Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-30389 December 27, 1972

PEDRO LEE HONG HOK, SIMEON LEE HONG HOK, ROSITA LEE HONG HOK and
LEONCIO LEE HONG HOK, petitioners,
vs.
ANIANO DAVID, THE HON. SECRETARY OF AGRICULTURE AND NATURAL
RESOURCES, THE DIRECTOR OF LANDS and COURT OF APPEALS, respondents.

Augusto A. Pardalis for petitioners.

Luis General, Jr. for respondent Aniano David.

Office of the Solicitor General for other respondents.

FERNANDO, J.:p

Petitioners 1 in this appeal by certiorari would have us reverse a decision of respondent

Court of Appeals affirming a lower court judgment dismissing their complaint to have the
Torrens Title 2 of responRadent Aniano David declared null and void. What makes the task
for petitioners quite difficult is that their factual support for their pretension to ownership of such
disputed lot through accretion was rejected by respondent Court of Appeals. Without such
underpinning, they must perforce rely on a legal theory, which, to put it mildly, is distinguished by
unorthodoxy and is therefore far from persuasive. A grant by the government through the
appropriate public officials 3 exercising the competence duly vested in them by law is not
to be set at naught on the premise, unexpressed but implied, that land not otherwise
passing into private ownership may not be disposed of by the state. Such an assumption
is at war with settled principles of constitutional law. It cannot receive our assent. We
affirm.

The decision of respondent Court of Appeals following that of the lower court makes
clear that there is no legal justification for nullifying the right of respondent Aniano
David to the disputed lot arising from the grant made in his favor by respondent
officials. As noted in the decision under review, he "acquired lawful title thereby
pursuant to his miscellaneous sales application in accordance with which an order of
award and for issuance of a sales patent was made by the Director of Lands on June
18, 1958, covering Lot 2892 containing an area of 226 square meters, which is a
portion of Lot 2863 of the Naga Cadastre. On the basis of the order of award of the
Director of Lands the Undersecretary of Agriculture and Natural Resources issued on August
26, 1959, Miscellaneous Sales Patent No. V-1209 pursuant to which OCT No. 510 was
issued by the Register of Deeds of Naga City to defendant-appellee Aniano David on
October 21, 1959. According to the Stipulation of Facts, since the filing of the sales
application of Aniano David and during all the proceedings in connection with said
application, up to the actual issuance of the sales patent in his favor, the plaintiffs-
appellants did not put up any opposition or adverse claim thereto. This is fatal to them
because after the registration and issuance of the certificate and duplicate certificate
of title based on a public land patent, the land covered thereby automatically comes
under the operation of Republic Act 496 subject to all the safeguards provided
therein.... Under Section 38 of Act 496 any question concerning the validity of the
certificate of title based on fraud should be raised within one year from the date of the
issuance of the patent. Thereafter the certificate of title based thereon becomes
indefeasible.... In this case the land in question is not a private property as the
Director of Lands and the Secretary of Agriculture and Natural Resources have always
sustained the public character thereof for having been formed by reclamation.... The
only remedy therefore, available to the appellants is an action for reconveyance on the
ground of fraud. In this case we do not see any fraud committed by defendant-appellant
Aniano David in applying for the purchase of the land involved through his Miscellaneous
Sales Application No. MSA-V-26747, entered in the records of the Bureau of Lands
[Miscellaneous Sales] Entry No. V-9033, because everything was done in the open. The
notices regarding the auction sale of the land were published, the actual sale and award
thereof to Aniano David were not clandestine but open and public official acts of an officer of
the Government. The application was merely a renewal of his deceased wife's application,
and the said deceased occupied the land since 1938." 4

On such finding of facts, the attempt of petitioners to elicit a different conclusion is likely to be
attended with frustration. The first error assigned predicated an accretion having taken place,
notwithstanding its rejection by respondent Court of Appeals, would seek to disregard what
was accepted by respondent Court as to how the disputed lot came into being, namely by
reclamation. It does not therefore call for any further consideration. Neither of the other two
errors imputed to respondent Court, as to its holding that authoritative doctrines preclude a
party other than the government to dispute the validity of a grant and the recognition of the
indefeasible character of a public land patent after one year, is possessed of merit.
Consequently, as set forth at the outset, there is no justification for reversal.

1. More specifically, the shaft of criticism was let loose by petitioner aimed at this legal
proposition set forth in the exhaustive opinion of then Justice Salvador Esguerra of the Court
of Appeals, now a member of this Court: "There is, furthermore, a fatal defect of parties to
this action. Only the Government, represented by the Director of Lands, or the
Secretary of Agriculture and Natural Resources, can bring an action to cancel a void
certificate of title issued pursuant to a void patent (Lucas vs. Durian, 102 Phil. 1157;
Director of Lands vs. Heirs of Ciriaco Carlo, G.R. No. L-12485, July 31, 1959). This was
not done by said officers but by private parties like the plaintiffs, who cannot claim
that the patent and title issued for the land involved are void since they are not the
registered owners thereof nor had they been declared as owners in the cadastral
proceedings of Naga Cadastre after claiming it as their private property. The cases
cited by appellants are not in point as they refer to private registered lands or public
lands over which vested rights have been acquired but notwithstanding such fact the
Land Department subsequently granted patents to public land applicants." 5 Petitioner
ought to have known better. The above excerpt is invulnerable to attack. It is a restatement of a
principle that dates back to Maninang v. Consolacion, 6 a 1908 decision. As was there
categorically stated: "The fact that the grant was made by the government is undisputed. Whether
the grant was in conformity with the law or not is a question which the government may raise, but
until it is raised by the government and set aside, the defendant can not question it. The legality
of the grant is a question between the grantee and the government." 7 The above citation was
repeated ipsissimis verbis in Salazar v. Court of Appeals. 8 Bereft as petitioners were of the right
of ownership in accordance with the findings of the Court of Appeals, they cannot, in the
language of Reyes v. Rodriguez, 9 "question the [title] legally issued." 10 The second assignment
of error is thus disposed of.

2. As there are overtones indicative of skepticism, if not of outright rejection, of the well-
known distinction in public law between the government authority possessed by the
state which is appropriately embraced in the concept of sovereignty, and its capacity
to own or acquire property, it is not inappropriate to pursue the matter further. The
former comes under the heading of imperium and the latter of dominium. The use of
this term is appropriate with reference to lands held by the state in its proprietary
character. In such capacity, it may provide for the exploitation and use of lands and
other natural resources, including their disposition, except as limited by the
Constitution. Dean Pound did speak of the confusion that existed during the medieval era
between such two concepts, but did note the existence of res publicae as a corollary
to dominium." 11 As far as the Philippines was concerned, there was a recognition by
Justice Holmes in Cario v. Insular Government, 12 a case of Philippine origin, that "Spain
in its earlier decrees embodied the universal feudal theory that all lands were held from
the Crown...." 13 That was a manifestation of the concept of jura regalia, 14 which was
adopted by the present Constitution, ownership however being vested in the state as such
rather than the head thereof. What was stated by Holmes served to confirm a much more
extensive discussion of the matter in the leading case of Valenton v. Murciano, 15 decided in
1904. One of the royal decrees cited was incorporated in the Recopilacion de Leyes de las
Indias 16 in these words: "We having acquired full sovereignty over the Indies and all lands,
territories, and possessions not heretofore ceded away by our royal predecessors, or by us, or in
our name, still pertaining to the royal crown and patrimony, it is our will that all lands which are
held without proper and true deeds of grant be restored to us according as they belong to us, in
order that after reserving before all what to us or to our viceroys audiences, and governors may
seem necessary for public squares, ways, pastures, and commons in those places which are
peopled, taking into consideration not only their present condition, but also their future and their
probable increase, and after distributing to the natives what may be necessary for tillage and
pasturage, confirming them in what they now have and giving them more if necessary, all the rest
of said lands may remain free and unencumbered for us to dispose of as we may wish." 17

It could therefore be affirmed in Montano v. Insular Government" 18 that "as to the

unappropriated public lands constituting the public domain the sole power of legislation is
vested in Congress, ..." 19 They continue to possess that character until severed therefrom
by state grant. 20 Where, as in this case, it was found by the Court of Appeals that the
disputed lot was the result of reclamation, its being correctly categorized as public land is
undeniable. 21 What was held in Heirs of Datu Pendatun v. Director of Lands 22 finds
application. Thus: "There being no evidence whatever that the property in question was
ever acquired by the applicants or their ancestors either by composition title from the
Spanish Government or by possessory information title or by any other means for the
acquisition of public lands, the property must be held to be public domain." 23 For it is
well-settled "that no public land can be acquired by private persons without any grant,
express or implied, from the government." 24 It is indispensable then that there be a
showing of a title from the state or any other mode of acquisition recognized by law. 25 The
most recent restatement of the doctrine, found in an opinion of Justice J.B.L. Reyes,
follows: 26 "The applicant, having failed to establish his right or title over the northern
portion of Lot No. 463 involved in the present controversy, and there being no showing
that the same has been acquired by any private person from the Government, either by
purchase or by grant, the property is and remains part of the public domain." 27 To repeat,
the second assignment of error is devoid of merit.

3. The last error assigned would take issue with this portion of the opinion of Justice
Esguerra: "According to the Stipulation of Facts, since the filing of the sales application of
Aniano David and during all the proceedings in connection with said application, up to the
actual issuance of the sales patent in his favor, the plaintiffs-appellants did not put up any
opposition or adverse claim thereto. This is fatal to them because after the registration and
issuance of the certificate and duplicate certificate of title based on a public land patent, the
land covered thereby automatically comes under the operation of Republic Act 496 subject to
all the safeguards provided therein ... Under Section 38 of Act 496 any question concerning
the validity of the certificate of title based on fraud should be raised within one year from the
date of the issuance of the patent. Thereafter the certificate of title based thereon becomes
indefeasible ..." 28 Petitioners cannot reconcile themselves to the view that respondent David's
title is impressed with the quality of indefeasibility. In thus manifesting such an attitude, they railed
to accord deference to controlling precedents. As far back as 1919, in Aquino v. Director of
Lands, 29 Justice Malcolm, speaking for the Court, stated: "The proceedings under the Land
Registration Law and under the provisions of Chapter VI of the Public Land Law are the same in
that both are against the whole world, both take the nature of judicial proceedings, and for both
the decree of registration issued is conclusive and final." 30 Such a view has been followed since
then. 31 The latest case in point is Cabacug v. Lao. 32 There is this revealing excerpt appearing in
that decision: "It is said, and with reason, that a holder of a land acquired under a free patent is
more favorably situated than that of an owner of registered property. Not only does a free patent
have a force and effect of a Torrens Title, but in addition the person to whom it is granted has
likewise in his favor the right to repurchase within a period of five years." 33 It is quite apparent,
therefore, that petitioners' stand is legally indefensible.

WHEREFORE, the decision of respondent Court of Appeals of January 31, 1969 and
its resolution of March 14, 1969 are affirmed. With costs against petitioners-appellants.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 133250 July 9, 2002

FRANCISCO I. CHAVEZ, petitioner,

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

CARPIO, J.:

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

The Facts

On November 20, 1973, the government, through the Commissioner of Public

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

On February 4, 1977, then President Ferdinand E. Marcos issued Presidential Decree

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

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

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

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

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

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

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

On December 5, 1997, then President Fidel V. Ramos issued Presidential

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

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

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

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

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

In a Resolution dated March 23, 1999, the Court gave due course to the petition and
required the parties to file their respective memoranda.

On March 30, 1999, PEA and AMARI signed the Amended Joint Venture Agreement
("Amended JVA," for brevity). On May 28, 1999, the Office of the President under the
administration of then President Joseph E. Estrada approved the Amended JVA.

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

The Issues

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

I. WHETHER THE PRINCIPAL RELIEFS PRAYED FOR IN THE PETITION ARE

MOOT AND ACADEMIC BECAUSE OF SUBSEQUENT EVENTS;

II. WHETHER THE PETITION MERITS DISMISSAL FOR FAILING TO OBSERVE

THE PRINCIPLE GOVERNING THE HIERARCHY OF COURTS;
 III. WHETHER THE PETITION MERITS DISMISSAL FOR NON-EXHAUSTION OF
ADMINISTRATIVE REMEDIES;

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

V. WHETHER THE CONSTITUTIONAL RIGHT TO INFORMATION INCLUDES

OFFICIAL INFORMATION ON ON-GOING NEGOTIATIONS BEFORE A FINAL
AGREEMENT;

VI. WHETHER THE STIPULATIONS IN THE AMENDED JOINT VENTURE

AGREEMENT FOR THE TRANSFER TO AMARI OF CERTAIN LANDS,
RECLAIMED AND STILL TO BE RECLAIMED, VIOLATE THE 1987
CONSTITUTION; AND

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

The Court's Ruling

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

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

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

Petitioner counters that PEA and AMARI cannot avoid the constitutional issue by simply fast-
tracking the signing and approval of the Amended JVA before the Court could act on the
issue. Presidential approval does not resolve the constitutional issue or remove it from the
ambit of judicial review.

We rule that the signing of the Amended JVA by PEA and AMARI and its approval by the
President cannot operate to moot the petition and divest the Court of its jurisdiction. PEA and
AMARI have still to implement the Amended JVA. The prayer to enjoin the signing of the
Amended JVA on constitutional grounds necessarily includes preventing its implementation if
in the meantime PEA and AMARI have signed one in violation of the Constitution.
Petitioner's principal basis in assailing the renegotiation of the JVA is its violation of Section
3, Article XII of the Constitution, which prohibits the government from alienating lands of the
public domain to private corporations. If the Amended JVA indeed violates the Constitution, it
is the duty of the Court to enjoin its implementation, and if already implemented, to annul the
effects of such unconstitutional contract.
The Amended JVA is not an ordinary commercial contract but one which seeks
to transfer title and ownership to 367.5 hectares of reclaimed lands and submerged
areas of Manila Bay to a single private corporation. It now becomes more compelling
for the Court to resolve the issue to insure the government itself does not violate a
provision of the Constitution intended to safeguard the national patrimony.
Supervening events, whether intended or accidental, cannot prevent the Court from
rendering a decision if there is a grave violation of the Constitution. In the instant
case, if the Amended JVA runs counter to the Constitution, the Court can still prevent
the transfer of title and ownership of alienable lands of the public domain in the name
of AMARI. Even in cases where supervening events had made the cases moot, the
Court did not hesitate to resolve the legal or constitutional issues raised to formulate
controlling principles to guide the bench, bar, and the public.17

Also, the instant petition is a case of first impression. All previous decisions of the Court
involving Section 3, Article XII of the 1987 Constitution, or its counterpart provision in the
1973 Constitution,18 covered agricultural lands sold to private corporations which acquired
the lands from private parties. The transferors of the private corporations claimed or could
claim the right to judicial confirmation of their imperfect titles19 under Title II of
Commonwealth Act. 141 ("CA No. 141" for brevity). In the instant case, AMARI seeks to
acquire from PEA, a public corporation, reclaimed lands and submerged areas for non-
agricultural purposes by purchase under PD No. 1084 (charter of PEA) and Title III of CA
No. 141. Certain undertakings by AMARI under the Amended JVA constitute the
consideration for the purchase. Neither AMARI nor PEA can claim judicial confirmation of
their titles because the lands covered by the Amended JVA are newly reclaimed or still to be
reclaimed. Judicial confirmation of imperfect title requires open, continuous, exclusive and
notorious occupation of agricultural lands of the public domain for at least thirty years since
June 12, 1945 or earlier. Besides, the deadline for filing applications for judicial confirmation
of imperfect title expired on December 31, 1987.20

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

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

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

Third issue: whether the petition merits dismissal for non-exhaustion of

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

PEA distinguishes the instant case from Taada v. Tuvera23 where the Court granted the
petition for mandamus even if the petitioners there did not initially demand from the Office of
the President the publication of the presidential decrees. PEA points out that in Taada, the
Executive Department had an affirmative statutory duty under Article 2 of the Civil
Code24 and Section 1 of Commonwealth Act No. 63825 to publish the presidential decrees.
There was, therefore, no need for the petitioners in Taada to make an initial demand from
the Office of the President. In the instant case, PEA claims it has no affirmative statutory duty
to disclose publicly information about its renegotiation of the JVA. Thus, PEA asserts that the
Court must apply the principle of exhaustion of administrative remedies to the instant case in
view of the failure of petitioner here to demand initially from PEA the needed information.

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

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

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

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

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

Moreover, the petition raises matters of transcendental importance to the public. In Chavez
v. PCGG,28 the Court upheld the right of a citizen to bring a taxpayer's suit on matters of
transcendental importance to the public, thus -

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

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

xxx

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

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

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

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

We rule that since the instant petition, brought by a citizen, involves the enforcement of
constitutional rights - to information and to the equitable diffusion of natural resources -
matters of transcendental public importance, the petitioner has the requisite locus standi.

Fifth issue: whether the constitutional right to information includes official

information on on-going negotiations before a final agreement.

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

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

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

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

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

"An essential element of these freedoms is to keep open a continuing dialogue or

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

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

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

"Mr. Suarez. And when we say 'transactions' which should be distinguished from
contracts, agreements, or treaties or whatever, does the Gentleman refer to the
steps leading to the consummation of the contract, or does he refer to the contract
itself?

Mr. Ople: The 'transactions' used here, I suppose is generic and therefore, it
can cover both steps leading to a contract and already a consummated
contract, Mr. Presiding Officer.

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

consummation of the transaction.

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

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

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

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

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

undertaken by the bidding or review committee is not immediately accessible under the right
to information. While the evaluation or review is still on-going, there are no "official acts,
transactions, or decisions" on the bids or proposals. However, once the committee makes
its official recommendation, there arises a "definite proposition" on the part of the
government. From this moment, the public's right to information attaches, and any citizen
can access all the non-proprietary information leading to such definite proposition. In Chavez
v. PCGG,33 the Court ruled as follows:
 "Considering the intent of the framers of the Constitution, we believe that it is
incumbent upon the PCGG and its officers, as well as other government
representatives, to disclose sufficient public information on any proposed settlement
they have decided to take up with the ostensible owners and holders of ill-gotten
wealth. Such information, though, must pertain to definite propositions of the
government, not necessarily to intra-agency or inter-agency recommendations or
communications during the stage when common assertions are still in the process of
being formulated or are in the "exploratory" stage. There is need, of course, to
observe the same restrictions on disclosure of information in general, as discussed
earlier such as on matters involving national security, diplomatic or foreign
relations, intelligence and other classified information." (Emphasis supplied)

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

understood that the right to information "contemplates inclusion of negotiations leading
to the consummation of the transaction."Certainly, a consummated contract is not a
requirement for the exercise of the right to information. Otherwise, the people can never
exercise the right if no contract is consummated, and if one is consummated, it may be too
late for the public to expose its defects.
1wphi1.nt

Requiring a consummated contract will keep the public in the dark until the contract, which
may be grossly disadvantageous to the government or even illegal, becomes a fait accompli.
This negates the State policy of full transparency on matters of public concern, a situation
which the framers of the Constitution could not have intended. Such a requirement will
prevent the citizenry from participating in the public discussion of any proposed contract,
effectively truncating a basic right enshrined in the Bill of Rights. We can allow neither an
emasculation of a constitutional right, nor a retreat by the State of its avowed "policy of full
disclosure of all its transactions involving public interest."

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

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

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

There is no claim by PEA that the information demanded by petitioner is privileged

information rooted in the separation of powers. The information does not cover Presidential
conversations, correspondences, or discussions during closed-door Cabinet meetings which,
like internal deliberations of the Supreme Court and other collegiate courts, or executive
sessions of either house of Congress,38 are recognized as confidential. This kind of
information cannot be pried open by a co-equal branch of government. A frank exchange of
exploratory ideas and assessments, free from the glare of publicity and pressure by
interested parties, is essential to protect the independence of decision-making of those
tasked to exercise Presidential, Legislative and Judicial power.39 This is not the situation in
the instant case.

We rule, therefore, that the constitutional right to information includes official information
on on-going negotiationsbefore a final contract. The information, however, must constitute
definite propositions by the government and should not cover recognized exceptions like
privileged information, military and diplomatic secrets and similar matters affecting national
security and public order.40 Congress has also prescribed other limitations on the right to
information in several legislations.41

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

The Regalian Doctrine

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

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

Ownership and Disposition of Reclaimed Lands

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

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

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

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

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

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

"Art. 339. Property of public dominion is

1. That devoted to public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, riverbanks, shores, roadsteads, and that of a
similar character;

2. That belonging exclusively to the State which, without being of general public use,
is employed in some public service, or in the development of the national wealth,
such as walls, fortresses, and other works for the defense of the territory, and mines,
until granted to private individuals."

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

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

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

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

This provision, however, was not self-executing. The legislature, or the executive department
pursuant to law, must declare the property no longer needed for public use or territorial
defense before the government could lease or alienate the property to private parties.45
Act No. 1654 of the Philippine Commission

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

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

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

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

xxx

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

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

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

Act No. 2874 of the Philippine Legislature

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

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

Agriculture and Natural Resources, shall from time to time classify the lands of
the public domain into
 (a) Alienable or disposable,

(b) Timber, and

(c) Mineral lands, x x x.

Sec. 7. For the purposes of the government and disposition of alienable or

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

Sec. 8. Only those lands shall be declared open to disposition or concession

which have been officially delimited or classified x x x.

xxx

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

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

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

means;

(b) Foreshore;

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

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

x x x.

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

Section 6 of Act No. 2874 authorized the Governor-General to "classify lands of the public
domain into x x x alienable or disposable"47 lands. Section 7 of the Act empowered the
Governor-General to "declare what lands are open to disposition or concession." Section 8 of
the Act limited alienable or disposable lands only to those lands which have been "officially
delimited and classified."
Section 56 of Act No. 2874 stated that lands "disposable under this title48 shall be classified"
as government reclaimed, foreshore and marshy lands, as well as other lands. All these
lands, however, must be suitable for residential, commercial, industrial or other
productive non-agricultural purposes. These provisions vested upon the Governor-General
the power to classify inalienable lands of the public domain into disposable lands of the
public domain. These provisions also empowered the Governor-General to classify further
such disposable lands of the public domain into government reclaimed, foreshore or marshy
lands of the public domain, as well as other non-agricultural lands.

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

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

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

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

Dispositions under the 1935 Constitution

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

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

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

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

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

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

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

Commonwealth Act No. 141 of the Philippine National Assembly

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

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

(a) Alienable or disposable,

(b) Timber, and

(c) Mineral lands,

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

Sec. 7. For the purposes of the administration and disposition of alienable or

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

Sec. 8. Only those lands shall be declared open to disposition or concession

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

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

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

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

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

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

means;

(b) Foreshore;

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

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

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

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

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

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

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

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

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

The State policy prohibiting the sale to private parties of government reclaimed, foreshore
and marshy alienable lands of the public domain, first implemented in 1907 was thus
reaffirmed in CA No. 141 after the 1935 Constitution took effect. The prohibition on the sale
of foreshore lands, however, became a constitutional edict under the 1935 Constitution.
Foreshore lands became inalienable as natural resources of the State, unless reclaimed by
the government and classified as agricultural lands of the public domain, in which case they
would fall under the classification of government reclaimed lands.

After the effectivity of the 1935 Constitution, government reclaimed and marshy disposable
lands of the public domain continued to be only leased and not sold to private
parties.56 These lands remained sui generis, as the only alienable or disposable lands of the
public domain the government could not sell to private parties.

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

Moreover, Section 60 of CA No. 141 expressly requires congressional authority before

lands under Section 59 that the government previously transferred to government units or
entities could be sold to private parties. Section 60 of CA No. 141 declares that

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

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

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

In case of sale or lease of disposable lands of the public domain falling under Section 59 of
CA No. 141, Sections 63 and 67 require a public bidding. Sections 63 and 67 of CA No. 141
provide as follows:
 "Sec. 63. Whenever it is decided that lands covered by this chapter are not needed
for public purposes, the Director of Lands shall ask the Secretary of Agriculture and
Commerce (now the Secretary of Natural Resources) for authority to dispose of the
same. Upon receipt of such authority, the Director of Lands shall give notice by
public advertisement in the same manner as in the case of leases or sales of
agricultural public land, x x x.

Sec. 67. The lease or sale shall be made by oral bidding; and adjudication shall
be made to the highest bidder. x x x." (Emphasis supplied)

Thus, CA No. 141 mandates the Government to put to public auction all leases or sales of
alienable or disposable lands of the public domain.58

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

The Civil Code of 1950

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

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

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

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

x x x.

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

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

Like the Civil Code of 1889, the Civil Code of 1950 included as property of public dominion
those properties of the State which, without being for public use, are intended for public
service or the "development of the national wealth." Thus, government reclaimed and
marshy lands of the State, even if not employed for public use or public service, if developed
to enhance the national wealth, are classified as property of public dominion.
Dispositions under the 1973 Constitution

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

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

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

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

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

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

PD No. 1084 Creating the Public Estates Authority

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

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

(a) To reclaim land, including foreshore and submerged areas, by dredging,

filling or other means, or to acquire reclaimed land;

(b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and
sell any and all kinds of lands, buildings, estates and other forms of real property,
owned, managed, controlled and/or operated by the government;

(c) To provide for, operate or administer such service as may be necessary for the
efficient, economical and beneficial utilization of the above properties.

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

(a)To prescribe its by-laws.

xxx

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

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

xxx

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

PD No. 1084 authorizes PEA to reclaim both foreshore and submerged areas of the public
domain. Foreshore areas are those covered and uncovered by the ebb and flow of the
tide.61 Submerged areas are those permanently under water regardless of the ebb and flow
of the tide.62 Foreshore and submerged areas indisputably belong to the public domain63 and
are inalienable unless reclaimed, classified as alienable lands open to disposition, and
further declared no longer needed for public service.

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

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

"Sec. 60. x x x; but the land so granted, donated or transferred to a province,

municipality, or branch or subdivision of the Government shall not be alienated,
encumbered or otherwise disposed of in a manner affecting its title, except when
authorized by Congress; x x x." (Emphasis supplied)

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

Dispositions under the 1987 Constitution

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

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

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

Taking into account the requirements of conservation, ecology, and development,

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

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

The Rationale behind the Constitutional Ban

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

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

which says:

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

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

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

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

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

"Indeed, one purpose of the constitutional prohibition against purchases of public

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

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

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

In actual practice, the constitutional ban strengthens the constitutional limitation on

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

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

The Amended Joint Venture Agreement

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

1. "[T]hree partially reclaimed and substantially eroded islands along Emilio

Aguinaldo Boulevard in Paranaque and Las Pinas, Metro Manila, with a combined
titled area of 1,578,441 square meters;"

2. "[A]nother area of 2,421,559 square meters contiguous to the three islands;" and

3. "[A]t AMARI's option as approved by PEA, an additional 350 hectares more or less
to regularize the configuration of the reclaimed area."65

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

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

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

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

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

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

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

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

The Threshold Issue

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

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

xxx

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

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

Classification of Reclaimed Foreshore and Submerged Areas

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

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

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

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

x x x.'" (Emphasis supplied)

Likewise, the Legal Task Force68 constituted under Presidential Administrative Order No. 365
admitted in its Report and Recommendation to then President Fidel V.
Ramos, "[R]eclaimed lands are classified as alienable and disposable lands of the
public domain."69 The Legal Task Force concluded that

"D. Conclusion

Reclaimed lands are lands of the public domain. However, by statutory

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

The constitutional provision prohibiting private corporations from holding

public land, except by lease (Sec. 3, Art. XVII,70 1987 Constitution), does not
apply to reclaimed lands whose ownership has passed on to PEA by statutory
grant."

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

Section 8 of CA No. 141 provides that "only those lands shall be declared open to disposition
or concession which have been officially delimited and classified."72 The President has
the authority to classify inalienable lands of the public domain into alienable or disposable
lands of the public domain, pursuant to Section 6 of CA No. 141. In Laurel vs. Garcia,73 the
Executive Department attempted to sell the Roppongi property in Tokyo, Japan, which was
acquired by the Philippine Government for use as the Chancery of the Philippine Embassy.
Although the Chancery had transferred to another location thirteen years earlier, the Court
still ruled that, under Article 42274 of the Civil Code, a property of public dominion retains
such character until formally declared otherwise. The Court ruled that
 "The fact that the Roppongi site has not been used for a long time for actual
Embassy service does not automatically convert it to patrimonial property. Any such
conversion happens only if the property is withdrawn from public use (Cebu Oxygen
and Acetylene Co. v. Bercilles, 66 SCRA 481 [1975]. A property continues to be
part of the public domain, not available for private appropriation or ownership
'until there is a formal declaration on the part of the government to withdraw it
from being such' (Ignacio v. Director of Lands, 108 Phil. 335 [1960]." (Emphasis
supplied)

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

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

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

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

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

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

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

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

"The provisions of any law to the contrary notwithstanding, the reclamation of

areas under water, whether foreshore or inland, shall be limited to the National
Government or any person authorized by it under a proper contract. (Emphasis
supplied)

x x x."

