G.R. No.
L-30389 December 27, 1972 that there is no legal justification for nullifying
PEDRO LEE HONG HOK, SIMEON LEE
HONG HOK, ROSITA LEE HONG HOK and
LEONCIO LEE HONG HOK, petitioners,
vs.
ANIANO DAVID, THE HON. SECRETARY
OF AGRICULTURE AND NATURAL
RESOURCES, THE DIRECTOR OF LANDS
and COURT OF APPEALS, respondents.
Augusto A. Pardalis for petitioners.
Luis General, Jr. for respondent Aniano
David.
Office of the Solicitor General for other
respondents.
FERNANDO, J.:p
Petitioners 1 in this appeal
by certiorari would have us reverse a
decision of respondent Court of Appeals
affirming a lower court judgment dismissing
their complaint to have the Torrens Title 2 of
respondent Aniano David declared null and
void. What makes the task for petitioners
quite difficult is that their factual support for
their pretension to ownership of such
disputed lot through accretion was rejected
by respondent Court of Appeals. Without
such underpinning, they must perforce rely
on a legal theory, which, to put it mildly, is
distinguished by unorthodoxy and is
therefore far from persuasive. A grant by the
government through the appropriate public
officials 3 exercising the competence duly
vested in them by law is not to be set at
naught on the premise, unexpressed but
implied, that land not otherwise passing into
private ownership may not be disposed of by
the state. Such an assumption is at war with
settled principles of constitutional law. It
cannot receive our assent. We affirm.
The decision of respondent Court of Appeals
following that of the lower court makes clear
the right of respondent Aniano David to the
disputed lot arising from the grant made in
his favor by respondent officials. As noted in
the decision under review, he "acquired
lawful title thereby pursuant to his
miscellaneous sales application in
accordance with which an order of award and
for issuance of a sales patent was made by
the Director of Lands on June 18, 1958,
covering Lot 2892 containing an area of 226
square meters, which is a portion of Lot 2863
of the Naga Cadastre. On the basis of the
order of award of the Director of Lands the
Undersecretary of Agriculture and Natural
Resources issued on August 26, 1959,
Miscellaneous Sales Patent No. V-1209
pursuant to which OCT No. 510 was issued
by the Register of Deeds of Naga City to
defendant-appellee Aniano David on
October 21, 1959. According to the
Stipulation of Facts, since the filing of the
sales application of Aniano David and during
all the proceedings in connection with said
application, up to the actual issuance of the
sales patent in his favor, the plaintiffs-
appellants did not put up any opposition or
adverse claim thereto. This is fatal to them
because after the registration and issuance
of the certificate and duplicate certificate of
title based on a public land patent, the land
covered thereby automatically comes under
the operation of Republic Act 496 subject to
all the safeguards provided therein.... Under
Section 38 of Act 496 any question
concerning the validity of the certificate of
title based on fraud should be raised within
one year from the date of the issuance of the
patent. Thereafter the certificate of title
based thereon becomes indefeasible.... In
this case the land in question is not a private
property as the Director of Lands and the
Secretary of Agriculture and Natural
Resources have always sustained the public
character thereof for having been formed by
reclamation.... The only remedy therefore,
available to the appellants is an action for
reconveyance on the ground of fraud. In this
case we do not see any fraud committed by
defendant-appellant Aniano David in
applying for the purchase of the land
involved through his Miscellaneous Sales
Application No. MSA-V-26747, entered in the
records of the Bureau of Lands
[Miscellaneous Sales] Entry No. V-9033,
because everything was done in the open.
The notices regarding the auction sale of the
land were published, the actual sale and
award thereof to Aniano David were not
clandestine but open and public official acts
of an officer of the Government. The
application was merely a renewal of his
deceased wife's application, and the said
deceased occupied the land since 1938." 4
On such finding of facts, the attempt of
petitioners to elicit a different conclusion is
likely to be attended with frustration. The first
error assigned predicated an accretion
having taken place, notwithstanding its
rejection by respondent Court of Appeals,
would seek to disregard what was accepted
by respondent Court as to how the disputed
lot came into being, namely by reclamation.
It does not therefore call for any further
consideration. Neither of the other two errors
imputed to respondent Court, as to its
holding that authoritative doctrines preclude
a party other than the government to dispute
the validity of a grant and the recognition of
the indefeasible character of a public land
patent after one year, is possessed of merit.
Consequently, as set forth at the outset,
there is no justification for reversal.
1. More specifically, the shaft of criticism was
let loose by petitioner aimed at this legal
proposition set forth in the exhaustive
opinion of then Justice Salvador Esguerra of
the Court of Appeals, now a member of this
Court: "There is, furthermore, a fatal defect
of parties to this action. Only the
Government, represented by the Director of
Lands, or the Secretary of Agriculture and
Natural Resources, can bring an action to
cancel a void certificate of title issued
pursuant to a void patent (Lucas vs. Durian,
102 Phil. 1157; Director of Lands vs. Heirs of
Ciriaco Carlo, G.R. No. L-12485, July 31,
1959). This was not done by said officers but
by private parties like the plaintiffs, who
cannot claim that the patent and title issued
for the land involved are void since they are
not the registered owners thereof nor had
they been declared as owners in the
cadastral proceedings of Naga Cadastre
after claiming it as their private property. The
cases cited by appellants are not in point as
they refer to private registered lands or public
lands over which vested rights have been
acquired but notwithstanding such fact the
Land Department subsequently granted
patents to public land applicants."5 Petitioner
ought to have known better. The above
excerpt is invulnerable to attack. It is a
restatement of a principle that dates back
to Maninang v. Consolacion, 6 a 1908
decision. As was there categorically stated:
"The fact that the grant was made by the
government is undisputed. Whether the
grant was in conformity with the law or not is
a question which the government may raise,
but until it is raised by the government and
set aside, the defendant can not question it.
The legality of the grant is a question
between the grantee and the
government."7 The above citation was
repeated ipsissimis verbis in Salazar v.
Court of Appeals.8 Bereft as petitioners were
of the right of ownership in accordance with
the findings of the Court of Appeals, they
cannot, in the language of Reyes v.
Rodriguez, 9 "question the [title] legally
issued." 10 The second assignment of error is
thus disposed of.
2. As there are overtones indicative of
skepticism, if not of outright rejection, of the
well-known distinction in public law between
the government authority possessed by the
state which is appropriately embraced in the
concept of sovereignty, and its capacity to
own or acquire property, it is not
inappropriate to pursue the matter further.
The former comes under the heading
of imperium and the latter of dominium. The
use of this term is appropriate with reference
to lands held by the state in its proprietary
character. In such capacity, it may provide for
the exploitation and use of lands and other
natural resources, including their disposition,
except as limited by the Constitution. Dean
Pound did speak of the confusion that
existed during the medieval era between
such two concepts, but did note the
existence of res publicae as a corollary
to dominium." 11 As far as the Philippines
was concerned, there was a recognition by
Justice Holmes in Cario v. Insular
Government, 12 a case of Philippine origin,
that "Spain in its earlier decrees embodied
the universal feudal theory that all lands were
held from the Crown...." 13 That was a
manifestation of the concept of jura
regalia, 14 which was adopted by the present
Constitution, ownership however being
vested in the state as such rather than the
head thereof. What was stated by Holmes
served to confirm a much more extensive
discussion of the matter in the leading case
of Valenton v. Murciano, 15 decided in 1904.
One of the royal decrees cited was
incorporated in the Recopilacion de Leyes de
las Indias 16 in these words: "We having
acquired full sovereignty over the Indies and
all lands, territories, and possessions not
heretofore ceded away by our royal
predecessors, or by us, or in our name, still
pertaining to the royal crown and patrimony,
it is our will that all lands which are held
without proper and true deeds of grant be
restored to us according as they belong to
us, in order that after reserving before all
what to us or to our viceroys audiences, and
governors may seem necessary for public
squares, ways, pastures, and commons in
those places which are peopled, taking into
consideration not only their present
condition, but also their future and their
probable increase, and after distributing to
the natives what may be necessary for tillage
and pasturage, confirming them in what they
now have and giving them more if necessary,
all the rest of said lands may remain free and
unencumbered for us to dispose of as we
may wish." 17
It could therefore be affirmed in Montano v.
Insular Government" 18 that "as to the
unappropriated public lands constituting the
public domain the sole power of legislation is
vested in Congress, ..." 19 They continue to
possess that character until severed
therefrom by state grant. 20 Where, as in this
case, it was found by the Court of Appeals
that the disputed lot was the result of
reclamation, its being correctly categorized
as public land is undeniable. 21What was
held in Heirs of Datu Pendatun v. Director of
Lands 22 finds application. Thus: "There
being no evidence whatever that the property
in question was ever acquired by the
applicants or their ancestors either by
composition title from the Spanish
Government or by possessory information
title or by any other means for the acquisition
of public lands, the property must be held to
be public domain." 23 For it is well-settled
"that no public land can be acquired by
private persons without any grant, express or
implied, from the government." 24 It is
indispensable then that there be a showing
of a title from the state or any other mode of
acquisition recognized by law. 25 The most
recent restatement of the doctrine, found in
an opinion of Justice J.B.L. Reyes,
follows: 26 "The applicant, having failed to
establish his right or title over the northern
portion of Lot No. 463 involved in the present
controversy, and there being no showing that
the same has been acquired by any private
person from the Government, either by
purchase or by grant, the property is and
remains part of the public domain." 27 To
repeat, the second assignment of error is
devoid of merit.
3. The last error assigned would take issue
with this portion of the opinion of Justice
Esguerra: "According to the Stipulation of
Facts, since the filing of the sales application
of Aniano David and during all the
proceedings in connection with said
application, up to the actual issuance of the
sales patent in his favor, the
plaintiffs-appellants did not put up any
opposition or adverse claim thereto. This is
fatal to them because after the registration
and issuance of the certificate and duplicate
certificate of title based on a public land
patent, the land covered thereby
automatically comes under the operation of
Republic Act 496 subject to all the
safeguards provided therein ... Under
Section 38 of Act 496 any question
concerning the validity of the certificate of
title based on fraud should be raised within
one year from the date of the issuance of the
patent. Thereafter the certificate of title
based thereon becomes indefeasible
..." 28 Petitioners cannot reconcile
themselves to the view that respondent
David's title is impressed with the quality of
indefeasibility. In thus manifesting such an
attitude, they railed to accord deference to
controlling precedents. As far back as 1919,
in Aquino v. Director of
Lands, 29 Justice Malcolm, speaking for the
Court, stated: "The proceedings under the
Land Registration Law and under the
provisions of Chapter VI of the Public Land
Law are the same in that both are against the
whole world, both take the nature of judicial
proceedings, and for both the decree of
registration issued is conclusive and
final." 30Such a view has been followed since
then. 31 The latest case in point is Cabacug
v. Lao. 32 There is this revealing excerpt
appearing in that decision: "It is said, and
with reason, that a holder of a land acquired
under a free patent is more favorably situated
than that of an owner of registered property.
Not only does a free patent have a force and
effect of a Torrens Title, but in addition the
person to whom it is granted has likewise in
his favor the right to repurchase within a
period of five years." 33 It is quite apparent,
therefore, that petitioners' stand is legally
indefensible.
WHEREFORE, the decision of respondent
Court of Appeals of January 31, 1969 and its
resolution of March 14, 1969 are affirmed.
With costs against petitioners-appellants.
G.R. No. 73002 December 29, 1986
THE DIRECTOR OF LANDS, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and
ACME PLYWOOD & VENEER CO. INC.,
ETC., respondents.
D. Nacion Law Office for private respondent.
NARVASA, J.:
The Director of Lands has brought this
appeal by certiorari from a judgment of the
Intermediate Appellate Court affirming a
decision of the Court of First Instance of
Isabela, which ordered registration in favor of
Acme Plywood & Veneer Co., Inc. of five
parcels of land measuring 481, 390 square
meters, more or less, acquired by it from
Mariano and Acer Infiel, members of the
Dumagat tribe.
The registration proceedings were for
confirmation of title under Section 48 of
Commonwealth Act No. 141 (The Public
Land Act). as amended: and the appealed
judgment sums up the findings of the trial
court in said proceedings in this wise:
1. That Acme Plywood & Veneer Co.
Inc., represented by Mr. Rodolfo
Nazario is a corporation duly
organized in accordance with the
laws of the Republic of the
Philippines and registered with the
Securities and Exchange
Commission on December 23, 1959;
2. That Acme Plywood & Veneer Co.
Inc., represented by Mr. Rodolfo
Nazario can acquire real properties
pursuant to the provisions of the
Articles of Incorporation particularly
on the provision of its secondary
purposes (paragraph (9), Exhibit 'M-
l');
3. That the land subject of the Land
Registration proceeding was
ancestrally acquired by Acme
Plywood & Veneer Co., Inc., on
October 29, 1962, from Mariano Infiel
and Acer Infiel, both members of the
Dumagat tribe and as such are
cultural minorities;
4. That the constitution of the
Republic of the Philippines of 1935 is
applicable as the sale took place on
October 29, 1962;
5. That the possession of the Infiels
over the land relinquished or sold to
Acme Plywood & Veneer Co., Inc.,
dates back before the Philippines
was discovered by Magellan as the
ancestors of the Infiels have
possessed and occupied the land
from generation to generation until
the same came into the possession
of Mariano Infiel and Acer Infiel;
6. That the possession of the
applicant Acme Plywood & Veneer
Co., Inc., is continuous, adverse and
public from 1962 to the present and
tacking the possession of the Infiels
who were granted from whom the
applicant bought said land on
October 29, 1962, hence the
possession is already considered
from time immemorial.
7. That the land sought to be
registered is a private land pursuant
to the provisions of Republic Act No.
3872 granting absolute ownership to
members of the non-Christian Tribes
on land occupied by them or their
ancestral lands, whether with the
alienable or disposable public land or
within the public domain;
8. That applicant Acme Plywood &
Veneer Co. Inc., has introduced more
than Forty-Five Million
(P45,000,000.00) Pesos worth of
improvements, said improvements
were seen by the Court during its
ocular investigation of the land
sought to be registered on
September 18, 1982;
9. That the ownership and
possession of the land sought to be
registered by the applicant was duly
recognized by the government when
the Municipal Officials of Maconacon,
Isabela, have negotiated for the
donation of the townsite from Acme
Plywood & Veneer Co., Inc., and this
negotiation came to reality when the
Board of Directors of the Acme
Plywood & Veneer Co., Inc., had
donated a part of the land bought by
the Company from the Infiels for the
townsite of Maconacon Isabela (Exh.
'N') on November 15, 1979, and
which donation was accepted by the
Municipal Government of
Maconacon, Isabela (Exh. 'N-l'),
during their special session on
November 22, 1979.
The Director of Lands takes no issue with
any of these findings except as to the
applicability of the 1935 Constitution to the
matter at hand. Concerning this, he asserts
that, the registration proceedings have been
commenced only on July 17, 1981, or long
after the 1973 Constitution had gone into
effect, the latter is the correctly applicable
law; and since section 11 of its Article XIV
prohibits private corporations or associations
from holding alienable lands of the public
domain, except by lease not to exceed 1,000
hectares (a prohibition not found in the 1935
Constitution which was in force in 1962 when
Acme purchased the lands in question from
the Infiels), it was reversible error to decree
registration in favor of Acme Section 48,
paragraphs (b) and (c), of Commonwealth
Act No. 141, as amended, reads:
SEC. 48. The following described
citizens of the Philippines, occupying
lands of the public domain or claiming
to own any such lands or an interest
therein, but whose titles have not
been perfected or completed, may
apply to the Court of First Instance of
the province where the land is
located for confirmation of their
claims, and the issuance of a
certificate of title therefor, under the
Land Registration Act, to wit:
 xxx xxx xxx
(b) Those who by themselves or
through their predecessors-in-
interest have been in open,
continuous, exclusive and notorious
possession and occupation of
agricultural lands of the public
domain, under a bona fide claim of
acquisition or ownership, for at least
thirty years immediately preceding
the filing of the application for
confirmation of title except when
prevented by war or force majeure.
These shall be conclusively
presumed to have performed all the
conditions essential to a Government
grant and shall be entitled to a
certificate of title under the provisions
of this chapter.
(c) Members of the National Cultural
minorities who by themselves or
through their predecessors-in-
interest have been in open.
continuous, exclusive and notorious
possession and occupation of lands
of the public domain suitable to
agriculture, whether disposable or
not, under a bona fide claim of
ownership for at least 30 years shall
be entitled to the rights granted in
subsection (b) hereof.
The Petition for Review does not dispute-
indeed, in view of the quoted findings of the
trial court which were cited and affirmed by
the Intermediate Appellate Court, it can no
longer controvert before this Court-the fact
that Mariano and Acer Infiel, from whom
Acme purchased the lands in question on
October 29, 1962, are members of the
national cultural minorities who had, by
themselves and through their progenitors,
possessed and occupied those lands since
time immemorial, or for more than the
required 30-year period and were, by reason
thereof, entitled to exercise the right granted
in Section 48 of the Public Land Act to have
their title judicially confirmed. Nor is there any
pretension that Acme, as the successor-in-
interest of the Infiels, is disqualified to
acquire and register ownership of said lands
under any provisions of the 1973
Constitution other than Section 11 of its
Article XIV already referred to.
Given the foregoing, the question before this
Court is whether or not the title that the Infiels
had transferred to Acme in 1962 could be
confirmed in favor of the latter in proceedings
instituted by it in 1981 when the 1973
Constitution was already in effect, having in
mind the prohibition therein against private
corporations holding lands of the public
domain except in lease not exceeding 1,000
hectares.
The question turns upon a determination of
the character of the lands at the time of
institution of the registration proceedings in
1981. If they were then still part of the public
domain, it must be answered in the negative.
If, on the other hand, they were then already
private lands, the constitutional prohibition
against their acquisition by private
corporations or associations obviously does
not apply.
In this regard, attention has been invited
to Manila Electric Company vs. Castro-
Bartolome, et al, 1 where a similar set of facts
prevailed. In that case, Manila Electric
Company, a domestic corporation more than
60% of the capital stock of which is Filipino-
owned, had purchased in 1947 two lots in
Tanay, Rizal from the Piguing spouses. The
lots had been possessed by the vendors
and, before them, by their predecessor-in-
interest, Olimpia Ramos, since prior to the
outbreak of the Pacific War in 1941. On
December 1, 1976, Meralco applied to the
Court of First Instance of Rizal, Makati
Branch, for confirmation of title to said lots.
The court, assuming that the lots were public
land, dismissed the application on the
ground that Meralco, a juridical person, was
not qualified to apply for registration under
Section 48(b) of the Public Land Act which
allows only Filipino citizens or natural
persons to apply for judicial confirmation of
imperfect titles to public land. Meralco
appealed, and a majority of this Court upheld
the dismissal. It was held that:
..., the said land is still public land. It
would cease to be public land only
upon the issuance of the certificate of
title to any Filipino citizen claiming it
under section 48(b). Because it is still
public land and the Meralco, as a
juridical person, is disqualified to
apply for its registration under section
48(b), Meralco's application cannot
be given due course or has to be
dismissed.
Finally, it may be observed that the
constitutional prohibition makes no
distinction between (on the one hand)
alienable agricultural public lands as
to which no occupant has an
imperfect title and (on the other hand)
alienable lands of the public domain
as to which an occupant has on
imperfect title subject to judicial
confirmation.
Since section 11 of Article XIV does
not distinguish, we should not make
any distinction or qualification. The
prohibition applies to alienable public
lands as to which a Torrens title may
be secured under section 48(b). The
proceeding under section 48(b)
'presupposes that the land is public'
(Mindanao vs. Director of Lands, L-
19535, July 30, 1967, 20 SCRA 641,
644).
The present Chief Justice entered a vigorous
dissent, tracing the line of cases beginning
with Carino in 1909 2 thru Susi in
3
1925 down to Herico in 1980, 4 which
developed, affirmed and reaffirmed the
doctrine that open, exclusive and undisputed
possession of alienable public land for the
period prescribed by law creates the legal
fiction whereby the land, upon completion of
the requisite period ipso jure and without the
need of judicial or other sanction, ceases to
be public land and becomes private property.
That said dissent expressed what is the
better and, indeed, the correct, view-
becomes evident from a consideration of
some of the principal rulings cited therein,
The main theme was given birth, so to speak,
in Carino involving the Decree/Regulations
of June 25, 1880 for adjustment of royal
lands wrongfully occupied by private
individuals in the Philippine Islands. It was
ruled that:
It is true that the language of articles
4 and 5 5 attributes title to those 'who
may prove' possession for the
necessary time and we do not
overlook the argument that this
means may prove in registration
proceedings. It may be that an
English conveyancer would have
recommended an application under
the foregoing decree, but certainly it
was not calculated to convey to the
mind of an Igorot chief the notion that
ancient family possessions were in
danger, if he had read every word of
it. The words 'may prove' (acrediten)
as well or better, in view of the other
provisions, might be taken to mean
when called upon to do so in any
litigation. There are indications that
registration was expected from all but
none sufficient to show that, for want
of it, ownership actually gained would
be lost. The effect of the proof,
wherever made, was not to confer
title, but simply to establish it, as
already conferred by the decree, if
not by earlier law. ...
That ruling assumed a more doctrinal
character because expressed in more
categorical language, in Susi:
.... In favor of Valentin Susi, there is,
moreover, the presumption juris et de
jure established in paragraph (b) of
section 45 of Act No. 2874, amending
 Act No. 926, that all the necessary
requirements for a grant by the
Government were complied with, for
he has been in actual and physical
possession, personally and through
his predecessors, of an agricultural
land of the public domain openly,
continuously, exclusively and publicly
since July 26, 1984, with a right to a
certificate of title to said land under
the provisions of Chapter VIII of said
Act. So that when Angela Razon
applied for the grant in her favor,
Valentin Susi had already acquired,
by operation of law not only a right to
a grant, but a grant of the
Government, for it is not necessary
that a certificate of title should be
issued in order that said grant may be
sanctioned by the courts, an
application therefore is sufficient,
under the provisions of section 47 of
Act No. 2874. If by a legal fiction,
Valentin Susi had acquired the land
in question by a grant of the State, it
had already ceased to be of the
public domain and had become
private property, at least by
presumption, of Valentin Susi,
beyond the control of the Director of
Lands. Consequently, in selling the
land in question of Angela Razon, the
Director of Lands disposed of a land
over which he had no longer any title
or control, and the sale thus made
was void and of no effect, and Angela
Razon did not thereby acquire any
right. 6
Succeeding cases, of which only some need
be mentioned, likeof Lacaste vs. Director of
Lands, 7 Mesina vs. Vda. de
Sonza, 8 Manarpac vs.
Cabanatuan, 9 Miguel vs. Court of
10
Appeals and Herico vs. Dar, supra, by
invoking and affirming the Susi doctrine have
firmly rooted it in jurisprudence.
Herico, in particular, appears to be squarely
affirmative: 11
.... Secondly, under the provisions of
Republic Act No. 1942, which the
respondent Court held to be
inapplicable to the petitioner's case,
with the latter's proven occupation
and cultivation for more than 30 years
since 1914, by himself and by his
predecessors-in-interest, title over
the land has vested on petitioner so
as to segregate the land from the
mass of public land. Thereafter, it is
no longer disposable under the
Public Land Act as by free patent. ....
xxx xxx xxx
As interpreted in several cases, when
the conditions as specified in the
foregoing provision are complied
with, the possessor is deemed to
have acquired, by operation of law, a
right to a grant, a government grant,
without the necessity of a certificate
of title being issued. The land,
therefore, ceases to be of the public
domain and beyond the authority of
the Director of Lands to dispose
of. The application for confirmation is
mere formality, the lack of which does
not affect the legal sufficiency of the
title as would be evidenced by the
patent and the Torrens title to be
issued upon the strength of said
patent. 12
Nothing can more clearly demonstrate the
logical inevitability of considering possession
of public land which is of the character and
duration prescribed by statute as the
equivalent of an express grant from the State
than the dictum of the statute itself 13 that the
possessor(s) "... shall be conclusively
presumed to have performed all the
conditions essential to a Government grant
and shall be entitled to a certificate of title ....
" No proof being admissible to overcome a
conclusive presumption, confirmation
proceedings would, in truth be little more
than a formality, at the most limited to
ascertaining whether the possession claimed
is of the required character and length of
time; and registration thereunder would not
confer title, but simply recognize a title
already vested. The proceedings would
not originally convert the land from public to
private land, but only confirm such a
conversion already affected by operation of
law from the moment the required period of
possession became complete. As was so
well put in Carino, "... (T)here are indications
that registration was expected from all, but
none sufficient to show that, for want of it,
ownership actually gained would be lost. The
effect of the proof, wherever made, was not
to confer title, but simply to establish it, as
already conferred by the decree, if not by
earlier law."
If it is accepted-as it must be-that the land
was already private land to which the Infiels
had a legally sufficient and transferable title
on October 29, 1962 when Acme acquired it
from said owners, it must also be conceded
that Acme had a perfect right to make such
acquisition, there being nothing in the 1935
Constitution then in force (or, for that matter,
in the 1973 Constitution which came into
effect later) prohibiting corporations from
acquiring and owning private lands.
Even on the proposition that the land
remained technically "public" land, despite
immemorial possession of the Infiels and
their ancestors, until title in their favor was
actually confirmed in appropriate
proceedings under the Public Land Act, there
can be no serious question of Acmes right to
acquire the land at the time it did, there also
being nothing in the 1935 Constitution that
might be construed to prohibit corporations
from purchasing or acquiring interests in
public land to which the vendor had already
acquired that type of so-called "incomplete"
or "imperfect" title. The only limitation then
extant was that corporations could not
acquire, hold or lease public agricultural
lands in excess of 1,024 hectares. The purely
accidental circumstance that confirmation
proceedings were brought under the aegis of
the 1973 Constitution which forbids
corporations from owning lands of the public
domain cannot defeat a right already vested
before that law came into effect, or invalidate
transactions then perfectly valid and proper.
This Court has already held, in analogous
circumstances, that the Constitution cannot
impair vested rights.
We hold that the said constitutional
prohibition 14 has no retroactive
application to the sales application of
Binan Development Co., Inc.
because it had already acquired a
vested right to the land applied for at
the time the 1973 Constitution took
effect.
That vested right has to be
respected. It could not be abrogated
by the new Constitution. Section 2,
Article XIII of the 1935 Constitution
allows private corporations to
purchase public agricultural lands not
exceeding one thousand and twenty-
four hectares. Petitioner' prohibition
action is barred by the doctrine of
vested rights in constitutional law.
xxx xxx xxx
The due process clause prohibits the
annihilation of vested rights. 'A state
may not impair vested rights by
legislative enactment, by the
enactment or by the subsequent
repeal of a municipal ordinance, or by
a change in the constitution of the
State, except in a legitimate exercise
of the police power'(16 C.J.S. 1177-
78).
xxx xxx xxx
In the instant case, it is incontestable
that prior to the effectivity of the 1973
Constitution the right of the
corporation to purchase the land in
question had become fixed and
established and was no longer open
to doubt or controversy.
 Its compliance with the requirements
of the Public Land Law for the
issuance of a patent had the effect of
segregating the said land from the
public domain. The corporation's
right to obtain a patent for the land is
protected by law. It cannot be
deprived of that right without due
process (Director of Lands vs. CA,
123 Phil. 919).<re||an1w> 15
The fact, therefore, that the confirmation
proceedings were instituted by Acme in its
own name must be regarded as simply
another accidental circumstance, productive
of a defect hardly more than procedural and
in nowise affecting the substance and merits
of the right of ownership sought to be
confirmed in said proceedings, there being
no doubt of Acme's entitlement to the land.
As it is unquestionable that in the light of the
undisputed facts, the Infiels, under either the
1935 or the 1973 Constitution, could have
had title in themselves confirmed and
registered, only a rigid subservience to the
letter of the law would deny the same benefit
to their lawful successor-in-interest by valid
conveyance which violates no constitutional
mandate.
The Court, in the light of the foregoing, is of
the view, and so holds, that the majority
ruling in Meralco must be reconsidered and
no longer deemed to be binding precedent.
The correct rule, as enunciated in the line of
cases already referred to, is that alienable
public land held by a possessor, personally
or through his predecessors-in-interest,
openly, continuously and exclusively for the
prescribed statutory period (30 years under
The Public Land Act, as amended) is
converted to private property by the mere
lapse or completion of said period, ipso jure.
Following that rule and on the basis of the
undisputed facts, the land subject of this
appeal was already private property at the
time it was acquired from the Infiels by Acme.
Acme thereby acquired a registrable title,
there being at the time no prohibition against
said corporation's holding or owning private
land. The objection that, as a juridical
person, Acme is not qualified to apply for
judicial confirmation of title under section
48(b) of the Public Land Act is technical,
rather than substantial and, again, finds its
answer in the dissent in Meralco:
6. To uphold respondent judge's
denial of Meralco's application on the
technicality that the Public Land Act
allows only citizens of the Philippines
who are natural persons to apply for
confirmation of their title would be
impractical and would just give rise to
multiplicity of court actions. Assuming
that there was a technical error not
having filed the application for
registration in the name of the
Piguing spouses as the original
owners and vendors, still it is
conceded that there is no prohibition
against their sale of the land to the
applicant Meralco and neither is there
any prohibition against the
application being refiled with
retroactive effect in the name of the
original owners and vendors (as such
natural persons) with the end result of
their application being granted,
because of their indisputable
acquisition of ownership by operation
of law and the conclusive
presumption therein provided in their
favor. It should not be necessary to
go through all the rituals at the great
cost of refiling of all such applications
in their names and adding to the
overcrowded court dockets when the
Court can after all these years
dispose of it here and now. (See
Francisco vs. City of Davao)
The ends of justice would best be
served, therefore, by considering the
applications for confirmation as
amended to conform to the evidence,
i.e. as filed in the names of the
original persons who as natural
persons are duly qualified to apply for
formal confirmation of the title that
they had acquired by conclusive
presumption and mandate of the
 Public Land Act and who thereafter
duly sold to the herein corporations
(both admittedly Filipino corporations
duly qualified to hold and own private
lands) and granting the applications
for confirmation of title to the private
lands so acquired and sold or
exchanged.
There is also nothing to prevent Acme from
reconveying the lands to the Infiels and the
latter from themselves applying for
confirmation of title and, after issuance of the
certificate/s of title in their names, deeding
the lands back to Acme. But this would be
merely indulging in empty charades,
whereas the same result is more
efficaciously and speedily obtained, with no
prejudice to anyone, by a liberal application
of the rule on amendment to conform to the
evidence suggested in the dissent
in Meralco.
While this opinion seemingly reverses an
earlier ruling of comparatively recent vintage,
in a real sense, it breaks no precedent, but
only reaffirms and re-established, as it were,
doctrines the soundness of which has
passed the test of searching examination
and inquiry in many past cases. Indeed, it is
worth noting that the majority opinion, as well
as the concurring opinions of Chief Justice
Fernando and Justice Abad Santos,
in Meralco rested chiefly on the proposition
that the petitioner therein, a juridical person,
was disqualified from applying for
confirmation of an imperfect title to public
land under Section 48(b) of the Public Land
Act. Reference to the 1973 Constitution and
its Article XIV, Section 11, was only
tangential limited to a brief paragraph in the
main opinion, and may, in that context, be
considered as essentially obiter. Meralco, in
short, decided no constitutional question.
WHEREFORE, there being no reversible
error in the appealed judgment of the
Intermediate Appellate Court, the same is
hereby affirmed, without costs in this
instance.
SO ORDERED.
G.R. No. 132922 April 21, 1998
TELECOMMUNICATIONS AND
BROADCAST ATTORNEYS OF THE
PHILIPPINES, INC. and GMA NETWORK,
INC., petitioners,
vs.
THE COMMISSION ON
ELECTIONS, respondent.
MENDOZA, J.:
In Osmea v. COMELEC, G.R. No. 132231,
decided March 31, 1998,1 we upheld the
validity of 11(b) of R.A. No. 6646 which
prohibits the sale or donation of print space
or air time for political ads, except to the
Commission on Elections under 90, of B.P.
No. 881, the Omnibus Election Code, with
respect to print media, and 92, with respect
to broadcast media. In the present case, we
consider the validity of 92 of B.P. Blg. No.
881 against claims that the requirement that
radio and television time be given free takes
property without due process of law; that it
violates the eminent domain clause of the
Constitution which provides for the payment
of just compensation; that it denies
broadcast media the equal protection of the
laws; and that, in any event, it violates the
terms of the franchise of petitioner GMA
Network, Inc.
Petitioner Telecommunications and
Broadcast Attorneys of the Philippines, Inc.
is an organization of lawyers of radio and
television broadcasting companies. They are
suing as citizens, taxpayers, and registered
voters. The other petitioner, GMA Network,
Inc., operates radio and television
broadcasting stations throughout the
Philippines under a franchise granted by
Congress.
Petitioners challenge the validity of 92 on
the ground (1) that it takes property without
due process of law and without just
compensation; (2) that it denies radio and
television broadcast companies the equal
protection of the laws; and (3) that it is in
excess of the power given to the COMELEC
to supervise or regulate the operation of
media of communication or information
during the period of election.
The Question of Standing
At the threshold of this suit is the question of
standing of petitioner Telecommunications
and Broadcast Attorneys of the Philippines,
Inc. (TELEBAP). As already noted, its
members assert an interest as lawyers of
radio and television broadcasting companies
and as citizens, taxpayers, and registered
voters.
In those cases2 in which citizens were
authorized to sue, this Court upheld their
standing in view of the "transcendental
importance" of the constitutional question
raised which justified the granting of relief. In
contrast, in the case at bar, as will presently
be shown, petitioner's substantive claim is
without merit. To the extent, therefore, that a
party's standing is determined by the
substantive merit of his case or preliminary
estimate thereof, petitioner TELEBAP must
be held to be without standing. Indeed, a
citizen will be allowed to raise a constitutional
question only when he can show that he has
personally suffered some actual or
threatened injury as a result of the allegedly
illegal conduct of the government; the injury
fairly is fairly traceable to the challenged
action; and the injury is likely to be redressed
by a favorable action.3 Members of petitioner
have not shown that they have suffered harm
as a result of the operation of 92 of B.P. Blg.
881.
Nor do members of petitioner TELEBAP
have an interest as registered voters since
this case does not concern their right of
suffrage. Their interest in 92 of B.P. Blg.
881 should be precisely in upholding its
validity.
Much less do they have an interest as
taxpayers since this case does not involve
the exercise by Congress of its taxing or
spending power.4 A party suing as a
taxpayer must specifically show that he has
a sufficient interest in preventing the illegal
expenditure of money raised by taxation and
that he will sustain a direct injury as a result
of the enforcement of the questioned statute.
Nor indeed as a corporate entity does
TELEBAP have standing to assert the rights
of radio and television broadcasting
companies. Standing jus tertii will be
recognized only if it can be shown that the
party suing has some substantial relation to
the third party, or that the third party cannot
assert his constitutional right, or that the eight
of the third party will be diluted unless the
party in court is allowed to espouse the third
party's constitutional claim. None of these
circumstances is here present. The mere fact
that TELEBAP is composed of lawyers in the
broadcast industry does not entitle them to
bring this suit in their name as
representatives of the affected companies.
Nevertheless, we have decided to take this
case since the other petitioner, GMA
Network, Inc., appears to have the requisite
standing to bring this constitutional
challenge. Petitioner operates radio and
television broadcast stations in the
Philippines affected by the enforcement of
92 of B.P. Blg. 881 requiring radio and
television broadcast companies to provide
free air time to the COMELEC for the use of
candidates for campaign and other political
purposes.
Petitioner claims that it suffered losses
running to several million pesos in providing
COMELEC Time in connection with the 1992
presidential election and the 1995 senatorial leave of absence from his work as
election and that it stands to suffer even such during the campaign period.
more should it be required to do so again this
year. Petitioner's allegation that it will suffer B.P. Blg. 881, (Omnibus Election
losses again because it is required to provide Code)
free air time is sufficient to give it standing to
question the validity of 92.5 Sec. 90. Comelec space. The
Commission shall procure space in at
Airing of COMELEC Time, a least one newspaper of general
circulation in every province or
Reasonable Condition for city; Provided, however, That in the
absence of said newspaper,
Grant of Petitioner's publication shall be done in any other
magazine or periodical in said
Franchise province or city, which shall be known
as "Comelec Space" wherein
As pointed out in our decision in Osmea candidates can announce their
v. COMELEC, 11(b) of R.A. No. 6646 and candidacy. Said space shall be
90 and 92 of the B.P. Blg. 881 are part and allocated, free of charge, equally and
parcel of a regulatory scheme designed to impartially by the Commission among
equalize the opportunity of candidates in an all candidates within the area in
election in regard to the use of mass media which the newspaper is circulated.
for political campaigns. These statutory (Sec. 45, 1978 EC).
provisions state in relevant parts:
Sec. 92. Comelec time. The
R.A. No. 6646 commission shall procure radio and
television time to be known as
Sec. 11. Prohibited Forms of Election "Comelec Time" which shall be
Propaganda. In addition to the allocated equally and impartially
forms of election propaganda among the candidates within the area
prohibited under Section 85 of Batas of coverage of all radio and television
Pambansa Blg. 881, it shall be stations. For this purpose, the
unlawful: franchise of all radio broadcasting
and television stations are hereby
amended so as to provide radio or
xxx xxx xxx
television time, free of charge, during
the period of the campaign. (Sec. 46,
(b) for any newspapers, radio 1978 EC)
broadcasting or television station, or
other mass media, or any person
Thus, the law prohibits mass media from
making use of the mass media to sell
selling or donating print space and air time to
or to give free of charge print space
the candidates and requires the COMELEC
or air time for campaign or other
instead to procure print space and air time for
political purposes except to the
allocation to the candidates. It will be noted
Commission as provided under
that while 90 of B.P. Blg. 881 requires the
Section 90 and 92 of Batas
COMELEC to procure print space which, as
Pambansa Blg. 881. Any mass media
we have held, should be paid for, 92 states
columnist, commentator, announcer
that air time shall be procured by the
or personality who is a candidate for
COMELEC free of charge.
any elective public office shall take a
Petitioners contend that 92 of BP Blg. 881
violates the due process clause6 and the
eminent domain provision7 of the
Constitution by taking air time from radio and
television broadcasting stations without
payment of just compensation. Petitioners
claim that the primary source of revenue of
the radio and television stations is the sale of
air time to advertisers and that to require
these stations to provide free air time is to
authorize a taking which is not "a de
minimis temporary limitation or restraint
upon the use of private property." According
to petitioners, in 1992, the GMA Network,
Inc. lost P22,498,560.00 in providing free air
time of one (1) hour every morning from
Mondays to Fridays and one (1) hour on
Tuesdays and Thursday from 7:00 to 8:00
p.m. (prime time) and, in this year's elections,
it stands to lose P58,980,850.00 in view of
COMELEC'S requirement that radio and
television stations provide at least 30
minutes of prime time daily for the
COMELEC Time.8
Petitioners' argument is without merit, All
broadcasting, whether by radio or by
television stations, is licensed by the
government. Airwave frequencies have to be
allocated as there are more individuals who
want to broadcast than there are frequencies
to assign.9 A franchise is thus a privilege
subject, among other things, to amended by
Congress in accordance with the
constitutional provision that "any such
franchise or right granted . . . shall be subject
to amendment, alteration or repeal by the
Congress when the common good so
requires."10
The idea that broadcast stations may be
required to provide COMELEC Time free of
charge is not new. It goes back to the
Election Code of 1971 (R.A. No. 6388),
which provided:
Sec. 49. Regulation of election
propaganda through mass media.
(a) The franchise of all radio
broadcasting and television stations
are hereby amended so as to require
each such station to furnish free of
charge, upon request of the
Commission [on Elections], during
the period of sixty days before the
election not more than fifteen minutes
of prime time once a week which shall
be known as "Comelec Time" and
which shall be used exclusively by
the Commission to disseminate vital
election information. Said "Comelec
Time" shall be considered as part of
the public service time said stations
are required to furnish the
Government for the dissemination of
public information and education
under their respective franchises or
permits.
The provision was carried over with slight
modification by the 1978 Election Code (P.D.
No. 1296), which provided:
Sec. 46. COMELEC Time. The
Commission [on Elections] shall
procure radio and television time to
be known as "COMELEC Time"
which shall be allocated equally and
impartially among the candidates
within the area of coverage of said
radio and television stations. For this
purpose, the franchises of all radio
broadcasting and television stations
are hereby amended so as to require
such stations to furnish the
Commission radio or television time,
free of charge, during the period of
the campaign, at least once but not
oftener than every other day.
Substantially the same provision is now
embodied in 92 of B.P. Blg. 881.
Indeed, provisions for COMELEC Tima have
been made by amendment of the franchises
of radio and television broadcast stations
and, until the present case was brought,
such provisions had not been thought of as
taking property without just compensation.
Art. XII, 11 of the Constitution authorizes
the amendment of franchises for "the
common good." What better measure can be
conceived for the common good than one for
free air time for the benefit not only of
candidates but even more of the public,
particularly the voters, so that they will be
fully informed of the issues in an election?
"[I]t is the right of the viewers and listeners,
not the right of the broadcasters, which is
paramount."11
Nor indeed can there be any constitutional
objection to the requirement that broadcast
stations give free air time. Even in the United
States, there are responsible scholars who
believe that government controls on
broadcast media can constitutionally be
instituted to ensure diversity of views and
attention to public affairs to further the
system of free expression. For this purpose,
broadcast stations may be required to give
free air time to candidates in an
election. 12 Thus, Professor Cass R.
Sunstein of the University of Chicago Law
School, in urging reforms in regulations
affecting the broadcast industry, writes:
Elections. We could do a lot to
improve coverage of electoral
campaigns. Most important,
government should ensure free
media time for candidates. Almost all
European nations make such
provisions; the United States does
not. Perhaps government should pay
for such time on its own. Perhaps
broadcasters should have to offer it
as a condition for receiving a
license. Perhaps a commitment to
provide free time would count in favor
of the grant of a license in the first
instance. Steps of this sort would
simultaneously promote attention to
public affairs and greater diversity of
view. They would also help overcome
the distorting effects of "soundbites"
and the corrosive financial pressures
faced by candidates in seeking time
on the media. 13
In truth, radio and television broadcasting
companies, which are given franchises, do
not own the airwaves and frequencies
through which they transmit broadcast
signals and images. They are merely given
the temporary privilege of using them. Since
a franchise is a mere privilege, the exercise
of the privilege may reasonably be burdened
with the performance by the grantee of some
form of public service. Thus, in De Villata
v. Stanley,14 a regulation requiring
interisland vessels licensed to engage in the
interisland trade to carry mail and, for this
purpose, to give advance notice to postal
authorities of date and hour of sailings of
vessels and of changes of sailing hours to
enable them to tender mail for transportation
at the last practicable hour prior to the
vessel's departure, was held to be a
reasonable condition for the state grant of
license. Although the question of
compensation for the carriage of mail was
not in issue, the Court strongly implied that
such service could be without compensation,
as in fact under Spanish sovereignty the mail
was carried free.15
In Philippine Long Distance Telephone
Company v. NTC,16 the Court ordered the
PLDT to allow the interconnection of its
domestic telephone system with the
international gateway facility of Eastern
Telecom. The Court cited (1) the provisions
of the legislative franchise allowing such
interconnection; (2) the absence of any
physical, technical, or economic basis for
restricting the linking up of two separate
telephone systems; and (3) the possibility of
increase in the volume of international traffic
and more efficient service, at more moderate
cost, as a result of interconnection.
Similarly, in the earlier case of PLDT
v. NTC,17 it was held:
Such regulation of the use and
ownership of telecommunications
systems is in the exercise of the
plenary police power of the State for
the promotion of the general welfare.
The 1987 Constitution recognizes the telecommunications networks when it
existence of that power when it decreed interconnection.
provides:
In the granting of the privilege to operate
Sec. 6. The use of broadcast stations and thereafter
property bears a supervising radio and television stations, the
social function, and all state spends considerable public funds in
economic agents shall licensing and supervising such stations. 18 It
contribute to the would be strange if it cannot even require the
common good. licensees to render public service by giving
Individuals and private free air time.
groups, including
corporations, Considerable effort is made in the dissent of
cooperatives, and Mr. Justice Panganiban to show that the
similar collective production of television programs involves
organizations, shall large expenditure and requires the use of
have the right to own, equipment for which huge investments have
establish, and operate to be made. The dissent cites the claim of
economic enterprises, GMA Network that the grant of free air time
subject to the duty of to the COMELEC for the duration of the 1998
the State to promote campaign period would cost the company
distributive justice and P52,380,000, representing revenue it would
to intervene when the otherwise earn if the air time were sold to
common good so advertisers, and the amount of P6,600,850,
demands (Article XII). representing the cost of producing a program
for the COMELEC Time, or the total amount
The interconnection which has been of P58,980,850.
required of PLDT is a form of
"intervention" with property rights The claim that petitioner would be losing
dictated by "the objective of P52,380,000 in unrealized revenue from
government to promote the rapid advertising is based on the assumption that
expansion of telecommunications air time is "finished product" which, it is said,
services in all areas of the become the property of the company, like oil
Philippines, . . . to maximize the use produced from refining or similar natural
of telecommunications facilities resources after undergoing a process for
available, . . . in recognition of the their production. But air time is not owned by
vital role of communications in nation broadcast companies. As held in Red Lion
building . . . and to ensure that all Broadcasting Co. v. F.C.C.,19 which upheld
users of the public the right of a party personally attacked to
telecommunications service have reply, "licenses to broadcast do not confer
access to all other users of the ownership of designated frequencies, but
service wherever they may be within only the temporary privilege of using them."
the Philippines at an acceptable Consequently, "a license permits
standard of service and at broadcasting, but the license has no
reasonable cost" (DOTC Circular No. constitutional right to be the one who holds
90-248). Undoubtedly, the the license or to monopolize a radio
encompassing objective is the frequency to the exclusion of his fellow
common good. The NTC, as the citizens. There is nothing in the First
regulatory agency of the State, Amendment which prevents the Government
merely exercised its delegated from requiring a licensee to share his
authority to regulate the use of
frequency with others and to conduct himself
as a proxy or fiduciary with obligations to
present those views and voices which are
representative of his community and which
would otherwise, by necessity, be barred
from the airwaves." 20 As radio and television
broadcast stations do not own the airwaves,
no private property is taken by the
requirement that they provide air time to the
COMELEC.
Justice Panganiban's dissent quotes from
Tolentino on the Civil Code which says that
"the air lanes themselves 'are not property
because they cannot be appropriated for the
benefit of any individual.'" (p. 5) That means
neither the State nor the stations own the air
lanes. Yet the dissent also says that "The
franchise holders can recover their huge
investments only by selling air time to
advertisers." (p. 13) If air lanes cannot be
appropriated, how can they be used to
produce air time which the franchise holders
can sell to recover their investment? There is
a contradiction here.
As to the additional amount of P6,600,850, it
is claimed that this is the cost of producing a
program and it is for such items as "sets and
props," "video tapes," "miscellaneous (other
rental, supplies, transportation, etc.)," and
"technical facilities (technical crew such as
director and cameraman as well as 'on air
plugs')." There is no basis for this claim.
Expenses for these items will be for the
account of the candidates. COMELEC
Resolution No. 2983, 6(d) specifically
provides in this connection:
(d) Additional services such as tape-
recording or video-taping of
programs, the preparation of visual
aids, terms and condition thereof,
and consideration to be paid therefor
may be arranged by the candidates
with the radio/television station
concerned. However, no
radio/television station shall make
any discrimination among candidates
relative to charges, terms, practices
or facilities for in connection with the
services rendered.
It is unfortunate that in the effort to show that
there is taking of private property worth
millions of pesos, the unsubstantiated
charge is made that by its decision the Court
permits the "grand larceny of precious time,"
and allows itself to become "the people's
unwitting oppressor." The charge is really
unfortunate. In Jackson
v. Rosenbaun,21 Justice Holmes was so
incensed by the resistance of property
owners to the erection of party walls that he
was led to say in his original draft, "a statute,
which embodies the community's
understanding of the reciprocal rights and
duties of neighboring landowners, does not
need to invoke the penalty larceny of the
police power in its justification." Holmes's
brethren corrected his taste, and Holmes had
to amend the passage so that in the end it
spoke only of invoking "the police
power."22 Justice Holmes spoke of the "petty
larceny" of the police power. Now we are
being told of the "grand larceny [by means of
the police power] of precious air time."
Giving Free Air Time a Duty
Assumed by Petitioner
Petitioners claim that 92 is an invalid
amendment of R.A. No. 7252 which granted
GMA Network, Inc. a franchise for the
operation of radio and television
broadcasting stations. They argue that
although 5 of R.A. No. 7252 gives the
government the power to temporarily use
and operate the stations of petitioner GMA
Network or to authorize such use and
operation, the exercise of this right must be
compensated.
The cited provision of. R.A. No. 7252 states:
Sec. 5. Right of Government. A
special right is hereby reserved to the
President of the Philippines, in times
of rebellion, public peril, calamity,
 emergency, disaster or disturbance
of peace and order, to temporarily
take over and operate the stations of
the grantee, to temporarily suspend
the operation of any station in the
interest of public safety, security and
public welfare, or to authorize the
temporary use and operation thereof
by any agency of the Government,
upon due compensation to the
grantee, for the use of said stations
during the period when they shall be
so operated.
The basic flaw in petitioner's argument is that
it assumes that the provision for COMELEC
Time constitutes the use and operation of the
stations of the GMA Network, Inc., This is not
so. Under 92 of B.P. Blg. 881, the
COMELEC does not take over the operation
of radio and television stations but only the
allocation of air time to the candidates for the
purpose of ensuring, among other things,
equal opportunity, time, and the right to reply
as mandated by the Constitution.23
Indeed, it is wrong to claim an amendment of
petitioner's franchise for the reason that B.P.
Blg. 881, which is said to have amended R.A.
No. 7252, actually antedated it.24 The
provision of 92 of B.P. Blg. 881 must be
deemed instead to be incorporated in R.A.
No. 7252. And, indeed, 4 of the latter statute
does.
For the fact is that the duty imposed on the
GMA Network, Inc. by its franchise to render
"adequate public service time" implements
92 of B.P. Blg. 881. Undoubtedly, its
purpose is to enable the government to
communicate with the people on matters of
public interest. Thus, R.A. No. 7252
provides:
Sec. 4. Responsibility to the Public.
The grantee shall provide
adequate public service time to
enable the Government, through the
said broadcasting stations, to reach
the population on important public
issues; provide at all times sound and
balanced programming; promote
public participation such as in
community programming; assist in
the functions of public information
and education; conform to the ethics
of honest enterprise; and not use its
station for the broadcasting of
obscene and indecent language,
speech, act or scene, or for the
dissemination of deliberately false
information or willful
misrepresentation, or to the detriment
of the public interest, or to incite,
encourage, or assist in subversive or
treasonable acts. (Emphasis added).
It is noteworthy that 40 of R.A. No. 6388,
from which 92 of B.P. Blg. 881 was taken,
expressly provided that the COMELEC Time
should "be considered as part of the public
service time said stations are required to
furnish the Government for the dissemination
of public information and education under
their respective franchises or permits." There
is no reason to suppose that 92 of B.P. Blg.
881 considers the COMELEC Time therein
provided to be otherwise than as a public
service which petitioner is required to render
under 4 of its charter (R.A. No. 7252). In
sum, B.P. Blg. 881, 92 is not an invalid
amendment of petitioner's franchise but the
enforcement of a duty voluntarily assumed
by petitioner in accepting a public grant of
privilege.
Thus far, we have confined the discussion to
the provision of 92 of B.P. Blg. 881 for free
air time without taking into account
COMELEC Resolution No. 2983-A, 2 of
which states:
Sec. 2. Grant of "Comelec Time."
Every radio broadcasting and
television station operating under
franchise shall grant the
Commission, upon payment of just
compensation, at least thirty (30)
minutes of prime time daily, to be
known as "Comelec Time", effective
 February 10, 1998 for candidates for
President, Vice-President and
Senators, and effective March 27,
1998, for candidates for local elective
offices, until May 9, 1998. (Emphasis
added).
This is because the amendment providing for
the payment of "just compensation" is
invalid, being in contravention of 92 of B.P.
Blg. 881 that radio and television time given
during the period of the campaign shall be
"free of charge." Indeed, Resolution No.
2983 originally provided that the time
allocated shall be "free of charge," just as
92 requires such time to be given "free of
charge." The amendment appears to be a
reaction to petitioner's claim in this case that
the original provision was unconstitutional
because it allegedly authorized the taking of
property without just compensation.
The Solicitor General, relying on the
amendment, claims that there should be no
more dispute because the payment of
compensation is now provided for. It is basic,
however, that an administrative agency
cannot, in the exercise of lawmaking, amend
a statute of Congress. Since 2 of Resolution
No. 2983-A is invalid, it cannot be invoked by
the parties.
Law Allows Flextime for Programming
by Stations, Not Confiscation
of
Air Time by COMELEC
It is claimed that there is no standard in the
law to guide the COMELEC in procuring free
air time and that "theoretically the COMELEC
can demand all of the air time of such
stations."25 Petitioners do not claim that
COMELEC Resolution No. 2983-A arbitrarily
sequesters radio and television time. What
they claim is that because of the breadth of
the statutory language, the provision in
question is susceptible of "unbridled,
arbitrary and oppressive exercise."26
The contention has no basis. For one, the
COMELEC is required to procure free air
time for candidates "within the area of
coverage" of a particular radio or television
broadcaster so that it cannot, for example,
procure such time for candidates outside that
area. At what time of the day and how much
time the COMELEC may procure will have to
be determined by it in relation to the overall
objective of informing the public about the
candidates, their qualifications and their
programs of government. As stated
in Osmea v. COMELEC, the COMELEC
Time provided for in 92, as well as the
COMELEC Space provided for in 90, is in
lieu of paid ads which candidates are
prohibited to have under 11(b) of R.A. No.
6646. Accordingly, this objective must be
kept in mind in determining the details of the
COMELEC Time as well as those of the
COMELEC Space.
There would indeed be objection to the grant
of power to the COMELEC if 92 were so
detailed as to leave no room for
accommodation of the demands of radio and
television programming. For were that the
case, there could be an intrusion into the
editorial prerogatives of radio and television
stations.
Differential Treatment of
Broadcast Media Justified
Petitioners complain that B.P. Blg. 881, 92
singles out radio and television stations to
provide free air time. They contend that
newspapers and magazines are not similarly
required as, in fact, in Philippine Press
Institute v.COMELEC,27 we upheld their right
to the payment of just compensation for the
print space they may provide under 90.
The argument will not bear analysis. It rests
on the fallacy that broadcast media are
entitled to the same treatment under the free
speech guarantee of the Constitution as the
print media. There are important differences
in the characteristics of the two media,
however, which justify their differential
treatment for free speech purposes.
Because of the physical limitations of the
broadcast spectrum, the government must,
of necessity, allocate broadcast frequencies
to those wishing to use them. There is no
similar justification for government allocation
and regulation of the print media.28
In the allocation of limited resources,
relevant conditions may validly be imposed
on the grantees or licensees. The reason for
this is that, as already noted, the government
spends public funds for the allocation and
regulation of the broadcast industry, which it
does not do in the case of the print media. To
require the radio and television broadcast
industry to provide free air time for the
COMELEC Time is a fair exchange for what
the industry gets.
From another point of view, this Court has
also held that because of the unique and
pervasive influence of the broadcast media,
"[n]ecessarily . . . the freedom of television
and radio broadcasting is somewhat lesser in
scope than the freedom accorded to
newspaper and print media."29
The broadcast media have also established
a uniquely pervasive presence in the lives of
all Filipinos. Newspapers and current books
are found only in metropolitan areas and in
the poblaciones of municipalities accessible
to fast and regular transportation. Even here,
there are low income masses who find the
cost of books, newspapers, and magazines
beyond their humble means. Basic needs
like food and shelter perforce enjoy high
priorities.
On the other hand, the transistor
radio is found everywhere. The
television set is also becoming
universal. Their message may be
simultaneously received by a national
or regional audience of listeners
including the indifferent or unwilling
who happen to be within reach of a
blaring radio or television set. The
materials broadcast over the
airwaves reach every person of every
age, persons of varying
susceptibilities to persuasion,
persons of different I.Q.s and mental
capabilities, persons whose reactions
to inflammatory or offensive speech
would he difficult to monitor or
predict. The impact of the vibrant
speech is forceful and immediate.
Unlike readers of the printed work,
the radio audience has lesser
opportunity to cogitate, analyze, and
reject the utterance. 30
Petitioners' assertion therefore that 92 of
B.P. Blg. 881 denies them the equal
protection of the law has no basis. In
addition, their plea that 92 (free air time)
and 11(b) of R.A. No. 6646 (ban on paid
political ads) should be invalidated would
pave the way for a return to the old regime
where moneyed candidates could
monopolize media advertising to the
disadvantage of candidates with less
resources. That is what Congress tried to
reform in 1987 with the enactment of R.A.
No. 6646. We are not free to set aside the
judgment of Congress, especially in light of
the recent failure of interested parties to have
the law repealed or at least modified.
Requirement of COMELEC Time, a
Reasonable Exercise of the
State's Power to Regulate
Use of Franchises
Finally, it is argued that the power to
supervise or regulate given to the COMELEC
under Art. IX-C, 4 of the Constitution does
not include the power to prohibit. In the first
place, what the COMELEC is authorized to
supervise or regulate by Art. IX-C, 4 of the
Constitution,31 among other things, is the use
by media of information of their franchises or
permits, while what Congress (not the
COMELEC) prohibits is the sale or donation
of print space or air time for political ads. In
other words, the object of supervision or
regulation is different from the object of the
prohibition. It is another fallacy for petitioners
to contend that the power to regulate does
not include the power to prohibit. This may
have force if the object of the power were the
same.
In the second place, the prohibition in 11(b)
of R.A. No. 6646 is only half of the regulatory
provision in the statute. The other half is the
mandate to the COMELEC to procure print
space and air time for allocation to
candidates. As we said in Osmea
v. COMELEC:
The term political "ad ban" when used
to describe 11(b) of R.A. No. 6646,
is misleading, for even as 11(b)
prohibits the sale or donation of print
space and air time to political
candidates, it mandates the
COMELEC to procure and itself
allocate to the candidates space and
time in the media. There is no
suppression of political ads but only a
regulation of the time and manner of
advertising.
xxx xxx xxx
. . . What is involved here is simply
regulation of this nature. Instead of
leaving candidates to advertise freely
in the mass media, the law provides
for allocation, by the COMELEC of
print space and air time to give all
candidates equal time and space for
the purpose of ensuring "free,
orderly, honest, peaceful, and
credible elections."
With the prohibition on media advertising by
candidates themselves, the COMELEC Time
and COMELEC Space are about the only
means through which candidates can
advertise their qualifications and programs of
government. More than merely depriving
their qualifications and programs of
government. More than merely depriving
candidates of time for their ads, the failure of
broadcast stations to provide air time unless
paid by the government would clearly
deprive the people of their right to know. Art
III, 7 of the Constitution provides that "the
right of the people to information on matters
of public concern shall be recognized," while
Art. XII, 6 states that "the use of property
bears a social function [and] the right to own,
establish, and operate economic enterprises
[is] subject to the duty of the State to promote
distributive justice and to intervene when the
common good so demands."
To affirm the validity of 92 of B.P. Blg. 881
is to hold public broadcasters to their
obligation to see to it that the variety and
vigor of public debate on issues in an election
is maintained. For while broadcast media are
not mere common carriers but entities with
free speech rights, they are also public
trustees charged with the duty of ensuring
that the people have access to the diversity
of views on political issues. This right of the
people is paramount to the autonomy of
broadcast media. To affirm the validity of
92, therefore, is likewise to uphold the
people's right to information on matters of
public concern. The use of property bears a
social function and is subject to the state's
duty to intervene for the common good.
Broadcast media can find their just and
highest reward in the fact that whatever
altruistic service they may render in
connection with the holding of elections is for
that common good.
For the foregoing reasons, the petition is
dismissed.
SO ORDERED.
REPUBLIC OF THE PHILIPPINES,
DIRECTOR OF LANDS and DIRECTOR OF
FORESTRY, petitioners
vs.
HON. COURT OF APPEALS, PAULINA
PARAN, ELISA PARAN MAITIM and SINA
PARAN, respondents.
Florencio Q. Pax & Moises P. Cating for
private respondents.
FELICIANO, J.:
This Petition for Review assails the
Resolutions of the Court of Appeals dated 15
September 1977 and 18 May 1978 in C.A.-
G.R. No. 59538-R, which dismissed the
appeal filed therein by the Republic and two
(2) bureau directors.
Private respondents are applicants for
registration of a parcel of land situated in
Beckel La Trinidad, Benguet, containing an
area of 34,178 square meters and covered
by Survey Plan Psu-105218. In their
application dated 13 February 1970, private
respondents claim to have acquired the land
from their father Dayotao Paran and by
actual, physical, exclusive and open
possession thereof since time immemorial.1
On 18 November 1970, the Office of the
Solicitor General filed on behalf of the
Director of Lands an Opposition2contending
that: (1) private respondents have no
registrable title; (2) the parcel of land sought
to be registered is part of the public domain
belonging to the Republic of the Philippines;
and (3) the application for registration was
filed after expiration of the period provided
for in R.A. No. 2061, hence the land
registration court did not acquire jurisdiction
over the case.
The Office of the Provincial Fiscal of Baguio
and Benguet, on the other hand, filed a
Motion to Dismiss3 based solely on the
ground that the application made by private
respondents was filed beyond 31 December
1968, the extended period for filing of
applications for registration provided for by
R.A. No. 2061. The Office of the Provincial
Fiscal of Baguio and Benguet later filed
another Opposition4 first time in
representation of the Director of Forestry,
stating that the parcel of land sought to be
registered is within the Central Cordillera
Forest Reserve covered by Proclamation No.
217 dated 16 February 1929.
On 12 November 1970, the land registration
court issued an Order5 declaring a general
default against the whole world except the
Bureau of Lands, the Reforestration
Administration, and the Bureau of Forestry.
Another Order6was then issued denying the
motion to dismiss filed by the Provincial
Fiscal. Thereupon, the case proceeded to
trial.
On 7 August 1974, the land registration court
rendered a Decision7 with the following
dispositive portion:
In view thereof, finding the applicants
and their predecessors-in-interest to
have been in open, continuous and
notorious possession of the aforesaid
land as bonafide owner[s] thereof for
more than 30 years, their title hereto
(sic) is hereby confirmed. Let an
order issue for the issuance of the
decree after the finality of this
decision in the names of Paulina
Paran, widow; Elisa Paran Maitim,
married to Beles Paran; Sina Paran,
widow; all of legal age, Filipino
citizens and residents of Beckel La
Trinidad, Benguet, in equal undivided
shares.
It is so ordered.
A copy of the Decision was received by the
Provincial Fiscal on 13 August 1974 who filed
neither a motion for reconsideration nor a
notice of appeal. The Solicitor General, who
was separately furnished a copy of the
Decision, received it on 26 August 1974. On
25 September 1974, the last day then
allowed for filing an appeal, the Solicitor
General filed a motion for reconsideration.
The motion was denied. Copy of the order
denying the motion for reconsideration was
received by the Solicitor General almost a
year later, on 18 August 1975; on the very
same day, he immediately filed a notice of his
intention to appeal. The record on appeal
subsequently filed by the Solicitor General
was approved, "having been filed within the
period prescribed by law," and the records of
the case were ordered elevated to the Court
of Appeals.
Earlier, however, the land registration court
had directed the Land Registration
Commission to issue a decree for the titling
of the land in the name of private
respondents. The Order dated 23 June 1975
was issued because no appeal had
apparently been perfected at that time from
the Decision promulgated on 7 August 1974.
The Solicitor General asked that that Order
be set aside on the ground that it was issued
prematurely, that is, he had not yet received
as of 23 June 1975 the order denying his
motion for reconsideration of the decision.
The Solicitor General's motion for
reconsideration was denied by the land
registration court.
Considering that the Solicitor General had
filed an appeal from the Decision dated 7
August 1974, private respondents urged the
Court of Appeals to dismiss the appeal
contending that the Decision of the land
registration court had attained finality and
was no longer open to review. By a
Resolution8 of the Court of Appeals dated 15
September 1977, the motion of private
respondents was granted and the appeal
interposed by petitioners was dismissed. The
Resolution reads:
ACTING on the motion to dismiss
appeal filed by counsel for
applicants-appellees on the ground
that the appellant's brief clearly
indicates that appellant is only
appealing from the original order
which was already final and
executory. (sic) Upon examination of
the records of this case, the court
finds out that the contention of
appellees is tenable. In view of the
same, the Court RESOLVED to
GRANT applicants-appellees'
motion.
Wherefore, the appeal interposed by
appellant is now and considered
abandoned.
Petitioners moved for reconsideration of that
Resolution; their motion was denied in an
extended Resolution9 of the Court of Appeals
promulgated on 18 May 1978.
Petitioners in the instant Petition for Review
urge that:
1. respondent Court of Appeals erred
in not holding that petitioners' appeal
was perfected on time;
2. respondent Court of Appeals erred
in not holding that [the] decision
rendered without jurisdiction does not
attain finality since [the] land involved
is part of [the] Central Cordillera
Forest Reserve; and that
3. respondent Court of Appeals erred
in not declaring as void in these
proceedings [the] trial court's
decision.10
The first issue raised by petitioners is
founded on the holding of the Court of
Appeals, that:
This Admission notwithstanding, and
if only to clarify, we will rule on the
issue of perfection of the appeal in
this case. We maintain that the
decision in the court below had
already become final and executory
when the appeal was interposed. The
period of appeal should commence to
run from the date the Provincial
 Fiscal recieved a copy of the
decision, to wit: August 13, 1974. The
thirty-day period of appeal had
lapsed when the Solicitor General
filed his notice of appeal. The receipt
by the Provincial Fiscal of the
decision is deemed that of the
Solicitor General. The records reveal
that it was the Provincial Fiscal who
all along had represented the
Government in the hearing of the
application for registration. His official
actuations and omissions in regard to
the case must perforce bind the
Office of the Solicitor General. To
ignore the official actuations and
omissions of the fiscal in the hearing
of the application for registration
would be a virtual admission that
there was no opposition on the part of
the Government, a situation which
would have been even more
absurd.11
Petitioners for their part contend that the
thirty-day (30) period (now fifteen [15] days)
for filing an appeal should not commence to
run from the time the Provincial Fiscal
received a copy of the Decision of the land
registration court on 13 August 1974, but
rather only from 26 August 1974 when the
Solicitor General received his own copy of
the Decision.
Recent decisions of this Court sustain the
position taken by petitioners. The Office of
the Solicitor General is the entity that is
empowered to represent the Government in
all land registration and related
proceedings12 and as such, the Solicitor
General is entitled to be furnished copies of
all court orders, notices and decisions.
Service of decisions on the Solicitor General
is the proper basis for computing the
reglementary period or filing of appeals and
for determining whether a decision had
attained finality. The representative of the
Solicitor General, e.g. the Provincial Fiscal,
has no legal authority to decide whether or
not an appeal should be made.13
From the chronology of the instant case, it is
evident that the appeal interposed by the
Solicitor General was filed within the
appropriate period. Although the Provincial
Fiscal had received earlier a copy of the
Decision of the land registration court, the
Solicitor General received his copy only on
26 August 1974. On 25 September 1974, the
last day then allowed for filing an appeal, the
Solicitor General filed a motion for
reconsideration. The order denying this
motion for reconsideration was received on
18 August 1975; on the same day, the
Solicitor General filed a notice of appeal. The
Court considers the appeal of the Solicitor
General to have been filed on time since the
motion for reconsideration earlier filed had
suspended the running of the period to
appeal.14
During the proceedings below, petitioners
had asked the land registration court to
dismiss the application for registration of
private respondents on the ground that the
same was filed beyond the time allowed
under R.A. No. 2061. R.A. No. 2061 had
fixed a period expiring on 31 December 1968
while private respondents' application was
filed sometime in 1970.
The Court does not agree that private
respondents are barred by prescription from
having their imperfect title confirmed. The
original text of Section 47 of C.A. No. 141
provided that applications for confirmation
had to be filed at the latest on 31 December
1938. Pursuant to C.A. No. 292, the period
was extended to 31 December 1941; later,
that period was extended once more to 31
December 1957 by R.A. No. 107. The period
for filing was for the third time extended by
R.A. No. 2061 to allow applicants until 31
December 1968 to file their petitions. The
extensions of time did not, however, end with
R.A. No. 2061. R.A. No. 6236 again
extended the period of 31 December 1976.
The amendment introduced by R.A. No.
6236 reads:
 See. 47. The persons specified in the
next following section are hereby
granted time, not to extend beyond
December thirty-one, nineteen
hundred and seventy-six within which
to take advantage of the benefit of
this chapter: Provided, That this
extension shall apply only where the
area applied for does not exceed 144
hectares: Provided, further, That the
several periods of time designated by
the President in accordance with
section forty-five of this Act shall
apply also to the lands comprised in
the provisions of this chapter, but this
section shall not be construed as
prohibiting any of said persons from
acting under this chapter at any time
prior to the period fixed by the
President. (Emphasis supplied)
The Court notes that the application of
private respondents was filed on 13 February
1970, i.e., after expiration of the period
provided in R.A. No. 2061. We consider,
however, that the above underscored
portions of R.A. No. 6236, which was
approved 19 June 1971, validated the
application filed in the interim by private
respondents, and the exercise of jurisdiction
by the land registration court in respect of the
subject matter of the application. The fact
that a succession of statutes had simply
extended the original time period,15 rather
than established a series of discrete periods
of time with specific beginning dates and
ending dates, shows a clear legislative intent
to avoid interregna which would have
generated doubts and difficult questions of
law. In fact, R.A. No. 6236 was amended
anew by P.D. No. 1073 issued on 25 January
1977 to allow applications to be filed on or
before 31 December 1987.
Petitioners, however, maintain that the land
applied for is forest land located within the
Central Cordillera Forest Reserve and hence
not subject to registration. This was in fact
the principal issue litigated by the parties
before the land registration court. Petitioners
submitted a letter dated 4 June 1971 signed
by Baguio City Forester Luis U. Baker,
Bureau of Forestry, Department of
Agriculture and Natural Resources,
informing the Provincial Fiscal of Baguio and
Benguet that the land occupied by private
respondents lay within the boundaries of the
vast Reserve.16While private respondents do
not dispute that the land was formerly a part
of the Central Cordillera Forest Reserve,
they contend that it had already been
released therefrom. Private respondents
submitted a certification17 signed by
Leopoldo Palacay, Chief of Land
Classification Party No. 57 of the Bureau of
Forest Development, Department of
Agriculture and Natural Resources, showing
the legal nature or status of the land as
alienable or disposable.
After appraisal of the evidence submitted by
the parties, the land registration court held
that the land involved had already been
released from the Central Cordillera Forest
Reserve and, accordingly, rendered a
decision confirming the title of private
respondents.
There is no question that a positive act (e.g.,
an official proclamation) of the Executive
Department of the Government is needed to
declassify land which had been classified as
forestal and to convert it into alienable or
disposable lands for agricultural or other
purposes.18 In the case of Director of Lands
vs. Funtilar,19 the Court considered the
reports of the District Forester and the
District Land Officer as adequate proof that
the land applied for was no longer classified
as forestal. In that case, both the District
Forester and the District Land Officer made
identical findings that the land applied for
was alienable and disposable in character
and did not interpose any opposition to the
application for registration. The difficulty in
the instant case is that while the certification
of Leopoldo Palacay on which private
respondents rely may, standing alone, be
evidence that a reclassification had
occurred, it is contradicted by an official
report of Luis Baker. Moreover, the private
respondents' application for registration was
in fact opposed by the Director of Lands as
well as the Director of Forestry.
The evidence of record thus appears
unsatisfactory and insufficient to show
clearly and positively that the land here
involved had been officially released from the
Central Cordillera Forest Reserve to form
part of the alienable and disposable lands of
the public domain. We consider and so hold
that once a parcel of land is shown to have
been included within a Forest Reservation
duly established by Executive Proclamation,
as in the instant case, a presumption arises
that the parcel of land continues to be part of
such Reservation until clear and convincing
evidence of subsequent withdrawal
therefrom or de-classification is shown. A
simple, unsworn statement of a minor
functionary of the Bureau of Forest
Development is not, by itself, such evidence.
Under the view we take of this case,
however, the definite resolution of this
question becomes unnecessary.
The applicants in the instant case are natives
of Benguet and members of the Ibaloi
tribe.20 They are members of a cultural
minority whose application for registration of
land should be considered as falling under
Section 48(c) of C.A. No. 141. At the time
private respondents filed their application,
the text of Section 48 read:
Sec. 48. The following described
citizens of the Philippines, occupying
lands of the public domain or claiming
to own any such lands or an interest
therein, but whose titles have not
been perfected or completed, may
apply to the Court of First Instance of
the province where the land is
located for confirmation of their
claims and the issuance of a
certificate of title thereafter, under the
Land Registration Act, to wit:
xxx xxx xxx
(b) Those who by themselves or
through their predecessors-in-
interest have been, in continuous,
exclusive and notorious possession
and occupation of agricultural lands
of the public domain, under a bona
fide claim of acquisition or ownership,
for at least thirty years immediately
preceding the filing of the application
for confirmation of title, except when
prevented by war or force majeure.
Those shall be conclusively
presumed to have performed all the
conditions essential to a government
grant and shall be entitled to a
certificate of title under the provisions
of this chapter.
(c) Members of the national cultural
minorities who by themselves or
through their predecessors- in-
interest have been in open,
continuous, exclusive and notorious
possession and occupation of lands
of the public domain suitable to
agriculture whether disposable or
not, under a bona fide claim of
ownership for at least 30 years shall
be entitled to the rights granted in
subsection (b) hereof. (emphasis
supplied)
Section 48(c), quoted above, did not form
part of the original text of C.A. No. 141; it was
added on 18 June 1964 by R.A. No. 3872. It
is clear to the Court that the addition of
subsection (c) was intended to create a
distinction between applications for judicial
confirmation of imperfect titles by members
of national cultural minorities and
applications by other qualified persons in
general.21 Members of cultural minorities
may apply for confirmation of their title to
lands of the public domain, whether
disposable or not; they may therefore apply
for public lands even though such lands are
legally forest lands or mineral lands of the
public domain, so long as such lands are in
fact suitable for agriculture. The rest of the
community, however, "Christians" or
members of mainstream society may apply
only in respect of "agricultural lands of the
public domain," that is, "disposable lands of
the public domain" which would of course
exclude lands embraced within forest
reservations or mineral land reservations.
That the distinction so established in 1964 by
R.A. No. 3872 was expressly eliminated or
abandoned thirteen (13) years later by P.D.
No. 1073 effective 25 January 1977, only
highlights the fact that during those thirteen
(13) years, members of national cultural
minorities had rights in respect of lands of the
public domain, disposable or not. P.D. No.
1073 amended Sections 48(b) and (c) of C.A.
No. 141 in the following manner:
The provisions of Section 48(b) and
Section 48(c), Chapter VIII, of the
Public Land Act are hereby
amendedin the sense that these
provisions shall apply only to
alienable and disposable lands of the
public domainwhich have been in
open, continuous, exclusive and
notorious possession and occupation
by the applicant himself or thru his
predecessor-in-interest, under
a bona fide claim of acquisition of
ownership, since June 12, 1945.
(Emphasis supplied)
It is important to note that private
respondents' application for judicial
confirmation of their imperfect title was filed
in 1970 and that the land registration court
rendered its decision confirming their long-
continued possession of the lands here
involved in 1974, that is, during the time
when Section 48(c) was in legal effect.
Private respondents' imperfect title was, in
other words, perfected or vested by the
completion of the required period of
possession prior to the issuance of P.D. No.
1073. Private respondents' right in respect of
the land they had possessed for thirty (30)
years could not be divested by P.D. No.
1073.
The Court stressed in Director of Lands vs.
Funtilar (supra):
The Regalian doctrine which forms
the basis of our land laws and, in fact,
all laws governing natural resources
is a revered and long standing
principle. It must, however, be
applied together with the
constitutional provisions on social
justice and land reform and must be
interpreted in a way as to avoid
manifest unfairness and injustice.
Every application for a concession of
public lands has to be viewed in the
light of its peculiar circumstances. A
strict application of the Heirs of
Amunategui v. Director of Forestry
(supra) ruling is warranted whenever
a portion of the public domain is in
danger of ruthless exploitation,
fraudulent titling, or other
questionable practices. But when an
application appears to enhance the
very reasons behind the enactment
of Act 496, as amended, or the Land
Registration Act,
and Commonwealth Act 141, as
amended, or the Public Land Act,
then their provisions should not be
made to stand in the way of their own
implementation. (Emphasis supplied)
The land registration court found that the
possession of private respondents, if tacked
on to that of their predecessors-in-interest,
sufficiently meets the requirement of thirty
(30) years open, continuous, exclusive and
notorious possession. Private respondents
acquired the property from their deceased
father who, in turn, had inherited it from
private respondents' grandfather. Even
before the death of their father, private
respondents were already occupying the
land. They lived on it since their father had
built a house on the land and had planted it
with bananas, camote, avocadoes, oranges
and mangoes. Dayotao Paran had declared
the land for taxation purposes prior to 1938
and had since paid the corresponding realty petitioner until 11 August 1997 within which
taxes.22 to file its appellants brief, and the (2)
Resolution[2] of 29 September 1997
The Declarations of Real Property submitted dismissing petitioners appeal. The appeal
by private respondents indicated that the was taken from the Order[3] of Branch I,
land had become suitable to Regional Trial Court of Legaspi City in Civil
agriculture.1wphi1 Aside from sweet Case No. 9176, which petitioner instituted to
potatoes and vegetables, private cancel the title to some lots issued to private
respondents harvested rice from the respondents for the reversion thereof to the
land.23 To enhance their agricultural mass of the public domain.
production, private respondents or their
The facts of the case, as found by the
predecessors-in-interest had built terraces
trial court, are as follows:
and dikes. Forester Luis Baker noted this fact
in his report.
On September 12, 1917, the late Elias
Imperial was issued Original Certificate of
Clearly, the requirements of Section 48(c)
Title (OCT) 408 (500) pursuant to Decree No.
were satisfied by private respondents. They
55173 of the then Court of First Instance of
are entitled to judicial confirmation of their
Albay, covering a parcel of land identified as
imperfect title.
Lot No. 1113 of the Cadastral Survey of
Legazpi, G.L. Cad. Rec. No. 88, containing
WHEREFORE, the Petition for Review is an area of fifty eight thousand and twenty six
hereby DENIED. The Decision of the land square meters (58,026), more or less,
registration court dated 7 August 1974 is situated in Legazpi City.
AFFIRMED.
Original Certificate of Title No. 408 (500) was
SO ORDERED. subdivided and further subdivided resulting
in the issuance of several titles, which are
now the subject of this case, in the name of
the following defendants:

