37 Phil.

644

G.R. No. 11658, February 15, 1918

LEUNG YEE, PLAINTIFF AND APPELLANT, VS. FRANK L. STRONG
MACHINERY COMPANY AND J. G. WILLIAMSON, DEFENDANTS
AND APPELLEES.
DECISION
CARSON, J.:

The "Compaia Agricola Filipina" bought a considerable quantity of

rice-cleaning machinery from the defendant machinery company, and
executed a chattel mortgage thereon to secure payment of the purchase
price. It included in the mortgage deed the building of strong materials
in which the machinery was installed, without any reference to the land
on which it stood. The indebtedness secured by this instrument not
having been paid when it fell due, the mortgaged property was sold by
the sheriff, in pursuance of the terms of the mortgage instrument, and
was bought in by the machinery company. The mortgage was registered
in the chattel mortgage registry, and the sale of the property to the
machinery company in satisfaction of the mortgage was annotated in
the same registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the
"Compaia Agricola Filipina" executed a deed of sale of the land upon
which the building stood to the machinery company, but this deed of
sale, although executed in a public document, was not registered. This
deed makes no reference to the building erected on the land and would
appear to have been executed for the purpose of curing any defects
which might be found to exist in the machinery company's title to the
building under the sheriff's certificate of sale. The machinery company
went into possession of the building at or about the time when this sale
took place, that is to say, the month of December, 1913, and it has
continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor
of the machinery company, the mortgagor, the "Compaia Agricola

Filipina" executed another mortgage to the plaintiff upon the building,

separate and apart from the land on which it stood, to secure payment
of the balance of its indebtedness to the plaintiff under a contract for
the construction of the building. Upon the failure of the mortgagor to
pay the amount of the indebtedness secured by the mortgage, the
plaintiff secured judgment for that amount, levied execution upon the
building, bought it in at the sheriff's sale on or about the 18th of
December, 1914, and had the sheriff's certificate of sale duly registered
in the land registry of the Province of Cavite.
At the time when the execution was levied upon the building, the
defendant machinery company, which was in possession, filed with the
sheriff a sworn statement setting up its claim of title and demanding the
release of the property from the levy. Thereafter, upon demand of the
sheriff, the plaintiff executed an indemnity bond in favor of the sheriff
in the sum of P12,000, in reliance upon which the sheriff sold the
property at public auction to the plaintiff, who was the highest bidder at
the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the
building from the machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil
Code, gave judgment in favor of the machinery company,t on the
ground that the company had its title to the building registered prior to
the date of registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
"If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be personal property.
"Should it be real property, it shall belong to the person. acquiring it
who first recorded it in. the registry.

"Should there be no entry, the property shall belong to the person who
first took possession of it in good faith, and, in the absence thereof, to
the person who presents the oldest title, provided there is good faith."
The registry here referred to is of course the registry of real property,
and it must be apparent that the annotation or inscription of a deed of
sale of real property in a chattel mortgage registry cannot be given the
legal effect of an inscription in the registry of real property. By its
express terms, the Chattel Mortgage Law contemplates and makes
provision for mortgages of personal property; and the sole purpose and
object of the chattel mortgage registry is to provide for the registry of
"Chattel mortgages," that is to say, mortgages of personal property
executed in the manner and form prescribed in the statute. The building
of strong materials in which the rice-cleaning machinery was installed
by the "Compania Agricola Filipina" was real property, and the mere
fact that the parties seem to have dealt with it separate and apart from
the land on which it stood in no wise changed its character as real
property. It follows that neither the original registry in the chattel
mortgage registry of the instrument purporting to be a chattel mortgage
of the building and the machinery installed therein, nor the annotation
in that registry of the sale of the mortgaged property, had any effect
whatever so far as the building was concerned.
We conclude that the ruling in favor of the machinery company cannot
be sustained on the ground assigned by the trial judge. We are of
opinion, however, that the judgment must be sustained on the ground
that the agreed statement of facts in the court below discloses that
neither the purchase of the building by plaintiff nor his inscription of
the sheriff's certificate of sale in his favor was made in good faith, and
that the machinery company must be held to be the owner of the
property under the third paragraph of the above cited article of the
code, it appearing that the company first took possession of the
property; and further, that the building and the land were sold to the
machinery company long prior to ihe date of the sheriff's sale to the
plaintiff.
It has been suggested that since the provisions of article 1473 of the
Civil Code require "good faith," in express terms, in relation to

"possession" and "title," but contain no express requirement as to ''good

faith" in relation to the "inscription" of the property in the registry, it
must be presumed that good faith is not an essential requisite of
registration in order that it may have the effect contemplated in this
article. We cannot agree with this contention. It could not have been the
intention of the legislator to base the preferential right secured under
this article of the code upon an inscription of title in bad faith. Such an
interpretation placed upon the language of this section would open
wide the door to fraud and collusion. The public records cannot be
converted into instruments of fraud and oppression by one who secures
an inscription therein in bad faith. The force and effect given by law to
an inscription in a public record presupposes the good faith of him who
enters such inscription; and rights created by statute, which are
predicated upon an inscription in a public registry, do not and cannot
accrue under an inscription "in bad faith," to the benefit of the person
who thus makes the inscription.
Construing the second paragraph of this article of the code, the supreme
court of Spain held in its sentencia of the 13th of May, 1908, that:
"This rule is always to be understood on the basis of the good faith
mentioned in the first paragraph; therefore, it having been found that
the second purchasers who record their purchase had knowledge of the
previous sale, the question is to be decided in accordance with the
following paragraph." (Note 2, art. 1473, Civ. Code, Medina and
Maraon [1911] edition.)
"Although article 1473, in its second paragraph, provides that the title
of conveyance of ownership of the real property that is first recorded in
the registry shall have preference, this provision must always be
understood on the basis of the good faith mentioned in the first
paragraph; the legislator could not have wished to strike it out and to
sanction bad faith, just to comply with a mere formality which, in given
cases, does not obtain even in real disputes between third persons."
(Note 2, art. 1473, Civ. Code, issued by the publishers of the La Revista
de los Tribunales, 13th edition.)

The agreed statement of facts clearly discloses that the plaintiff, when
he bought the building at the sheriff's sale and inscribed his title in the
land registry, was duiy notified that the machinery company had bought
the building from plaintiff's judgment debtor; that it had gone into
possession long prior to the sheriff's sale; and that it was in possession
at the time when the sheriff executed his levy. The execution of an
indemnity bond by the plaintiff in favor of the sheriff, after the
machinery company had filed its sworn claim of ownership, leaves no
room for doubt in this regard. Having bought in the building at the
sheriff's sale with full knowledge that at the time of the levy and sale
the building had already been sold to the machinery company by the
judgment debtor, the plaintiff cannot be said to have been a purchaser
in good faith; and of course, the subsequent inscription of the sheriff's
certificate of title must be held to have been tainted with the same
defect.
Perhaps we should make it clear that in holding that the inscription of
the sheriff's certificate of sale to the plaintiff was not made in good
faith, we should not be understood as questioning, in any way, the good
faith and genuineness of plaintiff's claim against the "Compania
Agricola Filipina." The truth is that both the plaintiff and the defendant
company appear to have had just and righteous claims against their
common debtor. No criticism can properly be made of the exercise of
the utmost diligence by the plaintiff in asserting and exercising his right
to recover the amount of his claim from the estate of the common
debtor. We are strongly inclined to believe that in procuring the levy of
execution upon the factory building and in buying it at the sheriff's sale,
he conceived that he was doing no more than he had a right to do under
all the circumstances, and it is highly possible and even probable that
he thought at that time that he would be able to maintain his position in
a contest with the machinery company. There was no collusion on his
part with the common debtor, and no thought of the perpetration of a
fraud upon the rights of another, in the ordinary sense of the word. He
may have hoped, and doubtless he did hope, that the title of the
machinery company would not stand the test of an action in a court of
law; and if later developments had confirmed his unfounded hopes, no

one could question the legality or the propriety of the course he

adopted.
But it appearing that he had full knowledge of the machinery
company's claim of ownership when he executed the indemnity bond
and bought in the property at the sheriff's sale, and it appearing further
that the machinery company's claim of ownership was well founded, he
cannot be said to have been an innocent purchaser for value. He took
the risk and must stand by the consequences; and it is in this sense that
we find that he was not a purchaser in good faith.
One who purchases real estate with knowledge of a defect or lack of
title in his vendor cannot claim that he has acquired title thereto in good
faith as against the true owner of the land or of an interest therein; and
the same rule must be applied to one who has knowledge of facts which
should have put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor. A
purchaser cannot close his eyes to facts which should put a reasonable
man upon his guard, and then claim that he acted in good faith under
the belief that there was no defect in the title of the vendor. His mere
refusal to believe that such defect exists, or his willful closing of his
eyes to the possibility of the existence of a defect in his vendor's title,
will not make him an innocent purchaser for value, if it afterwards
develops that the title was in fact defective, and it appears that he had
such notice of the defect as would have led to its discovery had he
acted with that measure of precaution which may reasonably be
required of a prudent man in a like situation. Good faith, or the lack of
it, is in its last analysis a question of intention; but in ascertaining the
intention by which one is actuated on a given occasion, we are
necessarily controlled by the evidence as to the conduct and outward
acts by which alone the inward motive may, with safety, be determined.
So it is that "the honesty of intention," "the honest lawful intent," which
constitutes good faith implies a "freedom from knowledge and
circumstances which ought to put a person on inquiry," and so it is that
proof of such knowledge overcomes the presumption of good faith in
which the courts always indulge in the absence of proof to the contrary.
"Good faith, or the want of it, is not a visible, tangible fact that can be

seen or touched, but rather a state or condition of mind which can only
be judged of by actual or fancied tokens or signs." (Wilder vs. Gilman,
55 Vt., 504, 505; Cf. Cardenas vs. Miller, 108 Cal., 250; BreauxRenoudet, Cypress Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098;
Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set forth the disposing part
of the decision and judgment entered in the court below should be
affirmed with the costs of this instance against the appellant. So
ordered.

G.R. No. 20329, March 16, 1923

THE STANDARD OIL COMPANY OF NEW YORK, PETITIONER, VS.
JOAQUIN JARAMILLO, AS REGISTER OF DEEDS OF THE CITY OF
MANILA, RESPONDENT.
DECISION
STREET, J.:

This cause is before us upon demurrer interposed by the respondent,

Joaquin Jaramillo, register of deeds of the City of Manila, to an original
petition of the Standard Oil Company of New York, seeking a
peremptory mandamus to compel the respondent to record in the proper
register a document purporting to be a chattel mortgage executed in the
City of Manila by Gervasia de la Rosa, Vda. de Vera, in favor of the
Standard Oil Company of New York.
It appears from the petition that on November 27, 1922, Gervasia de la
Rosa, Vda. de Vera, was the lessee of a parcel of land situated in the
City of Manila and owner of the house of strong materials built thereon,
upon which date she executed a document in the form of a chattel
mortgage, purporting to convey to the petitioner by way of mortgage
both the leasehold interest in said lot and the building which stands
thereon.

