G.R. No.

L-9069 March 31, 1915

THE MUNICIPALITY OF CAVITE, plaintiff-appellant,

vs.
HILARIA ROJAS and her husband TIUNG SIUKO, alias SIWA, defendants-appellees.

Attorney-General Villamor for appellant.

J. Y. Pinzon for appellees.

TORRES, J.:

Appeal filed through bill of exceptions by the Attorney-General, representing the plaintiff municipality of Cavite, from
the judgment of March 27, 1913, whereby the Honorable Herbert D. Gale, judge, dismissed the complaint with costs
against the plaintiff party, declaring that the said municipality had no right to require that the defendants vacate the
land in question.

By an instrument dated December 5, 1911, afterwards amended on March 14, 1912, the provincial fiscal of Cavite,
representing the municipality of that name, filed a complaint in the Court of First Instance of said province alleging
that the plaintiff municipal corporation, duly organized and constituted in accordance with Act No. 82, and as the
successor to the rights s aid entity had under the late Spanish government, and by virtue of Act No. 1039, had
exclusive right, control and administration over the streets, lanes, plazas, and public places of the municipality of
Cavite; that the defendants, by virtue of a lease secured from the plaintiff municipality, occupy a parcel of land 93
square meters in area that forms part o the public plaza known under the name of Soledad, belonging to the
municipality of Cavite, the defendants having constructed thereon a house, through payment to the plaintiff for
occupation thereof of a rental of P5,58 a quarter in advance, said defendants being furthermore obligated to vacate
the leased land within sixty days subsequent to plaintiff's demand to that effect; that the defendants have been
required by the municipality to vacate and deliver possession of the said land, but more than the sixty days within
which they having done so to date; that the lease secured from the municipality of Cavite, by virtue whereof the
defendants occupy the land that is the subject matter of the complaint, is ultra vires and therefore ipso factonull and
void and of no force or effect, for the said land is an integral portion of a public plaza of public domain and use, and
the municipal council of Cavite has never at any time had any power or authority to withdraw it from public use, and to
lease it to a private party for his own use, and so the defendants have never had any right or occupy or to retain the
said land under leasehold, or in any other way, their occupation of the parcel being furthermore illegal; and therefore
prayed that judgment be rendered declaring that possession of the sad land lies with the plaintiff and ordering the
defendants to vacate the land and deliver possession thereof to said plaintiff, with the costs against the defendants.

The demurrer filed to the foregoing complaint having been overruled, with exception on the part of the defendants, in
their answer of April 10, 1912, they admitted some of the allegations contained in the complaint but denied that the
parcel of land which they occupy and to which the complaint refers forms and integral part of Plaza Soledad, or that
the lease secured by them from the municipality of Cavite was null and void and ultra vires, stating if they refused to
vacate said land it was because they had acquired the right of possession thereof. As a special defense they alleged
that, according to the lease, they could only be ordered to vacate the land leased when the plaintiff municipality might
need it for decoration or other public use, which does not apply in the present case; and in a cross-complaint they
alleged that on the land which is the subject matter of the complaint the defendants have erected a house of strong
materials, assessed at P3,000, which was constructed under a license secured from the plaintiff municipality; that if
they should be ordered to vacate the said land they would suffer damages to the extent of P3,000, wherefore they
prayed that they be absolved from the complaint, or in the contrary case that the plaintiff be sentenced to indemnify
them in the sum of P3,000 as damages, and to pay the costs.

After hearing of the case, wherein both parties submitted parol and documentary evidence, the court rendered the
judgment that he been mentioned, whereto counsel for the municipality excepted and in writing asked for a reopening
of the case and the holding of a new trial. This motion was denied, with exception on the part of the appellant, and the
forwarded to the clerk of this court.

It is duly proven in the record that, upon presentation of an application by Hilaria Rojas, he municipal council of Cavite
by resolution No. 10, dated July 3, 107, Exhibit C, leased to the said Rojas some 70 or 80 square meters of Plaza
Soledad, on condition that she pay rent quarterly in advance according to the schedule fixed in Ordinance No. 43,
land within sixty days subsequent to notification to that effect. The record shows (receipts, Exhibit 1) that she has
paid the land tax on the house erected on the lot.
The boundary line between the properties of the municipality of Cavite and the naval reservation, as fixed in Act No.
1039 of the Philippine Commission, appears in the plan prepared by a naval engineer and submitted as evidence by
the plaintiff, Exhibit C of civil case No. 274 of the Cavite court and registered in this court as No. 9071. According to
said plan, defendant's house is erected on a plat of ground that forms part of the promenade called Plaza Soledad,
and this was also so proven by the testimony of the plaintiff's witnesses.

By section 3 of the said Act No. 1039, passed January 12, 1904, the Philippine Commission granted to the
municipality of Cavite all the land included in the tract called Plaza Soledad. In the case of Nicolas vs. Jose (6 Phil.
Rep., 589), wherein the municipality of Cavite, represented by its president Catalino Nicolas, sought inscription in its
name of the land comprised in the said Palza Soledad, with objection on the part of Maria Jose et al. who is sought
that inscription be decreed in their name of the parcels of land in this plaza occupied by them, this court decided that
neither the municipality nor the objectors were entitled to inscription, for with respect to the objectors said plaza
belonged to the municipality of Cavite and with respect to the latter the said Plaza Soledad was not transferable
property of that municipality to be inscribed in its name, because he intention of Act No. 1039 was that the said plaza
and other places therein enumerated should be kept open for public transit; herefore there can be no doubt that the
defendant has no right to continue to occupy the land of the municipality leased by her, for it is an integral portion of
Plaza Soledad, which if for public use and is reserved for the common benefit.

According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the provincial
and town roads, the squares, streets, fountains, and public waters, the promenades, and public works of general
service supported by said towns or provinces."

The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907 withdraw
or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant Hilaria Rojas. In
leasing a portion of said plaza or public place to the defendant for private use the plaintiff municipality exceeded its
authority in the exercise of its powers by executing a contract over a thing of which it could not dispose, nor is it
empowered so to do.

The Civil Code, articles 1271, prescribes that everything which is not outside he commerce of man may be the object
of a contract, and plazas and streets are outside of this commerce, as was decided by the supreme court of Spain in
its decision of February 12, 195, which says: "Communal things that cannot be soud because they are by their very
nature outside of commerce are those for public use, such as the plazas, streets, common lands, rivers, fountains,
etc."

Therefore, it must be concluded that the contract, Exhibit C, whereby he municipality of Cavite leased to Hilaria Rojas
a portion of the Plaza Soledad is null and void and of no force or effect, because it is contrary to the law and the thing
leased cannot be the object of a contract. On the hyphotesis that the said lease is null and void in accordance with
the provisions of article 1303 of the Civil Code, the defendant must restore and deliver possession of the land
described in the complaint to the municipality of Cavite, which in its turn must restore to the said defendant all the
sums it may have received from her in the nature of rentals just as soon as she restores the land improperly leased.
For the same reasons as have been set forth, and as said contract is null and void in its origin, it can produce no
effect and consequently the defendant is not entitled to claim that the plaintiff municipality indemnity her for the
damages she may suffer by the removal of her house from the said land.

For all the foregoing reasons we must reverse the judgment appealed from and declare, as we do declare, that the
land occupied by Hilaria Rojas forms part of the public plaza called Soledad, and as the lease of said parcel of land is
null and void, we order the defendant to vacate it and release the land in question within thirty days, leaving it cleared
as it was before hr occupation. There is no ground for the indemnity sought in the nature of damages, but the
municipality must in its turn to the defendant the rentals collected; without finding as to the costs. So ordered.

Arellano, C.J., Johnson and Araullo, JJ., concur.

Moreland, J., concurs in the result.

G.R. No. L-66575 September 30, 1986

ADRIANO MANECLANG, JULIETA, RAMONA, VICTOR, ANTONINA, LOURDES, TEODORO and MYRNA, all
surnamed MANECLANG, petitioners,
vs.
THE INTERMEDIATE APPELLATE COURT and ALFREDO MAZA, CORLETO CASTRO, SALOME RODRIGUEZ,
EDUCARDO CUISON, FERNANDO ZARCILLA, MARIANO GABRIEL, NICOMEDES CORDERO, CLETO
PEDROZO, FELIX SALARY and JOSE PANLILIO, respondents.

Loreto Novisteros for petitioners.

Corleto R. Castro for respondents.

FERNAN, J.:

Petitioners Adriano Maneclang, et. al. filed before the then Court of First Instance of Pangasinan, Branch XI a
complaint for quieting of title over a certain fishpond located within the four [41 parcels of land belonging to them
situated in Barrio Salomague, Bugallon, Pangasinan, and the annulment of Resolutions Nos. 38 and 95 of the
Municipal Council of Bugallon Pangasinan. The trial court dismissed the complaint in a decision dated August 15,
1975 upon a finding that the body of water traversing the titled properties of petitioners is a creek constituting a
tributary of the Agno River; therefore public in nature and not subject to private appropriation. The lower court
likewise held that Resolution No. 38, ordering an ocular inspection of the Cayangan Creek situated between Barrios
Salomague Sur and Salomague Norte, and Resolution No. 95 authorizing public bidding for the lease of all municipal
ferries and fisheries, including the fishpond under consideration, were passed by respondents herein as members of
the Municipal Council of Bugallon, Pangasinan in the exercise of their legislative powers.

Petitioners appealed said decision to the Intermediate Appellate Court, which affirmed the same on April 29, 1983.
Hence, this petition for review on certiorari.

Acting on the petition, the Court required the respondents to comment thereon. However, before respondents could
do so, petitioners manifested that for lack of interest on the part of respondent Alfredo Maza, the awardee in the
public bidding of the fishpond, the parties desire to amicably settle the case by submitting to the Court a Compromise
Agreement praying that judgment be rendered recognizing the ownership of petitioners over the land the body of
water found within their titled properties, stating therein, among other things, that "to pursue the case, the same will
not amount to any benefit of the parties, on the other hand it is to the advantage and benefit of the municipality if the
ownership of the land and the water found therein belonging to petitioners be recognized in their favor as it is now
clear that after the National Irrigation Administration [NIA] had built the dike around the land, no water gets in or out of
the land. 1

The stipulations contained in the Compromise Agreement partake of the nature of an adjudication of ownership in
favor of herein petitioners of the fishpond in dispute, which, as clearly found by the lower and appellate courts, was
originally a creek forming a tributary of the Agno River. Considering that as held in the case of Mercado vs. Municipal
President of Macabebe, 59 Phil. 592 [1934], a creek, defined as a recess or arm extending from a river and
participating in the ebb and flow of the sea, is a property belonging to the public domain which is not susceptible to
private appropriation and acquisitive prescription, and as a public water, it cannot be registered under the Torrens
System in the name of any individual [Diego v. Court of Appeals, 102 Phil. 494; Mangaldan v. Manaoag, 38 Phil.
4551; and considering further that neither the mere construction of irrigation dikes by the National Irrigation
Administration which prevented the water from flowing in and out of the subject fishpond, nor its conversion into a
fishpond, alter or change the nature of the creek as a property of the public domain, the Court finds the Compromise
Agreement null and void and of no legal effect, the same being contrary to law and public policy.

The finding that the subject body of water is a creek belonging to the public domain is a factual determination binding
upon this Court. The Municipality of Bugallon, acting thru its duly-constituted municipal council is clothed with
authority to pass, as it did the two resolutions dealing with its municipal waters, and it cannot be said that petitioners
were deprived of their right to due process as mere publication of the notice of the public bidding suffices as a
constructive notice to the whole world.

IN VIEW OF THE FOREGOING, the Court Resolved to set aside the Compromise Agreement and declare the same
null and void for being contrary to law and public policy. The Court further resolved to DISMISS the instant petition for
lack of merit.

SO ORDERED.
Feria (Chairman), Alampay, Gutierrez, Jr. and Paras, JJ., concur.

THIRD DIVISION

REPUBLIC OF THEPHILIPPINES, G.R. No. 153726

Petitioner,

- versus -

DEMOCRITO T. MENDOZA, SR., GWENDOLYN

MENDOZA, VILMA MENDOZA, DEMOCRITO
MENDOZA, JR., MENCA DEVELOPMENT CORP.,
CARMEN VELEZ TING and JACINTO VELEZ, JR.,
Respondents.
x-----------------------x

SILOT BAY FISHERMANS ASSOCIATION, INC.,

Petitioner,

- versus - G.R. No. 154014

Present:

REPUBLIC OF THE PHILIPPINES, represented by YNARES-SANTIAGO, J.,

the DIRECTOR OF LANDS MANAGEMENT Chairperson,
BUREAU, AUSTRIA-MARTINEZ,
Respondent. CALLEJO, SR.,
CHICO-NAZARIO, and
NACHURA, JJ.

Promulgated:

March 28, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before Us are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Civil Procedure,
assailing the Decision[1] of the Court of Appeals in CA-G.R. CV No. 57069, dated 30 March 2001, which reversed and
set aside the Decision[2] of the Regional Trial Court (RTC) of Cebu, Branch 14, and dismissed for lack of merit Civil
Case No. CEB-9563.

The present controversy involves a considerable spread of Silot Bay situated in Liloan, Cebu, and originally
classified as part of Block B-Timberland, Project No. 29 of LC Map 1391-Liloan of the Land Classification Project of
the Province of Cebu, with an area of 87.134 hectares, more or less.

On 13 January 1954, Democrito T. Mendoza, Sr. was accorded Ordinary Fishpond Permit No. F-2166-J for
an area of 6.25 hectares within Silot Bay, which was previously leased by his father who waived the leasehold rights
in his favor. On 26 July of the same year, Democrito Mendoza, Sr. was also issued Ordinary Nipa-Bacauan Permit
No. NB 642 for an area of 2.635 hectares, also in Silot Bay. Several years later, on 7 May 1969, Democrito Mendoza,
Sr. was issued Ordinary Fishpond Permit No. F-6029-Y encompassing an estimated area of 70.07 hectares
within Silot Bay. This new permit covers the combined areas under Ordinary Nipa-Bacauan Permit No. NB 642 and
Ordinary Fishpond Permit No. F-2166-J, as well as other areas previously managed by other fishpond permit
grantees which Democrito Mendoza, Sr. acquired for valuable consideration.

Meanwhile, on 16 January 1967, then President Ferdinand E. Marcos issued a Memorandum addressed to
the Secretary of Agriculture and Natural Resources, the Chairman of the Board of Governors of the Development
Bank of the Philippines, the Undersecretary of Natural Resources, and the Directors of the Bureaus of Fishery,
Forestry, and Lands, respectively, thereby constituting a continuing committee to accomplish the following:

1. Identify the exact locations and area of these 700,000 hectares of fishpond areas on or
before February 28, 1967. x x x.

2. Within the month of March 1967, all these fishpond areas shall be released by the
Bureau of Forestry to the Bureau of Lands as alienable and disposable, but subject to the
disposal of the Bureau of Fisheries for fishpond purposes.[3]

Thereafter, on 24 September 1969, Democrito Mendoza, Sr. filed an application for sales patent [4] to
purchase the area covered by Ordinary Fishpond Permit No. F-6029-Y.[5] The fishpond permit indicated that the area
covered by said permit was only 70.07 hectares; however, upon resurvey by the Bureau of Lands, the area was
reported to be measuring 92.3881 hectares. Later, still another survey by the same bureau disclosed that the area
applied for was only a little over 89 hectares.

On 17 August 1970, then Acting Director of Forestry Jose Viado issued a Letter Certification addressed to
the Director of Lands regarding the classification of the property covered by Ordinary Fishpond Permit No. F-6029-Y
subject of the sales patent application applied for by Democrito Mendoza, Sr., to wit:

Please be informed that the tract of land situated in Silot-Poblacion, Liloan, Cebu,
containing an area of 70.07 hectares xxx, is within the Timberland Block-B of LC Project No. 29
ofLiloan, Cebu, per BF Map LC-1391. However, since the said area has already been certified
as available for fishpond development and is thus no longer needed for forest purposes, the
same (the 70.07 hectares shown on Cebu PMD No. 1379) is, therefore, hereby certified as such
and released as Alienable or Disposable for fishpond purposes only pursuant to the
directive of the President dated January 16, 1967 and for disposition under the Public Land
Act, as amended, subject nevertheless, to the following conditions:

xxxx

2. That the area herein certified as Alienable or Disposable be solely developed

and used for fishpond purposes in consonance with the approved scientific
practices and assistance of the personnel of the Philippine Fisheries Commission
(Presidential Directive of January 16, 1967).[6] [Emphasis ours]

In compliance with the process for sales patent application, Democrito Mendoza, Sr. secured and submitted
separate certifications from concerned government agencies such as the Provincial Engineer of Cebu, the District
Engineer of Cebu, the Municipal Council of Liloan, Cebu, the Commissioner of Customs, the Secretary of Public
Works and Highways, among other offices, to determine if there were objections to his application. Based on these
certifications issued upon Democrito Mendoza, Sr.s request, it was ascertained that there was no objection to said
application and that the same did not interfere with any function or proposed project of the government.
 Subsequently, notices of sale were published in the Nueva Era and the Mindanao Mail, in addition to the
publication in the Official Gazette. The same were posted in conspicuous places within the vicinity of the property
subject of the sale and on the bulletin boards of the Municipal Hall of Liloan, Cebu, and of the Bureau of Lands,
District VII-I, both in Cebu City.

In the interim, Presidential Decree No. 43, Providing for the Accelerated Development of the Fishery
Industry of the Philippines,[7] was issued on 9 November 1972.Whereupon all public lands, such as tidal swamps,
mangrove and other swamps, marshes, ponds and streams within public lands, including public lands left dry during
the lowest low tide and covered by water during the highest tide; and which are not needed for forestry purposes
were declared available for fishpond purposes and automatically transferred to the Bureau of Fisheries for its
administration and disposition.[8]

On 18 January 1973, a day before the scheduled auction sale of the disputed property, then Liloan Mayor
Cesar Bugtai filed a letter-protest with the Director of Lands objecting to the proposed sale of the property. According
to Mayor Bugtai, the area was intended for development by the local government as a tourist attraction. Despite said
opposition by the municipal mayor, the District Land Office of Cebu City proceeded with the scheduled auction sale
on 19 January 1973, wherein Democrito Mendoza, Sr. was declared winner, being the sole bidder thereat. The
opposition of Mayor Bugtai was subsequently recommended for dismissal by the Bureau of Lands for lack of merit.

Thereafter, then Acting Director of the Bureau of Lands Ramon N. Casanova recommended the approval
of Democrito Mendoza, Sr.s request for the issuance of a patent to the land covered by Sales (Fishpond) Application
No. (VI-I) 41-A on grounds of justice and equity.

In the First Indorsement of then Secretary of Agriculture and Natural Resources Arturo Tanco, Jr., dated 5
March 1974 to the Office of the President, the recommendation of Acting Director of the Bureau of Lands Ramon N.
Casanova was favorably endorsed.

On 21 May 1974, then Presidential Executive Assistant Jacobo C. Clave issued a Memorandum informing
the Secretary of the Department of Natural Resources that President Marcos had approved the recommendation
advising approval of the request of Democrito Mendoza, Sr. for the issuance of a patent over the disputed property.

Prior to the formal award of the subject property, Democrito Mendoza, Sr., however, had caused the
property to be subdivided into Lots 1 and 2. Lot 1 was further subdivided into four, namely Lots 1-A, 1-B, 1-C, and 1-
D. Thereafter, Democrito Mendoza, Sr. made an assignment of his rights and interests over Lots 1-B, 1-C, and 1-D in
favor of his three children Gwendolyn,[9] Vilma,[10] and Democrito, Jr.,[11] all surnamed Mendoza. For
himself, Democrito Mendoza, Sr. retained Lot 1-A[12] with an area of 215,838 square meters and Lot 2 with an area of
241.61 square meters. Subsequently, Gwendolyn, Vilma, and Democrito, Jr. filed their respective sales patent
applications for the property assigned to them by their father.

On 26 June 1974, Acting Director of the Bureau of Lands Ramon N. Casanova issued an Order awarding
the sales patents over the disputed property to DemocritoMendoza, Sr. and his three children Gwendolyn, Vilma,
and Democrito, Jr., respectively, to wit:

It appearing that the proceedings had in connection with the above-noted applications
were in accordance with law and existing regulations, the portions of the land applied for which
correspond to Lot No. 1-A & Lot No. 2, Si(F) (VI-I) 42-D are hereby awarded to Democrito T.
Mendoza at P200.00 per hectare or P4,800.00 for the whole tract of 24.0000 hectares; Lot No. 1-
B, Si(F) (VI-I) 42-D, to Gwendolyn C. Mendoza at P200.00 per hectare or P4,600.00 for the whole
tract of 23.0000 hectares; Lot No. 1-C Si(F) (VI-I) 42-D, to Vilma C. Mendoza at P200.00 per
hectare or P4,600.00 for the whole tract of 23.0000 hectares and Lot No. 1-D Si(F) (VI-I) 42-D,
to Democrito C. Mendoza, Jr. at P200.00 per hectare or P4,477.62 for the whole tract of 23.3881
hectares.[13]

Following the registration of the sales patents with the Register of Deeds of Cebu, Original Certificates of Title were
each issued to Democrito, Sr.,[14] Gwendolyn,[15] Vilma,[16] and Democrito, Jr.[17]

On 8 January 1982, in consideration of shares of stock in MENCA Development Corporation (MENCA)

worth P77,283.00, Democrito Mendoza, Sr. executed a Contract of Exchange of Real Properties for Shares of Stock
on 8 January 1982, whereby he ceded to MENCA Lot No. 2 and a portion of Lot No. 1-A. The portion tendered to
MENCA was later on known as Lot No. 1-A-1, while the lot retained by Democrito Mendoza, Sr. was denominated as
Lot No. 1-A-2.
 On 9 July 1982, Democrito Mendoza, Sr., for himself and on behalf of his daughters Gwendolyn and Vilma,
executed a Deed of Exchange wherein Lot No. 1-A-2 and a portion of each lot belonging to Gwendolyn and Vilma,
respectively, were relinquished to Jacinto Velez, Jr. and Carmen Velez-Ting in exchange for properties enumerated
in said instrument. The portion of the lots originally belonging to Gwendolyn and Vilma that were given to Jacinto
Velez, Jr. and Carmen Velez-Ting were thereafter denominated as Lots No. 1-B-1 and 1-C-1, while the lots retained
were labeled Lots No. 1-B-2 and 1-C-2.

Finally, on 9 May 1988, Democrito Mendoza, Sr., on behalf of his three children Gwendolyn, Vilma,
and Democrito, Jr., executed another Contract of Exchange of Real Properties for Shares of Stock with MENCA,
trading Lots No. 1-B-2, 1-C-2, and 1-D in exchange for 8,468 shares of stock in said corporation.

Sometime in 1988, a protest was filed by the fisherman-residents of Liloan against the issuance of the sales
patents to the Mendozas. Acting thereon, the Department of Environment and Natural Resources (DENR) Regional
Office No. 7, Cebu City, conducted an investigation. On 23 October 1990, based on the information gathered by the
DENR, showing that there were alleged irregularities in the issuance of the sales patents awarded to the Mendozas,
the Republic of the Philippines, represented by the Director of the Land Management Bureau, filed with the RTC
of Cebu, a complaint for Cancellation of Sales Patents and Titles against Democrito Mendoza, Sr. and his three
children Gwendolyn, Vilma, and Democrito, Jr., together with the Register of Deeds of Cebu City.

According to the complaint, there was irregularity in the issuance of the sales patents covering the subject
properties since the area in question forms part of Silot Bay and used as communal fishing grounds by the residents
of Liloan, Cebu, and hence, is not alienable and disposable. It is further maintained that the sales patents were
issued in violation of Section 23 of Presidential Decree No. 704, Fisheries Decree of 1975, [18] which prohibits the
disposal by sale of public land suitable for fishpond purposes. [19]Complainant also contends that the issuance of the
sales patents was attended by fraud and misrepresentation in that it was made to appear in the applications for sales
patents that the areas sought to be patented were alienable and disposable tracts of land, when in fact the same form
part of Silot Bay being used as communal fishing grounds by the residents of Liloan, Cebu.

On 8 July 1991, herein petitioner Republic of the Philippines filed an Amended Complaint impleading as
additional party-defendants MENCA Development Corporation, Jacinto Velez, Jr., and Carmen Velez-
Ting. Subsequently, the Silot Bay Fishermans Association, Inc. filed a Complaint in Intervention on 24 October 1991,
claiming that its members have a legal interest in the cancellation of the sales patents as they are residing
around Silot Bay and deriving their income from fishing in the said disputed area.

After trial on the merits, the trial court, on 3 June 1996, rendered a Decision declaring the sales patents, as
well as the original certificates of title issued to the Mendozas as null and void ab initio. Thus:

WHEREFORE, premises considered, judgment is hereby rendered:

(1) Declaring Sales Patents Nos. 187, 188, 189 and 190 together with
its corresponding Original Certificates of Titles Nos. 0-9983, 0-9980, 0-9981 and
0-9982 issued to defendants Democrito T. Mendoza, Sr., Democrito Mendoza,
Jr., Gwendolyn Mendoza and Vilma Mendoza, absolutely null and void ab initio;

(2) Ordering the said defendants to surrender to the defendant Register

of Deeds for the Province of Cebu their respective owners duplicate copies of
Original Certificates of Titles Nos. 0-9983, 0-9980, 0-9981 and 0-9982, and
directing the said defendant Register of Deeds for the Province of Cebu to cancel
the same and all the patent titles emanating or springing therefrom; and,

(3) Declaring Lot 1-A, Lot 1-B, Lot 1-C and Lot 1-D Psd. 07-01-00026 as
inalienable and non-disposable being parts of Silot Bay.[20]

Aggrieved by the aforequoted Decision, the Mendozas and MENCA Corporation lodged an appeal with the
Court of Appeals. On 30 March 2001, the appellate court rendered the herein assailed Decision, the pertinent
portions of which state:

The separate appeals interposed by the defendants are impressed with merit.
 As We see it, the primordial issue is whether or not appellants are qualified to own the
property subject matter of this controversy. Implied in this issue is a more basic one, that is whether
or not said property is alienable and disposable and, therefore, subject to private appropriation
through modes recognized under the Public Land Act.

The lower court resolved the issue in the negative on the main reasoning that Silot Bay is
a communal fishing ground, and that the area in question is actually part of the seabed, hence,
non-alienable. It added that, assuming the availability for disposition of the area applied for,
appellant Democrito, Sr. is barred from asserting ownership thereof in view of Section 11, Article
XIV of the 1973 Constitution, xxx.

The Court cannot bring itself to agree to the rationale for the trial courts posture. Our
reasons are, as follows:

One, the property involved in this case is not a communal fishing ground, as erroneously
concluded by the court a quo. While Silot Bay is a potential fishpond area, there must be, for it to
come within the term communal fishing ground, a declaration to that effect by the appropriate
agency.

We have carefully perused the records before Us and found nothing therein evidencing
such a declaration by the DANR respecting Silot Bay. What the records yield is the fact
that SilotBay, as shown by a Land Classification (LC) map, was once categorized as timberland. It
cannot be overemphasized that the prerogative of classifying public lands pertains to administrative
agencies which have been specially tasked by statutes to do so, namely: the DANR, now the
DENR, and two (2) of its bureaus, the Bureau of Lands and the Bureau of Forestry. Hence,
consistent with the oft-repeated pronouncements that courts will not interfere on matters which are
addressed to the sound discretion of government and/or quasi-judicial agencies entrusted with the
regulation of activities coming under the special technical knowledge and training (International
Container Terminal Service, Inc. vs. NLRC, 256 SCRA 124; Alba vs. Nitorreda, 254 SCRA 753,
citing other cases), and that issues involving basically technical matters deserve to be disentangled
from undue interference by the courts (Sta. Ines Melale Forest Products Corp. vs.Macaraig, Jr.,
299 SCRA 491, citing Ynson vs. CA, 257 SCRA 411; Casa Filipinas Realty Corporation vs. Office
of the President, 241 SCRA 165; Rubenecia vs, CSC, 244 SCRA 770), it behooves this Court to
refrain from looking into the underlying reasons or grounds which impelled the classification and
declaration of Silot Bay as timberland or from questioning the wisdom such classification or
declaration.

xxxx

This Court, for argument, may allow that Silot Bay had once upon a time been duly
reserved or declared as a communal fishing ground. It has to be pointed out, however, that an
interplay of events had supervened to alter this reserved nature of the bay. We refer to the
issuance on January 16, 1967 of the Presidential Memorandum, supra, and subsequently
Presidential Decree (PD) No. 43, whereunder then President Marcos, with the end view of attaining
self-sufficiency in fish production, directed the identification of potential fishpond areas, the same to
be declared alienable and disposable to be titled in the name of the actual occupants
thereof. There can hardly be any quibbling regarding the power of the then President to promulgate
the twin issuances, or to undo, by way of reclassification, what a subordinate has done.