REPUBLIC OF THE PHILIPPINES TCT NO. LOT NO. AREA

represented by the DIRECTOR,
LANDS MANAGEMENT
BUREAU, petitioner, vs. FELIX S.
IMPERIAL JR., FELIZA
IMPERIAL, ELIAS S. IMPERIAL,
MIRIAM S. IMPERIAL, LOLITA
ALCAZAR, SALVADOR ALCAZAR,
EANCRA CORPORATION, and the
REGISTER OF DEEDS of LEGASPI
CITY, respondents.
(sq.m.) REGISTERED OWNER
1. 978 1113-M-3 5,853 Elias S. Imperial
S.
2. 31054 1113-M-4-A 1,200 Felix S. Imperial
3. 31055 1113-M-4-B 4,653 Felix S. Imperial
4. 35508 1113-M-2-A 1,335 EANCRA
CORPORATION

DECISION 5. 35509 1113-M-2-B 4,518 Feliza S.

DAVIDE, JR., C.J.: Imperial

In this petition for review on certiorari, 6. 35213 1113-M-1-A 1,500 Lolita Alcazar
petitioner seeks to reverse and set aside the and Salvador Alcazar
(1) Resolution[1] of 30 July 1997 of the Court
Appeals in CA-G.R. CV No. 53972 granting
7. 35214 1113-M-1-B 4,353 Miriam S.
Imperial
The plaintiff seeks to judicially declare the
transfer certificate of titles described in the
preceding paragraphs null and void; to order
the said defendants to surrender the owners
duplicate of their aforesaid titles to the
Register of Deeds of Legazpi City and
directing [sic] the latter to cancel them as well
as the originals thereof and to declare the
reversion of the lots covered by the aforesaid
titles to the mass of the public domain.
In support of its stand, the plaintiff contends
among others that on letter request
addressed to the Honorable Solicitor
General dated March 20, 1994, residents of
Purok No. 1 and Bgy. 24, Legazpi City,
represented by Antonio F. Aguilar, requested
that Original Certificate of Title No. 408 (500)
in the name of Elias Imperial be cancelled
and the land covered thereby reverted back
to the State on the ground that the land
subject thereof is a foreshore land.
Subsequent investigation conducted by the
Department of Environment and Natural
Resources (DENR), Region V, Legazpi City,
upon the request of the Office of the Solicitor
General (OSG) disclosed that OCT No. 408
(500), from whence the transfer certificate of
titles of the defendants were derived is null
and void, and was, thus, acquired to the
prejudice of the State, considering that:
a. the parcel of land covered by
OCT No. 408 (500) has the
features of a foreshore land;
b. natural ground plants such as
mangroves and nipas thrive on
certain portions of the land in
question;
c. some portions of the same land
are permanently submerged in
seawater even at low tide;
d. some portions of the same land
are not anymore inundated by
seawater due to the considerable
amount of improvements built
thereon and the placing of
boulders and other land-filling
materials by the actual residents
therein.
The plaintiff alleged that consequently on the
basis of said findings, the Director, Lands
Management Bureau recommended to the
Director, Lands Services, DENR, the
cancellation of OCT No. 406 [sic] (500) as
well as its derivative titles through
appropriate proceedings.
The plaintiff contended that since the land in
question is a foreshore land, the same
cannot be registered under the Land
Registration Act (Act No. 496, now P.D. No.
1529) in the name of private persons since it
is non-alienable and belongs to the public
domain, administered and managed by the
State for the benefit of the general public.
The plaintiff further contended that under
Public Land Act No. 141, as amended, such
land shall be disposed of to private parties by
lease only and not otherwise as soon as the
President upon recommendation of the
Secretary of Agriculture and Natural
Resources, now DENR, shall declare that
the same are not necessary for public
services and are open to disposition.
Within the time for pleading, defendants
EANCRA Corporation, Lolita Alcazar and
Salvador Alcazar filed their answer with
cross-claim, while the rest of the defendants,
namely, Felix S. Imperial, Jr., Feliza S.
Imperial, Elias S. Imperial and Miriam S.
Imperial filed a motion to dismiss.
The aforesaid motion to dismiss was
anchored on the following grounds: (a) the
lands covered by the defendants transfer
certificate of titles which were derived from
OCT No. 408 (500) was already the subject
of the cadastral proceedings in 1917 and
which has been implemented by the
issuance of OCT No. 408 (500) under the
Torrens system.
The adjudication by the cadastral court is
binding against the whole world including the
plaintiff since cadastral proceedings are in
rem and the government itself through the
Director of Lands instituted the proceedings
and is a direct and active participant. OCT
No. 408 (500) issued under the Torrens
system has long become incontrovertible
after the lapse of one year from the entry of
decree of registration; (b) OCT No. 408 (500)
was judicially reconstituted in 1953 in
accordance with Republic Act [No.] 26 in the
then Court of First Instance of Albay, by Jose
R. Imperial Samson in Court Case No. RT-
305, entitled, The Director of Lands vs. Jose
R. Imperial Samson. The proceedings in the
judicial reconstitution in said case No. RT-
305 is one in rem and has long become final
and gave rise to res judicata and therefore
can no longer legally be assailed; (c) the
findings of the Director of Lands dated
February 22, 1983 [sic] from which no appeal
was taken in said administrative investigation
that Lot No. 1113, Cad. 27 and a portion of it
covered by Lot No. 1113-M-5 in the name of
Jose Baritua cannot be considered as part of
the shore or foreshore of Albay Gulf. This
finding of the Director of Lands has become
final and thus constitute res judicata, and
finally moving defendants contended that
several interrelated cases have been
decided related to OCT No. 408 (500),
specifically Civil Cases Nos. 6556, 6885,
6999 and 7104, all of the Regional Trial
Court, Legazpi City which have been brought
by several squatters [sic] family against Jose
Baritua attacking the latters title over Lot No.
1113-M-5 which was derived from OCT No.
408 (500) which cases were all decided in
favor of Jose Baritua, hence, the decisions
rendered therein have become final and
executory and constitute res judicata.
The plaintiff through the Office of the Solicitor
General filed an objection to the motion to
dismiss based on the following grounds: (1)
the purported decision issued by the Court of
First Instance of Albay in G.R. Cad. Rec. No.
88 supposedly resulting in the issuance of
OCT No. 408 (500) pursuant to Decree No.
55173 does not constitute res judicata to the
present case; (2) the incontestable and
indisputable character of a Torrens
certificate of title does not apply when the
land thus covered, like foreshore land, is not
capable of registration; (3) a certificate of title
judicially reconstituted from a void certificate
of title is, likewise, void; (4) administrative
investigation conducted by the Director of
Lands is not a bar to the filing of reversion
suits; and (5) the filing of the motion to
dismiss carries with it the admission ofthe
truth of all material facts of the complaint.[4]
After hearing the motion to dismiss, or
on 9 August 1996, the trial court dismissed
the complaint on the ground that the
judgment rendered by the cadastral court in
G.R. Cad. Rec. No. 88 and our resolution in
the petition to quiet title, G.R. No. 85770,
both decreed that the parcel of land covered
by OCT No. 408 (500) was not foreshore.
The 1917 cadastral proceeding was binding
upon the government, which had initiated the
same and had been an active and direct
participant thereon. Likewise, the 1982
petition to cancel OCT No. 408 (500) filed by
the claimants of Lot No. 1113, Cad-47, and
resolved by the Director of Lands in his 22
February 1984 letter[5] to the effect that
Original Certificate of Title No. 408 (500)
2113 in the name of Elias Imperial and its
derivative title[s] were legally issued was res
judicata to the instant case. Petitioners
contention that the judicially reconstituted
certificate of title was void since the land
covered by OCT No. 408 (500) was
foreshore land was a mere assumption
contrary to existing physical facts. The court
further considered as forum shopping
petitioners attempt to seek a favorable
opinion after it was declared in related cases
questioning the title of a certain Jose Baritua,
which was also derived from OCT No.
408(500), that the land in question was
foreshore.
On 28 October 1996, petitioner filed a
notice of appeal.
 On 18 April 1997, the Court of Appeals
required petitioner to file its appellants brief
within forty-five (45) days from receipt of the
notice. Petitioner received said notice ten
(10) days later, or on 28 April 1997.
Due to the alleged heavy workload of the
solicitor assigned to the case, petitioner
moved for an extension of thirty (30) days
from 12 June 1997, or until 12 July 1997,
within which to file the appellants brief. The
Court of Appeals granted petitioners motion
for extension in a resolution dated 26 June
1997.
On the same ground of continuing heavy
pressure of work, petitioner filed, on 12 July
1997, its second motion for extension of thirty
(30) days or until 11 August 1997 within
which to file the appellants brief.
On 11 August 1997, petitioner asked for
a third extension of thirty (30) days, or until
10 September 1997, within which to file
appellants brief citing the same ground of
heavy pressure of work.
Meanwhile, on 30 July 1997, the Court
of Appeals issued a resolution, the full text of
which reads:
The Office of the Solicitor General is
GRANTED a LAST EXTENSION of thirty
(30) days from July 12, 1997, or until August
11, 1997, within which to file the oppositor-
appellants brief. Failure to file said brief
within the said period will mean dismissal of
the appeal.[6]
On 12 August 1997, petitioner received
a copy of the aforesaid resolution.
On 26 August 1997, petitioner moved to
reconsider the 30 July 1997 resolution and,
despite the appellate courts warning,
reiterated its third motion for extension of
another thirty (30) days to file the appellants
brief.
On 10 September 1997, petitioner filed
a manifestation and motion requesting
another extension of five (5) days, or until 15
September 1997, within which to file
appellants brief, reasoning that the brief,
although finalized, was yet to be signed by
the Solicitor General.
On 15 September 1997, petitioner filed
the required appellants brief.
On 29 September 1997, the Court of
Appeals denied petitioners motion for
reconsideration for lack of merit and
sustained its Resolution of 30 July 1997
dismissing the case for failure to file the
appellants brief within the extended period.
Hence, petitioner filed this petition
assailing the dismissal of its appeal on purely
technical grounds. It alleges that it has raised
meritorious grounds in support of its appeal
which, if not allowed to be laid down before
the proper Court, will result to the prejudice
of, and irreparable injury to, public interest,
as the Government would lose its opportunity
to recover what it believes to be non-
registrable lands of the public domain. Minor
lapses in adherence to procedural rules
should be condoned in order not to frustrate
the ends of justice. Thus, petitioner begs the
courts indulgence, enumerating the cases
that had occupied its time and attention
which prevented the filing of the required
brief within the extended periods granted by
the Court of Appeals.
Petitioner maintains that our resolution
of 8 May 1989 in G.R. No. 85770
entitled Spouses Espiritu v. Baritua does not
constitute res judicata to the instant case
because there is no identity of parties,
causes of action, and subject matter
between the two cases. The Supreme Court
case was instituted by Spouses Jose and
Maura Espiritu and others against Jose
Baritua, while the instant case was filed by
no less than the Republic of the Philippines
against herein respondents. The former
arose from a proceeding to quiet title, while
the latter is an action for reversion.
Anent the unappealed letter-decision of
the Director of Lands, petitioner contends
that the same was a reversible mistake which
did not bar the filing of a reversion suit, as the
government is never estopped by the
mistakes of its officials or agents.
Petitioner also argues that the 1953
reconstitution case only involved the
restoration of the title which was supposed to
have been lost or destroyed. The issue as to
the nature of the land covered by OCT No.
408 (500) was never delved into by the
court. Petitioner insists that the parcels of
land in question are foreshore lands, and
hence, inalienable and incapable of
registration. Consequently, the certificates of
title covering said lands are void ab initio.
As regards the trial courts finding of
forum shopping, petitioner asserts that the
same is without basis. It is the first time that
petitioner instituted an action against herein
respondents concerning the lands in
question.
On the other hand, respondents
maintain that the dismissal of the appeal for
failure to file brief on time was not an abuse
of discretion on the part of the Court of
Appeals. Petitioner failed to present special
circumstances or good reasons to justify its
motions for extension. Moreover, that the
parcels of land involved are foreshore was
confirmed in the 1917 cadastral and 1953
reconstitution proceedings.This finding
attained finality through our resolution in the
action for quieting of title (G.R. No. 85770),
and was further affirmed through the
administrative investigation conducted by the
Director of Lands.Thus, the instant case is
now barred by res judicata.
We have long observed that the Office
of the Solicitor General (OSG) regularly
presents motions for extension of time to file
pleadings, taking for granted the courts
leniency in granting the same. Instead of
contributing to the swift administration of
justice as an instrumentality of the State, the
OSG contributes to needless delays in
litigation. Despite the numerous cases that
need the OSGs time and attention, equal
importance should be allotted to each and
every case. Deadlines must be respected
and court warnings not taken lightly.
However, after a thorough
reexamination of this case, we are of the
view that the challenged resolutions should
be reconsidered.
The rules of court governing practice
and procedure were formulated in order to
promote just, speedy, and inexpensive
disposition of every action or proceeding
without sacrificing substantial justice and
equity considerations.[7]
The filing of appellants brief in appeals
is not a jurisdictional
requirement. Nevertheless, an appeal may
be dismissed by the Court of Appeals on its
own motion or on that of the appellee upon
failure of the appellant to serve and file the
required number of copies of the brief within
the time provided. [8]
If the appeal brief cannot be filed on
time, extension of time may be allowed
provided (1) there is good and sufficient
cause, and (2) the motion for extension is
filed before the expiration of the time sought
to be extended.[9] The courts liberality on
extensions notwithstanding, lawyers should
never presume that their motions for
extension would be granted as a matter of
course or for the length of time sought; their
concession lies in the sound discretion of the
Court exercised in accordance with the
attendant circumstances.[10]
What constitutes good and sufficient
cause that will merit suspension of the rules
is discretionary upon the court. The court has
the power to relax or suspend the rules or to
except a case from their operation when
compelling reasons so warrant or when the
purpose of justice requires it.[11] Among the
reasons which the court allowed in
suspending application of the rules on filing
an appeal brief were the following: (1) the
cause for the delay was not entirely
attributable to the fault or negligence of the
party favored by the suspension of the
rules;[12] (2) there was no objection from the
State,[13] and the brief was filed within the
period requested; (3) no material injury was
suffered by the appellee by reason of the
delay in filing the brief;[14] (4) the fake lawyer
failed to file the brief;[15] (5) appellant was
represented by counsel de oficio;[16] (6)
petitioners original counsel died;[17] and (7)
the preparation of the consolidated brief
involved a comparative study of many
exhibits.[18]
At the core of the controversy is whether
the parcels of land in question are foreshore
lands. Foreshore land is a part of the
alienable land of the public domain and may
be disposed of only by lease and not
otherwise. It was defined as that part (of the
land) which is between high and low water
and left dry by the flux and reflux of the
tides.[19] It is also known as a strip of land that
lies between the high and low water marks
and is alternatively wet and dry according to
the flow of the tide.[20]
The classification of public lands is a
function of the executive branch of
government, specifically the director of lands
(now the director of the Lands Management
Bureau). The decision of the director of lands
when approved by the Secretary of the
Department of Environment and Natural
Resources (DENR)[21] as to questions of fact
is conclusive upon the court. The principle
behind this ruling is that the subject has been
exhaustively weighed and discussed and
must therefore be given credit. This doctrine
finds no application, however, when the
decision of the director of lands is revoked
by, or in conflict with that of, the DENR
Secretary.[22]
There is allegedly a conflict between the
findings of the Director of Lands and the
DENR, Region V, in the present case.
Respondents contend that the Director of
Lands found Jose Barituas land covered by
TCT No. 18655, which stemmed from OCT
408(500), to be definitely outside of the
foreshore area.[23] Petitioner, on the other
hand, claims that subsequent investigation of
the DENR, Region V, Legazpi City, disclosed
that the land covered by OCT No. 408 (500)
from whence the titles were derived has the
features of a foreshore land.[24] The
contradictory views of the Director of Lands
and the DENR, Region V, Legazpi City, on
the true nature of the land, which
contradiction was neither discussed nor
resolved by the RTC, cannot be the premise
of any conclusive classification of the land
involved.
The need, therefore, to determine once
and for all whether the lands subject of
petitioners reversion efforts are foreshore
lands constitutes good and sufficient cause
for relaxing procedural rules and granting the
third and fourth motions for extension to file
appellants brief. Petitioners appeal presents
an exceptional circumstance impressed with
public interest and must then be given due
course.
WHEREFORE, the instant petition is
hereby GRANTED; the Resolutions of 30
July 1997 and 29 September 1997 of the
Court of Appeals are SET ASIDE; petitioners
appeal is reinstated; and the instant case is
REMANDED to the Court of Appeals for
further proceedings.
SO ORDERED.
G.R. Nos. 113472-73 December 20, 1994
ONG CHING PO, YU SIOK LIAN DAVID
ONG and JIMMY ONG, petitioners,
vs.
COURT OF APPEALS and SOLEDAD
PARIAN, respondents.
Bautista, Salva, Arrieta, Salva for petitioner.
Arthem Maceda Potian for private
respondent.
QUIASON, J.:
This is a petition for review
on certiorari under Rule 45 of the Revised
Rules of Court of the Decision of the Court of
Appeals dated July 15, 1993, which
dismissed the petition for certiorari in CA-
G.R. CV Nos. 28391-92.
I
On July 23, 1947, Ong Joi Jong sold a parcel
of land located at Fundidor Street, San
Nicolas to private respondent Soledad
Parian, the wife of Ong Yee. The latter, the
brother of petitioner Ong Ching Po, died in
January 1983; while petitioner Ong Ching Po
died in October 1986. The said sale was
evidenced by a notarized Deed of Sale
written in English. Subsequently, the
document was registered with the Register of
Deeds of Manila, which issued Transfer
Certificate of Title No. 9260 dated
September 2, 1947 in the name of private
respondent.
According to private respondent, she
entrusted the administration of the lot and
building to petitioner Ong Ching Po when she
and her husband settled in Iloilo. When her
husband died, she demanded that the lot be
vacated because she was going to sell it.
Unfortunately, petitioners refused to vacate
the said premises.
On March 19, 1984, private respondent filed
a case for unlawful detainer against
petitioner Ong Ching Po before the
Metropolitan Trial Court of Manila, Branch
26. The inferior court dismissed her case.
The dismissal was affirmed by the Regional
Trial Court, Branch 10, Manila. The decision
of the Regional Trial Court was, in turn,
affirmed by the Court of Appeals, which
dismissed the petition. The decision of the
Court of Appeals became final and
executory.
Petitioners, on the other hand, claimed that
on July 23, 1946, petitioner Ong Ching Po
bought the said parcel of land from Ong Joi
Jong. The sale was evidenced by a photo
copy of a Deed of Sale written in Chinese
with the letter head "Sincere Trading Co."
(Exh. "B"). An English translation of said
document (Exh. "C") read as follows:
Deed of Sale
I, Ong Joi Jong, a party to this
Deed of Sale hereby sell in
absolutely (sic) manner a lot
located on No. 4 Fundidor
Street, San Nicolas an (sic)
area consisting 213 square
meters including a one-story
house erected thereon unto
Mr. Ong Ching Po for the sum
of P6,000.00 the receipt of
which is hereby
acknowledged by me and
consequently I have executed
and signed the government
registered title (sic) the said
lot inclusive of the house
erected thereon, now belong
(sic) to Mr. Ong Ching Po
unequivocally. And the
purpose of this document is to
precisely serve as proof of the
sale.
Addendum: I have acceded to
the request of Mr. Ong Ching
Po into signing another
document in favor of Soledad
Parian (She is the Filipino
wife of Ong Yee, brother of
Ong Ching Po) for the
purpose of facilitating the
issuance of the new title by
the City Register of Deeds
and for the reason that he is
not yet a Filipino. I certify to
the truthfulness of this fact.

(Exhibits for the plaintiff, p. 4)
On December 6, 1983, petitioner Ong Ching
Po executed a Deed of Absolute Sale
conveying to his children, petitioners Jimmy
and David Ong, the same property sold by
Ong Joi Jong to private respondent in 1947.
On December 12 1985, petitioners Ong
Ching Po, Jimmy Ong and David Ong filed
an action for reconveyance and damages
against private respondent in the Regional
Trial Court, Branch 53, Manila, docketed as
Case No. 85-33962.
On July 26, 1986, private respondent filed an
action for quieting of title against petitioners
Ong Ching Po and his wife, petitioner Yu
Siok Lian, in the Regional Trial Court, Branch
58, Manila, docketed as Civil Case No.
86-36818. Upon her motion, the case was
consolidated with Civil Case No.
85-33962. On May 30 1990, the trial court
rendered a decision in favor of private
respondent. On appeal by petitioners to the
Court of Appeals, the said court affirmed the
decision of the Regional Trial Court.
Hence, this petition.
II
According to petitioners, the Court of
Appeals erred:
(1) When it gave full faith and
credit to the Deed of Sale
(Exh. "A") in favor of private
respondent, instead rof the
Deed of Sale (Exh. "B": and its
translation, Exh. "C") in
O favor
of petitioner Ong Chingn Po.
g
J the
(2) When it concluded that
acts of petitioners wereo not
acts of ownership; andi
J
(3) When it ruled that o no
express nor impliedn trust
g
existed between petitioners
and private respondent
(Rollo, pp. 17-18).
As stated by petitioners themselves, what is
in dispute ". . . is not so much as to which
between Exhibit "A" and "Exhibit "B" is more
weighty, but whether this document is what it
purports to be (i.e., a deed of conveyance in
favor of Soledad Parian [private respondent]
or it was only resorted to or executed as a
subterfuge because the real buyer (Ong
Ching Po) was an alien and it was agreed
upon between Ong Ching Po and his brother
(Ong Yee, Soledad Parian's husband) that
the land be registered in the name of
Soledad Parian in order to avoid legal
complications and to facilitate registration
and transfer and that the said title would be
transferred by Soledad to Ong Ching Po or
his successors-in-interest and that she would
be holding the title in trust for him" (Rollo, pp.
19-20).
We cannot go along with the claim that
petitioner Ong Ching Po merely used private
respondent as a dummy to have the title over
the parcel of land registered in her name
because being an alien he was disqualified
to own real property in the Philippines. To
sustain such an outrageous contention
would be giving a high premium to a violation
of our nationalization laws.
Assuming that Exhibit "B" is in existence and
that it was duly executed, still petitioners
cannot claim ownership of the disputed lot by
virtue thereof.
Section 5, Article XIII of the 1935 Constitution
provides, as follows:
Save in cases of hereditary
succession, no private
agricultural land shall be
transferred or assigned
except to individuals,
corporations, or associations
qualified to acquire or hold
lands of the public domain in
the Philippines.
Section 14, Article XIV of the 1973
Constitution provides, as follows:
Save in cases of hereditary
succession, no private land
shall be transferred or
conveyed except to
individuals, corporations, or
associations qualified to
acquire or hold lands in the
public domain.
Section 7, Article XII of the 1987 Constitution
provides:
Save in cases of hereditary
succession, no private lands
shall be transferred or
conveyed except to
individuals, corporations, or
associations qualified to
acquire or hold lands in the
public domain.
The capacity to acquire private land is made
dependent upon the capacity to acquire or
hold lands of the public domain. Private land
may be transferred or conveyed only to
individuals or entities "qualified to acquire
lands of the public domain" (II Bernas, The
Constitution of the Philippines 439-440 [1988
ed.]).
The 1935 Constitution reserved the right to
participate in the "disposition, exploitation,
development and utilization" of all "lands of
the public domain and other natural
resources of the Philippines" for Filipino
citizens or corporations at least sixty percent
of the capital of which was owned by
Filipinos. Aliens, whether individuals or
corporations, have been disqualified from
acquiring public lands; hence, they have also
been disqualified from acquiring private
lands.
Petitioner Ong Ching Po was a Chinese
citizen; therefore, he was disqualified from
acquiring and owning real property.
Assuming that the genuineness and due
execution of Exhibit "B" has been
established, the same is null and void, it
being contrary to law.
On the other end of the legal spectrum, the
deed of sale executed by Ong Joi Jong in
favor of private respondent (Exh. "A") is a
notarized document.
To remove the mantle of validity bestowed by
law on said document, petitioners claim that
private respondent admitted that she did not
pay anything as consideration for the
purported sale in her favor. In the same
breath, petitioners said that private
respondent implied in her deposition that it
was her husband who paid for the property.
It appears, therefore, that the sale was
financed out of conjugal funds and that it was
her husband who handled the transaction for
the purchase of the property. Such
transaction is a common practice in Filipino-
family affairs.
It is not correct to say that private respondent
never took possession of the property. Under
the law, possession is transferred to the
vendee by virtue of the notarized deed of
conveyance. Under Article 1498 of the Civil
Code of the Philippines, "when the sale is
made through a public instrument, the
execution thereof shall be equivalent to the
delivery of the object of the contract, if from
the deed the contrary does not appear or
cannot clearly be inferred." If what petitioners
meant was that private respondent never
lived in the building constructed on said land,
it was because her family had settled in Iloilo.
There is no document showing the
establishment of an express trust by
petitioner Ong Ching Po as trustor and
private respondent as trustee. Not even
Exhibit "B" can be considered as such a
document because private respondent, the
registered owner of the property subject of
said "deed of sale," was not a party thereto.
The oral testimony to prove the existence of
the express trust will not suffice. Under
Article 1443 of the Civil Code of the
Philippines, "No express trust concerning an
immovable or any interest therein may be
proved by parole evidence."
Undaunted, petitioners argue that if they
cannot prove an express trust in writing, they
can prove an implied trust orally. While an
implied trust may be proved orally (Civil Code
of the Philippines, Art. 1457), the evidence
must be trustworthy and received by the
courts with extreme caution, because such
kind of evidence may be easily fabricated
(Salao v. Salao, 70 SCRA 65 [1976]). It
cannot be made to rest on vague and
uncertain evidence or on loose, equivocal or
indefinite declarations (Cf. De Leon v. Molo-
Peckson, et al., 116 Phil. 1267 [1962]).
Petitioners do not claim that Ong Yee was
not in a financial position to acquire the land
and to introduce the improvements thereon.
On the other hand, Yu Siok Lian, the wife of
petitioner Ong Ching Po, admitted in her
testimony in court that Ong Yee was a
stockholder of Lam Sing Corporation and
was engaged in business.
The Court of Appeals did not give any
credence to Exhibit "B" and its translation,
Exhibit "C", because these documents had
not been properly authenticated.
Under Section 4, Rule 130 of the Revised
Rules of Court:
Secondary Evidence when
Original is lost or destroyed.
When the original writing has
been lost or destroyed, or
cannot be produced in court,
upon proof of its execution
and lost or destruction, or
unavailability, its contents
may be proved by a copy, or
by a recital of its contents in
some authentic document, or
by the recollection of the
witnesses.
Secondary evidence is admissible when the
original documents were actually lost or
destroyed. But prior to the introduction of
such secondary evidence, the proponent
must establish the former existence of the
document. The correct order of proof is as
follows: existence; execution; loss; contents.
This order may be changed if necessary in
the discretion of the court (De Vera v.
Aguilar, 218 SCRA 602 [1993]).
Petitioners failed to adduce evidence as to
the genuineness and due execution of the
deed of sale, Exhibit "B".
The due execution of the document may be
established by the person or persons who
executed it; by the person before whom its
execution was acknowledged; or by any
person who was present and saw it executed
or who after its execution, saw it and
recognized the signatures; or by a person to
whom the parties to the instrument had
previously confessed the execution thereof
(De Vera v. Aguilar, supra).
Petitioner Yu Siok Lian testified that she was
present when said document was executed,
but the trial court rejected her claim and held:
If it is true that she was
present, why did she not sign
said document, even merely
as a witness? Her oral
testimony is easy to concoct
or fabricate. Furthermore, she
was married only on
September 6, 1946 to the
 plaintiff, Ong Ching Po, in
Baguio City where she
apparently resided, or after
the deed of sale was
executed. The Court does not
believe that she was present
during the execution and
signing of the deed of sale
involved therein,
notwithstanding her
pretensions to the contrary
(Decision p. 6, Records p.
414).
As to the contention of petitioners that all the
tax receipts, tax declaration, rental receipts,
deed of sale (Exh. "B") and transfer
certificate of title were in their possession,
private respondent explained that she and
her husband entrusted said lot and building
to petitioners when they moved to Iloilo.
As observed by the Court of Appeals:
We find, however, that these
acts, even if true, are not
necessarily reflective of
dominion, as even a mere
administrator or manager
may lawfully perform them
pursuant to his appointment
or employment (Rollo,
p. 10).
It is markworthy that all the tax receipts were
in the name of private respondent and her
husband. The rental receipts were also in the
name of her husband.
WHEREFORE, the petition is DISMISSED.
SO ORDERED.
G.R. No. 119682 January 21, 1999
FRANCISCO BAGUIO, petitioner,
vs.
REPUBLIC OF THE PHILIPPINES,
RICARDO T. MICHAEL, in his capacity as
Heir-Successor of WILLIAM MICHAEL,
SR., and as President of MICHAEL
SLIPWAYS, INC., and COURT OF
APPEALS, respondent.
MENDOZA, J.:
This is a petition for review of the decision of
the Court of Appeals 1 affirming the decision
of the Regional Trial Court, Branch 28, of
Mandaue City, nullifying Free Patent No.
7757 and Original Certificate of Title No. 0-
15457 issued in the name of petitioner
Francisco Baguio.
The patent and certificate of title cover a
parcel of land, consisting of 5,870 sq. m., in
Catarman, Liloan, Cebu. Known as Lot 1426,
Case 2, Pls. 823, the land was declared by
the government public land in 1963.
The evidence shows that, on August 2, 1963,
private respondent Ricardo Michael's
predecessor-in-interest, William Michael,
filed with the Bureau of Lands an application
for foreshore lease of the land. The
application was recommended for approval
by the land investigator who also
recommended that the applicant be granted
a provisional permit to occupy the land for
one year from October 4, 1963 to October 3,
1964.
On October 8, 1963, by virtue of a permit
granted to him by the Bureau of Lands,
William Michael made some reclamation on
the land, built a fence around the premises,
and constructed a bridge over a portion
which was under water. Upon the expiration
of the permit on October 4, 1964, the
Highways District Engineer recommended to
the Director of Lands that the land be leased
to Michael. On the other hand, the land
investigator recommended granting Michael
the authority to survey the foreshore land in
view of the completion of the reclamation
made by him on the premises. On February
25, 1968, Michael filed a miscellaneous
sales application covering the reclaimed
foreshore land.
On November 9, 1976, petitioner Baguio
applied to the Bureau of Lands for a free
patent covering the same land. In his
application, petitioner stated that the land
was agricultural land and not claimed or
occupied by any other person and that he
had been in actual and continuous
possession and cultivation of the same. On
the basis of these representations, a free
patent was issued to him and, on January 10,
1978. Original Certificate of Title No. 0-
15457 was issued in his name by the
Register of Deeds of Cebu.
On April 6, 1978, petitioner demanded
payment of rentals from William Michael for
the use of the land occupied by Michael
Slipways Inc.. On August 4, 1981, petitioner
filed an opposition to Michael's
miscellaneous sales application covering the
land on the ground that he was the registered
owner thereof.
William Michael in turn protested the
issuance by the Bureau of Lands of a free
patent to petitioner. He claimed that he had
been in actual possession of the land since
1963 and that he had introduced substantial
improvements thereon.
On February 16, 1989, upon the
recommendation of the Land Management
Bureau of the Department of Environment
and Natural Resources, the government,
represented by the Director of Lands, filed a
petition for cancellation of title and/or
reversion of land against petitioner Baguio
and the Register of Deeds of Cebu. The case
case was filed in the Regional Trial Court of
Mandaue City which granted private
respondent Ricardo Michael leave to
intervene as heir and successor-in-interest of
William Michael and as president of Michael
Slipways, Inc.
On July 20, 1992, the trial court rendered a
decision canceling the free patent and the
certificate of title of petitioner Baguio,
ordering the reversion of the land to the
public domain, and declaring private
respondent Michael the true and lawful
occupant of the land. The trial court ruled that
the false statements made by petitioner
Baguio in his application for free patent had
the effect of ipso facto canceling the free
patent and the title of petitioner.
Petitioner appealed to the Court of Appeals
which, on February 28, 1995, affirmed the
decision of the trial court. Hence, this petition
for review.
Petitioner contends that .
1. The public respondent erred
in not declaring that
respondent Republic of the
Philippines action was
already barred by
prescription.
2. Granting arguendo that
respondent's action was not
barred by prescription,
nonetheless, the Regional
Trial Court, erred in finding
that petitioner "acted in bad
faith and procured the
issuance of the Free Patent
(VII-I)-7757 and the Original
Certificate of Title No. 0-
15457 through fraud and
misrepresentation.
3. Granting arguendo that
respondent Republic's action
should prosper, nonetheless,
the Regional Trial Court erred
in "(d)eclaring intervenor
(private respondent herein)
as the true and lawful
possessor and occupant of
the land subject of the
intervention.
 4. The Regional Trial court erred
in finding that the land in
question is a foreshore land.
We find these contentions to be without
merit.
First. It is true that, once a patent is
registered and the corresponding certificate
of title is issued, the land covered by them
ceases to be part of the public domain and
becomes private property, and the Torrens
Title issued pursuant to the patent becomes
indefeasible upon the expiration of one year
from the date of issuance of such
patent.2However, as held in Director of
Lands v. De Luna,3 even after the lapse of
one year, the State may still bring an action
under 101 4 of Commonwealth Act No. 141
for the reversion to the public domain of land
which has been fraudulently granted to
private individuals.5 Such action is not barred
by prescription, and this is settled law. 6
Indeed, the indefeasibility of a certificate of
title cannot be invoked by one who procured
the title by means of fraud.7Public policy
demands that one who obtains title to public
land through fraud should not be allowed to
benefit therefrom.8
Second. Petitioner contends that the trial
court erred in finding that he was guilty of
fraud in procuring the issuance of the free
patent and the corresponding certificate of
title. He insists that what he stated in his
application for free patent (that the subject
land is agricultural land not claimed or
occupied by persons other than himself and
that he had been in actual and continuous
possession and cultivation of the same) were
all true. He also assails the finding of the trial
court that the subject land is foreshore land.
Petitioner puts in issue the findings of fact of
the trial court. But the only errors which are
reviewable by this Court in a petition for
review on certiorari of a decision of the Court
of Appeals are those allegedly committed by
the latter court and not those of the trial court.
Petitioner's assignment of errors is thus
misplaced, and for this reason, the petition
should be dismissed. Furthermore, only
questions of law may be raised in a petition
for review on certiorari. In the absence of any
showing of lack of basis for the conclusions
made by the Court of Appeals, this Court wiill
not disturb the factual findings of the
appellate court.9 In this case, petitioner has
not shown that the decision of the Court of
Appeals is not supported by substantial
evidence so as to justify this Court in
departing from the general rule which
regards the findings of the appellate court as
final.
At any rate, we have decided to consider the
issues raised insofar as they are pertinent to
the appellate court's decision in order to put
them to rest once and for all.
In his free patent application, petitioner
declared under oath that the land in question
was an agricultural land not claimed or
occupied by any other person; that he had
continuously possessed and occupied it; and
that he had introduced improvements
thereon. These declarations constitute fraud
and misrepresentation. The government has
proven that, contrary to these allegations, as
early as September 2, 1963, i.e., thirteen
(13) years before the alleged entry of
petitoner on the land, private respondent's
predecessor-in-interest, William Michaell,
had already filed a foreshore lease
application over the same; that on February
25, 1968. William Michael filed a
miscellaneous sales application over the
land; that since 1963 up to the present,
private respondent has been continuously in
possession of the land on which he has been
operating a drydocking service under the
style of Michael Slipways, Inc.; and that
private respondent Ricardo Michael had
made improvements thereon consisting of
the reclamation of a portion of the land, the
construction of the fence thereon, and the
construction of a bridge over a portion under
water. In addition, it has been duly
established that the land in question is
foreshore land, not agrcultural. The fact that
the land is being used by private respondent
Ricardo Michael in his drydocking operations
is evidence that the land is foreshore land.
Moreover, there would have been no need to
reclaim a portion of the land if it had not been
under seawater.
Petitioner is guilty of making false statements
in his application for a free patent thus
justifying the annulment of his title. Sec. 91
of C.A. No. 141 (Public Land Act) provides:
The statements made in the
application shall be
considered as essential
conditions and parts of any
concession, title, or permit
issued on the basis of such
application, and any false
statement therein or omission
of facts altering, changing or
modifying the consideration of
the facts set forth in such
statements, and any
subsequent modification,
alteration, or change of the
material facts set forth in the
application shall ipso
facto produce the
cancellation of the
concession, title or permit
granted. It shall be the duty of
the Director of Lands, from
time to time and whenever he
may deem it advisable; to
make the necessary
investigations for the purpose
of ascertaining whether the
material facts set out in the
application are true, or
whether they continue to exist
and are maintained and
preserved in good faith, and
for the purpose of such
investigation, the Director of
Lands is hereby empowered
to
issue subpuenas and subpoe
nas duces tecum and, if
necessary, to obtain
compulsory process from the
courts. In every investigation
made in accordance with this
section, the existence of bad
faith, fraud, concealment, or
fraudulent and illegal
modification of essential facts
shall be presumed if the
grantee or possessor of the
land shall refuse or fail to
obey
a subpoena or subpoena
duces tecum lawfully issued
by the Director of Land or his
authorized delegates or
agents, or shall refuse or fail
to give direct and specific
answers to pertinent
questions, and on the basis of
such presumption, an order of
cancellation may issue
without further proceedings.
As already stated, the indefeasibility of a title
does not attach to titles secured by fraud and
misrepresentation. The registration of a
patent under the Torrens System merely
confirms the registrant's title. It does not vest
title where there is none because registration
under this system is not a mode of acquiring
ownership.10
Third. Petitioner assails the trial court's
finding, as affirmed by the appellate court,
that private respondent Michael is the true
and lawfull possessor of the subject land. He
argues that private respondent, being a mere
heir and successor-in-interest of William
Michael and not the person who filed the
foreshore lease and the miscellaneous sales
applications, has no right to the land in
dispute.
Suffice it to state that it was clearly proven
that William Michael had already been in
possession of the land under a provisional
permit to occupy the same in 1963. Petitioner
applied for a free patent only in 1976, thirteen
(13) years later. In addition, William Michael
had filed a sales application covering the
land in 1968, i.e., eight (8) years before
petitioner filed his free patent application. BARIN OF THE SECURITIES AND
The trial court and the Court of Appeals, EXCHANGE COMMISSION, and
therefore, correctly held William Michael and PRESIDENT FRANCIS LIM OF THE
private respondent Ricardo Michael to be the PHILIPPINE STOCK
true and rightful possessors of the land in EXCHANGE, Respondents.
question. The fact that private respondent
Michael is merely the successor of the PABLITO V. SANIDAD and ARNO V.
original foreshore lease and sales applicant, SANIDAD, Petitioner-in-Intervention.
William Michael, does not make him any less
entitled to the possession of the land. Sec. RESOLUTION
105 of the Public Land Act provides that, in
case of his death, the original applicant shall CARPIO, J.:
be succeeded in his rights and obligations by
his legal heirs with respect to the land applied This resolves the motions for reconsideration
for or leased.11 of the 28 June 2011 Decision filed by (1) the
Philippine Stock Exchange's (PSE)
WHEREFORE, the decision of the Court of President, 1 (2) Manuel V. Pangilinan
Appeals is AFFIRMED. (Pangilinan),2 (3) Napoleon L. Nazareno
(Nazareno ),3 and ( 4) the Securities and
SO ORDERED.1wphi1.nt Exchange Commission (SEC)4 (collectively,
movants ).

The Office of the Solicitor General (OSG)

initially filed a motion for reconsideration on
behalfofthe SEC,5 assailing the 28 June
G.R. No. 176579 October 9, 2012 2011 Decision. However, it subsequently
filed a Consolidated Comment on behalf of
HEIRS OF WILSON P. the State,6declaring expressly that it agrees
GAMBOA,* Petitioners, with the Court's definition of the term "capital"
vs. in Section 11, Article XII of the Constitution.
FINANCE SECRETARYMARGARITO B. During the Oral Arguments on 26 June 2012,
TEVES, FINANCE the OSG reiterated its position consistent
UNDERSECRETARYJOHN P. SEVILLA, with the Court's 28 June 2011 Decision.
AND COMMISSIONER RICARDO ABCEDE
OF THE PRESIDENTIAL COMMISSION ON We deny the motions for
GOOD GOVERNMENT(PCGG) IN THEIR reconsideration.
CAPACITIES AS CHAIR AND MEMBERS,
RESPECTIVELY, OF THE PRIVATIZATION I.
COUNCIL, CHAIRMAN ANTHONI SALIM Far-reaching implications of the legal
OF FIRST PACIFIC CO., LTD. IN HIS
issue justify
CAPACITY AS DIRECTOR OF METRO treatment of petition for declaratory relief
PACIFIC ASSET HOLDINGS INC., as one for mandamus.
CHAIRMAN MANUEL V. PANGILINAN OF
PHILIPPINE LONG DISTANCE
As we emphatically stated in the 28 June
TELEPHONE COMPANY (PLDT) IN HIS
2011 Decision, the interpretation of the term
CAPACITY AS MANAGING DIRECTOR OF
"capital" in Section 11, Article XII of the
FIRST PACIFIC CO., LTD., PRESIDENT
Constitution has far-reaching implications to
NAPOLEON L. NAZARENO OF
the national economy. In fact, a resolution of
PHILIPPINE LONG DISTANCE
this issue will determine whether Filipinos
TELEPHONE COMPANY, CHAIR FE
are masters, or second-class citizens, in their
own country. What is at stake here is whether
Filipinos or foreigners will have effective
control of the Philippine national economy.
Indeed, if ever there is a legal issue that has
far-reaching implications to the entire nation,
and to future generations of Filipinos, it is the
threshold legal issue presented in this case.
Contrary to Pangilinans narrow view, the
serious economic consequences resulting in
the interpretation of the term "capital" in
Section 11, Article XII of the Constitution
undoubtedly demand an immediate
adjudication of this issue. Simply put, the
far-reaching implications of this issue
justify the treatment of the petition as one
for mandamus.7
In Luzon Stevedoring Corp. v. Anti-Dummy
Board,8 the Court deemed it wise and
expedient to resolve the case although the
petition for declaratory relief could be
outrightly dismissed for being procedurally
defective. There, appellant admittedly had
already committed a breach of the Public
Service Act in relation to the Anti-Dummy
Law since it had been employing non-
American aliens long before the decision in a
prior similar case. However, the main issue
in Luzon Stevedoring was of transcendental
importance, involving the exercise or
enjoyment of rights, franchises, privileges,
properties and businesses which only
Filipinos and qualified corporations could
exercise or enjoy under the Constitution and
the statutes. Moreover, the same issue could
be raised by appellant in an appropriate
action. Thus, in Luzon Stevedoring the Court
deemed it necessary to finally dispose of the
case for the guidance of all concerned,
despite the apparent procedural flaw in the
petition.
The circumstances surrounding the present
case, such as the supposed procedural
defect of the petition and the pivotal legal
issue involved, resemble those in Luzon
Stevedoring. Consequently, in the interest of
substantial justice and faithful adherence to
the Constitution, we opted to resolve this
case for the guidance of the public and all
concerned parties.
II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."
Movants contend that the term "capital" in
Section 11, Article XII of the Constitution has
long been settled and defined to refer to the
total outstanding shares of stock, whether
voting or non-voting. In fact, movants claim
that the SEC, which is the administrative
agency tasked to enforce the 60-40
ownership requirement in favor of Filipino
citizens in the Constitution and various
statutes, has consistently adopted this
particular definition in its numerous opinions.
Movants point out that with the 28 June 2011
Decision, the Court in effect introduced a
"new" definition or "midstream
redefinition"9 of the term "capital" in Section
11, Article XII of the Constitution.
This is egregious error.
For more than 75 years since the 1935
Constitution, the Court has not interpreted or
defined the term "capital" found in various
economic provisions of the 1935, 1973 and
1987 Constitutions. There has never been a
judicial precedent interpreting the term
"capital" in the 1935, 1973 and 1987
Constitutions, until now. Hence, it is patently
wrong and utterly baseless to claim that the
Court in defining the term "capital" in its 28
June 2011 Decision modified, reversed, or
set aside the purported long-standing
definition of the term "capital," which
supposedly refers to the total outstanding
shares of stock, whether voting or non-
voting. To repeat, until the present case
there has never been a Court ruling
categorically defining the term "capital" found
in the various economic provisions of the
1935, 1973 and 1987 Philippine
Constitutions.
The opinions of the SEC, as well as of the
Department of Justice (DOJ), on the
definition of the term "capital" as referring to
both voting and non-voting shares
(combined total of common and preferred
shares) are, in the first place, conflicting and
inconsistent. There is no basis whatsoever to
the claim that the SEC and the DOJ have
consistently and uniformly adopted a
definition of the term "capital" contrary to the
definition that this Court adopted in its 28
June 2011 Decision.
In DOJ Opinion No. 130, s. 1985,10 dated 7
October 1985, the scope of the term "capital"
in Section 9, Article XIV of the 1973
Constitution was raised, that is, whether the
term "capital" includes "both preferred and
common stocks." The issue was raised in
relation to a stock-swap transaction between
a Filipino and a Japanese corporation, both
stockholders of a domestic corporation that
owned lands in the Philippines. Then
Minister of Justice Estelito P. Mendoza ruled
that the resulting ownership structure of the
corporation would
be unconstitutional because 60% of the
voting stock would be owned by Japanese
while Filipinos would own only 40% of the
voting stock, although when the non-voting
stock is added, Filipinos would own 60% of
the combined voting and non-voting
stock. This ownership structure is
remarkably similar to the current
ownership structure of PLDT. Minister
Mendoza ruled:
xxxx
Thus, the Filipino group still owns sixty (60%)
of the entire subscribed capital stock
(common and preferred) while the Japanese
investors control sixty percent (60%) of the
common (voting) shares.
It is your position that x x x since Section
9, Article XIV of the Constitution uses the
word "capital," which is construed "to
include both preferred and common
shares" and "that where the law does not
distinguish, the courts shall not
distinguish."
xxxx
In light of the foregoing jurisprudence, it is
my opinion that the stock-swap
transaction in question may not be
constitutionally upheld. While it may be
ordinary corporate practice to classify
corporate shares into common voting shares
and preferred non-voting shares, any
arrangement which attempts to defeat the
constitutional purpose should be
eschewed. Thus, the resultant equity
arrangement which would place
ownership of 60%11 of the common
(voting) shares in the Japanese group,
while retaining 60% of the total
percentage of common and preferred
shares in Filipino hands would amount to
circumvention of the principle of control
by Philippine stockholders that is implicit
in the 60% Philippine nationality
requirement in the
Constitution. (Emphasis supplied)
In short, Minister Mendoza categorically
rejected the theory that the term "capital" in
Section 9, Article XIV of the 1973
Constitution includes "both preferred and
common stocks" treated as the same class
of shares regardless of differences in voting
rights and privileges. Minister Mendoza
stressed that the 60-40 ownership
requirement in favor of Filipino citizens in the
Constitution is not complied with unless the
corporation "satisfies the criterion of
beneficial ownership" and that in applying
the same "the primordial consideration is
situs of control."
On the other hand, in Opinion No. 23-10
dated 18 August 2010, addressed to Castillo
Laman Tan Pantaleon & San Jose, then SEC
General Counsel Vernette G. Umali-Paco
applied the Voting Control Test, that is,
using only the voting stock to determine
whether a corporation is a Philippine
national. The Opinion states:
Applying the foregoing, particularly the
Control Test, MLRC is deemed as a
Philippine national because: (1) sixty percent
(60%) of its outstanding capital
stock entitled to vote is owned by a
Philippine national, the Trustee; and (2) at
least sixty percent (60%) of the ERF will
accrue to the benefit of Philippine
nationals. Still pursuant to the Control
Test, MLRCs investment in 60% of
BFDCs outstanding capital stock entitled
to vote shall be deemed as of Philippine
nationality, thereby qualifying BFDC to
own private land.
Further, under, and for purposes of, the FIA,
MLRC and BFDC are both Philippine
nationals, considering that: (1) sixty percent
(60%) of their respective outstanding
capital stock entitled to vote is owned by a
Philippine national (i.e., by the Trustee, in the
case of MLRC; and by MLRC, in the case of
BFDC); and (2) at least 60% of their
respective board of directors are Filipino
citizens. (Boldfacing and italicization
supplied)
Clearly, these DOJ and SEC opinions are
compatible with the Courts interpretation of
the 60-40 ownership requirement in favor of
Filipino citizens mandated by the
Constitution for certain economic activities.
At the same time, these opinions highlight
the conflicting, contradictory, and
inconsistent positions taken by the DOJ and
the SEC on the definition of the term "capital"
found in the economic provisions of the
Constitution.
The opinions issued by SEC legal officers do
not have the force and effect of SEC rules
and regulations because only the SEC en
banc can adopt rules and regulations. As
expressly provided in Section 4.6 of the
Securities Regulation Code,12 the SEC
cannot delegate to any of its individual
Commissioner or staff the power to adopt
any rule or regulation. Further, under
Section 5.1 of the same Code, it is the
SEC as a collegial body, and not any of its
legal officers, that is empowered to
issue opinions and approve rules and
regulations. Thus:
4.6. The Commission may, for purposes of
efficiency, delegate any of its functions to
any department or office of the Commission,
an individual Commissioner or staff member
of the Commission except its review or
appellate authority and its power to adopt,
alter and supplement any rule or
regulation.
The Commission may review upon its own
initiative or upon the petition of any
interested party any action of any
department or office, individual
Commissioner, or staff member of the
Commission.
SEC. 5. Powers and Functions of the
Commission.- 5.1. The Commission shall act
with transparency and shall have the powers
and functions provided by this Code,
Presidential Decree No. 902-A, the
Corporation Code, the Investment Houses
Law, the Financing Company Act and other
existing laws. Pursuant thereto the
Commission shall have, among others, the
following powers and functions:
xxxx
(g) Prepare, approve, amend or repeal
rules, regulations and orders, and
issue opinions and provide guidance on
and supervise compliance with such
rules, regulations and orders;
x x x x (Emphasis supplied)
Thus, the act of the individual
Commissioners or legal officers of the SEC
in issuing opinions that have the effect of
SEC rules or regulations is ultra vires. Under
Sections 4.6 and 5.1(g) of the Code, only the
SEC en banc can "issue opinions" that have
the force and effect of rules or regulations.
Section 4.6 of the Code bars the SEC en
banc from delegating to any individual
Commissioner or staff the power to adopt
rules or regulations. In short, any opinion JUSTICE CARPIO:
of individual Commissioners or SEC legal
officers does not constitute a rule or What cannot be delegated,
regulation of the SEC. among others, is the power to
adopt or amend rules and
The SEC admits during the Oral Arguments regulations, correct?
that only the SEC en banc, and not any of its
individual commissioners or legal staff, is COMMISSIONER GAITE:
empowered to issue opinions which have the
same binding effect as SEC rules and Thats correct, Your Honor.
regulations, thus:
JUSTICE CARPIO:
JUSTICE CARPIO:
So, you combine the two
So, under the law, it is the (2), the SEC officer, if
Commission En Banc that delegated that power, can
can issue an issue an opinion but that
opinion does not constitute
SEC Opinion, correct? a rule or regulation,
correct?
COMMISSIONER GAITE:13
COMMISSIONER GAITE:
Thats correct, Your Honor.
Correct, Your Honor.
JUSTICE CARPIO:
JUSTICE CARPIO:
Can the Commission En Banc
delegate this function to an So, all of these opinions
SEC officer? that you mentioned they are
not rules and regulations,
COMMISSIONER GAITE: correct?