The clauses in said document describing the property intended to be

thus mortgaged are expressed in the following words:
"Now, therefore, the mortgagor hereby conveys and transfers to the
mortgagee, by way of mortgage, the following described personal
property, situated in the City of Manila, and now in possession of the
mortgagor, to wit:
"(1) All of the right, title, and interest of the mortgagor in and to the
contract of lease hereinabove referred to, and in and to the premises the
subject of the said lease;
"(2) The building, property of the mortgagor, situated on the aforesaid
leased premises."
After said document had been duly acknowledged and delivered, the
petitioner caused the same to be presented to the respondent, Joaquin
Jaramillo, as register of deeds of the City of Manila, for the purpose of
having the same recorded in the book of record of chattel mortgages.
Upon examination of the instrument, the respondent was of the opinion
that it was not a chattel mortgage, for the reason that the interests
therein mortgaged did not appear to be personal property, within the
meaning of the Chattel Mortgage Law, and registration was refused on
this ground only.
We are of the opinion that the position taken by the respondent is
untenable; and it is his duty to accept the proper fee and place the
instrument on record. The duties of a register of deeds in respect to the
registration of chattel mortgages are of a purely ministerial character;
and no provision of law can be cited which confers upon him any
judicial or quasi-judicial power to determine the nature of any
document of which registration is sought as a chattel mortgage.
The original provisions touching this matter are contained in section 15
of the Chattel Mortgage Law (Act No. 1508), as amended by Act No.
2496; but these have been transferred to section 198 of the
Administrative Code, where they are now found. There is nothing in
any of these provisions conferring upon the register of deeds any

authority whatever in respect to the "qualification," as the term is used

in Spanish law, of chattel mortgages. His duties in respect to such
instruments are ministerial only. The efficacy of the act of recording a
chattel mortgage consists in the fact that it operates as constructive
notice of the existence of the contract, and the legal effects of the
contract must be discovered in the instrument itself in relation with the
fact of notice. Registration adds nothing to the instrument, considered
as a source of title, and affects nobody's rights except as a species of
notice.
Articles 334 and 335 of the Civil Code supply no absolute criterion for
discriminating between real property and personal property for
purposes of the application of the Chattel Mortgage Law. Those articles
state rules which, considered as a general doctrine, are law in this
jurisdiction; but it must not be forgotten that under given conditions
property may have character different from that imputed to it in said
articles. It is undeniable that the parties to a contract may by agreement
treat as personal property that which by nature would be real property;
and it is a familiar phenomenon to see things classed as real property
for purposes of taxation which on general principle might be
considered personal property. Other situations are constantly arising,
and from time to time are presented to this court, in which the proper
classification of one thing or another as real or personal property may
be said to be doubtful.
The point submitted to us in this case was determined en September 8,
1914, in an administrative ruling promulgated by the Honorable James
A. Ostrand, now a Justice of this Court, but acting at that time in the
capacity of Judge of the fourth branch of the Court of First Instance of
the Ninth Judicial District, in the City of Manila; and little of value can
be here added to the observations contained in said ruling. We
accordingly quote therefrom as follows:
"It is unnecessary here to determine whether or not the property
described in the document in question is real or personal; the discussion
may be confined to the point as to whether a register of deeds has
authority to deny the registration of a document purporting to be a

chattel mortgage and executed in the manner and form prescribed by

the Chattel Mortgage Law."
Then, after quoting section 5 of the Chattel Mortgage Law (Act No.
1508), his Honor continued:
"Based principally upon the provisions of section quoted the AttorneyGeneral of the Philippine Islands, in an opinion dated August 11, 1909,
held that a register of deeds has no authority to pass upon the capacity
of the parties to a chattel mortgage which is presented to him for
record. A fortiori a register of deeds can have no authority to pass upon
the character of the property sought to be encumbered by a chattel
mortgage. Of course, if thg mortgaged property is real instead of
personal the chattel mortgage would no doubt be held ineffective as
against third parties, but this is a question to be determined by the
courts of justice and not by the register of deeds."
In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37
Phil., 644), this court held that where the interest conveyed is of the
nature of real property, the placing of the document on record in the
chattel mortgage register is a futile act; but that decision is not decisive
of the question now before us, which has reference to the function of
the register of deeds in placing the document on record.
In the light of what has been said it becomes unnecessary for us to pass
upon the point whether the interests conveyed in the instrument now in
question are real or personal; and we declare it to be the duty of the
register of deeds to accept the estimate placed upon the document by
the petitioner and to register it, upon payment of the proper fee.
The demurrer is overruled; and unless within the period of five days
from the date of the notification hereof, the respondent shall interpose a
sufficient answer to the petition, the writ of mandamus will be issued,
as prayed, but without costs. So ordered.

[G.R. No. 137705. August 22, 2000]

SERGS
PRODUCTS,
INC.,
and
SERGIO
T.
GOQUIOLAY, petitioners, vs. PCI
LEASING
AND
FINANCE, INC., respondent.
DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or immovable property be
considered as personal or movable, a party is estopped from subsequently
claiming otherwise. Hence, such property is a proper subject of a writ of
replevin obtained by the other contracting party.
The Case
Before us is a Petition for Review on Certiorari assailing the January 6,
1999 Decision of the Court of Appeals (CA) in CA-GR SP No. 47332 and its
February 26, 1999 Resolution denying reconsideration. The decretal portion of
the CA Decision reads as follows:
[1]

[2]

[3]

WHEREFORE, premises considered, the assailed Order dated February 18,

1998 and Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are
hereby AFFIRMED. The writ of preliminary injunction issued on June 15,
1998 is hereby LIFTED.
[4]

In its February 18, 1998 Order, the Regional Trial Court (RTC) of Quezon
City (Branch 218) issued a Writ of Seizure. The March 18, 1998
Resolution denied petitioners Motion for Special Protective Order, praying that
the deputy sheriff be enjoined from seizing immobilized or other real properties
in (petitioners) factory in Cainta, Rizal and to return to their original place
whatever immobilized machineries or equipments he may have removed.
[5]

[6]

[7]

[8]

[9]

The Facts
The undisputed facts are summarized by the Court of Appeals as follows:

[10]

On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing
for short) filed with the RTC-QC a complaint for [a] sum of money (Annex E),
with an application for a writ of replevin docketed as Civil Case No. Q-9833500.

On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent

judge issued a writ of replevin (Annex B) directing its sheriff to seize and
deliver the machineries and equipment to PCI Leasing after 5 days and upon
the payment of the necessary expenses.
On March 24, 1998, in implementation of said writ, the sheriff proceeded to
petitioners factory, seized one machinery with [the] word that he [would] return
for the other machineries.
On March 25, 1998, petitioners filed a motion for special protective order
(Annex C), invoking the power of the court to control the conduct of its officers
and amend and control its processes, praying for a directive for the sheriff to
defer enforcement of the writ of replevin.
This motion was opposed by PCI Leasing (Annex F), on the ground that the
properties [were] still personal and therefore still subject to seizure and a writ
of replevin.
In their Reply, petitioners asserted that the properties sought to be seized [were]
immovable as defined in Article 415 of the Civil Code, the parties agreement to
the contrary notwithstanding. They argued that to give effect to the agreement
would be prejudicial to innocent third parties. They further stated that PCI
Leasing [was] estopped from treating these machineries as personal because the
contracts in which the alleged agreement [were] embodied [were] totally sham
and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of seizure and
take possession of the remaining properties. He was able to take two more, but
was prevented by the workers from taking the rest.
On April 7, 1998, they went to [the CA] via an original action for certiorari.
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject
machines were personal property, and that they had only been leased, not owned,
by petitioners. It also ruled that the words of the contract are clear and leave no
doubt upon the true intention of the contracting parties. Observing that Petitioner
Goquiolay was an experienced businessman who was not unfamiliar with the
ways of the trade, it ruled that he should have realized the import of the
document he signed. The CA further held:

Furthermore, to accord merit to this petition would be to preempt the trial court
in ruling upon the case below, since the merits of the whole matter are laid
down before us via a petition whose sole purpose is to inquire upon the
existence of a grave abuse of discretion on the part of the [RTC] in issuing the
assailed Order and Resolution. The issues raised herein are proper subjects of a
full-blown trial, necessitating presentation of evidence by both parties. The
contract is being enforced by one, and [its] validity is attacked by the other a
matter x x x which respondent court is in the best position to determine.
Hence, this Petition.

[11]

The Issues
In their Memorandum, petitioners submit the following issues for our
consideration:

A. Whether or not the machineries purchased and imported by SERGS became

real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease.

[12]

In the main, the Court will resolve whether the said machines are personal,
not immovable, property which may be a proper subject of a writ of replevin. As
a preliminary matter, the Court will also address briefly the procedural points
raised by respondent.
The Courts Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate expressly whether it
was being filed under Rule 45 or Rule 65 of the Rules of Court. It further alleges
that the Petition erroneously impleaded Judge Hilario Laqui as respondent.
There is no question that the present recourse is under Rule 45. This
conclusion finds support in the very title of the Petition, which is Petition for
Review on Certiorari.
[13]

While Judge Laqui should not have been impleaded as a respondent,

substantial justice requires that such lapse by itself should not warrant the
dismissal of the present Petition. In this light, the Court deems it proper to
remove, motu proprio, the name of Judge Laqui from the caption of the present
case.
[14]

Main Issue: Nature of the Subject Machinery

Petitioners contend that the subject machines used in their factory were not
proper subjects of the Writ issued by the RTC, because they were in fact real
property. Serious policy considerations, they argue, militate against a contrary
characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for
the recovery of personal property only. Section 3 thereof reads:
[15]

SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the
court shall issue an order and the corresponding writ of replevin describing the
personal property alleged to be wrongfully detained and requiring the sheriff
forthwith to take such property into his custody.
On the other hand, Article 415 of the Civil Code enumerates immovable or
real property as follows:

ART. 415. The following are immovable property:

x x x....................................x x x....................................x x x

(5) Machinery, receptacles, instruments or implements intended by the owner

of the tenement for an industry or works which may be carried on in a building
or on a piece of land, and which tend directly to meet the needs of the said
industry or works;
x x x....................................x x x....................................x x x
In the present case, the machines that were the subjects of the Writ of
Seizure were placed by petitioners in the factory built on their own
land. Indisputably, they were essential and principal elements of their chocolatemaking industry. Hence, although each of them was movable or personal
property on its own, all of them have become immobilized by destination
because they are essential and principal elements in the industry. In that sense,
petitioners are correct in arguing that the said machines are real, not personal,
property pursuant to Article 415 (5) of the Civil Code.
[16]

[17]

Be that as it may, we disagree with the submission of the petitioners that the
said machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real
property be considered as personal. After agreeing to such stipulation, they are
consequently estopped from claiming otherwise. Under the principle of estoppel,
[18]

a party to a contract is ordinarily precluded from denying the truth of any

material fact found therein.
Hence, in Tumalad v. Vicencio, the Court upheld the intention of the
parties to treat a house as a personal property because it had been made the
subject of a chattel mortgage. The Court ruled:
[19]

x x x. Although there is no specific statement referring to the subject house as

personal property, yet by ceding, selling or transferring a property by way of
chattel mortgage defendants-appellants could only have meant to convey the
house as chattel, or at least, intended to treat the same as such, so that they
should not now be allowed to make an inconsistent stand by claiming
otherwise.
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v.
Wearever Textile Mills also held that the machinery used in a factory and
essential to the industry, as in the present case, was a proper subject of a writ of
replevin because it was treated as personal property in a contract. Pertinent
portions of the Courts ruling are reproduced hereunder:
[20]

x x x. If a house of strong materials, like what was involved in the above

Tumalad case, may be considered as personal property for purposes of
executing a chattel mortgage thereon as long as the parties to the contract so
agree and no innocent third party will be prejudiced thereby, there is absolutely
no reason why a machinery, which is movable in its nature and becomes
immobilized only by destination or purpose, may not be likewise treated as
such. This is really because one who has so agreed is estopped from denying
the existence of the chattel mortgage.
In the present case, the Lease Agreement clearly provides that the machines
in question are to be considered as personal property. Specifically, Section 12.1
of the Agreement reads as follows:
[21]

12.1 The PROPERTY is, and shall at all times be and remain, personal property
notwithstanding that the PROPERTY or any part thereof may now be, or
hereafter become, in any manner affixed or attached to or embedded in, or
permanently resting upon, real property or any building thereon, or attached in
any manner to what is permanent.
Clearly then, petitioners are estopped from denying the characterization of
the subject machines as personal property. Under the circumstances, they are
proper subjects of the Writ of Seizure.