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

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

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

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

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

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

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

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

(1) x x x
 xxx

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

xxx

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

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

(15) Exercise exclusive jurisdiction on the management and disposition of all

lands of the public domain and serve as the sole agency responsible for
classification, sub-classification, surveying and titling of lands in consultation with
appropriate agencies."80 (Emphasis supplied)

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

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

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

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

Absent two official acts a classification that these lands are alienable or disposable and
open to disposition and a declaration that these lands are not needed for public service,
lands reclaimed by PEA remain inalienable lands of the public domain. Only such an official
classification and formal declaration can convert reclaimed lands into alienable or disposable
lands of the public domain, open to disposition under the Constitution, Title I and Title III83 of
CA No. 141 and other applicable laws.84

PEA's Authority to Sell Reclaimed Lands

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

In Laurel vs. Garcia,86 the Court cited Section 48 of the Revised Administrative Code of
1987, which states that

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

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

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

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

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

Henceforth, the Public Estates Authority shall exercise the rights and assume the
obligations of the Republic of the Philippines (Department of Public Highways)
arising from, or incident to, the aforesaid contract between the Republic of the
Philippines and the Construction and Development Corporation of the Philippines.
 In consideration of the foregoing transfer and assignment, the Public Estates
Authority shall issue in favor of the Republic of the Philippines the corresponding
shares of stock in said entity with an issued value of said shares of stock (which)
shall be deemed fully paid and non-assessable.

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

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

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

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

"Sec. 3. All lands reclaimed by PEA shall belong to or be owned by the

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

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

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

PEA may also sell its alienable or disposable lands of the public domain to private
individuals since, with the legislative authority, there is no longer any statutory prohibition
against such sales and the constitutional ban does not apply to individuals. PEA, however,
cannot sell any of its alienable or disposable lands of the public domain to private
corporations since Section 3, Article XII of the 1987 Constitution expressly prohibits such
sales. The legislative authority benefits only individuals. Private corporations remain barred
from acquiring any kind of alienable land of the public domain, including government
reclaimed lands.
The provision in PD No. 1085 stating that portions of the reclaimed lands could be
transferred by PEA to the "contractor or his assignees" (Emphasis supplied) would not apply
to private corporations but only to individuals because of the constitutional ban. Otherwise,
the provisions of PD No. 1085 would violate both the 1973 and 1987 Constitutions.

The requirement of public auction in the sale of reclaimed lands

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

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

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

It is only when the public auction fails that a negotiated sale is allowed, in which case the
Commission on Audit must approve the selling price.90 The Commission on Audit implements
Section 79 of the Government Auditing Code through Circular No. 89-29691 dated January
27, 1989. This circular emphasizes that government assets must be disposed of only through
public auction, and a negotiated sale can be resorted to only in case of "failure of public
auction."

At the public auction sale, only Philippine citizens are qualified to bid for PEA's reclaimed
foreshore and submerged alienable lands of the public domain. Private corporations are
barred from bidding at the auction sale of any kind of alienable land of the public domain.
PEA originally scheduled a public bidding for the Freedom Islands on December 10, 1991.
PEA imposed a condition that the winning bidder should reclaim another 250 hectares of
submerged areas to regularize the shape of the Freedom Islands, under a 60-40 sharing of
the additional reclaimed areas in favor of the winning bidder.92 No one, however, submitted a
bid. On December 23, 1994, the Government Corporate Counsel advised PEA it could sell
the Freedom Islands through negotiation, without need of another public bidding, because of
the failure of the public bidding on December 10, 1991.93

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

Reclamation under the BOT Law and the Local Government Code

The constitutional prohibition in Section 3, Article XII of the 1987 Constitution is

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

"Sec. 6. Repayment Scheme. - For the financing, construction, operation and

maintenance of any infrastructure projects undertaken through the build-operate-and-
transfer arrangement or any of its variations pursuant to the provisions of this Act, the
project proponent x x x may likewise be repaid in the form of a share in the revenue
of the project or other non-monetary payments, such as, but not limited to, the grant
of a portion or percentage of the reclaimed land, subject to the constitutional
requirements with respect to the ownership of the land: x x x." (Emphasis
supplied)

A private corporation, even one that undertakes the physical reclamation of a

government BOT project, cannot acquire reclaimed alienable lands of the public
domain in view of the constitutional ban.

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

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

Infrastructure Projects by the Private Sector. x x x

xxx

In case of land reclamation or construction of industrial estates, the repayment plan

may consist of the grant of a portion or percentage of the reclaimed land or the
industrial estate constructed."
Although Section 302 of the Local Government Code does not contain a proviso similar to
that of the BOT Law, the constitutional restrictions on land ownership automatically apply
even though not expressly mentioned in the Local Government Code.

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

Registration of lands of the public domain

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

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

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

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

"After the registration and issuance of the certificate and duplicate certificate of title
based on a public land patent, the land covered thereby automatically comes under
the operation of Republic Act 496 subject to all the safeguards provided
therein."3. Heirs of Gregorio Tengco v. Heirs of Jose Aliwalas,99 where the Court
ruled -

"While the Director of Lands has the power to review homestead patents, he may do
so only so long as the land remains part of the public domain and continues to be
under his exclusive control; but once the patent is registered and a certificate of title
is issued, the land ceases to be part of the public domain and becomes private
property over which the Director of Lands has neither control nor jurisdiction."

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

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

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

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

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

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

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

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

"NOW, THEREFORE, KNOW YE, that by authority of the Constitution of the

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

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

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

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

"EXECUTIVE ORDER NO. 525

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

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

Whereas, there is a need to give further institutional support to the Government's

declared policy to provide for a coordinated, economical and efficient reclamation of
lands;

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

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

Government which shall ensure a coordinated and integrated approach in the
reclamation of lands;

Whereas, Presidential Decree No. 1084 creates the Public Estates Authority as
a government corporation to undertake reclamation of lands and ensure their
maximum utilization in promoting public welfare and interests; and
 Whereas, Presidential Decree No. 1416 provides the President with continuing
authority to reorganize the national government including the transfer, abolition, or
merger of functions and offices.

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

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

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

x x x ."

As the central implementing agency tasked to undertake reclamation projects nationwide,

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

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

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

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

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

Act No. 496

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

PD No. 1529

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

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

Alienable lands of the public domain "granted, donated, or transferred to a province,

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

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

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

(1) x x x

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

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

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

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

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

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

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

We can now summarize our conclusions as follows:

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

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

3. Since the Amended JVA seeks to transfer to AMARI, a private corporation,

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

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

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

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

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

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 73002 December 29, 1986

THE DIRECTOR OF LANDS, petitioner,

vs.
INTERMEDIATE APPELLATE COURT and ACME PLYWOOD & VENEER CO. INC.,
ETC., respondents.

D. Nacion Law Office for private respondent.

NARVASA, J.:

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

The registration proceedings were for confirmation of title under Section 48 of

Commonwealth Act No. 141 (The Public Land Act). as amended: and the appealed judgment
sums up the findings of the trial court in said proceedings in this wise:

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

2. That Acme Plywood & Veneer Co. Inc., represented by Mr. Rodolfo Nazario can
acquire real properties pursuant to the provisions of the Articles of Incorporation
particularly on the provision of its secondary purposes (paragraph (9), Exhibit 'M-l');
 3. That the land subject of the Land Registration proceeding was ancestrally
acquired by Acme Plywood & Veneer Co., Inc., on October 29, 1962, from Mariano
Infiel and Acer Infiel, both members of the Dumagat tribe and as such are cultural
minorities;

4. That the constitution of the Republic of the Philippines of 1935 is applicable as

the sale took place on October 29, 1962;

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

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

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

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

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

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

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

(b) Those who by themselves or through their predecessors-in-interest have been in

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

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

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

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

The question turns upon a determination of the character of the lands at the time of
institution of the registration proceedings in 1981. If they were then still part of the public
domain, it must be answered in the negative. If, on the other hand, they were then already
private lands, the constitutional prohibition against their acquisition by private
corporations or associations obviously does not apply.

In this regard, attention has been invited to Manila Electric Company vs. Castro-Bartolome, et
al, 1 where a similar set of facts prevailed. In that case, Manila Electric Company, a domestic
corporation more than 60% of the capital stock of which is Filipino-owned, had purchased in 1947
two lots in Tanay, Rizal from the Piguing spouses. The lots had been possessed by the vendors
and, before them, by their predecessor-in-interest, Olimpia Ramos, since prior to the outbreak of
the Pacific War in 1941. On December 1, 1976, Meralco applied to the Court of First Instance of
Rizal, Makati Branch, for confirmation of title to said lots. The court, assuming that the lots were
public land, dismissed the application on the ground that Meralco, a juridical person, was not
qualified to apply for registration under Section 48(b) of the Public Land Act which allows only
Filipino citizens or natural persons to apply for judicial confirmation of imperfect titles to public
land. Meralco appealed, and a majority of this Court upheld the dismissal. It was held that:

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

Finally, it may be observed that the constitutional prohibition makes no distinction

between (on the one hand) alienable agricultural public lands as to which no occupant
has an imperfect title and (on the other hand) alienable lands of the public domain as to
which an occupant has on imperfect title subject to judicial confirmation.

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

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

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

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

That ruling assumed a more doctrinal character because expressed in more categorical
language, in Susi:

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

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

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

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

xxx xxx xxx

As interpreted in several cases, when the conditions as specified in the foregoing

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

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

If it is accepted-as it must be-that the land was already private land to which the Infiels had
a legally sufficient and transferable title on October 29, 1962 when Acme acquired it from
said owners, it must also be conceded that Acme had a perfect right to make such
acquisition, there being nothing in the 1935 Constitution then in force (or, for that matter,
in the 1973 Constitution which came into effect later) prohibiting corporations from
acquiring and owning private lands.
Even on the proposition that the land remained technically "public" land, despite
immemorial possession of the Infiels and their ancestors, until title in their favor was
actually confirmed in appropriate proceedings under the Public Land Act, there can be no
serious question of Acmes right to acquire the land at the time it did, there also being
nothing in the 1935 Constitution that might be construed to prohibit corporations from
purchasing or acquiring interests in public land to which the vendor had already acquired
that type of so-called "incomplete" or "imperfect" title. The only limitation then extant was
that corporations could not acquire, hold or lease public agricultural lands in excess of
1,024 hectares. The purely accidental circumstance that confirmation proceedings were
brought under the aegis of the 1973 Constitution which forbids corporations from owning
lands of the public domain cannot defeat a right already vested before that law came into
effect, or invalidate transactions then perfectly valid and proper. This Court has already
held, in analogous circumstances, that the Constitution cannot impair vested rights.

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

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

xxx xxx xxx

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

xxx xxx xxx

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

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

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

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

6. To uphold respondent judge's denial of Meralco's application on the technicality that

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

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

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

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

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

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-60078 October 3, 1987

REPUBLIC OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS and CIRCULO BANTAYANO FOUNDATION, INC., respondents.

PARAS, J.:

Petitioner seeks to review the decision of the Court. of Appeals in CA-G.R. No. 67236-
R, 1 affirming the decision of Branch II of the Court of First Instance of Cebu, 2 its dispositive portion reading as
follows:

WHEREFORE, finding the application for registration well grounded, the

Court hereby declare (s) the applicant, CIRCULO BANTAYANO
FOUNDATION, INC., a corporation composed of Filipino citizens duly
organized and existing under the laws of the Philippines with principal
place of business at Cebu City as the owner of the parcel (and) (sic) of
land described on plan Psu-07-01000195 and its corresponding
technical description (see exhibit "O" pages 21 to 23 of the record).
Once this decision becomes final, let the corresponding decree of
registration be issued in favor of the adjudicate.

SO ORDERED.

In its application for registration before the trial court, respondent Circulo Bantayano
Foundation, Inc. alleged that it is the owner in fee simple or thru a possessory information
title of a parcel of land including the buildings and improvements thereon situated at
Poblacion Bantayan, Cebu, described and bounded on plan Psu-01000195, containing an
area of 108,711 square meters thru purchase on December 5, 1974 from the heirs
(represented by Anunciacion Escario) of the late Pedro Escario, Sr. who in turn inherited said
land from his father Margarita; that the said land is assessed for taxation purposes of
P17,850.00 for the year 1978; that 'The same is occupied and possessed openly,
continuously, notoriously and peacefully in the concept of owners for more than 40 years by
applicant and its predecessors-in-interest.

Petitioner opposed the application alleging that private respondent did not have title
in fee simple or imperfect title to the land and it was disqualified under the 1973
Constitution, being a corporation, to own lands of the public domain. Noteworthy is
the fact that petitioner filed its opposition but never appeared at the trial nor was any
evidence presented in support of its opposition. On the other hand, applicant
corporation presented in court Tax Declarations Nos. 02330, 11891, 016991, 018116
and 01268 in the name of the previous owner Pedro Escario, Sr.
The trial court found that the applicant's possession had always been peaceful, open, public,
continuous, notorious and in the concept of absolute owner thereof and including their
predecessors-in-interest's possession extended for more than thirty (30) years; that the
applicant herein had been paying regularly the taxes due on the property having declared the
land for taxation purposes in its name; that there are no traversing roads (either national or
provincial) nor any river or creek crossing the land applied for, and that the produce of the
land has been solely enjoyed by said applicant.

After due trial, the court rendered its decision declaring the applicant Circulo Bantayano
Foundation, Inc. a corporation composed of Filipino citizens duly organized and existing
under the laws of the Philippines with principal place of business at Cebu City as the owner
of the parcel of land described on plan Psu-07-01-000195 and its corresponding technical
description, and ordered the issuance of the corresponding decree of registration in favor of
applicant once the decision becomes final.

Not satisfied with the decision of the trial court, petitioner appealed to the Court of Appeals
assigning errors allegedly committed by the trial court, to wit:

THE LOWER COURT ERRED IN NOT HOLDING THAT APPLICANT-

APPELLEE IS A PRIVATE CORPORATION DISQUALIFIED UNDER THE
NEW PHILIPPINE CONSTITUTION TO HOLD ALIENABLE LANDS OF THE
PUBLIC DOMAIN.

II

THE LOWER COURT ERRED IN NOT HOLDING THAT THE PARCEL OF

LAND APPLIED FOR IS A PORTION OF THE PUBLIC DOMAIN NOT
SUBJECT TO PRIVATE APPROPRIATION.

III

THE LOWER COURT ERRED IN HOLDING THAT APPLICANT- APPELLEE

AND ITS PREDECESSORS-IN-INTEREST HAVE BEEN IN PEACEFUL,
OPEN, PUBLIC, CONTINUOUS, NOTORIOUS POSSESSION IN THE
CONCEPT OF OWNER OF THE LAND SOUGHT TO BE REGISTERED
FOR .MORE THAN THIRTY (30) YEARS.

IV

THE LOWER COURT ERRED IN NOT DISMISSING AND/OR DENYING

THE APPLICANT'S APPLICATION FOR REGISTRATION AND IN NOT
DECLARING THE LAND IN QUESTION AS PART OF THE PUBLIC
DOMAIN BELONGING TO THE REPUBLIC OF THE PHILIPPINES.

In affirming the trial court's decision the Court of Appeals found that the application
by respondent-corporation is not actually for the grant of land of the public domain
but for the confirmation of an imperfect title acquired through long years of
possession through the predecessors-in-interest of applicant corporation. The
appellee court in ruling thus considered the fact that oppositor Republic of the Philippines
failed to present any evidence whatsoever during the trial showing that the property applied
for is land of the public domain as against the undisputed evidence presented by applicant.
The evidence consisted of the testimonies of the two (2) witnesses for applicant declaring
that the property had been in the continuous and open possession of their predecessors-in-
interest for more than 39 years immediately preceding the filing of application for
confirmation of title in the concept of owners.

The sole issue raised before Us by the petitioner is whether or not private respondent
is qualified under the 1973 or the 1987 Constitutions to acquire and subsequently
register in its name the disputed lot.

It is true that under both the 1973 and the 1987 Constitution, 3 a private corporation
(even if a domestic one) cannot acquire (and therefore cannot register) lands of the public
domain, but in the present case the land involved, at the time it was acquired by the
corporation in 1974, was no longer part of the public domain; long years of exclusive
continuous, and adverse possession of the same by its predecessors-in-interest had given
ownership thereof ipso jure to said predecessors, enabling the latter to convey title to said
corporation. True, the Corporation's acquisition was in 1974, or after the 1973 was already
in effect. But then as of that time, the land was no longer public land, It was private land.

As found by the Court of Appeals

The testimony of the two witnesses for applicant-appellee clearly

proves that. the property has been in the possession of their
predecessor in interest 4 that for at least for three generations or for more
than 30 years immediately preceding the filing of application for
confirmations of title. (Decision, pp. 3-4, pp. 49-50 Rollo)

Thus, the prohibitions referred to in the 1973 and 1987 Constitutions can no longer
apply (The Director of Lands vs. Intermediate Appellate Court, G.R. 73002, December
29, 1986, reversing Meralco v. Castro-Bartolome, 114 SCRA 799, and Republic v.
Villanueva and Iglesia ni Cristo, 114 SCRA 875).

WHEREFORE, premises considered, the instant petition is hereby DENIED for lack of
merit and the assailed decision of the Court of Appeals is hereby AFFIRMED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-36731 January 27, 1983

VICENTE GODINEZ, ET AL., plaintiffs-appellants,

vs.
FONG PAK LUEN ET AL., defendants, TRINIDAD S. NAVATA, defendant-appellee.

Dominador Sobrevinas for plaintiffs-appellants.

Muss S. Inquerto for defendant-appellee

GUTIERREZ, JR., J.:

The plaintiffs filed this case to recover a parcel of land sold by their father, now
deceased, to Fong Pak Luen, an alien, on the ground that the sale was null and void
ab initio since it violates applicable provisions of the Constitution and the Civil Code.

The order of the Court of First Instance of Sulu dismissing the complaint was appealed to the
Court of Appeals but the latter court certified the appeal to us since only pure questions of
law were raised by the appellants.

The facts of the case were summarized by the Court of Appeals as follows:

On September 30, 1966, the plaintiffs filed a complaint in the Court of

First Instance of Sulu alleging among others that they are the heirs of
Jose Godinez who was married to Martina Alvarez Godinez sometime in
1910; that during the marriage of their parents the said parents acquired a
parcel of land lot No. 94 of Jolo townsite with an area of 3,665 square meters
as evidenced by Original Certificate of Title No. 179 (D -155) in the name of
Jose Godinez; that their mother died sometime in 1938 leaving the plaintiffs
as their sole surviving heirs; that on November 27, 1941, without the
knowledge of the plaintiffs, the said Jose Godinez, for valuable
consideration, sold the aforesaid parcel of land to the defendant Fong
Pak Luen, a Chinese citizen, which transaction is contrary to law and in
violation of the Civil Code because the latter being an alien who is
inhibited by law to purchase real property; that Transfer Certificate Title
No. 884 was then issued by the Register of Deeds to the said defendant,
which is null and void ab initio since the transaction constituted a non-
existent contract; that on January 11, 1963, said defendant Fong Pak
Luen executed a power of attorney in favor of his co-defendant Kwan
Pun Ming, also an alien, who conveyed and sold the above described
parcel of land to co-defendant Trinidad S. Navata, who is aware of and
with full knowledge that Fong Pak Luen is a Chinese citizen as well as
Kwan Pun Ming, who under the law are prohibited and disqualified to
acquire real property in this jurisdiction; that defendant Fong Pak Luen
has not acquired any title or interest in said parcel of land as the
purported contract of sale executed by Jose Godinez alone was
contrary to law and considered non- existent, so much so that the alleged
attorney-in-fact, defendant Kwan Pun Ming had not conveyed any title or
interest over said property and defendant Navata had not acquired anything
from said grantor and as a consequence Transfer Certificate of Title No.
1322, which was issued by the Register of Deeds in favor of the latter is null
and void ab initio,- that since one-half of the said property is conjugal
property inherited by the plaintiffs from their mother, Jose Godinez could -not
have legally conveyed the entire property; that notwithstanding repeated
demands on said defendant to surrender to plaintiffs the said property she
refused and still refuses to do so to the great damage and prejudice of the
plaintiffs; and that they were constrained to engage the services of counsel in
the sum of P2,000.00. The plaintiffs thus pray that they be adjudged as
1wph1.t

the owners of the parcel of land in question and that Transfer Certificate
of Title RT-90 (T-884) issued in the name of defendant Fong Pak Luen
be declared null and void ab initio; and that the power of attorney
issued in the name of Kwan Pun Ming, as well as Transfer Certificate of
Title No. 'L322 issued in the name of defendant Navata be likewise
declared null and void, with costs against defendants.

On August 18, 1966, the defendant Register of Deeds filed an answer

claiming that he was not yet the register of deeds then; that it was only the
ministerial duty of his office to issue the title in favor of the defendant Navata
once he was determined the registerability of the documents presented to his
office.

On October 20, 1966, the defendant Navata filed her answer with the
affirmative defenses and counterclaim alleging among others that the
complaint does not state a cause of action since it appears from the
allegation that the property is registered in the name of Jose Godinez so that
as his sole property he may dispose of the same; that the cause of action has
been barred by the statute of limitations as the alleged document of sale
executed by Jose Godinez on November 27, 1941, conveyed the property to
defendant Fong Pak Luen as a result of which a title was issued to said
defendant; that under Article 1144 (1) of the Civil Code, an action based
upon a written contract must be brought within 10 years from the time the
right of action accrues; that the right of action accrued on November 27, 1941
but the complaint was filed only on September 30, 1966, beyond the 10 year
period provided for by law; that the torrens title in the name of defendant
Navata is indefeasible who acquired the property from defendant Fong Pak
Luen who had been in possession of the property since 1941 and thereafter
defendant Navata had possessed the same for the last 25 years including the
possession of Fong Pak Luen; that the complaint is intended to harass the
defendant as a civic leader and respectable member of the community as a
result of which she suffered moral damages of P100,000.00, P2,500.00 for
attorney's fees and P500.00 expenses of litigation, hence, said defendant
prays that the complaint be dismissed and that her counterclaim be granted,
with costs against the plaintiffs. On November 24, 1967, the plaintiffs filed an
answer to the affirmative defenses and counter-claim. As the defendants
Fong Pak Luen and Kwan Pun Ming are residing outside the Philippines, the
trial court upon motion issued an order of April 17, 1967, for the service of
 summons on said defendants by publication. No answer has been filed by
said defendants.

On December 2, 196 7, the court issued an order as follows:

Both parties having agreed to the suggestion of the Court that

they submit their supplemental pleadings to support both
motion and opposition and after submittal of the same the
said motion to dismiss which is an affirmative defense alleged
in the complaint is deemed submitted. Failure of both parties
or either party to submit their supplemental pleadings on or
about December 9, the Court will resolve the case.

On November 29, 1968, the trial court issued an order missing the complaint
without pronouncement as to costs. (Record on Appeal, pp. 31- 37). A motion
for reconsideration of this order was filed by the plaintiffs on December 12,
196F, which was denied by the trial court in an order of July 11, 1969, (Rec.
on Appeal, pp. 38, 43, 45, 47). The plaintiffs now interpose this appeal with
the following assignments of errors:

I. The trial court erred in dismissing plaintiffs-appellants'

complaint on the ground of prescription of action, applying
Art. 1144 (1) New Civil Code on the basis of defendant
Trinidad S. Navata's affirmative defense of prescription in her
answer treated as a motion to dismiss.

II. The trial court erred in denying plaintiffs-appellants' motion

for reconsideration of the order of dismissal.

III. The trial court erred in not ordering this case to be tried on
the merits."

The appellants contend that the lower court erred in dismissing the complaint on the ground
that their cause of action has prescribed. While the issue raised appears to be only the
applicability of the law governing prescription, the real question before us is whether
or not the heirs of a person who sold a parcel of land to an alien in violation of a
constitutional prohibition may recover the property if it had, in the meantime, been
conveyed to a Filipino citizen qualified to own and possess it.

The question is not a novel one. Judicial precedents indicate fairly clearly how the question
should be resolved.

There can be no dispute that the sale in 1941 by Jose Godinez of his residential lot
acquired from the Bureau of Lands as part of the Jolo townsite to Fong Pak Luen, a
Chinese citizen residing in Hongkong, was violative of Section 5, Article XIII of the
1935 Constitution which provided:

Sec. 5. Save in cases of hereditary succession, no private agricultural

land will be transferred or assigned except to individuals, corporations,
or associations qualified to acquire or hold lands of the public domain
in the Philippines.
The meaning of the above provision was fully discussed in Krivenko v. Register of Deeds of
Manila (79 Phil. 461) which also detailed the evolution of the provision in the public land
laws, Act No. 2874 and Commonwealth Act No. 141. The Krivenko ruling that "under the
Constitution aliens may not acquire private or agricultural lands, including residential lands"
is a declaration of an imperative constitutional policy. Consequently, prescription may never
be invoked to defend that which the Constitution prohibits. However, we see no necessity
from the facts of this case to pass upon the nature of the contract of sale executed by Jose
Godinez and Fong Pak Luen whether void ab initio,illegal per se or merely pro-exhibited.** It is
enough to stress that insofar as the vendee is concerned, prescription is unavailing. But neither can the vendor or his heirs rely on
an argument based on imprescriptibility because the land sold in 1941 is now in the hands of a Filipino citizen against whom the
constitutional prescription was never intended to apply. The lower court erred in treating the case as one involving simply the
application of the statute of limitations.

From the fact that prescription may not be used to defend a contract which the
Constitution prohibits, it does not necessarily follow that the appellants may be
allowed to recover the property sold to an alien. As earlier mentioned, Fong Pak Luen,
the disqualified alien vendee later sold the same property to Trinidad S. Navata, a
Filipino citizen qualified to acquire real property.

In Vasquez v. Li Seng Giap and Li Seng Giap & Sons (96 Phil. 447), where the alien
vendee later sold the property to a Filipino corporation, this Court, in affirming a
judgment dismissing the complaint to rescind the sale of real property to the
defendant Li Seng Giap on January 22, 1940, on the ground that the vendee was an
alien and under the Constitution incapable to own and hold title to lands, held:

In Caoile vs. Yu Chiao 49 Qff Gaz., 4321; Talento vs. Makiki 49 Off. Gaz.,
4331; Bautista vs. Uy 49 Off. Gaz., 4336; Rellosa vs. Gaw Chee 49 Off.
Gaz., 4345 and Mercado vs. Go Bio, 49 Off. Gaz., 5360, the majority of this
Court has ruled that in sales of real estate to aliens incapable of holding title
thereto by virtue of the provisions of the Constitution (Section 5, Article
XIII Krivenko vs. Register of Deeds, 44 Off. Gaz., 471) both the vendor and
the vendee are deemed to have committed the constitutional violation and
being thus in pari delicto the courts will not afford protection to either party.
(Article 1305, old Civil Code; Article 1411, new Civil Code) From this ruling
three Justices dissented. (Mr. Justice Pablo, Mr. Justice Alex. Reyes and the
writer. See Caoile vs. Yu Chiao Talento vs. Makiki Bautista us. Uy, Rellosa
vs. Gaw Chee and Mercado vs. Go Bio). supra.

The action is not of rescission because it is not postulated upon any of the
grounds provided for in Article 1291 of the old Civil Code and because the
action of rescission involves lesion or damage and seeks to repair it. It is an
action for annulment under Chapter VI, Title II, Book 11, on nullity of
contracts, based on a defect in the contract which invalidates it independently
of such lesion or damages. (Manresa, Commentarios al Codigo Civil Espanol
Vol. VIII, p. 698, 4th ed.) It is very likely that the majority of this Court
proceeded upon that theory when it applied the in pari delicto rule referred to
above.

In the United States the rule is that in a sale of real estate to an alien
disqualified to hold title thereto the vendor divests himself of the title to such
real estate and has no recourse against the vendee despite the latter's
disability on account of alienage to hold title to such real estate and the
vendee may hold it against the whole world except as against the State. It is
only the State that is entitled by proceedings in the nature of office found to
 have a forfeiture or escheat declared against the vendee who is incapable of
holding title to the real estate sold and conveyed to him. Abrams vs. State, 88
Pac. 327; Craig vs. Leslie et al., 4 Law, Ed. 460; 3 Wheat, 563,
589590; Cross vs. Del Valle, 1 Wall, [U.S.] 513; 17 Law. Ed., 515; Governeur
vs. Robertson, 11 Wheat, 332, 6 Law. Ed., 488.)

