/Steel Frame Structure Sheet usable life of 3 years,
gauge 26 G.I. roofing sheets future 12 SM floor area. use as permanent structures for factory
and warehouses mixed 17 sm & 12 sm floor area.

2. MEDIUM RISE MASS

HOUSING

Box type precast Shelter Conventional and precast component 20 square meter concrete
structures, 32 square floor area with 2.4 meter meter floor area with loft floor height; bare
type, 160 units/ (sleeping quarter) 3.6 m. floor building. height, painted and improved

architectural façade, 80 units/building.

3. MITIGATING MEASURES

3.1 For reclamation work Use of clean dredgefill material below the MLLW and SM material
mixed with dredgefill above MLLW.

a. 100% use of Smokey Mountain material as dredgefill Use of Steel Sheet Piles
needed for longer depth of embedment.

b. Concrete Sheet Piles short depth of embedment

c. Silt removal approximately Need to remove more than 3.0

1.0 meter only meters of silt after sub-soil investigation.28

These material and substantial modifications served as justifications for the increase in the share of
RBI from 40 hectares to 79 hectares of reclaimed land.

Under the JVA, the specific costs of the Project were not stipulated but under the ARJVA, the
stipulated cost for Phase I was pegged at six billion six hundred ninety-three million three hundred
eighty-seven thousand three hundred sixty-four pesos (PhP 6,693,387,364).

In his February 10, 1994 Memorandum, the Chairperson of the SMDRP EXECOM submitted the
ARJVA for approval by the OP. After review of said agreement, the OP directed that certain terms
and conditions of the ARJVA be further clarified or amended preparatory to its approval. Pursuant to
the President’s directive, the parties reached an agreement on the clarifications and amendments
required to be made on the ARJVA.

On August 11, 1994, the NHA and RBI executed an Amendment To the Amended and Restated Joint
Venture Agreement (AARJVA)29 clarifying certain terms and condition of the ARJVA, which was
submitted to President Ramos for approval, to wit:

Phase II shall involve the following:

a. the construction and operation of an incinerator plant that will conform to the emission
standards of the DENR
 b. the reclamation and development of 119-hectare area contiguous to that to be reclaimed
under Phase I to serve as the enabling component of Phase II, the exact size and configuration
of which shall be approved by the SMDRP Committee30

Other substantial amendments are the following:

4. Paragraph 2.05 of Article II of the ARJVA is hereby amended to read as follows:

2.05. The DEVELOPER shall reclaim seventy nine (79) hectares of the Manila Bay area directly
across Radial Road 10 (R-10) to serve as payment to the DEVELOPER as its asset share for Phase I
and to develop such land into commercial area with port facilities; provided, that the port plan shall be
integrated with the Philippine Port Authority’s North Harbor plan for the Manila Bay area and
provided further, that the final reclamation and port plan for said reclaimed area shall be submitted for
approval by the Public Estates Authority and the Philippine Ports Authority, respectively: provided
finally, that subject to par. 2.02 above, actual reclamation work may commence upon approval of the
final reclamation plan by the Public Estates Authority.

xxxx

9. A new paragraph to be numbered 5.05 shall be added to Article V of the ARJVA, and shall read as
follows:

5.05. In the event this Agreement is revoked, cancelled or terminated by the AUTHORITY through no fault of
the DEVELOPER, the AUTHORITY shall compensate the DEVELOPER for the value of the completed
portions of, and actual expenditures on the PROJECT plus a reasonable rate of return thereon, not exceeding
that stated in the Cost Estimates of Items of Work previously approved by the SMDRP Executive Committee
and the AUTHORITY and stated in this Agreement, as of the date of such revocation, cancellation, or
termination, on a schedule to be agreed upon by the parties, provided that said completed portions of Phase I
are in accordance with the approved FINAL REPORT.

Afterwards, President Ramos issued Proclamation No. 465 dated August 31, 1994 31 increasing the proposed
area for reclamation across R-10 from 40 hectares to 79 hectares,32 to wit:

NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines, by virtue of the
powers vested in me by the law, and as recommended by the SMDRP Executive Committee, do hereby
authorize the increase of the area of foreshore or submerged lands of Manila Bay to be reclaimed, as
previously authorized under Proclamation No. 39 (s. 1992) and Memorandum Order No. 415 (s. 1992), from
Four Hundred Thousand (400,000) square meters, more or less, to Seven Hundred Ninety Thousand (790,000)
square meters, more or less.

On September 1, 1994, pursuant to Proclamation No. 39, the DENR issued Special Patent No. 3591 conveying
in favor of NHA an area of 211,975 square meters covering the Smokey Mountain Dumpsite.

In its September 7, 1994 letter to the EXECOM, the OP through then Executive Secretary Teofisto T.
Guingona, Jr., approved the ARJVA as amended by the AARJVA.

On September 8, 1994, the DENR issued Special Patent 3592 pursuant to Proclamation No. 39, conveying in
favor of NHA a 401,485-square meter area.

On September 26, 1994, the NHA, RBI, Home Insurance and Guaranty Corporation (HIGC), now known as
the Home Guaranty Corporation, and the Philippine National Bank (PNB) 33 executed the Smokey Mountain
Asset Pool Formation Trust Agreement (Asset Pool Agreement).34 Thereafter, a Guaranty Contract was entered
into by NHA, RBI, and HIGC.

On June 23, 1994, the Legislature passed the Clean Air Act. 35 The Act made the establishment of an incinerator
illegal and effectively barred the implementation of the planned incinerator project under Phase II. Thus, the
off-site disposal of the garbage at the Smokey Mountain became necessary.36

The land reclamation was completed in August 1996.37

Sometime later in 1996, pursuant likewise to Proclamation No. 39, the DENR issued Special Patent No. 3598
conveying in favor of NHA an additional 390,000 square meter area.

During the actual construction and implementation of Phase I of the SMDRP, the Inter-Agency Technical
Committee found and recommended to the EXECOM on December 17, 1997 that additional works were
necessary for the completion and viability of the Project. The EXECOM approved the recommendation and so,
NHA instructed RBI to implement the change orders or necessary works.38

Such necessary works comprised more than 25% of the original contract price and as a result, the Asset Pool
incurred direct and indirect costs. Based on C1 12 A of the Implementing Rules and Regulations of PD 1594, a
supplemental agreement is required for "all change orders and extra work orders, the total aggregate cost of
which being more than twenty-five (25%) of the escalated original contract price."

The EXECOM requested an opinion from the Department of Justice (DOJ) to determine whether a bidding
was required for the change orders and/or necessary works. The DOJ, through DOJ Opinion Nos. 119 and 155
dated August 26, 1993 and November 12, 1993, opined that "a rebidding, pursuant to the aforequoted
provisions of the implementing rules (referring to PD 1594) would not be necessary where the change orders
inseparable from the original scope of the project, in which case, a negotiation with the incumbent contractor
may be allowed."

Thus, on February 19, 1998, the EXECOM issued a resolution directing NHA to enter into a supplemental
agreement covering said necessary works.

On March 20, 1998, the NHA and RBI entered into a Supplemental Agreement covering the aforementioned
necessary works and submitted it to the President on March 24, 1998 for approval.

Outgoing President Ramos decided to endorse the consideration of the Supplemental Agreement to incoming
President Joseph E. Estrada. On June 30, 1998, Estrada became the 13th Philippine President.

However, the approval of the Supplemental Agreement was unacted upon for five months. As a result, the
utilities and the road networks were constructed to cover only the 79-hectare original enabling component
granted under the ARJVA. The 220-hectare extension of the 79-hectare area was no longer technically
feasible. Moreover, the financial crises and unreliable real estate situation made it difficult to sell the
remaining reclaimed lots. The devaluation of the peso and the increase in interest cost led to the substantial
increase in the cost of reclamation.

On August 1, 1998, the NHA granted RBI’s request to suspend work on the SMDRP due to "the delay in the
approval of the Supplemental Agreement, the consequent absence of an enabling component to cover the cost
of the necessary works for the project, and the resulting inability to replenish the Asset Pool funds partially
used for the completion of the necessary works."39
As of August 1, 1998 when the project was suspended, RBI had "already accomplished a portion of the
necessary works and change orders which resulted in [RBI] and the Asset Pool incurring advances for direct
and indirect cost which amount can no longer be covered by the 79-hectare enabling component under the
ARJVA."40

Repeated demands were made by RBI in its own capacity and on behalf of the asset pool on NHA for payment
for the advances for direct and indirect costs subject to NHA validation.

In November 1998, President Estrada issued Memorandum Order No. 33 reconstituting the SMDRP
EXECOM and further directed it to review the Supplemental Agreement and submit its recommendation on
the completion of the SMDRP.

The reconstituted EXECOM conducted a review of the project and recommended the amendment of the March
20, 1998 Supplemental Agreement "to make it more feasible and to identify and provide new sources of funds
for the project and provide for a new enabling component to cover the payment for the necessary works that
cannot be covered by the 79-hectare enabling component under the ARJVA."41

The EXECOM passed Resolution Nos. 99-16-01 and 99-16-0242 which approved the modification of the
Supplemental Agreement, to wit:

a) Approval of 150 hectares additional reclamation in order to make the reclamation feasible as part of
the enabling component.

b) The conveyance of the 15-hectare NHA Vitas property (actually 17 hectares based on surveys) to
the SMDRP Asset Pool.

c) The inclusion in the total development cost of other additional, necessary and indispensable
infrastructure works and the revision of the original cost stated in the Supplemental Agreement dated
March 20, 1998 from PhP 2,953,984,941.40 to PhP 2,969,134,053.13.

d) Revision in the sharing agreement between the parties.

In the March 23, 2000 OP Memorandum, the EXECOM was authorized to proceed and complete the SMDRP
subject to certain guidelines and directives.

After the parties in the case at bar had complied with the March 23, 2000 Memorandum, the NHA November
9, 2000 Resolution No. 4323 approved "the conveyance of the 17-hectare Vitas property in favor of the
existing or a newly created Asset Pool of the project to be developed into a mixed commercial-industrial area,
subject to certain conditions."

On January 20, 2001, then President Estrada was considered resigned. On the same day, President Gloria M.
Arroyo took her oath as the 14th President of the Philippines.

As of February 28, 2001, "the estimated total project cost of the SMDRP has reached P8.65 billion comprising
of P4.78 billion in direct cost and P3.87 billion in indirect cost,"43 subject to validation by the NHA.

On August 28, 2001, NHA issued Resolution No. 4436 to pay for "the various necessary works/change orders
to SMDRP, to effect the corresponding enabling component consisting of the conveyance of the NHA’s Vitas
Property and an additional 150-hectare reclamation area" and to authorize the release by NHA of PhP 480
million "as advance to the project to make the Permanent Housing habitable, subject to reimbursement from
the proceeds of the expanded enabling component."44
On November 19, 2001, the Amended Supplemental Agreement (ASA) was signed by the parties, and on
February 28, 2002, the Housing and Urban Development Coordinating Council (HUDCC) submitted the
agreement to the OP for approval.

In the July 20, 2002 Cabinet Meeting, HUDCC was directed "to submit the works covered by the PhP 480
million [advance to the Project] and the ASA to public bidding." 45 On August 28, 2002, the HUDCC informed
RBI of the decision of the Cabinet.