It should be stressed, however, that our holding -- that the machines should
be deemed personal property pursuant to the Lease Agreement is good only
insofar as the contracting parties are concerned. Hence, while the parties are
bound by the Agreement, third persons acting in good faith are not affected by
its stipulation characterizing the subject machinery as personal. In any event,
there is no showing that any specific third party would be adversely affected.
[22]

[23]

Validity of the Lease Agreement

In their Memorandum, petitioners contend that the Agreement is a loan and
not a lease. Submitting documents supposedly showing that they own the
subject machines, petitioners also argue in their Petition that the Agreement
suffers from intrinsic ambiguity which places in serious doubt the intention of
the parties and the validity of the lease agreement itself. In their Reply to
respondents Comment, they further allege that the Agreement is invalid.
[24]

[25]

[26]

These arguments are unconvincing. The validity and the nature of the
contract are the lis mota of the civil action pending before the RTC. A resolution
of these questions, therefore, is effectively a resolution of the merits of the
case. Hence, they should be threshed out in the trial, not in the proceedings
involving the issuance of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA, the Court explained that the policy
under Rule 60 was that questions involving title to the subject property questions
which petitioners are now raising -- should be determined in the trial. In that
case, the Court noted that the remedy of defendants under Rule 60 was either to
post a counter-bond or to question the sufficiency of the plaintiffs bond. They
were not allowed, however, to invoke the title to the subject property. The Court
ruled:
[27]

In other words, the law does not allow the defendant to file a motion to dissolve
or discharge the writ of seizure (or delivery) on ground of insufficiency of the
complaint or of the grounds relied upon therefor, as in proceedings on
preliminary attachment or injunction, and thereby put at issue the matter of the
title or right of possession over the specific chattel being replevied, the policy
apparently being that said matter should be ventilated and determined only at
the trial on the merits.
[28]

Besides, these questions require a determination of facts and a presentation

of evidence, both of which have no place in a petition for certiorari in the CA
under Rule 65 or in a petition for review in this Court under Rule 45.
[29]

Reliance on the Lease Agreement

It should be pointed out that the Court in this case may rely on the Lease
Agreement, for nothing on record shows that it has been nullified or annulled. In
fact, petitioners assailed it first only in the RTC proceedings, which had
ironically been instituted by respondent. Accordingly, it must be presumed valid
and binding as the law between the parties.
Makati Leasing and Finance Corporation is also instructive on this
point. In that case, the Deed of Chattel Mortgage, which characterized the
subject machinery as personal property, was also assailed because respondent
had allegedly been required to sign a printed form of chattel mortgage which
was in a blank form at the time of signing. The Court rejected the argument and
relied on the Deed, ruling as follows:
[30]

x x x. Moreover, even granting that the charge is true, such fact alone does not
render a contract void ab initio, but can only be a ground for rendering said
contract voidable, or annullable pursuant to Article 1390 of the new Civil Code,
by a proper action in court. There is nothing on record to show that the
mortgage has been annulled. Neither is it disclosed that steps were taken to
nullify the same. x x x

Alleged Injustice Committed on the Part of Petitioners

Petitioners contend that if the Court allows these machineries to be seized,
then its workers would be out of work and thrown into the streets. They also
allege that the seizure would nullify all efforts to rehabilitate the corporation.
[31]

Petitioners arguments do not preclude the implementation of the Writ. As

earlier discussed, law and jurisprudence support its propriety. Verily, the abovementioned consequences, if they come true, should not be blamed on this Court,
but on the petitioners for failing to avail themselves of the remedy under Section
5 of Rule 60, which allows the filing of a counter-bond. The provision states:

SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of

the applicants bond, or of the surety or sureties thereon, he cannot immediately
require the return of the property, but if he does not so object, he may, at any
time before the delivery of the property to the applicant, require the return
thereof, by filing with the court where the action is pending a bond executed to
the applicant, in double the value of the property as stated in the applicants
affidavit for the delivery thereof to the applicant, if such delivery be adjudged,
and for the payment of such sum to him as may be recovered against the
adverse party, and by serving a copy bond on the applicant.

WHEREFORE, the Petition is DENIED and the assailed Decision of the

Court of Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.

G.R. No. L-40411

August 7, 1935

DAVAO SAW MILL CO., INC., plaintiff-appellant,

vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the decision in the trial court and as set
forth by counsel for the parties on appeal, involves the determination of the nature of the properties
described in the complaint. The trial judge found that those properties were personal in nature, and as
a consequence absolved the defendants from the complaint, with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the
Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu, municipality of
Davao, Province of Davao. However, the land upon which the business was conducted belonged to
another person. On the land the sawmill company erected a building which housed the machinery used
by it. Some of the implements thus used were clearly personal property, the conflict concerning
machines which were placed and mounted on foundations of cement. In the contract of lease between
the sawmill company and the owner of the land there appeared the following provision:
That on the expiration of the period agreed upon, all the improvements and buildings
introduced and erected by the party of the second part shall pass to the exclusive ownership of
the party of the first part without any obligation on its part to pay any amount for said
improvements and buildings; also, in the event the party of the second part should leave or
abandon the land leased before the time herein stipulated, the improvements and buildings
shall likewise pass to the ownership of the party of the first part as though the time agreed
upon had expired: Provided, however, That the machineries and accessories are not included
in the improvements which will pass to the party of the first part on the expiration or
abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao, Saw,
Mill Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that action
against the defendant in that action; a writ of execution issued thereon, and the properties now in
question were levied upon as personalty by the sheriff. No third party claim was filed for such
properties at the time of the sales thereof as is borne out by the record made by the plaintiff herein.
Indeed the bidder, which was the plaintiff in that action, and the defendant herein having
consummated the sale, proceeded to take possession of the machinery and other properties described
in the corresponding certificates of sale executed in its favor by the sheriff of Davao.

As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc., has
on a number of occasions treated the machinery as personal property by executing chattel mortgages
in favor of third persons. One of such persons is the appellee by assignment from the original
mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property
consists of
1. Land, buildings, roads and constructions of all kinds adhering to the soil;
xxx

xxx

xxx

5. Machinery, liquid containers, instruments or implements intended by the owner of any

building or land for use in connection with any industry or trade being carried on therein and
which are expressly adapted to meet the requirements of such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We entertain no
doubt that the trial judge and appellees are right in their appreciation of the legal doctrines flowing
from the facts.
In the first place, it must again be pointed out that the appellant should have registered its protest
before or at the time of the sale of this property. It must further be pointed out that while not
conclusive, the characterization of the property as chattels by the appellant is indicative of intention
and impresses upon the property the character determined by the parties. In this connection the
decision of this court in the case of Standard Oil Co. of New Yorkvs. Jaramillo ( [1923], 44 Phil., 630),
whether obiter dicta or not, furnishes the key to such a situation.
It is, however not necessary to spend overly must time in the resolution of this appeal on side issues. It
is machinery which is involved; moreover, machinery not intended by the owner of any building or
land for use in connection therewith, but intended by a lessee for use in a building erected on the land
by the latter to be returned to the lessee on the expiration or abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme
Court, it was held that machinery which is movable in its nature only becomes immobilized when
placed in a plant by the owner of the property or plant, but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right, unless such person acted as the agent of the
owner. In the opinion written by Chief Justice White, whose knowledge of the Civil Law is well
known, it was in part said:
To determine this question involves fixing the nature and character of the property from the
point of view of the rights of Valdes and its nature and character from the point of view of
Nevers & Callaghan as a judgment creditor of the Altagracia Company and the rights derived
by them from the execution levied on the machinery placed by the corporation in the plant.
Following the Code Napoleon, the Porto Rican Code treats as immovable (real) property, not
only land and buildings, but also attributes immovability in some cases to property of a
movable nature, that is, personal property, because of the destination to which it is applied.
"Things," says section 334 of the Porto Rican Code, "may be immovable either by their own
nature or by their destination or the object to which they are applicable." Numerous
illustrations are given in the fifth subdivision of section 335, which is as follows: "Machinery,
vessels, instruments or implements intended by the owner of the tenements for the industrial
or works that they may carry on in any building or upon any land and which tend directly to
meet the needs of the said industry or works." (See also Code Nap., articles 516, 518 et seq. to

and inclusive of article 534, recapitulating the things which, though in themselves movable,
may be immobilized.) So far as the subject-matter with which we are dealing machinery
placed in the plant it is plain, both under the provisions of the Porto Rican Law and of the
Code Napoleon, that machinery which is movable in its nature only becomes immobilized
when placed in a plant by the owner of the property or plant. Such result would not be
accomplished, therefore, by the placing of machinery in a plant by a tenant or a usufructuary
or any person having only a temporary right. (Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit.
2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier-Herman ed.
Code Napoleon under articles 522 et seq.) The distinction rests, as pointed out by
Demolombe, upon the fact that one only having a temporary right to the possession or
enjoyment of property is not presumed by the law to have applied movable property
belonging to him so as to deprive him of it by causing it by an act of immobilization to
become the property of another. It follows that abstractly speaking the machinery put by the
Altagracia Company in the plant belonging to Sanchez did not lose its character of movable
property and become immovable by destination. But in the concrete immobilization took
place because of the express provisions of the lease under which the Altagracia held, since the
lease in substance required the putting in of improved machinery, deprived the tenant of any
right to charge against the lessor the cost such machinery, and it was expressly stipulated that
the machinery so put in should become a part of the plant belonging to the owner without
compensation to the lessee. Under such conditions the tenant in putting in the machinery was
acting but as the agent of the owner in compliance with the obligations resting upon him, and
the immobilization of the machinery which resulted arose in legal effect from the act of the
owner in giving by contract a permanent destination to the machinery.
xxx

xxx

xxx

The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the plant
by the Altagracia Company, being, as regards Nevers & Callaghan, movable property, it
follows that they had the right to levy on it under the execution upon the judgment in their
favor, and the exercise of that right did not in a legal sense conflict with the claim of Valdes,
since as to him the property was a part of the realty which, as the result of his obligations
under the lease, he could not, for the purpose of collecting his debt, proceed separately
against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)
Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of
this instance to be paid by the appellant.

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

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

This is an original Petition for Mandamus with prayer for a writ of preliminary
injunction and a temporary restraining order. The petition seeks to compel the Public
Estates Authority (PEA for brevity) to disclose all facts on PEAs then on-going
renegotiations with Amari Coastal Bay and Development Corporation (AMARI for
brevity) to reclaim portions of Manila Bay. The petition further seeks to enjoin PEA from
signing a new agreement with AMARI involving such reclamation.
The Facts
On November 20, 1973, the government, through the Commissioner of Public
Highways, signed a contract with the Construction and Development Corporation of the
Philippines (CDCP for brevity) to reclaim certain foreshore and offshore areas of Manila
Bay. The contract also included the construction of Phases I and II of the Manila-Cavite
Coastal Road. CDCP obligated itself to carry out all the works in consideration of 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. 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 under the Manila-Cavite Coastal Road and Reclamation Project (MCCRRP).
[1]

[2]

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 ManilaCavite 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. On April 28, 1995, the Board of Directors of PEA,
in its Resolution No. 1245, confirmed the JVA. On June 8, 1995, then President Fidel V.
Ramos, through then Executive Secretary Ruben Torres, approved the JVA.
[4]

[5]

[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. 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.
[7]

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, the Chief Presidential Legal Counsel,
[8]

and the Government Corporate Counsel. The Legal Task Force upheld the legality of
the JVA, contrary to the conclusions reached by the Senate Committees.
[9]

[10]

[11]

On April 4 and 5, 1998, the Philippine Daily Inquirer and Today published reports
that there were on-going renegotiations between PEA and AMARI under an order issued
by then President Fidel V. Ramos. According to these reports, PEA Director Nestor
Kalaw, PEA Chairman Arsenio Yulo and retired Navy Officer Sergio Cruz composed the
negotiating panel of PEA.
On April 13, 1998, Antonio M. Zulueta filed before the Court a Petition for
Prohibition with Application for the Issuance of a Temporary Restraining Order and
Preliminary Injunction docketed as G.R. No. 132994 seeking to nullify the JVA. The
Court dismissed the petition for unwarranted disregard of judicial hierarchy, without
prejudice to the refiling of the case before the proper court.
[12]

On April 27, 1998, petitioner Frank I. Chavez (Petitioner for brevity) as a taxpayer,
filed the instant Petition for Mandamus with Prayer for the Issuance of a Writ of
Preliminary Injunction and Temporary Restraining Order. Petitioner contends the
government stands to lose billions of pesos in the sale by PEA of the reclaimed lands to
AMARI. Petitioner prays that PEA publicly disclose the terms of any renegotiation of the
JVA, invoking Section 28, Article II, and Section 7, Article III, of the 1987 Constitution
on the right of the people to information on matters of public concern. Petitioner assails
the sale to AMARI of lands of the public domain as a blatant violation of Section 3,
Article XII of the 1987 Constitution prohibiting the sale of alienable lands of the public
domain to private corporations. Finally, petitioner asserts that he seeks to enjoin the loss
of billions of pesos in properties of the State that are of public dominion.
After several motions for extension of time, 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.
[13]