Second, the Mendozas, or Democrito, Sr. in his behalf and in behalf of his children appear
to have complied with all the documentary, developmental, publication, bidding and other legal
requirements necessary for securing sales patents. Otherwise, the Director of Lands, during the
evaluation process, would have simply denied due course to his application. The actuality of the
Director of Lands recommending and the Secretary of Agriculture and Natural Resources favorably
endorsing the request of Democrito, Sr. for the issuance of what turned out to be the
underlying sales (fishpond) patent is indicative of Democritos compliance. Last but not least, the
Presidents act of approving the issuance of the requested sales (fishpond) patent cannot but be
viewed as final confirmation that Democrito, Sr. has indeed met all the requirements to justify a
public land award through sales.

It may be worth mentioning that the Director of Lands had dismissed the protests filed by
then Liloan Municipal Mayor Bugtai, et al., against the Sales (Fishpond) Patent application
ofDemocrito, Sr. on the consistent ground that the applicant had complied with all the requirements
of the law for a sales patent grant. In this regard, jurisprudence reminds that decisions of the
Director of Lands on disputes involving patents to public lands, if supported by substantial evidence
and approved by the DENR Secretary of Agriculture, are generally conclusive. xxx.

Third, as a necessary consequence of Democrito, Sr.s compliance with the legal

requirements referred to above, the sales patents and the original certificates of titles issued in
favor of the Mendozas are presumptively legal and valid.

Much was made by the trial court of the splitting up of the sales patent issued
to Democrito, Sr., into four (4) parts, with each part containing an area not exceeding twenty-four
(24) hectares in the names of Democrito, Sr., Democrito, Jr., Gwendolyn Mendoza
and Vilma Mendoza. It may well be noted, however, that the split obviously effected in view of
Section 11, Article XIV of the 1973 Constitution, supra, limiting the acquisition of alienable land by
individuals to twenty-four (24) hectares came with the approval of the Director of Lands and the
Secretary of Agriculture and Natural Resources. In a very real sense, therefore, the flaw, if any
there be, in the manner the Mendoza children acquired their sales patents was remedied by the
positive actions of the very officials charged by law with the administration and disposition of
alienable public lands.

The unyielding posture of the appellee, as adopted by the trial court, that the area in
question cannot be legally titled because it is underwater may be accorded some cogency but for
the hard fact that it is being titled for fishpond purposes only, as what precisely appears in the sales
patents. Fish do not thrive on dry land. Fish are born and grow in water.
xxxx

Fourth, the sales patents and certificates of titles issued in the name of
the Mendozas cannot, after the lapse of one (1) year from their issuance, be successfully
challenged on the ground of fraud or misrepresentation. The reason is simple. After the due
registration of a patent and the issuance of the corresponding title, the covered area is deemed to
have been brought under the aegis of the Torrens system entitled to all guarantees implied in such
system of registration. xxx

As may be noted, the one-year prescriptive period in the underscored portion of Section
32, P.D. No. 1529 applies even to the government. Accordingly, the government if deprived of
property through fraud, as the trial court seems to imply, and as intervenor-appellee have at every
turn postulated, must institute the proper petition in court for the reopening and review of the
decree of registration including of course the patent issued within one (1) year from and after the
date of entry of such decree of registration. Failing in this, the decree becomes inconvertible even
as against the government itself. Hence, since the sales patents in question were registered a little
less than a month after they were issued on September 25, 1974, the filing of the instant action for
cancellation on October 23, 1990, which in net legal effect partakes of a petition for a reopening or
review of the validity of the issuance of the sales patents, has, with the view We take of the case,
definitely prescribed.

Fifth, the government is estopped to ask for the cancellation of the sales patents and titles
issued in the names of the Mendozas. To say the least, there is something disconcerting, if not
absurd, in the instant case. For, the very same agency the Bureau of Land Management, formerly
called Bureau of Lands, which presumptively evaluated with thoroughness and recommended the
grant of Sales (Fishpond) Application No. (VI-I) 41-A of Democrito Sr., he having complied with all
the requirements of the law for the grant, would now trifle with its own processes, execute a 180
degree turn to argue and say that the same is not valid and illegal. Suffice it to state that to go back
on ones word and to change a stand volte face, as what the Bureau of Land Management has
done in this case, goes against well-settled principles of justice and fair play. While concededly,
there is the legal stricture that the government is not estopped by the mistakes committed by its
agents, the Supreme Court in Commissioner of Internal Revenue v. Court of Appeals, 303 SCRA
508, 516, pointedly stated that:

This Court is mindful of the well entrenched principle that the

government is never estopped from the collecting of taxes because of the
mistakes or errors on the part of its agents, but this rule admits of exceptions in
the interest of justice and fair play x x x.
 xxxx

Then, too, it has been the long standing policy and practice of this Court
to respect the conclusions arrived at by quasi-judicial agencies x x x which by the
nature of its functions, is dedicated exclusively to the study and consideration of
x x x problems, and which has thus developed an expertise on the subject,
unless an abuse or improvident exercise of its authority is shown. x x x

The Bureau of Land Management and the intervenor-appellee, at this late hour, can no
longer assail the issuance of the patents and titles to the Mendozas on the ground of fraud or
irregularity. This is as it should be, because the sales patents in question, and the certificates of
title issued by virtue thereof, have become incontrovertible and are binding against all persons,
including the government and its branches, given that those who may be minded to question their
validity have not done so within the period of one (1) year from the date of their registration.

Moreover, by reason of the lapse of more that sixteen (16) years from the issuance of the
patents and the titles in question up to the filing on October 23, 1990 of the complaint contesting
their validity on the ground of fraud, the government agency concerned and the intervenor are
guilty of laches and are now precluded from questioning the validity of such grants. x xx.

It is indeed illogical and a cruel breach of the sporting idea of fair play, if the very same
government agency which vigorously recommended, through indubitable public documents and
authentic writings, the issuance of Sales Patents to Democrito Sr., would now be permitted to deny
and successfully impugn in this action its official acts. What compounds matters is that the same
agency led Democrito Sr. to believe that he has truly complied with the law and who, acting on
such belief, participated in the bidding held on January 19, 1973 and paid the price for the area
sold.

xxxx

Finally, We note that the primary basis of the lower court in declaring the nullity of the
sales patent and titles of the appellants is its finding that the area covered thereby is beyond the
commerce of man, and, therefore, could not have been declared as alienable and disposable. x x x.

It bears stressing herein that LC map 1391-Liloan of the Land Classification Project of
the Province of Cebu classified Silot Bay as timberland. Evidently, the lower court makes light of LC
Map 1391 prepared in 1940. To Our mind, the evidentiary value of antique map like Map 1391
ought to be accorded weighty consideration. Precisely, under the Revised Rules on Evidence, the
antiquity of documents impart then with greater probative value. x x x.

The trial court deduced that the 1940 map wherein Silot Bay is classified as timberland is
incorrect due to misleading information wittingly or unwittingly supplied by the government agencies
concerned.

The conclusion reached by the lower court is assumed, not demonstrated; it is absolutely
wanting in factual support, what with the reality that no evidence whatsoever was adduced by the
Republic to sustain such a finding. It cannot be taken to overturn the legal presumption that official
duties have been regularly performed.

xxxx

As between the aforesaid official findings of experts and the bare unsupported
conclusions of the lower court, the choice is not hard to make. As it were, only the executive and
possibly the legislative departments have the power to transfer, any time, lands of the public
domain from one class to another, and, in like manner, to classify, for purposes of administration
and disposition, such land as disposable and alienable by sale or other modes of ownership
transfer. x x x.

Unquestionably, then, the lower court committed a serious error in ruling

that Silot Bay cannot be declared as alienable and disposable.
 Foregoing premises considered, We rule and so hold that (1) Sales Patents Nos. 187,
188, 189 and 190 issued in favor of the Mendozas; (2) the corresponding Original Certificates of
Titles Nos. 0-9980, 0-9981, 0-9982 and 0-9983 issued in favor of the Mendozas; and (3) all the
derivative titles emanating therefrom in the names of MENCA Development Corporation and
Carmen Velez-Teng and Jacinto Velez, Jr., are all valid, legal and binding as against the whole
world.[21]

The trial courts Decision having been reversed and the Sales Patents, as well as the Original Certificates of
Title issued to the Mendozas having been declared valid,petitioners Republic of the Philippines and Silot Bay
Fishermans Association, Inc. filed their separate appeals before this Court.

Petitioners maintain that the Court of Appeals erred in declaring that the area covered by the sales patents
are not communal fishing grounds due to the absence of any declaration to that effect by the appropriate government
agency. According to petitioners, the appellate court failed to consider that Silot Bay is a navigable body of water and
by its very nature and inherent character is of public dominion, thus there is no need for a declaration by any
appropriate government agency that it is a communal fishing ground before Silot Bay may be recognized as
such. Furthermore, petitioners assert that the Court of Appeals failed to give weight to the testimony
of Edgardo Lipang, a former Geodetic Engineer of the Community and Environment Resources Office in Cebu City,
who was authorized by the trial court to conduct a resurvey of the disputed area. His testimony established that the
disputed area were found to be at the center of Silot Bay, the waters of which flow from Camotes Sea where marine
organisms like sea urchins thrive, and not on marshy lands, rivers or lakes. Additionally, Edgardo Lipang explained in
his testimony that the subject property is deep even during low tide and navigable by boats which further indicate that
the area is part of the seabed rather than the foreshore.

Petitioner Republic of the Philippines added that it was erroneous for the appellate court to conclude that
the Mendozas complied with all the requirements for the issuance of sales patents. According to petitioner, the Court
of Appeals did not consider the findings of the investigation team from the DENR which discovered irregularities in
the issuance of the sales patents, to wit:

(a) The areas covered by the sales patents are part of Silot Bay and used as communal fishing
grounds by Liloan residents and, therefore, is not alienable and disposable;

(b) The sales patents were issued in violation of Section 23 0f Presidential Decree No. 704, which
provides that no public land suitable for fishpond purposes shall be disposed by sale except
sales patent already processed and approved on or before November 9, 1972 subject to the
condition that such application covers a fully developed fishpond not exceeding twenty-four
(24) hectares. (The questioned sales patents do not fall within the exception as they were
issued on September 25, 1974);

(c) The issuance of the sales patents was attended by fraud and misrepresentation committed by
the applicants in that it was made to appear that the areas applied for are alienable and
disposable tracts of land, when in truth and in fact, they form part of Silot Bay being used as
communal fishing grounds by the residents ofLiloan, Cebu.

Moreover, the government stresses the fact that the sales patent application of Democrito Mendoza, Sr. was for an
area of 92.3881 hectares, clearly in violation of the constitutional limitation of 24 hectares; and that his act of
circumventing the constitutional prohibition by distributing the area applied for to his three children cannot be legally
authorized since his children were not qualified to apply for sales patents because not one of them had an existing
lease over the property, which is a condition that must first be complied with before the grant of a sales patent.

On the Court of Appeals ruling that the government is now precluded from bringing an action for annulment
of title after the lapse of one year from the issuance of the certificate of title, petitioners contend that said ruling is
diametrically opposed to the pronouncement of this Court that the Republic of the Philippines is not precluded from
bringing an action for annulment of title and reversion of land to the public domain even after the lapse of the one-
year period.

Lastly, petitioners call attention to the previous rulings of this Court that estoppel does not operate against
the government. In the case at bar, petitioner explains that the court a quo found that the sales patents were issued
on the basis of false and misleading information supplied by the Mendozas to the government agencies which
processed and granted their application; hence, it is erroneous for the appellate court to say that the government is
already estopped from seeking the cancellation of these sales patents since the Republic of the Philippines is
never estopped by the mistakes or error committed by its officials or agent.

In resolving the instant controversy, we shall foremost settle the issue of whether or not the government is
now precluded from bringing an action for the annulment of title and reversion of the disputed property to the public
domain after the lapse of the one-year period from registration thereof. We answer in the negative. It is true that, as
the Court of Appeals upheld, the sales patents and certificates of title issued in the name of the Mendozas cannot,
after the lapse of one year from their issuance, be successfully challenged on the ground of fraud or
misrepresentation for the reason that after the due registration of a patent and the issuance of the corresponding title,
the covered area is deemed to have been brought under the aegis of the Torrens system entitled to all guarantees
implied in such system of registration. It is equally true however, that this Court, on the other hand, has declared too
in numerous cases that the lapse of the one-year period within which a decree of title may be reopened for fraud
would not prevent the cancellation thereof by the government, for to hold that a title may become indefeasible by
registration, even if such title had been secured through fraud or in violation of the law would be the height of
absurdity.[22] As held in the case of Republic v. Court of Appeals[23]:

[T]he indefeasibility of a title over land previously public is not bar to an investigation by
the Director of Lands as to how such title has been acquired, if the purpose of such investigation is
to determine whether or not fraud has been committed in securing such title in order that the
appropriate action for reversion may be filed by the Government.[24]

Nevertheless, whilst we agree with petitioners that the government is not precluded from conducting an
investigation as to how titles to property formerly belonging to the public domain has been acquired notwithstanding
the lapse of the one-year period for bringing an action for the annulment of title and reversion of property to the public
domain, in the absence of any showing that there was fraud or a violation of any law, we are constrained to uphold
the ruling of the Court of Appeals regarding the authority of administrative agencies to classify Silot Bay as timberland
and its subsequent release as alienable and disposable, and the findings of the appellate court that
the Mendozas have complied with all the necessary requirements under the law for the issuance of the sales patents.

Despite petitioners assertion that Silot Bay is a navigable body of water and by its very nature and inherent
character is of public dominion, thus, there is no need for a declaration by any appropriate government agency that it
is a communal fishing ground before Silot Bay may be recognized as such, it cannot be gainsaid that the prerogative
of classifying public lands pertains to administrative agencies which have been specially tasked by statutes to do so
and that the courts will not interfere on matters which are addressed to the sound discretion of government and/or
quasi-judicial agencies entrusted with the regulation of activities coming under their special technical knowledge and
training.[25] It should be stressed that the function of administering and disposing of lands of the public domain in the
manner prescribed by law is not entrusted to the courts but to executive officials. [26] And as such, courts should
refrain from looking into the underlying reasons or grounds which impelled the classification and declaration
of Silot Bay as timberland and its subsequent release as alienable and disposable land. From the facts of the case, it
is evident that the Bureau of Forestry released Silot Bay as alienable and disposable by virtue of the Memorandum
issued by then President Marcos on 16 January 1967 which clearly empowered said bureau to identify and locate the
700,000 hectares of fishpond areas and to release said areas as alienable and disposable. Hence, the courts, in view
of the clear legal directive by which said area was released as alienable and disposable, will refrain from questioning
the wisdom of such classification or declaration.

After a careful perusal of the records of the case, We rule that the sales patents handed out to Democrito T.
Mendoza, Sr., Gwendolyn Mendoza, Vilma Mendoza andDemocrito Mendoza, Jr., were properly issued.

Although it may seem that upon the advent of the 1973 Constitution, a conflict had arisen with respect to the
then pending sales patent application of Democrito Mendoza, Sr., yet from the letter of then Acting Director of the
Bureau of Lands Ramon N. Casanova, the approval of the sales patent application of Democrito T. Mendoza, Sr. was
still favorably recommended on grounds of equity and justice, to wit:

Under Opinion No. 64, series of 1973 which was promulgated in the meantime by the Secretary of
Justice and given clearance for implementation by the President per Memorandum dated February
6, 1974 of Presidential Executive Assistant Jacobo C. Clave, it has been held that even sales
application already awarded are not to be exempted from constitutional injunction regarding the
acquisition of public lands for the reason that other requirements have still to be satisfied before a
patent may be issued. In the case of the abovementioned application, while the land covered
thereby was sold at public auction in which the applicant is the successful bidder and has been
considerably improved and developed, no formal award has up to now been issued by this
Office. In other words, the applicant may be considered not having acquired vested rights over the
 land applied for prior to the advent of the New Constitution which will entitle him to exemption from
the constitutional limitation, following the above-noted ruling of the Secretary of Justice.

It may also be mentioned that this case does not fall under any of the categories of sales
applications which may be given due course and issued patent pursuant to the policy guidelines
prescribed by the Honorable Secretary in his memorandum dated February 18, 1974.

As the applicant, however, has in good faith made considerable investment in the
development and improvement of the fishpond area and could have already obtained a title
thereto were it not for circumstances beyond his control, it is believed that he is entitled, on
considerations of equity and justice, to exemption from constitutional
injunction.[27] (Emphasis ours.)

From the abovequoted letter, it can be deduced that had it not been for circumstance beyond the applicants
control, i.e., the adoption of the 1973 Constitution during the pendencyof the sales patent application of Democrito T.
Mendoza, Sr., there would not have been any obstacle for its approval by the Office of the President. Hence, taking
into account the fact that Democrito T. Mendoza, Sr. had complied with all the necessary requirements for the
issuance of sales patent covering the disputed area, then Acting Director of the Bureau of Lands Ramon N.
Casanova recommended the approval of said application in the spirit of justice and equity. As stated by the Court of
Appeals, Democrito Mendoza, Sr., appears to have complied with all the legal requirements for securing the sales
patents; otherwise, the Acting Director of Lands would not have recommended the approval of said application
despite the seeming constitutional impediment.

Moreover, it is worth noting that in order to conform to the prohibitions imposed by the 1973 Constitution which limits
the purchase of lands of the public dominion to 24 hectares per individual, Democrito Mendoza, Sr., subdivided the
property in question into four, each comprising an area not more than 24 hectares, and assigned his rights over three
parts to his three children. Accordingly, Democrito Mendoza, Sr. amended his sales patent application while his three
children filed their own applications for their respective parts. The area applied for in each of the Mendozas sales
patent applications were, by then, well-within the constitutional limitation. Such subdivision of the area originally
applied for by Democrito Mendoza, Sr. was made with the full knowledge and the subsequent approval of all the
appropriate government authorities. There is nothing to suggest that it was done illicitly or fraudulently. That the
subdivision was executed overtly actually establish the good faith of the Mendozas to comply with the Constitutional
and statutory provisions on sales patent applications.

Petitioner Republic has failed to prove fraud on the part of the Mendozas with respect to the issuance of the
sales patents. The burden of proving that actual fraud exists rests on the party alleging it. In this jurisdiction, fraud is
never presumed FRAUS EST IDIOSA ET NON PRAESUMENDA.[28] It must be stressed that mere allegations of
fraud are not enough. Intentional acts to deceive and deprive another of his right, or in some manner injure him, must
be specifically alleged and proved.[29] There is very little evidence in this case to convince Us that
the Mendozas were able to secure their sales patent by fraud or misrepresentation. The assertion of petitioner
Republic that the issuance of the sales patents was attended by fraud and misrepresentation is based solely on the
claim made by the Mendozas in their sales patent applications that the areas sought to be patented were alienable
and disposable tracts of land, when, in fact, the same form part of Silot Bay which were being used as communal
fishing grounds by the residents ofLiloan, Cebu. Such an assertion, however, has been squarely debunked in light of
the unmistakable legal basis by which the appropriate administrative agency classified the areas applied for as
alienable and disposable.

In the absence of any evidence of fraud or violation of law, the title of the Mendozas over the disputed
property has now become indefeasible, even as against the petitionerRepublic.

While the general rule is that the State cannot be put in estoppel by the mistakes or errors of its officials or
agents, like all general rules, this is also subject to exceptions.We recognized such exceptions in Republic v. Court of
Appeals,[30] to wit

The general rule is that the State cannot be put in estoppel by the mistakes or errors of its
officials or agents. However, like all general rules, this is also subject to exceptions, viz:
"Estoppels against the public are little favored. They should not be
invoked except in rare and unusual circumstances, and may not be invoked
where they would operate to defeat the effective operation of a policy adopted to
protect the public. They must be applied with circumspection and should be
 applied only in those special cases where the interests of justice clearly require it.
Nevertheless, the government must not be allowed to deal dishonorably or
capriciously with its citizens, and must not play an ignoble part or do a shabby
thing; and subject to limitations x x x the doctrine of equitable estoppel may be
invoked against public authorities as well as against private individuals."
In Republic v. Sandiganbayan, the government, in its effort to recover ill-goten wealth,
tried to skirt the application of estoppel against it by invoking a specific constitutional provision. The
Court countered:

"We agree with the statement that the State is immune from estoppel,
but this concept is understood to refer to acts and mistakes of its officials
especially those which are irregular (Sharp International Marketing vs. Court of
Appeals, 201 SCRA 299; 306 [1991]; Republic v. Aquino, 120 SCRA 186 [1983]),
which peculiar circumstances are absent in the case at bar. Although the State's
right of action to recover ill-gotten wealth is not vulnerable to estoppel[;] it is non
sequiturto suggest that a contract, freely and in good faith executed between the
parties thereto is susceptible to disturbance ad infinitum. A different interpretation
will lead to the absurd scenario of permitting a party to unilaterally jettison a
compromise agreement which is supposed to have the authority
of res judicata (Article 2037, New Civil Code), and like any other contract, has the
force of law between parties thereto (Article 1159, New Civil Code; Hernaez vs.
Kao, 17 SCRA 296 [1966]; 6 Padilla, Civil Code Annotated, 7th ed., 198, p. 711;
3 Aquino, Civil Code, 1990 ed., p. 46.

Based on the foregoing, the State can only be immune from estoppel as regards mistakes, errors or irregularities
committed by its officials or agents. In the absence of mistake, error or irregularity in the performance by the
concerned government officials of their duties, then the State cannot invoke its immunity from estoppel.
In the Petition at bar, the Mendozas were given clearances and certifications on the lack of objections to their sales
patent applications by the Director of Forestry, Provincial Engineer of Cebu, the District Engineer of Cebu, the
Municipal Council of Liloan, Cebu, and the Commissioner of Customs, and the Secretary of Public Works and
Highways.Subsequently, their sales patent applications were approved by the Director of the Bureau of Lands, the
Secretary of the Department of Natural Resources, and the President of the Republic. Based on their patents,
the Mendozas were able to acquire original certificates of tile from the Registry of Deeds. Without any allegation and
evidence that these government officials committed any mistake, error or irregularity in the approval of the sales
patent applications and issuance of the certificates of title in the name of theMendozas, then their acts in relation
thereto estop the Republic from questioning the validity of the said sales patents and the certificates of title.

Finally, it should be borne in mind that that the contested areas and titles thereto had already passed on to third
parties who acquired the same from the Mendozas in good faith and for value. When the Mendozas sales patents
were registered, they were brought under the operation of Presidential Decree No. 11529, otherwise know as the
Land Registration Decree.

According to Section 103 of the Land Registration Decree, whenever public lands is by the Government alienated,
granted, or conveyed to any person, the same shall be brought under the operation of the said Decree and shall be
deemed to registered lands to all intents and purposes under the Decree. And a well-settled doctrine in Our
jurisdiction provides that one who deals with property registered under the Torrens system need not go beyond the
same, but only has to rely on the title. He is charged with notice only of such burdens and claims as are annotated on
the title.[31] The Mendozas certificates of title were clean and, thus, MENCA Corporation, Jacinto Velez, Jr. and
Carmen Velez-Ting were induced to acquire the same from the Mendozas. That they did so in good faith and for
value was not even questioned herein. Their titles, rights, and interests to the fishpond area must be respected and
protected.

In Republic v. Agunoy, Sr., et al.,[32] We refused to revert the land in question to the public domain despite the fact
that the free patent thereto was secured by fraud since the same land already passed on to purchasers in good faith
and for value

There can be no debate at all on petitioners submission that

no amount of legal technicality may serve as a solid foundation for the enjoyment of the fruits
of fraud. It is thus understandable why petitioner chants the dogma of fraus et
jus nunquam cohabitant.
 Significantly, however, in the cases cited by petitioner Republic, as well as in those other
cases where the doctrine of fraus et jus nunquam cohabitant was applied against a patent and title
procured thru fraud or misrepresentation, we note that the land covered thereby is either a part of
the forest zone which is definitely non-disposable, as inAnimas, or that said patent and title are still
in the name of the person who committed the fraud or misrepresentation, as in Acot, Animas,
Republic vs. CA and Del Mundo andDirector of Lands vs. Abanilla, et al. and, in either
instance, there were yet no innocent third parties standing in the way.

If the titles of innocent buyers were recognized and protected in the afore-mentioned circumstances, even when the
original title to the property was obtained through fraud, then the titles of the purchasers in good faith and for value of
the fishpond areas in the present case better deserve our recognition and protection considering that the sales
patents and original certificates of title of their predecessors-in-interest were found to be legally and validly issued.

WHEREFORE, premises considered, the instant petition is hereby DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 57069 is hereby AFFIRMED.

G.R. No. L-12958 May 30, 1960

FAUSTINO IGNACIO, applicant-appellant,

vs.
THE DIRECTOR OF LANDS and LAUREANO VALERIANO, oppositors-appellees.

Acting Assistant Solicitor General Pacifico P. de Castro and Solicitor Crispin V. Bautista for appellee
Director of Lands.
Benjamin H. Aquino for appellee Laureano Veleriano.

MONTEMAYOR, J.:

Faustino Ignacio is appealing the decision of the Court of First Instance of Rizal, dismissing his
application for the registration of a parcel of land.

On January 25, 1950, Ignacio filed an application for the registration of a parcel of land (mangrove),
situated in barrio Gasac, Navotas, Rizal, with an area of 37,877 square meters. Later, he amended
his application by alleging among others that he owned the parcel applied for by right of accretion.
To the application, the Director of Lands, Laureano Valeriano and Domingo Gutierrez filed
oppositions. Gutierrez later withdrew his opposition. The Director of Lands claimed the parcel
applied for as a portion of the public domain, for the reason that neither the applicant nor his
predecessor-in-interest possessed sufficient title thereto, not having acquired it either by composition
title from the Spanish government or by possessory information title under the Royal Decree of
February 13, 1894, and that he had not possessed the same openly, continuously and adversely
under a bona fide claim of ownership since July 26, 1894. In his turn, Valeriano alleged he was
holding the land by virtue of a permit granted him by the Bureau of Fisheries, issued on January 13,
1947, and approved by the President.

It is not disputed that the land applied for adjoins a parcel owned by the applicant which he had
acquired from the Government by virtue of a free patent title in 1936. It has also been established
that the parcel in question was formed by accretion and alluvial deposits caused by the action of the
Manila Bay which boarders it on the southwest. Applicant Ignacio claims that he had occupied the
land since 1935, planting it with api-api trees, and that his possession thereof had been continuous,
adverse and public for a period of twenty years until said possession was distributed by oppositor
Valeriano.
On the other hand, the Director of Lands sought to prove that the parcel is foreshore land, covered
by the ebb and flow of the tide and, therefore, formed part of the public domain.

After hearing, the trial court dismissed the application, holding that the parcel formed part of the
public domain. In his appeal, Ignacio assigns the following errors:

I. The lower court erred in holding that the land in question, altho an accretion to the land of
the applicant-appellant, does not belong to him but forms part of the public domain.

II. Granting that the land in question forms part of the public domain, the lower court
nevertheless erred in not declaring the same to be the necessary for any public use or
purpose and in not ordering in the present registration proceedings.

III. The lower court erred in not holding that the land in question now belongs to the
applicant-appellant by virtue of acquisitive prescription, the said land having ceased to be of
the public domain and became the private or patrimonial property of the State.