In its September 2, 2002 letter to the HUDCC Chairman, RBI lamented the decision of the government "to bid
out the remaining works under the ASA thereby unilaterally terminating the Project with RBI and all the
agreements related thereto." RBI demanded the payment of just compensation "for all accomplishments and
costs incurred in developing the SMDRP plus a reasonable rate of return thereon pursuant to Section 5.05 of
the ARJVA and Section 6.2 of the ASA."46

Consequently, the parties negotiated the terms of the termination of the JVA and other subsequent agreements.

On August 27, 2003, the NHA and RBI executed a Memorandum of Agreement (MOA) whereby both parties
agreed to terminate the JVA and other subsequent agreements, thus:

1. TERMINATION

1.1 In compliance with the Cabinet directive dated 30 July 2002 to submit the works covered
by the P480 Million and the ASA to public bidding, the following agreements executed by
and between the NHA and the DEVELOPER are hereby terminated, to wit:

a. Joint Venture Agreement (JVA) dated 19 March 1993

b. Amended and Restated Joint Venture Agreement (ARJVA) dated 21 February

1994

c. Amendment and Restated Joint Venture Agreement dated 11 August 1994

d. Supplemental Agreement dated 24 March 1998

e. Amended Supplemental Agreement (ASA) dated 19 November 2001.

xxxx

5. SETTLEMENT OF CLAIMS

5.1 Subject to the validation of the DEVELOPER’s claims, the NHA hereby agrees to initially
compensate the Developer for the abovementioned costs as follows:

a. Direct payment to DEVELOPER of the amounts herein listed in the following manner:

a.1 P250 Million in cash from the escrow account in accordance with Section 2
herewith;

a.2 Conveyance of a 3 hectare portion of the Vitas Industrial area immediately after
joint determination of the appraised value of the said property in accordance with the
 procedure herein set forth in the last paragraph of Section 5.3. For purposes of all
payments to be made through conveyance of real properties, the parties shall secure
from the NHA Board of Directors all documents necessary and sufficient to effect
the transfer of title over the properties to be conveyed to RBI, which documents shall
be issued within a reasonable period.

5.2 Any unpaid balance of the DEVELOPERS claims determined after the validation process referred
to in Section 4 hereof, may be paid in cash, bonds or through the conveyance of properties or any
combination thereof. The manner, terms and conditions of payment of the balance shall be specified
and agreed upon later within a period of three months from the time a substantial amount representing
the unpaid balance has been validated pursuant hereto including, but not limited to the programming
of quarterly cash payments to be sourced by the NHA from its budget for debt servicing, from its
income or from any other sources.

5.3 In any case the unpaid balance is agreed to be paid, either partially or totally through conveyance
of properties, the parties shall agree on which properties shall be subject to conveyance. The NHA and
DEVELOPER hereby agree to determine the valuation of the properties to be conveyed by getting the
average of the appraisals to be made by two (2) mutually acceptable independent appraisers.

Meanwhile, respondent Harbour Centre Port Terminal, Inc. (HCPTI) entered into an agreement with the asset
pool for the development and operations of a port in the Smokey Mountain Area which is a major component
of SMDRP to provide a source of livelihood and employment for Smokey Mountain residents and spur
economic growth. A Subscription Agreement was executed between the Asset Pool and HCPTI whereby the
asset pool subscribed to 607 million common shares and 1,143 million preferred shares of HCPTI. The HCPTI
preferred shares had a premium and penalty interest of 7.5% per annum and a mandatory redemption feature.
The asset pool paid the subscription by conveying to HCPTI a 10-hectare land which it acquired from the
NHA being a portion of the reclaimed land of the SMDRP. Corresponding certificates of titles were issued to
HCPTI, namely: TCT Nos. 251355, 251356, 251357, and 251358.

Due to HCPTI’s failure to obtain a license to handle foreign containerized cargo from PPA, it suffered a net
income loss of PhP 132,621,548 in 2002 and a net loss of PhP 15,540,063 in 2003. The Project Governing
Board of the Asset Pool later conveyed by way of dacion en pago a number of HCPTI shares to RBI in lieu of
cash payment for the latter’s work in SMDRP.

On August 5, 2004, former Solicitor General Francisco I. Chavez, filed the instant petition which impleaded as
respondents the NHA, RBI, R-II Holdings, Inc. (RHI), HCPTI, and Mr. Reghis Romero II, raising
constitutional issues.

The NHA reported that thirty-four (34) temporary housing structures and twenty-one (21) permanent housing
structures had been turned over by respondent RBI. It claimed that 2,510 beneficiary-families belonging to the
poorest of the poor had been transferred to their permanent homes and benefited from the Project.

The Issues

The grounds presented in the instant petition are:

Neither respondent NHA nor respondent R-II builders may validly reclaim foreshore and submerged land
because:
 1. Respondent NHA and R-II builders were never granted any power and authority to reclaim lands of
the public domain as this power is vested exclusively with the PEA.

2. Even assuming that respondents NHA and R-II builders were given the power and authority to
reclaim foreshore and submerged land, they were never given the authority by the denr to do so.

II

Respondent R-II builders cannot acquire the reclaimed foreshore and submerged land areas because:

1. The reclaimed foreshore and submerged parcels of land are inalienable public lands which are
beyond the commerce of man.

2. Assuming arguendo that the subject reclaimed foreshore and submerged parcels of land were
already declared alienable lands of the public domain, respondent R-II builders still could not acquire
the same because there was never any declaration that the said lands were no longer needed for public
use.

3. Even assuming that the subject reclaimed lands are alienable and no longer needed for public use,
respondent R-II builders still cannot acquire the same because there was never any law authorizing the
sale thereof.

4. There was never any public bidding awarding ownership of the subject land to respondent R-II
builders.

5. Assuming that all the requirements for a valid transfer of alienable public had been performed,
respondent R-II Builders, being private corporation is nonetheless expresslyprohibited by the
Philippine Constitution to acquire lands of the public domain.

III

Respondent harbour, being a private corporation whose majority stocks are owned and controlled by
respondent Romero’s Corporations – R-II builders and R-II Holdings – is disqualified from being a transferee
of public land.

IV

Respondents must be compelled to disclose all information related to the smokey mountain development and
reclamation project.

The Court’s Ruling

Before we delve into the substantive issues raised in this petition, we will first deal with several procedural
matters raised by respondents.

Whether petitioner has the requisite locus standi to file this case

Respondents argue that petitioner Chavez has no legal standing to file the petition.
Only a person who stands to be benefited or injured by the judgment in the suit or entitled to the avails of the
suit can file a complaint or petition.47 Respondents claim that petitioner is not a proper party-in-interest as he
was unable to show that "he has sustained or is in immediate or imminent danger of sustaining some direct and
personal injury as a result of the execution and enforcement of the assailed contracts or
agreements."48 Moreover, they assert that not all government contracts can justify a taxpayer’s suit especially
when no public funds were utilized in contravention of the Constitution or a law.

We explicated in Chavez v. PCGG49 that in cases where issues of transcendental public importance are
presented, there is no necessity to show that petitioner has experienced or is in actual danger of suffering direct
and personal injury as the requisite injury is assumed. We find our ruling in Chavez v. PEA50 as conclusive
authority on locus standi in the case at bar since the issues raised in this petition are averred to be in breach of
the fair diffusion of the country’s natural resources and the constitutional right of a citizen to information
which have been declared to be matters of transcendental public importance. Moreover, the pleadings
especially those of respondents readily reveal that public funds have been indirectly utilized in the Project by
means of Smokey Mountain Project Participation Certificates (SMPPCs) bought by some government
agencies.

Hence, petitioner, as a taxpayer, is a proper party to the instant petition before the court.

Whether petitioner’s direct recourse to this Court was proper

Respondents are one in asserting that petitioner circumvents the principle of hierarchy of courts in his petition.
Judicial hierarchy was made clear in the case of People v. Cuaresma, thus:

There is after all a hierarchy of courts. That hierarchy is determinative of the venue of appeals, and should also
serve as a general determinant of the appropriate forum for petitions for the extraordinary writs. A becoming
regard for that judicial hierarchy most certainly indicates that petitions for the issuance of extraordinary writs
against first level ("inferior") courts should be filed with the Regional Trial Court, and those against the latter,
with the Court of Appeals. A direct invocation of the Supreme Court’s original jurisdiction to issue these writs
should be allowed only when there are special and important reasons therefor, clearly and specifically set out
in the petition. This is established policy. It is a policy that is necessary to prevent inordinate demands upon the
Court’s time and attention which are better devoted to those matters within its exclusive jurisdiction, and to
prevent further over-crowding of the Court’s docket.51 x x x

The OSG claims that the jurisdiction over petitions for prohibition and mandamus is concurrent with other
lower courts like the Regional Trial Courts and the Court of Appeals. Respondent NHA argues that the instant
petition is misfiled because it does not introduce special and important reasons or exceptional and compelling
circumstances to warrant direct recourse to this Court and that the lower courts are more equipped for factual
issues since this Court is not a trier of facts. Respondents RBI and RHI question the filing of the petition as this
Court should not be unduly burdened with "repetitions, invocation of jurisdiction over constitutional questions
it had previously resolved and settled."

In the light of existing jurisprudence, we find paucity of merit in respondents’ postulation.

While direct recourse to this Court is generally frowned upon and discouraged, we have however ruled in
Santiago v. Vasquez that such resort to us may be allowed in certain situations, wherein this Court ruled that
petitions for certiorari, prohibition, or mandamus, though cognizable by other courts, may directly be filed with
us if "the redress desired cannot be obtained in the appropriate courts or where exceptional compelling
circumstances justify availment of a remedy within and calling for the exercise of [this Court’s] primary
jurisdiction."52
1avvphi1
The instant petition challenges the constitutionality and legality of the SMDRP involving several hectares of
government land and hundreds of millions of funds of several government agencies. Moreover, serious
constitutional challenges are made on the different aspects of the Project which allegedly affect the right of
Filipinos to the distribution of natural resources in the country and the right to information of a citizen—
matters which have been considered to be of extraordinary significance and grave consequence to the public in
general. These concerns in the instant action compel us to turn a blind eye to the judicial structure meant to
provide an orderly dispensation of justice and consider the instant petition as a justified deviation from an
established precept.

Core factual matters undisputed

Respondents next challenge the projected review by this Court of the alleged factual issues intertwined in the
issues propounded by petitioner. They listed a copious number of questions seemingly factual in nature which
would make this Court a trier of facts.53

We find the position of respondents bereft of merit.

For one, we already gave due course to the instant petition in our January 18, 2005 Resolution. 54 In said
issuance, the parties were required to make clear and concise statements of established facts upon which our
decision will be based.

Secondly, we agree with petitioner that there is no necessity for us to make any factual findings since the facts
needed to decide the instant petition are well established from the admissions of the parties in their
pleadings55 and those derived from the documents appended to said submissions. Indeed, the core facts which
are the subject matter of the numerous issues raised in this petition are undisputed.

Now we will tackle the issues that prop up the instant petition.

Since petitioner has cited our decision in PEA as basis for his postulations in a number of issues, we first
resolve the query—is PEA applicable to the case at bar?

A juxtaposition of the facts in the two cases constrains the Court to rule in the negative.

The Court finds that PEA is not a binding precedent to the instant petition because the facts in said case are
substantially different from the facts and circumstances in the case at bar, thus:

(1) The reclamation project in PEA was undertaken through a JVA entered into between PEA and
AMARI. The reclamation project in the instant NHA case was undertaken by the NHA, a national
government agency in consultation with PEA and with the approval of two Philippine Presidents;

(2) In PEA, AMARI and PEA executed a JVA to develop the Freedom Islands and reclaim submerged
areas without public bidding on April 25, 1995. In the instant NHA case, the NHA and RBI executed a
JVA after RBI was declared the winning bidder on August 31, 1992 as the JVA partner of the NHA in
the SMDRP after compliance with the requisite public bidding.