In a Resolution dated March 23, 1999, the Court gave due course to the petition and
required the parties to file their respective memoranda.
On March 30, 1999, PEA and AMARI signed the Amended Joint Venture Agreement
(Amended JVA, for brevity). On May 28, 1999, the Office of the President under the
administration of then President Joseph E. Estrada approved the Amended JVA.
Due to the approval of the Amended JVA by the Office of the President, petitioner
now prays that on constitutional and statutory grounds the renegotiated contract be
declared null and void.
[14]

The Issues

The issues raised by petitioner, PEA and AMARI are as follows:

[15]

[16]

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

MOOT AND ACADEMIC BECAUSE OF SUBSEQUENT EVENTS;
II. WHETHER THE PETITION MERITS DISMISSAL FOR FAILING TO OBSERVE
THE PRINCIPLE GOVERNING THE HIERARCHY OF COURTS;
III. WHETHER THE PETITION MERITS DISMISSAL FOR NON-EXHAUSTION
OF ADMINISTRATIVE REMEDIES;
IV. WHETHER PETITIONER HAS LOCUS STANDI TO BRING THIS SUIT;
V. WHETHER THE CONSTITUTIONAL RIGHT TO INFORMATION INCLUDES
OFFICIAL INFORMATION ON ON-GOING NEGOTIATIONS BEFORE A
FINAL AGREEMENT;
VI. WHETHER THE STIPULATIONS IN THE AMENDED JOINT VENTURE
AGREEMENT FOR THE TRANSFER TO AMARI OF CERTAIN LANDS,
RECLAIMED AND STILL TO BE RECLAIMED, VIOLATE THE 1987
CONSTITUTION; AND
VII. WHETHER THE COURT IS THE PROPER FORUM FOR RAISING THE ISSUE
OF WHETHER THE AMENDED JOINT VENTURE AGREEMENT IS GROSSLY
DISADVANTAGEOUS TO THE GOVERNMENT.

The Courts Ruling

First issue: whether the principal reliefs prayed for in the petition are moot and
academic because of subsequent events.
The petition prays that PEA publicly disclose the terms and conditions of the ongoing negotiations for a new agreement. The petition also prays that the Court enjoin
PEA from privately entering into, perfecting and/or executing any new agreement with
AMARI.
PEA and AMARI claim the petition is now moot and academic because AMARI
furnished petitioner on June 21, 1999 a copy of the signed Amended JVA containing the
terms and conditions agreed upon in the renegotiations. Thus, PEA has satisfied
petitioners prayer for a public disclosure of the renegotiations. Likewise, petitioners
prayer to enjoin the signing of the Amended JVA is now moot because PEA and AMARI
have already signed the Amended JVA on March 30, 1999. Moreover, the Office of the
President has approved the Amended JVA on May 28, 1999.
Petitioner counters that PEA and AMARI cannot avoid the constitutional issue by
simply fast-tracking the signing and approval of the Amended JVA before the Court could
act on the issue.Presidential approval does not resolve the constitutional issue or remove
it from the ambit of judicial review.

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

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

[19]

[20]

Lastly, there is a need to resolve immediately the constitutional issue raised in this
petition because of the possible transfer at any time by PEA to AMARI of title and
ownership to portions of the reclaimed lands. Under the Amended JVA, PEA is obligated
to transfer to AMARI the latters seventy percent proportionate share in the reclaimed
areas as the reclamation progresses. The Amended JVA even allows AMARI to mortgage
at any time 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. 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.
[22]

Third issue: whether the petition merits dismissal for non-exhaustion of administrative
remedies.
PEA faults petitioner for seeking judicial intervention in compelling PEA to disclose
publicly certain information without first asking PEA the needed information. PEA
claims petitioners direct resort to the Court violates the principle of exhaustion of
administrative remedies. It also violates the rule that mandamus may issue only if there is
no other plain, speedy and adequate remedy in the ordinary course of law.
PEA distinguishes the instant case from Taada v. Tuvera where the Court granted
the petition for mandamus even if the petitioners there did not initially demand from the
Office of the President the publication of the presidential decrees. PEA points out that
in Taada, the Executive Department had an affirmative statutory duty under Article 2 of
the Civil Code and Section 1 of Commonwealth Act No. 638 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.
[23]

[24]

[25]

The original JVA sought to dispose to AMARI public lands held by PEA, a
government corporation. Under Section 79 of the Government Auditing Code, 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.
[26]2

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. 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.
[27]

Fourth issue: whether petitioner has locus standi to bring this suit
PEA argues that petitioner has no standing to institute mandamus proceedings to
enforce his constitutional right to information without a showing that PEA refused to
perform an affirmative duty imposed on PEA by the Constitution. PEA also claims that
petitioner has not shown that he will suffer any concrete injury because of the signing or
implementation of the Amended JVA. Thus, there is no actual controversy requiring the
exercise of the power of judicial review.
The petitioner has standing to bring this taxpayers suit because the petition seeks to
compel PEA to comply with its constitutional duties. There are two constitutional issues
involved here. First is the right of citizens to information on matters of public
concern. Second is the application of a constitutional provision intended to insure the
equitable distribution of alienable lands of the public domain among Filipino
citizens. The thrust of the first issue is to compel PEA to disclose publicly information on
the sale of government lands worth billions of pesos, information which the Constitution
and statutory law mandate PEA to disclose. The thrust of the second issue is to prevent
PEA from alienating hundreds of hectares of alienable lands of the public domain in
violation of the Constitution, compelling PEA to comply with a constitutional duty to the
nation.
Moreover, the petition raises matters of transcendental importance to the
public. In Chavez v. PCGG, the Court upheld the right of a citizen to bring a taxpayers
suit on matters of transcendental importance to the public, thus [28]

Besides, petitioner emphasizes, the matter of recovering the ill-gotten wealth of

the Marcoses is an issue of transcendental importance to the public. He asserts
that ordinary taxpayers have a right to initiate and prosecute actions
questioning the validity of acts or orders of government agencies or
instrumentalities, if the issues raised are of paramount public interest, and if
they immediately affect the social, economic and moral well being of the
people.
Moreover, the mere fact that he is a citizen satisfies the requirement of personal
interest, when the proceeding involves the assertion of a public right, such as in
this case. He invokes several decisions of this Court which have set aside the

procedural matter of locus standi, when the subject of the case involved public
interest.
xxx
In Taada v. Tuvera, the Court asserted that when the issue concerns a public
right and the object of mandamus is to obtain the enforcement of a public duty,
the people are regarded as the real parties in interest; and because it is sufficient
that petitioner is a citizen and as such is interested in the execution of the laws,
he need not show that he has any legal or special interest in the result of the
action. In the aforesaid case, the petitioners sought to enforce their right to be
informed on matters of public concern, a right then recognized in Section 6,
Article IV of the 1973 Constitution, in connection with the rule that laws in
order to be valid and enforceable must be published in the Official Gazette or
otherwise effectively promulgated. In ruling for the petitioners' legal standing,
the Court declared that the right they sought to be enforced is a public right
recognized by no less than the fundamental law of the land.
Legaspi v. Civil Service Commission, while reiterating Taada, further declared
that when a mandamus proceeding involves the assertion of a public right, the
requirement of personal interest is satisfied by the mere fact that petitioner is a
citizen and, therefore, part of the general 'public' which possesses the right.
Further, in Albano v. Reyes, we said that while expenditure of public funds may
not have been involved under the questioned contract for the development,
management and operation of the Manila International Container Terminal,
public interest [was] definitely involved considering the important role [of the
subject contract] . . . in the economic development of the country and the
magnitude of the financial consideration involved. We concluded that, as a
consequence, the disclosure provision in the Constitution would constitute
sufficient authority for upholding the petitioner's standing.
Similarly, the instant petition is anchored on the right of the people to
information and access to official records, documents and papers a right
guaranteed under Section 7, Article III of the 1987 Constitution. Petitioner, a
former solicitor general, is a Filipino citizen. Because of the satisfaction of the
two basic requisites laid down by decisional law to sustain petitioner's legal
standing, i.e. (1) the enforcement of a public right (2) espoused by a Filipino
citizen, we rule that the petition at bar should be allowed.
We rule that since the instant petition, brought by a citizen, involves the enforcement
of constitutional rights - to information and to the equitable diffusion of natural

resources - matters of transcendental public importance, the petitioner has the

requisite locus standi.
Fifth issue: whether the constitutional right to information includes official
information on on-going negotiations before a final agreement.
Section 7, Article III of the Constitution explains the peoples right to information on
matters of public concern in this manner:

Sec. 7. The right of the people to information on matters of public concern shall
be recognized. Access to official records, and to documents, and papers
pertaining to official acts, transactions, or decisions, as well as to government
research data used as basis for policy development, shall be afforded the
citizen, subject to such limitations as may be provided by law.(Emphasis
supplied)
The State policy of full transparency in all transactions involving public interest
reinforces the peoples right to information on matters of public concern. This State policy
is expressed in Section 28, Article II of the Constitution, thus:

Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts
and implements a policy of full public disclosure of all its transactions
involving public interest. (Emphasis supplied)
These twin provisions of the Constitution seek to promote transparency in policymaking and in the operations of the government, as well as provide the people sufficient
information to exercise effectively other constitutional rights. These twin provisions are
essential to the exercise of freedom of expression. If the government does not disclose its
official acts, transactions and decisions to citizens, whatever citizens say, even if
expressed without any restraint, will be speculative and amount to nothing. These twin
provisions are also essential to hold public officials at all times x x x accountable to the
people, for unless citizens have the proper information, they cannot hold public officials
accountable for anything. Armed with the right information, citizens can participate in
public discussions leading to the formulation of government policies and their effective
implementation. An informed citizenry is essential to the existence and proper
functioning of any democracy. As explained by the Court in Valmonte v. Belmonte, Jr.
[29]

[30]

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

or process of communication between the government and the people. It is in
the interest of the State that the channels for free political discussion be
maintained to the end that the government may perceive and be responsive to
the peoples will. Yet, this open dialogue can be effective only to the extent that
the citizenry is informed and thus able to formulate its will intelligently. Only

when the participants in the discussion are aware of the issues and have access
to information relating thereto can such bear fruit.
PEA asserts, citing Chavez v. PCGG, 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.
[31]

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

Mr. Suarez. And when we say transactions which should be distinguished from
contracts, agreements, or treaties or whatever, does the Gentleman refer to the
steps leading to the consummation of the contract, or does he refer to the
contract itself?
Mr. Ople: The transactions used here, I suppose is generic and therefore, it
can cover both steps leading to a contract and already a consummated
contract, Mr. Presiding Officer.
Mr. Suarez: This contemplates inclusion of negotiations leading to the
consummation of the transaction.
Mr. Ople: Yes, subject only to reasonable safeguards on the national interest.
Mr. Suarez: Thank you. (Emphasis supplied)
[32]

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

requirespublic bidding. If PEA fails to make this disclosure, any citizen can demand from
PEA this information at any time during the bidding process.
Information, however, on on-going evaluation or review of bids or proposals being
undertaken by the bidding or review committee is not immediately accessible under the
right to information.While the evaluation or review is still on-going, there are no official
acts, transactions, or decisions on the bids or proposals. However, once the committee
makes its official recommendation, there arises a definite proposition on the part of the
government. From this moment, the publics right to information attaches, and any citizen
can access all the non-proprietary information leading to such definite
proposition. In Chavez v. PCGG, the Court ruled as follows:
[33]

