[G.R. No. 122947.

July 22, 1999]

TIMOTEO BALUYOT, JAIME BENITO, BENIGNO EUGENIO,
ROLANDO GONZALES, FORTUNATO FULGENCIO and CRUZ-NALIGAS HOMESITE ASSOCIATION, INC., petitioners, vs. THE
HONORABLE COURT OF APPEALS, THE QUEZON CITY
GOVERNMENT
and
UNIVERSITY
OF
THE
PHILIPPINES, respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision of the Court of Appeals,
dated November 24, 1995, setting aside an order of the Regional Trial
Court of Quezon City, Branch 89, and dismissing the complaint filed
by petitioners against private respondents University of the
Philippines and the Quezon City government.
The facts are as follows:
Petitioners Timoteo Baluyot, Jaime Benito, Benigno Eugenio, Rolando
Gonzales, and Fortunato Fulgencio are residents of Barangay Cruzna-Ligas,[1] Diliman, Quezon City. The Cruz-na-Ligas Homesite
Association, Inc. is a non-stock corporation of which petitioners and
other residents of Barangay Cruz-na-Ligas are members. On March
13, 1992, petitioners filed a complaint for specific performance and
damages against private respondent University of the Philippines
before the Regional Trial Court of Quezon City, docketed as Civil Case
No. Q-92-11663. The complaint was later on amended to include
private respondent Quezon City government as defendant. As
amended, the complaint alleges:[2]
5. That plaintiffs and their ascendants have been in open, peaceful,
adverse and continuous possession in the concept of an owner since
memory can no longer recall of that parcel of riceland known [as]
Sitio Libis, Barrio Cruz-na-Ligas, Quezon City (now Diliman, Quezon
City), as delineated in the Plan herein attached as Annex B while the
members of the plaintiff Association and their ascendants have
possessed since time immemorial openly, adversely, continuously
and also in the concept of an owner, the rest of the area embraced
by and within the Barrio Cruz-na-Ligas, Diliman, Quezon City as

shown in that Plan herein attached as Annex C all in all consisting of

at least forty (42) hectares;
6. That since October 1972, the claims of the plaintiffs and/or
members of plaintiff Association have been the subject of quasijudicial proceedings and administrative investigations in the different
branches of the government penultimately resulting in the issuance
of that Indorsement dated May 7, 1975 by the Bureau of Lands, a
copy of which is made an integral part of Annex D, and ultimately, in
the issuance of the Indorsement of February 12, 1985, by the office
of the President of the Republic of the Philippines, a copy of which is
herein attached as Annex E confirming the rights of the bonafide
residents of Barrio Cruz-na-Ligas to the parcel of land they have been
possessing or occupying as originally found and recommended in
that Brief dated November 2, 1972 and Recommendation dated
November 7, 1972, copies of which are made integral parts hereof as
Annexes F and G;
7. That defendant UP, pursuant to the said Indorsement (Annex E)
from the Office of the President of the Republic of the Philippines,
issued that Reply Indorsement dated September 19, 1984, a copy of
which is herein attached as Annex H, pertinent portion of which is
quoted as follows:
2. In 1979, the U.P. Board of Regents approved the donation of about
9.2 hectares of the site, directly to the residents of Brgy. Krus Na
Ligas. After several negotiations with the residents, the area was
increased to 15.8 hectares (158,379 square meters); (underscoring
supplied)
3. Notwithstanding the willingness of U.P. to proceed with the
donation, Execution of the legal instrument to formalize it failed
because of the unreasonable demand of the residents for an area
bigger than 15.8 hectares.
8. That upon advise of counsel and close study of the said offer of
defendant UP to donate 15.8379 hectares, plaintiff Association
proposed to accept and the defendant UP manifested in writing [its]
consent to the intended donation directly to the plaintiff Association
for the benefit of the bonafide residents of Barrio Cruz-na-Ligas and

plaintiffs Association have agreed to comply with the terms and

conditions of the donation;
9. That, however, defendant UP backed-out from the arrangement to
donate directly to the plaintiff Association for the benefit of the
qualified residents and high-handedly resumed to negotiate the
donation thru the defendant Quezon City Government under the
terms disadvantageous or contrary to the rights of the bonafide
residents of the Barrio as shown in the Draft of Deed of Donation
herein attached as Annex I;
10. That plaintiff Association forthwith amended [its] petition in the
pending case LRC No. 3151 before Branch 100 of the Regional Trial
Court of Quezon City by adding the additional cause of action for
specific performance aside from the exclusion from the technical
description of certificate of title of defendant UP the area embraced
in the Barrio Cruz-na-Ligas, consisting of at least forty-two (42)
hectares, more or less, and praying in the said Amended Petition for
a writ of preliminary injunction to restrain defendant UP from
donating the area to the defendant Quezon City Government, a copy
of the said Amended Petition is herein attached as Annex J;
11. That, after due notice and hearing, the application for writ of
injunction as well as the opposition of defendant UP, the Order dated
January 24, 1986 granting the writ of preliminary injunction was
issued, a copy of which is herein attached as Annex K;
12. That in the hearing of the Motion for Reconsideration filed by
defendant UP, a copy of the said Motion for Reconsideration is herein
attached as Annex L, plaintiff Association finally agreed to the lifting
of the said Order (Annex K) granting the injunction after defendant
UP made an assurance in their said Motion for Reconsideration that
the donation to the defendant Quezon City Government will be for
the benefit of the residents of Cruz-Na-Ligas as shown in the
following:
6. The execution of the Deed of Donation in favor of the Quezon City
government will not work any injustice to the petitioners.
As well stated in Respondents Opposition to the Prayer for Issuance
of a Writ of Preliminary Injunction, it is to the best interest of the
Petitioners that such a deed be executed.

The plan to donate said property to the residents of Bgy. Krus-naLigas, that is, through the Quezon City government, is to their best
interests. Left alone, the present land and physical development of
the area leaves much to be desired. Road and drainage networks
have to be constructed, water and electric facilities installed, and
garbage collection provided for. The residents, even collectively, do
not have the means and resources to provide for themselves such
basis facilities which are necessary if only to upgrade their living
condition.
Should the proposed donation push through, the residents would be
the first to benefit. thus, Branch 100 of this Honorable Court issued
that Order dated April 2, 1986, lifting the injunction, a copy of which
is hereby attached as Annex M;
13. That, however, defendant UP took exception to the aforesaid
Order lifting the Order of Injunction and insisted [on] the dismissal of
the case; thus, it was stated that:
2. Respondent has consistently taken the position that efforts to
expedite the formalization of a Deed of Donation for the benefit of
the residents of Barangay Kruz-na-Ligas should not only be preconditioned on the lifting of the Writ of Preliminary Injunction, but
also the dismissal of the Petition;
in defendant UPs Motion for Reconsideration of the Order dated April
2, 1986, a copy of the said Motion is herein attached as Annex N;
14. That plaintiff Association in [its] Comment on the Motion for
Reconsideration of the Order dated April 2, 1986, filed on June 2,
1986, manifested [its] willingness to the dismissal of the case, aside
from [its] previous consent to the lifting of the preliminary injunction;
provided, that the area to be donatedthru the defendant Quezon City
government be subdivided into lots to be given to the qualified
residents together with the certificate of titles, without cost, a copy of
the said Comment is hereby attached as Annex O;
15. That, that was why, in the hearing re-scheduled on June 13, 1986
of defendant UPs Motion for Reconsideration of the Order dated April
2, 1986 (Annex N), the Order dated June 13, 1986, was issued, the
full text of which is quoted as follows:

After hearing the manifestation of Atty. Angeles for the petitioners

and Atty. Raval for the respondent University of the Philippines, since
the petitioners counsel was the first to make a manifestation that this
case which is now filed before this court should be dismissed first
without prejudice but because of the vehement objection of the
University of the Philippines, thru counsel, that a dismissal without
prejudice creates a cloud on the title of the University of the
Philippines and even with or without this case filed, the University of
the Philippines has already decided to have the property subject of
litigation donated to the residents of Cruz-na-Ligas with, of course,
the conditions set therein, let this case be DISMISSED without
pronouncement as to cost.
As to the charging lien filed by Petitioners thru counsel, it will be a
sole litigation between the petitioners and the oppositors both
represented by counsel, with the University of the Philippines being
neutral in this case.
and a copy of the said Order is herein attached as Annex P;
16. That, true to [its] commitment stated in the aforesaid Order of
June 13, 1986, defendant UP executed that Deed of Donation on
August 5, 1986, in favor of the defendant Quezon City Government
for the benefit of the qualified residents of Cruz-na-Ligas; however,
neither the plaintiffs herein nor plaintiff Association officers had
participated in any capacity in the act of execution of the said deed
of donation, a copy of the said executed Deed of Donation is herein
attached as Annex Q;
17. That under the said deed of donation, the 15.8379 hectares were
ceded, transferred and conveyed and the defendant Quezon City
Government accepted the Donation under the terms and conditions,
pertinent portions of which are quoted as follows:
This donation is subject to the following conditions:
xxx
2. The DONEE shall, within eighteen (18) months from the signing
hereof, undertake at its expense the following:

a. Cause the removal of structures built on the boundaries of the

donated lot;
b. Relocate inside the donated lot all families who are presently
outside of the donated lot;
c. Relocate all families who cannot be relocated within the
boundaries of the donated lot to a site outside of the University of the
Philippines campus in Diliman, Quezon City;
d. Construct a fence on the boundaries adjoining Kruz-na-Ligas and
the University.
In the construction of the fence, the DONEE shall establish a tenmeter setback in the area adjacent to Pook Amorsolo and the
Peripheral Road (C.P. Garcia Street);
e. Construct a drainage canal within the area donated along the
boundary line between Kruz-na-Ligas and Pook Amorsolo.
In the construction of the fence and the drainage canal, the DONEE
shall conform to the plans and specifications prescribed by the
DONOR.
xxx
5. The DONEE shall, after the lapse of three (3) years, transfer to the
qualified residents by way of donation the individual lots occupied by
each of them, subject to whatever conditions the DONEE may wish to
impose on said donation;
6. Transfer of the use of any lot in the property donated during the
period of three (3) years referred to in Item 4 above, shall be allowed
only in these cases where transfer is to be effected to immediate
members of the family in the ascending and descending line and said
Transfer shall be made known to the DONOR. Transfer shall be
affected by the Donee;
7. The costs incidental to this Deed, including the registration of the
property donated shall be at the expense of the DONEE.

The Donee shall also be responsible for any other legitimate

obligation in favor of any third person arising out of, in connection
with, or by reason of, this donation.
18. That the defendant Quezon City Government immediately
prepared the groundworks in compliance with the afore-quoted terms
and conditions; however, defendant UP under the officer-in-charge
then and even under the incumbent President, Mr. Jose Abueva, had
failed to deliver the certificate of title covering the property to be
donated to enable the defendant Quezon City Government to register
the said Deed of Donation so that corresponding certificate of title be
issued under its name;
19. That defendant UP had continuously and unlawfully refused,
despite requests and several conferences made, to comply with their
reciprocal duty to deliver the certificate of title to enable the Donee,
the defendant Quezon City Government, to register the ownership so
that the defendant Quezon City Government can legally and fully
comply with their obligations under the said deed of donation;
20. That upon expiration of the period of eighteen (18) [months], for
alleged non-compliance of the defendant Quezon City Government
with terms and conditions quoted in par. 16 hereof, defendant UP
thru its President, Mr. Jose Abueva, unilaterally, capriciously,
whimsically and unlawfully issued that Administrative Order No. 21
declaring the deed of donation revoked and the donated property be
reverted to defendant UP;
21. That the said revocation and reversion without judicial
declaration is illegal and prejudicial to the rights of the plaintiffs who
are the bonafide residents or who represent the bonafide residents of
the Barrio Cruz-na-Ligas because: firstly, they were not made bound
to comply with the terms and conditions of the said donation
allegedly
violated
by
the
defendant
Quezon
City
Government; secondly, defendant UP, as averred in the preceding
paragraphs 9 and 11, was the one who insisted that the donation be
coursed through the defendant Quezon City Government; and the
said revocation or reversion are likewise pre-judicial to third parties
who acquired rights therefrom;

22. That, as it apparently turned out, the plaintiff Association, who

duly represented the qualified or bonafide resident of Barrio Cruz-naLigas, was deceived into consenting to the lifting of the injunction in
said LRC Case No. Q-3151 and in agreeing to the dismissal of the said
LRC Case No. Q-3151 when defendant unjustifiably revoked the
donation which they undertook as a condition to the dismissal of LRC
Case No. 3151;
23. That by reason of the deception, the herein plaintiffs hereby
reiterate their claims and the claims of the bonafide residents and
resident/farmers of Barrio Cruz-na-Ligas [to] the ownership of fortytwo (42) hectares area they and their predecessors-in-interest have
occupied and possessed; parenthetically, the said 42 hectares
portion are included in the tax declaration under the name of
defendant UP who is exempted from paying real estate tax; hence,
there is no assessment available;
24. That by reason of bad faith and deceit by defendant UP in the
execution and in compliance with [its] obligations under the said
Deed of Donation (Annex Q hereof) plaintiffs have suffered moral
damages in the amount of at least P300,000.00;
25. That because of wanton and fraudulent acts of defendant UP in
refusing to comply with what is incumbent upon [it] under the Deed
of Donation (Annex Q) and in whimsically and oppressively declaring
the revocation of the said deed of donation and the reversion of the
15.8 hectares donated, [it] should be made liable to pay exemplary
damages in the sum of P50,000.00 to serve as example in the
interest of public good;
26. That because of said defendant UPs unlawful acts, plaintiffs have
been compelled to retain the services of their attorneys to prosecute
this case with whom they agreed to pay the sum of Fifty Thousand
Pesos (P50,000.00) as attorneys fees; and by way of:
APPLICATION FOR WRIT OF PRELIMINARY INJUNCTION
(a) Plaintiffs hereby reallege and reproduce herein by reference all
the material and relevant allegations in the preceding paragraphs;
(b) Having legally established and duly recognized rights on the said
parcel of lands as shown in the documents marked herein as Annexes

D; E; F; G; and M, plaintiffs have the rights to be protected by an

injunctive writ or at least a restraining order to restrain and to order
defendant UP from:
1) Ejecting the plaintiffs-farmers and from demolishing the
improvements in the parcel of riceland or farmlands situated at Sitio
Libis of Barrio Cruz-na-Ligas, embraced in the claims of the plaintiffs
as shown in these photographs herein attached as Annexes R to R-3;
2) Executing another deed of donation with different terms and
conditions in favor of another and for the benefit of additional
occupants who are not bonafide residents of the Barrio or Barangay
Cruz-na-Ligas;
(c) Defendant UP has already started ejecting the plaintiffs and
demolishing their improvements on the said riceland and farmlands
in order to utilize the same for the residential house project to the
irreparable damages and injuries to the plaintiffs-farmers, unless
restrained or enjoined to desist, plaintiffs will continue to suffer
irreparable damages and injuries;
(d) Plaintiffs are ready and willing to file the injunctive bond in such
amount that may be reasonably fixed;
PRAYER
WHEREFORE, it is respectfully prayed to this Honorable Court that
before the conduct of the proper proceedings, a writ of preliminary
injunction or at least a temporary restraining order be issued,
ordering defendant UP to observe status quo; thereafter, after due
notice and hearing, a writ of preliminary injunction be issued; (a) to
restrain defendant UP or to their representative from ejecting the
plaintiffs from and demolishing their improvements on the riceland or
farmland situated at Sitio Libis; (b) to order defendant UP to refrain
from executing another deed of donation in favor another person or
entity and in favor of non-bonafide residents of Barrio Cruz-na-Ligas
different from the Deed of Donation (Annex Q hereof), and after trial
on the merits, judgment be rendered:
1. Declaring the Deed of Donation (Annex Q) as valid and subsisting
and ordering the defendant UP to abide by the terms and conditions
thereof;

2. Adjudging the defendant University of the Philippines to segregate

the riceland or farmlands as additional area embraced by the Barrio
Cruz-na-Ligas, pursuant to the First Indorsement of August 10, 1984
(Annex E) and pursuant to Findings, Reports and Recommendation
(Annex G) of the Bureau of Lands with an estimated assessed value
of P700,000.00;
3. Ordering defendant UP to pay for plaintiffs moral damages of
P300,000.00, exemplary damages of P50,000.00, and costs of suit;
4. Enjoining defendant UP to pay professional fees of P50,000.00 of
the undersigned attorneys for the plaintiffs; and
Plaintiffs further respectfully pray for other just and equitable reliefs.
Earlier, on May 15, 1992, the trial court denied petitioners application
for preliminary injunction. Its order stated:[3]
ORDER
Acting on plaintiffs application for the issuance of a temporary
restraining order/preliminary injunction and the opposition thereto of
the defendant filed on April 3, 1992, as well as plaintiffs reply
therewith filed on April 23, 1992, considered in the light of the
affidavit executed on April 23, 1992 by Timoteo Baluyot, Sr. and by
Jaime Benito, Benigno Eugenio, Rolando Gonzales and Fortunato
Fulgencio executed on April 21, 1929, for the plaintiffs; and, the
affidavit of merit executed on April 28, 1992, by Atty. Carmelita
Yadao-Guno, for the defendant, it appearing that the principal action
in this case is one for the specific performance, apparently, of the
Deed of Donation executed on August 8, 1986, by defendant
University of the Philippines in favor of the Quezon City Government,
involving the land in question, in virtue of which, it is clear that the
plaintiffs are not parties to the said deed of donation, by reason of
which, consequently, there has not been established by the plaintiffs
a clear legal right to the enforcement of the said deed of donation,
especially as the said deed was already validly revoked by the
University of the Philippines, thru its president, Jose Abueva, in his
Administrative Order No. 21, for which reason the same could no
longer be enforced, plaintiffs prayer for the issuance of a temporary
restraining order/writ of preliminary injunction, is DENIED.

SO ORDERED.
Petitioners moved for a reconsideration of the above order. Without
resolving petitioners motion, the trial court ordered petitioners to
amend their complaint to implead respondent Quezon City
government as defendant.[4] Hence, the amended complaint was filed
on June 10, 1992, in which it is alleged:
4. That the Quezon City Government . . . which should be joined as
party plaintiff is instead impleaded herein as party defendant,
because its consent can not be secured within a reasonable time;
On July 27, 1992, respondent city government filed its Answer to the
Amended Complaint with Cross-Claim. [5] However, on November 29,
1993, it moved to withdraw its cross-claim against UP [6] on the
ground that, after conferring with university officials, the city
government had recognized the propriety, validity and legality of the
revocation of the Deed of Donation.[7]
The motion was granted by the trial court in its order, dated
December 22, 1994.[8] On the same day, a Joint Motion to Dismiss
was filed by UP and the Quezon City government on the ground that
the complaint fails to state a cause of action. [9] Petitioners opposed
the motion.
On April 26, 1995, the trial court denied respondents motion to
dismiss on the ground that a perusal of [petitioners] amended
complaint, specifically paragraph 5 thereof, . . . shows that it
necessarily alleges facts entitling [petitioners] to acquire ownership
over the land in question, by reason of laches, which cannot be
disposed of and resolved at this stage without a trial on the merits.
[10]
The trial court, however, reiterated its ruling that petitioners did
not have a cause of action for specific performance on the ground
that the deed of donation had already been revoked as stated in its
order denying injunction.
On August 14, 1995, respondents filed a petition for certiorari with
the Court of Appeals, charging the trial court with grave abuse of
discretion in refusing to dismiss the complaint filed by
petitioners. Respondents contended that

1. Respondent Judge himself had declared that [petitioners] clearly

are not parties to the deed of donation sought to be enforced thus
they had not shown clear legal right to the enforcement of said deed
of donation which is their principal cause of action; and
2. Under the factual circumstances obtaining, the respondent judge
gravely erred in denying the joint motion to dismiss and declaring
that [petitioners] are entitled to acquire ownership over the land in
question by reason of laches through a trial on the merits; such
constitutes a collateral attack on [respondent UPs] title in the same
suit for specific performance.
On November 24, 1995, the appellate court rendered a decision
setting aside the trial courts order of April 26, 1995 and ordering the
dismissal of Civil Case No. Q-92-11663. The appellate court ruled that
1. Petitioners complaint did not allege any claim for the annulment of
UPs title over the portion of land concerned or the reconveyance
thereof to petitioners;
2. The alleged cause of action based on ownership of the land by
petitioners was tantamount to a collateral attack on the title of UP
which is not allowed under the law; and
3. There is no acquisition of ownership by laches.
Hence, this petition for review on certiorari based on the following
grounds:
I. THE RESPONDENT COURT OF APPEALS WAS IN ERROR IN
CONCLUDING THAT THE TRIAL COURT ACTED WITH GRAVE ABUSE OF
DISCRETION IN DENYING THE JOINT MOTION TO DISMISS.
II. IN DISMISSING THE AMENDED COMPLAINT, THE RESPONDENT
APPELLATE COURT HAS ACTED IN EXCESS [OF] JURISDICTION WHEN
IT MADE [THE] FINDING AND CONCLUSION THAT THE REVOCATION OF
THE DONATION IS VALID WHEN THAT IS THE PRIMARY AND
CONTROVERTED ISSUE INVOLVING VARIED QUESTIONS OF FACTS.
Petitioners argue that, on its face, their amended complaint alleges
facts constituting a cause of action which must be fully explored
during trial. They cite paragraphs 18, 19, and 20 of their complaint

questioning the validity of the revocation of the donation and seek

the enforcement of the donation through specific performance.[11]
On the other hand, respondents contend that by seeking specific
performance of the deed of donation as their primary cause of action,
petitioners cannot at the same time claim ownership over the
property subject of the donation by virtue of laches or acquisitive
prescription. Petitioners cannot base their case on inconsistent
causes of action. Moreover, as the trial court already found the deed
to have been validly revoked, the primary cause of action was
already
thereby
declared
inexistent. Hence,
according
to
respondents, the Court of Appeals correctly dismissed the complaint.
[12]

First. The question is whether the complaint states a cause of

action. The trial court held that inasmuch as the donation made by
UP to the Quezon City government had already been revoked,
petitioners, for whose benefit the donation had been made, had no
cause of action for specific performance.Nevertheless, it denied
respondents joint motion to dismiss petitioners action on the ground
that respondent UP was barred from contesting petitioners right to
remain in possession on the ground of laches.
This is error. While prescription does not run against registered lands,
nonetheless a registered owners action to recover possession of his
land may be barred by laches. As held in Mejia de Lucas v.
Gamponia:[13]
[W]hile no legal defense to the action lies, an equitable one lies in
favor of the defendant and that is, the equitable defense of
laches. No hold that the defense of prescription or adverse
possession in derogation of the title of the registered owner Domingo
Mejia does not lie, but that of the equitable defense of
laches. Otherwise stated, we hold that while defendant may not be
considered as having acquired title by virtue of his and his
predecessors long continued possession for 37 years, the original
owners right to recover back the possession of the property and the
title thereto from the defendant has, by the long period of 37 years
and by patentees inaction and neglect, been converted into a stale
demand.

Thus, laches is a defense against a registered owner suing to recover

possession of the land registered in its name. But UP is not suing in
this case. It is petitioners who are, and their suit is mainly to seek
enforcement of the deed of donation made by UP in favor of the
Quezon City government. The appellate court therefore correctly
overruled the trial court on this point. Indeed, petitioners do not
invoke laches. What they allege in their complaint is that they have
been occupying the land in question from time immemorial,
adversely, and continuously in the concept of owner, but they are not
invoking laches. If at all, they are claiming ownership by prescription
which, as already stated, is untenable considering that the land in
question is a registered land.Nor can petitioners question the validity
of UPs title to the land. For as the Court of Appeals correctly held, this
constitutes a collateral attack on registered title which is not
permitted.
On the other hand, we think that the Court of Appeals erred in
dismissing petitioners complaint for failure to state a cause of action.
A cause of action exists if the following elements are present,
namely: (1) a right in favor of the plaintiff by whatever means and
under whatever law it arises or is created; (2) an obligation on the
part of the defendant to respect or not to violate such right; and (3)
an act or omission on the part of such defendant in violation of the
right of the plaintiff or constituting a breach of the obligations of the
defendant to the plaintiff for which the latter may maintain an action
for recovery of damages.[14]
We find all the elements of a cause of action contained in the
amended complaint of petitioners. While, admittedly, petitioners
were not parties to the deed of donation, they anchor their right to
seek its enforcement upon their allegation that they are intended
beneficiaries of the donation to the Quezon City government. Art.
1311, second paragraph, of the Civil Code provides:
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting
parties must have clearly and deliberately conferred a favor upon a
third person.

Under this provision of the Civil Code, the following requisites must
be present in order to have a stipulation pour autrui:[15]

the other; each of the private respondents had its own obligations, in
view of conferring a favor upon petitioners.

(1) there must be a stipulation in favor of a third person;

The amended complaint further alleges that respondent UP has an

obligation to transfer the subject parcel of land to the city
government so that the latter can in turn comply with its obligations
to make improvements on the land and thereafter transfer the same
to petitioners but that, in breach of this obligation, UP failed to
deliver the title to the land to the city government and then revoked
the deed of donation after the latter failed to fulfill its obligations
within the time allowed in the contract.

(2) the stipulation must be a part, not the whole of the contract;
(3) the contracting parties must have clearly and deliberately
conferred a favor upon a third person, not a mere incidental benefit
or interest;
(4) the third person must have communicated his acceptance to the
obligor before its revocation; and
(5) neither of the contracting parties bears the legal representation
or authorization of the third party.
The allegations in the following paragraphs of the amended
complaint are sufficient to bring petitioners action within the purview
of the second paragraph of Art. 1311 on stipulations pour autrui:
1. Paragraph 17, that the deed of donation contains a stipulation that
the Quezon City government, as donee, is required to transfer to
qualified residents of Cruz-na-Ligas, by way of donations, the lots
occupied by them;
2. The same paragraph, that this stipulation is part of conditions and
obligations imposed by UP, as donor, upon the Quezon City
government, as donee;
3. Paragraphs 15 and 16, that the intent of the parties to the deed of
donation was to confer a favor upon petitioners by transferring to the
latter the lots occupied by them;
4. Paragraph 19, that conferences were held between the parties to
convince UP to surrender the certificates of title to the city
government, implying that the donation had been accepted by
petitioners by demanding fulfillment thereof [16] and that private
respondents were aware of such acceptance; and
5. All the allegations considered together from which it can be fairly
inferred that neither of private respondents acted in representation of

For the purpose of determining the sufficiency of petitioners cause of

action, these allegations of the amended complaint must be deemed
to be hypothetically true. So assuming the truth of the allegations,
we hold that petitioners have a cause of action against UP. Thus,
in Kauffman v. National Bank,[17] where the facts were
Stated in bare simplicity the admitted facts show that the defendant
bank for a valuable consideration paid by the Philippine Fiber and
Produce Company agreed on October 9, 1918, to cause a sum of
money to be paid to the plaintiff in New York City; and the question is
whether the plaintiff can maintain an action against the bank for the
non performance of said undertaking. In other words, is the lack of
privity with the contract on the part of the plaintiff fatal to the
maintenance of an action by him?[18]
it was held:
In the light of the conclusions thus stated, the right of the plaintiff to
maintain the present action is clear enough; for it is undeniable that
the banks promise to cause a definite sum of money to be paid to the
plaintiff in New York City is a stipulation in his favor within the
meaning of the paragraph above quoted; and the circumstances
under which that promise was given disclose an evident intention on
the part of the contracting parties that the plaintiff should have that
money upon demand in New York City. The recognition of this
unqualified right in the plaintiff to receive the money implies in our
opinion the right in him to maintain an action to recover it; and
indeed if the provision in question were not applicable to the facts

now before us, it would be difficult to conceive of a case arising

under it.

These are not inconsistent but, rather, alternative causes of action

which Rule 8, 2 of the Rules of Court allows:

It will be noted that under the paragraph cited a third person seeking
to enforce compliance with a stipulation in his favor must signify his
acceptance before it has been revoked. In this case the plaintiff
clearly signified his acceptance to the bank by demanding payment;
and although the Philippine National Bank had already directed its
New York agency to withhold payment when this demand was made,
the rights of the plaintiff cannot be considered to have been
prejudiced by that fact. The word revoked, as there used, must be
understood to imply revocation by the mutual consent of the
contracting parties, or at least by direction of the party purchasing
the exchange.[19]

Alternative causes of action or defenses.- A party may set forth two

or more statements of a claim or defense alternatively or
hypothetically, either in one cause of action or defense or in separate
causes of action or defenses. When two or more statements are
made in the alternative and one of them if made independently
would be sufficient, the pleading is not made insufficient by the
insufficiency of one or more of the alternative statements.

It is hardly necessary to state that our conclusion that petitioners

complaint states a cause of action against respondents is in no wise
a ruling on the merits. That is for the trial court to determine in light
of respondent UPs defense that the donation to the Quezon City
government, upon which petitioners rely, has been validly revoked.

Moreover, the subjects of these claims are not exactly and entirely
the same parcel of land; petitioners causes of action consist of two
definite and distinct claims. The rule is that a trial court judge cannot
dismiss a complaint which contained two or more causes of action
where one of them clearly states a sufficient cause of action against
the defendant.[24]

Respondents contend, however, that the trial court has already found
that the donation (on which petitioners base their action) has already
been revoked. This contention has no merit. The trial courts ruling on
this point was made in connection with petitioners application for a
writ of preliminary injunction to stop respondent UP from ejecting
petitioners. The trial court denied injunction on the ground that the
donation had already been revoked and therefore petitioners had no
clear legal right to be protected. It is evident that the trial courts
ruling on this question was only tentative, without prejudice to the
final resolution of the question after the presentation by the parties
of their evidence.[20]
Second. It is further contended that the amended complaint alleges
inconsistent causes of action for specific performance of the deed of
donation.Respondents make much of the fact that while petitioners
claim to be the beneficiaries-donees of 15.8 hectares subject of the
deed,[21] they at the same time seek recovery/delivery of title to the
42 hectares of land included in UPs certificate of title. [22]

Thus, the parties are allowed to plead as many separate claims as

they may have, regardless of consistency, provided that no rules
regarding venue and joinder of parties are violated.[23]

WHEREFORE, the decision of the Court of Appeals is REVERSED and

the case is REMANDED to the Regional Trial Court of Quezon City,
Branch 89, for trial on the merits.
SO ORDERED.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 164703

May 4, 2010

ALLAN C. GO, doing business under the name and style "ACG
Express Liner," Petitioner,
vs.
MORTIMER F. CORDERO, Respondent.

x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 164747
MORTIMER F. CORDERO, Petitioner,
vs.
ALLAN C. GO, doing business under the name and style "ACG
Express Liner," FELIPE M. LANDICHO and VINCENT D.
TECSON, Respondents.
DECISION
VILLARAMA, JR., J.:
For review is the Decision1 dated March 16, 2004 as modified by the
Resolution2 dated July 22, 2004 of the Court of Appeals (CA) in CAG.R. CV No. 69113, which affirmed with modifications the
Decision3 dated May 31, 2000 of the Regional Trial Court (RTC) of
Quezon City, Branch 85 in Civil Case No. 98-35332.
The factual antecedents:
Sometime in 1996, Mortimer F. Cordero, Vice-President of Pamana
Marketing Corporation (Pamana), ventured into the business of
marketing inter-island passenger vessels. After contacting various
overseas fast ferry manufacturers from all over the world, he came to
meet Tony Robinson, an Australian national based in Brisbane,
Australia, who is the Managing Director of Aluminium Fast Ferries
Australia (AFFA).
Between June and August 1997, Robinson signed documents
appointing Cordero as the exclusive distributor of AFFA catamaran
and other fast ferry vessels in the Philippines. As such exclusive
distributor, Cordero offered for sale to prospective buyers the 25meter Aluminium Passenger catamaran known as the SEACAT 25.4
After negotiations with Felipe Landicho and Vincent Tecson, lawyers
of Allan C. Go who is the owner/operator of ACG Express Liner of
Cebu City, a single proprietorship, Cordero was able to close a deal
for the purchase of two (2) SEACAT 25 as evidenced by the

Memorandum of Agreement dated August 7, 1997. 5 Accordingly, the

parties executed Shipbuilding Contract No. 7825 for one (1) highspeed catamaran (SEACAT 25) for the price of US$1,465,512.00. 6 Per
agreement between Robinson and Cordero, the latter shall receive
commissions totalling US$328,742.00, or 22.43% of the purchase
price, from the sale of each vessel.7
Cordero made two (2) trips to the AFFA Shipyard in Brisbane,
Australia, and on one (1) occasion even accompanied Go and his
family and Landicho, to monitor the progress of the building of the
vessel. He shouldered all the expenses for airfare, food, hotel
accommodations, transportation and entertainment during these
trips. He also spent for long distance telephone calls to communicate
regularly with Robinson, Go, Tecson and Landicho.
However, Cordero later discovered that Go was dealing directly with
Robinson when he was informed by Dennis Padua of Wartsila
Philippines that Go was canvassing for a second catamaran engine
from their company which provided the ship engine for the first
SEACAT 25. Padua told Cordero that Go instructed him to fax the
requested quotation of the second engine to the Park Royal Hotel in
Brisbane where Go was then staying. Cordero tried to contact Go and
Landicho to confirm the matter but they were nowhere to be found,
while Robinson refused to answer his calls. Cordero immediately flew
to Brisbane to clarify matters with Robinson, only to find out that Go
and Landicho were already there in Brisbane negotiating for the sale
of the second SEACAT 25. Despite repeated follow-up calls, no
explanation was given by Robinson, Go, Landicho and Tecson who
even made Cordero believe there would be no further sale between
AFFA and ACG Express Liner.
In a handwritten letter dated June 24, 1998, Cordero informed Go
that such act of dealing directly with Robinson violated his exclusive
distributorship and demanded that they respect the same, without
prejudice to legal action against him and Robinson should they fail to
heed the same.8 Corderos lawyer, Atty. Ernesto A. Tabujara, Jr. of
ACCRA law firm, also wrote ACG Express Liner assailing the
fraudulent actuations and misrepresentations committed by Go in
connivance with his lawyers (Landicho and Tecson) in breach of
Corderos exclusive distributorship appointment.9

Having been apprised of Corderos demand letter, Thyne &

Macartney, the lawyer of AFFA and Robinson, faxed a letter to ACCRA
law firm asserting that the appointment of Cordero as AFFAs
distributor was for the purpose of one (1) transaction only, that is,
the purchase of a high-speed catamaran vessel by ACG Express Liner
in August 1997. The letter further stated that Cordero was offered the
exclusive distributorship, the terms of which were contained in a
draft agreement which Cordero allegedly failed to return to AFFA
within a reasonable time, and which offer is already being revoked by
AFFA.10
As to the response of Go, Landicho and Tecson to his demand letter,
Cordero testified before the trial court that on the same day,
Landicho, acting on behalf of Go, talked to him over the telephone
and offered to amicably settle their dispute. Tecson and Landicho
offered to convince Go to honor his exclusive distributorship with
AFFA and to purchase all vessels for ACG Express Liner through him
for the next three (3) years. In an effort to amicably settle the matter,
Landicho, acting in behalf of Go, set up a meeting with Cordero on
June 29, 1998 between 9:30 p.m. to 10:30 p.m. at the Mactan Island
Resort Hotel lobby. On said date, however, only Landicho and Tecson
came and no reason was given for Gos absence. Tecson and
Landicho proposed that they will convince Go to pay him
US$1,500,000.00 on the condition that they will get a cut of 20%.
And so it was agreed between him, Landicho and Tecson that the
latter would give him a weekly status report and that the matter will
be settled in three (3) to four (4) weeks and neither party will file an
action against each other until a final report on the proposed
settlement. No such report was made by either Tecson or Landicho
who, it turned out, had no intention to do so and were just buying
time as the catamaran vessel was due to arrive from Australia.
Cordero then filed a complaint with the Bureau of Customs (BOC) to
prohibit the entry of SEACAT 25 from Australia based on
misdeclaration and undervaluation. Consequently, an Alert Order was
issued by Acting BOC Commissioner Nelson Tan for the vessel which
in fact arrived on July 17, 1998. Cordero claimed that Go and
Robinson had conspired to undervalue the vessel by around
US$500,000.00.11

On August 21, 1998, Cordero instituted Civil Case No. 98-35332

seeking to hold Robinson, Go, Tecson and Landicho liable jointly and
solidarily for conniving and conspiring together in violating his
exclusive distributorship in bad faith and wanton disregard of his
rights, thus depriving him of his due commissions (balance of unpaid
commission from the sale of the first vessel in the amount of
US$31,522.01 and unpaid commission for the sale of the second
vessel in the amount of US$328,742.00) and causing him actual,
moral and exemplary damages, including P800,000.00 representing
expenses for airplane travel to Australia, telecommunications bills
and entertainment, on account of AFFAs untimely cancellation of the
exclusive distributorship agreement. Cordero also prayed for the
award of moral and exemplary damages, as well as attorneys fees
and litigation expenses.12
Robinson filed a motion to dismiss grounded on lack of jurisdiction
over his person and failure to state a cause of action, asserting that
there was no act committed in violation of the distributorship
agreement. Said motion was denied by the trial court on December
20, 1999. Robinson was likewise declared in default for failure to file
his answer within the period granted by the trial court. 13 As for Go
and Tecson, their motion to dismiss based on failure to state a cause
of action was likewise denied by the trial court on February 26,
1999.14 Subsequently, they filed their Answer denying that they have
anything to do with the termination by AFFA of Corderos authority as
exclusive distributor in the Philippines. On the contrary, they averred
it was Cordero who stopped communicating with Go in connection
with the purchase of the first vessel from AFFA and was not doing his
part in making progress status reports and airing the clients
grievances to his principal, AFFA, such that Go engaged the services
of Landicho to fly to Australia and attend to the documents needed
for shipment of the vessel to the Philippines. As to the inquiry for the
Philippine price for a Wartsila ship engine for AFFAs other on-going
vessel construction, this was merely requested by Robinson but
which Cordero misinterpreted as indication that Go was buying a
second vessel. Moreover, Landicho and Tecson had no transaction
whatsoever with Cordero who had no document to show any such
shipbuilding contract. As to the supposed meeting to settle their
dispute, this was due to the malicious demand of Cordero to be given
US$3,000,000 as otherwise he will expose in the media the alleged

undervaluation of the vessel with the BOC. In any case, Cordero no

longer had cause of action for his commission for the sale of the
second vessel under the memorandum of agreement dated August 7,
1997 considering the termination of his authority by AFFAs lawyers
on June 26, 1998.15
Pre-trial was reset twice to afford the parties opportunity to reach a
settlement. However, on motion filed by Cordero through counsel,
the trial court reconsidered the resetting of the pre-trial to another
date for the third time as requested by Go, Tecson and Landicho, in
view of the latters failure to appear at the pre-trial conference on
January 7, 2000 despite due notice. The trial court further confirmed
that said defendants misled the trial court in moving for continuance
during the pre-trial conference held on December 10, 1999,
purportedly to go abroad for the holiday season when in truth a HoldDeparture Order had been issued against them. 16 Accordingly,
plaintiff Cordero was allowed to present his evidence ex parte.
Corderos testimony regarding his transaction with defendants Go,
Landicho and Tecson, and the latters offer of settlement, was
corroborated by his counsel who also took the witness stand. Further,
documentary evidence including photographs taken of the June 29,
1998 meeting with Landicho, Tecson and Atty. Tabujara at Shangrilas Mactan Island Resort, photographs taken in Brisbane showing
Cordero, Go with his family, Robinson and Landicho, and also various
documents, communications, vouchers and bank transmittals were
presented to prove that: (1) Cordero was properly authorized and
actually transacted in behalf of AFFA as exclusive distributor in the
Philippines; (2) Cordero spent considerable sums of money in
pursuance of the contract with Go and ACG Express Liner; and (3)
AFFA through Robinson paid Cordero his commissions from each
scheduled payment made by Go for the first SEACAT 25 purchased
from AFFA pursuant to Shipbuilding Contract No. 7825.17
On May 31, 2000, the trial court rendered its decision, the dispositive
portion of which reads as follows:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered
in favor of Plaintiff and against defendants Allan C. Go, Tony
Robinson, Felipe Landicho, and Vincent Tecson. As prayed for,

defendants are hereby ordered to pay Plaintiff jointly and solidarily,

the following:
1. On the First Cause of Action, the sum total of SIXTEEN
MILLION TWO HUNDRED NINETY ONE THOUSAND THREE
HUNDRED FIFTY TWO AND FORTY THREE CENTAVOS
(P16,291,352.43) as actual damages with legal interest from
25 June 1998 until fully paid;
2. On the Second Cause of Action, the sum of ONE MILLION
PESOS (P1,000,000.00) as moral damages;
3. On the Third Cause of Action, the sum of ONE MILLION
PESOS (P1,000,000.00) as exemplary damages; and
4. On the Fourth Cause of Action, the sum of ONE MILLION
PESOS (P1,000,000.00) as attorneys fees;
Costs against the defendants.
SO ORDERED.18
Go, Robinson, Landicho and Tecson filed a motion for new trial,
claiming that they have been unduly prejudiced by the negligence of
their counsel who was allegedly unaware that the pre-trial
conference on January 28, 2000 did not push through for the reason
that Cordero was then allowed to present his evidence ex-parte, as
he had assumed that the said ex-parte hearing was being conducted
only against Robinson who was earlier declared in default. 19 In its
Order dated July 28, 2000, the trial court denied the motion for new
trial.20 In the same order, Corderos motion for execution pending
appeal was granted. Defendants moved to reconsider the said order
insofar as it granted the motion for execution pending appeal. 21 On
August 8, 2000, they filed a notice of appeal.22
On August 18, 2000, the trial court denied the motion for
reconsideration and on August 21, 2000, the writ of execution
pending appeal was issued.23 Meanwhile, the notice of appeal was
denied for failure to pay the appellate court docket fee within the

prescribed period.24 Defendants filed a motion for reconsideration

and to transmit the case records to the CA.25
On September 29, 2000, the CA issued a temporary restraining order
at the instance of defendants in the certiorari case they filed with
said court docketed as CA-G.R. SP No. 60354 questioning the
execution orders issued by the trial court. Consequently, as
requested by the defendants, the trial court recalled and set aside its
November 6, 2000 Order granting the ex-parte motion for release of
garnished funds, cancelled the scheduled public auction sale of
levied real properties, and denied the ex-parte Motion for Break-Open
Order and Ex-Parte Motion for Encashment of Check filed by
Cordero.26 On November 29, 2000, the trial court reconsidered its
Order dated August 21, 2000 denying due course to the notice of
appeal and forthwith directed the transmittal of the records to the
CA.27
On January 29, 2001, the CA rendered judgment granting the petition
for certiorari in CA-G.R. SP No. 60354 and setting aside the trial
courts orders of execution pending appeal. Cordero appealed the
said judgment in a petition for review filed with this Court which was
eventually denied under our Decision dated September 17, 2002. 28
On March 16, 2004, the CA in CA-G.R. CV No. 69113 affirmed the trial
court (1) in allowing Cordero to present his evidence ex-parte after
the unjustified failure of appellants (Go, Tecson and Landicho) to
appear at the pre-trial conference despite due notice; (2) in finding
that it was Cordero and not Pamana who was appointed by AFFA as
the exclusive distributor in the Philippines of its SEACAT 25 and other
fast ferry vessels, which is not limited to the sale of one (1) such
catamaran to Go on August 7, 1997; and (3) in finding that Cordero is
entitled to a commission per vessel sold for AFFA through his efforts
in the amount equivalent to 22.43% of the price of each vessel or
US$328,742.00, and with payments of US$297,219.91 having been
made to Cordero, there remained a balance of US$31,522.09 still due
to him. The CA sustained the trial court in ruling that Cordero is
entitled to damages for the breach of his exclusive distributorship
agreement with AFFA. However, it held that Cordero is entitled only
to commission for the sale of the first catamaran obtained through
his efforts with the remaining unpaid sum of US$31,522.09

or P1,355,449.90 (on the basis of US$1.00=P43.00 rate) with interest

at 6% per annum from the time of the filing of the complaint until the
same is fully paid. As to the P800,000.00 representing expenses
incurred by Cordero for transportation, phone bills, entertainment,
food and lodging, the CA declared there was no basis for such award,
the same being the logical and necessary consequences of the
exclusive distributorship agreement which are normal in the field of
sales and distribution, and the expenditures having redounded to the
benefit of the distributor (Cordero).
On the amounts awarded by the trial court as moral and exemplary
damages, as well as attorneys fees, the CA reduced the same
to P500,000.00, P300,000.00
and P50,000.00,
respectively.
Appellants were held solidarily liable pursuant to the provisions of
Article 1207 in relation to Articles 19, 20, 21 and 22 of the New Civil
Code. The CA further ruled that no error was committed by the trial
court in denying their motion for new trial, which said court found to
be pro forma and did not raise any substantial matter as to warrant
the conduct of another trial.
By Resolution dated July 22, 2004, the CA denied the motions for
reconsideration respectively filed by the appellants and appellee, and
affirmed the Decision dated March 16, 2004 with the sole
modification that the legal interest of 6% per annum shall start to run
from June 24, 1998 until the finality of the decision, and the rate of
12% interest per annum shall apply once the decision becomes final
and executory until the judgment has been satisfied.
The case before us is a consolidation of the petitions for review
under Rule 45 separately filed by Go (G.R. No. 164703) and Cordero
(G.R. No. 164747) in which petitioners raised the following
arguments:
G.R. No. 164703
(Petitioner Go)
I. THE HONORABLE COURT OF APPEALS DISREGARDED THE RULES OF
COURT AND PERTINENT JURISPRUDENCE AND ACTED WITH GRAVE
ABUSE OF DISCRETION IN NOT RULING THAT THE RESPONDENT IS

NOT THE REAL PARTY-IN-INTEREST AND IN NOT DISMISSING THE

INSTANT CASE ON THE GROUND OF LACK OF CAUSE OF ACTION;
II. THE HONORABLE COURT OF APPEALS IGNORED THE LAW AND
JURISPRUDENCE AND ACTED WITH GRAVE ABUSE OF DISCRETION IN
HOLDING HEREIN PETITIONER RESPONSIBLE FOR THE BREACH IN THE
ALLEGED
EXCLUSIVE
DISTRIBUTORSHIP
AGREEMENT
WITH
ALUMINIUM FAST FERRIES AUSTRALIA;

B.
RESPONDENT
GOS
POSITION
PAPER
AND
COUNTERAFFIDAVIT/POSITION PAPER THAT WERE FILED BEFORE THE BUREAU
OF CUSTOMS, ADMITS UNDER OATH THAT HE HAD INDEED
PURCHASED A SECOND VESSEL FROM AFFA.
C. RESPONDENTS ADMITTED IN THEIR PRE-TRIAL BRIEF THAT THEY
HAD PURCHASED A SECOND VESSEL.
II.

III. THE HONORABLE APPELLATE COURT MISAPPLIED THE LAW AND

ACTED WITH GRAVE ABUSE OF DISCRETION IN FINDING PETITIONER
LIABLE IN SOLIDUM WITH THE CO-DEFENDANTS WITH RESPECT TO
THE CLAIMS OF RESPONDENT;
IV. THE HONORABLE COURT OF APPEALS MISAPPLIED LAW AND
JURISPRUDENCE AND GRAVELY ABUSED ITS DISCRETION WHEN IT
FOUND PETITIONER LIABLE FOR UNPAID COMMISSIONS, DAMAGES,
ATTORNEYS FEES, AND LITIGATION EXPENSES; and
V. THE HONORABLE APPELLATE COURT ACTED CONTRARY TO LAW
AND JURISPRUDENCE AND GRAVELY ABUSED ITS DISCRETION WHEN
IT EFFECTIVELY DEPRIVED HEREIN PETITIONER OF HIS RIGHT TO DUE
PROCESS BY AFFIRMING THE LOWER COURTS DENIAL OF
PETITIONERS MOTION FOR NEW TRIAL.29
G.R. No. 164747
(Petitioner Cordero)

THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER IS NOT

ENTITLED TO HIS COMMISSIONS FOR THE PURCHASE OF A SECOND
VESSEL, SINCE IT WAS PETITIONERS EFFORTS WHICH ACTUALLY
FACILITATED AND SET-UP THE TRANSACTION FOR RESPONDENTS.
III.
THE COURT OF APPEALS ERRED IN NOT IMPOSING THE PROPER
LEGAL INTEREST RATE ON RESPONDENTS UNPAID OBLIGATION
WHICH SHOULD BE TWELVE PERCENT (12%) FROM THE TIME OF THE
BREACH OF THE OBLIGATION.
IV.
THE COURT OF APPEALS ERRED IN NOT SUSTAINING THE ORIGINAL
AMOUNT OF CONSEQUENTIAL DAMAGES AWARDED TO PETITIONER
BY THE TRIAL COURT CONSIDERING THE BAD FAITH AND
FRAUDULENT CONDUCT OF RESPONDENTS IN MISAPPROPRIATING
THE MONEY OF PETITIONER.30

I.
THE COURT OF APPEALS ERRED IN NOT SUSTAINING THE JUDGMENT
OF THE TRIAL COURT AWARDING PETITIONER ACTUAL DAMAGES FOR
HIS COMMISSION FOR THE SALE OF THE SECOND VESSEL, SINCE
THERE IS SUFFICIENT EVIDENCE ON RECORD WHICH PROVES THAT
THERE WAS A SECOND SALE OF A VESSEL.
A. THE MEMORANDUM OF AGREEMENT DATED 7 AUGUST 1997
PROVIDES THAT RESPONDENT GO WAS CONTRACTUALLY BOUND TO
BUY TWO (2) VESSELS FROM AFFA.