(3) In PEA, there was no law or presidential proclamation classifying the lands to be reclaimed as
alienable and disposal lands of public domain. In this RBI case, MO 415 of former President Aquino
and Proclamation No. 39 of then President Ramos, coupled with Special Patents Nos. 3591, 3592, and
3598, classified the reclaimed lands as alienable and disposable;
 (4) In PEA, the Chavez petition was filed before the amended JVA was executed by PEA and
AMARI.  In this NHA case, the JVA and subsequent amendments were already substantially
1avvphi1

implemented. Subsequently, the Project was terminated through a MOA signed on August 27, 2003.
Almost one year later on August 5, 2004, the Chavez petition was filed;

(5) In PEA, AMARI was considered to be in bad faith as it signed the amended JVA after the Chavez
petition was filed with the Court and after Senate Committee Report No. 560 was issued finding that
the subject lands are inalienable lands of public domain. In the instant petition, RBI and other
respondents are considered to have signed the agreements in good faith as the Project was terminated
even before the Chavez petition was filed;

(6) The PEA-AMARI JVA was executed as a result of direct negotiation between the parties and not
in accordance with the BOT Law. The NHA-RBI JVA and subsequent amendments constitute a BOT
contract governed by the BOT Law; and

(7) In PEA, the lands to be reclaimed or already reclaimed were transferred to PEA, a government
entity tasked to dispose of public lands under Executive Order No. (EO) 525.56 In the NHA case, the
reclaimed lands were transferred to NHA, a government entity NOT tasked to dispose of public land
and therefore said alienable lands were converted to patrimonial lands upon their transfer to NHA.57

Thus the PEA Decision58 cannot be considered an authority or precedent to the instant case. The principle of
stare decisis59 has no application to the different factual setting of the instant case.

We will now dwell on the substantive issues raised by petitioner. After a perusal of the grounds raised in this
petition, we find that most of these issues are moored on our PEA Decision which, as earlier discussed, has no
application to the instant petition. For this reason alone, the petition can already be rejected. Nevertheless, on
the premise of the applicability of said decision to the case at bar, we will proceed to resolve said issues.

First Issue: Whether respondents NHA and RBI have been granted
the power and authority to reclaim lands of the public domain as
this power is vested exclusively in PEA as claimed by petitioner

Petitioner contends that neither respondent NHA nor respondent RBI may validly reclaim foreshore and
submerged land because they were not given any power and authority to reclaim lands of the public domain as
this power was delegated by law to PEA.

Asserting that existing laws did not empower the NHA and RBI to reclaim lands of public domain, the Public
Estates Authority (PEA), petitioner claims, is "the primary authority for the reclamation of all foreshore and
submerged lands of public domain," and relies on PEA where this Court held:

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." 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.60
In the Smokey Mountain Project, petitioner clarifies that the reclamation was not done by PEA or through a
contract executed by PEA with another person or entity but by the NHA through an agreement with respondent
RBI. Therefore, he concludes that the reclamation is null and void.

Petitioner’s contention has no merit.

EO 525 reads:

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. (Emphasis supplied.)

The aforequoted provision points to three (3) requisites for a legal and valid reclamation project, viz:

(1) approval by the President;

(2) favorable recommendation of PEA; and

(3) undertaken by any of the following:

a. by PEA

b. by any person or entity pursuant to a contract it executed with PEA

c. by the National Government agency or entity authorized under its charter to reclaim lands
subject to consultation with PEA

Without doubt, PEA under EO 525 was designated as the agency primarily responsible for integrating,
directing, and coordinating all reclamation projects. Primarily means "mainly, principally, mostly, generally."
Thus, not all reclamation projects fall under PEA’s authority of supervision, integration, and coordination. The
very charter of PEA, PD 1084,61 does not mention that PEA has the exclusive and sole power and authority to
reclaim lands of public domain. EO 525 even reveals the exception—reclamation projects by a national
government agency or entity authorized by its charter to reclaim land. One example is EO 405 which
authorized the Philippine Ports Authority (PPA) to reclaim and develop submerged areas for port related
purposes. Under its charter, PD 857, PPA has the power "to reclaim, excavate, enclose or raise any of the
lands" vested in it.

Thus, while PEA under PD 1084 has the power to reclaim land and under EO 525 is primarily responsible for
integrating, directing and coordinating reclamation projects, such authority is NOT exclusive and such power
to reclaim may be granted or delegated to another government agency or entity or may even be undertaken by
the National Government itself, PEA being only an agency and a part of the National Government.

Let us apply the legal parameters of Sec. 1, EO 525 to the reclamation phase of SMDRP. After a scrutiny of
the facts culled from the records, we find that the project met all the three (3) requirements, thus:

1. There was ample approval by the President of the Philippines; as a matter of fact, two Philippine Presidents
approved the same, namely: Presidents Aquino and Ramos. President Aquino sanctioned the reclamation of
both the SMDRP housing and commercial-industrial sites through MO 415 (s. 1992) which approved the
SMDRP under Sec. 1 and directed NHA "x x x to implement the Smokey Mountain Development Plan and
Reclamation of the Area across R-10 through a private sector joint venture scheme at the least cost to
government" under Section 3.

For his part, then President Ramos issued Proclamation No. 39 (s. 1992) which expressly reserved the Smokey
Mountain Area and the Reclamation Area for a housing project and related commercial/industrial
development.

Moreover, President Ramos issued Proclamation No. 465 (s. 1994) which authorized the increase of the
Reclamation Area from 40 hectares of foreshore and submerged land of the Manila Bay to 79 hectares. It
speaks of the reclamation of 400,000 square meters, more or less, of the foreshore and submerged lands of
Manila Bay adjoining R-10 as an enabling component of the SMDRP.

As a result of Proclamations Nos. 39 and 465, Special Patent No. 3591 covering 211,975 square meters of
Smokey Mountain, Special Patent No. 3592 covering 401,485 square meters of reclaimed land, and Special
Patent No. 3598 covering another 390,000 square meters of reclaimed land were issued by the DENR.

Thus, the first requirement of presidential imprimatur on the SMDRP has been satisfied.

2. The requisite favorable endorsement of the reclamation phase was impliedly granted by PEA. President
Aquino saw to it that there was coordination of the project with PEA by designating its general manager as
member of the EXECOM tasked to supervise the project implementation. The assignment was made in Sec. 2
of MO 415 which provides:

Section 2. An Executive Committee is hereby created to oversee the implementation of the Plan, chaired by the
NCR-CORD, with the heads of the following agencies as members: The National Housing Authority, the City
of Manila, the Department of Public Works and Highways, the Public Estates Authority, the Philippine Ports
Authority, the Department of Environment and Natural Resources and the Development Bank of the
Philippines. (Emphasis supplied.)

The favorable recommendation by PEA of the JVA and subsequent amendments were incorporated as part of
the recommendations of the EXECOM created under MO 415. While there was no specific recommendation
on the SMDRP emanating solely from PEA, we find that the approbation of the Project and the land
reclamation as an essential component by the EXECOM of which PEA is a member, and its submission of the
SMDRP and the agreements on the Project to the President for approval amply met the second requirement of
EO 525.

3. The third element was also present—the reclamation was undertaken either by PEA or any person or entity
under contract with PEA or by the National Government agency or entity authorized under its charter to
reclaim lands subject to consultation with PEA. It cannot be disputed that the reclamation phase was not done
by PEA or any person or entity under contract with PEA. However, the reclamation was implemented by the
NHA, a national government agency whose authority to reclaim lands under consultation with PEA is derived
from its charter—PD 727 and other pertinent laws—RA 727962 and RA 6957 as amended by RA 7718.

While the authority of NHA to reclaim lands is challenged by petitioner, we find that the NHA had more than
enough authority to do so under existing laws. While PD 757, the charter of NHA, does not explicitly mention
"reclamation" in any of the listed powers of the agency, we rule that the NHA has an implied power to reclaim
land as this is vital or incidental to effectively, logically, and successfully implement an urban land reform and
housing program enunciated in Sec. 9 of Article XIII of the 1987 Constitution.
Basic in administrative law is the doctrine that a government agency or office has express and implied powers
based on its charter and other pertinent statutes. Express powers are those powers granted, allocated, and
delegated to a government agency or office by express provisions of law. On the other hand, implied powers
are those that can be inferred or are implicit in the wordings of the law 63 or conferred by necessary or fair
implication in the enabling act.64 In Angara v. Electoral Commission, the Court clarified and stressed that when
a general grant of power is conferred or duty enjoined, every particular power necessary for the exercise of the
one or the performance of the other is also conferred by necessary implication.65 It was also explicated that
when the statute does not specify the particular method to be followed or used by a government agency in the
exercise of the power vested in it by law, said agency has the authority to adopt any reasonable method to carry
out its functions.66

The power to reclaim on the part of the NHA is implicit from PD 757, RA 7279, MO 415, RA 6957, and PD 3-
A,67viz:

1. NHA’s power to reclaim derived from PD 757 provisions:

a. Sec. 3 of PD 757 implies that reclamation may be resorted to in order to attain the goals of NHA:

Section 3. Progress and Objectives. The Authority shall have the following purposes and objectives:

xxxx

b) To undertake housing, development, resettlement or other activities as would enhance the provision
of housing to every Filipino;

c) To harness and promote private participation in housing ventures in terms of capital expenditures,
land, expertise, financing and other facilities for the sustained growth of the housing industry.
(Emphasis supplied.)

Land reclamation is an integral part of the development of resources for some of the housing requirements of
the NHA. Private participation in housing projects may also take the form of land reclamation.

b. Sec. 5 of PD 757 serves as proof that the NHA, as successor of the Tondo Foreshore Development Authority
(TFDA), has the power to reclaim, thus:

Section 5. Dissolution of Existing Housing Agencies. The People's Homesite and Housing Corporation
(PHHC), the Presidential Assistant on Housing Resettlement Agency (PAHRA), the Tondo Foreshore
Development Authority (TFDA), the Central Institute for the Training and Relocation of Urban Squatters
(CITRUS), the Presidential Committee for Housing and Urban Resettlement (PRECHUR), Sapang Palay
Development Committee, Inter-Agency Task Force to Undertake the Relocation of Families in Barrio
Nabacaan, Villanueva, Misamis Oriental and all other existing government housing and resettlement agencies,
task forces and ad-hoc committees, are hereby dissolved. Their powers and functions, balance of
appropriations, records, assets, rights, and choses in action, are transferred to, vested in, and assumed by the
Authority. x x x (Emphasis supplied.)

PD 570 dated October 30, 1974 created the TFDA, which defined its objectives, powers, and functions. Sec. 2
provides:

Section 2. Objectives and Purposes. The Authority shall have the following purposes and objectives:
 a) To undertake all manner of activity, business or development projects for the establishment of
harmonious, comprehensive, integrated and healthy living community in the Tondo Foreshoreland and
its resettlement site;

b) To undertake and promote the physical and socio-economic amelioration of the Tondo Foreshore
residents in particular and the nation in general (Emphasis supplied.)