Considering the intent of the framers of the Constitution, we believe that it is

incumbent upon the PCGG and its officers, as well as other government
representatives, to disclose sufficient public information on any proposed
settlement they have decided to take up with the ostensible owners and holders
of ill-gotten wealth. Such information, though, must pertain to definite
propositions of the government, not necessarily to intra-agency or inter-agency
recommendations or communications during the stage when common
assertions are still in the process of being formulated or are in the exploratory
stage. There is need, of course, to observe the same restrictions on disclosure of
information in general, as discussed earlier such as on matters involving
national security, diplomatic or foreign relations, intelligence and other
classified information. (Emphasis supplied)
Contrary to AMARIs contention, the commissioners of the 1986 Constitutional
Commission understood that the right to information contemplates inclusion of
negotiations leading to the consummation of the transaction. Certainly, a consummated
contract is not a requirement for the exercise of the right to information. Otherwise, the
people can never exercise the right if no contract is consummated, and if one is
consummated, it may be too late for the public to expose its defects.
Requiring a consummated contract will keep the public in the dark until the contract,
which may be grossly disadvantageous to the government or even illegal, becomes a fait
accompli. This negates the State policy of full transparency on matters of public concern,
a situation which the framers of the Constitution could not have intended. Such a
requirement will prevent the citizenry from participating in the public discussion of
any proposed contract, effectively truncating a basic right enshrined in the Bill of
Rights. We can allow neither an emasculation of a constitutional right, nor a retreat by the
State of its avowed policy of full disclosure of all its transactions involving public
interest.
The right covers three categories of information which are matters of public concern,
namely: (1) official records; (2) documents and papers pertaining to official acts,
transactions and decisions; and (3) government research data used in formulating
policies. The first category refers to any document that is part of the public records in the

custody of government agencies or officials. The second category refers to documents

and papers recording, evidencing, establishing, confirming, supporting, justifying or
explaining official acts, transactions or decisions of government agencies or officials. The
third category refers to research data, whether raw, collated or processed, owned by the
government and used in formulating government policies.
The information that petitioner may access on the renegotiation of the JVA includes
evaluation reports, recommendations, legal and expert opinions, minutes of meetings,
terms of reference and other documents attached to such reports or minutes, all relating to
the JVA. However, the right to information does not compel PEA to prepare lists,
abstracts, summaries and the like relating to the renegotiation of the JVA. 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.
[34]

[35]

The right to information, however, does not extend to matters recognized as

privileged information under the separation of powers. 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. The
right may also be subject to other limitations that Congress may impose by law.
[36]

[37]

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, 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.
This is not the situation in the instant case.
[38]

[39]

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. Congress has also prescribed other
limitations on the right to information in several legislations.
[40]

[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. The King, as the
sovereign ruler and representative of the people, acquired and owned all lands and
territories in the Philippines except those he disposed of by grant or sale to private
individuals.
[42]

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. Article 339 of the Civil Code of 1889, which is
now Article 420 of the Civil Code of 1950, incorporated the Regalian doctrine.
[43]

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. The Spanish Law of Waters of 1866 allowed the reclamation of the sea
under Article 5, which provided as follows:
[44]

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 fillingor otherwise throughout the Philippine
Islands, shall be retained by the Government without prejudice to vested rights
and without prejudice to rights conceded to the City of Manila in the Luneta
Extension.
Section 2. (a) The Secretary of the Interior shall cause all Government or public
lands made or reclaimed by the Government by dredging or filling or otherwise
to be divided into lots or blocks, with the necessary streets and alleyways
located thereon, and shall cause plats and plans of such surveys to be prepared
and filed with the Bureau of Lands.

(b) Upon completion of such plats and plans the Governor-General shall give
notice to the public that such parts of the lands so made or reclaimed as are
not needed for public purposes will be leased for commercial and business
purposes, x x x.
xxx
(e) The leases above provided for shall be disposed of to the highest and best
bidder therefore, subject to such regulations and safeguards as the GovernorGeneral 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. The salient provisions of Act No. 2874, on reclaimed lands, were as follows:
[46]

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 lands. Section 7 of the Act empowered
the Governor-General to declare what lands are open to disposition or concession.
Section 8 of the Act limited alienable or disposable lands only to those lands which have
been officially delimited and classified.
[47]

Section 56 of Act No. 2874 stated that lands disposable under this title 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 GovernorGeneral 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.
[48]

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

foreshore and marshy lands remained sui generis, as the only alienable or disposable
lands of the public domain that the government could not sell to private parties.
The rationale behind this State policy is obvious. Government reclaimed, foreshore
and marshy public lands for non-agricultural purposes retain their inherent potential as
areas for public service.This is the reason the government prohibited the sale, and only
allowed the lease, of these lands to private parties. The State always reserved these lands
for some future public service.
Act No. 2874 did not authorize the reclassification of government reclaimed,
foreshore and marshy lands into other non-agricultural lands under Section 56 (d). Lands
falling under Section 56 (d) were the only lands for non-agricultural purposes the
government could sell to private parties. Thus, under Act No. 2874, the government could
not sell government reclaimed, foreshore and marshy lands to private parties, unless the
legislature passed a law allowing their sale.
[49]

Act No. 2874 did not prohibit private parties from reclaiming parts of the sea
pursuant to Section 5 of the Spanish Law of Waters of 1866. Lands reclaimed from the
sea by private parties with government permission remained private lands.
Dispositions under the 1935 Constitution
On May 14, 1935, the 1935 Constitution took effect upon its ratification by the
Filipino people. The 1935 Constitution, in adopting the Regalian doctrine, declared in
Section 1, Article XIII, that

Section 1. All agricultural, timber, and mineral lands of the public domain,
waters, minerals, coal, petroleum, and other mineral oils, all forces of potential
energy and other natural resources of the Philippines belong to the State, and
their disposition, exploitation, development, or utilization shall be limited to
citizens of the Philippines or to corporations or associations at least sixty per
centum of the capital of which is owned by such citizens, subject to any
existing right, grant, lease, or concession at the time of the inauguration of the
Government established under this Constitution. Natural resources, with the
exception of public agricultural land, shall not be alienated, and no license,
concession, or lease for the exploitation, development, or utilization of any of
the natural resources shall be granted for a period exceeding twenty-five years,
renewable for another twenty-five years, except as to water rights for irrigation,
water supply, fisheries, or industrial uses other than the development of water
power, in which cases beneficial use may be the measure and limit of the
grant. (Emphasis supplied)
The 1935 Constitution barred the alienation of all natural resources except public
agricultural lands, which were the only natural resources the State could alienate. Thus,
foreshore lands, considered part of the States natural resources, became inalienable by
constitutional fiat, available only for lease for 25 years, renewable for another 25
years. The government could alienate foreshore lands only 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. 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.
[50]

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 twentyfour hectares, or by homestead in excess of twenty-four hectares. Lands
adapted to grazing, not exceeding two thousand hectares, may be leased to an
individual, private corporation, or association. (Emphasis supplied)
Still, after the effectivity of the 1935 Constitution, the legislature did not repeal Section
58 of Act No. 2874 to open for sale to private parties government reclaimed and marshy
lands of the public domain. On the contrary, the legislature continued the long established
State policy of retaining for the government title and ownership of government reclaimed
and marshy lands of the public domain.
Commonwealth Act No. 141 of the Philippine National Assembly
On November 7, 1936, the National Assembly approved Commonwealth Act No.
141, also known as the Public Land Act, which compiled the then existing laws on lands
of the public domain. CA No. 141, as amended, remains to this day the existing general
law governing the classification and disposition of lands of the public domain other than
timber and mineral lands.
[51]

Section 6 of CA No. 141 empowers the President to classify lands of the public
domain into alienable or disposable 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:
[52]

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, for the purpose of their administration and disposition.
[53]

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

disposable public lands, the President, upon recommendation by the Secretary
of Agriculture and Commerce, shall from time to time declare what lands are
open to disposition or concession under this Act.
Sec. 8. Only those lands shall be declared open to disposition or concession
which have been officially delimited and classified and, when practicable,
surveyed, and which have not been reserved for public or quasi-public uses,
nor appropriated by the Government, nor in any manner become private
property, nor those on which a private right authorized and recognized by this
Act or any other valid law may be claimed, or which, having been reserved or
appropriated, have ceased to be so. x x x.
Thus, before the government could alienate or dispose of lands of the public domain, the
President must first officially classify these lands as alienable or disposable, and then
declare them open to disposition or concession. There must be no law reserving these
lands for public or quasi-public uses.
The salient provisions of CA No. 141, on government reclaimed, foreshore and
marshy lands of the public domain, are as follows:

Sec. 58. Any tract of land of the public domain which, being neither timber
nor mineral land, is intended to be used for residential purposes or for
commercial, industrial, or other productive purposes other than agricultural,
and is open to disposition or concession, shall be disposed of under the
provisions of this chapter and not otherwise.
Sec. 59. The lands disposable under this title shall be classified as follows:
(a) Lands reclaimed by the Government by dredging, filling, or other
means;
(b) Foreshore;
(c) Marshy lands or lands covered with water bordering upon the
shores or banks of navigable lakes or rivers;
(d) Lands not included in any of the foregoing classes.

Sec. 60. Any tract of land comprised under this title may be leased or sold, as
the case may be, to any person, corporation, or association authorized to
purchase or lease public lands for agricultural purposes. x x x.
Sec. 61. The lands comprised in classes (a), (b), and (c) of section fifty-nine
shall be disposed of to private parties by lease only and not otherwise, as soon
as the President, upon recommendation by the Secretary of Agriculture, shall
declare that the same are not necessary for the public service and are open to
disposition under this chapter. The lands included in class (d) may be disposed
of by sale or lease under the provisions of this Act. (Emphasis supplied)
Section 61 of CA No. 141 readopted, after the effectivity of the 1935 Constitution,
Section 58 of Act No. 2874 prohibiting the sale of government reclaimed, foreshore and
marshy disposable lands of the public domain. All these lands are intended for
residential, commercial, industrial or other non-agricultural purposes. As before, Section
61 allowed only the lease of such lands to private parties. The government could sell to
private parties only lands falling under Section 59 (d) of CA No. 141, or those lands for
non-agricultural purposes not classified as government reclaimed, foreshore and marshy
disposable lands of the public domain. Foreshore lands, however, became inalienable
under the 1935 Constitution which only allowed the lease of these lands to qualified
private parties.
Section 58 of CA No. 141 expressly states that disposable lands of the public domain
intended for residential, commercial, industrial or other productive purposes other than
agricultural shall be disposed of under the provisions of this chapter and not otherwise.
Under Section 10 of CA No. 141, the term disposition includes lease of the land. Any
disposition of government reclaimed, foreshore and marshy disposable lands for nonagricultural purposes must comply with Chapter IX, Title III of CA No. 141, unless a
subsequent law amended or repealed these provisions.
[54]

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

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. These lands remained sui generis, as the only alienable or disposable lands of
the public domain the government could not sell to private parties.
[56]

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 nonagricultural lands under Section 59 (d). Lands classified under Section 59 (d) are the only
alienable or disposable lands for non-agricultural purposes that the government could sell
to private parties.
Moreover, Section 60 of CA No. 141 expressly requires congressional authority
before lands under Section 59 that the government previously transferred to government
units or entities could be sold to private parties. Section 60 of CA No. 141 declares that

Sec. 60. x x x The area so leased or sold shall be such as shall, in the judgment
of the Secretary of Agriculture and Natural Resources, be reasonably necessary
for the purposes for which such sale or lease is requested, and shall not exceed
one hundred and forty-four hectares: Provided, however, That this limitation
shall not apply to grants, donations, or transfers made to a province,
municipality or branch or subdivision of the Government for the purposes
deemed by said entities conducive to the public interest; but the land so
granted, donated, or transferred to a province, municipality or branch or
subdivision of the Government shall not be alienated, encumbered, or
otherwise disposed of in a manner affecting its title, except when authorized
by Congress: x x x. (Emphasis supplied)
The congressional authority required in Section 60 of CA No. 141 mirrors the legislative
authority required in Section 56 of Act No. 2874.