IV. The lower court erred in not holding that the oppositor Director of Lands is now in
estoppel from claiming the land in question as a land of the public domain.

Appellant contends that the parcel belongs to him by the law of accretion, having been formed by
gradual deposit by action of the Manila Bay, and he cites Article 457 of the New Civil Code (Article
366, Old Civil Code), which provides that:

To the owners of lands adjoining the banks of rivers belong the accretion which they
gradually receive from the effects of the current of the waters.

The article cited is clearly inapplicable because it refers to accretion or deposits on the banks of
rivers, while the accretion in the present case was caused by action of the Manila Bay.

Appellant next contends that Articles 1, 4 and 5 of the Law of Waters are not applicable because
they refer to accretions formed by the sea, and that Manila Bay cannot be considered as a sea. We
find said contention untenable. A bay is a part of the sea, being a mere indentation of the same:

Bay. An opening into the land where the water is shut in on all sides except at the
entrance; an inlet of the sea; an arm of the sea, distinct from a river, a bending or curbing of
the shore of the sea or of a lake. 7 C.J. 1013-1014 (Cited in Francisco, Philippine Law of
Waters and Water Rights p. 6)

Moreover, this Tribunal has some cases applied the Law of Waters on Lands bordering Manila Bay.
(See the cases of Ker & Co. vs. Cauden, 6 Phil., 732, involving a parcel of land bounded on the
sides by Manila Bay, where it was held that such land formed by the action of the sea is property of
the State; Francisco vs. Government of the P.I., 28 Phil., 505, involving a land claimed by a private
person and subject to the ebb and flow of the tides of the Manila Bay).

Then the applicant argues that granting that the land in question formed part of the public domain,
having been gained from the sea, the trial court should have declared the same no longer necessary
for any public use or purpose, and therefore, became disposable and available for private
ownership. Article 4 of the Law of Waters of 1866 reads thus:
 ART. 4. Lands added to the shores by accretions and alluvial deposits caused by the action
of the sea, form part of the public domain. When they are no longer washed by the waters of
the sea and are not necessary for purposes of public utility, or for the establishment of
special industries, or for the coastguard service, the Government shall declare them to be
the property of the owners of the estates adjacent thereto and as increment thereof.

Interpreting Article 4 of the Law of Waters of 1866, in the case of Natividad vs. Director of Lands,
(CA) 37 Off. Gaz., 2905, it was there held that:

Article 4 of the Law of Waters of 1866 provides that when a portion of the shore is no longer
washed by the waters of the sea and is not necessary for purposes of public utility, or for the
establishment of special industries, or for coastguard service, the government shall declare it
to be the property of the owners of the estates adjacent thereto and as an increment thereof.
We believe that only the executive and possibly the legislative departments have the
authority and the power to make the declaration that any land so gained by the sea, is not
necessary for purposes of public utility, or for the establishment of special industries, on for
coast-guard service. If no such declaration has been made by said departments, the lot in
question forms part of the public domain. (Natividad vs. Director of Lands, supra.)

The reason for this pronouncement, according to this Tribunal in the case of Vicente Joven y
Monteverde vs. Director of Lands, 93 Phil., 134, (cited in Velayo's Digest, VI. I, p. 52).

. . . is undoubtedly that the courts are neither primarily called upon, nor indeed in a position
to determine whether any public land are to be used for the purposes specified in Article 4 of
the Law of Waters.

Consequently, until a formal declaration on the part of the Government, through the executive
department or the Legislature, to the effect that the land in question is no longer needed for coast
guard service, for public use or for special industries, they continue to be part of the public domain,
not available for private appropriation or ownership.

Appellant next contends that he had acquired the parcel in question through acquisitive prescription,
having possessed the same for over ten years. In answer, suffice it to say that land of the public
domain is not subject to ordinary prescription. In the case of Insular Government vs. Aldecoa & Co.,
19 Phil., 505 this Court said:

The occupation or material possession of any land formed upon the shore by accretion,
without previous permission from the proper authorities, although the occupant may have
held the same as owner for seventeen years and constructed a wharf on the land, is illegal
and is a mere detainer, inasmuch as such land is outside of the sphere of commerce; it
pertains to the national domain; it is intended for public uses and for the benefit of those who
live nearby.

We deem it unnecessary to discuss the other points raised in the appeal.

In view of the foregoing, the appealed decision is hereby affirmed, with costs.

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Concepcion, Barrera, and Gutierrez
David, JJ., concur.
The Lawphil Project - Arellano Law Foundation

G.R. No. 97764 August 10, 1992

LEVY D. MACASIANO, Brigadier General/PNP Superintendent, Metropolitan Traffic

Command, petitioner,
vs.
HONORABLE ROBERTO C. DIOKNO, Presiding Judge, Branch 62, Regional Trial Court of
Makati, Metro Manila, MUNICIPALITY OF PARAAQUE, METRO MANILA, PALANYAG
KILUSANG BAYAN FOR SERVICE,respondents.

Ceferino, Padua Law Office for Palanyag Kilusang Bayan for service.

Manuel de Guia for Municipality of Paraaque.

MEDIALDEA, J.:

This is a petition for certiorari under Rule 65 of the Rules of Court seeking the annulment of the
decision of the Regional Trial Court of Makati, Branch 62, which granted the writ of preliminary
injunction applied for by respondents Municipality of Paraaque and Palanyag Kilusang Bayan for
Service (Palanyag for brevity) against petitioner herein.

The antecedent facts are as follows:

On June 13, 1990, the respondent municipality passed Ordinance No. 86, Series of 1990 which
authorized the closure of J. Gabriel, G.G. Cruz, Bayanihan, Lt. Garcia Extension and Opena Streets
located at Baclaran, Paraaque, Metro Manila and the establishment of a flea market thereon. The
said ordinance was approved by the municipal council pursuant to MMC Ordinance No. 2, Series of
1979, authorizing and regulating the use of certain city and/or municipal streets, roads and open
spaces within Metropolitan Manila as sites for flea market and/or vending areas, under certain terms
and conditions.

On July 20, 1990, the Metropolitan Manila Authority approved Ordinance No. 86, s. 1990 of the
municipal council of respondent municipality subject to the following conditions:

1. That the aforenamed streets are not used for vehicular traffic, and that the majority
of the residents do not oppose the establishment of the flea market/vending areas
thereon;

2. That the 2-meter middle road to be used as flea market/vending area shall be
marked distinctly, and that the 2 meters on both sides of the road shall be used by
pedestrians;

3. That the time during which the vending area is to be used shall be clearly
designated;
 4. That the use of the vending areas shall be temporary and shall be closed once the
reclaimed areas are developed and donated by the Public Estate Authority.

On June 20, 1990, the municipal council of Paraaque issued a resolution authorizing Paraaque
Mayor Walfrido N. Ferrer to enter into contract with any service cooperative for the establishment,
operation, maintenance and management of flea markets and/or vending areas.

On August 8, 1990, respondent municipality and respondent Palanyag, a service cooperative,

entered into an agreement whereby the latter shall operate, maintain and manage the flea market in
the aforementioned streets with the obligation to remit dues to the treasury of the municipal
government of Paraaque. Consequently, market stalls were put up by respondent Palanyag on the
said streets.

On September 13, 1990, petitioner Brig. Gen. Macasiano, PNP Superintendent of the Metropolitan
Traffic Command, ordered the destruction and confiscation of stalls along G.G. Cruz and J. Gabriel
St. in Baclaran. These stalls were later returned to respondent Palanyag.

On October 16, 1990, petitioner Brig. General Macasiano wrote a letter to respondent Palanyag
giving the latter ten (10) days to discontinue the flea market; otherwise, the market stalls shall be
dismantled.

Hence, on October 23, 1990, respondents municipality and Palanyag filed with the trial court a joint
petition for prohibition and mandamus with damages and prayer for preliminary injunction, to which
the petitioner filed his memorandum/opposition to the issuance of the writ of preliminary injunction.

On October 24, 1990, the trial court issued a temporary restraining order to enjoin petitioner from
enforcing his letter-order of October 16, 1990 pending the hearing on the motion for writ of
preliminary injunction.

On December 17, 1990, the trial court issued an order upholding the validity of Ordinance No. 86 s.
1990 of the Municipality' of Paraaque and enjoining petitioner Brig. Gen. Macasiano from enforcing
his letter-order against respondent Palanyag.

Hence, this petition was filed by the petitioner thru the Office of the Solicitor General alleging grave
abuse of discretion tantamount to lack or excess of jurisdiction on the part of the trial judge in issuing
the assailed order.

The sole issue to be resolved in this case is whether or not an ordinance or resolution issued by the
municipal council of Paraaque authorizing the lease and use of public streets or thoroughfares as
sites for flea markets is valid.

The Solicitor General, in behalf of petitioner, contends that municipal roads are used for public
service and are therefore public properties; that as such, they cannot be subject to private
appropriation or private contract by any person, even by the respondent Municipality of Paraaque.
Petitioner submits that a property already dedicated to public use cannot be used for another public
purpose and that absent a clear showing that the Municipality of Paraaque has been granted by the
legislature specific authority to convert a property already in public use to another public use,
respondent municipality is, therefore, bereft of any authority to close municipal roads for the
establishment of a flea market. Petitioner also submits that assuming that the respondent
municipality is authorized to close streets, it failed to comply with the conditions set forth by the
Metropolitan Manila Authority for the approval of the ordinance providing for the establishment of flea
markets on public streets. Lastly, petitioner contends that by allowing the municipal streets to be
used by market vendors the municipal council of respondent municipality violated its duty under the
Local Government Code to promote the general welfare of the residents of the municipality.

In upholding the legality of the disputed ordinance, the trial court ruled:

. . . that Chanter II Section 10 of the Local Government Code is a statutory grant of

power given to local government units, the Municipality of Paraaque as such, is
empowered under that law to close its roads, streets or alley subject to limitations
stated therein (i.e., that it is in accordance with existing laws and the provisions of
this code).

xxx xxx xxx

The actuation of the respondent Brig. Gen. Levi Macasiano, though apparently within
its power is in fact an encroachment of power legally vested to the municipality,
precisely because when the municipality enacted the ordinance in question the
authority of the respondent as Police Superintendent ceases to be operative on the
ground that the streets covered by the ordinance ceases to be a public thoroughfare.
(pp. 33-34, Rollo)

We find the petition meritorious. In resolving the question of whether the disputed municipal
ordinance authorizing the flea market on the public streets is valid, it is necessary to examine the
laws in force during the time the said ordinance was enacted, namely, Batas Pambansa Blg. 337,
otherwise known as Local Government Code, in connection with established principles embodied in
the Civil Code an property and settled jurisprudence on the matter.

The property of provinces, cities and municipalities is divided into property for public use and
patrimonial property (Art. 423, Civil Code). As to what consists of property for public use, Article 424
of Civil Code states:

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

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

Based on the foregoing, J. Gabriel G.G. Cruz, Bayanihan, Lt. Garcia Extension and Opena streets
are local roads used for public service and are therefore considered public properties of respondent
municipality. Properties of the local government which are devoted to public service are deemed
public and are under the absolute control of Congress (Province of Zamboanga del Norte v. City of
Zamboanga, L-24440, March 28, 1968, 22 SCRA 1334). Hence, local governments have no
authority whatsoever to control or regulate the use of public properties unless specific authority is
vested upon them by Congress. One such example of this authority given by Congress to the local
governments is the power to close roads as provided in Section 10, Chapter II of the Local
Government Code, which states:

Sec. 10. Closure of roads. A local government unit may likewise, through its head
acting pursuant to a resolution of its sangguniang and in accordance with existing
law and the provisions of this Code, close any barangay, municipal, city or provincial
road, street, alley, park or square. No such way or place or any part of thereof shall
 be close without indemnifying any person prejudiced thereby. A property thus
withdrawn from public use may be used or conveyed for any purpose for which other
real property belonging to the local unit concerned might be lawfully used or
conveyed. (Emphasis ours).

However, the aforestated legal provision which gives authority to local government units to close
roads and other similar public places should be read and interpreted in accordance with basic
principles already established by law. These basic principles have the effect of limiting such authority
of the province, city or municipality to close a public street or thoroughfare. Article 424 of the Civil
Code lays down the basic principle that properties of public dominion devoted to public use and
made available to the public in general are outside the commerce of man and cannot be disposed of
or leased by the local government unit to private persons. Aside from the requirement of due
process which should be complied with before closing a road, street or park, the closure should be
for the sole purpose of withdrawing the road or other public property from public use when
circumstances show that such property is no longer intended or necessary for public use or public
service. When it is already withdrawn from public use, the property then becomes patrimonial
property of the local government unit concerned (Article 422, Civil Code; Cebu Oxygen, etc. et al. v.
Bercilles, et al., G.R. No. L-40474, August 29, 1975, 66 SCRA 481). It is only then that the
respondent municipality can "use or convey them for any purpose for which other real property
belonging to the local unit concerned might be lawfully used or conveyed" in accordance with the last
sentence of Section 10, Chapter II of Blg. 337, known as Local Government Code. In one case, the
City Council of Cebu, through a resolution, declared the terminal road of M. Borces Street, Mabolo,
Cebu City as an abandoned road, the same not being included in the City Development Plan.
Thereafter, the City Council passes another resolution authorizing the sale of the said abandoned
road through public bidding. We held therein that the City of Cebu is empowered to close a city
street and to vacate or withdraw the same from public use. Such withdrawn portion becomes
patrimonial property which can be the object of an ordinary contract (Cebu Oxygen and Acetylene
Co., Inc. v. Bercilles, et al., G.R. No.
L-40474, August 29, 1975, 66 SCRA 481). However, those roads and streets which are available to
the public in general and ordinarily used for vehicular traffic are still considered public property
devoted to public use. In such case, the local government has no power to use it for another purpose
or to dispose of or lease it to private persons. This limitation on the authority of the local government
over public properties has been discussed and settled by this Court en banc in "Francisco V.
Dacanay, petitioner v. Mayor Macaria Asistio, Jr., et al., respondents, G.R. No. 93654, May 6, 1992."
This Court ruled:

There is no doubt that the disputed areas from which the private respondents' market
stalls are sought to be evicted are public streets, as found by the trial court in Civil
Case No. C-12921. A public street is property for public use hence outside the
commerce of man (Arts. 420, 424, Civil Code). Being outside the commerce of man,
it may not be the subject of lease or others contract (Villanueva, et al. v. Castaeda
and Macalino, 15 SCRA 142 citing the Municipality of Cavite v. Rojas, 30 SCRA 602;
Espiritu v. Municipal Council of Pozorrubio, 102 Phil. 869; And Muyot v. De la
Fuente, 48 O.G. 4860).

As the stallholders pay fees to the City Government for the right to occupy portions of
the public street, the City Government, contrary to law, has been leasing portions of
the streets to them. Such leases or licenses are null and void for being contrary to
law. The right of the public to use the city streets may not be bargained away through
contract. The interests of a few should not prevail over the good of the greater
number in the community whose health, peace, safety, good order and general
welfare, the respondent city officials are under legal obligation to protect.
 The Executive Order issued by acting Mayor Robles authorizing the use of Heroes
del '96 Street as a vending area for stallholders who were granted licenses by the
city government contravenes the general law that reserves city streets and roads for
public use. Mayor Robles' Executive Order may not infringe upon the vested right of
the public to use city streets for the purpose they were intended to serve: i.e., as
arteries of travel for vehicles and pedestrians.

Even assuming, in gratia argumenti, that respondent municipality has the authority to pass the
disputed ordinance, the same cannot be validly implemented because it cannot be considered
approved by the Metropolitan Manila Authority due to non-compliance by respondent municipality of
the conditions imposed by the former for the approval of the ordinance, to wit:

1. That the aforenamed streets are not used for vehicular traffic, and that the majority
of the residents do(es) not oppose the establishment of the flea market/vending
areas thereon;

2. That the 2-meter middle road to be used as flea market/vending area shall be
marked distinctly, and that the 2 meters on both sides of the road shall be used by
pedestrians;

3. That the time during which the vending area is to be used shall be clearly
designated;

4. That the use of the vending areas shall be temporary and shall be closed once the
reclaimed areas are developed and donated by the Public Estate Authority. (p.
38, Rollo)

Respondent municipality has not shown any iota of proof that it has complied with the foregoing
conditions precedent to the approval of the ordinance. The allegations of respondent municipality
that the closed streets were not used for vehicular traffic and that the majority of the residents do not
oppose the establishment of a flea market on said streets are unsupported by any evidence that will
show that this first condition has been met. Likewise, the designation by respondents of a time
schedule during which the flea market shall operate is absent.

Further, it is of public notice that the streets along Baclaran area are congested with people, houses
and traffic brought about by the proliferation of vendors occupying the streets. To license and allow
the establishment of a flea market along J. Gabriel, G.G. Cruz, Bayanihan, Lt. Garcia Extension and
Opena streets in Baclaran would not help in solving the problem of congestion. We take note of the
other observations of the Solicitor General when he said:

. . . There have been many instances of emergencies and fires where ambulances
and fire engines, instead of using the roads for a more direct access to the fire area,
have to maneuver and look for other streets which are not occupied by stalls and
vendors thereby losing valuable time which could, otherwise, have been spent in
saving properties and lives.

Along G.G. Cruz Street is a hospital, the St. Rita Hospital. However, its ambulances
and the people rushing their patients to the hospital cannot pass through G.G. Cruz
because of the stalls and the vendors. One can only imagine the tragedy of losing a
life just because of a few seconds delay brought about by the inaccessibility of the
streets leading to the hospital.
 The children, too, suffer. In view of the occupancy of the roads by stalls and vendors,
normal transportation flow is disrupted and school children have to get off at a
distance still far from their schools and walk, rain or shine.

Indeed one can only imagine the garbage and litter left by vendors on the streets at
the end of the day. Needless to say, these cause further pollution, sickness and
deterioration of health of the residents therein. (pp. 21-22, Rollo)

Respondents do not refute the truth of the foregoing findings and observations of petitioners.
Instead, respondents want this Court to focus its attention solely on the argument that the use of
public spaces for the establishment of a flea market is well within the powers granted by law to a
local government which should not be interfered with by the courts.

Verily, the powers of a local government unit are not absolute. They are subject to limitations laid
down by toe Constitution and the laws such as our Civil Code. Moreover, the exercise of such
powers should be subservient to paramount considerations of health and well-being of the members
of the community. Every local government unit has the sworn obligation to enact measures that will
enhance the public health, safety and convenience, maintain peace and order, and promote the
general prosperity of the inhabitants of the local units. Based on this objective, the local government
should refrain from acting towards that which might prejudice or adversely affect the general welfare.

As what we have said in the Dacanay case, the general public have a legal right to demand the
demolition of the illegally constructed stalls in public roads and streets and the officials of respondent
municipality have the corresponding duty arising from public office to clear the city streets and
restore them to their specific public purpose.

The instant case as well as the Dacanay case, involves an ordinance which is void and illegal for
lack of basis and authority in laws applicable during its time. However, at this point, We find it worthy
to note that Batas Pambansa Blg. 337, known as Local Government Lode, has already been
repealed by Republic Act No. 7160 known as Local Government Code of 1991 which took effect on
January 1, 1992. Section 5(d) of the new Code provides that rights and obligations existing on the
date of effectivity of the new Code and arising out of contracts or any other source of prestation
involving a local government unit shall be governed by the original terms and conditions of the said
contracts or the law in force at the time such rights were vested.

ACCORDINGLY, the petition is GRANTED and the decision of the respondent Regional Trial Court
dated December 17, 1990 which granted the writ of preliminary injunction enjoining petitioner as
PNP Superintendent, Metropolitan Traffic Command from enforcing the demolition of market stalls
along J. Gabriel, G.G. Cruz, Bayanihan, Lt. Garcia Extension and Opena streets is hereby
RESERVED and SET ASIDE.

SO ORDERED.

Narvasa, C.J., Gutierrez, Jr., Cruz, Feliciano, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr.,
Romero, Nocon and Bellosillo, JJ., concur.

The Lawphil Project - Arellano Law Foundation

G.R. No. L40474 August 29, 1975

CEBU OXYGEN & ACETYLENE CO., INC., petitioner,

vs.
HON. PASCUAL A. BERCILLES Presiding Judge, Branch XV, 14th Judicial District, and JOSE
L. ESPELETA, Assistant Provincial Fiscal, Province of Cebu, representing the Solicitor
General's Office and the Bureau of Lands, respondents.

Jose Antonio R Conde for petitioner.

Office of the Acting Solicitor General Hugo E. Gutierrez, Jr., Assistant Solicitor General Octavio R.
Ramirez and Trial Attorney David R. Hilario for respondents. .

CONCEPCION, Jr., J.:

This is a petition for the review of the order of the Court of First Instance of Cebu dismissing
petitioner's application for registration of title over a parcel of land situated in the City of Cebu.

The parcel of land sought to be registered was only a portion of M. Borces Street, Mabolo, Cebu
City. On September 23, 1968, the City Council of Cebu, through Resolution No. 2193, approved on
October 3, 1968, declared the terminal portion of M. Borces Street, Mabolo, Cebu City, as an
abandoned road, the same not being included in the City Development Plan. 1 Subsequently, on
December 19, 1968, the City Council of Cebu passed Resolution No. 2755, authorizing the Acting City
Mayor to sell the land through a public bidding. 2 Pursuant thereto, the lot was awarded to the herein
petitioner being the highest bidder and on March 3, 1969, the City of Cebu, through the Acting City
Mayor, executed a deed of absolute sale to the herein petitioner for a total consideration of
P10,800.00. 3 By virtue of the aforesaid deed of absolute sale, the petitioner filed an application with the
Court of First instance of Cebu to have its title to the land registered. 4

On June 26, 1974, the Assistant Provincial Fiscal of Cebu filed a motion to dismiss the application
on the ground that the property sought to be registered being a public road intended for public use is
considered part of the public domain and therefore outside the commerce of man. Consequently, it
cannot be subject to registration by any private individual. 5

After hearing the parties, on October 11, 1974 the trial court issued an order dismissing the
petitioner's application for registration of title. 6 Hence, the instant petition for review.

For the resolution of this case, the petitioner poses the following questions:

(1) Does the City Charter of Cebu City (Republic Act No. 3857) under Section 31,
paragraph 34, give the City of Cebu the valid right to declare a road as abandoned?
and

(2) Does the declaration of the road, as abandoned, make it the patrimonial property
of the City of Cebu which may be the object of a common contract?

(1) The pertinent portions of the Revised Charter of Cebu City provides:
 Section 31. Legislative Powers. Any provision of law and executive order to the
contrary notwithstanding, the City Council shall have the following legislative powers:

xxx xxx xxx

(34) ...; to close any city road, street or alley, boulevard, avenue, park or square.
Property thus withdrawn from public servitude may be used or conveyed for any
purpose for which other real property belonging to the City may be lawfully used or
conveyed.

From the foregoing, it is undoubtedly clear that the City of Cebu is empowered to close a city road or
street. In the case of Favis vs. City of Baguio, 7 where the power of the city Council of Baguio City to
close city streets and to vacate or withdraw the same from public use was similarly assailed, this court
said:

5. So it is, that appellant may not challenge the city council's act of withdrawing a
strip of Lapu-Lapu Street at its dead end from public use and converting the
remainder thereof into an alley. These are acts well within the ambit of the power to
close a city street. The city council, it would seem to us, is the authority competent to
determine whether or not a certain property is still necessary for public use.

Such power to vacate a street or alley is discretionary. And the discretion will not
ordinarily be controlled or interfered with by the courts, absent a plain case of abuse
or fraud or collusion. Faithfulness to the public trust will be presumed. So the fact that
some private interests may be served incidentally will not invalidate the vacation
ordinance.

(2) Since that portion of the city street subject of petitioner's application for registration of title was
withdrawn from public use, it follows that such withdrawn portion becomes patrimonial property
which can be the object of an ordinary contract.

Article 422 of the Civil Code expressly provides that "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."

Besides, the Revised Charter of the City of Cebu heretofore quoted, in very clear and unequivocal
terms, states that: "Property thus withdrawn from public servitude may be used or conveyed for any
purpose for which other real property belonging to the City may be lawfully used or conveyed."

Accordingly, the withdrawal of the property in question from public use and its subsequent sale to
the petitioner is valid. Hence, the petitioner has a registerable title over the lot in question.

WHEREFORE, the order dated October 11, 1974, rendered by the respondent court in Land Reg.
Case No. N-948, LRC Rec. No. N-44531 is hereby set aside, and the respondent court is hereby
ordered to proceed with the hearing of the petitioner's application for registration of title.

SO ORDERED.

Makalintal, C.J, Fernando, Barredo and Aquino, JJ., concur.

G.R. No. 92013 July 25, 1990

SALVADOR H. LAUREL, petitioner,
vs.
RAMON GARCIA, as head of the Asset Privatization Trust, RAUL MANGLAPUS, as Secretary
of Foreign Affairs, and CATALINO MACARAIG, as Executive Secretary, respondents.

G.R. No. 92047 July 25, 1990

DIONISIO S. OJEDA, petitioner,

vs.
EXECUTIVE SECRETARY MACARAIG, JR., ASSETS PRIVATIZATION TRUST CHAIRMAN
RAMON T. GARCIA, AMBASSADOR RAMON DEL ROSARIO, et al., as members of the
PRINCIPAL AND BIDDING COMMITTEES ON THE UTILIZATION/DISPOSITION PETITION OF
PHILIPPINE GOVERNMENT PROPERTIES IN JAPAN,respondents.

Arturo M. Tolentino for petitioner in 92013.

GUTIERREZ, JR., J.:

These are two petitions for prohibition seeking to enjoin respondents, their representatives
and agents from proceeding with the bidding for the sale of the 3,179 square meters of land
at 306 Roppongi, 5-Chome Minato-ku Tokyo, Japan scheduled on February 21, 1990. We
granted the prayer for a temporary restraining order effective February 20, 1990. One of the
petitioners (in G.R. No. 92047) likewise prayes for a writ of mandamus to compel the
respondents to fully disclose to the public the basis of their decision to push through with
the sale of the Roppongi property inspire of strong public opposition and to explain the
proceedings which effectively prevent the participation of Filipino citizens and entities in the
bidding process.

The oral arguments in G.R. No. 92013, Laurel v. Garcia, et al. were heard by the Court on
March 13, 1990. After G.R. No. 92047, Ojeda v. Secretary Macaraig, et al. was filed, the
respondents were required to file a comment by the Court's resolution dated February 22,
1990. The two petitions were consolidated on March 27, 1990 when the memoranda of the
parties in the Laurel case were deliberated upon.

The Court could not act on these cases immediately because the respondents filed a motion
for an extension of thirty (30) days to file comment in G.R. No. 92047, followed by a second
motion for an extension of another thirty (30) days which we granted on May 8, 1990, a third
motion for extension of time granted on May 24, 1990 and a fourth motion for extension of
time which we granted on June 5, 1990 but calling the attention of the respondents to the
length of time the petitions have been pending. After the comment was filed, the petitioner in
G.R. No. 92047 asked for thirty (30) days to file a reply. We noted his motion and resolved to
decide the two (2) cases.

The subject property in this case is one of the four (4) properties in Japan acquired by the
Philippine government under the Reparations Agreement entered into with Japan on May 9,
1956, the other lots being:
(1) The Nampeidai Property at 11-24 Nampeidai-machi, Shibuya-ku, Tokyo which has an area
of approximately 2,489.96 square meters, and is at present the site of the Philippine Embassy
Chancery;

(2) The Kobe Commercial Property at 63 Naniwa-cho, Kobe, with an area of around 764.72
square meters and categorized as a commercial lot now being used as a warehouse and
parking lot for the consulate staff; and

(3) The Kobe Residential Property at 1-980-2 Obanoyama-cho, Shinohara, Nada-ku, Kobe, a
residential lot which is now vacant.

The properties and the capital goods and services procured from the Japanese government
for national development projects are part of the indemnification to the Filipino people for
their losses in life and property and their suffering during World War II.