The powers and functions are contained in Sec. 3, to wit:

a) To develop and implement comprehensive and integrated urban renewal programs for the Tondo
Foreshore and Dagat-dagatan lagoon and/or any other additional/alternative resettlement site and to
formulate and enforce general and specific policies for its development which shall ensure reasonable
degree of compliance with environmental standards.

b) To prescribe guidelines and standards for the reservation, conservation and utilization of public
lands covering the Tondo Foreshore land and its resettlement sites;

c) To construct, acquire, own, lease, operate and maintain infrastructure facilities, housing complex,
sites and services;

d) To determine, regulate and supervise the establishment and operation of housing, sites, services and
commercial and industrial complexes and any other enterprises to be constructed or established within
the Tondo Foreshore and its resettlement sites;

e) To undertake and develop, by itself or through joint ventures with other public or private entities,
all or any of the different phases of development of the Tondo Foreshore land and its resettlement
sites;

f) To acquire and own property, property-rights and interests, and encumber or otherwise dispose of
the same as it may deem appropriate (Emphasis supplied.)

From the foregoing provisions, it is readily apparent that the TFDA has the explicit power to develop public
lands covering the Tondo foreshore land and any other additional and alternative resettlement sites under letter
b, Sec. 3 of PD 570. Since the additional and/or alternative sites adjacent to Tondo foreshore land cover
foreshore and submerged areas, the reclamation of said areas is necessary in order to convert them into a
comprehensive and integrated resettlement housing project for the slum dwellers and squatters of Tondo. Since
the powers of TFDA were assumed by the NHA, then the NHA has the power to reclaim lands in the Tondo
foreshore area which covers the 79-hectare land subject of Proclamations Nos. 39 and 465 and Special Patents
Nos. 3592 and 3598.

c. Sec. 6 of PD 757 delineates the functions and powers of the NHA which embrace the authority to reclaim
land, thus:

Sec. 6. Powers and functions of the Authority.—The Authority shall have the following powers and functions
to be exercised by the Board in accordance with its established national human settlements plan prepared by
the Human Settlements Commission:

(a) Develop and implement the comprehensive and integrated housing program provided for in Section hereof;

xxxx
(c) Prescribe guidelines and standards for the reservation, conservation and utilization of public lands
identified for housing and resettlement;

xxxx

(e) Develop and undertake housing development and/or resettlement projects through joint ventures or other
arrangements with public and private entities;

xxxx

(k) Enter into contracts whenever necessary under such terms and conditions as it may deem proper and
reasonable;

(l) Acquire property rights and interests and encumber or otherwise dispose the same as it may deem
appropriate;

xxxx

(s) Perform such other acts not inconsistent with this Decree, as may be necessary to effect the policies and
objectives herein declared. (Emphasis supplied.)

The NHA’s authority to reclaim land can be inferred from the aforequoted provisions. It can make use of
public lands under letter (c) of Sec. 6 which includes reclaimed land as site for its comprehensive and
integrated housing projects under letter (a) which can be undertaken through joint ventures with private entities
under letter (e). Taken together with letter (s) which authorizes NHA to perform such other activities
"necessary to effect the policies and objectives" of PD 757, it is safe to conclude that the NHA’s power to
reclaim lands is a power that is implied from the exercise of its explicit powers under Sec. 6 in order to
effectively accomplish its policies and objectives under Sec. 3 of its charter. Thus, the reclamation of land is an
indispensable component for the development and construction of the SMDRP housing facilities.

2. NHA’s implied power to reclaim land is enhanced by RA 7279.

PD 757 identifies NHA’s mandate to "[d]evelop and undertake housing development and/or resettlement
projects through joint ventures or other arrangements with public and private entities."

The power of the NHA to undertake reclamation of land can be inferred from Secs. 12 and 29 of RA 7279,
which provide:

Section 12. Disposition of Lands for Socialized Housing.—The National Housing Authority, with respect to
lands belonging to the National Government, and the local government units with respect to other lands within
their respective localities, shall coordinate with each other to formulate and make available various alternative
schemes for the disposition of lands to the beneficiaries of the Program. These schemes shall not be limited to
those involving transfer of ownership in fee simple but shall include lease, with option to purchase, usufruct or
such other variations as the local government units or the National Housing Authority may deem most
expedient in carrying out the purposes of this Act.

xxxx

Section 29. Resettlement.—With two (2) years from the effectivity of this Act, the local government units, in
coordination with the National Housing Authority, shall implement the relocation and resettlement of persons
living in danger areas such as esteros, railroad tracks, garbage dumps, riverbanks, shorelines, waterways, and
in other public places as sidewalks, roads, parks, and playgrounds. The local government unit, in coordination
with the National Housing Authority, shall provide relocation or resettlement sites with basic services and
facilities and access to employment and livelihood opportunities sufficient to meet the basic needs of the
affected families. (Emphasis supplied.)

Lands belonging to the National Government include foreshore and submerged lands which can be reclaimed
to undertake housing development and resettlement projects.

3. MO 415 explains the undertaking of the NHA in SMDRP:

WHEREAS, Memorandum Order No. 161-A mandated the National Housing Authority to conduct feasibility
studies and develop low-cost housing projects at the dumpsites of Metro Manila;

WHEREAS, the National Housing Authority has presented a viable Conceptual Plan to convert the Smokey
Mountain dumpsite into a habitable housing project inclusive of the reclamation area across R-10 as enabling
component of the Project;

WHEREAS, the said Plan requires the coordinated and synchronized efforts of the City of Manila and other
government agencies and instrumentalities to ensure effective and efficient implementation;

WHEREAS, the government encourages private sector initiative in the implementation of its projects.
(Emphasis supplied.)

Proceeding from these "whereas" clauses, it is unequivocal that reclamation of land in the Smokey Mountain
area is an essential and vital power of the NHA to effectively implement its avowed goal of developing low-
cost housing units at the Smokey Mountain dumpsites. The interpretation made by no less than the President of
the Philippines as Chief of the Executive Branch, of which the NHA is a part, must necessarily command
respect and much weight and credit.

4. RA 6957 as amended by RA 7718—the BOT Law—serves as an exception to PD 1084 and EO 525.

Based on the provisions of the BOT Law and Implementing Rules and Regulations, it is unequivocal that all
government infrastructure agencies like the NHA can undertake infrastructure or development projects using
the contractual arrangements prescribed by the law, and land reclamation is one of the projects that can be
resorted to in the BOT project implementation under the February 10, 1992 Joint Resolution No. 3 of the 8th
Congress.

From the foregoing considerations, we find that the NHA has ample implied authority to undertake
reclamation projects.

Even without an implied power to reclaim lands under NHA’s charter, we rule that the authority granted to
NHA, a national government agency, by the President under PD 3-A reinforced by EO 525 is more than
sufficient statutory basis for the reclamation of lands under the SMDRP.

PD 3-A is a law issued by then President Ferdinand E. Marcos under his martial law powers on September 23,
1972. It provided that "[t]he provisions of any law to the contrary notwithstanding, the reclamation of areas,
underwater, whether foreshore or inland, shall be limited to the National Government or any person authorized
by it under the proper contract." It repealed, in effect, RA 1899 which previously delegated the right to reclaim
lands to municipalities and chartered cities and revested it to the National Government. 68 Under PD 3-A,
"national government" can only mean the Executive Branch headed by the President. It cannot refer to
Congress as it was dissolved and abolished at the time of the issuance of PD 3-A on September 23, 1972.
Moreover, the Executive Branch is the only implementing arm in the government with the equipment,
manpower, expertise, and capability by the very nature of its assigned powers and functions to undertake
reclamation projects. Thus, under PD 3-A, the Executive Branch through the President can implement
reclamation of lands through any of its departments, agencies, or offices.

Subsequently, on February 4, 1977, President Marcos issued PD 1084 creating the PEA, which was granted,
among others, the power "to reclaim land, including foreshore and submerged areas by dredging, filling or
other means or to acquire reclaimed lands." The PEA’s power to reclaim is not however exclusive as can be
gleaned from its charter, as the President retained his power under PD 3-A to designate another agency to
reclaim lands.

On February 14, 1979, EO 525 was issued. It granted PEA primary responsibility for integrating, directing,
and coordinating reclamation projects for and on behalf of the National Government although other national
government agencies can be designated by the President to reclaim lands in coordination with the PEA.
Despite the issuance of EO 525, PD 3-A remained valid and subsisting. Thus, the National Government
through the President still retained the power and control over all reclamation projects in the country.

The power of the National Government through the President over reclamation of areas, that is, underwater
whether foreshore or inland, was made clear in EO 54369 which took effect on June 24, 2006. Under EO 543,
PEA was renamed the Philippine Reclamation Authority (PRA) and was granted the authority to approve
reclamation projects, a power previously reposed in the President under EO 525. EO 543 reads:

Section 1. The power of the President to approve reclamation projects is hereby delegated to the Philippine
Reclamation Authority [formerly PEA], through its governing board, subject to compliance with existing laws
and rules and subject to the condition that reclamation contracts to be executed with any person or entity go
through public bidding.

Section 2. Nothing in the Order shall be construed as diminishing the President’s authority to modify, amend
or nullify PRA’s action.

Section 3. All executive issuances inconsistent with this Executive Order are hereby repealed or amended
accordingly. (Emphasis supplied.)

Sec. 2 of EO 543 strengthened the power of control and supervision of the President over reclamation of lands
as s/he can modify, amend, or nullify the action of PEA (now PRA).

From the foregoing issuances, we conclude that the President’s delegation to NHA, a national government
agency, to reclaim lands under the SMDRP, is legal and valid, firmly anchored on PD 3-A buttressed by EO
525 notwithstanding the absence of any specific grant of power under its charter, PD 757.

Second Issue: Whether respondents NHA and RBI were given the

power and authority by DENR to reclaim foreshore and submerged

lands

Petitioner Chavez puts forth the view that even if the NHA and RBI were granted the authority to reclaim, they
were not authorized to do so by the DENR.

Again, reliance is made on our ruling in PEA where it was held that the DENR’s authority is necessary in order
for the government to validly reclaim foreshore and submerged lands. In PEA, we expounded in this manner:
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 and 7 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.70

Despite our finding that PEA is not a precedent to the case at bar, we find after all that under existing laws, the
NHA is still required to procure DENR’s authorization before a reclamation project in Manila Bay or in any
part of the Philippines can be undertaken. The requirement applies to PEA, NHA, or any other government
agency or office granted with such power under the law.

Notwithstanding the need for DENR permission, we nevertheless find petitioner’s position bereft of merit.