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

In case of sale or lease of disposable lands of the public domain falling under
Section 59 of CA No. 141, Sections 63 and 67 require a public bidding. Sections 63 and
67 of CA No. 141 provide as follows:

Sec. 63. Whenever it is decided that lands covered by this chapter are not
needed for public purposes, the Director of Lands shall ask the Secretary of
Agriculture and Commerce (now the Secretary of Natural Resources) for
authority to dispose of the same. Upon receipt of such authority, the Director of
Lands shall give notice by public advertisement in the same manner as in the
case of leases or sales of agricultural public land, x x x.
Sec. 67. The lease or sale shall be made by oral bidding; and adjudication
shall be made to the highest bidder. x x x. (Emphasis supplied)
Thus, CA No. 141 mandates the Government to put to public auction all leases or sales of
alienable or disposable lands of the public domain.
[58]

Like Act No. 1654 and Act No. 2874 before it, CA No. 141 did not repeal Section 5
of the Spanish Law of Waters of 1866. Private parties could still reclaim portions of the
sea with government permission. However, the reclaimed land could become private
land only if classified as alienable agricultural land of the public domain open to
disposition under CA No. 141. The 1935 Constitution prohibited the alienation of all
natural resources except public agricultural lands.
The Civil Code of 1950
The Civil Code of 1950 readopted substantially the definition of property of public
dominion found in the Civil Code of 1889. Articles 420 and 422 of the Civil Code of
1950 state that

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

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for public use, and are intended for
some public service or for the development of the national wealth.

x x x.
Art. 422. Property of public dominion, when no longer intended for public use
or for public service, shall form part of the patrimonial property of the State.
Again, the government must formally declare that the property of public dominion is
no longer needed for public use or public service, before the same could be classified as
patrimonial property of the State. 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.
[59]

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 thedevelopment of the national wealth. Thus, government reclaimed
and marshy lands of the State, even if not employed for public use or public service, if
developed to enhance the national wealth, are classified as property of public dominion.
Dispositions under the 1973 Constitution
The 1973 Constitution, which took effect on January 17, 1973, likewise adopted the
Regalian doctrine. Section 8, Article XIV of the 1973 Constitution stated that

Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and
other mineral oils, all forces of potential energy, fisheries, wildlife, and other
natural resources of the Philippines belong to the State. With the exception of
agricultural, industrial or commercial, residential, and resettlement lands of
the public domain, natural resources shall not be alienated, and no license,
concession, or lease for the exploration, development, exploitation, or
utilization of any of the natural resources shall be granted for a period
exceeding twenty-five years, renewable for not more than twenty-five years,
except as to water rights for irrigation, water supply, fisheries, or industrial uses
other than the development of water power, in which cases, beneficial use may
be the measure and the limit of the grant. (Emphasis supplied)
The 1973 Constitution prohibited the alienation of all natural resources with the
exception of agricultural, industrial or commercial, residential, and resettlement lands of
the public domain. In contrast, the 1935 Constitution barred the alienation of all natural
resources except public agricultural lands. However, the term public agricultural lands in
the 1935 Constitution encompassed industrial, commercial, residential and resettlement
lands of the public domain. 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.
[60]

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

Sec. 11. The Batasang Pambansa, taking into account conservation, ecological,
and development requirements of the natural resources, shall determine by law
the size of land of the public domain which may be developed, held or acquired
by, or leased to, any qualified individual, corporation, or association, and the
conditions therefor. No private corporation or association may hold alienable
lands of the public domain except by lease not to exceed one thousand hectares
in area nor may any citizen hold such lands by lease in excess of five hundred
hectares or acquire by purchase, homestead or grant, in excess of twenty-four
hectares. No private corporation or association may hold by lease, concession,
license or permit, timber or forest lands and other timber or forest resources in
excess of one hundred thousand hectares. However, such area may be increased
by the Batasang Pambansa upon recommendation of the National Economic
and Development Authority. (Emphasis supplied)
Thus, under the 1973 Constitution, private corporations could hold alienable lands of
the public domain only through lease. Only individuals could now acquire alienable lands
of the public domain, and private corporations became absolutely barred from
acquiring any kind of alienable land of the public domain. The constitutional ban
extended to all kinds of alienable lands of the public domain, while the statutory ban
under CA No. 141 applied only to government reclaimed, foreshore and marshy alienable
lands of the public domain.
PD No. 1084 Creating the Public Estates Authority
On February 4, 1977, then President Ferdinand Marcos issued Presidential Decree
No. 1084 creating PEA, a wholly government owned and controlled corporation with a
special charter. Sections 4 and 8 of PD No. 1084, vests PEA with the following purposes
and powers:

Sec. 4. Purpose. The Authority is hereby created for the following purposes:
(a) To reclaim land, including foreshore and submerged areas, by
dredging, filling or other means, or to acquire reclaimed land;
(b) To develop, improve, acquire, administer, deal in, subdivide,
dispose, lease and sell any and all kinds of lands, buildings, estates
and other forms of real property, owned, managed, controlled and/or
operated by the government;

(c) To provide for, operate or administer such service as may be necessary for
the efficient, economical and beneficial utilization of the above properties.
Sec. 5. Powers and functions of the Authority. The Authority shall, in carrying
out the purposes for which it is created, have the following powers and
functions:
(a)To prescribe its by-laws.
xxx
(i) To hold lands of the public domain in excess of the area permitted
to private corporations by statute.
(j) To reclaim lands and to construct work across, or otherwise, any
stream, watercourse, canal, ditch, flume x x x.
xxx
(o) To perform such acts and exercise such functions as may be necessary for
the attainment of the purposes and objectives herein specified. (Emphasis
supplied)
PD No. 1084 authorizes PEA to reclaim both foreshore and submerged areas of the
public domain. Foreshore areas are those covered and uncovered by the ebb and flow of
the tide. Submerged areas are those permanently under water regardless of the ebb and
flow of the tide. Foreshore and submerged areas indisputably belong to the public
domain and are inalienable unless reclaimed, classified as alienable lands open to
disposition, and further declared no longer needed for public service.
[61]

[62]

[63]

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 evenin excess of the area permitted to private
corporations by statute. Thus, PEA can hold title to private lands, as well as title to
lands of the public domain.
In order for PEA to sell its reclaimed foreshore and submerged alienable lands of the
public domain, there must be legislative authority empowering PEA to sell these
lands. This legislative authority is necessary in view of Section 60 of CA No.141, which
states

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

municipality, or branch or subdivision of the Government shall not be
alienated, encumbered or otherwise disposed of in a manner affecting its
title, except when authorized by Congress; x x x. (Emphasis supplied)
Without such legislative authority, PEA could not sell but only lease its reclaimed
foreshore and submerged alienable lands of the public domain. Nevertheless, any
legislative authority granted to PEA to sell its reclaimed alienable lands of the public

domain would be subject to the constitutional ban on private corporations from acquiring
alienable lands of the public domain. Hence, such legislative authority could only benefit
private individuals.
Dispositions under the 1987 Constitution
The 1987 Constitution, like the 1935 and 1973 Constitutions before it, has adopted
the Regalian doctrine. The 1987 Constitution declares that all natural resources
are owned by the State, and except for alienable agricultural lands of the public domain,
natural resources cannot be alienated. Sections 2 and 3, Article XII of the 1987
Constitution state that

Section 2. All lands of the public domain, waters, minerals, coal, petroleum and
other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the
State. With the exception of agricultural lands, all other natural resources
shall not be alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State. x x x.
Section 3. Lands of the public domain are classified into agricultural, forest or
timber, mineral lands, and national parks. Agricultural lands of the public
domain may be further classified by law according to the uses which they may
be devoted. Alienable lands of the public domain shall be limited to
agricultural lands. Private corporations or associations may not hold such
alienable lands of the public domain except by lease, for a period not
exceeding twenty-five years, renewable for not more than twenty-five years,
and not to exceed one thousand hectares in area. Citizens of the Philippines
may lease not more than five hundred hectares, or acquire not more than twelve
hectares thereof by purchase, homestead, or grant.
Taking into account the requirements of conservation, ecology, and
development, and subject to the requirements of agrarian reform, the Congress
shall determine, by law, the size of lands of the public domain which may be
acquired, developed, held, or leased and the conditions therefor. (Emphasis
supplied)
The 1987 Constitution continues the State policy in the 1973 Constitution banning
private corporations from acquiring any kind of alienable land of the public
domain. Like the 1973 Constitution, the 1987 Constitution allows private corporations to
hold alienable lands of the public domain only through lease. As in the 1935 and 1973
Constitutions, the general law governing the lease to private corporations of reclaimed,
foreshore and marshy alienable lands of the public domain is still CA No. 141.

The Rationale behind the Constitutional Ban

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

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

5 which says:
`No private corporation or association may hold alienable lands of the
public domain except by lease, not to exceed one thousand hectares in
area.
If we recall, this provision did not exist under the 1935 Constitution, but this
was introduced in the 1973 Constitution. In effect, it prohibits private
corporations from acquiring alienable public lands. But it has not been very
clear in jurisprudence what the reason for this is. In some of the cases decided
in 1982 and 1983, it was indicated that the purpose of this is to prevent large
landholdings. Is that the intent of this provision?
MR. VILLEGAS: I think that is the spirit of the provision.
FR. BERNAS: In existing decisions involving the Iglesia ni Cristo, there were
instances where the Iglesia ni Cristo was not allowed to acquire a mere 313square meter land where a chapel stood because the Supreme Court said it
would be in violation of this. (Emphasis supplied)
In Ayog v. Cusi, the Court explained the rationale behind this constitutional ban in
this way:
[64]

Indeed, one purpose of the constitutional prohibition against purchases of

public agricultural lands by private corporations is to equitably diffuse land
ownership or to encourage owner-cultivatorship and the economic family-size
farm and to prevent a recurrence of cases like the instant case. Huge
landholdings by corporations or private persons had spawned social unrest.
However, if the constitutional intent is to prevent huge landholdings, the Constitution
could have simply limited the size of alienable lands of the public domain that
corporations could acquire. The Constitution could have followed the limitations on
individuals, who could acquire not more than 24 hectares of alienable lands of the public
domain under the 1973 Constitution, and not more than 12 hectares under the 1987
Constitution.

If the constitutional intent is to encourage economic family-size farms, placing the

land in the name of a corporation would be more effective in preventing the break-up of
farmlands. If the farmland is registered in the name of a corporation, upon the death of
the owner, his heirs would inherit shares in the corporation instead of subdivided parcels
of the farmland. This would prevent the continuing break-up of farmlands into smaller
and smaller plots from one generation to the next.
In actual practice, the constitutional ban strengthens the constitutional limitation on
individuals from acquiring more than the allowed area of alienable lands of the public
domain. Without the constitutional ban, individuals who already acquired the maximum
area of alienable lands of the public domain could easily set up corporations to acquire
more alienable public lands. An individual could own as many corporations as his means
would allow him. An individual could even hide his ownership of a corporation by
putting his nominees as stockholders of the corporation. The corporation is a convenient
vehicle to circumvent the constitutional limitation on acquisition by individuals of
alienable lands of the public domain.
The constitutional intent, under the 1973 and 1987 Constitutions, is to transfer
ownership of only a limited area of alienable land of the public domain to a qualified
individual. This constitutional intent is safeguarded by the provision prohibiting
corporations from acquiring alienable lands of the public domain, since the vehicle to
circumvent the constitutional intent is removed. The available alienable public lands are
gradually decreasing in the face of an ever-growing population. The most effective way
to insure faithful adherence to this constitutional intent is to grant or sell alienable lands
of the public domain only to individuals. This, it would seem, is the practical benefit
arising from the constitutional ban.
The Amended Joint Venture Agreement
The subject matter of the Amended JVA, as stated in its second Whereas clause,
consists of three properties, namely:
1. [T]hree partially reclaimed and substantially eroded islands along Emilio Aguinaldo
Boulevard in Paranaque and Las Pinas, Metro Manila, with a combined titled area of
1,578,441 square meters;
2. [A]nother area of 2,421,559 square meters contiguous to the three islands; and
3. [A]t AMARIs option as approved by PEA, an additional 350 hectares more or less to
regularize the configuration of the reclaimed area. [65]

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

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

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

x x x, PEA shall have the duty to execute without delay the necessary deed of
transfer or conveyance of the title pertaining to AMARIs Land share based on
the Land Allocation Plan. PEA, when requested in writing by AMARI, shall
then cause the issuance and delivery of the proper certificates of title
covering AMARIs Land Share in the name of AMARI, x x x; provided, that if
more than seventy percent (70%) of the titled area at any given time pertains to
AMARI, PEA shall deliver to AMARI only seventy percent (70%) of the titles
pertaining to AMARI, until such time when a corresponding proportionate area
of additional land pertaining to PEA has been titled. (Emphasis supplied)
Indisputably, under the Amended JVA AMARI will acquire and own a maximum of
367.5 hectares of reclaimed land which will be titled in its name.
To implement the Amended JVA, PEA delegated to the unincorporated PEA-AMARI
joint venture PEAs statutory authority, rights and privileges to reclaim foreshore and
submerged areas in Manila Bay. Section 3.2.a of the Amended JVA states that