The Reparations Agreement provides that reparations valued at $550 million would be
payable in twenty (20) years in accordance with annual schedules of procurements to be
fixed by the Philippine and Japanese governments (Article 2, Reparations Agreement). Rep.
Act No. 1789, the Reparations Law, prescribes the national policy on procurement and
utilization of reparations and development loans. The procurements are divided into those for
use by the government sector and those for private parties in projects as the then National
Economic Council shall determine. Those intended for the private sector shall be made
available by sale to Filipino citizens or to one hundred (100%) percent Filipino-owned entities
in national development projects.

The Roppongi property was acquired from the Japanese government under the Second Year
Schedule and listed under the heading "Government Sector", through Reparations Contract
No. 300 dated June 27, 1958. The Roppongi property consists of the land and building "for
the Chancery of the Philippine Embassy" (Annex M-D to Memorandum for Petitioner, p. 503).
As intended, it became the site of the Philippine Embassy until the latter was transferred to
Nampeidai on July 22, 1976 when the Roppongi building needed major repairs. Due to the
failure of our government to provide necessary funds, the Roppongi property has remained
undeveloped since that time.

A proposal was presented to President Corazon C. Aquino by former Philippine Ambassador

to Japan, Carlos J. Valdez, to make the property the subject of a lease agreement with a
Japanese firm - Kajima Corporation which shall construct two (2) buildings in Roppongi
and one (1) building in Nampeidai and renovate the present Philippine Chancery in
Nampeidai. The consideration of the construction would be the lease to the foreign
corporation of one (1) of the buildings to be constructed in Roppongi and the two (2)
buildings in Nampeidai. The other building in Roppongi shall then be used as the Philippine
Embassy Chancery. At the end of the lease period, all the three leased buildings shall be
occupied and used by the Philippine government. No change of ownership or title shall
occur. (See Annex "B" to Reply to Comment) The Philippine government retains the title all
throughout the lease period and thereafter. However, the government has not acted favorably
on this proposal which is pending approval and ratification between the parties. Instead, on
August 11, 1986, President Aquino created a committee to study the disposition/utilization of
Philippine government properties in Tokyo and Kobe, Japan through Administrative Order
No. 3, followed by Administrative Orders Numbered 3-A, B, C and D.

On July 25, 1987, the President issued Executive Order No. 296 entitling non-Filipino citizens
or entities to avail of separations' capital goods and services in the event of sale, lease or
disposition. The four properties in Japan including the Roppongi were specifically mentioned
in the first "Whereas" clause.

Amidst opposition by various sectors, the Executive branch of the government has been
pushing, with great vigor, its decision to sell the reparations properties starting with the
Roppongi lot. The property has twice been set for bidding at a minimum floor price of $225
million. The first bidding was a failure since only one bidder qualified. The second one, after
postponements, has not yet materialized. The last scheduled bidding on February 21, 1990
was restrained by his Court. Later, the rules on bidding were changed such that the $225
million floor price became merely a suggested floor price.

The Court finds that each of the herein petitions raises distinct issues. The petitioner in G.R.
No. 92013 objects to the alienation of the Roppongi property to anyone while the petitioner in
G.R. No. 92047 adds as a principal objection the alleged unjustified bias of the Philippine
government in favor of selling the property to non-Filipino citizens and entities. These
petitions have been consolidated and are resolved at the same time for the objective is the
same - to stop the sale of the Roppongi property.

The petitioner in G.R. No. 92013 raises the following issues:

(1) Can the Roppongi property and others of its kind be alienated by the Philippine
Government?; and

(2) Does the Chief Executive, her officers and agents, have the authority and jurisdiction, to
sell the Roppongi property?

Petitioner Dionisio Ojeda in G.R. No. 92047, apart from questioning the authority of the
government to alienate the Roppongi property assails the constitutionality of Executive Order
No. 296 in making the property available for sale to non-Filipino citizens and entities. He also
questions the bidding procedures of the Committee on the Utilization or Disposition of
Philippine Government Properties in Japan for being discriminatory against Filipino citizens
and Filipino-owned entities by denying them the right to be informed about the bidding
requirements.

II

In G.R. No. 92013, petitioner Laurel asserts that the Roppongi property and the related lots
were acquired as part of the reparations from the Japanese government for diplomatic and
consular use by the Philippine government. Vice-President Laurel states that the Roppongi
property is classified as one of public dominion, and not of private ownership under Article
420 of the Civil Code (See infra).

The petitioner submits that the Roppongi property comes under "property intended for public
service" in paragraph 2 of the above provision. He states that being one of public dominion,
no ownership by any one can attach to it, not even by the State. The Roppongi and related
properties were acquired for "sites for chancery, diplomatic, and consular quarters, buildings
and other improvements" (Second Year Reparations Schedule). The petitioner states that
they continue to be intended for a necessary service. They are held by the State in
anticipation of an opportune use. (Citing 3 Manresa 65-66). Hence, it cannot be appropriated,
is outside the commerce of man, or to put it in more simple terms, it cannot be alienated nor
be the subject matter of contracts (Citing Municipality of Cavite v. Rojas, 30 Phil. 20 [1915]).
Noting the non-use of the Roppongi property at the moment, the petitioner avers that the
same remains property of public dominion so long as the government has not used it for
other purposes nor adopted any measure constituting a removal of its original purpose or
use.

The respondents, for their part, refute the petitioner's contention by saying that the subject
property is not governed by our Civil Code but by the laws of Japan where the property is
located. They rely upon the rule of lex situs which is used in determining the applicable law
regarding the acquisition, transfer and devolution of the title to a property. They also invoke
Opinion No. 21, Series of 1988, dated January 27, 1988 of the Secretary of Justice which used
the lex situs in explaining the inapplicability of Philippine law regarding a property situated in
Japan.

The respondents add that even assuming for the sake of argument that the Civil Code is
applicable, the Roppongi property has ceased to become property of public dominion. It has
become patrimonial property because it has not been used for public service or for
diplomatic purposes for over thirteen (13) years now (Citing Article 422, Civil Code) and
because the intention by the Executive Department and the Congress to convert it to private
use has been manifested by overt acts, such as, among others: (1) the transfer of the
Philippine Embassy to Nampeidai (2) the issuance of administrative orders for the possibility
of alienating the four government properties in Japan; (3) the issuance of Executive Order
No. 296; (4) the enactment by the Congress of Rep. Act No. 6657 [the Comprehensive
Agrarian Reform Law] on June 10, 1988 which contains a provision stating that funds may be
taken from the sale of Philippine properties in foreign countries; (5) the holding of the public
bidding of the Roppongi property but which failed; (6) the deferment by the Senate in
Resolution No. 55 of the bidding to a future date; thus an acknowledgment by the Senate of
the government's intention to remove the Roppongi property from the public service
purpose; and (7) the resolution of this Court dismissing the petition in Ojeda v. Bidding
Committee, et al., G.R. No. 87478 which sought to enjoin the second bidding of the Roppongi
property scheduled on March 30, 1989.

III

In G.R. No. 94047, petitioner Ojeda once more asks this Court to rule on the constitutionality
of Executive Order No. 296. He had earlier filed a petition in G.R. No. 87478 which the Court
dismissed on August 1, 1989. He now avers that the executive order contravenes the
constitutional mandate to conserve and develop the national patrimony stated in the
Preamble of the 1987 Constitution. It also allegedly violates:

(1) The reservation of the ownership and acquisition of alienable lands of the public domain
to Filipino citizens. (Sections 2 and 3, Article XII, Constitution; Sections 22 and 23 of
Commonwealth Act 141). itc-a sl

(2) The preference for Filipino citizens in the grant of rights, privileges and concessions
covering the national economy and patrimony (Section 10, Article VI, Constitution);

(3) The protection given to Filipino enterprises against unfair competition and trade
practices;

(4) The guarantee of the right of the people to information on all matters of public concern
(Section 7, Article III, Constitution);
(5) The prohibition against the sale to non-Filipino citizens or entities not wholly owned by
Filipino citizens of capital goods received by the Philippines under the Reparations Act
(Sections 2 and 12 of Rep. Act No. 1789); and

(6) The declaration of the state policy of full public disclosure of all transactions involving
public interest (Section 28, Article III, Constitution).

Petitioner Ojeda warns that the use of public funds in the execution of an unconstitutional
executive order is a misapplication of public funds He states that since the details of the
bidding for the Roppongi property were never publicly disclosed until February 15, 1990 (or a
few days before the scheduled bidding), the bidding guidelines are available only in Tokyo,
and the accomplishment of requirements and the selection of qualified bidders should be
done in Tokyo, interested Filipino citizens or entities owned by them did not have the chance
to comply with Purchase Offer Requirements on the Roppongi. Worse, the Roppongi shall be
sold for a minimum price of $225 million from which price capital gains tax under Japanese
law of about 50 to 70% of the floor price would still be deducted.

IV

The petitioners and respondents in both cases do not dispute the fact that the Roppongi site
and the three related properties were through reparations agreements, that these were
assigned to the government sector and that the Roppongi property itself was specifically
designated under the Reparations Agreement to house the Philippine Embassy.

The nature of the Roppongi lot as property for public service is expressly spelled out. It is
dictated by the terms of the Reparations Agreement and the corresponding contract of
procurement which bind both the Philippine government and the Japanese government.

There can be no doubt that it is of public dominion unless it is convincingly shown that the
property has become patrimonial. This, the respondents have failed to do.

As property of public dominion, the Roppongi lot is outside the commerce of man. It cannot
be alienated. Its ownership is a special collective ownership for general use and enjoyment,
an application to the satisfaction of collective needs, and resides in the social group. The
purpose is not to serve the State as a juridical person, but the citizens; it is intended for the
common and public welfare and cannot be the object of appropration. (Taken from 3
Manresa, 66-69; cited in Tolentino, Commentaries on the Civil Code of the Philippines, 1963
Edition, Vol. II, p. 26).

The applicable provisions of the Civil Code are:

ART. 419. Property is either of public dominion or of private ownership.

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.
 ART. 421. All other property of the State, which is not of the character stated in
the preceding article, is patrimonial property.

The Roppongi property is correctly classified under paragraph 2 of Article 420 of the Civil
Code as property belonging to the State and intended for some public service.

Has the intention of the government regarding the use of the property been changed because
the lot has been Idle for some years? Has it become patrimonial?

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]).

The respondents enumerate various pronouncements by concerned public officials

insinuating a change of intention. We emphasize, however, that an abandonment of the
intention to use the Roppongi property for public service and to make it patrimonial property
under Article 422 of the Civil Code must be definite Abandonment cannot be inferred from the
non-use alone specially if the non-use was attributable not to the government's own
deliberate and indubitable will but to a lack of financial support to repair and improve the
property (See Heirs of Felino Santiago v. Lazaro, 166 SCRA 368 [1988]). Abandonment must
be a certain and positive act based on correct legal premises.

A mere transfer of the Philippine Embassy to Nampeidai in 1976 is not relinquishment of the
Roppongi property's original purpose. Even the failure by the government to repair the
building in Roppongi is not abandonment since as earlier stated, there simply was a shortage
of government funds. The recent Administrative Orders authorizing a study of the status and
conditions of government properties in Japan were merely directives for investigation but did
not in any way signify a clear intention to dispose of the properties.

Executive Order No. 296, though its title declares an "authority to sell", does not have a
provision in its text expressly authorizing the sale of the four properties procured from Japan
for the government sector. The executive order does not declare that the properties lost their
public character. It merely intends to make the properties available to foreigners and not to
Filipinos alone in case of a sale, lease or other disposition. It merely eliminates the restriction
under Rep. Act No. 1789 that reparations goods may be sold only to Filipino citizens and one
hundred (100%) percent Filipino-owned entities. The text of Executive Order No. 296
provides:

Section 1. The provisions of Republic Act No. 1789, as amended, and of other
laws to the contrary notwithstanding, the above-mentioned properties can be
made available for sale, lease or any other manner of disposition to non-
Filipino citizens or to entities owned by non-Filipino citizens.

Executive Order No. 296 is based on the wrong premise or assumption that the Roppongi and
the three other properties were earlier converted into alienable real properties. As earlier
stated, Rep. Act No. 1789 differentiates the procurements for the government sector and the
private sector (Sections 2 and 12, Rep. Act No. 1789). Only the private sector properties can
be sold to end-users who must be Filipinos or entities owned by Filipinos. It is this nationality
provision which was amended by Executive Order No. 296.

Section 63 (c) of Rep. Act No. 6657 (the CARP Law) which provides as one of the sources of
funds for its implementation, the proceeds of the disposition of the properties of the
Government in foreign countries, did not withdraw the Roppongi property from being
classified as one of public dominion when it mentions Philippine properties abroad. Section
63 (c) refers to properties which are alienable and not to those reserved for public use or
service. Rep Act No. 6657, therefore, does not authorize the Executive Department to sell the
Roppongi property. It merely enumerates possible sources of future funding to augment (as
and when needed) the Agrarian Reform Fund created under Executive Order No. 299.
Obviously any property outside of the commerce of man cannot be tapped as a source of
funds.

The respondents try to get around the public dominion character of the Roppongi property by
insisting that Japanese law and not our Civil Code should apply.

It is exceedingly strange why our top government officials, of all people, should be the ones
to insist that in the sale of extremely valuable government property, Japanese law and not
Philippine law should prevail. The Japanese law - its coverage and effects, when enacted, and
exceptions to its provision is not presented to the Court It is simply asserted that the lex
loci rei sitae or Japanese law should apply without stating what that law provides. It is a ed
on faith that Japanese law would allow the sale.

We see no reason why a conflict of law rule should apply when no conflict of law situation
exists. A conflict of law situation arises only when: (1) There is a dispute over the title or
ownership of an immovable, such that the capacity to take and transfer immovables, the
formalities of conveyance, the essential validity and effect of the transfer, or the
interpretation and effect of a conveyance, are to be determined (See Salonga, Private
International Law, 1981 ed., pp. 377-383); and (2) A foreign law on land ownership and its
conveyance is asserted to conflict with a domestic law on the same matters. Hence, the need
to determine which law should apply.

In the instant case, none of the above elements exists.

The issues are not concerned with validity of ownership or title. There is no question that the
property belongs to the Philippines. The issue is the authority of the respondent officials to
validly dispose of property belonging to the State. And the validity of the procedures adopted
to effect its sale. This is governed by Philippine Law. The rule of lex situs does not apply.

The assertion that the opinion of the Secretary of Justice sheds light on the relevance of
the lex situsrule is misplaced. The opinion does not tackle the alienability of the real
properties procured through reparations nor the existence in what body of the authority to
sell them. In discussing who are capableof acquiring the lots, the Secretary merely explains
that it is the foreign law which should determine who can acquire the properties so that the
constitutional limitation on acquisition of lands of the public domain to Filipino citizens and
entities wholly owned by Filipinos is inapplicable. We see no point in belaboring whether or
not this opinion is correct. Why should we discuss who can acquire the Roppongi lot when
there is no showing that it can be sold?

The subsequent approval on October 4, 1988 by President Aquino of the recommendation by

the investigating committee to sell the Roppongi property was premature or, at the very least,
conditioned on a valid change in the public character of the Roppongi property. Moreover,
the approval does not have the force and effect of law since the President already lost her
legislative powers. The Congress had already convened for more than a year.

Assuming for the sake of argument, however, that the Roppongi property is no longer of
public dominion, there is another obstacle to its sale by the respondents.

There is no law authorizing its conveyance.

Section 79 (f) of the Revised Administrative Code of 1917 provides

Section 79 (f ) Conveyances and contracts to which the Government is a party.

In cases in which the Government of the Republic of the Philippines is a
party to any deed or other instrument conveying the title to real estate or to
any other property the value of which is in excess of one hundred thousand
pesos, the respective Department Secretary shall prepare the necessary
papers which, together with the proper recommendations, shall be submitted
to the Congress of the Philippines for approval by the same. Such deed,
instrument, or contract shall be executed and signed by the President of the
Philippines on behalf of the Government of the Philippines unless the
Government of the Philippines unless the authority therefor be expressly
vested by law in another officer. (Emphasis supplied)

The requirement has been retained in Section 48, Book I of the Administrative Code of 1987
(Executive Order No. 292).

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) For property belonging to and titled in the name of the Republic of the
Philippines, by the President, unless the authority therefor is expressly vested
by law in another officer.

(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)

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

Resolution No. 55 of the Senate dated June 8, 1989, asking for the deferment of the sale of
the Roppongi property does not withdraw the property from public domain much less
authorize its sale. It is a mere resolution; it is not a formal declaration abandoning the public
character of the Roppongi property. In fact, the Senate Committee on Foreign Relations is
conducting hearings on Senate Resolution No. 734 which raises serious policy
considerations and calls for a fact-finding investigation of the circumstances behind the
decision to sell the Philippine government properties in Japan.
The resolution of this Court in Ojeda v. Bidding Committee, et al., supra, did not pass upon
the constitutionality of Executive Order No. 296. Contrary to respondents' assertion, we did
not uphold the authority of the President to sell the Roppongi property. The Court stated that
the constitutionality of the executive order was not the real issue and that resolving the
constitutional question was "neither necessary nor finally determinative of the case." The
Court noted that "[W]hat petitioner ultimately questions is the use of the proceeds of the
disposition of the Roppongi property." In emphasizing that "the decision of the Executive to
dispose of the Roppongi property to finance the CARP ... cannot be questioned" in view of
Section 63 (c) of Rep. Act No. 6657, the Court did not acknowledge the fact that the property
became alienable nor did it indicate that the President was authorized to dispose of the
Roppongi property. The resolution should be read to mean that in case the Roppongi
property is re-classified to be patrimonial and alienable by authority of law, the proceeds of a
sale may be used for national economic development projects including the CARP.

Moreover, the sale in 1989 did not materialize. The petitions before us question the proposed
1990 sale of the Roppongi property. We are resolving the issues raised in these petitions, not
the issues raised in 1989.

Having declared a need for a law or formal declaration to withdraw the Roppongi property
from public domain to make it alienable and a need for legislative authority to allow the sale
of the property, we see no compelling reason to tackle the constitutional issues raised by
petitioner Ojeda.

The Court does not ordinarily pass upon constitutional questions unless these questions are
properly raised in appropriate cases and their resolution is necessary for the determination
of the case (People v. Vera, 65 Phil. 56 [1937]). The Court will not pass upon a constitutional
question although properly presented by the record if the case can be disposed of on some
other ground such as the application of a statute or general law (Siler v. Louisville and
Nashville R. Co., 213 U.S. 175, [1909], Railroad Commission v. Pullman Co., 312 U.S. 496
[1941]).

The petitioner in G.R. No. 92013 states why the Roppongi property should not be sold:

The Roppongi property is not just like any piece of property. It was given to the
Filipino people in reparation for the lives and blood of Filipinos who died and
suffered during the Japanese military occupation, for the suffering of widows
and orphans who lost their loved ones and kindred, for the homes and other
properties lost by countless Filipinos during the war. The Tokyo properties are
a monument to the bravery and sacrifice of the Filipino people in the face of an
invader; like the monuments of Rizal, Quezon, and other Filipino heroes, we do
not expect economic or financial benefits from them. But who would think of
selling these monuments? Filipino honor and national dignity dictate that we
keep our properties in Japan as memorials to the countless Filipinos who died
and suffered. Even if we should become paupers we should not think of selling
them. For it would be as if we sold the lives and blood and tears of our
countrymen. (Rollo- G.R. No. 92013, p.147)

The petitioner in G.R. No. 92047 also states:

Roppongi is no ordinary property. It is one ceded by the Japanese government

in atonement for its past belligerence for the valiant sacrifice of life and limb
 and for deaths, physical dislocation and economic devastation the whole
Filipino people endured in World War II.

It is for what it stands for, and for what it could never bring back to life, that its
significance today remains undimmed, inspire of the lapse of 45 years since
the war ended, inspire of the passage of 32 years since the property passed on
to the Philippine government.

Roppongi is a reminder that cannot should not be dissipated ... (Rollo-

92047, p. 9)

It is indeed true that the Roppongi property is valuable not so much because of the inflated
prices fetched by real property in Tokyo but more so because of its symbolic value to all
Filipinos veterans and civilians alike. Whether or not the Roppongi and related properties
will eventually be sold is a policy determination where both the President and Congress must
concur. Considering the properties' importance and value, the laws on conversion and
disposition of property of public dominion must be faithfully followed.

WHEREFORE, IN VIEW OF THE FOREGOING, the petitions are GRANTED. A writ of

prohibition is issued enjoining the respondents from proceeding with the sale of the
Roppongi property in Tokyo, Japan. The February 20, 1990 Temporary Restraining Order is
made PERMANENT.

G.R. No. 155650 July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE,
SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY ASSESSOR OF PARAAQUE, and
CITY TREASURER OF PARAAQUE, respondents.

DECISION

CARPIO, J.:

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International
Airport (NAIA) Complex in Paraaque City under Executive Order No. 903, otherwise known as
the Revised Charter of the Manila International Airport Authority ("MIAA Charter"). Executive Order
No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently,
Executive Order Nos. 9091 and 2982 amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and equipment
within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of
land,3 including the runways and buildings ("Airport Lands and Buildings") then under the Bureau of
Air Transportation.4 The MIAA Charter further provides that no portion of the land transferred to
MIAA shall be disposed of through sale or any other mode unless specifically approved by the
President of the Philippines.5
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No.
061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real
estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with
respondent City of Paraaque to pay the real estate tax imposed by the City. MIAA then paid some
of the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of
Paraaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as
follows:

TAX
TAXABLE YEAR TAX DUE PENALTY TOTAL
DECLARATION
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75

#9476101 for P28,676,480.00

#9476103 for P49,115.006

On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened
to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax
delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC
pointed out that Section 206 of the Local Government Code requires persons exempt from real
estate tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the
proof that MIAA is exempt from real estate tax.

On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and
injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought to
restrain the City of Paraaque from imposing real estate tax on, levying against, and auctioning for
public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878.

On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the
60-day reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's
motion for reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5
December 2002 the present petition for review.7

Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the Barangay
Halls of Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market of Barangay
La Huerta; and in the main lobby of the Paraaque City Hall. The City of Paraaque published the
notices in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, a newspaper of general
circulation in the Philippines. The notices announced the public auction sale of the Airport Lands and
Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall
Building of Paraaque City.

A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an
Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The
motion sought to restrain respondents the City of Paraaque, City Mayor of
Paraaque, Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque, and the City
Assessor of Paraaque ("respondents") from auctioning the Airport Lands and Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately.
The Court ordered respondents to cease and desist from selling at public auction the Airport Lands
and Buildings. Respondents received the TRO on the same day that the Court issued it. However,
respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the public
auction.

On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive
issued during the hearing, MIAA, respondent City of Paraaque, and the Solicitor General
subsequently submitted their respective Memoranda.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the
name of MIAA. However, MIAA points out that it cannot claim ownership over these properties since
the real owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA
Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of the general
public. Since the Airport Lands and Buildings are devoted to public use and public service, the
ownership of these properties remains with the State. The Airport Lands and Buildings are thus
inalienable and are not subject to real estate tax by local governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the
payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234
of the Local Government Code because the Airport Lands and Buildings are owned by the Republic.
To justify the exemption, MIAA invokes the principle that the government cannot tax itself. MIAA
points out that the reason for tax exemption of public property is that its taxation would not inure to
any public advantage, since in such a case the tax debtor is also the tax creditor.

Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax
exemption privileges of "government-owned and-controlled corporations" upon the effectivity of
the Local Government Code. Respondents also argue that a basic rule of statutory construction is
that the express mention of one person, thing, or act excludes all others. An international airport is
not among the exceptions mentioned in Section 193 of the Local Government Code. Thus,
respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from
real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we
held that the Local Government Code has withdrawn the exemption from real estate tax granted to
international airports. Respondents further argue that since MIAA has already paid some of the real
estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are
exempt from real estate tax.

The Issue

This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are
exempt from real estate tax under existing laws. If so exempt, then the real estate tax assessments
issued by the City of Paraaque, and all proceedings taken pursuant to such assessments, are void.
In such event, the other issues raised in this petition become moot.

The Court's Ruling

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local
governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the

National Government and thus exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt from real estate tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt
from real estate tax. Respondents claim that the deletion of the phrase "any government-owned or
controlled so exempt by its charter" in Section 234(e) of the Local Government Code withdrew the
real estate tax exemption of government-owned or controlled corporations. The deleted phrase
appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities exempt
from real estate tax.

There is no dispute that a government-owned or controlled corporation is not exempt from real
estate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the
Introductory Provisions of the Administrative Code of 1987 defines a government-owned or
controlled corporation as follows:

SEC. 2. General Terms Defined. x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a

stock or non-stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of stock corporations, to
the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)

A government-owned or controlled corporation must be "organized as a stock or non-stock

corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
corporation because it has no capital stock divided into shares. MIAA has no stockholders or
voting shares. Section 10 of the MIAA Charter9provides:
 SECTION 10. Capital. The capital of the Authority to be contributed by the National
Government shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to
Ten Billion (P10,000,000,000.00) Pesos to consist of:

(a) The value of fixed assets including airport facilities, runways and equipment and such
other properties, movable and immovable[,] which may be contributed by the National
Government or transferred by it from any of its agencies, the valuation of which shall be
determined jointly with the Department of Budget and Management and the Commission on
Audit on the date of such contribution or transfer after making due allowances for
depreciation and other deductions taking into account the loans and other liabilities of the
Authority at the time of the takeover of the assets and other properties;

(b) That the amount of P605 million as of December 31, 1986 representing about seventy
percentum (70%) of the unremitted share of the National Government from 1983 to 1986 to
be remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 as
amended, shall be converted into the equity of the National Government in the Authority.
Thereafter, the Government contribution to the capital of the Authority shall be provided in
the General Appropriations Act.

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is
divided into shares and x x x authorized to distribute to the holders of such shares dividends
x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting
shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation
Code defines a non-stock corporation as "one where no part of its income is distributable as
dividends to its members, trustees or officers." A non-stock corporation must have members. Even if
we assume that the Government is considered as the sole member of MIAA, this will not make MIAA
a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their
members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross
operating income to the National Treasury.11 This prevents MIAA from qualifying as a non-stock
corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is
not organized for any of these purposes. MIAA, a public utility, is organized to operate an
international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-
owned or controlled corporation. What then is the legal status of MIAA within the National
Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is that
MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government "instrumentality" as follows:

SEC. 2. General Terms Defined. x x x x

 (10) Instrumentality refers to any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed
with some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. x x x (Emphasis supplied)

When the law vests in a government instrumentality corporate powers, the instrumentality does not
become a corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental powers of eminent domain,12 police
authority13 and the levying of fees and charges.14 At the same time, MIAA exercises "all the powers
of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the
provisions of this Executive Order."15

Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with the
department framework. The MIAA Charter expressly states that transforming MIAA into a "separate
and autonomous body"16 will make its operation more "financially viable."17

Many government instrumentalities are vested with corporate powers but they do not become stock
or non-stock corporations, which is a necessary condition before an agency or instrumentality is
deemed a government-owned or controlled corporation. Examples are the Mactan International
Airport Authority, the Philippine Ports Authority, the University of the Philippines and Bangko Sentral
ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not
organized as stock or non-stock corporations as required by Section 2(13) of the Introductory
Provisions of the Administrative Code. These government instrumentalities are sometimes loosely
called government corporate entities. However, they are not government-owned or controlled
corporations in the strict sense as understood under the Administrative Code, which is the governing
law defining the legal relationship and status of government entities.