The controversy boils down to two (2) main issues: (1) whether
petitioner Cordero has the legal personality to sue the respondents
for breach of contract; and (2) whether the respondents may be held
liable for damages to Cordero for his unpaid commissions and
termination of his exclusive distributorship appointment by the
principal, AFFA.
I. Real Party-in-Interest

First, on the issue of whether the case had been filed by the real
party-in-interest as required by Section 2, Rule 3 of the Rules of
Court, which defines such party as the one (1) to be benefited or
injured by the judgment in the suit, or the party entitled to the avails
of the suit. The purposes of this provision are: 1) to prevent the
prosecution of actions by persons without any right, title or interest in
the case; 2) to require that the actual party entitled to legal relief be
the one to prosecute the action; 3) to avoid a multiplicity of suits;
and 4) to discourage litigation and keep it within certain bounds,
pursuant to sound public policy.31 A case is dismissible for lack of
personality to sue upon proof that the plaintiff is not the real party-ininterest, hence grounded on failure to state a cause of action.32
On this issue, we agree with the CA in ruling that it was Cordero and
not Pamana who is the exclusive distributor of AFFA in the Philippines
as shown by the Certification dated June 1, 1997 issued by Tony
Robinson.33 Petitioner Go mentions the following documents also
signed by respondent Robinson which state that "Pamana Marketing
Corporation represented by Mr. Mortimer F. Cordero" was actually the
exclusive distributor: (1) letter dated 1 June 1997 34; (2) certification
dated 5 August 199735; and (3) letter dated 5 August 1997 addressed
to petitioner Cordero concerning "commissions to be paid to Pamana
Marketing Corporation."36 Such apparent inconsistency in naming
AFFAs exclusive distributor in the Philippines is of no moment. For all
intents and purposes, Robinson and AFFA dealt only with Cordero who
alone made decisions in the performance of the exclusive
distributorship, as with other clients to whom he had similarly offered
AFFAs fast ferry vessels. Moreover, the stipulated commissions from
each progress payments made by Go were directly paid by Robinson
to Cordero.37Respondents Landicho and Tecson were only too aware
of Corderos authority as the person who was appointed and acted as
exclusive distributor of AFFA, which can be gleaned from their act of
immediately furnishing him with copies of bank transmittals
everytime Go remits payment to Robinson, who in turn transfers a
portion of funds received to the bank account of Cordero in the
Philippines as his commission. Out of these partial payments of his
commission, Cordero would still give Landicho and Tecson their
respective "commission," or "cuts" from his own commission.
Respondents Landicho and Tecson failed to refute the evidence
submitted by Cordero consisting of receipts signed by them. Said

amounts were apart from the earlier expenses shouldered by Cordero

for Landichos airline tickets, transportation, food and hotel
accommodations for the trip to Australia.38
Moreover, petitioner Go, Landicho and Tecson never raised petitioner
Corderos lack of personality to sue on behalf of Pamana, 39 and did so
only before the CA when they contended that it is Pamana and not
Cordero, who was appointed and acted as exclusive distributor for
AFFA.40 It was Robinson who argued in support of his motion to
dismiss that as far as said defendant is concerned, the real party
plaintiff appears to be Pamana, against the real party defendant
which is AFFA.41 As already mentioned, the trial court denied the
motion to dismiss filed by Robinson.
We find no error committed by the trial court in overruling Robinsons
objection over the improper resort to summons by publication upon a
foreign national like him and in an action in personam,
notwithstanding that he raised it in a special appearance specifically
raising the issue of lack of jurisdiction over his person. Courts acquire
jurisdiction over the plaintiffs upon the filing of the complaint, while
jurisdiction over the defendants in a civil case is acquired either
through the service of summons upon them in the manner required
by law or through their voluntary appearance in court and their
submission to its authority.42 A party who makes a special
appearance in court challenging the jurisdiction of said court based
on the ground of invalid service of summons is not deemed to have
submitted himself to the jurisdiction of the court.43
In this case, however, although the Motion to Dismiss filed by
Robinson specifically stated as one (1) of the grounds the lack of
"personal jurisdiction," it must be noted that he had earlier filed a
Motion for Time to file an appropriate responsive pleading even
beyond the time provided in the summons by publication. 44 Such
motion did not state that it was a conditional appearance entered to
question the regularity of the service of summons, but an
appearance submitting to the jurisdiction of the court by
acknowledging the summons by publication issued by the court and
praying for additional time to file a responsive pleading.
Consequently, Robinson having acknowledged the summons by
publication and also having invoked the jurisdiction of the trial court

to secure affirmative relief in his motion for additional time, he

effectively submitted voluntarily to the trial courts jurisdiction. He is
now estopped from asserting otherwise, even before this Court. 45
II. Breach of Exclusive Distributorship, Contractual Interference and
Respondents Liability for Damages
In Yu v. Court of Appeals,46 this Court ruled that the right to perform
an exclusive distributorship agreement and to reap the profits
resulting from such performance are proprietary rights which a party
may protect. Thus, injunction is the appropriate remedy to prevent a
wrongful interference with contracts by strangers to such contracts
where the legal remedy is insufficient and the resulting injury is
irreparable. In that case, the former dealer of the same goods
purchased the merchandise from the manufacturer in England
through a trading firm in West Germany and sold these in the
Philippines. We held that the rights granted to the petitioner under
the exclusive distributorship agreement may not be diminished nor
rendered illusory by the expedient act of utilizing or interposing a
person or firm to obtain goods for which the exclusive distributorship
was conceptualized, at the expense of the sole authorized
distributor.47
In the case at bar, it was established that petitioner Cordero was not
paid the balance of his commission by respondent Robinson. From
the time petitioner Go and respondent Landicho directly dealt with
respondent Robinson in Brisbane, and ceased communicating
through petitioner Cordero as the exclusive distributor of AFFA in the
Philippines, Cordero was no longer informed of payments remitted to
AFFA in Brisbane. In other words, Cordero had clearly been cut off
from the transaction until the arrival of the first SEACAT 25 which was
sold through his efforts. When Cordero complained to Go, Robinson,
Landicho and Tecson about their acts prejudicial to his rights and
demanded that they respect his exclusive distributorship, Go simply
let his lawyers led by Landicho and Tecson handle the matter and
tried to settle it by promising to pay a certain amount and to
purchase high-speed catamarans through Cordero. However, Cordero
was not paid anything and worse, AFFA through its lawyer in Australia
even terminated his exclusive dealership insisting that his services

were engaged for only one (1) transaction, that is, the purchase of
the first SEACAT 25 in August 1997.
Petitioner Go argues that unlike in Yu v. Court of Appeals 48 there is no
conclusive proof adduced by petitioner Cordero that they actually
purchased a second SEACAT 25 directly from AFFA and hence there
was no violation of the exclusive distributorship agreement. Further,
he contends that the CA gravely abused its discretion in holding
them solidarily liable to Cordero, relying on Articles 1207, 19 and 21
of the Civil Code despite absence of evidence, documentary or
testimonial, showing that they conspired to defeat the very purpose
of the exclusive distributorship agreement.49
We find that contrary to the claims of petitioner Cordero, there was
indeed no sufficient evidence that respondents actually purchased a
second SEACAT 25 directly from AFFA. But this circumstance will not
absolve respondents from liability for invading Corderos rights under
the exclusive distributorship. Respondents clearly acted in bad faith
in bypassing Cordero as they completed the remaining payments to
AFFA without advising him and furnishing him with copies of the bank
transmittals as they previously did, and directly dealt with AFFA
through Robinson regarding arrangements for the arrival of the first
SEACAT 25 in Manila and negotiations for the purchase of the second
vessel pursuant to the Memorandum of Agreement which Cordero
signed in behalf of AFFA. As a result of respondents actuations,
Cordero incurred losses as he was not paid the balance of his
commission from the sale of the first vessel and his exclusive
distributorship revoked by AFFA.
Petitioner Go contends that the trial and appellate courts erred in
holding them solidarily liable for Corderos unpaid commission, which
is the sole obligation of the principal AFFA. It was Robinson on behalf
of AFFA who, in the letter dated August 5, 1997 addressed to
Cordero, undertook to pay commission payments to Pamana on a
staggered progress payment plan in the form of percentage of the
commission per payment. AFFA explicitly committed that it will,
"upon receipt of progress payments, pay to Pamana their full
commission by telegraphic transfer to an account nominated by
Pamana within one to two days of [AFFA] receiving such
payments."50Petitioner Go further maintains that he had not in any

way violated or caused the termination of the exclusive

distributorship agreement between Cordero and AFFA; he had also
paid in full the first and only vessel he purchased from AFFA. 51
While it is true that a third person cannot possibly be sued for breach
of contract because only parties can breach contractual provisions, a
contracting party may sue a third person not for breach but for
inducing another to commit such breach.
Article 1314 of the Civil Code provides:
Art. 1314. Any third person who induces another to violate his
contract shall be liable for damages to the other contracting party.
The elements of tort interference are: (1) existence of a valid
contract; (2) knowledge on the part of the third person of the
existence of a contract; and (3) interference of the third person is
without legal justification.52
The presence of the first and second elements is not disputed.
Through the letters issued by Robinson attesting that Cordero is the
exclusive distributor of AFFA in the Philippines, respondents were
clearly aware of the contract between Cordero and AFFA represented
by Robinson. In fact, evidence on record showed that respondents
initially dealt with and recognized Cordero as such exclusive dealer of
AFFA high-speed catamaran vessels in the Philippines. In that
capacity as exclusive distributor, petitioner Go entered into the
Memorandum of Agreement and Shipbuilding Contract No. 7825 with
Cordero in behalf of AFFA.
As to the third element, our ruling in the case of So Ping Bun v. Court
of Appeals53 is instructive, to wit:
A duty which the law of torts is concerned with is respect for the
property of others, and a cause of action ex delicto may be
predicated upon an unlawful interference by one person of the
enjoyment by the other of his private property. This may pertain to a
situation where a third person induces a party to renege on or violate
his undertaking under a contract. In the case before us, petitioners
Trendsetter Marketing asked DCCSI to execute lease contracts in its

favor, and as a result petitioner deprived respondent corporation of

the latters property right. Clearly, and as correctly viewed by the
appellate court, the three elements of tort interference abovementioned are present in the instant case.
Authorities debate on whether interference may be justified where
the defendant acts for the sole purpose of furthering his own
financial or economic interest. One view is that, as a general rule,
justification for interfering with the business relations of another
exists where the actors motive is to benefit himself. Such
justification does not exist where his sole motive is to cause harm to
the other. Added to this, some authorities believe that it is not
necessary that the interferers interest outweigh that of the party
whose rights are invaded, and that an individual acts under an
economic interest that is substantial, not merely de minimis, such
that wrongful and malicious motives are negatived, for he acts in selfprotection. Moreover, justification for protecting ones financial
position should not be made to depend on a comparison of his
economic interest in the subject matter with that of others. It is
sufficient if the impetus of his conduct lies in a proper business
interest rather than in wrongful motives.
As early as Gilchrist vs. Cuddy, we held that where there was no
malice in the interference of a contract, and the impulse behind ones
conduct lies in a proper business interest rather than in wrongful
motives, a party cannot be a malicious interferer. Where the alleged
interferer is financially interested, and such interest motivates his
conduct, it cannot be said that he is an officious or malicious
intermeddler.
In the instant case, it is clear that petitioner So Ping Bun prevailed
upon DCCSI to lease the warehouse to his enterprise at the expense
of respondent corporation. Though petitioner took interest in the
property of respondent corporation and benefited from it, nothing on
record imputes deliberate wrongful motives or malice in him.
xxx
While we do not encourage tort interferers seeking their economic
interest to intrude into existing contracts at the expense of others,

however, we find that the conduct herein complained of did not

transcend the limits forbidding an obligatory award for damages in
the absence of any malice. The business desire is there to make
some gain to the detriment of the contracting parties. Lack of malice,
however, precludes damages. But it does not relieve petitioner of the
legal liability for entering into contracts and causing breach of
existing ones. The respondent appellate court correctly confirmed the
permanent injunction and nullification of the lease contracts between
DCCSI and Trendsetter Marketing, without awarding damages. The
injunction saved the respondents from further damage or injury
caused by petitioners interference.54 [emphasis supplied.]
Malice connotes ill will or spite, and speaks not in response to duty. It
implies an intention to do ulterior and unjustifiable harm. Malice is
bad faith or bad motive.55 In the case of Lagon v. Court of
Appeals,56 we held that to sustain a case for tortuous interference,
the defendant must have acted with malice or must have been
driven by purely impure reasons to injure the plaintiff; in other words,
his act of interference cannot be justified. We further explained that
the word "induce" refers to situations where a person causes another
to choose one course of conduct by persuasion or intimidation. As to
the allegation of private respondent in said case that petitioner
induced the heirs of the late Bai Tonina Sepi to sell the property to
petitioner despite an alleged renewal of the original lease contract
with the deceased landowner, we ruled as follows:
Assuming ex gratia argumenti that petitioner knew of the contract,
such knowledge alone was not sufficient to make him liable for
tortuous interference. x x x
Furthermore, the records do not support the allegation of private
respondent that petitioner induced the heirs of Bai Tonina Sepi to sell
the property to him. The word "induce" refers to situations where a
person causes another to choose one course of conduct by
persuasion or intimidation. The records show that the decision of the
heirs of the late Bai Tonina Sepi to sell the property was completely
of their own volition and that petitioner did absolutely nothing to
influence their judgment. Private respondent himself did not proffer
any evidence to support his claim. In short, even assuming that
private respondent was able to prove the renewal of his lease

contract with Bai Tonina Sepi, the fact was that he was unable to
prove malice or bad faith on the part of petitioner in purchasing the
property. Therefore, the claim of tortuous interference was never
established.57
In their Answer, respondents denied having anything to do with the
unpaid balance of the commission due to Cordero and the eventual
termination of his exclusive distributorship by AFFA. They gave a
different version of the events that transpired following the signing of
Shipbuilding Contract No. 7825. According to them, several buildercompetitors still entered the picture after the said contract for the
purchase of one (1) SEACAT 25 was sent to Brisbane in July 1997 for
authentication, adding that the contract was to be effective on
August 7, 1997, the time when their funds was to become available.
Go admitted he called the attention of AFFA if it can compete with
the prices of other builders, and upon mutual agreement, AFFA
agreed to give them a discounted price under the following terms
and conditions: (1) that the contract price be lowered; (2) that Go will
obtain another vessel; (3) that to secure compliance of such
conditions, Go must make an advance payment for the building of
the second vessel; and (4) that the payment scheme formerly agreed
upon as stipulated in the first contract shall still be the basis and
used as the guiding factor in remitting money for the building of the
first vessel. This led to the signing of another contract superseding
the first one (1), still to be dated 07 August 1997. Attached to the
answer were photocopies of the second contract stating a lower
purchase price (US$1,150,000.00) and facsimile transmission of AFFA
to Go confirming the transaction.58
As to the cessation of communication with Cordero, Go averred it was
Cordero who was nowhere to be contacted at the time the
shipbuilding progress did not turn good as promised, and it was
always Landicho and Tecson who, after several attempts, were able
to locate him only to obtain unsatisfactory reports such that it was
Go who would still call up Robinson regarding any progress status
report, lacking documents for MARINA, etc., and go to Australia for
ocular inspection. Hence, in May 1998 on the scheduled launching of
the ship in Australia, Go engaged the services of Landicho who went
to Australia to see to it that all documents needed for the shipment
of the vessel to the Philippines would be in order. It was also during

this time that Robinsons request for inquiry on the Philippine price of
a Wartsila engine for AFFAs then on-going vessel construction, was
misinterpreted by Cordero as indicating that Go was buying a second
vessel.59
We find these allegations unconvincing and a mere afterthought as
these were the very same averments contained in the Position Paper
for the Importer dated October 9, 1998, which was submitted by Go
on behalf of ACG Express Liner in connection with the complaintaffidavit filed by Cordero before the BOC-SGS Appeals Committee
relative to the shipment valuation of the first SEACAT 25 purchased
from AFFA.60 It appears that the purported second contract
superseding the original Shipbuilding Contract No. 7825 and stating a
lower price of US$1,150,000.00 (not US$1,465,512.00) was only
presented before the BOC to show that the vessel imported into the
Philippines was not undervalued by almost US$500,000.00. Cordero
vehemently denied there was such modification of the contract and
accused respondents of resorting to falsified documents, including
the facsimile transmission of AFFA supposedly confirming the said
sale for only US$1,150,000.00. Incidentally, another document filed
in said BOC case, the Counter-Affidavit/Position Paper for the Importer
dated November 16, 1998,61 states in paragraph 8 under the
Antecedent facts thereof, that -8. As elsewhere stated, the total remittances made by herein
Importer to AFFA does not alone represent the purchase price for
Seacat 25. It includes advance payment for the acquisition of another
vessel as part of the deal due to the discounted price.62
which even gives credence to the claim of Cordero that respondents
negotiated for the sale of the second vessel and that the
nonpayment of the remaining two (2) instalments of his commission
for the sale of the first SEACAT 25 was a result of Go and Landichos
directly dealing with Robinson, obviously to obtain a lower price for
the second vessel at the expense of Cordero.
The act of Go, Landicho and Tecson in inducing Robinson and AFFA to
enter into another contract directly with ACG Express Liner to obtain
a lower price for the second vessel resulted in AFFAs breach of its
contractual obligation to pay in full the commission due to Cordero

and unceremonious termination of Corderos appointment as

exclusive distributor. Following our pronouncement in Gilchrist v.
Cuddy (supra), such act may not be deemed malicious if impelled by
a proper business interest rather than in wrongful motives. The
attendant circumstances, however, demonstrated that respondents
transgressed the bounds of permissible financial interest to benefit
themselves at the expense of Cordero. Respondents furtively went
directly to Robinson after Cordero had worked hard to close the deal
for them to purchase from AFFA two (2) SEACAT 25, closely monitored
the progress of building the first vessel sold, attended to their
concerns and spent no measly sum for the trip to Australia with Go,
Landicho and Gos family members. But what is appalling is the fact
that even as Go, Landicho and Tecson secretly negotiated with
Robinson for the purchase of a second vessel, Landicho and Tecson
continued to demand and receive from Cordero their "commission" or
"cut" from Corderos earned commission from the sale of the first
SEACAT 25.
Cordero was practically excluded from the transaction when Go,
Robinson, Tecson and Landicho suddenly ceased communicating with
him, without giving him any explanation. While there was nothing
objectionable in negotiating for a lower price in the second purchase
of SEACAT 25, which is not prohibited by the Memorandum of
Agreement, Go, Robinson, Tecson and Landicho clearly connived not
only in ensuring that Cordero would have no participation in the
contract for sale of the second SEACAT 25, but also that Cordero
would not be paid the balance of his commission from the sale of the
first SEACAT 25. This, despite their knowledge that it was commission
already earned by and due to Cordero. Thus, the trial and appellate
courts correctly ruled that the actuations of Go, Robinson, Tecson and
Landicho were without legal justification and intended solely to
prejudice Cordero.
The existence of malice, ill will or bad faith is a factual matter. As a
rule, findings of fact of the trial court, when affirmed by the appellate
court, are conclusive on this Court. 63 We see no compelling reason to
reverse the findings of the RTC and the CA that respondents acted in
bad faith and in utter disregard of the rights of Cordero under the
exclusive distributorship agreement.

The failure of Robinson, Go, Tecson and Landico to act with fairness,
honesty and good faith in securing better terms for the purchase of
high-speed catamarans from AFFA, to the prejudice of Cordero as the
duly appointed exclusive distributor, is further proscribed by Article
19 of the Civil Code:
Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith.
As we have expounded in another case:
Elsewhere, we explained that when "a right is exercised in a manner
which does not conform with the norms enshrined in Article 19 and
results in damage to another, a legal wrong is thereby committed for
which the wrongdoer must be responsible." The object of this article,
therefore, is to set certain standards which must be observed not
only in the exercise of ones rights but also in the performance of
ones duties. These standards are the following: act with justice, give
everyone his due and observe honesty and good faith. Its antithesis,
necessarily, is any act evincing bad faith or intent to injure. Its
elements are the following: (1) There is a legal right or duty; (2)
which is exercised in bad faith; (3) for the sole intent of prejudicing or
injuring another. When Article 19 is violated, an action for damages is
proper under Articles 20 or 21 of the Civil Code. Article 20 pertains to
damages arising from a violation of law x x x. Article 21, on the other
hand, states:
Art. 21. Any person who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage.
Article 21 refers to acts contra bonus mores and has the following
elements: (1) There is an act which is legal; (2) but which is contrary
to morals, good custom, public order, or public policy; and (3) it is
done with intent to injure.
A common theme runs through Articles 19 and 21, and that is, the
act complained of must be intentional.64

Petitioner Gos argument that he, Landicho and Tecson cannot be

held liable solidarily with Robinson for actual, moral and exemplary
damages, as well as attorneys fees awarded to Cordero since no law
or contract provided for solidary obligation in these cases, is equally
bereft of merit. Conformably with Article 2194 of the Civil Code, the
responsibility of two or more persons who are liable for the quasidelict is solidary.65 In Lafarge Cement Philippines, Inc. v. Continental
Cement Corporation,66 we held:
[O]bligations arising from tort are, by their nature, always solidary.
We have assiduously maintained this legal principle as early as 1912
in Worcester v. Ocampo, in which we held:
x x x The difficulty in the contention of the appellants is that they fail
to recognize that the basis of the present action is tort. They fail to
recognize the universal doctrine that each joint tort feasor is not only
individually liable for the tort in which he participates, but is also
jointly liable with his tort feasors. x x x
It may be stated as a general rule that joint tort feasors are all the
persons who command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of a tort, or
who approve of it after it is done, if done for their benefit. They are
each liable as principals, to the same extent and in the same manner
as if they had performed the wrongful act themselves. x x x
Joint tort feasors are jointly and severally liable for the tort which
they commit.1avvphi1 The persons injured may sue all of them or
any number less than all. Each is liable for the whole damages
caused by all, and all together are jointly liable for the whole
damage. It is no defense for one sued alone, that the others who
participated in the wrongful act are not joined with him as
defendants; nor is it any excuse for him that his participation in the
tort was insignificant as compared to that of the others. x x x
Joint tort feasors are not liable pro rata. The damages can not be
apportioned among them, except among themselves. They cannot
insist upon an apportionment, for the purpose of each paying an
aliquot part. They are jointly and severally liable for the whole
amount. x x x

A payment in full for the damage done, by one of the joint tort
feasors, of course satisfies any claim which might exist against the
others. There can be but satisfaction. The release of one of the joint
tort feasors by agreement generally operates to discharge all. x x x
Of course, the court during trial may find that some of the alleged
tort feasors are liable and that others are not liable. The courts may
release some for lack of evidence while condemning others of the
alleged tort feasors. And this is true even though they are charged
jointly and severally.67 [emphasis supplied.]
The rule is that the defendant found guilty of interference with
contractual relations cannot be held liable for more than the amount
for which the party who was inducted to break the contract can be
held liable.68 Respondents Go, Landicho and Tecson were therefore
correctly held liable for the balance of petitioner Corderos
commission from the sale of the first SEACAT 25, in the amount of
US$31,522.09 or its peso equivalent, which AFFA/Robinson did not
pay in violation of the exclusive distributorship agreement, with
interest at the rate of 6% per annum from June 24, 1998 until the
same is fully paid.
Respondents having acted in bad faith, moral damages may be
recovered under Article 2219 of the Civil Code.69On the other hand,
the requirements of an award of exemplary damages are: (1) they
may be imposed by way of example in addition to compensatory
damages, and only after the claimants right to them has been
established; (2) that they cannot be recovered as a matter of right,
their determination depending upon the amount of compensatory
damages that may be awarded to the claimant; and (3) the act must
be accompanied by bad faith or done in a wanton, fraudulent,
oppressive or malevolent manner.70 The award of exemplary
damages is thus in order. However, we find the sums awarded by the
trial court as moral and exemplary damages as reduced by the CA,
still excessive under the circumstances.
Moral damages are meant to compensate and alleviate the physical
suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and
similar injuries unjustly caused. Although incapable of pecuniary

estimation, the amount must somehow be proportional to and in

approximation of the suffering inflicted. Moral damages are not
punitive in nature and were never intended to enrich the claimant at
the expense of the defendant. There is no hard-and-fast rule in
determining what would be a fair and reasonable amount of moral
damages, since each case must be governed by its own peculiar
facts. Trial courts are given discretion in determining the amount,
with the limitation that it "should not be palpably and scandalously
excessive." Indeed, it must be commensurate to the loss or injury
suffered.71
We believe that the amounts of P300,000.00 and P200,000.00 as
moral and exemplary damages, respectively, would be sufficient and
reasonable. Because exemplary damages are awarded, attorneys
fees may also be awarded in consonance with Article 2208 (1). 72 We
affirm the appellate courts award of attorneys fees in the amount
of P50,000.00.
WHEREFORE, the petitions are DENIED. The Decision dated March 16,
2004 as modified by the Resolution dated July 22, 2004 of the Court
of Appeals in CA-G.R. CV No. 69113 are hereby AFFIRMED with
MODIFICATION in that the awards of moral and exemplary damages
are hereby reduced to P300,000.00 andP200,000.00, respectively.
With costs against the petitioner in G.R. No. 164703.
SO ORDERED.

WHEREFORE, foregoing considered, the appeal of

respondent-appellant So Ping Bun for lack of merit is
DISMISSED. The appealed decision dated April 20,
1992 of the court a quo is modified by reducing the
attorney's fees awarded to plaintiff Tek Hua
Enterprising
Corporation
from
P500,000.00
to
P200,000.00. 3
The facts are as follows:
In 1963, Tek Hua Trading Co, through its managing partner, So Pek
Giok, entered into lease agreements with lessor Dee C. Chuan & Sons
Inc. (DCCSI). Subjects of four (4) lease contracts were premises
located at Nos. 930, 930-Int., 924-B and 924-C, Soler Street, Binondo,
Manila. Tek Hua used the areas to store its textiles. The contracts
each had a one-year term. They provided that should the lessee
continue to occupy the premises after the term, the lease shall be on
a month-to-month basis.

G.R. No. 120554 September 21, 1999

SO PING BUN, petitioner,
vs.
COURT OF APPEALS, TEK HUA ENTERPRISES CORP. and
MANUEL C. TIONG, respondents.

QUISUMBING, J.:
This petition for certiorari challenges the Decision 1 of the Court of
Appeals dated October 10, 1994, and the Resolution 2 dated June 5,
1995, in CA-G.R. CV No. 38784. The appellate court affirmed the
decision of the Regional Trial Court of Manila, Branch 35, except for
the award of attorney's fees, as follows:

When the contracts expired, the parties did not renew the contracts,
but Tek Hua continued to occupy the premises. In 1976, Tek Hua
Trading Co. was dissolved. Later, the original members of Tek Hua
Trading Co. including Manuel C. Tiong, formed Tek Hua Enterprising
Corp., herein respondent corporation.
So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So
Pek Giok's grandson, petitioner So Ping Bun, occupied the warehouse
for his own textile business, Trendsetter Marketing.
On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua
Enterprises, informing the latter of the 25% increase in rent effective
September 1, 1989. The rent increase was later on reduced to 20%
effective January 1, 1990, upon other lessees' demand. Again on
December 1, 1990, the lessor implemented a 30% rent increase.
Enclosed in these letters were new lease contracts for signing. DCCSI
warned that failure of the lessee to accomplish the contracts shall be
deemed as lack of interest on the lessee's part, and agreement to the
termination of the lease. Private respondents did not answer any of
these letters. Still, the lease contracts were not rescinded.

On March 1, 1991, private respondent Tiong sent a letter to petitioner

which reads as follows:
March 1, 1991
Mr. So Ping Bun

Petitioner refused to vacate. On March 4, 1992, petitioner requested

formal contracts of lease with DCCSI in favor Trendsetter Marketing.
So Ping Bun claimed that after the death of his grandfather, So Pek
Giok, he had been occupying the premises for his textile business
and religiously paid rent. DCCSI acceded to petitioner's request. The
lease contracts in favor of Trendsetter were executed.

Binondo, Manila

In the suit for injunction, private respondents pressed for the

nullification of the lease contracts between DCCSI and petitioner.
They also claimed damages.

Dear Mr. So,

After trial, the trial court ruled:

930 Soler Street

Due to my closed (sic) business associate (sic) for

three decades with your late grandfather Mr. So Pek
Giok and late father, Mr. So Chong Bon, I allowed you
temporarily to use the warehouse of Tek Hua
Enterprising Corp. for several years to generate your
personal business.
Since I decided to go back into textile business, I need
a warehouse immediately for my stocks. Therefore,
please be advised to vacate all your stocks in Tek Hua
Enterprising Corp. Warehouse. You are hereby given 14
days to vacate the premises unless you have good
reasons that you have the right to stay. Otherwise, I
will be constrained to take measure to protect my
interest.
Please give this urgent matter your preferential
attention to avoid inconvenience on your part.
Very truly yours,
(Sgd) Manuel C. Tiong
MANUEL C. TIONG
President

WHEREFORE, judgment is rendered:

1. Annulling the four
Contracts
of
Lease
(Exhibits A, A-1 to A-3,
inclusive) all dated March
11,
1991,
between
defendant So Ping Bun,
doing business under the
name
and
style
of
"Trendsetter
Marketing",
and defendant Dee C.
Chuan & Sons, Inc. over
the premises located at
Nos. 924-B, 924-C, 930
and 930, Int., respectively,
Soler
Street,
Binondo
Manila;
2. Making permanent the
writ
of
preliminary
injunction issued by this
Court on June 21, 1991;
3. Ordering defendant So
Ping Bun to pay the
aggrieved party, plaintiff

Tek
Hua
Enterprising
Corporation, the sum of
P500,000.00,
for
attorney's fees;

TRIAL
COURT'S
DECISION
FINDING SO PING BUN GUILTY OF
TORTUOUS INTERFERENCE OF
CONTRACT?

4.
Dismissing
the
complaint,
insofar
as
plaintiff Manuel C. Tiong is
concerned,
and
the
respective counterclaims
of the defendant;

II. WHETHER THE APPELLATE

COURT ERRED IN AWARDING
ATTORNEY'S
FEES
OF
P200,000.00
IN
FAVOR
OF
PRIVATE RESPONDENTS.

5. Ordering defendant So
Ping Bun to pay the costs
of this lawsuit;
This judgment is without prejudice to the rights of
plaintiff Tek Hua Enterprising Corporation and
defendant Dee C. Chuan & Sons, Inc. to negotiate for
the renewal of their lease contracts over the premises
located at Nos. 930, 930-Int., 924-B and 924-C Soler
Street, Binondo, Manila, under such terms and
conditions as they agree upon, provided they are not
contrary to law, public policy, public order, and morals.
SO ORDERED.

The foregoing issues involve, essentially, the correct interpretation of

the applicable law on tortuous conduct, particularly unlawful
interference with contract. We have to begin, obviously, with certain
fundamental principles on torts and damages.
Damage is the loss, hurt, or harm which results from injury, and
damages are the recompense or compensation awarded for the
damage suffered. 6 One becomes liable in an action for damages for
a nontrespassory invasion of another's interest in the private use and
enjoyment of asset if (a) the other has property rights and privileges
with respect to the use or enjoyment interfered with, (b) the invasion
is substantial, (c) the defendant's conduct is a legal cause of the
invasion, and (d) the invasion is either intentional and unreasonable
or unintentional and actionable under general negligence rules. 7

Petitioner's motion for reconsideration of the above decision was

denied.
On appeal by So Ping Bun, the Court of Appeals upheld the trial
court. On motion for reconsideration, the appellate court modified
the decision by reducing the award of attorney's fees from five
hundred thousand (P500,000.00) pesos to two hundred thousand
(P200,000.00) pesos.
Petitioner is now before the Court raising the following issues:
I. WHETHER THE APPELLATE
COURT ERRED IN AFFIRMING THE

The elements of tort interference are: (1) existence of a valid

contract; (2) knowledge on the part of the third person of the
existence of contract; and (3) interference of the third person is
without legal justification or excuse.8
A duty which the law of torts is concerned with is respect for the
property of others, and a cause of action ex delicto may be
predicated upon an unlawful interference by one person of the
enjoyment
by
the
other
of
his
private
property. 9 This may pertain to a situation where a third person
induces a party to renege on or violate his undertaking under a
contract. In the case before us, petitioner's Trendsetter Marketing
asked DCCSI to execute lease contracts in its favor, and as a result
petitioner deprived respondent corporation of the latter's property

right. Clearly, and as correctly viewed by the appellate court, the

three elements of tort interference above-mentioned are present in
the instant case.

were not entitled to actual, moral or exemplary damages, it follows

that he ought to be absolved of any liability, including attorney's
fees.

Authorities debate on whether interference may be justified where

the defendant acts for the sole purpose of furthering his own
financial or economic interest. 10 One view is that, as a general rule,
justification for interfering with the business relations of another
exists where the actor's motive is to benefit himself. Such
justification does not exist where his sole motive is to cause harm to
the other. Added to this, some authorities believe that it is not
necessary that the interferer's interest outweigh that of the party
whose rights are invaded, and that an individual acts under an
economic interest that is substantial, not merely de minimis, such
that wrongful and malicious motives are negatived, for he acts in selfprotection. 11 Moreover justification for protecting one's financial
position should not be made to depend on a comparison of his
economic interest in the subject matter with that of others. 12 It is
sufficient if the impetus of his conduct lies in a proper business
interest rather than in wrongful motives. 13

It is true that the lower courts did not award damages, but this was
only because the extent of damages was not quantifiable. We had a
similar situation in Gilchrist, where it was difficult or impossible to
determine the extent of damage and there was nothing on record to
serve as basis thereof. In that case we refrained from awarding
damages. We believe the same conclusion applies in this case.

As early as Gilchrist vs. Cuddy, 14 we held that where there was no

malice in the interference of a contract, and the impulse behind one's
conduct lies in a proper business interest rather than in wrongful
motives, a party cannot be a malicious interferer. Where the alleged
interferer is financially interested, and such interest motivates his
conduct, it cannot be said that he is an officious or malicious
intermeddler. 15
In the instant case, it is clear that petitioner So Ping Bun prevailed
upon DCCSI to lease the warehouse to his enterprise at the expense
of respondent corporation. Though petitioner took interest in the
property of respondent corporation and benefited from it, nothing on
record imputes deliberate wrongful motives or malice on him.
Sec. 1314 of the Civil Code categorically provides also that, "Any
third person who induces another to violate his contract shall be
liable for damages to the other contracting party." Petitioner argues
that damage is an essential element of tort interference, and since
the trial court and the appellate court ruled that private respondents

While we do not encourage tort interferers seeking their economic

interest to intrude into existing contracts at the expense of others,
however, we find that the conduct herein complained of did not
transcend the limits forbidding an obligatory award for damages in
the absence of any malice. The business desire is there to make
some gain to the detriment of the contracting parties. Lack of malice,
however, precludes damages. But it does not relieve petitioner of the
legal liability for entering into contracts and causing breach of
existing ones. The respondent appellate court correctly confirmed the
permanent injunction and nullification of the lease contracts between
DCCSI and Trendsetter Marketing, without awarding damages. The
injunction saved the respondents from further damage or injury
caused by petitioner's interference.
Lastly, the recovery of attorney's fees in the concept of actual or
compensatory damages, is allowed under the circumstances
provided for in Article 2208 of the Civil Code. 16 One such occasion is
when the defendant's act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his
interest. 17 But we have consistently held that the award of
considerable damages should have clear factual and legal bases. 18 In
connection with attorney's fees, the award should be commensurate
to the benefits that would have been derived from a favorable
judgment. Settled is the rule that fairness of the award of damages
by the trial court calls for appellate review such that the award if far
too excessive can be reduced. 19 This ruling applies with equal force
on the award of attorney's fees. In a long line of cases we said, "It is
not sound policy to place in penalty on the right to litigate. To compel
the defeated party to pay the fees of counsel for his successful

opponent would throw wide open the door of temptation to the

opposing party and his counsel to swell the fees to undue
proportions." 20
Considering that the respondent corporation's lease contract, at the
time when the cause of action accrued, ran only on a month-tomonth basis whence before it was on a yearly basis, we find even the
reduced amount of attorney's fees ordered by the Court of Appeals
still
exorbitant
in
the
light
of
prevailing
jurisprudence. 21Consequently, the amount of two hundred thousand
(P200,000.00) awarded by respondent appellate court should be
reduced to one hundred thousand (P100,000.00) pesos as the
reasonable award or attorney's fees in favor of private respondent
corporation.
WHEREFORE, the petition is hereby DENIED. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. CV No. 38784 are
hereby AFFIRMED, with MODIFICATION that the award of attorney's
fees is reduced from two hundred thousand (P200,000.00) to one
hundred thousand (P100,000.00) pesos. No pronouncement as to
costs.1wphi1.nt
SO ORDERED.
Bellosillo, Mendoza

of the Court of Appeals in CA-G.R. CV No. 76370. The appellate court

had reversed and set aside the Decision 3 dated September 2, 2002 of
the Regional Trial Court (RTC), Branch 67 of Pasig City, in Civil Case
No. 68350; dismissed petitioners complaint; and held that there was
no perfected contract of lease between the parties.
The antecedents facts, culled from the records, are as follows:
Rockland Construction Company, Inc. (Rockland), in a letter 4 dated
March 1, 2000, offered to lease from Mid-Pasig Land Development
Corporation (Mid-Pasig) the latters 3.1-hectare property in Pasig City.
This property is covered by Transfer Certificate of Title Nos. 469702
and 337158 under the control of the Presidential Commission on
Good Government (PCGG). Upon instruction of Mid-Pasig to address
the offer to the PCGG, Rockland wrote the PCGG on April 15, 2000.
The letter,5 addressed to PCGG Chairman Magdangal Elma, included
Rocklands proposed terms and conditions for the lease. This letter
was also received by Mid-Pasig on April 18, 2000, but Mid-Pasig made
no response.
Again, in another letter6 dated June 8, 2000 addressed to the
Chairman of Mid-Pasig, Mr. Ronaldo Salonga, Rockland sent a
Metropolitan Bank and Trust Company Check No. 2930050168 7 for P1
million as a sign of its good faith and readiness to enter into the lease
agreement under the certain terms and conditions stipulated in the
letter. Mid-Pasig received this letter on July 28, 2000.

SECOND DIVISION
G.R. No. 164587

February 4, 2008

ROCKLAND CONSTRUCTION COMPANY, INC., petitioner,

vs.
MID-PASIG LAND DEVELOPMENT CORPORATION, respondent.
DECISION
QUISUMBING, J.:
This petition for review seeks the reversal of the Decision 1 and
Resolution2 dated February 27, 2004 and July 21, 2004, respectively,

In a subsequent follow-up letter8 dated February 2, 2001, Rockland

then said that it presumed that Mid-Pasig had accepted its offer
because the P1 million check it issued had been credited to MidPasigs account on December 5, 2000.9
Mid-Pasig, however, denied it accepted Rocklands offer and claimed
that no check was attached to the said letter. It also vehemently
denied receiving the P1 million check, much less depositing it in its
account.
In its letter10 dated February 6, 2001, Mid-Pasig replied to Rockland
that it was only upon receipt of the latters February 2 letter that the
former came to know where the check came from and what it was

for. Nevertheless, it categorically informed Rockland that it could not

entertain the latters lease application. Mid-Pasig reiterated its refusal
of Rocklands offer in a letter11 dated February 13, 2001.

5. Ordering the defendant to pay plaintiff [attorneys] fees in

the sum of One Million Pesos (P1,000,000.00), plus P2,000.00
for every appearance made by counsel in court;

Rockland then filed an action for specific performance docketed as

Civil Case No. 68350 in the RTC, Branch 67 of Pasig City. Rockland
sought to compel Mid-Pasig to execute in Rocklands favor, a contract
of lease over a 3.1-hectare portion 12 of Mid-Pasigs property in Pasig
City.

6. The temporary restraining order dated April 2, 2001 is

hereby made PERMANENT;
7. Dismissing defendants counterclaim.
With costs against the defendant.

On September 2, 2002, the trial court rendered a decision, the

dispositive portion of which reads in part:
WHEREFORE, judgment is rendered, as follows:

SO ORDERED.13

2. Holding that the principal terms and conditions of the

aforesaid lease agreement are as stated in plaintiffs June 8,
2000 letter (Exh. D), to wit:

On appeal, the Court of Appeals reversed and set aside the trial
courts decision on the following grounds: (1) there was no meeting
of the minds as to the offer and acceptance between the parties; (2)
there was no implied acceptance of the P1 million check as Mid-Pasig
was not aware of its source at the time Mid-Pasig discovered the
existence of the P1 million in its account; and (3) Rocklands
subsequent acts and/or omissions contradicted its claim that there
was already a contract of lease, as it neither took possession of the
property, nor did it pay for the corresponding monthly rentals.
Accordingly, the Court of Appeals dismissed Rocklands complaint, as
well as Mid-Pasigs counterclaim. Rockland sought reconsideration,
but it was denied.

xxxx

Petitioner Rockland now comes before us raising a complex issue:

1. Declaring that the plaintiff and the defendant have duly

agreed upon a valid and enforceable lease agreement of
subject portions of [defendants] properties designated in Exh.
A as areas "A", "B" and "C", comprising an area of 5,000
square meters, 11,000 square meters and 15,000 square
meters, or a total of 31,000 square meters;

3. Ordering the defendant to execute a written lease contract

in favor of the plaintiff containing the principal terms and
conditions mentioned in the next-preceding paragraph, within
sixty (60) days from finality of this judgment, and likewise
ordering the plaintiff to pay rent to the defendant as specified
in said terms and conditions;
4. Ordering the defendant to keep and maintain the plaintiff in
the peaceful possession and enjoyment of the leased
premises during the term of said contract;

. . . WHETHER OR NOT RESPONDENTS ACT OF DEPOSITING

INTO ITS CORPORATE BANK ACCOUNT PETITIONERS P1
MILLION CHECK AND COLLECTING THE PROCEEDS THEREOF:
(A) PRODUCES THE LEGAL EFFECT OF AN ACCEPTANCE OF
PETITIONERS OFFER AND CONSIDERED AS CONSENT TO THE
PAYMENT FOR WHICH IT WAS INTENDED; AND/OR [(B)]
CONSTITUTES IN LEGAL CONTEMPLATION ESTOPPEL IN
PAIS, SUFFICIENT TO APPRECIATE RESPONDENTS CONSENT
TO THE LEASE.14
Simply stated, the issue may be rephrased into two questions: Was
there a perfected contract of lease? Had estoppel in pais set in?

Rockland contends that the contract of lease had been perfected and
that Mid-Pasig is in estoppel in pais because it impliedly accepted its
offer when the P1 million check was credited to Mid-Pasigs account.
Mid-Pasig counters that it never accepted Rocklands offer. It avers it
immediately rejected Rocklands offer upon learning of the
mysterious deposit of the P1 million check in its account.
Since the re-stated issues are intertwined, we shall discuss them
jointly.
A contract has three distinct stages: preparation, perfection, and
consummation. Preparation or negotiation begins when the
prospective contracting parties manifest their interest in the contract
and ends at the moment of their agreement. Perfection or birth of the
contract
occurs
when
they
agree
upon
the essential
elements thereof. Consummation, the last stage, occurs when the
parties "fulfill or perform the terms agreed upon in the contract,
culminating in the extinguishment thereof."15
Negotiation is formally initiated by an offer. Accordingly, an offer that
is not accepted, either expressly or impliedly, 16 precludes the
existence of consent, which is one of the essential elements 17 of a
contract. Consent, under Article 1319 of the Civil Code, is manifested
by the meeting of the offer and acceptance upon the thing which are
to constitute a contract. To produce a contract, the offer must be
certain and the acceptance absolute.18
A close review of the events in this case, in the light of the parties
evidence, shows that there was no perfected contract of lease
between the parties. Mid-Pasig was not aware that Rockland
deposited the P1 million check in its account. It only learned of
Rocklands check when it received Rocklands February 2, 2001 letter.
Mid-Pasig, upon investigation, also learned that the check was
deposited at the Philippine National Bank (PNB) San Juan Branch,
instead of PNB Ortigas Branch where Mid-Pasig maintains its account.
Immediately, Mid-Pasig wrote Rockland on February 6, 2001 rejecting
the offer, and proposed that Rockland apply the P1 million to its other
existing lease instead. These circumstances clearly show that there
was no concurrence of Rocklands offer and Mid-Pasigs acceptance.

Mid-Pasig is also not in estoppel in pais. The doctrine of estoppel is

based on the grounds of public policy, fair dealing, good faith and
justice, and its purpose is to forbid one to speak against his own act,
representations, or commitments to the injury of one to whom they
were directed and who reasonably relied thereon. 19 Since estoppel is
based on equity and justice, it is essential that before a person can
be barred from asserting a fact contrary to his act or conduct, it must
be shown that such act or conduct has been intended and would
unjustly cause harm to those who are misled if the principle were not
applied against him.20
From the start, Mid-Pasig never falsely represented its intention that
could lead Rockland to believe that Mid-Pasig had accepted
Rocklands offer. Mid-Pasig consistently rejected Rocklands offer.
Further, Rockland never secured the approval of Mid-Pasigs Board of
Directors and the PCGG to lease the subject property to Rockland. As
noted by the Court of Appeals, if indeed Rockland believed that MidPasig impliedly accepted the offer, then it should have taken
possession of the property and paid the monthly rentals. But it did
not. For estoppel to apply, the action giving rise thereto must be
unequivocal and intentional because, if misapplied, estoppel may
become a tool of injustice.21
WHEREFORE, the instant petition is DENIED. The Decision and
Resolution dated February 27, 2004 and July 21, 2004, respectively,
of the Court of Appeals in CA-G.R. CV No. 76370 are AFFIRMED.
Costs against the petitioner.
SO ORDERED.
SECOND DIVISION

G.R. No. 170369

June 16, 2010

KOREAN AIR CO., LTD. and SUK KYOO KIM, Petitioners,

vs. ADELINA A.S. YUSON, Respondent.

to the cargo department as "cargo dispatch." Yuson continued to

receive the same compensation and exercise the same authority as
passenger sales manager.
In order to cut costs, Korean Air offered its employees an early
retirement program (ERP). In a memorandum 6dated 21 August 2001,
Korean Air stated that:

CARPIO, J.:
The Case
1

This is a petition for review on certiorari under Rule 45 of the Rules

of Court. The petition challenges the 28 June 2005 Decision 2 and 3
November 2005 Resolution3 of the Court of Appeals in CA-G.R. SP No.
86762. The Court of Appeals set aside the 30 July 2004 Resolution 4 of
the National Labor Relations Commission (NLRC) in NLRC NCR CA No.
034928-03, affirming the 31 January 2003 Decision 5 of Labor Arbiter
Ariel Cadiente Santos (Labor Arbiter Santos) in NLRC-NCR S Case No.
30-11-05543-01.
The Facts
In July 1975, Korean Air Co., Ltd. (Korean Air) hired Adelina A.S. Yuson
(Yuson) as reservations agent. Korean Air promoted Yuson to
assistant manager in 1993, and to passenger sales manager in 1999.
Korean Air had an International Passenger Manual (IPM) which
contained, among others, travel benefit to its employees. However,
Korean Air never implemented the travel benefit under the manual.
Instead, Korean Air granted all its employees travel benefit as
contained in the collective bargaining agreement (CBA). Yuson
availed of the travel benefit under the CBA during her stay in the
company.
In 2000, Korean Air suffered a net loss of over $367,000,000.
Consequently, Korean Air reduced its budget for 2001 by 10 percent.
In April 2001, Yuson requested Korean Air that she be transferred
from the passenger sales department to the cargo department. Yuson
wanted to be exposed to the operations of the cargo department
because she intended to pursue a cargo agency business after her
retirement. On 4 June 2001, Korean Air temporarily transferred Yuson

The results of operation of Korean Air for the Year 2000, was [sic]
bad. The Company suffered a net loss of over THREE HUNDRED SIXTY
SEVEN MILLION DOLLARS, (USD367,000,000.00). For this reason, the
budget for the Year 2001 was reduced by 10%. Accordingly, to
prevent further losses, Head Office recently implemented an early
retirement program not only for Head Office staffs but throughout all
Korean Air branches abroad. Unfortunately, in Head Office alone, 500
positions will be affected. This program is being offered before finally
conducting a retrenchment program.
In compliance with Head Office instruction, MNLSM Management, on
its discretion, is hereby offering the said early retirement program to
its staff. Availing employees shall be given ONE AND A HALF MONTHS
(1.50%) [sic] salary for every year of service and other benefits. This
rate is 50% higher than the retrenchment pay prevailing in the CBA.
Please accept our deepest regrets.7
In a letter8 dated 23 August 2001 and addressed to Korean Airs
Philippine general manager Suk Kyoo Kim (Suk), Yuson accepted the
offer for early retirement.
In a letter9 dated 24 August 2001, Suk informed Yuson that she was
excluded from the ERP because she was retiring on 8 January 2002.
Suk stated that:
Please be informed that you are excluded from the "Early Retirement
Program". The program is intended to staffs, upon discretion of
management, who still have long years left with the Company before
reaching retirement age. You are already due for retirement on
January 8, 2002. This program is being implemented by the Company
as a cost saving tool to prevent further losses.10

In a letter11 dated 1 September 2001 and addressed to Suk, Yuson

claimed that Korean Air was bound by the perfected contract and
accused the company of harassment and discrimination. Yuson
stated that:
Korean Air offered the "Early Retirement Program" through its memo
under MNLSM#01-13 dated 21 August 2001. I accepted this offer
under my letter dated 23 August 2001. With this Offer and
Acceptance, a Contract has been legally perfected between Korean
Air and myself.
xxxx
Not too long ago, you tried to demote me from my position as
Passenger Sales Manager to Cargo Dispatch, a clerical position. This
was not only done internally but also communicated with other
airlines. This has caused me undue embarrassment and humiliation.
xxx
Your unilateral decision to exclude me from the "early Retirement
Program" which Head Office has stated as (and I quote) "..... [sic] not
only for Head Office staffs but THROUGHOUT ALL KOREAN AIR
BRANCHES ABROAD" is another case of harassment and
discrimination. It is very clear that the Program does not allow for
discretion on the part of Korean Air MNL Manager to harass or
discriminate against any employee for any reason whatsoever, be it
age, gender or nationality.
I therefore request that Korean Air perform its obligation arising out
of a Contract legally perfected with the Offer of 21 August 2001 and
Acceptance of 23 August 2001. I sincerely hope I will not have to
engage the services of counsel to enforce performance of our
Contract as this will subject me to further distress and mental
anguish, plus a considerable amount of expenditure, which can be
the basis for additional claim for damages.12
In a letter13 dated 12 September 2001 and addressed to Yuson, Suk
stated that:

1. The "Early Retirement Program" ("ERP") is a plan by the

Head Office for the purpose of reducing the workforce of
Korean Air (the "Company") due to substantial losses prior to
undertaking a retrenchment program. Contrary to your
assertion, my letter dated 21 August 2001 was not an
absolute offer but rather an invitation to possible qualified
employees to consider the ERP subject to the approval and
acceptance by the Company, through the Head Office, in the
exercise of its discretion. x x x
2. This explains the Companys position stated in my letterresponse dated 24 August 2001 wherein the ERP is
supposedly for employees who have still a number of years to
serve the Company in order to prevent further losses. It is,
therefore, clear why you are disqualified under the ERP since
you are scheduled to retire on 08 January 2002. There is no
closure of business contemplated herein but merely a
reduction of personnel to prevent further losses to the
Company.
3. x x x x
4. It is unfortunate that you invoke the afore-said [sic]
announcement knowing that as early as April 2001, your
request for payment of one and one-half 1 and 1/2 months for
every year of service retirement benefit was denied by our
SSG, Mr. Lee. As unmistakably explained to you, you cannot
avail of the ERP since you are due to retire on 08 January
2002. As a cost-saving measure, it would be contrary to this
objective of the Company to include you simply because "you
accept the offer for early retirement."
5. On the other hand, you have also been informed that since
you have less than one (1) year from your retirement date,
you have the option to retire before such date. x x x
6. Also, as in previous ERPs implemented by the Company,
you very well know as Sales Manager that the Head Office
does the acceptance and approval of any ERP application. In
fact, in the case of your staff, I even consult your opinion

before forwarding MNLSMs recommendation on the matter to

the Head Office. x x x
7. x x x x
8. For the record, your supposed transfer from Passenger
Sales Department to the Cargo Department on June 4, 2001
was upon your own request in April 2001 since, as you
mentioned to me, you intend to pursue a cargo agency
business with your sister upon your retirement. x x x
9. Lest you forgot our discussion on the matter, you were
never demoted from your position as Sales Manager, whether
in terms of your compensation or scope of authority. As
agreed upon, your transfer was temporary for you to learn the
particulars involving cargo operations. In fact, I never
appointed a new Sales Manager to replace you.
10. The term "Cargo Dispatch", again as known to you, is a
phrase peculiar to the Company referring to the Cargo
Department. I, for instance, while assigned as Regional Sales
Manager of Manila, if temporarily assigned to Hongkong [sic]
Cargo, would be referred to as "HKGRH Cargo Dispatch". This
position, despite the title, is obviously not clerical or
derogatory of my rank and authority.
11. Everybody in our Office can attest to the truth that you
yourself requested the temporary transfer to cargo. I am
saddened, therefore, to hear, especially from you, of your
accusation that I have tried to demote and/or discriminate
against you. For your information, before your transfer, I even
instructed SSF, Mr. Kim, to extend his full support to you in
your desire to learn cargo operations.14
In a memorandum15 dated 20 September 2001, Korean Air informed
its employees that application for the ERP ended on 15 September
2001 and that only the applications of eligible employees shall be
forwarded to the head office for approval.