However, if the State does not commence such proceedings and in the
meantime the alien becomes naturalized citizen, the State is deemed to have
waived its right to escheat the real property and the title of the alien thereto
becomes lawful and valid as of the date of its conveyance or transfer to him.
(Osterman vs. Baldwin, 6 Wall, 116, 18 Law. ed. 730; Manuel vs. Wulff, 152
U.S. 505, 38 Law. ed. 532; Pembroke vs. Houston, 79, SW 470; Fioerella vs.
Jones, 259 SW 782. The rule in the United States that in a sale of real estate
to an alien disqualified to hold title thereto, the vendor divests himself of the
title to such real estate and is not permitted to sue for the annulment Of his
Contract, is also the rule under the Civil Code. ... Article 1302 of the old Civil
Code provides: ... Persons sui juris cannot, however, avail themselves of the
incapacity of those with whom they contracted; ...

xxx xxx xxx

. . . (I)f the ban on aliens from acquiring not only agricultural but, also
urban lands, as construed by this Court in the Krivenko case, is to
preserve the nation's land for future generations of Filipinos, that aim
or purpose would not be thwarted but achieved by making lawful the
acquisition of real estate by aliens who became Filipino citizens by
naturalization. The title to the parcel of land of the vendee, a naturalized
Filipino citizen, being valid that of the domestic corporation to which
the parcel of land has been transferred, must also be valid, 96.67 per
cent of its capital stock being owned by Filipinos.

Herrera v. Luy Kim Guan (SCRA 406) reiterated the above ruling by declaring that where
land is sold to a Chinese citizen, who later sold it to a Filipino, the sale to the latter cannot be
impugned.

The appellants cannot find solace from Philippine Banking Corporation v. Lui She (21 SCRA
52) which relaxed the pari delicto doctrine to allow the heirs or successors-in-interest, in
appropriate cases, to recover that which their predecessors sold to aliens.

Only recently, in Sarsosa vda. de Barsobia v. Cuenco (113 SCRA 547) we had occasion to
pass upon a factual situation substantially similar to the one in the instant case. We ruled:

But the factual set-up has changed. The litigated property is now in the hands
of a naturalized Filipino. It is no longer owned by a disqualified vendee.
Respondent, as a naturalized citizen, was constitutionally qualified to own the
subject property. There would be no more public policy to be served in
allowing petitioner Epifania to recover the land as it is already in the hands of
a qualified person. Applying by analogy the ruling of this Court in Vasquez vs.
Giap & Sons: (.96 Phil. 447 [1955])

... if the ban on aliens from acquiring not only agricultural but also urban
lands, as construed by this Court in the Krivenko case, is to preserve the
 nation's lands for future generations of Filipinos, that aim or purpose would
not be thwarted but achieved by making lawful the acquisition of real estate
by aliens who became Filipino citizens by naturalization.

While, strictly speaking, Ong King Po, private respondent's vendor, had no
rights of ownership to transmit, it is likewise in escapable that petitioner
Epifania had slept on her rights for 26 years from 1936 to 1962. By her long
inaction or inexcusable neglect, she should be held barred from asserting her
claim to the litigated property (Sotto vs. Teves, 86 SCRA 157 [1978])

Laches has been defined as the failure or neglect, for an unreasonable and
unexplained length of time, to do that which by exercising due diligence could
or should have been done earlier; it is negligence or ommission to assert a
right within a reasonable time, warranting a presumption that the party
entitled to assert it either has abandoned it or declined to assert it. (Tijam, et
al. vs. Sibonghanoy, et al., No. L-21450, April 15, 1968, 23 SCRA 29, 35).'
(Cited in Sotto vs. Teves, 86 SCRA 154 [1978]).

Respondent, therefore, must be declared to be the rightful owner of the

property.

In the light of the above considerations, we find the second and third assignments of
errors without merit. Respondent Navata, the titled owner of the property is declared
the rightful owner.

WHEREFORE, the instant appeal is hereby denied. The orders dismissing the
complaint and denying the motion for reconsideration are affirmed.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-27952 February 15, 1982

TESTATE ESTATE OF JOSE EUGENIO RAMIREZ, MARIA LUISA PALACIOS,

Administratrix, petitioner-appellee,
vs.
MARCELLE D. VDA. DE RAMIREZ, ET AL., oppositors, JORGE and ROBERTO
RAMIREZ, legatees, oppositors- appellants.

ABAD SANTOS, J.:

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

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

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

INVENTARIO

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

rreno, con sus mejoras y edificaciones, situadoen

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

Una sexta parte (1/6) proindiviso de dos

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

Cuatrocientos noventa y uno (491) acciones

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

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

Diez mil ochocientos seize (10,806) acciones

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

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

Cuenta de Ahorros en el Philippine Trust

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

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

MENOS:

Deuda al Banco de las Islas Filipinas, garan-

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

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

The testamentary dispositions are as follows:

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

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

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

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

B.Y en usufructo a saber:

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

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

En cuanto a la mitad de dichas dos terceras partes, a favor de D. Juan Pablo

Jankowski, de Son Rapina Palma de Mallorca; y encuanto a la mitad restante, a
favor de su sobrino, D. Horace V. Ramirez, San Luis Building, Florida St. Ermita,
Manila, I.F.

A pesar de las sustituciones fideiconiisarias precedentemente ordinadas, las

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

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

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

1. The widow's legitime.

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

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

2. The substitutions.

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

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

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

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

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

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

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

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

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

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

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

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

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

What is meant by "one degree" from the first heir is explained by Tolentino as follows:

Scaevola Maura, and Traviesas construe "degree" as designation, substitution,

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

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

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

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

The 1935 Constitution which is controlling provides as follows:

SEC. 5. Save in cases of hereditary succession, no private

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

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

This opinion notwithstanding, We uphold the usufruct in favor of Wanda because a

usufruct, albeit a real right, does not vest title to the land in the usufructuary and it is the
vesting of title to land in favor of aliens which is proscribed by the Constitution.

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

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

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

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

SO ORDERED.
 EN BANC
[G.R. Nos. 84132-33 : December 10, 1990.]
192 SCRA 257
NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC., Petitioners, vs. PHILIPPINE
VETERANS BANK, THE EX-OFFICIO SHERIFF and GODOFREDO QUILING, in his capacity
as Deputy Sheriff of Calamba, Laguna, Respondents.

DECISION

CRUZ, J.:

This case involves the constitutionality of a presidential decree which, like all other issuances of
President Marcos during his regime, was at that time regarded as sacrosanct. It is only now, in a
freer atmosphere, that his acts are being tested by the touchstone of the fundamental law that
even then was supposed to limit presidential action. :

The particular enactment in question is Pres. Decree No. 1717, which ordered the
rehabilitation of the Agrix Group of Companies to be administered mainly by the National
Development Company. The law outlined the procedure for filing claims against the Agrix
companies and created a Claims Committee to process these claims. Especially relevant
to this case, and noted at the outset, is Sec. 4(1) thereof providing that "all mortgages and
other liens presently attaching to any of the assets of the dissolved corporations are
hereby extinguished."
Earlier, the Agrix Marketing, Inc. (AGRIX) had executed in favor of private respondent
Philippine Veterans Bank a real estate mortgage dated July 7, 1978, over three (3) parcels
of land situated in Los Baos, Laguna. During the existence of the mortgage, AGRIX went
bankrupt. It was for the expressed purpose of salvaging this and the other Agrix
companies that the aforementioned decree was issued by President Marcos.
Pursuant thereto, the private respondent filed a claim with the AGRIX Claims Committee
for the payment of its loan credit. In the meantime, the New Agrix, Inc. and the National
Development Company, petitioners herein, invoking Sec. 4 (1) of the decree, filed a
petition with the Regional Trial Court of Calamba, Laguna, for the cancellation of the
mortgage lien in favor of the private respondent. For its part, the private respondent took
steps to extrajudicially foreclose the mortgage, prompting the petitioners to file a second
case with the same court to stop the foreclosure. The two cases were consolidated.
After the submission by the parties of their respective pleadings, the trial court rendered
the impugned decision. Judge Francisco Ma. Guerrero annulled not only the challenged
provision, viz., Sec. 4 (1), but the entire Pres. Decree No. 1717 on the grounds that: (1) the
presidential exercise of legislative power was a violation of the principle of separation of
powers; (2) the law impaired the obligation of contracts; and (3) the decree violated the
equal protection clause. The motion for reconsideration of this decision having been
denied, the present petition was filed. : rd

The petition was originally assigned to the Third Division of this Court but because of the
constitutional questions involved it was transferred to the Court en banc. On August 30, 1988, the
Court granted the petitioner's prayer for a temporary restraining order and instructed the
respondents to cease and desist from conducting a public auction sale of the lands in question.
After the Solicitor General and the private respondent had filed their comments and the
petitioners their reply, the Court gave due course to the petition and ordered the parties to file
simultaneous memoranda. Upon compliance by the parties, the case was deemed submitted.
The petitioners contend that the private respondent is now estopped from contesting the validity
of the decree. In support of this contention, it cites the recent case of Mendoza v. Agrix
Marketing, Inc., 1 where the constitutionality of Pres. Decree No. 1717 was also raised but not
resolved. The Court, after noting that the petitioners had already filed their claims with the AGRIX
Claims Committee created by the decree, had simply dismissed the petition on the ground of
estoppel.
The petitioners stress that in the case at bar the private respondent also invoked the
provisions of Pres. Decree No. 1717 by filing a claim with the AGRIX Claims Committee.
Failing to get results, it sought to foreclose the real estate mortgage executed by AGRIX in
its favor, which had been extinguished by the decree. It was only when the petitioners
challenged the foreclosure on the basis of Sec. 4 (1) of the decree, that the private
respondent attacked the validity of the provision. At that stage, however, consistent with
Mendoza, the private respondent was already estopped from questioning the
constitutionality of the decree.
The Court does not agree that the principle of estoppel is applicable.
It is not denied that the private respondent did file a claim with the AGRIX Claims
Committee pursuant to this decree. It must be noted, however, that this was done in 1980,
when President Marcos was the absolute ruler of this country and his decrees were the absolute
law. Any judicial challenge to them would have been futile, not to say foolhardy. The private
respondent, no less than the rest of the nation, was aware of that reality and knew it had no
choice under the circumstances but to conform. : nad

It is true that there were a few venturesome souls who dared to question the dictator's decisions
before the courts of justice then. The record will show, however, that not a single act or issuance
of President Marcos was ever declared unconstitutional, not even by the highest court, as long as
he was in power. To rule now that the private respondent is estopped for having abided with the
decree instead of boldly assailing it is to close our eyes to a cynical fact of life during that
repressive time.
This case must be distinguished from Mendoza, where the petitioners, after filing their claims with
the AGRIX Claims Committee, received in settlement thereof shares of stock valued at
P40,000.00 without protest or reservation. The herein private respondent has not been paid a
single centavo on its claim, which was kept pending for more than seven years for alleged lack of
supporting papers. Significantly, the validity of that claim was not questioned by the petitioner
when it sought to restrain the extrajudicial foreclosure of the mortgage by the private respondent.
The petitioner limited itself to the argument that the private respondent was estopped from
questioning the decree because of its earlier compliance with its provisions.
Independently of these observations, there is the consideration that an affront to the Constitution
cannot be allowed to continue existing simply because of procedural inhibitions that exalt form
over substance.
The Court is especially disturbed by Section 4(1) of the decree, quoted above, extinguishing all
mortgages and other liens attaching to the assets of AGRIX. It also notes, with equal concern, the
restriction in Subsection (ii) thereof that all "unsecured obligations shall not bear interest" and in
Subsection (iii) that "all accrued interests, penalties or charges as of date hereof pertaining to the
obligations, whether secured or unsecured, shall not be recognized."
These provisions must be read with the Bill of Rights, where it is clearly provided in Section 1 that
"no person shall be deprived of life, liberty or property without due course of law nor shall any
person be denied the equal protection of the law" and in Section 10 that "no law impairing the
obligation of contracts shall be passed."
In defending the decree, the petitioners argue that property rights, like all rights, are
subject to regulation under the police power for the promotion of the common welfare. The
contention is that this inherent power of the state may be exercised at any time for this
purpose so long as the taking of the property right, even if based on contract, is done with
due process of law.
This argument is an over-simplification of the problem before us. The police power is not a
panacea for all constitutional maladies. Neither does its mere invocation conjure an
instant and automatic justification for every act of the government depriving a person of
his life, liberty or property.
A legislative act based on the police power requires the concurrence of a lawful subject
and a lawful method. In more familiar words, a) the interests of the public generally, as
distinguished from those of a particular class, should justify the interference of the state;
and b) the means employed are reasonably necessary for the accomplishment of the
purpose and not unduly oppressive upon individuals.
Applying these criteria to the case at bar, the Court finds first of all that the interests of the
public are not sufficiently involved to warrant the interference of the government with the
private contracts of AGRIX. The decree speaks vaguely of the "public, particularly the
small investors," who would be prejudiced if the corporation were not to be assisted.
However, the record does not state how many there are of such investors, and who they
are, and why they are being preferred to the private respondent and other creditors of
AGRIX with vested property rights. :- cralaw

The public interest supposedly involved is not identified or explained. It has not been shown
that by the creation of the New Agrix, Inc. and the extinction of the property rights of the
creditors of AGRIX, the interests of the public as a whole, as distinguished from those of a
particular class, would be promoted or protected. The indispensable link to the welfare of
the greater number has not been established. On the contrary, it would appear that the
decree was issued only to favor a special group of investors who, for reasons not given,
have been preferred to the legitimate creditors of AGRIX.
Assuming there is a valid public interest involved, the Court still finds that the means employed to
rehabilitate AGRIX fall far short of the requirement that they shall not be unduly oppressive. The
oppressiveness is patent on the face of the decree. The right to property in all mortgages, liens,
interests, penalties and charges owing to the creditors of AGRIX is arbitrarily destroyed. No
consideration is paid for the extinction of the mortgage rights. The accrued interests and other
charges are simply rejected by the decree. The right to property is dissolved by legislative fiat
without regard to the private interest violated and, worse, in favor of another private interest.
A mortgage lien is a property right derived from contract and so comes under the protection of the
Bill of Rights. So do interests on loans, as well as penalties and charges, which are also vested
rights once they accrue. Private property cannot simply be taken by law from one person and
given to another without compensation and any known public purpose. This is plain arbitrariness
and is not permitted under the Constitution.
And not only is there arbitrary taking, there is discrimination as well. In extinguishing the
mortgage and other liens, the decree lumps the secured creditors with the unsecured creditors
and places them on the same level in the prosecution of their respective claims. In this respect,
all of them are considered unsecured creditors. The only concession given to the secured
creditors is that their loans are allowed to earn interest from the date of the decree, but that still
does not justify the cancellation of the interests earned before that date. Such interests, whether
due to the secured or the unsecured creditors, are all extinguished by the decree. Even assuming
such cancellation to be valid, we still cannot see why all kinds of creditors, regardless of security,
are treated alike.
Under the equal protection clause, all persons or things similarly situated must be treated alike,
both in the privileges conferred and the obligations imposed. Conversely, all persons or things
differently situated should be treated differently. In the case at bar, persons differently situated
are similarly treated, in disregard of the principle that there should be equality only among equals.
nad
-
One may also well wonder why AGRIX was singled out for government help, among other
corporations where the stockholders or investors were also swindled. It is not clear why other
companies entitled to similar concern were not similarly treated. And surely, the stockholders of
the private respondent, whose mortgage lien had been cancelled and legitimate claims to
accrued interests rejected, were no less deserving of protection, which they did not get. The
decree operated, to use the words of a celebrated case, 3 "with an evil eye and an uneven hand."
On top of all this, New Agrix, Inc. was created by special decree notwithstanding the
provision of Article XIV, Section 4 of the 1973 Constitution, then in force, that:
SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the
formation, organization, or regulation of private corporations, unless such corporations
are owned or controlled by the Government or any subdivision or instrumentality thereof.
4
The new corporation is neither owned nor controlled by the government. The National
Development Corporation was merely required to extend a loan of not more than
P10,000,000.00 to New Agrix, Inc. Pending payment thereof, NDC would undertake the
management of the corporation, but with the obligation of making periodic reports to the
Agrix board of directors. After payment of the loan, the said board can then appoint its
own management. The stocks of the new corporation are to be issued to the old investors
and stockholders of AGRIX upon proof of their claims against the abolished corporation.
They shall then be the owners of the new corporation. New Agrix, Inc. is entirely private
and so should have been organized under the Corporation Law in accordance with the
above-cited constitutional provision.
The Court also feels that the decree impairs the obligation of the contract between AGRIX and
the private respondent without justification. While it is true that the police power is superior to the
impairment clause, the principle will apply only where the contract is so related to the public
welfare that it will be considered congenitally susceptible to change by the legislature in the
interest of the greater number. 5 Most present-day contracts are of that nature. But as already
observed, the contracts of loan and mortgage executed by AGRIX are purely private transactions
and have not been shown to be affected with public interest. There was therefore no warrant to
amend their provisions and deprive the private respondent of its vested property rights.
It is worth noting that only recently in the case of the Development Bank of the Philippines v.
NLRC, 6 we sustained the preference in payment of a mortgage creditor as against the argument
that the claims of laborers should take precedence over all other claims, including those of the
government. In arriving at this ruling, the Court recognized the mortgage lien as a property right
protected by the due process and contract clauses notwithstanding the argument that the
amendment in Section 110 of the Labor Code was a proper exercise of the police power. : nad

The Court reaffirms and applies that ruling in the case at bar.
Our finding, in sum, is that Pres. Decree No. 1717 is an invalid exercise of the police
power, not being in conformity with the traditional requirements of a lawful subject and a
lawful method. The extinction of the mortgage and other liens and of the interest and other
charges pertaining to the legitimate creditors of AGRIX constitutes taking without due
process of law, and this is compounded by the reduction of the secured creditors to the
category of unsecured creditors in violation of the equal protection clause. Moreover, the
new corporation, being neither owned nor controlled by the Government, should have
been created only by general and not special law. And insofar as the decree also interferes
with purely private agreements without any demonstrated connection with the public
interest, there is likewise an impairment of the obligation of the contract.
With the above pronouncements, we feel there is no more need to rule on the authority of
President Marcos to promulgate Pres. Decree No. 1717 under Amendment No. 6 of the 1973
Constitution. Even if he had such authority, the decree must fall just the same because of its
violation of the Bill of Rights.
WHEREFORE, the petition is DISMISSED. Pres. Decree No. 1717 is declared
UNCONSTITUTIONAL. The temporary restraining order dated August 30, 1988, is LIFTED.
Costs against the petitioners.- n ad

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 83551 July 11, 1989

RODOLFO B. ALBANO, petitioner,

vs.
HON. RAINERIO O. REYES, PHILIPPINE PORTS AUTHORITY, INTERNATIONAL
CONTAINER TERMINAL SERVICES, INC., E. RAZON, INC., ANSCOR CONTAINER
CORPORATION, and SEALAND SERVICES. LTD.,respondents.

Vicente Abad Santos for petitioner.

Bautista, Picazo, Buyco & Tan for private respondents.

PARAS, J.:

This is a Petition for Prohibition with prayer for Preliminary Injunction or Restraining Order
seeking to restrain the respondents Philippine Ports Authority (PPA) and the
Secretary of the Department of Transportation and Communications Rainerio O.
Reyes from awarding to the International Container Terminal Services, Inc. (ICTSI) the
contract for the development, management and operation of the Manila International
Container Terminal (MICT).

On April 20, 1987, the PPA Board adopted its Resolution No. 850 directing PPA
management to prepare the Invitation to Bid and all relevant bidding documents and
technical requirements necessary for the public bidding of the development,
management and operation of the MICT at the Port of Manila, and authorizing the Board
Chairman, Secretary Rainerio O. Reyes, to oversee the preparation of the technical and the
documentation requirements for the MICT leasing as well as to implement this project.

Accordingly, respondent Secretary Reyes, by DOTC Special Order 87-346, created a

seven (7) man "Special MICT Bidding Committee" charged with evaluating all bid
proposals, recommending to the Board the best bid, and preparing the corresponding
contract between the PPA and the winning bidder or contractor. The Bidding Committee
consisted of three (3) PPA representatives, two (2) Department of Transportation and
Communications (DOTC) representatives, one (1) Department of Trade and Industry (DTI)
representative and one (1) private sector representative. The PPA management prepared
the terms of reference, bid documents and draft contract which materials were approved by
the PPA Board.
The PPA published the Invitation to Bid several times in a newspaper of general circulation
which publication included the reservation by the PPA of "the right to reject any or all bids
and to waive any informality in the bids or to accept such bids which may be considered
most advantageous to the government."

Seven (7) consortia of companies actually submitted bids, which bids were opened on
July 17, 1987 at the PPA Head Office. After evaluation of the several bids, the Bidding
Committee recommended the award of the contract to develop, manage and operate
the MICT to respondent International Container Terminal Services, Inc. (ICTSI) as
having offered the best Technical and Financial Proposal. Accordingly, respondent
Secretary declared the ICTSI consortium as the winning bidder.

Before the corresponding MICT contract could be signed, two successive cases were
filed against the respondents which assailed the legality or regularity of the MICT
bidding. The first was Special Civil Action 55489 for "Prohibition with Preliminary Injunction"
filed with the RTC of Pasig by Basilio H. Alo, an alleged "concerned taxpayer", and,
thesecond was Civil Case 88-43616 for "Prohibition with Prayer for Temporary Restraining
Order (TRO)" filed with the RTC of Manila by C.F. Sharp Co., Inc., a member of the nine (9)
firm consortium "Manila Container Terminals, Inc." which had actively participated in the
MICT Bidding.

Restraining Orders were issued in Civil Case 88-43616 but these were subsequently lifted by
this Court in Resolutions dated March 17, 1988 (in G.R. No. 82218 captioned "Hon. Rainerio
O. Reyes etc., et al. vs. Hon. Doroteo N. Caneba, etc., et al.) and April 14, 1988 (in G.R. No.
81947 captioned "Hon. Rainerio O. Reyes etc., et al. vs. Court of Appeals, et al.")

On May 18, 1988, the President of the Philippines approved the proposed MICT
Contract, with directives that "the responsibility for planning, detailed engineering,
construction, expansion, rehabilitation and capital dredging of the port, as well as the
determination of how the revenues of the port system shall be allocated for future port works,
shall remain with the PPA; and the contractor shall not collect taxes and duties except that in
the case of wharfage or tonnage dues and harbor and berthing fees, payment to the
Government may be made through the contractor who shall issue provisional receipts and
turn over the payments to the Government which will issue the official receipts." (Annex "I").

The next day, the PPA and the ICTSI perfected the MICT Contract (Annex "3")
incorporating therein by "clarificatory guidelines" the aforementioned presidential
directives. (Annex "4").

Meanwhile, the petitioner, Rodolfo A. Albano filed the present petition as citizen and
taxpayer and as a member of the House of Representatives, assailing the award of the
MICT contract to the ICTSI by the PPA. The petitioner claims that since the MICT is a
public utility, it needs a legislative franchise before it can legally operate as a public
utility, pursuant to Article 12, Section 11 of the 1987 Constitution.

The petition is devoid of merit.

A review of the applicable provisions of law indicates that a franchise specially

granted by Congress is not necessary for the operation of the Manila International
Container Port (MICP) by a private entity, a contract entered into by the PPA and such
entity constituting substantial compliance with the law.
1. Executive Order No. 30, dated July 16, 1986, provides:

WHEREFORE, I, CORAZON C. AQUINO, President of the Republic of the

Philippines, by virtue of the powers vested in me by the Constitution and the
law, do hereby order the immediate recall of the franchise granted to the
Manila International Port Terminals, Inc. (MIPTI) and authorize the Philippine
Ports Authority (PPA) to take over, manage and operate the Manila
International Port Complex at North Harbor, Manila and undertake the
provision of cargo handling and port related services thereat, in accordance
with P.D. 857 and other applicable laws and regulations.

Section 6 of Presidential Decree No. 857 (the Revised Charter of the Philippine Ports
Authority) states:

a) The corporate duties of the Authority shall be:

xxx xxx xxx

(ii) To supervise, control, regulate, construct, maintain,

operate, and provide such facilities or services as are
necessary in the ports vested in, or belonging to the Authority.

xxx xxx xxx

(v) To provide services (whether on its own, by contract, or

otherwise) within the Port Districts and the approaches
thereof, including but not limited to

berthing, towing, mooring, moving, slipping, or docking of

any vessel;

loading or discharging any vessel;

sorting, weighing, measuring, storing, warehousing, or

otherwise handling goods.

xxx xxx xxx

b) The corporate powers of the Authority shall be as follows:

xxx xxx xxx

(vi) To make or enter into contracts of any kind or nature to

enable it to discharge its functions under this Decree.

xxx xxx xxx

[Emphasis supplied.]
Thus, while the PPA has been tasked, under E.O. No. 30, with the management and
operation of the Manila International Port Complex and to undertake the providing of
cargo handling and port related services thereat, the law provides that such shall be
"in accordance with P.D. 857 and other applicable laws and regulations." On the other
hand, P.D. No. 857 expressly empowers the PPA to provide services within Port
Districts "whether on its own, by contract, or otherwise" [See. 6(a) (v)]. Therefore,
under the terms of E.O. No. 30 and P.D. No. 857, the PPA may contract with the
International Container Terminal Services, Inc. (ICTSI) for the management, operation
and development of the MICP.

2. Even if the MICP be considered a public utility, 1 or a public service 2 on the theory
that it is a "wharf' or a "dock" 3 as contemplated under the Public Service Act, its operation
would not necessarily call for a franchise from the Legislative Branch. Franchises issued
by Congress are not required before each and every public utility may operate. Thus, the
law has granted certain administrative agencies the power to grant licenses for or to
authorize the operation of certain public utilities. (See E.O. Nos. 172 and 202)

That the Constitution provides in Art. XII, Sec. 11 that the issuance of a franchise,
certificate or other form of authorization for the operation of a public utility shall be
subject to amendment, alteration or repeal by Congress does not necessarily, imply,
as petitioner posits that only Congress has the power to grant such authorization. Our
statute books are replete with laws granting specified agencies in the Executive
Branch the power to issue such authorization for certain classes of public utilities. 4

As stated earlier, E.O. No. 30 has tasked the PPA with the operation and management of the
MICP, in accordance with P.D. 857 and other applicable laws and regulations. However,
P.D. 857 itself authorizes the PPA to perform the service by itself, by contracting it out, or
through other means. Reading E.O. No. 30 and P.D. No. 857 together, the inescapable
conclusion is that the lawmaker has empowered the PPA to undertake by itself the operation
and management of the MICP or to authorize its operation and management by another by
contract or other means, at its option. The latter power having been delegated to the PPA, a
franchise from Congress to authorize an entity other than the PPA to operate and manage
the MICP becomes unnecessary.

In the instant case, the PPA, in the exercise of the option granted it by P.D. No. 857,
chose to contract out the operation and management of the MICP to a private
corporation. This is clearly within its power to do. Thus, PPA's acts of privatizing the
MICT and awarding the MICT contract to ICTSI are wholly within the jurisdiction of the
PPA under its Charter which empowers the PPA to "supervise, control, regulate, construct,
maintain, operate and provide such facilities or services as are necessary in the ports vested
in, or belonging to the PPA." (Section 6(a) ii, P.D. 857)

The contract between the PPA and ICTSI, coupled with the President's written
approval, constitute the necessary authorization for ICTSI's operation and
management of the MICP. The award of the MICT contract approved by no less than
the President of the Philippines herself enjoys the legal presumption of validity and
regularity of official action. In the case at bar, there is no evidence which clearly
shows the constitutional infirmity of the questioned act of government.

For these reasons the contention that the contract between the PPA and ICTSI is
illegal in the absence of a franchise from Congress appears bereft of any legal basis.
3. On the peripheral issues raised by the party, the following observations may be made:

A. That petitioner herein is suing as a citizen and taxpayer and as a Member of the House of
Representatives, sufficiently clothes him with the standing to institute the instant suit
questioning the validity of the assailed contract. While the expenditure of public funds may
not be involved under the contract, public interest is definitely involved considering the
important role of the MICP in the economic development of the country and the magnitude of
the financial consideration involved. Consequently, the disclosure provision in the
Constitution 5 would constitute sufficient authority for upholding petitioner's standing. [Cf. Taada
v. Tuvera, G.R. No. 63915, April 24, 1985,136 SCRA 27, citing Severino v. Governor General, 16
Phil. 366 (1910), where the Court considered the petitioners with sufficient standing to institute an
action where a public right is sought to be enforced.]