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code,
which states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units.(Emphasis and underscoring supplied)

Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While the
1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power "subject to such guidelines and limitations as the
Congress may provide."18

When local governments invoke the power to tax on national government instrumentalities, such
power is construed strictly against local governments. The rule is that a tax is never presumed and
there must be clear language in the law imposing the tax. Any doubt whether a person, article or
activity is taxable is resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government instrumentality
from local taxation, such exemption is construed liberally in favor of the national government
instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:

The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely
to reduce the amount of money that has to be handled by government in the course of its
operations. For these reasons, provisions granting exemptions to government agencies may
be construed liberally, in favor of non tax-liability of such agencies.19

There is, moreover, no point in national and local governments taxing each other, unless a sound
and compelling policy requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is
when the legislature clearly intended to tax government instrumentalities for the delivery of
essential public services for sound and compelling policy considerations. There must be
express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the
Code, local governments cannot tax national government instrumentalities. As this Court held
in Basco v. Philippine Amusements and Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in

any manner control the operation of constitutional laws enacted by Congress to carry
into execution the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local
governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way (taxation) at least,
the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it
can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them."
(Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of
what local authorities may perceive to be undesirable activities or enterprise using the power
to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch
v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it. 20

2. Airport Lands and Buildings of MIAA are Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by
the State or the Republic of the Philippines. The Civil Code provides:

ARTICLE 419. Property is either of public dominion or of private ownership.

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

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

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

ARTICLE 421. All other property of the State, which is not of the character stated in the
preceding article, is patrimonial property.

ARTICLE 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.

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like
"roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by the
State. The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings
constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport
Lands and Buildings are properties of public dominion and thus owned by the State or the Republic
of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for
international and domestic travel and transportation. The fact that the MIAA collects terminal
fees and other charges from the public does not remove the character of the Airport Lands and
Buildings as properties for public use. The operation by the government of a tollway does not
change the character of the road as one for public use. Someone must pay for the maintenance of
the road, either the public indirectly through the taxes they pay the government, or only those among
the public who actually use the road through the toll fees they pay upon using the road. The tollway
system is even a more efficient and equitable manner of taxing the public for the maintenance of
public roads.

The charging of fees to the public does not determine the character of the property whether it is of
public dominion or not. Article 420 of the Civil Code defines property of public dominion as one
"intended for public use." Even if the government collects toll fees, the road is still "intended for
public use" if anyone can use the road under the same terms and conditions as the rest of the public.
The charging of fees, the limitation on the kind of vehicles that can use the road, the speed
restrictions and other conditions for the use of the road do not affect the public character of the road.

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines,
constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees
does not change the character of MIAA as an airport for public use. Such fees are often termed
user's tax. This means taxing those among the public who actually use a public facility instead of
taxing all the public including those who never use the particular public facility. A user's tax is more
equitable a principle of taxation mandated in the 1987 Constitution.21

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the
Philippines for both international and domestic air traffic,"22 are properties of public dominion
because they are intended for public use. As properties of public dominion, they indisputably
belong to the State or the Republic of the Philippines.

b. Airport Lands and Buildings are Outside the Commerce of Man

The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public
dominion. As properties of public dominion, the Airport Lands and Buildings are outside the
commerce of man. The Court has ruled repeatedly that properties of public dominion are outside
the commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v.
Rojas that properties devoted to public use are outside the commerce of man, thus:

According to article 344 of the Civil Code: "Property for public use in provinces and in towns
comprises the provincial and town roads, the squares, streets, fountains, and public waters,
the promenades, and public works of general service supported by said towns or provinces."

The said Plaza Soledad being a promenade for public use, the municipal council of Cavite
could not in 1907 withdraw or exclude from public use a portion thereof in order to lease it for
the sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public
place to the defendant for private use the plaintiff municipality exceeded its authority in the
exercise of its powers by executing a contract over a thing of which it could not dispose, nor
is it empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not outside the commerce of
man may be the object of a contract, and plazas and streets are outside of this commerce,
as was decided by the supreme court of Spain in its decision of February 12, 1895, which
says: "Communal things that cannot be sold because they are by their very nature
outside of commerce are those for public use, such as the plazas, streets, common
lands, rivers, fountains, etc." (Emphasis supplied) 23

Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are
outside the commerce of man:

xxx Town plazas are properties of public dominion, to be devoted to public use and to be
made available to the public in general. They are outside the commerce of man and
cannot be disposed of or even leased by the municipality to private parties. While in case of
war or during an emergency, town plazas may be occupied temporarily by private
individuals, as was done and as was tolerated by the Municipality of Pozorrubio, when the
emergency has ceased, said temporary occupation or use must also cease, and the town
officials should see to it that the town plazas should ever be kept open to the public and free
from encumbrances or illegal private constructions.24 (Emphasis supplied)

The Court has also ruled that property of public dominion, being outside the commerce of man,
cannot be the subject of an auction sale.25

Properties of public dominion, being for public use, are not subject to levy, encumbrance or
disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any
property of public dominion is void for being contrary to public policy. Essential public services will
stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale.
This will happen if the City of Paraaque can foreclose and compel the auction sale of the 600-
hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw
from public use the Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or
Commonwealth Act No. 141, which "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,"27 provide:

SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural
Resources, the President may designate by proclamation any tract or tracts of land of the
public domain as reservations for the use of the Republic of the Philippines or of any of its
branches, or of the inhabitants thereof, in accordance with regulations prescribed for this
purposes, or for quasi-public uses or purposes when the public interest requires it, including
reservations for highways, rights of way for railroads, hydraulic power sites, irrigation
systems, communal pastures or lequas communales, public parks, public quarries, public
fishponds, working men's village and other improvements for the public benefit.

SECTION 88. The tract or tracts of land reserved under the provisions of Section
eighty-three shall be non-alienable and shall not be subject to occupation, entry, sale,
lease, or other disposition until again declared alienable under the provisions of this
Act or by proclamation of the President. (Emphasis and underscoring supplied)

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from
public use, these properties remain properties of public dominion and are inalienable. Since the
Airport Lands and Buildings are inalienable in their present status as properties of public dominion,
they are not subject to levy on execution or foreclosure sale. As long as the Airport Lands and
Buildings are reserved for public use, their ownership remains with the State or the Republic of the
Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw
such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of
1987, which states:

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

x x x x. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or
presidential proclamation from public use, they are properties of public dominion, owned by the
Republic and outside the commerce of man.

c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48,
Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title to
real properties owned by the Republic, thus:
 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) For property belonging to and titled in the name of the Republic of the Philippines, by the
President, unless the authority therefor is expressly vested by law in another officer.

(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)

In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because
even its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the
President of the Republic can sign such deed of conveyance.28

d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings
from the Bureau of Air Transportation of the Department of Transportation and Communications.
The MIAA Charter provides:

SECTION 3. Creation of the Manila International Airport Authority. x x x x

The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned
to the ownership and administration of the Authority, subject to existing rights, if any.
The Bureau of Lands and other appropriate government agencies shall undertake an actual
survey of the area transferred within one year from the promulgation of this Executive Order
and the corresponding title to be issued in the name of the Authority. Any portion thereof
shall not be disposed through sale or through any other mode unless specifically
approved by the President of the Philippines. (Emphasis supplied)

SECTION 22. Transfer of Existing Facilities and Intangible Assets. All existing public
airport facilities, runways, lands, buildings and other property, movable or immovable,
belonging to the Airport, and all assets, powers, rights, interests and privileges belonging to
the Bureau of Air Transportation relating to airport works or air operations, including all
equipment which are necessary for the operation of crash fire and rescue facilities, are
hereby transferred to the Authority. (Emphasis supplied)

SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air
Transportation and Transitory Provisions. The Manila International Airport including the
Manila Domestic Airport as a division under the Bureau of Air Transportation is hereby
abolished.

x x x x.

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic
receiving cash, promissory notes or even stock since MIAA is not a stock corporation.

The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands
and Buildings to MIAA, thus:
 WHEREAS, the Manila International Airport as the principal airport of the Philippines for both
international and domestic air traffic, is required to provide standards of airport
accommodation and service comparable with the best airports in the world;

WHEREAS, domestic and other terminals, general aviation and other facilities, have to be
upgraded to meet the current and future air traffic and other demands of aviation in Metro
Manila;

WHEREAS, a management and organization study has indicated that the objectives of
providing high standards of accommodation and service within the context of a
financially viable operation, will best be achieved by a separate and autonomous
body; and

WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No.
1772, the President of the Philippines is given continuing authority to reorganize the
National Government, which authority includes the creation of new entities, agencies
and instrumentalities of the Government[.] (Emphasis supplied)

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was
not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose
was merely to reorganize a division in the Bureau of Air Transportation into a separate and
autonomous body. The Republic remains the beneficial owner of the Airport Lands and Buildings.
MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAA's
assets adverse to the Republic.

The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed
through sale or through any other mode unless specifically approved by the President of the
Philippines." This only means that the Republic retained the beneficial ownership of the Airport
Lands and Buildings because under Article 428 of the Civil Code, only the "owner has the right to x x
x dispose of a thing." Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not
own the Airport Lands and Buildings.

At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings
without the Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the
President is the only one who can authorize the sale or disposition of the Airport Lands and
Buildings. This only confirms that the Airport Lands and Buildings belong to the Republic.

e. Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property
owned by the Republic of the Philippines." Section 234(a) provides:

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

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

x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits
local governments from imposing "[t]axes, fees or charges of any kind on the National Government,
its agencies andinstrumentalities x x x." The real properties owned by the Republic are titled either
in the name of the Republic itself or in the name of agencies or instrumentalities of the National
Government. The Administrative Code allows real property owned by the Republic to be titled in the
name of agencies or instrumentalities of the national government. Such real properties remain
owned by the Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the
national government. This happens when title of the real property is transferred to an agency or
instrumentality even as the Republic remains the owner of the real property. Such arrangement does
not result in the loss of the tax exemption. Section 234(a) of the Local Government Code states that
real property owned by the Republic loses its tax exemption only if the "beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person." MIAA, as a government
instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus,
even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and
Buildings, such fact does not make these real properties subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not
exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to
private corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use
of such land area for a consideration to ataxable person and therefore such land area is subject to
real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:

Accordingly, we hold that the portions of the land leased to private entities as well as those
parts of the hospital leased to private individuals are not exempt from such taxes. On the
other hand, the portions of the land occupied by the hospital and portions of the hospital
used for its patients, whether paying or non-paying, are exempt from real property taxes.29

3. Refutation of Arguments of Minority

The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the
Local Government Code of 1991 withdrew the tax exemption of "all persons, whether natural or
juridical" upon the effectivity of the Code. Section 193 provides:

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

The minority states that MIAA is indisputably a juridical person. The minority argues that since the
Local Government Code withdrew the tax exemption of all juridical persons, then MIAA is not
exempt from real estate tax. Thus, the minority declares:

It is evident from the quoted provisions of the Local Government Code that the
withdrawn exemptions from realty tax cover not just GOCCs, but all persons. To
repeat, the provisions lay down the explicit proposition that the withdrawal of realty tax
exemption applies to all persons. The reference to or the inclusion of GOCCs is only
clarificatory or illustrative of the explicit provision.
 The term "All persons" encompasses the two classes of persons recognized under
our laws, natural and juridical persons. Obviously, MIAA is not a natural person. Thus,
the determinative test is not just whether MIAA is a GOCC, but whether MIAA is a
juridical person at all. (Emphasis and underscoring in the original)

The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its
status whether MIAA is a juridical person or not. The minority also insists that "Sections 193 and
234 may be examined in isolation from Section 133(o) to ascertain MIAA's claim of exemption."

The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly
withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code."
Now, Section 133(o) of the Local Government Code expressly provides otherwise,
specifically prohibiting local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. (Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local governments cannot impose any kind of
tax on national government instrumentalities like the MIAA. Local governments are devoid of power
to tax the national government, its agencies and instrumentalities. The taxing powers of local
governments do not extend to the national government, its agencies and instrumentalities, "[u]nless
otherwise provided in this Code" as stated in the saving clause of Section 133. The saving clause
refers to Section 234(a) on the exception to the exemption from real estate tax of real property
owned by the Republic.

The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are
subject to tax by local governments. The minority insists that the juridical persons exempt from local
taxation are limited to the three classes of entities specifically enumerated as exempt in Section 193.
Thus, the minority states:

x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives
duly registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and
educational institutions. It would be belaboring the obvious why the MIAA does not fall within
any of the exempt entities under Section 193. (Emphasis supplied)

The minority's theory directly contradicts and completely negates Section 133(o) of the Local
Government Code. This theory will result in gross absurdities. It will make the national government,
which itself is a juridical person, subject to tax by local governments since the national government is
not included in the enumeration of exempt entities in Section 193. Under this theory, local
governments can impose any kind of local tax, and not only real estate tax, on the national
government.

Under the minority's theory, many national government instrumentalities with juridical personalities
will also be subject to any kind of local tax, and not only real estate tax. Some of the national
government instrumentalities vested by law with juridical personalities are: Bangko Sentral ng
Pilipinas,30 Philippine Rice Research Institute,31Laguna Lake

Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development

Authority,34Philippine Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port
Authority,37 Cebu Port Authority,38 and Philippine National Railways.39

The minority's theory violates Section 133(o) of the Local Government Code which expressly
prohibits local governments from imposing any kind of tax on national government instrumentalities.
Section 133(o) does not distinguish between national government instrumentalities with or without
juridical personalities. Where the law does not distinguish, courts should not distinguish. Thus,
Section 133(o) applies to all national government instrumentalities, with or without juridical
personalities. The determinative test whether MIAA is exempt from local taxation is not whether
MIAA is a juridical person, but whether it is a national government instrumentality under Section
133(o) of the Local Government Code. Section 133(o) is the specific provision of law prohibiting local
governments from imposing any kind of tax on the national government, its agencies and
instrumentalities.

Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise
provided in this Code." This means that unless the Local Government Code grants an express
authorization, local governments have no power to tax the national government, its agencies and
instrumentalities. Clearly, the rule is local governments have no power to tax the national
government, its agencies and instrumentalities. As an exception to this rule, local governments may
tax the national government, its agencies and instrumentalities only if the Local Government Code
expressly so provides.

The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the
Code, which makes the national government subject to real estate tax when it gives the beneficial
use of its real properties to a taxable entity. Section 234(a) of the Local Government Code provides:

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

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

x x x. (Emphasis supplied)

Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The
exception to this exemption is when the government gives the beneficial use of the real property to a
taxable entity.

The exception to the exemption in Section 234(a) is the only instance when the national government,
its agencies and instrumentalities are subject to any kind of tax by local governments. The exception
to the exemption applies only to real estate tax and not to any other tax. The justification for the
exception to the exemption is that the real property, although owned by the Republic, is not devoted
to public use or public service but devoted to the private gain of a taxable person.

The minority also argues that since Section 133 precedes Section 193 and 234 of the Local
Government Code, the later provisions prevail over Section 133. Thus, the minority asserts:
 x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an
accepted rule of construction, in case of conflict the subsequent provisions should prevail.
Therefore, MIAA, as a juridical person, is subject to real property taxes, the general
exemptions attaching to instrumentalities under Section 133(o) of the Local Government
Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied)

The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and
Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less has
any one presenteda persuasive argument that there is such a conflict. The minority's assumption of
an irreconcilable conflict in the statutory provisions is an egregious error for two reasons.

First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly
admits its subordination to other provisions of the Code when Section 193 states "[u]nless otherwise
provided in this Code." By its own words, Section 193 admits the superiority of other provisions of
the Local Government Code that limit the exercise of the taxing power in Section 193. When a
provision of law grants a power but withholds such power on certain matters, there is no conflict
between the grant of power and the withholding of power. The grantee of the power simply cannot
exercise the power on matters withheld from its power.

Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government
Units." Section 133 limits the grant to local governments of the power to tax, and not merely the
exercise of a delegated power to tax. Section 133 states that the taxing powers of local governments
"shall not extend to the levy" of any kind of tax on the national government, its agencies and
instrumentalities. There is no clearer limitation on the taxing power than this.

Since Section 133 prescribes the "common limitations" on the taxing powers of local governments,
Section 133 logically prevails over Section 193 which grants local governments such taxing powers.
By their very meaning and purpose, the "common limitations" on the taxing power prevail over the
grant or exercise of the taxing power. If the taxing power of local governments in Section 193
prevails over the limitations on such taxing power in Section 133, then local governments can
impose any kind of tax on the national government, its agencies and instrumentalities a gross
absurdity.

Local governments have no power to tax the national government, its agencies and
instrumentalities, except as otherwise provided in the Local Government Code pursuant to the
saving clause in Section 133 stating "[u]nless otherwise provided in this Code." This exception
which is an exception to the exemption of the Republic from real estate tax imposed by local
governments refers to Section 234(a) of the Code. The exception to the exemption in Section
234(a) subjects real property owned by the Republic, whether titled in the name of the national
government, its agencies or instrumentalities, to real estate tax if the beneficial use of such property
is given to a taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase "government-
owned or controlled corporation" is not controlling. The minority points out that Section 2 of the
Introductory Provisions of the Administrative Code admits that its definitions are not controlling when
it provides:

SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as a
whole, or a particular statute, shall require a different meaning:

xxxx
The minority then concludes that reliance on the Administrative Code definition is "flawed."

The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes
that a statute may require a different meaning than that defined in the Administrative Code.
However, this does not automatically mean that the definition in the Administrative Code does not
apply to the Local Government Code. Section 2 of the Administrative Code clearly states that
"unless the specific words x x x of a particular statute shall require a different meaning," the definition
in Section 2 of the Administrative Code shall apply. Thus, unless there is specific language in the
Local Government Code defining the phrase "government-owned or controlled corporation"
differently from the definition in the Administrative Code, the definition in the Administrative Code
prevails.

The minority does not point to any provision in the Local Government Code defining the phrase
"government-owned or controlled corporation" differently from the definition in the Administrative
Code. Indeed, there is none. The Local Government Code is silent on the definition of the phrase
"government-owned or controlled corporation." The Administrative Code, however, expressly defines
the phrase "government-owned or controlled corporation." The inescapable conclusion is that the
Administrative Code definition of the phrase "government-owned or controlled corporation" applies to
the Local Government Code.

The third whereas clause of the Administrative Code states that the Code "incorporates in a unified
document the major structural, functional and procedural principles and rules of governance." Thus,
the Administrative Code is the governing law defining the status and relationship of government
departments, bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides
for a different status and relationship for a specific government unit or entity, the provisions of the
Administrative Code prevail.

The minority also contends that the phrase "government-owned or controlled corporation" should
apply only to corporations organized under the Corporation Code, the general incorporation law, and
not to corporations created by special charters. The minority sees no reason why government
corporations with special charters should have a capital stock. Thus, the minority declares:

I submit that the definition of "government-owned or controlled corporations" under the

Administrative Code refer to those corporations owned by the government or its
instrumentalities which are created not by legislative enactment, but formed and organized
under the Corporation Code through registration with the Securities and Exchange
Commission. In short, these are GOCCs without original charters.

xxxx

It might as well be worth pointing out that there is no point in requiring a capital structure for
GOCCs whose full ownership is limited by its charter to the State or Republic. Such GOCCs
are not empowered to declare dividends or alienate their capital shares.

The contention of the minority is seriously flawed. It is not in accord with the Constitution and
existing legislations. It will also result in gross absurdities.

First, the Administrative Code definition of the phrase "government-owned or controlled corporation"
does not distinguish between one incorporated under the Corporation Code or under a special
charter. Where the law does not distinguish, courts should not distinguish.
Second, Congress has created through special charters several government-owned corporations
organized as stock corporations. Prime examples are the Land Bank of the Philippines and the
Development Bank of the Philippines. The special charter40 of the Land Bank of the Philippines
provides:

SECTION 81. Capital. The authorized capital stock of the Bank shall be nine billion pesos,
divided into seven hundred and eighty million common shares with a par value of ten pesos
each, which shall be fully subscribed by the Government, and one hundred and twenty
million preferred shares with a par value of ten pesos each, which shall be issued in
accordance with the provisions of Sections seventy-seven and eighty-three of this Code.
(Emphasis supplied)

Likewise, the special charter41 of the Development Bank of the Philippines provides:

SECTION 7. Authorized Capital Stock Par value. The capital stock of the Bank shall be
Five Billion Pesos to be divided into Fifty Million common shares with par value of P100 per
share. These shares are available for subscription by the National Government. Upon the
effectivity of this Charter, the National Government shall subscribe to Twenty-Five Million
common shares of stock worth Two Billion Five Hundred Million which shall be deemed paid
for by the Government with the net asset values of the Bank remaining after the transfer of
assets and liabilities as provided in Section 30 hereof. (Emphasis supplied)

Other government-owned corporations organized as stock corporations under their special charters
are the Philippine Crop Insurance Corporation,42 Philippine International Trading Corporation,43 and
the Philippine National Bank44 before it was reorganized as a stock corporation under the
Corporation Code. All these government-owned corporations organized under special charters as
stock corporations are subject to real estate tax on real properties owned by them. To rule that they
are not government-owned or controlled corporations because they are not registered with the
Securities and Exchange Commission would remove them from the reach of Section 234 of the
Local Government Code, thus exempting them from real estate tax.

Third, the government-owned or controlled corporations created through special charters are those
that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first
condition is that the government-owned or controlled corporation must be established for the
common good. The second condition is that the government-owned or controlled corporation must
meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides:

SEC. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the common
good and subject to the test of economic viability. (Emphasis and underscoring supplied)

The Constitution expressly authorizes the legislature to create "government-owned or controlled

corporations" through special charters only if these entities are required to meet the twin conditions
of common good and economic viability. In other words, Congress has no power to create
government-owned or controlled corporations with special charters unless they are made to comply
with the two conditions of common good and economic viability. The test of economic viability
applies only to government-owned or controlled corporations that perform economic or commercial
activities and need to compete in the market place. Being essentially economic vehicles of the State
for the common good meaning for economic development purposes these government-owned
or controlled corporations with special charters are usually organized as stock corporations just like
ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and performing
governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that every modern
State must provide its citizens. These instrumentalities need not be economically viable since the
government may even subsidize their entire operations. These instrumentalities are not the
"government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987
Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or public
functions. Congress has plenary authority to create government instrumentalities vested with
corporate powers provided these instrumentalities perform essential government functions or public
services. However, when the legislature creates through special charters corporations that perform
economic or commercial activities, such entities known as "government-owned or controlled
corporations" must meet the test of economic viability because they compete in the market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines
and similar government-owned or controlled corporations, which derive their income to meet
operating expenses solely from commercial transactions in competition with the private sector. The
intent of the Constitution is to prevent the creation of government-owned or controlled corporations
that cannot survive on their own in the market place and thus merely drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government
creates a corporation, there is a sense in which this corporation becomes exempt from the
test of economic performance. We know what happened in the past. If a government
corporation loses, then it makes its claim upon the taxpayers' money through new equity
infusions from the government and what is always invoked is the common good. That is the
reason why this year, out of a budget of P115 billion for the entire government, about P28
billion of this will go into equity infusions to support a few government financial institutions.
And this is all taxpayers' money which could have been relocated to agrarian reform, to
social services like health and education, to augment the salaries of grossly underpaid public
employees. And yet this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common
good," this becomes a restraint on future enthusiasts for state capitalism to excuse
themselves from the responsibility of meeting the market test so that they become viable.
And so, Madam President, I reiterate, for the committee's consideration and I am glad that I
am joined in this proposal by Commissioner Foz, the insertion of the standard of
"ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common good.45

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his
textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:

The second sentence was added by the 1986 Constitutional Commission. The significant
addition, however, is the phrase "in the interest of the common good and subject to the test
of economic viability." The addition includes the ideas that they must show capacity to
function efficiently in business and that they should not go into activities which the private
sector can do better. Moreover, economic viability is more than financial viability but also
 includes capability to make profit and generate benefits not quantifiable in financial
terms.46 (Emphasis supplied)

Clearly, the test of economic viability does not apply to government entities vested with corporate
powers and performing essential public services. The State is obligated to render essential public
services regardless of the economic viability of providing such service. The non-economic viability of
rendering such essential public service does not excuse the State from withholding such essential
services from the public.

However, government-owned or controlled corporations with special charters, organized essentially

for economic or commercial objectives, must meet the test of economic viability. These are the
government-owned or controlled corporations that are usually organized under their special charters
as stock corporations, like the Land Bank of the Philippines and the Development Bank of the
Philippines. These are the government-owned or controlled corporations, along with government-
owned or controlled corporations organized under the Corporation Code, that fall under the definition
of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code.

The MIAA need not meet the test of economic viability because the legislature did not create MIAA
to compete in the market place. MIAA does not compete in the market place because there is no
competing international airport operated by the private sector. MIAA performs an essential public
service as the primary domestic and international airport of the Philippines. The operation of an
international airport requires the presence of personnel from the following government agencies:

1. The Bureau of Immigration and Deportation, to document the arrival and departure of
passengers, screening out those without visas or travel documents, or those with hold
departure orders;

2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited
importations;

3. The quarantine office of the Department of Health, to enforce health measures against the
spread of infectious diseases into the country;

4. The Department of Agriculture, to enforce measures against the spread of plant and
animal diseases into the country;

5. The Aviation Security Command of the Philippine National Police, to prevent the entry of
terrorists and the escape of criminals, as well as to secure the airport premises from terrorist
attack or seizure;

6. The Air Traffic Office of the Department of Transportation and Communications, to

authorize aircraft to enter or leave Philippine airspace, as well as to land on, or take off from,
the airport; and

7. The MIAA, to provide the proper premises such as runway and buildings for the
government personnel, passengers, and airlines, and to manage the airport operations.

All these agencies of government perform government functions essential to the operation of an
international airport.
MIAA performs an essential public service that every modern State must provide its citizens. MIAA
derives its revenues principally from the mandatory fees and charges MIAA imposes on passengers
and airlines. The terminal fees that MIAA charges every passenger are regulatory or administrative
fees47 and not income from commercial transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code, which provides:

SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis supplied)

The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-
owned or controlled corporation. Without a change in its capital structure, MIAA remains a
government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative
Code. More importantly, as long as MIAA renders essential public services, it need not comply with
the test of economic viability. Thus, MIAA is outside the scope of the phrase "government-owned or
controlled corporations" under Section 16, Article XII of the 1987 Constitution.

The minority belittles the use in the Local Government Code of the phrase "government-owned or
controlled corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution
prescribes explicit conditions for the creation of "government-owned or controlled corporations." The
Administrative Code defines what constitutes a "government-owned or controlled corporation." To
belittle this phrase as "clarificatory or illustrative" is grave error.

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of

the Introductory Provisions of the Administrative Code because it is not organized as a stock or non-
stock corporation. Neither is MIAA a government-owned or controlled corporation under Section 16,
Article XII of the 1987 Constitution because MIAA is not required to meet the test of economic
viability. MIAA is a government instrumentality vested with corporate powers and performing
essential public services pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by local
governments under Section 133(o) of the Local Government Code. The exception to the exemption
in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under the Local
Government Code. Such exception applies only if the beneficial use of real property owned by the
Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are
properties of public dominion. Properties of public dominion are owned by the State or the Republic.
Article 420 of the Civil Code provides:

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

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

(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands
and Buildings of MIAA are intended for public use, and at the very least intended for public service.
Whether intended for public use or public service, the Airport Lands and Buildings are properties of
public dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the
Republic and thus exempt from real estate tax under Section 234(a) of the Local Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which
governs the legal relation and status of government units, agencies and offices within the entire
government machinery, MIAA is a government instrumentality and not a government-owned or
controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a government
instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges of any
kind" by local governments. The only exception is when MIAA leases its real property to a "taxable
person" as provided in Section 234(a) of the Local Government Code, in which case the specific real
property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and
Buildings leased to taxable persons like private parties are subject to real estate tax by the City of
Paraaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public
use, are properties of public dominion and thus owned by the State or the Republic of the
Philippines. Article 420 specifically mentions "ports x x x constructed by the State," which includes
public airports and seaports, as properties of public dominion and owned by the Republic. As
properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport
Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local
Government Code. This Court has also repeatedly ruled that properties of public dominion are not
subject to execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of
Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the
Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from the real
estate tax imposed by the City of Paraaque. We declare VOID all the real estate tax assessments,
including the final notices of real estate tax delinquencies, issued by the City of Paraaque on the
Airport Lands and Buildings of the Manila International Airport Authority, except for the portions that
the Manila International Airport Authority has leased to private parties. We also declare VOID the
assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila
International Airport Authority.

No costs.

SO ORDERED.

Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez,

Corona, Carpio Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr.,
J.J., concur.