PEA hereby contributes to the joint venture its rights and privileges to perform
Rawland Reclamation and Horizontal Development as well as own the
Reclamation Area, thereby granting the Joint Venture the full and exclusive
right, authority and privilege to undertake the Project in accordance with the
Master Development Plan.
The Amended JVA is the product of a renegotiation of the original JVA dated April 25,
1995 and its supplemental agreement dated August 9, 1995.
The Threshold Issue
The threshold issue is whether AMARI, a private corporation, can acquire and own
under the Amended JVA 367.5 hectares of reclaimed foreshore and submerged areas in
Manila Bay in view of Sections 2 and 3, Article XII of the 1987 Constitution which state
that:

Section 2. All lands of the public domain, waters, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the
State. With the exception of agricultural lands, all other natural resources
shall not be alienated. x x x.
xxx
Section 3. x x x Alienable lands of the public domain shall be limited to
agricultural lands. Private corporations or associations may not hold such
alienable lands of the public domain except by lease, x x x.(Emphasis
supplied)
Classification of Reclaimed Foreshore and Submerged Areas
PEA readily concedes that lands reclaimed from foreshore or submerged areas of
Manila Bay are alienable or disposable lands of the public domain. In its Memorandum,
PEA admits that
[67]

Under the Public Land Act (CA 141, as amended), reclaimed lands are
classified as alienable and disposable lands of the public domain:
Sec. 59. The lands disposable under this title shall be classified as follows:
(a) Lands reclaimed by the government by dredging, filling, or
other means;
x x x. (Emphasis supplied)
Likewise, the Legal Task Force 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. The Legal Task Force concluded that
[68]

[69]

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, 1987 Constitution), does not
[70]

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. 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, the Executive Department attempted to sell the Roppongi
property in Tokyo, Japan, which was acquired by the Philippine Government for use as
the Chancery of the Philippine Embassy. Although the Chancery had transferred to
another location thirteen years earlier, the Court still ruled that, under Article 422 of the
Civil Code, a property of public dominion retains such character until formally
declaredotherwise. The Court ruled that
[72]

[73]

[74]

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

Freedom Islands as alienable or disposable lands of the public domain. PD No. 1085 and
President Aquinos issuance of a land patent also constitute a declaration that the Freedom
Islands are no longer needed for public service. The Freedom Islands are thus alienable
or disposable lands of the public domain, open to disposition or concession to qualified
parties.
At the time then President Aquino issued Special Patent No. 3517, PEA had already
reclaimed the Freedom Islands although subsequently there were partial erosions on some
areas. The government had also completed the necessary surveys on these islands. Thus,
the Freedom Islands were no longer part of Manila Bay but part of the land mass. Section
3, Article XII of the 1987 Constitution classifies lands of the public domain into
agricultural, forest or timber, mineral lands, and national parks. Being neither timber,
mineral, nor national park lands, the reclaimed Freedom Islands necessarily fall under the
classification of agricultural lands of the public domain. Under the 1987 Constitution,
agricultural lands of the public domain are the only natural resources that the State may
alienate to qualified private parties. All other natural resources, such as the seas or bays,
are waters x x x owned by the State forming part of the public domain, and are
inalienable pursuant to Section 2, Article XII of the 1987 Constitution.
AMARI claims that the Freedom Islands are private lands because CDCP, then a
private corporation, reclaimed the islands under a contract dated November 20, 1973 with
the Commissioner of Public Highways. AMARI, citing Article 5 of the Spanish Law of
Waters of 1866, argues that if the ownership of reclaimed lands may be given to the party
constructing the works, then it cannot be said that reclaimed lands are lands of the public
domain which the State may not alienate. Article 5 of the Spanish Law of Waters reads
as follows:
[75]

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. 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.
[76]

[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 quasipublic purposes. 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.
[78]

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 Governments implementing arm to undertake all reclamation projects of the
government, which shall be undertaken by the PEA or through a proper contract
executed by it with any person or entity. Under such contract, a private party receives
compensation for reclamation services rendered to PEA. Payment to the contractor may
be in cash, or in kind consisting of portions of the reclaimed land, subject to the
constitutional ban on private corporations from acquiring alienable lands of the public
domain. The reclaimed land can be used as payment in kind only if the reclaimed land is
first classified as alienable or disposable land open to disposition, and then declared no
longer needed for public service.
The Amended JVA covers not only the Freedom Islands, but also an additional
592.15 hectares which are still submerged and forming part of Manila Bay. There is no
legislative or Presidential act classifying these submerged areas as alienable or
disposable lands of the public domain open to disposition. These submerged areas are
not covered by any patent or certificate of title.There can be no dispute that these
submerged areas form part of the public domain, and in their present state
are inalienable and outside the commerce of man. Until reclaimed from the sea, these
submerged areas are, under the Constitution, waters x x x owned by the State, forming
part of the public domain and consequently inalienable. Only when actually reclaimed
from the sea can these submerged areas be classified as public agricultural lands, which

under the Constitution are the only natural resources that the State may alienate. Once
reclaimed and transformed into public agricultural lands, the government may then
officially classify these lands as alienable or disposable lands open to
disposition. 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 PEAs reclaimed foreshore and submerged lands into alienable
or disposable lands open to disposition is necessary because PEA is tasked under its
charter to undertake public services that require the use of lands of the public
domain. Under Section 5 of PD No. 1084, the functions of PEA include the following:
[T]o own or operate railroads, tramways and other kinds of land transportation, x x x;
[T]o construct, maintain and operate such systems of sanitary sewers as may be
necessary; [T]o construct, maintain and operate such storm drains as may be
necessary.PEA is empowered to issue rules and regulations as may be necessary for the
proper use by private parties of any or all of the highways, roads, utilities, buildings
and/or any of its propertiesand 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. 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.
[79]

Section 3 of EO No. 525, by declaring that all lands reclaimed by PEA shall belong
to or be owned by the PEA, could not automatically operate to classify inalienable lands
into alienable or disposable lands of the public domain. Otherwise, reclaimed foreshore
and submerged lands of the public domain would automatically become alienable once
reclaimed by PEA, whether or not classified as alienable or disposable.
The Revised Administrative Code of 1987, a later law than either PD No. 1084 or
EO No. 525, vests in the Department of Environment and Natural Resources (DENR for
brevity) the following powers and functions:

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

(1) x x x
xxx

(4) Exercise supervision and control over forest lands, alienable and
disposable public lands, mineral resources and, in the process of exercising
such control, impose appropriate taxes, fees, charges, rentals and any such form
of levy and collect such revenues for the exploration, development, utilization
or gathering of such resources;
xxx
(14) Promulgate rules, regulations and guidelines on the issuance of
licenses, permits, concessions, lease agreements and such other privileges
concerning the development, exploration and utilization of the countrys
marine, freshwater, and brackish water and over all aquatic resources of the
country and shall continue to oversee, supervise and police our natural
resources; cancel or cause to cancel such privileges upon failure, noncompliance 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. (Emphasis supplied)
[80]

As manager, conservator and overseer of the natural resources of the State, DENR
exercises supervision and control over alienable and disposable public lands. DENR also
exercises exclusive jurisdiction on the management and disposition of all lands of the
public domain. Thus, DENR decides whether areas under water, like foreshore or
submerged areas of Manila Bay, should be reclaimed or not. This means that PEA needs
authorization from DENR before PEA can undertake reclamation projects in Manila Bay,
or in any part of the country.
DENR also exercises exclusive jurisdiction over the disposition of all lands of the
public domain. Hence, DENR decides whether reclaimed lands of PEA should be
classified as alienable under Sections 6 and 7 of CA No. 141. Once DENR decides
that the reclaimed lands should be so classified, it then recommends to the President the
issuance of a proclamation classifying the lands as alienable or disposable lands of the
public domain open to disposition. We note that then DENR Secretary Fulgencio S.
Factoran, Jr. countersigned Special Patent No. 3517 in compliance with the Revised
Administrative Code and Sections 6 and 7 of CA No. 141.
[81]

[82]

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 of CA No. 141 and other applicable laws.
[83]

[84]

PEAs Authority to Sell Reclaimed Lands

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

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

Sec. 48. Official Authorized to Convey Real Property. Whenever real property
of the Government is authorized by law to be conveyed, the deed of
conveyance shall be executed in behalf of the government by the following: x x
x.
Thus, the Court concluded that a law is needed to convey any real property belonging to
the Government. The Court declared that -

It is not for the President to convey real property of the government on his or
her own sole will. Any such conveyance must be authorized and approved by
a law enacted by the Congress. It requires executive and legislative
concurrence. (Emphasis supplied)
PEA contends that PD No. 1085 and EO No. 525 constitute the legislative authority
allowing PEA to sell its reclaimed lands. PD No. 1085, issued on February 4, 1977,
provides that

The land reclaimed in the foreshore and offshore area of Manila

Bay pursuant to the contract for the reclamation and construction of the Manila-

Cavite Coastal Road Project between the Republic of the Philippines and the
Construction and Development Corporation of the Philippines dated November
20, 1973 and/or any other contract or reclamation covering the same area is
hereby transferred, conveyed and assigned to the ownership and
administration of the Public Estates Authority established pursuant to PD No.
1084; Provided, however, That the rights and interests of the Construction and
Development Corporation of the Philippines pursuant to the aforesaid contract
shall be recognized and respected.
Henceforth, the Public Estates Authority shall exercise the rights and assume
the obligations of the Republic of the Philippines (Department of Public
Highways) arising from, or incident to, the aforesaid contract between the
Republic of the Philippines and the Construction and Development Corporation
of the Philippines.
In consideration of the foregoing transfer and assignment, the Public Estates
Authority shall issue in favor of the Republic of the Philippines the
corresponding shares of stock in said entity with an issued value of said shares
of stock (which) shall be deemed fully paid and non-assessable.
The Secretary of Public Highways and the General Manager of the Public
Estates Authority shall execute such contracts or agreements, including
appropriate agreements with the Construction and Development Corporation of
the Philippines, as may be necessary to implement the above.
Special land patent/patents shall be issued by the Secretary of Natural
Resources in favor of the Public Estates Authority without prejudice to the
subsequent transfer to the contractor or his assignees of such portion or
portions of the land reclaimed or to be reclaimed as provided for in the
above-mentioned contract. On the basis of such patents, the Land
Registration Commission shall issue the corresponding certificate of title.
(Emphasis supplied)
On the other hand, Section 3 of EO No. 525, issued on February 14, 1979, provides
that -

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

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

There is no express authority under either PD No. 1085 or EO No. 525 for PEA to
sell its reclaimed lands. PD No. 1085 merely transferred ownership and administration of
lands reclaimed from Manila Bay to PEA, while EO No. 525 declared that lands
reclaimed by PEA shall belong to or be owned by PEA. EO No. 525 expressly states that
PEA should dispose of its reclaimed lands in accordance with the provisions of
Presidential Decree No. 1084, the charter of PEA.
PEAs charter, however, expressly tasks PEA to develop, improve, acquire,
administer, deal in, subdivide, dispose, lease and sell any and all kinds of lands x x x
owned, managed, controlled and/or operated by the government. (Emphasis
supplied) There is, therefore, legislative authority granted to PEA to sell its lands,
whether patrimonial or alienable lands of the public domain. PEA may sell to private
parties its patrimonial properties in accordance with the PEA charter free from
constitutional limitations. The constitutional ban on private corporations from acquiring
alienable lands of the public domain does not apply to the sale of PEAs patrimonial lands.
[87]

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. 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, 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.
[88]

[89]

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. The Commission on Audit
implements Section 79 of the Government Auditing Code through Circular No. 89296 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.
[90]

[91]