In a letter16 dated 22 September 2001 and addressed to Suk, Yuson

reiterated her claims that (1) Korean Airs offer for early retirement
and her acceptance of the offer constituted a perfected contract; (2)
Korean Air unjustly transferred her from passenger sales department
to cargo department; and (3) the transfer caused her
embarrassment.
In a letter17 dated 10 October 2001 and addressed to Yuson, Suk
stated that:
1. We believe that the Companys position regarding the Early
Retirement Program ("ERP") has been fully explained to you in
our letters dated 21 September 2001 and 24 August 2001,
respectively.
2. You complained of "injustice", "undue embarrassment and
humiliation", in relation to your transfer to Cargo. However, in
our meeting on 04 October 2001, with SSG, Tito Cosico and
Chito Cajucom, you informed us to "forget about the issue on
discrimination concerning Cargo Dispatch, since you just
included it when you were excluded from the ERP".
Furthermore, you also stated "I like to be in Cargo, I love
working in Cargo, I have no regrets".18
In a letter19 dated 6 November 2001 and addressed to Suk, a certain
Patricia A. Galang, representing Yuson, followed up and made a final
demand for Yusons benefit under the ERP. In another letter 20 dated
27 November 2001 and addressed to Suk, Yuson applied for travel
benefit under the IPM. Chapter 14, Section 2.14.3.4 of the manual
states:
2.14.3.4 Retired Officers or Employees
Retired officers or employees may be granted free transportation on
the following basis provided that the application therefore shall be
submitted to the office which he/she belonged just before retirement
for approval not later than maximum five years from the date of
retirement:
xxxx

b) Employees who terminated their employment after having

served ten consecutive years or more and their immediate
families be favored with their Points (if any) not later than
three years from the date of retirement.

Hwang, and Park Jin Suk. In a Resolution 25 dated 30 July 2002, the
Bureau dismissed the complaint.

c) Officers who completed their term of services or employees

who reached full retirement status and their immediate
families may be favored with their Points (if any) not later
than five years from the date of retirement.21

In his 31 January 2003 Decision, Labor Arbiter Santos denied for lack
of merit Yusons claims for benefit under the ERP, for moral and
exemplary damages, and for attorneys fees. The dispositive portion
of the Decision stated:

On 28 November 2001, Yuson filed with the arbitration branch of the

NLRC a complaint against Korean Air and Suk for payment of benefit
under the ERP, moral damages, exemplary damages, and attorneys
fees.

WHEREFORE, premises considered, complainants claim under the

Early Retirement Program and payment of moral and exemplary
damages, and attorneys fees are hereby denied for lack of merit.
Complainant is nevertheless deemed to have opted to retire on
January 8, 2002 when she reached the age of sixty years pursuant to
Article 287 of the Labor Code. However, in view of the previous offer
of respondent company to pay complainant one (1) month for every
year of service, respondent company is accordingly directed to pay
complainant her retirement benefits as follows:

In a letter22 dated 29 November 2001, Suk informed Yuson that the

points system as contained in the IPM had never been practiced in
the Philippines. Suk stated that:
The points system of earning travel benefits you referred to under
Chapter 14 of the International Passenger Manual (IPM) is not
applicable in your case since the Company follows the system as
agreed upon between MNLSM staffs and Management. You are aware
that in our 26 years of operation in Manila, we never used point
system in this regard. Doing so can result to a lesser travel benefit
which is a violation of the said agreement. 23
On 8 January 2002, her 60th birthday, Yuson availed of the optional
retirement
under
Article
28724 of
the
Labor
Code,
as
amended.lawphil.ne+
On 12 March 2002, Yuson filed with the Makati Prosecution Office a
criminal complaint against Korean Air officials Tae Sang Kim (Tae),
Kwan Hee Lee (Lee), and Benedicto Cajucom for violation of Article
287. A corresponding information was filed with Branch 146 of the
Makati Regional Trial Court (RTC).
Yuson filed with the Bureau of Immigration a complaint for
deportation against Korean Air officials Tae, Lee, Byung Jo Kim, Ja
Chool Koo, Yoo Jin Kim, Cho Mahn Hung, Kim Seong Ung, Evi Sung

The Labor Arbiters Ruling

Monthly salary x No. of Years in Service

P59,000.00 x 26 years - P1,534,000.00
SO ORDERED.26
Labor Arbiter Santos held that (1) the 21 August 2001 ERP
memorandum included only rank-and-file, and excluded managerial,
employees; (2) the memorandum reserved to Korean Air discretion in
approving applications for the ERP; (3) approval of applications for
the ERP was a valid exercise of Korean Airs management
prerogative; (4) Yuson could not claim benefits under both Article 287
and Korean Airs ERP; (5) Yusons claim for benefit under the ERP
became moot when she availed of the optional retirement under
Article 287; (6) Yuson was not entitled to travel benefit under the IPM
because Korean Air never implemented such travel benefit; (7) Yuson
was not demoted she requested to be transferred to the cargo
department and continued to receive the same compensation and
exercise the same authority as passenger sales manager; (8) Yuson
was not entitled to moral damages because there was no showing of

evil motive on Korean Airs part; (9) Yuson was not entitled to
exemplary damages because Korean Air did not act in a wanton,
oppressive, or malevolent manner; and (10) Korean Air acted in good
faith.
On 14 February 2003, Tae and Yuson entered into a compromise
agreement27 and amicably settled the criminal case. They stated
that:
1. Without necessarily admitting that they violated any law,
and in deference to the desire of the Honorable Judge that the
parties amicably settle the RTC Case if only to buy peace and
avoid a protracted criminal litigation, Messrs. Tae Sang Kim,
Benedicto Cajucom and the Company have agreed to pay
Adelina A.S. Yuson, and the latter acknowledges receipt from
them the amount of ONE MILLION SIX HUNDRED SEVENTY
ONE THOUSAND FIVE HUNDRED FORTY SIX PESOS AND
NINETY TWO CENTAVOS (P1,671,546.92), representing her
retirement benefit pursuant to Article 287 of the Labor Code,
as amended. This amount includes six percent (6%) legal
interest from the date of her retirement on 8 January 2002
until 8 February 2003, less Ms. Yusons salary loan balance in
the amount of TWENTY FIVE THOUSAND PESOS (P25,000.00).
x x x This amount represents a complete settlement of all her
claims in the RTC Case and such compensation and benefits to
which she may be entitled under Article 287 of the Labor
Code, as amended;
2. x x x x
3. x x x x
4. x x x x
5. The parties hereby agree and understand that the
withdrawal of the RTC Case is without prejudice to other
claims, which Mrs. Yuson may have in the NLRC Case. The
parties agree and understand that Ms. Yuson shall continue to
pursue her claims in the NLRC Case, which shall remain
pending until final decision by the NLRC and the appropriate

courts. The parties agree that Ms. Yuson shall deduct the
amount of ONE MILLION FIVE HUNDRED NINETY THREE
THOUSAND
ONE
PESOS
AND
EIGHTY
CENTAVOS
(P1,593,001.80), which she received under this Compromise
Agreement, from the amount that will be awarded to her by
the NLRC and the appropriate courts should the NLRC Case be
decided in her favor.28
Yuson filed with the NLRC an appeal memorandum 29 dated 10 March
2003 challenging Labor Arbiter Santos 31 January 2003 Decision.
The NLRC referred the case to Labor Arbiter Cristeta D. Tamayo
(Labor Arbiter Tamayo) for report and recommendation.
The NLRCs Ruling
In its 30 January 2004 Decision, 30 the NLRC adopted the report and
recommendations of Labor Arbiter Tamayo to order Korean Air and
Suk to pay Yuson her benefit under the ERP and to give her 10
Korean Air economy tickets.
Korean Air and Suk filed with the NLRC a motion 31 for reconsideration
dated 6 May 2004. In its 30 July 2004 Resolution, the NLRC set aside
its 30 January 2004 Decision and affirmed Labor Arbiter Santos 31
January 2003 Decision. The NLRC held that (1) the 21 August 2001
memorandum reserved to Korean Air discretion in approving
applications for the ERP; (2) approval of applications for the ERP was
a valid exercise of Korean Airs management prerogative; (3) Yuson
was retiring on 8 January 2002; (4) inclusion of Yuson in the ERP
would have been contrary to the objective of the program as a costsaving scheme; (5) Labor Arbiter Tamayo had no basis in granting
Yuson 10 Korean Air economy tickets; (6) Yuson did not show that
Korean Air ever implemented the travel benefit under the IPM; and
(7) Korean Air and Suk adequately showed that the company had
been giving one Korean Air ticket to retiring employees.
Yuson filed with the Court of Appeals a petition 32 for certiorari under
Rule 65 of the Rules of Court.
The Court of Appeals Ruling

In its 28 June 2005 Decision, the Court of Appeals set aside the
NLRCs 30 July 2004 Resolution and affirmed the commissions 30
January 2004 Decision. The Court of Appeals held that (1) the 21
August 2001 memorandum included both rank-and-file and
managerial employees; (2) Korean Airs offer for early retirement and
Yusons acceptance of the offer constituted a perfected contract
under Article 1315 of the Civil Code; (3) Korean Air forced Yuson to
retire on 8 January 2002; and (4) Korean Airs reason for excluding
Yuson in the ERP was misplaced because the company would have
incurred more costs by keeping Yuson in its employ until her
compulsory retirement on 8 January 2007.
Hence, the present petition.
The Issues
Korean Air and Suk raise as issues that the Court of Appeals erred in
(1) failing to consider that Yusons claim for benefit under the ERP
became moot when she availed of the optional retirement under
Article 287 of the Labor Code, as amended; (2) ruling that Yuson may
claim benefit under the ERP; and (3) awarding Yuson 10 Korean Air
economy tickets.
The Courts Ruling
The petition is meritorious.
On 8 January 2002, Yuson availed of the optional retirement under
Article 287 of the Labor Code, as amended. The third paragraph of
Article 287 states that:
In the absence of a retirement plan or agreement providing for
retirement benefits of employees in the establishment, an employee
upon reaching the age of sixty (60) years or more, but not beyond
sixty-five (65) years which is hereby declared the compulsory
retirement age, who has served at least five (5) years in the said
establishment, may retire and shall be entitled to retirement pay
equivalent to at least one-half (1/2) month salary for every year of
service, a fraction of at least six (6) months being considered as one
whole year.

On 14 February 2003, Yuson accepted P1,671,546.92 as retirement

benefit under Article 287. The compromise agreement between Tae
and Yuson stated that:
Without necessarily admitting that they violated any law, and in
deference to the desire of the Honorable Judge that the parties
amicably settle the RTC Case if only to buy peace and avoid a
protracted criminal litigation,Messrs. Tae Sang Kim, Benedicto
Cajucom and the Company have agreed to pay Adelina A.S.
Yuson, and the latter acknowledges receipt from them the
amount of ONE MILLION SIX HUNDRED SEVENTY ONE
THOUSAND FIVE HUNDRED FORTY SIX PESOS AND NINETY
TWO CENTAVOS (P1,671,546.92), representing her retirement
benefit pursuant to Article 287 of the Labor Code, as
amended. This amount includes six percent (6%) legal interest from
the date of her retirement on 8 January 2002 until 8 February 2003,
less Ms. Yusons salary loan balance in the amount of TWENTY FIVE
THOUSAND PESOS (P25,000.00). x x x This amount represents a
complete settlement of all her claims in the RTC Case and such
compensation and benefits to which she may be entitled under
Article 287 of the Labor Code, as amended.33 (Emphasis supplied)
Yusons claim for benefit under the ERP became moot when she
availed of the optional retirement under Article 287 and accepted the
benefit. By her acceptance of the benefit, Yuson is deemed to have
opted to retire under Article 287. In Capili v. National Labor Relations
Commission,34 the Court held that:
[A] suprevening event worked against the petitioner. On 30 April
1994, after receiving the Labor Arbiters decision but before filing his
appeal from that decision, the petitioner received partial payment of
his retirement pay and other accrued benefits from respondent UM.
During the pendency of his appeal with the NLRC, specifically, on 6
October 1994, he received full payment of his retirement benefits. In
his Counter-Manifestation he declared:
COMPLAINANT-APPELLANT . . . most respectfully maintains that
the partial acceptance of the retirement benefits does not render the
instant case moot and academic. The complainant-appellant who had

long and unjustly been denied of his retirement benefits since August
18, 1993 cannot be expected to remain idle.
By his acceptance of retirement benefits the petitioner is
deemed to have opted to retire under the third paragraph of
Article 287 of the Labor Code, as amended by R.A. No. 7641.
Thereunder he could choose to retire upon reaching the age of 60
years, provided it is before reaching 65 years, which is the
compulsory age of retirement.
Also worth noting is his statement that he "had long and unjustly
been denied of his retirement benefits since August 18, 1993."
Elsewise stated, he was entitled to retirement benefits as early as 18
August 1993 but was denied thereof without justifiable reason. This
could only mean that he has already acceded to his retirement,
effective on such date when he reached the age of 60
years.35 (Emphasis supplied)
The Court of Appeals held that Yuson may claim benefit under the
ERP because "the offer was certain and the acceptance is absolute;
hence, there is a valid contract pursuant to the last paragraph of
Article 1315 of the New Civil Code."36
The Court disagrees. Articles 1315, 1318 and 1319 of the Civil Code,
respectively, state:
Art. 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage
and law.
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

Art. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute.
x x x (Emphasis supplied)
An offer is a unilateral proposition made by one party to another for
the celebration of a contract. For an offer to be certain, a contract
must come into existence by the mere acceptance of the offeree
without any further act on the offerors part. The offer must be
definite, complete and intentional. In Spouses Paderes v. Court of
Appeals,37the Court held that, "There is an offer in the context of
Article 1319 only if the contract can come into existence by the mere
acceptance of the offeree, without any further act on the part of the
offeror. Hence, the offer must be definite, complete and
intentional."38
In the present case, the offer is not certain: (1) the 21 August 2001
memorandum clearly states that, "MNLSM Management, on its
discretion, is hereby offering the said early retirement program to
its staff"; (2) applications for the ERP were forwarded to the head
office for approval, and further acts on the offerors part were
necessary before the contract could come into existence; and (3) the
21 August 2001 memorandum clearly states Korean Airs intention,
which was, "to prevent further losses." Korean Air could not have
intended to ministerially approve all applications for the ERP.
The Court of Appeals held that Korean Air forced Yuson to retire on 8
January 2002. The Court of Appeals stated that, "By its letter of
August 24, 2001, Private Respondent is forcing Petitioner to retire
even if the choice of optional retirement belongs to the latter." 39
The Court disagrees. The surrounding circumstances show that
Korean Air did not force Yuson to retire on 8 January 2002. Yuson was
actually retiring on 8 January 2002: (1) in April 2001, Yuson
requested Korean Air that she be transferred to the cargo department
because she intended to pursue a cargo agency business after her
retirement; (2) in its 24 August and 12 September 2001 letters,
Korean Air clearly stated that Yuson was retiring on 8 January 2002;
(3) Yuson never corrected or denied Korean Airs statements
regarding her retirement date; (4) on 8 January 2002, Yuson

retired under Article 287 of the Labor Code, as amended; (5) in his
31 January 2003 Decision, Labor Arbiter Santos stated, "As
admitted by complainant, she was set to retire by January
2002";40 and (6) in its 30 July 2004 Resolution, the NLRC stated, "it
was shown in the records of this case that [Yuson] was about to retire
sometime in January 2002, which in fact happened."41

ruled that said provision was inapplicable considering that employeremployee relationship is imbued with public interest, thus, Philippine
laws were applicable.43

Approval of applications for the ERP is within Korean Airs

management prerogatives. The exercise of management prerogative
is valid as long as it is not done in a malicious, harsh, oppressive,
vindictive, or wanton manner.42 In the present case, the Court sees
no bad faith on Korean Airs part. The 21 August 2001 memorandum
clearly states that Korean Air, on its discretion, was offering ERP to
its employees. The memorandum also states that the reason for the
ERP was to prevent further losses. Korean Air did not abuse its
discretion when it excluded Yuson in the ERP. To allow Yuson to avail
of the ERP would have been contrary to the purpose of the ERP.

[O]n the award of ten (10) Korean Air tickets, we likewise assiduously
re-examined the record of this case and we must admit that we have
overlooked the fact that in the recommendation made by Labor
Arbiter Cristeta D. Tamayo, which as we stated earlier was adopted
en toto by former Commissioner Vicente S.E. Veloso, except in her
summation, there was nothing in her disquisition which shows that
she ever discussed the basis of her award of ten Korean Air tickets in
favor of complainant. "Decisions, however, concisely written, must
distinctly and clearly set forth the facts and the law upon which they
are based, a rule applicable as well to dispositions by quasi-judicial
and administrative bodies." (Naguiat vs. NLRC, 269 SCRA 664) In any
event, while it may be argued that the "point system" of earning
travel benefits is mentioned in Chapter 14, Section 2.14.3.4 of the
International Passenger Manual of Korean Air, nevertheless, it is also
very clear that complainant has not shown that this policy has been
implemented in the Philippines or has ever been granted to local
managers. In the absence of a single precedent where this privilege
was extended by the respondent company, the effort of complainant
to prove her entitlement to this benefit must also fall on barren
ground. In contrast, respondents have adequately shown that, during
complainants tenure, respondent company has extended to her CBA
benefits on free tickets, and even more. Certainly, complainant
cannot enjoy the best of both worlds, so to speak.44

The Court of Appeals awarded Yuson 10 Korean Air economy tickets.

The Court disagrees. Aside from a photocopy of two pages of the IPM,
the records fail to show the basis for the award of the tickets. Even
the Court of Appeals totally failed to discuss the basis for the award.
In his 31 January 2003 Decision, Labor Arbiter Santos held that Yuson
was not entitled to the tickets. Labor Arbiter Santos stated that:
Anent the issue on the applicability of the IPM, complainant alleged
that the non-implementation thereof with respect to her was a
discriminatory act on the part of the respondents. Such argument
would have been meritorious if said policy was used in the Philippines
by respondent company but was denied her. x x x
Verily the use of different policies for employees benefits in various
countries is not necessarily discriminatory. Complainants reliance on
Pakistan International Airlines vs. Ople (190 SCRA 90) is unfortunately
misplaced. In said case, the issue is the enforceability of the
provisions in the employment contract which provided for the
exclusive application of Pakistani laws in case of labor disputes and
the venue for settlement of any dispute arising out of or in
connection with the contract which should only be heard in the courts
of Karachi, Pakistan. For this reason, the Supreme Court correctly

In its 30 July 2004 Resolution, the NLRC also held that Yuson was not
entitled to the tickets. The NLRC stated that:

Korean Air had never implemented the IPM in the Philippines. Its,
employees, including Yuson, received the travel benefit under the
CBA. During her 26-year stay in Korean Air, Yuson already received
more than 10 tickets.
WHEREFORE, we GRANT the petition. We SET ASIDE the 28 June
2005 Decision and 3 November 2005 Resolution of the Court of
Appeals in CA-G.R. SP No. 86762, and AFFIRM the 30 July 2004
Resolution of the National Labor Relations Commission in NLRC NCR

CA No. 034928-03 which, in turn, affirmed the 31 January 2003

Decision of the Labor Arbiter in NLRC-NCR S Case No. 30-11-0554301.
SO ORDERED.
JASMIN
SOLER, petitioner,
COMMERCIAL
BANK
LOPEZ,respondents.

vs. COURT
OF
APPEALS,
OF
MANILA,
and
NIDA

DECISION
PARDO, J.:
Appeal via certiorari from a decision of the Court of Appeals,
declaring that there was no perfected contract between petitioner
Jazmin Soler and The Commercial Bank of Manila (COMBANK FOR
BREVITY, formerly Boston Bank of the Philippines) for the renovation
of its Ermita Branch, thereby denying her claim for payment of
professional fees for services rendered.
[1]

The antecedent facts are as follows:

Petitioner Jazmin Soler is a Fine Arts graduate of the University of
Sto. Tomas, Manila. She is a well known licensed professional interior
designer.In November 1986, her friend Rosario Pardo asked her to
talk to Nida Lopez, who was manager of the COMBANK Ermita Branch
for they were planning to renovate the branch offices.[2]
Even prior to November 1986, petitioner and Nida Lopez knew
each other because of Rosario Pardo, the latters sister. During their
meeting, petitioner was hesitant to accept the job because of her
many out of town commitments, and also considering that Ms. Lopez
was asking that the designs be submitted by December 1986, which
was such a short notice. Ms. Lopez insisted, however, because she
really wanted petitioner to do the design for renovation. Petitioner
acceded to the request. Ms. Lopez assured her that she would be
compensated for her services. Petitioner even told Ms. Lopez that her
professional fee was ten thousand pesos (P10,000.00), to which Ms.
Lopez acceded.[3]

During the November 1986 meeting between petitioner and Ms.

Lopez, there were discussions as to what was to be renovated, which
included a provision for a conference room, a change in the carpeting
and wall paper, provisions for bookshelves, a clerical area in the
second floor, dressing up the kitchen, change of the ceiling and
renovation of the tellers booth. Ms. Lopez again assured petitioner
that the bank would pay her fees.[4]
After a few days, petitioner requested for the blueprint of the
building so that the proper design, plans and specifications could be
given to Ms. Lopez in time for the board meeting in December
1986. Petitioner then asked her draftsman Jackie Barcelon to go to
the jobsite to make the proper measurements using the blue
print. Petitioner also did her research on the designs and individual
drawings of what the bank wanted. Petitioner hired Engineer Ortanez
to make the electrical layout, architects Frison Cruz and De Mesa to
do the drafting. For the services rendered by these individuals,
petitioner paid the engineer P4,000.00, architects Cruz and de Mesa
P5,000.00 and architect Barcelon P6,000.00. Petitioner also
contacted the suppliers of the wallpaper and the sash makers for
their quotation. So come December 1986, the lay out and the design
were submitted to Ms. Lopez. She even told petitioner that she liked
the designs.[5]
Subsequently, petitioner repeatedly demanded payment for her
services but Ms. Lopez just ignored the demands. In February 1987,
by chance petitioner and Ms. Lopez saw each other in a concert at
the Cultural Center of the Philippines. Petitioner inquired about the
payment for her services, Ms. Lopez curtly replied that she was not
entitled to it because her designs did not conform to the banks policy
of having a standard design, and that there was no agreement
between her and the bank.[6]
To settle the controversy, petitioner referred the matter to her
lawyers, who wrote Ms. Lopez on May 20, 1987, demanding payment
for her professional fees in the amount of P10,000.00 which Ms.
Lopez ignored. Hence, on June 18, 1987, the lawyers wrote Ms. Lopez
once again demanding the return of the blueprint copies petitioner
submitted which Ms. Lopez refused to return.[7]

On October 13, 1987, petitioner filed at the Regional Trial Court

of Pasig, Branch 153 a complaint against COMBANK and Ms. Lopez for
collection of professional fees and damages.[8]
In its answer, COMBANK stated that there was no contract
between COMBANK and petitioner;[9] that Ms. Lopez merely invited
petitioner to participate in a bid for the renovation of the COMBANK
Ermita Branch; that any proposal was still subject to the approval of
the COMBANKs head office.[10]
After due trial, on November 19, 1990, the trial court rendered a
decision, the dispositive portion of which reads:

On October 26, 1995, the Court of Appeals rendered its decision

the relevant portions of which state:
After going over the record of this case, including the transcribed
notes taken during the course of the trial, We are convinced that the
question here is not really whether the alleged contract purportedly
entered into between the plaintiff and defendant Lopez is
enforceable, but whether a contract even exists between the parties.
Article 1318 of the Civil Code provides that there is no contract
unless the following requisites concur:
(1) consent of the contracting parties;

WHEREFORE, premises considered, judgment is hereby rendered in

favor of plaintiff and against defendants, ordering defendants jointly
and severally, to pay plaintiff the following, to wit:

(2) object certain which is the subject matter of the contract;

(3) cause of the obligation which is established.

1. P15,000.00 representing the actual and compensatory damages or

at least a reasonable compensation for the services rendered based
on a quantummeruit;
2. P5,000.00 as attorneys fees, and P2,000.00 as litigation expenses;
3. P5,000.00 as exemplary damages; and
4. The cost of suit.

xxx
The defendant bank never gave its imprimatur or consent to the
contract considering that the bidding or the question of renovating
the ceiling of the branch office of defendant bank was deferred
because the commercial bank is for sale. It is under privatization. xxx
At any rate, we find that the appellee failed to prove the allegations
in her complaint. xxx

SO ORDERED.[11]
On November 29, 1990, COMBANK, and Ms. Nida Lopez, filed
their notice of appeal.[12] On December 5, 1990, the trial court
ordered[13] the records of the case elevated to the Court of Appeals.[14]

WHEREFORE, premises considered, the appealed decision (dated

November 19, 1990) of the Regional Trial Court (Branch 153) in Pasig
(now 55238, is hereby REVERSED. No pronouncement as to costs.
SO ORDERED.[17]

In the appeal, COMBANK reiterated that there was no contract

between petitioner, Nida Lopez and the bank. [15] Whereas, petitioner
maintained that there was a perfected contract between her and the
bank which was facilitated through Nida Lopez. According to
petitioner there was an offer and an acceptance of the service she
rendered to the bank.[16]

Hence, this petition.[18]

Petitioner forwards the argument that:

1. The Court of Appeals erred in ruling that there was no contract

between petitioner and respondents, in the absence of the
element of consent;
2. The Court of Appeals erred in ruling that respondents merely
invited petitioner to present her proposal;
3. The Court of Appeals erred in ruling that petitioner knew that
her proposal was still subject to bidding and approval of the
board of directors of the bank;
4. The Court of Appeals erred in reversing the decision of the trial
court.
We find the petition meritorious.
We see that the issues raised boil down to whether or not there
was a perfected contract between petitioner Jazmin Soler and
respondents COMBANK and Nida Lopez, and whether or not Nida
Lopez, the manager of the bank branch, had authority to bind the
bank in the transaction.
The discussions between petitioner and Ms. Lopez was to the
effect that she had authority to engage the services of petitioner.
During their meeting, she even gave petitioner specifications as to
what was to be renovated in the branch premises and when
petitioners requested for the blueprints of the building, Ms. Lopez
supplied the same.
Ms. Lopez was aware that petitioner hired the services of people
to help her come up with the designs for the December, 1986 board
meeting of the bank. Ms. Lopez even insisted that the designs be
rushed in time for presentation to the bank. With all these discussion
and transactions, it was apparent to petitioner that Ms. Lopez indeed
had authority to engage the services of petitioner.
The next issue is whether there was a perfected contract
between petitioner and the Bank.

A contract is a meeting of the minds between two persons

whereby one binds himself to give something or to render some
service to bind himself to give something to render some service to
another for consideration. There is no contract unless the following
requisites concur: 1. Consent of the contracting parties; 2. Object
certain which is the subject matter of the contract; and 3. Cause of
the obligation which is established.[19]
A contract undergoes three stages:
(a) preparation, conception, or generation, which is the
period of negotiation and bargaining, ending at the
moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment
when the parties come to agree on the terms of the
contract; and
(c) consummation or death, which is the fulfillment or
performance of the terms agreed upon in the contract. [20]
In the case at bar, there was a perfected oral contract. When Ms.
Lopez and petitioner met in November 1986, and discussed the
details of the work, the first stage of the contract commenced. When
they agreed to the payment of the ten thousand pesos (P10,000.00)
as professional fees of petitioner and that she should give the
designs before the December 1986 board meeting of the bank, the
second stage of the contract proceeded, and when finally petitioner
gave the designs to Ms. Lopez, the contract was consummated.
Petitioner believed that once she submitted the designs she
would be paid her professional fees. Ms. Lopez assured petitioner
that she would be paid.
It is familiar doctrine that if a corporation knowingly permits one
of its officers, or any other agent, to act within the scope of an
apparent authority, it holds him out to the public as possessing the
power to do those acts; and thus, the corporation will, as against
anyone who has in good faith dealt with it through such agent, be
estopped from denying the agents authority.[21]

Also, petitioner may be paid on the basis of quantum meruit. It is

essential for the proper operation of the principle that there is an
acceptance of the benefits by one sought to be charged for the
services rendered under circumstances as reasonably to notify him
that the lawyer performing the task was expecting to be paid
compensation therefor. The doctrine of quantum meruit is a device to
prevent undue enrichment based on the equitable postulate that it is
unjust for a person to retain benefit without paying for it.[22]

In this petition for review on certiorari, petitioner ABS-CBN

Broadcasting Corp. (hereafter ABS-CBN) seeks to reverse and set
aside the decision 1 of 31 October 1996 and the resolution 2 of 10
March 1997 of the Court of Appeals in CA-G.R. CV No. 44125. The
former affirmed with modification the decision 3 of 28 April 1993 of
the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case
No. Q-92-12309. The latter denied the motion to reconsider the
decision of 31 October 1996.

We note that the designs petitioner submitted to Ms. Lopez were

not returned. Ms. Lopez, an officer of the bank as branch manager
used such designs for presentation to the board of the bank. Thus,
the designs were in fact useful to Ms. Lopez for she did not appear to
the board without any designs at the time of the deadline set by the
board.

The antecedents, as found by the RTC and adopted by the Court of

Appeals, are as follows:

IN VIEW WHEREOF, the decision appealed from is REVERSED

and SET ASIDE.
The decision of the trial court
AFFIRMED.

[23]

is REVIVED, REINSTATED and

No costs.
SO ORDERED.

G.R. No. 128690 January 21, 1999

ABS-CBN
BROADCASTING
CORPORATION, petitioner,
vs.
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING
CORP,
VIVA
PRODUCTION,
INC.,
and
VICENTE
DEL
ROSARIO, respondents.

In 1990, ABS-CBN and Viva executed a Film Exhibition

Agreement (Exh. "A") whereby Viva gave ABS-CBN an
exclusive right to exhibit some Viva films. Sometime in
December 1991, in accordance with paragraph 2.4
[sic] of said agreement stating that .
1.4 ABS-CBN shall have the right of first refusal to the
next twenty-four (24) Viva films for TV telecast under
such terms as may be agreed upon by the parties
hereto, provided, however, that such right shall be
exercised by ABS-CBN from the actual offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN,
through its vice-president Charo Santos-Concio, a list
of three(3) film packages (36 title) from which ABSCBN may exercise its right of first refusal under the
afore-said agreement (Exhs. "1" par, 2, "2," "2-A'' and
"2-B"-Viva). ABS-CBN, however through Mrs. Concio,
"can tick off only ten (10) titles" (from the list) "we can
purchase" (Exh. "3" - Viva) and therefore did not
accept said list (TSN, June 8, 1992, pp. 9-10). The titles
ticked off by Mrs. Concio are not the subject of the
case at bar except the film ''Maging Sino Ka Man."
For further enlightenment, this rejection letter dated
January 06, 1992 (Exh "3" - Viva) is hereby quoted:

DAVIDE, JR., CJ.:

6 January 1992

Dear Vic,

8. Rebelyon

This is not a very formal business letter I am writing to

you as I would like to express my difficulty in
recommending the purchase of the three film packages
you are offering ABS-CBN.

I hope you will consider this request of mine.

From among the three packages I can only tick off 10

titles we can purchase. Please see attached. I hope you
will understand my position. Most of the action pictures
in the list do not have big action stars in the cast. They
are not for primetime. In line with this I wish to
mention that I have not scheduled for telecast several
action pictures in out very first contract because of the
cheap production value of these movies as well as the
lack of big action stars. As a film producer, I am sure
you understand what I am trying to say as Viva
produces only big action pictures.
In fact, I would like to request two (2) additional runs
for these movies as I can only schedule them in our
non-primetime slots. We have to cover the amount
that was paid for these movies because as you very
well know that non-primetime advertising rates are
very low. These are the unaired titles in the first
contract.
1. Kontra Persa [sic].
2. Raider Platoon.
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. Lady Commando
7. Batang Matadero

The other dramatic films have been offered to us

before and have been rejected because of the ruling of
MTRCB to have them aired at 9:00 p.m. due to their
very adult themes.
As for the 10 titles I have choosen [sic] from the 3
packages please consider including all the other Viva
movies produced last year. I have quite an attractive
offer to make.
Thanking you and with my warmest regards.

(Signed

Charo
ConcioO
Februar
1992, d
Del
approac
ABS-CB
Concio,
list cons
52
movie t
not yet
televisio
includin
titles su
the
case, a
104
(previou
aired

television)
form of from
a proposal contract Annex "C" of the complaint (Exh. "1"which
Viva;
ABS-CBN
Exh. "C" - ABS-CBN).
may
choose
another
52 On April 06, 1992, Del Rosario and Mr. Graciano Gozon
titles, as a total of RBS Senior vice-president for Finance discussed the
of 156 titles, terms and conditions of Viva's offer to sell the 104
proposing to sell films, after the rejection of the same package by ABSto
ABS-CBN CBN.
airing
rights
over
this On April 07, 1992, defendant Del Rosario received
package of 52 through his secretary, a handwritten note from Ms.
originals and 52 Concio, (Exh. "5" - Viva), which reads: "Here's the draft
re-runs
for of the contract. I hope you find everything in order," to
P60,000,000.00 which was attached a draft exhibition agreement (Exh.
of
which "C''- ABS-CBN; Exh. "9" - Viva, p. 3) a counter-proposal
P30,000,000.00 covering 53 films, 52 of which came from the list sent
will be in cash by defendant Del Rosario and one film was added by
and
Ms. Concio, for a consideration of P35 million. Exhibit
P30,000,000.00 "C" provides that ABS-CBN is granted films right to 53
worth
of films and contains a right of first refusal to "1992 Viva
television spots Films." The said counter proposal was however
(Exh. "4" to "4- rejected by Viva's Board of Directors [in the] evening of
C"
Viva;
"9" the same day, April 7, 1992, as Viva would not sell
-Viva).
anything less than the package of 104 films for P60
million pesos (Exh. "9" - Viva), and such rejection was
On April 2, 1992, defendant Del Rosario and ABS-CBN general
relayed to Ms. Concio.
manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in
Quezon City to discuss the package proposal of Viva. What transpired
On April 29, 1992, after the rejection of ABS-CBN and
in that lunch meeting is the subject of conflicting versions. Mr. Lopez
following several negotiations and meetings defendant
testified that he and Mr. Del Rosario allegedly agreed that ABS-CRN
Del Rosario and Viva's President Teresita Cruz, in
was granted exclusive film rights to fourteen (14) films for a total
consideration of P60 million, signed a letter of
consideration of P36 million; that he allegedly put this agreement as
agreement dated April 24, 1992. granting RBS the
to the price and number of films in a "napkin'' and signed it and gave
exclusive right to air 104 Viva-produced and/or
it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On
acquired films (Exh. "7-A" - RBS; Exh. "4" - RBS)
the other hand, Del Rosario denied having made any agreement with
including the fourteen (14) films subject of the present
Lopez regarding the 14 Viva films; denied the existence of a napkin in
case. 4
which Lopez wrote something; and insisted that what he and Lopez
discussed at the lunch meeting was Viva's film package offer of 104
On 27 May 1992, ABS-CBN filed before the RTC a complaint for
films (52 originals and 52 re-runs) for a total price of P60 million. Mr.
specific performance with a prayer for a writ of preliminary injunction
Lopez promising [sic]to make a counter proposal which came in the
and/or temporary restraining order against private respondents

Republic Broadcasting Corporation 5 (hereafter RBS ), Viva Production

(hereafter VIVA), and Vicente Del Rosario. The complaint was
docketed as Civil Case No. Q-92-12309.
On 27 May 1992, RTC issued a temporary restraining
order 6 enjoining private respondents from proceeding with the
airing, broadcasting, and televising of the fourteen VIVA films subject
of the controversy, starting with the film Maging Sino Ka Man, which
was scheduled to be shown on private respondents RBS' channel 7 at
seven o'clock in the evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an
order 7 directing the issuance of a writ of preliminary injunction upon
ABS-CBN's posting of P35 million bond. ABS-CBN moved for the
reduction of the bond, 8 while private respondents moved for
reconsideration of the order and offered to put up a counterbound. 9
In the meantime, private respondents filed separate answers with
counterclaim. 10 RBS also set up a cross-claim against VIVA..
On 3 August 1992, the RTC issued an order 11 dissolving the writ of
preliminary injunction upon the posting by RBS of a P30 million
counterbond to answer for whatever damages ABS-CBN might suffer
by virtue of such dissolution. However, it reduced petitioner's
injunction bond to P15 million as a condition precedent for the
reinstatement of the writ of preliminary injunction should private
respondents be unable to post a counterbond.

On 29 October 1992, the RTC conducted a pre-trial.

16

Pending resolution of its motion for reconsideration, ABS-CBN filed

with the Court of Appeals a petition 17challenging the RTC's Orders of
3 August and 15 October 1992 and praying for the issuance of a writ
of preliminary injunction to enjoin the RTC from enforcing said orders.
The case was docketed as CA-G.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary
restraining order 18 to enjoin the airing, broadcasting, and televising
of any or all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a
decision 19 dismissing the petition in CA -G.R. No. 29300 for being
premature. ABS-CBN challenged the dismissal in a petition for review
filed with this Court on 19 January 1993, which was docketed as G.R.
No. 108363.
In the meantime the RTC received the evidence for the parties in Civil
Case No. Q-192-1209. Thereafter, on 28 April 1993, it rendered a
decision 20 in favor of RBS and VIVA and against ABS-CBN disposing
as follows:
WHEREFORE, under cool reflection and prescinding
from the foregoing, judgments is rendered in favor of
defendants and against the plaintiff.
(1) The complaint is hereby dismissed;

At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of

the court, agreed to explore the possibility of an amicable
settlement. In the meantime, RBS prayed for and was granted
reasonable time within which to put up a P30 million counterbond in
the event that no settlement would be reached.
As the parties failed to enter into an amicable settlement RBS posted
on 1 October 1992 a counterbond, which the RTC approved in its
Order of 15 October 1992. 13
On 19 October 1992, ABS-CBN filed a motion for reconsideration 14 of
the 3 August and 15 October 1992 Orders, which RBS opposed. 15

(2) Plaintiff ABS-CBN is ordered to pay

defendant RBS the following:
a)
P107,727.00,
the
amount of premium paid
by RBS to the surety
which issued defendant
RBS's bond to lift the
injunction;

b) P191,843.00 for the

amount
of
print
advertisement for "Maging
Sino Ka Man" in various
newspapers;
c) Attorney's fees in the
amount of P1 million;
d) P5 million as and by
way of moral damages;
e) P5 million as and by
way
of
exemplary
damages;
(3) For defendant VIVA, plaintiff ABS-CBN
is ordered to pay P212,000.00 by way of
reasonable attorney's fees.
(4) The cross-claim of defendant RBS
against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price
and terms of the offer. The alleged agreement between Lopez III and
Del Rosario was subject to the approval of the VIVA Board of
Directors, and said agreement was disapproved during the meeting
of the Board on 7 April 1992. Hence, there was no basis for ABSCBN's demand that VIVA signed the 1992 Film Exhibition Agreement.
Furthermore, the right of first refusal under the 1990 Film Exhibition
Agreement had previously been exercised per Ms. Concio's letter to
Del Rosario ticking off ten titles acceptable to them, which would
have made the 1992 agreement an entirely new contract.
21

On 21 June 1993, this Court denied ABS-CBN's petition for review in

G.R. No. 108363, as no reversible error was committed by the Court
of Appeals in its challenged decision and the case had "become moot

and academic in view of the dismissal of the main action by the

court a quo in its decision" of 28 April 1993.
Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of
Appeals claiming that there was a perfected contract between ABSCBN and VIVA granting ABS-CBN the exclusive right to exhibit the
subject films. Private respondents VIVA and Del Rosario also appealed
seeking moral and exemplary damages and additional attorney's
fees.
In its decision of 31 October 1996, the Court of Appeals agreed with
the RTC that the contract between ABS-CBN and VIVA had not been
perfected, absent the approval by the VIVA Board of Directors of
whatever Del Rosario, it's agent, might have agreed with Lopez III.
The appellate court did not even believe ABS-CBN's evidence that
Lopez III actually wrote down such an agreement on a "napkin," as
the same was never produced in court. It likewise rejected ABS-CBN's
insistence on its right of first refusal and ratiocinated as follows:
As regards the matter of right of first refusal, it may be
true that a Film Exhibition Agreement was entered into
between Appellant ABS-CBN and appellant VIVA under
Exhibit "A" in 1990, and that parag. 1.4 thereof
provides:
1.4 ABS-CBN shall have the right of first
refusal to the next twenty-four (24) VIVA
films for TV telecast under such terms as
may be agreed upon by the parties
hereto, provided, however, that such
right shall be exercised by ABS-CBN
within a period of fifteen (15) days from
the actual offer in writing (Records, p.
14).
[H]owever, it is very clear that said right of first refusal
in favor of ABS-CBN shall still be subject to such terms
as may be agreed upon by the parties thereto, and
that the said right shall be exercised by ABS-CBN
within fifteen (15) days from the actual offer in writing.

Said parag. 1.4 of the agreement Exhibit "A" on the

right of first refusal did not fix the price of the film right
to the twenty-four (24) films, nor did it specify the
terms thereof. The same are still left to be agreed upon
by the parties.
In the instant case, ABS-CBN's letter of rejection Exhibit 3
(Records, p. 89) stated that it can only tick off ten (10)
films, and the draft contract Exhibit "C" accepted only
fourteen (14) films, while parag. 1.4 of Exhibit "A'' speaks
of the next twenty-four (24) films.
The offer of V1VA was sometime in December 1991
(Exhibits 2, 2-A. 2-B; Records, pp. 86-88; Decision, p.
11, Records, p. 1150), when the first list of VIVA films
was sent by Mr. Del Rosario to ABS-CBN. The Vice
President of ABS-CBN, Ms. Charo Santos-Concio, sent a
letter dated January 6, 1992 (Exhibit 3, Records, p. 89)
where ABS-CBN exercised its right of refusal by
rejecting the offer of VIVA.. As aptly observed by the
trial court, with the said letter of Mrs. Concio of January
6, 1992, ABS-CBN had lost its right of first refusal. And
even if We reckon the fifteen (15) day period from
February 27, 1992 (Exhibit 4 to 4-C) when another list
was sent to ABS-CBN after the letter of Mrs. Concio,
still the fifteen (15) day period within which ABS-CBN
shall exercise its right of first refusal has already
expired. 22
Accordingly, respondent court sustained the award of actual
damages consisting in the cost of print advertisements and the
premium payments for the counterbond, there being adequate proof
of the pecuniary loss which RBS had suffered as a result of the filing
of the complaint by ABS-CBN. As to the award of moral damages, the
Court of Appeals found reasonable basis therefor, holding that RBS's
reputation was debased by the filing of the complaint in Civil Case
No. Q-92-12309 and by the non-showing of the film "Maging Sino Ka
Man." Respondent court also held that exemplary damages were
correctly imposed by way of example or correction for the public
good in view of the filing of the complaint despite petitioner's

knowledge that the contract with VIVA had not been perfected, It also
upheld the award of attorney's fees, reasoning that with ABS-CBN's
act of instituting Civil Case No, Q-92-1209, RBS was "unnecessarily
forced to litigate." The appellate court, however, reduced the awards
of moral damages to P2 million, exemplary damages to P2 million,
and attorney's fees to P500, 000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del
Rosario's appeal because it was "RBS and not VIVA which was
actually prejudiced when the complaint was filed by ABS-CBN."
Its motion for reconsideration having been denied, ABS-CBN filed the
petition in this case, contending that the Court of Appeals gravely
erred in
I
. . . RULING THAT THERE WAS NO PERFECTED
CONTRACT BETWEEN PETITIONER AND PRIVATE
RESPONDENT
VIVA
NOTWITHSTANDING
PREPONDERANCE
OF
EVIDENCE
ADDUCED
BY
PETITIONER TO THE CONTRARY.
II
. . . IN AWARDING ACTUAL AND COMPENSATORY
DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.
III
. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES
IN FAVOR OF PRIVATE RESPONDENT RBS.
IV
. . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first
refusal over twenty-four titles under the 1990 Film Exhibition
Agreement, as it had chosen only ten titles from the first list. It insists

that we give credence to Lopez's testimony that he and Del Rosario

met at the Tamarind Grill Restaurant, discussed the terms and
conditions of the second list (the 1992 Film Exhibition Agreement)
and upon agreement thereon, wrote the same on a paper napkin. It
also asserts that the contract has already been effective, as the
elements thereof, namely, consent, object, and consideration were
established. It then concludes that the Court of Appeals'
pronouncements were not supported by law and jurisprudence, as
per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v.
Court of Appeals, 23 which cited Toyota Shaw, Inc. v. Court of
Appeals, 24 Ang Yu Asuncion v. Court of Appeals, 25 andVillonco Realty
Company v. Bormaheco. Inc. 26

maliciously or in bad faith in filing an action. 27 In any case, free

resort to courts for redress of wrongs is a matter of public policy. The
law recognizes the right of every one to sue for that which he
honestly believes to be his right without fear of standing trial for
damages where by lack of sufficient evidence, legal technicalities, or
a different interpretation of the laws on the matter, the case would
lose ground. 28 One who makes use of his own legal right does no
injury. 29 If damage results front the filing of the complaint, it
is damnum absque injuria. 30 Besides, moral damages are generally
not awarded in favor of a juridical person, unless it enjoys a good
reputation that was debased by the offending party resulting in social
humiliation. 31

Anent the actual damages awarded to RBS, ABS-CBN disavows

liability therefor. RBS spent for the premium on the counterbond of its
own volition in order to negate the injunction issued by the trial court
after the parties had ventilated their respective positions during the
hearings for the purpose. The filing of the counterbond was an option
available to RBS, but it can hardly be argued that ABS-CBN compelled
RBS to incur such expense. Besides, RBS had another available
option, i.e., move for the dissolution or the injunction; or if it was
determined to put up a counterbond, it could have presented a cash
bond. Furthermore under Article 2203 of the Civil Code, the party
suffering loss or injury is also required to exercise the diligence of a
good father of a family to minimize the damages resulting from the
act or omission. As regards the cost of print advertisements, RBS had
not convincingly established that this was a loss attributable to the
non showing "Maging Sino Ka Man"; on the contrary, it was brought
out during trial that with or without the case or the injunction, RBS
would have spent such an amount to generate interest in the film.