The DENR is deemed to have granted the authority to reclaim in the Smokey Mountain Project for the
following reasons:

1. Sec. 17, Art. VII of the Constitution provides that "the President shall have control of all executive
departments, bureaus and offices." The President is assigned the task of seeing to it that all laws are faithfully
executed. "Control," in administrative law, means "the power of an officer to alter, modify, nullify or set aside
what a subordinate officer has done in the performance of his duties and to substitute the judgment of the
former for that of the latter."71

As such, the President can exercise executive power motu proprio and can supplant the act or decision of a
subordinate with the President’s own. The DENR is a department in the executive branch under the President,
and it is only an alter ego of the latter. Ordinarily the proposed action and the staff work are initially done by a
department like the DENR and then submitted to the President for approval. However, there is nothing infirm
or unconstitutional if the President decides on the implementation of a certain project or activity and requires
said department to implement it. Such is a presidential prerogative as long as it involves the department or
office authorized by law to supervise or execute the Project. Thus, as in this case, when the President approved
and ordered the development of a housing project with the corresponding reclamation work, making DENR a
member of the committee tasked to implement the project, the required authorization from the DENR to
reclaim land can be deemed satisfied. It cannot be disputed that the ultimate power over alienable and
disposable public lands is reposed in the President of the Philippines and not the DENR Secretary. To still
require a DENR authorization on the Smokey Mountain when the President has already authorized and ordered
the implementation of the Project would be a derogation of the powers of the President as the head of the
executive branch. Otherwise, any department head can defy or oppose the implementation of a project
approved by the head of the executive branch, which is patently illegal and unconstitutional.
In Chavez v. Romulo, we stated that when a statute imposes a specific duty on the executive department, the
President may act directly or order the said department to undertake an activity, thus:

[A]t the apex of the entire executive officialdom is the President. Section 17, Article VII of the Constitution
specifies [her] power as Chief executive departments, bureaus and offices. [She] shall ensure that the laws be
faithfully executed. As Chief Executive, President Arroyo holds the steering wheel that controls the course of
her government. She lays down policies in the execution of her plans and programs. Whatever policy she
chooses, she has her subordinates to implement them. In short, she has the power of control. Whenever a
specific function is entrusted by law or regulation to her subordinate, she may act directly or merely direct the
performance of a duty x x x. Such act is well within the prerogative of her office (emphasis supplied).72

Moreover, the power to order the reclamation of lands of public domain is reposed first in the Philippine
President. The Revised Administrative Code of 1987 grants authority to the President to reserve lands of public
domain for settlement for any specific purpose, thus:

Section 14. Power to Reserve Lands of the Public and Private Domain of the Government.—(1) The President
shall have the power to reserve for settlement or public use, and for specific public purposes, any of the lands
of the public domain, the use of which is not otherwise directed by law. The reserved land shall thereafter
remain subject to the specific public purpose indicated until otherwise provided by law or proclamation.
(Emphasis supplied.)

President Aquino reserved the area of the Smokey Mountain dumpsite for settlement and issued MO 415
authorizing the implementation of the Smokey Mountain Development Project plus the reclamation of the area
across R-10. Then President Ramos issued Proclamation No. 39 covering the 21-hectare dumpsite and the 40-
hectare commercial/industrial area, and Proclamation No. 465 and MO 415 increasing the area of foreshore
and submerged lands of Manila Bay to be reclaimed from 40 to 79 hectares. Having supervision and control
over the DENR, both Presidents directly assumed and exercised the power granted by the Revised
Administrative Code to the DENR Secretary to authorize the NHA to reclaim said lands. What can be done
indirectly by the DENR can be done directly by the President. It would be absurd if the power of the President
cannot be exercised simply because the head of a department in the executive branch has not acted favorably
on a project already approved by the President. If such arrangement is allowed then the department head will
become more powerful than the President.

2. Under Sec. 2 of MO 415, the DENR is one of the members of the EXECOM chaired by the NCR-CORD to
oversee the implementation of the Project. The EXECOM was the one which recommended approval of the
project plan and the joint venture agreements. Clearly, the DENR retained its power of supervision and control
over the laws affected by the Project since it was tasked to "facilitate the titling of the Smokey Mountain and
of the area to be reclaimed," which shows that it had tacitly given its authority to the NHA to undertake the
reclamation.

3. Former DENR Secretary Angel C. Alcala issued Special Patents Nos. 3591 and 3592 while then Secretary
Victor O. Ramos issued Special Patent No. 3598 that embraced the areas covered by the reclamation. These
patents conveyed the lands to be reclaimed to the NHA and granted to said agency the administration and
disposition of said lands for subdivision and disposition to qualified beneficiaries and for development for mix
land use (commercial/industrial) "to provide employment opportunities to on-site families and additional areas
for port related activities." Such grant of authority to administer and dispose of lands of public domain under
the SMDRP is of course subject to the powers of the EXECOM of SMDRP, of which the DENR is a member.

4. The issuance of ECCs by the DENR for SMDRP is but an exercise of its power of supervision and control
over the lands of public domain covered by the Project.
Based on these reasons, it is clear that the DENR, through its acts and issuances, has ratified and confirmed the
reclamation of the subject lands for the purposes laid down in Proclamations Nos. 39 and 465.

Third Issue: Whether respondent RBI can acquire reclaimed

foreshore and submerged lands considered as inalienable and

outside the commerce of man

Petitioner postulates that respondent RBI cannot acquire the reclaimed foreshore and submerged areas as these
are inalienable public lands beyond the commerce of man based on Art. 1409 of the Civil Code which
provides:

Article 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public
policy;

xxxx

(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

Secs. 2 and 3, Art. XII of the Constitution declare that all natural resources are owned by the State and they
cannot be alienated except for alienable agricultural lands of the public domain. One of the State’s natural
resources are lands of public domain which include reclaimed lands.

Petitioner contends that for these reclaimed lands to be alienable, there must be a law or presidential
proclamation officially classifying these reclaimed lands as alienable and disposable and open to disposition or
concession. Absent such law or proclamation, the reclaimed lands cannot be the enabling component or
consideration to be paid to RBI as these are beyond the commerce of man.

We are not convinced of petitioner’s postulation.

The reclaimed lands across R-10 were classified alienable and disposable lands of public domain of the State
for the following reasons, viz:

First, there were three (3) presidential proclamations classifying the reclaimed lands across R-10 as alienable
or disposable hence open to disposition or concession, to wit:

(1) MO 415 issued by President Aquino, of which Sec. 4 states that "[t]he land covered by the Smokey
Mountain Dumpsite is hereby conveyed to the National Housing Authority as well as the area to be
reclaimed across R-10."

The directive to transfer the lands once reclaimed to the NHA implicitly carries with it the declaration
that said lands are alienable and disposable. Otherwise, the NHA cannot effectively use them in its
housing and resettlement project.
 (2) Proclamation No. 39 issued by then President Ramos by which the reclaimed lands were conveyed
to NHA for subdivision and disposition to qualified beneficiaries and for development into a mixed
land use (commercial/industrial) to provide employment opportunities to on-site families and
additional areas for port-related activities. Said directive carries with it the pronouncement that said
lands have been transformed to alienable and disposable lands. Otherwise, there is no legal way to
convey it to the beneficiaries.

(3) Proclamation No. 465 likewise issued by President Ramos enlarged the reclaimed area to 79
hectares to be developed and disposed of in the implementation of the SMDRP. The authority put into
the hands of the NHA to dispose of the reclaimed lands tacitly sustains the conversion to alienable and
disposable lands.

Secondly, Special Patents Nos. 3591, 3592, and 3598 issued by the DENR anchored on Proclamations Nos. 39
and 465 issued by President Ramos, without doubt, classified the reclaimed areas as alienable and disposable.

Admittedly, it cannot be said that MO 415, Proclamations Nos. 39 and 465 are explicit declarations that the
lands to be reclaimed are classified as alienable and disposable. We find however that such conclusion is
derived and implicit from the authority given to the NHA to transfer the reclaimed lands to qualified
beneficiaries.

The query is, when did the declaration take effect? It did so only after the special patents covering the
reclaimed areas were issued. It is only on such date that the reclaimed lands became alienable and disposable
lands of the public domain. This is in line with the ruling in PEA where said issue was clarified and stressed:

PD No. 1085, coupled with President Aquino’s actual issuance of a special patent covering the Freedom
Islands, is equivalent to an official proclamation classifying the Freedom Islands as alienable or disposable
lands of the public domain. PD No. 1085 and President Aquino’s issuance of a land patent also constitute a
declaration that the Freedom Islands are no longer needed for public service. The Freedom Islands are thus
alienable or disposable lands of the public domain, open to disposition or concession to qualified
parties.73 (Emphasis supplied.)

Thus, MO 415 and Proclamations Nos. 39 and 465 cumulatively and jointly taken together with Special Patent
Nos. 3591, 3592, and 3598 more than satisfy the requirement in PEA that "[t]here must be a law or presidential
proclamation officially classifying these reclaimed lands as alienable or disposable and open to disposition or
concession (emphasis supplied)."74

Apropos the requisite law categorizing reclaimed land as alienable or disposable, we find that RA 6957 as
amended by RA 7718 provides ample authority for the classification of reclaimed land in the SMDRP for the
repayment scheme of the BOT project as alienable and disposable lands of public domain. Sec. 6 of RA 6957
as amended by RA 7718 provides:

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. (Emphasis supplied.)

While RA 6957 as modified by RA 7718 does not expressly declare that the reclaimed lands that shall serve as
payment to the project proponent have become alienable and disposable lands and opened for disposition;
nonetheless, this conclusion is necessarily implied, for how else can the land be used as the enabling
component for the Project if such classification is not deemed made?
It may be argued that the grant of authority to sell public lands, pursuant to PEA, does not convert alienable
lands of public domain into private or patrimonial lands. We ruled in PEA that "alienable lands of 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 (emphasis supplied)." 75 To lands
reclaimed by PEA or through a contract with a private person or entity, such reclaimed lands still remain
alienable lands of public domain which can be transferred only to Filipino citizens but not to a private
corporation. This is because PEA under PD 1084 and EO 525 is tasked to hold and dispose of alienable lands
of public domain and it is only when it is transferred to Filipino citizens that it becomes patrimonial property.
On the other hand, the NHA is a government agency not tasked to dispose of public lands under its charter—
The Revised Administrative Code of 1987. The NHA is an "end-user agency" authorized by law to administer
and dispose of reclaimed lands. The moment titles over reclaimed lands based on the special patents are
transferred to the NHA by the Register of Deeds, they are automatically converted to patrimonial properties of
the State which can be sold to Filipino citizens and private corporations, 60% of which are owned by Filipinos.
The reason is obvious: if the reclaimed land is not converted to patrimonial land once transferred to NHA, then
it would be useless to transfer it to the NHA since it cannot legally transfer or alienate lands of public domain.
More importantly, it cannot attain its avowed purposes and goals since it can only transfer patrimonial lands to
qualified beneficiaries and prospective buyers to raise funds for the SMDRP.

From the foregoing considerations, we find that the 79-hectare reclaimed land has been declared alienable and
disposable land of the public domain; and in the hands of NHA, it has been reclassified as patrimonial
property.

Petitioner, however, contends that the reclaimed lands were inexistent prior to the three (3) Presidential Acts
(MO 415 and Proclamations Nos. 39 and 465) and hence, the declaration that such areas are alienable and
disposable land of the public domain, citing PEA, has no legal basis.

Petitioner’s contention is not well-taken.

Petitioner’s sole reliance on Proclamations Nos. 39 and 465 without taking into consideration the special
patents issued by the DENR demonstrates the inherent weakness of his proposition. As was ruled in PEA cited
by petitioner himself, "PD No. 1085, coupled with President Aquino’s actual issuance of a special patent
covering the Freedom Islands is equivalent to an official proclamation classifying the Freedom islands as
alienable or disposable lands of public domain." In a similar vein, the combined and collective effect of
Proclamations Nos. 39 and 465 with Special Patents Nos. 3592 and 3598 is tantamount to and can be
considered to be an official declaration that the reclaimed lots are alienable or disposable lands of the public
domain.

The reclaimed lands covered by Special Patents Nos. 3591, 3592, and 3598, which evidence transfer of
ownership of reclaimed lands to the NHA, are official acts of the DENR Secretary in the exercise of his power
of supervision and control over alienable and disposable public lands and his exclusive jurisdiction over the
management and disposition of all lands of public domain under the Revised Administrative Code of 1987.
Special Patent No. 3592 speaks of the transfer of Lots 1 and 2, and RI-003901-000012-D with an area of
401,485 square meters based on the survey and technical description approved by the Bureau of Lands. Lastly,
Special Patent No. 3598 was issued in favor of the NHA transferring to said agency a tract of land described in
Plan RL-00-000013 with an area of 390,000 square meters based on the survey and technical descriptions
approved by the Bureau of Lands.