B. That certain committees in the Senate and the House of Representatives have, in their
respective reports, and the latter in a resolution as well, declared their opinion that a
franchise from Congress is necessary for the operation of the MICP by a private individual or
entity, does not necessarily create a conflict between the Executive and the Legislative
Branches needing the intervention of the Judicial Branch. The court is not faced with a
situation where the Executive Branch has contravened an enactment of Congress. As
discussed earlier, neither is the Court confronted with a case of one branch usurping a power
pertaining to another.

C. Petitioner's contention that what was bid out, i.e., the development, management and
operation of the MICP, was not what was subsequently contracted, considering the
conditions imposed by the President in her letter of approval, thus rendering the bids and
projections immaterial and the procedure taken ineffectual, is not supported by the
established facts. The conditions imposed by the President did not materially alter the
substance of the contract, but merely dealt on the details of its implementation.

D. The determination of whether or not the winning bidder is qualified to undertake the
contracted service should be left to the sound judgment of the PPA. The PPA, having been
tasked with the formulation of a plan for the development of port facilities and its
implementation [Sec. 6(a) (i)], is the agency in the best position to evaluate the feasibility of
the projections of the bidders and to decide which bid is compatible with the development
plan. Neither the Court, nor Congress, has the time and the technical expertise to look into
this matter.

Thus, the Court in Manuel v. Villena (G.R. No. L-28218, February 27, 1971, 37 SCRA 745]
stated:

[C]ourts, as a rule, refuse to interfere with proceedings undertaken by

administrative bodies or officials in the exercise of administrative functions.
This is so because such bodies are generally better equipped technically to
decide administrative questions and that non-legal factors, such as
government policy on the matter, are usually involved in the decisions. [at p.
750.]

In conclusion, it is evident that petitioner has failed to show a clear case of grave abuse of
discretion amounting to lack or excess of jurisdiction as to warrant the issuance of the writ of
prohibition.

WHEREFORE, the petition is hereby DISMISSED. SO ORDERED.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 114222 April 6, 1995

FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners,

vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of
Transportation and Communications, and EDSA LRT CORPORATION,
LTD., respondents.

QUIASON, J.:

This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from
further implementing and enforcing the "Revised and Restated Agreement to Build,
Lease and Transfer a Light Rail Transit System for EDSA" dated April 22, 1992, and
the "Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement
To Build, Lease and Transfer a Light Rail Transit System for EDSA" dated May 6, 1993.

Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the
Philippine Senate and are suing in their capacities as Senators and as taxpayers.
Respondent Jesus B. Garcia, Jr. is the incumbent Secretary of the Department of
Transportation and Communications (DOTC), while private respondent EDSA LRT
Corporation, Ltd. is a private corporation organized under the laws of Hongkong.

In 1989, DOTC planned to construct a light railway transit line along EDSA, a major
thoroughfare in Metropolitan Manila, which shall traverse the cities of Pasay, Quezon,
Mandaluyong and Makati. The plan, referred to as EDSA Light Rail Transit III (EDSA LRT
III), was intended to provide a mass transit system along EDSA and alleviate the congestion
and growing transportation problem in the metropolis.

On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc.,
represented by Elijahu Levin to DOTC Secretary Oscar Orbos, proposing to construct
the EDSA LRT III on a Build-Operate-Transfer (BOT) basis.

On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the
project with DOTC.

On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing,
Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector,
and For Other Purposes," was signed by President Corazon C. Aquino. Referred to as the
Build-Operate-Transfer (BOT) Law, it took effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the financing, construction and
operation of government projects through private initiative and investment: Build-
Operate-Transfer (BOT) or Build-Transfer (BT).

In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project
underway, DOTC, on January 22, 1991 and March 14, 1991, issued Department Orders
Nos. 91-494 and 91-496, respectively creating the Prequalification Bids and Awards
Committee (PBAC) and the Technical Committee.

After its constitution, the PBAC issued guidelines for the prequalification of
contractors for the financing and implementation of the project The notice, advertising
the prequalification of bidders, was published in three newspapers of general circulation
once a week for three consecutive weeks starting February 21, 1991.

The deadline set for submission of prequalification documents was March 21, 1991, later
extended to April 1, 1991. Five groups responded to the invitation namely, ABB
Trazione of Italy, Hopewell Holdings Ltd. of Hongkong, Mansteel International of
Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and EDSA LRT Consortium, composed of
ten foreign and domestic corporations: namely, Kaiser Engineers International, Inc.,
ACER Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD Tatra of the Czech
and Slovak Federal Republics, TCGI Engineering All Asia Capital and Leasing Corporation,
The Salim Group of Jakarta, E. L. Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial
Construction Group, Inc, and F. F. Cruz & co., Inc.

On the last day for submission of prequalification documents, the prequalification criteria
proposed by the Technical Committee were adopted by the PBAC. The criteria totalling 100
percent, are as follows: (a) Legal aspects 10 percent; (b) Management/Organizational
capability 30 percent; and (c) Financial capability 30 percent; and (d) Technical
capability 30 percent (Rollo, p. 122).

On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the
Implementation Rules and Regulations thereof, approved the same.

After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9,
1991 declaring that of the five applicants, only the EDSA LRT Consortium "met the
requirements of garnering at least 21 points per criteria [sic], except for Legal
Aspects, and obtaining an over-all passing mark of at least 82 points" (Rollo, p. 146).
The Legal Aspects referred to provided that the BOT/BT contractor-applicant meet the
requirements specified in the Constitution and other pertinent laws (Rollo, p. 114).

Subsequently, Secretary Orbos was appointed Executive Secretary to the President of

the Philippines and was replaced by Secretary Pete Nicomedes Prado. The latter sent
to President Aquino two letters dated May 31, 1991 and June 14, 1991, respectively
recommending the award of the EDSA LRT III project to the sole complying bidder, the
EDSA LRT Consortium, and requesting for authority to negotiate with the said firm for
the contract pursuant to paragraph 14(b) of the Implementing Rules and Regulations
of the BOT Law (Rollo, pp. 298-302).

In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a
directive to the DOTC to proceed with the negotiations. On July 16, 1991, the EDSA LRT
Consortium submitted its bid proposal to DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC and respondent
EDSA LRT Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered
into an "Agreement to Build, Lease and Transfer a Light Rail Transit System for
EDSA" under the terms of the BOT Law (Rollo, pp. 147-177).

Secretary Prado, thereafter, requested presidential approval of the contract.

In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced
Executive Secretary Orbos, informed Secretary Prado that the President could not
grant the requested approval for the following reasons: (1) that DOTC failed to conduct
actual public bidding in compliance with Section 5 of the BOT Law; (2) that the law
authorized public bidding as the only mode to award BOT projects, and the prequalification
proceedings was not the public bidding contemplated under the law; (3) that Item 14 of the
Implementing Rules and Regulations of the BOT Law which authorized negotiated award of
contract in addition to public bidding was of doubtful legality; and (4) that congressional
approval of the list of priority projects under the BOT or BT Scheme provided in the law had
not yet been granted at the time the contract was awarded (Rollo, pp. 178-179).

In view of the comments of Executive Secretary Drilon, the DOTC and private
respondents re-negotiated the agreement. On April 22, 1992, the parties entered into a
"Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System
for EDSA" (Rollo, pp. 47-78) inasmuch as "the parties [are] cognizant of the fact the DOTC
has full authority to sign the Agreement without need of approval by the President pursuant
to the provisions of Executive Order No. 380 and that certain events [had] supervened since
November 7, 1991 which necessitate[d] the revision of the Agreement" (Rollo, p. 51). On
May 6, 1992, DOTC, represented by Secretary Jesus Garcia vice Secretary Prado, and
private respondent entered into a "Supplemental Agreement to the 22 April 1992 Revised
and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA"
so as to "clarify their respective rights and responsibilities" and to submit [the] Supplemental
Agreement to the President, of the Philippines for his approval" (Rollo, pp. 79-80).

Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his
consideration and approval. In a Memorandum to Secretary Garcia on May 6, 1993,
approved the said Agreements, (Rollo, p. 194).

According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech
and Slovak Federal Republics and will have a maximum carrying capacity of 450,000
passengers a day, or 150 million a year to be achieved-through 54 such vehicles operating
simultaneously. The EDSA LRT III will run at grade, or street level, on the mid-section of
EDSA for a distance of 17.8 kilometers from F.B. Harrison, Pasay City to North Avenue,
Quezon City. The system will have its own power facility (Revised and Restated Agreement,
Sec. 2.3 (ii); Rollo p. 55). It will also have thirteen (13) passenger stations and one depot in
16-hectare government property at North Avenue (Supplemental Agreement, Sec. 11; Rollo,
pp. 91-92).

Private respondents shall undertake and finance the entire project required for a
complete operational light rail transit system (Revised and Restated Agreement, Sec.
4.1; Rollo, p. 58). Target completion date is 1,080 days or approximately three years from
the implementation date of the contract inclusive of mobilization, site works, initial and final
testing of the system (Supplemental Agreement, Sec. 5; Rollo, p. 83). Upon full or partial
completion and viability thereof, private respondent shall deliver the use and
possession of the completed portion to DOTC which shall operate the same
(Supplemental Agreement, Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp.
61-62, 84). DOTC shall pay private respondent rentals on a monthly basis through an
Irrevocable Letter of Credit. The rentals shall be determined by an independent and
internationally accredited inspection firm to be appointed by the parties (Supplemental
Agreement, Sec. 6; Rollo, pp. 85-86) As agreed upon, private respondent's capital shall be
recovered from the rentals to be paid by the DOTC which, in turn, shall come from the
earnings of the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p. 54).
After 25 years and DOTC shall have completed payment of the rentals, ownership of the
project shall be transferred to the latter for a consideration of only U.S. $1.00 (Revised and
Restated Agreement, Sec. 11.1; Rollo, p. 67).

On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No.
6957, Entitled "An Act Authorizing the Financing, Construction, Operation and
Maintenance of Infrastructure Projects by the Private Sector, and for Other Purposes"
was signed into law by the President. The law was published in two newspapers of
general circulation on May 12, 1994, and took effect 15 days thereafter or on May 28,
1994. The law expressly recognizes BLT scheme and allows direct negotiation of BLT
contracts.

II

In their petition, petitioners argued that:

(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE

SUPPLEMENTAL AGREEMENT OF MAY 6, 1993, INSOFAR AS IT
GRANTS EDSA LRT CORPORATION, LTD., A FOREIGN CORPORATION,
THE OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE
CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL;

(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE

AGREEMENTS IS NOT DEFINED NOR RECOGNIZED IN R.A. NO. 6957
OR ITS IMPLEMENTING RULES AND REGULATIONS AND, HENCE, IS
ILLEGAL;

(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS

VIOLATES R; A. NO. 6957 AND, HENCE, IS UNLAWFUL;

(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA

LRT CORPORATION, LTD. VIOLATES THE REQUIREMENTS PROVIDED
IN THE IMPLEMENTING RULES AND REGULATIONS OF THE BOT LAW
AND, HENCE, IS ILLEGAL;

(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR

THEIR FAILURE TO BEAR PRESIDENTIAL APPROVAL AND, HENCE,
ARE ILLEGAL AND INEFFECTIVE; AND

(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE

GOVERNMENT (Rollo, pp. 15-16).

Secretary Garcia and private respondent filed their comments separately and claimed that:
(1) Petitioners are not the real parties-in-interest and have no legal standing to institute the
present petition;

(2) The writ of prohibition is not the proper remedy and the petition requires ascertainment of
facts;

(3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by
the BOT Law;

(4) The nationality requirement for public utilities mandated by the Constitution does not
apply to private respondent;

(5) The Agreements executed by and between respondents have been approved by
President Ramos and are not disadvantageous to the government;

(6) The award of the contract to private respondent through negotiation and not public
bidding is allowed by the BOT Law; and

(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No.
7718 passed by the Legislature On May 12, 1994, which provides for direct negotiation as a
mode of award of infrastructure projects.

III

Respondents claimed that petitioners had no legal standing to initiate the instant action.
Petitioners, however, countered that the action was filed by them in their capacity as
Senators and as taxpayers.

The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts
entered into by the national government or government-owned or controlled corporations
allegedly in contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994])
and to disallow the same when only municipal contracts are involved (Bugnay Construction
and Development Corporation v. Laron, 176 SCRA. 240 [1989]).

For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice
but to follow it and uphold the legal standing of petitioners as taxpayers to institute the
present action.

IV

In the main, petitioners asserted that the Revised and Restated Agreement of April 22,
1992 and the Supplemental Agreement of May 6, 1993 are unconstitutional and invalid
for the following reasons:

(1) the EDSA LRT III is a public utility, and the ownership and operation
thereof is limited by the Constitution to Filipino citizens and domestic
corporations, not foreign corporations like private respondent;

(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements

is not the BOT or BT Scheme under the law;
 (3) the contract to construct the EDSA LRT III was awarded to private
respondent not through public bidding which is the only mode of
awarding infrastructure projects under the BOT law; and

(4) the agreements are grossly disadvantageous to the government.

1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the
EDSA LRT III was awarded by public respondent, is admittedly a foreign corporation "duly
incorporated and existing under the laws of Hongkong" (Rollo, pp. 50, 79). There is also no
dispute that once the EDSA LRT III is constructed, private respondent, as lessor, will turn it
over to DOTC, as lessee, for the latter to operate the system and pay rentals for said use.

The question posed by petitioners is:

Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own

EDSA LRT III; a public utility? (Rollo, p. 17).

The phrasing of the question is erroneous; it is loaded. What private respondent owns
are the rail tracks, rolling stocks like the coaches, rail stations, terminals and the
power plant, not a public utility. While a franchise is needed to operate these facilities
to serve the public, they do not by themselves constitute a public utility. What
constitutes a public utility is not their ownership but their use to serve the public
(Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557 558 [1923]).

The Constitution, in no uncertain terms, requires a franchise for the operation of a

public utility. However, it does not require a franchise before one can own the
facilities needed to operate a public utility so long as it does not operate them to serve
the public.

Section 11 of Article XII of the Constitution provides:

No franchise, certificate or any other form of authorization for

the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws
of the Philippines at least sixty per centum of whose capital is owned
by such citizens, nor shall such franchise, certificate or authorization
be exclusive character or for a longer period than fifty years . . .
(Emphasis supplied).

In law, there is a clear distinction between the "operation" of a public utility and the
ownership of the facilities and equipment used to serve the public.

Ownership is defined as a relation in law by virtue of which a thing pertaining to one

person is completely subjected to his will in everything not prohibited by law or the
concurrence with the rights of another (Tolentino, II Commentaries and Jurisprudence
on the Civil Code of the Philippines 45 [1992]).

The exercise of the rights encompassed in ownership is limited by law so that a

property cannot be operated and used to serve the public as a public utility unless the
operator has a franchise. The operation of a rail system as a public utility includes the
transportation of passengers from one point to another point, their loading and unloading at
designated places and the movement of the trains at pre-scheduled times (cf. Arizona
Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R. 1149 [1919] ;United
States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065
[1948]).

The right to operate a public utility may exist independently and separately from the
ownership of the facilities thereof. One can own said facilities without operating them
as a public utility, or conversely, one may operate a public utility without owning the
facilities used to serve the public. The devotion of property to serve the public may be
done by the owner or by the person in control thereof who may not necessarily be the owner
thereof.

This dichotomy between the operation of a public utility and the ownership of the facilities
used to serve the public can be very well appreciated when we consider the transportation
industry. Enfranchised airline and shipping companies may lease their aircraft and vessels
instead of owning them themselves.

While private respondent is the owner of the facilities necessary to operate the EDSA.
LRT III, it admits that it is not enfranchised to operate a public utility (Revised and
Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of this incapacity, private
respondent and DOTC agreed that on completion date, private respondent will
immediately deliver possession of the LRT system by way of lease for 25 years,
during which period DOTC shall operate the same as a common carrier and private
respondent shall provide technical maintenance and repair services to DOTC (Revised
and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical
maintenance consists of providing (1) repair and maintenance facilities for the depot and rail
lines, services for routine clearing and security; and (2) producing and distributing
maintenance manuals and drawings for the entire system (Revised and Restated
Agreement, Annex F).

Private respondent shall also train DOTC personnel for familiarization with the operation,
use, maintenance and repair of the rolling stock, power plant, substations, electrical,
signaling, communications and all other equipment as supplied in the agreement (Revised
and Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live
training of DOTC operational personnel which includes actual driving of light rail vehicles
under simulated operating conditions, control of operations, dealing with emergencies,
collection, counting and securing cash from the fare collection system (Revised and
Restated Agreement, Annex E, Secs. 2-3). Personnel of DOTC will work under the direction
and control of private respondent only during training (Revised and Restated Agreement,
Annex E, Sec. 3.1). The training objectives, however, shall be such that upon completion of
the EDSA LRT III and upon opening of normal revenue operation, DOTC shall have in their
employ personnel capable of undertaking training of all new and replacement personnel
(Revised and Restated Agreement, Annex E Sec. 5.1). In other words, by the end of the
three-year construction period and upon commencement of normal revenue operation,
DOTC shall be able to operate the EDSA LRT III on its own and train all new personnel by
itself.

Fees for private respondent' s services shall be included in the rent, which likewise includes
the project cost, cost of replacement of plant equipment and spare parts, investment and
financing cost, plus a reasonable rate of return thereon (Revised and Restated Agreement,
Sec. 1; Rollo, p. 54).
Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and
liabilities of a common carrier. For this purpose, DOTC shall indemnify and hold harmless
private respondent from any losses, damages, injuries or death which may be claimed in the
operation or implementation of the system, except losses, damages, injury or death due to
defects in the EDSA LRT III on account of the defective condition of equipment or facilities or
the defective maintenance of such equipment facilities (Revised and Restated Agreement,
Secs. 12.1 and 12.2; Rollo, p. 68).

In sum, private respondent will not run the light rail vehicles and collect fees from the
riding public. It will have no dealings with the public and the public will have no right
to demand any services from it.

It is well to point out that the role of private respondent as lessor during the lease period
must be distinguished from the role of the Philippine Gaming Management Corporation
(PGMC) in the case of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the
Contract of Lease between PGMC and the Philippine Charity Sweepstakes Office (PCSO)
was actually a collaboration or joint venture agreement prescribed under the charter of the
PCSO. In the Contract of Lease; PGMC, the lessor obligated itself to build, at its own
expense, all the facilities necessary to operate and maintain a nationwide on-line lottery
system from whom PCSO was to lease the facilities and operate the same. Upon due
examination of the contract, the Court found that PGMC's participation was not confined to
the construction and setting up of the on-line lottery system. It spilled over to the actual
operation thereof, becoming indispensable to the pursuit, conduct, administration and control
of the highly technical and sophisticated lottery system. In effect, the PCSO leased out its
franchise to PGMC which actually operated and managed the same.

Indeed, a mere owner and lessor of the facilities used by a public utility is not a public
utility (Providence and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa
Power Co. v. Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925];
Ellis v. Interstate Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed.
1036 [1914]). Neither are owners of tank, refrigerator, wine, poultry and beer cars who
supply cars under contract to railroad companies considered as public utilities (Crystal Car
Line v. State Tax Commission, 174 p. 2d 984, 987 [1946]).

Even the mere formation of a public utility corporation does not ipso
facto characterize the corporation as one operating a public utility. The moment for
determining the requisite Filipino nationality is when the entity applies for a franchise,
certificate or any other form of authorization for that purpose (People v. Quasha, 93
Phil. 333 [1953]).

2. Petitioners further assert that the BLT scheme under the Agreements in question is not
recognized in the BOT Law and its Implementing Rules and Regulations.

Section 2 of the BOT Law defines the BOT and BT schemes as follows:

(a) Build-operate-and-transfer scheme A contractual arrangement

whereby the contractor undertakes the construction including financing, of a
given infrastructure facility, and the operation and maintenance thereof. The
contractor operates the facility over a fixed term during which it is allowed to
charge facility users appropriate tolls, fees, rentals and charges sufficient to
enable the contractor to recover its operating and maintenance expenses
and its investment in the project plus a reasonable rate of return thereon. The
 contractor transfers the facility to the government agency or local government
unit concerned at the end of the fixed term which shall not exceed fifty (50)
years. For the construction stage, the contractor may obtain financing from
foreign and/or domestic sources and/or engage the services of a foreign
and/or Filipino constructor [sic]: Provided, That the ownership structure of the
contractor of an infrastructure facility whose operation requires a public utility
franchise must be in accordance with the Constitution: Provided, however,
That in the case of corporate investors in the build-operate-and-transfer
corporation, the citizenship of each stockholder in the corporate investors
shall be the basis for the computation of Filipino equity in the said
corporation: Provided, further, That, in the case of foreign constructors [sic],
Filipino labor shall be employed or hired in the different phases of the
construction where Filipino skills are available: Provided, furthermore, that
the financing of a foreign or foreign-controlled contractor from Philippine
government financing institutions shall not exceed twenty percent (20%) of
the total cost of the infrastructure facility or project: Provided, finally, That
financing from foreign sources shall not require a guarantee by the
Government or by government-owned or controlled corporations. The build-
operate-and-transfer scheme shall include a supply-and-operate situation
which is a contractual agreement whereby the supplier of equipment and
machinery for a given infrastructure facility, if the interest of the Government
so requires, operates the facility providing in the process technology transfer
and training to Filipino nationals.

(b) Build-and-transfer scheme "A contractual arrangement whereby the

contractor undertakes the construction including financing, of a given
infrastructure facility, and its turnover after completion to the government
agency or local government unit concerned which shall pay the contractor its
total investment expended on the project, plus a reasonable rate of return
thereon. This arrangement may be employed in the construction of any
infrastructure project including critical facilities which for security or strategic
reasons, must be operated directly by the government (Emphasis supplied).

The BOT scheme is expressly defined as one where the contractor undertakes the
construction and financing in infrastructure facility, and operates and maintains the same.
The contractor operates the facility for a fixed period during which it may recover its
expenses and investment in the project plus a reasonable rate of return thereon. After the
expiration of the agreed term, the contractor transfers the ownership and operation of the
project to the government.

In the BT scheme, the contractor undertakes the construction and financing of the facility, but
after completion, the ownership and operation thereof are turned over to the government.
The government, in turn, shall pay the contractor its total investment on the project in
addition to a reasonable rate of return. If payment is to be effected through amortization
payments by the government infrastructure agency or local government unit concerned, this
shall be made in accordance with a scheme proposed in the bid and incorporated in the
contract (R.A. No. 6957, Sec. 6).

Emphasis must be made that under the BOT scheme, the owner of the infrastructure
facility must comply with the citizenship requirement of the Constitution on the
operation of a public utility. No such a requirement is imposed in the BT scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar any other
arrangement for the payment by the government of the project cost. The law must not be
read in such a way as to rule out or unduly restrict any variation within the context of the two
schemes. Indeed, no statute can be enacted to anticipate and provide all the fine points and
details for the multifarious and complex situations that may be encountered in enforcing the
law (Director of Forestry v. Munoz, 23 SCRA 1183 [1968]; People v. Exconde, 101 Phil. 1125
[1957]; United States v. Tupasi Molina, 29 Phil. 119 [1914]).

The BLT scheme in the challenged agreements is but a variation of the BT scheme under
the law.

As a matter of fact, the burden on the government in raising funds to pay for the project is
made lighter by allowing it to amortize payments out of the income from the operation of the
LRT System.

In form and substance, the challenged agreements provide that rentals are to be paid on a
monthly basis according to a schedule of rates through and under the terms of a confirmed
Irrevocable Revolving Letter of Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the
end of 25 years and when full payment shall have been made to and received by private
respondent, it shall transfer to DOTC, free from any lien or encumbrances, all its title to,
rights and interest in, the project for only U.S. $1.00 (Revised and Restated Agreement, Sec.
11.1; Supplemental Agreement, Sec; 7; Rollo, pp. 67, .87).

A lease is a contract where one of the parties binds himself to give to another the enjoyment
or use of a thing for a certain price and for a period which may be definite or indefinite but not
longer than 99 years (Civil Code of the Philippines, Art. 1643). There is no transfer of
ownership at the end of the lease period. But if the parties stipulate that title to the leased
premises shall be transferred to the lessee at the end of the lease period upon the payment
of an agreed sum, the lease becomes a lease-purchase agreement.

Furthermore, it is of no significance that the rents shall be paid in United States currency, not
Philippine pesos. The EDSA LRT III Project is a high priority project certified by Congress
and the National Economic and Development Authority as falling under the Investment
Priorities Plan of Government (Rollo, pp. 310-311). It is, therefore, outside the application of
the Uniform Currency Act (R.A. No. 529), which reads as follows:

Sec. 1. Every provision contained in, or made with respect to, any
domestic obligation to wit, any obligation contracted in the Philippines which
provisions purports to give the obligee the right to require payment in gold or
in a particular kind of coin or currency other than Philippine currency or in an
amount of money of the Philippines measured thereby, be as it is hereby
declared against public policy, and null, void, and of no effect, and no such
provision shall be contained in, or made with respect to, any obligation
hereafter incurred. The above prohibition shall not apply to (a) . . .; (b)
transactions affecting high-priority economic projects for agricultural,
industrial and power development as may be determined by
the National Economic Council which are financed by or through foreign
funds; . . . .

3. The fact that the contract for the construction of the EDSA LRT III was awarded through
negotiation and before congressional approval on January 22 and 23, 1992 of the List of
National Projects to be undertaken by the private sector pursuant to the BOT Law (Rollo, pp.
309-312) does not suffice to invalidate the award.

Subsequent congressional approval of the list including "rail-based projects packaged with
commercial development opportunities" (Rollo, p. 310) under which the EDSA LRT III
projects falls, amounts to a ratification of the prior award of the EDSA LRT III contract under
the BOT Law.

Petitioners insist that the prequalifications process which led to the negotiated award of the
contract appears to have been rigged from the very beginning to do away with the usual
open international public bidding where qualified internationally known applicants could fairly
participate.

The records show that only one applicant passed the prequalification process. Since only
one was left, to conduct a public bidding in accordance with Section 5 of the BOT Law for
that lone participant will be an absurb and pointless exercise (cf. Deloso v. Sandiganbayan,
217 SCRA 49, 61 [1993]).

Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in
relation to Presidential Decree No. 1594 allows the negotiated award of government
infrastructure projects.

Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for
Government Infrastructure Contracts," allows the negotiated award of government projects in
exceptional cases. Sections 4 of the said law reads as follows:

Bidding. Construction projects shall generally be undertaken by contract

after competitive public bidding. Projects may be undertaken by
administration or force account or by negotiated contract only in exceptional
cases where time is of the essence, or where there is lack of qualified
bidders or contractors, or where there is conclusive evidence that greater
economy and efficiency would be achieved through this arrangement, and in
accordance with provision of laws and acts on the matter, subject to the
approval of the Minister of Public Works and Transportation and
Communications, the Minister of Public Highways, or the Minister of Energy,
as the case may be, if the project cost is less than P1 Million, and the
President of the Philippines, upon recommendation of the Minister, if the
project cost is P1 Million or more (Emphasis supplied).

xxx xxx xxx

Indeed, where there is a lack of qualified bidders or contractors, the award of government
infrastructure contracts may he made by negotiation. Presidential Decree No. 1594 is the
general law on government infrastructure contracts while the BOT Law governs particular
arrangements or schemes aimed at encouraging private sector participation in government
infrastructure projects. The two laws are not inconsistent with each other but are in pari
materia and should be read together accordingly.

In the instant case, if the prequalification process was actually tainted by foul play, one
wonders why none of the competing firms ever brought the matter before the PBAC, or
intervened in this case before us (cf. Malayan Integrated Industries Corp. v. Court of
Appeals, 213 SCRA 640 [1992]; Bureau Veritas v. Office of the President, 205 SCRA 705
[1992]).

The challenged agreements have been approved by President Ramos himself. Although
then Executive Secretary Drilon may have disapproved the "Agreement to Build, Lease and
Transfer a Light Rail Transit System for EDSA," there is nothing in our laws that prohibits
parties to a contract from renegotiating and modifying in good faith the terms and conditions
thereof so as to meet legal, statutory and constitutional requirements. Under the
circumstances, to require the parties to go back to step one of the prequalification process
would just be an idle ceremony. Useless bureaucratic "red tape" should be eschewed
because it discourages private sector participation, the "main engine" for national growth and
development (R.A. No. 6957, Sec. 1), and renders the BOT Law nugatory.

Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:

(e) Build-lease-and-transfer A contractual arrangement whereby a project

proponent is authorized to finance and construct an infrastructure or
development facility and upon its completion turns it over to the government
agency or local government unit concerned on a lease arrangement for a
fixed period after which ownership of the facility is automatically transferred
to the government unit concerned.

Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:

Direct Negotiation of Contracts. Direct negotiation shall be resorted to

when there is only one complying bidder left as defined hereunder.

(a) If, after advertisement, only one contractor applies for prequalification and
it meets the prequalification requirements, after which it is required to submit
a bid proposal which is subsequently found by the agency/local government
unit (LGU) to be complying.

(b) If, after advertisement, more than one contractor applied for
prequalification but only one meets the prequalification requirements, after
which it submits bid/proposal which is found by the agency/local government
unit (LGU) to be complying.

(c) If, after prequalification of more than one contractor only one submits a
bid which is found by the agency/LGU to be complying.

(d) If, after prequalification, more than one contractor submit bids but only
one is found by the agency/LGU to be complying. Provided, That, any of the
disqualified prospective bidder [sic] may appeal the decision of the
implementing agency, agency/LGUs prequalification bids and awards
committee within fifteen (15) working days to the head of the agency, in case
of national projects or to the Department of the Interior and Local
Government, in case of local projects from the date the disqualification was
made known to the disqualified bidder: Provided, furthermore, That the
implementing agency/LGUs concerned should act on the appeal within forty-
five (45) working days from receipt thereof.
Petitioners' claim that the BLT scheme and direct negotiation of contracts are not
contemplated by the BOT Law has now been rendered moot and academic by R.A. No.
7718. Section 3 of this law authorizes all government infrastructure agencies, government-
owned and controlled corporations and local government units to enter into contract with any
duly prequalified proponent for the financing, construction, operation and maintenance of any
financially viable infrastructure or development facility through a BOT, BT, BLT, BOO (Build-
own-and-operate), CAO (Contract-add-operate), DOT (Develop-operate-and-transfer), ROT
(Rehabilitate-operate-and-transfer), and ROO (Rehabilitate-own-operate) (R.A. No. 7718,
Sec. 2 [b-j]).

From the law itself, once and applicant has prequalified, it can enter into any of the schemes
enumerated in Section 2 thereof, including a BLT arrangement, enumerated and defined
therein (Sec. 3).

Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and
"a climate of minimum government regulations and procedures and specific government
undertakings in support of the private sector" (Sec. 1). A curative statute makes valid that
which before enactment of the statute was invalid. Thus, whatever doubts and alleged
procedural lapses private respondent and DOTC may have engendered and committed in
entering into the questioned contracts, these have now been cured by R.A. No. 7718
(cf. Development Bank of the Philippines v. Court of Appeals, 96 SCRA 342 [1980]; Santos
V. Duata, 14 SCRA 1041 [1965]; Adong V. Cheong Seng Gee, 43 Phil. 43 [1922].

4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the
government because the rental rates are excessive and private respondent's development
rights over the 13 stations and the depot will rob DOTC of the best terms during the most
productive years of the project.

It must be noted that as part of the EDSA LRT III project, private respondent has been
granted, for a period of 25 years, exclusive rights over the depot and the air space above the
stations for development into commercial premises for lease, sublease, transfer, or
advertising (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For and in consideration of
these development rights, private respondent shall pay DOTC in Philippine currency
guaranteed revenues generated therefrom in the amounts set forth in the Supplemental
Agreement (Sec. 11; Rollo, p. 93). In the event that DOTC shall be unable to collect the
guaranteed revenues, DOTC shall be allowed to deduct any shortfalls from the monthly rent
due private respondent for the construction of the EDSA LRT III (Supplemental Agreement,
Sec. 11; Rollo, pp. 93-94). All rights, titles, interests and income over all contracts on the
commercial spaces shall revert to DOTC upon expiration of the 25-year period.
(Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).

The terms of the agreements were arrived at after a painstaking study by DOTC. The
determination by the proper administrative agencies and officials who have acquired
expertise, specialized skills and knowledge in the performance of their functions should be
accorded respect absent any showing of grave abuse of discretion (Felipe Ysmael, Jr. & Co.
v. Deputy Executive Secretary, 190 SCRA 673 [1990]; Board of Medical Education v.
Alfonso, 176 SCRA 304 [1989]).

Government officials are presumed to perform their functions with regularity and strong
evidence is necessary to rebut this presumption. Petitioners have not presented evidence on
the reasonable rentals to be paid by the parties to each other. The matter of valuation is an
esoteric field which is better left to the experts and which this Court is not eager to
undertake.

That the grantee of a government contract will profit therefrom and to that extent the
government is deprived of the profits if it engages in the business itself, is not worthy of being
raised as an issue. In all cases where a party enters into a contract with the government, he
does so, not out of charity and not to lose money, but to gain pecuniarily.

5. Definitely, the agreements in question have been entered into by DOTC in the exercise of
its governmental function. DOTC is the primary policy, planning, programming, regulating
and administrative entity of the Executive branch of government in the promotion,
development and regulation of dependable and coordinated networks of transportation and
communications systems as well as in the fast, safe, efficient and reliable postal,
transportation and communications services (Administrative Code of 1987, Book IV, Title XV,
Sec. 2). It is the Executive department, DOTC in particular that has the power, authority and
technical expertise determine whether or not a specific transportation or communication
project is necessary, viable and beneficial to the people. The discretion to award a contract is
vested in the government agencies entrusted with that function (Bureau Veritas v. Office of
the President, 205 SCRA 705 [1992]).

WHEREFORE, the petition is DISMISSED.

SO ORDERED
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 144109 February 17, 2003

ASSOCIATED COMMUNICATIONS & WIRELESS SERVICES UNITED

BROADCASTING NETWORKS,petitioner,
vs.
NATIONAL TELECOMMUNICATIONS COMMISSION, respondent.

DECISION

PUNO, J.:

For many years now, there has been a "pervading confusion in the state of affairs of the
broadcast industry brought about by conflicting laws, decrees, executive orders and other
pronouncements promulgated during the Martial Law regime."1 The question that has
taken a long life is whether the operation of a radio or television station requires a
congressional franchise. The Court shall now lay to rest the issue.

This is a petition for review on certiorari of the Court of Appeals January 31, 2000
decision and February 21, 2000 resolution affirming the January 13, 1999 decision of
the National Telecommunications Commission (NTC for brevity).

First, the facts.

On November 11, 1931, Act No. 3846, entitled "An Act Providing for the Regulation of
Radio Stations and Radio Communications in the Philippines and for Other
Purposes," was enacted. Sec. 1 of the law reads, viz:

"Sec. 1. No person, firm, company, association, or corporation shall construct, install,

establish, or operate a radio transmitting station, or a radio receiving station used for
commercial purposes, or a radio broadcasting station, without having first obtained a
franchise therefor from the Congress of the Philippines..."

Pursuant to the above provision, Congress enacted in 1965 R.A. No. 4551, entitled "An
Act Granting Marcos J. Villaverde, Jr. and Winfred E. Villaverde a Franchise to
Construct, Install, Maintain and Operate Public Radiotelephone and Radiotelegraph
Coastal Stations, and Public Fixed and Public Based and Land Mobile Stations within
the Philippines for the Reception and Transmission of Radiotelephone and
Radiotelegraph for Domestic Communications and Provincial Telephone Systems in
Certain Provinces." It gave the grantees a 50-year franchise.2 In 1969, the franchise was
transferred to petitioner Associated Communications & Wireless Services United
Broadcasting Network, Inc. (ACWS for brevity) through Congress Concurrent Resolution No.
58.3 Petitioner ACWS then engaged in the installation and operation of several radio stations
around the country.
In 1974, P.D. No. 576-A, "Regulating the Ownership and Operation of Radio and
Television Stations and for other Purposes" was issued, with the following pertinent
provisions on franchise of radio and television broadcasting systems:

"Sec. 1. No radio station or television channel may obtain a franchise unless it has
sufficient capital on the basis of equity for its operation for at least one year, including
purchase of equipment.

xxxxxxxxx

Sec. 6. All franchises, grants, licenses, permits, certificates or other forms of authority
to operate radio or television broadcasting systems shall terminate on December 31,
1981. Thereafter, irrespective of any franchise, grant, license, permit, certificate or other
forms of authority to operate granted by any office, agency or person, no radio or television
station shall be authorized to operate without the authority of the Board of
Communications and the Secretary of Public Works and Communications or their
successors who have the right and authority to assign to qualified parties frequencies,
channels or other means of identifying broadcasting system; Provided, however, that any
conflict over, or disagreement with a decision of the aforementioned authorities may be
appealed finally to the Office of the President within fifteen days from the date the decision is
received by the party in interest."

A few years later or in 1979, E.O. No. 5464 was issued. It integrated the Board of
Communications and the Telecommunications Control Bureau under the Integrated
Reorganization Plan of 1972 into the NTC. Among the powers vested in the NTC under Sec.
15 of E.O. No. 546 are the following:

"a. Issue Certificate of Public Convenience for the operation of communication utilities and
services, radio communications systems, wire or wireless telephone or telegraph system,
radio and television broadcasting system and other similar public utilities;

xxxxxxxxx

c. Grant permits for the use of radio frequencies for wireless telephone and telegraph
systems and radio communication systems including amateur radio stations and radio and
television broadcasting systems; . . . "

Upon termination of petitioners franchise on December 31, 1981 pursuant to P.D. No.
576-A, it continued operating its radio stations under permits granted by the NTC.

As these presidential issuances relating to the radio and television broadcasting

industry brought about confusion as to whether the NTC could issue permits to radio
and television broadcast stations without legislative franchise, the NTC sought the
opinion of the Department of Justice (DOJ) on the matter. On June 20, 1991, the DOJ
rendered Opinion No. 98, Series of 1991, viz:

"We believe that under P.D. No. 576-A dated November 11, 1974 and prior to the issuance
of E.O No. 546 dated July 23, 1979, the NTC, then Board of Communications, had no
authority to issue permits or authorizations to operate radio and television broadcasting
systems without a franchise first being obtained pursuant to Section 1 of Act No. 3846, as
amended. A close reading of the provisions of Sections 1 and 6 of P.D. No. 576-A, supra,
does not reveal any indication of a legislative intent to do away with the franchising
requirement under Section 1 of Act No. 3846. In fact, a mere reading of Section 1 would
readily indicate that a franchise was necessary for the operation of radio and television
broadcasting systems as it expressly provided that no such franchise may be obtained
unless the radio station or television channel has sufficient capital on the basis of equity for
its operation for at least one year, including purchase of equipment.

It is believed that the termination of all franchises granted for the operation of radio
and television broadcasting systems effective December 31, 1981 and the vesting of
the power to authorize the operation of any radio or television station upon the Board
of Communications and the Secretary of Public Works and Communications and their
successors under Section 6 of P.D. No. 576-A does not necessarily imply the
abrogation of the requirement of obtaining a franchise under Section 1 of Act No.
3846, as amended, in the absence of a clear provision in P.D. No. 576-A providing to
this effect.

It should be noted that under Act No. 3846, as amended, a person, firm or entity desiring to
operate a radio broadcasting station must obtain the following: (a) a franchise from Congress
(Sec. 1); (b) a permit to construct or install a station from the Secretary of Commerce and
Industry (Sec. 2); and (c) a license to operate the station also from the Secretary of
Commerce and Industry (id.). The franchise is the privilege granted by the State through its
legislative body and is subject to regulation by the State itself by virtue of its police power
through its administrative agencies (RCPI vs. NTC, 150 SCRA 450). The permit and license
are the administrative authorizations issued by the administrative agency in the exercise of
regulation. It is clear that what was transferred to the Board of Communications and the
Secretary of Commerce and Industry under Section 6 of P.D. No. 576-A was merely the
regulatory powers vested solely in the Secretary of Commerce and Industry under Section 2
of Act No. 3846, as amended. The franchising authority was retained by the then
incumbent President as repository of legislative power under Martial Law, as is clearly
indicated in the first WHEREAS clause of P.D. No. 576-A to wit:

WHEREAS, the President of the Philippines is empowered under the Constitution to

review and approve franchises for public utilities.

Of course, under the Constitution, said power (the power to review and approve
franchises), belongs to the lawmaking body (Sec. 5, Art. XIV, 1973 Constitution; Sec.
11, Art. XII, 1987 Constitution).

The corollary question to be resolved is: Has E.O. No 546 (which is a law issued
pursuant to P.D. No. 1416, as amended by P.D. No. 1771, granting the then President
continuing authority to reorganize the administrative structure of the national
government) modified the franchising and licensing arrangement for radio and
television broadcasting systems under P.D. No. 576-A?

We believe so.

E.O. No. 546 integrated the Board of Communications and the Telecommunications
Bureau into a single entity known as the NTC (See Sec. 14), and vested the new body
with broad powers, among them, the power to issue Certificates of Public
Convenience for the operation of communications utilities, including radio and
televisions broadcasting systems and the power to grant permits for the use of radio
frequencies (Sec. 14[a] and [c], supra). Additionally, NTC was vested with broad rule
making authority to encourage a larger and more effective use of communications, radio and
television broadcasting facilities, and to maintain effective competition among private entities
in these activities whenever the Commission finds it reasonably feasible (Sec. 15[f]).

In the recent case of Albano vs. Reyes (175 SCRA 264), the Supreme Court held that
franchises issued by Congress are not required before each and every public utility may
operate. Administrative agencies may be empowered by law to grant licenses for or to
authorize the operation of certain public utilities. The Supreme Court stated that the
provision in the Constitution (Art. XII, Sec. 11) that the issuance of a franchise, certificate or
other form of authorization for the operation of a public utility shall be subject to amendment,
alteration or repeal by Congress, does not necessarily imply . . . that only Congress has the
power to grant such authorization. Our statute books are replete with laws granting specified
agencies in the Executive Branch the power to issue such authorization for certain classes of
public utilities.

We believe that E.O. No. 546 is one law which authorizes an administrative agency, the
NTC, to issue authorizations for the operation of radio and television broadcasting
systems without need of a prior franchise issued by Congress.

Based on all the foregoing, we hold the view that NTC is empowered under E.O. No.
546 to issue authorization and permits to operate radio and television broadcasting
system."5

However, on May 3, 1994, the NTC, the Committee on Legislative Franchises of

Congress, and the Kapisanan ng mga Brodkaster sa Pilipinas of which petitioner is a
member of good standing, entered into a Memorandum of Understanding (MOU) that
requires a congressional franchise to operate radio and television stations. The MOU
states, viz:

"WHEREAS, under the provisions of Section 1 of Act No. 3846 (Radio Laws of the
Philippines, as amended), only radio and television broadcast stations with legislative
franchise are authorized to operate.

WHEREAS, Executive Order No. 546, which created the National Telecommunications
Commission (NTC) and abolished the Board of Communications (BOC) and the
Telecommunications Control Bureau (TCB), and integrated the functions and prerogative of
the latter two agencies into the National Telecommunications Commission (NTC);

WHEREAS, the National Telecommunications Commission (NTC) is authorized to issue

certificate of public convenience for the operation of radio and television broadcast stations;

WHEREAS, there is a pervading confusion in the state of affairs of the broadcast industry
brought about by conflicting laws, decrees, executive orders and other pronouncements
promulgated during the Martial Law regime, the parties in their common desire to rationalize
the broadcast industry, promote the interest of public welfare, avoid a vacuum in the delivery
of broadcast services, and foremost to better serve the ends of press freedom, the parties
hereto have agreed as follows:

The NTC shall continue to issue and grant permits or authorizations to operate radio
and television broadcast stations within their mandate under Section 15 of Executive
Order No. 546, provided that such temporary permits or authorization to operate shall
be valid for two (2) years within which the permittee shall be required to file an
application for legislative franchise with Congress not later than December 31, 1994;
provided finally, that if the permittee of the temporary permit or authorization to
operate fails to secure the legislative franchise with Congress within this period, the
NTC shall not extend or renew its permit or authorization to operate any further."6

Prior to the December 31, 1994 deadline set by the MOU, petitioner filed with Congress
an application for a franchise on December 20, 1994. Pending its approval, the NTC
issued to petitioner a temporary permit dated July 7, 1995 to operate a television
station via Channel 25 of the UHF Band from June 29, 1995 to June 28, 1997.7 In 1996,
the NTC authorized petitioner to increase the power output of Channel 25 from 1.0
kilowatt to 25 kilowatts after finding it financially and technically capable;8 it also
granted petitioner a permit to purchase radio transmitters/transceivers for use in its
television Channel 25 broadcasting.9 Shortly before the expiration of its temporary
permit, petitioner applied for its renewal on May 14, 1997.10

On October 28, 1997, the House Committee on Legislative Franchises of Congress

replied to an inquiry of the NTCs Broadcast Division Chief regarding the franchise
application of ACWS filed on December 20, 1994. The Committee certified that
petitioners franchise application was not deliberated on by the 9th Congress because
petitioner failed to submit the required supporting documents. In the next Congress,
petitioner did not re-file its application.11

The following month or on November 17, 1997, the NTCs Broadcast Service Department
wrote to petitioner ordering it to submit a new congressional franchise for the operation of its
seven radio stations and informing it that pending compliance, its application for temporary
permits to operate these radio stations would be held in abeyance.12 Petitioner failed to
comply with the franchise requirement; it claims that it did not receive the November 17,
1997 letter.

Despite the absence of a congressional franchise, the NTC notified petitioner on January 19,
1998 that its May 14, 1997 application for renewal of its temporary permit to operate
television Channel 25 was approved and would be released upon payment of the prescribed
fee of P3,600.00.13 After paying said amount,14 however, the NTC refused to release to
petitioner its renewed permit. Instead, the NTC commenced against petitioner Administrative
Case No. 98-009 based on the November 17, 1997 letter. On February 26, 1998, the NTC
issued an Order directing petitioner to show cause why its assigned frequency, television
Channel 25, should not be recalled for lack of the required congressional franchise.
Petitioner was also directed to cease and desist from operating Channel 25 unless
subsequently authorized by the NTC.15

In compliance with the February 26, 1998 Order, petitioner filed its Answer on March 17,
1998.16 In a hearing on April 22, 1998, petitioner presented evidence and asked for
continuance of the presentation to May 20, 1998.17 On May 4, 1998, however, petitioner filed
before the Court of Appeals a Petition for Mandamus, Prohibition, and Damages to compel
the NTC to release its temporary permit to operate Channel 25 which was approved in
January 1998. The appellate court denied the petition on September 30, 1998.

Meantime, on August 17, 1998, the NTC issued Memorandum Circular No. 14-10-98 which
reads, viz:

"SUBJECT: Guidelines in the Renewal/Extension of Temporary Permit of Radio/TV

Broadcast operators who failed to secure a legislative franchise conformably with the
Memorandum of Understanding (MOU) dated May 3, 1994, entered into by and between the
National Telecommunications and the Committee on Legislative Franchises, House of
Representatives, and the Kapisanan ng mga Brodkaster sa Pilipinas (KBP).

In compliance with the MOU and in order to clear the ambiguity surrounding the operation of
broadcast operators who were not able to have their legislative franchise approved during
the last congress, the following guidelines are hereby issued:

1. Existing broadcast operators who were not able to secure a legislative franchise
up to this date are given up to December 31, 1999 within which to have their
application for a legislative franchise bill approved by Congress. The franchise bill
must be filed immediately but not later than November 30th of this year to give both
Houses time to deliberate upon and recommend approval/disapproval thereof.

2. Broadcast operators affected by this circular must file their respective applications
for renewal/extension of their Temporary Permits in the prescribed form together with
the certification from the Committee on Legislative Franchises, House of
Representatives that a franchise bill has indeed been filed prior to 30 November
1998.

3. In the event the permittee will not be able to have its franchise bill approved within
the prescribed period, the NTC will no longer renew/extend its Temporary Permit and
the Commission shall initiate the recall of its assigned frequency provided that due
process of law is observed.

4. Henceforth, no application/petition for Certificate of Public Convenience (CPC) to

establish, maintain and operate a broadcast station in the broadcast service shall be
accepted for filing without showing that the applicant has an approved Legislative
Franchise.

This Memorandum Circular shall be published in one (1) newspaper of general circulation in
the Philippines and shall take effect thirty (30) days from its publication.

August 17, 1998, Quezon City, Philippines."18

The Memorandum Circular was published in the Philippine Star on October 15, 1998.

Well within the November 30, 1998 deadline under the Memorandum Circular, House Bill No.
3216, entitled "An Act Granting the ACWS-United Broadcasting Network, Inc. a Franchise to
Construct, Install, Operate and Maintain Radio and Television Broadcasting Stations within
the Philippines, and for other Purposes," was filed with the Legislative Calendar Section, Bills
and Index Division on September 2, 1998.19

On January 13, 1999, the NTC rendered a decision on Administrative Case No. 98-009
against petitioner, the dispositive portion of which reads:

"WHEREFORE, for lack of a legal personality to justify the issuance of any permit or license
to the respondent (ACWS), the respondent not having a valid legislative franchise, the
Commission hereby renders judgment as follows:

1) Channel 25 assigned to herein respondent ACWS is hereby RECALLED;

 2) Respondents application for renewal of its temporary permit to operate Channel
25 is hereby DENIED; and

3) Respondent is hereby ordered to CEASE and DESIST from further operating

Channel 25."20

Petitioner sought recourse at the Court of Appeals which affirmed the NTC decision.

Hence, this petition for review on certiorari on the following grounds:

"I.

THE COURT OF APPEALS ERRED IN UPHOLDING THE RULING OF THE NTC THAT A
CONGRESSIONAL FRANCHISE IS A CONDITION SINE QUA NON IN THE OPERATION
OF A RADIO AND TELEVISION BROADCASTING SYSTEM.

II.

THE COURT OF APPEALS ERRED IN NOT CONSIDERING OPINION 98 SERIES OF 1991

DATED JUNE 20, 1991 OF THE SECRETARY OF JUSTICE HOLDING THAT THE NTC
MAY ISSUE AUTHORIZATION FOR THE OPERATION OF RADIO AND TELEVISION
BROADCASTING SYSTEMS, WITHOUT THE NEED OF A PRIOR FRANCHISE ISSUED
BY CONGRESS, AS BINDING ON THE NTC WHO REQUESTED FOR SAID OPINION
AND IS NOT MERELY ADVISORY, AS IT IS PREDICATED ON A DECISION OF THIS
HONORABLE COURT.

III.

THE COURT OF APPEALS ERRED IN CONSIDERING ACT NO. 3846 AS REQUIRING A

FRANCHISE FROM CONGRESS FOR THE LAWFUL OPERATION OF RADIO OR
TELEVISION BROADCASTING STATIONS WHEN CLEARLY ITS PROVISIONS COVER
ONLY RADIO BUT IT DOES NOT INCLUDE TELEVISION STATIONS.

IV.

THE COURT OF APPEALS ERRED IN UPHOLDING THE RECALL OF THE FREQUENCY

CHANNEL 25 PREVIOUSLY ASSIGNED TO THE PETITIONER AND/OR THE
CANCELLATION OF ITS PERMIT TO OPERATE WHICH IS UNREASONABLE, UNFAIR,
OPPRESSIVE, WHIMSICAL AND CONFISCATORY WHEN IT PREVIOUSLY ISSUED THE
SAID PERMIT WITHOUT REQUIRING A LEGISLATIVE FRANCHISE.

V.

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT NTC CASE NO. 98-009 HAD
BEEN RENDERED MOOT AND ACADEMIC WITH THE ADOPTION AND
PROMULGATION BY THE NTC OF MEMORANDUM CIRCULAR NO. 14-10-98 DATED
AUGUST 17, 1998 AS PETITIONER FILED THE APPLICATION FOR LEGISLATIVE
FRANCHISE PURSUANT THERETO."21

The petition is devoid of merit.

We shall discuss together the first three assigned errors as they are interrelated.

Petitioner stresses that Act. No. 3846 covers only the operation of radio and not
television stations as Section 1 of the said law does not mention television stations in
its coverage, viz:

"Sec. 1. No person, firm, company, association or corporation shall construct, install,

establish, or operate a radio transmitting station, or a radio receiving station used for
commercial purposes, or a radio broadcasting station, without having first obtained a
franchise therefor from the Congress of the Philippines"

Petitioner observes that quite understandably, television stations were not included in Act
No. 3846 because the law was enacted in 1931 when there was yet no television station in
the Philippines. Following the rule in statutory construction that what is not included in the
law is deemed excluded, petitioner avers that television stations are not covered by Act No.
3846. Petitioner notes that in fact, the NTC previously issued to it a temporary permit dated
July 7, 1995 to operate Channel 25 from June 29, 1995 to June 28, 1997 without requiring a
congressional franchise. Likewise, in 1996, the NTC issued to it a permit to increase its
television operating power and to purchase a radio transmitter/transceiver for use in its
television broadcasting, again without requiring a congressional franchise. Petitioner thus
argues that, contrary to the January 19, 1999 decision of the NTC, its application for renewal
of its temporary permit to operate television Channel 25 does not require a congressional
franchise.

In upholding the NTC decision, the Court of Appeals held that a congressional
franchise is required for the operation of radio and television broadcasting stations as
this requirement under Act No. 3846 was not expressly repealed by P.D. No. 576-A nor
E.O. No. 546. Citing Berces, Sr. v. Guingona,22 it ruled that without an express repeal, a
subsequent law cannot be construed as repealing a prior law unless there is an
irreconcilable inconsistency and repugnancy in the language of the new and old laws,
which petitioner was not able to show.23

The appellate court correctly ruled that a congressional franchise is necessary for
petitioner to operate television Channel 25. Even assuming that Act No. 3846 applies
only to radio stations and not to television stations as petitioner adamantly insists,
the subsequent P.D. No. 576-A clearly shows in Section 1 that a franchise is required
to operate radio as well as television stations, viz:

"Sec. 1. No radio station or television channel may obtain a franchise unless it has sufficient
capital on the basis of equity for its operation for at least one year, including purchase of
equipment." (emphasis supplied)

As pointed out in DOJ Opinion No. 98, there is nothing in P.D. No. 576-A that reveals
any intention to do away with the requirement of a franchise for the operation of radio
and television stations. Section 6 of P.D. No. 576-A merely identifies the regulatory
agencies from whom authorizations, in addition to the required congressional
franchise, must be secured after December 31, 1981, viz:

"Sec. 6. All franchises, grants, licenses, permits, certificates or other forms of authority to
operate radio or television broadcasting systems shall terminate on December 31, 1981.
Thereafter, irrespective of any franchise, grant, license, permit, certificate or other forms of
authority to operate granted by any office, agency or person, no radio or television station
shall be authorized to operate without the authority of the Board of Communications and the
Secretary of Public Works and Communications or their successors who have the right and
authority to assign to qualified parties frequencies, channels or other means of identifying
broadcasting system . . ." (emphasis supplied)

To understand why it was necessary to identify these agencies, we turn a heedful eye on the
laws regarding authorizations for the operation of radio and television stations that preceded
P.D. No. 576-A.

Act No. 3846 of 1931 provides, viz:

"Sec. 1. No person, firm, company, association, or corporation shall construct, install,

establish, or operate a radio transmitting station, or a radio receiving station used for
commercial purposes, or a radio broadcasting station, without having first obtained a
franchise therefor from the Congress of the Philippines:

xxxxxxxxx

Sec. 1-A. No person, firm, company, association or corporation shall possess or own
transmitters or transceivers (combination transmitter-receiver), without registering the same
with the Secretary of Public Works and Communications . . . and no person, firm, company,
association or corporation shall construct or manufacture, or purchase radio transmitters or
transceivers without a permit issued by the Secretary of Public Works and Communications.

xxxxxxxxx

Sec. 3. The Secretary of Public Works and Communications is hereby empowered to

regulate the construction or manufacture, possession, control, sale and transfer of radio
transmitters or transceivers (combination transmitter-receiver) and the establishment, use,
the operation of all radio stations and of all forms of radio communications and transmissions
within the Philippines. In addition to the above, he shall have the following specific powers
and duties:

xxxxxxxxx

(c) He shall assign call letter and assign frequencies for each station licensed by him and for
each station established by virtue of a franchise granted by the Congress of the Philippines
and specify the stations to which each of such frequencies may be used;. . ."