As regards the award of attorney's fees, ABS-CBN maintains that the

same had no factual, legal, or equitable justification. In sustaining the
trial court's award, the Court of Appeals acted in clear disregard of
the doctrines laid down in Buan v. Camaganacan 32 that the text of
the decision should state the reason why attorney's fees are being
awarded; otherwise, the award should be disallowed. Besides, no bad
faith has been imputed on, much less proved as having been
committed by, ABS-CBN. It has been held that "where no sufficient
showing of bad faith would be reflected in a party' s persistence in a
case other than an erroneous conviction of the righteousness of his
cause, attorney's fees shall not be recovered as cost." 33

ABS-CBN further contends that there was no clear basis for the
awards of moral and exemplary damages. The controversy involving
ABS-CBN and RBS did not in any way originate from business
transaction between them. The claims for such damages did not arise
from any contractual dealings or from specific acts committed by
ABS-CBN against RBS that may be characterized as wanton,
fraudulent, or reckless; they arose by virtue only of the filing of the
complaint, An award of moral and exemplary damages is not
warranted where the record is bereft of any proof that a party acted

On the other hand, RBS asserts that there was no perfected contract
between ABS-CBN and VIVA absent any meeting of minds between
them regarding the object and consideration of the alleged contract.
It affirms that the ABS-CBN's claim of a right of first refusal was
correctly rejected by the trial court. RBS insist the premium it had
paid for the counterbond constituted a pecuniary loss upon which it
may recover. It was obliged to put up the counterbound due to the
injunction procured by ABS-CBN. Since the trial court found that ABSCBN had no cause of action or valid claim against RBS and, therefore
not entitled to the writ of injunction, RBS could recover from ABS-CBN
the premium paid on the counterbond. Contrary to the claim of ABSCBN, the cash bond would prove to be more expensive, as the loss
would be equivalent to the cost of money RBS would forego in case
the P30 million came from its funds or was borrowed from banks.

RBS likewise asserts that it was entitled to the cost of advertisements

for the cancelled showing of the film "Maging Sino Ka Man" because
the print advertisements were put out to announce the showing on a
particular day and hour on Channel 7, i.e., in its entirety at one time,
not a series to be shown on a periodic basis. Hence, the print
advertisement were good and relevant for the particular date
showing, and since the film could not be shown on that particular
date and hour because of the injunction, the expenses for the
advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN
filed the case and secured injunctions purely for the purpose of
harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of
the Civil Code, ABS-CBN must be held liable for such
damages. Citing Tolentino, 34 damages may be awarded in cases of
abuse of rights even if the act done is not illicit and there is abuse of
rights were plaintiff institutes and action purely for the purpose of
harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and
exemplary damages, private respondents RBScited People
v. Manero, 35 where it was stated that such entity may recover moral
and exemplary damages if it has a good reputation that is debased
resulting in social humiliation. it then ratiocinates; thus:
There can be no doubt that RBS' reputation has been
debased by ABS-CBN's acts in this case. When RBS was
not able to fulfill its commitment to the viewing public
to show the film "Maging Sino Ka Man" on the
scheduled dates and times (and on two occasions that
RBS advertised), it suffered serious embarrassment
and social humiliation. When the showing was
canceled, late viewers called up RBS' offices and
subjected RBS to verbal abuse ("Announce kayo nang
announce, hindi ninyo naman ilalabas," "nanloloko
yata kayo") (Exh. 3-RBS, par. 3). This alone was not
something RBS brought upon itself. it was exactly what
ABS-CBN had planned to happen.

The amount of moral and exemplary damages cannot

be said to be excessive. Two reasons justify the amount
of the award.
The first is that the humiliation suffered by RBS is
national extent. RBS operations as a broadcasting
company is [sic] nationwide. Its clientele, like that of
ABS-CBN, consists of those who own and watch
television. It is not an exaggeration to state, and it is a
matter of judicial notice that almost every other person
in the country watches television. The humiliation
suffered by RBS is multiplied by the number of
televiewers who had anticipated the showing of the
film "Maging Sino Ka Man" on May 28 and November 3,
1992 but did not see it owing to the cancellation.
Added to this are the advertisers who had placed
commercial spots for the telecast and to whom RBS
had a commitment in consideration of the placement
to show the film in the dates and times specified.
The second is that it is a competitor that caused RBS
to suffer the humiliation. The humiliation and injury are
far greater in degree when caused by an entity whose
ultimate business objective is to lure customers
(viewers in this case) away from the competition. 36
For their part, VIVA and Vicente del Rosario contend that the findings
of fact of the trial court and the Court of Appeals do not support ABSCBN's claim that there was a perfected contract. Such factual
findings can no longer be disturbed in this petition for review under
Rule 45, as only questions of law can be raised, not questions of fact.
On the issue of damages and attorneys fees, they adopted the
arguments of RBS.
The key issues for our consideration are (1) whether there was a
perfected contract between VIVA and ABS-CBN, and (2) whether RBS
is entitled to damages and attorney's fees. It may be noted that the
award of attorney's fees of P212,000 in favor of VIVA is not assigned
as another error.

I.
The first issue should be resolved against ABS-CBN. A contract is a
meeting of minds between two persons whereby one binds himself to
give something or to render some service to another 37 for a
consideration. there is no contract unless the following requisites
concur: (1) consent of the contracting parties; (2) object certain
which is the subject of the contract; and (3) cause of the obligation,
which is established. 38 A contract undergoes three stages:
(a) preparation, conception, or generation, which is the
period of negotiation and bargaining, ending at the
moment of agreement of the parties;
(b) perfection or birth of the contract, which is the
moment when the parties come to agree on the terms
of the contract; and
(c) consummation or death, which is the fulfillment or
performance of the terms agreed upon in the
contract. 39
Contracts that are consensual in nature are perfected upon mere
meeting of the minds, Once there is concurrence between the offer
and the acceptance upon the subject matter, consideration, and
terms of payment a contract is produced. The offer must be certain.
To convert the offer into a contract, the acceptance must be absolute
and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional, and without variance of any sort from the
proposal. A qualified acceptance, or one that involves a new
proposal, constitutes a counter-offer and is a rejection of the original
offer. Consequently, when something is desired which is not exactly
what is proposed in the offer, such acceptance is not sufficient to
generate consent because any modification or variation from the
terms of the offer annuls the offer. 40
When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the
Tamarind Grill on 2 April 1992 to discuss the package of films, said
package of 104 VIVA films was VIVA's offer to ABS-CBN to enter into a
new Film Exhibition Agreement. But ABS-CBN, sent, through Ms.

Concio, a counter-proposal in the form of a draft contract proposing

exhibition of 53 films for a consideration of P35 million. This counterproposal could be nothing less than the counter-offer of Mr. Lopez
during his conference with Del Rosario at Tamarind Grill Restaurant.
Clearly, there was no acceptance of VIVA's offer, for it was met by a
counter-offer which substantially varied the terms of the offer.
ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of
Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is
misplaced. In these cases, it was held that an acceptance may
contain a request for certain changes in the terms of the offer and
yet be a binding acceptance as long as "it is clear that the meaning
of the acceptance is positively and unequivocally to accept the offer,
whether such request is granted or not." This ruling was, however,
reversed in the resolution of 29 March 1996, 43 which ruled that the
acceptance of all offer must be unqualified and absolute, i.e., it "must
be identical in all respects with that of the offer so as to produce
consent or meeting of the minds."
On the other hand, in Villonco, cited in Limketkai, the alleged
changes in the revised counter-offer were not material but merely
clarificatory of what had previously been agreed upon. It cited the
statement in Stuart v.Franklin Life Insurance Co. 44 that "a vendor's
change in a phrase of the offer to purchase, which change does not
essentially change the terms of the offer, does not amount to a
rejection of the offer and the tender of a counter-offer." 45However,
when any of the elements of the contract is modified upon
acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of
VIVA's offer. Hence, they underwent a period of bargaining. ABS-CBN
then formalized its counter-proposals or counter-offer in a draft
contract, VIVA through its Board of Directors, rejected such counteroffer, Even if it be conceded arguendo that Del Rosario had accepted
the counter-offer, the acceptance did not bind VIVA, as there was no
proof whatsoever that Del Rosario had the specific authority to do so.
Under Corporation Code, 46 unless otherwise provided by said Code,
corporate powers, such as the power; to enter into contracts; are
exercised by the Board of Directors. However, the Board may

delegate such powers to either an executive committee or officials or

contracted managers. The delegation, except for the executive
committee, must be for specific purposes, 47 Delegation to officers
makes the latter agents of the corporation; accordingly, the general
rules of agency as to the bindings effects of their acts would
apply. 48 For such officers to be deemed fully clothed by the
corporation to exercise a power of the Board, the latter must
specially authorize them to do so. That Del Rosario did not have the
authority to accept ABS-CBN's counter-offer was best evidenced by
his submission of the draft contract to VIVA's Board of Directors for
the latter's approval. In any event, there was between Del Rosario
and Lopez III no meeting of minds. The following findings of the trial
court are instructive:
A number of considerations militate against ABS-CBN's
claim that a contract was perfected at that lunch
meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at
the Tamarind Grill referred to the price and the number
of films, which he wrote on a napkin. However, Exhibit
"C" contains numerous provisions which, were not
discussed at the Tamarind Grill, if Lopez testimony was
to be believed nor could they have been physically
written on a napkin. There was even doubt as to
whether it was a paper napkin or a cloth napkin. In
short what were written in Exhibit "C'' were not
discussed, and therefore could not have been agreed
upon, by the parties. How then could this court compel
the parties to sign Exhibit "C" when the provisions
thereof were not previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed
upon as the subject matter of the contract was 14
films. The complaint in fact prays for delivery of 14
films. But Exhibit "C" mentions 53 films as its subject
matter. Which is which If Exhibits "C" reflected the true
intent of the parties, then ABS-CBN's claim for 14 films
in its complaint is false or if what it alleged in the
complaint is true, then Exhibit "C" did not reflect what

was agreed upon by the parties. This underscores the

fact that there was no meeting of the minds as to the
subject matter of the contracts, so as to preclude
perfection thereof. For settled is the rule that there can
be no contract where there is no object which is its
subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his
affidavit testimony (Exh. "D") states:
We were able to reach an agreement.
VIVA gave us the exclusive license to
show these fourteen (14) films, and we
agreed to pay Viva the amount of
P16,050,000.00 as well as grant Viva
commercial slots worth P19,950,000.00.
We had already earmarked this P16,
050,000.00.
which gives a total consideration of P36 million
(P19,950,000.00
plus
P16,050,000.00.
equals
P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q. What was written in this napkin?
A. The total price, the breakdown the
known Viva movies, the 7 blockbuster
movies and the other 7 Viva movies
because the price was broken down
accordingly. The none [sic] Viva and the
seven other Viva movies and the sharing
between the cash portion and the
concerned spot portion in the total
amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This
weakens ABS-CBN's claim.

FOURTH. Mrs. Concio, testifying for ABS-CBN stated

that she transmitted Exhibit "C" to Mr. Del Rosario with
a handwritten note, describing said Exhibit "C" as a
"draft." (Exh. "5" - Viva; tsn pp. 23-24 June 08, 1992).
The said draft has a well defined meaning.

Q. And you are referring to the so-called

agreement which you wrote in [sic] a
piece of paper?

Since Exhibit "C" is only a draft, or a tentative,

provisional or preparatory writing prepared for
discussion, the terms and conditions thereof could not
have been previously agreed upon by ABS-CBN and
Viva Exhibit "C'' could not therefore legally bind Viva,
not having agreed thereto. In fact, Ms. Concio admitted
that the terms and conditions embodied in Exhibit "C"
were prepared by ABS-CBN's lawyers and there was no
discussion on said terms and conditions. . . .

Q. So, he was going to forward that to

the board of Directors for approval?

As the parties had not yet discussed the proposed

terms and conditions in Exhibit "C," and there was no
evidence whatsoever that Viva agreed to the terms
and conditions thereof, said document cannot be a
binding contract. The fact that Viva refused to sign
Exhibit "C" reveals only two [sic] well that it did not
agree on its terms and conditions, and this court has
no authority to compel Viva to agree thereto.

The above testimony of Mr. Lopez shows beyond doubt

that he knew Mr. Del Rosario had no authority to bind
Viva to a contract with ABS-CBN until and unless its
Board of Directors approved it. The complaint, in fact,
alleges that Mr. Del Rosario "is the Executive Producer
of defendant Viva" which "is a corporation." (par. 2,
complaint). As a mere agent of Viva, Del Rosario could
not bind Viva unless what he did is ratified by its Board
of Directors. (Vicente vs. Geraldez, 52 SCRA
210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a
mere agent, recognized as such by plaintiff, Del
Rosario could not be held liable jointly and severally
with Viva and his inclusion as party defendant has no
legal basis. (Salonga vs. Warner Barner [sic] , COLTA ,
88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).

FIFTH. Mr. Lopez understand [sic] that what he and Mr.

Del Rosario agreed upon at the Tamarind Grill was only
provisional, in the sense that it was subject to approval
by the Board of Directors of Viva. He testified:
Q. Now, Mr. Witness, and after that
Tamarind meeting ... the second meeting
wherein you claimed that you have the
meeting of the minds between you and
Mr. Vic del Rosario, what happened?
A. Vic Del Rosario was supposed to call
us up and tell us specifically the result of
the discussion with the Board of
Directors.

A. Yes, sir.

A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992)

Q. Did Mr. Del Rosario tell you that he
will submit it to his Board for approval?
A. Yes, sir. (Tsn, p. 69, June 8, 1992).

The testimony of Mr. Lopez and the allegations in the

complaint are clear admissions that what was
supposed to have been agreed upon at the Tamarind
Grill between Mr. Lopez and Del Rosario was not a
binding agreement. It is as it should be because
corporate power to enter into a contract is lodged in
the Board of Directors. (Sec. 23, Corporation Code).
Without such board approval by the Viva board,

whatever agreement Lopez and Del Rosario arrived at

could not ripen into a valid contract binding upon Viva
(Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA
763). The evidence adduced shows that the Board of
Directors of Viva rejected Exhibit "C" and insisted that
the film package for 140 films be maintained (Exh. "71" - Viva ). 49
The contention that ABS-CBN had yet to fully exercise its right of first
refusal over twenty-four films under the 1990 Film Exhibition
Agreement and that the meeting between Lopez and Del Rosario was
a continuation of said previous contract is untenable. As observed by
the trial court, ABS-CBN right of first refusal had already been
exercised when Ms. Concio wrote to VIVA ticking off ten films, Thus:
[T]he subsequent negotiation with ABS-CBN two (2)
months after this letter was sent, was for an entirely
different package. Ms. Concio herself admitted on
cross-examination to having used or exercised the
right of first refusal. She stated that the list was not
acceptable and was indeed not accepted by ABS-CBN,
(TSN, June 8, 1992, pp. 8-10). Even Mr. Lopez himself
admitted that the right of the first refusal may have
been already exercised by Ms. Concio (as she had).
(TSN, June 8, 1992, pp. 71-75). Del Rosario himself
knew and understand [sic] that ABS-CBN has lost its
rights of the first refusal when his list of 36 titles were
rejected (Tsn, June 9, 1992, pp. 10-11) 50
II
However, we find for ABS-CBN on the issue of damages. We shall first
take up actual damages. Chapter 2, Title XVIII, Book IV of the Civil
Code is the specific law on actual or compensatory damages. Except
as provided by law or by stipulation, one is entitled to compensation
for actual damages only for such pecuniary loss suffered by him as
he has duly proved. 51 The indemnification shall comprehend not only
the value of the loss suffered, but also that of the profits that the
obligee failed to obtain. 52 In contracts and quasi-contracts the
damages which may be awarded are dependent on whether the

obligor acted with good faith or otherwise, It case of good faith, the
damages recoverable are those which are the natural and probable
consequences of the breach of the obligation and which the parties
have foreseen or could have reasonably foreseen at the time of the
constitution of the obligation. If the obligor acted with fraud, bad
faith, malice, or wanton attitude, he shall be responsible for all
damages which may be reasonably attributed to the nonperformance of the obligation. 53 In crimes and quasi-delicts, the
defendant shall be liable for all damages which are the natural and
probable consequences of the act or omission complained of,
whether or not such damages has been foreseen or could have
reasonably been foreseen by the defendant. 54
Actual damages may likewise be recovered for loss or impairment of
earning capacity in cases of temporary or permanent personal injury,
or for injury to the plaintiff's business standing or commercial
credit. 55
The claim of RBS for actual damages did not arise from contract,
quasi-contract, delict, or quasi-delict. It arose from the fact of filing of
the complaint despite ABS-CBN's alleged knowledge of lack of cause
of action. Thus paragraph 12 of RBS's Answer with Counterclaim and
Cross-claim under the heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that
it has no cause of action RBS. As a result thereof, RBS
suffered actual damages in the amount of
P6,621,195.32. 56
Needless to state the award of actual damages cannot be
comprehended under the above law on actual damages. RBS could
only probably take refuge under Articles 19, 20, and 21 of the Civil
Code, which read as follows:
Art. 19. Every person must, in the exercise of his rights
and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good
faith.

Art. 20. Every person who, contrary to law, wilfully or

negligently causes damage to another, shall indemnify
the latter for tile same.
Art. 21. Any person who wilfully causes loss or injury to
another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter
for the damage.
It may further be observed that in cases where a writ of preliminary
injunction is issued, the damages which the defendant may suffer by
reason of the writ are recoverable from the injunctive bond. 57 In this
case, ABS-CBN had not yet filed the required bond; as a matter of
fact, it asked for reduction of the bond and even went to the Court of
Appeals to challenge the order on the matter, Clearly then, it was not
necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be
held responsible for the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for
"Maging Sino Ka Man" for lack of sufficient legal basis. The RTC issued
a temporary restraining order and later, a writ of preliminary
injunction on the basis of its determination that there existed
sufficient ground for the issuance thereof. Notably, the RTC did not
dissolve the injunction on the ground of lack of legal and factual
basis, but because of the plea of RBS that it be allowed to put up a
counterbond.
As regards attorney's fees, the law is clear that in the absence of
stipulation, attorney's fees may be recovered as actual or
compensatory damages under any of the circumstances provided for
in Article 2208 of the Civil Code. 58
The general rule is that attorney's fees cannot be recovered as part
of damages because of the policy that no premium should be placed
on the right to litigate. 59 They are not to be awarded every time a
party wins a suit. The power of the court to award attorney's fees
under Article 2208 demands factual, legal, and equitable
justification. 60 Even when claimant is compelled to litigate with third
persons or to incur expenses to protect his rights, still attorney's fees
may not be awarded where no sufficient showing of bad faith could

be reflected in a party's persistence in a case other than erroneous

conviction of the righteousness of his cause. 61
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book
IV of the Civil Code. Article 2217 thereof defines what are included in
moral damages, while Article 2219 enumerates the cases where they
may be recovered, Article 2220 provides that moral damages may be
recovered in breaches of contract where the defendant acted
fraudulently or in bad faith. RBS's claim for moral damages could
possibly fall only under item (10) of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27,
28, 29, 30, 32, 34, and 35.
Moral damages are in the category of an award designed to
compensate the claimant for actual injury suffered. and not to
impose a penalty on the wrongdoer. 62 The award is not meant to
enrich the complainant at the expense of the defendant, but to
enable the injured party to obtain means, diversion, or amusements
that will serve to obviate then moral suffering he has undergone. It is
aimed at the restoration, within the limits of the possible, of the
spiritual status quo ante, and should be proportionate to the suffering
inflicted. 63 Trial courts must then guard against the award of
exorbitant damages; they should exercise balanced restrained and
measured objectivity to avoid suspicion that it was due to passion,
prejudice, or corruption on the part of the trial court. 64
The award of moral damages cannot be granted in favor of a
corporation because, being an artificial person and having existence
only in legal contemplation, it has no feelings, no emotions, no
senses, It cannot, therefore, experience physical suffering and mental
anguish, which call be experienced only by one having a nervous
system. 65 The statement in People v. Manero 66 and Mambulao
Lumber Co. v. PNB 67 that a corporation may recover moral damages
if it "has a good reputation that is debased, resulting in social
humiliation" is an obiter dictum. On this score alone the award for
damages must be set aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5, Chapter 3, Title
XVIII, Book IV of the Civil Code. These are imposed by way of

example or correction for the public good, in addition to moral,

temperate, liquidated or compensatory damages. 68 They are
recoverable in criminal cases as part of the civil liability when the
crime
was
committed
with
one
or
more
aggravating
circumstances; 69 in quasi-contracts, if the defendant acted with
gross negligence;70 and in contracts and quasi-contracts, if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner. 71

REVERSED except as to unappealed award of attorney's fees in favor

of VIVA Productions, Inc.1wphi1.nt

It may be reiterated that the claim of RBS against ABS-CBN is not

based on contract, quasi-contract, delict, or quasi-delict, Hence, the
claims for moral and exemplary damages can only be based on
Articles 19, 20, and 21 of the Civil Code.

G.R. No. 135929

The elements of abuse of right under Article 19 are the following: (1)
the existence of a legal right or duty, (2) which is exercised in bad
faith, and (3) for the sole intent of prejudicing or injuring another.
Article 20 speaks of the general sanction for all other provisions of
law which do not especially provide for their own sanction; while
Article 21 deals with acts contra bonus mores, and has the following
elements; (1) there is an act which is legal, (2) but which is contrary
to morals, good custom, public order, or public policy, and (3) and it
is done with intent to injure. 72
Verily then, malice or bad faith is at the core of Articles 19, 20, and
21. Malice or bad faith implies a conscious and intentional design to
do a wrongful act for a dishonest purpose or moral obliquity. 73 Such
must be substantiated by evidence. 74
There is no adequate proof that ABS-CBN was inspired by malice or
bad faith. It was honestly convinced of the merits of its cause after it
had undergone serious negotiations culminating in its formal
submission of a draft contract. Settled is the rule that the adverse
result of an action does not per se make the action wrongful and
subject the actor to damages, for the law could not have meant to
impose a penalty on the right to litigate. If damages result from a
person's exercise of a right, it is damnum absque injuria. 75
WHEREFORE, the instant petition is GRANTED. The challenged
decision of the Court of Appeals in CA-G.R. CV No, 44125 is hereby

No pronouncement as to costs.
SO ORDERED.
SECOND DIVISION
April 20, 2001

LOURDES ONG LIMSON, petitioner,

vs.
COURT OF APPEALS, SPOUSES LORENZO DE VERA and
ASUNCION SANTOS-DE VERA, TOMAS CUENCA, JR. and
SUNVAR REALTY DEVELOPMENT CORPORATION, respondents.
BELLOSILLO, J.:
Filed under Rule 45 of the Rules of Court this Petition for Review on
Certiorari seeks to review, reverse and set aside the Decision1 of the
Court of Appeals dated 18 May 1998 reversing that of the Regional
Trial Court dated 30 June 1993. The petitioner likewise assails
the Resolution2 of the appellate court of 19 October 1998 denying
petitioners Motion for Reconsideration.
Petitioner Lourdes Ong Limson, in her 14 may 1979 Complaint filed
before the trial court,3 alleged that in July 1978 respondent spouses
Lorenzo de Vera and Asuncion Santos-de Vera, through their agent
Marcosa Sanchez, offered to sell to petitioner a parcel of land
consisting of 48, 260 square meters, more or less, situated in Barrio
San Dionisio, Paraaque, Metro Manila; that respondent spouses
informed her that they were the owners of the subject property; that
on 31 July 1978 she agreed to buy the property at the price of P34.00
per square meter and gave the sum of P20,000.00 to respondent
spouses as "earnest money;" that respondent spouses signed a
receipt therefor and gave her a 10-day option period to purchase the
property; that respondent Lorenzo de Vera then informed her that the
subject property was mortgaged to Emilio Ramos and Isidro Ramos;
that respondent Lorenzo de Vera asked her to pay the balance of the

purchase price to enable him and his wife to settle their obligation
with the Ramoses.1wphi1.nt

it knew of her "contract" to purchase the subject property fro

respondent spouse.

Petitioner also averred that she agreed to meet respondent spouses

and the Ramoses on 5 August 1978 at the Office of the Registry of
deeds of Makati, Metro Manila, to consummate the transaction but
due to the failure of respondent Asuncion Santos-de Vera and the
Ramoses to appear, no transaction was formalized. In a second
meeting scheduled on 11 August 1978 she claimed that she was
willing and ready to pay the balance of the purchase price but the
transaction again did not materialize as respondent spouses failed to
pay the back taxes of subject property. Subsequently, on 23 August
1978 petitioner allegedly gave respondent Lorenzo de Vera three (3)
checks in the total amount of P36, 170.00 for the settlement of the
back taxes of the property and for the payment of the quitclaims of
the three (3) tenants of subject land. The amount was purportedly
considered part of purchase price and respondent Lorenzo de Vera
signed the receipts therefor.

Finally, for the alleged unlawful and unjust acts of respondent

spouses, which caused her damage, prejudice and injury, petitioner
claimed that the Deed of Sale, should be annuled and TCT No. S72377 in the name of respondent SUNVAR canceled and TCT No. S72946 restored. She also insisted that a Deed of Sale between her an
respondent spouses be now executed upon her payment of the
balance of the purchase price agreed upon, plus damages and
attorneys fees.

Petitioner alleged that on 5 September 1978 she was surprised to

learn from the agent of respondent spouses that the property was
the subject of a negotiation for the sale to respondent Sunvar Realty
Development Corporation (SUNVAR) represented by respondent
Tomas Cuenca, Jr. On 15 September 1978 petitioner discovered that
although respondent spouses purchased the property from the
Ramoses on 20 March 1970 it was only on 15 September 1978 that
TCT No. S-72946 covering the property was issued to respondent
spouses. As a consequence, she file on the same day an affidavit of
Adverse Claim with the Office of the Registry of Deeds of Makati,
Metro, which was annotated on TCT No. S-72946. She also claimed
that on the same day she informed respondent Cuenca of her
"contract" to purchase the property.
The Deed of Sale between respondent spouses and respondent
SUNVAR was executed on 15 September 1978 and TCT N0. S-72377
was issued in favor of the latter on 26 September 1978 with
the adverse Claim of petitioner annotated thereon. Petitioner claimed
that when respondent spouses sold the property in dispute to
SUNVAR, her valid and legal right to purchase it was ignored if not
violated. Moreover, she maintained that SUNVAR was in bad faith, as

In their Answer4 respondent spouses maintained that petitioner had

no sufficient cause of action against them; that she was not the real
party in interest; that the option to buy the property had long
expired; that there was no perfected contract to sell between them;
and, that petitioner had no legal capacity to sue. Additionally,
respondent spouses claimed actual, moral and exemplary damages,
and attorneys fees against petitioner.
On the other hand, respondents SUNVAR and Cuenca, in
their Answer5 alleged that petitioner was not the proper party in
interest and/or had no cause of action against them. But, even
assuming that petitioner was the proper party in interest, they
claimed that she could only be entitled to the return of any amount
received by respondent spouses. In the alternative, they argued that
petitioner had lost her option to buy the property for failure to
comply with the terms and conditions of the agreement as embodied
in the receipt issued therefor. Moreover, they contended that at the
time of the execution of the Deed of Sale and the payment of
consideration to respondent spouses, they "did not know nor was
informed" of petitioners interest or claim over the subject property.
They claimed furthermore that it was only after the signing of the
Deed of Sale and the payment of the corresponding amounts to
respondent spouses that they came to know of the claim of petitioner
as it was only then that they were furnished copy to the title to the
properly where the Adverse Claim of petitioner was annotated.
Consequently, they also instituted a Cross-Claim against respondent
spouses for bad faith in encouraging the negotiations between them
without telling them of the claim of petitioner. The same respondents

maintained that had they known of the claim of petitioner, they

would not have initiated negotiations with respondent spouses for
the purchase of the property. Thus, they prayed for reimbursement of
all amounts and monies received from them by respondent spouses,
attorneys fees and expenses for litigation in the event that the trial
court should annul the Deed of Sale and deprive them of their
ownership and possessio of the subject land.
In their Answer to the Cross-Claim6 of respondents SUNVAR and
Cuenca, respondent spouses insisted that they negotiated with the
former only after expiration of the option period given to petitioner
and her failure with her commitments thereunder. Respondent
spouses contended that they acted legally and validly, in all honesty
and good faith. According to them, respondent SUNVAR made a
verification of the title with the office of the register of Deeds of
Metro Manila District IV before the execution of the Deed of Absolute
Sale. Also, they claimed that theCross-Claim was written executed by
respondent SUNVAR in their favor. Thus, respondent spouses prayed
for actual damages for the unjustified filling of the Cross-Claim, moral
damages for the mental anguish and similar injuries they suffered by
reason thereof, exemplary damages "to prevent others from
emulation the bad example" of respondents SUNVAR and Cuenca,
plus attorneys fees.
After a protracted trial and reconstitution of the court records due to
the fire that razed the Pasay City Hall on 18 January 1992, the
Regional Trial Court rendered its 30 June 1993 Decision 7 in favor of
petitioner. It ordered (a) the annulment and rescission of the Deed of
Absolute Sale executed on 15 September 1978 by respondent
spouses in favor of respondent SUNVAR; (b) the cancellation and
revocation of TCT No. S-75377 of the Registry of Deeds, Makati, Metro
Manila, issued in the name of respondent Sunvar Realty Development
Corporation, and the restoration or reinstatement of TCT No. S-72946
of the same Registry issued in the name of respondent spouses; (c)
respondent spouses to execute a deed of sale conveying ownership
of the property covered by TCT No. S-72946 in favor of petitioner
upon her payment of the balance of the purchase price agreed upon;
and, (d) respondent spouses to pay petitioner P50,000.00 as and for
attorneys fees, and to pay the costs.

On appeal, the Court of Appeals completely reversed the decision of

the trial court. It ordered (a) the Register of Deeds of Makati City to
lift the Adverse Claim and such other encumbrances petitioner might
have filed or caused to be annotated on TCT No. S-75377; and, (b)
petitioner to pay (1) respondent SUNVAR P50,000.00 as nominal
damages, P30,000.00 as exemplary damages and P20,000 as
attorneys fees; (2) respondent spouses, P15,000.00 as nominal
damages, P10,000.00 as exemplary damages and P10,000.00 as
attorneys fees; and, (3) the costs.
Petitioner timely filed a Motion for Reconsideration which was denied
by the Court of Appeals on 19 October 1998. Hence, this petition.
At issue for resolution by the Court is the nature of the contract
entered into between petitioner Lourdes Ong Limson on one hand,
and respondent spouses Lorenzo de Vera and Asuncion Santos-de
Vera on the other.
The main argument of petitioner is that there was a perfected
contract to sell between her and respondent spouses. On the other
hand, respondent spouses and respondents SUNVAR and Cuenca
argue that what was perfected between petitioner and respondent
spouses was a mere option.
A scrutiny of the facts as well as the evidence of the parties
overwhelmingly leads to the conclusion that the agreement between
the parties was a contract of option and not a contract to sell.
An option, as used in the law of sales, is a continuing offer or contract
by which the owner sitpulates with another that the latter shall have
the right to buy the property at a fixed price within a time certain, or
under, or in compliance with, certain terms and conditions, or which
gives to the owner of the property the right to sell or demand a sale.
It is also sometimes called an "unaccepted offer." An option is not
itself a purchase, but merely secures the privilege to buy. 8 It is not a
sale of property but a sale of right to purchase. 9 It is simply a
contract by which the owner of property agrees with another person
that he shall have the right to buy his property at a fixed price within
a certain time. He does not sell his land; he does not then agree to
sell it; but he does not sell something, i.e., the right or privilege to

buy at the election or option of the other party. 10 Its distinguishing

characteristic is that it imposes no binding obligation on the person
holding the option, aside from the consideration for the offer. Until
acceptance, it is not, properly speaking, a contract, and does not
vest, transfer, or agree to transfer, any title to, or any interest or
right in the subject matter, but is merely a contract by which the
owner of the property gives the optionee the right or privilege of
accepting the offer and buying the property on certain terms.11
On the other hand, a contract, like a contract to sell, involves the
meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some
service.12 Contracts,
in
general,
are
perfected
by
mere
consent,13 which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. 14
The Receipt15 that contains the contract between petitioner and
respondent spouses provides
Received from Lourdes Limson the sum of Twenty Thousand
Peso (P20,000.00) under Check No. 22391 dated July 31, 1978
as earnest money with option to purchase a parcel of land
owned by Lorenzo de Vera located at Barrio San Dionisio,
Municipality of Paraaque, Province of Rizal with an area of
forty eight thousand two hundred sixty square meters more
or less at the price of Thirty Four Pesos (34.00) 16 cash subject
to the condition and stipulation that have been agreed upon
by the buyer and me which will form part of the receipt.
Should the transaction of the property not materialize not on
the fault of the buyer, I obligate myself to return the full
amount of P20,000.00 earnest money with option to buy or
forfeit on the fault of the buyer. I guarantee to notify the
buyer Lourdes Limson or her representative and get her
conformity should I sell or encumber this property to a third
person. This option to buy is good within ten (10) days until
the absolute deed of sale is finally signed by the parties or the
failure of the buyer to comply with the terms of the option to
buy as herein attached.

In the interpretation of contracts, the ascertainment of the intention

of the contracting parties is to be discharged by looking to the words
they used to project that intention in their contracts, all the words
standing alone.17 The above Receipt readily shows that respondent
spouses and petitioner only entered into a contract of option; a
contract by which respondent spouses agreed with petitioner that the
latter shall have the right to buy the former's property at a fixed price
of P34.00 per square meter within ten (10) days from 31 July 1978.
Respondent spouses did not sell their property; they did not also
agree to sell it; but they sold something, i.e., the privilege to buy at
the election or option of petitioner. The agreement imposed no
binding obligation on petitioner, aside from the consideration for the
offer.
The consideration of P20,000.00 paid by petitioner to respondent
spouses was referred to as "earnest money." However, a careful
examination of the words used indicated that the money is not
earnest money but option money. "Earnest money" and "option
money" are not the same but distinguished thus; (a) earnest money
is part of the purchase price, while option money is the money given
as a distinct consideration for an option contract; (b) earnest money
given only where there is already a sale, while option money applies
to a sale not yet perfected; and, (c) when earnest money is given,
the buyer is bound to pay the balance, while when the would-be
buyer gives option money, he is not required to buy, 18 but may even
forfeit it depending on the terms of the option.
There is nothing in the Receipt which indicates that the P20,000.00
was part of the purchase price. Moreover, it was not shown that there
was a perfected sale between the parties where earnest money was
given. Finally, when petitioner gave the "earnest money" the Receipt
did not reveal that she was bound to pay the balance of the purchase
price. In fact, she could even forfeit the money given if the terms of
the option were not met. Thus, the P20,000.00 could only be money
given as consideration for the option contract. That the contract
between the parties is one of option is buttressed by the provision
therein that should the transaction of the provision therein that
should the transaction of the property not materialize without fault of
petitioner as buyer, respondent Lorenzo de Vera obligates himself to
return the full amount of P20,000.00 "earnest money" with option to

buy or forfeit the same on the fault of petitioner. It is further

bolstered by the provision therein that guarantees petitioner that she
or her representative would be notified in case the subject property
was sold or encumbered to a third person. Finally, the Receipt
provided for a period within which the option to buy was to be
exercised, i.e., "within ten (10) days" from 31 July 1978.
Doubtless, the agreement between respondent spouses and
petitioner was an "option contract" or what is sometimes called an
"unaccepted offer." During the option period the agreement was not
converted into a bilateral promise to sell and to buy where both
respondent spouses and petitioner were then reciprocally bound to
comply with their respective undertakings as petitioner did not
timely, affirmatively and clearly accept the offer of respondent
spouses.
The rule is that except where a formal acceptance is not required,
although the acceptance must be affirmatively and clearly made and
evidenced by some acts or conduct communicated to the offeror, it
may be made either in a formal or an informal manner, and may be
shown by acts, conduct or words by the accepting party that clearly
manifest a present intention or determination to accept the offer to
buy the property of respondent spouses within the 10-day option
period. The only occasion within the option period when petitioner
could have demonstrated her acceptance was on 5 August 1978
when, according to her, she agreed to meet respondent spouses and
the Ramoses at the Office of the Registrar of Deeds of Makati.
Petitioners agreement to meet with respondent spouses
presupposes an invitation from the latter, which only emphasizes
their persistence in offering the property to the former. But whether
that showed acceptance by petitioner of the offer is hazy and
dubious.
On or before 10 August 1978, the last day of the option period, no
affirmative or clear manifestation was made by petitioner to accept
the offer. Certainly, there was no concurrence of private respondent
spouses offer and petitioners acceptance thereof within the option
period. Consequently, there was no perfected contract to sell
between the parties.

On 11 August 1978 the option period expired and the exclusive right
of petitioner to buy the property of respondent spouses ceased. The
subsequent meetings and negotiations, specifically on 11 and 23
August 1978, between the parties only showed the desire of
respondent spouses to sell their property to petitioner. Also, on 14
September 1978 when respondent spouses sent a telegram to
petitioner demanding full payment of the purchase price on even
date simply demonstrated an inclination to give her preference to
buy subject property. Collectively, these instances did not indicate
that petitioner still had the exclusive right to purchase subject
property. Verily, the commencement of negotiations between
respondent spouses and respondent SUNVAR clearly manifested that
their offer to sell subject property to petitioner was no longer
exclusive to her.
We cannot subscribe to the argument of petitioner that respondent
spouses extended the option period when they extended the
authority of their until 31 August 1978. The extension of the contract
of agency could not operate to extend the option period between the
parties in the instant case. The extension must not be implied but
categorical and must show the clear intention of the
parties.1wphi1.nt
As to whether respondent spouses were at fault for the nonconsummation of their contract with petitioner, we agree with the
appellate court that they were not to be blammed. First, within the
option period, or on 4 August 1978, it was respondent spouses and
not petitioner who initiated the meeting at the Office of The Register
of Deeds of Makati. Second, that the Ramoses filed to appear on 4
August
1978
was
beyond
the
control
of
respondent
spouses. Third, the succeeding meetings that transpired to
consummate the contract were all beyond the option period and, as
declared by the Court of Appeals, the question of who was at fault
was already immaterial. Fourth, even assuming that the meetings
were within the option period, the presence of petitioner was not
enough as she was not even prepared to pay the purchase price in
cash as agreed upon. Finally, even without the presence of the
Ramoses, petitioner could have easily made the necessary payment
in cash as the price of the property was already set at P34.00 per

square meter and payment of the mortgage could every well be left
to respondent spouses.
Petitioner further claims that when respondent spouses sent her a
telegram demanding full payment of the purchase price on 14
September 1978 it was an acknowledgment of their contract to sell,
thus denying them the right to claim otherwise.
We do not agree. As explained above, there was no contract to sell
between petitioner and respondent spouses to speak of. Verily, the
telegram could not operate to estop them from claiming that there
was such contract between them and petitioner. Neither could it
mean that respondent spouses extended the option period. The
telegram only showed that respondent spouses were willing to give
petitioner a chance to buy subject property even if it no longer
exclusive.
The option period having expired and acceptance was not effectively
made by petitioner, the purchase of subject property by respondent
SUNVAR was perfectly valid and entered into in good faith. Petitioner
claims that in August 1978 Hermigildo Sanchez, the son of
respondent spouses agent, Marcosa Snachez, informed Marixi Prieto,
a member of the Board of Directors of respondent SUNVAR, that the
property was already sold to petitioner. Also, petitioner maintains
that on 5 September 1978 respondent Cuenca met with her and
offered to buy the property from her at P45.00 per square meter.
Petitioner contends that these incidents, including the annotation of
her Adverse Claim on the title of subject property on 15 September
1978 show that respondent SUNVAR was aware of the perfected sale
between her and respondent spouses, thus making respondent
SUNVAR a buyer in bad faith.
Petitioner is not correct. The dates mentioned, at least 5 and 15
September 1978, are immaterial as they were beyond the option
period given to petitioner. On the other hand, the referral
to sometime in August 1978 in the testimony of Hermigildo Sanchez
as emphasized by petitioner in her petition is very vague. It could be
within or beyond the option period. Clearly then, even assuming that
the meeting with Marixi Prieto actually transpired, it could not
necessarily mean that she knew of the agreement between petitioner

and respondent spouses for the purchase of subject property as the

meeting could have occurred beyond the option period. In which
case, no bad faith could be attributed to respondent SUNVAR. If, on
the other hand, the meeting was within the option period, petitioner
was remiss in her duty to prove so. Necessarily, we are left with the
conclusion that respondent SUNVAR bought subject property from
respondent spouses in good faith, for value and without knowledge of
any flaw or defect in its title.
The appellate court awarded nominal and exemplary damages plus
attorneys fees to respondent spouses and respondent SUNVAR. But
nominal damages are adjudicated to vindicate or recognize the right
of the plaintiff that has been violated or invaded by the
defendant.19 In the instant case, the Court recognizes the rights of all
the parties and finds no violation or invasion of the rights of
respondents by petitioner. Petitioner, in filing her complaint, only
seeks relief, in good faith, for what she believes she was entitled to
and should not be awarded to respondents as they are imposed only
by way of example or correction for the public good and only in
addition tothe moral, temperate, liquidated or compensatory
damages.20 No such kinds of damages were awarded by the Court of
Appeals, only nominal, which was not justified in this case. Finally,
attorneys fees could not also be recovered as the Court does not
deem it just and equitable under the circumtances.
WHEREFORE, the petition is DENIED. The decision of the Court of
Appeals ordering the Register of Deeds of Makati City to lift the
adverse claim and such other encumbrances petitioners Lourdes Ong
Limson may have filed or caused to be annotated on TCT No. S-75377
is AFFIRMED, with the MODIFICATION that the award of nominal
and exemplary damages as well as attorneys fees is DELETED.
SO ORDERED.
Mendoza, Quisumbing, Buen
FIRST DIVISION
G.R. No. 154493

December 6, 2006

REYNALDO VILLANUEVA, petitioner,

vs.
PHILIPPINE NATIONAL BANK (PNB), respondent.

DECISION

AUSTRIA-MARTINEZ, J.:
The Petition for Review on Certiorari under Rule 45 before this Court
assails the January 29, 2002 Decision1 and June 27, 2002
Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No.
520083 which reversed and set aside the September 14, 1995
Decision4 of the Regional Trial Court, Branch 22, General Santos City
(RTC) in Civil Case No. 4553.
As culled from the records, the facts are as follows:
The Special Assets Management Department (SAMD) of the
Philippine National Bank (PNB) issued an advertisement for the sale
thru bidding of certain PNB properties in Calumpang, General Santos
City, including Lot No. 17, covered by TCT No. T-15042, consisting of
22,780
square
meters,
with
an
advertised
floor
price
ofP1,409,000.00, and Lot No. 19, covered by TCT No. T-15036,
consisting of 41,190 square meters, with an advertised floor price
of P2,268,000.00.5 Bidding was subject to the following conditions: 1)
that cash bids be submitted not later than April 27, 1989; 2) that said
bids be accompanied by a 10% deposit in managers or cashiers
check; and 3) that all acceptable bids be subject to approval by PNB
authorities.
In a June 28, 1990 letter6 to the Manager, PNB-General Santos
Branch, Reynaldo Villanueva (Villanueva) offered to purchase Lot Nos.
17 and 19 for P3,677,000.00. He also manifested that he was
depositing P400,000.00 to show his good faith but with the
understanding that said amount may be treated as part of the
payment of the purchase price only when his offer is accepted by

PNB. At the bottom of said letter there appears an unsigned marginal

note stating that P400,000.00 was deposited into Villanuevas
account (Savings Account No. 43612) with PNB-General Santos
Branch. 7
PNB-General Santos Branch forwarded the June 28, 1990 letter of
Villanueva to Ramon Guevara (Guevara), Vice President, SAMD. 8 On
July 6, 1990, Guevara informed Villanueva that only Lot No. 19 is
available
and
that
the
asking
price
therefor
is P2,883,300.00.9 Guevara further wrote:
If our quoted price is acceptable to you, please submit a revised offer
to purchase. Sale shall be subject to our Board of Directors approval
and to other terms and conditions imposed by the Bank on sale of
acquired assets. 10 (Emphasis ours)
Instead of submitting a revised offer, Villanueva merely inserted at
the bottom of Guevaras letter a July 11, 1990 marginal note, which
reads:
C O N F O R M E:
PRICE OF P2,883,300.00 (downpayment of P600,000.00 and the
balance
payable
in
two
(2)
years
at
quarterly
11
amortizations.)
Villanueva paid P200,000.00 to PNB which issued O.R. No. 16997 to
acknowledge receipt of the "partial payment deposit on offer to
purchase."12 On the dorsal portion of Official Receipt No. 16997,
Villanueva signed a typewritten note, stating:
This is a deposit made to show the sincerity of my purchase offer
with the understanding that it shall be returned without interest if my
offer is not favorably considered or be forfeited if my offer is
approved but I fail/refuse to push through the purchase.13
Also, on July 24, 1990, P380,000.00 was debited from Villanuevas
Savings Account No. 43612 and credited to SAMD.14
On October 11, 1990, however, Guevara wrote Villanueva that, upon
orders of the PNB Board of Directors to conduct another appraisal
and public bidding of Lot No. 19, SAMD is deferring negotiations with

him
over
said
property
and
returning
his
deposit
of P580,000.00.15 Undaunted, Villanueva attempted to deliver
postdated checks covering the balance of the purchase price but PNB
refused the same.
Hence, Villanueva filed with the RTC a Complaint 16 for specific
performance and damages against PNB. In its September 14, 1995
Decision, the RTC granted the Complaint, thus:
WHEREFORE, judgment is rendered in favor of the plaintiff and
against the defendant directing it to do the following:
1. To execute a deed of sale in favor of the plaintiff over Lot 19
comprising 41,190 square meters situated at Calumpang, General
Santos City covered by TCT No. T-15036 after payment of the balance
in cash in the amount of P2,303,300.00;
2. To pay the plaintiff P1,000,000.00 as moral damages; P500,000.00
as attorneys fees, plus litigation expenses and costs of the suit.
SO ORDERED.17
The RTC anchored its judgment on the finding that there existed a
perfected contract of sale between PNB and Villanueva. It found:
The following facts are either admitted or undisputed:
The defendant through Vice-President Guevara negotiated with the
plaintiff in connection with the offer of the plaintiff to buy Lots 17 &
19. The offer of plaintiff to buy, however, was accepted by the
defendant only insofar as Lot 19 is concerned as exemplified by its
letter dated July 6, 1990 where the plaintiff signified his concurrence
after conferring with the defendants vice-president. The conformity
of the plaintiff was typewritten by the defendants own people where
the plaintiff accepted the price of P2,883,300.00. The defendant also
issued a receipt to the plaintiff on the same day when the plaintiff
paid the amount ofP200,000.00 to complete the downpayment
of P600,000.00 (Exhibit "F" & Exhibit "I"). With this development, the
plaintiff was also given the go signal by the defendant to improve Lot
19 because it was already in effect sold to him and because of that
the defendant fenced the lot and completed his two houses on the
property.18

The
RTC
also
pointed
out
that
Villanuevas P580,000.00
downpayment was actually in the nature of earnest money
acceptance of which by PNB signified that there was already a
sale.19 The RTC further cited contemporaneous acts of PNB
purportedly indicating that, as early as July 25, 1990, it considered
Lot 19 already sold, as shown by Guevaras July 25, 1990 letter (Exh.
"H")20 to another interested buyer.
PNB appealed to the CA which reversed and set aside the September
14, 1995 RTC Decision, thus:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE and
another rendered DISMISSING the complaint.
SO ORDERED.21
According to the CA, there was no perfected contract of sale because
the July 6, 1990 letter of Guevara constituted a qualified acceptance
of the June 28, 1990 offer of Villanueva, and to which Villanueva
replied on July 11, 1990 with a modified offer. The CA held:
In the case at bench, consent, in respect to the price and manner of
its payment, is lacking. The record shows that appellant, thru
Guevaras July 6, 1990 letter, made a qualified acceptance of
appellees letter-offer dated June 28, 1990 by imposing an asking
price of P2,883,300.00 in cash for Lot 19. The letter dated July 6,
1990 constituted a counter-offer (Art. 1319, Civil Code), to which
appellee made a new proposal,i.e., to pay the amount
of P2,883,300.00 in staggered amounts, that is, P600,000.00 as
downpayment and the balance within two years in quarterly
amortizations.
A qualified acceptance, or one that involves a new proposal,
constitutes a counter-offer and a rejection of the original offer (Art.
1319, id.). Consequently, when something is desired which is not
exactly what is proposed in the offer, such acceptance is not
sufficient to generate consent because any modification or variation
from the terms of the offer annuls the offer (Tolentino, Commentaries
and Jurisprudence on the Civil Code of the Philippines, 6 th ed., 1996,
p. 450, cited in ABS-CBN Broadcasting Corporation v. Court of
Appeals, et al., 301 SCRA 572).

Appellees new proposal, which constitutes a counter-offer, was not

accepted by appellant, its board having decided to have Lot 19
reappraised and sold thru public bidding.Moreover, it was clearly
stated in Guevaras July 6, 1990 letter that "the sale shall be subject
to our Board of Directors approval and to other terms and conditions
imposed by the Bank on sale of acquired assets."22

Respondent began with an invitation to bid issued in April 1989

covering several of its acquired assets in Calumpang, General Santos
City, including Lot No. 19 for which the floor price was P2,268,000.00.
The offer was subject to the condition that sealed bids, accompanied
by a 10% deposit in managers or cashiers check, be submitted not
later than 10 oclock in the morning of April 27, 1989.

Villanuevas Motion for Reconsideration 23 was denied by the CA in its

Resolution of June 27, 2002.

On June 28, 1990, petitioner made an offer to buy Lot No. 17 and Lot
No. 19 for an aggregate price ofP3,677,000.00. It is noted that this
offer exactly corresponded to the April 1989 invitation to bid issued
by respondent in that the proposed aggregate purchase price for Lot
Nos. 17 and 19 matched the advertised floor prices for the same
properties. However, it cannot be said that the June 28, 1990 letter of
petitioner was an effective acceptance of the April 1989 invitation to
bid for, by its express terms, said invitation lapsed on April 27,
1989.28 More than that, the April 1989 invitation was subject to the
condition that all sealed bids submitted and accepted be approved
by respondents higher authorities.