The conduct of the survey, the preparation of the survey plan, the computation of the technical description, and
the processing and preparation of the special patent are matters within the technical area of expertise of
administrative agencies like the DENR and the Land Management Bureau and are generally accorded not only
respect but at times even finality.76 Preparation of special patents calls for technical examination and a
specialized review of calculations and specific details which the courts are ill-equipped to undertake; hence,
the latter defer to the administrative agency which is trained and knowledgeable on such matters.77

Subsequently, the special patents in the name of the NHA were submitted to the Register of Deeds of the City
of Manila for registration, and corresponding certificates of titles over the reclaimed lots were issued based on
said special patents. The issuance of certificates of titles in NHA’s name automatically converts the reclaimed
lands to patrimonial properties of the NHA. Otherwise, the lots would not be of use to the NHA’s housing
projects or as payment to the BOT contractor as the enabling component of the BOT contract. The laws of the
land have to be applied and interpreted depending on the changing conditions and times. Tempora mutantur et
legis mutantur in illis (time changes and laws change with it). One such law that should be treated differently is
the BOT Law (RA 6957) which brought about a novel way of implementing government contracts by allowing
reclaimed land as part or full payment to the contractor of a government project to satisfy the huge financial
requirements of the undertaking. The NHA holds the lands covered by Special Patents Nos. 3592 and 3598
solely for the purpose of the SMDRP undertaken by authority of the BOT Law and for disposition in
accordance with said special law. The lands become alienable and disposable lands of public domain upon
issuance of the special patents and become patrimonial properties of the Government from the time the titles
are issued to the NHA.

As early as 1999, this Court in Baguio v. Republic laid down the jurisprudence that:

It is true that, once a patent is registered and the corresponding certificate of title is issued, the land covered by
them ceases to be part of the public domain and becomes private property, and the Torrens Title issued
pursuant to the patent becomes indefeasible upon the expiration of one year from the date of issuance of such
patent.78

The doctrine was reiterated in Republic v. Heirs of Felipe Alijaga, Sr.,79 Heirs of Carlos Alcaraz v.
Republic,80 and the more recent case of Doris Chiongbian-Oliva v. Republic of the Philippines. 81 Thus, the 79-
hectare reclaimed land became patrimonial property after the issuance of certificates of titles to the NHA based
on Special Patents Nos. 3592 and 3598.

One last point. The ruling in PEA cannot even be applied retroactively to the lots covered by Special Patents
Nos. 3592 (40 hectare reclaimed land) and 3598 (39-hectare reclaimed land). The reclamation of the land
under SMDRP was completed in August 1996 while the PEA decision was rendered on July 9, 2002. In the
meantime, subdivided lots forming parts of the reclaimed land were already sold to private corporations for
value and separate titles issued to the buyers. The Project was terminated through a Memorandum of
Agreement signed on August 27, 2003. The PEA decision became final through the November 11, 2003
Resolution. It is a settled precept that decisions of the Supreme Court can only be applied prospectively as they
may prejudice vested rights if applied retroactively.

In Benzonan v. Court of Appeals, the Court trenchantly elucidated the prospective application of its decisions
based on considerations of equity and fair play, thus:

At that time, the prevailing jurisprudence interpreting section 119 of R.A. 141 as amended was that enunciated
in Monge and Tupas cited above. The petitioners Benzonan and respondent Pe and the DBP are bound by these
decisions for pursuant to Article 8 of the Civil Code "judicial decisions applying or interpreting the laws of the
Constitution shall form a part of the legal system of the Philippines." But while our decisions form part of the
law of the land, they are also subject to Article 4 of the Civil Code which provides that "laws shall have no
retroactive effect unless the contrary is provided." This is expressed in the familiar legal maxim lex prospicit,
non respicit, the law looks forward not backward. The rationale against retroactivity is easy to perceive. The
retroactive application of a law usually divests rights that have already become vested or impairs the
obligations of contract and hence, is unconstitutional.
The same consideration underlies our rulings giving only prospective effect to decisions enunciating new
doctrines. Thus, we emphasized in People v. Jabinal, 55 SCRA 607 [1974] "x x x when a doctrine of this Court
is overruled and a different view is adopted, the new doctrine should be applied prospectively and should not
apply to parties who had relied on the old doctrine and acted on the faith thereof.82

Fourth Issue: Whether respondent RBI can acquire reclaimed

lands when there was no declaration that said lands are no

longer needed for public use

Petitioner Chavez avers that despite the declaration that the reclaimed areas are alienable lands of the public
domain, still, the reclamation is flawed for there was never any declaration that said lands are no longer needed
for public use.

We are not moved by petitioner’s submission.

Even if it is conceded that there was no explicit declaration that the lands are no longer needed for public use
or public service, there was however an implicit executive declaration that the reclaimed areas R-10 are not
necessary anymore for public use or public service when President Aquino through MO 415 conveyed the
same to the NHA partly for housing project and related commercial/industrial development intended for
disposition to and enjoyment of certain beneficiaries and not the public in general and partly as enabling
component to finance the project.

President Ramos, in issuing Proclamation No. 39, declared, though indirectly, that the reclaimed lands of the
Smokey Mountain project are no longer required for public use or service, thus:

These parcels of land of public domain are hereby placed under the administration and disposition of the
National Housing Authority to develop, subdivide and dispose to qualified beneficiaries, as well as its
development for mix land use (commercial/industrial) to provide employment opportunities to on-site families
and additional areas for port related activities. (Emphasis supplied.)

While numerical count of the persons to be benefited is not the determinant whether the property is to be
devoted to public use, the declaration in Proclamation No. 39 undeniably identifies only particular individuals
as beneficiaries to whom the reclaimed lands can be sold, namely—the Smokey Mountain dwellers. The rest of
the Filipinos are not qualified; hence, said lands are no longer essential for the use of the public in general.

In addition, President Ramos issued on August 31, 1994 Proclamation No. 465 increasing the area to be
reclaimed from forty (40) hectares to seventy-nine (79) hectares, elucidating that said lands are undoubtedly
set aside for the beneficiaries of SMDRP and not the public—declaring the power of NHA to dispose of land
to be reclaimed, thus: "The authority to administer, develop, or dispose lands identified and reserved by this
Proclamation and Proclamation No. 39 (s.1992), in accordance with the SMDRP, as enhance, is vested with
the NHA, subject to the provisions of existing laws." (Emphasis supplied.)

MO 415 and Proclamations Nos. 39 and 465 are declarations that proclaimed the non-use of the reclaimed
areas for public use or service as the Project cannot be successfully implemented without the withdrawal of
said lands from public use or service. Certainly, the devotion of the reclaimed land to public use or service
conflicts with the intended use of the Smokey Mountain areas for housing and employment of the Smokey
Mountain scavengers and for financing the Project because the latter cannot be accomplished without
abandoning the public use of the subject land. Without doubt, the presidential proclamations on SMDRP
together with the issuance of the special patents had effectively removed the reclaimed lands from public use.
More decisive and not in so many words is the ruling in PEA which we earlier cited, that "PD No. 1085 and
President Aquino’s issuance of a land patent also constitute a declaration that the Freedom Islands are no
longer needed for public service." Consequently, we ruled in that case that the reclaimed lands are "open to
disposition or concession to qualified parties."83

In a similar vein, presidential Proclamations Nos. 39 and 465 jointly with the special patents have classified the
reclaimed lands as alienable and disposable and open to disposition or concession as they would be devoted to
units for Smokey Mountain beneficiaries. Hence, said lands are no longer intended for public use or service
and shall form part of the patrimonial properties of the State under Art. 422 of the Civil Code.84 As discussed a
priori, the lands were classified as patrimonial properties of the NHA ready for disposition when the titles were
registered in its name by the Register of Deeds.

Moreover, reclaimed lands that are made the enabling components of a BOT infrastructure project are
necessarily reclassified as alienable and disposable lands under the BOT Law; otherwise, absurd and illogical
consequences would naturally result. Undoubtedly, the BOT contract will not be accepted by the BOT
contractor since there will be no consideration for its contractual obligations. Since reclaimed land will be
conveyed to the contractor pursuant to the BOT Law, then there is an implied declaration that such land is no
longer intended for public use or public service and, hence, considered patrimonial property of the State.

Fifth Issue: Whether there is a law authorizing sale of

reclaimed lands

Petitioner next claims that RBI cannot acquire the reclaimed lands because there was no law authorizing their
sale. He argues that unlike PEA, no legislative authority was granted to the NHA to sell reclaimed land.

This position is misplaced.

Petitioner relies on Sec. 60 of Commonwealth Act (CA) 141 to support his view that the NHA is not
empowered by any law to sell reclaimed land, thus:

Section 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. The
area of the land 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 if requested and shall
in no case exceed one hundred and forty-four hectares: Provided, however, That this limitation shall not apply
to grants, donations, 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;
Provided, further, That any person, corporation, association or partnership disqualified from purchasing public
land for agricultural purposes under the provisions of this Act, may lease land included under this title suitable
for industrial or residential purposes, but the lease granted shall only be valid while such land is used for the
purposes referred to. (Emphasis supplied.)

Reliance on said provision is incorrect as the same applies only to "a province, municipality or branch or
subdivision of the Government." The NHA is not a government unit but a government corporation performing
governmental and proprietary functions.

In addition, PD 757 is clear that the NHA is empowered by law to transfer properties acquired by it under the
law to other parties, thus:
Section 6. Powers and functions of the Authority. The Authority shall have the following powers and functions
to be exercised by the Boards in accordance with the established national human settlements plan prepared by
the Human Settlements Commission:

xxxx

(k) Enter into contracts whenever necessary under such terms and conditions as it may deem proper and
reasonable;

(l) Acquire property rights and interests, and encumber or otherwise dispose the same as it may deem
appropriate (Emphasis supplied.)

Letter (l) is emphatic that the NHA can acquire property rights and interests and encumber or otherwise
dispose of them as it may deem appropriate. The transfer of the reclaimed lands by the National Government to
the NHA for housing, commercial, and industrial purposes transformed them into patrimonial lands which are
of course owned by the State in its private or proprietary capacity. Perforce, the NHA can sell the reclaimed
lands to any Filipino citizen or qualified corporation.

Sixth Issue: Whether the transfer of reclaimed lands to RBI

was done by public bidding

Petitioner also contends that there was no public bidding but an awarding of ownership of said reclaimed lands
to RBI. Public bidding, he says, is required under Secs. 63 and 67 of CA 141 which read:

Section 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 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, that the Government will lease or sell, as the
case may be, the lots or blocks specified in the advertisement, for the purpose stated in the notice and subject
to the conditions specified in this chapter.

xxxx

Section 67. The lease or sale shall be made through oral bidding; and adjudication shall be made to the highest
bidder. However, where an applicant has made improvements on the land by virtue of a permit issued to him
by competent authority, the sale or lease shall be made by sealed bidding as prescribed in section twenty-six of
this Act, the provisions of which shall be applied whenever applicable. If all or part of the lots remain unleased
or unsold, the Director of Lands shall from time to time announce in the Official Gazette or in any other
newspapers of general circulation, the lease of sale of those lots, if necessary.