At the public auction sale, only Philippine citizens are qualified to bid for PEAs
reclaimed foreshore and submerged alienable lands of the public domain. Private
corporations are barred from bidding at the auction sale of any kind of alienable land of
the public domain.
PEA originally scheduled a public bidding for the Freedom Islands on December 10,
1991. PEA imposed a condition that the winning bidder should reclaim another 250
hectares of submerged areas to regularize the shape of the Freedom Islands, under a 6040 sharing of the additional reclaimed areas in favor of the winning bidder. 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.
[92]

[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. The failure of public bidding on
December 10, 1991, involving only 407.84 hectares, is not a valid justification for a
[94]

[95]

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 buildoperate-and-transfer arrangement or any of its variations pursuant to the
provisions of this Act, the project proponent x x x may likewise be repaid in the
form of a share in the revenue of the project or other non-monetary payments,
such as, but not limited to, the grant of a portion or percentage of the reclaimed
land, subject to the constitutional requirements with respect to the ownership
of the land: x x x. (Emphasis supplied)
A private corporation, even one that undertakes the physical reclamation of a government
BOT project, cannot acquire reclaimed alienable lands of the public domain in view of
the constitutional ban.
Section 302 of the Local Government Code, also mentioned by PEA and AMARI,
authorizes local governments in land reclamation projects to pay the contractor or
developer in kind consisting of a percentage of the reclaimed land, to wit:

Section 302. Financing, Construction, Maintenance, Operation, and

Management of Infrastructure Projects by the Private Sector. x x x
xxx
In case of land reclamation or construction of industrial estates, the repayment
plan may consist of the grant of a portion or percentage of the reclaimed land or
the industrial estate constructed.
Although Section 302 of the Local Government Code does not contain a proviso similar
to that of the BOT Law, the constitutional restrictions on land ownership automatically
apply even though not expressly mentioned in the Local Government Code.
Thus, under either the BOT Law or the Local Government Code, the contractor or
developer, if a corporate entity, can only be paid with leaseholds on portions of the
reclaimed land. If the contractor or developer is an individual, portions of the reclaimed

land, not exceeding 12 hectares 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.
[96]

Registration of lands of the public domain

Finally, PEA theorizes that the act of conveying the ownership of the reclaimed lands
to public respondent PEA transformed such lands of the public domain to private lands.
This theory is echoed by AMARI which maintains that the issuance of the special patent
leading to the eventual issuance of title takes the subject land away from the land of
public domain and converts the property into patrimonial or private property. In short,
PEA and AMARI contend that with the issuance of Special Patent No. 3517 and the
corresponding certificates of titles, the 157.84 hectares comprising the Freedom Islands
have become private lands of PEA. In support of their theory, PEA and AMARI cite the
following rulings of the Court:
1. Sumail v. Judge of CFI of Cotabato,[97] where the Court held
Once the patent was granted and the corresponding certificate of title was issued, the
land ceased to be part of the public domain and became private property over which
the Director of Lands has neither control nor jurisdiction.
2. Lee Hong Hok v. David,[98] where the Court declared After the registration and issuance of the certificate and duplicate certificate of title
based on a public land patent, the land covered thereby automatically comes under
the operation of Republic Act 496 subject to all the safeguards provided therein.
3. Heirs of Gregorio Tengco v. Heirs of Jose Aliwalas,[99] where the Court ruled While the Director of Lands has the power to review homestead patents, he may do
so only so long as the land remains part of the public domain and continues to be
under his exclusive control; but once the patent is registered and a certificate of title
is issued, the land ceases to be part of the public domain and becomes private
property over which the Director of Lands has neither control nor jurisdiction.
4. Manalo v. Intermediate Appellate Court,[100] where the Court held
When the lots in dispute were certified as disposable on May 19, 1971, and free
patents were issued covering the same in favor of the private respondents, the said
lots ceased to be part of the public domain and, therefore, the Director of Lands lost
jurisdiction over the same.
5.Republic v. Court of Appeals,[101] where the Court stated
Proclamation No. 350, dated October 9, 1956, of President Magsaysay legally
effected a land grant to the Mindanao Medical Center, Bureau of Medical Services,
Department of Health, of the whole lot, validly sufficient for initial registration
under the Land Registration Act. Such land grant is constitutive of a fee simple title
or absolute title in favor of petitioner Mindanao Medical Center. Thus, Section 122
of the Act, which governs the registration of grants or patents involving public lands,

provides that Whenever public lands in the Philippine Islands belonging to the
Government of the United States or to the Government of the Philippines are
alienated, granted or conveyed to persons or to public or private corporations, the
same shall be brought forthwith under the operation of this Act (Land Registration
Act, Act 496) and shall become registered lands.

The first four cases cited involve petitions to cancel the land patents and the
corresponding certificates of titles issued to private parties. These four cases uniformly
hold that the Director of Lands has no jurisdiction over private lands or that upon
issuance of the certificate of title the land automatically comes under the Torrens
System. The fifth case cited involves the registration under the Torrens System of a 12.8hectare 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 PEAs patent or certificates of title. In
fact, the thrust of the instant petition is that PEAs certificates of title should remain with
PEA, and the land covered by these certificates, being alienable lands of the public
domain, should not be sold to a private corporation.
Registration of land under Act No. 496 or PD No. 1529 does not vest in the registrant
private or public ownership of the land. Registration is not a mode of acquiring
ownership but is merely evidence of ownership previously conferred by any of the
recognized modes of acquiring ownership. Registration does not give the registrant a
better right than what the registrant had prior to the registration. The registration of
lands of the public domain under the Torrens system, by itself, cannot convert public
lands into private lands.
[102]

[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. 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.
[104]

The grant of legislative authority to sell public lands in accordance with Section 60
of CA No. 141 does not automatically convert alienable lands of the public domain into
private or patrimonial lands. The alienable lands of the public domain must be transferred
to qualified private parties, or to government entities not tasked to dispose of public
lands, before these lands can become private or patrimonial lands. Otherwise, the
constitutional ban will become illusory if Congress can declare lands of the public
domain as private or patrimonial lands in the hands of a government agency tasked to
dispose of public lands. This will allow private corporations to acquire directly from
government agencies limitless areas of lands which, prior to such law, are concededly
public lands.
Under EO No. 525, PEA became the central implementing agency of the National
Government to reclaim foreshore and submerged areas of the public domain. Thus, EO
No. 525 declares that

EXECUTIVE ORDER NO. 525

Designating the Public Estates Authority as the Agency Primarily Responsible
for all Reclamation Projects
Whereas, there are several reclamation projects which are ongoing or being
proposed to be undertaken in various parts of the country which need to be
evaluated for consistency with national programs;
Whereas, there is a need to give further institutional support to the
Governments declared policy to provide for a coordinated, economical and
efficient reclamation of lands;
Whereas, Presidential Decree No. 3-A requires that all reclamation of areas
shall be limited to the National Government or any person authorized by it
under proper contract;

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

Government which shall ensure a coordinated and integrated approach in
the reclamation of lands;
Whereas, Presidential Decree No. 1084 creates the Public Estates Authority
as a government corporation to undertake reclamation of lands and ensure
their maximum utilization in promoting public welfare and interests; and
Whereas, Presidential Decree No. 1416 provides the President with continuing
authority to reorganize the national government including the transfer,
abolition, or merger of functions and offices.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers vested in me by the Constitution and
pursuant to Presidential Decree No. 1416, do hereby order and direct the
following:
Section 1. The Public Estates Authority (PEA) shall be primarily responsible
for integrating, directing, and coordinating all reclamation projects for and
on behalf of the National Government. All reclamation projects shall be
approved by the President upon recommendation of the PEA, and shall be
undertaken by the PEA or through a proper contract executed by it with any
person or entity; Provided, that, reclamation projects of any national
government agency or entity authorized under its charter shall be undertaken in
consultation with the PEA upon approval of the President.
xxx.
As the central implementing agency tasked to undertake reclamation projects
nationwide, with authority to sell reclaimed lands, PEA took the place of DENR as the
government agency charged with leasing or selling reclaimed lands of the public
domain. The reclaimed lands being leased or sold by PEA are not private lands, in the
same manner that DENR, when it disposes of other alienable lands, does not dispose of
private lands but alienable lands of the public domain. Only when qualified private
parties acquire these lands will the lands become private lands. In the hands of the
government agency tasked and authorized to dispose of alienable of disposable lands of
the public domain, these lands are still public, not private lands.
Furthermore, PEAs charter expressly states that PEA shall hold lands of the public
domain as well as any and all kinds of lands. PEA can hold both lands of the public
domain and private lands. Thus, the mere fact that alienable lands of the public domain
like the Freedom Islands are transferred to PEA and issued land patents or certificates of
title in PEAs name does not automatically make such lands private.

To allow vast areas of reclaimed lands of the public domain to be transferred to PEA
as private lands will sanction a gross violation of the constitutional ban on private
corporations from acquiring any kind of alienable land of the public domain. PEA will
simply turn around, as PEA has now done under the Amended JVA, and transfer several
hundreds of hectares of these reclaimed and still to be reclaimed lands to a single private
corporation in only one transaction. This scheme will effectively nullify the constitutional
ban in Section 3, Article XII of the 1987 Constitution which was intended to diffuse
equitably the ownership of alienable lands of the public domain among Filipinos, now
numbering over 80 million strong.
This scheme, if allowed, can even be applied to alienable agricultural lands of the
public domain since PEA can acquire x x x any and all kinds of lands. This will open the
floodgates to corporations and even individuals acquiring hundreds of hectares of
alienable lands of the public domain under the guise that in the hands of PEA these lands
are private lands. This will result in corporations amassing huge landholdings never
before seen in this country - creating the very evil that the constitutional ban was
designed to prevent. This will completely reverse the clear direction of constitutional
development in this country. The 1935 Constitution allowed private corporations to
acquire not more than 1,024 hectares of public lands. The 1973 Constitution prohibited
private corporations from acquiring any kind of public land, and the 1987 Constitution
has unequivocally reiterated this prohibition.
[105]

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. All these properties
become properties of the public domain, and if already registered under Act No. 496 or
PD No. 1529, remain registered land. There is no requirement or provision in any
existing law for the de-registration of land from the Torrens System.
[106]

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

Sec. 85. Land taken by eminent domain. Whenever any registered land, or
interest therein, is expropriated or taken by eminent domain, the National
Government, province, city or municipality, or any other agency or
instrumentality exercising such right shall file for registration in the proper
Registry a certified copy of the judgment which shall state definitely by an
adequate description, the particular property or interest expropriated, the
number of the certificate of title, and the nature of the public use. A

memorandum of the right or interest taken shall be made on each certificate of

title by the Register of Deeds, and where the fee simple is taken, a new
certificate shall be issued in favor of the National Government, province, city,
municipality, or any other agency or instrumentality exercising such right for
the land so taken. The legal expenses incident to the memorandum of
registration or issuance of a new certificate of title shall be for the account of
the authority taking the land or interest therein. (Emphasis supplied)
Consequently, lands registered under Act No. 496 or PD No. 1529 are not exclusively
private or patrimonial lands. Lands of the public domain may also be registered pursuant
to existing laws.
AMARI makes a parting shot that the Amended JVA is not a sale to AMARI of the
Freedom Islands or of the lands to be reclaimed from submerged areas of Manila Bay. In
the words of AMARI, the Amended JVA is not a sale but a joint venture with a stipulation
for reimbursement of the original cost incurred by PEA for the earlier reclamation and
construction works performed by the CDCP under its 1973 contract with the
Republic. Whether the Amended JVA is a sale or a joint venture, the fact remains that the
Amended JVA requires PEA to cause the issuance and delivery of the certificates of title
conveying AMARIs Land Share in the name of AMARI.
[107]

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

[109]

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 hectares[110] of the Freedom Islands, such transfer is void for
being contrary to Section 3, Article XII of the 1987 Constitution which prohibits
private corporations from acquiring any kind of alienable land of the public domain.
4. Since the Amended JVA also seeks to transfer to AMARI ownership of 290.156
hectares[111] of still submerged areas of Manila Bay, such transfer is void for being
contrary to Section 2, Article XII of the 1987 Constitution which prohibits the
alienation of natural resources other than agricultural lands of the public
domain. PEA may reclaim these submerged areas. 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 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.
[112]

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.