FIRST DIVISION

[G.R. No. 109791. July 14, 2003]

PHILIPPINE PORTS AUTHORITY, petitioner, vs. CITY OF
ILOILO, respondent.

D E CI S I O N
AZCUNA, J.:

Before us is a petition for review on certiorari assailing the Decision of the Regional
Trial Court of Iloilo City, Branch 39, dated February 26, 1993 in Civil Case No. 18477, a
case for collection of a sum of money. Seeking to raise questions purely of law,
petitioner Philippine Ports Authority (PPA) would want us to set aside the ruling ordering
it to pay real property and business taxes to respondent City of Iloilo.
The factual antecedents are summarized by the trial court:

This is an action for the recovery of sum of money filed by [respondent] City of Iloilo,
a public corporation organized under the laws of the Republic of the Philippines,
represented by the Hon. Rodolfo T. Ganzon as City Mayor, against petitioner,
Philippine Ports Authority (PPA), a government corporation created by P.D. 857.

[Respondent] seeks to collect from [petitioner] real property taxes as well as business
taxes, computed from the last quarter of 1984 up to fourth quarter of 1988.

[Respondent] alleges that [petitioner] is engaged in the business of arrastre and

stevedoring services and the leasing of real estate for which it should be obligated to
pay business taxes. It further alleges that [petitioner] is the declared and registered
owner of a warehouse which is used in the operation of its business and is also thereby
subject to real property taxes.

It demands the aggregate amount of P510,888.86 in realty and business taxes as of

December 1988 (real property tax last quarter of 1984 to 1988; business tax- 1984 to
1988) including its corresponding interests and penalty charges.

On July 19, 1989, [petitioner] filed a motion to dismiss but [it] was denied by this
court. A motion for reconsideration was filed, but the same was still denied, after
which [petitioner] filed its answer.

During the pre-trial conference, the following factual and legal issues were defined
and clarified.

Factual Issues:

1. Whether or not [petitioner] is engaged in business;

 2. Whether or not the assessment of tax by [respondent] is accurate as of 4th quarter of
1988 from the year 1984; real property tax in the amount of P180,953.93 and
business tax in the amount ofP329,934.93 as of December 31, 1988.

Legal Issues:

1. Whether or not Philippine Ports Authority is exempt from the payment of real
property tax and business tax;
2. Whether by filing a motion to dismiss, [petitioner] impliedly admitted the allegations
in the complaint;
3. Whether Philippine Ports Authority is engaged in business. If in the negative,
whether or not it is exempt from payment of business taxes.

During trial, [respondent] presented two witnesses, namely: Mrs. Rizalina F. Tulio
and Mr. Leoncio Macrangala.

xxxxxxxxx

After [respondent] had rested its case, [petitioner] did not present any evidence.
Instead, its counsel asked the court to give him time to file a memorandum, as said
counsel is convinced that the issues involved in this case are purely legal issues.

He has no quarrel as regards the computation of the real property and business taxes
made by [respondent]. He is convinced, however, that the issue in this case involves a
question of law and that [petitioner] is not liable to pay any kind of taxes to the City of
Iloilo.
[1]

The court a quo rendered its decision holding petitioner liable for real property taxes
from the last quarter of 1984 to December 1986, and for business taxes with respect to
petitioners lease of real property from the last quarter of 1984 up to 1988. It, however,
held that respondent may not collect business taxes on petitioners arrastre and
stevedoring services, as these form part of petitioners governmental functions. The
dispositive portion of said decision states:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the

plaintiff and against the defendant, ordering the latter to pay the plaintiff, as follows:

1. the amount of P98,519.16 as real property tax, from [the] last quarter of 1984 up to
December 1986;
2. the amount of P3,828.07, as business tax, for leasing of real estate from [the] last
quarter of 1984 up to 1988.[2]
 Petitioner now seeks a review of the case, contending that the court a quo decided
a question of substance which has not been decided by us in that:
(i) It decreed a property of public dominion (port facility) as subject to realty taxes just
because the mentioned property is being administered by what it perceived to be a
taxable government corporation. And,
(ii) It declared that petitioner PPA is subject to business taxes for leasing to private
persons or entities real estate without considering that petitioner PPA is not
engaged in business.[3]
In its Comment, respondent in addition raises the issue of whether or not petitioner
may change its theory on appeal. It points out that petitioner never raised the issue that
the subject property is of public dominion during the trial nor did it mention it in the
memorandum it filed with the lower court. It further contends that such change of theory
patently contradicts petitioners admission in its pleadings and is disallowed under
applicable jurisprudence.[4]
The records show that the theory of petitioner before the trial court was different
from that of the present petition. In fact, even while at the trial court stage, petitioner
was not consistent in its theory.[5] Initially in its pleadings therein, it argued that as a
government-owned corporation, it is exempt from paying real property taxes by virtue of
its specific exemption in its charter,[6] Section 40 of the Real Property Tax Code and
Executive Order No. 93. Subsequently, in the memorandum it filed with the trial court, it
omitted its earlier argument and changed its theory by alleging that it is a government
instrumentality, which, according to applicable jurisprudence, may not be taxed by the
local government. After obtaining an adverse decision from the trial court, it adopts yet
another stance on appeal before us, contesting the taxability of its warehouse. It argued
for the first time that since ports constructed by the State are considered under the Civil
Code as properties of public dominion, its warehouse, which it insists to be part of its
port, should be treated likewise. To support this, it invokes Article 420 of the Civil Code,
which provides:

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

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;

xxxxxxxxx

[Emphasis supplied]

Insisting that the subject warehouse is considered as part of its port, it points to Section
3 (e) of its charter quoted hereunder:

e) port means a place where ships may anchor or tie up for the purpose of shelter,
repair, loading or discharge of cargo, or for other such activities connected with
water-borne commerce, and including all the land and water areas and the structures,
equipment and facilities related to these functions. [Emphasis supplied]

A perusal of the records shows that this thesis was never presented nor discussed at
the trial stage.
As a rule, a party who deliberately adopts a certain theory upon which the case is
tried and decided by the lower court will not be permitted to change theory on
appeal.[7] Points of law, theories, issues and arguments not brought to the attention of
the lower court need not be, and ordinarily will not be, considered by a reviewing court,
as these cannot be raised for the first time at such late stage. Basic considerations of
due process underlie this rule.[8] It would be unfair to the adverse party who would have
no opportunity to present further evidence material to the new theory, which it could
have done had it been aware of it at the time of the hearing before the trial court.[9] To
permit petitioner in this case to change its theory on appeal would thus be unfair to
respondent, and offend the basic rules of fair play, justice and due process.[10]
Petitioner however cites an exception to the rule, as enunciated in Lianga Lumber
Co. v. Lianga Timber Co., Inc.,[11] wherein we said:

[I]n the interest of justice and within the sound discretion of the appellate court, a
party may change his theory on appeal only when the factual bases thereof would not
require presentation of any further evidence by the adverse party in order to enable it
to properly meet the issue raised in the new theory.

Petitioner contends that its new theory falls under the aforecited exception, as the issue
does not involve any disputed evidentiary matter.
Contrary to petitioners claim, we find that the new issue raised is not a purely legal
question. It must be emphasized that the enumeration of properties of public dominion
under Article 420 of the Civil Code specifically states ports constructed by the State.
Thus, in order to consider the port in the case at bar as falling under the said
classification, the fact that the port was constructed by the State must first be
established by sufficient evidence. This fact proved crucial in Santos v. Moreno,[12] where
the issue raised was whether the canals constructed by private persons were of public
or private ownership. We ruled that the canals were privately owned, thus:

Under Art. 420, canals constructed by the State and devoted and devoted to public use
are of public ownership. Conversely, canals constructed by private persons within
private lands and devoted exclusively for private use must be of private ownership.

In the case at bar, no proof was adduced to establish that the port was constructed by
the State. Petitioner cannot have us automatically conclude that its port qualified as
property of public dominion. It would be unfair to respondent, which would be deprived
of its opportunity to present evidence to disprove the factual basis of the new theory. It
is thus clear that the Liangaexception cannot apply in the case at bar.
 Moreover, as correctly pointed out by respondent, we cannot ignore the fact that
petitioners new position runs contrary to its own admission in the pleadings filed in the
trial court. Under paragraph 3 of respondents complaint quoted hereunder, the fact of
petitioners ownership of the property was specifically alleged as follows:
III

Defendant is likewise the declared and registered owner of a warehouse standing on

Lot No. 1065 situated at Bgy. Concepcion, City Proper, declared under Tax
Declaration No. 56325. Xerox copy of the said Tax Declaration is hereto attached as
annex D and form[s] an integral part of herein complaint; [13]

In its Answer, referring to the abovecited complaint, petitioner stated, Paragraph 3 is

admitted.[14] Notably, this admission was never questioned nor put at issue during the
trial.
Now before us, petitioner contradicts its earlier admission by claiming that the
subject warehouse is a property of public dominion. This inconsistency is made more
apparent by looking closely at what public dominion means. Tolentino explains this in
this wise:

Private ownership is defined elsewhere in the Code; but the meaning of public
dominion is nowhere defined. From the context of various provisions, it is clear
that public dominion does not carry the idea of ownership; property of public
dominion is not owned by the State, but pertains to the State, which as territorial
sovereign exercises certain judicial prerogatives over such property. The ownership of
such property, which has the special characteristics of a collective ownership for the
general use and enjoyment, by virtue of their application to the satisfaction of
collective needs, is in the social group, whether national, provincial, or municipal.
Their purpose is not to serve the State as a juridical person, but the citizens; they are
intended for the common and public welfare, and so they cannot be the object of
appropriation, either by the State or by private persons. [Emphasis supplied]
[15]

Following the above, properties of public dominion are owned by the general public
and cannot be declared to be owned by a public corporation, such as petitioner.
As the object of the pleadings is to draw the lines of battle, so to speak, between the
litigants and to indicate fairly the nature of the claims or defenses of both parties, a party
cannot subsequently take a position contrary to, or inconsistent, with his
pleadings.[16] Unless a party alleges palpable mistake or denies such admission, judicial
admissions cannot be controverted.[17] Petitioner is thus bound by its admission of
ownership of the subject property and is barred from claiming otherwise.
We also note that petitioner failed to raise the issue of ownership during the pre-
trial. In its petition, it insists that to determine liability for real property tax, the ownership
of the property must first be ascertained.[18] In the pre-trial order, however, to which
petitioner did not object, nowhere was the issue of ownership included in the stipulated
factual or legal issues.[19]
We have ruled that a pre-trial is primarily intended to make certain that all issues
necessary to the disposition of a case are properly raised. Thus to obviate the element
of surprise, parties are expected to disclose at the pre-trial conference all issues of law
and fact which they intend to raise at the trial. Consequently, the determination of issues
at a pre-trial conference bars the consideration of other questions on appeal.[20] Hence,
in the case at bar, the fact that the issue of ownership is outside of what has been
delimited during the pre-trial further justifies the disallowance of petitioners new theory.
Therefore, on the basis of the foregoing considerations and in the absence of
compelling reasons to rule otherwise, we hold that petitioner may not be permitted to
change its theory at this stage. Well-settled is the rule that questions that were not
raised in the lower court cannot be raised for the first time on appeal. [21]
In any case, granting that petitioners present theory is allowed at this stage, we
nevertheless find it untenable. Concededly, ports constructed by the State are
properties of the public dominion, as Article 420 of the Civil Code enumerates these as
properties intended for public use. It must be stressed however that what is being taxed
in the present case is petitioners warehouse, which, although located within the port, is
distinct from the port itself. In Light Rail Transit Authority v. Central Board of
Assessment Appeals et al.,[22] petitioner therein similarly sought an exemption from real
estate taxes on its passenger terminals, arguing that said properties are considered as
part of the public roads, which are classified as property of public dominion in the Civil
Code.[23] We ruled therein that:

[T]he properties of petitioner are not exclusively considered as public roads being
improvements placed upon the public road, and this [separable] nature of the structure
in itself physically distinguishes it from a public road. Considering further that
carriageways or passenger terminals are elevated structures which are not freely
accessible to the public, vis--vis roads which are public improvements openly utilized
by the public, the former are entirely different from the latter.

Using the same reasoning, the warehouse in the case at bar may not be held as part of
the port, considering its separable nature as an improvement upon the port, and the fact
that it is not open for use by everyone and freely accessible to the public. In the same
way that we ruled in one case that the exemption of public property from taxation does
not extend to improvements made thereon by homesteaders or occupants at their own
expense,[24] we likewise uphold the taxability of the warehouse in the instant case, it
being a mere improvement built on an alleged property of public dominion, assuming
petitioners port to be so. Moreover, petitioner may not invoke the definition of port in its
charter to expand the meaning of ports constructed by the State in the Civil Code to
include improvements built thereon. It must be noted that the charter itself limited the
use of said definition only for the interpretation of Presidential Decree (P.D.) No. 857, its
by-laws, regulations and rules,[25] and not of other statutes such as the Civil Code. Given
these parameters, therefore, petitioners move to present its new theory, even if allowed,
would nonetheless prove to be futile.
The trial court correctly ruled that for the assessed period of 1984 to 1988,
petitioners exemption from real property taxes was withdrawn by P.D. No. 1931, at least
for the period of 1984 to 1986.
Originally, petitioner was exempt from real property taxes on the basis of the Real
Property Tax Code[26] then governing, which provided:

SECTION 40. Exemptions from Real Property Tax. The exemption shall be as
follows:

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions and any government-owned corporation so exempt by its charter:
Provided; however, That this exemption shall not apply to real property of the above-
named entities the beneficial use of which has been granted, for consideration or
otherwise, to a taxable person.

Petitioners charter, P.D. 857,[27] further specifically exempted it from real property taxes:

SECTION 25. Exemption from Realty Taxes The Authority shall be exempt from the
payment of real property taxes imposed by the Republic of the Philippines, its
agencies, instrumentalities or political subdivisions; Provided, That no tax exemptions
shall be extended to any subsidiaries of the Authority that may be organized;
Provided, finally, That investments in fixed assets shall be deductible for income tax
purposes.

It can thus be seen from the foregoing that petitioner, as a government-owned or

controlled corporation, enjoyed an exemption from real property taxes.
On June 11, 1984, however, P.D. 1931 effectively withdrew all tax exemption
privileges granted to government-owned or controlled corporations as stated in Section
1 thereof, which reads:

Sec. 1. The provisions of special or general law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes, fees, imposts and other charges
heretofore granted in favor of government-owned or controlled corporations including
their subsidiaries, are hereby withdrawn.

Under the same law, the exemption can be restored in special cases through an
application for restoration with the Secretary of Finance,[28] which, notably, petitioner did
not avail.
 Subsequently, Executive Order (E.O.) No. 93 was enacted on December 17, 1986
restoring tax exemptions provided under certain laws, one of which is the Real Property
Tax Code. The pertinent portion of said law provides:

SECTION 1. The provisions of any general or special law to the contrary

notwithstanding, all tax and duty incentives granted to government and private entities
are hereby withdrawn, except:

xxxxxxxxx

e) those conferred under four basic codes namely:

(i) the Tariff and Customs Code, as amended;

(ii) the National Internal Revenue Code, as amended;

(iii) the Local Tax Code, as amended;

(iv) the Real Property Tax Code, as amended;

[Emphasis supplied]

The abovecited laws, therefore, indicate that petitioners tax exemption from real
property taxes was withdrawn by P.D. 1931 effective June 11, 1984, but was
subsequently restored by virtue of E.O. 93, starting December 17, 1986.[29] Hence,
petitioner is liable for real property taxes on its warehouse, computed from the last
quarter of 1984 up to December 1986.
Petitioner, however, seeks to be excused from liability for taxes by invoking the
pronouncement in Basco v. PAGCOR[30] (Basco) quoted hereunder:

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role
is governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might be burdened,
impeded or subject to control by a mere Local government. [Emphasis supplied]

Petitioner points out that its exercise of regulatory functions as decreed by its
charter places it within the category of an agency or instrumentality of the
[31]

government, which, according to Basco, is beyond the reach of local taxation.

Reliance in the abovecited case is unavailing considering that P.D. 1931 was never
raised therein, and given that the issue in said case focused on the constitutionality of
P.D. 1869, the charter of PAGCOR. The said decision did not absolutely prohibit
local governments from taxing government instrumentalities. In fact we stated therein:

The power of local government to impose taxes and fees is always subject to
limitations which Congress may provide by law. Since P.D. 1869 remains an
operative law until amended, repealed or revokedits exemption clause remains an
exemption to the exercise of the power of local governments to impose taxes and
fees.[32]

Furthermore, in the more recent case of Mactan Cebu International Airport Authority
v. Marcos,[33] where the Basco case was similarly invoked for tax exemption, we stated:
[N]othing can prevent Congress from decreeing that even instrumentalities or agencies
of the Government performing governmental functions may be subject to tax. Where it is
done precisely to fulfill a constitutional mandate and national policy, no one can doubt
its wisdom. The fact that tax exemptions of government-owned or controlled
corporations have been expressly withdrawn by the present Local Government
Code[34] clearly attests against petitioners claim of absolute exemption of government
instrumentalities from local taxation.
Petitioner also contends that the term government-owned or controlled corporations
referred in P.D. 1931 covers only those not performing governmental functions. This
argument is without legal basis for it reads into the law a distinction that is not there. It
runs contrary to the clear intent of the law to withdraw from all units of the government,
including government-owned or controlled corporations, their exemptions from
taxes. Had it been otherwise, the law would have said so.[35]
Moreover, the trial court correctly pointed out that if indeed petitioner were not
subject to local taxation, petitioners charter would not have specifically provided for its
exemption from the payment of real property tax. Its exemption therein therefore proves
that it was only an exception to the general rule of taxability of petitioner. Given that said
privilege was withdrawn by subsequent law, petitioners claim for exemption from real
property taxes for the entire assessed period fails.
We affirm the finding of the lower court on petitioners liability for business taxes for
the lease of its building to private corporations. During the trial, petitioner did not present
any evidence to refute respondents proof of petitioners income from the lease of its
property. Neither did it present any proof of exemption from business taxes. Instead, it
emphasized its charter provisions defining its functions as governmental in nature. It
averred that it allowed port users to occupy certain premises within the port area only to
ensure order and convenience in discharging its governmental functions. It hence
claimed that it is not engaged in business, as the act of leasing out its property was not
motivated by profit, but by its duty to manage and control port operations.
The argument is unconvincing. As admitted by petitioner, it leases out its premises
to private persons for convenience and not necessarily as part of its governmental
function of administering port operations. In fact, its charter classifies such act of leasing
out port facilities as one of petitioners corporate powers.[36] Any income or profit
generated by an entity, even of a corporation organized without any intention of
realizing profit in the conduct of its activities, is subject to tax.[37] What matters is the
established fact that it leased out its building to ten private entities from which it
regularly earned substantial income. Thus, in the absence of any proof of exemption
therefrom, petitioner is liable for the assessed business taxes.
In closing, we reiterate that in taxing government-owned or controlled corporations,
the State ultimately suffers no loss. In National Power Corp. v. Presiding Judge, RTC,
Br. XXV,[38] we elucidated:

Actually, the State has no reason to decry the taxation of NAPOCORs properties, as
and by way of real property taxes. Real property taxes, after all, form part and parcel
of the financing apparatus of the Government in development and nation-building,
particularly in the local government level.

xxxxxxxxx

To all intents and purposes, real property taxes are funds taken by the State with one
hand and given to the other. In no measure can the government be said to have lost
anything.

Finally, we find it appropriate to restate that the primary reason for the withdrawal of tax
exemption privileges granted to government-owned and controlled corporations and all
other units of government was that such privilege resulted in serious tax base erosion
and distortions in the tax treatment of similarly situated enterprises, hence resulting in
the need for these entities to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due from them.[39]
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
Davide, Jr., (Chairman), Vitug, Ynares-Santiago, and Carpio, JJ., concur.

G.R. No. 169836 July 31, 2007

PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY, petitioner,

vs.
COURT OF APPEALS, OFFICE OF THE PRESIDENT, DEPARTMENT OF FINANCE and the
CITY OF ILOILO,respondents.

DECISION

YNARES-SANTIAGO, J.:
Assailed in this petition for review is the June 21, 2005 Decision1 of the Court of Appeals in CA-G.R.
SP No. 81228, which held that petitioner Philippine Fisheries Development Authority (hereafter
referred to as Authority) is liable to pay real property taxes on the land and buildings of the Iloilo
Fishing Port Complex (IFPC) which are owned by the Republic of the Philippines but operated and
governed by the Authority.

The facts are not disputed.

On August 11, 1976, then President Ferdinand E. Marcos issued Presidential Decree No. 977 (PD
977) creating the Authority and placing it under the direct control and supervision of the Secretary of
Natural Resources. On February 8, 1982, Executive Order No. 772 (EO 772) was issued amending
PD 977, and renaming the Authority as the now "Philippine Fisheries Development Authority," and
attaching said agency to the Ministry of Natural Resources. Upon the effectivity of the Administrative
Code (EO 292), the Authority became an attached agency of the Department of Agriculture.2

Meanwhile, beginning October 31, 1981, the then Ministry of Public Works and Highways reclaimed
from the sea a 21-hectare parcel of land in Barangay Tanza, Iloilo City, and constructed thereon the
IFPC, consisting of breakwater, a landing quay, a refrigeration building, a market hall, a municipal
shed, an administration building, a water and fuel oil supply system and other port related facilities
and machineries. Upon its completion, the Ministry of Public Works and Highways turned over IFPC
to the Authority, pursuant to Section 11 of PD 977, which places fishing port complexes and related
facilities under the governance and operation of the Authority. Notwithstanding said turn over, title to
the land and buildings of the IFPC remained with the Republic.

The Authority thereafter leased portions of IFPC to private firms and individuals engaged in fishing
related businesses.

Sometime in May 1988, the City of Iloilo assessed the entire IFPC for real property taxes. The
assessment remained unpaid until the alleged total tax delinquency of the Authority for the fiscal
years 1988 and 1989 amounted to P5,057,349.67, inclusive of penalties and interests. To satisfy the
tax delinquency, the City of Iloilo scheduled on August 30, 1990, the sale at public auction of the
IFPC.

The Authority filed an injunction case with the Regional Trial Court. At the pre-trial, the parties
agreed to avail of administrative proceedings, i.e., for the Authority to file a claim for tax exemption
with the Iloilo City Assessors Office. The latter, however, denied the claim for exemption, hence, the
Authority elevated the case to the Department of Finance (DOF).

In its letter-decision3 dated March 6, 1992, the DOF ruled that the Authority is liable to pay real
property taxes to the City of Iloilo because it enjoys the beneficial use of the IFPC. The DOF added,
however, that in satisfying the amount of the unpaid real property taxes, the property that is owned
by the Authority shall be auctioned, and not the IFPC, which is a property of the Republic.4

The Authority filed a petition before the Office of the President but it was dismissed.5 It also denied
the motion for reconsideration filed by the Authority.6

On petition with the Court of Appeals, the latter affirmed the decision of the Office of the President. It
opined, however, that the IFPC may be sold at public auction to satisfy the tax delinquency of the
Authority.7 The dispositive portion thereof, reads:
 WHEREFORE, premises considered, the instant Petition for Review is DENIED, and
accordingly the June 30, 2003 Decision and December 3, 2003 Order of the Office of the
President are hereby AFFIRMED.

SO ORDERED.8

Hence, this petition.

The issues are as follows: Is the Authority liable to pay real property tax to the City of Iloilo? If the
answer is in the affirmative, may the IFPC be sold at public auction to satisfy the tax delinquency?

To resolve said issues, the Court has to determine (1) whether the Authority is a government owned
or controlled corporation (GOCC) or an instrumentality of the national government; and (2) whether
the IFPC is a property of public dominion.

The Court rules that the Authority is not a GOCC but an instrumentality of the national government
which is generally exempt from payment of real property tax. However, said exemption does not
apply to the portions of the IFPC which the Authority leased to private entities. With respect to these
properties, the Authority is liable to pay real property tax. Nonetheless, the IFPC, being a property of
public dominion cannot be sold at public auction to satisfy the tax delinquency.

In Manila International Airport Authority (MIAA) v. Court of Appeals,9 the Court made a distinction
between a GOCC and an instrumentality. Thus:

Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a
government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. x x x

(13) Government-owned or controlled corporation refers to any agency organized as

a stock or non-stock corporation, vested with functions relating to public needs
whether governmental or proprietary in nature, and owned by the Government
directly or through its instrumentalities either wholly, or, where applicable as in the
case of stock corporations, to the extent of at least fifty-one (51) percent of its capital
stock: x x x (Emphasis supplied)

A government-owned or controlled corporation must be "organized as a stock or non-

stock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not
a stock corporation because it has no capital stock divided into shares. MIAA has no
stockholders or voting shares.

xxxx

Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is
divided into shares and x x x authorized to distribute to the holders of such shares dividends
x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no
stockholders or voting shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of

the Corporation Code defines a non-stock corporation as "one where no part of its
income is distributable as dividends to its members, trustees or officers." A non-stock
 corporation must have members. Even if we assume that the Government is considered as
the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock
corporations cannot distribute any part of their income to their members. Section 11 of the
MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the
National Treasury. This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary,
scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like
chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is
organized to operate an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation.10 (Emphasis supplied)

Thus, for an entity to be considered as a GOCC, it must either be organized as a stock or non-stock
corporation. Two requisites must concur before one may be classified as a stock corporation,
namely: (1) that it has capital stock divided into shares, and (2) that it is authorized to distribute
dividends and allotments of surplus and profits to its stockholders. If only one requisite is present, it
cannot be properly classified as a stock corporation. As for non-stock corporations, they must have
members and must not distribute any part of their income to said members.11

On the basis of the parameters set in the MIAA case, the Authority should be classified as an
instrumentality of the national government. As such, it is generally exempt from payment of real
property tax, except those portions which have been leased to private entities.

In the MIAA case, petitioner Philippine Fisheries Development Authority was cited as among the
instrumentalities of the national government. Thus

Some of the national government instrumentalities vested by law with juridical

personalities are:Bangko Sentral ng Pilipinas, Philippine Rice Research Institute, Laguna
Lake Development Authority,Fisheries Development Authority, Bases Conversion
Development Authority, Philippine Ports Authority, Cagayan de Oro Port Authority, San
Fernando Port Authority, Cebu Port Authority, and Philippine National Railways.

Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority has a
capital stock but it is not divided into shares of stocks.12 Also, it has no stockholders or voting shares.
Hence, it is not a stock corporation. Neither it is a non-stock corporation because it has no members.

The Authority is actually a national government instrumentality which is defined as an agency of the
national government, not integrated within the department framework, vested with special functions
or jurisdiction by law, endowed with some if not all corporate powers, administering special funds,
and enjoying operational autonomy, usually through a charter.13 When the law vests in a government
instrumentality corporate powers, the instrumentality does not become a corporation. Unless the
government instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate powers.

Thus, the Authority which is tasked with the special public function to carry out the governments
policy "to promote the development of the countrys fishing industry and improve the efficiency in
handling, preserving, marketing, and distribution of fish and other aquatic products," exercises the
governmental powers of eminent domain,14 and the power to levy fees and charges.15 At the same
time, the Authority exercises "the general corporate powers conferred by laws upon private and
government-owned or controlled corporations."16

The MIAA case held17 that unlike GOCCs, instrumentalities of the national government, like
MIAA, are exempt from local taxes pursuant to Section 133(o) of the Local Government Code. This
exemption, however, admits of an exception with respect to real property taxes. Applying Section
234(a) of the Local Government Code, the Court ruled that when an instrumentality of the national
government grants to a taxable person the beneficial use of a real property owned by the Republic,
said instrumentality becomes liable to pay real property tax. Thus, while MIAA was held to be an
instrumentality of the national government which is generally exempt from local taxes, it was at the
same time declared liable to pay real property taxes on the airport lands and buildings which it
leased to private persons. It was held that the real property tax assessments and notices of
delinquencies issued by the City of Pasay to MIAA are void except those pertaining to portions of
the airport which are leased to private parties. Pertinent portions of the decision, reads:

Section 193 of the Local Government Code expressly withdrew the tax exemption of all
juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the
Local Government Codeexpressly provides otherwise, specifically prohibiting local
governments from imposing any kind of tax on national government instrumentalities.
Section 133(o) states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government

Units. Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of
the following:

xxxx

(o) Taxes, fees or charges of any kinds on the National Government, its
agencies andinstrumentalities, and local government units.