Petitioner Villanueva now assails before this Court the January 29,
2002 Decision and June 27, 2002 Resolution of the CA. He assigns
five issues which may be condensed into two: first, whether a
perfected contract of sale exists between petitioner and respondent
PNB; and second, whether the conduct and actuation of respondent
constitutes bad faith as to entitle petitioner to moral and exemplary
damages and attorneys fees.
The Court sustains the CA on both issues.
Contracts of sale are perfected by mutual consent whereby the seller
obligates himself, for a price certain, to deliver and transfer
ownership of a specified thing or right to the buyer over which the
latter agrees.24 Mutual consent being a state of mind, its existence
may only be inferred from the confluence of two acts of the parties:
an offer certain as to the object of the contract and its consideration,
and an acceptance of the offer which is absolute in that it refers to
the exact object and consideration embodied in said offer. 25 While it
is impossible to expect the acceptance to echo every nuance of the
offer, it is imperative that it assents to those points in the offer
which, under the operative facts of each contract, are not only
material but motivating as well. Anything short of that level of
mutuality produces not a contract but a mere counter-offer awaiting
acceptance.26 More particularly on the matter of the consideration of
the contract, the offer and its acceptance must be unanimous both
on the rate of the payment and on its term. An acceptance of an offer
which agrees to the rate but varies the term is ineffective. 27
To determine whether there was mutual consent between the parties
herein, it is necessary to retrace each offer and acceptance they
made.

Thus, the June 28, 1990 letter of petitioner was an offer to buy
independent of the April 1989 invitation to bid. It was a definite offer
as it identified with certainty the properties sought to be purchased
and fixed the contract price.
However, respondent replied to the June 28, 1990 offer with a July 6,
1990 letter that only Lot No. 19 is available and that the price
therefor is now P2,883,300.00. As the CA pointed out, this reply was
certainly not an acceptance of the June 28, 1990 offer but a mere
counter-offer. It deviated from the original offer on three material
points: first, the object of the proposed sale is now only Lot No. 19
rather than Lot Nos. 17 and 19; second, the area of the property to
be sold is still 41,190 sq. m but an 8,797-sq. m portion is now part of
a public road; and third, the consideration is P2,883,300 for one lot
rather than P3,677,000.00 for two lots. More important, this July 6,
1990 counter-offer imposed two conditions: one, that petitioner
submit a revised offer to purchase based on the quoted price; and
two, that the sale of the property be approved by the Board of
Directors and subjected to other terms and conditions imposed by
the Bank on the sale of acquired assets.

In reply to the July 6, 1990 counter-offer, petitioner signed his July 11,
1990 conformity to the quoted price ofP2,883,300.00 but inserted the
term "downpayment of P600,000.00 and the balance payable in two
years at quarterly amortization." The CA viewed this July 11, 1990
conformity not as an acceptance of the July 6, 1990 counter-offer but
a
further
counter-offer
for,
while
petitioner
accepted
the P2,883,300.00 price for Lot No. 19, he qualified his acceptance by
proposing a two-year payment term.
Petitioner does not directly impugn such reasoning of the CA. He
merely questions it for taking up the issue of whether his July 11,
1990 conformity modified the July 6, 1990 counter-offer as this was
allegedly never raised during the trial nor on appeal.29
Such argument is not well taken. From beginning to end, respondent
denied that a contract of sale with petitioner was ever perfected. 30 Its
defense was broad enough to encompass every issue relating to the
concurrence of the elements of contract, specifically on whether it
consented to the object of the sale and its consideration. There was
nothing to prevent the CA from inquiring into the offers and counteroffers of the parties to determine whether there was indeed a
perfected contract between them.
Moreover, there is merit in the ruling of the CA that the July 11, 1990
marginal note was a further counter-offer which did not lead to the
perfection of a contract of sale between the parties. Petitioners own
June 28, 1990 offer quoted the price of P3,677,000.00 for two lots but
was silent on the term of payment. Respondents July 6, 1990
counter-offer quoted the price of P2,833,300.00 and was also silent
on the term of payment. Up to that point, the term or schedule of
payment was not on the negotiation table. Thus, when petitioner
suddenly introduced a term of payment in his July 11, 1990 counteroffer, he interjected into the negotiations a new substantial matter on
which the parties had no prior discussion and over which they must
yet agree.31 Petitioners July 11, 1990 counter-offer, therefore, did not
usher the parties beyond the negotiation stage of contract making
towards its perfection. He made a counter-offer that required
acceptance by respondent.
As it were, respondent, through its Board of Directors, did not accept
this last counter-offer. As stated in its October 11, 1990 letter to

petitioner, respondent ordered the reappraisal of the property, in

clear repudiation not only of the proposed price but also the term of
payment thereof.
Petitioner insists, however, that the October 11, 1990 repudiation
was belated as respondent had already agreed to his July 11, 1990
counter-offer when it accepted his "downpayment" or "earnest
money" of P580,000.00.32 He cites Article 1482 of the Civil Code
where it says that acceptance of "downpayment" or "earnest money"
presupposes the perfection of a contract.
Not so. Acceptance of petitioners payments did not amount to an
implied acceptance of his last counter-offer. To begin with, PNBGeneral Santos Branch, which accepted petitioners P380,000.00
payment, and PNB-SAMD, which accepted his P200,000.00 payment,
had no authority to bind respondent to a contract of sale with
petitioner.33 Petitioner is well aware of this. To recall, petitioner sent
his June 28, 1990 offer to PNB-General Santos Branch. Said branch
did not act on his offer except to endorse it to Guevarra. Thereafter,
petitioner transacted directly with Guevarra. Petitioner then cannot
pretend that PNB-General Santos Branch had authority to accept his
July 11, 1990 counter-offer by merely accepting his P380,000.00
payment.
Neither did SAMD have authority to bind PNB. In its April 1989
invitation to bid, as well as its July 6, 1990 counter-offer, SAMD was
always careful to emphasize that whatever offer is made and
entertained will be subject to the approval of respondents higher
authorities. This is a reasonable disclaimer considering the corporate
nature of respondent. 34
Moreover, petitioners payment of P200,000.00 was with the clear
understanding that his July 11, 1990 counter-offer was still subject to
approval by respondent. This is borne out by respondents Exhibits
"2-a" and "2-b", which petitioner never controverted, where it
appears on the dorsal portion of O.R. No. 16997 that petitioner
acceded that the amount he paid was a mere "x x x deposit made to
show the sincerity of [his] purchase offer with the understanding that
it shall be returned without interest if [his] offer is not favorably
considered x x x."35 This was a clear acknowledgment on his part that
there was yet no perfected contract with respondent and that even

with the payments he had advanced, his July 11, 1990 counter-offer
was still subject to consideration by respondent.

JESUS BASA and ROSALINDA BASA,

MERCEDES CATALAN, Respondents.

Not only that, in the same Exh. "2-a" as well as in his June 28, 1990
offer, petitioner referred to his payments as mere "deposits." Even
O.R. No. 16997 refers to petitioners payment as mere deposit. It is
only in the debit notice issued by PNB-General Santos Branch where
petitioners payment is referred to as "downpayment". But then, as
we said, PNB-General Santos Branch has no authority to bind
respondent by its interpretation of the nature of the payment made
by petitioner.

DECISION

In sum, the amounts paid by petitioner were not in the nature of

downpayment or earnest money but were mere deposits or proof of
his interest in the purchase of Lot No. 19. Acceptance of said
amounts by respondent does not presuppose perfection of any
contract.36
It must be noted that petitioner has expressly admitted that he had
withdrawn the entire amount of P580,000.00 deposit from PNBGeneral Santos Branch.37
With the foregoing disquisition, the Court foregoes resolution of the
second issue as it is evident that respondent acted well within its
rights when it rejected the last counter-offer of petitioner. In fine,
petitioners petition lacks merit. WHEREFORE, the petition
is DENIED. The Decision dated January 29, 2002 and Resolution
dated June 27, 2002 of the Court of Appeals are AFFIRMED. No
costs. SO ORDERED.
FIRST DIVISION
G.R. No. 159567

July 31, 2007

CORAZON
CATALAN,
LIBRADA
CATALAN-LIM,
EULOGIO
CATALAN, MILA CATALAN-MILAN, ZENAIDA CATALAN, ALEX
CATALAN, DAISY CATALAN, FLORIDA CATALAN and GEMMA
CATALAN, Heirs of the late FELICIANO CATALAN, Petitioners,
vs.
JOSE BASA, MANUEL BASA, LAURETA BASA, DELIA BASA,

Heirs

of

the

late

PUNO, C.J.:
This is a petition for review on certiorari under Rule 45 of the Revised
Rules of Court of the Court of Appeals decision in CA-G.R. CV No.
66073, which affirmed the judgment of the Regional Trial Court,
Branch 69, Lingayen, Pangasinan, in Civil Case No. 17666, dismissing
the Complaint for Declaration of Nullity of Documents, Recovery of
Possession and Ownership, and damages.
The facts, which are undisputed by the parties, follow:
On October 20, 1948, FELICIANO CATALAN (Feliciano) was discharged
from active military service. The Board of Medical Officers of the
Department of Veteran Affairs found that he was unfit to render
military service due to his "schizophrenic reaction, catatonic type,
which incapacitates him because of flattening of mood and affect,
preoccupation with worries, withdrawal, and sparce (sic) and
pointless speech."1
On September 28, 1949, Feliciano married Corazon Cerezo. 2
On June 16, 1951, a document was executed, titled "Absolute Deed of
Donation,"3 wherein Feliciano allegedly donated to his sister
MERCEDES CATALAN(Mercedes) one-half of the real property
described, viz:
A parcel of land located at Barangay Basing, Binmaley, Pangasinan.
Bounded on the North by heirs of Felipe Basa; on the South by Barrio
Road; On the East by heirs of Segundo Catalan; and on the West by
Roman Basa. Containing an area of Eight Hundred One (801) square
meters, more or less.
The donation was registered with the Register of Deeds. The Bureau
of Internal Revenue then cancelled Tax Declaration No. 2876, and, in
lieu thereof, issued Tax Declaration No. 18080 4 to Mercedes for the

400.50 square meters donated to her. The remaining half of the

property remained in Felicianos name under Tax Declaration No.
18081.5
On December 11, 1953, Peoples Bank and Trust Company filed
Special Proceedings No. 4563 6 before the Court of First Instance of
Pangasinan to declare Feliciano incompetent. On December 22, 1953,
the trial court issued its Order for Adjudication of Incompetency for
Appointing Guardian for the Estate and Fixing Allowance 7 of Feliciano.
The following day, the trial court appointed Peoples Bank and Trust
Company as Felicianos guardian.8 Peoples Bank and Trust Company
has been subsequently renamed, and is presently known as the Bank
of the Philippine Islands (BPI).
On November 22, 1978, Feliciano and Corazon Cerezo donated Lots 1
and 3 of their property, registered under Original Certificate of Title
(OCT) No. 18920, to their son Eulogio Catalan. 9
On March 26, 1979, Mercedes sold the property in issue in favor of
her children Delia and Jesus Basa.10 The Deed of Absolute Sale was
registered with the Register of Deeds of Pangasinan on February 20,
1992, and Tax Declaration No. 12911 was issued in the name of
respondents.11
On June 24, 1983, Feliciano and Corazon Cerezo donated Lot 2 of the
aforementioned property registered under OCT No. 18920 to their
children Alex Catalan, Librada Catalan and Zenaida Catalan. On
February 14, 1983, Feliciano and Corazon Cerezo donated Lot 4 (Plan
Psu-215956) of the same OCT No. 18920 to Eulogio and Florida
Catalan.12
On April 1, 1997, BPI, acting as Felicianos guardian, filed a case for
Declaration of Nullity of Documents, Recovery of Possession and
Ownership,13 as well as damages against the herein respondents. BPI
alleged that the Deed of Absolute Donation to Mercedes was void ab
initio, as Feliciano never donated the property to Mercedes. In
addition, BPI averred that even if Feliciano had truly intended to give
the property to her, the donation would still be void, as he was not of
sound mind and was therefore incapable of giving valid consent.
Thus, it claimed that if the Deed of Absolute Donation was void ab

initio, the subsequent Deed of Absolute Sale to Delia and Jesus Basa
should likewise be nullified, for Mercedes Catalan had no right to sell
the property to anyone. BPI raised doubts about the authenticity of
the deed of sale, saying that its registration long after the death of
Mercedes Catalan indicated fraud. Thus, BPI sought remuneration for
incurred damages and litigation expenses.
On August 14, 1997, Feliciano passed away. The original complaint
was amended to substitute his heirs in lieu of BPI as complainants in
Civil Case No. 17666.
On December 7, 1999, the trial court found that the evidence
presented by the complainants was insufficient to overcome the
presumption that Feliciano was sane and competent at the time he
executed the deed of donation in favor of Mercedes Catalan. Thus,
the court declared, the presumption of sanity or competency not
having been duly impugned, the presumption of due execution of the
donation in question must be upheld.14 It rendered judgment, viz:
WHEREFORE, in view of the foregoing considerations, judgment is
hereby rendered:
1. Dismissing plaintiffs complaint;
2. Declaring the defendants Jesus Basa and Delia Basa the
lawful owners of the land in question which is now declared in
their names under Tax Declaration No. 12911 (Exhibit 4);
3. Ordering the plaintiff to pay the defendants Attorneys fees
of P10,000.00, and to pay the Costs.(sic)
SO ORDERED.15
Petitioners challenged the trial courts decision before the Court of
Appeals via a Notice of Appeal pursuant to Rule 41 of the Revised
Rules of Court.16 The appellate court affirmed the decision of the trial
court and held, viz:
In sum, the Regional Trial Court did not commit a reversible error in
disposing that plaintiff-appellants failed to prove the insanity or

mental incapacity of late (sic) Feliciano Catalan at the precise

moment when the property in dispute was donated.
Thus, all the elements for validity of contracts having been present in
the 1951 donation coupled with compliance with certain solemnities
required by the Civil Code in donation inter vivos of real property
under Article 749, which provides:
xxx
Mercedes Catalan acquired valid title of ownership over the property
in dispute. By virtue of her ownership, the property is completely
subjected to her will in everything not prohibited by law of the
concurrence with the rights of others (Art. 428, NCC).
The validity of the subsequent sale dated 26 March 1979 (Exhibit 3,
appellees Folder of Exhibits) of the property by Mercedes Catalan to
defendant-appellees Jesus Basa and Delia Basa must be upheld.
Nothing of the infirmities which allegedly flawed its authenticity is
evident much less apparent in the deed itself or from the evidence
adduced. As correctly stated by the RTC, the fact that the Deed of
Absolute Sale was registered only in 1992, after the death of
Mercedes Catalan does not make the sale void ab initio. Moreover, as
a notarized document, the deed of absolute sale carries the
evidentiary weight conferred upon such public document with
respect to its due execution (Garrido vs. CA 236 SCRA 450). In a
similar vein, jurisprudence has it that documents acknowledged
before a notary public have in their favor the presumption of
regularity, and to contradict the same, there must be evidence that is
clear, convincing and more than preponderant (Salame vs. CA, 239
SCRA 256).
WHEREFORE, foregoing premises considered, the Decision dated
December 7, 1999 of the Regional Trial Court, Branch 69, is hereby
affirmed.
SO ORDERED.17
Thus, petitioners filed the present appeal and raised the following
issues:

1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS

HAS DECIDED CA-G.R. CV NO. 66073 IN A WAY PROBABLY NOT
IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS
OF THE HONORABLE COURT IN HOLDING THAT "THE
REGIONAL TRIAL COURT DID NOT COMMIT A REVERSIBLE
ERROR
IN
DISPOSING
THAT
PLAINTIFF-APPELLANTS
(PETITIONERS) FAILED TO PROVE THE INSANITY OR MENTAL
INCAPACITY OF THE LATE FELICIANO CATALAN AT THE PRECISE
MOMENT WHEN THE PROPERTY IN DISPUTE WAS DONATED";
2. WHETHER OR NOT THE CERTIFICATE OF DISABILITY FOR
DISCHARGE (EXHIBIT "S") AND THE REPORT OF A BOARD OF
OFFICERS CONVENED UNDER THE PROVISIONS OF ARMY
REGULATIONS (EXHIBITS "S-1" AND "S-2") ARE ADMISSIBLE IN
EVIDENCE;
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS
HAS DECIDED CA-G.R. CV NO. 66073 IN A WAY PROBABLY NOT
IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS
OF THE HONORABLE COURT IN UPHOLDING THE SUBSEQUENT
SALE OF THE PROPERTY IN DISPUTE BY THE DONEE
MERCEDES CATALAN TO HER CHILDREN RESPONDENTS JESUS
AND DELIA BASA; AND4. WHETHER OR NOT CIVIL CASE NO. 17666 IS BARRED BY
PRESCRIPTION AND LACHES.18
Petitioners aver that the presumption of Felicianos competence to
donate property to Mercedes had been rebutted because they
presented more than the requisite preponderance of evidence. First,
they presented the Certificate of Disability for the Discharge of
Feliciano Catalan issued on October 20, 1948 by the Board of Medical
Officers of the Department of Veteran Affairs. Second, they proved
that on December 22, 1953, Feliciano was judged an incompetent by
the Court of First Instance of Pangasinan, and put under the
guardianship of BPI. Based on these two pieces of evidence,
petitioners conclude that Feliciano had been suffering from a mental
condition since 1948 which incapacitated him from entering into any
contract thereafter, until his death on August 14, 1997. Petitioners
contend that Felicianos marriage to Corazon Cerezo on September

28, 1948 does not prove that he was not insane at the time he made
the questioned donation. They further argue that the donations
Feliciano executed in favor of his successors (Decision, CA-G.R. CV
No. 66073) also cannot prove his competency because these
donations were approved and confirmed in the guardianship
proceedings.19 In addition, petitioners claim that the Deed of Absolute
Sale executed on March 26, 1979 by Mercedes Catalan and her
children Jesus and Delia Basa is simulated and fictitious. This is
allegedly borne out by the fact that the document was registered
only on February 20, 1992, more that 10 years after Mercedes
Catalan had already died. Since Delia Basa and Jesus Basa both knew
that Feliciano was incompetent to enter into any contract, they
cannot claim to be innocent purchasers of the property in
question.20 Lastly, petitioners assert that their case is not barred by
prescription or laches under Article 1391 of the New Civil Code
because they had filed their case on April 1, 1997, even before the
four year period after Felicianos death on August 14, 1997 had
begun.21
The petition is bereft of merit, and we affirm the findings of the Court
of Appeals and the trial court.
A donation is an act of liberality whereby a person disposes
gratuitously a thing or right in favor of another, who accepts it. 22 Like
any other contract, an agreement of the parties is essential. Consent
in contracts presupposes the following requisites: (1) it should be
intelligent or with an exact notion of the matter to which it refers; (2)
it should be free; and (3) it should be spontaneous. 23 The parties'
intention must be clear and the attendance of a vice of consent, like
any contract, renders the donation voidable.24
In order for donation of property to be valid, what is crucial is the
donors capacity to give consent at the time of the donation.
Certainly, there lies no doubt in the fact that insanity impinges on
consent freely given.25 However, the burden of proving such
incapacity rests upon the person who alleges it; if no sufficient proof
to this effect is presented, capacity will be presumed. 26
A thorough perusal of the records of the case at bar indubitably
shows that the evidence presented by the petitioners was insufficient

to overcome the presumption that Feliciano was competent when he

donated the property in question to Mercedes. Petitioners make
much ado of the fact that, as early as 1948, Feliciano had been found
to be suffering from schizophrenia by the Board of Medical Officers of
the Department of Veteran Affairs. By itself, however, the allegation
cannot prove the incompetence of Feliciano.
A study of the nature of schizophrenia will show that Feliciano could
still be presumed capable of attending to his property rights.
Schizophrenia was brought to the attention of the public when, in the
late 1800s, Emil Kraepelin, a German psychiatrist, combined
"hebrephrenia" and "catatonia" with certain paranoid states and
called the condition "dementia praecox." Eugene Bleuler, a Swiss
psychiatrist, modified Kraepelins conception in the early 1900s to
include cases with a better outlook and in 1911 renamed the
condition "schizophrenia." According to medical references, in
persons with schizophrenia, there is a gradual onset of symptoms,
with symptoms becoming increasingly bizarre as the disease
progresses.1avvphi1 The condition improves (remission or residual
stage) and worsens (relapses) in cycles. Sometimes, sufferers may
appear relatively normal, while other patients in remission may
appear strange because they speak in a monotone, have odd speech
habits, appear to have no emotional feelings and are prone to have
"ideas of reference." The latter refers to the idea that random social
behaviors are directed against the sufferers.27 It has been proven that
the administration of the correct medicine helps the patient.
Antipsychotic medications help bring biochemical imbalances closer
to normal in a schizophrenic. Medications reduce delusions,
hallucinations and incoherent thoughts and reduce or eliminate
chances of relapse.28 Schizophrenia can result in a dementing illness
similar in many aspects to Alzheimers disease. However, the illness
will wax and wane over many years, with only very slow deterioration
of intellect.29
From these scientific studies it can be deduced that a person
suffering from schizophrenia does not necessarily lose his
competence to intelligently dispose his property. By merely alleging
the existence of schizophrenia, petitioners failed to show substantial
proof that at the date of the donation, June 16, 1951, Feliciano
Catalan had lost total control of his mental faculties. Thus, the lower

courts correctly held that Feliciano was of sound mind at that time
and that this condition continued to exist until proof to the contrary
was adduced.30 Sufficient proof of his infirmity to give consent to
contracts was only established when the Court of First Instance of
Pangasinan declared him an incompetent on December 22, 1953. 31

SECOND DIVISION

It is interesting to note that the petitioners questioned Felicianos

capacity at the time he donated the property, yet did not see fit to
question his mental competence when he entered into a contract of
marriage with Corazon Cerezo or when he executed deeds of
donation of his other properties in their favor. The presumption that
Feliciano remained competent to execute contracts, despite his
illness, is bolstered by the existence of these other contracts.
Competency and freedom from undue influence, shown to have
existed in the other acts done or contracts executed, are presumed
to continue until the contrary is shown.32
Needless to state, since the donation was valid, Mercedes had the
right to sell the property to whomever she chose. 33 Not a shred of
evidence has been presented to prove the claim that Mercedes sale
of the property to her children was tainted with fraud or falsehood. It
is of little bearing that the Deed of Sale was registered only after the
death of Mercedes. What is material is that the sale of the property to
Delia and Jesus Basa was legal and binding at the time of its
execution. Thus, the property in question belongs to Delia and Jesus
Basa.
Finally, we note that the petitioners raised the issue of prescription
and laches for the first time on appeal before this Court. It is
sufficient for this Court to note that even if the present appeal had
prospered, the Deed of Donation was still a voidable, not a void,
contract. As such, it remained binding as it was not annulled in a
proper action in court within four years.34
IN VIEW WHEREOF, there being no merit in the arguments of the
petitioners, the petition is DENIED. The decision of the Court of
Appeals in CA-G.R. CV No. 66073 is affirmed in toto.
SO ORDERED.

G.R. No. L-55201 February 3, 1994

MARIANO T. LIM, JAIME T. LIM, JOSE T. LIM, JOVITA T. LIM,
ANACORITA T. LIM, ANTONIETTA T. LIM, RUBEN T. LIM,
BENJAMIN
T.
LIM,
ET
AL., petitioners,
vs.
COURT OF APPEALS, LORENZO O. TAN and HERMOGENES O.
TAN, respondents.
Eulogio E. Gatdula for petitioners.
Miles L. Ludovice for private respondents.

PUNO, J.:
This is a petition for review of the Decision of the Court of Appeals in
CA-G.R. No. 51340-R entitled "Mariano T. Lim, et al., vs. Lorenzo O.
Tan, et al., dated July 28, 1908. 1
The case involves the partition of the properties of the deceased
spouse Tan Quico and Josefa Oraa. The former died on May 11, 1932

and the latter on August 6, 1932. Both died intestate. They left some
ninety six (96) hectares of land located in the municipality of
Guinobatan and Camalig Albay. 2
The late spouses were survived by four (4) children: Cresencia,
Lorenzo, Hermogenes and Elias. Elias died on May 2, 1935 without
issue. Cresencia died on December 20, 1967. 3 She was survived by
her husband, Lim Chay Sing, 4 and children, Mariano, Jaime, Jose
Jovita, Anacoreta, Antonietta, Ruben, Benjamin and Rogelio. They are
the petitioners in the case at bench.
The sad spectacle of the heirs squalling over the properties of their
deceased parents was again replayed in the case at bench. The
protagonists were the widower and children of Cresencia on one side,
and Lorenzo and Hermogenes on the other side.
The late Cresencia and Lorenzo had contrasting educational
background. Cresencia only reached the second grade of elementary
school. She could not read or write in English. On the other hand,
Lorenzo is a lawyer and a CPA.
Petitioners, heirs of Cresencia, alleged that since the demise of the
spouses Tan Quico and Josefa Oraa, the subject properties had been
administered by respondent Lorenzo. They claimed that before her
death, Cresencia had demanded their partition from Lorenzo. 5 After
Cresencia's death, they likewise clamored for their partition. 6 Their
efforts proved fruitless. They failed Civil Case No. 3676.
Respondent Lorenzo and Hermogenes adamant stance against
partition is based on various contentions. Principally, they urge: (1)
that the properties had already been partitioned, albeit, orally; and
(2) during her lifetime, the late Cresencia had sold and conveyed all
her interests in said properties to respondent Lorenzo. They cited as
evidence the "Deed of Confirmation of Extra Judicial Settlement of
the Estate of Tan Quico and Josefa Oraa" 7 and a receipt of payment. 8
The trial court decided in favor of the petitioners. It rejected the
alleged oral petition in light of the contrary testimony of respondent
Hermogenes. It voided the "Deed of Confirmation of Extra Judicial
Settlement of the Estate of Tan Quico and Josefa Oraa and Sale" 9 on

the ground that it was not understood by the late Cresencia when
she signed it.
On appeal, the respondent Court of Appeals, voting 4-1, reversed. It
held there was evidence to establish that the subject properties had
been previously partitioned. It ruled that respondent Lorenzo was not
shown to have exercised any undue influence over the late
Crescencia when she signed the said Deed of Confirmation, etc.
Dissatisfied, petitioners filed this petition for review by certiorari.
They submit:
I. THE FINDING OR CONCLUSION DRAWN BY THE
HONORABLE COURT OF APPEALS THAT
THE EVIDENCE ON RECORD ALSO
SHOWS THAT THE TERMS OF EXH. "E"
(ALSO EXH. "1" IN ENGLISH) WERE READ
TO CRESENCIANA O. TAN IN THE BICOL
DIALECT,
EXPLAINED
TO
AND
UNDERSTOOD BY HER, BEFORE SHE
SIGNED THE SAME.
BASED ON THE FACTS STATED IN THE JUDGMENT
QUOTING "THE PERTINENT TESTIMONIES ON THIS
POINT" OR BOTH DEFENDANTS IS MANIFESTLY
INCORRECT, AS THE SAME FALL FAR SHORT OF THE
MANDATORY REQUIREMENT OF ART. 1332, CIVIL CODE,
THAT THE TERMS THEREOF SHOULD BE FULLY
EXPLAINED TO THE ILLITERATE CRESENCIA O. TAN
WHO DID NOT KNOW HOW TO READ AND WRITE IN
ENGLISH.
II. THE CONCLUSION DRAWN BY THE HONORABLE
COURT OF APPEALS THAT THERE WAS NO UNDUE
INFLUENCE EXERTED ON CRESENCIA O. TAN BY HER
(LAWYER-CPA) BROTHER LORENZO O. TAN BASED ON
FACTS STATED IN THE QUESTIONED JUDGMENT IS
CLEARLY INCORRECT, AS IT IS CONTRARY TO THE
PROVISION OF ART. 1337, CIVIL CODE.

III. THE FINDING AND DECLARATION OF THE

HONORABLE COURT OF APPEALS THAT LORENZO O.
TAN IS THE LAWFUL OWNER OF THE PROPERTIES
PERTAINING TO THE SHARE OF SAID ILLITERATE OR
PARTY AT A DISADVANTAGE, CRESENCIA O. TAN BY
VIRTUE OF SAID DOCUMENT (EXH. "E"; ALSO EXH. "1")
IS CONTRARY TO LAW, AS THE LATTER'S CONSENT WAS
GIVEN BY MISTAKE, UNDUE INFLUENCE AND/OR FRAUD.
IV. THE FINDING OF THE HONORABLE COURT OF
APPEALS THAT THERE WAS AN ORAL PARTITION BY AND
AMONG CRESENCIA O. TAN AND HER TWO BROTHERS
LORENZO O. TAN AND HERMOGENES O. TAN IS
CONTRARY TO THE ORAL ADMISSION OF HERMOGENES
O. TAN HIMSELF WHO TESTIFIED THAT
WE DID NOT HAVE EXACTLY A PARTITION
IN 1930.
AS WELL AS SERIOUSLY CONTRADICTED BY CLEAR,
COMPETENT AND CREDIBLE DOCUMENTARY EVIDENCE
AND THEREFORE SHOULD BE DISREGARDED.

xxx xxx xxx

Court:
Q Never mind your sister, we are talking
about your parents. During their lifetime
in 1930 you said that the properties
would be divided, so, in 1930, there was
no actual division because it would only
be divided?
A We did not have exactly a partition in
1930.
Q You did not have a partition in 1930?
A No, your Honor.

11

The documentary evidence likewise support the conclusion that there

was no such partition. Exhibit "2", the receipt dated April 20, 1966
thumbmarked by the late Crescencia and presented by the
petitioners themselves reads:

We grant the petition.

RECEIPT FOR P8,970.00

The general rule is that factual findings of lower courts are accorded
great respect by this court on review of their decisions. In the petition
at bench, we are constrained to re-examine these findings
considering the contrarieties in the findings made by the appellate
court and the trial court. Indeed, even the Decision of the appellate
court is not a unanimous but a mere majority decision.

Received from LORENZO O. TAN, on various dates, the

total sum of EIGHT THOUSAND NINE HUNDRED
SEVENTY (P8,970.00) PESOS as partial payment for the
sale of my pro-indiviso share on the properties
inherited by me from my deceased parents.

The first issue is whether or not the subject properties had already
been partitioned among the heirs of tan Quico and Josefa Oraa. The
private respondents alleged that the properties had been orally
partitioned in 1930. 10Their evidence on this score, however, leaves
much to be desired. It is only respondent Lorenzo who stubbornly
insisted that the said properties had already been divided. However,
brother Hermogenes, the other respondent, gave a different
testimony. We quote his testimony:

As guarantee for the payment, I put up as security my

pro-indiviso one-third share on the properties inherited
by me from my deceased parents.
Signed this 20th day of April, 1966 at Quezon City,
Philippines.
(SGD.) CRESENCIA O. TAN

Witness: (SGD.) ANTONIETTA T. LIM

Note: Amount of P8,970 includes P6,700 paid to
acquire Lot No. 202-54-41-T from Pedro L. Morada who
transferred his right to Jovita Lim.
The receipt speaks of the late Cresencia's pro-indiviso share of the
subject properties or her share before division. We also note that the
subject lots are still covered by tax declarations 12 in the name of
their parents. If these lots had already been partitioned to the
different heirs and then occupied by them, it appears strange that
their tax declarations have not been adjusted to reflect their
ownership considering the long time that has elapsed since 1930.
Respondent Lorenzo testified that he took possession of the lot
supposed to belong to the late Crescencia in 1966, 13 yet, he himself
did not cause any change in its tax declaration. Similarly corrosive of
the claim of private respondents is their own Exhibit "E" or "1",
entitled "Deed of Confirmation of Extra Judicial Settlement of the
Estate of Tan Quico and Josefa Oraa." Nowhere in the text of this
document prepared by no less than respondent Lorenzo, is there any
intimation that the subject why Exhibit was entitled Deed of
Confirmation, respondent Lorenzo explained; ". . . . we want to put it
in black and white, the separation of the properties which was in
existence since 1930 to 1932. . ." (TSN, March 2, 1970, p. 40). To say
the least, the omission buttresses the conclusion that the properties
have not been partitioned.
We now determine the next crucial issue of fact, i. e., whether or not
the above mentioned Deed of Confirmation of Extra Judicial
Settlement of the estate of Tan Quico and Josefa Oraa (Exhibit "E" or
"1") is valid. The respondent court, reversing the trial court, held that
the evidence failed to establish that it was signed by the late
Crescencia as a result of fraud, mistake or undue influence. We hold
this ruling erroneous. In calibrating the credibility of the witnesses on
this issue, we take our mandate from Article 1332 of the Civil Code
which provides: "When one of the parties is unable to read, or if the
contract is in language not understood by him, and mistake or fraud
is alleged, the person enforcing the contract must show that the
terms thereof have been fully explained to the former." this
substantive law came into being due to the finding of the Code

Commission that there is still a fairly large number of illiterates in this

country, and documents are usually drawn up in English or
Spanish. 14 It is also in accord with our state policy of promoting
social
justice. 15 It also supplements Article 24 of the Civil Code which calls
on court to be vigilant in the protection of the rights of those who are
disadvantaged in life. in the petition at bench, the questioned Deed is
written in English, a language not understood by the late Crescencia,
an illiterate. It was prepared by the respondent Lorenzo, a lawyer and
CPA. For reasons difficult to divine, respondent Lorenzo did not cause
the notarization of the deed. Petitioners alleged that the Deed was
signed by the late Crescencia due to mistake, fraud or undue
influence. They postulated that respondent Lorenzo took advantage
of the late Crescencia's trust and confidence. Testifying on the trust
of the late Crescencia on respondent Lorenzo, petitioner Jose Lim
declared: 16
xxx xxx xxx
Q Now, will you tell the Court how the
relation between your mother and your
uncle Lorenzo Tan before September
1967?
A My mother was so close to his brother,
Lorenzo Tan. My mother always asked
him advice because he is considered by
my mother as God to her. . . .
Considering these circumstances, the burden was on private
respondents to prove that the content of the Deed was explained to
the illiterate Crescencia before she signed it. 17 In this regard, the
evidence adduced by the respondents failed to discharge their
burden. On one hand, respondent Lorenzo testified that he and his
brother, respondent Hermogenes, explained in Bicolano, the meaning
of the deed to the late Crescencia, viz: 18
ATTY. LUDOVICE:
Q Who read the document to her?

A I and my brother.

A Yes and before that, my sister knows

everything what is going on.

Q Who is that brother?

ATTY. GATDULA:
A Hermogenes Tan.
COURT:

I moved to strike out the last portion of

the answer.

Q Who read that document?

COURT:

A I prepared it.

Strike it out.

Q You prepared it yourself?

A Yes, sir.
Q Why do you have to prepare the
document?

Respondent Hermogenes, however, gave a different testimony. He

declared it was respondent Lorenzo alone who read the text of the
Deed in Bicolano to the late Crescencia. We quote his
testimony, viz: 19
Q You presented this document, EXHIBIT
1 for the defendants, to Crescencia Tan?

A Because I have all the details.

COURT:
All right.
ATTY. LUDOVICE:
Q In what language did you read this
document to Crescencia O. Tan?
A First it was in English then it was in
Bicol so as to clarify things, they were
my sister and my brother and to other
persons who is going to witness the
document
Q Did your sister understand the Bicol
dialect when the contents of this was
read?

A It was presented by my brother

Lorenzo Tan.
Q On what occasion was that on August
15, 1967 was this presented?
A August 16 coincide with the fiesta in
our town, Guinobatan.
Q Was this read to your sister by your
brother Lorenzo?
A Yes, sir, that was read.
Q In what language was it read to her?
A It was read in Bicol.

Q Did your sister understand

contents of the document?

the

Lorenzo O. Tan as "partial payment for the sale of my

(Cresenciana O. Tan's) pro-indiviso share on the
properties inherited by me from my deceased parents.

A Yes, sir.
It is contended, by these exhibits, that Cresenciana O.
Tan wanted to buy Lot 202-5-41-T at No. 53 Bignay,
Project 2, Quezon City, with the proceeds of the sale to
defendant Lorenzo O. Tan of a portion of Lot 7671
located in Singtan, Guinobatan, Albay, which is alleged
to be the share of said Cresenciana O. Tan.

Q Who read the document to her?

A Lorenzo Tan read the document.
This variance in testimony on a material matter works against the
credibility of private respondents. Nor are we prepared to give full
faith and credit to the testimony that respondent Lorenzo alone
explained the text of the deed to the late Crescencia. Respondent
Lorenzo has too much of a material stake on the dispute. His
testimony on the issue is, therefore, not free from bias and prejudice.
Indeed, the preparation and alleged signing of the said Deed leave a
lot of questions unanswered. For one, the Deed as important as it is,
was not caused to be notarized by respondent Lorenzo. The need for
notarization could not have escaped respondent Lorenzo, a lawyer by
profession. Article 1358 of the Civil Code requires that the Deed
should appear in a public document. For another, respondent Lorenzo
prepared the Deed in English language when he knew all along that
the late Cresencia would not be able to comprehend its meaning. For
still another, none of the alleged witnesses to the Deed was
presented to testify on whether it was signed by the late Crescencia
voluntarily and with clear comprehension of its content. Last but not
the least, it is strange that the Crescencia signed the said Deed with
full freedom and complete understanding of its legal significance.
Finally, we come to the issue of whether or not the late Crescencia
sold her inheritance share in favor of the respondent Lorenzo. In
taking the stance that there was indeed a sale, private respondents
point to the receipt, Exh. "2" dated April 20, 1966 as evidence. The
significance of this receipt, Exh. "2" was well analyzed by the trial
court and we approve its ruling, viz:
Said defendant likewise presented in evidence a
receipt (Exhibit 2) purports to show that on April 20,
1966, Cresencia O. Tan had already received the
aggregate amount of P8,970.00 from defendant

However, the same receipt Exhibit 2 recites at the

bottom thereof that the amount of P8,970.00 includes
the amount of P6,700.00 paid to purchase the lot of
certain Pedro L. Morada who transferred his right to
Jovita Lim. This statement in Exhibit 2 belies
defendant's contention that Cresenciana O. Tan is the
buyer of the lot in Quezon City.
IN VIEW WHEREOF, the petition for review on certiorari is granted
and the Decision of the respondent appellate court in Ca-G.R. No.
51340-R dated July 28, 1980 is reversed and set aside. In its lieu, the
Decision of the then CFI of Albay, 10th Judicial District, Br. II in Civil
Case No. 3676 is reinstated. Costs against private respondents.
SO ORDERED.
THIRD DIVISION
G.R. No. 190823

April 4, 2011

DOMINGO CARABEO, Petitioner,

vs. SPOUSES NORBERTO and SUSAN DINGCO, Respondents.
DECISION
CARPIO MORALES, J.:
On July 10, 1990, Domingo Carabeo (petitioner) entered into a
contract denominated as "Kasunduan sa Bilihan ng Karapatan sa

Lupa"1 (kasunduan) with Spouses Norberto and Susan Dingco

(respondents) whereby petitioner agreed to sell his rights over a 648
square meter parcel of unregistered land situated in Purok III,
Tugatog, Orani, Bataan to respondents for P38,000.
Respondents tendered their initial payment of P10,000 upon signing
of the contract, the remaining balance to be paid on September
1990.
Respondents were later to claim that when they were about to hand
in the balance of the purchase price, petitioner requested them to
keep it first as he was yet to settle an on-going "squabble" over the
land.
Nevertheless, respondents gave petitioner small sums of money from
time to time which totaled P9,100, on petitioners request according
to them; due to respondents inability to pay the amount of the
remaining balance in full, according to petitioner.
By respondents claim, despite the alleged problem over the land,
they insisted on petitioners acceptance of the remaining balance
of P18,900 but petitioner remained firm in his refusal, proffering as
reason therefor that he would register the land first.
Sometime in 1994, respondents learned that the alleged problem
over the land had been settled and that petitioner had caused its
registration in his name on December 21, 1993 under Transfer
Certificate of Title No. 161806. They thereupon offered to pay the
balance but petitioner declined, drawing them to file a complaint
before the Katarungan Pambarangay. No settlement was reached,
however, hence, respondent filed a complaint for specific
performance before the Regional Trial Court (RTC) of Balanga, Bataan.
Petitioner countered in his Answer to the Complaint that the sale was
void for lack of object certain, the kasunduan not having specified
the metes and bounds of the land. In any event, petitioner alleged
that if the validity of the kasunduan is upheld, respondents failure to
comply with their reciprocal obligation to pay the balance of the
purchase price would render the action premature. For, contrary to
respondents claim, petitioner maintained that they failed to pay the

balance of P28,000 on September 1990 to thus constrain him to

accept installment payments totaling P9,100.
After the case was submitted for decision or on January 31,
2001,2 petitioner passed away. The records do not show that
petitioners counsel informed Branch 1 of the Bataan RTC, where the
complaint was lodged, of his death and that proper substitution was
effected in accordance with Section 16, Rule 3, Rules of Court. 3
By Decision of February 25, 2001, 4 the trial court ruled in favor of
respondents, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered
ordering:
1. The defendant to sell his right over 648 square meters of
land pursuant to the contract dated July 10, 1990 by
executing a Deed of Sale thereof after the payment of
P18,900 by the plaintiffs;
2. The defendant to pay the costs of the suit.
SO ORDERED.5
Petitioners counsel filed a Notice of Appeal on March 20, 2001.
By the herein challenged Decision dated July 20, 2009, 6 the Court of
Appeals affirmed that of the trial court.
Petitioners motion for reconsideration having been denied by
Resolution of January 8, 2010, the present petition for review was
filed by Antonio Carabeo, petitioners son, 7 faulting the appellate
court:
(A)
in holding that the element of a contract, i.e., an object
certain is present in this case.

(B)
in considering it unfair to expect respondents who are not
lawyers to make judicial consignation after herein petitioner
allegedly refused to accept payment of the balance of the
purchase price.
(C)
in upholding the validity of the contract, "Kasunduan sa
Bilihan ng Karapatan sa Lupa," despite the lack of spousal
consent, (underscoring supplied)

the time the contract is entered into, the object of the sale is capable
of being made determinate without the necessity of a new or further
agreement between the parties.9 As the above-quoted portion of the
kasunduan shows, there is no doubt that the object of the sale is
determinate.
Clutching at straws, petitioner proffers lack of spousal consent. This
was raised only on appeal, hence, will not be considered, in the
present case, in the interest of fair play, justice and due process. 10
Respecting the argument that
respondents
complaint
against
Barcena11 enlightens:

petitioners death rendered

him
dismissible, Bonilla
v.

and proffering that

(D)
[t]he death of herein petitioner causes the dismissal of the
action filed by respondents; respondents cause of action
being an action in personam. (underscoring supplied)
The petition fails.
The pertinent portion of the kasunduan reads:8
xxxx
Na ako ay may isang partial na lupa na matatagpuan sa Purok 111,
Tugatog, Orani Bataan, na may sukat na 27 x 24 metro kuwadrado,
ang nasabing lupa ay may sakop na dalawang punong santol at isang
punong mangga, kayat ako ay nakipagkasundo sa mag-asawang
Norby Dingco at Susan Dingco na ipagbili sa kanila ang karapatan ng
nasabing lupa sa halagang P38,000.00.
x x x x (underscoring supplied)
That the kasunduan did not specify the technical boundaries of the
property did not render the sale a nullity. The requirement that a sale
must have for its object a determinate thing is satisfied as long as, at

The question as to whether an action survives or not depends on

the nature of the action and the damage sued for. In the causes of
action which survive, the wrong complained [of] affects primarily and
principally property and property rights, the injuries to the person
being merely incidental, while in the causes of action which do not
survive, the injury complained of is to the person, the property and
rights of property affected being incidental. (emphasis and
underscoring supplied)
In the present case, respondents are pursuing a property right arising
from the kasunduan, whereas petitioner is invoking nullity of the
kasunduan to protect his proprietary interest. Assuming arguendo,
however, that the kasunduan is deemed void, there is a corollary
obligation of petitioner to return the money paid by respondents, and
since the action involves property rights, 12 it survives.1avvphi1
It bears noting that trial on the merits was already concluded before
petitioner died. Since the trial court was not informed of petitioners
death, it may not be faulted for proceeding to render judgment
without ordering his substitution. Its judgment is thus valid and
binding upon petitioners legal representatives or successors-ininterest, insofar as his interest in the property subject of the action is
concerned.13
In another vein, the death of a client immediately divests the counsel
of authority.14 Thus, in filing a Notice of Appeal, petitioners counsel of

record had no personality to act on behalf of the already deceased

client who, it bears reiteration, had not been substituted as a party
after his death. The trial courts decision had thereby become final
and executory, no appeal having been perfected.

FRANCISCO I. CHAVEZ, petitioner,

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

WHEREFORE, the petition is DENIED.

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.

SO ORDERED.
EN BANC

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).

G.R. No. 133250

July 9, 2002

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.5On 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.

the Office of the President under the administration of then President

Joseph E. Estrada approved the Amended JVA.

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

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:

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.

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 NONEXHAUSTION OF ADMINISTRATIVE REMEDIES;
IV. WHETHER PETITIONER HAS LOCUS STANDI TO BRING THIS
SUIT;

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.

V. WHETHER THE CONSTITUTIONAL RIGHT TO INFORMATION

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

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

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.

On March 30, 1999, PEA and AMARI signed the Amended Joint
Venture Agreement ("Amended JVA," for brevity). On May 28, 1999,

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

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
18
Constitution, covered agricultural
landssold
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 nonagricultural 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 nonexhaustion 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)

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."

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:

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'."

"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)

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:

These twin provisions of the Constitution seek to promote

transparency in policy-making and in the operations of the

"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 proposedcontract,
effectively truncating a basic right enshrined in the Bill of Rights. We
can allow neither an emasculation of a constitutional right, nor a
retreat by the State of its avowed "policy of full disclosure of all its
transactions involving public interest."
The right covers three categories of information which are "matters
of public concern," namely: (1) official records; (2) documents and
papers pertaining to official acts, transactions and decisions; and (3)
government research data used in formulating policies. The first
category refers to any document that is part of the public records in
the custody of government agencies or officials. The second category
refers to documents and papers recording, evidencing, establishing,
confirming, supporting, justifying or explaining official acts,
transactions or decisions of government agencies or officials. The
third category refers to research data, whether raw, collated or
processed, owned by the government and used in formulating
government policies.
The information that petitioner may access on the renegotiation of
the JVA includes evaluation reports, recommendations, legal and
expert opinions, minutes of meetings, terms of reference and other
documents attached to such reports or minutes, all relating to the
JVA. However, the right to information does not compel PEA to
prepare lists, abstracts, summaries and the like relating to the
renegotiation of the JVA.34 The right only affords access to records,
documents and papers, which means the opportunity to inspect and
copy them. One who exercises the right must copy the records,
documents and papers at his expense. The exercise of the right is
also subject to reasonable regulations to protect the integrity of the
public records and to minimize disruption to government operations,
like rules specifying when and how to conduct the inspection and
copying.35
The right to information, however, does not extend to matters
recognized as privileged information under the separation of
powers.36 The right does not also apply to information on military and
diplomatic secrets, information affecting national security, and

information on investigations of crimes by law enforcement agencies

before the prosecution of the accused, which courts have long
recognized as confidential.37 The right may also be subject to other
limitations that Congress may impose by law.
There is no claim by PEA that the information demanded by
petitioner is privileged information rooted in the separation of
powers. The information does not cover Presidential conversations,
correspondences, or discussions during closed-door Cabinet meetings
which, like internal deliberations of the Supreme Court and other
collegiate courts, or executive sessions of either house of
Congress,38 are recognized as confidential. This kind of information
cannot be pried open by a co-equal branch of government. A frank
exchange of exploratory ideas and assessments, free from the glare
of publicity and pressure by interested parties, is essential to protect
the independence of decision-making of those tasked to exercise
Presidential, Legislative and Judicial power. 39This is not the situation
in the instant case.
We rule, therefore, that the constitutional right to information
includes official information on on-going negotiations before a
final contract. The information, however, must constitute definite
propositions by the government and should not cover recognized
exceptions like privileged information, military and diplomatic secrets
and similar matters affecting national security and public
order.40 Congress has also prescribed other limitations on the right to
information in several legislations.41
Sixth issue: whether stipulations in the Amended JVA for the
transfer to AMARI of lands, reclaimed or to be reclaimed,
violate the Constitution.
The Regalian Doctrine
The ownership of lands reclaimed from foreshore and submerged
areas is rooted in the Regalian doctrine which holds that the State
owns all lands and waters of the public domain. Upon the Spanish
conquest of the Philippines, ownership of all "lands, territories and
possessions" in the Philippines passed to the Spanish Crown. 42The
King, as the sovereign ruler and representative of the people,

acquired and owned all lands and territories in the Philippines except
those he disposed of by grant or sale to private individuals.
The 1935, 1973 and 1987 Constitutions adopted the Regalian
doctrine substituting, however, the State, in lieu of the King, as the
owner of all lands and waters of the public domain. The Regalian
doctrine is the foundation of the time-honored principle of land
ownership that "all lands that were not acquired from the
Government, either by purchase or by grant, belong to the public
domain."43 Article 339 of the Civil Code of 1889, which is now Article
420 of the Civil Code of 1950, incorporated the Regalian doctrine.
Ownership and Disposition of Reclaimed Lands
The Spanish Law of Waters of 1866 was the first statutory law
governing the ownership and disposition of reclaimed lands in the
Philippines. On May 18, 1907, the Philippine Commission enacted Act
No. 1654 which provided for the lease, but not the sale, of
reclaimed lands of the government to corporations and
individuals. Later, on November 29, 1919, the Philippine Legislature
approved Act No. 2874, the Public Land Act, which authorized the
lease, but not the sale, of reclaimed lands of the government
to corporations and individuals. On November 7, 1936, the
National Assembly passed Commonwealth Act No. 141, also known
as the Public Land Act, which authorized the lease, but not the
sale, of reclaimed lands of the government to corporations
and individuals. CA No. 141 continues to this day as the general
law governing the classification and disposition of lands of the public
domain.
The Spanish Law of Waters of 1866 and the Civil Code of
1889
Under the Spanish Law of Waters of 1866, the shores, bays, coves,
inlets and all waters within the maritime zone of the Spanish territory
belonged to the public domain for public use. 44 The Spanish Law of
Waters of 1866 allowed the reclamation of the sea under Article 5,
which provided as follows:

"Article 5. Lands reclaimed from the sea in consequence of

works constructed by the State, or by the provinces, pueblos
or private persons, with proper permission, shall become the
property of the party constructing such works, unless
otherwise provided by the terms of the grant of authority."
Under the Spanish Law of Waters, land reclaimed from the sea
belonged to the party undertaking the reclamation, provided the
government issued the necessary permit and did not reserve
ownership of the reclaimed land to the State.
Article 339 of the Civil Code of 1889 defined property of public
dominion as follows:
"Art. 339. Property of public dominion is
1. That devoted to public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State,
riverbanks, shores, roadsteads, and that of a similar
character;
2. That belonging exclusively to the State which, without
being of general public use, is employed in some public
service, or in the development of the national wealth, such as
walls, fortresses, and other works for the defense of the
territory, and mines, until granted to private individuals."
Property devoted to public use referred to property open for use by
the public. In contrast, property devoted to public service referred to
property used for some specific public service and open only to those
authorized to use the property.
Property of public dominion referred not only to property devoted to
public use, but also to property not so used but employed to
develop the national wealth. This class of property constituted
property of public dominion although employed for some economic or
commercial activity to increase the national wealth.
Article 341 of the Civil Code of 1889 governed the re-classification of
property of public dominion into private property, to wit:

"Art. 341. Property of public dominion, when no longer

devoted to public use or to the defense of the territory, shall
become a part of the private property of the State."
This provision, however, was not self-executing. The legislature, or
the executive department pursuant to law, must declare the property
no longer needed for public use or territorial defense before the
government could lease or alienate the property to private parties. 45
Act No. 1654 of the Philippine Commission
On May 8, 1907, the Philippine Commission enacted Act No. 1654
which regulated the lease of reclaimed and foreshore lands. The
salient provisions of this law were as follows:
"Section 1. The control and disposition of the
foreshore as defined in existing law, and the title to all
Government or public lands made or reclaimed by the
Government
by dredging or filling or otherwise
throughout the Philippine Islands, shall be retained by the
Government without prejudice to vested rights and without
prejudice to rights conceded to the City of Manila in the
Luneta Extension.
Section 2. (a) The Secretary of the Interior shall cause all
Government or public lands made or reclaimed by the
Government by dredging or filling or otherwise to be divided
into lots or blocks, with the necessary streets and alleyways
located thereon, and shall cause plats and plans of such
surveys to be prepared and filed with the Bureau of Lands.
(b) Upon completion of such plats and plans the GovernorGeneral shall give notice to the public that such parts
of the lands so made or reclaimed as are not needed
for public purposes will be leased for commercial and
business purposes, x x x.
xxx

(e) The leases above provided for shall be disposed of

to the highest and best bidder therefore, subject to such
regulations and safeguards as the Governor-General may by
executive order prescribe." (Emphasis supplied)
Act No. 1654 mandated that the government should retain title
to all lands reclaimed by the government. The Act also vested in
the government control and disposition of foreshore lands. Private
parties could lease lands reclaimed by the government only if these
lands were no longer needed for public purpose. Act No. 1654
mandated public bidding in the lease of government reclaimed
lands. Act No. 1654 made government reclaimed lands sui
generis in that unlike other public lands which the government could
sell to private parties, these reclaimed lands were available only for
lease to private parties.
Act No. 1654, however, did not repeal Section 5 of the Spanish Law of
Waters of 1866. Act No. 1654 did not prohibit private parties from
reclaiming parts of the sea under Section 5 of the Spanish Law of
Waters. Lands reclaimed from the sea by private parties with
government permission remained private lands.
Act No. 2874 of the Philippine Legislature
On November 29, 1919, the Philippine Legislature enacted Act No.
2874, the Public Land Act.46 The salient provisions of Act No. 2874, on
reclaimed lands, were as follows:
"Sec.
6. The
Governor-General,
upon
the
recommendation of the Secretary of Agriculture and
Natural Resources, shall from time to time classify the
lands of the public domain into
(a) Alienable or disposable,
(b) Timber, and
(c) Mineral lands, x x x.