Shortly after the declaration of Martial Law, then President Marcos issued P.D. No. 1 dated
September 24, 1972, through which the Integrated Reorganization Plan for the executive
branch was adopted. Under the Plan, the Public Service Commission was abolished and its
functions transferred to special regulatory boards, among which was the Board of
Communications with the following functions:

"5a. Issue Certificates of Public Convenience for the operation of communications utilities
and services, radio communications systems . . ., radio and television broadcasting systems
and other similar public utilities;

xxxxxxxxx
c. Grant permits for the use of radio frequencies for . . . radio and television broadcasting
systems including amateur radio stations."

With the creation of the Board of Communications under the Plan, it was no longer
sufficient to secure authorization from the Secretary of Public Works and
Communications as provided in Act No. 3846. The Boards authorization was also
necessary. Thus, P.D. No. 576-A provides in Section 6 that radio and television station
operators must secure authorization from both the Secretary of Public Works and
Communications and the Board of Communications.

Dispensing with the requirement of a congressional franchise is not in line with the declared
purposes of P.D. No. 576-A, viz:

"WHEREAS, it has been observed that some public utilities, especially radio and television
stations, have a tendency toward monopoly in ownership and operation to such an extent
that a region or section of the country may be covered by any number of such broadcast
stations, all or most of which are owned, operated or managed by one person or corporation;

xxxxxxxxx

WHEREAS, on account of the limited number of frequencies available for broadcasting in the
Philippines, it is necessary to regulate the ownership and operation of radio and television
stations and provide measures that would enhance quality and viability in broadcasting and
help serve the public interests; . . ."

A textual interpretation of Section 6 of P.D. No. 576-A yields the same interpretation that
after December 31, 1981, a franchise is still necessary to operate radio and television
stations. Were it the intention of the law to do away with the requirement of a franchise after
said date, then the phrase "(t)hereafter, irrespective of any franchise, grant, license, permit,
certificate or other forms of authority to operate granted by any office, agency or person
(emphasis supplied)" would not have been necessary because the first sentence of Section
6 already states that "(a)ll franchises, grants, licenses, permits, certificates or other forms of
authority to operate radio or television broadcasting systems shall terminate on December
31, 1981." It is therefore already understood that these forms of authority have no more force
and effect after December 31, 1981. If the intention were to do away with the franchise
requirement, Section 6 would have simply laid down after the first sentence the requirements
to operate radio and television stations after December 31, 1981, i.e., "no radio or television
station shall be authorized to operate without the authority of the Board of Communications
and the Secretary of Public Works and Communications." Instead, however, the phrase
"irrespective of any franchise," was inserted to emphasize that a franchise or any other
form of authorization from any office, agency or person does not suffice to operate radio and
television stations because the authorizations of both the Board of Communications and the
Secretary of Public Works and Communications are required as well. This interpretation
adheres to the rule in statutory construction that words in a statute should not be construed
as surplusage if a reasonable construction which will give them some force and meaning is
possible.24

Contrary to the opinion of the Secretary of Justice in DOJ Opinion No. 98, Series of 1991,
the appellate court was correct in ruling that E.O. No. 546 which came after P.D. No. 576-A
did not dispense with the requirement of a congressional franchise. It merely abolished the
Board of Communications and the Telecommunications Control Bureau under the
Reorganization Plan and transferred their functions to the NTC,25 including the power to
issue Certificates of Public Convenience (CPC) and grant permits for the use of frequencies,
viz:

"Sec. 15. a. Issue Certificate of Public Convenience for the operation of communication
utilities and services, radio communications systems, wire or wireless telephone or telegraph
system, radio and television broadcasting system and other similar public utilities;

xxxxxxxxx

c. Grant permits for the use of radio frequencies for wireless telephone and telegraph
systems and radio communication systems including amateur radio stations and radio and
television broadcasting systems; . . . "

E.O. No. 546 defines the regulatory and technical aspect of the legal process
preparatory to the full exercise of the privilege to operate radio and television
stations, which is different from the grant of a franchise from Congress, viz:

"The statutory functions of NTC may then be given effect as Congress prerogative to
grant franchises under Act No. 3846 is upheld for they are distinct forms of authority.
The former covers matters dealing mostly with the technical side of radio or television
broadcasting, while the latter involves the exercise by the legislature of an exclusive
power resulting in a franchise or a grant under authority of government, conferring a
special right to do an act or series of acts of public concern (37 C.J.S., secs. 1, 14, pp.
144, 157).

In fine, there being no clear showing that the laws here involved cannot stand together, the
presumption is against inconsistency or repugnance, hence, against implied repeal of the
earlier law by the later statute (Agujetas v. Court of Appeals, 261 SCRA 17, 1996)."26

As we held in Radio Communication of the Philippines, Inc. v. National Telecommunications

Commission,27 a franchise is distinguished from a CPC in that the former is a grant or
privilege from the sovereign power, while the latter is a form of regulation through the
administrative agencies, viz:

"A franchise started out as a "royal privilege or (a) branch of the Kings prerogative,
subsisting in the hands of a subject." This definition was given by Finch, adopted by
Blackstone, and accepted by every authority since (State v. Twin Village Water Co., 98 Me
214, 56 A 763 [1903]). Today, a franchise, being merely a privilege emanating from the
sovereign power of the state and owing its existence to a grant, is subject to regulation by
the state itself by virtue of its police power through its administrative agencies."28

Even prior to E.O. No. 546, the NTCs precursor, i.e., the Board of Communications, already
had the function of issuing CPC under the Integrated Reorganization Plan. The CPC was
required by the Board at the same time that P.D. No. 576-A required a franchise to operate
radio and television stations. The function of the NTC to issue CPC under E.O. No. 546 is
thus nothing new and exists alongside the requirement of a congressional franchise under
P.D. No. 576-A. There is no conflict between E.O. No. 546 and P.D. No 576-A; Section 15 of
the former does not dispense with the franchise requirement in the latter. We adhere to the
cardinal rule in statutory construction that statutes in pare materia, although in apparent
conflict, or containing apparent inconsistencies, should, as far as reasonably possible, be
construed in harmony with each other, so as to give force and effect to each.29 The ruling of
this Court in Crusaders Broadcasting System, Inc. v. National Telecommunications
Commission,30buttresses the interpretation that the requirement of a congressional
franchise for the operation of radio and television stations exists alongside the requirement of
a CPC. In that case, we held that under E.O. No. 546, the regulation of radio
communications is a function assigned to and performed by the NTC and at the same time
recognized the requirement of a congressional franchise for the operation of a radio station
under Act No. 3846. We did not interpret E.O. No. 546 to have repealed the congressional
franchise requirement under Act No. 3846 as these two laws are not inconsistent and can
both be given effect. Likewise, in Radio Communication of the Philippines, Inc. v.
National Telecommunications Commission,31 we recognized the necessity of both a
congressional franchise under Act No. 3846 and a CPC under E.O. No. 546 to operate a
radio communications system.

In buttressing its position that a congressional franchise is not required to operate its
television station, petitioner banks on DOJ Opinion No. 98, Series of 1991 which states that
under E.O. No. 546, the NTC may issue a permit or authorization for the operation of radio
and television broadcasting systems without a prior franchise issued by Congress. Petitioner
argues that the opinion is binding and conclusive upon the NTC as the NTC itself requested
the advisory from the Secretary of Justice who is the legal adviser of government. Petitioner
claims that it was precisely because of the above DOJ Opinion No. 98 that the NTC did not
previously require a congressional franchise in all of its applications for permits with the NTC.

Petitioner, however, cannot rely on DOJ Opinion No. 98 as this opinion is merely persuasive
and not necessarily controlling.32 As shown above, the opinion is erroneous insofar as it
holds that E.O. No. 546 dispenses with the requirement of a congressional franchise to
operate radio and television stations. The case of Albano v. Reyes33cited in the DOJ
opinion, which allegedly makes it binding upon the NTC, does not lend support to
petitioners cause. In that case, we held, viz:

"Franchises issued by Congress are not required before each and every public utility
may operate. Thus, the law has granted certain administrative agencies the power to
grant licenses for or to authorize the operation of certain public utilities. (See E.O.
Nos. 172 and 202)

That the Constitution provides in Art. XII, Sec. 11 that the issuance of a franchise,
certificate or other form of authorization for the operation of a public utility shall be
subject to amendment, alteration or repeal by Congress does not necessarily imply,
as petitioner posits, that only Congress has the power to grant such authorization.
Our statute books are replete with laws granting specified agencies in the Executive
Branch the power to issue such authorization for certain classes of public utilities.
(footnote omitted)"34

Our ruling in Albano that a congressional franchise is not required before "each and
every public utility may operate" should be viewed in its proper light. Where there is a
law such as P.D. No. 576-A which requires a franchise for the operation of radio and
television stations, that law must be followed until subsequently repealed. As we have
earlier shown, however, there is nothing in the subsequent E.O. No. 546 which evinces an
intent to dispense with the franchise requirement. In contradistinction with the case at bar,
the law applicable in Albano, i.e., E.O. No. 30, did not require a franchise for the Philippine
Ports Authority to take over, manage and operate the Manila International Port Complex and
undertake the providing of cargo handling and port related services thereat. Similarly, in
Philippine Airlines, Inc. v. Civil Aeronautics Board, et al.,35 we ruled that a legislative
franchise is not necessary for the operation of domestic air transport because "there is
nothing in the law nor in the Constitution which indicates that a legislative franchise is an
indispensable requirement for an entity to operate as a domestic air transport
operator."36 Thus, while it is correct to say that specified agencies in the Executive Branch
have the power to issue authorization for certain classes of public utilities, this does not
mean that the authorization or CPC issued by the NTC dispenses with the requirement of a
franchise as this is clearly required under P.D. No. 576-A.

Petitioner contends that the NTC erroneously denied its application for renewal of its
temporary permit to operate Channel 25 and recalled its Channel 25 frequency based on the
May 3, 1994 MOU that requires a congressional franchise for the operation of television
broadcast stations. The MOU is not an act of Congress and thus cannot amend Act No.
1a\^/phi1.net

3846 which requires a congressional franchise for the operation of radio stations alone, and
not television stations.

We find no merit in petitioners contention. As we have shown, even assuming that

Act No. 3846 requires only radio stations to secure a congressional franchise for its
operation, P.D. No. 576-A was subsequently issued in 1974, which clearly requires a
franchise for both radio and television stations. Thus, the 1994 MOU did not amend
any law, but merely clarified the existing law that requires a franchise.

That the legislative intent is to continue requiring a franchise for the operation of radio
and television broadcasting stations is clear from the franchises granted by Congress
after the effectivity of E.O. No. 546 in 1979 for the operation of radio and television
stations. Among these are: (1) R.A. No. 9131 dated April 24, 2001, entitled "An Act Granting
the Iddes Broadcast Group, Inc., a Franchise to Construct, Install, Establish, Operate and
Maintain Radio and Television Broadcasting Stations in the Philippines;" (2) R.A. No. 9148
dated July 31, 2001, entitled "An Act Granting the Hypersonic Broadcasting Center, Inc., a
Franchise to Construct, Install, Establish, Operate and Maintain Radio Broadcasting Stations
in the Philippines;" and (3) R.A. No. 7678 dated February 17, 1994, entitled "An Act Granting
the Digital Telecommunication Philippines, Incorporated, a Franchise to Install, Operate and
Maintain Telecommunications Systems Throughout the Philippines." All three franchises
require the grantees to secure a CPCN/license/permit to construct and operate their
stations/systems. Likewise, the Tax Reform Act of 1997 provides in Section 119 for tax on
franchise of radio and/or television broadcasting companies, viz:

"Sec. 119. Tax on Franchises. Any provision of general or special law to the contrary
notwithstanding, there shall be levied, assessed and collected in respect to all franchises on
radio and/or television broadcasting companies whose annual gross receipts of the
preceding year does not exceed Ten million pesos (P10,000,000), subject to Section 236 of
this Code, a tax of three percent (3%) and on electric, gas and water utilities, a tax of two
percent (2%) on the gross receipts derived from the business covered by the law granting
the franchise. . . " (emphasis supplied)

Undeniably, petitioner is aware that a congressional franchise is necessary to operate its

television station Channel 25 as shown by its actuations. Shortly before the December 31,
1994 deadline set in the MOU, petitioner filed an application for a franchise with Congress. It
was not, however, acted upon in the 9th Congress for petitioners failure to submit the
necessary supporting documents; petitioner failed to re-file the application in the following
Congress. Petitioner also filed an application for a franchise with Congress on September 2,
1998, before the November 30, 1998 deadline under Memorandum Circular No. 14-10-98.37
We now come to the fourth assigned error. Petitioner avers that the Court of Appeals erred in
upholding the recall of frequency Channel 25 previously assigned to it and the cancellation of
its permit to operate which was already approved in January 1998. It claims that these acts
of the NTC were unreasonable, unfair, oppressive, whimsical and confiscatory considering
that the NTC previously issued petitioner a temporary permit without requiring a
congressional franchise.

On February 26, 1998, the NTC issued a show cause order to petitioner with the following
decretal portion:

"IN VIEW THEREOF, respondents are hereby directed to show cause in writing within ten
(10) days from receipt of this order why their assigned frequency, more specifically Channel
25 in the UHF Band, should not be recalled for lack of the necessary Congressional
Franchise as required by Section 1, Act No. 3846, as amended.

Moreover, respondent is hereby directed to cease and desist from operating DWQH-TV,
unless subsequently authorized by the Commission."38

The order was supposedly based on a letter of the NTC dated November 17, 1997 informing
petitioner that its application for renewal of temporary permits of its seven radio stations were
being held in abeyance pending submission of its new congressional franchise. Petitioner
was directed to submit the franchise within thirty days from expiration of its temporary
permits to be renewed and informed that its failure to do so might constitute denial of its
application.

Petitioner is correct that the November 17, 1997 letter referred only to its radio stations and
not to its television Channel 25. Thus, it could not serve as basis for the February 26, 1998
show cause order which referred solely to its television Channel 25. Besides, petitioner
claims that it did not receive the letter. Be that as it may, the NTCs February 26, 1998 order
for petitioner to cease and desist from operating Channel 25 was not unreasonable, unfair,
oppressive, whimsical and confiscatory. The 1994 MOU states in unmistakable terms that
petitioners temporary permit to operate Channel 25 would be valid for only two years, i.e.,
from June 29, 1995 to June 28, 1997. During these two years, petitioner was supposed to
have secured a congressional franchise, otherwise "the NTC shall not extend or renew its
permit or authorization to operate any further."39 Apparently, petitioner did not submit a
congressional franchise to the NTC in applying for renewal of this temporary permit on May
14, 1997. The NTCs approval of petitioners application to renew its temporary permit in
January 1998 was thus erroneous because under the 1994 MOU, the NTC could not renew
petitioners temporary permit to operate Channel 25 without a congressional franchise. In the
absence of a renewed temporary permit, the NTC was correct in ordering petitioner to cease
and desist from operating Channel 25, regardless of whether or not petitioner received the
November 17, 1997 letter. The NTCs erroneous approval of petitioners application in
January 1998 did not estop the NTC from ordering petitioner on February 26, 1998 to cease
and desist from operating Channel 25 for failure to comply with the franchise requirement as
estoppel does not work against the government.40

Likewise, the NTCs denial of petitioners application for renewal of its temporary permit to
operate Channel 25 and recall of its Channel 25 frequency in its January 13, 1999 decision
were not unreasonable, unfair, oppressive, whimsical and confiscatory so as to offend
petitioners right to due process. In Crusaders Broadcasting System, Inc. v. National
Telecommunications Commission,41 the Court ruled that although a particular ground for
suspending operations of the broadcasting company was not reflected in the show cause
order, the NTC could nevertheless raise said ground if any basis therefore was gleaned
during the administrative proceedings. In the instant case, the lack of congressional
franchise as ground for denial of petitioners application for renewal of temporary permit and
recall of its Channel 25 frequency was raised not only during the administrative proceedings
against it, but was even stated in the February 26, 1998 show cause order, viz:

"IN VIEW THEREOF, respondents are hereby directed to show cause in writing within ten
(10) days from receipt of this order why their assigned frequency, more specifically Channel
25 in the UHF Band, should not be recalled for lack of the necessary Congressional
Franchise as required by Section 1, Act No. 3846, as amended.

Moreover, respondent is hereby directed to cease and desist from operating DWQH-TV,
unless subsequently authorized by the Commission." 42 (emphasis supplied)

In Eastern Broadcasting Corporation v. Dans, Jr., et al.,43 we held that the requirements of
due process in administrative proceedings laid down by this Court in Ang Tibay v. Court of
Industrial Relations44 should be satisfied before a broadcast station may be closed or its
operations curtailed. We enumerated these requirements, viz:

". . . (1) the right to a hearing which includes the right to present ones case and submit
evidence in support thereof; (2) the tribunal must consider the evidence presented; (3) the
decision must have something to support itself; (4) the evidence must be substantial.
Substantial evidence means such reasonable evidence as a reasonable mind might accept
as adequate to support a conclusion; (5) the decision must be based on the evidence
presented at the hearing, or at least contained in the record and disclosed to the parties
affected; (6) the tribunal or body or any of its judges must act on its own independent
consideration of the law and facts of the controversy and not simply accept the views of a
subordinate; (7) the board or body should, in all controversial questions, render its decisions
in such a manner that the parties to the proceeding can know the various issues involved,
and the reasons for the decision rendered."45

Petitioner had the opportunity to present its case and submit evidence on why its assigned
frequency Channel 25 should not be recalled and its application for renewal denied.
Petitioner filed its Answer to the show cause order on March 17, 1998.46 A hearing was held
on April 22, 1998 wherein petitioner presented its evidence in compliance with the show
cause order. Based on the NTCs findings that petitioner failed to comply with the
requirement of a congressional franchise, the NTC denied its application for renewal of its
temporary permit to operate Channel 25 and recalled its assigned Channel 25 frequency.
The requirements of due process in Ang Tibay were satisfied, thus petitioner cannot say that
the NTCs actions were unreasonable, unfair, oppressive, whimsical and confiscatory.

Finally, petitioner contends that the Court of Appeals erred in not holding that Administrative
Case No. 98-009, the administrative proceeding against it for failure to secure a
congressional franchise to operate its television Channel 25, has been rendered moot and
academic by the adoption and promulgation of NTC Memorandum Circular No. 14-10-98
dated August 17, 1998 which took effect on November 15, 1998. The Memorandum Circular
states, viz:

"In compliance with the MOU and in order to clear the ambiguity surrounding the operation of
broadcast operators who were not able to have their legislative franchise approved during
the last Congress, the following guidelines are hereby issued:
1. Existing broadcast operators who were not able to secure a legislative franchise up to this
date (August 17, 1998) are given up to December 31, 1999 within which to have their
application for a legislative franchise bill approved by Congress. The franchise bill must be
filed immediately but not later than November 30th of this year . . ."

Petitioner avers that the NTC erroneously held that this Memorandum Circular is not
applicable to it because the words of the circular are clear that it covers "existing
broadcasting operators" including petitioner. In compliance with the Memorandum Circular,
petitioner filed House Bill No. 32 on September 2, 1998, well within the November 30, 1998
deadline. Thus, petitioner argues that the NTC erred in denying its application for renewal of
permit to operate Channel 25 and recalling its assigned Channel 25 frequency on January
13, 1999, long before the Memorandum Circulars December 31, 1999 deadline to secure a
congressional franchise. Petitioner posits that the NTCs premature and arbitrary
promulgation of its January 13, 1999 decision "slammed the door for the petitioner to secure
its legislative franchise. The pending application for legislative franchise of petitioner was
effectively struck out by said NTC decision."47

Whether or not the benefits of the Memorandum Circular extend to petitioner, the fact is, as
correctly pointed out by the appellate court, petitioner failed to secure a legislative franchise
by December 31, 1999. Consequently, the NTCs recall of petitioners assigned frequency
Channel 25 and denial of its application for renewal of its permit to operate the said television
channel were proper as the Memorandum Circular provides, viz:

"1. Existing broadcast operators who are not able to secure a legislative franchise up
to this date (August 17, 1998) are given up to December 31, 1999 within which to
have their application for a legislative franchise approved by Congress. The franchise
bill must be filed immediately but not later than November 30th of this year . . .

xxxxxxxxx

3. In the event the permittee will not be able to have its franchise bill approved within
the prescribed period, the NTC will no longer renew/extend its temporary permit and
the Commission shall initiate the recall of its assigned frequency provided that due
process of law is observed.

4. Henceforth, no application/petition for Certificate of Public Convenience (CPC) to

establish, maintain and operate a broadcast station in the broadcast service shall be
accepted for filing without showing that the applicant has an approved legislative
franchise."(emphasis supplied)

Petitioners argument is flawed when it states that the January 13, 1999 decision of the NTC
"slammed the door" on its application for a congressional franchise as the process of
securing a congressional franchise is separate and distinct from the process of applying for
renewal of a temporary permit with the NTC. The latter is not a prerequisite to the former. In
fact, in the normal course of securing authorizations to operate a television and radio station,
the application for a CPC with the NTC comes after securing a franchise from
Congress.48 The CPC is not a condition for the grant of a congressional franchise.49

The Court is not unmindful that there is a trend towards delegating the legislative power to
authorize the operation of certain public utilities to administrative agencies and dispensing
with the requirement of a congressional franchise as in the Albano case which involved the
provision of cargo handling and port related services at the Manila International Port
Complex and the PAL case involving the operation of domestic air transport. The rationale
for this trend was explained in the PAL case, viz:

". . . With the growing complexity of modern life, the multiplication of the subjects of
governmental regulation, and the increased difficulty of administering the laws, there is a
constantly growing tendency towards the delegation of greater powers by the legislature, and
towards the approval of the practice by the courts. (Pangasinan Transportation Co., Inc. vs.
1aw phi1.nt

The Public Service Commission, G.R. No. 47065, June 26, 1940, 70 Phil 221.) It is generally
recognized that a franchise may be derived indirectly from the state through a duly
designated agency, and to this extent, the power to grant franchises has frequently been
delegated, even to agencies other than those of a legislative nature. (Dyer vs. Tuskaloosa
Bridge Co., 2 Port. 296, 27 Am. D. 655; Christian-Todd Tel. Co. vs. Commonwealth, 161
S.W. 543, 156 Ky. 557, 37 C.J.S. 158) In pursuance of this, it has been held that privileges
conferred by grant by local authorities as agents for the state constitute as much a legislative
franchise as though the grant had been made by an act of the Legislature. (Superior Water,
Light and Power Co. vs. City of Superior, 181 N.W. 113, 174 Wis. 257, affirmed 183 N.W.
254, 37 C.J.S. 158.)

The trend of modern legislation is to vest the Public Service Commissioner with the power to
regulate and control the operation of public services under reasonable rules and regulations,
and as a general rule, courts will not interfere with the exercise of that discretion when it is
just and reasonable and founded upon a legal right."50 1a\^/phi1.net

The criticism against the requirement of a congressional franchise is incisively expressed by

a public utilities lawyer, viz:

"As will be noted, a legislative franchise is required to install and operate a radio station
before an applicant can apply for a Certificate of Public Convenience to operate a radio
station based in any part of the country. Under Act No. 3846 of 1929, Sec. 1, it was provided
that no one may install and operate a radio station without having first obtained a franchise
therefore from the Congress of the Philippines. Since then, this has been strictly followed.
And this holds true with respect to application for electric, telephone and many other
telecommunications services. Before, even mere application for authority to operate an ice
plant must have prior congressional franchise. But this was not strictly followed until ice plant
operations were eventually deregulated. Right now, the both houses of the legislature are
saddled with House Bill Nos. etc. for the grant of legislative franchise to operate this and that
public utility services in various places in the Philippines. We hear during sessions in both
houses the time wasted on reports and considerations of these house bills for grant of
franchises. The legislature is empowered and has created respective regulatory bodies with
requisite expertise to handle franchising and regulation of such types of public utility
services, why not just entrust all these functions to them?

What exactly is the reason or rationale for imposing a prior congressional franchise? There
seems to be no valid reason for it except to impose added burden and expenses on the part
of the applicant. The justification appears to be simply because this was required in the past
so it is now. We are reminded of the forceful denunciation of Justice Holmes of a stubborn
adherence to an anachronistic rule of law:

It is revolting to have no better reason for a rule of law that so it was laid down in the time of
Henry IV. It is still more revolting if the grounds upon which it was laid down have vanished
long since, and the rule simply persists from blind imitation of the past. (The Path of the Law,
Collected Legal Papers [1920] 210, 212 quoted from The Justice Holmes Reader, Julius N.
Marke, 1955 ed., p. 278.)"51

The call to dispense with the requisite legislative franchise must, however, be
addressed to Congress as the lawmaker of the land for the Courts function is to
interpret and not to rewrite the law. As long as the law remains unchanged, the
requirement of a franchise to operate a television station must be upheld.

WHEREFORE, the petition is DENIED and the Court of Appeals January 13, 2000
decision and February 21, 2000 resolution are AFFIRMED. No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SPECIAL FIRST DIVISION

G.R. No. 124293 September 24, 2003

JG SUMMIT HOLDINGS, INC., Petitioner,

vs.
COURT OF APPEALS, COMMITTEE ON PRIVATIZATION, its Chairman and Members;
ASSET PRIVATIZATION TRUST and PHILYARDS HOLDINGS, INC., Respondents.

RESOLUTION

PUNO, J.:

The core issue posed by the Motions for Reconsideration is whether a shipyard is a
public utility whose capitalization must be sixty percent (60%) owned by Filipinos. Our
resolution of this issue will determine the fate of the shipbuilding and ship repair industry. It
can either spell the industrys demise or breathe new life to the struggling but potentially
healthy partner in the countrys bid for economic growth. It can either kill an initiative yet in its
infancy, or harness creativity in the productive disposition of government assets.

The facts are undisputed and can be summarized briefly as follows:

On January 27, 1977, the National Investment and Development Corporation (NIDC), a
government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki
Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation
and management of the Subic National Shipyard, Inc. (SNS) which subsequently
became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the
JVA, the NIDC and KAWASAKI will contribute P330 million for the capitalization of
PHILSECO in the proportion of 60%-40% respectively.1 One of its salient features is
the grant to the parties of the right of first refusal should either of them decide to sell,
assign or transfer its interest in the joint venture, viz:

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS
[PHILSECO] to any third party without giving the other under the same terms the right
of first refusal. This provision shall not apply if the transferee is a corporation owned
or controlled by the GOVERNMENT or by a KAWASAKI affiliate.2

On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO
to the Philippine National Bank (PNB). Such interests were subsequently transferred
to the National Government pursuant to Administrative Order No. 14. On December 8,
1986, President Corazon C. Aquino issued Proclamation No. 50 establishing the
Committee on Privatization (COP) and the Asset Privatization Trust (APT) to take title
to, and possession of, conserve, manage and dispose of non-performing assets of the
National Government. Thereafter, on February 27, 1987, a trust agreement was entered
into between the National Government and the APT wherein the latter was named the
trustee of the National Governments share in PHILSECO. In 1989, as a result of a quasi-
reorganization of PHILSECO to settle its huge obligations to PNB, the National
Governments shareholdings in PHILSECO increased to 97.41% thereby reducing
KAWASAKIs shareholdings to 2.59%.3

In the interest of the national economy and the government, the COP and the APT
deemed it best to sell the National Governments share in PHILSECO to private
entities. After a series of negotiations between the APT and KAWASAKI, they agreed
that the latters right of first refusal under the JVA be "exchanged" for the right to top
by five percent (5%) the highest bid for the said shares. They further agreed that
KAWASAKI would be entitled to name a company in which it was a stockholder, which
could exercise the right to top. On September 7, 1990, KAWASAKI informed APT that
Philyards Holdings, Inc. (PHI) would exercise its right to top.4

At the pre-bidding conference held on September 18, 1993, interested bidders were
given copies of the JVA between NIDC and KAWASAKI, and of the Asset Specific
Bidding Rules (ASBR) drafted for the National Governments 87.6% equity share in
PHILSECO.5 The provisions of the ASBR were explained to the interested bidders who were
notified that the bidding would be held on December 2, 1993. A portion of the ASBR reads:

1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is
the National Governments equity in PHILSECO consisting of 896,869,942 shares of
stock (representing 87.67% of PHILSECOs outstanding capital stock), which will be
sold as a whole block in accordance with the rules herein enumerated.

...

2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both
the APT Board of Trustees and the Committee on Privatization (COP).

2.1 APT reserves the right in its sole discretion, to reject any or all bids.

3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative
price set for the National Governments 87.67% equity in PHILSECO is PESOS:
ONE BILLION THREE HUNDRED MILLION (P1,300,000,000.00).