Yes, Your Honor, we have COMMISSIONER GAITE:

delegated it to the General
Counsel. They are not rules and
regulations.
JUSTICE CARPIO:
JUSTICE CARPIO:
It can be delegated. What
cannot be delegated by the If they are not rules and
Commission En Banc to a regulations, they apply only to
commissioner or an individual that particular situation and
employee of the will not constitute a
Commission? precedent, correct?

COMMISSIONER GAITE: COMMISSIONER GAITE:

Novel opinions that [have] to Yes, Your

be decided by the En Banc... Honor.14 (Emphasis supplied)
Significantly, the SEC en banc, which is the
collegial body statutorily empowered to issue
rules and opinions on behalf of the SEC, has
adopted even the Grandfather Rule in
determining compliance with the 60-40
ownership requirement in favor of Filipino
citizens mandated by the Constitution for
certain economic activities. This prevailing
SEC ruling, which the SEC correctly adopted
to thwart any circumvention of the required
Filipino "ownership and control," is laid
down in the 25 March 2010 SEC en
banc ruling in Redmont Consolidated Mines,
Corp. v. McArthur Mining, Inc., et al.,15 to wit:
The avowed purpose of the Constitution is to
place in the hands of Filipinos the
exploitation of our natural
resources. Necessarily, therefore, the
Rule interpreting the constitutional
provision should not diminish that right
through the legal fiction of corporate
ownership and control. But the
constitutional provision, as interpreted and
practiced via the 1967 SEC Rules, has
favored foreigners contrary to the command
of the Constitution. Hence, the Grandfather
Rule must be applied to accurately
determine the actual participation, both
direct and indirect, of foreigners in a
corporation engaged in a nationalized
activity or business.
Compliance with the constitutional
limitation(s) on engaging in nationalized
activities must be determined by ascertaining
if 60% of the investing corporations
outstanding capital stock is owned by
"Filipino citizens", or as interpreted, by
natural or individual Filipino citizens. If such
investing corporation is in turn owned to
some extent by another investing
corporation, the same process must be
observed. One must not stop until the
citizenships of the individual or natural
stockholders of layer after layer of investing
corporations have been established, the very
essence of the Grandfather Rule.
Lastly, it was the intent of the framers of
the 1987 Constitution to adopt the
Grandfather Rule. In one of the discussions
on what is now Article XII of the present
Constitution, the framers made the following
exchange:
MR. NOLLEDO. In Sections 3, 9 and 15, the
Committee stated local or Filipino equity and
foreign equity; namely, 60-40 in Section 3,
60-40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are
always faced with the question: Where do
we base the equity requirement, is it on the
authorized capital stock, on the subscribed
capital stock, or on the paid-up capital stock
of a corporation? Will the Committee please
enlighten me on this?
MR. VILLEGAS. We have just had a long
discussion with the members of the team
from the UP Law Center who provided us a
draft. The phrase that is contained here
which we adopted from the UP draft is 60
percent of voting stock.
MR. NOLLEDO. That must be based on the
subscribed capital stock, because unless
declared delinquent, unpaid capital stock
shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you. With respect to
an investment by one corporation in another
corporation, say, a corporation with 60-40
percent equity invests in another corporation
which is permitted by the Corporation Code,
does the Committee adopt the grandfather
rule?
MR. VILLEGAS. Yes, that is the
understanding of the Committee.
MR. NOLLEDO. Therefore, we need
additional Filipino capital?
MR. VILLEGAS. Yes. (Boldfacing and
underscoring supplied; italicization in the
original)
This SEC en banc ruling conforms to our 28
June 2011 Decision that the 60-40
ownership requirement in favor of Filipino
citizens in the Constitution to engage in
certain economic activities applies not only to
voting control of the corporation, but also to
the beneficial ownership of the
corporation. Thus, in our 28 June 2011
Decision we stated:
Mere legal title is insufficient to meet the 60
percent Filipinoowned "capital" required in
the Constitution. Full beneficial ownership
of 60 percent of the outstanding capital
stock, coupled with 60 percent of the
voting rights, is required. The legal and
beneficial ownership of 60 percent of the
outstanding capital stock must rest in the
hands of Filipino nationals in accordance
with the constitutional mandate. Otherwise,
the corporation is "considered as non-
Philippine national[s]." (Emphasis supplied)
Both the Voting Control Test and the
Beneficial Ownership Test must be applied
to determine whether a corporation is a
"Philippine national."
The interpretation by legal officers of the
SEC of the term "capital," embodied in
various opinions which respondents relied
upon, is merely preliminary and an opinion
only of such officers. To repeat, any such
opinion does not constitute an SEC rule or
regulation. In fact, many of these opinions
contain a disclaimer which expressly states:
"x x x the foregoing opinion is based solely
on facts disclosed in your query and relevant
only to the particular issue raised therein
and shall not be used in the nature of a
standing rule binding upon the
Commission in other cases whether of
similar or dissimilar
circumstances."16 Thus, the opinions
clearly make a caveat that they do not
constitute binding precedents on any one,
not even on the SEC itself.
Likewise, the opinions of the SEC en banc,
as well as of the DOJ, interpreting the law are
neither conclusive nor controlling and thus,
do not bind the Court. It is hornbook doctrine
that any interpretation of the law that
administrative or quasi-judicial agencies
make is only preliminary, never conclusive
on the Court. The power to make a final
interpretation of the law, in this case the term
"capital" in Section 11, Article XII of the 1987
Constitution, lies with this Court, not with any
other government entity.
In his motion for reconsideration, the PSE
President cites the cases of National
Telecommunications Commission v. Court of
Appeals17 and Philippine Long Distance
Telephone Company v. National
Telecommunications Commission18 in
arguing that the Court has already defined
the term "capital" in Section 11, Article XII of
the 1987 Constitution.19
The PSE President is grossly mistaken. In
both cases of National Telecommunications
v. Court of Appeals20 and Philippine Long
Distance Telephone Company v. National
Telecommunications Commission,21 the
Court did not define the term "capital" as
found in Section 11, Article XII of the 1987
Constitution. In fact, these two cases never
mentioned, discussed or cited Section 11,
Article XII of the Constitution or any of its
economic provisions, and thus cannot
serve as precedent in the interpretation of
Section 11, Article XII of the Constitution.
These two cases dealt solely with the
determination of the correct regulatory fees
under Section 40(e) and (f) of the Public
Service Act, to wit:
(e) For annual reimbursement of the
expenses incurred by the Commission in the
supervision of other public services and/or in
the regulation or fixing of their rates, twenty
centavos for each one hundred pesos or
fraction thereof, of the capital stock
subscribed or paid, or if no shares have
been issued, of the capital invested, or of the
property and equipment whichever is higher.
(f) For the issue or increase of capital stock,
twenty centavos for each one hundred pesos
or fraction thereof, of the increased capital.
(Emphasis supplied)
The Courts interpretation in these two cases
of the terms "capital stock subscribed or
paid," "capital stock" and "capital" does not
pertain to, and cannot control, the definition
of the term "capital" as used in Section 11,
Article XII of the Constitution, or any of the
economic provisions of the Constitution
where the term "capital" is found. The
definition of the term "capital" found in the
Constitution must not be taken out of context.
A careful reading of these two cases reveals
that the terms "capital stock subscribed or
paid," "capital stock" and "capital" were
defined solely to determine the basis for
computing the supervision and regulation
fees under Section 40(e) and (f) of the Public
Service Act.
III.
Filipinization of Public Utilities
The Preamble of the 1987 Constitution, as
the prologue of the supreme law of the land,
embodies the ideals that the Constitution
intends to achieve.22 The Preamble reads:
We, the sovereign Filipino people, imploring
the aid of Almighty God, in order to build a
just and humane society, and establish a
Government that shall embody our ideals
and aspirations, promote the common
good, conserve and develop our
patrimony, and secure to ourselves and our
posterity, the blessings of independence and
democracy under the rule of law and a
regime of truth, justice, freedom, love,
equality, and peace, do ordain and
promulgate this Constitution. (Emphasis
supplied)
Consistent with these ideals, Section 19,
Article II of the 1987 Constitution declares as
State policy the development of a national
economy "effectively controlled" by
Filipinos:
Section 19. The State shall develop a self-
reliant and independent national
economy effectively controlled by
Filipinos.
Fortifying the State policy of a Filipino-
controlled economy, the Constitution
decrees:
Section 10. The Congress shall, upon
recommendation of the economic and
planning agency, when the national interest
dictates, reserve to citizens of the Philippines
or to corporations or associations at least
sixty per centum of whose capital is owned
by such citizens, or such higher percentage
as Congress may prescribe, certain areas of
investments. The Congress shall enact
measures that will encourage the formation
and operation of enterprises whose capital is
wholly owned by Filipinos.
In the grant of rights, privileges, and
concessions covering the national economy
and patrimony, the State shall give
preference to qualified Filipinos.
The State shall regulate and exercise
authority over foreign investments within its
national jurisdiction and in accordance with
its national goals and priorities.23
Under Section 10, Article XII of the 1987
Constitution, Congress may "reserve to
citizens of the Philippines or to corporations
or associations at least sixty per centum of
whose capital is owned by such citizens, or
such higher percentage as Congress may
prescribe, certain areas of investments."
Thus, in numerous laws Congress has
reserved certain areas of investments to
Filipino citizens or to corporations at least
sixty percent of the "capital" of which is
owned by Filipino citizens. Some of these
laws are: (1) Regulation of Award of
Government Contracts or R.A. No. 5183; (2)
Philippine Inventors Incentives Act or R.A.
No. 3850; (3) Magna Carta for Micro, Small
and Medium Enterprises or R.A. No. 6977;
(4) Philippine Overseas Shipping
Development Act or R.A. No. 7471; (5)
Domestic Shipping Development Act of 2004
or R.A. No. 9295; (6) Philippine Technology
Transfer Act of 2009 or R.A. No. 10055; and
(7) Ship Mortgage Decree or P.D. No. 1521.
With respect to public utilities, the 1987
Constitution specifically ordains:
Section 11. No franchise, certificate, or
any other form of authorization for the
operation of a public utility shall be
granted except to citizens of the
Philippines or to corporations or
associations organized under the laws of
the Philippines, at least sixty per
centum of whose capital is owned by
such citizens; nor shall such franchise,
certificate, or authorization be exclusive in
character or for a longer period than fifty
years. Neither shall any such franchise or
right be granted except under the condition
that it shall be subject to amendment,
alteration, or repeal by the Congress when
the common good so requires. The State
shall encourage equity participation in public
utilities by the general public. The
participation of foreign investors in the
governing body of any public utility enterprise
shall be limited to their proportionate share in
its capital, and all the executive and
managing officers of such corporation or
association must be citizens of the
Philippines. (Emphasis supplied)
This provision, which mandates the
Filipinization of public utilities, requires that
any form of authorization for the operation of
public utilities shall be granted only to
"citizens of the Philippines or to corporations
or associations organized under the laws of
the Philippines at least sixty per centum of
whose capital is owned by such citizens."
"The provision is [an express] recognition
of the sensitive and vital position of
public utilities both in the national
economy and for national security."24
The 1987 Constitution reserves the
ownership and operation of public utilities
exclusively to (1) Filipino citizens, or (2)
corporations or associations at least 60
percent of whose "capital" is owned by
Filipino citizens. Hence, in the case of
individuals, only Filipino citizens can validly
own and operate a public utility. In the case
of corporations or associations, at least 60
percent of their "capital" must be owned by
Filipino citizens. In other words, under
Section 11, Article XII of the 1987
Constitution, to own and operate a public
utility a corporations capital must at least
be 60 percent owned by Philippine
nationals.
IV.
Definition of "Philippine National"
Pursuant to the express mandate of Section
11, Article XII of the 1987 Constitution,
Congress enacted Republic Act No. 7042 or
the Foreign Investments Act of 1991 (FIA),
as amended, which defined a "Philippine
national" as follows:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean
a citizen of the Philippines; or a domestic
partnership or association wholly owned by
citizens of the Philippines; or a corporation
organized under the laws of the
Philippines of which at least sixty percent
(60%) of the capital stock
outstanding and entitled to vote is owned
and held by citizens of the Philippines; or
a corporation organized abroad and
registered as doing business in the
Philippines under the Corporation Code of
which one hundred percent (100%) of the
capital stock outstanding and entitled to vote
is wholly owned by Filipinos or a trustee of
funds for pension or other employee
retirement or separation benefits, where the
trustee is a Philippine national and at least
sixty percent (60%) of the fund will accrue to
the benefit of Philippine nationals: Provided,
That where a corporation and its non-Filipino
stockholders own stocks in a Securities and
Exchange Commission (SEC) registered
enterprise, at least sixty percent (60%) of the
capital stock outstanding and entitled to vote
of each of both corporations must be owned
and held by citizens of the Philippines and at
least sixty percent (60%) of the members of
the Board of Directors of each of both
corporations must be citizens of the
Philippines, in order that the corporation,
shall be considered a "Philippine national."
(Boldfacing, italicization and underscoring
supplied)
Thus, the FIA clearly and unequivocally
defines a "Philippine national" as a
Philippine citizen, or a domestic corporation
at least "60% of the capital stock
outstanding and entitled to vote" is owned
by Philippine citizens.
The definition of a "Philippine national" in the
FIA reiterated the meaning of such term as
provided in its predecessor statute,
Executive Order No. 226 or the Omnibus
Investments Code of 1987,25 which was
issued by then President Corazon C. Aquino.
Article 15 of this Code states:
Article 15. "Philippine national" shall mean a
citizen of the Philippines or a diplomatic
partnership or association wholly-owned by
citizens of the Philippines; or a corporation
organized under the laws of the
Philippines of which at least sixty per cent
(60%) of the capital stock
outstanding and entitled to vote is owned
and held by citizens of the Philippines; or
a trustee of funds for pension or other
employee retirement or separation benefits,
where the trustee is a Philippine national and
at least sixty per cent (60%) of the fund will
accrue to the benefit of Philippine nationals:
Provided, That where a corporation and its
non-Filipino stockholders own stock in a
registered enterprise, at least sixty per cent
(60%) of the capital stock outstanding and
entitled to vote of both corporations must be
owned and held by the citizens of the
Philippines and at least sixty per cent (60%)
of the members of the Board of Directors of
both corporations must be citizens of the
Philippines in order that the corporation shall
be considered a Philippine national.
(Boldfacing, italicization and underscoring
supplied)
Under Article 48(3)26 of the Omnibus
Investments Code of 1987, "no corporation x
x x which is not a Philippine national x x x
shall do business
x x x in the Philippines x x x without first
securing from the Board of Investments a
written certificate to the effect that such
business or economic activity x x x
would not conflict with the Constitution or
laws of the Philippines."27 Thus, a "non-
Philippine national" cannot own and operate
a reserved economic activity like a public
utility. This means, of course, that only a
"Philippine national" can own and operate a
public utility.
In turn, the definition of a "Philippine national"
under Article 15 of the Omnibus Investments
Code of 1987 was a reiteration of the
meaning of such term as provided in Article
14 of the Omnibus Investments Code of
1981,28 to wit:
Article 14. "Philippine national" shall mean a
citizen of the Philippines; or a domestic
partnership or association wholly owned by
citizens of the Philippines; or a corporation
organized under the laws of the
Philippines of which at least sixty per cent
(60%) of the capital stock
outstanding and entitled to vote is owned
and held by citizens of the Philippines; or
a trustee of funds for pension or other
employee retirement or separation benefits,
where the trustee is a Philippine national and
at least sixty per cent (60%) of the fund will
accrue to the benefit of Philippine nationals:
Provided, That where a corporation and its
non-Filipino stockholders own stock in a
registered enterprise, at least sixty per cent
(60%) of the capital stock outstanding and
entitled to vote of both corporations must be
owned and held by the citizens of the
Philippines and at least sixty per cent (60%)
of the members of the Board of Directors of
both corporations must be citizens of the
Philippines in order that the corporation shall
be considered a Philippine national.
(Boldfacing, italicization and underscoring
supplied)
Under Article 69(3) of the Omnibus
Investments Code of 1981, "no corporation x
x x which is not a Philippine national x x x
shall do business x x x in the Philippines x x
x without first securing a written certificate
from the Board of Investments to the effect
that such business or economic activity x x x
would not conflict with the Constitution or
laws of the Philippines."29 Thus, a "non-
Philippine national" cannot own and operate
a reserved economic activity like a public
utility. Again, this means that only a
"Philippine national" can own and operate a
public utility.
Prior to the Omnibus Investments Code of
1981, Republic Act No. 518630 or
the Investment Incentives Act, which took
effect on 16 September 1967, contained a
similar definition of a "Philippine national," to
wit:
(f) "Philippine National" shall mean a citizen
of the Philippines; or a partnership or
association wholly owned by citizens of the
Philippines; or a corporation organized
under the laws of the Philippines of which
at least sixty per cent of the capital stock
outstanding and entitled to vote is owned
and held by citizens of the Philippines; or
a trustee of funds for pension or other
employee retirement or separation benefits,
where the trustee is a Philippine National and
at least sixty per cent of the fund will accrue
to the benefit of Philippine Nationals:
Provided, That where a corporation and its
non-Filipino stockholders own stock in a
registered enterprise, at least sixty per cent
of the capital stock outstanding and entitled
to vote of both corporations must be owned
and held by the citizens of the Philippines
and at least sixty per cent of the members of
the Board of Directors of both corporations
must be citizens of the Philippines in order
that the corporation shall be considered a
Philippine National. (Boldfacing, italicization
and underscoring supplied)
Under Section 3 of Republic Act No. 5455 or
the Foreign Business Regulations Act, which
took effect on 30 September 1968, if the
investment in a domestic enterprise by non-
Philippine nationals exceeds 30% of its
outstanding capital stock, such enterprise
must obtain prior approval from the Board of
Investments before accepting such
investment. Such approval shall not be
granted if the investment "would conflict with
existing constitutional provisions and laws
regulating the degree of required ownership
by Philippine nationals in the enterprise."31 A
"non-Philippine national" cannot own and
operate a reserved economic activity like a
public utility. Again, this means that only a
"Philippine national" can own and operate a
public utility.
The FIA, like all its predecessor statutes,
clearly defines a "Philippine national" as a
Filipino citizen, or a domestic corporation
"at least sixty percent (60%) of the capital
stock outstanding and entitled to vote" is
owned by Filipino citizens. A domestic
corporation is a "Philippine national" only if at
least 60% of its voting stock is owned by
Filipino citizens. This definition of a
"Philippine national" is crucial in the present
case because the FIA reiterates and clarifies
Section 11, Article XII of the 1987
Constitution, which limits the ownership and
operation of public utilities to Filipino citizens
or to corporations or associations at least
60% Filipino-owned.
The FIA is the basic law governing foreign
investments in the Philippines, irrespective of
the nature of business and area of
investment. The FIA spells out the
procedures by which non-Philippine
nationals can invest in the Philippines.
Among the key features of this law is the
concept of a negative list or the Foreign
Investments Negative List.32 Section 8 of the
law states:
SEC. 8. List of Investment Areas
Reserved to Philippine Nationals [Foreign
Investment Negative List]. - The Foreign
Investment Negative List shall have
two 2 component lists: A and B:
a. List A shall enumerate the areas of
activities reserved to Philippine nationals
by mandate of the Constitution and
specific laws.
b. List B shall contain the areas of activities
and enterprises regulated pursuant to law:
1. which are defense-related activities,
requiring prior clearance and authorization
from the Department of National Defense
[DND] to engage in such activity, such as the
manufacture, repair, storage and/or
distribution of firearms, ammunition, lethal
weapons, military ordinance, explosives,
pyrotechnics and similar materials; unless
such manufacturing or repair activity is
specifically authorized, with a substantial
export component, to a non-Philippine
national by the Secretary of National
Defense; or
2. which have implications on public health
and morals, such as the manufacture and
distribution of dangerous drugs; all forms of
gambling; nightclubs, bars, beer houses,
dance halls, sauna and steam bathhouses
and massage clinics. (Boldfacing,
underscoring and italicization supplied)
Section 8 of the FIA enumerates the
investment areas "reserved to Philippine
nationals." Foreign Investment Negative
List A consists of "areas of activities
reserved to Philippine nationals by
mandate of the Constitution and specific
laws," where foreign equity participation
in any enterprise shall be limited to the
maximum percentage expressly
prescribed by the Constitution and other
specific laws. In short, to own and operate
a public utility in the Philippines one must
be a "Philippine national" as defined in
the FIA. The FIA is abundant notice to
foreign investors to what extent they can
invest in public utilities in the Philippines.
To repeat, among the areas of investment
covered by the Foreign Investment Negative
List A is the ownership and operation of
public utilities, which the Constitution
expressly reserves to Filipino citizens and to
corporations at least 60% owned by Filipino
citizens. In other words, Negative List A of
the FIA reserves the ownership and
operation of public utilities only to
"Philippine nationals," defined in Section
3(a) of the FIA as "(1) a citizen of the
Philippines; x x x or (3) a corporation
organized under the laws of the
Philippines of which at least sixty percent
(60%) of the capital stock
outstanding and entitled to vote is owned
and held by citizens of the Philippines; or
(4) a corporation organized abroad and
registered as doing business in the
Philippines under the Corporation Code of
which one hundred percent (100%) of the
capital stock outstanding and entitled to vote
is wholly owned by Filipinos or a trustee of
funds for pension or other employee
retirement or separation benefits, where the
trustee is a Philippine national and at least
sixty percent (60%) of the fund will accrue to
the benefit of Philippine nationals."
Clearly, from the effectivity of the Investment
Incentives Act of 1967 to the adoption of the
Omnibus Investments Code of 1981, to the
enactment of the Omnibus Investments
Code of 1987, and to the passage of the
present Foreign Investments Act of 1991,
or for more than four decades, the
statutory definition of the term
"Philippine national" has been uniform
and consistent: it means a Filipino
citizen, or a domestic corporation at least
60% of the voting stock is owned by
Filipinos. Likewise, these same statutes
have uniformly and consistently required
that only "Philippine nationals" could
own and operate public utilities in the
Philippines. The following exchange during
the Oral Arguments is revealing:
JUSTICE CARPIO:
Counsel, I have some
questions. You are aware of
the Foreign Investments Act
of 1991, x x x? And the FIA of
1991 took effect in 1991,
correct? Thats over twenty
(20) years ago, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And Section 8 of the Foreign
Investments Act of 1991
states that []only Philippine
nationals can own and
operate public utilities[],
correct?
COMMISSIONER GAITE:
Yes, Your Honor.
JUSTICE CARPIO:
And the same Foreign
Investments Act of 1991
defines a "Philippine national"
either as a citizen of the
Philippines, or if it is a
corporation at least sixty
percent (60%) of the voting
stock is owned by citizens of
the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And, you are also aware that
under the predecessor law of
the Foreign Investments Act
of 1991, the Omnibus
Investments Act of 1987, the
same provisions apply: x x x
only Philippine nationals can
own and operate a public
utility and the Philippine
national, if it is a corporation,
x x x sixty percent (60%) of
the capital stock of that
corporation must be owned
by citizens of the Philippines,
correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to the
Omnibus Investments Act of
1987, under the Omnibus
Investments Act of 1981, the
same rules apply: x x x only a
Philippine national can own
and operate a public utility
and a Philippine national, if it
is a corporation, sixty percent
(60%) of its x x x voting stock,
must be owned by citizens of
the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to that, under
[the]1967 Investments
Incentives Act and the
Foreign Company Act of
 1968, the same rules applied,
correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, for the last four (4)
decades, x x x, the law has
been very consistent only
a Philippine national can
own and operate a public
utility, and a Philippine
national, if it is a
corporation, x x x at least
sixty percent (60%) of the
voting stock must be
owned by citizens of the
Philippines, correct?
COMMISSIONER GAITE:
Correct, Your
Honor.33 (Emphasis
supplied)
Government agencies like the SEC cannot
simply ignore Sections 3(a) and 8 of the FIA
which categorically prescribe that certain
economic activities, like the ownership and
operation of public utilities, are reserved to
corporations "at least sixty percent (60%) of
the capital stock outstanding and entitled to
vote is owned and held by citizens of the
Philippines." Foreign Investment Negative
List A refers to "activities reserved to
Philippine nationals by mandate of the
Constitution and specific laws." The FIA is
the basic statute regulating foreign
investments in the Philippines.
Government agencies tasked with regulating
or monitoring foreign investments, as well as
counsels of foreign investors, should start
with the FIA in determining to what extent a
particular foreign investment is allowed in the
Philippines. Foreign investors and their
counsels who ignore the FIA do so at their
own peril. Foreign investors and their
counsels who rely on opinions of SEC legal
officers that obviously contradict the FIA do
so also at their own peril.
Occasional opinions of SEC legal officers
that obviously contradict the FIA should
immediately raise a red flag. There are
already numerous opinions of SEC legal
officers that cite the definition of a "Philippine
national" in Section 3(a) of the FIA in
determining whether a particular corporation
is qualified to own and operate a nationalized
or partially nationalized business in the
Philippines. This shows that SEC legal
officers are not only aware of, but also rely
on and invoke, the provisions of the FIA in
ascertaining the eligibility of a corporation to
engage in partially nationalized industries.
The following are some of such opinions:
1. Opinion of 23 March 1993,
addressed to Mr. Francis F. How;
2. Opinion of 14 April 1993,
addressed to Director Angeles T.
Wong of the Philippine Overseas
Employment Administration;
3. Opinion of 23 November 1993,
addressed to Messrs. Dominador
Almeda and Renato S. Calma;
4. Opinion of 7 December 1993,
addressed to Roco Bunag Kapunan
Migallos & Jardeleza;
5. SEC Opinion No. 49-04,
addressed to Romulo Mabanta
Buenaventura Sayoc & De Los
Angeles;
6. SEC-OGC Opinion No. 17-07,
addressed to Mr. Reynaldo G. David;
and
7. SEC-OGC Opinion No. 03-08,
addressed to Attys. Ruby Rose J.
Yusi and Rudyard S. Arbolado.
The SEC legal officers occasional but
blatant disregard of the definition of the term
"Philippine national" in the FIA signifies their
lack of integrity and competence in resolving
issues on the 60-40 ownership requirement
in favor of Filipino citizens in Section 11,
Article XII of the Constitution.
The PSE President argues that the term
"Philippine national" defined in the FIA
should be limited and interpreted to refer to
corporations seeking to avail of tax and fiscal
incentives under investment incentives laws
and cannot be equated with the term "capital"
in Section 11, Article XII of the 1987
Constitution. Pangilinan similarly contends
that the FIA and its predecessor statutes do
not apply to "companies which have not
registered and obtained special incentives
under the schemes established by those
laws."
Both are desperately grasping at straws. The
FIA does not grant tax or fiscal incentives to
any enterprise. Tax and fiscal incentives to
investments are granted separately under
the Omnibus Investments Code of 1987, not
under the FIA. In fact, the FIA expressly
repealed Articles 44 to 56 of Book II of the
Omnibus Investments Code of 1987, which
articles previously regulated foreign
investments in nationalized or partially
nationalized industries.
The FIA is the applicable law regulating
foreign investments in nationalized or
partially nationalized industries. There is
nothing in the FIA, or even in the Omnibus
Investments Code of 1987 or its predecessor
statutes, that states, expressly or impliedly,
that the FIA or its predecessor statutes do
not apply to enterprises not availing of tax
and fiscal incentives under the Code. The
FIA and its predecessor statutes apply to
investments in all domestic enterprises,
whether or not such enterprises enjoy tax
and fiscal incentives under the Omnibus
Investments Code of 1987 or its predecessor
statutes. The reason is quite obvious
mere non-availment of tax and fiscal
incentives by a non-Philippine national
cannot exempt it from Section 11, Article
XII of the Constitution regulating foreign
investments in public utilities. In fact, the
Board of Investments Primer on
Investment Policies in the
Philippines,34 which is given out to foreign
investors, provides:
PART III. FOREIGN INVESTMENTS
WITHOUT INCENTIVES
Investors who do not seek incentives and/or
whose chosen activities do not qualify for
incentives, (i.e., the activity is not listed in the
IPP, and they are not exporting at least 70%
of their production) may go ahead and make
the investments without seeking
incentives. They only have to be guided by
the Foreign Investments Negative List
(FINL).
The FINL clearly defines investment areas
requiring at least 60% Filipino ownership. All
other areas outside of this list are fully open
to foreign investors. (Emphasis supplied)
V.
Right to elect directors, coupled with
beneficial ownership,
translates to effective control.
The 28 June 2011 Decision declares that the
60 percent Filipino ownership required by the
Constitution to engage in certain economic
activities applies not only to voting control of
the corporation, but also to the beneficial
ownership of the corporation. To repeat,
we held:
Mere legal title is insufficient to meet the 60
percent Filipino-owned "capital" required in
the Constitution. Full beneficial ownership
of 60 percent of the outstanding capital
stock, coupled with 60 percent of the
voting rights, is required. The legal and
beneficial ownership of 60 percent of the
outstanding capital stock must rest in the
hands of Filipino nationals in accordance
with the constitutional mandate. Otherwise,
the corporation is "considered as non-
Philippine national[s]." (Emphasis supplied)
This is consistent with Section 3 of the FIA
which provides that where 100% of the
capital stock is held by "a trustee of funds for
pension or other employee retirement or
separation benefits," the trustee is a
Philippine national if "at least sixty percent
(60%) of the fund will accrue to the benefit of
Philippine nationals." Likewise, Section 1(b)
of the Implementing Rules of the FIA
provides that "for stocks to be deemed
owned and held by Philippine citizens or
Philippine nationals, mere legal title is not
enough to meet the required Filipino
equity. Full beneficial ownership of the
stocks, coupled with appropriate voting
rights, is essential."
Since the constitutional requirement of at
least 60 percent Filipino ownership applies
not only to voting control of the corporation
but also to the beneficial ownership of the
corporation, it is therefore imperative that
such requirement apply uniformly and across
the board to all classes of shares, regardless
of nomenclature and category, comprising
the capital of a corporation. Under the
Corporation Code, capital stock35 consists of
all classes of shares issued to stockholders,
that is, common shares as well as preferred
shares, which may have different rights,
privileges or restrictions as stated in the
articles of incorporation.36
The Corporation Code allows denial of the
right to vote to preferred and redeemable
shares, but disallows denial of the right to
vote in specific corporate matters. Thus,
common shares have the right to vote in the
election of directors, while preferred shares
may be denied such right. Nonetheless,
preferred shares, even if denied the right to
vote in the election of directors, are entitled
to vote on the following corporate matters: (1)
amendment of articles of incorporation; (2)
increase and decrease of capital stock; (3)
incurring, creating or increasing bonded
indebtedness; (4) sale, lease, mortgage or
other disposition of substantially all corporate
assets; (5) investment of funds in another
business or corporation or for a purpose
other than the primary purpose for which the
corporation was organized; (6) adoption,
amendment and repeal of by-laws; (7)
merger and consolidation; and (8) dissolution
of corporation.37
Since a specific class of shares may have
rights and privileges or restrictions different
from the rest of the shares in a corporation,
the 60-40 ownership requirement in favor of
Filipino citizens in Section 11, Article XII of
the Constitution must apply not only to
shares with voting rights but also to shares
without voting rights. Preferred shares,
denied the right to vote in the election of
directors, are anyway still entitled to vote on
the eight specific corporate matters
mentioned above. Thus, if a corporation,
engaged in a partially nationalized
industry, issues a mixture of common
and preferred non-voting shares, at least
60 percent of the common shares and at
least 60 percent of the preferred non-
voting shares must be owned by
Filipinos. Of course, if a corporation issues
only a single class of shares, at least 60
percent of such shares must necessarily be
owned by Filipinos. In short, the 60-40
ownership requirement in favor of
Filipino citizens must apply separately to
each class of shares, whether common,
preferred non-voting, preferred voting or
any other class of shares. This uniform
application of the 60-40 ownership
requirement in favor of Filipino citizens
clearly breathes life to the constitutional
command that the ownership and operation
of public utilities shall be reserved
exclusively to corporations at least 60
percent of whose capital is Filipino-owned.
Applying uniformly the 60-40 ownership
requirement in favor of Filipino citizens to
each class of shares, regardless of
differences in voting rights, privileges and
restrictions, guarantees effective Filipino
control of public utilities, as mandated by the
Constitution.
Moreover, such uniform application to each
class of shares insures that the "controlling
interest" in public utilities always lies in the
hands of Filipino citizens. This addresses
and extinguishes Pangilinans worry that
foreigners, owning most of the non-voting
shares, will exercise greater control over
fundamental corporate matters requiring
two-thirds or majority vote of all
shareholders.
VI.
Intent of the framers of the Constitution
While Justice Velasco quoted in his
Dissenting Opinion38 a portion of the
deliberations of the Constitutional
Commission to support his claim that the
term "capital" refers to the total outstanding
shares of stock, whether voting or non-
voting, the following excerpts of the
deliberations reveal otherwise. It is clear
from the following exchange that the term
"capital" refers to controlling interest of a
corporation, thus:
MR. NOLLEDO. In Sections 3, 9 and 15, the
Committee stated local or Filipino equity and
foreign equity; namely, 60-40 in Section 3,
60-40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are
always faced with this question: "Where do
we base the equity requirement, is it on the
authorized capital stock, on the subscribed
capital stock, or on the paid-up capital stock
of a corporation"? Will the Committee please
enlighten me on this?
MR. VILLEGAS. We have just had a long
discussion with the members of the team
from the UP Law Center who provided us a
draft. The phrase that is contained here
which we adopted from the UP draft is "60
percent of voting stock."
MR. NOLLEDO. That must be based on the
subscribed capital stock, because unless
declared delinquent, unpaid capital stock
shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one
corporation in another corporation, say, a
corporation with 60-40 percent equity invests
in another corporation which is permitted by
the Corporation Code, does the Committee
adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the
understanding of the Committee.
MR. NOLLEDO. Therefore, we need
additional Filipino capital?
MR. VILLEGAS. Yes.39
xxxx
MR. AZCUNA. May I be clarified as to that
portion that was accepted by the Committee.
MR. VILLEGAS. The portion accepted by the
Committee is the deletion of the phrase
"voting stock or controlling interest."
MR. AZCUNA. Hence, without the Davide
amendment, the committee report would
read: "corporations or associations at least
sixty percent of whose CAPITAL is owned by
such citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment
is lost, we are stuck with 60 percent of the
capital to be owned by citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with
the foreigners even if they are the
minority. Let us say 40 percent of the
capital is owned by them, but it is the
voting capital, whereas, the Filipinos own
the nonvoting shares. So we can have a
situation where the corporation is
controlled by foreigners despite being the
minority because they have the voting
capital. That is the anomaly that would
result here.
MR. BENGZON. No, the reason we
eliminated the word "stock" as stated in
the 1973 and 1935 Constitutions is that
according to Commissioner Rodrigo,
there are associations that do not have
stocks. That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate
the phrase "controlling interest."
MR. BENGZON. In the case of stock
corporations, it is assumed.40 (Boldfacing
and underscoring supplied)
Thus, 60 percent of the "capital" assumes,
or should result in, a "controlling interest"
in the corporation.
The use of the term "capital" was intended to
replace the word "stock" because
associations without stocks can operate
public utilities as long as they meet the 60-40
ownership requirement in favor of Filipino
citizens prescribed in Section 11, Article XII
of the Constitution. However, this did not
change the intent of the framers of the
Constitution to reserve exclusively to
Philippine nationals the "controlling
interest" in public utilities.
During the drafting of the 1935 Constitution,
economic protectionism was "the battle-cry
of the nationalists in the Convention."41 The
same battle-cry resulted in the
nationalization of the public utilities.42 This is
also the same intent of the framers of the
1987 Constitution who adopted the exact
formulation embodied in the 1935 and 1973
Constitutions on foreign equity limitations in
partially nationalized industries.
The OSG, in its own behalf and as counsel
for the State,43 agrees fully with the Courts
interpretation of the term "capital." In its
Consolidated Comment, the OSG explains
that the deletion of the phrase "controlling
interest" and replacement of the word "stock"
with the term "capital" were intended
specifically to extend the scope of the entities
qualified to operate public utilities to include
associations without stocks. The framers
omission of the phrase "controlling interest"
did not mean the inclusion of all shares of
stock, whether voting or non-voting. The
OSG reiterated essentially the Courts
declaration that the Constitution reserved
exclusively to Philippine nationals the
ownership and operation of public utilities
consistent with the States policy to "develop
a self-reliant and independent national
economy effectively controlled by
Filipinos."
As we held in our 28 June 2011 Decision, to
construe broadly the term "capital" as the
total outstanding capital stock, treated as
a single class regardless of the actual
classification of shares, grossly contravenes
the intent and letter of the Constitution that
the "State shall develop a self-reliant and
independent national economy effectively
controlled by Filipinos." We illustrated the
glaring anomaly which would result in
defining the term "capital" as the total
outstanding capital stock of a corporation,
treated as a single class of shares
regardless of the actual classification of
shares, to wit:
Let us assume that a corporation has 100
common shares owned by foreigners and
1,000,000 non-voting preferred shares
owned by Filipinos, with both classes of
share having a par value of one peso (
1.00) per share. Under the broad definition of
the term "capital," such corporation would be
considered compliant with the 40 percent
constitutional limit on foreign equity of public
utilities since the overwhelming majority, or
more than 99.999 percent, of the total
outstanding capital stock is Filipino owned.
This is obviously absurd.
In the example given, only the foreigners
holding the common shares have voting
rights in the election of directors, even if they
hold only 100 shares. The foreigners, with a
minuscule equity of less than 0.001 percent,
exercise control over the public utility. On the
other hand, the Filipinos, holding more than
99.999 percent of the equity, cannot vote in
the election of directors and hence, have no
control over the public utility. This starkly
circumvents the intent of the framers of the
Constitution, as well as the clear language of
the Constitution, to place the control of public
utilities in the hands of Filipinos. x x x
Further, even if foreigners who own more
than forty percent of the voting shares elect
an all-Filipino board of directors, this
situation does not guarantee Filipino control
and does not in any way cure the violation of
the Constitution. The independence of the
Filipino board members so elected by such
foreign shareholders is highly doubtful. As
the OSG pointed out, quoting Justice George
Sutherlands words in Humphreys Executor
v. US,44 "x x x it is quite evident that one who
holds his office only during the pleasure of
another cannot be depended upon to
maintain an attitude of independence against
the latters will." Allowing foreign
shareholders to elect a controlling majority of
the board, even if all the directors are
Filipinos, grossly circumvents the letter and
intent of the Constitution and defeats the
very purpose of our nationalization laws.
VII.
Last sentence of Section 11, Article XII of
the Constitution
The last sentence of Section 11, Article XII of
the 1987 Constitution reads:
The participation of foreign investors in the
governing body of any public utility enterprise
shall be limited to their proportionate share in
its capital, and all the executive and
managing officers of such corporation or
association must be citizens of the
Philippines.
During the Oral Arguments, the OSG
emphasized that there was never a question
on the intent of the framers of the
Constitution to limit foreign ownership, and
assure majority Filipino ownership and
control of public utilities. The OSG argued,
"while the delegates disagreed as to the
percentage threshold to adopt, x x x the
records show they clearly understood that
Filipino control of the public utility corporation
can only be and is obtained only through the
election of a majority of the members of the
board."
Indeed, the only point of contention during
the deliberations of the Constitutional
Commission on 23 August 1986 was the
extent of majority Filipino control of public
utilities. This is evident from the following
exchange:
THE PRESIDENT. Commissioner Jamir is
recognized.
MR. JAMIR. Madam President, my proposed
amendment on lines 20 and 21 is to delete
the phrase "two thirds of whose voting stock
or controlling interest," and instead substitute
the words "SIXTY PERCENT OF WHOSE
CAPITAL" so that the sentence will read: "No
franchise, certificate, or any other form of
authorization for the operation of a public
utility shall be granted except to citizens of
the Philippines or to corporations or
associations organized under the laws of the
Philippines at least SIXTY PERCENT OF
WHOSE CAPITAL is owned by such
citizens."
xxxx
THE PRESIDENT: Will Commissioner Jamir
first explain?
MR. JAMIR. Yes, in this Article on National
Economy and Patrimony, there were two
previous sections in which we fixed the
Filipino equity to 60 percent as against 40
percent for foreigners. It is only in this
Section 15 with respect to public utilities that
the committee proposal was increased to
two-thirds. I think it would be better to
harmonize this provision by providing that
even in the case of public utilities, the
minimum equity for Filipino citizens should
be 60 percent.
MR. ROMULO. Madam President.
THE PRESIDENT. Commissioner Romulo is
recognized.
MR. ROMULO. My reason for supporting the
amendment is based on the discussions I
have had with representatives of the Filipino
majority owners of the international record
carriers, and the subsequent memoranda
they submitted to me. x x x
Their second point is that under the
Corporation Code, the management and
control of a corporation is vested in the board
of directors, not in the officers but in the
board of directors. The officers are only
agents of the board. And they believe that
with 60 percent of the equity, the Filipino
majority stockholders undeniably control the
board. Only on important corporate acts can
the 40-percent foreign equity exercise a veto,
x x x.
x x x x45
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. Commissioner Rosario
Braid is recognized.
MS. ROSARIO BRAID. Yes, in the interest of
equal time, may I also read from a
memorandum by the spokesman of the
Philippine Chamber of Communications on
why they would like to maintain the present
equity, I am referring to the 66 2/3. They
would prefer to have a 75-25 ratio but would
settle for 66 2/3. x x x
xxxx
THE PRESIDENT. Just to clarify, would
Commissioner Rosario Braid support the
proposal of two-thirds rather than the 60
percent?
MS. ROSARIO BRAID. I have added a
clause that will put management in the hands
of Filipino citizens.
x x x x46
While they had differing views on the
percentage of Filipino ownership of capital, it
is clear that the framers of the Constitution
intended public utilities to
be majority Filipino-owned and controlled.
To ensure that Filipinos control public
utilities, the framers of the Constitution
approved, as additional safeguard, the
inclusion of the last sentence of Section 11,
Article XII of the Constitution commanding
that "[t]he participation of foreign investors in
the governing body of any public utility
enterprise shall be limited to their
proportionate share in its capital, and all the
executive and managing officers of such
corporation or association must be citizens of
the Philippines." In other words, the last
sentence of Section 11, Article XII of the
Constitution mandates that (1) the
participation of foreign investors in the
governing body of the corporation or
association shall be limited to their
proportionate share in the capital of such
entity; and (2) all officers of the corporation
or association must be Filipino citizens.
Commissioner Rosario Braid proposed the
inclusion of the phrase requiring the
managing officers of the corporation or
association to be Filipino citizens specifically
to prevent management contracts, which
were designed primarily to circumvent the
Filipinization of public utilities, and to assure
Filipino control of public utilities, thus:
MS. ROSARIO BRAID. x x x They also like
to suggest that we amend this provision by
adding a phrase which states: "THE
MANAGEMENT BODY OF EVERY
CORPORATION OR ASSOCIATION SHALL xxxx
IN ALL CASES BE CONTROLLED BY
CITIZENS OF THE PHILIPPINES." I have MS. ROSARIO BRAID. Madam President, I
with me their position paper. propose a new section to read: THE
MANAGEMENT BODY OF EVERY
THE PRESIDENT. The Commissioner may CORPORATION OR ASSOCIATION SHALL
proceed. IN ALL CASES BE CONTROLLED BY
CITIZENS OF THE PHILIPPINES."
MS. ROSARIO BRAID. The three major
international record carriers in the This will prevent management contracts
Philippines, which Commissioner Romulo and assure control by Filipino
mentioned Philippine Global citizens. Will the committee assure us that
Communications, Eastern this amendment will insure that past activities
Telecommunications, Globe Mackay Cable such as management contracts will no longer
are 40-percent owned by foreign be possible under this amendment?
multinational companies and 60-percent
owned by their respective Filipino partners. xxxx
All three, however, also have management
contracts with these foreign companies FR. BERNAS. Madam President.
Philcom with RCA, ETPI with Cable and
Wireless PLC, and GMCR with ITT. Up to the THE PRESIDENT. Commissioner Bernas is
present time, the general managers of these recognized.
carriers are foreigners. While the foreigners
in these common carriers are only minority FR. BERNAS. Will the committee accept a
owners, the foreign multinationals are the reformulation of the first part?
ones managing and controlling their
operations by virtue of their management
MR. BENGZON. Let us hear it.
contracts and by virtue of their strength in the
governing bodies of these carriers.47
FR. BERNAS. The reformulation will be
essentially the formula of the 1973
xxxx
Constitution which reads: "THE
PARTICIPATION OF FOREIGN
MR. OPLE. I think a number of us have INVESTORS IN THE GOVERNING BODY
agreed to ask Commissioner Rosario Braid OF ANY PUBLIC UTILITY ENTERPRISE
to propose an amendment with respect to the SHALL BE LIMITED TO THEIR
operating management of public utilities, and PROPORTIONATE SHARE IN THE
in this amendment, we are associated with CAPITAL THEREOF AND..."
Fr. Bernas, Commissioners Nieva and
Rodrigo. Commissioner Rosario Braid will
MR. VILLEGAS. "ALL THE EXECUTIVE
state this amendment now.
AND MANAGING OFFICERS OF SUCH
CORPORATIONS AND ASSOCIATIONS
Thank you. MUST BE CITIZENS OF THE
PHILIPPINES."
MS. ROSARIO BRAID. Madam President.
MR. BENGZON. Will Commissioner Bernas
THE PRESIDENT. This is still on Section 15. read the whole thing again?