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

alienable or disposable public lands, the Governor-General,
upon recommendation by the Secretary of Agriculture
and Natural Resources, shall from time to time declare
what lands are open to disposition or concession under
this Act."
Sec. 8. Only those lands shall be declared open to
disposition or concession which have been officially
delimited or classified x x x.
xxx
Sec. 55. Any tract of land of the public domain which, being
neither timber nor mineral land, shall be classified
as suitable for residential purposes or for commercial,
industrial, or other productive purposes other than
agricultural purposes, and shall be open to disposition or
concession, shall be disposed of under the provisions of this
chapter, and not otherwise.
Sec. 56. The lands disposable under this title shall be
classified as follows:
(a) Lands reclaimed by the Government by
dredging, filling, or other means;
(b) Foreshore;
(c) Marshy lands or lands covered with water
bordering upon the shores or banks of navigable lakes
or rivers;
(d) Lands not included in any of the foregoing classes.
x x x.
Sec. 58. The lands comprised in classes (a), (b), and (c)
of section fifty-six shall be disposed of to private
parties by lease only and not otherwise, as soon as the

Governor-General, upon recommendation by the

Secretary of Agriculture and Natural Resources, shall
declare that the same are not necessary for the public
service and are open to disposition under this
chapter. The lands included in class (d) may be disposed
of by sale or lease under the provisions of this Act."
(Emphasis supplied)
Section 6 of Act No. 2874 authorized the Governor-General to
"classify lands of the public domain into x x x alienable or
disposable"47 lands. Section 7 of the Act empowered the GovernorGeneral 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.

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)

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

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.

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 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
Assembly

Act

No.

141

of

the

Philippine

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

(b) Timber, and

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.

National

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

(a) Alienable or disposable,

(c) Mineral lands,

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 nonagricultural 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:

(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;

"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.

(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.

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

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

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.

The Civil Code of 1950

Dispositions under the 1973 Constitution

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

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

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

dominion:

"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 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)

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.

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.

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

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,
government;

controlled

and/or

operated

by

the

(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:

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
alienable
authority
authority
states

for PEA to sell its reclaimed foreshore and submerged

lands of the public domain, there must be legislative
empowering PEA to sell these lands. This legislative
is necessary in view of Section 60 of CA No.141, which

(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

"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 fromacquiring 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 'ownercultivatorship 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
hectares. Only
project have
hectares are
Bay.

Amended JVA covers a reclamation area of 750

157.84 hectares of the 750-hectare reclamation
been reclaimed, and the rest of the 592.15
still submerged areas forming part of Manila

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 42274of the Civil Code, a property of public
dominion retains such character until formally declared otherwise.
The Court ruled that

"The fact that the Roppongi site has not been used for a long
time for actual Embassy service does not automatically
convert it to patrimonial property. Any such conversion
happens only if the property is withdrawn from public use
(Cebu Oxygen and Acetylene Co. v. Bercilles, 66 SCRA 481
[1975]. A property continues to be part of the public
domain, not available for private appropriation or
ownership 'until there is a formal declaration on the
part of the government to withdraw it from being
such'(Ignacio v. Director of Lands, 108 Phil. 335 [1960]."
(Emphasis supplied)
PD No. 1085, issued on February 4, 1977, authorized the issuance of
special land patents for lands reclaimed by PEA from the foreshore or
submerged areas of Manila Bay. On January 19, 1988 then President
Corazon C. Aquino issued Special Patent No. 3517 in the name of PEA
for the 157.84 hectares comprising the partially reclaimed Freedom
Islands. Subsequently, on April 9, 1999 the Register of Deeds of the
Municipality of Paranaque issued TCT Nos. 7309, 7311 and 7312 in
the name of PEA pursuant to Section 103 of PD No. 1529 authorizing
the issuance of certificates of title corresponding to land patents. To
this day, these certificates of title are still in the name of PEA.
PD No. 1085, coupled with President Aquino's actual issuance of a
special patent covering the Freedom Islands, is equivalent to an
official proclamation classifying the Freedom Islands as alienable or
disposable lands of the public domain. PD No. 1085 and President
Aquino's issuance of a land patent also constitute a declaration that
the Freedom Islands are no longer needed for public service. The
Freedom Islands are thus alienable or disposable lands of the
public domain, open to disposition or concession to qualified
parties.
At the time then President Aquino issued Special Patent No. 3517,
PEA had already reclaimed the Freedom Islands although
subsequently there were partial erosions on some areas. The
government had also completed the necessary surveys on these
islands. Thus, the Freedom Islands were no longer part of Manila Bay
but part of the land mass. Section 3, Article XII of the 1987
Constitution classifies lands of the public domain into "agricultural,

forest or timber, mineral lands, and national parks." Being neither

timber, mineral, nor national park lands, the reclaimed Freedom
Islands necessarily fall under the classification of agricultural lands of
the public domain. Under the 1987 Constitution, agricultural lands of
the public domain are the only natural resources that the State may
alienate to qualified private parties. All other natural resources, such
as the seas or bays, are "waters x x x owned by the State" forming
part of the public domain, and are inalienable pursuant to Section 2,
Article XII of the 1987 Constitution.
AMARI claims that the Freedom Islands are private lands because
CDCP, then a private corporation, reclaimed the islands under a
contract dated November 20, 1973 with the Commissioner of Public
Highways. AMARI, citing Article 5 of the Spanish Law of Waters of
1866, argues that "if the ownership of reclaimed lands may be given
to the party constructing the works, then it cannot be said that
reclaimed lands are lands of the public domain which the State may
not alienate."75 Article 5 of the Spanish Law of Waters reads as
follows:
"Article 5. Lands reclaimed from the sea in consequence of
works constructed by the State, or by the provinces, pueblos
or private persons, with proper permission, shall become the
property of the party constructing such works, unless
otherwise provided by the terms of the grant of
authority." (Emphasis supplied)
Under Article 5 of the Spanish Law of Waters of 1866, private parties
could reclaim from the sea only with "proper permission" from the
State. Private parties could own the reclaimed land only if not
"otherwise provided by the terms of the grant of authority." This
clearly meant that no one could reclaim from the sea without
permission from the State because the sea is property of public
dominion. It also meant that the State could grant or withhold
ownership of the reclaimed land because any reclaimed land, like the
sea from which it emerged, belonged to the State. Thus, a private
person reclaiming from the sea without permission from the State
could not acquire ownership of the reclaimed land which would
remain property of public dominion like the sea it replaced. 76 Article 5
of the Spanish Law of Waters of 1866 adopted the time-honored

principle of land ownership that "all lands that were not acquired
from the government, either by purchase or by grant, belong to the
public domain."77
Article 5 of the Spanish Law of Waters must be read together with
laws subsequently enacted on the disposition of public lands. In
particular, CA No. 141 requires that lands of the public domain must
first be classified as alienable or disposable before the government
can alienate them. These lands must not be reserved for public or
quasi-public purposes.78 Moreover, the contract between CDCP and
the government was executed after the effectivity of the 1973
Constitution which barred private corporations from acquiring any
kind of alienable land of the public domain. This contract could not
have converted the Freedom Islands into private lands of a private
corporation.
Presidential Decree No. 3-A, issued on January 11, 1973, revoked all
laws authorizing the reclamation of areas under water and revested
solely in the National Government the power to reclaim lands.
Section 1 of PD No. 3-A declared that
"The provisions of any law to the contrary
notwithstanding, the reclamation of areas under water,
whether foreshore or inland, shall be limited to the
National Government or any person authorized by it
under a proper contract. (Emphasis supplied)
x x x."
PD No. 3-A repealed Section 5 of the Spanish Law of Waters of 1866
because reclamation of areas under water could now be undertaken
only by the National Government or by a person contracted by the
National Government. Private parties may reclaim from the sea only
under a contract with the National Government, and no longer by
grant or permission as provided in Section 5 of the Spanish Law of
Waters of 1866.
Executive Order No. 525, issued on February 14, 1979, designated
PEA as the National Government's implementing arm to undertake
"all reclamation projects of the government," which "shall be

undertaken by the PEA or through a proper contract

executed by it with any person or entity." Under such contract,
a private party receives compensation for reclamation services
rendered to PEA. Payment to the contractor may be in cash, or in
kind consisting of portions of the reclaimed land, subject to the
constitutional ban on private corporations from acquiring alienable
lands of the public domain. The reclaimed land can be used as
payment in kind only if the reclaimed land is first classified as
alienable or disposable land open to disposition, and then declared
no longer needed for public service.
The Amended JVA covers not only the Freedom Islands, but also an
additional 592.15 hectares which are still submerged and forming
part of Manila Bay. There is no legislative or Presidential act
classifying these submerged areas as alienable or disposable
lands of the public domain open to disposition. These
submerged areas are not covered by any patent or certificate of title.
There can be no dispute that these submerged areas form part of the
public domain, and in their present state are inalienable and
outside the commerce of man. Until reclaimed from the sea,
these submerged areas are, under the Constitution, "waters x x x
owned by the State," forming part of the public domain and
consequently inalienable. Only when actually reclaimed from the sea
can these submerged areas be classified as public agricultural lands,
which under the Constitution are the only natural resources that the
State may alienate. Once reclaimed and transformed into public
agricultural lands, the government may then officially classify these
lands as alienable or disposable lands open to disposition. Thereafter,
the government may declare these lands no longer needed for public
service. Only then can these reclaimed lands be considered alienable
or disposable lands of the public domain and within the commerce of
man.
The classification of PEA's reclaimed foreshore and submerged lands
into alienable or disposable lands open to disposition is necessary
because PEA is tasked under its charter to undertake public services
that require the use of lands of the public domain. Under Section 5 of
PD No. 1084, the functions of PEA include the following: "[T]o own or
operate railroads, tramways and other kinds of land transportation, x
x x; [T]o construct, maintain and operate such systems of sanitary

sewers as may be necessary; [T]o construct, maintain and operate

such storm drains as may be necessary." PEA is empowered to issue
"rules and regulations as may be necessary for the proper use by
private parties of any or all of the highways, roads, utilities,
buildings and/or any of its properties and to impose or collect
fees or tolls for their use." Thus, part of the reclaimed foreshore and
submerged lands held by the PEA would actually be needed for public
use or service since many of the functions imposed on PEA by its
charter constitute essential public services.
Moreover, Section 1 of Executive Order No. 525 provides that PEA
"shall be primarily responsible for integrating, directing, and
coordinating all reclamation projects for and on behalf of the National
Government." The same section also states that "[A]ll reclamation
projects shall be approved by the President upon recommendation of
the PEA, and shall be undertaken by the PEA or through a proper
contract executed by it with any person or entity; x x x." Thus, under
EO No. 525, in relation to PD No. 3-A and PD No.1084, PEA became
the primary implementing agency of the National Government to
reclaim foreshore and submerged lands of the public domain. EO No.
525 recognized PEA as the government entity "to undertake the
reclamation of lands and ensure their maximum utilization
in promoting public welfare and interests."79 Since large
portions of these reclaimed lands would obviously be needed for
public service, there must be a formal declaration segregating
reclaimed lands no longer needed for public service from those still
needed for public service.1wphi1.nt
Section 3 of EO No. 525, by declaring that all lands reclaimed by PEA
"shall belong to or be owned by the PEA," could not automatically
operate to classify inalienable lands into alienable or disposable
lands of the public domain. Otherwise, reclaimed foreshore and
submerged lands of the public domain would automatically become
alienable once reclaimed by PEA, whether or not classified as
alienable or disposable.
The Revised Administrative Code of 1987, a later law than either PD
No. 1084 or EO No. 525, vests in the Department of Environment and
Natural Resources ("DENR" for brevity) the following powers and
functions:

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

(1) x x x
xxx
(4) Exercise
supervision
and
control over
forest
lands, alienable and disposable public lands, mineral
resources and, in the process of exercising such control,
impose appropriate taxes, fees, charges, rentals and any such
form of levy and collect such revenues for the exploration,
development, utilization or gathering of such resources;
xxx
(14) Promulgate rules, regulations and guidelines on
the issuance of licenses, permits, concessions, lease
agreements and such other privileges concerning the
development, exploration and utilization of the
country's marine, freshwater, and brackish water and
over all aquatic resources of the country and shall
continue to oversee, supervise and police our natural
resources; cancel or cause to cancel such privileges upon
failure, non-compliance or violations of any regulation, order,
and for all other causes which are in furtherance of the
conservation of natural resources and supportive of the
national interest;
(15) Exercise exclusive jurisdiction on the management
and disposition of all lands of the public domain and
serve as the sole agency responsible for classification,
sub-classification, surveying and titling of lands in
consultation with appropriate agencies."80 (Emphasis supplied)
As manager, conservator and overseer of the natural resources of the
State, DENR exercises "supervision and control over alienable and
disposable public lands." DENR also exercises "exclusive jurisdiction
on the management and disposition of all lands of the public
domain." Thus, DENR decides whether areas under water, like
foreshore or submerged areas of Manila Bay, should be reclaimed or

not. This means that PEA needs authorization from DENR before PEA
can undertake reclamation projects in Manila Bay, or in any part of
the country.
DENR also exercises exclusive jurisdiction over the disposition of all
lands of the public domain. Hence, DENR decides whether reclaimed
lands of PEA should be classified as alienable under Sections 6 81 and
782 of CA No. 141. Once DENR decides that the reclaimed lands
should be so classified, it then recommends to the President the
issuance of a proclamation classifying the lands as alienable or
disposable lands of the public domain open to disposition. We note
that then DENR Secretary Fulgencio S. Factoran, Jr. countersigned
Special Patent No. 3517 in compliance with the Revised
Administrative Code and Sections 6 and 7 of CA No. 141.
In short, DENR is vested with the power to authorize the reclamation
of areas under water, while PEA is vested with the power to
undertake the physical reclamation of areas under water, whether
directly or through private contractors. DENR is also empowered to
classify lands of the public domain into alienable or disposable lands
subject to the approval of the President. On the other hand, PEA is
tasked to develop, sell or lease the reclaimed alienable lands of the
public domain.
Clearly, the mere physical act of reclamation by PEA of foreshore or
submerged areas does not make the reclaimed lands alienable or
disposable lands of the public domain, much less patrimonial lands of
PEA. Likewise, the mere transfer by the National Government of lands
of the public domain to PEA does not make the lands alienable or
disposable lands of the public domain, much less patrimonial lands of
PEA.
Absent two official acts a classification that these lands are
alienable or disposable and open to disposition and a declaration that
these lands are not needed for public service, lands reclaimed by PEA
remain inalienable lands of the public domain. Only such an official
classification and formal declaration can convert reclaimed lands into
alienable or disposable lands of the public domain, open to
disposition under the Constitution, Title I and Title III 83of 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 itspatrimonial
properties in accordance with the PEA charter free from
constitutional limitations. The constitutional ban on private
corporations from acquiring alienable lands of the public domain
does not apply to the sale of PEA's patrimonial lands.
PEA may also sell its alienable or disposable lands of the public
domain to private individuals since, with the legislative authority,
there is no longer any statutory prohibition against such sales and
the constitutional ban does not apply to individuals. PEA, however,
cannot sell any of its alienable or disposable lands of the public
domain to private corporations since Section 3, Article XII of the 1987
Constitution expressly prohibits such sales. The legislative authority
benefits only individuals. Private corporations remain barred from
acquiring any kind of alienable land of the public domain, including
government reclaimed lands.
The provision in PD No. 1085 stating that portions of the reclaimed
lands could be transferred by PEA to the "contractor or his assignees"

(Emphasis supplied) would not apply to private corporations but only

to individuals because of the constitutional ban. Otherwise, the
provisions of PD No. 1085 would violate both the 1973 and 1987
Constitutions.
The requirement of public auction in the sale of reclaimed
lands
Assuming the reclaimed lands of PEA are classified as alienable or
disposable lands open to disposition, and further declared no longer
needed for public service, PEA would have to conduct a public
bidding in selling or leasing these lands. PEA must observe the
provisions of Sections 63 and 67 of CA No. 141 requiring public
auction, in the absence of a law exempting PEA from holding a public
auction.88 Special Patent No. 3517 expressly states that the patent is
issued by authority of the Constitution and PD No. 1084,
"supplemented by Commonwealth Act No. 141, as amended." This is
an acknowledgment that the provisions of CA No. 141 apply to the
disposition of reclaimed alienable lands of the public domain unless
otherwise provided by law. Executive Order No. 654, 89 which
authorizes PEA "to determine the kind and manner of payment for
the transfer" of its assets and properties, does not exempt PEA from
the requirement of public auction. EO No. 654 merely authorizes PEA
to decide the mode of payment, whether in kind and in installment,
but does not authorize PEA to dispense with public auction.
Moreover, under Section 79 of PD No. 1445, otherwise known as the
Government Auditing Code, the government is required to sell
valuable government property through public bidding. Section 79 of
PD No. 1445 mandates that
"Section 79. When government property has become
unserviceable for any cause, or is no longer needed, it shall,
upon application of the officer accountable therefor, be
inspected by the head of the agency or his duly authorized
representative in the presence of the auditor concerned and,
if found to be valueless or unsaleable, it may be destroyed in
their presence. If found to be valuable, it may be sold at
public auction to the highest bidder under the
supervision of the proper committee on award or similar body

in the presence of the auditor concerned or other authorized

representative of the Commission, after advertising by
printed notice in the Official Gazette, or for not less
than three consecutive days in any newspaper of
general circulation, or where the value of the property does
not warrant the expense of publication, by notices posted for
a like period in at least three public places in the locality
where the property is to be sold. In the event that the
public auction fails, the property may be sold at a
private sale at such price as may be fixed by the same
committee or body concerned and approved by the
Commission."
It is only when the public auction fails that a negotiated sale is
allowed, in which case the Commission on Audit must approve the
selling price.90 The Commission on Audit implements Section 79 of
the Government Auditing Code through Circular No. 89-296 91 dated
January 27, 1989. This circular emphasizes that government assets
must be disposed of only through public auction, and a negotiated
sale can be resorted to only in case of "failure of public auction."
At the public auction sale, only Philippine citizens are qualified to bid
for PEA's reclaimed foreshore and submerged alienable lands of the
public domain. Private corporations are barred from bidding at the
auction sale of any kind of alienable land of the public domain.
PEA originally scheduled a public bidding for the Freedom Islands on
December 10, 1991. PEA imposed a condition that the winning bidder
should reclaim another 250 hectares of submerged areas to
regularize the shape of the Freedom Islands, under a 60-40 sharing of
the additional reclaimed areas in favor of the winning bidder. 92 No
one, however, submitted a bid. On December 23, 1994, the
Government Corporate Counsel advised PEA it could sell the Freedom
Islands through negotiation, without need of another public bidding,
because of the failure of the public bidding on December 10, 1991. 93
However, the original JVA dated April 25, 1995 covered not only the
Freedom Islands and the additional 250 hectares still to be reclaimed,
it also granted an option to AMARI to reclaim another 350 hectares.
The original JVA, a negotiated contract, enlarged the reclamation

area to 750 hectares.94 The failure of public bidding on December

10, 1991, involving only 407.84 hectares, 95 is not a valid justification
for a negotiated sale of 750 hectares, almost double the area publicly
auctioned. Besides, the failure of public bidding happened on
December 10, 1991, more than three years before the signing of the
original JVA on April 25, 1995. The economic situation in the country
had greatly improved during the intervening period.
Reclamation under the BOT Law and the Local Government
Code
The constitutional prohibition in Section 3, Article XII of the 1987
Constitution is absolute and clear: "Private corporations or
associations may not hold such alienable lands of the public domain
except by lease, x x x." Even Republic Act No. 6957 ("BOT Law," for
brevity), cited by PEA and AMARI as legislative authority to sell
reclaimed lands to private parties, recognizes the constitutional ban.
Section 6 of RA No. 6957 states
"Sec. 6. Repayment Scheme. - For the financing, construction,
operation and maintenance of any infrastructure projects
undertaken
through
the
build-operate-and-transfer
arrangement or any of its variations pursuant to the
provisions of this Act, the project proponent x x x may likewise
be repaid in the form of a share in the revenue of the project
or other non-monetary payments, such as, but not limited to,
the grant of a portion or percentage of the reclaimed
land, subject to the constitutional requirements with
respect to the ownership of the land: x x x." (Emphasis
supplied)
A private corporation, even one that undertakes the physical
reclamation of a government BOT project, cannot acquire reclaimed
alienable lands of the public domain in view of the constitutional ban.
Section 302 of the Local Government Code, also mentioned by PEA
and AMARI, authorizes local governments in land reclamation
projects to pay the contractor or developer in kind consisting of a
percentage of the reclaimed land, to wit:

"Section
302.
Financing,
Construction,
Maintenance,
Operation, and Management of Infrastructure Projects by the
Private Sector. x x x
xxx
In case of land reclamation or construction of industrial
estates, the repayment plan may consist of the grant of a
portion or percentage of the reclaimed land or the industrial
estate constructed."
Although Section 302 of the Local Government Code does not contain
a proviso similar to that of the BOT Law, the constitutional
restrictions on land ownership automatically apply even though not
expressly mentioned in the Local Government Code.
Thus, under either the BOT Law or the Local Government Code, the
contractor or developer, if a corporate entity, can only be paid with
leaseholds on portions of the reclaimed land. If the contractor or
developer is an individual, portions of the reclaimed land, not
exceeding 12 hectares96 of non-agricultural lands, may be conveyed
to him in ownership in view of the legislative authority allowing such
conveyance. This is the only way these provisions of the BOT Law
and the Local Government Code can avoid a direct collision with
Section 3, Article XII of the 1987 Constitution.

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

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:

"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 titlesissued 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.104 Alienable lands of the public domain held by government
entities under Section 60 of CA No. 141 remain public lands because
they cannot be alienated or encumbered unless Congress passes a
law authorizing their disposition. Congress, however, cannot
authorize the sale to private corporations of reclaimed alienable
lands of the public domain because of the constitutional ban. Only
individuals can benefit from such law.

The grant of legislative authority to sell public lands in accordance

with Section 60 of CA No. 141 does not automatically convert
alienable lands of the public domain into private or patrimonial lands.
The alienable lands of the public domain must be transferred to
qualified private parties, or to government entities not tasked to
dispose of public lands, before these lands can become private or
patrimonial lands. Otherwise, the constitutional ban will become
illusory if Congress can declare lands of the public domain as private
or patrimonial lands in the hands of a government agency tasked to
dispose of public lands. This will allow private corporations to acquire
directly from government agencies limitless areas of lands which,
prior to such law, are concededly public lands.
Under EO No. 525, PEA became the central implementing
agency of the National Government to reclaim foreshore and
submerged areas of the public domain. Thus, EO No. 525 declares
that
"EXECUTIVE ORDER NO. 525
Designating the Public Estates Authority as the Agency
Primarily Responsible for all Reclamation Projects
Whereas, there are several reclamation projects which are
ongoing or being proposed to be undertaken in various parts
of the country which need to be evaluated for consistency
with national programs;
Whereas, there is a need to give further institutional support
to the 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 deregistration 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 hectares110 of the
Freedom Islands, such transfer is void for being contrary to
Section 3, Article XII of the 1987 Constitution which prohibits
private corporations from acquiring any kind of alienable land
of the public domain.
4. Since the Amended JVA also seeks to transfer to AMARI
ownership of 290.156 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 1409 112 of the Civil Code,
contracts whose "object or purpose is contrary to law," or whose
"object is outside the commerce of men," are "inexistent and void
from the beginning." The Court must perform its duty to defend and
uphold the Constitution, and therefore declares the Amended JVA
null and void ab initio.
Seventh issue: whether the Court is the proper forum to raise
the issue of whether the Amended JVA is grossly
disadvantageous to the government.

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

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).

SO ORDERED.
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

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

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 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 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 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.5On 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

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.

IV. WHETHER PETITIONER HAS LOCUS STANDI TO BRING THIS

SUIT;

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.

V. WHETHER THE CONSTITUTIONAL RIGHT TO INFORMATION

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

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

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.

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

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

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."

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 NONEXHAUSTION OF ADMINISTRATIVE REMEDIES;

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
landssold
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
19
titles 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 nonagricultural 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.

duty to make the public disclosure, and was even in breach of this
legal duty, petitioner had the right to seek direct judicial intervention.

Third issue: whether the petition merits dismissal for nonexhaustion of administrative remedies.

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.

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

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)

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."

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:

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'."

"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)

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:

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

"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?

"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

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 proposedcontract,
effectively truncating a basic right enshrined in the Bill of Rights. We
can allow neither an emasculation of a constitutional right, nor a
retreat by the State of its avowed "policy of full disclosure of all its
transactions involving public interest."
The right covers three categories of information which are "matters
of public concern," namely: (1) official records; (2) documents and
papers pertaining to official acts, transactions and decisions; and (3)
government research data used in formulating policies. The first
category refers to any document that is part of the public records in
the custody of government agencies or officials. The second category
refers to documents and papers recording, evidencing, establishing,
confirming, supporting, justifying or explaining official acts,
transactions or decisions of government agencies or officials. The
third category refers to research data, whether raw, collated or

processed, owned by the government and used in formulating

government policies.
The information that petitioner may access on the renegotiation of
the JVA includes evaluation reports, recommendations, legal and
expert opinions, minutes of meetings, terms of reference and other
documents attached to such reports or minutes, all relating to the
JVA. However, the right to information does not compel PEA to
prepare lists, abstracts, summaries and the like relating to the
renegotiation of the JVA.34 The right only affords access to records,
documents and papers, which means the opportunity to inspect and
copy them. One who exercises the right must copy the records,
documents and papers at his expense. The exercise of the right is
also subject to reasonable regulations to protect the integrity of the
public records and to minimize disruption to government operations,
like rules specifying when and how to conduct the inspection and
copying.35
The right to information, however, does not extend to matters
recognized as privileged information under the separation of
powers.36 The right does not also apply to information on military and
diplomatic secrets, information affecting national security, and
information on investigations of crimes by law enforcement agencies
before the prosecution of the accused, which courts have long
recognized as confidential.37 The right may also be subject to other
limitations that Congress may impose by law.
There is no claim by PEA that the information demanded by
petitioner is privileged information rooted in the separation of
powers. The information does not cover Presidential conversations,
correspondences, or discussions during closed-door Cabinet meetings
which, like internal deliberations of the Supreme Court and other
collegiate courts, or executive sessions of either house of
Congress,38 are recognized as confidential. This kind of information
cannot be pried open by a co-equal branch of government. A frank
exchange of exploratory ideas and assessments, free from the glare
of publicity and pressure by interested parties, is essential to protect
the independence of decision-making of those tasked to exercise
Presidential, Legislative and Judicial power. 39This is not the situation
in the instant case.

We rule, therefore, that the constitutional right to information

includes official information on on-going negotiations before a
final contract. The information, however, must constitute definite
propositions by the government and should not cover recognized
exceptions like privileged information, military and diplomatic secrets
and similar matters affecting national security and public
order.40 Congress has also prescribed other limitations on the right to
information in several legislations.41
Sixth issue: whether stipulations in the Amended JVA for the
transfer to AMARI of lands, reclaimed or to be reclaimed,
violate the Constitution.
The Regalian Doctrine
The ownership of lands reclaimed from foreshore and submerged
areas is rooted in the Regalian doctrine which holds that the State
owns all lands and waters of the public domain. Upon the Spanish
conquest of the Philippines, ownership of all "lands, territories and
possessions" in the Philippines passed to the Spanish Crown. 42The
King, as the sovereign ruler and representative of the people,
acquired and owned all lands and territories in the Philippines except
those he disposed of by grant or sale to private individuals.
The 1935, 1973 and 1987 Constitutions adopted the Regalian
doctrine substituting, however, the State, in lieu of the King, as the
owner of all lands and waters of the public domain. The Regalian
doctrine is the foundation of the time-honored principle of land
ownership that "all lands that were not acquired from the
Government, either by purchase or by grant, belong to the public
domain."43 Article 339 of the Civil Code of 1889, which is now Article
420 of the Civil Code of 1950, incorporated the Regalian doctrine.
Ownership and Disposition of Reclaimed Lands
The Spanish Law of Waters of 1866 was the first statutory law
governing the ownership and disposition of reclaimed lands in the
Philippines. On May 18, 1907, the Philippine Commission enacted Act
No. 1654 which provided for the lease, but not the sale, of
reclaimed lands of the government to corporations and

individuals. Later, on November 29, 1919, the Philippine Legislature

approved Act No. 2874, the Public Land Act, which authorized the
lease, but not the sale, of reclaimed lands of the government
to corporations and individuals. On November 7, 1936, the
National Assembly passed Commonwealth Act No. 141, also known
as the Public Land Act, which authorized the lease, but not the
sale, of reclaimed lands of the government to corporations
and individuals. CA No. 141 continues to this day as the general
law governing the classification and disposition of lands of the public
domain.
The Spanish Law of Waters of 1866 and the Civil Code of
1889
Under the Spanish Law of Waters of 1866, the shores, bays, coves,
inlets and all waters within the maritime zone of the Spanish territory
belonged to the public domain for public use. 44 The Spanish Law of
Waters of 1866 allowed the reclamation of the sea under Article 5,
which provided as follows:
"Article 5. Lands reclaimed from the sea in consequence of
works constructed by the State, or by the provinces, pueblos
or private persons, with proper permission, shall become the
property of the party constructing such works, unless
otherwise provided by the terms of the grant of authority."
Under the Spanish Law of Waters, land reclaimed from the sea
belonged to the party undertaking the reclamation, provided the
government issued the necessary permit and did not reserve
ownership of the reclaimed land to the State.
Article 339 of the Civil Code of 1889 defined property of public
dominion as follows:

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:

"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;

"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.

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

(b) Upon completion of such plats and plans the GovernorGeneral 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.

(a) Alienable or disposable,

xxx

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."

(e) The leases above provided for shall be disposed of

to the highest and best bidder therefore, subject to such
regulations and safeguards as the Governor-General may by
executive order prescribe." (Emphasis supplied)
Act No. 1654 mandated that the government should retain title
to all lands reclaimed by the government. The Act also vested in
the government control and disposition of foreshore lands. Private
parties could lease lands reclaimed by the government only if these
lands were no longer needed for public purpose. Act No. 1654
mandated public bidding in the lease of government reclaimed
lands. Act No. 1654 made government reclaimed lands sui
generis in that unlike other public lands which the government could
sell to private parties, these reclaimed lands were available only for
lease to private parties.
Act No. 1654, however, did not repeal Section 5 of the Spanish Law of
Waters of 1866. Act No. 1654 did not prohibit private parties from
reclaiming parts of the sea under Section 5 of the Spanish Law of
Waters. Lands reclaimed from the sea by private parties with
government permission remained private lands.

(b) Timber, and

(c) Mineral lands, x x x.

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;

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.

(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 GovernorGeneral 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

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
Assembly

Act

No.

141

of

the

Philippine

National

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.

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;

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.

(b) Foreshore;

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."

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

(c) Marshy lands or lands covered with water

bordering upon the shores or banks of navigable lakes
or rivers;

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 nonagricultural purposes to government units and entities could be used
to circumvent constitutional limitations on ownership of alienable or
disposable lands of the public domain. In the same manner, such
transfers could also be used to evade the statutory prohibition in CA
No. 141 on the sale of government reclaimed and marshy lands of
the public domain to private parties. Section 60 of CA No. 141
constitutes by operation of law a lien on these lands.57
In case of sale or lease of disposable lands of the public domain
falling under Section 59 of CA No. 141, Sections 63 and 67 require a
public bidding. Sections 63 and 67 of CA No. 141 provide as follows:
"Sec. 63. Whenever it is decided that lands covered by this
chapter are not needed for public purposes, the Director of
Lands shall ask the Secretary of Agriculture and Commerce
(now the Secretary of Natural Resources) for authority to
dispose of the same. Upon receipt of such authority, the
Director of Lands shall give notice by public advertisement in
the same manner as in the case of leases or sales of
agricultural public land, x x x.
Sec. 67. The lease or sale shall be made by oral bidding;
and adjudication shall be made to the highest bidder. x
x x." (Emphasis supplied)
Thus, CA No. 141 mandates the Government to put to public auction
all leases or sales of alienable or disposable lands of the public
domain.58
Like Act No. 1654 and Act No. 2874 before it, CA No. 141 did not
repeal Section 5 of the Spanish Law of Waters of 1866. Private parties
could still reclaim portions of the sea with government permission.
However, thereclaimed land could become private land only if
classified as alienable agricultural land of the public

domain open to disposition under CA No. 141. The 1935 Constitution

prohibited the alienation of all natural resources except public
agricultural lands.

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 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

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

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. 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)

(a) To reclaim land, including foreshore and submerged

areas, by dredging, filling or other means, or to
acquire reclaimed land;

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

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

following purposes:

(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
alienable
authority
authority
states

for PEA to sell its reclaimed foreshore and submerged

lands of the public domain, there must be legislative
empowering PEA to sell these lands. This legislative
is necessary in view of Section 60 of CA No.141, which

"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 fromacquiring 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 'ownercultivatorship 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

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

2. "[A]nother area of 2,421,559 square meters contiguous to

the three islands;" and

"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)

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

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.

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

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

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;"

In short, the
hectares. Only
project have
hectares are
Bay.

Amended JVA covers a reclamation area of 750

157.84 hectares of the 750-hectare reclamation
been reclaimed, and the rest of the 592.15
still submerged areas forming part of Manila

"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 42274of the Civil Code, a property of public
dominion retains such character until formally declared otherwise.
The Court ruled that
"The fact that the Roppongi site has not been used for a long
time for actual Embassy service does not automatically
convert it to patrimonial property. Any such conversion
happens only if the property is withdrawn from public use
(Cebu Oxygen and Acetylene Co. v. Bercilles, 66 SCRA 481
[1975]. A property continues to be part of the public
domain, not available for private appropriation or
ownership 'until there is a formal declaration on the
part of the government to withdraw it from being
such'(Ignacio v. Director of Lands, 108 Phil. 335 [1960]."
(Emphasis supplied)
PD No. 1085, issued on February 4, 1977, authorized the issuance of
special land patents for lands reclaimed by PEA from the foreshore or
submerged areas of Manila Bay. On January 19, 1988 then President
Corazon C. Aquino issued Special Patent No. 3517 in the name of PEA
for the 157.84 hectares comprising the partially reclaimed Freedom
Islands. Subsequently, on April 9, 1999 the Register of Deeds of the
Municipality of Paranaque issued TCT Nos. 7309, 7311 and 7312 in
the name of PEA pursuant to Section 103 of PD No. 1529 authorizing
the issuance of certificates of title corresponding to land patents. To
this day, these certificates of title are still in the name of PEA.
PD No. 1085, coupled with President Aquino's actual issuance of a
special patent covering the Freedom Islands, is equivalent to an
official proclamation classifying the Freedom Islands as alienable or
disposable lands of the public domain. PD No. 1085 and President
Aquino's issuance of a land patent also constitute a declaration that
the Freedom Islands are no longer needed for public service. The
Freedom Islands are thus alienable or disposable lands of the

public domain, open to disposition or concession to qualified

parties.
At the time then President Aquino issued Special Patent No. 3517,
PEA had already reclaimed the Freedom Islands although
subsequently there were partial erosions on some areas. The
government had also completed the necessary surveys on these
islands. Thus, the Freedom Islands were no longer part of Manila Bay
but part of the land mass. Section 3, Article XII of the 1987
Constitution classifies lands of the public domain into "agricultural,
forest or timber, mineral lands, and national parks." Being neither
timber, mineral, nor national park lands, the reclaimed Freedom
Islands necessarily fall under the classification of agricultural lands of
the public domain. Under the 1987 Constitution, agricultural lands of
the public domain are the only natural resources that the State may
alienate to qualified private parties. All other natural resources, such
as the seas or bays, are "waters x x x owned by the State" forming
part of the public domain, and are inalienable pursuant to Section 2,
Article XII of the 1987 Constitution.
AMARI claims that the Freedom Islands are private lands because
CDCP, then a private corporation, reclaimed the islands under a
contract dated November 20, 1973 with the Commissioner of Public
Highways. AMARI, citing Article 5 of the Spanish Law of Waters of
1866, argues that "if the ownership of reclaimed lands may be given
to the party constructing the works, then it cannot be said that
reclaimed lands are lands of the public domain which the State may
not alienate."75 Article 5 of the Spanish Law of Waters reads as
follows:
"Article 5. Lands reclaimed from the sea in consequence of
works constructed by the State, or by the provinces, pueblos
or private persons, with proper permission, shall become the
property of the party constructing such works, unless
otherwise provided by the terms of the grant of
authority." (Emphasis supplied)
Under Article 5 of the Spanish Law of Waters of 1866, private parties
could reclaim from the sea only with "proper permission" from the
State. Private parties could own the reclaimed land only if not

"otherwise provided by the terms of the grant of authority." This

clearly meant that no one could reclaim from the sea without
permission from the State because the sea is property of public
dominion. It also meant that the State could grant or withhold
ownership of the reclaimed land because any reclaimed land, like the
sea from which it emerged, belonged to the State. Thus, a private
person reclaiming from the sea without permission from the State
could not acquire ownership of the reclaimed land which would
remain property of public dominion like the sea it replaced. 76 Article 5
of the Spanish Law of Waters of 1866 adopted the time-honored
principle of land ownership that "all lands that were not acquired
from the government, either by purchase or by grant, belong to the
public domain."77
Article 5 of the Spanish Law of Waters must be read together with
laws subsequently enacted on the disposition of public lands. In
particular, CA No. 141 requires that lands of the public domain must
first be classified as alienable or disposable before the government
can alienate them. These lands must not be reserved for public or
quasi-public purposes.78 Moreover, the contract between CDCP and
the government was executed after the effectivity of the 1973
Constitution which barred private corporations from acquiring any
kind of alienable land of the public domain. This contract could not
have converted the Freedom Islands into private lands of a private
corporation.
Presidential Decree No. 3-A, issued on January 11, 1973, revoked all
laws authorizing the reclamation of areas under water and revested
solely in the National Government the power to reclaim lands.
Section 1 of PD No. 3-A declared that
"The provisions of any law to the contrary
notwithstanding, the reclamation of areas under water,
whether foreshore or inland, shall be limited to the
National Government or any person authorized by it
under a proper contract. (Emphasis supplied)
x x x."

PD No. 3-A repealed Section 5 of the Spanish Law of Waters of 1866

because reclamation of areas under water could now be undertaken
only by the National Government or by a person contracted by the
National Government. Private parties may reclaim from the sea only
under a contract with the National Government, and no longer by
grant or permission as provided in Section 5 of the Spanish Law of
Waters of 1866.
Executive Order No. 525, issued on February 14, 1979, designated
PEA as the National Government's implementing arm to undertake
"all reclamation projects of the government," which "shall be
undertaken by the PEA or through a proper contract
executed by it with any person or entity." Under such contract,
a private party receives compensation for reclamation services
rendered to PEA. Payment to the contractor may be in cash, or in
kind consisting of portions of the reclaimed land, subject to the
constitutional ban on private corporations from acquiring alienable
lands of the public domain. The reclaimed land can be used as
payment in kind only if the reclaimed land is first classified as
alienable or disposable land open to disposition, and then declared
no longer needed for public service.
The Amended JVA covers not only the Freedom Islands, but also an
additional 592.15 hectares which are still submerged and forming
part of Manila Bay. There is no legislative or Presidential act
classifying these submerged areas as alienable or disposable
lands of the public domain open to disposition. These
submerged areas are not covered by any patent or certificate of title.
There can be no dispute that these submerged areas form part of the
public domain, and in their present state are inalienable and
outside the commerce of man. Until reclaimed from the sea,
these submerged areas are, under the Constitution, "waters x x x
owned by the State," forming part of the public domain and
consequently inalienable. Only when actually reclaimed from the sea
can these submerged areas be classified as public agricultural lands,
which under the Constitution are the only natural resources that the
State may alienate. Once reclaimed and transformed into public
agricultural lands, the government may then officially classify these
lands as alienable or disposable lands open to disposition. Thereafter,
the government may declare these lands no longer needed for public

service. Only then can these reclaimed lands be considered alienable

or disposable lands of the public domain and within the commerce of
man.
The classification of PEA's reclaimed foreshore and submerged lands
into alienable or disposable lands open to disposition is necessary
because PEA is tasked under its charter to undertake public services
that require the use of lands of the public domain. Under Section 5 of
PD No. 1084, the functions of PEA include the following: "[T]o own or
operate railroads, tramways and other kinds of land transportation, x
x x; [T]o construct, maintain and operate such systems of sanitary
sewers as may be necessary; [T]o construct, maintain and operate
such storm drains as may be necessary." PEA is empowered to issue
"rules and regulations as may be necessary for the proper use by
private parties of any or all of the highways, roads, utilities,
buildings and/or any of its properties and to impose or collect
fees or tolls for their use." Thus, part of the reclaimed foreshore and
submerged lands held by the PEA would actually be needed for public
use or service since many of the functions imposed on PEA by its
charter constitute essential public services.
Moreover, Section 1 of Executive Order No. 525 provides that PEA
"shall be primarily responsible for integrating, directing, and
coordinating all reclamation projects for and on behalf of the National
Government." The same section also states that "[A]ll reclamation
projects shall be approved by the President upon recommendation of
the PEA, and shall be undertaken by the PEA or through a proper
contract executed by it with any person or entity; x x x." Thus, under
EO No. 525, in relation to PD No. 3-A and PD No.1084, PEA became
the primary implementing agency of the National Government to
reclaim foreshore and submerged lands of the public domain. EO No.
525 recognized PEA as the government entity "to undertake the
reclamation of lands and ensure their maximum utilization
in promoting public welfare and interests."79 Since large
portions of these reclaimed lands would obviously be needed for
public service, there must be a formal declaration segregating
reclaimed lands no longer needed for public service from those still
needed for public service.1wphi1.nt

Section 3 of EO No. 525, by declaring that all lands reclaimed by PEA

"shall belong to or be owned by the PEA," could not automatically
operate to classify inalienable lands into alienable or disposable
lands of the public domain. Otherwise, reclaimed foreshore and
submerged lands of the public domain would automatically become
alienable once reclaimed by PEA, whether or not classified as
alienable or disposable.
The Revised Administrative Code of 1987, a later law than either PD
No. 1084 or EO No. 525, vests in the Department of Environment and
Natural Resources ("DENR" for brevity) the following powers and
functions:
"Sec. 4. Powers and Functions. The Department shall:
(1) x x x
xxx
(4) Exercise
supervision
and
control over
forest
lands, alienable and disposable public lands, mineral
resources and, in the process of exercising such control,
impose appropriate taxes, fees, charges, rentals and any such
form of levy and collect such revenues for the exploration,
development, utilization or gathering of such resources;
xxx
(14) Promulgate rules, regulations and guidelines on
the issuance of licenses, permits, concessions, lease
agreements and such other privileges concerning the
development, exploration and utilization of the
country's marine, freshwater, and brackish water and
over all aquatic resources of the country and shall
continue to oversee, supervise and police our natural
resources; cancel or cause to cancel such privileges upon
failure, non-compliance or violations of any regulation, order,
and for all other causes which are in furtherance of the
conservation of natural resources and supportive of the
national interest;

(15) Exercise exclusive jurisdiction on the management

and disposition of all lands of the public domain and
serve as the sole agency responsible for classification,
sub-classification, surveying and titling of lands in
consultation with appropriate agencies."80 (Emphasis supplied)
As manager, conservator and overseer of the natural resources of the
State, DENR exercises "supervision and control over alienable and
disposable public lands." DENR also exercises "exclusive jurisdiction
on the management and disposition of all lands of the public
domain." Thus, DENR decides whether areas under water, like
foreshore or submerged areas of Manila Bay, should be reclaimed or
not. This means that PEA needs authorization from DENR before PEA
can undertake reclamation projects in Manila Bay, or in any part of
the country.
DENR also exercises exclusive jurisdiction over the disposition of all
lands of the public domain. Hence, DENR decides whether reclaimed
lands of PEA should be classified as alienable under Sections 6 81 and
782 of CA No. 141. Once DENR decides that the reclaimed lands
should be so classified, it then recommends to the President the
issuance of a proclamation classifying the lands as alienable or
disposable lands of the public domain open to disposition. We note
that then DENR Secretary Fulgencio S. Factoran, Jr. countersigned
Special Patent No. 3517 in compliance with the Revised
Administrative Code and Sections 6 and 7 of CA No. 141.
In short, DENR is vested with the power to authorize the reclamation
of areas under water, while PEA is vested with the power to
undertake the physical reclamation of areas under water, whether
directly or through private contractors. DENR is also empowered to
classify lands of the public domain into alienable or disposable lands
subject to the approval of the President. On the other hand, PEA is
tasked to develop, sell or lease the reclaimed alienable lands of the
public domain.
Clearly, the mere physical act of reclamation by PEA of foreshore or
submerged areas does not make the reclaimed lands alienable or
disposable lands of the public domain, much less patrimonial lands of
PEA. Likewise, the mere transfer by the National Government of lands

of the public domain to PEA does not make the lands alienable or
disposable lands of the public domain, much less patrimonial lands of
PEA.
Absent two official acts a classification that these lands are
alienable or disposable and open to disposition and a declaration that
these lands are not needed for public service, lands reclaimed by PEA
remain inalienable lands of the public domain. Only such an official
classification and formal declaration can convert reclaimed lands into
alienable or disposable lands of the public domain, open to
disposition under the Constitution, Title I and Title III 83of 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 itspatrimonial
properties in accordance with the PEA charter free from
constitutional limitations. The constitutional ban on private
corporations from acquiring alienable lands of the public domain
does not apply to the sale of PEA's patrimonial lands.