...

6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its
regular meeting following the bidding, for the purpose of determining whether or not it
should be endorsed by the APT Board of Trustees to the COP, and the latter
approves the same. The APT shall advise Kawasaki Heavy Industries, Inc. and/or its
nominee, Philyards Holdings, Inc., that the highest bid is acceptable to the National
Government. Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall
then have a period of thirty (30) calendar days from the date of receipt of such advice
from APT within which to exercise their "Option to Top the Highest Bid" by offering a
bid equivalent to the highest bid plus five (5%) percent thereof.

6.1 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. exercise
their "Option to Top the Highest Bid," they shall so notify the APT about such
exercise of their option and deposit with APT the amount equivalent to ten percent
(10%) of the highest bid plus five percent (5%) thereof within the thirty (30)-day
period mentioned in paragraph 6.0 above. APT will then serve notice upon Kawasaki
Heavy Industries, Inc. and/or Philyards Holdings, Inc. declaring them as the preferred
 bidder and they shall have a period of ninety (90) days from the receipt of the APTs
notice within which to pay the balance of their bid price.

6.2 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. fail to
exercise their "Option to Top the Highest Bid" within the thirty (30)-day period, APT
will declare the highest bidder as the winning bidder.

...

12.0 The bidder shall be solely responsible for examining with appropriate care these
rules, the official bid forms, including any addenda or amendments thereto issued
during the bidding period. The bidder shall likewise be responsible for informing itself
with respect to any and all conditions concerning the PHILSECO Shares which may,
in any manner, affect the bidders proposal. Failure on the part of the bidder to so
examine and inform itself shall be its sole risk and no relief for error or omission will
be given by APT or COP. . ..6

At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. submitted a bid
of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an acknowledgement of
KAWASAKI/Philyards right to top, viz:

4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to
act on APTs recommendation based on the result of this bidding. Should the COP approve
the highest bid, APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee,
Philyards Holdings, Inc. that the highest bid is acceptable to the National Government.
Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall then have a period of
thirty (30) calendar days from the date of receipt of such advice from APT within which to
exercise their "Option to Top the Highest Bid" by offering a bid equivalent to the highest bid
plus five (5%) percent thereof.7

As petitioner was declared the highest bidder, the COP approved the sale on
December 3, 1993 "subject to the right of Kawasaki Heavy Industries, Inc./Philyards
Holdings, Inc. to top JGSMIs bid by 5% as specified in the bidding rules."8

On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI
to top its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of
Kawasaki, Philyards, Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR
because the last four (4) companies were the losing bidders thereby circumventing the law
and prejudicing the weak winning bidder; (b) only KAWASAKI could exercise the right to top;
(c) giving the same option to top to PHI constituted unwarranted benefit to a third party; (d)
no right of first refusal can be exercised in a public bidding or auction sale; and (e) the JG
Summit consortium was not estopped from questioning the proceedings.9

On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the
purchase price of the subject bidding. On February 7, 1994, the APT notified petitioner that
PHI had exercised its option to top the highest bid and that the COP had approved the same
on January 6, 1994. On February 24, 1994, the APT and PHI executed a Stock Purchase
Agreement.10 Consequently, petitioner filed with this Court a Petition for Mandamus under
G.R. No. 114057. On May 11, 1994, said petition was referred to the Court of Appeals. On
July 18, 1995, the Court of Appeals denied the same for lack of merit. It ruled that the petition
for mandamus was not the proper remedy to question the constitutionality or legality of the
right of first refusal and the right to top that was exercised by KAWASAKI/PHI, and that the
matter must be brought "by the proper party in the proper forum at the proper time and
threshed out in a full blown trial." The Court of Appeals further ruled that the right of first
refusal and the right to top are prima facie legal and that the petitioner, "by participating in
the public bidding, with full knowledge of the right to top granted to KASAWASAKI/Philyards
is . . .estopped from questioning the validity of the award given to Philyards after the latter
exercised the right to top and had paid in full the purchase price of the subject shares,
pursuant to the ASBR." Petitioner filed a Motion for Reconsideration of said Decision which
was denied on March 15, 1996. Petitioner thus filed a Petition for Certiorari with this Court
alleging grave abuse of discretion on the part of the appellate court.11

On November 20, 2000, this Court rendered the now assailed Decision ruling among
others that the Court of Appeals erred when it dismissed the petition on the sole
ground of the impropriety of the special civil action of mandamus because the petition
was also one of certiorari.12 It further ruled that a shipyard like PHILSECO is a public
utility whose capitalization must be sixty percent (60%) Filipino-
owned.13 Consequently, the right to top granted to KAWASAKI under the Asset
Specific Bidding Rules (ASBR) drafted for the sale of the 87.67% equity of the National
Government in PHILSECO is illegal---not only because it violates the rules on
competitive bidding--- but more so, because it allows foreign corporations to own
more than 40% equity in the shipyard.14 It also held that "although the petitioner had
the opportunity to examine the ASBR before it participated in the bidding, it cannot be
estopped from questioning the unconstitutional, illegal and inequitable provisions
thereof."15 Thus, this Court voided the transfer of the national governments 87.67%
share in PHILSECO to Philyard Holdings, Inc., and upheld the right of JG Summit, as
the highest bidder, to take title to the said shares, viz:

Wherefore, the instant petition for review on certiorari is GRANTED. The assailed Decision
and Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is
ordered to pay to APT its bid price of Two Billion Thirty Million Pesos (P2,030,000,000.00 ),
less its bid deposit plus interests upon the finality of this Decision. In turn, APT is ordered to:

(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from
petitioner;

(b) execute a Stock Purchase Agreement with petitioner;

(c) cause the issuance in favor of petitioner of the certificates of stocks representing
87.6% of PHILSECOs total capitalization;

(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-
One Million Five Hundred Thousand Pesos (P2,131,500,000.00); and

(e) cause the cancellation of the stock certificates issued to PHI.

SO ORDERED.16

In separate Motions for Reconsideration,17 respondents submit three basic issues for
our resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977
JVA, KAWASAKI can exercise its right of first refusal only up to 40% of the total
capitalization of PHILSECO; and (3) Whether the right to top granted to KAWASAKI
violates the principles of competitive bidding.
 I.
Whether PHILSECO is a Public Utility.

After carefully reviewing the applicable laws and jurisprudence, we hold that
PHILSECO is not a public utility for the following reasons:

First. By nature, a shipyard is not a public utility.

A "public utility" is "a business or service engaged in regularly supplying the public with some
commodity or service of public consequence such as electricity, gas, water, transportation,
telephone or telegraph service."18 To constitute a public utility, the facility must be necessary
for the maintenance of life and occupation of the residents. However, the fact that a business
offers services or goods that promote public good and serve the interest of the public does
not automatically make it a public utility. Public use is not synonymous with public interest.
As its name indicates, the term "public utility" implies public use and service to the public.
The principal determinative characteristic of a public utility is that of service to, or readiness
to serve, an indefinite public or portion of the public as such which has a legal right to
demand and receive its services or commodities. Stated otherwise, the owner or person in
control of a public utility must have devoted it to such use that the public generally or that
part of the public which has been served and has accepted the service, has the right to
demand that use or service so long as it is continued, with reasonable efficiency and under
proper charges.19 Unlike a private enterprise which independently determines whom it will
serve, a "public utility holds out generally and may not refuse legitimate demand for
service."20 Thus, in Iloilo Ice and Cold Storage Co. vs. Public Utility Board,21 this Court
defined "public use," viz:

"Public use" means the same as "use by the public." The essential feature of the public use
is that it is not confined to privileged individuals, but is open to the indefinite public. It is this
indefinite or unrestricted quality that gives it its public character. In determining whether a
use is public, we must look not only to the character of the business to be done, but also to
the proposed mode of doing it. If the use is merely optional with the owners, or the public
benefit is merely incidental, it is not a public use, authorizing the exercise of jurisdiction of the
public utility commission. There must be, in general, a right which the law compels the owner
to give to the general public. It is not enough that the general prosperity of the public is
promoted. Public use is not synonymous with public interest. The true criterion by which to
judge the character of the use is whether the public may enjoy it by right or only by
permission.22(emphasis supplied)

Applying the criterion laid down in Iloilo to the case at bar, it is crystal clear that a
shipyard cannot be considered a public utility.

A "shipyard" is "a place or enclosure where ships are built or repaired."23 Its nature
dictates that it serves but a limited clientele whom it may choose to serve at its
discretion. While it offers its facilities to whoever may wish to avail of its services, a
shipyard is not legally obliged to render its services indiscriminately to the public. It
has no legal obligation to render the services sought by each and every client. The
fact that it publicly offers its services does not give the public a legal right to demand
that such services be rendered.

There can be no disagreement that the shipbuilding and ship repair industry is imbued with
public interest as it involves the maintenance of the seaworthiness of vessels dedicated to
the transportation of either persons or goods. Nevertheless, the fact that a business is
affected with public interest does not imply that it is under a duty to serve the public. While
the business may be regulated for public good, the regulation cannot justify the classification
of a purely private enterprise as a public utility. The legislature cannot, by its mere
declaration, make something a public utility which is not in fact such; and a private business
operated under private contracts with selected customers and not devoted to public use
cannot, by legislative fiat or by order of a public service commission, be declared a public
utility, since that would be taking private property for public use without just compensation,
which cannot be done consistently with the due process clause.24

It is worthy to note that automobile and aircraft manufacturers, which are of similar nature to
shipyards, are not considered public utilities despite the fact that their operations greatly
impact on land and air transportation. The reason is simple. Unlike commodities or services
traditionally regarded as public utilities such as electricity, gas, water, transportation,
telephone or telegraph service, automobile and aircraft manufacturing---and for that matter
ship building and ship repair--- serve the public only incidentally.

Second. There is no law declaring a shipyard as a public utility.

History provides us hindsight and hindsight ought to give us a better view of the intent of any
law. The succession of laws affecting the status of shipyards ought not to obliterate, but
rather, give us full picture of the intent of the legislature. The totality of the circumstances,
including the contemporaneous interpretation accorded by the administrative bodies tasked
with the enforcement of the law all lead to a singular conclusion: that shipyards are not public
utilities.

Since the enactment of Act No. 2307 which created the Public Utility Commission (PUC) until
its repeal by Commonwealth Act No. 146, establishing the Public Service Commission
(PSC), a shipyard, by legislative declaration, has been considered a public utility.25 A
Certificate of Public Convenience (CPC) from the PSC to the effect that the operation of the
said service and the authorization to do business will promote the public interests in a proper
and suitable manner is required before any person or corporation may operate a
shipyard.26 In addition, such persons or corporations should abide by the citizenship
requirement provided in Article XIII, section 8 of the 1935 Constitution,27 viz:

Sec. 8. No franchise, certificate, or any other form or authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or other
entities organized under the laws of the Philippines, sixty per centum of the capital of which
is owned by citizens of the Philippines, nor shall such franchise, certificate or authorization
be exclusive in character or for a longer period than fifty years. No franchise or right shall be
granted to any individual, firm or corporation, except under the condition that it shall be
subject to amendment, alteration, or repeal by the National Assembly when the public
interest so requires. (emphasis supplied)

To accelerate the development of shipbuilding and ship repair industry, former President
Ferdinand E. Marcos issued P.D. No. 666 granting the following incentives:

SECTION 1. Shipbuilding and ship repair yards duly registered with the Maritime Industry
Authority shall be entitled to the following incentive benefits:

(a) Exemption from import duties and taxes.- The importation of machinery,
equipment and materials for shipbuilding, ship repair and/or alteration, including
indirect import, as well as replacement and spare parts for the repair and overhaul of
 vessels such as steel plates, electrical machinery and electronic parts, shall be
exempt from the payment of customs duty and compensating tax: Provided,
however, That the Maritime Industry Authority certifies that the item or items imported
are not produced locally in sufficient quantity and acceptable quality at reasonable
prices, and that the importation is directly and actually needed and will be used
exclusively for the construction, repair, alteration, or overhaul of merchant vessels,
and other watercrafts; Provided, further, That if the above machinery, equipment,
materials and spare parts are sold to non-tax exempt persons or entities, the
corresponding duties and taxes shall be paid by the original importer; Provided,
finally, That local dealers and/or agents who sell machinery, equipment, materials
and accessories to shipyards for shipbuilding and ship repair are entitled to tax
credits, subject to approval by the total tariff duties and compensating tax paid for
said machinery, equipment, materials and accessories.

(b) Accelerated depreciation.- Industrial plant and equipment may, at the option of
the shipbuilder and ship repairer, be depreciated for any number of years between
five years and expected economic life.

(c) Exemption from contractors percentage tax.- The gross receipts derived by
shipbuilders and ship repairers from shipbuilding and ship repairing activities shall be
exempt from the Contractors Tax provided in Section 91 of the National Internal
Revenue Code during the first ten years from registration with the Maritime Industry
Authority, provided that such registration is effected not later than the year 1990;
Provided, That any and all amounts which would otherwise have been paid as
contractors tax shall be set aside as a separate fund, to be known as "Shipyard
Development Fund", by the contractor for the purpose of expansion, modernization
and/or improvement of the contractors own shipbuilding or ship repairing facilities;
Provided, That, for this purpose, the contractor shall submit an annual statement of
its receipts to the Maritime Industry Authority; and Provided, further, That any
disbursement from such fund for any of the purposes hereinabove stated shall be
subject to approval by the Maritime Industry Authority.

In addition, P.D. No. 666 removed the shipbuilding and ship repair industry from the
list of public utilities, thereby freeing the industry from the 60% citizenship
requirement under the Constitution and from the need to obtain Certificate of Public
Convenience pursuant to section 15 of C.A No. 146. Section 1 (d) of P.D. 666 reads:

(d) Registration required but not as a Public Utility.- The business of constructing
and repairing vessels or parts thereof shall not be considered a public utility
and no Certificate of Public Convenience shall be required therefor. However,
no shipyard, graving dock, marine railway or marine repair shop and no person or
enterprise shall engage in construction and/or repair of any vessel, or any phase or
part thereof, without a valid Certificate of Registration and license for this purpose
from the Maritime Industry Authority, except those owned or operated by the Armed
Forces of the Philippines or by foreign governments pursuant to a treaty or
agreement. (emphasis supplied)

Any law, decree, executive order, or rules and regulations inconsistent with P.D. No. 666
were repealed or modified accordingly.28 Consequently, sections 13 (b) and 15 of C.A. No.
146 were repealed in so far as the former law included shipyards in the list of public utilities
and required the certificate of public convenience for their operation. Simply stated, the
repeal was due to irreconcilable inconsistency, and by definition, this kind of repeal falls
under the category of an implied repeal.29

On April 28, 1983, Batas Pambansa Blg. 391, also known as the "Investment Incentive
Policy Act of 1983," was enacted. It laid down the general policy of the government to
encourage private domestic and foreign investments in the various sectors of the economy,
to wit:

Sec. 2. Declaration of Investment Policy.- It is the policy of the State to encourage private
domestic and foreign investments in industry, agriculture, mining and other sectors of the
economy which shall: provide significant employment opportunities relative to the amount of
the capital being invested; increase productivity of the land, minerals, forestry, aquatic and
other resources of the country, and improve utilization of the products thereof; improve
technical skills of the people employed in the enterprise; provide a foundation for the future
development of the economy; accelerate development of less developed regions of the
country; and result in increased volume and value of exports for the economy.

It is the policy of the State to extend to projects which will significantly contribute to the
attainment of these objectives, fiscal incentives without which said projects may not be
established in the locales, number and/or pace required for optimum national economic
development. Fiscal incentive systems shall be devised to compensate for market
imperfections, reward performance of making contributions to economic development, cost-
efficient and be simple to administer.

The fiscal incentives shall be extended to stimulate establishment and assist initial
operations of the enterprise, and shall terminate after a period of not more than 10 years
from registration or start-up of operation unless a special period is otherwise stated.

The foregoing declaration shall apply to all investment incentive schemes and in particular
will supersede article 2 of Presidential Decree No. 1789. (emphases supplied)

With the new investment incentive regime, Batas Pambansa Blg. 391 repealed the following
laws, viz:

Sec. 20. The following provisions are hereby repealed:

1) Section 53, P.D. 463 (Mineral Resources Development Decree);

2.) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);

3) Section 6, P.D. 1101 (Radioactive Minerals);

4) LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and

5) The following articles of Presidential Decree 1789: 2, 18, 19, 22, 28, 30, 39, 49 (d),
62, and 77. Articles 45, 46 and 48 are hereby amended only with respect to domestic
and export producers.

All other laws, decrees, executive orders, administrative orders, rules and regulations or
parts thereof which are inconsistent with the provisions of this Act are hereby repealed,
amended or modified accordingly.
All other incentive systems which are not in any way affected by the provisions of this Act
may be restructured by the President so as to render them cost-efficient and to make them
conform with the other policy guidelines in the declaration of policy provided in Section 2 of
this Act. (emphasis supplied)

From the language of the afore-quoted provision, the whole of P.D. No. 666, section 1 was
expressly and categorically repealed. As a consequence, the provisions of C.A. No. 146,
which were impliedly repealed by P.D. No. 666, section 1 were revived.30 In other words,
with the enactment of Batas Pambansa Blg. 391, a shipyard reverted back to its status
as a public utility and as such, requires a CPC for its operation.

The crux of the present controversy is the effect of the express repeal of Batas Pambansa
Blg. 391 by Executive Order No. 226 issued by former President Corazon C. Aquino under
her emergency powers.

We rule that the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226 did not revive
Section 1 of P.D. No. 666. But more importantly, it also put a period to the existence of
sections 13 (b) and 15 of C.A. No. 146. It bears emphasis that sections 13 (b) and 15 of C.A.
No. 146, as originally written, owed their continued existence to Batas Pambansa Blg. 391.
Had the latter not repealed P.D. No. 666, the former should have been modified accordingly
and shipyards effectively removed from the list of public utilities. Ergo, with the express
repeal of Batas Pambansa Blg. 391 by E.O. No. 226, the revival of sections 13 (b) and 15 of
C.A. No. 146 had no more leg to stand on. A law that has been expressly repealed ceases to
exist and becomes inoperative from the moment the repealing law becomes
effective.31 Hence, there is simply no basis in the conclusion that shipyards remain to be a
public utility. A repealed statute cannot be the basis for classifying shipyards as public
utilities.

In view of the foregoing, there can be no other conclusion than to hold that a shipyard
is not a pubic utility. A shipyard has been considered a public utility merely by
legislative declaration. Absent this declaration, there is no more reason why it should
continuously be regarded as such. The fact that the legislature did not clearly and
unambiguously express its intention to include shipyards in the list of public utilities
indicates that that it did not intend to do so. Thus, a shipyard reverts back to its status
as non-public utility prior to the enactment of the Public Service Law.

This interpretation is in accord with the uniform interpretation placed upon it by the Board of
Investments (BOI), which was entrusted by the legislature with the preparation of annual
Investment Priorities Plan (IPPs). The BOI has consistently classified shipyards as part of the
manufacturing sector and not of the public utilities sector. The enactment of Batas
Pambansa Blg. 391 did not alter the treatment of the BOI on shipyards. It has been, as at
present, classified as part of the manufacturing and not of the public utilities sector.32

Furthermore, of the 441 Ship Building and Ship Repair (SBSR) entities registered with the
MARINA,33 none appears to have an existing franchise. If we continue to hold that a shipyard
is a pubic utility, it is a necessary consequence that all these entities should have obtained a
franchise as was the rule prior to the enactment of P.D. No. 666. But MARINA remains
without authority, pursuant to P.D. No. 47434 to issue franchises for the operation of
shipyards. Surely, the legislature did not intend to create a vacuum by continuously treating a
shipyard as a public utility without giving MARINA the power to issue a Certificate of Public
Convenience (CPC) or a Certificate of Public Convenience and Necessity (CPCN) as
required by section 15 of C.A. No. 146.
 II.
Whether under the 1977 Joint Venture Agreement,
KAWASAKI can purchase only a maximum of 40%
of PHILSECOs total capitalization.

A careful reading of the 1977 Joint Venture Agreement reveals that there is nothing
that prevents KAWASAKI from acquiring more than 40% of PHILSECOs total
capitalization. Section 1 of the 1977 JVA states:

1.3 The authorized capital stock of Philseco shall be P330 million. The parties shall
thereafter increase their subscription in Philseco as may be necessary and as called by the
Board of Directors, maintaining a proportion of 60%-40% for NIDC and KAWASAKI
respectively, up to a total subscribed and paid-up capital stock of P312 million.

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [renamed
PHILSECO] to any third party without giving the other under the same terms the right of first
refusal. This provision shall not apply if the transferee is a corporation owned and controlled
by the GOVERMENT [of the Philippines] or by a Kawasaki affiliate.

1.5 The By-Laws of SNS [PHILSECO] shall grant the parties preemptive rights to unissued
shares of SNS [PHILSECO].35

Under section 1.3, the parties agreed to the amount of P330 million as the total
capitalization of their joint venture. There was no mention of the amount of their initial
subscription. What is clear is that they are to infuse the needed capital from time to
time until the total subscribed and paid-up capital reaches P312 million. The phrase
"maintaining a proportion of 60%-40%" refers to their respective share of the burden
each time the Board of Directors decides to increase the subscription to reach the
target paid-up capital of P312 million. It does not bind the parties to maintain the
sharing scheme all throughout the existence of their partnership.

The parties likewise agreed to arm themselves with protective mechanisms to preserve their
respective interests in the partnership in the event that (a) one party decides to sell its shares
to third parties; and (b) new Philseco shares are issued. Anent the first situation, the non-
selling party is given the right of first refusal under section 1.4 to have a preferential right to
buy or to refuse the selling partys shares. The right of first refusal is meant to protect the
original or remaining joint venturer(s) or shareholder(s) from the entry of third persons who
are not acceptable to it as co-venturer(s) or co-shareholder(s). The joint venture between the
Philippine Government and KAWASAKI is in the nature of a partnership36 which, unlike an
ordinary corporation, is based on delectus personae.37 No one can become a member of the
partnership association without the consent of all the other associates. The right of first
refusal thus ensures that the parties are given control over who may become a new partner
in substitution of or in addition to the original partners. Should the selling partner decide to
dispose all its shares, the non-selling partner may acquire all these shares and terminate the
partnership. No person or corporation can be compelled to remain or to continue the
partnership. Of course, this presupposes that there are no other restrictions in the maximum
allowable share that the non-selling partner may acquire such as the constitutional restriction
on foreign ownership in public utility. The theory that KAWASAKI can acquire, as a
maximum, only 40% of PHILSECOs shares is correct only if a shipyard is a public utility. In
such instance, the non-selling partner who is an alien can acquire only a maximum of 40% of
the total capitalization of a public utility despite the grant of first refusal. The partners cannot,
by mere agreement, avoid the constitutional proscription. But as afore-discussed,
PHILSECO is not a public utility and no other restriction is present that would limit the
right of KAWASAKI to purchase the Governments share to 40% of Philsecos total
capitalization.

Furthermore, the phrase "under the same terms" in section 1.4 cannot be given an
interpretation that would limit the right of KAWASAKI to purchase PHILSECO shares only to
the extent of its original proportionate contribution of 40% to the total capitalization of the
PHILSECO. Taken together with the whole of section 1.4, the phrase "under the same
terms" means that a partner to the joint venture that decides to sell its shares to a third party
shall make a similar offer to the non-selling partner. The selling partner cannot make a
different or a more onerous offer to the non-selling partner.

The exercise of first refusal presupposes that the non-selling partner is aware of the terms of
the conditions attendant to the sale for it to have a guided choice. While the right of first
refusal protects the non-selling partner from the entry of third persons, it cannot also deprive
the other partner the right to sell its shares to third persons if, under the same offer, it does
not buy the shares.

Apart from the right of first refusal, the parties also have preemptive rights under section 1.5
in the unissued shares of Philseco. Unlike the former, this situation does not contemplate
transfer of a partners shares to third parties but the issuance of new Philseco shares. The
grant of preemptive rights preserves the proportionate shares of the original partners so as
not to dilute their respective interests with the issuance of the new shares. Unlike the right of
first refusal, a preemptive right gives a partner a preferential right over the newly issued
shares only to the extent that it retains its original proportionate share in the joint venture.

The case at bar does not concern the issuance of new shares but the transfer of a
partners share in the joint venture. Verily, the operative protective mechanism is the
right of first refusal which does not impose any limitation in the maximum shares that
the non-selling partner may acquire.

III.
Whether the right to top granted to KAWASAKI
in exchange for its right of first refusal violates
the principles of competitive bidding.

We also hold that the right to top granted to KAWASAKI and exercised by private
respondent did not violate the rules of competitive bidding.

The word "bidding" in its comprehensive sense means making an offer or an

invitation to prospective contractors whereby the government manifests its intention
to make proposals for the purpose of supplies, materials and equipment for official
business or public use, or for public works or repair.38 The three principles of public
bidding are: (1) the offer to the public; (2) an opportunity for competition; and (3) a
basis for comparison of bids.39 As long as these three principles are complied with,
the public bidding can be considered valid and legal. It is not necessary that the
highest bid be automatically accepted. The bidding rules may specify other conditions or
the bidding process be subjected to certain reservation or qualification such as when the
owner reserves to himself openly at the time of the sale the right to bid upon the property, or
openly announces a price below which the property will not be sold. Hence, where the seller
reserves the right to refuse to accept any bid made, a binding sale is not consummated
between the seller and the bidder until the seller accepts the bid. Furthermore, where a right
is reserved in the seller to reject any and all bids received, the owner may exercise the right
even after the auctioneer has accepted a bid, and this applies to the auction of public as well
as private property. 40 Thus:

It is a settled rule that where the invitation to bid contains a reservation for the Government
to reject any or all bids, the lowest or the highest bidder, as the case may be, is not entitled
to an award as a matter of right for it does not become a ministerial duty of the Government
to make such an award. Thus, it has been held that where the right to reject is so reserved,
the lowest bid or any bid for that matter may be rejected on a mere technicality, that all bids
may be rejected, even if arbitrarily and unwisely, or under a mistake, and that in the exercise
of a sound discretion, the award may be made to another than the lowest bidder. And so,
where the Government as advertiser, availing itself of that right, makes its choice in rejecting
any or all bids, the losing bidder has no cause to complain nor right to dispute that choice,
unless an unfairness or injustice is shown. Accordingly, he has no ground of action to compel
the Government to award the contract in his favor, nor compel it to accept his bid.41

In the instant case, the sale of the Government shares in PHILSECO was publicly
known. All interested bidders were welcomed. The basis for comparing the bids were
laid down. All bids were accepted sealed and were opened and read in the presence of
the COAs official representative and before all interested bidders. The only question
that remains is whether or not the existence of KAWASAKIs right to top destroys the
essence of competitive bidding so as to say that the bidders did not have an
opportunity for competition. We hold that it does not.

The essence of competition in public bidding is that the bidders are placed on equal
footing. This means that all qualified bidders have an equal chance of winning the
auction through their bids. In the case at bar, all of the bidders were exposed to the
same risk and were subjected to the same condition, i.e., the existence of
KAWASAKIs right to top. Under the ASBR, the Government expressly reserved the right
to reject any or all bids, and manifested its intention not to accept the highest bid should
KAWASAKI decide to exercise its right to top under the ABSR. This reservation or
qualification was made known to the bidders in a pre-bidding conference held on September
28, 1993. They all expressly accepted this condition in writing without any qualification.
Furthermore, when the Committee on Privatization notified petitioner of the approval of the
sale of the National Government shares of stock in PHILSECO, it specifically stated that
such approval was subject to the right of KAWASAKI Heavy Industries, Inc./Philyards
Holdings, Inc. to top JGSMIs bid by 5% as specified in the bidding rules. Clearly, the
approval of the sale was a conditional one. Since Philyards eventually exercised its right to
top petitioners bid by 5%, the sale was not consummated. Parenthetically, it cannot be
argued that the existence of the right to top "set for naught the entire public bidding." Had
Philyards Holdings, Inc. failed or refused to exercise its right to top, the sale between the
petitioner and the National Government would have been consummated. In like manner, the
existence of the right to top cannot be likened to a second bidding, which is countenanced,
except when there is failure to bid as when there is only one bidder or none at all. A
prohibited second bidding presupposes that based on the terms and conditions of the sale,
there is already a highest bidder with the right to demand that the seller accept its bid. In the
instant case, the highest bidder was well aware that the acceptance of its bid was
conditioned upon the non-exercise of the right to top.