He finds that the NHA and RBI violated Secs. 63 and 67 of CA 141, as the reclaimed lands were conveyed to
RBI by negotiated contract and not by public bidding as required by law.

This stand is devoid of merit.

There is no doubt that respondent NHA conducted a public bidding of the right to become its joint venture
partner in the Smokey Mountain Project. Notices or Invitations to Bid were published in the national dailies on
January 23 and 26, 1992 and February 1, 14, 16, and 23, 1992. The bidding proper was done by the Bids and
Awards Committee (BAC) on May 18, 1992. On August 31, 1992, the Inter-Agency Techcom made up of the
NHA, PEA, DPWH, PPA, DBP, and DENR opened the bids and evaluated them, resulting in the award of the
contract to respondent RBI on October 7, 1992.

On March 19, 1993, respondents NHA and RBI signed the JVA. On February 23, 1994, said JVA was
amended and restated into the ARJVA. On August 11, 1994, the ARJVA was again amended. On September 7,
1994, the OP approved the ARJVA and the amendments to the ARJVA. From these factual settings, it cannot
be gainsaid that there was full compliance with the laws and regulations governing public biddings involving a
right, concession, or property of the government.

Petitioner concedes that he does not question the public bidding on the right to be a joint venture partner of the
NHA, but the absence of bidding in the sale of alienable and disposable lands of public domain pursuant to CA
141 as amended.

Petitioner’s theory is incorrect.

Secs. 63 and 67 of CA 141, as amended, are in point as they refer to government sale by the Director of Lands
of alienable and disposable lands of public domain. This is not present in the case at bar. The lands reclaimed
by and conveyed to the NHA are no longer lands of public domain. These lands became proprietary lands or
patrimonial properties of the State upon transfer of the titles over the reclaimed lands to the NHA and hence
outside the ambit of CA 141. The NHA can therefore legally transfer patrimonial land to RBI or to any other
interested qualified buyer without any bidding conducted by the Director of Lands because the NHA, unlike
PEA, is a government agency not tasked to sell lands of public domain. Hence, it can only hold patrimonial
lands and can dispose of such lands by sale without need of public bidding.

Petitioner likewise relies on Sec. 79 of PD 1445 which requires public bidding "when government property has
become unserviceable for any cause or is no longer needed." It appears from the Handbook on Property and
Supply Management System, Chapter 6, that reclaimed lands which have become patrimonial properties of the
State, whose titles are conveyed to government agencies like the NHA, which it will use for its projects or
programs, are not within the ambit of Sec. 79. We quote the determining factors in the Disposal of
Unserviceable Property, thus:

Determining Factors in the Disposal of Unserviceable Property

 Property, which can no longer be repaired or reconditioned;

 Property whose maintenance costs of repair more than outweigh the benefits and services that will be
derived from its continued use;
 Property that has become obsolete or outmoded because of changes in technology;
 Serviceable property that has been rendered unnecessary due to change in the agency’s function or
mandate;
 Unused supplies, materials and spare parts that were procured in excess of requirements; and
 Unused supplies and materials that [have] become dangerous to use because of long storage or use of
which is determined to be hazardous.85

Reclaimed lands cannot be considered unserviceable properties. The reclaimed lands in question are very much
needed by the NHA for the Smokey Mountain Project because without it, then the projects will not be
successfully implemented. Since the reclaimed lands are not unserviceable properties and are very much
needed by NHA, then Sec. 79 of PD 1445 does not apply.

More importantly, Sec. 79 of PD 1445 cannot be applied to patrimonial properties like reclaimed lands
transferred to a government agency like the NHA which has entered into a BOT contract with a private firm.
The reason is obvious. If the patrimonial property will be subject to public bidding as the only way of
disposing of said property, then Sec. 6 of RA 6957 on the repayment scheme is almost impossible or extremely
difficult to implement considering the uncertainty of a winning bid during public auction. Moreover, the
repayment scheme of a BOT contract may be in the form of non-monetary payment like the grant of a portion
or percentage of reclaimed land. Even if the BOT partner participates in the public bidding, there is no
assurance that he will win the bid and therefore the payment in kind as agreed to by the parties cannot be
performed or the winning bid prize might be below the estimated valuation of the land. The only way to
harmonize Sec. 79 of PD 1445 with Sec. 6 of RA 6957 is to consider Sec. 79 of PD 1445 as inapplicable to
BOT contracts involving patrimonial lands. The law does not intend anything impossible (lex non intendit
aliquid impossibile).

Seventh Issue: Whether RBI, being a private corporation,

is barred by the Constitution to acquire lands of public domain

Petitioner maintains that RBI, being a private corporation, is expressly prohibited by the 1987 Constitution
from acquiring lands of public domain.

Petitioner’s proposition has no legal mooring for the following reasons:

1. RA 6957 as amended by RA 7718 explicitly states that a contractor can be paid "a portion as
percentage of the reclaimed land" subject to the constitutional requirement that only Filipino citizens
or corporations with at least 60% Filipino equity can acquire the same. It cannot be denied that RBI is
a private corporation, where Filipino citizens own at least 60% of the stocks. Thus, the transfer to RBI
is valid and constitutional.

2. When Proclamations Nos. 39 and 465 were issued, inalienable lands covered by said proclamations
were converted to alienable and disposable lands of public domain. When the titles to the reclaimed
lands were transferred to the NHA, said alienable and disposable lands of public domain were
automatically classified as lands of the private domain or patrimonial properties of the State because
the NHA is an agency NOT tasked to dispose of alienable or disposable lands of public domain. The
only way it can transfer the reclaimed land in conjunction with its projects and to attain its goals is
when it is automatically converted to patrimonial properties of the State. Being patrimonial or private
properties of the State, then it has the power to sell the same to any qualified person—under the
Constitution, Filipino citizens as private corporations, 60% of which is owned by Filipino citizens like
RBI.

3. The NHA is an end-user entity such that when alienable lands of public domain are transferred to
said agency, they are automatically classified as patrimonial properties. The NHA is similarly situated
as BCDA which was granted the authority to dispose of patrimonial lands of the government under
RA 7227. The nature of the property holdings conveyed to BCDA is elucidated and stressed in the
May 6, 2003 Resolution in Chavez v. PEA, thus:

BCDA is an entirely different government entity. BCDA is authorized by law to sell specific government lands
that have long been declared by presidential proclamations as military reservations for use by the different
services of the armed forces under the Department of National Defense. BCDA’s mandate is specific and
limited in area, while PEA’s mandate is general and national. BCDA holds government lands that have been
granted to end-user government entities––the military services of the armed forces. In contrast, under
Executive Order No. 525, PEA holds the reclaimed public lands, not as an end-user entity, but as the
government agency "primarily responsible for integrating, directing, and coordinating all reclamation projects
for and on behalf of the National Government."

x x x Well-settled is the doctrine that public land granted to an end-user government agency for a specific
public use may subsequently be withdrawn by Congress from public use and declared patrimonial property to
be sold to private parties. R.A. No. 7227 creating the BCDA is a law that declares specific military
reservations no longer needed for defense or military purposes and reclassifies such lands as patrimonial
property for sale to private parties.

Government owned lands, as long as they are patrimonial property, can be sold to private parties, whether
Filipino citizens or qualified private corporations. Thus, the so-called Friar Lands acquired by the government
under Act No. 1120 are patrimonial property which even private corporations can acquire by purchase.
Likewise, reclaimed alienable lands of the public domain if sold or transferred to a public or municipal
corporation for a monetary consideration become patrimonial property in the hands of the public or municipal
corporation. Once converted to patrimonial property, the land may be sold by the public or municipal
corporation to private parties, whether Filipino citizens or qualified private corporations. 86 (Emphasis
supplied.)

The foregoing Resolution makes it clear that the SMDRP was a program adopted by the Government under
Republic Act No. 6957 (An Act Authorizing the Financing, Construction, Operation and Maintenance of
Infrastructure Projects by the Private Sector, and For Other Purposes), as amended by RA 7718, which is a
special law similar to RA 7227. Moreover, since the implementation was assigned to the NHA, an end-user
agency under PD 757 and RA 7279, the reclaimed lands registered under the NHA are automatically classified
as patrimonial lands ready for disposition to qualified beneficiaries.

The foregoing reasons likewise apply to the contention of petitioner that HCPTI, being a private corporation, is
disqualified from being a transferee of public land. What was transferred to HCPTI is a 10-hectare lot which is
already classified as patrimonial property in the hands of the NHA. HCPTI, being a qualified corporation
under the 1987 Constitution, the transfer of the subject lot to it is valid and constitutional.

Eighth Issue: Whether respondents can be compelled to disclose

all information related to the SMDRP

Petitioner asserts his right to information on all documents such as contracts, reports, memoranda, and the like
relative to SMDRP.

Petitioner asserts that matters relative to the SMDRP have not been disclosed to the public like the current
stage of the Project, the present financial capacity of RBI, the complete list of investors in the asset pool, the
exact amount of investments in the asset pool and other similar important information regarding the Project.

He prays that respondents be compelled to disclose all information regarding the SMDRP and furnish him with
originals or at least certified true copies of all relevant documents relating to the said project including, but not
limited to, the original JVA, ARJVA, AARJVA, and the Asset Pool Agreement.

This relief must be granted.

The right of the Filipino people to information on matters of public concern is enshrined in the 1987
Constitution, thus:

ARTICLE II

xxxx

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.
ARTICLE III

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.

In Valmonte v. Belmonte, Jr., this Court explicated this way:

[A]n essential element of these freedoms is to keep open a continuing dialogue or process of communication
between the government and the people. It is in the interest of the State that the channels for free political
discussion be maintained to the end that the government may perceive and be responsive to the people’s will.
Yet, this open dialogue can be effective only to the extent that the citizenry is informed and thus able to
formulate its will intelligently. Only when the participants in the discussion are aware of the issues and have
access to information relating thereto can such bear fruit.87

In PEA, this Court elucidated the rationale behind the right to information:

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," 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.88

Sec. 28, Art. II compels the State and its agencies to fully disclose "all of its transactions involving public
interest." Thus, the government agencies, without need of demand from anyone, must bring into public view
all the steps and negotiations leading to the consummation of the transaction and the contents of the perfected
contract.89 Such information must pertain to "definite propositions of the government," meaning official
recommendations or final positions reached on the different matters subject of negotiation. The government
agency, however, need not disclose "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."
The limitation also covers privileged communication like information on military and diplomatic secrets;
information affecting national security; information on investigations of crimes by law enforcement agencies
before the prosecution of the accused; information on foreign relations, intelligence, and other classified
information.

It is unfortunate, however, that after almost twenty (20) years from birth of the 1987 Constitution, there is still
no enabling law that provides the mechanics for the compulsory duty of government agencies to disclose
information on government transactions. Hopefully, the desired enabling law will finally see the light of day if
and when Congress decides to approve the proposed "Freedom of Access to Information Act." In the
meantime, it would suffice that government agencies post on their bulletin boards the documents incorporating
the information on the steps and negotiations that produced the agreements and the agreements themselves,
and if finances permit, to upload said information on their respective websites for easy access by interested
parties. Without any law or regulation governing the right to disclose information, the NHA or any of the
respondents cannot be faulted if they were not able to disclose information relative to the SMDRP to the public
in general.
The other aspect of the people’s right to know apart from the duty to disclose is the duty to allow access to
information on matters of public concern under Sec. 7, Art. III of the Constitution. The gateway to information
opens to the public the following: (1) official records; (2) documents and papers pertaining to official acts,
transactions, or decisions; and (3) government research data used as a basis for policy development.