PEA may also sell its alienable or disposable lands of the public
domain to private individuals since, with the legislative authority,
there is no longer any statutory prohibition against such sales and
the constitutional ban does not apply to individuals. PEA, however,
cannot sell any of its alienable or disposable lands of the public
domain to private corporations since Section 3, Article XII of the 1987
Constitution expressly prohibits such sales. The legislative authority
benefits only individuals. Private corporations remain barred from
acquiring any kind of alienable land of the public domain, including
government reclaimed lands.
The provision in PD No. 1085 stating that portions of the reclaimed
lands could be transferred by PEA to the "contractor or his assignees"
(Emphasis supplied) would not apply to private corporations but only
to individuals because of the constitutional ban. Otherwise, the
provisions of PD No. 1085 would violate both the 1973 and 1987
Constitutions.
The requirement of public auction in the sale of reclaimed
lands
Assuming the reclaimed lands of PEA are classified as alienable or
disposable lands open to disposition, and further declared no longer
needed for public service, PEA would have to conduct a public
bidding in selling or leasing these lands. PEA must observe the
provisions of Sections 63 and 67 of CA No. 141 requiring public
auction, in the absence of a law exempting PEA from holding a public
auction.88 Special Patent No. 3517 expressly states that the patent is
issued by authority of the Constitution and PD No. 1084,
"supplemented by Commonwealth Act No. 141, as amended." This is
an acknowledgment that the provisions of CA No. 141 apply to the
disposition of reclaimed alienable lands of the public domain unless
otherwise provided by law. Executive Order No. 654, 89 which
authorizes PEA "to determine the kind and manner of payment for
the transfer" of its assets and properties, does not exempt PEA from
the requirement of public auction. EO No. 654 merely authorizes PEA
to decide the mode of payment, whether in kind and in installment,
but does not authorize PEA to dispense with public auction.

Moreover, under Section 79 of PD No. 1445, otherwise known as the

Government Auditing Code, the government is required to sell
valuable government property through public bidding. Section 79 of
PD No. 1445 mandates that
"Section 79. When government property has become
unserviceable for any cause, or is no longer needed, it shall,
upon application of the officer accountable therefor, be
inspected by the head of the agency or his duly authorized
representative in the presence of the auditor concerned and,
if found to be valueless or unsaleable, it may be destroyed in
their presence. If found to be valuable, it may be sold at
public auction to the highest bidder under the
supervision of the proper committee on award or similar body
in the presence of the auditor concerned or other authorized
representative of the Commission, after advertising by
printed notice in the Official Gazette, or for not less
than three consecutive days in any newspaper of
general circulation, or where the value of the property does
not warrant the expense of publication, by notices posted for
a like period in at least three public places in the locality
where the property is to be sold. In the event that the
public auction fails, the property may be sold at a
private sale at such price as may be fixed by the same
committee or body concerned and approved by the
Commission."
It is only when the public auction fails that a negotiated sale is
allowed, in which case the Commission on Audit must approve the
selling price.90 The Commission on Audit implements Section 79 of
the Government Auditing Code through Circular No. 89-296 91 dated
January 27, 1989. This circular emphasizes that government assets
must be disposed of only through public auction, and a negotiated
sale can be resorted to only in case of "failure of public auction."
At the public auction sale, only Philippine citizens are qualified to bid
for PEA's reclaimed foreshore and submerged alienable lands of the
public domain. Private corporations are barred from bidding at the
auction sale of any kind of alienable land of the public domain.

PEA originally scheduled a public bidding for the Freedom Islands on

December 10, 1991. PEA imposed a condition that the winning bidder
should reclaim another 250 hectares of submerged areas to
regularize the shape of the Freedom Islands, under a 60-40 sharing of
the additional reclaimed areas in favor of the winning bidder. 92 No
one, however, submitted a bid. On December 23, 1994, the
Government Corporate Counsel advised PEA it could sell the Freedom
Islands through negotiation, without need of another public bidding,
because of the failure of the public bidding on December 10, 1991. 93
However, the original JVA dated April 25, 1995 covered not only the
Freedom Islands and the additional 250 hectares still to be reclaimed,
it also granted an option to AMARI to reclaim another 350 hectares.
The original JVA, a negotiated contract, enlarged the reclamation
area to 750 hectares.94 The failure of public bidding on December
10, 1991, involving only 407.84 hectares, 95 is not a valid justification
for a negotiated sale of 750 hectares, almost double the area publicly
auctioned. Besides, the failure of public bidding happened on
December 10, 1991, more than three years before the signing of the
original JVA on April 25, 1995. The economic situation in the country
had greatly improved during the intervening period.
Reclamation under the BOT Law and the Local Government
Code
The constitutional prohibition in Section 3, Article XII of the 1987
Constitution is absolute and clear: "Private corporations or
associations may not hold such alienable lands of the public domain
except by lease, x x x." Even Republic Act No. 6957 ("BOT Law," for
brevity), cited by PEA and AMARI as legislative authority to sell
reclaimed lands to private parties, recognizes the constitutional ban.
Section 6 of RA No. 6957 states
"Sec. 6. Repayment Scheme. - For the financing, construction,
operation and maintenance of any infrastructure projects
undertaken
through
the
build-operate-and-transfer
arrangement or any of its variations pursuant to the
provisions of this Act, the project proponent x x x may likewise
be repaid in the form of a share in the revenue of the project
or other non-monetary payments, such as, but not limited to,

the grant of a portion or percentage of the reclaimed

land, subject to the constitutional requirements with
respect to the ownership of the land: x x x." (Emphasis
supplied)
A private corporation, even one that undertakes the physical
reclamation of a government BOT project, cannot acquire reclaimed
alienable lands of the public domain in view of the constitutional ban.
Section 302 of the Local Government Code, also mentioned by PEA
and AMARI, authorizes local governments in land reclamation
projects to pay the contractor or developer in kind consisting of a
percentage of the reclaimed land, to wit:
"Section
302.
Financing,
Construction,
Maintenance,
Operation, and Management of Infrastructure Projects by the
Private Sector. x x x
xxx
In case of land reclamation or construction of industrial
estates, the repayment plan may consist of the grant of a
portion or percentage of the reclaimed land or the industrial
estate constructed."
Although Section 302 of the Local Government Code does not contain
a proviso similar to that of the BOT Law, the constitutional
restrictions on land ownership automatically apply even though not
expressly mentioned in the Local Government Code.
Thus, under either the BOT Law or the Local Government Code, the
contractor or developer, if a corporate entity, can only be paid with
leaseholds on portions of the reclaimed land. If the contractor or
developer is an individual, portions of the reclaimed land, not
exceeding 12 hectares96 of non-agricultural lands, may be conveyed
to him in ownership in view of the legislative authority allowing such
conveyance. This is the only way these provisions of the BOT Law
and the Local Government Code can avoid a direct collision with
Section 3, Article XII of the 1987 Constitution.

Registration of lands of the public domain

Finally, PEA theorizes that the "act of conveying the ownership of the
reclaimed lands to public respondent PEA transformed such lands of
the public domain to private lands." This theory is echoed by AMARI
which maintains that the "issuance of the special patent leading to
the eventual issuance of title takes the subject land away from the
land of public domain and converts the property into patrimonial or
private property." In short, PEA and AMARI contend that with the
issuance of Special Patent No. 3517 and the corresponding
certificates of titles, the 157.84 hectares comprising the Freedom
Islands have become private lands of PEA. In support of their theory,
PEA and AMARI cite the following rulings of the Court:
1. Sumail v. Judge of CFI of Cotabato,97 where the Court held
"Once the patent was granted and the corresponding
certificate of title was issued, the land ceased to be part of
the public domain and became private property over which
the Director of Lands has neither control nor jurisdiction."
2. Lee Hong Hok v. David,98 where the Court declared "After the registration and issuance of the certificate and
duplicate certificate of title based on a public land patent, the
land covered thereby automatically comes under the
operation of Republic Act 496 subject to all the safeguards
provided therein."3. Heirs of Gregorio Tengco v. Heirs of Jose
Aliwalas,99 where the Court ruled "While the Director of Lands has the power to review
homestead patents, he may do so only so long as the land
remains part of the public domain and continues to be under
his exclusive control; but once the patent is registered and a
certificate of title is issued, the land ceases to be part of the
public domain and becomes private property over which the
Director of Lands has neither control nor jurisdiction."
4. Manalo v. Intermediate Appellate Court,100 where the Court
held

"When the lots in dispute were certified as disposable on May

19, 1971, and free patents were issued covering the same in
favor of the private respondents, the said lots ceased to be
part of the public domain and, therefore, the Director of Lands
lost jurisdiction over the same."
5.Republic v. Court of Appeals,101 where the Court stated
"Proclamation No. 350, dated October 9, 1956, of President
Magsaysay legally effected a land grant to the Mindanao
Medical Center, Bureau of Medical Services, Department of
Health, of the whole lot, validly sufficient for initial registration
under the Land Registration Act. Such land grant is
constitutive of a 'fee simple' title or absolute title in favor of
petitioner Mindanao Medical Center. Thus, Section 122 of the
Act, which governs the registration of grants or patents
involving public lands, provides that 'Whenever public lands in
the Philippine Islands belonging to the Government of the
United States or to the Government of the Philippines are
alienated, granted or conveyed to persons or to public or
private corporations, the same shall be brought forthwith
under the operation of this Act (Land Registration Act, Act
496) and shall become registered lands.'"
The first four cases cited involve petitions to cancel the land patents
and the corresponding certificates of titlesissued 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.104 Alienable lands of the public domain held by government
entities under Section 60 of CA No. 141 remain public lands because
they cannot be alienated or encumbered unless Congress passes a
law authorizing their disposition. Congress, however, cannot
authorize the sale to private corporations of reclaimed alienable
lands of the public domain because of the constitutional ban. Only
individuals can benefit from such law.
The grant of legislative authority to sell public lands in accordance
with Section 60 of CA No. 141 does not automatically convert
alienable lands of the public domain into private or patrimonial lands.
The alienable lands of the public domain must be transferred to
qualified private parties, or to government entities not tasked to
dispose of public lands, before these lands can become private or
patrimonial lands. Otherwise, the constitutional ban will become
illusory if Congress can declare lands of the public domain as private
or patrimonial lands in the hands of a government agency tasked to
dispose of public lands. This will allow private corporations to acquire
directly from government agencies limitless areas of lands which,
prior to such law, are concededly public lands.
Under EO No. 525, PEA became the central implementing
agency of the National Government to reclaim foreshore and
submerged areas of the public domain. Thus, EO No. 525 declares
that
"EXECUTIVE ORDER NO. 525
Designating the Public Estates Authority as the Agency
Primarily Responsible for all Reclamation Projects
Whereas, there are several reclamation projects which are
ongoing or being proposed to be undertaken in various parts
of the country which need to be evaluated for consistency
with national programs;

Whereas, there is a need to give further institutional support

to the 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 deregistration 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.

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:

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

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 hectares110 of the
Freedom Islands, such transfer is void for being contrary to
Section 3, Article XII of the 1987 Constitution which prohibits
private corporations from acquiring any kind of alienable land
of the public domain.

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.
SECOND DIVISION

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 1409 112 of the Civil Code,
contracts whose "object or purpose is contrary to law," or whose
"object is outside the commerce of men," are "inexistent and void

G.R. No. 165851

February 2, 2011

MANUEL CATINDIG, represented by his legal representative

EMILIANO
CATINDIG-RODRIGO, Petitioner,
vs.
AURORA IRENE VDA. DE MENESES, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 168875
SILVINO
ROXAS,
SR.,
represented
by
FELICISIMA
VILLAFUERTE
ROXAS, Petitioner,
vs.
COURT OF APPEALS and AURORA IRENE VDA. DE
MENESES Respondents.

DECISION
PERALTA, J.:
Before this Court are two consolidated cases, namely, (1) Petition for
Review on Certiorari under Rule 45 of the Rules of Court, docketed as
G.R. No. 165851, filed by petitioner Manuel Catindig, represented by
Emiliano Catindig-Rodrigo, assailing the Decision 1 of the Court of
Appeals (CA) in CA-G.R. CV No. 65697, which affirmed the Decision of
the Regional Trial Court of Malolos, Bulacan in Civil Case No. 320-M95; and (2) Petition forCertiorari under Rule 65 of the Rules of Court,
docketed as G.R. No. 168875, filed by petitioner Silvino Roxas, Sr.,
represented by Felicisima Villafuerte Roxas, seeking to set aside the
Decision2 and Resolution3 of the CA in CA-G.R. CV No. 65697, which
affirmed the decision of the Regional Trial Court of Malolos, Bulacan
in Civil Case No. 320-M-95.
The property subject of this controversy pertains to a parcel of land
situated in Malolos, Bulacan, with an area of 49,139 square meters,
titled in the name of the late Rosendo Meneses, Sr., under Transfer
Certificate of Title (TCT) No. T-1749 (hereinafter referred to as the
Masusuwi Fishpond). Respondent Aurora Irene C. Vda. de Meneses is
the surviving spouse of the registered owner, Rosendo Meneses, Sr..
She was issued Letters of Administration over the estate of her late
husband in Special Proceedings Case No. 91498 pending before the
then Court of First Instance of the City of Manila, Branch 22. On May
17, 1995, respondent, in her capacity as administratrix of her
husband's estate, filed a Complaint for Recovery of Possession, Sum
of Money and Damages against petitioners Manuel Catindig and
Silvino Roxas, Sr. before the Regional Trial Court of Malolos, Bulacan,
to recover possession over the Masusuwi Fishpond.
Respondent alleged that in September 1975, petitioner Catindig, the
first cousin of her husband, deprived her of the possession over the
Masusuwi Fishpond, through fraud, undue influence and intimidation.
Since then, petitioner Catindig unlawfully leased the property to
petitioner Roxas. Respondent verbally demanded that petitioners
vacate the Masusuwi Fishpond, but all were futile, thus, forcing
respondent to send demand letters to petitioners Roxas and Catindig.
However, petitioners still ignored said demands. Hence, respondent

filed a suit against the petitioners to recover the property and

demanded payment of unearned income, damages, attorney's fees
and costs of suit.
In his Answer, petitioner Catindig maintained that he bought the
Masusuwi Fishpond from respondent and her children in January
1978, as evidenced by a Deed of Absolute Sale. Catindig further
argued that even assuming that respondent was indeed divested of
her possession of the Masusuwi Fishpond by fraud, her cause of
action had already prescribed considering the lapse of about 20
years from 1975, which was allegedly the year when she was
fraudulently deprived of her possession over the property.
Petitioner Roxas, on the other hand, asserted in his own Answer that
respondent has no cause of action against him, because Catindig is
the lawful owner of the Masusuwi Fishpond, to whom he had paid his
rentals in advance until the year 2001.
After trial, the trial court ruled in favor of respondent, thus:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff
[respondent herein],
(a) Ordering the defendants [petitioners herein] to vacate the
Masusuwi Fishpond and turn over the possession/occupancy
thereof to plaintiff [respondent herein];
(b) Ordering the defendants [petitioners herein] to pay and/or
reimburse
plaintiff [respondent
herein] the
amount
of P90,000.00 per year since 1985 up to the time possession
of the fishpond is surrendered to plaintiff [respondent herein];
(c) Ordering the defendants [petitioners herein] jointly and
severally to pay plaintiff [respondent herein] the amount
of P100,000.00 as attorney's fees, and to pay the costs of suit.
The counterclaims of defendants [petitioners herein] are ordered
dismissed, for lack of merit.
SO ORDERED.4

The trial court found that the Deed of Absolute Sale executed
between respondent and petitioner Catindig was simulated and
fictitious, and therefore, did not convey title over the Masusuwi
Fishpond to petitioner Catindig.1avvphi1 It gave due credence to the
testimony of respondent that petitioner Catindig convinced her to
sign the said deed of sale, because it was intended to be a mere
proposal subject to the approval of the trial court wherein the
proceedings for the settlement of the estate of Rosendo Meneses, Sr.
was still pending. The court a quo was further convinced that the
Deed of Absolute Sale lacked consideration, because respondent and
her children never received the stipulated purchase price for the
Masusuwi Fishpond which was pegged at PhP150,000.00. Since
ownership over the property never transferred to Catindig, the trial
court declared that he has no right to lease it to Roxas. The court also
found that petitioner Roxas cannot claim good faith in leasing the
Masusuwi Fishpond, because he relied on an incomplete and
unnotarized Deed of Sale.
Aggrieved, petitioners separately challenged the trial court's Decision
before the CA. The CA dismissed both the petitioners' appeals and
affirmed the RTC. The CA ruled that the trial court properly rejected
petitioners' reliance on the deed of absolute sale executed between
respondent and petitioner Catindig. The CA also found that since it is
settled that a Torrens title is a constructive notice to the whole world
of a property's lawful owner, petitioner Roxas could not invoke good
faith by relying on the Deed of Absolute Sale in favor of his lessor,
petitioner Catindig.
Hence, petitioner Catindig filed this Petition for Review on Certiorari
under Rule 45, raising the following issues:

ALLEGED
FRAUD
PRESCRIBED.

AND/OR

INTIMIDATION,

HAS

NOT

3. WHETHER THE COURT OF APPEALS SERIOUSLY AND

GRAVELY ERRED IN DISREGARDING THE GENUINENESS AND
DUE EXECUTION OF THE DEED OF ABSOLUTE SALE.
On the other hand, petitioner Silvino Roxas, Sr. filed a Petition for
Certiorari under Rule 65, raising this lone issue:
WHETHER THE HONORABLE COURT OF APPEALS HAS ACTED WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN FINDING THAT THE PETITIONER IS JOINTLY AND
SOLIDARILY LIABLE WITH HIS CO-DEFENDANT; AND IN NOT
CONSIDERING THAT HE WAS A LESSEE IN GOOD FAITH OF THE
SUBJECT PROPERTY.
The issues raised by petitioner Catindig could be reduced into
whether the Deed of Sale was genuine or simulated.
Petitioner Catindig maintains that the deed of sale was voluntarily
signed by respondent and her children, and that they received the
consideration of PhP150,000.00 stipulated therein. Even on the
assumption that they were defrauded into signing the agreement,
this merely makes the deed voidable, at most, due to vitiated
consent. Therefore, any cause of action respondent may have, had
already prescribed, and the contract was already ratified by
respondent's failure to file any action to annul the deed within four
years from 1978, the year when respondent discovered the fraud.

1. WHETHER THE COURT OF APPEALS SERIOUSLY ERRED IN

UPHOLDING THE TRIAL COURT'S DECISION IN NOT HOLDING
THAT RESPONDENT'S CAUSE OF ACTION IS IN REALITY, ONE
FOR ANNULMENT OF CONTRACT UNDER ARTICLES 1390 AND
1391 OF THE NEW CIVIL CODE.

Respondent, on the other hand, insists that the deed of sale is not
merely voidable, but void for being simulated. Hence, she could not
have filed an action for annulment of contract under Articles 1390
and 1391 of the Civil Code, because this remedy applies to voidable
contracts. Instead, respondent filed an action for recovery of
possession of the Masusuwi Fishpond.

2. WHETHER THE COURT OF APPEALS SERIOUSLY ERRED IN

UPHOLDING THE TRIAL COURT'S DECISION IN NOT HOLDING
THAT RESPONDENT'S CAUSE OF ACTION IS BASED ON

The issue on the genuineness of the deed of sale is essentially a

question of fact. It is settled that this Court is not duty-bound to
analyze and weigh again the evidence considered in the proceedings

below. This is especially true where the trial court's factual findings
are adopted and affirmed by the CA as in the present case. Factual
findings of the trial court, affirmed by the CA, are final and conclusive
and may not be reviewed on appeal.5
The Court finds that there exists no reason for Us to disturb the trial
court's finding that the deed of sale was simulated. The trial court's
discussion on the said issue is hereby quoted:
After evaluating the evidence, both testimonial and documentary,
presented by the parties, this court is convinced that the Deed of
Absolute Sale relied upon by the defendants [petitioners herein] is
simulated and fictitious and has no consideration.
On its face, the Deed of Absolute sale (Exh. "G", Exh. "1") is not
complete and is not in due form. It is a 3-page document but with
several items left unfilled or left blank, like the day the document was
supposed to be entered into, the tax account numbers of the persons
appearing as signatories to the document and the names of the
witnesses. In other words, it was not witnessed by any one. More
importantly, it was not notarized. While the name Ramon E. Rodrigo,
appeared typed in the Acknowledgement, it was not signed by him
(Exhs. "G", "G-1", "G-4").
The questioned deed was supposedly executed in January, 1978.
Defendant [petitioner herein] Catindig testified that his brother
Francisco Catindig was with him when plaintiff [respondent herein]
signed the document. The evidence, however, shows that Francisco
Catindig died on January 1, 1978 as certified to by the Office of the
Municipal Civil Registrar of Malolos, Bulacan and the Parish Priest of
Sta. Maria Assumpta Parish, Bulacan, Bulacan.
The document mentions 49,130 square meters, as the area sold by
plaintiff [respondent herein] and her two (2) children to defendant
[petitioner herein] Catindig. But this is the entire area of the property
as appearing in the title and they are not the only owners. The other
owner is Rosendo Meneses, Jr. [stepson of herein respondent] whose
name does not appear in the document. The declaration of defendant
[petitioner herein] Catindig that Rosendo Meneses, Jr. likewise sold
his share of the property to him in another document does not inspire

rational belief. This other document was not presented in evidence

and Rosendo Meneses, Jr., did not testify, if only to corroborate
defendant's [petitioner herein] claim.6
The Court also finds no compelling reason to depart from the court a
quo's finding that respondent never received the consideration
stipulated in the simulated deed of sale, thus:
Defendant [petitioner herein] Catindig declared that plaintiff
[respondent herein] and her children signed the instrument freely
and voluntarily and that the consideration of P150,000.00 as so
stated in the document was paid by him to plaintiff [respondent
herein]. However, it is not denied that the title to this property is still
in the name of Rosendo Meneses, Sr., and the owner's duplicate copy
of the title is still in the possession of the plaintiff [respondent
herein]. If defendant [petitioner herein] Catindig was really a
legitimate buyer of the property who paid the consideration with
good money, why then did he not register the document of sale or
had it annotated at the back of the title, or better still, why then did
he not have the title in the name of Rosendo Meneses, Sr. canceled
so that a new title can be issued in his name? After all, he claims that
Rosendo Meneses, Jr. [stepson of herein respondent] also sold his
share of the property to him. This will make him the owner of the
entire property. But the owner's duplicate copy of the title remains in
the possession of the plaintiff [respondent herein] and no evidence
was presented to show that at anytime from 1978, he ever
attempted to get it from her. Equally telling is defendant's (Catindig)
failure to pay the real estate taxes for the property from 1978 up to
the present. x x x7
It is a well-entrenched rule that where the deed of sale states that
the purchase price has been paid but in fact has never been paid, the
deed of sale is null and void ab initio for lack of consideration.
Moreover, Article 1471 of the Civil Code, provides that "if the price is
simulated, the sale is void," which applies to the instant case, since
the price purportedly paid as indicated in the contract of sale was
simulated for no payment was actually made.8
Since it was well established that the Deed of Sale is simulated and,
therefore void, petitioners claim that respondent's cause of action is

one for annulment of contract, which already prescribed, is

unavailing, because only voidable contracts may be annulled. On the
other hand, respondent's defense for the declaration of the
inexistence of the contract does not prescribe.9

Likewise, in the recent case of Umpoc v. Mercado, the Court declared

that the trial court did not err in giving more probative weight to the
TCT in the name of the decedent vis-a-vis the contested unregistered
Deed of Sale. x x x13

Besides, it must be emphasized that this case is one for recovery of

possession, also known as accion publiciana,which is a plenary action
for recovery of possession in an ordinary civil proceeding, in order to
determine the better and legal right to possess, independently of
title.10 The objective of the plaintiffs in accion publiciana is to recover
possession only, not ownership. However, where the parties raise the
issue of ownership, the courts may pass upon the issue to determine
who between the parties has the right to possess the property. This
adjudication, however, is not a final and binding determination of the
issue of ownership; it is only for the purpose of resolving the issue of
possession where the issue of ownership is inseparably linked to the
issue of possession. The adjudication of the issue of ownership, being
provisional, is not a bar to an action between the same parties
involving title to the property.11

There is even more reason to apply this doctrine here, because the
subject Deed of Sale is not only unregistered, it is undated and
unnotarized.

Thus, even if we sustain petitioner Catindig's arguments and rule that

the Deed of Sale is valid, this would still not help petitioners' case. It
is undisputed that the subject property is covered by TCT No. T-1749,
registered in the name of respondent's husband. On the other hand,
petitioner Catindig's claim of ownership is based on a Deed of Sale.
In Pascual v. Coronel,12 the Court held that as against the registered
owners and the holder of an unregistered deed of sale, it is the
former who has a better right to possess. In that case, the court held
that:
Even if we sustain the petitioner's arguments and rule that the deeds
of sale are valid contracts, it would still not bolster the petitioners
case. In a number of cases, the Court had upheld the registered
owners' superior right to possess the property. In Co v. Militar, the
Court was confronted with a similar issue of which between the
certificate of title and an unregistered deed of sale should be given
more probative weight in resolving the issue of who has the better
right to possess. There, the Court held that the court a quo correctly
relied on the transfer certificate of title in the name of petitioner as
opposed to the unregistered deeds of sale of respondents. x x x

Further, it is a fundamental principle in land registration that the

certificate of title serves as evidence of an indefeasible and
incontrovertible title to the property in favor of the person whose
name appears therein.14 It is conclusive evidence with respect to the
ownership of the land described therein. 15 Moreover, the age-old rule
is that the person who has a Torrens title over a land is entitled to
possession thereof.16
In addition, as the registered owner, respondent's right to evict any
person illegally occupying her property is imprescreptible. In the
recent case of Gaudencio Labrador, represented by Lulu Labrador
Uson, as Attorney-in-Fact v. Sps. Ildefonso Perlas and Pacencia Perlas
and Sps. Rogelio Pobre and Melinda Fogata Pobre,17 the Court held
that:
As a registered owner, petitioner has a right to eject any person
illegally occupying his property. This right is imprescriptible and
can never be barred by laches. In Bishop v. Court of Appeals, we
held, thus:
As registered owners of the lots in question, the private respondents
have a right to eject any person illegally occupying their property.
This right is imprescriptible. Even if it be supposed that they were
aware of the petitioners' occupation of the property, and regardless
of the length of that possession, the lawful owners have a right to
demand the return of their property at any time as long as the
possession was unauthorized or merely tolerated, if at all. This right
is never barred by laches.18
Petitioner Roxas assailed the Decision and the Resolution of the CA
via Petition for Certiorari under Rule 65, when the proper remedy

should have been the

on Certiorari under Rule 45.

filing

of

Petition

for

Review

While petitioner Roxas claims that the CA committed grave abuse of

discretion, this Court finds that the assailed findings of the CA, that
Roxas is jointly and severally liable with petitioner Catindig and in not
considering him as a lessee in good faith of the subject property,
amount to nothing more than errors of judgment, correctible by
appeal. When a court, tribunal, or officer has jurisdiction over the
person and the subject matter of the dispute, the decision on all
other questions arising in the case is an exercise of that jurisdiction.
Consequently, all errors committed in the exercise of said jurisdiction
are merely errors of judgment. Under prevailing procedural rules and
jurisprudence, errors of judgment are not proper subjects of a special
civil action for certiorari.19 Where the issue or question involved
affects the wisdom or legal soundness of the decision, and not the
jurisdiction of the court to render said decision, the same is beyond
the province of a special civil action for certiorari.20
Settled is the rule that where appeal is available to the aggrieved
party, the special civil action for certiorari will not be entertained
remedies of appeal and certiorari are mutually exclusive, not
alternative or successive.21 Under Rule 45, decisions, final orders or
resolutions of the Court of Appeals in any case, i.e., regardless of the
nature of the action or proceedings involved, may be appealed to us
by filing a petition for review, which would be but a continuation of
the appellate process over the original case. On the other hand, a
special civil action under Rule 65 is an independent action based on
the specific ground therein provided and, as a general rule, cannot be
availed of as a substitute for the lost remedy of an ordinary appeal,
including that to be taken under Rule 45. 22One of the requisites of
certiorari is that there be no available appeal or any plain, speedy
and adequate remedy. Where an appeal is available, certiorari will
not prosper, even if the ground therefor is grave abuse of discretion.
Accordingly, when a party adopts an improper remedy, his petition
may be dismissed outright.23
In the present case, the CA issued its Decision and Resolution dated
October 22, 2004 and May 20, 2005, respectively, dismissing the
appeal filed by petitioner Roxas. Records show that petitioner Roxas

received a copy of the May 20, 2005 Resolution of the CA denying the
motion for reconsideration on May 30, 2005. Instead of filing a
petition for review on certiorari under Rule 45 within 15 days from
receipt thereof,24 petitioner, in addition to his several motions for
extension, waited for almost four months before filing the instant
petition on September 22, 2005. Indubitably, the Decision and the
Resolution of the CA, as to petitioner Roxas, had by then already
become final and executory, and thus, beyond the purview of this
Court to act upon.25
It is settled that a decision that has acquired finality becomes
immutable and unalterable and may no longer be modified in any
respect, even if the modification is meant to correct erroneous
conclusions of fact or law and whether it will be made by the court
that rendered it or by the highest court of the land. 26 When a decision
becomes final and executory, the court loses jurisdiction over the
case and not even an appellate court will have the power to review
the said judgment. Otherwise, there will be no end to litigation and
this will set to naught the main role of courts of justice to assist in the
enforcement of the rule of law and the maintenance of peace and
order by settling justifiable controversies with finality.27
Finally, while it is true that this Court, in accordance with the liberal
spirit which pervades the Rules of Court and in the interest of justice,
may treat a Petition for Certiorari as having been filed under Rule 45,
the instant Petition cannot be treated as such, primarily because it
was filed way beyond the 15-day reglementary period within which to
file the Petition for Review.28 Though there are instances when
certiorari was granted despite the availability of appeal, 29 none of
these recognized exceptions were shown to be present in the case at
bar.
WHEREFORE, the petition in G.R. No. 165851 is DENIED. The
Decision of the Court of Appeals dated October 22, 2004 in CA-G.R.
CV No. 65697, which affirmed the decision of the Regional Trial Court
of Malolos, Bulacan in Civil Case No. 320-M-95, is AFFIRMED. The
petition in G.R. No. 168875 is DISMISSED. The Decision and the
Resolution of the Court of Appeals, dated October 22, 2004 and May
20, 2005, respectively, in CA-G.R. CV No. 65697, which affirmed the

Decision of the Regional Trial Court of Malolos, Bulacan in Civil Case

No. 320-M-95, are AFFIRMED.
SO ORDERED.

secure possession of the mineral claim, and to obtain damages from

the defendant in the amount of P10,500. Following the presentation
of various pleadings including the answer of the defendant, and
following trial before Judge of First Instance Harvey, judgment was
rendered dismissing the complaint and absolving the defendant from
the same, with costs against the plaintiff. On being informed of the
judgment of the trial court, plaintiff attacked it on two grounds: The
first, jurisdiction, and the second, formal. Both motions were denied
and an appeal was perfected.
Two questions are suggested by the assignments of error. The first is
whether Judge George R. Harvey had jurisdiction to try the case. The
second is whether the plaintiff has established his cause of action by
a preponderance of the evidence.

EN BANC
G.R. No. 21943

September 15, 1924

ASKAY, plaintiff-appellant,
vs. FERNANDO A. COSALAN, defendant-appellee.
MALCOLM, J.:
The plaintiff in this case is Askay, an illiterate Igorrote between 70
and 80 years of age, residing in the municipal district of Tublay,
Province of Benguet, who at various time has been the owner of
mining property. The defendant is Fernando A. Cosalan, the nephew
by marriage of Askay, and municipal president of Tublay, who
likewise has been interested along with his uncle in mining
enterprises.
About 1907, Askay obtained title to the Pet Kel Mineral Claim located
in Tublay, Benguet. On November 23, 1914, if we are to accept
defendant's Exhibit 1, Askay sold this claim to Cosalan. Nine years
later, in 1923, Askay instituted action in the Court of First Instance of
Benguet to have the sale of the Pet Kel Mineral Claim adhered null, to

I. On April 16, 1923, as appears from the Official Gazette, the

Secretary of Justice authorized and instructed the Honorable George
R. Harvey, Judge of First Instance of the Ninth Judicial District, to hold
a special term of court in the City of Baguio, Mountain Province,
beginning May 2, 1923. (Administrative Order No. 43, 21 Off. Gaz., p.
893.) Acting under the authority granted by the order of the
Secretary of Justice, Judge Harvey proceeded to hear the case of
Askay vs. Cosalan, without protest from anyone until after an adverse
decision for the plaintiff and until after Judge Harvey had left the
district.
The point which plaintiff now presses is that Act No. 3107,
amendatory of section 155 of the Administrative Code, which
authorizes a Judge of First Instance to be detailed by the Secretary of
Justice to temporary duty, for a period which shall in no case exceed
six months, in a district or province other than his own, for the
purpose of trying all kinds of cases, excepting criminal and election
cases, was not in force until fifteen days after the completion of the
publication of the statute in the Official Gazette, or not until August
3, 1923. Plaintiff relies on section 11 of the Administrative Code,
which in part reads: "A statute passed by the Philippine Legislature
shall, in the absence of special provision, take effect at the beginning
of the fifteenth day after the completion of the publication of the
statute in the Official Gazette, the date of issue being excluded."

Now turning to Act No. 3107, its final section provides that "This Act
shall take effect on its approval." The Act was approved on March 17,
1923. Obviously, therefore, there being a special provision in Act No.
3107, it applies to the exclusion of the general provision contained in
the Administrative Code.
Recalling, therefore, that Act No. 3107 went into effect on March, 17,
1923, and that it was subsequent thereto, on April 16, 1923, that
Judge Harvey was authorized to hold court at Baguio, beginning with
May 2, 1923, appellant's argument along this line is found to be
without persuasive merit. We pass to the material issue which is one
of fact.
II. Plaintiff contends that the sale of the Pet Kel Mineral Claim was
accomplished through fraud and deceit on the part of the defendant.
Plaintiff may be right but in our judgment he has failed to established
his claim. Fraud must be both alleged and proved.
One facts exists in plaintiff's favor, and this is the age and ignorance
of the plaintiff who could be easily duped by the defendant, a man of
greater intelligence. Another fact is the inadequacy of the
consideration for the transfer which, according to the conveyance,
consisted of P1 and other valuable consideration, and which,
according to the oral testimony, in reality consisted of P107 in cash, a
bill fold, one sheet, one cow, and two carabaos. Gross inadequacy
naturally suggests fraud and is some evidence thereof, so that it may
be sufficient to show it when taken in connection with other
circumstances, such as ignorance or the fact that one of the parties
has an advantage over the other. But the fact that the bargain was a
hard one, coupled with mere inadequacy of price when both parties
are in a position to form an independent judgment concerning the
transaction, is not a sufficient ground for the cancellation of a
contract.
Against the plaintiff and in favor of the defendant, we have the
document itself executed in the presence of witnesses and before a
notary public and filed with the mining recorder. The notary public,
Nicanor Sison, and one of the attesting witnesses, Apolonio Ramos,
testified to the effect that in the presence of the plaintiff and the
defendant and of the notary public and the subscribing witnesses,

the deed of sale was interpreted to the plaintiff and that thereupon
he placed his thumb mark on the document. Two finger print experts,
Dr. Charles S. Banks and A. Simkus, have declared in depositions that
the thumb mark on Exhibit 1 is that of Askay. No less than four other
witnesses testified that at various times Askay had admitted to them
that he had sold the Pet Kel Mine to Fernando A. Cosalan.
Having in mind all of these circumstances, how can the plaintiff
expect the courts to nullify the deed of sale on mere suspicion?
Having waited nine years from the date when the deed was
executed, nine years from the time Fernando A. Cosalan started
developing the mine, nine years from the time Askay himself had
been deprived of the possession of the mine, and nine years
permitting of a third party to obtain a contract of lease from Cosalan,
how can this court overlook plaintiff's silent acquiescence in the legal
rights of the defendant? On the facts of record, the trial judge could
have done nothing less than dismiss the action.
We conclude therefore, that Judge Harvey had jurisdiction to try this
case, that his findings of fact are in accordance with the evidence,
that no prejudicial error was committed in the trial, and that the
complaint was properly dismissed. As a result, judgment is affirmed
with costs against the appellant. So ordered.
SECOND DIVISION
G.R. No. 174719

May 5, 2010

HEIRS OF MARIO PACRES, namely: VALENTINA Vda. DE

PACRES, JOSERINO, ELENA, LEOVIGILDO, LELISA, and
LOURDES all surnamed PACRES, and VEARANDA Vda. DE
ABABA, Petitioners,
vs.
HEIRS of CECILIA YGOA, namely BAUDILLO YGOA YAP,
MARIA YAP DETUYA, JOSEFINA YAP, EGYPTIANA YAP BANZON,
and VICENTE YAP1 and HILARIO RAMIREZ, Respondents.
DECISION
DEL CASTILLO, J.:

While contracts are generally obligatory in whatever form they may

have been entered into, it remains imperative for a party that seeks
the performance thereof to prove the existence and the terms of the
contract by a preponderance of evidence. Bare assertions are not the
quantum of proof contemplated by law.
This Petition for Review2 assails the Decision3 dated October 28, 2005
of the Court of Appeals (CA), as well as its Resolution 4 dated August
31, 2006. The dispositive portion of the assailed Decision reads:
WHEREFORE, with the foregoing, the Decision of the Regional Trial
Court, 7th Judicial Region, Branch 13, Cebu City dated March 15,
2000 in Civil Case No. 18819 for Specific Performance, Damages and
Attorneys Fees is hereby SET ASIDE and a new one entered
DISMISSING said case for failure to establish the causes of action with
the required quantum of proof.

Subsequently in 1974, four of the Pacres siblings 10 (namely, Rodrigo,

Francisco, Simplicia and Margarita) sold their shares in the ancestral
home and the lot on which it stood to Ramirez. The deeds of sale
described the subjects thereof as "part and portion of the 300 square
meters actually in possession and enjoyment by vendee and her
spouse, Hilario Ramirez, by virtue of a contract of lease in their
favor."11 The Deed of Sale of Right in a House executed by Rodrigo
and Francisco was more detailed, to wit:
x x x do hereby sell, cede, transfer and convey, forever and in
absolute manner, our shares interests and participation in a house of
mixed materials under roof of nipa which is constructed inside Lot No.
550612 of the Cadastral Survey of Cebu, the lot on which the house is
constructed has already been sold to and bought by the herein
vendee from our brothers and sisters; that this sale pertains only to
our rights and interests and participation in the house which we
inherited from our late father Pastor Pacres. 13

No pronouncement as to cost.
SO ORDERED.

With the sale, respondent Ramirezs possession as lessee turned into

a co-ownership with petitioners Mario and Vearanda, who did not
sell their shares in the house and lot.

Factual Antecedents
Lot No. 9 is a 1,007 square meter parcel of land located at Kinasangan, Pardo, Cebu City and fronting the Cebu provincial highway. The
lot originally belonged to Pastor Pacres (Pastor) who left it intestate to
his heirs6Margarita, Simplicia, Rodrigo, Francisco, Mario (petitioners
predecessor-in-interest)
and
Vearanda
(herein
petitioner).
Petitioners admitted that at the time of Pastors death in 1962, his
heirs were already occupying definite portions of Lot No. 9. The front
portion along the provincial highway was occupied by the co-owned
Pacres ancestral home,7 and beside it stood Rodrigos hut (also
fronting the provincial highway). Marios house stood at the back of
the ancestral house.8 This is how the property stood in 1968, as
confirmed by petitioner Valentinas testimony.
On the same year, the heirs leased 9 "the ground floor of the
[ancestral home] together with a lot area of 300 square meters
including the area occupied by the house" to respondent Hilario
Ramirez (Ramirez), who immediately took possession thereof.

On various dates in 1971, Rodrigo,14 Francisco,15 and Simplicia16 sold

their remaining shares in Lot No. 9 to respondent Cecilia Ygoa
(Ygoa). In 1983, Margarita17 also sold her share to Ygoa. The total
area sold to Ygoa was 493 square meters.
In 1984, Ygoa filed a petition to survey and segregate 18 the portions
she bought from Lot No. 9. Mario objected on the ground that he
wanted to exercise his right as co-owner to redeem his siblings
shares. Vendee Rodrigo also opposed on the ground that he wanted
to annul the sale for failure of consideration. On the other hand,
Margarita and the widow of Francisco both manifested their assent to
Ygoas petition. By virtue of such manifestation, the court issued a
writ of possession19 respecting Margaritas and Franciscos shares in
favor of Ygoa. It is by authority of this writ that Ygoa built her
house on a portion of Lot No. 9. Considering, however, the objections
of the two other Pacres siblings, the trial court subsequently
dismissed the petition so that the two issues could be threshed out in

the proper proceeding. Mario filed the intended action while Rodrigo
no longer pursued his objection.
The complaint for legal redemption, 20 filed by Mario and Vearanda,
was dismissed on the ground of improper exercise of the right. The
decision was affirmed by the appellate court 21 and attained finality in
the Supreme Court22 on December 28, 1992. The CA held that the
complaint was filed beyond the 30-day period provided in Article
1623 of the New Civil Code and failed to comply with the requirement
of consignation. It was further held that Ygoa built her house on Lot
No. 9 in good faith and it would be unjust to require her to remove
her house thereon.
On June 18, 1993, the Republic of the Philippines, through the
Department of Public Works and Highways (DPWH), expropriated the
front portion of Lot No. 9 for the expansion of the Cebu south road.
The petition for expropriation was filed in Branch 9 of the Regional
Trial Court of Cebu City and docketed as Civil Case No. CEB14150.23 As occupant of the expropriated portion, Ygoa moved to
withdraw her corresponding share in the expropriation payment.
Petitioners opposed the said motion. 24 The parties did not supply the
Court with the pleadings in the expropriation case; hence, we are
unaware of the parties involved and the issues presented therein.
However, from all indications, the said motion of Ygoa remains
unresolved.
On July 20, 1993, the Pacres siblings (Margarita and Francisco were
already deceased at that time and were only represented by their
heirs) executed a Confirmation of Oral Partition/Settlement of
Estate25 of Pastor Pacres. The relevant statements in the affidavit
read:
1. That our father the late Pastor Pacres died instestate at
Kinasang-an, Pardo, Cebu City on January 2, 1962;
2. That he left some real properties, one of which is a parcel of
land (Lot No. 9, PCS 07-01-000006, Cebu Cad., located at
Kinasang-an, Pardo, Cebu City);

3. That after the death of Pastor Pacres, the above-named

children declared themselves extra-judicially as heirs of Pastor
Pacres and they likewise adjudicated unto themselves the
above described lot and forthwith MADE AN ORAL PARTITION;
4. That in that ORAL PARTITION, the shares or portion to be
allotted to Mario Pacres and Vearanda Pacres Vda. de Ababa
shall be fronting the national highway, while the shares of the
rest shall be located at the rear;
5. That recently, the said heirs had the said lot surveyed to
determine specifically their respective locations in accordance
with the oral partition made after the death of Pastor Pacres;
6. That a sketch of the subdivision plan is hereto attached,
duly labeled, indicating the respective locations of the shares
of each and every heir.
On September 30, 1994, Mario, petitioners predecessor-in-interest,
filed an ejectment suit against Ramirez successor-in-interest
Vicentuan. Mario claimed sole ownership of the lot occupied by
Ramirez/Vicentuan by virtue of the oral partition. He argued that
Ramirez/Vicentuan should pay rentals to him for occupying the front
lot and should transfer to the rear of Lot No. 9 where the lots of
Ramirezs vendors are located.
The court dismissed Marios assertion that his siblings sold the rear
lots to Ramirez. It held that the deeds of sale in favor of Ramirez
clearly described the object of the sale as the ancestral house and
lot.26 Thus, Ramirez has a right to continue occupying the property he
bought. The court further held that since Mario did not sell his proindiviso shares in the house and lot, at the very least, the parties are
co-owners thereof. Co-owners are entitled to occupy the co-owned
property.27
The Complaint for Specific Performance
On June 3, 1996, Vearanda and the heirs of Mario filed the instant
complaint for specific performance 28 against Ygoa and Ramirez.
Contrary to Marios allegations of co-ownership over Lot No. 9 in the

legal redemption case, Marios heirs insist in the action for specific
performance that the heirs agreed on a partition prior to the sale.
They seek compliance with such agreement from their siblings
vendees, Ygoa and Ramirez, on the basis that the two were privy to
these agreements, hence bound to comply therewith. In compliance
with such partition, Ygoa and Ramirez should desist from claiming
any portion of the expropriation payment for the front lots.
Their other cause of action is directed solely at Ygoa, whom they
insist agreed to additional, albeit unwritten, obligations other than
the payment of the purchase price of the shares in Lot No. 9.
Vearanda and Marios heirs insist that Ygoa contracted with her
vendors to assume all obligations regarding the payment of past and
present estate taxes, survey Lot No. 9 in accordance with the oral
partition, and obtain separate titles for each portion. While these
obligations were not written into the deeds of sale, petitioners insist
it is not subject to the Statute of Frauds since these obligations were
allegedly partly complied with by Ygoa. They cite as evidence of
Ygoas compliance the survey of her purchased lots and payment of
realty taxes.
Respondents denied privity with the heirs oral partition. They further
maintained that no such partition took place and that the portions
sold to and occupied by them were located in front of Lot No. 9;
hence they are the ones entitled to the expropriation
payment.29 They sought damages from the unfounded suit leveled
against them. To discredit petitioners assertion of an oral partition,
respondents presented Exhibit No. 1, which petitioner Valentina
herself executed during her testimony. Exhibit No. 1 demonstrated
Valentinas recollection of the actual occupation of the Pacres
siblings, their heirs and vendees. The sketch undermined petitioners
allegation that the heirs partitioned the property and immediately
took possession of their allotted lots/shares. Ygoa also denied ever
agreeing to the additional obligations being imputed against her.

occupation of their portions in Lot No. 9, as evidenced by petitioner

Valentinas sketch, is the real agreement to which the parties are
bound. Apparently unsatisfied with the parties state of affairs, the
trial court further ordered that a survey of the lot according to the
parties actual occupation thereof be conducted.
Petitioners motion for reconsideration was denied. 31 Unsatisfied with
the adverse decision, petitioners appealed to the CA questioning the
factual findings of the trial court and its reliance on Exhibit 1. They
maintained that Valentina was incompetent and barely literate;
hence, her sketch should not be given weight.
Ruling of the Court of Appeals
The appellate court sustained the ruling of the trial court insofar as it
dismissed petitioners complaint for lack of evidence. It held that the
oral partition was not valid because the heirs did not ratify it by
taking possession of their shares in accordance with their oral
agreement. Moreover, the CA ruled that Ygoas sole undertaking
under the deeds of sale was the payment of the purchase price.
Since petitioners did not question the validity of the deeds and did
not assail its terms as failing to express the true intent of the parties,
the written document stands superior over the allegations of an oral
agreement.
It, however, reversed the trial court on the latters order to survey
the lot in accordance with Valentinas sketch. The appellate court
explained that while it was conclusive that Ygoa and Ramirez
bought portions of the property from some of the Pacres siblings, the
issue of the actual area and location of the portions sold to them
remains unresolved. The CA narrated all the unresolved matters that
prevented a finding that definitively settles the partition of Lot No. 9.
The CA emphasized that the question regarding ownership of the
front lots and the expropriation payment should be threshed out in
the proper proceeding.

Ruling of the Regional Trial Court

The trial court ruled in favor of respondents. 30 It held that petitioners
failed to prove partition of the lot in accordance with petitioners
version. Instead, the trial court held that the parties actual

The CA likewise found no basis for the award of damages to either

party.

Petitioners Motion for Reconsideration 32 was denied,33 hence this

petition.