To be sure, respondents did not circumvent the requirements for bidding by granting
KAWASAKI, a non-bidder, the right to top the highest bidder. The fact that KAWASAKIs
nominee to exercise the right to top has among its stockholders some losing bidders cannot
also be deemed "unfair."
It must be emphasized that none of the parties questions the existence of
KAWASAKIs right of first refusal, which is concededly the basis for the grant of the
right to top. Under KAWASAKIs right of first refusal, the National Government is
under the obligation to give preferential right to KAWASAKI in the event it decides to
sell its shares in PHILSECO. It has to offer to KAWASAKI the shares and give it the
option to buy or refuse under the same terms for which it is willing to sell the said
shares to third parties. KAWASAKI is not a mere non-bidder. It is a partner in the joint
venture; the incidents of which are governed by the law on contracts and on
partnership.

It is true that properties of the National Government, as a rule, may be sold only after a
public bidding is held. Public bidding is the accepted method in arriving at a fair and
reasonable price and ensures that overpricing, favoritism and other anomalous practices are
eliminated or minimized.42 But the requirement for public bidding does not negate the
exercise of the right of first refusal. In fact, public bidding is an essential first step in
the exercise of the right of first refusal because it is only after the public bidding that
the terms upon which the Government may be said to be willing to sell its shares to
third parties may be known. It is only after the public bidding that the Government
1wphi1

will have a basis with which to offer KAWASAKI the option to buy or forego the
shares.

Assuming that the parties did not swap KAWASAKIs right of first refusal with the right to top,
KAWASAKI would have been able to buy the National Governments shares in PHILSECO
under the same terms as offered by the highest bidder. Stated otherwise, by exercising its
right of first refusal, KAWASAKI could have bought the shares for only P2.03 billion and not
the higher amount of P2.1315 billion. There is, thus, no basis in the submission that the right
to top unfairly favored KAWASAKI. In fact, with the right to top, KAWASAKI stands to pay
higher than it should had it settled with its right of first refusal. The obvious beneficiary of the
scheme is the National Government.

If at all, the obvious consideration for the exchange of the right of first refusal with the right to
top is that KAWASAKI can name a nominee, which it is a shareholder, to exercise the right to
top. This is a valid contractual stipulation; the right to top is an assignable right and both
parties are aware of the full legal consequences of its exercise. As aforesaid, all bidders
were aware of the existence of the right to top, and its possible effects on the result of the
public bidding was fully disclosed to them. The petitioner, thus, cannot feign ignorance nor
can it be allowed to repudiate its acts and question the proceedings it had fully adhered to.43

The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular
Life Assurance, Mitsui and ICTSI), has joined Philyards in the latters effort to raise P2.131
billion necessary in exercising the right to top is not contrary to law, public policy or public
morals. There is nothing in the ASBR that bars the losing bidders from joining either the
winning bidder (should the right to top is not exercised) or KAWASAKI/PHI (should it
exercise its right to top as it did), to raise the purchase price. The petitioner did not allege,
nor was it shown by competent evidence, that the participation of the losing bidders in the
public bidding was done with fraudulent intent. Absent any proof of fraud, the formation by
Philyards of a consortium is legitimate in a free enterprise system. The appellate court is thus
correct in holding the petitioner estopped from questioning the validity of the transfer of the
National Governments shares in PHILSECO to respondent.

Finally, no factual basis exists to support the view that the drafting of the ASBR was illegal
because no prior approval was given by the COA for it, specifically the provision on the right
to top the highest bidder and that the public auction on December 2, 1993 was not witnessed
by a COA representative. No evidence was proffered to prove these allegations and the
Court cannot make legal conclusions out of mere allegations. Regularity in the performance
of official duties is presumed44 and in the absence of competent evidence to rebut this
presumption, this Court is duty bound to uphold this presumption.

IN VIEW OF THE FOREGOING, the Motion for Reconsideration is hereby GRANTED.

The impugned Decision and Resolution of the Court of Appeals are AFFIRMED.

SO ORDERED.

THIRD DIVISION

[G.R. No. 149717. October 7, 2003]

EASTERN ASSURANCE & SURETY CORPORATION (EASCO), petitioner, vs. LAND

TRANSPORTATION FRANCHISING and REGULATORY BOARD
(LTFRB), respondent.

DECISION

PANGANIBAN, J.:

The operation of monopolies is not totally banned by the Constitution. However, the
State shall regulate them when public interest so requires. In the present case, the two
consortia of insurance companies that have been authorized to issue passenger insurance
policies are adequately regulated by the Land Transportation Franchising and Regulatory
Board (LTFRB) to protect the riding public. While individual insurance companies may
somehow be adversely affected by this scheme, the paramount public interest involved must be
upheld. In any event, all legitimate insurance companies are allowed to become members of the
consortia. Thus, there is no restraint of trade or unfair competition involved.

The Case

Before us is a Petition for Review [1] under Rule 45 of the Rules of Court, seeking to set
aside the August 20, 2001 Decision[2] of the Court of Appeals[3] (CA) in CA-GR SP No.
63149. The dispositive portion of the assailed Decision reads as follows:

WHEREFORE, in view of the foregoing premises, the Petition is hereby DISMISSED for
lack of merit. No costs.[4]

The Facts

The factual antecedents of the case are summarized by the CA as follows:

[I]n its desire to improve public service and its assistance to the victims of road accidents
involving PUVs [public utility vehicles], the [Land Transportation Franchising and
Regulatory] Board conducted a thorough investigation on the sufficiency of existing
insurance policies for PUVs. In the course of its investigation, the Board discovered that
insurance coverage of PUVs was only P50,000.00 for the entire vehicle regardless of the
number of passengers or persons killed or injured.

The Board, then, undertook x x x nationwide consultations among the transport operators and
insurance companies and held meetings with the officials of the Insurance Commission.

Thereafter, the Board issued Memorandum Circular No. 99-011 fixing the insurance
coverage of PUVs on the basis of the number of persons that may be killed or injured
instead of the entire vehicle alone. The coverage is denominated as Passenger Accident
Insurance Coverage (PAIC), which fixes the coverage of P50,000.00 per passenger.

During the effectivity of Memorandum Circular No. 99-011, the Board received several
complaints from various transport organizations such as the Federation of Jeepney
Operators and Drivers Association of the Philippines (FEJODAP), Pagkakaisa ng mga Samahan
ng Tsuper at Operator Nationwide (PISTON), and the Philippine Confederation of Drivers
Organization, Alliance of Concerned Transport Operators (PCDO-ACTO). The thrust of their
complaints are: (1) the proliferation of fake insurance policies; (2) the predatory pricing among
competing insurance firms; (3) the proliferation of fixers in the premises of the LTFRB endorsing
certain insurance companies; and (4) the moonlighting by personnel of the LTFRB who induced
operators to secure their policies from favored companies.

To address these complaints, the Board held a series of meetings with the officers of various
transport groups composed of operators of bus, jeepney and taxi as well as representatives of
several insurance companies and officials of the Insurance Commission.

In a meeting held on 12 December 2000, where herein petitioner Eastern Assurance &
Surety Corporation (EASCO, for brevity) was represented by a certain Dante Baronia, the
transport groups proposed the creation of [a] two-group system and of [a] blacklisting
scheme.

In a letter dated 19 January 2001, the aforesaid proposal was then referred by the Board to the
Insurance Commission for confirmation, to wit:

1. The Commission interposes no objection to, there being no legal obstacle to the same, x x x
the suggestion of various insurance groups to allow only two (2) groups to participate in the
Passenger Accident Insurance Program (PAIP) of the LTFRB. It is understood that all insurance
companies accredited by the Commission may participate in the program by joining any of the
groups.

2. The Commission interposes no objection, there being no legal obstacle to the same, to the
suggestion of the various transport groups to create an accreditation and de-listing criteria to be
used in the implementation of the PAIP, x x x and

3. The Commission also is of the position that the LTFRB may, on its own set up, require and
implement the two groups system and/or the accreditation and de-listing criteria without need of
prior approval from the Commission. x x x

On 30 January 2001, Insurance Commissioner Eduardo Malinis wrote LTFRB Chairman Dante
M. Lantin, the whole text of which, reads:

We hereby confirm the points enumerated in your letter of January 19, 2001 regarding the
implementation of the Passenger Personal Accident Insurance Program (PAIP) of the LTFRB, as
the same aim to achieve a simple and systematic implementation of said program.
Thus, on 1 February 2001, public respondent LTFRB issued the herein assailed Memorandum
Circular No. 2001-001 that reads, as follows:

MEMORANDUM CIRCULAR NO. 2001-001

SUBJECT: Amending Memorandum Circular No. 99-011

(Passenger Accident Insurance Requirement of PUV Operators)

I. PREFATORY STATEMENT

In response to numerous complaints from passenger accident victims involving public utility
vehicles, the Board passed Memorandum Circular No. 99-011 dated June 22, 1999 requiring all
public utility vehicles to secure a no fault passenger accident insurance. This circular was further
refined with the passage of Memorandum Circular No. 2000-010 dated March 27, 2000.

After a year of implementation, the Board now has received numerous complaints coming
from various transport groups and from its regional offices. These complaints [range]
from non-payment or late payment of claims, fake certificates of cover, predatory pricing,
non-payment or under payment of taxes, graft and corruption, and the non implementation
of the computerized data bank of all public utility vehicles.

In addressing these concerns, the different transport groups proposed the creation of a two (2)
group system whereby all insurance companies who would like to participate in the passenger
accident insurance program of the LTFRB must join any of the two groups, and that the
passenger insurance requirement of the PUV operators be divided between these two groups on
the basis of the number of their respective LTO license plates. The transport group argue that
through this scheme the following objectives will be attained:

1. Fake certificates of cover will be minimized, if not eradicated, due to better

monitoring of operations as there would only be two kinds of certificates
that would be circulating.

2. Payment of the proper taxes can be assured.

3. Graft and corruption will be minimized, if not eliminated, since discretion as

to which insurance company to patronize will be removed.

4. Payment of claims will be prompt due to better monitoring.

5. The proposed computerized data bank of all PUV[,] nationwide will be

attained without a single cost to government.

It must be noted that the passenger accident insurance program of the LTFRB was implemented
after numerous dialogues with all the transport organizations nationwide, and only after all issues
raised have been sufficiently addressed. More importantly, this program is without any cost to the
government. The added insurance expense is shouldered by the PUV operators.

In pursuing this proposal further, the Board conducted meetings and conferences with the
transport operators and with the insurance companies. It also met [with] the Insurance
Commission where the latter, in its letter dated January 30, 2001, confirmed that it has no
objection to the proposal of the various transport groups, there being no legal impediment to the
same.
 II. AMENDMENTS

AMENDMENTS TO M.C. NO. 99-011

IN VIEW OF THE FOREGOING PREMISES, and upon the clamor of the transport operators who
are the ones paying the added insurance cost, paragraph seven (7) of Memorandum Circular No.
99-011 is hereby amended to read as follows:

In order to make sure that future claims of PUV operators and passenger accident victims
are paid within the required time, and in order to minimize, if not eliminate, fake
certificates of cover and graft and corruption, as well as to ensure the payment of the
proper taxes much needed by the government, as well as to create a computerized data
bank without any cost to the government which is necessary for transport planning[,] the
Board will only accept, as proof of compliance of this program, insurance
polic[i]es/certificates of cover duly approved by the Insurance Commission specifically for
this project, and issued by any of the two groups as authorized by the Board.

CREATION OF THE TWO GROUP SYSTEM

Accordingly, as there is already one group duly authorized by the Board to participate in this
program in the person of the Passenger Accident Managers, Inc. (PAMI for brevity), THERE IS A
NEED TO FORM ANOTHER GROUP IN ORDER TO FULLY IMPLEMENT THE PROGRAM. All
other insurance companies who wish to continue participating in the program, therefore, are
hereby required to either join PAMI or form a second group.

In order to maintain their good standing with the Board, each group must maintain and present to
the Board proof of compliance with the following minimum requirements:

1. Membership of at least ten (10) insurance companies with valid and

subsisting license issued by the Insurance Commission;

2. Aggregate paid-up capitalization of P500 Million;

3. Compliance with the computerized dat[a] as required by the Board;

4. Payment of all claims within seven (7) calendar days from submission of all
documents;

5. Issuance of one (1) certificate of cover with the standard form and contents
duly approved by the Insurance Commission and the Board; and

6. Submission and compliance with all other reports x x x and requirements of

the Board.

ODD-EVEN SYSTEM

In order to address the issue of graft and corruption, there is a need to remove discretion on the
part of government officials. Accordingly, the Board supports the proposal of the transport groups
and hereby adopts the following system:

All PUVs covered by this program whose LTO license plate, as per latest LTO Official Receipt,
has an even middle number must have an insurance policy/certificate cover coming from the first
insurance group (in its case PAMI), while those with an odd middle number must have a
policy/cover coming from the second group. This odd-even system shall be interchanged on a
year to year basis in order to ensure equality and fairness in distribution. Accordingly, the Board
will not accept, as proof of compliance with this program, any insurance policy/cover that does not
comply with this odd-even scheme, except in the following cases where the operator may choose
the insurance group of its choice provided if is one of the two authorized by the Board, to wit:

1. Where the operator or franchise holder has 50 or more

operating units registered in its name;

2. Where the operator files a verified petition with the Board

justifying his preference over the other group. In this
case, the Board may allow a switch if it can be
shown that there are more benefits to be attained
[from] the insurance group of his choice, and
provided further that these benefits are legal and do
not result to any form of predatory pricing, such as x
x x unjustified commissions and discounts.

Other than [for] these reasons[,] no switch may be allowed by any officer of the LTFRB unless
otherwise duly approved by the Board en banc.

EFFECTIVITY OF THE TWO GROUP SYSTEM

The effectivity of the two group system will take place on March 1, 2001, unless otherwise
extended by the Board en banc.

III. INTERIM GUIDELINES

In the meantime, in order to immediately address the concerns of the transport groups, the
following should be strictly complied with:

1. No insurance company, its agents and employees shall resort to predatory

pricing[,] which means selling or offering to sell any product at a price
unreasonably below the industry average cost so as to attract customers
to the detriment of competitors.

2. The amount of commission/discount which a company will offer in the

market should be in writing and duly approved by the LTFRB, who, in
turn, will coordinate the same with the Insurance Commission. Any
violation of the declared commission/discount shall be subject to the
penalties provided for herein.

3. Only branch offices duly identified by the company, together with the
designated officer-in-charge, and submitted in writing to the LTFRB shall
issue, distribute, market or release the required policy/certificate of
cover.

4. Payment of all claims should be made within seven (7) calendar days from
submission of all the required x x x documents. Accordingly, the
company shall provide the LTFRB with the list of required documents.

Any insurance company found to have violated any of the above prohibitions shall, after notice
and hearing, be banned permanently from participating in the program either directly or indirectly,
including its principal stockholders, key officers and successors-in-interest if evidence warrants.
The Board, may, in the interest of the public, issue a cease and desist order enjoining a company
from participating in the program for not more than thirty (30) days pending full investigation.

All insurance companies who are blacklisted in any government agency or instrumentality
including court and other quasi-judicial agencies are automatically disallowed to
participate in this program. Accordingly, no policy or certificate of cover shall be accepted
from these companies as proof of compliance with this program. The Board shall issue
from time to time the list of the blacklisted or suspended companies.

All insurance policies[/]certificates of cover issued by their insurance companies in their individual
capacities prior to the effectivity of the Two Group System shall remain in full force and effect until
its expiration, and said companies shall be primarily liable for the payment of claims subject of
said policies/certificates of cover.

xxxxxxxxx

For the dissemination and implementation of the aforequoted Memorandum, the LTFRB
made a one month nationwide information campaign on the nature of the two-group
system and of the blacklisting scheme. And in a meeting with the different insurance
companies, including the representative of petitioner EASCO, the Insurance Commission
representative [read] before the participants the insurance firms blacklisted by the
Regional Trial Court of Quezon City which includes petitioner EASCO. The purpose of this
information is to afford the blacklisted firms an opportunity to clear their records and
settle the claims against them.[5]

Claiming that Memorandum Circular No. 2001-001 and the implementing Circulars had
deprived it of its right to engage in the passenger accident insurance business, Eastern
Assurance & Surety Corporation (EASCO) filed a Petition for Certiorari and Prohibition
with the CA questioning the validity of those issuances.

Ruling of the Court of Appeals

The CA ruled that Memorandum Circular No. 2001-001 had not been issued ultra
vires by the LTFRB and constituted a valid exercise of police power. Hence, the appellate
court ruled:

x x x [T]he Board has the power to require as a condition for the issuance of certificate of
public convenience an insurance policy or certificate provided by a member of one of the
two accredited groups. The clear purpose of the condition is to ensure the benefit of the
riding public and pedestrians who may become victims of accidents involving PUVs. For
this purpose, the Board may, as it did, coordinate with the Insurance Commission, the
governmental agency regulating the insurance business, for the adoption of the two-group
and blacklisting system to enhance the insurance coverage of passengers and persons
who become victims of accident for their benefit or of their heirs.

Without doubt, the imposition of the requirements is germane to the powers, functions and
purpose of the Board as a regulatory body in charge of administering public utilities. x x x.[6]

Moreover, the CA found that the Circular had not violated the provisions of the
Constitution on free enterprise, equal protection and substantive due process. The
appellate court explained that PAIC II and PAMI merely serve as service arms of their respective
members. In other words, these two (2) groups, strictly speaking, are not engaged in insurance
business. Moreover, the two-group / consortium scheme under the Memorandum Circular No.
2001-001 is open to all insurance firms [that] want to join any of the two groups. It does
not vest any privilege or advantage to any single firm or group to carry out the business of
providing the insurance coverage under the program. The fact that the program is open to
all insurance firms including petitioner negates its pretense of exclusivity. No firm is
discriminated against since the two consortia cannot refuse membership in their
respective groups to any interested firm [that] wants and is qualified to join. [7]

Hence, this Petition.[8]

The Issues

In its Memorandum, petitioner raises the following issues for our consideration:

a) the assailed LTFRB circulars with [their] implementing circulars violat[e] the constitutional
proscription against monopoly, combination in restraint of trade and unfair competition[;] b) there
is a violation of [the] equal protection clause; c) LTFRB exceeded its legal mandate because it
exercised administrative control/jurisdiction over insurance companies which properly and
exclusively belongs to the Insurance Commission[;] d) EASCO, petitioner, was disenfranchise[d]
of its legitimate insurance business; x x x e) the Court of Appeals erred in ruling that the [P]etition
for [C]ertiorari which raises purely legal issues is not exempt from the rule on exhaustion of
administrative remedies, contrary to existing jurisprudence on the matter[; f)] the Court of Appeals
committed grave abuse in completely disregarding vital facts borne by the records and
admissions by the parties; and x x x [g)] x x x noted the assailed LTFRB memorandum circular
did not comply with publication requirements for its validity.[9]

The main issue in the case before us, as in the Court of Appeals, is the validity of
Memorandum Circular Nos. 2001-001 and 2001-010.

The Courts Ruling

The Petition has no merit.

Main Issue:

Validity of the LTFRB Memorandum Circulars

Petitioner contends that Memorandum Circular No. 2001-001 and the subsequent
implementing Circulars violate the constitutional proscription against monopoly as well as
unfair competition and combination in restraint of trade. Petitioner further argues that
these were issued with grave abuse of discretion and without jurisdiction on the part of
the LTFRB.

Monopoly

The constitutional provision on monopolies is found in Article XII as follows:

Sec. 19. The State shall regulate or prohibit monopolies when the public interest so
requires. No combinations in restraint of trade or unfair competition shall be allowed.

While embracing free enterprise as an economic creed, the Constitution does not
totally prohibit the operation of monopolies.[10] However, it mandates the State to regulate
them when public interest so requires.
 Intense competition has led insurance companies/agents offering insurance policies
for public utility vehicles to resort to ruinous tactics to sell their services. Notorious
agents of these companies have engaged in predatory pricing -- selling the compulsory
insurance coverage at an unbelievable discount of sixty to eighty percent (60 to 80%) off
the market rate. The huge coverage and liability under the no-fault clause of the passenger
accident insurance are grossly disproportionate to the small premiums actually being
paid.

Moreover, different persons or operators were issued certificates of cover (COC) or

policies bearing the same number. Thus, claims under these policies were not paid, or
payments were unreasonably delayed, resulting in prejudice to the riding public.

The present case shows a clear public necessity to regulate the proliferation of such
insurance companies. Because of the PUV operators complaints, the LTFRB thus
assessed the situation. It found that in order to protect the interests of the riding public
and to resolve problems involving the passenger insurance coverage of PUVs, it had to
issue Memorandum Circular No. 2001-001 authorizing the two-group system.
Subsequently, it promulgated Memorandum Circular No. 2001-010 accrediting PAMI and
PAIC II as the two groups allowed to participate in the program.

Memorandum Circular No. 2001-010 required that [a]ll public utility vehicles whose
LTO license plate, as per latest LTO Official Receipt, with an EVEN middle number (0, 2, 4,
6 and 8) shall be insured with UCPB insurance (PAMI), while those with an ODD middle
number (1, 3, 5, 7 and 9) shall be insured with Great Domestic Insurance (PAIC 2) x x x. [11]

Undoubtedly, Memorandum Circular No. 2001-010 authorized and regulated two

separate monopolies. In Garcia v. Corona,[12] the Court stated:

The simplest form of monopoly exists when there is only one seller or producer of a
product or service for which there are no substitute. In its more complex form, monopoly
is defined as the joint acquisition or maintenance by members of a conspiracy formed for
that purpose, of the power to control and dominate trade and commerce in a commodity to
such an extent that they are able, as a group, to exclude actual or potential competitors
from the field, accompanied with the intention or purpose to exercise such power. [13]

It should be stressed that PUVs, as common carriers, are engaged in a business

affected with public interest.[14] Under Article 1756 of the Civil Code, in cases of death or
injuries to passengers, common carriers are presumed to be at fault and are required to
compensate the victims, unless they observed extraordinary diligence. To assure this
compensation, PUVs are required to obtain insurance policies.[15]

Even with this insurance requirement, the riding public remains at risk of inadequate
cover, because many insurance companies are individually incapable of meeting the
compensation standards. Worse, the pernicious competition and fraudulent practices
described above have resulted in failure to meet the compensation requirements of the
law.

Indeed, in authorizing and regulating the two insurance monopolies, the LTFRB acted
within its prerogatives in promoting public interest and protecting the riding public. After
all, the consortia are open to all insurance companies, including petitioner. There is no
discrimination against any legitimate insurer. On the whole, the public is given protection
without unfair competition or undue restraint of trade. As the Court of Appeals pointed
out, the two consortia are not engaged in the insurance business; they merely serve as
service arms of their respective members.
 At bottom, the subject Memorandum Circulars were issued for the stated purpose of
promoting public interest; and of protecting the riding public and PUV operators from
being defrauded by fake, undervalued or misrepresented insurance policies.

Grave Abuse of Discretion

In alleging grave abuse of discretion on the part of the LTFRB, petitioner describes at length
potential disasters to the insuring public that may result from the two-group system authorized by
the assailed Circulars. Petitioner calls into question the wisdom of those Circulars by projecting
scenarios which, however, cannot be properly addressed and resolved in the present case.
Litigations are limited to resolving actual, not hypothetical, controversies.

Doubts on the capability of the assailed Circulars to provide an adequate long-term solution
to PUV operators insurance problems are not legally sufficient to strike down those Circulars. In
our form of government, courts cannot inquire into the wisdom or the expediency of the acts of
the executive or the legislative branches of government, unless there is a clear showing that
those acts are constitutionally infirm or have been committed with grave abuse of discretion
amounting to lack or excess of jurisdiction.

In Angara v. Electoral Commission, Justice Laurel made it clear that the judiciary does not pass
upon questions of wisdom, justice or expediency of legislation. And fittingly so for in the exercise
of judicial power, we are allowed only to settle actual controversies involving rights which are
legally demandable and enforceable, and may not annul an act of the political departments simply
because we feel it is unwise or impractical. It is true that, under the expanded concept of the
political question, we may now also determine whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality
of the Government.[16]

By grave abuse of discretion is meant such capricious and whimsical exercise of judgment
equivalent to lack of jurisdiction. Mere abuse of discretion is not enough. It must be grave, as
when it is exercised arbitrarily or despotically by reason of passion or personal hostility; and such
abuse must be so patent and so gross as to amount to an evasion of a positive duty or to a virtual
refusal to perform the duty enjoined or to act at all in contemplation of law. [17] The jurisprudential
elements of arbitrariness, despotism, passion and hostility have not been shown to exist under
the present circumstances.

Further, petitioner argues that the LTFRBs haste in accrediting PAMI and PAIC II is an
indication of grave abuse of discretion. However, since the two-group system was to take effect
starting March 1, 2001, accrediting the two groups on February 28, 2001 was not unreasonable.
In the absence of contrary evidence, we must uphold the presumption of regularity in the
performance of duties by public officers.[18]

Authority and Jurisdiction

Petitioner contends that in issuing the assailed Circulars, the LTFRB effectively delimited,
regulated and controlled the business of passenger accident insurance. It argues that the Board
acted without jurisdiction and usurped the exclusive jurisdiction of the Insurance Commission.

Executive Order No. 202,[19] which created the LTFRB, conferred the following powers on
the Board:

SEC. 5. Powers and Functions of the Land Transportation Franchising and Regulatory
Board. The Board shall have the following powers and functions:
 xxxxxxxxx

b. To issue, amend, revise, suspend or cancel Certificates of Public Convenience or permits

authorizing the operation of public land transportation services provided by motorized vehicles,
and to prescribe the appropriate terms and conditions therefore;

xxxxxxxxx

k. To formulate, promulgate, administer, implement and enforce rules and regulations on land
transportation public utilities, standards of measurements and/or design, and rules and
regulations requiring operators of any public land transportation service to equip, install and
provide in their utilities and in their stations such devices, equipment facilities and operating
procedures and techniques as may promote safety, protection, comfort and convenience to
persons and property in their charges as well as the safety of persons and property within their
areas of operations;

l. To coordinate and cooperate with other government agencies and entities concerned with any
aspect involving public land transportation services with the end in view of effecting continuing
improvement of such services; and

m. To perform such other functions and duties as may be provided by law, or as may
be necessary, or proper or incidental to the purposes and objectives of this Executive Order.
(Italics supplied)

Paragraph b gives the LTFRB the power to prescribe appropriate terms and conditions for
the issuance, amendment, revision, and suspension or cancellation of certificates of public
convenience (CPC) or of permits authorizing the operation of public land transportation services.
Under this paragraph, the Board has the prerogative to require, as a condition for the issuance of
CPCs, that an applicant get insurance coverage from a particular group of insurance companies.

Corollary to this power must necessarily be construed the authority of the LTFRB to require
insurance companies to group themselves for the purpose of providing passenger accident
insurance coverage. Paragraph m directly authorizes it to perform such other functions as may be
necessary or incidental to the purposes and objectives of EO 202.

By providing passenger accident insurance policies to operators of PUVs, insurance

companies and their businesses directly affect public land transportation. By limiting its regulation
of such companies to the segment of their business that directly affects public land transportation,
the LTFRB has acted within its jurisdiction in issuing the assailed Circulars.

Administrative bodies like the LTFRB have expertise in specific matters within the purview of
their respective jurisdictions. Thus, the law concedes to them the power to promulgate rules and
regulations to implement the policies of a given statute -- provided such rules and regulations
conform to the terms and standards prescribed by that statute and purport to carry its general
policies into effect.[20]

It should also be pointed out that before issuing the Circulars, the LTFRB made proper
representation and coordination with the Insurance Commission, which had no objection to the
two-consortia scheme.

EASCOs Business
 Since petitioner has failed to show any cogent reason to strike down the assailed Circulars,
their implementation cannot be restrained. They may indeed adversely affect its business, but the
protection of the general welfare is of paramount importance. Petitioners individual business
interests must be subordinated to the benefit of the greater number. Salus populi est suprema
lex. Sic utere tuo ut alienum non laedas.[21]

Publication

Petitioner raises for the first time in its Memorandum the issue of the alleged noncompliance
with the publication requirement, which must first be met before the assailed Circulars can be
deemed valid. This argument is improper at this stage. Points of law, theories, issues and
arguments not adequately brought to the attention of the lower court need not be -- and ordinarily
will not be -- considered by a reviewing court, as they cannot be raised for the first time on
appeal.[22] Indeed, it is settled jurisprudence that an issue that was neither raised in the complaint
or in the court below cannot be raised for the first time on appeal, as to do so would be offensive
to the basic rules of fair play, justice, and due process. [23]

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.

SO ORDERED.