By express mandate of the Local Government Code, local governments cannot impose any
kind of taxon national government instrumentalities like the MIAA. Local governments are
devoid of power to tax the national government, its agencies and instrumentalities.
The taxing powers of local governments do not extend to the national government, its
agencies and instrumentalities, "[u]nless otherwise provided in this Code" as stated in the
saving clause of Section 133. x x x

xxxx

The saving clause in Section 133 refers to the exception to the exemption in Section 234(a)
of the Code, which makes the national government subject to real estate tax when it
gives the beneficial use of its real properties to a taxable entity. Section 234(a) of the
Local Government Code provides:

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

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.
 x x x18 (Emphasis supplied)

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the
Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878.
We DECLARE the Airport Lands and Buildings of the Manila International Airport
Authority EXEMPT from the real estate tax imposed by the City of Paraaque. We
declare VOID all the real estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Paraaque on the Airport Lands and Buildings of the
Manila International Airport Authority, except for the portions that the Manila International
Airport Authority has leased to private parties. We also declare VOID the assailed auction
sale, and all its effects, of the Airport Lands and Buildings of the Manila International Airport
Authority.

x x x x.19 (Emphasis added)

In light of the foregoing, the Authority should be classified as an instrumentality of the national
government which is liable to pay taxes only with respect to the portions of the property, the
beneficial use of which were vested in private entities. When local governments invoke the power to
tax on national government instrumentalities, such power is construed strictly against local
governments. The rule is that a tax is never presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local governments seek to tax national
government instrumentalities.20

Thus, the real property tax assessments issued by the City of Iloilo should be upheld only with
respect to the portions leased to private persons. In case the Authority fails to pay the real property
taxes due thereon, said portions cannot be sold at public auction to satisfy the tax delinquency.
In Chavez v. Public Estates Authority it was held that reclaimed lands are lands of the public
domain and cannot, without Congressional fiat, be subject of a sale, public or private, thus:21

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

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.

xxxx

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)

xxxx

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

In the same vein, the port built by the State in the Iloilo fishing complex is a property of the public
dominion and cannot therefore be sold at public auction. Article 420 of the Civil Code, provides:

ARTICLE 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.

The Iloilo fishing port which was constructed by the State for public use and/or public service falls
within the term "port" in the aforecited provision. Being a property of public dominion the same
cannot be subject to execution or foreclosure sale.22 In like manner, the reclaimed land on which the
IFPC is built cannot be the object of a private or public sale without Congressional authorization.
Whether there are improvements in the fishing port complexthat should not be construed to be
embraced within the term "port," involves evidentiary matters that cannot be addressed in the
present case. As for now, considering that the Authority is a national government instrumentality,
any doubt on whether the entire IFPC may be levied upon to satisfy the tax delinquency should be
resolved against the City of Iloilo.

In sum, the Court finds that the Authority is an instrumentality of the national government, hence, it is
liable to pay real property taxes assessed by the City of Iloilo on the IFPC only with respect to those
portions which are leased to private entities. Notwithstanding said tax delinquency on the leased
portions of the IFPC, the latter or any part thereof, being a property of public domain, cannot be sold
at public auction. This means that the City of Iloilo has to satisfy the tax delinquency through means
other than the sale at public auction of the IFPC.

WHEREFORE, the petition is GRANTED and the June 21, 2005 Decision of the Court of Appeals in
CA-G.R. SP No. 81228 is SET ASIDE. The real property tax assessments issued by the City Iloilo
on the land and buildings of the Iloilo Fishing Port Complex, is declared VOID except those
pertaining to the portions leased to private parties. The City of Iloilo is DIRECTED to refrain from
levying on the Iloilo Fishing Port Complex to satisfy the payment of the real property tax delinquency.

G.R. No. 191109 July 18, 2012

REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE RECLAMATION

AUTHORITY (PRA),Petitioner,
vs.
CITY OF PARANAQUE, Respondent.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, on pure
questions of law, assailing the January 8, 2010 Order1 of the Regional Trial Court, Branch 195,
Parafiaque City (RTC), which ruled that petitioner Philippine Reclamation Authority (PRA) is a
government-owned and controlled corporation (GOCC), a taxable entity, and, therefore, . not exempt
from payment of real property taxes. The pertinent portion of the said order reads:

In view of the finding of this court that petitioner is not exempt from payment of real property taxes,
respondent Paraaque City Treasurer Liberato M. Carabeo did not act xxx without or in excess of
jurisdiction, or with grave abuse of discretion amounting to lack or in excess of jurisdiction in issuing
the warrants of levy on the subject properties.

WHEREFORE, the instant petition is dismissed. The Motion for Leave to File and Admit Attached
Supplemental Petition is denied and the supplemental petition attached thereto is not admitted.

The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential
Decree (P.D.) No. 1084 (Creating the Public Estates Authority, Defining its Powers and Functions,
Providing Funds Therefor and For Other Purposes) which took effect on February 4,

1977 to provide a coordinated, economical and efficient reclamation of lands, and the administration
and operation of lands belonging to, managed and/or operated by, the government with the object of
maximizing their utilization and hastening their development consistent with public interest.

On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then President
Ferdinand Marcos, PEA was designated as the agency primarily responsible for integrating, directing
and coordinating all reclamation projects for and on behalf of the National Government.

On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380 transforming
PEA into PRA, which shall perform all the powers and functions of the PEA relating to reclamation
activities.

By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of
Manila Bay, including those located in Paraaque City, and was issued Original Certificates of Title
(OCT Nos. 180, 202, 206, 207, 289, 557, and 559) and Transfer Certificates of Title (TCT Nos.
104628, 7312, 7309, 7311, 9685, and 9686) over the reclaimed lands.

On February 19, 2003, then Paraaque City Treasurer Liberato M. Carabeo (Carabeo) issued
Warrants of Levy on PRAs reclaimed properties (Central Business Park and Barangay San
Dionisio) located in Paraaque City based on the assessment for delinquent real property taxes
made by then Paraaque City Assessor Soledad Medina Cue for tax years 2001 and 2002.

On March 26, 2003, PRA filed a petition for prohibition with prayer for temporary restraining order
(TRO) and/or writ of preliminary injunction against Carabeo before the RTC.
On April 3, 2003, after due hearing, the RTC issued an order denying PRAs petition for the issuance
of a temporary restraining order.

On April 4, 2003, PRA sent a letter to Carabeo requesting the latter not to proceed with the public
auction of the subject reclaimed properties on April 7, 2003. In response, Carabeo sent a letter
stating that the public auction could not be deferred because the RTC had already denied PRAs
TRO application.

On April 25, 2003, the RTC denied PRAs prayer for the issuance of a writ of preliminary injunction
for being moot and academic considering that the auction sale of the subject properties on April 7,
2003 had already been consummated.

On August 3, 2009, after an exchange of several pleadings and the failure of both parties to arrive at
a compromise agreement, PRA filed a Motion for Leave to File and Admit Attached Supplemental
Petition which sought to declare as null and void the assessment for real property taxes, the levy
based on the said assessment, the public auction sale conducted on April 7, 2003, and the
Certificates of Sale issued pursuant to the auction sale.

On January 8, 2010, the RTC rendered its decision dismissing PRAs petition. In ruling that PRA was
not exempt from payment of real property taxes, the RTC reasoned out that it was a GOCC under
Section 3 of P.D. No. 1084. It was organized as a stock corporation because it had an authorized
capital stock divided into no par value shares. In fact, PRA admitted its corporate personality and
that said properties were registered in its name as shown by the certificates of title. Therefore, as a
GOCC, local tax exemption is withdrawn by virtue of Section 193 of Republic Act (R.A.) No. 7160
Local Government Code (LGC) which was the prevailing law in 2001 and 2002 with respect to real
property taxation. The RTC also ruled that the tax exemption claimed by PRA under E.O. No. 654
had already been expressly repealed by R.A. No. 7160 and that PRA failed to comply with the
procedural requirements in Section 206 thereof.

Not in conformity, PRA filed this petition for certiorari assailing the January 8, 2010 RTC Order
based on the following GROUNDS

THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER IS LIABLE TO PAY REAL
PROPERTY TAX ON THE SUBJECT RECLAIMED LANDS CONSIDERING

THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF THE NATIONAL

GOVERNMENT AND IS, THEREFORE, EXEMPT FROM PAYMENT OF REAL PROPERTY TAX
UNDER SECTIONS 234(A) AND 133(O) OF REPUBLIC ACT 7160 OR THE LOCAL
GOVERNMENT CODE VIS--VIS MANILA INTERNATIONAL AIRPORT AUTHORITY V. COURT
OF APPEALS.

II

THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT RECLAIMED LANDS
ARE PART OF THE PUBLIC DOMAIN AND, HENCE, EXEMPT FROM REAL PROPERTY TAX.

PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the
Administrative Code. Neither is it a GOCC under Section 16, Article XII of the 1987 Constitution
because it is not required to meet the test of economic viability. Instead, PRA is a government
instrumentality vested with corporate powers and performing an essential public service pursuant to
Section 2(10) of the Introductory Provisions of the Administrative Code. Although it has a capital
stock divided into shares, it is not authorized to distribute dividends and allotment of surplus and
profits to its stockholders. Therefore, it may not be classified as a stock corporation because it lacks
the second requisite of a stock corporation which is the distribution of dividends and allotment of
surplus and profits to the stockholders.

It insists that it may not be classified as a non-stock corporation because it has no members and it is
not organized for charitable, religious, educational, professional, cultural, recreational, fraternal,
literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like
chambers as provided in Section 88 of the Corporation Code.

Moreover, PRA points out that it was not created to compete in the market place as there was no
competing reclamation company operated by the private sector. Also, while PRA is vested with
corporate powers under P.D. No. 1084, such circumstance does not make it a corporation but
merely an incorporated instrumentality and that the mere fact that an incorporated instrumentality of
the National Government holds title to real property does not make said instrumentality a GOCC.
Section 48, Chapter 12, Book I of the Administrative Code of 1987 recognizes a scenario where a
piece of land owned by the Republic is titled in the name of a department, agency or instrumentality.

Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is exempt
from payment of real property tax except when the beneficial use of the real property is granted to a
taxable person. PRA claims that based on Section 133(o) of the LGC, local governments cannot tax
the national government which delegate to local governments the power to tax.

It explains that reclaimed lands are part of the public domain, owned by the State, thus, exempt from
the payment of real estate taxes. Reclaimed lands retain their inherent potential as areas for public
use or public service. While the subject reclaimed lands are still in its hands, these lands remain
public lands and form part of the public domain. Hence, the assessment of real property taxes made
on said lands, as well as the levy thereon, and the public sale thereof on April 7, 2003, including the
issuance of the certificates of sale in favor of the respondent Paraaque City, are invalid and of no
force and effect.

On the other hand, the City of Paraaque (respondent) argues that PRA since its creation
consistently represented itself to be a GOCC. PRAs very own charter (P.D. No. 1084) declared it to
be a GOCC and that it has entered into several thousands of contracts where it represented itself to
be a GOCC. In fact, PRA admitted in its original and amended petitions and pre-trial brief filed with
the RTC of Paraaque City that it was a GOCC.

Respondent further argues that PRA is a stock corporation with an authorized capital stock divided
into 3 million no par value shares, out of which 2 million shares have been subscribed and fully paid
up. Section 193 of the LGC of 1991 has withdrawn tax exemption privileges granted to or presently
enjoyed by all persons, whether natural or juridical, including GOCCs.

Hence, since PRA is a GOCC, it is not exempt from the payment of real property tax.

THE COURTS RULING

The Court finds merit in the petition.

Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a GOCC as
follows:
SEC. 2. General Terms Defined. x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-
stock corporation, vested with functions relating to public needs whether governmental or proprietary
in nature, and owned by the Government directly or through its instrumentalities either wholly, or,
where applicable as in the case of stock corporations, to the extent of at least fifty-one

(51) percent of its capital stock: x x x.

On the other hand, Section 2(10) of the Introductory Provisions of the Administrative Code defines a
government "instrumentality" as follows:

SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not
all corporate powers, administering special funds, and enjoying operational autonomy, usually
through a charter. x x x

From the above definitions, it is clear that a GOCC must be "organized as a stock or non-stock
corporation" while an instrumentality is vested by law with corporate powers. Likewise, when the law
makes a government instrumentality operationally autonomous, the instrumentality remains part of
the National Government machinery although not integrated with the department framework.

When the law vests in a government instrumentality corporate powers, the instrumentality does not
necessarily become a corporation. Unless the government instrumentality is organized as a stock or
non-stock corporation, it remains a government instrumentality exercising not only governmental but
also corporate powers.

Many government instrumentalities are vested with corporate powers but they do not become stock
or non-stock corporations, which is a necessary condition before an agency or instrumentality is
deemed a GOCC. Examples are the Mactan International Airport Authority, the Philippine Ports
Authority, the University of the Philippines, and Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are not organized as stock or non-stock
corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code.
These government instrumentalities are sometimes loosely called government corporate entities.
They are not, however, GOCCs in the strict sense as understood under the Administrative Code,
which is the governing law defining the legal relationship and status of government entities.2

Correlatively, Section 3 of the Corporation Code defines a stock corporation as one whose "capital
stock is divided into shares and x x x authorized to distribute to the holders of such shares dividends
x x x." Section 87 thereof defines a non-stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or officers." Further, Section 88 provides that non-
stock corporations are "organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry,
agriculture and like chambers."

Two requisites must concur before one may be classified as a stock corporation, namely: (1) that it
has capital stock divided into shares; and (2) that it is authorized to distribute dividends and
allotments of surplus and profits to its stockholders. If only one requisite is present, it cannot be
properly classified as a stock corporation. As for non-stock corporations, they must have members
and must not distribute any part of their income to said members.3
In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock corporation.
It cannot be considered as a stock corporation because although it has a capital stock divided into
no par value shares as provided in Section 74 of P.D. No. 1084, it is not authorized to distribute
dividends, surplus allotments or profits to stockholders. There is no provision whatsoever in P.D. No.
1084 or in any of the subsequent executive issuances pertaining to PRA, particularly, E.O. No.
525,5 E.O. No. 6546 and EO No. 7987 that authorizes PRA to distribute dividends, surplus allotments
or profits to its stockholders.

PRA cannot be considered a non-stock corporation either because it does not have members. A
non-stock corporation must have members.8 Moreover, it was not organized for any of the purposes
mentioned in Section 88 of the Corporation Code. Specifically, it was created to manage all
government reclamation projects.

Furthermore, there is another reason why the PRA cannot be classified as a GOCC. Section 16,
Article XII of the 1987 Constitution provides as follows:

Section 16. The Congress shall not, except by general law, provide for the formation, organization,
or regulation of private corporations. Government-owned or controlled corporations may be created
or established by special charters in the interest of the common good and subject to the test of
economic viability.

The fundamental provision above authorizes Congress to create GOCCs through special charters on
two conditions: 1) the GOCC must be established for the common good; and 2) the GOCC must
meet the test of economic viability. In this case, PRA may have passed the first condition of common
good but failed the second one - economic viability. Undoubtedly, the purpose behind the creation of
PRA was not for economic or commercial activities. Neither was it created to compete in the market
place considering that there were no other competing reclamation companies being operated by the
private sector. As mentioned earlier, PRA was created essentially to perform a public service
considering that it was primarily responsible for a coordinated, economical and efficient reclamation,
administration and operation of lands belonging to the government with the object of maximizing
their utilization and hastening their development consistent with the public interest. Sections 2 and 4
of P.D. No. 1084 reads, as follows:

Section 2. Declaration of policy. It is the declared policy of the State to provide for a coordinated,
economical and efficient reclamation of lands, and the administration and operation of lands
belonging to, managed and/or operated by the government, with the object of maximizing their
utilization and hastening their development consistent with the public interest.

Section 4. Purposes. 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 services as may be necessary for the efficient,
economical and beneficial utilization of the above properties.

The twin requirement of common good and economic viability was lengthily discussed in the case of
Manila International Airport Authority v. Court of Appeals,9 the pertinent portion of which reads:
Third, the government-owned or controlled corporations created through special charters are those
that meet the two conditions prescribed in Section 16, Article XII of the Constitution.

The first condition is that the government-owned or controlled corporation must be established for
the common good. The second condition is that the government-owned or controlled corporation
must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides:

SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of
economic viability.

The Constitution expressly authorizes the legislature to create "government-owned or controlled

corporations" through special charters only if these entities are required to meet the twin conditions
of common good and economic viability. In other words, Congress has no power to create
government-owned or controlled corporations with special charters unless they are made to comply
with the two conditions of common good and economic viability. The test of economic viability
applies only to government-owned or controlled corporations that perform economic or commercial
activities and need to compete in the market place. Being essentially economic vehicles of the State
for the common good meaning for economic development purposes these government-owned
or controlled corporations with special charters are usually organized as stock corporations just like
ordinary private corporations.

In contrast, government instrumentalities vested with corporate powers and performing

governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that every modern
State must provide its citizens. These instrumentalities need not be economically viable since the
government may even subsidize their entire operations. These instrumentalities are not the
"government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987
Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or public
functions. Congress has plenary authority to create government instrumentalities vested with
corporate powers provided these instrumentalities perform essential government functions or public
services. However, when the legislature creates through special charters corporations that perform
economic or commercial activities, such entities known as "government-owned or controlled
corporations" must meet the test of economic viability because they compete in the market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines
and similar government-owned or controlled corporations, which derive their incometo meet
operating expenses solely from commercial transactions in competition with the private sector. The
intent of the Constitution is to prevent the creation of government-owned or controlled corporations
that cannot survive on their own in the market place and thus merely drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government
creates a corporation, there is a sense in which this corporation becomes exempt from the test of
economic performance. We know what happened in the past. If a government corporation loses,
then it makes its claim upon the taxpayers' money through new equity infusions from the government
and what is always invoked is the common good. That is the reason why this year, out of a budget of
P115 billion for the entire government, about P28 billion of this will go into equity infusions to support
a few government financial institutions. And this is all taxpayers' money which could have been
relocated to agrarian reform, to social services like health and education, to augment the salaries of
grossly underpaid public employees. And yet this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good,"
this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the
responsibility of meeting the market test so that they become viable. And so, Madam President, I
reiterate, for the committee's consideration and I am glad that I am joined in this proposal by
Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC
TEST," together with the common good. 1wphi1

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his
textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:

The second sentence was added by the 1986 Constitutional Commission. The significant addition,
however, is the phrase "in the interest of the common good and subject to the test of economic
viability." The addition includes the ideas that they must show capacity to function efficiently in
business and that they should not go into activities which the private sector can do better. Moreover,
economic viability is more than financial viability but also includes capability to make profit and
generate benefits not quantifiable in financial terms.

Clearly, the test of economic viability does not apply to government entities vested with corporate
powers and performing essential public services. The State is obligated to render essential public
services regardless of the economic viability of providing such service. The non-economic viability of
rendering such essential public service does not excuse the State from withholding such essential
services from the public.

However, government-owned or controlled corporations with special charters, organized essentially

for economic or commercial objectives, must meet the test of economic viability. These are the
government-owned or controlled corporations that are usually organized under their special charters
as stock corporations, like the Land Bank of the Philippines and the Development Bank of the
Philippines. These are the government-owned or controlled corporations, along with government-
owned or controlled corporations organized under the Corporation Code, that fall under the definition
of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code.
[Emphases supplied]

This Court is convinced that PRA is not a GOCC either under Section 2(3) of the Introductory
Provisions of the Administrative Code or under Section 16, Article XII of the 1987 Constitution. The
facts, the evidence on record and jurisprudence on the issue support the position that PRA was not
organized either as a stock or a non-stock corporation. Neither was it created by Congress to
operate commercially and compete in the private market. Instead, PRA is a government
instrumentality vested with corporate powers and performing an essential public service pursuant to
Section 2(10) of the Introductory Provisions of the Administrative Code. Being an incorporated
government instrumentality, it is exempt from payment of real property tax.

Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands managed by
PRA. On the other hand, Section 234(a) of the LGC, in relation to its Section 133(o), exempts PRA
from paying realty taxes and protects it from the taxing powers of local government units.

Sections 234(a) and 133(o) of the LGC provide, as follows:

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

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

xxxx

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. [Emphasis supplied]

It is clear from Section 234 that real property owned by the Republic of the Philippines (the Republic)
is exempt from real property tax unless the beneficial use thereof has been granted to a taxable
person. In this case, there is no proof that PRA granted the beneficial use of the subject reclaimed
lands to a taxable entity. There is no showing on record either that PRA leased the subject reclaimed
properties to a private taxable entity.

This exemption should be read in relation to Section 133(o) of the same Code, which prohibits local
governments from imposing "taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities x x x." The Administrative Code allows real property owned by the
Republic to be titled in the name of agencies or instrumentalities of the national government. Such
real properties remain owned by the Republic and continue to be exempt from real estate tax.

Indeed, the Republic grants the beneficial use of its real property to an agency or instrumentality of
the national government. This happens when the title of the real property is transferred to an agency
or instrumentality even as the Republic remains the owner of the real property. Such arrangement
does not result in the loss of the tax exemption, unless "the beneficial use thereof has been granted,
for consideration or otherwise, to a taxable person."10

The rationale behind Section 133(o) has also been explained in the case of the Manila International
Airport Authority,11 to wit:

Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While the
1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power "subject to such guidelines and limitations as the
Congress may provide."

When local governments invoke the power to tax on national government instrumentalities, such
power is construed strictly against local governments. The rule is that a tax is never presumed and
there must be clear language in the law imposing the tax. Any doubt whether a person, article or
activity is taxable is resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government instrumentality
from local taxation, such exemption is construed liberally in favor of the national government
instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:

The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely to
reduce the amount of money that has to be handled by government in the course of its operations.
For these reasons, provisions granting exemptions to government agencies may be construed
liberally, in favor of non tax-liability of such agencies.

There is, moreover, no point in national and local governments taxing each other, unless a sound
and compelling policy requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is when
the legislature clearly intended to tax government instrumentalities for the delivery of essential public
services for sound and compelling policy considerations. There must be express language in the law
empowering local governments to tax national government instrumentalities. Any doubt whether
such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the
Code, local governments cannot tax national government instrumentalities. As this Court held in
Basco v. Philippine Amusements and Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner
control the operation of constitutional laws enacted by Congress to carry into execution the powers
vested in the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on
the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United
States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision
can regulate a federal instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool
for regulation." (U.S. v. Sanchez, 340 US 42)

The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which
has the inherent power to wield it. [Emphases supplied]

The Court agrees with PRA that the subject reclaimed lands are still part of the public domain,
owned by the State and, therefore, exempt from payment of real estate taxes.

Section 2, Article XII of the 1987 Constitution reads in part, as follows:

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. The State may directly undertake such
activities, or it may enter into co-production, joint venture, or production-sharing agreements with
Filipino citizens, or corporations or associations at least 60 per centum of whose capital is owned by
such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for
not more than twenty-five years, and under such terms and conditions as may provided by law. In
cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of waterpower, beneficial use may be the measure and limit of the grant.

Similarly, Article 420 of the Civil Code enumerates properties belonging to the State:

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. [Emphases supplied]

Here, the subject lands are reclaimed lands, specifically portions of the foreshore and offshore areas
of Manila Bay. As such, these lands remain public lands and form part of the public domain. In the
case of Chavez v. Public Estates Authority and AMARI Coastal Development Corporation,12 the
Court held that foreshore and submerged areas irrefutably belonged to the public domain and were
inalienable unless reclaimed, classified as alienable lands open to disposition and further declared
no longer needed for public service. The fact that alienable lands of the public domain were
transferred to the PEA (now PRA) and issued land patents or certificates of title in PEAs name did
not automatically make such lands private. This Court also held therein that reclaimed lands retained
their inherent potential as areas for public use or public service.

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

Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public domain" as well
as "any and all kinds of lands." PEA can hold both lands of the public domain and private lands.
Thus, the mere fact that alienable lands of the public domain like the Freedom Islands are
transferred to PEA and issued land patents or certificates of title in PEA's name does not
automatically make such lands private.13

Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the Administrative Code of
1987, thus:

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

Reclaimed lands such as the subject lands in issue are reserved lands for public use. They are
properties of public dominion. The ownership of such lands remains with the State unless they are
withdrawn by law or presidential proclamation from public use.

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.

As the Court has repeatedly ruled, properties of public dominion are not subject to execution or
foreclosure sale.14 Thus, the assessment, levy and foreclosure made on the subject reclaimed lands
by respondent, as well as the issuances of certificates of title in favor of respondent, are without
basis.

WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of the Regional Trial Court,
Branch 195, Paraaque City, is REVERSED and SET ASIDE. All reclaimed properties owned by the
Philippine Reclamation Authority are hereby declared EXEMPT from real estate taxes. All real estate
tax assessments, including the final notices of real estate tax delinquencies, issued by the City of
Paraaque on the subject reclaimed properties; the assailed auction sale, dated April 7, 2003; and
the Certificates of Sale subsequently issued by the Paraaque City Treasurer in favor of the City of
Paraaque, are all declared VOID.

Republic of the Philippines

Supreme Court
Baguio City

SECOND DIVISION

JEAN TAN, ROSELLER C. ANACINTO, CARLO G.R. No. 193443

LOILO ESPINEDA and DAISY ALIADO
MANAOIS, represented in this act by their
 Attorney-in-Fact, Present:

MA. WILHELMINA E. TOBIAS,

Petitioners, CARPIO, J.,

Chairperson,

BRION,

- versus PEREZ,

SERENO, and

REYES, JJ.

REPUBLIC OF THE PHILIPPINES,

Respondent. Promulgated:

April 16, 2012

x----------------------------------------------------------------------------------------x

RESOLUTION

REYES, J.:

This is a petition for review under Rule 45 of the Decision[1] dated July 6, 2009 and
Resolution[2] dated August 12, 2010 Resolution of the Court of Appeals (CA) in CA-
G.R. CV No. 88995. The facts leading to its filing are as follows:
On June 14, 2001, the petitioners filed with the Regional Trial Court (RTC) of
Naic, Cavite, an application for land registration covering a parcel of land
identified as Lot 9972, Cad-459-D of Indang Cadastre, situated
in Barangay Bancod, Indang, Cavite and with an area of 6,920 square
meters.[3] The petitioners alleged that they acquired the subject property from
Gregonio Gatdula pursuant to a Deed of Absolute Sale dated April 25, 1996; and
they and their predecessors-in-interest have been in open, continuous and
exclusive possession of the subject property in the concept of an owner for more
than 30 years.[4]

After trial and hearing, the RTC issued a Decision on July 29, 2006, granting the
petitioners application, thus:

WHEREFORE, in view of the foregoing, this Court confirming its previous Order
of general default, decrees and adjudges Lot No. 9972 consisting of 6,920 square
meters, Cad. 459-D, Indang Cadastre and its technical description as herein above-
described situated in Brgy. Bancod, Indang, Cavite, pursuant to the provisions of Act 496
as amended by P.D. 1529, as it is hereby decreed and adjudged to be confirmed and
registered in the names of Jean Tan, of legal age, Filipino, single, with postal address at
Room 54 T. Pinpin St., Binondo, Manila; Roseller C. Anaci[n]to, of legal age, Filipino,
single, with postal address at Moncario Villag[e], Ampid-1, San Mateo, Rizal; Carlo Loilo
Espineda, of legal age, Filipino, with postal address at Cluster F. Cogeo, Antipolo, Rizal
and Daisy Aliado Manaois, of legal age, Filipino and resident of Panghulo Road,
Malabon, Metro Manila.

Once this decision becomes final, let the corresponding decree of registration
be issued by the Administrator, Land Registration Authority.