Our Ruling
Whether petitioners were able to prove the existence of the alleged
oral agreements such as the partition and the additional obligations
of surveying and titling

Issues
Petitioners formulated the following issues:34
1. Whether or not this complaint for specific performance,
damages and attorneys fee [sic] with a prayer for the
issuance of a restraining order and later on issuance of a writ
of permanent injunction is tenable.
2. Whether or not the area purchased and owned by
respondents in Lot No. 9 is located along or fronting the
national highway.
3. Whether or not the lower court committed grave abuse of
discretion by rendering a decision not in accord with laws and
applicable decisions of the Supreme Court, resulting to the
unrest of this case.
4. Whether or not it is lawful for the respondents to claim
ownership of the P220,000.00 which the government set aside
for the payment of the expropriated area in Lot No. 9, fronting
the highway, covered by the road widening.
Consolidated and simplified, the issues to be resolved are:
I
Whether petitioners were able to prove the existence of the alleged
oral agreements such as the partition and the additional obligations
of surveying and titling
II
Whether the issue of ownership regarding the front portion of Lot No.
9 and entitlement to the expropriation payment may be resolved in
this action

Both the trial and appellate courts dismissed petitioners complaint

on the ground that they had failed to prove the existence of an oral
partition. Petitioners now insist that the two courts overlooked facts
and circumstances that are allegedly of much weight and will alter
the decision if properly considered.35
Petitioners would have the Court review the evidence presented by
the parties, despite the CAs finding that the trial court committed no
error in appreciating the evidence presented during the trial. This
goes against the rule that this Court is not a trier of facts. "Such
questions as whether certain items of evidence should be accorded
probative value or weight, or rejected as feeble or spurious, or
whether or not the proofs on one side or the other are clear and
convincing and adequate to establish a proposition in issue, are
without doubt questions of fact."36Questions like these are not
reviewable by this Court which, as a rule, confines its review of cases
decided by the CA only to questions of law, which may be resolved
without having to re-examine the probative value of the evidence
presented.37
We find no compelling reason to deviate from the foregoing rule and
disturb the trial and appellate courts factual finding that the
existence of an oral partition was not proven. Our examination of the
records indicates that, contrary to petitioners contention, the lower
courts conclusion was justified.
Petitioners only piece of evidence to prove the alleged oral partition
was
the
joint
affidavit
(entitled
"Confirmation
of
Oral
Partition/Settlement of Estate") supposedly executed by some of the
Pacres siblings and their heirs in 1993, to the effect that such an oral
partition had previously been agreed upon. Petitioners did not
adequately explain why the affidavit was executed only in 1993,
several years after respondents Ygoa and Ramirez took possession
of the front portions of Lot No. 9. 38 If there had been an oral partition

allotting the front portions to petitioners since Pastors death in 1962,

they should have immediately objected to respondents occupation.
Instead, they only asserted their ownership over the front lots
beginning in 1993 (with the execution of their joint affidavit) when
expropriation became imminent and was later filed in court.
Petitioners assertion of partition of Lot No. 9 is further belied by their
predecessor-in-interests previous assertion of co-ownership over the
same lot in the legal redemption case filed 10 years before. 39 The
allegations therein, sworn to as truth by Mario and Vearanda,
described Lot No. 9 as a parcel of land that is co-owned by the Pacres
siblings pro indiviso. It was further alleged that Ygoa bought the
undivided shares of Rodrigo, Francisco, Margarita, and Simplicia.
The statements in the legal redemption case are extrajudicial
admissions,40 which were not disputed by petitioners. These
admissions may be given in evidence against them. 41 At the very
least, the polarity of their previous admissions and their present
theory makes the latter highly suspect.
Moreover, petitioners failed to show that the Pacres siblings took
possession of their allotted shares after they had supposedly agreed
on the oral partition. Actual possession and exercise of dominion over
definite portions of the property in accordance with the alleged
partition would have been strong proof of an oral partition. 42 In this
case, however, petitioners failed to present any evidence that the
petitioners took actual possession of their respective allotted shares
according to the supposed partition. In fact, the evidence of the
parties point to the contrary. Petitioner Valentina herself drew a
sketch43 showing the location of the actual occupants of Lot No. 9,
but the actual occupation shown in her sketch is not in accordance
with the terms of the alleged oral partition. 44According to the terms of
the alleged oral partition, the front portions of Lot No. 9 were
supposed to have been occupied by petitioners, but Valentinas
sketch indicates that the actual occupants of the said portions are
respondents.
In fine, we rule that the records contain ample support for the trial
and appellate courts factual findings that petitioners failed to prove
their allegation of oral partition. While petitioners claim that the trial

and appellate courts did not appreciate their evidence regarding the
existence of the alleged oral partition, the reality is that their
evidence is utterly unconvincing.
With respect to the alleged additional obligations which petitioners
seek to be enforced against respondent Ygoa, we likewise find that
the trial and appellate courts did not err in rejecting them. Petitioners
allege that when Ygoa bought portions of Lot No. 9 from petitioners
four siblings, aside from paying the purchase price, she also bound
herself to survey Lot No. 9 including the shares of the petitioners (the
non-selling siblings); to deliver to petitioners, free of cost, the titles
corresponding to their definite shares in Lot No. 9; and to pay for all
their past and present estate and realty taxes.45 According to
petitioners, Ygoa agreed to these undertakings as additional
consideration for the sale, even though they were not written in the
Deeds of Sale.
Like the trial and appellate courts, we find that these assertions by
petitioners have not been sufficiently established.
In the first place, under Article 1311 of the Civil Code, contracts take
effect only between the parties, their assigns and heirs (subject to
exceptions not applicable here). Thus, only a party to the contract
can maintain an action to enforce the obligations arising under said
contract.46 Consequently, petitioners, not being parties to the
contracts of sale between Ygoa and the petitioners siblings, cannot
sue for the enforcement of the supposed obligations arising from said
contracts.
It is true that third parties may seek enforcement of a contract under
the second paragraph of Article 1311, which provides that "if a
contract should contain some stipulation in favor of a third person, he
may demand its fulfillment." This refers to stipulations pour autrui, or
stipulations for the benefit of third parties. However, the written
contracts of sale in this case contain no such stipulation in favor of
the petitioners. While petitioners claim that there was an oral
stipulation, it cannot be proven under the Parol Evidence Rule. Under
this Rule, "[w]hen the terms of an agreement have been reduced to
writing, it is considered as containing all the terms agreed upon and
there can be, between the parties and their successors in interest, no

evidence of such terms other than the contents of the written

agreement."47 While the Rule admits of exception, no such exception
was pleaded, much less proved, by petitioners.
The Parol Evidence Rule applies to "the parties and their successors
in interest." Conversely, it has no application to a stranger to a
contract. For purposes of the Parol Evidence Rule, a person who
claims to be the beneficiary of an alleged stipulation pour autrui in a
contract (such as petitioners) may be considered a party to that
contract. It has been held that a third party who avails himself of a
stipulation pour autrui under a contract becomes a party to that
contract.48 This is why under Article 1311, a beneficiary of a
stipulation pour autrui is required to communicate his acceptance to
the obligor before its revocation.
Moreover, to preclude the application of Parol Evidence Rule, it must
be shown that "at least one of the parties to the suit is not party or a
privy of a party to the written instrument in question and does not
base a claim on the instrument or assert a right originating in the
instrument or the relation established thereby." 49 A beneficiary of a
stipulation pour autrui obviously bases his claim on the contract. He
therefore cannot claim to be a stranger to the contract and resist the
application of the Parol Evidence Rule.
Thus, even assuming that the alleged oral undertakings invoked by
petitioners may be deemed stipulations pour autrui, still petitioners
claim cannot prosper, because they are barred from proving them by
oral evidence under the Parol Evidence Rule.
Whether the issue of ownership regarding the front portion of Lot No.
9 and entitlement to the expropriation payment may be resolved in
this action
Petitioners characterize respondents claim over the expropriation
payment as unlawful on the ground that the expropriated portion
belongs to petitioners per the alleged oral partition. They also
maintain that Ygoa is barred by laches from claiming the front
portion because she waited 13 years from the time of the sale to
claim her share via petition for subdivision and survey.

On the other hand, respondents charge petitioners with forumshopping on the ground that the issue of ownership had already been
submitted to the expropriation court. The trial court affirmed this
argument stating that petitioners resorted to forum-shopping, while
the appellate court ruled that it could not determine the existence of
forum-shopping considering that it was not provided with the
pleadings in the expropriation case.
We agree with the CA on this score. The parties did not provide the
Court with the pleadings filed in the expropriation case, which makes
it impossible to know the extent of the issues already submitted by
the parties in the expropriation case and thereby assess whether
there was forum-shopping.
Nonetheless, while we cannot rule on the existence of forumshopping for insufficiency of evidence, it is correct that the issue of
ownership should be litigated in the expropriation court. 50 The court
hearing the expropriation case is empowered to entertain the
conflicting claims of ownership of the condemned property and
adjudge the rightful owner thereof, in the same expropriation
case.51 This is due to the intimate relationship of the issue of
ownership with the claim for the expropriation payment. Petitioners
objection regarding respondents claim over the expropriation
payment should have been brought up in the expropriation court as
opposition to respondents motion. While we do not know if such
objection was already made,52 the point is that the proper venue for
such issue is the expropriation court, and not here where a different
cause of action (specific performance) is being litigated.
We also cannot agree with the trial courts order to partition the lot in
accordance with Exhibit No. 1 or the sketch prepared by petitioner
Valentina. To do so would resolve the issue of ownership over
portions of Lot No. 9 and effectively preempt the expropriation court,
based solely on actual occupation (which was the only thing which
Exhibit No. 1 could have possibly proved). It will be remembered that
Exhibit No. 1 is simply a sketch demonstrating the portions of Lot No.
9 actually occupied by the parties. It was offered simply to impeach
petitioners assertion of actual occupation in accordance with the
terms of the alleged oral partition.

Let it be made clear that our ruling, just like those of the trial court
and the appellate court, is limited to resolving petitioners action for
specific performance. Given the finding that petitioners failed to
prove the existence of the alleged oral partition and the alleged
additional consideration for the sale, they cannot compel
respondents to comply with these inexistent obligations. In this
connection, there is no basis for petitioners claim that the CA
Decision was incomplete by not definitively ruling on the ownership
over the front lots. The CA decision is complete. It ruled that
petitioners failed to prove the alleged obligations and are therefore
not entitled to specific performance thereof.
WHEREFORE, the petition is DENIED. The assailed October 28,
2005 Decision of the Court of Appeals in CA-G.R. No. 174719, as well
as its August 31, 2006 Resolution, are AFFIRMED.
SO ORDERED.
Manila

EN BANC
G.R. No. L-11240

December 18, 1957

CONCHITA LIGUEZ, petitioner,

vs THE HONORABLE COURT OF APPEALS, MARIA NGO VDA. DE
LOPEZ, ET AL.,
REYES, J.B.L., J.:
From a decision of the Court of Appeals, affirming that of the Court of
First Instance of Davao dismissing her complaint for recovery of land,
Conchita Liguez has resorted to this Court, praying that the aforesaid
decision be reversed on points of law. We granted certiorari on
October 9, 1956.
The case began upon complaint filed by petitioner-appellant against
the widow and heirs of the late Salvador P. Lopez to recover a parcel
of 51.84 hectares of land, situated in barrio Bogac-Linot, of the
municipality of Mati, Province of Davao. Plaintiff averred to be its
legal owner, pursuant to a deed of donation of said land, executed in
her favor by the late owner, Salvador P. Lopez, on 18 May 1943. The
defense interposed was that the donation was null and void for
having an illicit causa or consideration, which was the plaintiff's
entering into marital relations with Salvador P. Lopez, a married man;
and that the property had been adjudicated to the appellees as heirs
of Lopez by the court of First Instance, since 1949.
The Court of Appeals found that the deed of donation was prepared
by the Justice of the Peace of Mati, Davao, before whom it was signed
and ratified on the date aforesaid. At the time, the appellant Liguez
was a minor, only 16 years of age. While the deed recites
That the DONOR, Salvador P. Lopez, for and in the
consideration of his love and affection for the said DONEE,
Conchita Liguez, and also for the good and valuable services

rendered to the DONOR by the DONEE, does by these

presents, voluntarily give grant and donate to the said donee,
etc. (Paragraph 2, Exhibit "A")
the Court of Appeals found that when the donation was made, Lopez
had been living with the parents of appellant for barely a month; that
the donation was made in view of the desire of Salvador P. Lopez, a
man of mature years, to have sexual relations with appellant
Conchita Liguez; that Lopez had confessed to his love for appellant to
the instrumental witnesses, with the remark that her parents would
not allow Lopez to live with her unless he first donated the land in
question; that after the donation, Conchita Liguez and Salvador P.
Lopez lived together in the house that was built upon the latter's
orders, until Lopez was killed on July 1st, 1943, by some guerrillas
who believed him to be pro-Japanese.
It was also ascertained by the Court of Appeals that the donated land
originally belonged to the conjugal partnership of Salvador P. Lopez
and his wife, Maria Ngo; that the latter had met and berated Conchita
for living maritally with her husband, sometime during June of 1943;
that the widow and children of Lopez were in possession of the land
and made improvements thereon; that the land was assessed in the
tax rolls first in the name of Lopez and later in that of his widow.; and
that the deed of donation was never recorded.
Upon these facts, the Court of Appeals held that the deed of donation
was inoperative, and null and void (1) because the husband, Lopez,
had no right to donate conjugal property to the plaintiff appellant;
and (2) because the donation was tainted with illegal cause or
consideration, of which donor and donee were participants.
Appellant vigorously contends that the Court of First Instance as well
as the Court of Appeals erred in holding the donation void for having
an illicit cause or consideration. It is argued that under Article 1274
of the Civil Code of 1889 (which was the governing law in 1948, when
the donation was executed), "in contracts of pure beneficence the
consideration is the liberality of the donor", and that liberality per se
can never be illegal, since it is neither against law or morals or public
policy.

The flaw in this argument lies in ignoring that under Article 1274,
liberality of the do or is deemed causa in those contracts that are of
"pure" beneficence; that is to say, contracts designed solely and
exclusively to procure the welfare of the beneficiary, without any
intent of producing any satisfaction for the donor; contracts, in other
words, in which the idea of self-interest is totally absent on the part
of the transferor. For this very reason, the same Article 1274 provides
that in remuneratory contracts, the consideration is the service or
benefit for which the remuneration is given; causa is not liberality in
these cases because the contract or conveyance is not made out of
pure beneficence, but "solvendi animo." In consonance with this
view, this Supreme Court in Philippine Long Distance Co. vs.
Jeturian * G.R. L-7756, July 30, 1955, like the Supreme Court of Spain
in its decision of 16 Feb. 1899, has ruled that bonuses granted to
employees to excite their zeal and efficiency, with consequent
benefit for the employer, do not constitute donation having liberality
for a consideration.
Here the facts as found by the Court of Appeals (and which we can
not vary) demonstrate that in making the donation in question, the
late Salvador P. Lopez was not moved exclusively by the desire to
benefit appellant Conchita Liguez, but also to secure her cohabiting
with him, so that he could gratify his sexual impulses. This is clear
from the confession of Lopez to the witnesses Rodriguez and Ragay,
that he was in love with appellant, but her parents would not agree
unless he donated the land in question to her. Actually, therefore, the
donation was but one part of an onerous transaction (at least with
appellant's parents) that must be viewed in its totality. Thus
considered, the conveyance was clearly predicated upon an
illicit causa.
Appellant seeks to differentiate between the alleged liberality of
Lopez, as causa for the donation in her favor, and his desire for
cohabiting with appellant, as motives that impelled him to make the
donation, and quotes from Manresa and the jurisprudence of this
Court on the distinction that must be maintained between causa and
motives (De Jesus vs. Urrutia and Co., 33 Phil. 171). It is well to note,
however that Manresa himself (Vol. 8, pp. 641-642), while
maintaining the distinction and upholding the inoperativeness of the
motives of the parties to determine the validity of the contract,

expressly excepts from the rule those contracts that are conditioned
upon the attainment of the motives of either party.
. . . distincion importantisima, que impide anular el contrato
por la sola influencia de los motivos a no ser que se hubiera
subordinando al cumplimiento de estos como condiciones la
eficacia de aquel.
The same view is held by the Supreme Court of Spain, in its decisions
of February 4, 1941, and December 4, 1946, holding that the motive
may be regarded as causa when it predetermines the purpose of the
contract.
In the present case, it is scarcely disputable that Lopez would not
have conveyed the property in question had he known that appellant
would refuse to cohabit with him; so that the cohabitation was an
implied condition to the donation, and being unlawful, necessarily
tainted the donation itself.
The Court of Appeals rejected the appellant's claim on the basis of
the well- known rule "in pari delicto non oritur actio" as embodied in
Article 1306 of 1889 (reproduced in Article 1412 of the new Civil
Code):
ART. 1412. If the act in which the unlawful or forbidden cause
consists does not constitute a criminal offense, the following
rules shall be observed:
(1) When the fault is on the part of both contracting parties,
neither may recover what he has given by virtue of the
contract, or demand the performance of the other's
undertaking;
(2) When only one of the contracting parties is at fault, he
cannot recover, what he has given by reason of the contract,
or ask for fulfillment of what has been promised him. The
other, who is not at fault, may demand the return of what he
has given without any obligation to comply with his promise.

In our opinion, the Court of Appeals erred in applying to the present

case the pari delicto rule. First, because it can not be said that both
parties here had equal guilt when we consider that as against the
deceased Salvador P. Lopez, who was a man advanced in years and
mature experience, the appellant was a mere minor, 16 years of age,
when the donation was made; that there is no finding made by the
Court of Appeals that she was fully aware of the terms of the bargain
entered into by and Lopez and her parents; that, her acceptance in
the deed of donation (which was authorized by Article 626 of the Old
Civil Code) did not necessarily imply knowledge of conditions and
terms not set forth therein; and that the substance of the testimony
of the instrumental witnesses is that it was the appellant's parents
who insisted on the donation before allowing her to live with Lopez.
These facts are more suggestive of seduction than of immoral
bargaining on the part of appellant. It must not be forgotten that
illegality is not presumed, but must be duly and adequately proved.
In the second place, the rule that parties to an illegal contract, if
equally guilty, will not be aided by the law but will both be left where
it finds them, has been interpreted by this Court as barring the party
from pleading the illegality of the bargain either as a cause of action
or as a defense. Memo auditor propriam turpitudinem allegans. Said
this Court in Perez vs. Herranz, 7 Phil. 695-696:
It is unnecessary to determine whether a vessel for which a
certificate and license have been fraudulently obtained incurs
forfeiture under these or any other provisions of this act. It is
enough for this case that the statute prohibits such an
arrangement as that between the plaintiff and defendant so
as to render illegal both the arrangement itself and all
contracts between the parties growing out of it.
It does not, however, follow that the plaintiff can succeed in
this action. There are two answers to his claim as urged in his
brief. It is a familiar principle that the courts will not aid either
party to enforce an illegal contract, but will leave them both
where it finds them; but where the plaintiff can establish a
cause of action without exposing its illegality, the vice does
not affect his right to recover. The American authorities cited
by the plaintiff fully sustain this doctrine. The principle applies

equally to a defense. The law in those islands applicable to

the case is found in article 1305 of the Civil Code, shutting out
from relief either of the two guilty parties to an illegal or
vicious contract.

litigation, to the prejudice of his wife Maria Ngo, because said

property was conjugal in character and the right of the husband to
donate community property is strictly limited by law (Civil Code of
1889, Arts. 1409, 1415, 1413; Baello vs. Villanueva, 54 Phil. 213).

In the case at bar the plaintiff could establish prima facie his
sole ownership by the bill of sale from Smith, Bell and Co. and
the official registration. The defendant, on his part, might
overthrow this title by proof through a certain subsequent
agreement between him and the plaintiff, dated March 16,
1902, that they had become owners in common of the vessel,
'the agreement not disclosing the illegal motive for placing
the formal title in the plaintiff. Such an ownership is not in
itself prohibited, for the United States courts recognize the
equitable ownership of a vessel as against the holder of a
legal title, where the arrangement is not one in fraud of the
law. (Weston vs. Penniman, Federal Case 17455; Scudder vs.
Calais Steamboat Company, Federal Case 12566.).

ART. 1409. The conjugal partnership shall also be chargeable

with anything which may have been given or promised by the
husband alone to the children born of the marriage in order to
obtain employment for them or give then, a profession or by
both spouses by common consent, should they not have
stipulated that such expenditures should be borne in whole or
in part by the separate property of one of them.".

On this proof, the defendant being a part owner of the vessel,

would have defeated the action for its exclusive possession by
the plaintiff. The burden would then be cast upon the plaintiff
to show the illegality of the arrangement, which the cases
cited he would not be allowed to do.
The rule was reaffirmed in Lima vs. Lini Chu Kao, 51 Phil. 477.
The situation confronting us is exactly analogous. The appellant
seeks recovery of the disputed land on the strength of a donation
regular on its face. To defeat its effect, the appellees must plead and
prove that the same is illegal. But such plea on the part of the Lopez
heirs is not receivable, since Lopez, himself, if living, would be barred
from setting up that plea; and his heirs, as his privies and successors
in interest, can have no better rights than Lopez himself.
Appellees, as successors of the late donor, being thus precluded from
pleading the defense of immorality or illegal causa of the donation,
the total or partial ineffectiveness of the same must be decided by
different legal principles. In this regard, the Court of Appeals correctly
held that Lopez could not donate the entirety of the property in

ART. 1415. The husband may dispose of the property of the

conjugal partnership for the purposes mentioned in Article
1409.)
ART. 1413. In addition to his powers as manager the husband
may for a valuable consideration alienate and encumber the
property of the conjugal partnership without the consent of
the wife.
The text of the articles makes it plain that the donation made by the
husband in contravention of law is not void in its entirety, but only in
so far as it prejudices the interest of the wife. In this regard, as
Manresa points out (Commentaries, 5th Ed., pp. 650-651, 652-653),
the law asks no distinction between gratuitous transfers and
conveyances for a consideration.
Puede la mujer como proprietaria hacer anular las donaciones
aun durante el matrimonio? Esta es, en suma, la cuestion,
reducida a determinar si la distinta naturaleza entre los actos
a titulo oneroso y los actos a titulo lucrativo, y sus especiales
y diversas circunstancias, pueden motivar una solucion
diferente en cuanto a la epoca en que la mujer he de reclamar
y obtener la nulidad del acto; cuestion que no deja de ser
interesantisima.lawphi1.net
El Codigo, a pesar de la variacion que ha introducido en el
proyecto de 1851, poniendo como segundo parrafo del

articulo 1.413, o como limitacion de las enajenaciones u

obligaciones a titulo oneroso, lo que era una limitacion
general de todos los actos del marido, muestra, sin embargo,
que no ha variado de criterio y que para el las donaciones
deben en todo equipararse a cualquier otro acto ilegal o
frraudulento de caracter oneroso, al decir en el art. 1.419:
"Tambien se traera a colacion en el inventario de la sociedad
el importe de las donaciones y enajenaciones que deban
considerarse ilegales o fraudulentas, con sujecion al art.
1.413.' (Debio tambien citarse el articulo 1.415, que es el que
habla de donaciones.)lawphi1.net
"En resumen: el marido solo puede donar los bienes
gananciales dentro de los limites marcados en el art. 1.415.
Sin embargo, solo la mujer o sus herederos pueden reclamar
contra la valides de la donacion, pues solo en su interes
establece la prohibicion. La mujer o sus herederos, para poder
dejar sin efecto el acto, han de sufrir verdadero perjuicio,
entendiendose que no le hay hasta, tanto que, terminada por
cualquier causa la sociedad de gananciales, y hecha su
liquidacion, no pueda imputarse lo donado al haber por
cualquier concepto del marido, ni obtener en su consecuencia
la mujer la dibida indemnizacion. La donacioni reviste por
tanto legalmente, una eficacia condicional, y en armonia con
este caracter, deben fijarse los efectos de la misma con
relacion a los adquirentes y a los terceros poseedores,
teniendo, en su caso, en cuenta lo dispuesto en la ley
Hipotecaria. Para prevenir todo perjuicio, puede la mujer,
durante el matrimonio inmediatamente al acto, hacer constar
ante los Tribunales su existencia y solicitor medidas de
precaucion, como ya se ha dicho. Para evitarlo en lo sucesivo,
y cuando las circunstancias lo requieran, puede instar la
declaracion de prodigalidad.
To determine the prejudice to the widow, it must be shown that the
value of her share in the property donated can not be paid out of the
husband's share of the community profits. The requisite data,
however, are not available to us and necessitate a remand of the
records to the court of origin that settled the estate of the late
Salvador P. Lopez.

The situation of the children and forced heirs of Lopez approximates

that of the widow. As privies of their parent, they are barred from
invoking the illegality of the donation. But their right to a legitime out
of his estate is not thereby affected, since the legitime is granted
them by the law itself, over and above the wishes of the deceased.
Hence, the forced heirs are entitled to have the donation set aside in
so far as in officious: i.e., in excess of the portion of free disposal
(Civil Code of 1889, Articles 636, 654) computed as provided in
Articles 818 and 819, and bearing in mind that "collationable gifts"
under Article 818 should include gifts made not only in favor of the
forced heirs, but even those made in favor of strangers, as decided
by the Supreme Court of Spain in its decisions of 4 May 1899 and 16
June 1902. So that in computing the legitimes, the value of the
property to herein appellant, Conchita Liguez, should be considered
part of the donor's estate. Once again, only the court of origin has
the requisite date to determine whether the donation is inofficious or
not.
With regard to the improvements in the land in question, the same
should be governed by the rules of accession and possession in good
faith, it being undisputed that the widow and heirs of Lopez were
unaware of the donation in favor of the appellant when the
improvements were made.
The appellees, relying on Galion vs. Garayes, 53 Phil. 43, contend
that by her failure to appear at the liquidation proceedings of the
estate of Salvador P. Lopez in July 1943, the appellant has forfeited
her right to uphold the donation if the prejudice to the widow Maria
Ngo resulting from the donation could be made good out of the
husband's share in the conjugal profits. It is also argued that
appellant was guilty of laches in failing to enforce her rights as donee
until 1951. This line of argument overlooks the capital fact that in
1943, appellant was still a minor of sixteen; and she did not reach
the age of majority until 1948. Hence, her action in 1951 was only
delayed three years. Nor could she be properly expected to intervene
in the settlement of the estate of Lopez: first, because she was a
minor during the great part of the proceedings; second, because she
was not given notice thereof ; and third, because the donation did
not make her a creditor of the estate. As we have ruled in Lopez vs.
Olbes, 15 Phil. 547-548:

The prima facie donation inter vivos and its acceptance by the
donees having been proved by means of a public instrument,
and the donor having been duly notified of said acceptance,
the contract is perfect and obligatory and it is perfectly in
order to demand its fulfillment, unless an exception is proved
which is based on some legal reason opportunely alleged by
the donor or her heirs.
So long as the donation in question has not been judicially
proved and declared to be null, inefficacious, or irregular, the
land donated is of the absolute ownership of the donees and
consequently, does not form a part of the property of the
estate of the deceased Martina Lopez; wherefore the action
instituted demanding compliance with the contract, the
delivery by the deforciant of the land donated, or that it be,
prohibited to disturb the right of the donees, should not be
considered as incidental to the probate proceedings
aforementioned.
The case of Galion vs. Gayares, supra, is not in point. First, because
that case involved a stimulated transfer that case have no effect,
while a donation with illegal causa may produce effects under certain
circumstances where the parties are not of equal guilt; and again,
because the transferee in the Galion case took the property subject
to lis pendens notice, that in this case does not exist.
In view of the foregoing, the decisions appealed from are reversed
and set aside, and the appellant Conchita Liguez declared entitled to
so much of the donated property as may be found, upon proper
liquidation, not to prejudice the share of the widow Maria Ngo in the
conjugal partnership with Salvador P. Lopez or the legitimes of the
forced heirs of the latter. The records are ordered remanded to the
court of origin for further proceedings in accordance with this
opinion. Costs against appellees. So ordered.
SUPREME
Manila
EN BANC

COURT

G.R. No. L-17587

September 12, 1967

PHILIPPINE BANKING CORPORATION, representing the estate

of JUSTINA SANTOS Y CANON FAUSTINO, deceased, plaintiffappellant,
vs.
LUI SHE in her own behalf and as administratrix of the
intestate estate of Wong Heng, deceased,defendant-appellant.
Nicanor
S.
Sison
for
Ozaeta, Gibbs & Ozaeta for defendant-appellant.

plaintiff-appellant.

CASTRO, J.:
Justina Santos y Canon Faustino and her sister Lorenzo were the
owners in common of a piece of land in Manila. This parcel, with an
area of 2,582.30 square meters, is located on Rizal Avenue and
opens into Florentino Torres street at the back and Katubusan street
on one side. In it are two residential houses with entrance on
Florentino Torres street and the Hen Wah Restaurant with entrance on
Rizal Avenue. The sisters lived in one of the houses, while Wong
Heng, a Chinese, lived with his family in the restaurant. Wong had
been a long-time lessee of a portion of the property, paying a
monthly rental of P2,620.
On September 22, 1957 Justina Santos became the owner of the
entire property as her sister died with no other heir. Then already
well advanced in years, being at the time 90 years old, blind, crippled
and an invalid, she was left with no other relative to live with. Her
only companions in the house were her 17 dogs and 8 maids. Her
otherwise dreary existence was brightened now and then by the
visits of Wong's four children who had become the joy of her life.
Wong himself was the trusted man to whom she delivered various
amounts for safekeeping, including rentals from her property at the
corner of Ongpin and Salazar streets and the rentals which Wong
himself paid as lessee of a part of the Rizal Avenue property. Wong
also took care of the payment; in her behalf, of taxes, lawyers' fees,

funeral expenses, masses, salaries of maids and security guard, and

her household expenses.
"In grateful acknowledgment of the personal services of the lessee to
her," Justina Santos executed on November 15, 1957 a contract of
lease (Plff Exh. 3) in favor of Wong, covering the portion then already
leased to him and another portion fronting Florentino Torres street.
The lease was for 50 years, although the lessee was given the right
to withdraw at any time from the agreement; the monthly rental was
P3,120. The contract covered an area of 1,124 square meters. Ten
days later (November 25), the contract was amended (Plff Exh. 4) so
as to make it cover the entire property, including the portion on
which the house of Justina Santos stood, at an additional monthly
rental of P360. For his part Wong undertook to pay, out of the rental
due from him, an amount not exceeding P1,000 a month for the food
of her dogs and the salaries of her maids.
On December 21 she executed another contract (Plff Exh. 7) giving
Wong the option to buy the leased premises for P120,000, payable
within ten years at a monthly installment of P1,000. The option,
written in Tagalog, imposed on him the obligation to pay for the food
of the dogs and the salaries of the maids in her household, the
charge not to exceed P1,800 a month. The option was conditioned on
his obtaining Philippine citizenship, a petition for which was then
pending in the Court of First Instance of Rizal. It appears, however,
that this application for naturalization was withdrawn when it was
discovered that he was not a resident of Rizal. On October 28, 1958
she filed a petition to adopt him and his children on the erroneous
belief that adoption would confer on them Philippine citizenship. The
error was discovered and the proceedings were abandoned.
On November 18, 1958 she executed two other contracts, one (Plff
Exh. 5) extending the term of the lease to 99 years, and another (Plff
Exh. 6) fixing the term of the option of 50 years. Both contracts are
written in Tagalog.
In two wills executed on August 24 and 29, 1959 (Def Exhs. 285 &
279), she bade her legatees to respect the contracts she had entered
into with Wong, but in a codicil (Plff Exh. 17) of a later date
(November 4, 1959) she appears to have a change of heart. Claiming

that the various contracts were made by her because of

machinations and inducements practiced by him, she now directed
her executor to secure the annulment of the contracts.
On November 18 the present action was filed in the Court of First
Instance of Manila. The complaint alleged that the contracts were
obtained by Wong "through fraud, misrepresentation, inequitable
conduct, undue influence and abuse of confidence and trust of and
(by) taking advantage of the helplessness of the plaintiff and were
made to circumvent the constitutional provision prohibiting aliens
from acquiring lands in the Philippines and also of the Philippine
Naturalization Laws." The court was asked to direct the Register of
Deeds of Manila to cancel the registration of the contracts and to
order Wong to pay Justina Santos the additional rent of P3,120 a
month from November 15, 1957 on the allegation that the
reasonable rental of the leased premises was P6,240 a month.
In his answer, Wong admitted that he enjoyed her trust and
confidence as proof of which he volunteered the information that, in
addition to the sum of P3,000 which he said she had delivered to him
for safekeeping, another sum of P22,000 had been deposited in a
joint account which he had with one of her maids. But he denied
having taken advantage of her trust in order to secure the execution
of the contracts in question. As counterclaim he sought the recovery
of P9,210.49 which he said she owed him for advances.
Wong's admission of the receipt of P22,000 and P3,000 was the cue
for the filing of an amended complaint. Thus on June 9, 1960, aside
from the nullity of the contracts, the collection of various amounts
allegedly delivered on different occasions was sought. These
amounts and the dates of their delivery are P33,724.27 (Nov. 4,
1957); P7,344.42 (Dec. 1, 1957); P10,000 (Dec. 6, 1957); P22,000
and P3,000 (as admitted in his answer). An accounting of the rentals
from the Ongpin and Rizal Avenue properties was also demanded.
In the meantime as a result of a petition for guardianship filed in the
Juvenile and Domestic Relations Court, the Security Bank & Trust Co.
was appointed guardian of the properties of Justina Santos, while
Ephraim G. Gochangco was appointed guardian of her person.

In his answer, Wong insisted that the various contracts were freely
and voluntarily entered into by the parties. He likewise disclaimed
knowledge of the sum of P33,724.27, admitted receipt of P7,344.42
and P10,000, but contended that these amounts had been spent in
accordance with the instructions of Justina Santos; he expressed
readiness to comply with any order that the court might make with
respect to the sums of P22,000 in the bank and P3,000 in his
possession.
The case was heard, after which the lower court rendered judgment
as follows:
[A]ll the documents mentioned in the first cause of action,
with the exception of the first which is the lease contract of 15
November 1957, are declared null and void; Wong Heng is
condemned to pay unto plaintiff thru guardian of her property
the sum of P55,554.25 with legal interest from the date of the
filing of the amended complaint; he is also ordered to pay the
sum of P3,120.00 for every month of his occupation as lessee
under the document of lease herein sustained, from 15
November 1959, and the moneys he has consigned since then
shall be imputed to that; costs against Wong Heng.

Paragraph 5 of the lease contract states that "The lessee may at any
time withdraw from this agreement." It is claimed that this stipulation
offends article 1308 of the Civil Code which provides that "the
contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them."
We have had occasion to delineate the scope and application of
article 1308 in the early case of Taylor v. Uy Tieng Piao.1 We said in
that case:
Article 1256 [now art. 1308] of the Civil Code in our opinion
creates no impediment to the insertion in a contract for
personal service of a resolutory condition permitting the
cancellation of the contract by one of the parties. Such a
stipulation, as can be readily seen, does not make either the
validity or the fulfillment of the contract dependent upon the
will of the party to whom is conceded the privilege of
cancellation; for where the contracting parties have agreed
that such option shall exist, the exercise of the option is as
much in the fulfillment of the contract as any other act which
may have been the subject of agreement. Indeed, the
cancellation of a contract in accordance with conditions
agreed upon beforehand is fulfillment.2

From this judgment both parties appealed directly to this Court. After
the case was submitted for decision, both parties died, Wong Heng
on October 21, 1962 and Justina Santos on December 28, 1964.
Wong was substituted by his wife, Lui She, the other defendant in this
case, while Justina Santos was substituted by the Philippine Banking
Corporation.

And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision in a

lease contract that the lessee, at any time before he erected any
building on the land, might rescind the lease, can hardly be regarded
as a violation of article 1256 [now art. 1308] of the Civil Code."

Justina Santos maintained now reiterated by the Philippine

Banking Corporation that the lease contract (Plff Exh. 3) should
have been annulled along with the four other contracts (Plff Exhs. 47) because it lacks mutuality; because it included a portion which, at
the time, was in custodia legis; because the contract was obtained in
violation of the fiduciary relations of the parties; because her consent
was obtained through undue influence, fraud and misrepresentation;
and because the lease contract, like the rest of the contracts, is
absolutely simulated.

The case of Singson Encarnacion v. Baldomar 4 cannot be cited in

support of the claim of want of mutuality, because of a difference in
factual setting. In that case, the lessees argued that they could
occupy the premises as long as they paid the rent. This is of course
untenable, for as this Court said, "If this defense were to be allowed,
so long as defendants elected to continue the lease by continuing the
payment of the rentals, the owner would never be able to discontinue
it; conversely, although the owner should desire the lease to continue
the lessees could effectively thwart his purpose if they should prefer
to terminate the contract by the simple expedient of stopping
payment of the rentals." Here, in contrast, the right of the lessee to

continue the lease or to terminate it is so circumscribed by the term

of the contract that it cannot be said that the continuance of the
lease depends upon his will. At any rate, even if no term had been
fixed in the agreement, this case would at most justify the fixing of a
period5 but not the annulment of the contract.
Nor is there merit in the claim that as the portion of the property
formerly owned by the sister of Justina Santos was still in the process
of settlement in the probate court at the time it was leased, the lease
is invalid as to such portion. Justina Santos became the owner of the
entire property upon the death of her sister Lorenzo on September
22, 1957 by force of article 777 of the Civil Code. Hence, when she
leased the property on November 15, she did so already as owner
thereof. As this Court explained in upholding the sale made by an
heir of a property under judicial administration:

Just the same, it is argued that Wong so completely dominated her

life and affairs that the contracts express not her will but only his.
Counsel for Justina Santos cites the testimony of Atty. Tomas S. Yumol
who said that he prepared the lease contract on the basis of data
given to him by Wong and that she told him that "whatever Mr. Wong
wants must be followed."7
The testimony of Atty. Yumol cannot be read out of context in order to
warrant a finding that Wong practically dictated the terms of the
contract. What this witness said was:
Q Did you explain carefully to your client, Doa Justina, the
contents of this document before she signed it?
A I explained to her each and every one of these conditions
and I also told her these conditions were quite onerous for
her, I don't really know if I have expressed my opinion, but I
told her that we would rather not execute any contract
anymore, but to hold it as it was before, on a verbal month to
month contract of lease.

That the land could not ordinarily be levied upon while

in custodia legis does not mean that one of the heirs may not
sell the right, interest or participation which he has or might
have in the lands under administration. The ordinary
execution of property in custodia legis is prohibited in order to
avoid interference with the possession by the court. But the
sale made by an heir of his share in an inheritance, subject to
the result of the pending administration, in no wise stands in
the way of such administration.6
It is next contended that the lease contract was obtained by Wong in
violation of his fiduciary relationship with Justina Santos, contrary to
article 1646, in relation to article 1941 of the Civil Code, which
disqualifies "agents (from leasing) the property whose administration
or sale may have been entrusted to them." But Wong was never an
agent of Justina Santos. The relationship of the parties, although
admittedly close and confidential, did not amount to an agency so as
to bring the case within the prohibition of the law.

Q But, she did not follow your advice, and she went with the
contract just the same?
A She agreed first . . .
Q Agreed what?
A Agreed with my objectives that it is really onerous and that I
was really right, but after that, I was called again by her and
she told me to follow the wishes of Mr. Wong Heng.
xxx

xxx

xxx

Q So, as far as consent is concerned, you were satisfied that

this document was perfectly proper?
xxx

xxx

xxx

A Your Honor, if I have to express my personal opinion, I would

say she is not, because, as I said before, she told me
"Whatever Mr. Wong wants must be followed."8
Wong might indeed have supplied the data which Atty. Yumol
embodied in the lease contract, but to say this is not to detract from
the binding force of the contract. For the contract was fully explained
to Justina Santos by her own lawyer. One incident, related by the
same witness, makes clear that she voluntarily consented to the
lease contract. This witness said that the original term fixed for the
lease was 99 years but that as he doubted the validity of a lease to
an alien for that length of time, he tried to persuade her to enter
instead into a lease on a month-to-month basis. She was, however,
firm and unyielding. Instead of heeding the advice of the lawyer, she
ordered him, "Just follow Mr. Wong Heng." 9 Recounting the incident,
Atty. Yumol declared on cross examination:
Considering her age, ninety (90) years old at the time and her
condition, she is a wealthy woman, it is just natural when she
said "This is what I want and this will be done." In particular
reference to this contract of lease, when I said "This is not
proper," she said "You just go ahead, you prepare that, I
am the owner, and if there is any illegality, I am the only one
that can question the illegality."10
Atty. Yumol further testified that she signed the lease contract in the
presence of her close friend, Hermenegilda Lao, and her maid,
Natividad Luna, who was constantly by her side. 11 Any of them could
have testified on the undue influence that Wong supposedly wielded
over Justina Santos, but neither of them was presented as a witness.
The truth is that even after giving his client time to think the matter
over, the lawyer could not make her change her mind. This
persuaded the lower court to uphold the validity of the lease contract
against the claim that it was procured through undue influence.
Indeed, the charge of undue influence in this case rests on a mere
inference12 drawn from the fact that Justina Santos could not read (as
she was blind) and did not understand the English language in which
the contract is written, but that inference has been overcome by her
own evidence.

Nor is there merit in the claim that her consent to the lease contract,
as well as to the rest of the contracts in question, was given out of a
mistaken sense of gratitude to Wong who, she was made to believe,
had saved her and her sister from a fire that destroyed their house
during the liberation of Manila. For while a witness claimed that the
sisters were saved by other persons (the brothers Edilberto and
Mariano Sta. Ana)13 it was Justina Santos herself who, according to
her own witness, Benjamin C. Alonzo, said "very emphatically" that
she and her sister would have perished in the fire had it not been for
Wong.14 Hence the recital in the deed of conditional option (Plff Exh.
7) that "[I]tong si Wong Heng ang siyang nagligtas sa aming
dalawang magkapatid sa halos ay tiyak na kamatayan", and the
equally emphatic avowal of gratitude in the lease contract (Plff Exh.
3).
As it was with the lease contract (Plff Exh. 3), so it was with the rest
of the contracts (Plff Exhs. 4-7) the consent of Justina Santos was
given freely and voluntarily. As Atty. Alonzo, testifying for her, said:
[I]n nearly all documents, it was either Mr. Wong Heng or
Judge Torres and/or both. When we had conferences, they
used to tell me what the documents should contain. But, as I
said, I would always ask the old woman about them and
invariably the old woman used to tell me: "That's okay. It's all
right."15
But the lower court set aside all the contracts, with the exception of
the lease contract of November 15, 1957, on the ground that they
are contrary to the expressed wish of Justina Santos and that their
considerations are fictitious. Wong stated in his deposition that he did
not pay P360 a month for the additional premises leased to him,
because she did not want him to, but the trial court did not believe
him. Neither did it believe his statement that he paid P1,000 as
consideration for each of the contracts (namely, the option to buy the
leased premises, the extension of the lease to 99 years, and the
fixing of the term of the option at 50 years), but that the amount was
returned to him by her for safekeeping. Instead, the court relied on
the testimony of Atty. Alonzo in reaching the conclusion that the
contracts are void for want of consideration.

Atty. Alonzo declared that he saw no money paid at the time of the
execution of the documents, but his negative testimony does not rule
out the possibility that the considerations were paid at some other
time as the contracts in fact recite. What is more, the consideration
need not pass from one party to the other at the time a contract is
executed because the promise of one is the consideration for the
other.16
With respect to the lower court's finding that in all probability Justina
Santos could not have intended to part with her property while she
was alive nor even to lease it in its entirety as her house was built on
it, suffice it to quote the testimony of her own witness and lawyer
who prepared the contracts (Plff Exhs. 4-7) in question, Atty. Alonzo:
The ambition of the old woman, before her death, according
to her revelation to me, was to see to it that these properties
be enjoyed, even to own them, by Wong Heng because Doa
Justina told me that she did not have any relatives, near or
far, and she considered Wong Heng as a son and his children
her grandchildren; especially her consolation in life was when
she would hear the children reciting prayers in Tagalog.17
She was very emphatic in the care of the seventeen (17) dogs
and of the maids who helped her much, and she told me to
see to it that no one could disturb Wong Heng from those
properties. That is why we thought of the ninety-nine (99)
years lease; we thought of adoption, believing that thru
adoption Wong Heng might acquire Filipino citizenship; being
the adopted child of a Filipino citizen.18
This is not to say, however, that the contracts (Plff Exhs. 3-7) are
valid. For the testimony just quoted, while dispelling doubt as to the
intention of Justina Santos, at the same time gives the clue to what
we view as a scheme to circumvent the Constitutional prohibition
against the transfer of lands to aliens. "The illicit purpose then
becomes the illegal causa"19 rendering the contracts void.
Taken singly, the contracts show nothing that is necessarily illegal,
but considered collectively, they reveal an insidious pattern to
subvert by indirection what the Constitution directly prohibits. To be

sure, a lease to an alien for a reasonable period is valid. So is an

option giving an alien the right to buy real property on condition that
he is granted Philippine citizenship. As this Court said in Krivenko v.
Register of Deeds:20
[A]liens are not completely excluded by the Constitution from
the use of lands for residential purposes. Since their residence
in
the
Philippines
is
temporary,
they
may
be
granted temporary rights such as a lease contract which is
not forbidden by the Constitution. Should they desire to
remain here forever and share our fortunes and misfortunes,
Filipino citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy,
a piece of land, by virtue of which the Filipino owner cannot sell or
otherwise dispose of his property,21 this to last for 50 years, then it
becomes clear that the arrangement is a virtual transfer of ownership
whereby the owner divests himself in stages not only of the right to
enjoy the land ( jus possidendi, jus utendi, jus fruendi and jus
abutendi) but also of the right to dispose of it ( jus disponendi)
rights the sum total of which make up ownership. It is just as if today
the possession is transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights of which
ownership is made up are consolidated in an alien. And yet this is just
exactly what the parties in this case did within the space of one year,
with the result that Justina Santos' ownership of her property was
reduced to a hollow concept. If this can be done, then the
Constitutional ban against alien landholding in the Philippines, as
announced in Krivenko v. Register of Deeds,22 is indeed in grave peril.
It does not follow from what has been said, however, that because
the parties are in pari delicto they will be left where they are, without
relief. For one thing, the original parties who were guilty of a violation
of the fundamental charter have died and have since been
substituted by their administrators to whom it would be unjust to
impute their guilt.23 For another thing, and this is not only cogent but
also important, article 1416 of the Civil Code provides, as an
exception to the rule on pari delicto, that "When the agreement is not
illegal per se but is merely prohibited, and the prohibition by law is
designed for the protection of the plaintiff, he may, if public policy is

thereby enhanced, recover what he has paid or delivered." The

Constitutional provision that "Save in cases of hereditary succession,
no private agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to acquire or hold
lands of the public domain in the Philippines" 24 is an expression of
public policy to conserve lands for the Filipinos. As this Court said
in Krivenko:

With respect to the first account, the evidence shows that he

received P33,724.27 on November 8, 1957 (Plff Exh. 16); P7,354.42
on December 1, 1957 (Plff Exh. 13); P10,000 on December 6, 1957
(Plff Exh. 14) ; and P18,928.50 on August 26, 1959 (Def. Exh. 246), or
a total of P70,007.19. He claims, however, that he settled his
accounts and that the last amount of P18,928.50 was in fact payment
to him of what in the liquidation was found to be due to him.

It is well to note at this juncture that in the present case we

have no choice. We are construing the Constitution as it is and
not as we may desire it to be. Perhaps the effect of our
construction is to preclude aliens admitted freely into the
Philippines from owning sites where they may build their
homes. But if this is the solemn mandate of the Constitution,
we will not attempt to compromise it even in the name of
amity or equity . . . .

He made disbursements from this account to discharge Justina

Santos' obligations for taxes, attorneys' fees, funeral services and
security guard services, but the checks (Def Exhs. 247-278) drawn by
him for this purpose amount to only P38,442.84. 27 Besides, if he had
really settled his accounts with her on August 26, 1959, we cannot
understand why he still had P22,000 in the bank and P3,000 in his
possession, or a total of P25,000. In his answer, he offered to pay this
amount if the court so directed him. On these two grounds, therefore,
his claim of liquidation and settlement of accounts must be rejected.

For all the foregoing, we hold that under the Constitution

aliens may not acquire private or public agricultural lands,
including residential lands, and, accordingly, judgment is
affirmed, without costs.25
That policy would be defeated and its continued violation sanctioned
if, instead of setting the contracts aside and ordering the restoration
of the land to the estate of the deceased Justina Santos, this Court
should apply the general rule of pari delicto. To the extent that our
ruling in this case conflicts with that laid down in Rellosa v. Gaw Chee
Hun 26 and subsequent similar cases, the latter must be considered
as pro tanto qualified.
The claim for increased rentals and attorney's fees, made in behalf of
Justina Santos, must be denied for lack of merit.
And what of the various amounts which Wong received in trust from
her? It appears that he kept two classes of accounts, one pertaining
to amount which she entrusted to him from time to time, and another
pertaining to rentals from the Ongpin property and from the Rizal
Avenue property, which he himself was leasing.

After subtracting P38,442.84 (expenditures) from P70,007.19

(receipts), there is a difference of P31,564 which, added to the
amount of P25,000, leaves a balance of P56,564.35 28 in favor of
Justina Santos.
As to the second account, the evidence shows that the monthly
income from the Ongpin property until its sale in Rizal Avenue July,
1959 was P1,000, and that from the Rizal Avenue property, of which
Wong was the lessee, was P3,120. Against this account the
household expenses and disbursements for the care of the 17 dogs
and the salaries of the 8 maids of Justina Santos were charged. This
account is contained in a notebook (Def. Exh. 6) which shows a
balance of P9,210.49 in favor of Wong. But it is claimed that the
rental from both the Ongpin and Rizal Avenue properties was more
than enough to pay for her monthly expenses and that, as a matter
of fact, there should be a balance in her favor. The lower court did
not allow either party to recover against the other. Said the court:
[T]he documents bear the earmarks of genuineness; the
trouble is that they were made only by Francisco Wong and
Antonia Matias, nick-named Toning, which was the way she
signed the loose sheets, and there is no clear proof that Doa

Justina had authorized these two to act for her in such

liquidation; on the contrary if the result of that was a deficit as
alleged and sought to be there shown, of P9,210.49, that was
not what Doa Justina apparently understood for as the Court
understands her statement to the Honorable Judge of the
Juvenile Court . . . the reason why she preferred to stay in her
home was because there she did not incur in any debts . . .
this being the case, . . . the Court will not adjudicate in favor
of Wong Heng on his counterclaim; on the other hand, while it
is claimed that the expenses were much less than the rentals
and there in fact should be a superavit, . . . this Court must
concede that daily expenses are not easy to compute, for this
reason, the Court faced with the choice of the two alternatives
will choose the middle course which after all is permitted by
the rules of proof, Sec. 69, Rule 123 for in the ordinary course
of things, a person will live within his income so that the
conclusion of the Court will be that there is neither deficit nor
superavit and will let the matter rest here.
Both parties on appeal reiterate their respective claims but we agree
with the lower court that both claims should be denied. Aside from

the reasons given by the court, we think that the claim of Justina
Santos totalling P37,235, as rentals due to her after deducting
various expenses, should be rejected as the evidence is none too
clear about the amounts spent by Wong for food29 masses30 and
salaries of her maids.31 His claim for P9,210.49 must likewise be
rejected as his averment of liquidation is belied by his own admission
that even as late as 1960 he still had P22,000 in the bank and P3,000
in his possession.
ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled
and set aside; the land subject-matter of the contracts is ordered
returned to the estate of Justina Santos as represented by the
Philippine Banking Corporation; Wong Heng (as substituted by the
defendant-appellant Lui She) is ordered to pay the Philippine Banking
Corporation the sum of P56,564.35, with legal interest from the date
of the filing of the amended complaint; and the amounts consigned
in court by Wong Heng shall be applied to the payment of rental from
November 15, 1959 until the premises shall have been vacated by
his heirs. Costs against the defendant-appellant.