MS. ROSARIO BRAID. Yes. FR. BERNAS. "THE PARTICIPATION OF

FOREIGN INVESTORS IN THE
MR. VILLEGAS. Yes, Madam President. GOVERNING BODY OF ANY PUBLIC
UTILITY ENTERPRISE SHALL BE LIMITED
TO THEIR PROPORTIONATE SHARE IN
THE CAPITAL THEREOF..." I do not have
the rest of the copy.
MR. BENGZON. "AND ALL THE
EXECUTIVE AND MANAGING OFFICERS
OF SUCH CORPORATIONS OR
ASSOCIATIONS MUST BE CITIZENS OF
THE PHILIPPINES." Is that correct?
MR. VILLEGAS. Yes.
MR. BENGZON. Madam President, I think
that was said in a more elegant language.
We accept the amendment. Is that all right
with Commissioner Rosario Braid?
MS. ROSARIO BRAID. Yes.
xxxx
MR. DE LOS REYES. The governing body
refers to the board of directors and trustees.
MR. VILLEGAS. That is right.
MR. BENGZON. Yes, the governing body
refers to the board of directors.
MR. REGALADO. It is accepted.
MR. RAMA. The body is now ready to vote,
Madam President.
VOTING
xxxx
The results show 29 votes in favor and none
against; so the proposed amendment is
approved.
xxxx
THE PRESIDENT. All right. Can we proceed
now to vote on Section 15?
MR. RAMA. Yes, Madam President.
THE PRESIDENT. Will the chairman of the
committee please read Section 15?
MR. VILLEGAS. The entire Section 15, as
amended, reads: "No franchise, certificate,
or any other form of authorization for the
operation of a public utility shall be granted
except to citizens of the Philippines or to
corporations or associations organized
under the laws of the Philippines at least 60
PERCENT OF WHOSE CAPITAL is owned
by such citizens." May I request
Commissioner Bengzon to please continue
reading.
MR. BENGZON. "THE PARTICIPATION OF
FOREIGN INVESTORS IN THE
GOVERNING BODY OF ANY PUBLIC
UTILITY ENTERPRISE SHALL BE LIMITED
TO THEIR PROPORTIONATE SHARE IN
THE CAPITAL THEREOF AND ALL THE
EXECUTIVE AND MANAGING OFFICERS
OF SUCH CORPORATIONS OR
ASSOCIATIONS MUST BE CITIZENS OF
THE PHILIPPINES."
MR. VILLEGAS. "NOR SHALL SUCH
FRANCHISE, CERTIFICATE OR
AUTHORIZATION BE EXCLUSIVE IN
CHARACTER OR FOR A PERIOD LONGER
THAN TWENTY-FIVE YEARS
RENEWABLE FOR NOT MORE THAN
TWENTY-FIVE YEARS. Neither shall any
such franchise or right be granted except
under the condition that it shall be subject to
amendment, alteration, or repeal by
Congress when the common good so
requires. The State shall encourage equity
participation in public utilities by the general
public."
VOTING
xxxx
The results show 29 votes in favor and 4
against; Section 15, as amended, is
approved.48 (Emphasis supplied)
The last sentence of Section 11, Article XII of
the 1987 Constitution, particularly the
provision on the limited participation of
foreign investors in the governing body of
public utilities, is a reiteration of the last
sentence of Section 5, Article XIV of the 1973
Constitution,49 signifying its importance in
reserving ownership and control of public
utilities to Filipino citizens.
VIII.
The undisputed facts
There is no dispute, and respondents do not
claim the contrary, that (1) foreigners own
64.27% of the common shares of PLDT,
which class of shares exercises
the sole right to vote in the election of
directors, and thus foreigners control PLDT;
(2) Filipinos own only 35.73% of PLDTs
common shares, constituting a minority of
the voting stock, and thus Filipinos do not
control PLDT; (3) preferred shares, 99.44%
owned by Filipinos, have no voting rights; (4)
preferred shares earn only 1/70 of the
dividends that common shares earn;50 (5)
preferred shares have twice the par value of
common shares; and (6) preferred shares
constitute 77.85% of the authorized capital
stock of PLDT and common shares only
22.15%.
Despite the foregoing facts, the Court did not
decide, and in fact refrained from ruling on
the question of whether PLDT violated the
60-40 ownership requirement in favor of
Filipino citizens in Section 11, Article XII of
the 1987 Constitution. Such question
indisputably calls for a presentation and
determination of evidence through a hearing,
which is generally outside the province of the
Courts jurisdiction, but well within the SECs
statutory powers. Thus, for obvious reasons,
the Court limited its decision on the purely
legal and threshold issue on the definition of
the term "capital" in Section 11, Article XII of
the Constitution and directed the SEC to
apply such definition in determining the exact
percentage of foreign ownership in PLDT.
IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his petition, Gamboa prays, among others:
xxxx
5. For the Honorable Court to issue a
declaratory relief that ownership of common
or voting shares is the sole basis in
determining foreign equity in a public utility
and that any other government rulings,
opinions, and regulations inconsistent with
this declaratory relief be declared
unconstitutional and a violation of the intent
and spirit of the 1987 Constitution;
6. For the Honorable Court to declare null
and void all sales of common stocks to
foreigners in excess of 40 percent of the total
subscribed common shareholdings; and
7. For the Honorable Court to direct the
Securities and Exchange
Commission and Philippine Stock
Exchange to require PLDT to make a
public disclosure of all of its foreign
shareholdings and their actual and real
beneficial owners.
Other relief(s) just and equitable are likewise
prayed for. (Emphasis supplied)
As can be gleaned from his prayer, Gamboa
clearly asks this Court to compel the SEC to
perform its statutory duty to investigate
whether "the required percentage of
ownership of the capital stock to be owned
by citizens of the Philippines has been
complied with [by PLDT] as required by x x x
the Constitution."51 Such plea clearly
negates SECs argument that it was not
impleaded.
Granting that only the SEC Chairman was
impleaded in this case, the Court has ample
powers to order the SECs compliance with
its directive contained in the 28 June 2011
Decision in view of the far-reaching
implications of this case. In Domingo v.
Scheer,52 the Court dispensed with the
amendment of the pleadings to implead the
Bureau of Customs considering (1) the
unique backdrop of the case; (2) the utmost
need to avoid further delays; and (3) the
issue of public interest involved. The Court
held:
The Court may be curing the defect in this
case by adding the BOC as party-petitioner.
The petition should not be dismissed
because the second action would only be a
repetition of the first. In Salvador, et al., v.
Court of Appeals, et al., we held that this
Court has full powers, apart from that power
and authority which is inherent, to amend the
processes, pleadings, proceedings and
decisions by substituting as party-plaintiff the
real party-in-interest. The Court has the
power to avoid delay in the disposition of
this case, to order its amendment as to
implead the BOC as party-respondent.
Indeed, it may no longer be necessary to
do so taking into account the unique
backdrop in this case, involving as it does
an issue of public interest. After all, the
Office of the Solicitor General has
represented the petitioner in the instant
proceedings, as well as in the appellate
court, and maintained the validity of the
deportation order and of the BOCs Omnibus
Resolution. It cannot, thus, be claimed by the
State that the BOC was not afforded its day
in court, simply because only the petitioner,
the Chairperson of the BOC, was the
respondent in the CA, and the petitioner in
the instant recourse. In Alonso v.
Villamor, we had the occasion to state:
There is nothing sacred about processes
or pleadings, their forms or contents.
Their sole purpose is to facilitate the
application of justice to the rival claims of
contending parties. They were created, not
to hinder and delay, but to facilitate and
promote, the administration of justice. They
do not constitute the thing itself, which courts
are always striving to secure to litigants.
They are designed as the means best
adapted to obtain that thing. In other words,
they are a means to an end. When they lose
the character of the one and become the
other, the administration of justice is at fault
and courts are correspondingly remiss in the
performance of their obvious
duty.53 (Emphasis supplied)
In any event, the SEC has expressly
manifested54 that it will abide by the
Courts decision and defer to the Courts
definition of the term "capital" in Section
11, Article XII of the Constitution. Further,
the SEC entered its special appearance in
this case and argued during the Oral
Arguments, indicating its submission to
the Courts jurisdiction. It is clear,
therefore, that there exists no legal
impediment against the proper and
immediate implementation of the Courts
directive to the SEC.
PLDT is an indispensable party only insofar
as the other issues, particularly the factual
questions, are concerned. In other words,
PLDT must be impleaded in order to fully
resolve the issues on (1) whether the sale of
111,415 PTIC shares to First Pacific violates
the constitutional limit on foreign ownership
of PLDT; (2) whether the sale of common
shares to foreigners exceeded the 40
percent limit on foreign equity in PLDT; and
(3) whether the total percentage of the PLDT
common shares with voting rights complies
with the 60-40 ownership requirement in
favor of Filipino citizens under the
Constitution for the ownership and operation
of PLDT. These issues indisputably call for
an examination of the parties respective
evidence, and thus are clearly within the
jurisdiction of the SEC. In short, PLDT must
be impleaded, and must necessarily be
heard, in the proceedings before the SEC
where the factual issues will be thoroughly
threshed out and resolved.
Notably, the foregoing issues were left
untouched by the Court. The Court did not
rule on the factual issues raised by Gamboa,
except the single and purely legal issue on
the definition of the term "capital" in Section
11, Article XII of the Constitution. The Court
confined the resolution of the instant case to
this threshold legal issue in deference to the
fact-finding power of the SEC.
Needless to state, the Court can validly,
properly, and fully dispose of the
fundamental legal issue in this case even
without the participation of PLDT since
defining the term "capital" in Section 11,
Article XII of the Constitution does not, in any
way, depend on whether PLDT was
impleaded. Simply put, PLDT is not
indispensable for a complete resolution of
the purely legal question in this case.55 In
fact, the Court, by treating the petition as one
for mandamus,56 merely directed the SEC to
apply the Courts definition of the term
"capital" in Section 11, Article XII of the
Constitution in determining whether PLDT
committed any violation of the said
constitutional provision. The dispositive
portion of the Courts ruling is addressed
not to PLDT but solely to the SEC, which
is the administrative agency tasked to
enforce the 60-40 ownership requirement
in favor of Filipino citizens in Section 11,
Article XII of the Constitution.
Since the Court limited its resolution on the
purely legal issue on the definition of the term
"capital" in Section 11, Article XII of the 1987
Constitution, and directed the SEC to
investigate any violation by PLDT of the 60-
40 ownership requirement in favor of Filipino
citizens under the Constitution,57 there is no
deprivation of PLDTs property or denial of
PLDT s right to due process, contrary to
Pangilinan and Nazarenos misimpression.
Due process will be afforded to PLDT when
it presents proof to the SEC that it complies,
as it claims here, with Section 11, Article XII
of the Constitution.
X.
Foreign Investments in the Philippines
Movants fear that the 28 June 2011 Decision
would spell disaster to our economy, as it
may result in a sudden flight of existing
foreign investors to "friendlier" countries and
simultaneously deterring new foreign
investors to our country. In particular, the
PSE claims that the 28 June 2011 Decision
may result in the following: (1) loss of more
than 630 billion in foreign investments in
PSE-listed shares; (2) massive decrease in
foreign trading transactions; (3) lower PSE
Composite Index; and (4) local investors not
investing in PSE-listed shares.58
Dr. Bernardo M. Villegas, one of the amici
curiae in the Oral Arguments, shared
movants apprehension. Without providing
specific details, he pointed out the
depressing state of the Philippine economy
compared to our neighboring countries which
boast of growing economies. Further, Dr.
Villegas explained that the solution to our
economic woes is for the government to
"take-over" strategic industries, such as the
public utilities sector, thus:
JUSTICE CARPIO:
I would like also to get from you Dr. Villegas
if you have additional information on whether
this high FDI59 countries in East Asia have
allowed foreigners x x x control [of] their
public utilities, so that we can compare
apples with apples.
DR. VILLEGAS:
Correct, but let me just make a comment.
When these neighbors of ours find an
industry strategic, their solution is not to
"Filipinize" or "Vietnamize" or
"Singaporize." Their solution is to make
sure that those industries are in the
hands of state enterprises. So, in these
countries, nationalization means the
government takes over. And because
their governments are competent and
honest enough to the public, that is the
solution. x x x 60 (Emphasis supplied)
If government ownership of public utilities is
the solution, then foreign investments in our
public utilities serve no purpose. Obviously,
there can never be foreign investments in
public utilities if, as Dr. Villegas claims, the
"solution is to make sure that those industries
are in the hands of state enterprises." Dr.
Villegass argument that foreign investments
in telecommunication companies like PLDT
are badly needed to save our ailing economy
contradicts his own theory that the solution is
for government to take over these
companies. Dr. Villegas is barking up the
wrong tree since State ownership of public
utilities and foreign investments in such
industries are diametrically opposed
concepts, which cannot possibly be
reconciled.
In any event, the experience of our
neighboring countries cannot be used as
argument to decide the present case
differently for two reasons. First, the
governments of our neighboring countries
have, as claimed by Dr. Villegas, taken over
ownership and control of their strategic
public utilities like the telecommunications
industry. Second, our Constitution has
specific provisions limiting foreign ownership
in public utilities which the Court is sworn to
uphold regardless of the experience of our
neighboring countries.
In our jurisdiction, the Constitution expressly
reserves the ownership and operation of
public utilities to Filipino citizens, or
corporations or associations at least 60
percent of whose capital belongs to Filipinos.
Following Dr. Villegass claim, the
Philippines appears to be more liberal in
allowing foreign investors to own 40 percent
of public utilities, unlike in other Asian
countries whose governments own and
operate such industries.
XI.
Prospective Application of Sanctions
In its Motion for Partial Reconsideration, the
SEC sought to clarify the reckoning period of
the application and imposition of appropriate
sanctions against PLDT if found violating
Section 11, Article XII of the
Constitution.1avvphi1
As discussed, the Court has directed the
SEC to investigate and determine whether
PLDT violated Section 11, Article XII of the
Constitution. Thus, there is no dispute that it
is only after the SEC has determined PLDTs
violation, if any exists at the time of the
commencement of the administrative case or
investigation, that the SEC may impose the
statutory sanctions against PLDT. In other
words, once the 28 June 2011 Decision
becomes final, the SEC shall impose the
appropriate sanctions only if it finds after due
hearing that, at the start of the administrative
case or investigation, there is an existing
violation of Section 11, Article XII of the
Constitution. Under prevailing jurisprudence,
public utilities that fail to comply with the
nationality requirement under Section 11,
Article XII and the FIA can cure their
deficiencies prior to the start of the
administrative case or investigation.61
XII.
Final Word
The Constitution expressly declares as State
policy the development of an economy
"effectively controlled" by Filipinos.
Consistent with such State policy, the
Constitution explicitly reserves the
ownership and operation of public utilities to
Philippine nationals, who are defined in the
Foreign Investments Act of 1991 as Filipino
citizens, or corporations or associations at
least 60 percent of whose capital with
voting rights belongs to Filipinos. The FIAs
implementing rules explain that "[f]or stocks
to be deemed owned and held by Philippine
citizens or Philippine nationals, mere legal
title is not enough to meet the required
Filipino equity. Full beneficial ownership of
the stocks, coupled with appropriate
voting rights is essential." In effect, the FIA
clarifies, reiterates and confirms the
interpretation that the term "capital" in
Section 11, Article XII of the 1987
Constitution refers to shares with voting
rights, as well as with full beneficial
ownership. This is precisely because the
right to vote in the election of directors,
coupled with full beneficial ownership of
stocks, translates to effective control of a
corporation.
Any other construction of the term "capital" in
Section 11, Article XII of the Constitution
contravenes the letter and intent of the
Constitution. Any other meaning of the term
"capital" openly invites alien domination of
economic activities reserved exclusively to
Philippine nationals. Therefore, respondents
interpretation will ultimately result in handing
over effective control of our national
economy to foreigners in patent violation of
the Constitution, making Filipinos second-
class citizens in their own country.
Filipinos have only to remind themselves of
how this country was exploited under the
Parity Amendment, which gave Americans
the same rights as Filipinos in the
exploitation of natural resources, and in the
ownership and control of public utilities, in the
Philippines. To do this the 1935 Constitution,
which contained the same 60 percent Filipino
ownership and control requirement as the
present 1987 Constitution, had to be
amended to give Americans parity rights with
Filipinos. There was bitter opposition to the
Parity Amendment62 and many Filipinos
eagerly awaited its expiration. In late 1968,
PLDT was one of the American-controlled
public utilities that became Filipino-controlled
when the controlling American stockholders
divested in anticipation of the expiration of
the Parity Amendment on 3 July 1974.63 No
economic suicide happened when control of
public utilities and mining corporations
passed to Filipinos hands upon expiration of
the Parity Amendment.
Movants interpretation of the term "capital"
would bring us back to the same evils
spawned by the Parity
Amendment, effectively giving foreigners
parity rights with Filipinos, but this time
even without any amendment to the
present Constitution. Worse, movants
interpretation opens up our national
economy to effective control not only by
Americans but also by all foreigners, be
they Indonesians, Malaysians or Chinese,
even in the absence of reciprocal treaty
arrangements. At least the Parity
Amendment, as implemented by the Laurel-
Langley Agreement, gave the capital-starved
Filipinos theoretical parity the same rights
as Americans to exploit natural resources,
and to own and control public utilities, in the
United States of America. Here, movants
interpretation would effectively mean
a unilateral opening up of our national
economy to all foreigners, without any
reciprocal arrangements. That would mean
that Indonesians, Malaysians and Chinese
nationals could effectively control our mining
companies and public utilities while Filipinos,
even if they have the capital, could not
control similar corporations in these
countries.
The 1935, 1973 and 1987 Constitutions have
the same 60 percent Filipino ownership and
control requirement for public utilities like
PLOT. Any deviation from this requirement
necessitates an amendment to the
Constitution as exemplified by the Parity
Amendment. This Court has no power to
amend the Constitution for its power and duty
is only to faithfully apply and interpret the
Constitution.
WHEREFORE, we DENY the motions for
reconsideration WITH FINALITY. No further
pleadings shall be entertained.
SO ORDERED.
G.R. Nos. 154470-71 September
24, 2012
BANK OF COMMERCE, Petitioner,
vs.
PLANTERS DEVELOPMENT BANK and
BANGKO SENTRAL NG the PDB.6 The BOC delivered the Detached
PILIPINAS, Respondent. Assignments to the PDB.7

x-----------------------x On April 15, 1994 (April 15 transaction), the

PDB, in turn, sold to the BOC Treasury Bills
G.R. Nos. 154589-90 worth 70 million, with maturity date of June
29, 1994, as evidenced by a Trading
BANGKO SENTRAL NG Order8 and a Confirmation of
PILIPINAS, Petitioner, Sale.9 However, instead of delivering the
vs. Treasury Bills, the PDB delivered the seven
PLANTERS DEVELOPMENT CB bills to the BOC, as evidenced by a PDB
BANK, Respondent. Security Delivery Receipt, bearing a
"note: ** substitution in lieu of 06-29-94"
DECISION referring to the Treasury
Bills.10 Nevertheless, the PDB retained
BRION, J.: possession of the Detached Assignments. It
is basically the nature of this April 15
transaction that the PDB and the BOC
Before the Court are two consolidated
cannot agree on.
petitions for review on certiorari under Rule
45,1 on pure questions of law, filed by the
petitioners Bank of Commerce (BOC) and The transfer of the first set of seven CB bills
the Bangko Sentral ng Pilipinas (BSP). They
assail the January 10, 2002 and July 23, i. CB bill nos. 45351-53
2002 Orders (assailed orders) of the
Regional Trial Court (RTC) of Makati City, On April 20, 1994, according to the BOC, it
Branch 143, in Civil Case Nos. 94-3233 and "sold back"11 to the PDB three of the seven
94-3254. These orders dismissed (i) the CB bills. In turn, the PDB transferred these
petition filed by the Planters Development three CB bills to Bancapital Development
Bank (PDB), (ii) the "counterclaim" filed by Corporation (Bancap). On April 25, 1994, the
the BOC, and (iii) the counter- BOC bought the three CB bills from Bancap
complaint/cross-claim for interpleader filed so, ultimately, the BOC reacquired these
bythe BSP; and denied the BOCs and the three CB bills,12 particularly described as
BSPs motions for reconsideration. follows:

THE ANTECEDENTS Serial No.: 2BB XM

045351
The Central Bank bills 2BB XM
045352
I. First set of CB bills 2BB XM
045353
The Rizal Commercial Banking Corporation
(RCBC) was the registered owner of seven Quantity: Three (3)
Central Bank (CB) bills with a total face value Denomination: Php 10 million
of 70 million, issued on January 2, 1994
and would mature on January 2, 1995.2 As Total Face Value: Php 30 million
evidenced by a "Detached Assignment"
dated April 8, 1994,3 the RCBC sold these
ii. CB bill nos. 45347-50
CB bills to the BOC.4 As evidenced by
another "Detached Assignment"5 of even
date, the BOC, in turn, sold these CB bills to
On April 20, 1994, the BOC sold the
remaining four (4) CB bills to Capital One
Equities Corporation13 which transferred
them to All-Asia Capital and Trust
Corporation (All Asia). On September 30,
1994, All Asia further transferred the four CB
bills back to the RCBC.14
On November 16, 1994, the RCBC sold back
to All Asia one of these 4 CB bills. When the
BSP refused to release the amount of this CB
bill on maturity, the BOC purchased from All
Asia this lone CB bill,15 particularly described
as follows:16
Serial No.: 2BB XM
045348
Quantity: One (1)
Denomination: Php 10 million
Total Face Value: Php 10 million
As the registered owner of the remaining
three CB bills, the RCBC sold them to IVI
Capital and Insular Savings Bank. Again,
when the BSP refused to release the amount
of this CB bill on maturity, the RCBC paid
back its transferees, reacquired these three
CB bills and sold them to the BOC
ultimately, the BOC acquired these three CB
bills.
All in all, the BOC acquired the first set of
seven CB bills.
II. Second set of CB bills
On April 19, 1994, the RCBC, as registered
owner, (i) sold two CB bills with a total face
value of 20 million to the PDB and (ii)
delivered to the PDB the corresponding
Detached Assignment.17 The two CB bills
were particularly described as follows:
Serial No.: BB XM 045373
BB XM 045374
January 3,
Issue date:
1994
January 2,
Maturity date:
1995
Denomination: Php 10 million
Total Face value: Php 20 million
On even date, the PDB delivered to Bancap
the two CB bills18 (April 19 transaction). In
turn, Bancap sold the CB bills to Al-Amanah
Islamic Investment Bank of the Philippines,
which in turn sold it to the BOC.19
PDBs move against the transfer of
the first and second sets of CB bills
On June 30, 1994, upon learning of the
transfers involving the CB bills, the PDB
informed20 the Officer-in-Charge of the BSPs
Government Securities
Department, Lagrimas Nuqui, of the PDBs
21
claim over these CB bills, based on the
Detached Assignments in its possession.
The PDB requested the BSP22 to record its
claim in the BSPs books, explaining that its
non-possession of the CB bills is "on account
of imperfect negotiations thereof and/or
subsequent setoff or transfer."23
Nuqui denied the request, invoking Section 8
of CB Circular No. 28 (Regulations
Governing Open Market Operations,
Stabilization of the Securities Market, Issue,
Servicing and Redemption of the Public
Debt)24 which requires the presentation of
the bond before a registered bond may be
transferred on the books of the BSP.25
In a July 25, 1994 letter, the PDB clarified to
Nuqui that it was not "asking for the transfer
of the CB Bills. rather it intends to put the
BSP on formal notice that whoever is in
possession of said bills is not a holder in due
course," and, therefore the BSP should not
make payment upon the presentation of the
CB bills on maturity.26 Nuqui responded that
the BSP was "not in a position at that point in
time to determine who is and who is not the
holder in due course since it is not privy to all
acts and time involving the transfers or
negotiation" of the CB bills. Nuqui added that
the BSPs action shall be governed by CB
Circular No. 28, as amended.27
On November 17, 1994, the PDB also asked
BSP Deputy Governor Edgardo Zialcita that
(i) a notation in the BSPs books be made
against the transfer, exchange, or payment
of the bonds and the payment of interest
thereon; and (ii) the presenter of the bonds
upon maturity be required to submit proof as
a holder in due course (of the first set of CB
bills). The PDB relied on Section 10 (d) 4 of
CB Circular No. 28.28 This provision reads:
(4) Assignments effected by fraud Where
the assignment of a registered bond is
secured by fraudulent representations, the
Central Bank can grant no relief if the
assignment has been honored without notice
of fraud. Otherwise, the Central Bank, upon
receipt of notice that the assignment is
claimed to have been secured by fraudulent
representations, or payment of the bond the
payment of interest thereon, and when the
bond is presented, will call upon the owner
and the person presenting the bond to
substantiate their respective claims.If it then
appears that the person presenting the bond
stands in the position of bonafide holder for
value, the Central Bank, after giving the
owner an opportunity to assert his claim, will
pass the bond for transfer, exchange or
payments, as the case may be, without
further question.
In a December 29, 1994 letter, Nuqui again
denied the request, reiterating the BSPs
previous stand.
In light of these BSP responses and the
impending maturity of the CB bills, the PDB
filed29 with the RTC two separate petitions for
Mandamus, Prohibition and Injunction with
prayer for Preliminary Injunction and
Temporary Restraining Order, docketed as
Civil Case No. 94-3233 (covering the first set
of CB bills) and Civil Case 94-3254 (covering
the second set of CB bills) against Nuqui, the
BSP and the RCBC.30
The PDB essentially claims that in both the
April 15 transaction (involving the first set of
CB bills) and the April 19 transaction
(involving the second set of CB bills), there
was no intent on its part to transfer title of the
CB bills, as shown by its non-issuance of a
detached assignment in favor of the BOC
and Bancap, respectively. The PDB
particularly alleges that it merely
31
"warehoused" the first set of CB bills with
the BOC, as security collateral.
On December 28, 1994, the RTC temporarily
enjoined Nuqui and the BSP from paying the
face value of the CB bills on maturity.32 On
January 10, 1995, the PDB filed an Amended
Petition, additionally impleading the BOC
and All Asia.33 In a January 13, 1995 Order,
the cases were consolidated.34 On January
17, 1995, the RTC granted the PDBs
application for a writ of preliminary
prohibitory injunction.35 In both petitions, the
PDB identically prayed:
WHEREFORE, it is respectfully prayed x x x
that, after due notice and hearing, the Writs
of Mandamus, Prohibition and Injunction, be
issued; (i) commanding the BSP and Nuqui,
or whoever may take her place -
(a) to record forthwith in the books of BSP the
claim of x x x PDB on the [two sets of] CB
Bills in accordance with Section 10 (d) (4) of
revised C.B. Circular No. 28; and
(b) also pursuant thereto, when the bills are
presented on maturity date for payment, to
call (i) x x x PDB, (ii) x x x RCBC x x x, (iii) x
x x BOC x x x, and (iv) x x x ALL-ASIA x x x;
or whoever will present the [first and second
sets of] CB Bills for payment, to submit proof
as to who stands as the holder in due course
of said bills, and, thereafter, act accordingly;
and (ii) ordering the BSP and Nuqui to pay
jointly and severally to x x x PDB the
following:
(a) the sum of 100,000.00, as and
for exemplary damages;
(b) the sum of at least 500,000.00,
or such amount as shall be proved at
the trial, as and for attorneys fees;
(c) the legal rate of interest from the
filing of this Petition until full payment
of the sums mentioned in this
Petition; and
(d) the costs of suit.36
After the petitions were filed, the BOC
acquired/reacquired all the nine CB bills
the first and second sets of CB bills
(collectively, subject CB bills).
Defenses of the BSP and of the BOC37
The BOC filed its Answer, praying for the
dismissal of the petition. It argued that the
PDB has no cause of action against it since
the PDB is no longer the owner of the CB
bills. Contrary to the PDBs "warehousing
theory,"38 the BOC asserted that the (i) April
15 transaction and the (ii) April 19 transaction
covering both sets of CB bills - were valid
contracts of sale, followed by a transfer of
title (i) to the BOC (in the April 15 transaction)
upon the PDBs delivery of the 1st set of CB
bills in substitution of the Treasury Bills the
PDB originally intended to sell, and (ii) to
Bancap (in the April 19 transaction) upon the
PDBs delivery of the 2nd set of CB bills to
Bancap, likewise by way of substitution.
The BOC adds that Section 10 (d) 4 of CB
Circular No. 28 cannot apply to the PDBs
case because (i) the PDB is not in
possession of the CB bills and (ii) the BOC
acquired these bills from the PDB, as to the
1st set of CB bills, and from Bancap, as to
the 2nd set of CB bills, in good faith and for
value. The BOC also asserted a compulsory
counterclaim for damages and attorneys
fees.
On the other hand, the BSP countered that
the PDB cannot invoke Section 10 (d) 4 of
CB Circular No. 28 because this section
applies only to an "owner" and a "person
presenting the bond," of which the PDB is
neither. The PDB has not presented to the
BSP any assignment of the subject CB bills,
duly recorded in the BSPs books, in its favor
to clothe it with the status of an
"owner."39 According to the BSP
Section 10 d. (4) applies only to a registered
bond which is assigned. And the issuance of
CB Bills x x x are required to be
recorded/registered in BSPs books. In this
regard, Section 4 a. (1) of CB Circular 28
provides that registered bonds "may be
transferred only by an assignment thereon
duly executed by the registered owner or his
duly authorized representative x x x and duly
recorded on the books of the Central Bank."
xxxx
The alleged assignment of subject CB Bills in
PDBs favor is not recorded/registered in
BSPs books.40(underscoring supplied)
Consequently, when Nuqui and the BSP
refused the PDBs request (to record its
claim), they were merely performing their
duties in accordance with CB Circular No. 28.
Alternatively, the BSP asked that an
interpleader suit be allowed between and
among the claimants to the subject CB bills
on the position that while it is able and willing
to pay the subject CB bills face value, it is
duty bound to ensure that payment is made
to the rightful owner. The BSP prayed that
judgment be rendered:
a. Ordering the dismissal of the
PDBs petition for lack of merit;
b. Determining which
between/among [PDB] and the other
 claimants is/are lawfully entitled to
the ownership of the subject CB bills
and the proceeds thereof;
c. x x x;
d. Ordering PDB to pay BSP and
Nuqui such actual/compensatory and
exemplary damages as the RTC
may deem warranted; and
e. Ordering PDB to pay Nuqui moral
damages and to pay the costs of
the suit.41
Subsequent events
The PDB agreed with the BSPs alternative
response for an interpleader
4. PDB agrees that the various claimants
should now interplead and substantiate their
respective claims on the subject CB bills.
However, the total face value of the subject
CB bills should be deposited in escrow with
a private bank to be disposed of only upon
order of the RTC.42
Accordingly, on June 9, 199543 and August 4,
1995,44 the BOC and the PDB entered into
two separate Escrow Agreements.45 The first
agreement covered the first set of CB bills,
while the second agreement covered the
second set of CB bills. The parties agreed to
jointly collect from the BSP the maturity
proceeds of these CB bills and to deposit
said amount in escrow, "pending final
determination by Court judgment, or
amicable settlement as to who shall be
eventually entitled thereto."46 The BOC and
the PDB filed a Joint Motion,47 submitting
these Escrow Agreements for court
approval. The RTC gave its approval to the
parties Joint Motion.48 Accordingly, the BSP
released the maturity proceeds of the CB
bills by crediting the Demand Deposit
Account of the PDB and of the BOC with 50%
each of the maturity proceeds of the amount
in escrow.49
In view of the BOCs acquisition of all the CB
bills, All Asia50 moved to be dropped as a
respondent (with the PDBs conformity51 ),
which the RTC granted.52 The RCBC
subsequently followed suit.53
In light of the developments, on May 4, 1998,
the RTC required the parties to manifest their
intention regarding the case and to inform
the court of any amicable settlement;
"otherwise, th[e] case shall be dismissed for
lack of interest."54 Complying with the RTCs
order, the BOC moved (i) that the case be set
for pre-trial and (ii) for further proceeding to
resolve the remaining issues between the
BOC and the PDB, particularly on "who has
a better right over the subject CB bills."55 The
PDB joined the BOC in its motion.56
On September 28, 2000, the RTC granted
the BSPs motion to interplead and,
accordingly, required the BOC to amend its
Answer and for the conflicting claimants to
comment thereon.57 In October 2000, the
BOC filed its Amended Consolidated Answer
with Compulsory Counterclaim, reiterating its
earlier arguments asserting ownership over
the subject CB bills.58
In the alternative, the BOC added that even
assuming that there was no effective transfer
of the nine CB bills ultimately to the BOC, the
PDB remains obligated to deliver to the BOC,
as buyer in the April 15 transaction and
ultimate successor-in-interest of the buyer
(Bancap) in the April 19 transaction, either
the original subjects of the sales or the value
thereof, plus whatever income that may have
been earned during the pendency of the
case.59
That BOC prayed:
1. To declare BOC as the rightful
owner of the nine (9) CB bills and as
the party entitled to the proceeds
thereof as well as all income earned
pursuant to the two (2) Escrow
Agreements entered into by BOC and
PDB.
 2. In the alternative, ordering PDB to
deliver the original subject of the
sales transactions or the value
thereof and whatever income earned
by way of interest at prevailing rate.
Without any opposition or objection from the
PDB, on February 23, 2001, the RTC
admitted60 the BOCs Amended
Consolidated Answer with Compulsory
Counterclaims.
In May 2001, the PDB filed an Omnibus
Motion,61 questioning the RTCs jurisdiction
over the BOCs "additional counterclaims."
The PDB argues that its petitions pray for the
BSP (not the RTC) to determine who among
the conflicting claimants to the CB bills
stands in the position of the bona fide holder
for value. The RTC cannot entertain the
BOCs counterclaim, regardless of its nature,
because it is the BSP which has jurisdiction
to determine who is entitled to receive the
proceeds of the CB bills.
The BOC opposed62 the PDBs Omnibus
Motion. The PDB filed its Reply.63
In a January 10, 2002 Order, the RTC
dismissed the PDBs petition, the BOCs
counterclaim and the BSPs counter-
complaint/cross-claim for interpleader,
holding that under CB Circular No. 28, it has
no jurisdiction (i) over the BOCs
"counterclaims" and (ii) to resolve the issue
of ownership of the CB bills.64 With the denial
of their separate motions for
Reconsideration,65 the BOC and the BSP
separately filed the present petitions for
review on certiorari.66
THE BOCS and THE BSPS PETITIONS
The BOC argues that the present cases do
not fall within the limited provision of Section
10 (d) 4 of CB Circular No. 28, which
contemplates only of three situations: first,
where the fraudulent assignment is not
coupled with a notice to the BSP, it can grant
no relief; second, where the fraudulent
assignment is coupled with a notice of fraud
to the BSP, it will make a notation against the
assignment and require the owner and the
holder to substantiate their claims; and third,
where the case does not fall on either of the
first two situations, the BSP will have to await
action on the assignment pending settlement
of the case, whether by agreement or by
court order.
The PDBs case cannot fall under the first
two situations. With particular regard to the
second situation, CB Circular No. 28 requires
that the conflict must be between an "owner"
and a "holder," for the BSP to exercise its
limited jurisdiction to resolve conflicting
claims; and the word "owner" here refers to
the registered owner giving notice of the
fraud to the BSP. The PDB, however, is not
the registered owner nor is it in possession
(holder) of the CB bills.67Consequently, the
PDBs case can only falls under the third
situation which leaves the RTC, as a court of
general jurisdiction, with the authority to
resolve the issue of ownership of a registered
bond (the CB bills) not falling in either of the
first two situations.
The BOC asserts that the policy
consideration supportive of its interpretation
of CB Circular No. 28 is to have a reliable
system to protect the registered owner;
should he file a notice with the BSP about a
fraudulent assignment of certain CB bills, the
BSP simply has to look at its books to
determine who is the owner of the CB bills
fraudulently assigned. Since it is only the
registered owner who complied with the
BSPs requirement of recording an
assignment in the BSPs books, then "the
protective mantle of administrative
proceedings" should necessarily benefit him
only, without extending the same benefit to
those who chose to ignore the Circulars
requirement, like the PDB.68
Assuming arguendo that the PDBs case falls
under the second situation i.e., the BSP
has jurisdiction to resolve the issue of
ownership of the CB bills the more recent
CB Circular No. 769-80 (Rules and
Regulations Governing Central Bank
Certificates of Indebtedness) already
superseded CB Circular No. 28, and, in
particular, effectively amended Section 10
(d) 4 of CB Circular No. 28. The pertinent
provisions of CB Circular No. 769-80 read:
Assignment Affected by Fraud. Any
assignment for transfer of ownership of
registered certificate obtained through
fraudulent representation if honored by the
Central Bank or any of its authorized service
agencies shall not make the Central Bank or
agency liable therefore unless it has previous
formal notice of the fraud. The Central Bank,
upon notice under oath that the assignment
was secured through fraudulent means, shall
immediately issue and circularize a "stop
order" against the transfer, exchange,
redemption of the Certificate including the
payment of interest coupons. The Central
Bank or service agency concerned shall
continue to withhold action on the certificate
until such time that the conflicting claims
have been finally settled either by amicable
settlement between the parties or by order of
the Court.
Unlike CB Circular No. 28, CB Circular No.
769-80 limited the BSPs authority to the
mere issuance and circularization of a "stop
order" against the transfer, exchange and
redemption upon sworn notice of a
fraudulent assignment. Under this Circular,
the BSP shall only continue to withhold
action until the dispute is ended by an
amicable settlement or by judicial
determination. Given the more passive
stance of the BSP the very agency tasked
to enforce the circulars involved - under CB
Circular No. 769-80, the RTCs dismissal of
the BOCs counterclaims is palpably
erroneous.
Lastly, since Nuquis office (Government
Securities Department) had already been
abolished,69 it can no longer adjudicate the
dispute under the second situation covered
by CB Circular No. 28. The abolition of
Nuquis office is not only consistent with the
BSPs Charter but, more importantly, with CB
Circular No. 769-80, which removed the
BSPs adjudicative authority over fraudulent
assignments.
THE PDBS COMMENT
The PDB claims that jurisdiction is
determined by the allegations in the
complaint/petition and not by the defenses
set up in the answer.70 In filing the petition
with the RTC, the PDB merely seeks to
compel the BSP to determine, pursuant to
CB Circular No. 28, the party legally entitled
to the proceeds of the subject CB bills, which,
as the PDB alleged, have been transferred
through fraudulent representations an
allegation which properly recognized the
BSPs jurisdiction to resolve conflicting
claims of ownership over the CB bills.
The PDB adds that under the doctrine of
primary jurisdiction, courts should refrain
from determining a controversy involving a
question whose resolution demands the
exercise of sound administrative discretion.
In the present case, the BSPs special
knowledge and experience in resolving
disputes on securities, whose assignment
and trading are governed by the BSPs rules,
should be upheld.
The PDB counters that the BOCs tri-fold
interpretation of Section 10 (d) 4 of CB
Circular No. 28 sanctions split jurisdiction
which is not favored;but even this tri-fold
interpretation which, in the second situation,
limits the meaning of the "owner" to the
registered owner is flawed. Section 10 (d) 4
aims to protect not just the registered owner
but anyone who has been deprived of his
bond by fraudulent representation in order to
deter fraud in the secondary trading of
government securities.
The PDB asserts that the existence of CB
Circular No. 769-80 or the abolition of
Nuquis office does not result in depriving the
BSP of its jurisdiction: first, CB Circular No.
769-80 expressly provides that CB Circular
No. 28 shall have suppletory application to
CB Circular No. 769-80; and second, the
BSP can always designate an office to
resolve the PDBs claim over the CB bills.
Lastly, the PDB argues that even assuming
that the RTC has jurisdiction to resolve the
issue of ownership of the CB bills, the RTC
has not acquired jurisdiction over the BOCs
so-called "compulsory" counterclaims (which
in truth is merely "permissive") because of
the BOCs failure to pay the appropriate
docket fees. These counterclaims should,
therefore, be dismissed and expunged from
the record.
THE COURTS RULING
We grant the petitions.
At the outset, we note that the parties have
not raised the validity of either CB Circular
No. 28 or CB Circular No. 769-80 as an
issue. What the parties largely contest is the
applicable circular in case of an allegedly
fraudulently assigned CB bill. The applicable
circular, in turn, is determinative of the proper
remedy available to the PDB and/or the BOC
as claimants to the proceeds of the subject
CB bills.
Indisputably, at the time the PDB supposedly
invoked the jurisdiction of the BSP in 1994
(by requesting for the annotation of its claim
over the subject CB bills in the BSPs books),
CB Circular No. 769-80 has long been in
effect. Therefore, the parties respective
interpretations of the provision of Section 10
(d) 4 of CB Circular No. 28 do not have any
significance unless it is first established that
that Circular governs the resolution of their
conflicting claims of ownership. This
conclusion is important, given the supposed
repeal or modification of Section 10 (d) 4 of
CB Circular No. 28 by the following
provisions of CB Circular No. 769-80:
ARTICLE XI
SUPPLEMENTAL RULES
Section 1. Central Bank Circular No. 28
The provisions of Central Bank Circular No.
28 shall have suppletory application to
matters not specially covered by these
Rules.
ARTICLE XII
EFFECTIVITY
Effectivity The rules and regulations herein
prescribed shall take effect upon approval by
the Monetary Board, Central Bank of the
Philippines, and all circulars, memoranda, or
office orders inconsistent herewith are
revoked or modified accordingly. (Emphases
added)
We agree with the PDB that in view of CB
Circular No. 28s suppletory application, an
attempt to harmonize the apparently
conflicting provisions is a prerequisite before
one may possibly conclude that an
amendment or a repeal
exists.71 Interestingly, however, even the
PDB itself failed to submit an interpretation
based on its own position of harmonization.
The repealing clause of CB Circular No. 769-
80 obviously did not expressly repeal CB
Circular No. 28; in fact, it even provided for
the suppletory application of CB Circular No.
28 on "matters not specially covered by" CB
Circular No. 769-80. While no express repeal
exists, the intent of CB Circular No. 769-80
to operate as an implied repeal,72or at least
to amend earlier CB circulars, is supported
by its text "revoking" or "modif[ying" "all
circulars" which are inconsistent with its
terms.
At the outset, we stress that none of the
parties disputes that the subject CB bills fall
within the category of a certificate or
evidence of indebtedness and that these
were issued by the Central Bank, now the
BSP. Thus, even without resorting to
statutory construction aids, matters involving
the subject CB bills should necessarily be
governed by CB Circular No. 769-80. Even
granting, however, that reliance on CB
Circular No. 769-80 alone is not enough, we
find that CB Circular No. 769-80 impliedly
repeals CB Circular No. 28.
An implied repeal transpires when a
substantial conflict exists between the new
and the prior laws. In the absence of an
express repeal, a subsequent law cannot be
construed as repealing a prior law unless an
irreconcilable inconsistency and repugnancy
exist in the terms of the new and the old
laws.73 Repeal by implication is not favored,
unless manifestly intended by the legislature,
or unless it is convincingly and
unambiguously demonstrated, that the laws
or orders are clearly repugnant and patently
inconsistent with one another so that they
cannot co-exist; the legislature is presumed
to know the existing law and would express
a repeal if one is intended.74
There are two instances of implied repeal.
One takes place when the provisions in the
two acts on the same subject matter are
irreconcilably contradictory, in which case,
the later act, to the extent of the conflict,
constitutes an implied repeal of the earlier
one. The other occurs when the later act
covers the whole subject of the earlier one
and is clearly intended as a substitute; thus,
it will operate to repeal the earlier law.75
A general reading of the two circulars shows
that the second instance of implied repeal is
present in this case. CB Circular No. 28,
entitled "Regulations Governing Open
Market Operations, Stabilization of
Securities Market, Issue, Servicing and
Redemption of Public Debt," is a regulation
governing the servicing and redemption of
public debt, including the issue, inscription,
registration, transfer, payment and
replacement of bonds and securities
representing the public debt.76 On the other
hand, CB Circular No. 769-80, entitled
"Rules and Regulations Governing Central
Bank Certificate of Indebtedness," is the
governing regulation on matters77 (i)
involving certificate of indebtedness78issued
by the Central Bank itself and (ii) which are
similarly covered by CB Circular No. 28.
The CB Monetary Board issued CB Circular
No. 28 to regulate the servicing and
redemption of public debt, pursuant to
Section 124 (now Section 119 of Republic
Act R.A. No. 7653) of the old Central Bank
law79 which provides that "the servicing and
redemption of the public debt shall also be
effected through the Bangko Sentral."
However, even as R.A. No. 7653 continued
to recognize this role by the BSP, the law
required a phase-out of all fiscal agency
functions by the BSP, including Section 119
of R.A. No. 7653.
In other words, even if CB Circular No. 28
applies broadly to both government-issued
bonds and securities and Central Bank-
issued evidence of indebtedness, given the
present state of law, CB Circular No. 28 and
CB Circular No. 769-80 now operate on the
same subject Central Bank-issued
evidence of indebtedness. Under Section 1,
Article XI of CB Circular No. 769-80, the
continued relevance and application of CB
Circular No. 28 would depend on the need to
supplement any deficiency or silence in CB
Circular No. 769-80 on a particular matter.
In the present case, both CB Circular No. 28
and CB Circular No. 769-80 provide the BSP
with a course of action in case of an allegedly
fraudulently assigned certificate of
indebtedness. Under CB Circular No. 28, in
case of fraudulent assignments, the BSP
would have to "call upon the owner and the
person presenting the bond to substantiate
their respective claims" and, from there,
determine who has a better right over the
registered bond. On the other hand, under
CB Circular No. 769-80, the BSP shall
merely "issue and circularize a stop order
against the transfer, exchange, redemption
of the [registered] certificate" without any
adjudicative function (which is the precise
root of the present controversy). As the two
circulars stand, the patent irreconcilability of
these two provisions does not require
elaboration. Section 5, Article V of CB
Circular No. 769-80 inescapably repealed
Section 10 (d) 4 of CB Circular No. 28.
The issue of BSPs jurisdiction, lay hidden
On that note, the Court could have written
finis to the present controversy by simply
sustaining the BSPs hands-off approach to
the PDBs problem under CB Circular No.
769-80. However, the jurisdictional provision
of CB Circular No. 769-80 itself, in relation to
CB Circular No. 28, on the matter of
fraudulent assignment, has given rise to a
question of jurisdiction - the core question of
law involved in these petitions - which the
Court cannot just treat sub-silencio.
Broadly speaking, jurisdiction is the legal
power or authority to hear and determine a
cause.80 In the exercise of judicial or quasi-
judicial power, it refers to the authority of a
court to hear and decide a case.81 In the
context of these petitions, we hark back to
the basic principles governing the question of
jurisdiction over the subject matter.
First, jurisdiction over the subject matter is
determined only by the Constitution and by
law.82 As a matter of substantive law,
procedural rules alone can confer no
jurisdiction to courts or administrative
agencies.83 In fact, an administrative agency,
acting in its quasi-judicial capacity, is a
tribunal of limited jurisdiction and, as such,
could wield only such powers that are
specifically granted to it by the enabling
statutes. In contrast, an RTC is a court of
general jurisdiction, i.e., it has jurisdiction
over cases whose subject matter does not
fall within the exclusive original jurisdiction of
any court, tribunal or body exercising judicial
or quasi-judicial functions.84
Second, jurisdiction over the subject matter
is determined not by the pleas set up by the
defendant in his answer85but by the
allegations in the complaint,86 irrespective of
whether the plaintiff is entitled to favorable
judgment on the basis of his
assertions.87 The reason is that the complaint
is supposed to contain a concise statement
of the ultimate facts constituting the plaintiff's
causes of action.88
Third, jurisdiction is determined by the law in
force at the time of the filing of the
complaint.89
Parenthetically, the Court observes that
none of the parties ever raised the issue of
whether the BSP can simply disown its
jurisdiction, assuming it has, by the simple
expedient of promulgating a new circular
(specially applicable to a certificate of
indebtedness issued by the BSP itself),
inconsistent with an old circular, assertive of
its limited jurisdiction over ownership issues
arising from fraudulent assignments of a
certificate of indebtedness. The PDB, in
particular, relied solely and heavily on CB
Circular No. 28.
In light of the above principles pointing to
jurisdiction as a matter of substantive law,
the provisions of the law itself that gave CB
Circular 769-80 its life and jurisdiction must
be examined.
The Philippine Central Bank
On January 3, 1949, Congress created the
Central Bank of the Philippines (Central
Bank) as a corporate body with the primary
objective of (i) maintaining the internal and
external monetary stability in the Philippines;
and (ii) preserving the international value and
the convertibility of the peso.90 In line with
these broad objectives, the Central Bank
was empowered to issue rules and
regulations "necessary for the effective
discharge of the responsibilities and exercise
of the powers assigned to the Monetary
Board and to the Central
Bank."91 Specifically, the Central Bank is
authorized to organize (other) departments
for the efficient conduct of its business and
whose powers and duties "shall be
determined by the Monetary Board, within
the authority granted to the Board and the
Central Bank"92 under its original charter.
With the 1973 Constitution, the then Central
Bank was constitutionally made as the
countrys central monetary authority until
such time that Congress93 shall have
established a central bank. The 1987
Constitution continued to recognize this
function of the then Central Bank until
Congress, pursuant to the Constitution,
created a new central monetary authority
which later came to be known as the Bangko
Sentral ng Pilipinas.
Under the New Central Bank Act (R.A. No.
7653),94 the BSP is given the responsibility of
providing policy directions in the areas of
money, banking and credit; it is given, too,
the primary objective of maintaining price
stability, conducive to a balanced and
sustainable growth of the economy, and of
promoting and maintaining monetary stability
and convertibility of the peso.95
The Constitution expressly grants the BSP,
as the countrys central monetary authority,
the power of supervision over the operation
of banks, while leaving with Congress the
authority to define the BSPs regulatory
powers over the operations of finance
companies and other institutions performing
similar functions. Under R.A. No. 7653, the
BSPs powers and functions include (i)
supervision over the operation of banks; (ii)
regulation of operations of finance
companies and non-bank financial
institutions performing quasi banking
functions; (iii) sole power and authority to
issue currency within the Philippine territory;
(iv) engaging in foreign exchange
transactions; (v) making rediscounts,
discounts, loans and advances to banking
and other financial institutions to influence
the volume of credit consistent with the
objective of achieving price stability; (vi)
engaging in open market operations; and
(vii) acting as banker and financial advisor of
the government.1wphi1
On the BSPs power of supervision over the
operation of banks, Section 4 of R.A. No.
8791 (The General Banking Law of 2000)
elaborates as follows:
CHAPTER II
AUTHORITY OF THE BANGKO SENTRAL
SECTION 4. Supervisory Powers. The
operations and activities of banks shall be
subject to supervision of the Bangko Sentral.
"Supervision" shall include the following:
4.1. The issuance of rules of conduct
or the establishment of standards of
operation for uniform application to all
institutions or functions covered,
taking into consideration the
distinctive character of the operations
of institutions and the substantive
similarities of specific functions to
which such rules, modes or
standards are to be applied;
4.2. The conduct of examination to
determine compliance with laws and
regulations if the circumstances so
warrant as determined by the
Monetary Board;
4.3. Overseeing to ascertain that
laws and regulations are complied
with;
4.4. Regular investigation which shall
not be oftener than once a year from
the last date of examination to
determine whether an institution is
conducting its business on a safe or
sound basis: Provided, That the
deficiencies/irregularities found by or
discovered by an audit shall be
immediately addressed;
4.5. Inquiring into the solvency and
liquidity of the institution (2-D); or
4.6. Enforcing prompt corrective
action. (n)
The Bangko Sentral shall also have
supervision over the operations of and
exercise regulatory powers over quasi-
banks, trust entities and other financial
institutions which under special laws are
subject to Bangko Sentral supervision. (2-
Ca)
For the purposes of this Act, "quasi-banks"
shall refer to entities engaged in the
borrowing of funds through the issuance,
endorsement or assignment with recourse or
acceptance of deposit substitutes as defined
in Section 95 of Republic Act No. 7653
(hereafter the "New Central Bank Act") for
purposes of relending or purchasing of
receivables and other obligations. [emphasis
ours]
While this provision empowers the BSP to
oversee the operations and activities of
banks to "ascertain that laws and regulations
are complied with," the existence of the
BSPs jurisdiction in the present dispute
cannot rely on this provision. The fact
remains that the BSP already made known
to the PDB its unfavorable position on the
latters claim of fraudulent assignment due to
the latters own failure to comply96 with
existing regulations:
In this connection, Section 10 (b) 2 also
requires that a "Detached assignment will be
recognized or accepted only upon previous
notice to the Central Bank x x x." In fact, in a
memo dated September 23, 1991 xxx then
CB Governor Jose L. Cuisia advised all
banks (including PDB) xxx as follows:
In view recurring incidents ostensibly
disregarding certain provisions of CB circular
No. 28 (as amended) covering assignments
of registered bonds, all banks and all
concerned are enjoined to observe strictly
the pertinent provisions of said CB Circular
as hereunder quoted:
xxxx
Under Section 10.b. (2)
x x x Detached assignment will be
recognized or accepted only upon previous
notice to the Central Bank and its use is
authorized only under the following
circumstances:
(a) x x x
(b) x x x
(c) assignments of treasury notes
and certificates of indebtedness in
registered form which are not
provided at the back thereof with
assignment form.
(d) Assignment of securities which
have changed ownership several
times.
(e) x x x
Non-compliance herewith will constitute a
basis for non-action or withholding of action
on redemption/payment of interest
coupons/transfer transactions or
denominational exchange that may be
directly affected thereby. [Boldfacing
supplied]
Again, the books of the BSP do not show that
the supposed assignment of subject CB Bills
was ever recorded in the BSPs books.
[Boldfacing supplied]
However, the PDB faults the BSP for not
recording the assignment of the CB bills in
the PDBs favor despite the fact that the PDB
already requested the BSP to record its
assignment in the BSPs books as early as
June 30, 1994.97
The PDBs claim is not accurate. What the
PDB requested the BSP on that date was not
the recording of the assignment of the CB
bills in its favor but the annotation of its claim
over the CB bills at the time when (i) it was
no longer in possession of the CB bills,
having been transferred from one entity to
another and (ii) all it has are the detached
assignments, which the PDB has not shown
to be compliant with Section 10 (b) 2 above-
quoted. Obviously, the PDB cannot insist
that the BSP take cognizance of its plaint
when the basis of the BSPs refusal under
existing regulation, which the PDB is bound
to observe, is the PDBs own failure to
comply therewith.
True, the BSP exercises supervisory powers
(and regulatory powers) over banks (and
quasi banks). The issue presented before
the Court, however, does not concern the
BSPs supervisory power over banks as this
power is understood under the General
Banking Law. In fact, there is nothing in the
PDBs petition (even including the letters it
sent to the BSP) that would support the
BSPs jurisdiction outside of CB Circular No.
28, under its power of supervision, over
conflicting claims to the proceeds of the CB
bills.
BSP has quasi-judicial powers over a
class of cases which does not include
the adjudication of ownership of the
CB bills in question
In United Coconut Planters Bank v. E.
Ganzon, Inc.,98 the Court considered the
BSP as an administrative
agency,99exercising quasi-judicial functions
through its Monetary Board. It held:
A quasi-judicial agency or body is an organ
of government other than a court and other
than a legislature, which affects the rights of
private parties through either adjudication or
rule-making. The very definition of an
administrative agency includes its being
vested with quasi-judicial powers. The ever
increasing variety of powers and functions
given to administrative agencies recognizes
the need for the active intervention of
administrative agencies in matters calling for
technical knowledge and speed in countless
controversies which cannot possibly be
handled by regular courts. A "quasi-judicial
function" is a term which applies to the
action, discretion, etc., of public
administrative officers or bodies, who are
required to investigate facts, or ascertain the
existence of facts, hold hearings, and draw
conclusions from them, as a basis for their
official action and to exercise discretion of a
judicial nature.
Undoubtedly, the BSP Monetary Board is a
quasi-judicial agency exercising quasi-
judicial powers or functions. As aptly
observed by the Court of Appeals, the BSP
Monetary Board is an independent central
monetary authority and a body corporate
with fiscal and administrative autonomy,
mandated to provide policy directions in the
areas of money, banking and credit. It has
power to issue subpoena, to sue for
contempt those refusing to obey the
subpoena without justifiable reason, to
administer oaths and compel presentation of
books, records and others, needed in its
examination, to impose fines and other
sanctions and to issue cease and desist
order. Section 37 of Republic Act No. 7653,
in particular, explicitly provides that the BSP
Monetary Board shall exercise its discretion
in determining whether administrative
sanctions should be imposed on banks and
quasi-banks, which necessarily implies that
the BSP Monetary Board must conduct some
form of investigation or hearing regarding the
same. [citations omitted]
The BSP is not simply a corporate entity but
qualifies as an administrative agency
created, pursuant to constitutional
100
mandate, to carry out a particular
governmental function.101 To be able to
perform its role as central monetary
authority, the Constitution granted it fiscal
and administrative autonomy. In general,
administrative agencies exercise powers
and/or functions which may be characterized
as administrative, investigatory, regulatory,
quasi-legislative, or quasi-judicial, or a mix of
these five, as may be conferred by the
Constitution or by statute.102
While the very nature of an administrative
agency and the raison d'tre for its
creation103 and proliferation dictate a grant of
quasi-judicial power to it, the matters over
which it may exercise this power must find
sufficient anchorage on its enabling law,
either by express provision or by necessary
implication. Once found, the quasi-judicial
power partakes of the nature of a limited and
special jurisdiction, that is, to hear and
determine a class of cases within its peculiar
competence and expertise. In other words,
the provisions of the enabling statute are the
yardsticks by which the Court would
measure the quantum of quasi-judicial
powers an administrative agency may
exercise, as defined in the enabling act of
such agency.104
Scattered provisions in R.A. No. 7653 and
R.A. No. 8791, inter alia, exist, conferring
jurisdiction on the BSP on certain
matters.105 For instance, under the situations
contemplated under Section 36, par.
2106 (where a bank or quasi bank persists in
carrying on its business in an unlawful or
unsafe manner) and Section 37107 (where the
bank or its officers willfully violate the banks
charter or by-laws, or the rules and
regulations issued by the Monetary Board) of
R.A. No. 7653, the BSP may place an entity
under receivership and/or liquidation or
impose administrative sanctions upon the
entity or its officers or directors.
Among its several functions under R.A. No.
7653, the BSP is authorized to engage in
open market operations and thereby "issue,
place, buy and sell freely negotiable
evidences of indebtedness of the Bangko
Sentral" in the following manner.
SEC. 90. Principles of Open Market
Operations. The open market purchases
and sales of securities by the Bangko Sentral
shall be made exclusively in accordance with
its primary objective of achieving price
stability.
xxxx
SEC. 92. Issue and Negotiation of Bangko
Sentral Obligations. In order to provide the
Bangko Sentral with effective instruments for
open market operations, the Bangko Sentral
may, subject to such rules and regulations as
the Monetary Board may prescribe and in
accordance with the principles stated in
Section 90 of this Act, issue, place, buy and
sell freely negotiable evidences of
indebtedness of the Bangko Sentral:
Provided, That issuance of such certificates
of indebtedness shall be made only in cases
of extraordinary movement in price levels.
Said evidences of indebtedness may be
issued directly against the international
reserve of the Bangko Sentral or against the
securities which it has acquired under the
provisions of Section 91 of this Act, or may
be issued without relation to specific types of
assets of the Bangko Sentral.
The Monetary Board shall determine the
interest rates, maturities and other
characteristics of said obligations of the
Bangko Sentral, and may, if it deems it
advisable, denominate the obligations in gold
or foreign currencies.
Subject to the principles stated in Section 90
of this Act, the evidences of indebtedness of
the Bangko Sentral to which this section
refers may be acquired by the Bangko
Sentral before their maturity, either through
purchases in the open market or through
redemptions at par and by lot if the Bangko
Sentral has reserved the right to make such
redemptions. The evidences of indebtedness
acquired or redeemed by the Bangko Sentral
shall not be included among its assets, and
shall be immediately retired and
cancelled.108 (italics supplied; emphases
ours)
The primary objective of the BSP is to
maintain price stability.109 The BSP has a
number of monetary policy instruments at its
disposal to promote price stability. To
increase or reduce liquidity in the financial
system, the BSP uses open market
operations, among others.110 Open market
operation is a monetary tool where the BSP
publicly buys or sells government
securities111 from (or to) banks and financial
institutions in order to expand or contract the
supply of money. By controlling the money
supply, the BSP is able to exert some
influence on the prices of goods and services
and achieve its inflation objectives.112
Once the issue and/or sale of a security is
made, the BSP would necessarily make a
determination, in accordance with its own
rules, of the entity entitled to receive the
proceeds of the security upon its maturity.
This determination by the BSP is an exercise
of its administrative powers113 under the law
as an incident to its power to prescribe rules
and regulations governing open market
operations to achieve the "primary objective
of achieving price stability."114As a matter of
necessity, too, the same rules and
regulations facilitate transaction with the
BSP by providing for an orderly manner of,
among others, issuing, transferring,
exchanging and paying securities
representing public debt.
Significantly, when competing claims of
ownership over the proceeds of the
securities it has issued are brought before it,
the law has not given the BSP the quasi-
judicial power to resolve these competing
claims as part of its power to engage in open
market operations. Nothing in the BSPs
charter confers on the BSP the jurisdiction or
authority to determine this kind of claims,
arising out of a subsequent transfer or
assignment of evidence of indebtedness a
matter that appropriately falls within the
competence of courts of general jurisdiction.
That the statute withholds this power from
the BSP is only consistent with the
fundamental reasons for the creation of a
Philippine central bank, that is, to lay down
stable monetary policy and exercise bank
supervisory functions. Thus, the BSPs
assumption of jurisdiction over competing
claims cannot find even a stretched-out
justification under its corporate powers "to do
and perform any and all things that may be
necessary or proper to carry out the
purposes" of R.A. No. 7653. 115
To reiterate, open market operation is a
monetary policy instrument that the BSP
employs, among others, to regulate the
supply of money in the economy to influence
the timing, cost and availability of money and
credit, as well as other financial factors, for
the purpose of stabilizing the price
level.116 What the law grants the BSP is a
continuing role to shape and carry out the
countrys monetary policy not the authority
to adjudicate competing claims of ownership
over the securities it has issued since this
authority would not fall under the BSPs
purposes under its charter.
While R.A. No. 7653117 empowers the BSP to
conduct administrative hearings and render
judgment for or against an entity under its
supervisory and regulatory powers and even
authorizes the BSP Governor to "render
decisions, or rulings x x x on matters
regarding application or enforcement of laws
pertaining to institutions supervised by the
BSP and laws pertaining to quasi-banks, as
well as regulations, policies or instructions
issued by the Monetary Board," it is precisely
the text of the BSPs own regulation (whose
validity is not here raised as an issue) that
points to the BSPs limited role in case of an
allegedly fraudulent assignment to simply (i)
issuing and circularizing a "stop order"
against the transfer, exchange, redemption
of the certificate of indebtedness, including
the payment of interest coupons, and (ii)
withholding action on the certificate.
A similar conclusion can be drawn from the
BSPs administrative adjudicatory power in
cases of "willful failure or refusal to comply
with, or violation of, any banking law or any
order, instruction or regulation issued by the
Monetary Board, or any order, instruction or
ruling by the Governor."118 The non-
compliance with the pertinent requirements
under CB Circular No. 28, as amended,
deprives a party from any right to demand
payment from the BSP.
In other words, the grant of quasi-judicial
authority to the BSP cannot possibly extend
to situations which do not call for the exercise
by the BSP of its supervisory or regulatory
functions over entities within its
jurisdiction.119
The fact alone that the parties involved are
banking institutions does not necessarily call
for the exercise by the BSP of its quasi-
judicial powers under the law.120
The doctrine of primary jurisdiction
argues against BSPs purported
authority to adjudicate ownership
issues over the disputed CB bills
Given the preceding discussions, even the
PDBs invocation of the doctrine of primary
jurisdiction is misplaced.
In the exercise of its plenary legislative
power, Congress may create administrative
agencies endowed with quasi-legislative and
quasi-judicial powers. Necessarily, Congress
likewise defines the limits of an agencys
jurisdiction in the same manner as it defines
the jurisdiction of courts.121 As a result, it may
happen that either a court or an
administrative agency has exclusive
jurisdiction over a specific matter or both
have concurrent jurisdiction on the same. It
may happen, too, that courts and agencies
may willingly relinquish adjudicatory power
that is rightfully theirs in favor of the other.
One of the instances when a court may
properly defer to the adjudicatory authority of
an agency is the applicability of the doctrine
of primary jurisdiction.122
As early as 1954, the Court applied the
doctrine of primary jurisdiction under the
following terms:
6. In the fifties, the Court taking cognizance
of the move to vest jurisdiction in
administrative commissions and boards the
power to resolve specialized disputes xxx
ruled that Congress in requiring the Industrial
Court's intervention in the resolution of labor-
management controversies xxx meant such
jurisdiction to be exclusive, although it did not
so expressly state in the law. The Court held
that under the "sense-making and
expeditious doctrine of primary jurisdiction ...
the courts cannot or will not determine a
controversy involving a question which is
within the jurisdiction of an administrative
tribunal, where the question demands the
exercise of sound administrative discretion
requiring the special knowledge, experience,
and services of the administrative tribunal to
determine technical and intricate matters of
fact, and a uniformity of ruling is essential to
comply with the purposes of the regulatory
statute administered."123 (emphasis ours)
In Industrial Enterprises, Inc. v. Court of
Appeals,124 the Court ruled that while an
action for rescission of a contract between
coal developers appears to be an action
cognizable by regular courts, the trial court
remains to be without jurisdiction to entertain
the suit since the contract sought to be
rescinded is "inextricably tied up with the
right to develop coal-bearing lands and the
determination of whether or not the reversion
of the coal operating contract over the
subject coal blocks to [the plaintiff] would be
in line with the countrys national program
and objective on coal-development and over-
all coal-supply-demand balance." It then
applied the doctrine of primary jurisdiction
In recent years, it has been the
jurisprudential trend to apply the doctrine of
primary jurisdiction in many cases involving
matters that demand the special competence
of administrative agencies. It may occur that
the Court has jurisdiction to take cognizance
of a particular case, which means that the
matter involved is also judicial in character.
However, if the case is such that its
determination requires the expertise,
specialized skills and knowledge of the
proper administrative bodies because
technical matters or intricate questions of
facts are involved, then relief must first be
obtained in an administrative proceeding
before a remedy will be supplied by the
courts even though the matter is within the
proper jurisdiction of a court. This is the
doctrine of primary jurisdiction. It applies
"where a claim is originally cognizable in the