SO ORDERED.[5]
 The CA gave due course to the appeal filed by the Republic of
the Philippines. By way of the assailed Decision, the CA ruled that the petitioners
failed to prove that they and their predecessors-in-interest have been in
possession of the subject property for the requisite period of 30 years. The CA
posit:

We now determine if appellees have the right to register their title on such land
despite the fact that their possession commenced only after 12 June 1945. Records
show that the appellees possession over the subject property can be reckoned only
from 21 June 1983, the date when according to evidence, the subject property became
alienable and disposable. From said date up to the filing of the application for
registration of title over the subject property on 14 June 2001, only eighteen (18) years
had lapsed. Thus, appellees possession of the subject property fell short of the
requirement of open, continuous and exclusive possession of at least 30 years.

Moreover, there was no adequate evidence which would show that appellees and their
predecessors-in-interest exercised acts of dominion over the subject land as to indicate
possession in the concept of owner. The testimonies of appellees witnesses regarding
actual possession are belied by the absence of evidence on actual use of or
improvements on the subject property. Appellees presented only various tax
declarations to prove possession. However, except for the Certification, showing
payment of tax due on tax declaration for the year 2003, there are no other evidence
showing that all the taxes due corresponding to the rest of the tax declarations were in
fact paid by appellees or their predecessors-in-interest.

In sum, appellees were unable to prove that they or their predecessors-in-interest have
been in possession of the subject property for more than 30 years, which possession is
characterized as open, continuous, exclusive, and notorious, in the concept of an
owner. Appellees failed to discharge their duty of substantiating possession and title to
the subject land.

WHEREFORE, the appeal is hereby GRANTED and the Decision dated 29 July 2006 of the
Regional Trial Court (RTC) of Naic, Cavite, Branch 15 is REVERSED and SET ASIDE.
 SO ORDERED.[6] (citation omitted)

The petitioners moved for reconsideration but this was denied by the CA in its
August 12, 2010 Resolution.[7]

The petitioners question the conclusion arrived at by the CA, alleging that the
evidence they presented prove that they and their predecessors-in-interest have
been in possession and occupation of the subject property for more than 30
years. The petitioners claim that the following sufficed to demonstrate that they
acquired title over the subject property by prescription:

a. the testimony of their attorney-in-fact, Ma. Wilhelmina Tobias,

stating that:

i. the petitioners have been in actual, notorious and open

possession of the subject property since the time they
purchased the same in 1996;

ii. the petitioners have regularly paid the taxes due on the
subject property;

iii. the petitioners predecessors-in-interest, Victorio Garcia,

Felipe Gatdula and Gregonio Gatdula, had been in possession
of the subject property for more than 30 years and had
religiously paid the taxes due thereon; and

iv. the subject property is agricultural, alienable and disposable;

b. the testimony of the caretaker of the subject property, Margarito
Pena, stating that:

i. he resides near the subject property;

ii. he witnessed the execution of the deed of sale that

petitioners entered into with Gregonio Gatdula; and

iii. the petitioners and predecessors-in-interest have been in

possession of the subject property for more than 30 years;

c. the testimony of Ferdinand Encarnacion, a clerk in the Docket

Division of the Land Registration Authority (LRA), stating that:

i. no opposition to the petitioners application was filed before

the LRA;

ii. an examiner of the LRA found nothing wrong with the

petitioners application; and

iii. no title covering the subject property was previously issued;

d. Tax Declaration Nos. 2935, 2405 and 1823 for the years 1961, 1967
and 1974 in the name of Victorio Garcia;[8]

e. Tax Declaration Nos. 1534 and 3850 for the years 1980 and 1985 in
the name of Felipe Gatdula;[9]
f. Tax Declaration Nos. 22453-A and 2925 for the years 1991 and 1994
in the name of Gregonio Gatdula;[10]

g. Tax Declaration Nos. 21956-A, 22096-A, 22097-A and 97-05078 in the

name of the petitioners;[11]

h. Resolution No. 69, Series of 1998, of the Sangguniang Bayan of

Indang, Cavite, which approved the reclassification of several lots,
including the subject property, from agricultural to
residential/commercial;[12]

i. DARCO Conversion Order No. 040210005-(340)-99, Series of 2000,

issued by the Department of Agrarian Reform on July 13, 2000, which
converted several parcels of land, including the subject property,
from agricultural to residential/commercial;[13]

j. Certification issued by the Department of Environment and Natural

Resources (DENR) CALABARZON dated October 29, 2002, stating that
the subject area falls within the Alienable and Disposable Land
Project No. 13-A of Indang, Cavite per LC Map 3091 certified on June
21, 1983.[14]

Issue
 This Court is faced with the lone issue of whether the petitioners have
proven themselves qualified to the benefits under the relevant laws on the
confirmation of imperfect or incomplete titles.

Our Ruling

Commonwealth Act No. 141, otherwise known as the Public Land Act
governs the classification and disposition of lands forming part of the public
domain. Section 11 thereof provides that one of the modes of disposing public
lands suitable for agricultural purposes is by confirmation of imperfect or
incomplete titles. Section 48 thereof enumerates those who are considered to
have acquired an imperfect or incomplete title over an alienable and disposable
public land.

Presidential Decree No. 1529 (P.D. No. 1529), otherwise known as the
Property Registration Decree, is a codification of all the laws relative to the
registration of property and Section 14 thereof specifies those who are qualified
to register their incomplete title over an alienable and disposable public land
under the Torrens system. Particularly:

Section 14. Who may apply. The following persons may file in the proper Court
of First Instance an application for registration of title to land, whether personally or
through their authorized representatives:

(1) Those who by themselves or through their predecessors-in-interest

have been in open, continuous, exclusive and notorious possession and occupation
of alienable and disposable lands of the public domain under a bona fide claim of
ownership since June 12, 1945, or earlier.
(2) Those who have acquired ownership of private lands by prescription
under the provision of existing laws.
(3) Those who have acquired ownership of private lands or abandoned
river beds by right of accession or accretion under the existing laws.
 (4) Those who have acquired ownership of land in any other manner
provided for by law.

As this Court clarified in Heirs of Malabanan v. Republic of the

Philippines,[15] and Republic of the Philippines v. East Silverlane Realty
Development Corporation,[16] Section 14(1) covers alienable and disposable lands
while Section 14(2) covers private property. Thus, for ones possession and
occupation of an alienable and disposable public land to give rise to an imperfect
title, the same should have commenced on June 12, 1945 or earlier. On the other,
for one to claim that his possession and occupation of private property has
ripened to imperfect title, the same should have been for the prescriptive period
provided under the Civil Code. Without need for an extensive extrapolation, the
private property contemplated in Section 14(2) is patrimonial property as defined
in Article 421 in relation to Articles 420 and 422 of the Civil Code.

Going further, it was explained in Heirs of Malabanan and East Silverlane, that
possession and occupation of an alienable and disposable public land for the
periods provided under the Civil Code will not convert it to patrimonial or private
property. There must be an express declaration that the property is no longer
intended for public service or the development of national wealth. In the absence
thereof, the property remains to be alienable and disposable and may not be
acquired by prescription under Section 14(2) of P.D. No. 1529. Thus:

In Heirs of Malabanan, this Court ruled that possession and occupation of an

alienable and disposable public land for the periods provided under the Civil Code do
not automatically convert said property into private property or release it from the
public domain. There must be an express declaration that the property is no longer
intended for public service or development of national wealth. Without such express
declaration, the property, even if classified as alienable or disposable, remains property
of the State, and thus, may not be acquired by prescription.

Nonetheless, Article 422 of the Civil Code states that [p]roperty

of public dominion, when no longer intended for public use or for public
 service, shall form part of the patrimonial property of the State. It is this
provision that controls how public dominion property may be converted
into patrimonial property susceptible to acquisition by prescription.
After all, Article 420 (2) makes clear that those property 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 are public
dominion property. For as long as the property belongs to the State,
although already classified as alienable or disposable, it remains
property of the public dominion if when it is intended for some public
service or for the development of the national wealth. (emphasis
supplied)

Accordingly, there must be an express declaration by the State

that the public dominion property is no longer intended for public
service or the development of the national wealth or that the property
has been converted into patrimonial. Without such express
declaration, the property, even if classified as alienable or disposable,
remains property of the public dominion, pursuant to Article 420(2),
and thus incapable of acquisition by prescription. It is only when such
alienable and disposable lands are expressly declared by the State to
be no longer intended for public service or for the development of the
national wealth that the period of acquisitive prescription can begin to
run. Such declaration shall be in the form of a law duly enacted by
Congress or a Presidential Proclamation in cases where the President
is duly authorized by law.

In other words, for one to invoke the provisions of Section 14(2) and set up acquisitive
prescription against the State, it is primordial that the status of the property as
patrimonial be first established. Furthermore, the period of possession preceding the
classification of the property as patrimonial cannot be considered in determining the
completion of the prescriptive period.[17]

The petitioners application is obviously anchored on Section 14(2) of P.D. No.

1529 as they do not claim to have possessed, by themselves or their
predecessors-in-interest, the subject property since June 12, 1945 or earlier. That
it was thru prescription that they had acquired an imperfect title over the subject
property is the foundation upon which the petitioners rest their application.

Unfortunately, this Court finds the evidence presented by the petitioners to be

wanting. The petitioners failed to demonstrate that they and their predecessors-
in-interest possessed the property in the requisite manner, which this Court
explained as follows:

It is concerned with lapse of time in the manner and under conditions laid down
by law, namely, that the possession should be in the concept of an owner, public,
peaceful, uninterrupted and adverse. Possession is open when it is patent, visible,
apparent, notorious and not clandestine. It is continuous when uninterrupted, unbroken
and not intermittent or occasional; exclusive when the adverse possessor can show
exclusive dominion over the land and an appropriation of it to his own use and
benefit; and notorious when it is so conspicuous that it is generally known and talked of
by the public or the people in the neighborhood. The party who asserts ownership by
adverse possession must prove the presence of the essential elements of acquisitive
prescription.[18]

Tax declarations per se do not qualify as competent evidence of actual possession

for purposes of prescription. More so, if the payment of the taxes due on the
property is episodic, irregular and random such as in this case. Indeed, how can
the petitioners claim of possession for the entire prescriptive period be ascribed
any ounce of credibility when taxes were paid only on eleven (11) occasions
within the 40-year period from 1961 to 2001? In Wee v. Republic of the
Philippines,[19] this Court stated that:

It bears stressing that petitioner presented only five tax declarations (for the years 1957,
1961, 1967, 1980 and 1985) for a claimed possession and occupation of more than 45
years (1945-1993). This type of intermittent and sporadic assertion of alleged
ownership does not prove open, continuous, exclusive and notorious possession and
occupation. In any event, in the absence of other competent evidence, tax declarations
 do not conclusively establish either possession or declarants right to registration of
title.[20] (emphasis supplied and citation omitted)

In East Silverlane, it was emphasized that adverse, continuous, open, public

possession in the concept of an owner is a conclusion of law and the burden to
prove it by clear, positive and convincing evidence is on the applicant. A claim of
ownership will not proper on the basis of tax declarations if unaccompanied by
proof of actual possession.[21]

While there was an attempt to supplement the tax declaration by testimonial

evidence, the same is futile and frivolous. The testimonies of Margarito Pena and
Ma. Wilhelmina Tobias do not merit consideration and do not make up for the
inherent inadequacy of the eleven (11) tax declarations submitted by the
petitioners. Such witnesses did not state what specific acts of ownership or
dominion were performed by the petitioners and predecessors-in-interest and
simply made that general assertion that the latter possessed and occupied the
subject property for more than thirty (30) years, which, by all means, is a mere
conclusion of law. The RTC should have tackled evidence of such nature with a
disposition to incredulity, if not with an outright rejection.

Furthermore, the petitioners application was filed after only (1) year from the
time the subject property may be considered patrimonial. DARCO Conversion
Order No. 040210005-(340)-99, Series of 2000, was issued by the DAR only on July
13, 2000, which means that the counting of the thirty (30)-year prescriptive
period for purposes of acquiring ownership of a public land under Section 14(2)
can only start from such date. Before the property was declared patrimonial by
virtue of such conversion order, it cannot be acquired by prescription. This is clear
from the pronouncements of this Court in Heirs of Malabanan quoted above and
in Republic of the Philippines v. Rizalvo,[22] which states:
 On this basis, respondent would have been eligible for application for
registration because his claim of ownership and possession over the
subject property even exceeds thirty (30) years. However, it is
jurisprudentially clear that the thirty (30)-year period of prescription for
purposes of acquiring ownership and registration of public land under
Section 14 (2) of P.D. No. 1529 only begins from the moment the State
expressly declares that the public dominion property is no longer intended
for public service or the development of the national wealth or that the
property has been converted into patrimonial.[23]

WHEREFORE, premises considered, the instant petition is DENIED for lack of

merit. The July 6, 2009 Decision and August 12, 2010 Resolution of the Court of
Appeals areAFFIRMED.

SO ORDERED.

BIENVENIDO L. REYES

Associate Justice

WE CONCUR:
 ANTONIO T. CARPIO

Associate Justice

ARTURO D. BRION JOSE P. PEREZ

Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

ATTESTATION
I attest that the conclusions in the above Resolution had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.

ANTONIO T. CARPIO

Associate Justice

Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above Resolution
had been reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.

RENATO C. CORONA

Chief Justice
[1]
Penned by Associate Justice Monina Arevalo-Zenarosa, with Associate Justices Mariano C. Del Castillo (now a
member of this Court) and Priscilla J. Baltazar-Padilla, concurring; rollo, pp. 52-65.
[2]
Penned by Priscilla J. Baltazar-Padilla, with Associate Justices Magdangal M. De Leon and Michael P. Elbinias,
concurring; id. at 66-68.
[3]
LRC Case No. NC-2001-1205.
[4]
Rollo, p. 53.
[5]
Id. at 57.
[6]
Id. at 63-64.
[7]
Supra note 2.
[8]
Id. at 20.
[9]
Id.
[10]
Id.
[11]
Id. at 21.
[12]
Id.
[13]
Id. at 22.
[14]
Id. at 60.
[15]
G.R. No. 179987, April 29, 2009, 587 SCRA 172.
[16]
G.R. No. 186961, February 20, 2012.
[17]
Supra note at 16.
[18]
Heirs of Marcelina Arzadon-Crisologo v. Raon, G.R. No. 171068, September 5, 2007, 391 SCRA 411, 404.
[19]
G.R. No. 177384, December 8, 2009, 608 SCRA 72
[20]
Id. at 83.
[21]
Supra note at 16.
[22]
G.R. No. 172011, March 7, 2011.
[23]
Id. at.
FIRST DIVISION

WOODRIDGE SCHOOL, INC., G.R. No. 157285

and MIGUELA JIMENEZ-JAVIER,

Petitioners, Present:

PUNO, C.J., Chairperson,

SANDOVAL-GUTIERREZ,*

- v e r s u s - CORONA,

AZCUNA and

GARCIA, JJ.

ARB CONSTRUCTION CO., INC.,

Respondent. Promulgated:

February 16, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CORONA, J.:

Petitioners Woodridge School, Inc. (Woodridge) and Miguela JimenezJavier

come to us assailing the decision[1] dated September 30, 2002 and
resolution[2] dated February 14, 2003 of the Court of Appeals in CAG.R. CV No.
515333 which, in turn, modified the ruling of the Regional Trial Court (RTC)
of Imus, Cavite awarding P500,000to respondent ARB Construction Co., Inc. (ARB)
as reasonable indemnity for the use of ARBs road lot.[3]
 Woodridge is the usufructuary of a parcel of land covered by Transfer
Certificate of Title (TCT) No. T-363902 in the name of spouses Ernesto

T. Matugas and Filomena U.Matugas. Its co-petitioner, Miguela JimenezJavier,

is the registered owner of the adjacent lot under TCT No. T-330688.

On the other hand, ARB is the owner and developer of Soldiers Hills
Subdivision in Bacoor, Cavite, which is composed of four phases. Phase I of the
subdivision was already accessible from the Marcos Alvarez Avenue. To provide
the same accessibility to the residents of Phase II of the subdivision, ARB
constructed the disputed road to link the two phases.

As found by the appellate court, petitioners properties sit right in the

middle of several estates: Phase I of Soldiers Hills Subdivision in the north, a creek
in the east and Green Valley Subdivision the farther east, a road within Soldiers
Hills Subdivision IV which leads to the Marcos Alvarez Avenue in the west and
Phase III of Soldiers Hills Subdivision in the south.

Initially, petitioners offered to pay ARB P50,000 as indemnity for the use of
the road. Adamant, ARB refused the offer and fenced the perimeter of the road
fronting the properties of petitioners. By doing so, ARB effectively cut off
petitioners access to and from the public highway.

After failing to settle the matter amicably, petitioners jointly filed a

complaint[4] in the RTC of Imus, Cavite to enjoin ARB from depriving them of the
use of the disputed subdivision road and to seek a compulsory right of way after
payment of proper indemnity. On November 24, 1995, the trial court rendered its
decision in favor of petitioners:

The reasons why this case is not one for a right of way as an easement are not
difficult to discern.

The questioned road is part and parcel of the road network of Soldiers Hills IV, Phase
II. This road was constructed pursuant to the approved subdivision plan of Soldiers Hills
IV, Phase II. As such, the road has already been withdrawn from the commerce of men
as the ownership of which was automatically vested in the government without need of
any compensation, although it is still registered in the name of the [ARB], the moment
the subdivision plan was approved. While it is not yet donated to the government [,] [it]
is of no moment for donating this road to the government is a mere formality.

Differently stated, the government automatically becomes the owner of the

subdivisions roads the moment the subdivision plan is approved. From that time on,
the roads are withdrawn from the commerce of men even [if] the titles are still
registered in the name of the subdivision owners and the roads are not yet donated to
the government. Thus, the subdivision owner can no longer sell or alienate the roads
for they are already owned by the government; thus, even if [petitioners] want to buy
this road, and the [ARB] wants to sell the same, this transaction cannot materialize for
the above-stated reasons. Accordingly, [ARB] cannot prevent/prohibit plaintiffs from
using the road as the same belongs to the government.

xxx xxx xxx

WHEREFORE, [ARB] is ordered to cease and desist from preventing [petitioners] in

using the subject road or any other road in the subdivision.

xxx xxx xxx

SO ORDERED. [5] (citations omitted)

ARB elevated the case to the Court of Appeals.[6] Finding merit in the appeal, the
appellate court reversed the decision of the lower court. It explained that the
1991 case ofWhite Plains Subdivision[7] did not apply to the present case which
was decided under a different factual milieu:

In the assailed Decision, the Court below relied on the ruling of the Supreme Court in
White Plains Association, Inc. vs. Legaspi (193 SCRA 765). The ruling is not applicable. In
the White Plains case, the disputed area was specifically set aside by the Quezon City
Government, with the concurrence of the owner and developer of the White Plains
Subdivision in Quezon City, for the purpose of constructing a major thoroughfare open
to the general public. The case was filed by the association of homeowners of White
Plains in Quezon City when the owner-developer sought to convert the disputed lot to
residential lots. The Supreme Court initially held that the disputed lot was not longer
within the commerce of men, it having been segregated for a particular purpose, that of
being used as part of a mandatory open space reserved for public use to be improved
into the widened Katipunan Road. It was within this context that the Supreme Court
held that ownership was automatically vested in the Quezon City government and/or
the Republic of the Philippines, without need of paying any compensation.[8]

The appellate court went on to rule that a compulsory right of way exists in favor
of petitioners as [t]here is no other existing adequate outlet to and from
[petitioners] properties to the Marcos Alvarez Avenue other than the subject
existing road lot designated as Lot No. 5827-F-1 belonging to [ARB].[9] In addition,
it awarded P500,000 to ARB as reasonable indemnity for the use of the road lot.
Acting on petitioners motion for reconsideration, the appellate court justified the
monetary award in this manner:

In [o]ur Decision, [w]e awarded the amount of P500,000.00 merely as reasonable

indemnity for the use of the road lot, not the alienation thereof. The amount was based
on equitable considerations foremost of which is that, while there is no alienation to
speak of, the easement is of long-standing, that is, until a shorter and adequate outlet is
established. Moreover, [ARB] should be compensated for the wear and tear that
[petitioners] use of the road would contribute to; it is [ARB] which is solely to be
credited for the completion of the road lot. Going by the conservative valuation of the
Municipality of Bacoor, Cavite presented by [petitioners], the 4,760 sq. m. road lot
would cost P1,904,000 but as stated what is compensated is the use of the road lot not
its alienation.

[Petitioners] original offer cannot be considered a reasonable indemnity, there being a

knotty legal question involved and it is not [ARBs] fault that the parties had to resort to
the courts for a resolution.[10]

Unsatisfied with the ruling of the appellate court, petitioners filed this
petition for review on certiorari insisting that ARB is not entitled to be paid any
indemnity.

Petitioners argue that the contested road lot is a property of public

dominion pursuant to Article 420[11] of the Civil Code. Specifically, petitioners
point out that the disputed road lot falls under the category others of similar
character which is the last clause of Article 420 (1).[12] Hence, it is a property of
public dominion which can be used by the general public without need for
compensation. Consequently, it is wrong for ARB to exclude petitioners from
using the road lot or to make them pay for the use of the same.

We disagree.

In the case of Abellana, Sr. v. Court of Appeals,[13] the Court held that the
road lots in a private subdivision are private property, hence, the local
government should first acquire them by donation, purchase, or expropriation, if
they are to be utilized as a public road.[14] Otherwise, they remain to be private
properties of the owner-developer.

Contrary to the position of petitioners, the use of the subdivision roads by

the general public does not strip it of its private character. The road is not
converted into public property by mere tolerance of the subdivision owner of the
publics passage through it. To repeat, the local government should first acquire
them by donation, purchase, or expropriation, if they are to be utilized as a public
road.[15]

Likewise, we hold the trial court in error when it ruled that the subject road
is public property pursuant to Section 2 of Presidential Decree No. 1216.[16] The
pertinent portion of the provision reads:

Section 2. xxx xxx xxx

 Upon their completion as certified to by the Authority, the roads, alleys,
sidewalks and playgrounds shall be donated by the owner or developer to the city
or municipality and it shall be mandatory for the local governments to accept
them provided, however, that the parks and playgrounds may be donated to the
Homeowners Association of the project with the consent of the city or
municipality concerned

The law is clear. The transfer of ownership from the subdivision owner-
developer to the local government is not automatic but requires a positive act
from the owner-developer before the city or municipality can acquire dominion
over the subdivision roads. Therefore, until and unless the roads are
donated,[17] ownership remains with the owner-developer.[18]

Since no donation has been made in favor of any local government and the
title to the road lot is still registered in the name of ARB, the disputed property
remains private.

This is not to say that ARB may readily exclude petitioners from passing
through the property. As correctly pointed out by the Court of Appeals, the
circumstances clearly make out a case of legal easement of right of way. It is an
easement which has been imposed by law and not by the parties and it has for
(its) object either public use or the interest of private persons.[19]

To be entitled to a legal easement of right of way, the following requisites

must concur: (1) the dominant estate is surrounded by other immovables and has
no adequate outlet to a public highway; (2) payment of proper indemnity; (3) the
isolation was not due to acts of the proprietor of the dominant estate and (4) the
right of way claimed is at the point least prejudicial to the servient estate.[20]

The appellate and trial courts found that the properties of petitioners are
enclosed by other estates without any adequate access to a public highway
except the subject road lot which leads to Marcos Alvarez Avenue.[21] Although it
was shown that the shortest distance from the properties to the highway is
toward the east across a creek, this alternative route does not provide an
adequate outlet for the students of the proposed school. This route becomes
marshy as the creek overflows during the rainy season and will endanger the
students attending the school.

All told, the only requisite left unsatisfied is the payment of proper
indemnity.

Petitioners assert that their initial offer of P50,000 should be sufficient

compensation for the right of way. Further, they should not be held accountable
for the increase in the value of the property since the delay was attributable to
the stubborn refusal of ARB to accept their offer.[22]

Again, we are not persuaded.

 In the case of a legal easement, Article 649 of the Civil Code prescribes the
parameters by which the proper indemnity may be fixed. Since the intention of
petitioners is to establish a permanent passage, the second paragraph of Article
649 of the Civil Code particularly applies:

Art 649. xxx xxx xxx

Should this easement be established in such a manner that its use may be continuous
for all the needs of the dominant estate, establishing a permanent passage,
the indemnity shall consist of the value of the land occupied and the amount of the
damage caused to the servient estate. xxx. (Emphasis supplied)

On that basis, we further hold that the appellate court erred

in arbitrarily awarding indemnity for the use of the road lot.

The Civil Code categorically provides for the measure by which the proper
indemnity may be computed: value of the land occupied plus the amount of the
damage caused to the servient estate. Settled is the rule in statutory construction
that when the law is clear, the function of the courts is simple
application.[23] Thus, to award the indemnity using factors different from that
given by the law is a complete disregard of these clear statutory provisions and is
evidently arbitrary. This the Court cannot countenance. The Civil Code has clearly
laid down the parameters and we cannot depart from
them. Verba legis non est recedendum.
 Having settled the legal issues, we order the remand of this case to the trial
court for reception of evidence and determination of the limits of the property to
be covered by the easement, the proper indemnity to be paid and the respective
contributions of petitioners.

For the guidance of the trial court, the fact that the disputed road lot is
used by the general public may be taken in consideration to mitigate the amount
of damage that theservient estate is entitled to, in the sense that the wear and
tear of the subject road is not entirely attributable to petitioners.

WHEREFORE, this petition is partially GRANTED. The September 30, 2002

Decision and February 14, 2003 resolution of the Court of Appeals in CAG.R. CV
No. 515333 are ANNULLED and SET ASIDE in so far as petitioners are ordered to
pay an indemnity of P500,000. The case is hereby remanded to the trial court for
reception of evidence and determination of the limits of the property to be
covered by the easement, the proper indemnity to be paid and the respective
contributions of petitioners.

SO ORDERED.
 RENATO C. CORONA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

(No Part)

ANGELINA SANDOVAL-GUTIERREZ ADOLFO S. AZCUNA

Associate Justice Associate Justice

CANCIO C. GARCIA
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the
conclusions in the above decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
 REYNATO S. PUNO
Chief Justice

*
No part. Justice Sandoval-Gutierrez inhibited herself from participating in the deliberations of this case.
[1]
Penned by Associate Justice Portia Alio-Hormachuelos and concurred in by Associate Justices Elvi John S.
Asuncion and Juan Q. Enriquez, Jr. of the Tenth Division of the Court of Appeals; rollo, pp. 46-56.
[2]
Penned by Associate Justice Portia Alio-Hormachuelos and concurred in by Associate Justices Elvi John S.
Asuncion and Juan Q. Enriquez, Jr. of the Tenth Division of the Court of Appeals; id., pp. 58-60.
[3]
CA Decision supra note 1, at 55.
[4]
Docketed as Civil Case No. BCV-93-6.
[5]
RTC Decision dated November 24, 1995, rollo, pp. 73, 77-78.
[6]
Docketed as CA-G.R. CV No. 515333.
[7]
White Plains Association, Inc v. Legaspi, G.R. No. 95522, 7 February 1991, 193 SCRA 765.
[8]
CA Decision supra note 1, at 52.
[9]
Id., at 55.
[10]
CA Resolution supra note 2, at 59-60.
[11]
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.

[12]
Petition, rollo, pp. 12, 27.
[13]
G.R. No. 100749, 24 April 1992, 208 SCRA 316.
[14]
Id., at 319.
[15]
Id.
[16]
RTC Decision supra note 5.
[17]
Note that subdivision roads may also be purchased or expropriated by the local government unit, thereby
converting them into public property.
[18]
White Plains Association v. Court of Appeals, G.R. No. 128131, 8 October 1998, 297 SCRA
547.
[19]
Article 634, Civil Code.
[20]
Costabella Corporation v. Court of Appeals, G.R. No. 80511, 25 January 1991, 193 SCRA
333, 339.
[21]
CA Decision supra note 1, at 55; RTC Decision supra note 5, at 75.
[22]
Petitioners Memorandum, rollo, pp. 87-88.
[23]
AB Leasing and Finance Corporation v. Commissioner of Internal Revenue, 453 Phil. 297
(2003).