Thus, the duty to disclose information should be differentiated from the duty to permit access to information.
There is no need to demand from the government agency disclosure of information as this is mandatory under
the Constitution; failing that, legal remedies are available. On the other hand, the interested party must first
request or even demand that he be allowed access to documents and papers in the particular agency. A request
or demand is required; otherwise, the government office or agency will not know of the desire of the interested
party to gain access to such papers and what papers are needed. The duty to disclose covers only transactions
involving public interest, while the duty to allow access has a broader scope of information which embraces
not only transactions involving public interest, but any matter contained in official communications and public
documents of the government agency.

We find that although petitioner did not make any demand on the NHA to allow access to information, we treat
the petition as a written request or demand. We order the NHA to allow petitioner access to its official records,
documents, and papers relating to official acts, transactions, and decisions that are relevant to the said JVA and
subsequent agreements relative to the SMDRP.

Ninth Issue: Whether the operative fact doctrine applies to the instant petition

Petitioner postulates that the "operative fact" doctrine is inapplicable to the present case because it is an
equitable doctrine which could not be used to countenance an inequitable result that is contrary to its proper
office.

On the other hand, the petitioner Solicitor General argues that the existence of the various agreements
implementing the SMDRP is an operative fact that can no longer be disturbed or simply ignored, citing Rieta
v. People of the Philippines.90

The argument of the Solicitor General is meritorious.

The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is stated that a
legislative or executive act, prior to its being declared as unconstitutional by the courts, is valid and must be
complied with, thus:

As the new Civil Code puts it: "When the courts declare a law to be inconsistent with the Constitution, the
former shall be void and the latter shall govern. Administrative or executive acts, orders and regulations shall
be valid only when they are not contrary to the laws of the Constitution." It is understandable why it should be
so, the Constitution being supreme and paramount. Any legislative or executive act contrary to its terms cannot
survive.

Such a view has support in logic and possesses the merit of simplicity. It may not however be sufficiently
realistic. It does not admit of doubt that prior to the declaration of nullity such challenged legislative or
executive act must have been in force and had to be complied with. This is so as until after the judiciary, in an
appropriate case, declares its invalidity, it is entitled to obedience and respect. Parties may have acted under it
and may have changed their positions. What could be more fitting than that in a subsequent litigation regard be
had to what has been done while such legislative or executive act was in operation and presumed to be valid in
all respects. It is now accepted as a doctrine that prior to its being nullified, its existence as a fact must be
reckoned with. This is merely to reflect awareness that precisely because the judiciary is the governmental
organ which has the final say on whether or not a legislative or executive measure is valid, a period of time
may have elapsed before it can exercise the power of judicial review that may lead to a declaration of nullity. It
would be to deprive the law of its quality of fairness and justice then, if there be no recognition of what had
transpired prior to such adjudication.

In the language of an American Supreme Court decision: "The actual existence of a statute, prior to such a
determination [of unconstitutionality], is an operative fact and may have consequences which cannot justly be
ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as
to invalidity may have to be considered in various aspects, with respect to particular relations, individual and
corporate, and particular conduct, private and official." This language has been quoted with approval in a
resolution in Araneta v. Hill and the decision in Manila Motor Co., Inc. v. Flores. An even more recent
instance is the opinion of Justice Zaldivar speaking for the Court in Fernandez v. Cuerva and Co.91 (Emphasis
supplied.)

This doctrine was reiterated in the more recent case of City of Makati v. Civil Service Commission, wherein
we ruled that:

Moreover, we certainly cannot nullify the City Government’s order of suspension, as we have no reason to do
so, much less retroactively apply such nullification to deprive private respondent of a compelling and valid
reason for not filing the leave application. For as we have held, a void act though in law a mere scrap of paper
nonetheless confers legitimacy upon past acts or omissions done in reliance thereof. Consequently, the
existence of a statute or executive order prior to its being adjudged void is an operative fact to which legal
consequences are attached. It would indeed be ghastly unfair to prevent private respondent from relying upon
the order of suspension in lieu of a formal leave application.92 (Emphasis supplied.)

The principle was further explicated in the case of Rieta v. People of the Philippines, thus:

In similar situations in the past this Court had taken the pragmatic and realistic course set forth in Chicot
County Drainage District vs. Baxter Bank to wit:

The courts below have proceeded on the theory that the Act of Congress, having been found to be
unconstitutional, was not a law; that it was inoperative, conferring no rights and imposing no duties, and hence
affording no basis for the challenged decree. x x x It is quite clear, however, that such broad statements as to
the effect of a determination of unconstitutionality must be taken with qualifications. The actual existence of a
statute, prior to [the determination of its invalidity], is an operative fact and may have consequences which
cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The effect of the
subsequent ruling as to invalidity may have to be considered in various aspects –with respect to particular
conduct, private and official. Questions of rights claimed to have become vested, of status, of prior
determinations deemed to have finality and acted upon accordingly, of public policy in the light of the nature
both of the statute and of its previous application, demand examination. These questions are among the most
difficult of those which have engaged the attention of courts, state and federal, and it is manifest from
numerous decisions that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be
justified.

In the May 6, 2003 Resolution in Chavez v. PEA,93 we ruled that De Agbayani94 is not applicable to the case
considering that the prevailing law did not authorize private corporations from owning land. The prevailing
law at the time was the 1935 Constitution as no statute dealt with the same issue.

In the instant case, RA 6957 was the prevailing law at the time that the joint venture agreement was signed.
RA 6957, entitled "An Act Authorizing The Financing, Construction, Operation And Maintenance Of
Infrastructure Projects By The Private Sector And For Other Purposes," which was passed by Congress on July
24, 1989, allows repayment to the private contractor of reclaimed lands.95 Such law was relied upon by
respondents, along with the above-mentioned executive issuances in pushing through with the Project. The
existence of such law and issuances is an "operative fact" to which legal consequences have attached. This
Court is constrained to give legal effect to the acts done in consonance with such executive and legislative acts;
to do otherwise would work patent injustice on respondents.

Further, in the May 6, 2003 Resolution in Chavez v. PEA, we ruled that in certain cases, the transfer of land,
although illegal or unconstitutional, will not be invalidated on considerations of equity and social justice.
However, in that case, we did not apply the same considering that PEA, respondent in said case, was not
entitled to equity principles there being bad faith on its part, thus:

There are, moreover, special circumstances that disqualify Amari from invoking equity principles. Amari
cannot claim good faith because even before Amari signed the Amended JVA on March 30, 1999, petitioner
had already filed the instant case on April 27, 1998 questioning precisely the qualification of Amari to acquire
the Freedom Islands. Even before the filing of this petition, two Senate Committees had already approved on
September 16, 1997 Senate Committee Report No. 560. This Report concluded, after a well-publicized
investigation into PEA’s sale of the Freedom Islands to Amari, that the Freedom Islands are inalienable lands
of the public domain. Thus, Amari signed the Amended JVA knowing and assuming all the attendant risks,
including the annulment of the Amended JVA.96

Such indicia of bad faith are not present in the instant case. When the ruling in PEA was rendered by this Court
on July 9, 2002, the JVAs were all executed. Furthermore, when petitioner filed the instant case against
respondents on August 5, 2004, the JVAs were already terminated by virtue of the MOA between the NHA
and RBI. The respondents had no reason to think that their agreements were unconstitutional or even
questionable, as in fact, the concurrent acts of the executive department lent validity to the implementation of
the Project. The SMDRP agreements have produced vested rights in favor of the slum dwellers, the buyers of
reclaimed land who were issued titles over said land, and the agencies and investors who made investments in
the project or who bought SMPPCs. These properties and rights cannot be disturbed or questioned after the
passage of around ten (10) years from the start of the SMDRP implementation. Evidently, the "operative fact"
principle has set in. The titles to the lands in the hands of the buyers can no longer be invalidated.

The Court’s Dispositions

Based on the issues raised in this petition, we find that the March 19, 1993 JVA between NHA and RBI and
the SMDRP embodied in the JVA, the subsequent amendments to the JVA and all other agreements signed and
executed in relation to it, including, but not limited to, the September 26, 1994 Smokey Mountain Asset Pool
Agreement and the agreement on Phase I of the Project as well as all other transactions which emanated from
the Project, have been shown to be valid, legal, and constitutional. Phase II has been struck down by the Clean
Air Act.

With regard to the prayer for prohibition, enjoining respondents particularly respondent NHA from further
implementing and/or enforcing the said Project and other agreements related to it, and from further deriving
and/or enjoying any rights, privileges and interest from the Project, we find the same prayer meritless.

Sec. 2 of Rule 65 of the 1997 Rules of Civil Procedure provides:

Sec. 2. Petition for prohibition.—When the proceedings of any tribunal, corporation, board, officer or person,
whether exercising judicial, quasi-judicial or ministerial functions, are without or in excess of its or his
jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no
appeal or any other plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved
thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that
judgment be rendered commanding the respondent to desist from further proceedings in the action or matter
specified therein, or otherwise granting such incidental reliefs as law and justice may require.
It has not been shown that the NHA exercised judicial or quasi-judicial functions in relation to the SMDRP and
the agreements relative to it. Likewise, it has not been shown what ministerial functions the NHA has with
regard to the SMDRP.

A ministerial duty is one which is so clear and specific as to leave no room for the exercise of discretion in its
performance. It is a duty which an officer performs in a given state of facts in a prescribed manner in
obedience to the mandate of legal authority, without regard to the exercise of his/her own judgment upon the
propriety of the act done.97

Whatever is left to be done in relation to the August 27, 2003 MOA, terminating the JVA and other related
agreements, certainly does not involve ministerial functions of the NHA but instead requires exercise of
judgment. In fact, Item No. 4 of the MOA terminating the JVAs provides for validation of the developer’s
(RBI’s) claims arising from the termination of the SMDRP through the various government agencies. 98 Such
validation requires the exercise of discretion.

In addition, prohibition does not lie against the NHA in view of petitioner’s failure to avail and exhaust all
administrative remedies. Clear is the rule that prohibition is only available when there is no adequate remedy
in the ordinary course of law.

More importantly, prohibition does not lie to restrain an act which is already a fait accompli. The "operative
fact" doctrine protecting vested rights bars the grant of the writ of prohibition to the case at bar. It should be
remembered that petitioner was the Solicitor General at the time SMDRP was formulated and implemented.
He had the opportunity to question the SMDRP and the agreements on it, but he did not. The moment to
challenge the Project had passed.

On the prayer for a writ of mandamus, petitioner asks the Court to compel respondents to disclose all
documents and information relating to the project, including, but not limited to, any subsequent agreements
with respect to the different phases of the Project, the revisions of the original plan, the additional works
incurred on the Project, the current financial condition of respondent RBI, and the transactions made with
respect to the project. We earlier ruled that petitioner will be allowed access to official records relative to the
SMDRP. That would be adequate relief to satisfy petitioner’s right to the information gateway.

WHEREFORE, the petition is partially granted.

The prayer for a writ of prohibition is DENIED for lack of merit.

The prayer for a writ of mandamus is GRANTED. Respondent NHA is ordered to allow access to petitioner to
all public documents and official records relative to the SMDRP—including, but not limited to, the March 19,
1993 JVA between the NHA and RBI and subsequent agreements related to the JVA, the revisions over the
original plan, and the additional works incurred on and the transactions made with respect to the Project.

No costs.

SO ORDERED.

PRESBITERO J. VELASCO, JR.