courts, and comes into play whenever
enforcement of the claim requires the
resolution of issues which, under a
regulatory scheme, have been placed within
the special competence of an administrative
body."
Clearly, the doctrine of primary jurisdiction
finds application in this case since the
question of what coal areas should be
exploited and developed and which entity
should be granted coal operating contracts
over said areas involves a technical
determination by the Bureau of Energy
Development as the administrative agency in
possession of the specialized expertise to
act on the matter. The Trial Court does not
have the competence to decide matters
concerning activities relative to the
exploration, exploitation, development and
extraction of mineral resources like coal.
These issues preclude an initial judicial
determination. [emphases ours]
The absence of any express or implied
statutory power to adjudicate conflicting
claims of ownership or entitlement to the
proceeds of its certificates of indebtedness
finds complement in the similar absence of
any technical matter that would call for the
BSPs special expertise or competence.125 In
fact, what the PDBs petitions bear out is
essentially the nature of the transaction it
had with the subsequent transferees of the
subject CB bills (BOC and Bancap) and not
any matter more appropriate for special
determination by the BSP or any
administrative agency.
In a similar vein, it is well-settled that the
interpretation given to a rule or regulation by
those charged with its execution is entitled to
the greatest weight by the courts construing
such rule or regulation.126 While there are
exceptions127 to this rule, the PDB has not
convinced us that a departure is warranted in
this case. Given the non-applicability of the
doctrine of primary jurisdiction, the BSPs
own position, in light of Circular No. 769-80,
deserves respect from the Court.
Ordinarily, cases involving the application of
doctrine of primary jurisdiction are initiated
by an action invoking the jurisdiction of a
court or administrative agency to resolve the
substantive legal conflict between the
parties. In this sense, the present case is
quite unique since the courts jurisdiction
was, originally, invoked to compel an
administrative agency (the BSP) to resolve
the legal conflict of ownership over the CB
bills - instead of obtaining a judicial
determination of the same dispute.
The remedy of interpleader
Based on the unique factual premise of the
present case, the RTC acted correctly in
initially assuming jurisdiction over the PDBs
petition for mandamus, prohibition and
injunction.128 While the RTC agreed (albeit
erroneously) with the PDBs view (that the
BSP has jurisdiction), it, however, dismissed
not only the BOCs/the BSPs counterclaims
but the PDBs petition itself as well, on the
ground that it lacks jurisdiction.
This is plain error.
Not only the parties themselves, but more so
the courts, are bound by the rule on non-
waiver of jurisdiction.129believes that
jurisdiction over the BOCs counterclaims
and the BSPs counterclaim/crossclaim for
interpleader calls for the application of the
doctrine of primary jurisdiction, the allowance
of the PDBs petition even becomes
imperative because courts may raise the
issue of primary jurisdiction sua sponte.130
Of the three possible options available to the
RTC, the adoption of either of these two
would lead the trial court into serious legal
error: first, if it granted the PDBs petition, its
decision would have to be set aside on
appeal because the BSP has no jurisdiction
as previously discussed; and second when it
dismissed the PDBs petitions and the BOCs
counterclaims on the ground that it lacks
jurisdiction, the trial court seriously erred
because precisely, the resolution of the
conflicting claims over the CB bills falls within
its general jurisdiction.
Without emasculating its jurisdiction, the
RTC could have properly dismissed the
PDBs petition but on the ground that
mandamus does not lie against the BSP; but
even this correct alternative is no longer
plausible since the BSP, as a respondent
below, already properly brought before the
RTC the remaining conflicting claims over
the subject CB bills by way of a
counterclaim/crossclaim for interpleader.
Section 1, Rule 62 of the Rules of Court
provides when an interpleader is proper:
SECTION 1. When interpleader proper.
Whenever conflicting claims upon the same
subject matter are or may be made against a
person who claims no interest whatever in
the subject matter, or an interest which in
whole or in part is not disputed by the
claimants, he may bring an action against the
conflicting claimants to compel them to
interplead and litigate their several claims
among themselves.
The remedy of an action of interpleader131 is
designed to protect a person against double
vexation in respect of a single liability.7 It
requires, as an indispensable requisite, that
conflicting claims upon the same subject
matter are or may be made against the
stakeholder (the possessor of the subject
matter) who claims no interest whatever in
the subject matter or an interest which in
whole or in part is not disputed by the
claimants.132
Through this remedy, the stakeholder can
join all competing claimants in a single
proceeding to determine conflicting claims
without exposing the stakeholder to the
possibility of having to pay more than once
on a single liability.133
When the court orders that the claimants
litigate among themselves, in reality a new
action arises,134 where the claims of the
interpleaders themselves are brought to the
fore, the stakeholder as plaintiff is relegated
merely to the role of initiating the suit. In
short, the remedy of interpleader, when
proper, merely provides an avenue for the
conflicting claims on the same subject matter
to be threshed out in an action. Section 2 of
Rule 62 provides:
SEC. 2. Order. Upon the filing of the
complaint, the court shall issue an order
requiring the conflicting claimants to
interplead with one another. If the interests of
justice so require, the court may direct in
such order that the subject matter be paid or
delivered to the court.
This is precisely what the RTC did by
granting the BSPs motion to interplead. The
PDB itself "agreed that the various claimants
should now interplead." Thus, the PDB and
the BOC subsequently entered into two
separate escrow agreements, covering the
CB bills, and submitted them to the RTC for
approval.
In granting the BSPs motion, the RTC acted
on the correct premise that it has jurisdiction
to resolve the parties conflicting claims over
the CB bills - consistent with the rules and the
parties conduct - and accordingly required
the BOC to amend its answer and for the
PDB to comment thereon. Suddenly,
however, the PDB made an about-face and
questioned the jurisdiction of the RTC.
Swayed by the PDBs argument, the RTC
dismissed even the PDBs petition - which
means that it did not actually compel the BSP
to resolve the BOCs and the PDBs claims.
Without the motion to interplead and the
order granting it, the RTC could only dismiss
the PDBs petition since it is the RTC which
has jurisdiction to resolve the parties
conflicting claims not the BSP. Given that
the motion to interplead has been actually
filed, the RTC could not have really granted
the relief originally sought in the PDBs
petition since the RTCs order granting the
BSPs motion to interplead - to which the
PDB in fact acquiesced into - effectively
resulted in the dismissal of the PDBs
petition. This is not altered by the fact that the
PDB additionally prayed in its petition for
damages, attorneys fees and costs of suit
"against the public respondents" because
the grant of the order to interplead effectively
sustained the propriety of the BSPs resort to
this procedural device.
Interpleader
1. as a special civil action
What is quite unique in this case is that the
BSP did not initiate the interpleader suit
through an original complaint but through its
Answer. This circumstance becomes
understandable if it is considered that insofar
as the BSP is concerned, the PDB does not
possess any right to have its claim recorded
in the BSPs books; consequently, the PDB
cannot properly be considered even as a
potential claimant to the proceeds of the CB
bills upon maturity. Thus, the interpleader
was only an alternative position, made only
in the BSPs Answer.135
The remedy of interpleader, as a special civil
action, is primarily governed by the specific
provisions in Rule 62 of the Rules of Court
and secondarily by the provisions applicable
to ordinary civil actions.136 Indeed, Rule 62
does not expressly authorize the filing of a
complaint-in-interpleader as part of, although
separate and independent from, the answer.
Similarly, Section 5, Rule 6, in relation to
Section 1, Rule 9 of the Rules of
Court137 does not include a complaint-in-
interpleader as a claim,138 a form of
defense,139 or as an objection that a
defendant may be allowed to put up in his
answer or in a motion to dismiss. This does
not mean, however, that the BSPs "counter-
complaint/cross-claim for interpleader" runs
counter to general procedures.
Apart from a pleading,140 the rules141 allow a
party to seek an affirmative relief from the
court through the procedural device of a
motion. While captioned "Answer with
counter complaint/cross-claim for
interpleader," the RTC understood this as in
the nature of a motion,142 seeking relief which
essentially consists in an order for the
conflicting claimants to litigate with each
other so that "payment is made to the rightful
or legitimate owner"143 of the subject CB bills.
The rules define a "civil action" as "one by
which a party sues another for the
enforcement or protection of a right, or the
prevention or redress of a wrong."
Interpleader may be considered as a
stakeholders remedy to prevent a wrong,
that is, from making payment to one not
entitled to it, thereby rendering itself
vulnerable to lawsuit/s from those legally
entitled to payment.
Interpleader is a civil action made special by
the existence of particular rules to govern the
uniqueness of its application and operation.
Under Section 2, Rule 6 of the Rules of
Court, governing ordinary civil actions, a
partys claim is asserted "in a complaint,
counterclaim, cross-claim, third (fourth, etc.)-
party complaint, or complaint-in-
intervention." In an interpleader suit,
however, a claim is not required to be
contained in any of these pleadings but in the
answer-(of the conflicting claimants)-in-
interpleader. This claim is different from the
counter-claim (or cross-claim, third party-
complaint) which is separately allowed under
Section 5, par. 2 of Rule 62.
2. the payment of docket fees covering
BOCs counterclaim
The PDB argues that, even assuming that
the RTC has jurisdiction over the issue of
ownership of the CB bills, the BOCs failure
to pay the appropriate docket fees prevents
the RTC from acquiring jurisdiction over the
BOCs "counterclaims."
We disagree with the PDB.
To reiterate and recall, the order granting the
"PDBs motion to interplead," already
resulted in the dismissal of the PDBs
petition. The same order required the BOC to
amend its answer and for the conflicting
claimants to comment, presumably to
conform to the nature of an answer-in
interpleader. Perhaps, by reason of the
BOCs denomination of its claim as a
"compulsory counterclaim" and the PDBs
failure to fully appreciate the RTCs order
granting the "BSPs motion for interpleader"
(with the PDBs conformity), the PDB
mistakenly treated the BOCs claim as a
"permissive counterclaim" which
necessitates the payment of docket fees.
As the preceding discussions would show,
however, the BOCs "claim" - i.e., its
assertion of ownership over the CB bills is
in reality just that, a "claim" against the
stakeholder and not as a seeking affirmative relief from the court. It is
144 145
"counterclaim," whether compulsory or
permissive. It is only the BOCs alternative
prayer (for the PDB to deliver to the BOC, as
the buyer in the April 15 transaction and the
ultimate successor-in-interest of the buyer in
the April 19 transaction, either the original
subjects of the sales or the value thereof plus
whatever income that may have been earned
pendente lite) and its prayer for damages
that are obviously compulsory counterclaims
against the PDB and, therefore, does not
require payment of docket fees.146
The PDB takes a contrary position through
its insistence that a compulsory counterclaim
should be one where the presence of third
parties, of whom the court cannot acquire
jurisdiction, is not required. It reasons out
that since the RCBC and All Asia (the
intervening holders of the CB bills) have
already been dropped from the case, then
the BOCs counterclaim must only be
permissive in nature and the BOC should
have paid the correct docket fees.
We see no reason to belabor this claim. Even
if we gloss over the PDBs own conformity to
the dropping of these entities as parties, the
BOC correctly argues that a remedy is
provided under the Rules. Section 12, Rule 6
of the Rules of Court reads:
SEC. 12. Bringing new parties. When the
presence of parties other than those to the
original action is required for the granting of
complete relief in the determination of a
counterclaim or cross-claim, the court shall
order them to be brought in as defendants, if
jurisdiction over them can be obtained.
Even then, the strict characterization of the
BOCs counterclaim is no longer material in
disposing of the PDBs argument based on
non-payment of docket fees.
When an action is filed in court, the complaint
must be accompanied by the payment of the
requisite docket and filing fees by the party
the filing of the complaint or appropriate
initiatory pleading, accompanied by the
payment of the prescribed docket fee, that
vests a trial court with jurisdiction over the
claim or the nature of the action.147 However,
the non-payment of the docket fee at the time
of filing does not automatically cause the
dismissal of the case, so long as the fee is
paid within the applicable prescriptive or
reglementary period, especially when the
claimant demonstrates a willingness to abide
by the rules prescribing such payment.148
In the present case, considering the lack of a
clear guideline on the payment of docket fee
by the claimants in an interpleader suit,
compounded by the unusual manner in
which the interpleader suit was initiated and
the circumstances surrounding it, we surely
cannot deduce from the BOCs mere failure
to specify in its prayer the total amount of the
CB bills it lays claim to (or the value of the
subjects of the sales in the April 15 and April
19 transactions, in its alternative prayer) an
intention to defraud the government that
would warrant the dismissal of its claim.149
At any rate, regardless of the nature of the
BOCs "counterclaims," for purposes of
payment of filing fees, both the BOC and the
PDB, properly as defendants-in-interpleader,
must be assessed the payment of the correct
docket fee arising from their respective
claims. The seminal case of Sun Insurance
Office, Ltd. v. Judge Asuncion150 provides us
guidance in the payment of docket fees, to
wit:
1. x x x Where the filing of the
initiatory pleading is not
accompanied by payment of the
docket fee, the court may allow
payment of the fee within a
reasonable time but in no case
beyond the applicable prescriptive or
reglementary period.
2. The same rule applies to
permissive counterclaims, third-party
claims and similar pleadings, which
shall not be considered filed until and
unless the filing fee prescribed
therefor is paid. The court may also
allow payment of said fee within a
reasonable time but also in no case
beyond its applicable prescriptive or
reglementary period. [underscoring
ours]
This must be the rule considering that
Section 7, Rule 62 of which reads:
SEC. 7. Docket and other lawful fees, costs
and litigation expenses as liens. The
docket and other lawful fees paid by the party
who filed a complaint under this Rule, as well
as the costs and litigation expenses, shall
constitute a lien or charge upon the subject
matter of the action, unless the court shall
order otherwise.
only pertain to the docket and lawful fees to
be paid by the one who initiated the
interpleader suit, and who, under the Rules,
actually "claims no interest whatever in the
subject matter." By constituting a lien on the
subject matter of the action, Section 7 in
effect only aims to actually compensate the
complainant-in-interpleader, who happens to
be the stakeholder unfortunate enough to get
caught in a legal crossfire between two or
more conflicting claimants, for the faultless
trouble it found itself into. Since the
defendants-in-interpleader are actually the
ones who make a claim - only that it was
extraordinarily done through the procedural
device of interpleader - then to them
devolves the duty to pay the docket fees
prescribed under Rule 141 of the Rules of
Court, as amended.151
The importance of paying the correct amount
of docket fee cannot be overemphasized:
The matter of payment of docket fees is not
a mere triviality. These fees are necessary to
defray court expenses in the handling of
cases. Consequently, in order to avoid
tremendous losses to the judiciary, and to the
government as well, the payment of docket
fees cannot be made dependent on the
outcome of the case, except when the
claimant is a pauper-litigant.152
WHEREFORE, premises considered the
consolidated PETITIONS are GRANTED.
The Planters Development Bank is hereby
REQUIRED to file with the Regional Trial
Court its comment or answer-in-interpleader
to Bank of Commerces Amended
Consolidated Answer with Compulsory
Counterclaim, as previously ordered by the
Regional Trial Court. The Regional Trial
Court of Makati City, Branch 143, is hereby
ORDERED to assess the docket fees due
from Planters Development Bank and Bank
of Commerce and order their payment, and
to resolve with DELIBERATE DISPATCH the
parties conflicting claims of ownership over
the proceeds of the Central Bank bills.
The Clerk of Court of the Regional Trial Court
of Makati City, Branch 143, or his duly
authorized representative is hereby
ORDERED to assess and collect the
appropriate amount of docket fees
separately due the Bank of Commerce and
Planters Development Bank as conflicting denied the movant's petition, and declared
claimants in Bangko Sentral ng Pilipinas that the Securities and Exchange
interpleader suit, in accordance with this Commission (SEC) did not commit grave
decision. abuse of discretion in issuing Memorandum
Circular No. 8, Series of 2013 (SEC-MC No.
SO ORDERED. 8) as the same was in compliance with, and
in fealty to, the decision of the Court
in Gamboa v. Finance Secretary
Teves,3(Gamboa Decision) and the
4
G.R. No. 207246 resolution denying the Motion for
Reconsideration
therein (Gamboa Resolution).
JOSE M. ROY III, Petitioner
vs.
CHAIRPERSON TERESITA HERBOSA, The Motion presents no compelling and new
THE SECURITIES AND EXCHANGE arguments to justify the reconsideration of
COMMISSION, and PHILIPPINE LONG the Decision.
DISTANCE TELEPHONE COMP ANY,,
Respondents The grounds raised by movant are: (1) He
has the requisite standing because this case
x-----------------------x is one of transcendental importance; (2) The
Court has the constitutional duty to exercise
judicial review over any grave abuse of
WILSON C. GAMBOA, JR., DANIEL V.
discretion by any instrumentality of
CARTAGENA, JOHN WARREN P.
government; (3) He did not rely on an obiter
GABINETE, ANTONIO V. PESINA, JR.,
dictum; and (4) The Court should have
MODESTO MARTINY. MAMON III, and
treated the petition as the appropriate device
GERARDO C. EREBAREN, Petitioners-in-
to explain the Gamboa Decision.
Intervention,
The Decision has already exhaustively
x-----------------------x
discussed and directly passed upon these
grounds. Movant's petition was dismissed
PHILIPPINE STOCK EXCHANGE, based on both procedural and substantive
INC. Respondent-in-Intervention, grounds.
x-----------------------x Regarding the procedural grounds, the Court
ruled that petitioners (movant and
SHAREHOLDERS' ASSOCIATION OF THE petitioners-in-intervention) failed to
PHILIPPINES, INC., Respondent-in- sufficiently allege and establish the existence
Intervention. of a case or controversy and locus standi on
their part to warrant the Court's exercise of
RESOLUTION judicial review; the rule on the hierarchy of
courts was violated; and petitioners failed to
CAGUIOA, J.: implead indispensable parties such as the
Philippine Stock Exchange, Inc. and
Before the Court is the Motion for Shareholders' Association of the Philippines,
Reconsideration dated January 19, Inc. 5
20171 (the Motion) filed by petitioner Jose M.
Roy III (movant) seeking the reversal and In connection with the failure to implead
setting aside of the Decision dated indispensable parties, the Court's Decision
November 22, 20162 (the Decision) which held:
Under Section 3, Rule 7 of the Rules of
Court, an indispensable party is a party-in-
interest without whom there can be no final
determination of an action. Indispensable
parties are those with such a material and
direct interest in the controversy that a final
decree would necessarily affect their rights,
so that the court cannot proceed without their
presence. The interests of such
indispensable parties in the subject matter of
the suit and the relief are so bound with those
of the other parties that their legal presence
as parties to the proceeding is an absolute
necessity and a complete and efficient
determination of the equities and rights of the
parties is not possible if they are not joined.
Other than PLDT, the petitions failed to join
or implead other public utility corporations
subject to the same restriction imposed by
Section 11, Article XII of the Constitution.
These corporations are in danger of losing
their franchise and property if they are found
not compliant with the restrictive
interpretation of the constitutional provision
under review which is being espoused by
petitioners. They should be afforded due
notice and opportunity to be heard, lest they
be deprived of their property without due
process.
Not only are public utility corporations other
than PLDT directly and materially affected by
the outcome of the petitions, their
shareholders also stand to suffer in case they
will be forced to divest their shareholdings to
ensure compliance with the said restrictive
interpretation of the term "capital". As
explained by SHAREPHIL, in five
corporations alone, more than Php158 Billion
worth of shares must be divested by foreign
shareholders and absorbed by Filipino
investors if petitioners' position is upheld.
Petitioners' disregard of the rights of these
other corporations and numerous
shareholders constitutes another fatal
procedural flaw, justifying the dismissal of
their petitions. Without giving all of them
their day in court, they will definitely be
deprived of their property without due
process of law. 6
This is highlighted to clear any
misimpression that the Gamboa Decision
and Gamboa Resolution made a categorical
ruling on the meaning of the word "capital"
under Section 11, Article XII of the
Constitution only in respect of, or only
confined to, respondent Philippine Long
Distance Telephone Company (PLDT).
Nothing is further from the truth. Indeed, a
fair reading of the Gamboa Decision
and Gamboa Resolution shows that the
Court's pronouncements therein would affect
all public utilities, and not just respondent
PLDT.
On the substantive grounds, the Court
disposed of the issue on whether the SEC
gravely abused its discretion in ruling that
respondent PLDT is compliant with the
limitation on foreign ownership under the
Constitution and other relevant laws as
without merit. The Court reasoned that "in
the absence of a definitive ruling by the SEC
on PLDT's compliance with the capital
requirement pursuant to
the Gamboa Decision and Resolution, any
question relative to the inexistent ruling is
premature."7
In resolving the other substantive issue
raised by petitioners, the Court held that:
[E]ven if the resolution of the procedural
issues were conceded in favor of petitioners,
the petitions, being anchored on Rule 65,
must nonetheless fail because the SEC
did not commit grave abuse of discretion
amounting to lack or excess of jurisdiction
when it issued SEC-MC No. 8. To the
contrary, the Court finds SEC-MC No. 8 to
have been issued in fealty to the Gamboa
Decision and Resolution.8
To belabor the point, movant's petition is not
a continuation of the Gamboa case as
the Gamboa Decision attained finality on
October 18, 2012, and thereafter Entry of
Judgment was issued on December 11,
2012.9
As regards movant's repeated invocation of
the transcendental importance of
the Gamboa case, this does not ipso
facto accord locus standi to movant. Being a
new petition, movant had the burden to
justify his locus standi in his own petition.
The Court, however, was not persuaded by
his justification.
Pursuant to the Court's constitutional duty to
exercise judicial review, the Court has
conclusively found no grave abuse of
discretion on the part of SEC in issuing SEC-
MC No. 8.
The Decision has painstakingly explained
why it considered as obiter dictum that
pronouncement in the Gamboa Resolution
that the constitutional requirement on Filipino
ownership should "apply uniformly and
across the board to all classes of shares,
regardless of nomenclature and category,
comprising the capital of a corporation."[[9-
a]] The Court stated that:
[T]he fallo or decretal/dispositive portions of
both the Gamboa Decision and Resolution
are definite, clear and unequivocal. While
there is a passage in the body of
the Gamboa Resolution that might have
appeared contrary to the fallo of
the Gamboa Decision x x x the definiteness
and clarity of the fallo of
the Gamboa Decision must control over
the obiter dictum in the Gamboa Resolution
regarding the application of the 60-40
Filipino-foreign ownership requirement to
"each class of shares, regardless of
differences in voting rights, privileges and
restrictions." 10
To the Court's mind and, as exhaustively
demonstrated in the Decision, the dispositive
portion of the Gamboa Decision was in no
way modified by the Gamboa Resolution.
The heart of the controversy is the
interpretation of Section 11, Article XII of the
Constitution, which provides: "No franchise,
certificate, or any other form of authorization
for the operation of a public utility shall be
granted except to citizens of the Philippines
or to corporations or associations organized
under the laws of the Philippines at least sixty
per centum of whose capital is owned by
such citizens x x x."
The Gamboa Decision already held, in no
uncertain terms, that what the Constitution
requires is "[fJull [and legal] beneficial
ownership of 60 percent of the outstanding
capital stock, coupled with 60 percent of the
voting rights x x x must rest in the hands of
Filipino nationals x x x." 11 And, precisely
that is what SEC-MC No. 8
provides, viz.: "x x x For purposes of
determining compliance [with the
constitutional or statutory ownership], the
required percentage of Filipino ownership
shall be applied to BOTH (a) the total number
of outstanding shares of stock entitled to vote
in the election of directors; AND (b) the total
number of outstanding shares of stock,
whether or not entitled to vote x x x." 12
In construing "full beneficial ownership," the
Implementing Rules and Regulations of the
Foreign Investments Act of 1991 (FIA-IRR)
provides:
For stocks to be deemed owned and held by
Philippine citizens or Philippine nationals,
mere legal title is not enough to meet the
required Filipino equity. Full beneficial
ownership of the stocks, coupled with
appropriate voting rights is essential. Thus,
stocks, the voting rights of which have been
assigned or transferred to aliens cannot be
considered held by Philippine citizens or
Philippine nationals. 13
In turn, "beneficial owner" or "beneficial
ownership" is defined in the Implementing
Rules and Regulations of the Securities
Regulation Code (SRC-IRR) as:
[A]ny person who, directly or indirectly,
through any contract, arrangement,
understanding, relationship or otherwise, has
or shares voting power (which includes the
power to vote or direct the voting of such
security) and/or investment returns or power
(which includes the power to dispose of, or
direct the disposition of such security) x x
x. 14
Thus, the definition of "beneficial owner or
beneficial ownership" in the SRC-IRR, which
is in consonance with the concept of "full
beneficial ownership" in the FIA-IRR, is, as
stressed in the Decision, relevant in
resolving only the question of who is the
beneficial owner or has beneficial ownership
of each "specific stock" of the public utility
company whose stocks are under
review. If the Filipino has the voting
power of the "specific stock", i.e., he
can vote the stock or direct another to vote
for him, or the Filipino has the investment
power over the "specific stock", i.e., he
can dispose of the stock or direct another to
dispose of it for him, or both, i.e., he can vote
and dispose of that "specific stock" or direct
another to vote or dispose it for
him, then such Filipino is the "beneficial
owner" of that "specific stock." Being
considered Filipino, that "specific stock" is
then to be counted as part of the 60% Filipino
ownership requirement under the
Constitution. The right to the dividends, jus
fruendi - a right emanating from ownership of
that "specific stock" necessarily accrues to its
Filipino "beneficial owner."
Once more, this is emphasized anew to
disabuse any notion that the dividends
accruing to any particular stock are
determinative of that stock's "beneficial
ownership." Dividend declaration is dictated
by the corporation's unrestricted retained
earnings. On the other hand, the
corporation's need of capital for expansion
programs and special reserve for probable
contingencies may limit retained earnings
available for dividend declaration. 15 It bears
repeating here that the Court in
the Gamboa Decision adopted the foregoing
definition of the term "capital" in Section 11,
Article XII of the 1987 Constitution in express
recognition of the sensitive and vital position
of public utilities both in the national
economy and for national security, so that
the evident purpose of the citizenship
requirement is to prevent aliens from
assuming control of public utilities, which
may be inimical to the national
16
interest. This purpose prescinds from the
"benefits"/dividends that are derived from or
accorded to the particular stocks held by
Filipinos vis-a-vis the stocks held by aliens.
So long as Filipinos have controlling interest
of a public utility corporation, their decision to
declare more dividends for a particular stock
over other kinds of stock is their sole
prerogative - an act of ownership that would
presumably be for the benefit of the public
utility corporation itself. Thus, as explained in
the Decision:
In this regard, it would be apropos to state
that since Filipinos own at least 60% of the
outstanding shares of stock entitled to vote
directors, which is what the Constitution
precisely requires, then the Filipino
stockholders control the
corporation, i.e., they dictate corporate
actions and decisions, and they have all the
rights of ownership including, but not limited
to, offering certain preferred shares that may
have greater economic interest to foreign
investors - as the need for capital for
corporate pursuits (such as expansion), may
be good for the corporation that they own.
Surely, these "true owners" will not allow any
dilution of their ownership and control if such
move will not be beneficial to them. 17
Finally, as to how the SEC will classify or
treat certain stocks with voting rights held by
a trust fund that is created by the public entity
whose compliance with the limitation on
foreign ownership under the Constitution is
under scrutiny, and how the SEC will
determine if such public utility does, in fact,
control how the said stocks will be voted, and
whether, resultantly, the trust fund would be
considered as Philippine national or not -
lengthily discussed in the dissenting opinion
of Justice Carpio - is speculative at this
juncture. The Court cannot engage in
guesswork. Thus, there is need of an actual
case or controversy before the Court may
exercise its power of judicial review. The
movant's petition is not that actual case or
controversy.
Thus, the discussion of Justice Carpio' s
dissenting opinion as to the voting preferred
shares created by respondent PLDT, their
acquisition by BTF Holdings, Inc., which
appears to be a wholly-owned company of
the PLDT Beneficial Trust Fund (BTF), and
whether or not it is respondent PLDT's
management that controls BTF and BTF
Holdings, Inc. - all these are factual matters
that are outside the ambit of this Court's
review which, as stated in the beginning, is
confined to determining whether or not the
SEC committed grave abuse of discretion in
issuing SEC-MC No. 8; that is, whether or not
SEC-MC No. 8 violated the ruling of the
Court in Gamboa v. Finance Secretary
Teves, 18 and the resolution in Heirs of
Wilson P. Gamboa v. Finance Sec.
19
Teves denying the Motion for
Reconsideration therein as to the proper
understanding of "capital".
To be sure, it would be more prudent and
advisable for the Court to await the SEC's
prior determination of the citizenship of
specific shares of stock held in trust - based
on proven facts - before the Court proceeds
to pass upon the legality of such
determination.
As to whether respondent PLDT is currently
in compliance with the Constitutional
provision regarding public utility entities, the
Court must likewise await the SEC's
determination thereof applying SEC-MC No.
8. After all, as stated in the Decision, it is the
SEC which is the government agency with
the competent expertise and the mandate of
law to make such determination.
In conclusion, the basic issues raised in the
Motion having been duly considered and
passed upon by the Court in the Decision
and no substantial argument having been
adduced to warrant the reconsideration
sought, the Court resolves to DENY the
Motion with FINALITY.
WHEREFORE, the subject Motion for
Reconsideration is hereby DENIED WITH
FINALITY. No further pleadings or motions
shall be entertained in this case. Let entry of
final judgment be issued immediately.
SO ORDERED.
REPUBLIC OF THE
PHILIPPINES, Petitioner,
vs.
CRISANTO S. RANESES, Respondent.
DECISION
VILLARAMA, JR., J.:
Before this Court is a petition1 for review on
certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, seeking the
reversal of the Decision2 dated June 18,
2009 of the Court of Appeals (CA) in CA-G.R.
CV No. 90383, which affirmed the Orders
dated October 11, 20073 and November 27,
20074 of the Regional Trial Court (RTC), of
Pasig City (Taguig City Hall of Justice),
Branch 153 in Land Registration Case (LRC)
No. N-11573-TG.
The facts follow.
On March 26, 2007, respondent Crisanto S.
Raneses (respondent) filed an
Application5 for Original Registration of Land
Title docketed as LRC No. N-11573-TG over
two parcels of land identified as Lot No.
3085-A, Csd- 00-001621 and Lot No. 3085-
B,Csd-00-001621 both located at Barangay
Napindan, Taguig City, Metro Manila with a
total area of twenty-two thousand six
hundred (22,600) square meters (subject
properties).
On September 24, 2007, during the initial
hearing, respondent marked several
documents to establish compliance with the
jurisdictional requirements. There being no
opposition filed, the RTC issued an Order of
General Default6against all persons except
herein petitioner Republic of the Philippines
(petitioner) and granted respondents Motion
to Present his Evidence Ex-Parte.7
On October 1, 2007, respondent testified that
despite the fact that the earliest tax
declaration on record over the subject
properties was issued only in 1980, his
parents had been in continuous possession
and occupation of the same as early as June
1945.8 He narrated that his father, the late
Pedro Raneses (Pedro), was a farmer who
cultivated the subject properties by planting
palay and other crops thereon. Respondent
further narrated that since the subject
properties were near the lake, Pedro used a
portable irrigation system to suck water from
Laguna de Bay and a mechanized harvester
to harvest the palay. However, he claimed
that when Pedro died on November 15,
1982,9 the cultivation of the subject
properties was likewise stopped.
Respondent averred that Pedro declared the
subject properties for real estate tax
purposes, as evidenced by several tax
declarations10 issued in Pedros name.
Respondent claimed that he acquired
ownership over the subject properties when
his mother, Nina Raneses,11 and his sisters,
Annabelle R. San Juan and Belinda R.
Bayas, executed an Extrajudicial Settlement
of Estate with Deed of Waiver12 (Extrajudicial
Settlement of Estate) on April 24,
1997,whereby they agreed to partition and
adjudicate among themselves the subject
properties, and thereafter, waive all their
rights, interest and participation over the
same in favor of
13
respondent. Subsequently, respondent
had the subject properties declared for real
estate tax purposes under his own name.14
Respondent also testified that there were no
other persons or entities who occupied the
subject properties. Correlatively, a
Conversion Subdivision Plan15 covering the
subject properties was prepared by a private
Geodetic Engineer named Andrew
DG.Montallana (Engr. Montallana).16 Said
Plan noted that the subject properties were
"[s]urveyed in accordance with Survey
Authority No. LMS-SA-007607-310 dated
August 29, 2006 issued by the CENRO,
South [S]ector" and that the subject
properties were "inside alienable and
disposable land area [P]roj. [N]o. 27-B as per
LC Map No. 2623 certified by the Bureau of
Forestry on January 3, 1968."17 Respondent
also presented before the RTC an Inter-
Office Memorandum18 dated March 26, 2007
(Inter-Office Memorandum) prepared and
signed by the Engineering and Construction
Division (ECD) of the Laguna Lake
Development Authority (LLDA) composed of
Engineer Ramon D. Magalonga, Jr. (Engr.
Magalonga), Fredisvindo A. Latoza and
Renato Q. Medenilla (ECD Team) and
addressed to the Division Chief-III of the
ECD. Said Memorandum provided that after
an actual field verification, the ECD Team
found that the subject properties are
"presently above (back filling) the
reglementary 12.5-meter elevation."
Catalina Raneses (Catalina), the mother of
respondent, also testified that she and her
husband Pedro had been in possession of
the subject properties since the Japanese
occupation. She narrated that Pedro
cultivated the subject properties for palay
production. However, after Pedros death in
1982, the subject properties were no longer
used for palay production, and were, instead,
at times leased out for the production of
watermelons. Catalina corroborated
respondents testimony that sometime in
1997, she, her daughters and respondent
executed the aforementioned Extrajudicial
Settlement of Estate, wherein all of them
waived their rights and interests over the
subject properties in favor of respondent for
a consideration.19
On October 11, 2007, the RTC issued its first
assailed Order20 granting respondents
application for land registration, the
dispositive portion of which reads, to wit:
WHEREFORE, the application is Granted.
Judgment is hereby rendered declaring
applicant Crisanto S. Raneses, the owner in
fee simple of Lot 3085-A, Csd-00-001621,
with an area of Fifteen Thousand Two
Hundred Forty (15,240) square meters
situated in Brgy. Napindan, City of Taguig,
Metro Manila; and Lot 3085-B, Csd-00-
001621 with an area of seven thousand three
hundred sixty (7,360)square meters situated
in Brgy. Napindan, City of Taguig, Metro
Manila.
After this Order shall become final and
executory, let the Land Registration Authority
issue the corresponding decree of
registration.
SO ORDERED.21
On October 25, 2007, the LLDA filed its
Opposition22 to the application alleging that
the subject properties are below the 12.50-
meter elevation, hence, forming part of the
bed of Laguna Lake and are, therefore,
inalienable, indisposable and incapable of
registration. To support its cause, the LLDA
attached to its Opposition a probative value is therefore attached to the
Memorandum23 dated September 24, 2007
(ECD Memorandum) prepared and signed
by no less than Engr. Magalonga of the ECD
and concurred by the ECDs Division Chief-
III, Engr. Donato C. Rivera, Jr. which stated
that upon the projection of the subject
properties in the LLDAs topographic map,
the same were below the reglementary
elevation of 12.50
meters.1wphi1 Moreover, the LLDA posited
that in the absence of any declaration by the
Director of Lands, the subject properties
remain inalienable and indisposable.
In its Order24 dated October 25, 2007, the
RTC directed respondent to comment on the
Opposition of LLDA. In the meantime,
petitioner through the Office of the Solicitor
General (OSG) filed its Notice of Appeal25 on
November 7, 2007. For orderly proceedings,
the RTC took note of the Notice of Appeal as
it awaited the respondents comment in order
for it to judiciously resolve the pending
Opposition of the LLDA.26 In compliance with
the RTCs Order, respondent filed his
Comment and Motion27 to the said
Opposition, arguing that the RTC should give
more credence to the Inter-Office
Memorandum as the findings therein were
based on an actual field inspection rather
than the ECD Memorandum, the findings of
which were based on a mere table survey.
Moreover, respondent argued that the ECD
Memorandum should not be considered by
the RTC as the same was not formally
offered in evidence. Respondent prayed that
his Comment and Motion be noted. He also
manifested before the RTC that he is
amenable to the reopening of the case so
that the LLDA can present controverting
evidence, if it wants to, and for him to present
his rebuttal.
Thus, on November 27, 2007, the RTC
issued its second assailed Order,28 finding
merit in respondents arguments and
dismissing LLDAs Opposition, to wit:
WHEREFORE, premises considered, no
basis of LLDAs opposition filed fourteen (14)
days late after the application for registration
of Crisanto S. Raneses was granted.
SO ORDERED.29
For the LLDAs failure to take any action
against its second assailed Order, the RTC,
in its Order30 dated January 8,
2008,approved the Notice of Appeal filed by
the OSG and directed the transmittal of the
records of this case to the CA.
On June 18, 2009, the CA upheld the RTC
which gave more credence to the findings
contained in the Inter-Office Memorandum
than that of the ECD Memorandum and in
granting respondents application. The CA
found that respondent had adequately
proven that the subject properties form part
of the disposable and alienable lands of the
public domain. The CA disposed of the case
in this wise:
WHEREFORE, in view of the foregoing
premises, judgment is hereby rendered by us
DISMISSING the appeal filed in this case
and AFFIRMING the Orders dated October
11, 2007 and November 27, 2007 rendered
by Branch 153 of the Regional Trial Court of
the National Capital Judicial Region
stationed in Pasig City in LRC Case No. N-
11573-TG.
SO ORDERED.31
Petitioner filed its Motion for
Reconsideration32 which the CA, however,
denied in its Resolution33 dated October 5,
2009.
Hence, this petition based on the following
grounds:
I considered, the Inter-Office Memorandum
THE COURT OF APPEALS COMMITTED
SERIOUS ERROR IN HOLDING THAT THE
SUBJECT LANDS ARE PART OF THE
DISPOSABLE AND ALIENABLE LANDS OF
THE PUBLIC DOMAIN[; AND]
II
THE COURT OF APPEALS ERRED IN
AFFIRMING THE FINDINGS OF THE LAND
REGISTRATION COURT WHICH
GRANTED RESPONDENTS
APPLICATION FOR REGISTRATION OF
TITLE OVER SUBJECT PARCELS OF
LAND NOTWITHSTANDING THE FACT
THAT THE SAME ARE CONSIDERED
PART OF PUBLIC LAND, BEING BELOW
THE 12.50-METER ELEVATION AS
CERTIFIED BY THE LAGUNA LAKE
DEVELOPMENT AUTHORITY (LLDA).34
Petitioner through the OSG avers that
respondent, having the burden to prove by
incontrovertible evidence that the subject
properties are alienable and disposable,
failed by relying simply on the Conversion
Subdivision Plan and the Inter-Office
Memorandum of the LLDA. Invoking this
Courts ruling in Republic v. Court of
Appeals,35 the OSG argues that respondent
as an applicant and in order to prove that the
land subject of an application for registration
is alienable, must establish the existence of
a positive act of the government such as a
presidential proclamation or an executive
order; an administrative action; investigation
reports of Bureau of Lands investigators; and
a legislative act or a statute. Lastly, the OSG
posits that the EDC Memorandum being a
later issuance should be given more
credence than the Inter-Office
Memorandum.36
On the other hand, respondent counters that,
as held by the RTC and the CA, no
consideration should be accorded to the
EDC Memorandum as it was not formally
offered in evidence. He asserts that, even if
should be given more credence than the
EDC Memorandum because the former was
the result of an actual verification inspection
while the latter was merely based on a table
survey. Relying on the findings of the RTC
and the CA, respondent claims that the
subject properties had already been
classified as alienable and disposable as
provided in the Conversion-Subdivision
Plans annotation.37
Essentially, the sole issue the petition
presents is whether or not the subject
properties in this case are alienable or
disposable land of the public domain.
The petition is impressed with merit.
In petitions for review on certiorari under
Rule 45 of the Revised Rules of Court, this
Court is limited to reviewing only errors of
law, not of fact, unless the factual findings
complained of are devoid of support by the
evidence on record, or the assailed judgment
is based on a misapprehension of facts. It is
not the function of this Court to analyze or
weigh evidence all over again, unless there
is a showing that the findings of the lower
court are totally devoid of support or are
glaringly erroneous as to constitute palpable
error or grave abuse of discretion.38
In this case, the records do not support the
findings made by the RTC and the CA that
the subject properties are part of the
alienable and disposable portion of the public
domain.
Respondent bases his right to registration of
title on Section 14 (1) of Presidential Decree
(P.D.) No. 1529,otherwise known as the
Property Registration Decree, which
provides:
SEC. 14. Who may apply. The following
persons may file in the proper Court of First
Instance an application for registration of title
to land, whether personally or through their
duly authorized representatives:
(1) Those who by themselves or through their
predecessors-in-interest have been in open,
continuous, exclusive and notorious
possession and occupation of alienable and
disposable lands of the public domain under
a bona fide claim of ownership since June
12, 1945, or earlier.
The afore-quoted provision authorizes the
registration of title acquired in accordance
with Section 48 (b) of Commonwealth Act
No. 141, otherwise known as the Public Land
Act, as amended by P.D. No. 1073, which
reads:
SEC. 48. The following described citizens of
the Philippines, occupying lands of the public
domain or claiming to own any such lands or
an interest therein, but whose titles have not
been perfected or completed, may apply to
the Court of First Instance of the province
where the land is located for confirmation of
their claims and the issuance of a certificate
of title therefor, under the Land Registration
Act, to wit:
(a) x x x
(b) Those who by themselves or
through their predecessors in interest
have been in the open, continuous,
exclusive, and notorious possession
and occupation of alienable and
disposable lands of the public
domain, under a bona fide claim of
acquisition or ownership, since June
12, 1945, except when prevented by
war or force majeure. These shall be
conclusively presumed to have
performed all the conditions essential
to a Government grant and shall be
entitled to a certificate of title under
the provisions of this chapter.
Thus, under Section 14 (1) of P.D. No. 1529,
a petition may be granted upon compliance
with the following requisites: (a) that the
property in question is alienable and
disposable land of the public domain; (b) that
the applicants by themselves or through their
predecessors-in-interest have been in open,
continuous, exclusive and notorious
possession and occupation; and (c) that
such possession is under a bona fide claim
of ownership since June 12, 1945 or earlier.
The Regalian doctrine, embodied in Section
2, Article XII of the 1987 Constitution,
provides that all lands of the public domain
belong to the State, which is the source of
any asserted right to ownership of land. All
lands not appearing to be clearly within
private ownership are presumed to belong to
the State. Unless public land is shown to
have been reclassified or alienated to a
private person by the State, it remains part of
the inalienable public domain39 for land
classification or reclassification cannot be
assumed. It must be proved.40 And the
applicant bears the burden to overturn, by
incontrovertible evidence, the presumption
that the land subject of an application for
registration is alienable and disposable.41
Respondent failed to hurdle this burden.
It bears noting that in support of his claim that
the subject properties are alienable and
disposable, respondent merely presented
the Conversion Subdivision Plan which was
prepared by Engr. Montallana with the
annotation that the subject properties were
"inside alienable and disposable land area
[P]roj. [N]o. 27-B as per LC Map No. 2623
certified by the Bureau of Forestry on
January 3, 1968"42 and the Inter-Office
Memorandum from the LLDA.
Respondents reliance on the said
annotation and Inter-Office Memorandum is
clearly insufficient.
In Republic v. Dela Paz43 citing Republic v.
Sarmiento,44 this Court ruled that the
notation of the surveyor-geodetic engineer
on the blue print copy of the conversion and
subdivision plan approved by the
Department of Environment and Natural
Resources (DENR) Center, that "this survey
is inside the alienable and disposable area,
Project No. 27-B. L.C. Map No. 2623,
certified on January 3, 1968 by the Bureau of
Forestry," is insufficient and does not
constitute incontrovertible evidence to
overcome the presumption that the land
remains part of the inalienable public
domain.
In contrast, this Court has held that the
applicant must present a certificate of land
classification status issued by the
Community Environment and Natural
Resources Office (CENRO)45 or the
Provincial Environment and Natural
Resources Office (PENRO)46 of the DENR.
He must also prove that the DENR Secretary
had approved the land classification and
released the land as alienable and
disposable, and that it is within the approved
area per verification through survey by the
CENRO or PENRO. Further, the applicant
must present a copy of the original
classification approved by the DENR
Secretary and certified as true copy by the
legal custodian of the official records. These
facts must be established by the applicant to
prove that the land is alienable and
disposable.47
Clearly, the pieces of evidence submitted by
respondent before the RTC in this case
hardly satisfy the aforementioned
documentary requirements. Given the lack of
evidence that the subject properties are
alienable and disposable, it becomes
unnecessary for this Court to resolve
whether the Inter-Office Memorandum
should be given more credence over the
ECD Memorandum. On this matter, this
Courts ruling in Republic of the Philippines
v. Lydia Capco de Tensuan48 is enlightening:
While we may have been lenient in some
cases and accepted substantial compliance
with the evidentiary requirements set forth in
T.A.N. Properties, we cannot do the same for
Tensuan in the case at bar.
We cannot afford to be lenient in cases
where the Land Registration Authority (LRA)
or the DENR oppose the application for
registration on the ground that the land
subject thereof is inalienable. In the present
case, the DENR recognized the right of the
LLDA to oppose Tensuan's Application for
Registration; and the LLDA, in its Opposition,
precisely argued that the subject property is
part of the Laguna Lake bed and, therefore,
inalienable public land. We do not even have
to evaluate the evidence presented by the
LLDA given the Regalian Doctrine. Since
Tensuan failed to present satisfactory proof
that the subject property is alienable and
disposable, the burden of evidence did not
even shift to the LLDA to prove that the
subject property is part of the Laguna Lake
bed. (Emphasis supplied.)
WHEREFORE, the petition is GRANTED.
The Decision of the Court of Appeals dated
June 18, 2009 in CA-G.R. CV No. 90383,
affirming the Orders dated October 11, 2007
and November 27, 2007 of the Regional Trial
Court of Pasig City, Branch 153 in Land
Registration Case No. N-11573-TG, is vs.
REVERSED and SET ASIDE. The THE SECRETARY OF THE DEPARTMENT
application for registration of title filed by OF ENVIRONMENT AND NATURAL
respondent Crisanto S. Raneses over two RESOURCES, THE REGIONAL
parcels of land identified as Lot No. 3085-A, TECHNICAL DIRECTOR FOR LANDS,
Csd-00-001621 and Lot No. 3085-B, Csd-00- LANDS MANAGEMENT BUREAU,
001621 both located at Barangay Napindan, REGION VI, PROVINCIAL ENVIRONMENT
Taguig City, Metro Manila, is DISMISSED. AND NATURAL RESOURCES OFFICER,
KALIBO, AKLAN, respondents.
No costs.
DECISION
SO ORDERED.
REYES, R.T., J.:

AT stake in these consolidated cases is the

THE SECRETARY OF THE DEPARTMENT right of the present occupants of Boracay
OF ENVIRONMENT AND NATURAL Island to secure titles over their occupied
RESOURCES, THE REGIONAL lands.
EXECUTIVE DIRECTOR, DENR-REGION
VI, REGIONAL TECHNICAL DIRECTOR There are two consolidated petitions. The
FOR LANDS, LANDS MANAGEMENT first is G.R. No. 167707, a petition for review
BUREAU, REGION VI PROVINCIAL on certiorari of the Decision1of the Court of
ENVIRONMENT AND NATURAL Appeals (CA) affirming that2 of the Regional
RESOURCES OFFICER OF KALIBO, Trial Court (RTC) in Kalibo, Aklan, which
AKLAN, REGISTER OF DEEDS, granted the petition for declaratory relief filed
DIRECTOR OF LAND REGISTRATION by respondents-claimants Mayor Jose
AUTHORITY, DEPARTMENT OF Yap, et al. and ordered the survey of
TOURISM SECRETARY, DIRECTOR OF Boracay for titling purposes. The second is
PHILIPPINE TOURISM G.R. No. 173775, a petition for prohibition,
AUTHORITY, petitioners, mandamus, and nullification of Proclamation
vs. No. 10645">[3] issued by President Gloria
MAYOR JOSE S. YAP, LIBERTAD Macapagal-Arroyo classifying Boracay into
TALAPIAN, MILA Y. SUMNDAD, and reserved forest and agricultural land.
ANICETO YAP, in their behalf and in
behalf of all those similarly The Antecedents
situated, respondents.
G.R. No. 167707

x------------------------------- Boracay Island in the Municipality of Malay,

- - - - - - - - - - - - - - - - - - - x
G.R. No. G.R. No. 173775 October
8, 2008
DR. ORLANDO SACAY and WILFREDO
GELITO, joined by THE LANDOWNERS
OF BORACAY SIMILARLY SITUATED
NAMED IN A LIST, ANNEX "A" OF THIS
PETITION, petitioners,
Aklan, with its powdery white sand beaches
and warm crystalline waters, is reputedly a
premier Philippine tourist destination. The
island is also home to 12,003
inhabitants4 who live in the bone-shaped
islands three barangays.5
On April 14, 1976, the Department of
Environment and Natural Resources (DENR)
approved the National Reservation Survey of
Boracay
Island,6 which identified several lots as being
occupied or claimed by named persons.7
On November 10, 1978, then President
Ferdinand Marcos issued Proclamation
No. 18018 declaring Boracay Island, among
other islands, caves and peninsulas in the
Philippines, as tourist zones and marine
reserves under the administration of the
Philippine Tourism Authority (PTA).
President Marcos later approved the
issuance of PTA Circular 3-829 dated
September 3, 1982, to implement
Proclamation No. 1801.
Claiming that Proclamation No. 1801 and
PTA Circular No 3-82 precluded them from
filing an application for judicial confirmation
of imperfect title or survey of land for titling
purposes, respondents-claimants
Mayor Jose S. Yap, Jr., Libertad Talapian,
Mila Y. Sumndad, and Aniceto Yap filed a
petition for declaratory relief with the RTC in
Kalibo, Aklan.
In their petition, respondents-claimants
alleged that Proclamation No. 1801 and PTA
Circular No. 3-82 raised doubts on their right
to secure titles over their occupied lands.
They declared that they themselves, or
through their predecessors-in-interest, had
been in open, continuous, exclusive, and
notorious possession and occupation in
Boracay since June 12, 1945, or earlier since
time immemorial. They declared their lands
for tax purposes and paid realty taxes on
them.10
Respondents-claimants posited that
Proclamation No. 1801 and its implementing
Circular did not place Boracay beyond the
commerce of man. Since the Island was
classified as a tourist zone, it was susceptible
of private ownership. Under Section 48(b) of
Commonwealth Act (CA) No. 141, otherwise
known as the Public Land Act, they had the
right to have the lots registered in their
names through judicial confirmation of
imperfect titles.
The Republic, through the Office of the
Solicitor General (OSG), opposed the
petition for declaratory relief. The OSG
countered that Boracay Island was
an unclassified land of the public domain. It
formed part of the mass of lands classified as
"public forest," which was not available for
disposition pursuant to Section 3(a) of
Presidential Decree (PD) No. 705 or the
Revised Forestry Code,11 as amended.
The OSG maintained that respondents-
claimants reliance on PD No. 1801 and PTA
Circular No. 3-82 was misplaced. Their right
to judicial confirmation of title was governed
by CA No. 141 and PD No. 705. Since
Boracay Island had not been classified as
alienable and disposable, whatever
possession they had cannot ripen into
ownership.
During pre-trial, respondents-claimants and
the OSG stipulated on the following facts: (1)
respondents-claimants were presently in
possession of parcels of land in Boracay
Island; (2) these parcels of land were planted
with coconut trees and other natural growing
trees; (3) the coconut trees had heights of
more or less twenty (20) meters and were
planted more or less fifty (50) years ago; and
(4) respondents-claimants declared the land
they were occupying for tax purposes.12
The parties also agreed that the principal
issue for resolution was purely legal: whether
Proclamation No. 1801 posed any legal
hindrance or impediment to the titling of the
lands in Boracay. They decided to forego
with the trial and to submit the case for
resolution upon submission of their
respective memoranda.13
The RTC took judicial notice14 that certain
parcels of land in Boracay Island, more
particularly Lots 1 and 30, Plan PSU-5344,
were covered by Original Certificate of Title
No. 19502 (RO 2222) in the name of the
Heirs of Ciriaco S. Tirol. These lots were
involved in Civil Case Nos. 5222 and 5262
filed before the RTC of Kalibo, Aklan.15 The
titles were issued on
August 7, 1933.16
RTC and CA Dispositions
On July 14, 1999, the RTC rendered a
decision in favor of respondents-claimants,
with a fallo reading:
WHEREFORE, in view of the foregoing, the
Court declares that Proclamation No. 1801
and PTA Circular No. 3-82 pose no legal
obstacle to the petitioners and those similarly
situated to acquire title to their lands in
Boracay, in accordance with the applicable
laws and in the manner prescribed therein;
and to have their lands surveyed and
approved by respondent Regional Technical
Director of Lands as the approved survey
does not in itself constitute a title to the land.
SO ORDERED.17
The RTC upheld respondents-claimants
right to have their occupied lands titled in
their name. It ruled that neither Proclamation
No. 1801 nor PTA Circular No. 3-82
mentioned that lands in Boracay were
inalienable or could not be the subject of
disposition.18 The Circular itself recognized
private ownership of lands.19 The trial court
cited Sections 8720 and 5321 of the Public
Land Act as basis for acknowledging private
ownership of lands in Boracay and that only
those forested areas in public lands were
declared as part of the forest reserve.22
The OSG moved for reconsideration but its
motion was denied.23 The Republic then
appealed to the CA.
On December 9, 2004, the appellate court
affirmed in toto the RTC decision, disposing
as follows:
WHEREFORE, in view of the foregoing
premises, judgment is hereby rendered by us
DENYING the appeal filed in this case and
AFFIRMING the decision of the lower court.24
The CA held that respondents-claimants
could not be prejudiced by a declaration that
the lands they occupied since time
immemorial were part of a forest reserve.
Again, the OSG sought reconsideration but it
was similarly denied.25 Hence, the present
petition under Rule 45.
G.R. No. 173775
On May 22, 2006, during the pendency of
G.R. No. 167707, President Gloria
Macapagal-Arroyo issued Proclamation No.
106426 classifying Boracay Island into four
hundred (400) hectares of reserved forest
land (protection purposes) and six hundred
twenty-eight and 96/100 (628.96) hectares of
agricultural land (alienable and disposable).
The Proclamation likewise provided for a
fifteen-meter buffer zone on each side of the
centerline of roads and trails, reserved for
right-of-way and which shall form part of the
area reserved for forest land protection
purposes.
On August 10, 2006, petitioners-claimants
Dr. Orlando Sacay,27 Wilfredo Gelito,28 and
other landowners29 in Boracay filed with this
Court an original petition for prohibition,
mandamus, and nullification of Proclamation
No. 1064.30 They allege that the
Proclamation infringed on their "prior vested
rights" over portions of Boracay. They have
been in continued possession of their
respective lots in Boracay since time
immemorial. They have also invested billions
of pesos in developing their lands and
building internationally renowned first class
resorts on their lots.31
Petitioners-claimants contended that there is
no need for a proclamation reclassifying
Boracay into agricultural land. Being
classified as neither mineral nor timber land,
the island is deemed agricultural pursuant to
the Philippine Bill of 1902 and Act No. 926,
known as the first Public Land Act.32 Thus, DECLARATORY RELIEF ON NOV. 19,
their possession in the concept of owner for 1997, WERE THE AREAS OCCUPIED BY
the required period entitled them to judicial THEM PUBLIC AGRICULTURAL LANDS
confirmation of imperfect title. AS DEFINED BY LAWS THEN ON
JUDICIAL CONFIRMATION OF
Opposing the petition, the OSG argued that IMPERFECT TITLES OR PUBLIC FOREST
petitioners-claimants do not have a vested AS DEFINED BY SEC. 3a, PD 705?
right over their occupied portions in the
island. Boracay is an unclassified public II.
forest land pursuant to Section 3(a) of PD
No. 705. Being public forest, the claimed HAVE PETITIONERS OCCUPANTS
portions of the island are inalienable and ACQUIRED PRIOR VESTED RIGHT OF
cannot be the subject of judicial confirmation PRIVATE OWNERSHIPOVER THEIR
of imperfect title. It is only the executive OCCUPIED PORTIONS OF BORACAY
department, not the courts, which has LAND, DESPITE THE FACT THAT THEY
authority to reclassify lands of the public HAVE NOT APPLIED YET FOR JUDICIAL
domain into alienable and disposable lands. CONFIRMATION OF IMPERFECT TITLE?
There is a need for a positive government act
in order to release the lots for disposition. III.

On November 21, 2006, this Court ordered IS THE EXECUTIVE DECLARATION OF

the consolidation of the two petitions as they
principally involve the same issues on the
land classification of Boracay Island.33
Issues
THEIR AREAS AS ALIENABLE AND
DISPOSABLE UNDER SEC 6, CA 141 [AN]
INDISPENSABLE PRE-REQUISITE FOR
PETITIONERS TO OBTAIN TITLEUNDER
THE TORRENS SYSTEM?

G.R. No. 167707 IV.

The OSG raises the lone issue of whether IS THE ISSUANCE OF PROCLAMATION
Proclamation No. 1801 and PTA Circular No. 1064 ON MAY 22, 2006, VIOLATIVE OF
3-82 pose any legal obstacle for THE PRIOR VESTED RIGHTS TO
respondents, and all those similarly situated, PRIVATE OWNERSHIP OF
to acquire title to their occupied lands in PETITIONERS OVER THEIR LANDS IN
Boracay Island.34 BORACAY, PROTECTED BY THE DUE
PROCESS CLAUSE OF THE
G.R. No. 173775 CONSTITUTION OR IS PROCLAMATION
1064 CONTRARY TO SEC. 8, CA 141, OR
Petitioners-claimants hoist five (5) issues, SEC. 4(a) OF RA 6657.
namely:
V.
I.
CAN RESPONDENTS BE COMPELLED BY
AT THE TIME OF THE ESTABLISHED MANDAMUS TO ALLOW THE SURVEY
POSSESSION OF PETITIONERS IN AND TO APPROVE THE SURVEY
CONCEPT OF OWNER OVER THEIR PLANS FOR PURPOSES OF THE
RESPECTIVE AREAS IN BORACAY, APPLICATION FOR TITLING OF THE
SINCE TIME IMMEMORIAL OR AT THE LANDS OF PETITIONERS IN
35
LATEST SINCE 30 YRS. PRIOR TO THE BORACAY? (Underscoring supplied)
FILING OF THE PETITION FOR
In capsule, the main issue is whether private
claimants (respondents-claimants in G.R.
No. 167707 and petitioners-claimants in G.R.
No. 173775) have a right to secure titles over
their occupied portions in Boracay. The twin
petitions pertain to their right, if any, to
judicial confirmation of imperfect title under
CA No. 141, as amended. They do not
involve their right to secure title under other
pertinent laws.
Our Ruling
Regalian Doctrine and power of the
executive
to reclassify lands of the public domain
Private claimants rely on three (3) laws and
executive acts in their bid for judicial
confirmation of imperfect title, namely: (a)
Philippine Bill of 190236 in relation to Act No.
926, later amended and/or superseded by
Act No. 2874 and CA No. 141;37 (b)
Proclamation No. 180138 issued by then
President Marcos; and (c) Proclamation No.
106439issued by President Gloria
Macapagal-Arroyo. We shall proceed to
determine their rights to apply for judicial
confirmation of imperfect title under these
laws and executive acts.
But first, a peek at the Regalian principle and
the power of the executive to reclassify lands
of the public domain.
The 1935 Constitution classified lands of the
public domain into agricultural, forest or
timber.40 Meanwhile, the 1973 Constitution
provided the following divisions: agricultural,
industrial or commercial, residential,
resettlement, mineral, timber or forest and
grazing lands, and such other classes as
may be provided by law,41 giving the
government great leeway for
classification.42 Then the 1987 Constitution
reverted to the 1935 Constitution
classification with one addition: national
parks.43 Of these, only agricultural lands
may be alienated.44 Prior to Proclamation
No. 1064 of May 22, 2006, Boracay Island
had never been expressly and
administratively classified under any of these
grand divisions. Boracay was an unclassified
land of the public domain.
The Regalian Doctrine dictates that all lands
of the public domain belong to the State, that
the State is the source of any asserted right
to ownership of land and charged with the
conservation of such patrimony.45 The
doctrine has been consistently adopted
under the 1935, 1973, and 1987
Constitutions.46
All lands not otherwise appearing to be
clearly within private ownership are
presumed to belong to the State.47Thus, all
lands that have not been acquired from the
government, either by purchase or by grant,
belong to the State as part of the inalienable
public domain.48 Necessarily, it is up to the
State to determine if lands of the public
domain will be disposed of for private
ownership. The government, as the agent of
the state, is possessed of the plenary power
as the persona in law to determine who shall
be the favored recipients of public lands, as
well as under what terms they may be
granted such privilege, not excluding the
placing of obstacles in the way of their
exercise of what otherwise would be ordinary
acts of ownership.49
Our present land law traces its roots to the
Regalian Doctrine. Upon the Spanish
conquest of the Philippines, ownership of all
lands, territories and possessions in the
Philippines passed to the Spanish
Crown.50 The Regalian doctrine was first
introduced in the Philippines through
the Laws of the Indies and the Royal
Cedulas, which laid the foundation that "all
lands that were not acquired from the
Government, either by purchase or by grant,
belong to the public domain."51
The Laws of the Indies was followed by
the Ley Hipotecaria or the Mortgage Law of
1893. The Spanish Mortgage Law provided
for the systematic registration of titles and
deeds as well as possessory claims.52
The Royal Decree of 1894 or the Maura
Law53 partly amended the Spanish Mortgage
Law and the Laws of the Indies. It
established possessory information as the
method of legalizing possession of vacant
Crown land, under certain conditions which
were set forth in said decree.54 Under
Section 393 of the Maura Law,
an informacion posesoria or possessory
information title,55 when duly inscribed in the
Registry of Property, is converted into a title
of ownership only after the lapse of twenty
(20) years of uninterrupted possession which
must be actual, public, and adverse,56 from
the date of its inscription.57 However,
possessory information title had to be
perfected one year after the promulgation of
the Maura Law, or until April 17, 1895.
Otherwise, the lands would revert to the
State.58
In sum, private ownership of land under the
Spanish regime could only be founded on
royal concessions which took various forms,
namely: (1) titulo real or royal grant;
(2) concesion especial or special grant;
(3) composicion con el estado or adjustment
title; (4) titulo de compra or title by purchase;
and (5) informacion posesoria or possessory
information title.59>
The first law governing the disposition of
public lands in the Philippines under
American rule was embodied in the
Philippine Bill of 1902.60 By this law, lands of
the public domain in the Philippine Islands
were classified into three (3) grand divisions,
to wit: agricultural, mineral, and timber or
forest lands.61 The act provided for, among
others, the disposal of mineral lands by
means of absolute grant (freehold system)
and by lease (leasehold system).62 It also
provided the definition by exclusion of
"agricultural public lands."63 Interpreting the
meaning of "agricultural lands" under the
Philippine Bill of 1902, the Court declared
in Mapa v. Insular Government:64
x x x In other words, that the
phrase "agricultural land" as used in Act
No. 926 means those public lands
acquired from Spain which are not timber
or mineral lands. x x x65 (Emphasis Ours)
On February 1, 1903, the Philippine
Legislature passed Act No. 496, otherwise
known as the Land Registration Act. The act
established a system of registration by which
recorded title becomes absolute,
indefeasible, and imprescriptible. This is
known as the Torrens system.66
Concurrently, on October 7, 1903, the
Philippine Commission passed Act
No. 926, which was the first Public Land Act.
The Act introduced the homestead system
and made provisions for judicial and
administrative confirmation of imperfect titles
and for the sale or lease of public lands. It
permitted corporations regardless of the
nationality of persons owning the controlling
stock to lease or purchase lands of the public
domain.67 Under the Act, open, continuous,
exclusive, and notorious possession and
occupation of agricultural lands for the next
ten (10) years preceding July 26, 1904 was
sufficient for judicial confirmation of imperfect
title.68
On November 29, 1919, Act No. 926
was superseded by Act
No. 2874, otherwise known as the second
Public Land Act. This new, more
comprehensive law limited the exploitation of
agricultural lands to Filipinos and Americans
and citizens of other countries which gave
Filipinos the same privileges. For judicial
confirmation of title, possession and
occupation en concepto dueo since time
immemorial, or since July 26, 1894, was
required.69
After the passage of the 1935
Constitution, CA No. 141 amended Act No.
2874 on December 1, 1936. To this day, CA
No. 141, as amended, remains as the
existing general law governing the
classification and disposition of lands of the
public domain other than timber and mineral
lands,70 and privately owned lands which
reverted to the State.71
Section 48(b) of CA No. 141 retained the
requirement under Act No. 2874 of
possession and occupation of lands of the
public domain since time immemorial or
since July 26, 1894. However, this provision
was superseded by Republic Act (RA) No.
1942,72 which provided for a simple thirty-
year prescriptive period for judicial
confirmation of imperfect title. The provision
was last amended by PD No. 1073,73 which
now provides for possession and occupation
of the land applied for since June 12, 1945,
or earlier.74
The issuance of PD No. 89275 on February
16, 1976 discontinued the use of Spanish
titles as evidence in land registration
proceedings.76 Under the decree, all holders
of Spanish titles or grants should apply for
registration of their lands under Act No. 496
within six (6) months from the effectivity of
the decree on February 16, 1976. Thereafter,
the recording of all unregistered lands77 shall
be governed by Section 194 of the Revised
Administrative Code, as amended by Act No.
3344.
On June 11, 1978, Act No. 496 was
amended and updated by PD No. 1529,
known as the Property Registration Decree.
It was enacted to codify the various laws
relative to registration of property.78 It
governs registration of lands under the
Torrens system as well as unregistered
lands, including chattel mortgages.79
A positive act declaring land as alienable
and disposable is required. In keeping with
the presumption of State ownership, the
Court has time and again emphasized that
there must be a positive act of the
government, such as an official
proclamation,80 declassifying inalienable
public land into disposable land for
agricultural or other purposes.81 In fact,
Section 8 of CA No. 141 limits alienable or
disposable lands only to those lands which
have been "officially delimited and
classified."82
The burden of proof in overcoming the
presumption of State ownership of the lands
of the public domain is on the person
applying for registration (or claiming
ownership), who must prove that the land
subject of the application is alienable or
disposable.83 To overcome this presumption,
incontrovertible evidence must be
established that the land subject of the
application (or claim) is alienable or
disposable.84 There must still be a positive
act declaring land of the public domain as
alienable and disposable. To prove that the
land subject of an application for registration
is alienable, the applicant must establish the
existence of a positive act of the government
such as a presidential proclamation or an
executive order; an administrative action;
investigation reports of Bureau of Lands
investigators; and a legislative act or a
statute.85 The applicant may also secure a
certification from the government that the
land claimed to have been possessed for the
required number of years is alienable and
disposable.86
In the case at bar, no such proclamation,
executive order, administrative action,
report, statute, or certification was presented
to the Court. The records are bereft of
evidence showing that, prior to 2006, the
portions of Boracay occupied by private
claimants were subject of a government
proclamation that the land is alienable and
disposable. Absent such well-nigh
incontrovertible evidence, the Court cannot
accept the submission that lands occupied
by private claimants were already open to
disposition before 2006. Matters of land
classification or reclassification cannot be
assumed. They call for proof.87
Ankron and De Aldecoa did not make the
whole of Boracay Island, or portions of it,
agricultural lands.Private claimants posit
that Boracay was already an agricultural land
pursuant to the old cases Ankron v.
Government of the Philippine Islands
(1919)88 and De Aldecoa v. The Insular
Government (1909).89 These cases were
decided under the provisions of the
Philippine Bill of 1902 and Act No. 926. There
is a statement in these old cases that "in the
absence of evidence to the contrary, that in
each case the lands are agricultural lands
until the contrary is shown."90
Private claimants reliance
on Ankron and De Aldecoa is misplaced.
These cases did not have the effect of
converting the whole of Boracay Island or
portions of it into agricultural lands. It should
be stressed that the Philippine Bill of 1902
and Act No. 926 merely provided the manner
through which land registration courts would
classify lands of the public domain. Whether
the land would be classified as timber,
mineral, or agricultural depended on proof
presented in each case.
Ankron and De Aldecoa were decided at a
time when the President of the Philippines
had no power to classify lands of the public
domain into mineral, timber, and agricultural.
At that time, the courts were free to make
corresponding classifications in justiciable
cases, or were vested with implicit power to
do so, depending upon the preponderance of
the evidence.91 This was the Courts ruling
in Heirs of the Late Spouses Pedro S.
Palanca and Soterranea Rafols Vda. De
Palanca v. Republic,92 in which it stated,
through Justice Adolfo Azcuna, viz.:
x x x Petitioners furthermore insist that a
particular land need not be formally released
by an act of the Executive before it can be
deemed open to private ownership, citing the
cases of Ramos v. Director of Lands and
Ankron v. Government of the Philippine
Islands.
xxxx
Petitioners reliance upon Ramos v. Director
of Lands and Ankron v. Government is
misplaced. These cases were decided under
the Philippine Bill of 1902 and the first Public
Land Act No. 926 enacted by the Philippine
Commission on October 7, 1926, under
which there was no legal provision vesting in
the Chief Executive or President of the
Philippines the power to classify lands of the
public domain into mineral, timber and
agricultural so that the courts then were free
to make corresponding classifications in
justiciable cases, or were vested with implicit
power to do so, depending upon the
preponderance of the evidence.93
To aid the courts in resolving land
registration cases under Act No. 926, it was
then necessary to devise a presumption on
land classification. Thus evolved the dictum
in Ankron that "the courts have a right to
presume, in the absence of evidence to the
contrary, that in each case the lands are
agricultural lands until the contrary is
shown."94
But We cannot unduly expand the
presumption in Ankron and De Aldecoa to
an argument that all lands of the public
domain had been automatically reclassified
as disposable and alienable agricultural
lands. By no stretch of imagination did the
presumption convert all lands of the public
domain into agricultural lands.
If We accept the position of private claimants,
the Philippine Bill of 1902 and Act No. 926
would have automatically made all lands in
the Philippines, except those already
classified as timber or mineral land, alienable
and disposable lands. That would take these
lands out of State ownership and worse,
would be utterly inconsistent with and totally
repugnant to the long-entrenched Regalian
doctrine.
The presumption in Ankron and De
Aldecoa attaches only to land registration
cases brought under the provisions of Act
No. 926, or more specifically those cases
dealing with judicial and administrative
confirmation of imperfect titles. The
presumption applies to an applicant for
judicial or administrative conformation of
imperfect title under Act No. 926. It certainly
cannot apply to landowners, such as private
claimants or their predecessors-in-interest,
who failed to avail themselves of the benefits
of Act No. 926. As to them, their land
remained unclassified and, by virtue of the
Regalian doctrine, continued to be owned by
the State.
In any case, the assumption
in Ankron and De Aldecoa was not absolute.
Land classification was, in the end,
dependent on proof. If there was proof that
the land was better suited for non-agricultural
uses, the courts could adjudge it as a mineral
or timber land despite the presumption.
In Ankron, this Court stated:
In the case of Jocson vs. Director of
Forestry (supra), the Attorney-General
admitted in effect that whether the particular
land in question belongs to one class or
another is a question of fact. The mere fact
that a tract of land has trees upon it or has
mineral within it is not of itself sufficient to
declare that one is forestry land and the
other, mineral land. There must be some
proof of the extent and present or future
value of the forestry and of the minerals.
While, as we have just said, many definitions
have been given for "agriculture," "forestry,"
and "mineral" lands, and that in each case it
is a question of fact, we think it is safe to say
that in order to be forestry or mineral land the
proof must show that it is more valuable for
the forestry or the mineral which it contains
than it is for agricultural purposes. (Sec. 7,
Act No. 1148.) It is not sufficient to show that
there exists some trees upon the land or that
it bears some mineral. Land may be
classified as forestry or mineral today, and,
by reason of the exhaustion of the timber or
mineral, be classified as agricultural land
tomorrow. And vice-versa, by reason of the
rapid growth of timber or the discovery of
valuable minerals, lands classified as
agricultural today may be differently
classified tomorrow. Each case must be
decided upon the proof in that particular
case, having regard for its present or
future value for one or the other
purposes. We believe, however,
considering the fact that it is a matter of
public knowledge that a majority of the lands
in the Philippine Islands are agricultural
lands that the courts have a right to presume,
in the absence of evidence to the contrary,
that in each case the lands are agricultural
lands until the contrary is shown. Whatever
the land involved in a particular land
registration case is forestry or mineral
land must, therefore, be a matter of proof.
Its superior value for one purpose or the
other is a question of fact to be settled by
the proof in each particular case. The fact
that the land is a manglar [mangrove swamp]
is not sufficient for the courts to decide
whether it is agricultural, forestry, or mineral
land. It may perchance belong to one or the
other of said classes of land. The
Government, in the first instance, under the
provisions of Act No. 1148, may, by
reservation, decide for itself what portions of
public land shall be considered forestry land,
unless private interests have intervened
before such reservation is made. In the latter
case, whether the land is agricultural,
forestry, or mineral, is a question of proof.
Until private interests have intervened, the
Government, by virtue of the terms of said
Act (No. 1148), may decide for itself what
portions of the "public domain" shall be set
aside and reserved as forestry or mineral
land. (Ramos vs. Director of Lands, 39 Phil.
175; Jocson vs. Director of
Forestry, supra)95(Emphasis ours)
Since 1919, courts were no longer free to
determine the classification of lands from the
facts of each case, except those that have
already became private lands.96 Act
No. 2874, promulgated in 1919 and
reproduced in Section 6 of CA No. 141, gave
the Executive Department, through the
President, the exclusive prerogative to
classify or reclassify public lands into
alienable or disposable, mineral or forest.96-
a
Since then, courts no longer had the
authority, whether express or implied, to
determine the classification of lands of the
public domain.97
Here, private claimants, unlike the Heirs of
Ciriaco Tirol who were issued their title in
1933,98 did not present a justiciable case for
determination by the land registration court
of the propertys land classification. Simply
put, there was no opportunity for the courts
then to resolve if the land the Boracay
occupants are now claiming were agricultural
lands. When Act No. 926 was supplanted by
Act No. 2874 in 1919, without an application
for judicial confirmation having been filed by
private claimants or their predecessors-in-
interest, the courts were no longer
authorized to determine the propertys land
classification. Hence, private claimants
cannot bank on Act No. 926.
We note that the RTC decision99 in G.R. No.
167707 mentioned Krivenko v. Register of
Deeds of Manila,100 which was decided in
1947 when CA No. 141, vesting the
Executive with the sole power to classify
lands of the public domain was already in
effect. Krivenko cited the old cases Mapa v.
Insular Government,101 De Aldecoa v. The
Insular Government,102 and Ankron v.
Government of the Philippine Islands.103
Krivenko, however, is not controlling here
because it involved a totally different issue.
The pertinent issue in Krivenko was whether
residential lots were included in the general
classification of agricultural lands; and if so,
whether an alien could acquire a residential
lot. This Court ruled that as an
alien, Krivenko was prohibited by the 1935
Constitution104 from acquiring agricultural
land, which included residential lots. Here,
the issue is whether unclassified lands of the
public domain are automatically deemed
agricultural.
Notably, the definition of "agricultural public
lands" mentioned in Krivenko relied on the
old cases decided prior to the enactment of
Act No. 2874, including Ankron and De
Aldecoa.105 As We have already stated,
those cases cannot apply here, since they
were decided when the Executive did not
have the authority to classify lands as
agricultural, timber, or mineral.
Private claimants continued possession
under Act No. 926 does not create a
presumption that the land is
alienable. Private claimants also contend
that their continued possession of portions of
Boracay Island for the requisite period of ten
(10) years under Act No. 926106 ipso
facto converted the island into private
ownership. Hence, they may apply for a title
in their name.
A similar argument was squarely rejected by
the Court in Collado v. Court of
Appeals.107 Collado, citing the separate
opinion of now Chief Justice Reynato S.
Puno in Cruz v. Secretary of Environment
and Natural Resources,107-a ruled:
"Act No. 926, the first Public Land Act, was
passed in pursuance of the provisions of the
Philippine Bill of 1902. The law governed the
disposition of lands of the public domain. It
prescribed rules and regulations for the
homesteading, selling and leasing of
portions of the public domain of the
Philippine Islands, and prescribed the terms
and conditions to enable persons to perfect
their titles to public lands in the Islands. It
also provided for the "issuance of patents to
certain native settlers upon public lands," for
the establishment of town sites and sale of
lots therein, for the completion of imperfect
titles, and for the cancellation or confirmation
of Spanish concessions and grants in the
Islands." In short, the Public Land Act
operated on the assumption that title to
public lands in the Philippine Islands
remained in the government; and that the
governments title to public land sprung from
the Treaty of Paris and other subsequent
treaties between Spain and the United
States. The term "public land" referred to all
lands of the public domain whose title still
remained in the government and are thrown
open to private appropriation and settlement,
and excluded the patrimonial property of the
government and the friar lands."
Thus, it is plain error for petitioners to
argue that under the Philippine Bill of
1902 and Public Land Act No. 926, mere
possession by private individuals of
lands creates the legal presumption that
the lands are alienable and
disposable.108 (Emphasis Ours)
Except for lands already covered by
existing titles, Boracay was an
unclassified land of the public domain
prior to Proclamation No. 1064. Such
unclassified lands are considered public
forest under PD No. 705. The DENR109 and
the National Mapping and Resource
Information Authority110 certify that Boracay
Island is an unclassified land of the public
domain.
PD No. 705 issued by President Marcos
categorized all unclassified lands of the
public domain as public forest. Section 3(a)
of PD No. 705 defines a public forest as "a
mass of lands of the public domain which has
not been the subject of the present system of
classification for the determination of which
lands are needed for forest purpose and
which are not." Applying PD No. 705, all
unclassified lands, including those in
Boracay Island, are ipso factoconsidered
public forests. PD No. 705, however,
respects titles already existing prior to its
effectivity.
The Court notes that the classification of
Boracay as a forest land under PD No. 705
may seem to be out of touch with the present
realities in the island. Boracay, no doubt, has
been partly stripped of its forest cover to
pave the way for commercial developments.
As a premier tourist destination for local and
foreign tourists, Boracay appears more of a
commercial island resort, rather than a forest
land.
Nevertheless, that the occupants of Boracay
have built multi-million peso beach resorts on
the island;111 that the island has already
been stripped of its forest cover; or that the
implementation of Proclamation No. 1064
will destroy the islands tourism industry,
do not negate its character as public forest.
Forests, in the context of both the Public
Land Act and the Constitution112 classifying
lands of the public domain into "agricultural,
forest or timber, mineral lands, and national
parks," do not necessarily refer to large tracts
of wooded land or expanses covered by
dense growths of trees and
113
underbrushes. The discussion in Heirs of
Amunategui v. Director of Forestry114 is
particularly instructive:
A forested area classified as forest land of
the public domain does not lose such
classification simply because loggers or
settlers may have stripped it of its forest
cover. Parcels of land classified as forest
land may actually be covered with grass or
planted to crops by kaingin cultivators or
other farmers. "Forest lands" do not have to
be on mountains or in out of the way places.
Swampy areas covered by mangrove trees,
nipa palms, and other trees growing in
brackish or sea water may also be classified
as forest land. The classification is
descriptive of its legal nature or status
and does not have to be descriptive of
what the land actually looks like. Unless
and until the land classified as "forest" is
released in an official proclamation to that
effect so that it may form part of the
disposable agricultural lands of the public
domain, the rules on confirmation of
imperfect title do not apply.115 (Emphasis
supplied)
There is a big difference between "forest" as
defined in a dictionary and "forest or timber
land" as a classification of lands of the public
domain as appearing in our statutes. One is
descriptive of what appears on the land while
the other is a legal status, a classification for
legal purposes.116 At any rate, the Court is
tasked to determine the legalstatus of
Boracay Island, and not look into its physical
layout. Hence, even if its forest cover has
been replaced by beach resorts, restaurants
and other commercial establishments, it has
not been automatically converted from public
forest to alienable agricultural land.
Private claimants cannot rely on
Proclamation No. 1801 as basis for
judicial confirmation of imperfect title.
The proclamation did not convert
Boracay into an agricultural
land. However, private claimants argue that
Proclamation No. 1801 issued by then
President Marcos in 1978 entitles them to
judicial confirmation of imperfect title. The
Proclamation classified Boracay, among
other islands, as a tourist zone. Private
claimants assert that, as a tourist spot, the
island is susceptible of private ownership.
Proclamation No. 1801 or PTA Circular No.
3-82 did not convert the whole of Boracay
into an agricultural land. There is nothing in
the law or the Circular which made Boracay
Island an agricultural land. The reference in
Circular No. 3-82 to "private lands"117 and
"areas declared as alienable and
disposable"118 does not by itself classify the
entire island as agricultural. Notably, Circular
No. 3-82 makes reference not only to private
lands and areas but also to public forested
lands. Rule VIII, Section 3 provides:
No trees in forested private lands may be cut
without prior authority from the PTA. All
forested areas in public lands are declared
forest reserves. (Emphasis supplied)
Clearly, the reference in the Circular to both
private and public lands merely recognizes
that the island can be classified by the
Executive department pursuant to its powers
under CA No. 141. In fact, Section 5 of the
Circular recognizes the then Bureau of
Forest Developments authority to declare
areas in the island as alienable and
disposable when it provides:
Subsistence farming, in areas declared as
alienable and disposable by the Bureau of
Forest Development.
Therefore, Proclamation No. 1801 cannot be
deemed the positive act needed to classify
Boracay Island as alienable and disposable
land. If President Marcos intended to classify
the island as alienable and disposable or
forest, or both, he would have identified the
specific limits of each, as President Arroyo
did in Proclamation No. 1064. This was not
done in Proclamation No. 1801.
The Whereas clauses of Proclamation No.
1801 also explain the rationale behind the
declaration of Boracay Island, together with
other islands, caves and peninsulas in the
Philippines, as a tourist zone and marine
reserve to be administered by the PTA to
ensure the concentrated efforts of the public
and private sectors in the development of the
areas tourism potential with due regard for
ecological balance in the marine
environment. Simply put, the proclamation is
aimed at administering the islands
for tourism and ecological purposes. It
does not address the areas alienability.119
More importantly, Proclamation No. 1801
covers not only Boracay Island, but sixty-four
(64) other islands, coves, and peninsulas in
the Philippines, such as Fortune and Verde
Islands in Batangas, Port Galera in Oriental
Mindoro, Panglao and Balicasag Islands in
Bohol, Coron Island, Puerto Princesa and
surrounding areas in Palawan, Camiguin
Island in Cagayan de Oro, and Misamis
Oriental, to name a few. If the designation of
Boracay Island as tourist zone makes it
alienable and disposable by virtue of
Proclamation No. 1801, all the other areas
mentioned would likewise be declared wide
open for private disposition. That could not
have been, and is clearly beyond, the intent
of the proclamation.
It was Proclamation No. 1064 of 2006
which positively declared part of Boracay
as alienable and opened the same to
private ownership. Sections 6 and 7 of CA
No. 141120 provide that it is only the
President, upon the recommendation of the
proper department head, who has the
authority to classify the lands of the public
domain into alienable or disposable, timber
and mineral lands.121
In issuing Proclamation No. 1064, President
Gloria Macapagal-Arroyo merely exercised
the authority granted to her to classify lands
of the public domain, presumably subject to
existing vested rights. Classification of public
lands is the exclusive prerogative of the
Executive Department, through the Office of
the President. Courts have no authority to do
so.122 Absent such classification, the land
remains unclassified until released and
rendered open to disposition.123
Proclamation No. 1064 classifies Boracay
into 400 hectares of reserved forest land and
628.96 hectares of agricultural land. The
Proclamation likewise provides for a 15-
meter buffer zone on each side of the center
line of roads and trails, which are reserved
for right of way and which shall form part of
the area reserved for forest land protection
purposes.
Contrary to private claimants argument,
there was nothing invalid or irregular, much
less unconstitutional, about the classification
of Boracay Island made by the President
through Proclamation No. 1064. It was within
her authority to make such classification,
subject to existing vested rights.
Proclamation No. 1064 does not violate
the Comprehensive Agrarian Reform
Law. Private claimants further assert that
Proclamation No. 1064 violates the provision
of the Comprehensive Agrarian Reform Law
(CARL) or RA No. 6657 barring conversion
of public forests into agricultural lands. They
claim that since Boracay is a public forest
under PD No. 705, President Arroyo can no
longer convert it into an agricultural land
without running afoul of Section 4(a) of RA
No. 6657, thus:
SEC. 4. Scope. The Comprehensive
Agrarian Reform Law of 1988 shall cover,
regardless of tenurial arrangement and
commodity produced, all public and private
agricultural lands as provided in
Proclamation No. 131 and Executive Order
No. 229, including other lands of the public
domain suitable for agriculture.
More specifically, the following lands are
covered by the Comprehensive Agrarian
Reform Program:
(a) All alienable and disposable lands of the
public domain devoted to or suitable for
agriculture. No reclassification of forest or
mineral lands to agricultural lands shall be
undertaken after the approval of this Act until
Congress, taking into account ecological,
developmental and equity considerations,
shall have determined by law, the specific
limits of the public domain.
That Boracay Island was classified as a
public forest under PD No. 705 did not bar
the Executive from later converting it into
agricultural land. Boracay Island still
remained an unclassified land of the public
domain despite PD No. 705.
In Heirs of the Late Spouses Pedro S.
Palanca and Soterranea Rafols v.
Republic,124 the Court stated that
unclassified lands are public forests.
While it is true that the land classification
map does not categorically state that the
islands are public forests, the fact that
they were unclassified lands leads to the
same result. In the absence of the
classification as mineral or timber land, the
land remains unclassified land until released
and rendered open to
disposition.125 (Emphasis supplied)
Moreover, the prohibition under the CARL
applies only to a "reclassification" of land. If
the land had never been previously
classified, as in the case of Boracay, there
can be no prohibited reclassification under
the agrarian law. We agree with the opinion
of the Department of Justice126 on this point:
Indeed, the key word to the correct
application of the prohibition in Section 4(a)
is the word "reclassification." Where there
has been no previous classification of public
forest [referring, we repeat, to the mass of
the public domain which has not been the
subject of the present system of
classification for purposes of determining
which are needed for forest purposes and
which are not] into permanent forest or forest
reserves or some other forest uses under the
Revised Forestry Code, there can be no
"reclassification of forest lands" to speak of
within the meaning of Section 4(a).
Thus, obviously, the prohibition in Section
4(a) of the CARL against the reclassification
of forest lands to agricultural lands without a
prior law delimiting the limits of the public
domain, does not, and cannot, apply to those
lands of the public domain, denominated as
"public forest" under the Revised Forestry
Code, which have not been previously
determined, or classified, as needed for
forest purposes in accordance with the
provisions of the Revised Forestry Code.127
Private claimants are not entitled to apply
for judicial confirmation of imperfect title
under CA No. 141. Neither do they have
vested rights over the occupied lands
under the said law. There are two requisites
for judicial confirmation of imperfect or
incomplete title under CA No. 141, namely:
(1) open, continuous, exclusive, and
notorious possession and occupation of the
subject land by himself or through his
predecessors-in-interest under a bona
fide claim of ownership since time
immemorial or from June 12, 1945; and (2)
the classification of the land as alienable and
disposable land of the public domain.128
As discussed, the Philippine Bill of 1902, Act
No. 926, and Proclamation No. 1801 did not
convert portions of Boracay Island into an
agricultural land. The island remained an
unclassified land of the public domain and,
applying the Regalian doctrine, is considered
State property.
Private claimants bid for judicial confirmation
of imperfect title, relying on the Philippine Bill
of 1902, Act No. 926, and Proclamation No.
1801, must fail because of the absence of the
second element of alienable and disposable
land. Their entitlement to a government grant
under our present Public Land Act
presupposes that the land possessed and
applied for is already alienable and
disposable. This is clear from the wording of
the law itself.129Where the land is not
alienable and disposable, possession of the
land, no matter how long, cannot confer
ownership or possessory rights.130
Neither may private claimants apply for
judicial confirmation of imperfect title under
Proclamation No. 1064, with respect to those
lands which were classified as agricultural
lands. Private claimants failed to prove the
first element of open, continuous, exclusive,
and notorious possession of their lands in
Boracay since June 12, 1945.
We cannot sustain the CA and RTC
conclusion in the petition for declaratory
relief that private claimants complied with the
requisite period of possession.
The tax declarations in the name of private
claimants are insufficient to prove the first
element of possession. We note that the
earliest of the tax declarations in the name of
private claimants were issued in 1993. Being
of recent dates, the tax declarations are not
sufficient to convince this Court that the
period of possession and occupation
commenced on June 12, 1945.
Private claimants insist that they have a
vested right in Boracay, having been in
possession of the island for a long time. They
have invested millions of pesos in developing
the island into a tourist spot. They say their
continued possession and investments give
them a vested right which cannot be
unilaterally rescinded by Proclamation No.
1064.
The continued possession and considerable
investment of private claimants do not
automatically give them a vested right in
Boracay. Nor do these give them a right to
apply for a title to the land they are presently
occupying. This Court is constitutionally
bound to decide cases based on the
evidence presented and the laws applicable.
As the law and jurisprudence stand, private
claimants are ineligible to apply for a judicial
confirmation of title over their occupied
portions in Boracay even with their continued
possession and considerable investment in
the island.
One Last Note
The Court is aware that millions of pesos
have been invested for the development of
Boracay Island, making it a by-word in the
local and international tourism industry. The
Court also notes that for a number of years,
thousands of people have called the island
their home. While the Court commiserates
with private claimants plight, We are bound
to apply the law strictly and judiciously. This
is the law and it should prevail. Ito ang batas
at ito ang dapat umiral.
All is not lost, however, for private claimants.
While they may not be eligible to apply for
judicial confirmation of imperfect title under
Section 48(b) of CA No. 141, as amended,
this does not denote their automatic ouster
from the residential, commercial, and other
areas they possess now classified as
agricultural. Neither will this mean the loss of
their substantial investments on their
occupied alienable lands. Lack of title does
not necessarily mean lack of right to
possess.
For one thing, those with lawful possession
may claim good faith as builders of
improvements. They can take steps to
preserve or protect their possession. For
another, they may look into other modes of
applying for original registration of title, such
as by homestead131 or sales
132
patent, subject to the conditions imposed
by law.
More realistically, Congress may enact a law
to entitle private claimants to acquire title to
their occupied lots or to exempt them from
certain requirements under the present land
laws. There is one such bill133 now pending
in the House of Representatives. Whether
that bill or a similar bill will become a law is
for Congress to decide.
In issuing Proclamation No. 1064, the
government has taken the step necessary to
open up the island to private ownership. This
gesture may not be sufficient to appease
some sectors which view the classification of
the island partially into a forest reserve as
absurd. That the island is no longer overrun
by trees, however, does not becloud the
vision to protect its remaining forest cover
and to strike a healthy balance between
progress and ecology. Ecological
conservation is as important as economic
progress.
To be sure, forest lands are fundamental to
our nations survival. Their promotion and
protection are not just fancy rhetoric for
politicians and activists. These are needs
that become more urgent as destruction of
our environment gets prevalent and difficult
to control. As aptly observed by Justice
Conrado Sanchez in 1968 in Director of
Forestry v. Munoz:134
The view this Court takes of the cases at bar
is but in adherence to public policy that
should be followed with respect to forest
lands. Many have written much, and many
more have spoken, and quite often, about
the pressing need for forest preservation,
conservation, protection, development and
reforestation. Not without justification. For,
forests constitute a vital segment of any
country's natural resources. It is of common
knowledge by now that absence of the
necessary green cover on our lands
produces a number of adverse or ill effects of
serious proportions. Without the trees,
watersheds dry up; rivers and lakes which
they supply are emptied of their contents.
The fish disappear. Denuded areas become
dust bowls. As waterfalls cease to function,
so will hydroelectric plants. With the rains,
the fertile topsoil is washed away; geological
erosion results. With erosion come the
dreaded floods that wreak havoc and
destruction to property crops, livestock,
houses, and highways not to mention
precious human lives. Indeed, the foregoing
observations should be written down in a
lumbermans decalogue.135

WHEREFORE, judgment is rendered as

follows:

1. The petition for certiorari in G.R. No.

167707 is GRANTED and the Court of
Appeals Decision in CA-G.R. CV No.
71118 REVERSED AND SET ASIDE.

2. The petition for certiorari in G.R. No.

173775 is DISMISSED for lack of merit.

SO ORDERED.